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Law on Sales

Law on Sales

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Sections

  • CHAPTER 1
  • CHAPTER 2
  • CHAPTER 3
  • CHAPTER 4
  • CHAPTER 5
  • CHAPTER 6
  • CHAPTER 7
  • CHAPTER 8
  • CHAPTER 9
  • CHAPTER 10
  • CHAPTER 11
  • CHAPTER 12
  • CHAPTER 13
  • CHAPTER 15
  • CHAPTER 16

1

CHAPTER 1

NATURE OF SALE
DEFINITION OF SALE
Article 1458 of the Civil Code defines “sale” as a contract whereby one of the contracting parties (Seller) obligates himself to transfer the ownership, and to deliver the possession, of a determinate thing; and the other party (Buyer) obligates himself to pay therefor a price certain in money or its equivalent.1 The Roman Law concept embodied in the old Civil Code2 that treated delivery of tangible property as the sole purpose of sale has been modified under the present Article 1458, which applies the common law concept of requiring the obligation to transfer the ownership of the subject matter of the sale as a principal obligation of the seller. 1. Nature of Obligations Created in a Sale The definition of the contract of sale under Article 1458 provides that its perfection brings about the creation of two sets of obligations: (a) Two OBLIGATIONS of the SELLER to: (i) Transfer the Ownership,3 and

1 Alfredo v. Borras, 404 SCRA 145 (2003); Cruz v. Fernando, 477 SCRA 173 (2005); Roberts v. Papio, 515 SCRA 346 (2007). 2 Art. 1445 of the old Civil Code. 3 Flancia v. Court of Appeals, 457 SCRA 224, 231 (2005), defines “ownership” as “the independent and general power of a person over a thing for purposes recognized by law and within the limits established thereby — aside form the jus utendi and the jus abutendi inherent in the right to enjoy the thing, the right to dispose, or the jus disponendi, is the power of the owner to alienate, encumber, transform and even destroy the thing owned.”

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(ii) Deliver the Possession, of the SUBJECT MATTER; (b) An OBLIGATION for the BUYER to: (i) Pay the PRICE.4 Both sets of obligations, are real obligations or obligations “to give,” as contrasted from personal obligations “to do” and “not to do,” and can be the proper subject of actions for specific performance.5 In contrast, obligations to do or not to do, cannot be enforced through actions for specific performance because of the public policy against involuntary servitude;6 although the creditor can have the same executed by another at the cost of the obligor,7 and the obligor’s refusal to comply can be the basis for claims for damages.8 To illustrate, Article 1480 of the Civil Code, which crossrefers to Article 1165 thereof, provides that when what is to be delivered is a determinate thing, the buyer, in addition to the right to recover damages, may compel the seller to make the delivery. In other words, a defaulting party in a sale cannot insist on just paying damages when the non-defaulting party demands performance. 2. Subject Matter of Sale Although Article 1458, in defining sale, uses the word “determinate” to describe the subject matter of the sale, the present Law on Sales has expanded the coverage to include generic objects which are at least “determinable.” Article 1460 states that the “requisite that the thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of
4 Acap v. Court of Appeals, 251 SCRA 30 (1995); Velarde v. Court of Appeals, 361 SCRA 56 (2001). 5 Art. 1165 of the Civil Code: “When what is to be delivered is a determinate thing, the creditor . . . may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.” 6 Sec. 18(2), Art. III, 1987 Constitution. 7 Art. 1167, Civil Code. 8 Art. 1170, Civil Code.

NATURE OF SALE

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being made determinate without the necessity of a new or further agreement between the parties,” which includes “determinable” albeit generic objects as valid subject matters of sale. Nonetheless, the use of the word “determinate” in the definition of sale under Article 1458 seems accurate since it pertains to the performance of the obligations of the seller to transfer ownership and to deliver possession. This would require that even if the subject matter of the sale was generic (determinable), the performance of the seller’s obligation would require necessarily its physical segregation or particular designation, making the subject matter determinate at the point of performance. The use of the word “determinate” to describe the subject matter emphasizes more specifically the fact that the obligation to deliver and transfer ownership can be performed only with the subject matter becoming specific or determinate, and is not meant to exclude certain generic things from validly becoming the proper subject matter of sale, at the point of perfection. 3. Elements of Contract of Sale Coronel v. Court of Appeals,9 enumerates the essential elements of a valid contract of sale to consist of the following: (a) CONSENT, or meeting of the minds to transfer ownership in exchange for the price; (b) SUBJECT MATTER; and (c) PRICE, certain in money or its equivalent.10
263 SCRA 15 (1996). See also Jovan Land, Inc. v. Court of Appeals, 268 SCRA 160 (1997); Quijada v. Court of Appeals, 299 SCRA 695 (1998); Co v. Court of Appeals, 312 SCRA 528 (1999); Heirs of San Andres v. Rodriguez, 332 SCRA 769 (2000); Roble v. Arbasa, 362 SCRA 69 (2001); Peñalosa v. Santos, 363 SCRA 545 (2001); Polytechnic University of the Philippines v. Court of Appeals, 368 SCRA 691 (2001); Katipunan v. Katipunan, 375 SCRA 199 (2002); Londres v. Court of Appeals, 394 SCRA 133 (2002); Manongsong v. Estimo, 404 SCRA 683 (2003); Jimenez, Jr. v. Jordana, 444 SCRA 250 (2004); San Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Roberts v. Papio, 515 SCRA 346 (2007); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Republic v. Florendo, 549 SCRA 527 (2008).
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LAW ON SALES

When all three elements are present, there being a meeting of the minds, then a perfected contract of sale arises, and its validity is not affected by the fact that previously a fictitious deed of sale was executed by the parties,11 or by the fact of nonperformance of the obligations thereafter. Unfortunately, the Supreme Court has considered in a number of decisions that the resulting sale is “void” when some of the essential requisites are not present.12 To the author, the more appropriate term to use when an essential element is not present at meeting of the mind is to declare a “no contract” situation. To illustrate, Dizon v. Court of Appeals,13 holds that all three elements of consent, subject matter and consideration must be present for a valid sale to exist; and that in a situation where any of the elements is not present, “[t]there was no perfected contract of sale,”14 and that “the absence of any of these essential elements negates the existence of a perfected contract of sale,”15 rather than using the technical term “void.” In Manila Container Corp. v. PNB,16 the Court held that absence of the concurrence of all the essential elements, the giving of earnest money cannot establish the existence of a perfected contract of sale. On the other hand, when all three elements are present, but there is defect or illegality constituting any of such elements, the resulting contract is either voidable when the defect constitutes a vitiation of consent, or void as mandated under Article 1409 of the Civil Code.

Peñalosa v. Santos, 363 SCRA 545 (2001). Mapalo v. Mapalo, 17 SCRA 114 (1966) and Rongavilla v. Court of Appeals, 294 SCRA 289 (1998), both consider the contract “void” even when they agreed that there was no meeting of the minds on the price stated in the underlying instrument of sale. Bagnas v. Court of Appeals, 176 SCRA 159 (1989), considers a simulated price or a nominal price to give rise to a “void” contract of sale. Cabotaje v. Pudunan, 436 SCRA 423 (2004), considers the lack of consent by the owner of the property to bring about a “void” sale. 13 302 SCRA 288 (1999). 14 Ibid, at p. 301. 15 Ibid, at p. 302. Reiterated in Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003). 16 511 SCRA 444 (2006).
12

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4. Stages in the Life of Sale Strictly speaking, there are only two stages in the “life” of a contract of sale, i.e., perfection and consummation, since it is only at perfection that sale as a contract begins to exist in the legal world. Until sale is perfected, it cannot serve as an independent source of obligation, nor as a binding juridical relation between the parties.17 Nevertheless, the Supreme Court18 has considered the following to be the stages in the life of a sale: (a) POLICITACION, negotiation, or preparation stage; (b) PERFECTION, conception or “birth”; and (c) CONSUMMATION or “death.” Policitacion or negotiation covers the period from the time the prospective contracting parties indicate their interests in the contract to the time the contract is perfected; perfection takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price; and consummation begins when the parties perform their respective undertaking under the contract of sale, culminating in the extinguishment thereof.19

ESSENTIAL CHARACTERISTICS OF SALE
Before dissecting sale as a contract, it would be useful to look at sale from a general point of view, by analyzing its essential characteristics.

17 Jovan Land, Inc. v. Court of Appeals, 268 SCRA 160, 164 (1997); Dizon v. Court of Appeals, 302 SCRA 288 (1999); Platinum Plans Phil., Inc. v. Cucueco, 488 SCRA 156 (2006); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts v. Papio, 515 SCRA 346 (2007). 18 Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602 (1994); Toyota Shaw, Inc. v. Court of Appeals, 244 SCRA 320 (1995); Limketkai Sons Milling, Inc. v. Court of Appeals, 250 SCRA 523 (1995); Jovan Land, Inc. v. Court of Appeals, 268 SCRA 160 (1997); Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008). 19 San Miguel Properties Philippines v. Huang, 336 SCRA 737, 743 (2000).

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LAW ON SALES

1. Nominate and Principal Sale is a nominate contract since it has been given a particular name by law;20 more importantly, its nature and consequences are governed by a set of rules in the Civil Code, which euphemistically we refer to as the “Law on Sales.” Sale is a principal contract, as contrasted from accessory or preparatory contracts, because it can stand on its own, and does not depend on another contract for its validity or existence; more importantly, that parties enter into sale to achieve within its essence the objectives of the transaction, and simply not in preparation for another contract. The “nominate and principal” characteristics of sale leads to the doctrine held by the Supreme Court that in determining the real character of the contract, the title given to it by the parties is not as significant as its substance.21 In one case,22 the Court held that in determining the nature of a contract, the courts look at the intent of the parties and not at the nomenclature used to describe it, and that pivotal to deciding such issue is the true aim and purpose of the contracting parties as shown by the terminology used in the covenant, as well as “by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement.” In another case,23 the Court held that contracts are not defined by the parties thereto but by the principles of law; and that in determining the nature of a contract, the courts are not bound by the name or title given to it by the contracting parties. The other doctrinal significance of the “nominate and principal” characteristics of sale is that all other contracts which have for their objective the transfer of ownership and delivery of possession of a determinate subject matter for a valuable consideration, are governed necessarily by the Law on Sales.24
Art. 1458, Civil Code. Bowe v. Court of Appeals, 220 SCRA 158 (1993); Romero v. Court of Appeals, 250 SCRA 223 (1995); Santos v. Court of Appeals, 337 SCRA 67 (2000). 22 Lao v. Court of Appeals, 275 SCRA 237, 250 (1997). 23 Cavite Dev. Bank v. Lim, 324 SCRA 346 (2000). 24 In-depth discussions of this doctrinal significance are found in Chapter 3.
21 20

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2. Consensual Sale is consensual contract (as contrasted from solemn and real contracts), since it is perfected by mere consent, at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.25 Buenaventura v. Court of Appeals,26 held that a sale over a subject matter is not a real contract, but a consensual contract, which becomes a valid and binding contract upon the meeting of the minds as to the price. Once there is a meeting of the minds as to the price, the sale is valid, despite the manner of its actual payment, or even when there has been breach thereof. If the real price is not stated in the contract, then the sale is valid but subject to reformation; if there is no meeting of the minds as to the price, because the price stipulated is simulated, then the contract is void.27 Under Article 1475 of the Civil Code, from the moment of perfection of the sale, the parties may reciprocally demand performance, even when the parties have not affixed their signatures to the written form of such sale,28 but subject to the provisions of the law governing the form of contracts.29 Consequently, the actual delivery of the subject matter or payment of the price agreed upon are not necessary components to establish the existence of a valid sale;30 and their non25 Art. 1475, Civil Code. Balatbat v. Court of Appeals, 261 SCRA 128 (1996); Coronel v. Court of Appeals, 263 SCRA 15 (1996); Xentrex Automotive, Inc. v. Court of Appeals, 291 SCRA 66 (1998); Laforteza v. Machuca, 333 SCRA 643 (2000); Londres v. Court of Appeals, 394 SCRA 133 (2002); San Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Ainza v. Padua, 462 SCRA 614 (2005); Cruz v. Fernando, 477 SCRA 173 (2005); Marnelgo v. Banco Filipino Savings and Mortgage Bank, 480 SCRA 399 (2006); MCC Industries Sales Corp. v. Ssanyong Corp., 536 SCRA 408 (2007); Castillo v. Reyes, 539 SCRA 193 (2007); Roberts v. Papio, 515 SCRA 346 (2007). 26 416 SCRA 263 (2003). 27 Ibid, at p. 271, citing VILLANUEVA, PHILIPPINE LAW ON SALES, p. 54 (1998). 28 Gabelo v. Court of Appeals, 316 SCRA 386 (1999); Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008). 29 Co v. Court of Appeals, 312 SCRA 528 (1999). Also City of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999); San Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA 99 (2005). 30 Alcantara-Daus v. de Leon, 404 SCRA 74 (2003); Buenaventura v. Court of Appeals, 416 SCRA 263 (2003).

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LAW ON SALES

performance do not also invalidate or render “void” a sale that has began to exist as a valid contract at perfection; non-performance, merely becomes the legal basis for the remedies of either specific performance or rescission, with damages in either case.31 The binding effect of a deed of sale on the parties is based on the principle that the obligations arising therefrom have the force of law between them.32 In Fule v. Court of Appeals,33 the Court summarized the doctrines pertaining to sale being a consensual contract, thus:
A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price.34 Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 of the Civil Code which requires the embodiment of certain contracts in a public instrument, is only for convenience,35 and registration of the instrument only adversely affects third parties.36 Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder.37

Since sale is a consensual contract, the party who alleges it must show its existence by competent proof, as well as of the

31 Gabelo v. Court of Appeals, 316 SCRA 386 (1999); Alcantara-Daus v. de Leon, 404 SCRA 74 (2003); Buenaventura v. Court of Appeals, 416 SCRA 263 (2003), citing this particular passage in VILLANUEVA, PHILIPPINE LAW ON SALES, p. 54 (1998). 32 Veterans Federation of the Philippines v. Court of Appeals, 345 SCRA 348 (2000). 33 286 SCRA 698 (1998). 34 Citing Art. 1475, Civil Code; Romero v. Court of Appeals, 250 SCRA 223 (1995). 35 Citing Aspi v. Court of Appeals, 236 SCRA 94 (1994). 36 Citing Olegario v. Court of Appeals, 238 SCRA 96 (1994). 37 286 SCRA 698, 712-713 (1998). Reiterated in Quijada v. Court of Appeals, 299 SCRA 695 (1998); Agasen v. Court of Appeals, 325 SCRA 504 (2000).

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essential elements thereof.38 However, when all three elements of a sale are present, there being a meeting of the minds, then a perfected contract of sale arises, and its validity is not affected by the fact that previously a fictitious deed of sale was executed by the parties;39 and at that point the burden is on the other party to prove the contrary.40 Despite the consensual character of a sale, under Article 1332 of the Civil Code, when one of the parties is unable to read, or if the contract is in a language not understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms thereof have been fully explained to the former.41 a. Modalities That Affect the Characteristic of Consensuality The consensual characteristic of sale can be affected by modalities that by stipulation may be added into the contractual relationship, such as a suspensive term or condition. Biñan Steel Corp. v. Court of Appeals,42 reminds us that “even if consensual, not all contracts of sale become automatically and immediately effective. . . In sales with assumption of mortgage, the assumption of mortgage is a condition precedent to the seller’s consent and therefore, without approval of the mortgagee, the sale is not perfected.” On the other hand, National Housing Authority v. Grace Baptist Church,43 demonstrates clearly that even the delivery and taking possession of the subject matter by the buyer with the knowledge or consent of the seller, would not bring about the perfection and binding effect of the sale, when the meeting of the minds is incomplete, there being no agreement yet on the final price.
38 Villanueva v. Court of Appeals, 267 SCRA 89 (1997); Roberts v. Papio, 515 SCRA 346 (2007). 39 Peñalosa v. Santos, 363 SCRA 545 (2001). 40 Heirs of Ernesto Biona v. Court of Appeals, 362 SCRA 29 (2001). 41 Vda. de Ape v. Court of Appeals, 456 SCRA 193 (2005). 42 391 SCRA 90 (2002). 43 424 SCRA 147 (2004).

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3. Bilateral and Reciprocal Sale is a bilateral contract embodying reciprocal obligations, as distinguished from a unilateral contract, because it imposes obligations on both parties to the relationship,44 and whereby the obligation or promise of each party is the cause or consideration for the obligation or promise of the other.45 Reciprocal obligations are “those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other.”46 The legal effects and consequences of sale being a bilateral contract composed of reciprocal obligations are as follows: (a) The power to rescind is implied, and such power need not be stipulated in the contract in order for the innocent party to invoke the remedy;47 (b) Neither party incurs delay if the other party does not comply, or is not ready to comply in a proper manner, with what is incumbent upon him;48 and (c) From the moment one of the parties fulfills his obligation, the default by the other begins,49 without the need of prior demand.50 Since both parties in a sale are bound by their respective obligations which are reciprocal in nature, then a party cannot
Art. 1458, Civil Code; People v. Tan, 338 SCRA 330 (2000). Art. 1191, Civil Code; see also Vda. De Quirino v. Palarca, 29 SCRA 1 (1969). 46 Agro Conglomerates, Inc. v. Court of Appeals, 348 SCRA 450 (2000). See also Ong v. Court of Appeals, 310 SCRA 1 (1999); Mortel v. KASSCO, 348 SCRA 391 (2000); Carrascoso, Jr. v. Court of Appeals, 477 SCRA 666 (2005). See also Vda. De Quirino v. Palarca, 29 SCRA 1 (1969) as it pertains to an option contract. 47 Art. 1191, Civil Code. 48 Art. 1168, last paragraph, Civil Code; Almocera v. Ong, 546 SCRA 164 (2008). 49 Ibid. 50 Art. 1191, Civil Code.
45 44

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simply choose not to proceed with the sale by offering also the other party not to be bound by his own obligation; that each party has the remedy of specific performance; and that rescission or resolution cannot be enforced by defaulting party upon the other party who is ready and willing to proceed with the fulfillment of his obligation.51 Polytechnic University of the Philippines v. Court of Appeals,52 summed up the reciprocal and nominate nature of sale, thus: “It is therefore a general requisite for the existence of a valid and enforceable contract of sale that it be mutually obligatory, i.e., there should be a concurrence of the promise of the vendor to sell a determinate thing and the promise of the vendee to receive and pay for the property so delivered and transferred.”53 Consequently, Carrascoso, Jr. v. Court of Appeals,54 held that since a sale is constituted of reciprocal obligations, then “[t]he right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party who violates the reciprocity between them.” 4. Onerous Sale is an onerous contract, as distinguished from a gratuitous contract, because it imposes a valuable consideration as a prestation, which ideally is a price certain in money or its equivalent.55 In Gaite v. Fonacier,56 the Court ruled that the stipulation in a contract of sale on the payment of the balance of the purchase price must be deemed to cover a suspensive period rather than a condition since “there can be no question that greater reciprocity obtains if the buyer’s obligation is deemed to be actually existing, with only its maturity (due date) postponed or deferred, than if such obligation were viewed as non-existing or not binding until

51 52

Almira v. Court of Appeals, 399 SCRA 351 (2003). 368 SCRA 691 (2001). 53 Ibid, at p. 705. 54 477 SCRA 666, 686 (2005). 55 Art. 1458, Civil Code. 56 2 SCRA 831 (1961).

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the ore was sold.”57 The Court held that the rules of interpretation would incline the scales in favor of “the greater reciprocity of interests,” since sale is essentially an onerous contract. 5. Commutative Sale is a commutative contract, as distinguished from an aleatory contract, because a thing of value is exchanged for equal value, i.e., ideally the value of the subject matter is equivalent to the price paid. Nevertheless, there is no requirement that the price be equal to the exact value of the subject matter; all that is required is for the seller to believe that what was received was of the commutative value of what he gave.58 Again Gaite held that a sale is “normally commutative and onerous: not only does each one of the parties assume a correlative obligation (the seller to deliver and transfer ownership of the thing sold, and the buyer to pay the price), but each party anticipates performance by the other from the very start.”59 Gaite recognized that although in a sale “the obligation of one party can be lawfully subordinated to an uncertain event, so that the other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hope or expectancy, emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clearly appear.”60 Gaite therefore acknowledged that obligations in a sale can be subordinated to a suspensive condition with the party fully aware that “he assumes the risk of receiving nothing for what he gives,” although such stipulation may seem to be contrary to the commutative nature of a sale. This confirms the view that although “commutativeness” is an essential characteristic of a sale, the test for compliance therewith is not objective but rather subjective; i.e., so long as the party believes in all honesty that he is receiving good value for what he transferred, then it complies
57 58

Ibid, at p. 838. Buenaventura v. Court of Appeals, 416 SCRA 263 (2003). 59 2 SCRA 831, 837 (1961). 60 Ibid.

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with the commutative character of a sale, and would not be deemed a donation nor an aleatory contract. Take the example of a seller, selling his old car for only 5200,000.00, when a more objective review of the prevailing market price for the particular model shows that its correct selling value would be 5500,000.00. Under those circumstances, the contract perfected with the buyer would still be a sale, because by agreeing to receive a price of only 5200,000.00, the seller believes honestly that he is receiving appropriate value for the car he is selling. Likewise, the consequences of negotiations and bargaining, such as being able to obtain a large discount, do not destroy the commutative nature of the sale, since in the end the test would be that the parties to the sale believe that they have each received the proper and appropriate value for what they each in turn gave up. However, the point of discussion pertaining to the subjective test of the commutative nature of sale cannot, and should not, be pushed to absurdity. Take a situation, where the same seller, knowing fully well that the going price for his car is 5200,000.00, sells it for only 5100.00 to the buyer. Even if the seller, is satisfied in receiving only 5100.00 for the car, the resulting contract, from a strictly legal standpoint, is not a sale, but more of a donation, and the law will presume that the underlying consideration must have been liberality. Therefore, the tax authorities may insist that the gift tax be paid on the transaction. This is all academic discussions, of course, since if no third party complains, the nature of the contract would never be at issue, and in all probability the contracting parties themselves would be bound by their characterization of the contract under the principle of estoppel. The subjective test of the commutative nature of sale is further bolstered by the principle that inadequacy of price does not affect ordinary sale.61 Inadequacy of price may be a ground for setting aside an execution sale but is not a sufficient ground for the cancellation of a voluntary contract of sale otherwise free
61

Arts. 1355 and 1470, Civil Code; Ereñeta v. Bezore, 54 SCRA 13 (1973).

but such annulment is not for inadequacy of price. in which case the sale may be annulled. Inc. Court of Appeals. 67 Equatorial Realty Dev. nevertheless. 68 404 SCRA 74 (2003). 64 416 SCRA 263 (2003). Civil Code.14 LAW ON SALES from invalidating effects. ownership of the thing sold is acquired only upon its delivery to the buyer. Alcantara-Daus v. Art. 1470. Inc. Alcantara-Daus v.68 held that while a sale is perfected by mere consent. Although in one case the Court defined a “sale” as a “contract transferring dominion and other real rights in the thing sold. p. 63 62 . 272. 65 Ibid. there is no requirement that the price be equal to the exact value of the subject matter of sale. at p.. Upon the perfection of the sale. 287 SCRA 102 (1998). it would be delivery or tradition that is the mode to transfer ownership and possession to the buyer. or a real right over a thing arising from Alarcon v. Sale Is Title and Not Mode The perfection of a sale gives rise to the obligation on the part of the seller to transfer ownership and deliver possession of the subject matter. de Leon. all that sellers believed was that they received the commutative value of what they gave. Supp. 38 (1995). 69 251 SCRA 30.63 Only recently Buenaventura v. v.64 held that: “Indeed. 203 (1940).. Kasilag. All the respondents believed that they received the commutative value of what they gave. but the real right of ownership is transferred only “by tradition” or delivery thereof to the buyer.67 Thus. 15. 66 Titong v. Court of Appeals. but on its own sale is not a mode that transfers ownership.G. 40 O.69 the Court held that an asserted right or claim to ownership. In Acap v.”65 6.”66 sale is merely title that creates the obligation on the part of the seller to transfer ownership and deliver possession. de Leon. but rather for vitiation in consent. 370 SCRA 56 (2001). 404 SCRA 74 (2003). Mayfair Theater.62 Inadequacy of price may show vice in consent. Court of Appeals. the seller assumes the obligation to transfer ownership and to deliver the thing sold.

113 (2005) without acknowledgment given to the author. v. Corp.. discovery. Corp. Mayfair Theater. the proper remedy was not annulment. since it is consummated upon delivery of the property to the vendee. v. is not per se sufficient to give rise to ownership over the thing.. It is through tradition or delivery that the buyer acquires ownership of the property sold. While title (such as sale) is the juridical justification.” Acap held that the “Declaration of Heirship and Waiver of Rights” executed by the heirs waiving their inheritance rights in favor of a non-heir cannot be deemed a proper mode to affect title to the land involved because waiver of inheritance right can only be done in favor of another heir. succession. Court of Appeals.72 the most that sale does is to create the obligation to transfer ownership. Cited in San Lorenzo Dev. mode (like delivery) is the actual process of acquisition or transfer of ownership over a thing. which is required for a valid sale under Article 1458 of the Civil Code. 72 Quoted or used verbatim in San Lorenzo Dev. it could not also be considered a sale contract because the document did not provide for the element of price. Therefore.73 404 SCRA 683 (2003). Court of Appeals. intellectual creation.70 emphasized that once a sale has been duly perfected. its validity “cannot be challenged on the ground of the non-transfer of ownership of the property sold at that time of the perfection of the contract. Manongsong v.71 title only constitutes the legal basis by which to affect dominion or ownership. 114 (2005) without acknowledgment given to the author. 113 (2005). 449 SCRA 99. that right or title must be completed by fulfilling certain conditions imposed by law: “Hence.). transferred or destroyed (e. as a consequence of sale. 71 70 . Inc. ownership and real rights are acquired only pursuant to a legal mode or process. 449 SCRA 99. that actually transfers ownership.. 370 SCRA 56 (2001).” Consequently.g. it is tradition or delivery. Corp. whereas. v. donation.NATURE OF SALE 15 a juridical act. Estimo. Mode is the legal means by which dominion or ownership is created. sale by itself does not transfer or affect ownership. Court of Appeals. 73 Equatorial Realty Dev. but rescission. The passage was quoted or used verbatim in San Lorenzo Dev. 449 SCRA 99. Inc. v. etc.

Lao v. Since it is tradition or delivery as the mode by which ownership over the subject matter is transferred to the buyer. 275 SCRA 237 (1997). even when there has been no actual or constructive delivery thereof by the seller. 337 SCRA 67 (2000). Cavite Dev. Court of Appeals. words. during and immediately after executing the agreement. 275 SCRA 237 (1997). . 76 Lao v. Court of Appeals. Spouses Cyrus Lim.75 Pivotal to deciding this issue is the true aim and purpose of the contracting parties as shown by the terminology used in the covenant. actions and deeds prior to. the Roman Law concept of mandating delivery of possession of the subject matter as the essence of the sale contract would be logical. The other contracts by which clear distinctions had to be made by the Supreme Court involved basically obligations to transfer ownership and deliver possession of a subject matter.74 that courts look at the intent of the parties and the elements of the contractual relationship and not at the nomenclature used to describe it. Bank v. Court of Appeals. SALE DISTINGUISHED FROM OTHER SIMILAR CONTRACTS The other manner by which to “recognize” a sale is to know how to differentiate it from other contracts which may happen to have some characteristics similar to sale. and by its perfection does not affect the ownership nor effect the transfer thereof to the buyer.16 LAW ON SALES The Roman Law concept of sale encompassing only the obligation of the seller to deliver the property is actually consistent with the treatment of sale as merely a title. Santos v. In determining the nature or essential characteristic of a contract purported to be a sale. 337 SCRA 67 (2000). 250 SCRA 223 (1995). the Court has held that the title given to it by the parties is not as much significant as its substance. Court of Appeals. 75 Santos v.”76 74 Romero v. This is in stark contrast to the common law concept that the perfection of a sale over a determinate subject matter which is ready for delivery would legally transfer ownership to the buyer. as well as “by their conduct. 324 SCRA 346 (2000). Court of Appeals.

78 Sale is essentially an onerous contract. 1457. Civil Code. 695. Estimo.80 whereas donation. From Donation Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person. Art. Civil Code. in the donation of movable. 82 404 SCRA 683 (2003). must comply with the formalities mandated by law for its validity. taking into consideration its essential elements. 79 Art. 725. then the acceptance must be in writing. the property sold is replaced by the equivalent monetary consideration. being a solemn contract. and the acceptance may be in the same instrument or a separate public document. and if the value of the movable exceeds 55. 80 Art. who accepts it. whereas donation is a gratuitous contract.77 the Court held that “[A] contract is what the law defines it to be.000. Under Article 749.00. that is. there is no diminution of the estate but merely substitution of values. at p. otherwise the donation is void. and not what the contracting parties call it. a valid sale cannot have the legal effect of depriving the compulsory heirs of their legitimes: “As opposed to a disposition inter vivos by lucrative or gratuitous title. 725.82 unlike in a donation by the decedent. the donation of an immovable must be in a public document. 83 Ibid. The transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale. As observed in Manongsong v.81 Knowing the distinctions between sale and donation is important in situations where the consideration for the transfer or alienation of a subject matter is not certain as to ensure that it is valuable consideration to constitute a valid sale. a valid sale for valuable consideration does not diminish the estate of the seller.” 1. 337 SCRA 67 (2000).NATURE OF SALE 17 In one case.79 A sale is perfected by mere consent. Court of Appeals. Civil Code. Civil Code. 78 77 . Article 748 allows an oral donation provided that there is a simultaneous delivery of the thing or of the document representing the right donated. When the disposition is for valuable consideration.”83 Santos v. 81 Arts. although consent is also required. otherwise the donation is void. For example. 745 to 749.

the formality for donation should also have been complied with for the transaction to be considered valid. the solemnities provided for by the Law on Donations are wholly irrelevant. 20 Phil. one of the parties binds himself to give one thing in consideration of the other’s promise to give Art.e. but which is less than the value of the thing given. The legal implication under said article is clear: when the value of the burden placed upon the donee is more than the value of the thing given. From Barter By barter or exchange. 85 84 . it becomes an “onerous” donation. De Mesa.” In such a case. Application of these principles may be seen in Carloz v.. 183 (1911). a purported donation may have been executed by the parties. as either a barter or sale. In such a case. and Manalo v. the sale itself may be void. since being a donation. the issue of what is the applicable rule (i. “but the act may be shown to have been in reality a donation or some other act or contract. and the real intention is that the subject matter is being donated to the supposed “buyer. Civil Code. 20 Phil. there is still a donation. even if the contract is called a “donation”.84 In such cases. when the price of a sale is simulated. but it is not mere liberality that permeates the contract as the only consideration. Romil. the governing rule on perfection of sale by mere consent does not resolve whether the real contract is valid. Under Article 726 of the Civil Code. Law or Sales or Law on Donation) becomes critical in determining the validity and enforceability of the contract. 496 (1911). and since the relationship is governed by the Law on Sales. even when there may be a formal price agreed upon. On the other hand. even when the donor imposes upon the donee a burden. which are both governed by the Law on Sales. a contract may be entered into in the form of a “sale” and may end up being governed by the Law on Donations. 1641. because other consideration or burdens are placed upon the donee. the perfection and enforceability of the contract happen upon consent.85 2.18 LAW ON SALES Under Article 1471 of the Civil Code.” In other words. if it is simulated.

where the value of the thing given as part of the consideration equals or is less than the amount of money given.86 whereas.88 in somewhat a complete defiance of the doctrine of separate juridical personality of a corporation from its stockholders. 1458. especially when the consideration agreed upon is partly in money and partly in another thing: (a) Manifest Intention of the Parties – Even if the acquisition of a thing is paid for by another object of greater value than the money component. Art. Rules to Determine Whether Contract Is Sale or Barter Article 1468 of the Civil Code provides for the following rules in cases of dispute whether the contract is a sale or a barter. by sale. it may still be a sale and not a barter. one of the parties binds himself to deliver a thing in consideration of the other’s undertaking to pay the price in money or its equivalent. when such was the intention of the parties. IAC. (ii) It is a sale. Civil Code. . where the value of the thing given as part of the consideration exceeds the amount of money given or its equivalent. v.87 It is interesting to note that in Delpher Trades Corp. 86 87 Art.NATURE OF SALE 19 another thing. 88 157 SCRA 349 (1988). 1638. a. the Court held that an assignment of property to the corporation by controlling shareholders in exchange for shares is not a sale nor barter because the corporation cannot be considered a third party when it would be controlled by the transferor as part of estate planning. Civil Code. (b) When Intention Does Not Appear and Consideration Consists Partly in Money and Partly in Another Thing: (i) It is a barter.

The two rules specifically provided for barter contracts. having received the thing promised in barter. Civil Code. in consi89 90 Art. as to all matters not specifically provided for. Article 1641 provides that barter shall be governed by the Law on Sales. but which are similar anyway to the rules on warranty against eviction applicable to sale.89 and (b) One who loses by eviction the thing received in barter may recover that which he gave in exchange with a right to damages. From Contract for a Piece-of-Work By the contract for a piece-of-work. 91 Art. the contractor binds himself to execute a piece of work for the employer. 93 De Santos v. there are a few instances when the difference between the two types of contracts is critical. should prove that it did not belong to the person who gave it. 1640.92 covers only “resale” and does not cover exchanges of properties.90 Nonetheless. are as follows: (a) If one of the contracting parties. the right of legal redemption granted by law to an adjoining owner of an urban land. 92 Art. Art.93 3.91 which apply to the sale of real property. and personal property bought at 5500. Firstly. . 1622. Civil Code. since aside from two separate rules applicable to barter. Secondly.20 LAW ON SALES The distinctions between sale and barter are merely academic. or he can only make use of the right to recover the thing which he has delivered while the same remains in the possession of the other party. he cannot be compelled to deliver that which he offered in exchange. but without prejudice to the rights acquired in good faith by a third person.00 or more. City of Manila. but he shall be entitled to damages. Civil Code. do not apply to barter. Civil Code. 1403. 1639. 45 SCRA 409 (1972). the rules on the Statute of Frauds.

in both instances.94 The similarity between a sale and a contract for a piece of work has been recognized in Commissioner of Internal Revenue v. the resulting object and the price or consideration paid may be the same.98 For example. 96 Quoting from TOLENTINO. citing VILLANUEVA. PHILIPPINE LAW ON SALES. pp. which is a contract for a piece-of-work. 271 SCRA 605 (1997). Civil Code.95 The Court held that the research output delivered by the Institute of Philippine Culture of the Ateneo de Manila University pursuant to an endowment or grant given by sponsors cannot be considered a sale nor a contract for a piece-of-work. 97 271 SCRA 605. Vol. a transfer of ownership is involved and a party necessarily walks away with an object. whether the contract be one of sale or one for a piece of work. under a sale. a.99 the issue was whether the seller could be made liable for sales tax on the Art. 7-9 (1995). one may buy a painting from an art gallery. 618. Cromwell. The foregoing illustrations are rather easy. v. because essentially. 1713. COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES. Court of Appeals and Ateneo de Manila University. 99 20 Phil. however. the client or customer walks away from the transaction bringing with him an object.NATURE OF SALE 21 deration of a certain price or compensation. 1-2 (1992). More complicated situations have. In both cases. Statutory Rule on Distinguishing Sale from Contract for a Piece-of-Work In the early case of Inchausti & Co. Court of Appeals and Ateneo de Manila University. one can determine the nature of the contract involved. 95 94 .96 Ineluctably. or he may request the artist himself to execute the painting for a price certain. since: “Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale.”97 There may be situations where it is difficult to determine whether the contract in dispute is a sale or a contract for a pieceof-work. the contractor may either employ only his labor or skill. arisen. 271 SCRA 605. 345 (1911). and covered by rulings of the Supreme Court. 618. 98 Cited in Commissioner of Internal Revenue v. or also furnish the material. and by their simple facts. V. pp.

at least. Subsequently. or a thing which would have existed and been the subject of sale to some other person. or. for sale to someone else. 1467. held that the distinction between a sale and a contract for work. The jurisprudential doctrine that became the basis of Article 1467 therefore indicated that the term “upon special order” is . even if the order had not been given. In that case. and not for the general market.22 LAW ON SALES price it received from bailing the hemp that it sold to its customers. and (b) Manufacturing upon special order of customers. nevertheless. but if the goods are to be manufactured specially for the customer and upon his special order. ruling. is a contract of sale. and materials is tested by the inquiry of whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it. (n) which gives two tests for distinction: (a) Manufacturing in the ordinary course of business to cover sales contracts. thus: ART. labor. would have been in existence even if none of the individual sales in question had been consummated. and that it would have been baled. employing language similar to the Inchausti & Co. the Court held that the hemp was in existence in baled form before the agreements of sale were made. Inchausti & Co. it is a contract for a piece of work. The seller contended that the charge for bailing is to be treated not as part of the sale but as a charge for the service of bailing the hemp. Article 1467 of the Civil Code gave the statutory rules in distinguishing a sale from a contract for a pieceof-work. to cover contracts for piece-of-work. since it was proven customary to sell hemp in bales. 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.

its contractual relations with its customers was that of a contract for a piece-of-work. panels as it ordinarily 100 99 Phil. for it was obvious that fulfilling the order. (b) That the products were made only when customers placed their orders. The Court held that the company could not claim the lower contractor’s tax. windows and doors only for special customers and upon their special orders and in accordance with the desired specifications and not for the general public. with its sales subject to the higher sales tax. rather than by necessity: that if the manufacture of goods is made always upon or after the orders of customers and on the basis of their specifications. In Celestino Co v. did not alter the nature of the establishment.100 a duly registered co-partnership did business under the trade name “Oriental Sash Factory. taking into consideration the following: (a) The Company habitually made sash. as it had represented itself as manufacturer (factory) in its stationery and in advertisements to the public. frames. the underlying relationship would be that of a contract for a piece-ofwork. in 1952 it began to claim tax liability only to the lower contractor’s tax (i. for a piece-of-work). Notice that in Celestino Co the thrust of the taxpayer position in the implementation of the “upon special order” test was more of timing. and that it was actually a manufacturer..e. door and window factory as a manufacturer-seller (i. 841 (1956).” Although in previous years it paid the higher sales taxes on the gross receipts of its sash. sales tax)..e.NATURE OF SALE 23 really based on the ability of the producer to manufacture the goods in the condition that they customarily are without having to wait for specific orders from customers. only required the employment of such materialsmoldings. . The company averred and adduced evidence to show that since it manufactured sash. windows and doors. Collector of Internal Revenue.

” Celestino Co recognized that the essence of a contract for a piece-of-work is the “sale of service” unlike in a sale where the essence is the sale of an object.102 101 102 Ibid. Arnoldus Carpentry Shop. 846. if to be performed by a manufacturer. but actually must be drawn from the nature of the work to be performed and the products to be made: it must be of the nature that the products are not ordinary products of the manufacturer. It also conceded that if the company “accepts a job that requires the use of extraordinary or additional equipment. 159 SCRA 199 (1988). .”101 Celestino Co implies that the test of “special orders” under Article 1467 of the Civil Code is not one of timing. and that it was possible for the company to “easily duplicate or even mass-produce the same doors – it is mechanically equipped to do so. or habit. may order windows or doors of the kind manufactured. however the Court found that the orders exhibited were not shown to be special: “They were merely orders for work — nothing is shown to call them special requiring extraordinary service of the factory. and they would require the use of extraordinary skills or equipment. with sufficient money. The principles of Celestino Co were reiterated in the later decision in Commissioner of Internal Revenue v. at p. Inc.” and it was not true that it served special customers only or confined its services to them alone. or involves services not generally performed by it — it thereby contracts for a piece of work — filling special orders within the meaning of Article 1467. and (c) The nature of the products manufactured was such that “[a]ny builder or homeowner.” In that case.24 LAW ON SALES manufactured or was in a position to habitually manufacture.

supply and installation of the central type of airconditioning system. instead of the compensating tax it paid as a contractor. even though it may be entirely made after. was assessed the advance sales tax for its importation of parts and materials as a manufacturer and seller of the central airconditioning system. and that just because the thing came into existence after. “which is essentially a tax on the sale of service or labor of a contractor rather than on the sale of articles subject. 597. or a thing which would have existed and has been the subject of sale to some other person even if the order had not been given. and was motivated to be produced by reason of.” In resolving that EEI was a contractor and therefore subject only to the lower compensating tax. does not necessarily qualify the underlying transaction to be a contract for a piece-of-work. 103 104 64 SCRA 590 (1975). at p. the Court held that “[t]he distinction between a contract of sale and one for work. and no change or modification of it is made at defendant’s request. it is a contract of sale. which was engaged in the design and installation of central type air-conditioning system. a specific order. but a contractor engaged in the design. 105 Ibid.NATURE OF SALE 25 In Commissioner of Internal Revenue v. . labor and materials is tested by the inquiry whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it. Engineering Equipment confirms the abandonment of the timing application of the “upon special order” test under Article 1467. and in consequence of. EEI claimed that it is not a manufacturer and seller of air-conditioning units and spare parts or accessories thereof. In countering the assessment. the defendants order for it.”104 It further explained the test to mean: “If the article ordered by the purchaser is exactly such as the plaintiff makes and keeps on hand for sale to anyone.”105 By the foregoing test. Engineering Equipment and Supply Company. Ibid.103 the Engineering Equipment and Supply Company (EEI).

as not merely one of timing of the flow of the transactions. supply and installation. we are also able to deduce that some of the other tests. 598. it could not do so because of the variable factors that had to be taken into consideration. if we look 106 Ibid. In addition. the number of persons occupying or would be occupying the premises. And yet. and the sources of heat gain or cooling load on the plant such as sun load. at p. Taken together. The Court noted that EEI undertook negotiations and execution of individual contracts for the design. Take for example. but one that goes into the nature of the product involved when it was possible for the manufacturer or producer to be able to produce the product ahead of any special order given by a customer or client. by looking at the other facts in Engineering Equipment. the purpose for which the various air conditioning areas are to be used. and does not need to employ extraordinary skills and equipment. and other electrical appliances which are or may be in the plan. do not prevail.”106 The Court determined that EEI “designed and engineered completely each particular plant and that no two plants were identical but each had to be engineered separately. to determine whether the contract is a sale or for a piece-of-work. lighting. both Celestino Co and Engineering Equipment established the proper application of the “upon special order” test under Article 1467.” It also found that even if EEI wanted to mass-produce the central air-conditioning system or to produce them ahead of any order of a client. including the statutory ones. the habituality test enunciated in Celestino Co.” when it took into consideration the nature of execution of each order. In that case it was held that when the manufacturer engages in the same activity in the ordinary course of business. that would classify the underlying transaction as a sale.26 LAW ON SALES The crucial application of the “upon special order” test under Article 1467 in Engineering Equipment was the “nature of the object” or “the test of necessity. . “taking into consideration in the process such factors as the area of the space to be air conditioned.

Thus. irrespective of the party giving or executing it. the contract executed was clearly one of piece-of-work.109 took into account the position of a learned author: To Tolentino.NATURE OF SALE 27 at the activity of EEI in Engineering Equipment. Thus. if the parties intended that at some future date an object has 107 Reiterated in Engineering & Machinery Corp. was as a matter-of-course.000 pieces of vinyl frogs and 20. the contract is for piece of work. to be unique and always different from other orders it had to service in the past. by its nature. Thus. a staple undertaking. The consistent theme in the decisions of the Supreme Court on the matter is that the main distinguishing factor between a sale and a contract for a piece-of-work is the essence of why the parties enter into it: if the essence is the object. and although each time it serviced an order it had to take various factors into consideration. knowledge or even reputation of the person who executes or manufactures the object. v. 252 SCRA 156 (1996). if the essence is the service. 108 109 . (1996). EEI could not stockpile or even mass-produce the products because of their very nature. the contract is sale. The core test in Engineering Equipment was that each product or system executed by it had. the fabrication of central air-conditioning system. Court of Appeals. the distinction between the two contracts depends on the intention of the parties. which is essentially the sale of service or labor. one which could be considered ordinary and usual in its operations. 252 SCRA 156 359 SCRA 91 (2001). Engineering & Machinery Corp. in Diño v. Court of Appeals. and that even if it wanted to.107 The large quantity of the products to be delivered do not also indicate that the underlying contract is one of sale. Court of Appeals.000 copies of vinyl mooseheads according to the special samples specified and approved by the “buyer” and which the “seller” manufactured not in the ordinary course of its business. EEI really did not need to employ extraordinary skills or equipment each time it had to execute an order. v.108 it was held that in a sale for the manufacture of 20.

a contract for a piece-of-work is not much different from a sale.e. On the other hand.”111 On a more practical basis. taking into account the work he will employ personally or through another. But if one of the parties accepts the undertaking on the basis of some plan.” In a sale. the employer may require that the contractor remove the defect or execute another work. Practical Needs for Being Able to Distinguish From the point of view of warranty of the contractor on the product. at p.. Instead. because of the different sets of laws governing each type of contract. the employer may have the defect removed or another work executed at the contractor’s cost. Pursuant to Article 1714. a contract for a piece-of-work. Sale is constituted of real obligations and would be the proper subject of an action for specific performance. Diño v. there is a contract for a piece of work. 359 SCRA 91 (2001). If the contractor fails or refuses to comply with this obligation. Court of Appeals. there are still key areas where it would be important to determine the proper characterization of a contract. whether it is a sale or one for a piece-of-work. Article 1715 provides that “[S]hould the work be not of such quality. a contract for a piece-of-work shall be governed “by pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. determinable) is the buyer granted the remedy under Article 1165 to have the subject matter done by a third party with cost chargeable to the seller. 165. only when the subject matter is indeterminate or generic (i. the contract is one of sale.28 LAW ON SALES to be delivered. where the main subject matter is the service to be rendered (obligation to do).110 b. would not allow an action for specific performance in case the contractor refuses to comply with his obligation. however. without considering the work or labor of the party bound to deliver. 110 111 Ibid. apart from the issue of the tax provisions applicable to the transactions. .

whereas. Civil Code. with the consent or authority of the latter. 1919 and 1920. in an agency to buy.e. is not governed by the Statute of Frauds. Civil Code. From its very nature. 114 Arts. which constitutes his main obligation. In sale. and one characterized as highly fiduciary. and is merely obliged to deliver the price which he may receive from the buyer. the agent does not become the owner of the thing subject of the agency.114 In sale. after delivery. 115 Art. even if the object is delivered to him. Involving obligations to do (i. 4. because the object of the agency arrangement is the purchase or sell of a determinate object. the agent is not obliged to pay the price. contracts of agency to sell or to buy are essentially different from sales. Distinguishing Sale and Agency to Sell/Buy A contract of agency is one that essentially establishes a representative capacity in the person of the agent on behalf of the principal. Arts. in an agency. In sale.NATURE OF SALE 29 Finally a contract for a piece-of-work. 112 113 Art. the buyer himself pays for the price of the object.115 However.. sale is not unilaterally revocable. a person binds himself to render some service or to do something in representation or on behalf of the principal. . Nevertheless. to represent the principal). the buyer.113 even in the presence of an irrevocability clause. the agent who effects the sale assumes no personal liability as long as he acts within his authority and in the name of the principal. there is a tendency to confuse one with the other. unlike a sale. a contract of agency to sell.112 a. Civil Code. in an agency to sell. is essentially revocable. From Agency to Sell or to Buy By the contract of agency. Civil Code. because it covers an underlying fiduciary relationship. becomes the owner of the subject matter. 1897. 1891 and 1897. 1868. the seller warrants.

” The Supreme Court has identified what constitute the “essential clauses” to warrant a conclusion as to the proper nature of the contract in issue. . 1891. the essential clauses of the whole instrument shall be considered. in other words. and any profit received should pertain to the principal. Statutory Rule Article 1466 of the Civil Code provides that “[i]n construing a contract containing provisions characteristic of both the sale and of the contract of agency to sell. In Quiroga v. Quiroga subsequently sought the rescission of the agreement claiming that Parsons. he invoked the essential revocability of agency as his legal basis to rescind the agreement. none of the other obligations imputed to Parsons were expressly set forth in the contract to serve as a basis for rescission based on substantial breach. Parsons. 501 (1918). in an agency to sell. v. Inc. RJL Martinez. because of the fiduciary nature of the relationship. However.116 Finally.30 LAW ON SALES it is legally possible for an agent or a broker to voluntarily bind himself to the warranties of the seller. Civil Code. and to order the beds in dozen and in no other manner. 118 38 Phil. Art. and that said obligations were implied from the commercial agency or at least were instructed and disobeyed. to open an establishment in Iloilo. 166 SCRA 493 (1988). the agent is disqualified from receiving any personal profit from the transaction covered by the agency. Except for the ordering the beds in dozens.117 b. to keep the beds on public exhibition. had violated its obligation not to sell the beds at higher prices than those of the invoices. Quiroga insisted that Parsons was his agent. as agent. Parsons was obliged under the contract to pay for the beds within a specified period after delivery even when not yet sold.118 plaintiff Quiroga granted to defendant Parsons the right to sell as an “agent” the “Quiroga beds” in the Visayas. and to pay for the advertisement expenses incurred. 116 117 Schmid and Oberly. at a discount of 25% as commission for the sales.

e.” These conditions to the Court were “precisely the essential features of a contract of purchase and sale” because there was the obligation on the part of the plaintiff to supply the beds. without any other consideration and regardless as to whether he had or had not sold the beds.119 The Court also noted that merely because by their contract. Arco Amusement Company. on the part of the defendant. By virtue of the contract between the plaintiff and the defendant. 506. on receiving the beds. 120 . and in these last two cases an additional discount was to be allowed for prompt payment. thus: These features exclude the legal conception of an agency or order to sell whereby the mandatory or agent received the thing to sell it. when Arco found out that Puyat had quoted to Arco not the net price but the list price. 505. and does not pay its price. if the defendant so preferred.NATURE OF SALE 31 Whether Quiroga could rescind (i. or in cash. “[b]ut it must be understood that a contract is what the law defines it to be.”120 In Gonzalo Puyat & Sons. Inc.. v. Ibid. The Court found the arrangement to be one of sale since the essential clause provides that “[p]ayment was to be made at the end of sixty days. 402 (1941). Later. or before. he returns it. and. revoke) the contract therefore depended on whether it was one of sale or agency to sell. was necessarily obliged to pay their price within the term fixed.121 Arco Amusement Company had engaged the services of Gonzalo Puyat & Sons to purchase from the Starr Piano Company in the United States specified sound reproducing equipment. and that Puyat had received a discount from Starr Piano Company. it sought to 119 Ibid. but delivers to the principal the price he obtains from the sale of the thing to a third person. the latter. and if he does not succeed in selling it. at the plaintiff’s request. to pay their price. and not what it is called by the contracting parties. the parties designated the arrangement as an agency did not mean the characterization to be conclusive. at p. at p. 121 72 Phil.

124 Ibid. and found that the letters between the parties clearly stipulated for fixed prices on the equipment ordered. even though it may not be owing to the principal. the same did not necessarily make it an agent. and which stipulation was not incompatible with the contract of purchase and sale.122 In construing that the underlying contract between Arco and Puyat was not an agency to buy. which “admitted no other interpretation than that the respondent agreed to purchase from the petitioner the equipment in question at the prices indicated which are fixed and determinate. such as change in prices. the Court also did not sustain the allegation of fraud by Gonzalo Puyat & Sons against Arco.32 LAW ON SALES recover the same under the premise that being only its agent. as the provision is only an additional price which Arco bound itself to pay. 407 (1941). 1891 of the Civil Code provides: “. loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications. but rather a sale. because in agency. the Court looked into the provisions of their contract. Firstly.”125 Although under their agreement. Every agent is bound to render an account of his transactions and to deliver to the principal whatever he may have received by virtue of the agency. Being a contract of sale and purchase. 402. mistake in their quotation.”123 The Court held that “whatever unforeseen events might have taken place unfavorable to the defendant (petitioner). Gonzalo Puyat & Sons was entitled to receive 10% commission. it held that “the contract is the law between the parties and should include all the things they are 122 Art. Every stipulation exempting the agent from the obligation to render an account shall be void. the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed. as the principal. 125 Ibid.”124 The Court held that such stipulation “is incompatible with the pretended relation of agency between the petitioner and the respondent. . the agent is exempted from all liability in the discharge of his commission provided he acts in accordance with the instructions received from his principal. . . any benefit or profit received from the transaction must inure to Arco.” 123 72 Phil.

express or implied in behalf of or in the name of the Company. 525. .. at p. Ltd.”129 It also found significant the stipulation in the agreement that 126 127 Ibid. liable as commercial broker under the agreement. within certain limits.128 the company entered into a contract with an American company. 406..”127 In Ker & Co. like herein petitioner. at p. In finding for the Commissioner. What does not appear on the face of the contract should be regarded merely as ‘dealer’s’ or ‘trader’s talk.” The Commissioner of Internal Revenue assessed Ker & Co. 409. It was specifically stipulated in the contract that “all goods on consignment shall remain the property of the Company until sold by the Distributor to the purchaser or purchasers. v. whereby Ker & Co. at p.’ which can not bind either party. it held that the fact that Gonzalo Puyat & Sons obtained more or less profit than the respondent calculated before entering into the arrangement. business acumen permit of the loosening of the sleeves and of the sharpening of the intellect of men and women in the business world. Distributor is not granted any right or authority to assume or to create any obligation or responsibility. The decisive test for the Court was “the retention of the ownership of the goods delivered to the possession of the dealer.” would receive products from the American company by way of consignment. it were better that. the Court held that in spite of the disclaimer in the agreement. 129 Ibid. Lingad. it was still an agent of the American company. for resale to customers. specifically designated as “Distributor. was no ground for rescinding the contract or reducing the price agreed upon between them: “Not every concealment is fraud. 128 38 SCRA 524 (1971). or to bind the Company in any manner or thing whatsoever.”126 Secondly. the price and terms remaining subject to the control of the firm consigning such goods. and short of fraud.NATURE OF SALE 33 supposed to have agreed upon. but all sales made by the Distributor shall be in his name. for sale in the Philippines.” It was further stipulated that the contract “does not constitute the Distributor the agent or legal representative of the Company for any purpose whatsoever. Ibid.

one person — the agent — agrees to act under the control of direction of another — the principal. including sale.131 the Court held that one of the factors that most clearly distinguishes agency from other legal concepts.34 LAW ON SALES the American company “at its own expense. thus: The transfer of title or agreement to transfer it for a price paid or promised is the essence of sale. If such transfer puts the transferee in the attitude or position of an owner and makes him liable to the transferor as a debtor for the agreed price. but as the property of the principal. was to keep the consigned stock fully insured against loss or damage by fire or as a result of fire. such did not establish an agency. it was held that when an entity purchases sugar under a Shipping List/Delivery Receipt from the original owner to the buyer. while the essence of an agency to sell is the delivery to an agent. 333 SCRA 663. “is control. it clearly showed that ownership over the goods was never transferred to Ker & Co. (2000).. fix the price. not as his property. v. since the letter to the bailee of the original owner used clearly the words “sold and endorsed” for the document of title. who remains the owner and has the right to control the sale.” in order to authorize the buyer to withdraw part of the merchandise from the bailee. c. .” In that decision. at p. demand and receive the proceeds less the agent’s commission upon sales made. and not merely as an agent who must account for the proceeds of a resale.” Since insurable interest remained with the American company. and terms. which meant clearly to cover a sale. not an agency to sell. in Victorias Milling Co. the policy of such insurance to be payable to it in the event of loss. 530. Other Practical Value of Being Able to Distinguish Knowing whether the contract is one of sale or an agency to sell is also important in considering the applicability of the Statute of Frauds. “for and in our behalf. the transaction is a sale. Court of Appeals. 130 131 Ibid.130 Finally.

137 254 SCRA 170 (1996). Yuson v. Viton. including a clear agreement that the things offered is accepted for the extinguishment of the debt. Hence. that is why the elements of sale must be present. Court of Appeals. 5. PNB.136 the Court observed that in its modern concept. 374 SCRA 332 (2002).”134 By express provision of law. under Article 1874 of the Civil Code. In Vda. the sale shall be void. the authority of the latter shall be in writing. of Manila. dation in payment is governed by the Law on Sales. v. 1245. Court of Appeals. 551 SCRA 183 (2008). Art. otherwise. Mfg.133 it constitutes “the delivery and transmission of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. 136 390 SCRA 380 (2002). Court of Appeals. 553 SCRA 677 (2008). v.135 since it essentially involves the transfer of ownership of a subject matter. 1245. Social Security System v. 135 Art. Social 133 132 . De Jayme v. From Dacion En Pago Dation in payment is one whereby property is alienated to the creditor in full satisfaction of a debt in money. when the sale of a piece of land or any interest therein is through an agent. Atlantic Gulf and Pacific Co. 496 SCRA 540 (2007). what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of the contract of sale while the debt is considered as the purchase price. By way of exception. unlike a sale contract which must comply with the Statute of Frauds for enforceability. Corp. and not one enumerated under the Statutes of Frauds in Article 1403.NATURE OF SALE 35 Lim v. 137 Reiterated in Technogas Phils. 134 Philippine Lawin Bus Co. a contract of agency to sell is valid and enforceable in whatever form it may be entered into. Civil Code.132 held that an agency to sell on commission basis does not belong to any of the contracts covered by Articles 1357 and 1358 requiring them to be in a particular form. Civil Code.

but only an arrangement by which an existing obligation may be extinguished. that dacion en pago considerations are not in the realm of perfection of contract. but rather in the stage of consummation. 141 197 SCRA 1 (1991). 139 Reiterated in Aquintey v. Consequently. that is. 138 413 SCRA 182 (2003). Tibong. in specified circumstances.”140 The first requisite of actual delivery is demonstrated in Philippine National Bank v. of Manila. 553 SCRA 677 (2008). As such. (b) Some difference between the prestation due and that which is given in substitution (aliud pro alio). however.. the creditor is really buying the thing or property of the debtor. payment for which is to be charged against the debtor’s debt. the vendor in good faith shall be responsible. and (c) An agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the performance of a presentation different from that due. the agreement does not necessarily constitute a separate contract. Atlantic Gulf and Pacific Co. 140 413 SCRA 182. for indeed dacion en pago is by definition a special mode of payment. 511 SCRA 414 (2006). . KJS Eco-Formwork System Phil. Inc. prior to delivery of the subject matter to constitute the dation in payment. Pineda. whereby the debtor offers another thing to the creditor who accepts it as equivalent of payment of an outstanding debt. for the existence and legality of the credit at the time of the sale but not for the solvency of the debtor.141 which held that dation in Security System v.139 Lo also holds that in dacion en pago “[t]he undertaking really partakes in one sense of the nature of sale.138 holds that in order that there be a valid dation in payment.36 LAW ON SALES It must be emphasized.. there must be: (a) Performance of the prestation in lieu of payment (animo solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person. Lo v. 187 (2003).

and must abide by the legal consequence thereof. Court of Appeals. would be extinguished by dacion en pago. v. Quoting from the earlier decision 374 SCRA 332 (2002). Vda.147 that would consider the mere agreement to dacion en pago identifying a particular parcel of land as the means to extinguish an obligation as already constituting a new contract of sale that is subject to specific performance.. it ought to know. 544 SCRA 369 (2008). When there is no such transfer of ownership in favor of the creditor.. as when re-possession of the subject matter of a trust receipt is only by way of security. for consent to dacion is an essential elements. 377 SCRA 341 (2002). especially when it is a bank.NATURE OF SALE 37 payment requires delivery and transmission of ownership of a thing to the creditor as an accepted equivalent of the performance of the obligation. San Agustin. since it is essential that the transfer must be accompanied by a “meeting of the minds between the parties on whether the loan . 144 Bank of Philippine Islands v... See also Filinvest Credit Corp. 143 142 .142 where the Court held that a transfer of property between debtor and creditor does not automatically amount to a dacion en pago. It must be noted that there is an implication in Social Security System v.144 But once the creditor agrees to a dacion. Inc.146 the Court held that the execution by the borrower-mortgagor of dacion en pago covering the mortgaged property in favor of the lender-mortgagee effectively constitutes a waiver by the mortgagor-transferor of the redemption period normally given a mortgagor. Court of Appeals.. that the pre-existing obligation is thereby extinguished. 541 SCRA 294 (2007). Philippine Acetylene Co. Atlantic Gulf and Pacific Company of Manila. 146 First Global Realty v.. 390 SCRA 380 (2002).145 In one case. there is no dacion. 111 SCRA 421 (1982). Inc. v. East West Banking Corp. 147 553 SCRA 677 (2008).”143 The legal effects of a dacion en pago come into effect only when both the debtor and creditor agree to the terms thereof. De Jayme v. 145 Estanislao v. SEC. The third requisite that there must be an agreement that the delivery of the property is in lieu of payment is best demonstrated in Philippine Lawin Bus Co.

In its modern concept. at p. and for a period which may be definite or indefinite. As such... The controversy. . common consent if an essential prerequisite. 686. since the ruling only centered around which tribunal had jurisdiction on such cause of action.. respondents filed a suit to obtain its enforcement which is. Civil Code.. 1643. to have the effect of totally extinguishing the debt or obligation. what actually takes place in dacion en pago is an objective novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the purchase price. instead. be it sale or novation. at pp. doubtless. 6. a suit for specific performance and one incapable of pecuniary estimation beyond the competence of the Commission. De Jayme v. underscoring supplied. 151 Art. 553 SCRA 677. lies in the non-implementation of the approved and agreed dacion en pago on the part of the SSS. In any case.152 It may be stipulated in such contract that the lessee has the option 148 149 390 SCRA 380 (2002). 686-687. the lessor binds himself to give to another (the lessee) the enjoyment or use of a thing for a price certain.”150 It should be noted that Atlantic Gulf did not categorically rule that a mere agreement to effect a dacion en pago which has not been implemented can successfully be the subject of an action for specific performance.148 Atlantic Gulf which part held: .38 LAW ON SALES in Vda.149 The Court in Atlantic Gulf went on to rule that “This statement unequivocally evinces its consent to the dacion en pago . 152 Arts. 1484 and 1485. Court of Appeals. From Lease In a contract of lease. Civil Code.151 A conditional sale may be made in the form of a “lease with option to buy” as a device to circumvent the provisions of the Recto Law governing the sale of personal property on installments. 150 553 SCRA 677.

NATURE OF SALE 39 to buy the leased property for a small consideration at the end of the term of the lease. The importance of distinguishing a true lease from a sale on installments is considered in Chapter 10 on discussions in the Recto Law. Filinvest Credit Corp. it is a sale by installments. despite the nomenclature given by the parties. Court of Appeals. —oOo— 153 178 SCRA 188 (1989). title shall vest in the lessee. . v.153 holds that when a “lease” clearly shows that the rentals are meant to be installment payments to a sale contract. provided that the rent has been duly paid. or if the rent throughout the term had been paid. Such contract are really conditional sales and are deemed leases in name only.

40 LAW ON SALES CHAPTER 2 PARTIES OF SALE Discussions on the capacities of the parties to a sale tackle the essential element of “consent” in contracts of sale.4 with full “juridical capacity”5 to obligate themselves and enter into valid contracts. Civil Code. 36(6) of the Corporation Code. is expressly recognized by law. For natural persons or individuals. 46 of the Civil Code. Family Code. a juridical personality separate and distinct from that of the shareholders. and the absolute and relative incapacities of the parties to enter into a contract of sale. as amended by Rep. convey. juridical persons may acquire and possess property of all kinds. 44(3). Under Sec. Civil Code. defines “juridical capacity” as “the fitness to be the subject of legal relations. such as corporations. 1489. may enter into a contract of sale. 3 Art. But unlike discussions of consent as a “meeting of minds” that brings about the perfection of a sale. 234. 37. 6809. associations and cooperatives. Act No. take or grant.3 upon which age they have the capacity to act. sell and otherwise deal with real and personal properties. hold. Art. partners or members. 4 Art.2 whether as seller or as buyer. Civil Code. For juridical persons. GENERAL RULE ON CAPACITY OF PARTIES When it comes to the issue as to who can be the proper parties to a sale. and thereby leads into discussions on vitiation of consent. the chapter focuses on the “integrity” or “quality” of the consent of the parties to a sale. 2 1 40 . partnerships.” 6 Under Art. the age of majority begins at 18 years. 37. the general rule is that any person who has “capacity to act. all corporations are granted the express power to purchase.6 Art. Civil Code. receive.” or “the power to do acts with legal effects. 5 Art.”1 or more specifically with the power to obligate himself.

Civil Code. “[w]here necessaries are sold and delivered to a minor or other person without capacity to act. Labagala v. 1327.11 whereas.7 and therefore are disqualified from being parties to a sale.12 When the defect of the contract consists in the incapacity of one of the parties. subject to annulment or ratification. those entered into in a state of drunkenness. emphasis supplied. Civil Code. and deafmutes who do not know how to write. 13 Art. the defective consent gives rise to a voidable sale. or during a hypnotic spell. 1399. the absence thereof cannot give rise to a valid sale. AND DEAF-MUTES Generally. the incapacitated person is not obliged to make any restitution.13 1. 9 Art. Civil Code. he must pay a reasonable 7 8 Art. 14 Labagala v. 10 Art. minors. contracts entered into by such legally incapacitated persons are not void. insane and demented persons.PARTIES OF A SALE 41 MINORS. 1393. 1397. INSANE OR DEMENTED PERSONS. Civil Code. 371 SCRA 360 (2001). Civil Code.14 nonetheless. Santiago. except insofar as he has been benefited by the thing or price received by him. but merely voidable. . meaning “valid until annulled. 11 Art. 12 Art. 1328. and since consent is an essential requisite of every contract. Necessaries A minor is without legal capacity to give consent to a sale. Santiago. 371 SCRA 360 (2001). Civil Code. 3128.10 Contracts entered into during lucid intervals by insane or demented persons are generally valid.” The Title on Sales in the Civil Code specifically provides that although a minor is not capacitated to validly enter into a sale.9 The action for annulment cannot be instituted by the person who is capacitated since he is disqualified from alleging the incapacity of the person with whom he contracts.8 Nonetheless. have no legal capacity to contract. are merely voidable.

have been rendered moot by Rep.42 LAW ON SALES price therefore. but voidable for vice in consent. Art. even beyond the age of majority. 6809. trade or vocation. . [which] commences at the age of twenty-one years. and (b) delivery of the subject necessaries. dwelling.”15 and the resulting sale is valid. [and education] include[s] his schooling or training for some profession. 1489. the issue on the validity of sales entered into by emancipated minors no longer exists. which has lowered the age of majority to 18 years of age. education and transportation. “Necessaries.. Family Code. or (2) By the voluntarily emancipation by recording in the Civil Register of an agreement in a public instrument executed by the parent exercising parental authority and the minor at least eighteen 15 16 Art. Civil Code.” Since sales cover only the obligation to deliver a thing. in keeping with the financial capacity of the family . In order for the sale of necessaries to minors to be valid. “emancipation takes place by the attainment of majority . 2. clothing. and not merely voidable. it was provided that emancipation also took place “(1) By marriage of the minor. 234. dwelling. Transportation shall include expenses in going to and from school..” are now defined by Article 194 of the Family Code to cover “everything indispensable for sustenance. or to and from place of work. and clothing. If there is only perfection at the time the case reaches litigation.. under the Family Code. Emancipation The rules on emancipation under Articles 234 to 236 of the Family Code. Previously. and the rules on voidable contracts apply. Consequently. and perhaps medicine and educational books and materials..”16 In addition. and not merely voidable. Act No. the sale of course is not void. medical attendance. the sale of “necessaries” considered valid under Article 1489 can only cover sales pertaining to sustenance. two elements need to be present: (a) perfection of the sale.

Family Code. Senility and Serious Illness The effects of senility and serious illness of the seller on the validity of a sale was covered in Domingo v.”17 Emancipation would terminate parental authority over the person and property of the minor. Voluntary emancipation by registration of the public instrument requires that the minor be at least 18 years old. because at eighteen years of age there is no longer a minor who may be voluntarily emancipated. at the time of the execution of the alleged contract. 6809. shows that at the time of the alleged execution of the 17 18 Art. which is now legally impossible. marriages entered into below eighteen years of age are void. 19 Arts.. which was repealed by Rep. The unrebutted testimony .. one is already of legal age. Family Code. 236. 2 and 5. who shall then be qualified and responsible for all acts of civil life. .. She died an octogenarian . Act No.. Family Code. but before copies of the deed were entered in the registry allegedly [much later].. Domingo agreed with the trial court’s ruling that sale was “null and void ab initio” on findings that the “consideration for the nine (9) parcels of land including the house and bodega is grossly and shockingly inadequate.. 234.18 including validly entering into contracts of sale. Under the present Family Code. Art. barely over a year when the deed was allegedly executed . since by merely reaching 18 years of age.” but also on the findings of the Court that — . Court of Appeals. even without marrying...PARTIES OF A SALE 43 years of age..19 rendering emancipation by marriage at the age of 18 years inutile.. 3. Paulina Rigonan was already of advanced age and senile. ..20 where the main issue was whether the proponents were able to establish the existence and due execution of a deed of sale with the only evidence adduced being a carbon copy of the alleged original deed where the signature of the alleged seller was a thumb mark made while sick on the hospital bed. 20 367 SCRA 368 (2001).

44 LAW ON SALES deed. and (c) That the consideration was “grossly and shockingly inadequate. and firmly protecting her property rights then she is undeniably incapacitated. except as it may indicate a defect in the consent. there is no receipt to show that said price was paid to and received by her.”22 The author posits that the essence of the Domingo ruling for declaring the sale void was that the circumstances showed that there was never any meeting of minds since there was no real consideration agreed upon. when such age or infirmities have impaired the mental faculties so as to prevent the person from properly. there is in our view sufficient reason to seriously doubt that she consented to the sale of and the price for the parcels of land. Given these circumstances. intelligently.21 Domingo held that although “[t]he general rule is that a person is not incompetent to contract merely because of advanced years or by reason of physical infirmities.” which gives rise only to an action for rescission or specific performance. It is unfortunate for Domingo to have declared the sale “void ab initio” on grounds that legally do not render it so. 380. and serious illness). Thus.. Paulina was already incapacitated physically and mentally. we are in agreement with the trial court’s finding and conclusion on the matter. or that the parties 21 22 Ibid. and that the deed was merely forged. (b) That “price was never paid to and received.. at p. which constitute only vice in consent.. However. that Paulina played with her waste and urinated in bed. .” which under Article 1470 of the Civil Code “does not affect a contract of sale. advanced age. Ibid. namely: (a) Incapacity to give consent (senility. Moreover. at p. 380.. and would render the contract merely voidable.

at p.”24 In Paragas. For example. the provisions of the Civil Code provided limitations on when the husband or the wife may deal with conjugal partnership property. In that case. Heirs of Dominador Balacano. and that the wife may. Heirs of Ignacia Aguilar-Reyes v. during the marriage and within 23 24 468 SCRA 717 (2005).. mental weakness.25 recognized that under the regime of the Civil Code (as contrasted from the rule under the Family Code). “[i]n all contractual. SALES BY AND BETWEEN SPOUSES 1. i. would have been the more logical remedy to apply. ignorance. 25 410 SCRA 97 (2003). when one of the parties is at a disadvantage on account of his moral dependence. when annulment of the contract by reason of vitiated consent. again took the unusual step to declare a sale executed by one who is already of advanced age and senile to be “null and void. shown to have signed the Deed of Sale on his death bed in the hospital. tender age or other handicap. property or other relations.23 which invoked Domingo.e.” instead of being merely voidable. Mijares. that the absence of such consent rendered the transaction merely voidable and not void. the courts must be vigilant for his protection.” It does not seem logical for the Court to declare the sale void. the alienation or encumbrance of a conjugal real property requires the consent of the wife.” The decision in Paragas v. 734. .PARTIES OF A SALE 45 really intended a donation or some other act or contract. Ibid. Sales With Third Parties Before the enactment of the Family Code. the Court used the protective provisions of Article 24 of the Civil Code for ruling that the sale was void. “was an octogenarian at the time of the alleged execution of the contract and suffering from liver cirrhosis at that — circumstances which raise grave doubts on his physical and mental capacity to freely consent to the contract. the alleged seller.

it would seem that a spouse may. 75. Under the Law on Sales. 124. In such a 26 27 Art. occupation. The article also provides that if benefits accrued prior to the objection. the courts shall decide whether or not the objection is proper. bring an action for the annulment of the contract on the entire property. without the consent of the other spouse. and in case of disagreement. therefore. Art. Nevertheless. In addition. business or activity without the consent of the other. shall belong to both spouses jointly. Under the present Family Code. vocation or trade. under Articles 96 and 124 of the Family Code. and the latter may object only on valid.27 Under Article 73 of the Family Code. In cases of disagreements. the administration and enjoyment of the community property or the conjugal property. the disposition or encumbrance of community property or conjugal property. either spouse may exercise any legitimate profession. common provisions apply equally to both spouses. as the case may be. the resulting obligation shall be enforced against the separate property of the spouse who has not obtained consent. and not just the one-half portion that pertains to her share. depending on whether the benefits had accrued to the family prior to the objection or thereafter. the spouses would still have joint administration of the conjugal properties. shall be void without authority of the court or the written consent of the other spouse. without prejudice to the creditors who acted in good faith. Family Code. as the case may be. Family Code. the same shall be chargeable against the community property. subject to the wife seeking remedy from the courts.”26 but more so even when the spouses chose under their marriage settlements to be governed by the conjugal partnership of gains. otherwise. and make rulings on the benefits. which must be availed of within five (5) years from the date of the contract. serious and moral grounds. enter into sale transactions in the regular or normal pursuit of his or her profession. not only because the default rule is the “absolute community of property regime.46 LAW ON SALES ten years from the questioned transaction. the husband’s decision shall prevail. .

Court of Appeals. 291 SCRA 372 (1998). 30 Abalos v. Sales Between Spouses Under Article 1490 of the Civil Code. or (b) when there has been a judicial decree for the separation of property. 2. Family Code. However.30 the Court held that the sale by the husband of property belonging to the conjugal partnership without the consent of the wife when there was no showing that the latter was incapacitated.28 In one case. Article 1492 provides that the prohibition relating to spouses selling to one another is applicable even to sales in legal redemption. Jr. was held void ab initio because it was in contravention of the mandatory requirements of Article 166 of the Civil Code.29 even when the property regime prevailing was the conjugal partnership of gains. In addition. Guiang v. but have been declared by the Supreme 28 Art. and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors. 96. Macatangay. it conceded that as an exception.” In another case.PARTIES OF A SALE 47 case. spouses cannot sell property to each other. a. the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person. under Article 124 of the Family Code. except: (a) when a separation of property was agreed upon in the marriage settlements.. 29 . the Court held that the sale by the husband of a conjugal property without the consent of the wife to be not merely voidable but void. 439 SCRA 64 (2004). the husband may dispose of conjugal property without the wife’s consent if such sale is necessary to answer for conjugal liabilities mentioned in Articles 161 and 162 of the Civil Code. since the resulting contract lacked one of the essential elements of “full consent. compromises and renunciations. Status of Prohibited Sales Between Spouses Contracts entered into in violation of Articles 1490 and 1492 are not merely voidable.

the spouses themselves. 34 Medina v.31 However.33 and the State when it comes to the payment of the proper taxes due on the transactions. the spouses alleged that the sales between them were valid since they were governed by the complete separation of property regime pursuant to a pre-nuptial agreement executed between them. Practically. the creditors who became such only after the transaction. Court of Appeals. Collector. 317 SCRA 696 (1999). . the Court determined that at the time of their marriage. Ibid. the only persons who can question the sale are the following: the heirs of either of the spouses who have been prejudiced. Cantollas. Collector of Internal Revenue.35 deficiency sales tax were sought to be collected against the sales of lumber products by the wife to the public. cannot attack the validity of the sale. 35 1 SCRA 302 (1961). the spouses had no properties to have warranted them to execute a pre-nuptial agreement for complete separation of property. not anyone is given the right to assail the validity of the transaction. for it cannot be said that they have been prejudiced by the transaction. although when the husband previously sold the lumber products to the wife (of course at a lower price) he had already paid the sales tax thereon.48 LAW ON SALES Court as being null and void. 31 Uy Sui Pin v.34 In Medina v. 70 Phil. Collector of Internal Revenue. since they are parties to an illegal act. Also. For instance. 55 (1940). 1 SCRA 302 (1961). Considering that only the first and original sales were taxable under the then Tax Code. 32 33 Modina v. 1 SCRA 302 (1961). the spouses held that the second and subsequent sales by the wife to the public could not be subjected to further sales tax. Medina v. In addition. The Court considered the sales between the spouses as void and non-existent in violation of Article 1490. prior creditors.32 the courts will generally leave them as they are. cannot avail themselves of the illegality of the sale on the ground of pari delicto. Aside from the fact that the records of the alleged pre-nuptial agreement were non-existent. and considered the sales by the wife to the public as the first and original sales subject to the sales tax.

. do not make such exception in case of donations. But unlike Article 1490 which exempts from its prohibition sales between spouses governed by the complete separation of property regime. One explanation for the difference in this aspect between Articles 133 and 1490 is that a donation between spouses governed by the complete separation of property regime. 38 SCRA 284 (1971). and (c) To avoid an indirect violation of the prohibition against donations between spouses under Article 133 of the Civil Code. would necessarily reduce the estate of the donor and increase the estate of the donee. Article 133 of the Civil Code. Cervantes. Rationale for Prohibition Medina gave the rationale for the relative incapacity of spouses to sell properties to one another to be as follows: (a) To prevent a spouse defrauding his creditors by transferring his properties to the other spouse. Article 133. being a gratuitous contract. being an onerous and commutative contract. which declares void every donation between spouses during marriage. seeks to prevent the first two evils enumerated above.” Therefore. either to the 36 Matabuena v.PARTIES OF A SALE 49 b. the evils sought to be avoided under Articles 133 and 1490 are the same. thereby effectively defrauding the latter. and now Article 87 of the Family Code. while a sale between such spouses. (b) To avoid a situation where the dominant spouse would unduly take advantage of the weaker spouse. would result in the separate estates of the spouses being of the same value as before the sale and no fraud could result.36 Article 133 has been replaced by Article 87 of the Family Code which added the provision “The prohibition shall also apply to persons living together as husband and wife without a valid marriage.

404 SCRA 683 (2003). just because spouses have a complete separation of property regime does not necessarily discount that one spouse cannot exercise undue influence or pressure on the other spouse.e. In addition. be defrauded. In a complete separation of property regime. or any other regime for that matter. there is greater danger of undue influence or fraud in situations where the spouses are governed by the complete separation of property regime. it would seem that the evils sought to be avoided also pertain to such situations. 37 Manonsong v. a sale is not possible because there simply cannot be a purchase of what a party-buyer already owns. as the law allows. used this same reasoning in distinguishing the difference in effect between a sale and donation on the legitimes of forced heirs. where the spouses are bound only by their separate properties to their separate creditors and not to the creditors of the other spouses.50 LAW ON SALES spouses or to their creditors. the dominant spouse may unduly influence the weaker spouse. does not explain why a sale between spouses of separate or paraphernal properties would not be allowed as an exception under Article 1490 when the spouses are governed by the conjugal partnership of gains. Indeed. . The position however. Rationale for Exceptions to Prohibition under Article 1490 If one were to take at face value the two exceptions to the prohibition of sales between spouses (i. sales between spouses governed by complete separation of property regime)..37 This position would also explain the reason why spouses governed by the absolute community of property regime cannot sell to one another because having the same estate between themselves. the fact that one has a weak personality and that the other has a dominant personality cannot be erased or altered by entering into a complete separation of property regime. if not with greater degree. For in a complete separation of property regime. legally get away with it. and with greater impunity. there would seem to be greater risk that by allowing spouses to sell to one another. and indeed. the separate creditors of the selling spouses could equally. c. Estimo.

does not make an exception to spouses governed by the complete separation of property regime. outside its pale? If the matter is considered more closely. or by the spouses going to court to ask for the dissolution of the prevailing conjugal partnership of gains or absolute community of property regimes. the law would allow the circumvention of the prohibition against donations between spouses governed by the complete separation of property regime. In either case. to the exceptions provided for the restrictions under Article 1490. by the execution of a prenuptial agreement stipulating such property regime to apply. the situation bespeaks clearly of hardness of heart on the part of the spouses. Article 133 which prohibits donations between spouses. By allowing under Article 1490 spouses governed by complete separation of property regime to sell to one another. lies in the psychology of the situation. and therefore donations between such spouses would be void. namely. why would it leave sales between spouses governed by the complete separation of property regime. or attempt to circumvent the prohibition against donation. such attempts would prove futile because of the continued existence of the common fund on which both spouses (and their heirs and creditors) can continue to claim. However. there are only two ways by which a complete separation of property regime could exist between married spouses. The key element. it seems to the author.PARTIES OF A SALE 51 Finally. it would seem that the exception under Article 1490 on the restriction of sales between spouses. Legally. showing a business-like . because the evils sought to be avoided by the law cannot for practical purposes happen in such regime. since no matter what undue influence is exercised by the dominant spouse. as discussed previously. should apply more to spouses governed by the absolute community of property regime. or attempt to defraud the creditor of a spouse. If Article 1490 were meant to be a stop-gap measure to Article 133. a sale between spouses governed by the absolute community of property regime would be legally meaningless since they have the same estate and represent the same interest.

38 the Court was asked to decide the issue of whether the ban in Article 133 of the Civil Code on a donation between the spouses during a marriage applies to a common-law relationship. the conjugal partnership of gains or the absolute community of property regime exemplifies spouses wishing to share most if not all with one another confirming their romantic fervor. irrespective of their property regime.52 LAW ON SALES approach to the relationship. and consequently open himself or herself (as well as his or her separate properties) to suits by creditors for fraud and recovery of damages? But even the foregoing explanation does not adequately cover a situation where a dominant spouse would insist upon the complete separation of property regime. either at the time of the execution of the marriage settlements. the absolute prohibition under Article 133. on donations between spouses. if a spouse takes time and effort to insulate his or her properties from the other spouse. precisely to venture upon a future course of defraudation or being in a position to defraud either his weaker spouse or his separate creditors. now Article 87 of the Family Code. On the other hand. Cervantes. In the end. 38 38 SCRA 284 (1971). or who during marriage would be cold-blooded as to agree and seek court separation of their properties. should also be made to apply to sales between spouses. or would allow his or her properties to be involved in a suit covering the creditors of the other spouse. rather than of two lovers falling headover-heels for one another. In that case. Whereas. . 3. or by judicial action during marriage. After all. in a situation where spouses who before or at the time they say their “I do’s” would be so cold-hearted and unromantic to pause and stipulate complete separation of property. sought to annul the previous donation by the deceased during his lifetime to his then common law spouse. Applicability of Incapacity to Common Law Spouses In Matabuena v. the sister of the deceased common-law husband. clearly indicates that it would be unlikely that one spouse would allow the other spouse to influence him or her. why would he or she later on involve himself or herself in the fraudulent manipulations of the other spouse.

but specifically because Article 1490 prohibits sales between spouses. a basic policy in civil law. in Calimlim-Canullas v. For it is not to be doubted that assent to such irregular connection . reason and morality alike demand that the disabilities attached to marriage should likewise attach to [common-law relationship]. the Court held that “[s]o long as marriage remains the cornerstone of our family law. Fortun. that would destroy the system of conjugal partnership. which is the cornerstone of family law. 288. bespeaks greater influence of one party over the other. 41 129 SCRA 675 (1984).”40 In 1984. . . is to ‘prohibit donations in favor of the other consort and his descendant because of fear of undue and improper pressure and influence upon the donor. so that the danger that the law seeks to avoid is correspondingly increased. Today. . then there is every reason to apply the same prohibitive policy to persons living together as husband and wife without the benefit of nuptials. It was also designed to prevent the exercise of undue influence by one spouse over the other. . as well as to protect the institution of marriage. although Article 133 of the Civil Code considers as void a “donation between the spouses during the marriage. at pp. Ibid. The Court gave the following reasoning for its ruling: And this is so because if transfers or conveyances between spouses were allowed during marriage.”39 In addition.PARTIES OF A SALE 53 although the two subsequently married thereafter. a prejudice deeply rooted in our ancient law . 40 . . 287-288. that Article 1409 of the Civil Code declares such contracts void as being contrary to morals and public policy.” It held that “[i]f the policy of the law .41 the Court gave formal imprimatur to the rationale of Matabuena being applied to sales by ruling that sales between common-law spouses are void. at p. The 39 Ibid. that would no longer be an issue because of the all-inclusive coverage under Article 87 of the Family Code to those living as husband and wife without the benefit of a valid marriage. . and not only because Article 1352 declares them void for having an unlawful cause. The Court held the donation to be void.

since under the Torrens system every buyer has a right to rely upon the title of his immediate seller. (b) Guardian. . 44 Ibid. or of any government-owned or 42 43 Ibid. with respect to the property of the estate under his administrations. 1490 the husband and wife cannot sell property to one another as a rule which. unless the consent of the principal has been given. otherwise. (c) Executor or administrator. 281 SCRA 491 (1997). with respect to the property whose administration or sale may have been entrusted to him.43 but which held that “[a]lthough under Art. 680.” Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. Court of Appeals. with respect to property of the State or any subdivision thereof. 495.42 Calimlim-Canullas ruling was reiterated in Cruz v. “the condition of those who incurred guilt would turn out to be better that those in legal union.54 LAW ON SALES prohibition apply (sic) to a couple living as husband and wife without the benefit of marriage. with respect to the property of the person who is under his guardianship. for policy consideration and the dictates of morality require that the prohibition apply to common-law relationship. at p.”44 but that when registered property has been conveyed subsequently to a third-party-buyer in good faith and for value. SPECIFIC INCAPACITY MANDATED BY LAW Article 1491 of the Civil Code prohibits the following persons from entering into contracts of sale under the circumstances covered therein: (a) Agent. (d) Public officers and employees. at p. then reconveyance is no longer available to common-law spouse.

45 and no such exception is granted in all the other instances covered by said article. take part in the sale. Purungganan Jr. compromises and renunciations. made to apply to sales in legal redemption. 46 See Distajo v. in all cases covered under Article 1491.PARTIES OF A SALE 55 controlled corporation. . Court of Appeals. it includes judges and government experts who. only purchases made by agents of the property covered by the agency are valid and binding when made with the express consent of their principals. 1. Legal Status of Contracts Entered Into In Violation of Articles 1491 and 1942 Based on the wordings of Article 1491. When so authorized by the principal.. and other officers and employees connected with the administration of justice. The above-enumerated relative incapacities are. the administration of which has been entrusted to them. clearly not absolute. in any manner whatsoever. clerks of courts. consent or knowledge by the persons who is sought to be protected by the law. cannot validate any of the transactions covered.46 That would also mean that. 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. 339 SCRA 52 (2000). under Article 1492. judges. (e) Justices. apart from the case of the agents. prosecuting attorneys. cannot be done by indirection. 45 The prohibition against an agent purchasing property in his hands for sale or management is however. 515 SCRA 460 (2007). and (f) Lawyers. Olaguer v. with respect to the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions. the agent is not disqualified from purchasing the property he holds under a contract of agency to sell. confirming the policy that what cannot be done directly. or institution.

we must limit ourselves to classifying as void all acts done contrary to the express prohibition of the statute. 49 Ibid. or purpose is contrary to laws. 340 (1911). in Director of Lands v. Estate of Martinez.e. 50 53 Phil. Now then as the code does not recognize such nullity by the mere operation of law.50 covering the purchase by a lawyer of the property of his client under litigation. and not void. it does not state expressly that the resulting contracts are “void. . the view taken by the code. p.”49 In other words. 108. 51 51 SCRA 120 (1973).56 LAW ON SALES Article 1491 does not also state the legal consequences of having entered into contracts in violation of said article. Batiller.47 the Court held that the sale’s “voidability can not be asserted by one not a party to the transaction or his representative. 10. good customs.. thus: The reason thus given by Manresa in considering such prohibited acquisitions under Article 1459 of the Spanish Civil Code as merely voidable at the instance and option of the vendor and not void — “that the Code does not recognize such nullity de pleno derecho” — is no longer true and applicable to our own Philippine Civil Code which does recognize the absolute nullity of contracts “whose cause. Citing Manresa Vol. the Court cited two precedent cases decided in Spain holding such a contract as merely “invalid. object. morals. 147 (1929).51 the Court discussed why it became necessary in Philippine jurisdiction to abandon Manresa’s position and consider such contracts as void. at p. i. Wolfson had classified such contracts as being merely voidable or annullable. the nullity of the acts hereinbefore referred to must be asserted by the person having the necessary legal capacity to do so and decreed by a competent court. 343. and not merely voidable.” In the 1911 case of Wolfson v.”48 that “considering the question from the point of view of the civil law. Later. public order or public policy” or which are “expressly prohibited or declared 47 48 20 Phil. Abagat.” In Rubias v.

”52 In addition. at pp. 133-134. under Art. paragraphs [4] and [5] of our Civil Code) has been adopted in a new article of our Civil Code.g. the permanent disqualification of public and judicial officers and lawyers grounded on public policy differs from the first three cases of 52 53 Supra. that violation of the prohibition cannot be validated by confirmation or ratification. 130-131. at pp.. in which the purchasing lawyer appeared as counsel of record. “was void and could produce no legal effect.. fiscals and lawyers of property and rights in litigation submitted to or handled by them. A Different Form of “Ratification” Rubias. 1409 declaring such prohibited contracts as ‘inexistent and void from the beginning. by virtue of Article 1409(7) of our Civil Code which provides that contracts ‘expressly prohibited or declared void by law’ are ‘inexistent and void from the beginning’ and that ‘(t)hese contracts cannot be ratified. from those entered into by judges. administrators and executors. Art. Rubias held that even the Supreme Court of Spain and modern authors have likewise veered away from Manresa’s view of the Spanish codal provision itself. Neither can the right to set up the defense of illegality be waived. 133. fiscals and lawyers. Supra.PARTIES OF A SALE 57 void by law” and declares such contracts “inexistent and void from the beginning.”54 Rubias therefore holds that a purchase by a lawyer of property of a client in litigation. 1492. at p. 54 Supra. thus — In this aspect. . sought to declare a difference in the state of “nullity” between prohibited contracts entered into by guardians.’”55 a. judicial officers. at p. 135. 55 Supra. judges. agents. by public officers and employees of government property intrusted [sic] to them and by justices. holding that since the provision is based on public policy.53 It adopted Castan’s rationale for his conclusion “that fundamental considerations of public policy render void and inexistent such expressly prohibited purchase (e. viz. however.

the object which was illegal at the time of the first contract. or the service which was impossible may have become possible. principal or estate. private parties cannot ratify or compromise among themselves matters contrary to public interests. 1491. which continues to be tainted with a public wrong. Civil Code). is that in the first group after the inhibition has ceased. however. which is damage to public service or to the high esteem that should be accorded to the administration of justice in our society. if private parties wish to condone the private wrongs among themselves. the only real wrong that subsists is the private wrong to the ward. or the intention which could not be ascertained may have been clarified by the parties. however. The causes of nullity which have ceased to exist cannot impair the validity of the new contract. The ratification or second contract would then be valid from its execution. such cannot resurrect and validate a relationship. there exists not only the private wrong. administrator or executor. Therefore. When it comes to the second group. even when the inhibition has ceased. is whether such ratification involves only a new meeting of the minds with respect 56 Ibid. as to whose transactions. agents and administrators (Art. in the second group. even when the private parties seek to “ratify” the private wrong by executing a new contract between themselves when the inhibition no longer exists. . What remains at issue with respect to the “ratification” by the execution of a “new contract” in the cases of purchases by the guardian. it has been opined that they may be “ratified” by means of and in “the form of a new contract. agent. and therefore.58 LAW ON SALES guardians. it does not retroact to the date of the first contract. may have already become lawful at the time of the ratification or second contract.. at pp. 135-136.”56 The functional difference between the two groups of contracts declared void under Article 1491. the State would not stand in the way. in which case its validity shall be determined only by the circumstances at the time of execution of such new contract. Thus. As the policy goes. but in fact a public wrong.

578-579. b. Idem. The rationale for the absolute disqualifications set by Article 1491. v. .”59 57 58 Supra. Vol. pp. is in line with “the general doctrine that each of [such relationships] is a trust of the highest order. stating that “[A]ny person may invoke the inexistence of the contract whenever juridical effects found thereon are asserted against him.”57 and that “If the contract has already been fulfilled. These are issues yet to be addressed by the Court. If the contract is still fully executory. Fraud or Lesion Not Relevant for Nullity The existence of fraud or lesion is not a factor at all in the application of the prohibitions covered by Article 1491. 59 Philippine Trust Co. at p. or it would require in addition the payment of a new price or consideration as part of the new meeting of the minds when the inhibition no longer prevails.PARTIES OF A SALE 59 to the same subject matter and the same price. the other party can simply set up the nullity as defense. Roldan. but if any party should bring an action to enforce it. Proper Party to Raise Issue of Nullity Rubias quoted Tolentino in discussing who would be the proper parties who could raise the nullity of contracts entered into in violation of Article 1491.”58 c. 136 quoting from TOLENTINO. and the proof that the person disqualified has paid more than an adequate consideration for the property he purchased is no defense in an action to declare the sale void. 99 Phil. 392 (1956).” and therefore to avoid “[t]he temptation which naturally besets a [person holding such a fiduciary position] so circumstanced. an action is necessary to declare its inexistence since nobody can take the law into his own hands and thus the intervention of the competent court is necessary to declare the absolute nullity of the contract and to decree the restitution of what has been given under it. necessitates the annulment of the transaction. IV. and the trustee cannot be allowed to have any inducement to neglect his ward’s interest. no party need bring an action to declare its nullity.

never acting in his own name but in the name of those who employed him. the sale would still be void. therefore. As held in Schmid & Oberly v. Nolting and Garcia.. 274. A broker is one whose occupation it is to bring parties together to bargain.60 2. and to bring the former and the latter together to consummate the transaction.. or to bargain for them. Consequently. quoting from Behn. 35 Phil..” 61 166 SCRA 493 (1988). they are not prohibited to buy for themselves. Administrators and Executors Guardians. at p. When the court authority was granted. Ltd. administrators and executors are necessarily officers of the courts since they are appointed or confirmed to such position pursuant to judicial proceedings. 317 SCRA 696. Guardians. Agents “Brokers” do not come within the coverage of the prohibition as their authority consist merely in looking for a buyer or a seller. . negotiating contracts relative to property with the custody of which he has no concern. v. commerce or navigation. in matters of trade.60 LAW ON SALES Even in situations where the purchase by a disqualified person under Article 1491 had received approval by the court as in the case of probate court approving the purchase by the administrator or executor. 63 99 Phil. Meyer and Co. 279-80 (1916). the guardian 60 Modina v.. Court of Appeals. In Philippine Trust Co. a separate action may be brought to determine the question of ownership. 62 Ibid.63 the court-appointed guardian had filed a motion with the trial court for authority to sell as guardian the parcels of land of the ward for the purpose of being able to invest the proceeds for a residential house for the ward. 707 (1999): “This does not constitute an interference or review of the order of a co-equal court since the probate court has no jurisdiction over the question of title to subject properties. for others. RJL Martinez Fishing Corp. 392 (1956).61 “[a] broker is generally defined as one who is engaged. he is strictly a middleman and for some purpose the agent of both parties. the negotiation between other parties. Roldan. . 501. on a commission.”62 3. v.

”65 These statements of the Court in Philippine Trust Co. 60 Phil. and the trustee cannot be allowed to have any inducement to neglect his ward’s interest and in line with the court’s suspicion whenever the guardian acquires the ward’s property.64 the Court held that the prohibition under the Civil Code cannot be made to apply unless there was proof that a third-party buyer was a mere intermediary of the guardian. which became the substitute guardian. bring up the issue of whether proof of advantage or benefit to the ward.PARTIES OF A SALE 61 sold the parcels of land in favor of her brother-in-law in the sum approved by the court. The guardian subsequently asked for and was granted judicial confirmation of the sale. however.” It therefore decreed that “from both the legal and equitable standpoints these three sales should not be sustained. should be declared void. 13 (1934). estate or the principal. would be sufficient basis to take the transaction out of the prohibition of Article 1491. 13 (1934). the sale can be rescinded: “Remembering the general doctrine that guardianship is a trust of the highest order. In Philippine Trust Co. There were discussions in the decision of the proof sought to be shown by the guardian that the transaction benefited the ward.” the Court held that the re-sale of the parcels of land to the guardian herself. . on the ground that the prohibition under the Civil Code prevented the guardian from purchasing “either in person or through the mediation of another. the Court disproved such benefit and showed that the “minor was on the losing end. Mactal.. The Philippine Trust Co. The 64 65 60 Phil. Immediately thereafter..” In the earlier case of Rodriquez v. or that the latter had previously agreed with the third-party buyer to buy the property for the disqualified guardian. shows that even a court-approved sale would not stand against the inhibition provided by Article 1491. brought an action to annul the contract. the brother-in-law sold the same parcels of land to the guardian. Philippine Trust Co. the Court abandoned such doctrine and held that even without such proof.

as it would be very easy for such persons to justify gain or advantage on the part of the ward. such administrator or executor would already be in clear conflict-of-interests situation. Precisely to avoid such temptation and quibbling. as the case may be. which by clear language imposes an absolute disqualification on the persons stated therein occupying fiduciary positions. To imply otherwise. would indeed open the floodgates to abuse. once he validly acquires any of such hereditary rights from any of the heirs. from both the practical and equity points of view. such hereditary rights derive their value only from the assets that constitute the estate of the decedent. to even desire to acquire. Besides. nevertheless. Although strictly the legal reasoning of Naval is correct in that hereditary rights pertain immediately to the heirs upon the death of the decedent and do not form part of the estate under the administration of the administrator or executor.62 LAW ON SALES author believes that any matter relating to advantage or benefit is wholly irrelevant under Article 1491. 66 3 Phil. properties of their ward. If an administrator or executor were not disqualified from purchasing or having interests in the hereditary rights. which is clearly within the fiduciary control of the administrator or executor. or that in fact he may even use his fiduciary position to compel or convince the remaining heirs to sell or assign their hereditary rights to him. it is hard to accept the earlier ruling in Naval v. Article 1491 has entirely shut the door to such persons occupying fiduciary positions. Hereditary Rights Not Included in Coverage Prescinding from the doctrine of Philippine Trust Co. the language and spirit of Article 1492 would embrace within the prohibition under Article 1491 personal dealings of administrators and executors on the hereditary rights of the heirs. estate or principal. estate or principal whom they represent. .66 which held that hereditary rights are not included in the prohibition insofar as the administrator or executor of the estate of the deceased. 669 (1904). directly or indirectly. Enriquez. a..

Fernandez. citing In re Attorney Melchor Ruste. which must take place “during the pendency of the litigation involving the property.70 explained the reason for the disqualification as it applies to lawyers in this wise: “Public policy prohibits the transactions in view of the fiduciary relationship involved. 69 Ibid. 40 O. Beltran v. 68 67 . Asuncion.”69 Nevertheless. Judges.. 88 SCRA 513. Cabanting. Macariola v. Attorneys Valencia v. Greed may get the better of the sentiments of loyalty and disinterestedness. but judges as well. In that case. Ababa.”71 35 Phil. 114 SCRA 77 (1982). acquired pieces of land. which previously had been part of a partition case finally decided by him. the presiding judge.G. such as levy on execution. de Laig v. 5. 70 Phil. 70 196 SCRA 302 (1991). 71 Ibid. It is intended to curtail any undue influence of the lawyer upon his client. 92. at p. 307. Court of Appeals. Any violation of this prohibition would constitute malpractice . 646 (1978). Pabinguit. the judge was held liable for violating the canons of judicial ethics. at p. The Court in exonerating the judge from the provisions of Article 1491 held that since the particular provision relating to judges covered only “property and rights in litigation” said that the article applies only to the sale or assignment of the property under litigation.” should cover not only lawyers. Justices and Those Involved in Administration of Justice The early case of Gan Tingco v. 78..PARTIES OF A SALE 63 4. it is not required that some contest or litigation over the property itself should have been tried by the said judge.68 held that the doctrine that prohibition under Article 1491 is “applicable only during the period of litigation. such property is in litigation from the moment that it became subject to the judicial action of the judge.67 clarified that for the prohibition under Article 1491 to apply to judges. citing The Director of Lands v. See also Rosario Vda. 519 (1979). p. 81 (1916). 248 (1940). 86 SCRA 641. through a corporation of which he was a stockholder. and is a ground for suspension.

when there is a certiorari 72 73 51 SCRA 120 (1973).G. 77 Daroy v. 78 Director of Lands v.64 LAW ON SALES In Rubias v.74 it was held that the prohibition under Article 1491 applies only to attorneys when the property they are buying is the subject of litigation. He was therefore disqualified under Article 1491 from purchasing such property since he was the counsel of record of the applicant. Millado. Ibid.72 the facts proven showed that the plaintiff’s claim of ownership over the disputed land was predicated on his purchase made in 1956 from his father-in-law at a time when the latter’s application for registration there had already been dismissed by the land registration court and was pending appeal in the Court of Appeals. Tuason de Paterno. and cannot cover the assignment of the property given in judgment made by a client to an attorney. made in payment of professional services in other cases. at p. 74 49 O. Inc. 135. who has not taken part in the case wherein said judgment was rendered. Evangelista. 290 (1930).75 the Court also held that the prohibition does not apply to a lawyer who acquired the property prior to the time he intervened as counsel in an ejectment suit involving such property. The public interest and public policy remain paramount and do not permit of compromise or ratification. the prohibition applies only during the period the litigation is pending. .78 However. 75 26 SCRA 700 (1969). v.”73 In Gregorio Araneta. 45 (1952). In one case. 76 Municipal Council of Iloilo v. to his attorney as long as the property was not the subject of the litigation. Batiller. and does not apply to a sale to attorneys who were not the defendant’s attorneys in that case. acquired by a client to satisfy a judgment in his favor. Abecia. 88 SCRA 513 (1979). Also. Ababa. even though the case was pending appeal. 298 SCRA 172 (1998). 55 Phil.77 it was held that the prohibition does not apply to the sale of a parcel of land. In another case. The Court declared that “The nullity of such prohibited contracts is definite and permanent and cannot be cured by ratification.76 the Court held that the prohibition applies only to sale to a lawyer who in fact represented the client in the particular suit involving the object of the sale. In Del Rosario v.

81 held that the agreement on contingent fee based on the value of the property involved is not prohibited since the payment of said fee is not made during the pendency of the litigation but only after judgment has been rendered in the case handled by the lawyer. even when the very terms of the arrangement would grant to the lawyer an interest in the property subject of the litigation. Contingent Fee Arrangements Recto v.PARTIES OF A SALE 65 proceeding still pending. Ababa held: “A contract for a contingent fee is not covered by Article 1491 because the transfer or assignment of 79 80 Valencia v. . 100 Phil. Court of Appeals.80 held that the prohibition under Article 1491 does not apply to a contingent fee based on the value of property involved in litigation and therefore does not prohibit a lawyer from acquiring a certain percentage of the value of the properties in litigation that may be awarded to his client. In excluding contingent fee arrangement from the coverage of Article 1491. But it recognized that a contingent fee contract is always subject to the supervision of the courts with respect to the stipulated amount and may be reduced or nullified. 81 86 SCRA 641 (1978). so that in the event that there is any undue influence or fraud in the execution of the contract or that the fee is excessive. Vda. 82 88 SCRA 513 (1979). the disqualification still applies. the client is not without remedy because the court will amply protect him. Director of Lands v. 196 SCRA 302 (1991). and the purchase by the lawyer during the pendency of the certiorari proceedings would constitute malpractice in violation of Article1491 and the canons of professional ethics.79 a. Cabanting. although the subject property is the subject of a final judgment. as an exception to Canon 10 thereof which prohibits a lawyer from purchasing any interest in the subject matter of the litigation which he is conducting. Ababa. 427 (1956). de Laig v.82 recognized that contingent fee arrangement is recognized under Canon 13 of the Canons of Professional Ethics. Harden.

66 LAW ON SALES the property in litigation takes effect only after the finality of a favorable judgment. it would not justify exclusion contingency fee arrangement from Article 1491 coverage on the basis of the improbability of the use of undue influence by the lawyer on the judgment of his client. 540. is contingent upon the success of the appeal.”85 But precisely. Hence. Therefore. the payment of the attorney’s fees. under the 1988 Code of Professional Responsibility. In the instant case. . the attorney’s fees . citing Ulanday v. a contract for contingent fee is valid and enforceable. Manila Railroad Co. . Ababa follows to incongruous end the “pendency of litigation” doctrine which states that the restriction 83 84 195 SCRA 28 (1991). consisting of one-half (1/2) of whatever [the client] might recover from his share in the lots in question. Ibid. In fact. the transfer or assignment of one-half (1/2) of the property in litigation will take place only if the appeal prospers.”84 However. or that the compensation is clearly not excessive as to amount to extortion. In fact.. the transfer actually takes effect after the finality of a favorable judgment rendered on appeal and not during the pendency of the litigation involving the property in question. but rather on the timing of the effectivity of the obligation to pay attorney’s fees. (1923). at pp. 35. at p.” In Fabillo v. Consequently. immediately Fabillo drew the following limitations on contingency fee arrangements: “As long as the lawyer does not exert undue influence on his client. 45 Phil. that is. 35-36. 85 Ibid. a lawyer may have a lien over funds and property of his client and may apply so much thereof as may be necessary to satisfy his lawful fees and disbursements.83 the Court justified excluding contingency fee arrangement from the coverage of Article 1491 “because the payment of said fee is not made during the pendency of the litigation but only after judgment has been rendered in the case handled by the lawyer. these are the burdens that Article 1491 intends to avoid. that no fraud is committed or imposition applied. Intermediate Appellate Court. If we pin-down the core of reasoning in Ababa and Fabillo. . the contract for a contingent fee is not covered by Article 1491.

and no undue influence can be exercised anymore by the lawyer on the client. since the canons cannot override a direct statutory provision. although effective and demandable only after litigation. After all. as it applies to lawyers cover only the period during which the property is still subject to litigation. just because the purchase is made subject to the suspensive condition that the client should win the case and effective only after litigation has ended? It would not seem so with the positive and clear language of Article 1491. a contingency fee arrangement is simply an obligation subject to a suspensive condition.PARTIES OF A SALE 67 under Article 1491. and the client legally and practically is no longer at the mercy of his lawyer. not because contingent fee arrangements are recognized in the Canons of Professional Ethics. Why then are contingent fee arrangements that directly grant to the lawyer a proprietary interest in the property of his client that is the subject of litigation so sacrosanct that the Supreme Court would exempt them from what seems to be unyielding provision of Article 1491? Certainly. if not void. A contingency fee arrangement. Precisely. negotiation and bargaining between the lawyer and the client on the property that was the subject of litigation would be on armslength basis. then it is not covered “by the during the pendency of litigation” doctrine. If it is void and against public policy for a lawyer to purchase the property of his client under litigation. the “pendency of litigation” doctrine is sound mainly because when litigation has finally been terminated. Perhaps. may in fact be negotiated and bargained for between the lawyer and the client during the pendency of litigation. aside from the fact that the Court is composed of members who necessarily are members of the legal profession and subconsciously have turfs to protect. a period in which the lawyer would exercise moral and professional influence over his client. Ababa thus held that since a contingent fee arrangement is demandable only by its nature after the termination of litigation incident on the property subject to litigation. does the purchase become less reprehensible. a contingency fee arrangement actually puts two negotiators toe- . and therefore would rightly be covered by Article 1491.

make a contract for a contingent fee to be paid out of the proceeds of the litigation. 525. As Ababa held: “Contracts of this nature are permitted because they redound to the benefit of the poor client and the lawyer ‘especially in cases where the client has meritorious cause of action. Without a contingency fee arrangement. so that one cannot rightly say that the other occupies a superior or advantageous position as to the other: the client is disadvantaged by the fact that he must rely on the lawyer for the legal assessment of the case and the legal battle that must be fought. and that contingency fee arrangement are not just contracts.68 LAW ON SALES to-toe who are both handicapped. Indeed. with the sanction of law. and does not justify a particular contingency fee arrangement that directly grants to the lawyer proprietary interests in the property subject of litigation. by the fact that he is actually taking a risk since by the contingent fee arrangement he really would get nothing for all his efforts and trouble. As held 86 Supra.’”86 But even that reasoning only supports a contingency fee arrangement in general. or at least the uncertain. Also the Court is faced with a public policy issue of allowing pauper litigants to be ably represented before the courts for their just claims. many otherwise meritorious causes of action would never find competent legal representation. It may be a case of two handicapped persons venturing together into the unknown. since lawyers are officers of the courts. even one that grants to the lawyer a proprietary claim on the subject matter of litigation. but no means with which to pay for legal services unless he can. at p. by the loss of the case. and are always subject to the courts’ discretionary review to ensure that clients are protected from over-bearing lawyers. which is essentially still a monetary claim with the property subject of litigation not being sold or assigned to the lawyer. the Court deems itself solicitous when it comes to contingency fee arrangement. but as a measure to determine the value of the attorney’s fee. whose actuations are always subject to court supervision. the same public policy can still be achieved by allowing contingency fee arrangement that allows the lawyer a percentage of the “value” of the property in litigation. and the lawyer. . In addition.

discussed in the next chapter. 37. —oOo— 87 88 Supra. that the Law on Sales is a “catch-all” provision engulfing within its operations all onerous contracts which have within their coverage the transfer of ownership and delivery of possession of a thing. the client is not without remedy because the court will amply protect him. the Court does not hesitate to apply Article 1491 prohibitions to test the validity of such an arrangement.”87 Perhaps the only true justification is what Ababa held that: “Finally. administrators or executors. nevertheless when the consideration for such service allows the lawyer to obtain ownership and possession of the client’s property in litigation. and yet jurisprudence does not allow exception to their contracts. is to be governed at all by Article 1491 which covers only contracts of sale? The resolution of this issue rightfully brings into focus the ruling of the Supreme Court. 525. which essentially is a contract for service. at p. Although a contingency fee arrangement has for its main subject matter the service of the lawyer. at p.PARTIES OF A SALE 69 in Fabillo. The final issue to tackle is why a contingency fee arrangement. not money-making. . who are also court officers. “the time-honored legal maxim that a lawyer shall at all times uphold the integrity and dignity of the legal profession so that his basic ideal becomes one of rendering service and securing justice. So that in the event that there is any undue influence or fraud in the execution of the contract or that the fee is excessive. a contingent fee contract is always subject to the supervision of the courts with respect to the stipulated amount and may be reduced or nullified. For the worst scenario that can ever happen to a client is to lose the litigated property to his lawyer in whom all trust and confidence were bestowed at the very inception of the legal controversy.”88 But even then such a safeguard is also present with respect to the prohibited contracts entered into by guardians. Supra.

Art. or the resulting contract of sale would be void under various cases provided under Article 1409 of the Civil Code. the situation would either engender a “no contract” situation. Civil Code. 1347 of the Civil Code.7 or at least a.70 LAW ON SALES CHAPTER 3 SUBJECT MATTER REQUISITES OF VALID SUBJECT MATTER A valid contract of sale would result from the meeting of the minds of the parties on a subject matter that has at the time of perfection the following requisites: (a) It must be existing. Lack of Any Requisite Results in Non-existent Sale When the subject matter agreed upon fails to meet the requisites above-enumerated.” (b) It must be LICIT. 7 Art. Civil Code. 3 Art. Civil Code. Civil Code. 1462. it must be a “POSSIBLE THING. is important in considering the applicability of doctrines that pertain to void contracts (e.5 in other words. 1459.3 or even contingent4 or subject to a resolutory condition. 5 Art. 1461.g.6 and (c) It must be DETERMINATE DETERMINABLE..2 a future thing. Civil Code. 1465. 1462. Civil Code. 1462. The issue of whether there is a void contract. 70 .1 having potential existence. 4 Art. also Art. and courts generally leave the parties where they are). no remedy can be maintained. 6 Art. which would have 1 2 Art. 1460. Civil Code.

otherwise. and the legal prohibition is designed for the protection of the plaintiff. there is no inequity to finding the resulting contract of sale as void (as distinguished from a “no contract” situation).” Article 1411 provides that only when the nullity of the contract proceeds from the illegality of the cause or object of the contract. when the act does not constitute a criminal offense. neither may recover what he has given by virtue of the contract. both parties being in pari delicto. he cannot recover what he has given by reason of the contract or ask. if public policy is thereby enhanced. Consequently. Finally.SUBJECT MATTER 71 no application in a situation where the subject matter in a sale does not fulfill a requisite. There is enough legal basis to posit that even when the first requisite for a valid subject matter is not present (i. or demand the performance of the other’s undertaking. must be a possible thing). he may. in case of payment of the agreed price. and the act consitutes a criminal offense. because the innocent party may still be able to recover under the . for the fulfillment of what has been promised him. Article 1416 provides that when the contract is not illegal per se but is merely prohibited. (b) When only one of the contracting parties is at fault. under Article 1412. would the parties have no cause of action against each other.. the innocent one may claim what he has given. and shall not be bound to comply with his promise. in a “no contract” situation the buyer can still recover the amount based on the principle of “unjust enrichment. recover what he has paid or delivered. the following rules shall apply: (a) When the fault is on the part of both contracting parties. but the one. who is not at fault. may demand the return of what he has given without any obligation to comply with his promise.e. On the other hand.

whose acquisition by the seller depends upon a contingency which may or may not happen. it would then seem that the first requisite. b. may not really be a requisite because it practically covers any and all situations (i. since the relationship between parties in any contract even if subsequently voided must always be characterized and punctuated by good faith and fair dealing. Thus. of the subject matter. then restoration of what has been given is in order. 1. For essentially. Article 1461 of the Civil Code explicitly states that “[t]hings having a potential existence may be the object of the contract of sale.72 LAW ON SALES principle of unjust enrichment. existing and non-existing things). Legal Requisites of Subject Matter Intended to Govern Underlying Obligations of Seller In discussing the statutorily-mandated requisites of what constitutes a “valid” subject matter of sale. 313 SCRA 632 (1999).. coupled with the right of the buyer to demand specific performance of such obligation. Subject Matter Must Be “Possible Thing” The first requisite of a valid subject matter provides that the thing may be existing or non-existing at the time of perfection of the contract of sale. the second paragraph of Article 1462 provides that “[t]here may be a contract of sale of goods.e.” In addition. the seller was not even the owner of the thing sold. What further complicates the situation is the provision 8 Delos Reyes v.” which clearly shows that a valid contract of sale may exist even if at the time of its perfection. . what a valid sale is able to legally effect is not the delivery of the subject matter but the constitution of the obligation of the seller to deliver. at perfection. and deliver the possession. Considering that the essence of a “requisite” is to set something apart from the rest. in one case. the underlying policy is really to safeguard the realizability and enforceability of the primary obligations of the seller to transfer the ownership.8 the Supreme Court held that when a contract of sale that has been performed is declared void. Court of Appeals.

that it exists or could be made to exist to allow the seller reasonable certainty of being able to comply with his obligations under the contract. not certainty.” Thus.SUBJECT MATTER 73 in Article 1409(3) of the Civil Code which holds that contracts “whose cause or object did not exist at the time of the transaction” are deemed inexistent and void from the beginning. whose acquisition by the seller depends upon a contingency which may or may not happen. but whether the subject matter is of a type and nature. The proper consideration of the first requisite. is something that could not exist. or it already exists but may or may cease to exist if it is subject to a resolutory condition. then it remains a “possible thing”. Article 1465 provides that the subject matter of a sale may be subject to a resolutory condition. owned or possessed by the seller. if it is to have a legal significance. or goods to be manufactured. if the seller were to sell a formula for a potion which would make the buyer forever young. did not yet exist. . when the existence of a thing is subject to a condition. for it has the capacity. because the nature of the subject matter. Thus.” the subject matter may either be existing goods. The concepts perhaps are best embodied in the terms “possible things” as contrasted from “impossible things. is of such a type and nature that it can be manufactured and could come into existence. at least under current technological and scientific developments. the sale would be considered void. in spite of the fact that the seller may be a scientist. For example. and there may even be sale of goods. raised. the contract of sale is valid and enforceable. since the subject matter thereof. On the other hand. taking into consideration the state of technology and science at the time the sale is perfected. which at the time of the meeting of the minds. Article 1462 of the Civil Code provides that in the sale of “goods. or acquired by the seller after the perfection of the contract of sale (called “future goods”). of coming into existence if subject to a suspensive condition. is to consider it not in terms of physical existence or non-existence or whether the seller had or did not have ownership thereof at the time of perfection. if a seller were to sell a particularly described chair.

Under Article 1459 of the Civil Code. it is only required that the seller “must have a right to transfer the ownership thereof at the time [the subject matter] is delivered. Requiring that the proper subject of a valid sale is a possible thing would ensure demandability and enforceability of the underlying obligation of the seller to deliver. and its perfection does not per se affect the title or ownership over the subject matter thereof. as it defines the contract. that the seller be the owner of the subject matter thereof.e. a sale exists by virtue of the fact that an obligation “to transfer the ownership of and to deliver a determinate thing. is the essence of sale. contracts are inexistent and void from the beginning when “the cause or object did not exist at the time of the transaction. when the first requisite does not exists as to the subject matter (i. Even when the subject matter does not exist at the time of perfection of the sale. Under Article 1347. the resulting contract of sale would be void and is consistent with the injunction provided in Article 1409(3) of the Civil Code when it provides for void contracts: “Those whose cause or object did not exist [i. “including future things.. whether such an obligation exists or not. This position is supported also by other provisions of the Civil Code applicable to contracts in general.e. and not the existence of the subject matter. when the subject matter is of such nature that it cannot come to existence — an impossible thing — the contract is indeed void. but a consensual contract. This rationale for the first requisite is confirmed by the fact that it is not part of the requisites of a valid subject matter. however. especially since sale is not a real. the contract is still valid under Articles 1461 and 1409(3). thus. it is an impossible thing). impossible things] at the time of the transaction.” is assumed by the seller.” may be the object of a contract. all things which are not outside the commerce of men. Consequently.” The rule supports the principle that a sale constitutes merely a title and not a mode.74 LAW ON SALES Under Article 1409(3).” The literal application of this particular provision is not warranted in contracts of sale since under Article 1458.” .. at the time of perfection.

1184. 11 111 SCRA 34 (1981). and even from the coconut trees themselves. Civil Code. If the subject matter does not come into existence. for generic subject matters are never lost. assigning or encumbering the land. and may be dealt with separately from the land on which they grow. such a sale is subject to the condition that the thing will come into existence. as in the case of conditional obligations. In Sibal v. since the subject matter of the contract of sale were fruits of the coconut trees on the land over specified years.10 the Court held that pending crops which have potential existence may be the valid subject matter of sale. although with a potential existence. and subject to a suspensive condition that the subject matter will come into existence. however. an emptio rei speratae covers only contracts of sale whose subject matter are determinate or specific. Emptio Rei Speratae Under Article 1461. and has no application to determinable generic things since the condition that they must come into existence is wholly irrelevant. In Mananzala v. 12 286 SCRA 722 (1998).SUBJECT MATTER 75 a.12 the Court held that the sale of a lot by a seller who is yet to acquire full ownership from 9 Art. a sale emptio rei speratae is strictly a contract covering future things. Therefore. Alonzo. the contract is deemed extinguished “as soon as the time expires or if it has become indubitable that the event will not take place. 50 Phil. The Court also held that the subject matter was determinate.”9 Necessarily also. In Pichel v. 10 . 512 (1927). the Court held no such violation of the law.11 where the issue was whether the grantee of a public land under the Public Land Act had violated the statutory prohibition from disposing. things having a potential existence may be the object of the contract of sale. Valdez. and the same could be dealt with separately from the land itself. Court of Appeals.

or the chance to win. b.00. Emptio Spei Although the second paragraph of Article 1461 states that “[t]he efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. An example of emptio spei is the sale of a sweepstakes ticket. shall return to each what . things subject to resolutory condition may be the object of the contract of sale. affirming the requisite of “possibility” of the subject matter as contrasted from an impossible subject matter. where the buyer purchases the ticket with the hope that upon the draw the ticket would win him. by buying a ticket. if the ticket does not win.” it should be noted that such condition does not really refer to emptio spei. The only condition for a sale of hope to be a valid contract is provided by the last paragraph of Article 1461: that the sale of a vain hope or expectancy is void. the parties. say a million pesos. a player throws a pair of dice in the hope that the resulting combination would win for him all bets placed on the table? c. Is that not the same consideration when. for say 5100. one may be able to win a million pesos. say for a 5100. upon the fulfillment of said conditions. Emptio spei typifies a situation where the commutative nature of a contract of sale seems not to be complied with. for say 5100. if the resolutory condition happens to extinguish the thing. but rather to emptio rei speratae.76 LAW ON SALES the government agency is a valid sale since it involves the sale of the a “future thing.00 bet.” but really it was a sale subject to the condition that seller will acquire the property. and the buyer has no right to recover the amount paid for the ticket. However. but rather the ticket. what happens to the contract of sale itself? The rule would be the same as applied to all obligations subject to a resolutory condition under Article 1190: “When the conditions have for their purpose the extinguishment of an obligation to give. thus. The object of the sale is not the prize. Sale of Things Subject to Resolutory Condition Under Article 1465 of the Civil Code.00. the sale is still valid.

d. 13 2 SCRA 830 (1961). .” and unless the stipulation is clear. including an object of sale subject to a condition. the contract of sale is void. that the rules of interpretation would incline the scales in favor of “the greatest reciprocity of interests.SUBJECT MATTER 77 they have received.e. with the obligation on the part of the seller to return the price he has received thereby. shall retroact to the day of the constitution of the obligation. or a present object subject to a resolutory condition.13 should also be considered where it held that a contract of sale being an onerous and commutative contract. once the condition has been fulfilled. the fruits and interest during the pendency of the condition shall be deemed to have been mutually compensated.. essentially because the existence of such a condition has tempered the amount of the consideration or price that could be demanded from the buyer. sellers and buyers dealing at arms length have their own methods to properly price things. the subject matter must be existing or must come to existence to be delivered to the buyer. Subjecting the object of sale (i.” The ruling in Gaite v. Article 1187 provides that “The effect of a conditional obligation to give. the obligation of the seller to deliver) to either a suspensive or a resolutory condition does not undermine the commutative nature of a contract of sale. under a free-market system. In other words. Nevertheless. In determining how restitution could best be achieved between the parties. when the obligation imposes reciprocal prestations upon the parties. a clause should be interpreted as a term rather than as a condition.” This default rule will thus preserve the commutative nature of sale. otherwise. or an existing contract of sale is extinguished. Subject Matter Is Nexus of Sale From the foregoing discussions it can be deduced that whether the contract of sale involves a present object (such as a hope or expectancy in emptio spei) or a future thing subject to a suspensive condition (emptio rei speratae). Fonacier.

1459. 1575. Even other contracts that are not strictly sales contracts. Tañedo v. This echoed the earlier observation of the Court in Commissioner of Internal Revenue v. and dacion en pago (which really is a mode of performance of a pre-existing obligation). 16 Art.14 held that the Civil Code provisions on sale are in effect “catch-all” provisions which effectively bring within their grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.18 The sale of animals suffering from contagious diseases. as distinguished from other similar contracts. Civil Code. 19 Art. Civil Code. 1575. 18 Art.” 2. The sale of future inheritance is also void. a distinction should be drawn between a sale of future hereditary 14 15 368 SCRA 691. tend to be governed by the Law on Sales.19 and those which are unfit for the use or service for which they are acquired as stated in the contract.16 A thing is licit and may be the object of a contract when it is not outside the commerce of men. like barter (which does not have the element of “price”).20 is void. 21 Art. Subject Matter Must Be Licit The subject matter of the contract of sale must be licit. . 705 (2001). and deliver the possession. the Supreme Court in Polytechnic University v. 17 Art. the resulting contract of sale is void. 271 SCRA 605. and all rights which are not intransmissible. 252 SCRA 80 (1996). 20 Art. 1409(1). Court of Appeals. but essentially constitute the delivery of the ownership and possession of the subject matter as an integral undertaking. Thus.21 However. 1347. Civil Code. 1347.78 LAW ON SALES This would emphasize that.15 that “[t]ransfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. Civil Code. of subject matter.17 When the subject matter is illicit. Court of Appeals. Civil Code. the essence of a contract of sale is the meeting of minds that bring about the obligation to transfer the ownership. 617 (1997). Civil Code. Court of Appeals.

e. in favor of co-heirs. 27 Sec. 1288. Rep. is null and void. Act No. 2255. a non-heir cannot conclusively claim ownership over the property part of the estate of the deceased person on the sole basis of the waiver document which neither recites the elements of either a sale or a donation..24 rare wild plants. Rep. and renders the sale void. Some of them are those where subject matter is prohibited. Sales Declared Illegal by Law There are various special laws that declare certain sales contracts as illegal and therefore void. Court of Appeals. 32 299 SCRA 695 (1998). 7. 375 SCRA 390 (2002). 1120. since the first presumes the existence of a contract of sale between the parties. Code. 29 Pres. or any other derivative mode of acquiring ownership.30 The sale of friar land without the consent of the Secretary of Agriculture required under Act No. 145. Act No. 6425. 1. Cebu Country Club. Court of Appeals. 2590. Court of Appeals. Act No. 31 Alonso v.26 dynamited fish. Therefore. Act No. Liao v. while the second is a mode of extinction of ownership where there is an abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it. Act No. Inc.31 Quijada v.. 39 (1995). 251 SCRA 30. 28 Sec. Revised Adm. 3983.22 Again.29 and sale of realty by non-Christians.28 firearms and ammunitions. 30 Sec. 24 Sec. 1. 9.g. the illegality of the subject matter.27 gunpowder and explosives. 1. 25 Sec.32 did not consider as void the sale by the donor of land previously donated to a local government unit under a resolutory condition as a sale “outside Acap v. 23 22 . undermines the demandability of the underlying obligation of the seller to deliver. Act No. even though it is determinate and existing and capable of actual delivery. a.25 poisonous plants or fruits. 4252. narcotics. Rep. 323 SCRA 430 (2000). Act No. Decree No.SUBJECT MATTER 79 rights and a waiver of an acquired hereditary rights. 428.23 wild birds or mammals. 26 Rep.

36 When the subject matter of a sale is determinate. such as the open seas and the heavenly bodies. and under the doctrines ex dolo oritur actio and in pari delicto potior est conditio defendentis. It held that the “objects referred to as outside the commerce of man are those which cannot be appropriated. 380 SCRA 306 (2002). the maxim nemo cum alterius deter detremento protest (No person should unjustly enrich himself at the expense of another). 36 Art. Determinate Subject Matter A thing is determinate or specific when it is particularly designated or physically segregated from all others of the same class. Sales in violation of land reform laws declaring tenants-tillers as the full owners of the lands they till.35 3. neither a court of equity nor a court of law will administer a remedy. The provision of Article 1416 of the Civil Code will also not apply since they cover only contracts which are merely prohibited in order to benefit private interests. Catito. cannot apply in this case. as well as 33 34 Ibid. Subject Matter Must Be Determinate or at Least Determinable a. in that patrimonial properties of a local government unit. Gigantana.”33 Frenzel v. 1460. The transactions was void ab initio for being in violation of the constitutional prohibition against aliens owning private land.34 discussed the consequence of an alien who purchased land and placed the deed of sale in the name of his Filipina lover: such alien would have no standing to seek legal remedies to either recover the properties or to recover the purchase price paid. especially those conditionally owned by said unit. as being outside the commerce of men.80 LAW ON SALES the commerce of men under Article 1409(4)” of the Civil Code. the basis upon which to enforce seller’s obligation to deliver. since the action is proscribed by the Constitution or by the application of the in pari delicto doctrine. Consequently. . 406 SCRA 55 (2003). Civil Code. are null and void. 35 Siacor v.

37 By its very definition.” The Arellano plan had long been in existence before the execution of the deed. are certain and unequivocable. including lots 1214C and 1214-D. The instrument of sale did not mention lot 1214-B. a thing is determinable only when two (2) requisites are present: (a) If at perfection of the sale. Civil Code. 1460. avenues and parks according to the Arellano plan. although it was contiguous to the other two lots. the subject matter is capable of being made determinate (the “capacity to segregate” test).SUBJECT MATTER 81 the basis upon which to demonstrate breach. at the time the contract is entered into. and (b) Without the necessity of a new or further agreement between the parties (the “no further agreement” test). The requirement in Melliza was deemed fulfilled under the contract of sale because 37 38 Art. because it has neither been physically segregated nor particularly designated at the point of perfection from the rest of its kind. Determinable Subject Matter On the other hand.38 Melliza sold under a deed several tracts of land to the then Municipality of Iloilo. City of Iloilo. b. the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties. 23 SCRA 477 (1968). a determinable subject matter is a generic object. In Melliza v. It is also when the subject matter is determinate or specific that the defense of force majeure is applicable to legally relieve the seller from the consequences of failure to deliver the subject matter of the sale. . but stipulated that the area being sold shall include the area “needed for the construction of the city hall site. The Court held that the requirement that a sale must have for its object a determinate thing is fulfilled as long as.

could be determined by simply referring to the Arellano plan.39 it was held that where the lot is described to be adjoining the “previously paid lot” on three sides thereof.” the object is deemed to be “determinable” and sufficient to support a valid contract of sale. and would run 39 40 332 SCRA 769 (2000). In San Andres v. then it would undermine the very enforceability and demandability of the underlying obligation to deliver. the exact area of the land needed. the agreement between the parties included a formula which can be used by the courts to establish the subject matter upon which the obligation to deliver can be enforced.40 the Court ruled that when the receipt issued by the seller acknowledging partial payment of the purchase price describes the subject matter as “this lot is the portion formerly earmarked for Mrs. When the formula requires the court to have to go back to the parties to determine their confirmation. In David v. it would actually render the sale void under Article 1409(6) because the original contractual intention of the parties cannot be determined.” which had long been in existence and it specifically provided for the land areas needed for the city hall site. the requisite of being “determinable” is met when at perfection. nor even to clarify matters or explain their intentions. Tiongson. the sold lot was deemed capable of being determined without the need of a new contract and the fact that the exact area of the adjoining residential lot is subject to the result of a survey does not detract from the fact that it is determinate or determinable. 313 SCRA 63 (1999).00. without the parties needing to draw-up a new contract. Rodriguez. at the time of the perfection of the contract. which was the subject matter of the sale. In essence.82 LAW ON SALES it specifically referred to such other portions of the lots required by the “Arellano plan. Therefore. and that any mistake in the designation of the lot by its tax declaration does not vitiate the consent of the parties or affect the validity and binding effect of the sale.500. . Rosita Venture-Muslan where she already paid the sum of 51. without needing to get back to any one or both the parties of the object of their intention.

Atilano emphasizes the point that the true “contract of sale” is intangible or properly a legal concept. they were referring to lot 535-A because even before that. the lot which Eulogio was occupying as residence was actually 535-E. when the heirs of the brother had his lots resurveyed for subdivision. and not by the mere lot number assigned to it in the certificate of title. His brother thereupon obtained a transfer of certificate in his name. the purchasing brother had been occupying said lot as his residence. although the deed of sale referred to lot 535-E. It was clear that when the brothers entered into a contract. The Court reasoned that when one seeks to sell or buy a real property. executed a deed of sale in favor of his brother supposedly covering lot 535-E. then the deed must give way to the real contract of the 41 28 SCRA 231 (1969).SUBJECT MATTER 83 counter to the principle of mutuality or obligatory force of every valid contract. But even prior to the execution of the sale. who had subdivided his land into five parts. On the other hand. the brother had been in possession of the subject property and had built his house thereon. one sells or buys the property as he sees it in its actual setting and by its physical metes and bounds. The deed of sale is merely an evidence of the contract. which had a bigger lot area. but actually lot 535-A. c. which mistake was deemed pro forma and did not vitiate the consent of the parties or affect the validity and binding effect of the sale.41 Eulogio. Test of Determinability Is the Meeting of Minds of Parties and Not the Covering Deed In Atilano v. because there was only a mistake in designating the particular lot to be sold in the instrument. The brother’s heirs filed an action in court seeking possession of the real lot 535-E. . Years later. And when the deed fails to cover the real contract or the true meeting of the minds of the parties. it was discovered that the land they were occupying on the strength of the deed of sale was not lot 535-E. The Court held that the object of the sale was actually lot 535-A. Atilano.

it is what makes the subject matter determinate or at least determinable. Logically.” has been reiterated in Londres v.42 and presents a clear contemporary exception to the almost sacrosanct doctrine under the Torrens system that the public can deal with registered land exclusively on the basis of the title thereto. the ability to enforce the obligation of the seller to deliver would be totally lacking. The doctrine that “one sell or buys real property as he sees it. since quantity constitutes an essential ingredient to achieve the requisite of the goods being determinate or determinable. When Quantity of Subject Matter Not Essential for Perfection The meeting of the minds on the identity. This is borne by the fact that when the nature and quantity of the subject matter is agreed upon. Court of Appeals. it prevents the buyer from demanding the delivery of an object not contemplated by the seller. has complied with the characteristic of being determinable. in its actual setting and by its physical metes and bounds. of the subject matter is essential for the purpose of perfection of sale. the actual quantity of goods as subject matter of sale would also be essential in the meeting of the minds. Without agreement as to quantity. although essentially generic or fungible. the nature and quality. The defect in the final deed would not work to invalidate the contract where all the essential elements for its validity are present and can be proven. since the parties know more or less the exact nature of the object or objects which will become the subject of performance “without need of further agreement. and not by the mere lot number assigned to it in the certificate of title. how much or how many of the described goods could be the object 42 94 SCRA 133 (2002). .84 LAW ON SALES parties. and at the same time. and perhaps superior compared to the price agreed upon. If it were otherwise.” Such characteristic prevents the seller from delivering something not within the contemplation of the buyer and perhaps much inferior than the price agreed upon. the subject matter. d.

640 cavans. Soriano initially offered to sell palay grains produced in his farmland to NFA. The 43 171 SCRA 131 (1989).43 where the parties had agreed on specified types of rice which was to be harvested from the seller’s farmland at specified prices per cavan. because such aspect go into the very core of such contract embodying the essential characteristic of mutuality or obligatory force. . In National Grains Authority v. This position is supported by Article 1349 of the Civil Code which provides that “every contract must be determinate as to its kind. thus — In the case at bar.640 cavans. then at what price can enforcement be demanded when no quantity of the goods is present? The meeting of minds on the quantity of the goods as subject matter is necessary for the validity of the sale. there was already a meeting of the minds between the parties. The Court held that there was at the point of agreement already a perfected and binding contract of sale. provided it is possible to determine the same. and to which NFA was obliged to comply and pay the purchase price for the grains actually delivered by the seller-farmer Soriano. without the need of a new contract between the parties. When the latter accepted the offer by noting in Soriano’s Farmer’s Information Sheet a quota of 2. The object of the contract. it was provided in the agreement that the seller was allowed to deliver within a specified quota of 2. being the palay grains produced in Soriano’s farmland and the NFA was to pay the same depending upon its quality. and although the exact quantity had not been agreed upon. Intermediate Appellate Court.” Notice that the essential phrase of “without the need of a new contract between the parties” in Article 1349 is the same formula used in defining a determinable subject matter in Article 1460.SUBJECT MATTER 85 of an action for specific performance? Even granting arguendo that an action for specific performance is available against such a seller. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract.

1981. description. Trading Corp.44 The controlling doctrine in National Grains Authority is that specific quantity of the subject matter is not important when it is still possible to determine the quantity “without the need of a new contract between the parties. On 24 December 1981. 227 SCRA 719 (1993). . as in fact the quantities were confirmed latter on 29 December 1981.640 cavans.. quantity is immaterial in the 44 45 Ibid. Although the quantity to be ordered was made determinate only on December 29.. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract. 1981. unit price. Article 1349 of the New Civil Code provides: “. v.86 LAW ON SALES fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract.” In this case.” and therefore complies with the requisite of being determinable. provided it is possible to determine the same. 1981. however. and not upon the confirmation of the buyer of the quantities covered by the order. without the need of a new contract between the parties. The Court held that a binding contract of sale existed between parties upon issuance of the purchase order.45 the seller had made a formal offer on the following matters pertaining to engine parts: item number. 136. not on December 29. the buyer confirmed to purchase on the indicated prices and in fact issued a purchase order which. for perfection took place. but rather on December 24. Soriano can deliver so much of his produce as long as it does not exceed 2. thus — While we agree with the trial court’s conclusion that indeed a perfection of the contract was reached between the parties. did not contain the quantities per unit but the buyer merely bound itself to submit the quantities about a week thereafter. Court of Appeals. In Johannes Schuback & Sons Phil. at p. part number. quantity. there was no need for NFA and Soriano to enter into a new contract to determine the exact number of cavans of palay to be sold. we differ as to the exact date when it occurred.

nothing in the facts indicated that as of 24 December 1981 the quantity of the objects ordered could be determined outside of a subsequent agreement by the parties. much like a contract of sale. which from the facts disclosed.SUBJECT MATTER 87 perfection of sales contract. but rather what is perfected is a preparatory contract to enter into a contract of sale. the underlying obligation of the “seller” and the “buyer” is to enter into one or series of contracts of sale based thereon when they come to agree upon the quantity. The foregoing rulings in effect support the doctrine that certain generic objects may be the proper object of a contract of sale. What is of importance is the meeting of the minds as to the object and cause. . even when the exact quantity of the subject matter of the contract of sale has not been agreed upon.e.46 However. at the moment of meeting upon the description. In other words. show that as of December 24. but the parties have in fact come into an agreement as to the quality thereof and the price. and terms of payment. quality and unit price of the goods. there is already a valid and binding contract. these essential elements had already concurred. to 46 Ibid. would have at the perfection thereof goods whose quality and unit price would have been agreed upon by the parties. Thus. provided that they fulfill the characteristic of being “determinable” at the point of perfection. However.. at p. The ruling in Johannes Schuback relied upon National Grains Authority. the author disagrees with the rulings of the Supreme Court. that the resulting contract is always a contract of sale. there is indeed a perfected and valid contract. which essentially involves obligations “to do” (i.” A supply agreement. and yet in the latter case at the time of perfection of the contract. 722. but unlike a contract of sale. or what is called in commercial parlance a “supply agreement. there was in fact a maximum quantity agreed upon. 1981. but it is an agreement to enter into a contract of sale.

he interposed the defense of force majeure because he was not able to harvest any sugar in his plantation due to a storm. without designating any particular lot of sugar or the particular source thereof. Such an agreement.88 LAW ON SALES enter into actual contracts of sale). Gonzales. who received payment. and when a suit was brought against him to recover the amount paid and stipulated damages for breach of contract. v. at most the breach of such contract would allow the recovery of damages. even the risk of loss over the subject matter does not arise. . before such time. either by physical segregation or particular designation.47 the parties entered into a written contract whereby Gonzales bound himself to sell and deliver 600 piculs of first class sugar (given quality) to Yu Tek & Company. Although the sale of determinable generic thing is valid. however. In Yu Tek & Co. The Court held Gonzales liable for breach of contract (which meant there was a valid underlying sale) although it held that the defense of force majeure was unavailing since the contract was not perfected as to the particular subject matter for determining loss. since by definition generic object are never lost. Generic Non-Determinable Objects Since “determinable” objects may be the valid subject matter of a sale. have the characteristic of consensuality. the remedy of specific performance would not be available to the non-defaulting parties because the underlying obligation of the obligor is a personal obligation. rather than real obligations to deliver and to pay. until the quantity agreed upon has been selected and is 47 29 Phil. e. then even generic things that fall within said definition can validly support a contract of sale. relativity and obligatory force. 384 (1915). Gonzales. delivered no part of the sugar promised. like all other valid contracts. and non-compliance would constitute a breach of contract. the obligation to deliver the subject matter can only be complied with when the subject matter has been made determinate.

Vol.” 48 PARAS. Article 1246 of the Civil Code provides that “[w]hen the obligation consists in the delivery of an indeterminate or generic thing. Article 1246 covers only “quality” of a generic subject matter. The situation would then precisely be the one covered by Article 1409(6) of the Civil Code which declares such contract as void and inexistent: “Those where the intention of the parties relative to the principal object of the contract cannot be ascertained. the resulting contract would be void. a contract is inexistent and void from the beginning “where the intention of the parties relative to the principal object of the contract cannot be ascertained. whose quality and circumstances have not been stated. Neither can the debtor [seller] deliver a thing of inferior quality. the contract is void. The purpose of the obligation and other circumstances shall be taken into consideration. any generic subject matter would validly support a contract of sale. the impetus of the law declaring sales covering subject matters which are neither determinate or determinable is based on the fact that the “enforceability” or “demandability” of the underlying obligation of the seller to deliver the subject matter is at grave risk. The article cannot be taken to mean that even when the subject matter is not determinable. so that when it is the “kind” and “quantity” that cannot be determined without need of a new agreement of the parties.48 f.SUBJECT MATTER 89 capable of being physically designated or appropriated. Status of Sale Not Complying with Third Requisite When the minds of the parties have met upon a subject matter which is neither determinate or determinable. CIVIL CODE OF THE PHILIPPINES ANNOTATED. the creditor [buyer] cannot demand a thing of superior quality. Again. The Court ruled that the buyer does not assume the risk of loss of a generic subject matter under a valid sale until the object is made determinate. 375. Under Article 1409(6) of the Civil Code. IV (1994 ed.” The courts therefore have power to set the appropriate quality of the subject matter of a sale when the same is determinable generic. either by physical segregation or particular designation. . at p.).” As one author has held.

weight. 244 SCRA 564 (1995). therefore.53 the Court allowed the “sale in mass” at public auction of even separate known lots or parcels. the buyer becomes the co-owner to such share of the mass as the number. 1464.”52 In another case. number or measure. though the seller purports to sell and the buyer purports to buy a definite number. the mass. weight. . or measure bought. Civil Code. NLRC. notwithstanding that the quantity delivered is less than the amount estimated. at p. the sole owner of thing may sell an undivided interest therein. h. Sale of Undivided Share in Mass In the sale of fungible goods. weight or measure bought bears to the number. unless a contrary intent appears. so that all that [is] required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass. and there would result coownership over the subject matter. Sale of Undivided Interest Under Article 1463 of the Civil Code. By such a sale. Fonacier. the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality. Art. and not the actual number of units or tons contained therein.49 If the mass contains less than the number. of the goods in the mass. 52 Ibid. 51 2 SCRA 831 (1961). there may be a sale of an undivided share of a specific mass. 1464.50 Gaite v.90 LAW ON SALES g. Civil Code. a determinate object.51 held that when parties to a sale covering a specific mass had not made any provisions in their contract for the measuring or weighing of the subject matter sold. and though the number. weight. 53 Republic v. and held 49 50 Art. weight or measure of the mass. 840. and that the price agreed upon was not based on such measurement. or measure of the goods in the mass is undetermined. then “[t]he subject matter of the sale is.

Seller’s Obligation to Transfer Ownership Required at Time of Delivery In general. since a mortgage is merely encumbrance on the property and does not extinguish the title of the debtor who does not lose his principal attribute as owner to dispose of the property. and who does not sell them under authority or with the consent of the owner. it is sufficient that he be the owner at the time of the delivery. the buyer acquires no better title to the goods than the seller 409 SCRA 438 (2003). 364 SCRA 523 (2001). Court of Appeals. 1459.54 affirmed the principle that a prior mortgage of the property does not prevent the mortgagor from selling the property. It also noted that the law even considers void a stipulation forbidding the owner of the property from alienating the mortgaged immovable.57 Article 1505 of the Civil Code provides that when goods are sold by a person who is not the owner thereof.56 otherwise. 4. In fact. a perfected contract of sale cannot be challenged on the ground that seller had no ownership of the thing sold at the time of perfection. Sale of Mortgaged Property Pineda v. 57 Art. the acquisition by the buyer of the subject matter of the sale may even depend upon contingency and this would not affect the validity of the sale. 1462. he need not be the owner thereof at the time of perfection. Civil Code. de Leon.SUBJECT MATTER 91 that such sale would not be set aside unless it is made to appear that a larger sum could have been realized from a sale in parcels or that a sale of less than the whole would have been sufficient to satisfy the debt. Alcantara-Daus v. Heirs of Severina San Miguel v. 55 54 . i.55 Although the seller must be the owner of the thing in order to transfer ownership to the buyer. 404 SCRA 74 (2003). Court of Appeals. Civil Code. 56 Art. he may be held liable for breach of warranty against eviction.

in Nool v. Court of Appeals. as the buyers themselves have already 58 59 Art. 62 276 SCRA 149 (1997). the right to repurchase attached to the sale would also be void. unless there is estoppel on the part of the owner.62 the Court held that sale by one who is not the owner of the subject matter is void. Hilltop v. 61 286 SCRA 722 (1998). Civil Code.58 but this pertains only to the consummation stage of the sale and does not affect the validity of the contract itself. 13 CAR 113 (1968). and consequently. 1505. People. 1078 (1960). it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers. Conflicting Rulings Lately.61 recognized that the sale of a lot by a seller who is yet to acquire full ownership thereof from a government agency was still a valid sale since it involved the sale of a future thing.60 held that the sale of copra for future delivery does not make the seller liable for estafa for failing to deliver because the contract is still valid and the obligation becomes civil and not criminal. . provided he acquires title to the property later on. Villacorta. The Court held that although a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Article 1409 of the Civil Code.92 LAW ON SALES had.59 held that a contract of sale cannot be declared null and void for failure of the seller to reveal the fact that it was not the owner of the property sold. and under Article 1402 the Civil Code itself recognizes a sale where the goods are to be “acquired x x x by the seller after the perfection of the contract of sale” clearly implying that a sale is possible even if the seller was not the owner at the time of sale. 60 108 Phil. Esguerra v. Mananzala v. however. a. nevertheless it held — In the present case however. Court of Appeals.

in order to render the attached right to repurchase also void. 150.SUBJECT MATTER 93 acquired title and delivery thereof from the rightful owner. with damages. delivery of ownership is no longer possible. and that the buyer was the one that eventually bought the property from the foreclosing bank. it was important in Nool to hold the contract of sale void.63 In order to achieve justice. it equated the primary obligation to transfer ownership and deliver possession as “service” and therefore constitutes them as personal obligations “to do. such contract may be deemed to be inoperative and may thus fall. The problem with the doctrine proposed by Nool is that in order to hold the sale void by the holding that the sellers were not the owners of the subject matter thereof. under item no.” That position is not correct since the obligations of the seller in a contract of sale are real obligations “to give” and which would make them enforceable by specific performance. at p. The Court found it inequitable for the sellers to exercise the right to repurchase. when they had not complied with their obligation to transfer ownership over the subject matter of the sale. It has become impossible. Thus. The result would be that the sellers would be liable for breach of contract of a valid contract of sale. . the DBP. including the right to repurchase. the sale was at perfection still valid and remained valid even when the seller could no longer comply with their obligations to transfer ownership. Nool would still have achieved the same equitable end by sticking to the doctrine that in spite of the fact that the sellers were not the owners of the subject matter of the sale. by analogy.” Article 1459 of the Civil Code provides that “the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered. Another way to have dealt with the situation in Nool was to recognize that redemption rights are species of extinguishment 63 Ibid. the only remedy left was to rescind the sale. The rescission of the sale brings with it the rescission of all ancillary features. 5 of Article 1409 of the Civil Code: “Those which contemplate an impossible service. but since the obligations could be performed.” Here.

446 (1934). the earlier decision in Noel v.” These principles have been summarized in Quijada v.. rather than as a doctrine that pertains to the status of a sale upon perfection. which concerned primarily the resolution of the issue of prescription. even when stipulated at perfection. and essentially only after full consummation of the obligation of the seller to deliver the subject matter of sale. an aspect of consummation.66 A close reading of Noel. that redemption rights do not arise. In fact. in the case of Nool.64 invoked the principle that — In a contract of sale. This law stems from the principle that nobody can dispose of that which does not belong to him . the seller not having complied with his obligation to delivery the subject matter. Court of Appeals. Noel did not say that the contract of sale is void if the seller is not the owner at the time of perfection.. 88. Citing Azcona v. 299 SCRA 695 (1998). Reyes.65 NEMO DAT QUOD NON HABET.” which is consistent with the rule that a seller cannot transfer by delivery ownership of the thing which at the time of delivery did not belong to him. 456 240 SCRA 78. Therefore. The doctrine is consistent with Article 1459 of the Civil Code which states that “the vendor must have a right to transfer the ownership thereof at the time it is delivered. The principal obligation of a seller is “to transfer the ownership of” the property sold (Civil Code of the Philippines. Court of Appeals. 33 Phil. unless there has been delivery of the subject matter to the buyer.94 LAW ON SALES of a valid sale. 59 Phil. Coronel v. what it did say is that a seller cannot “dispose of that which does not belong to him. (1916). his conventional right of redemption or repurchase never arose. Art. 66 67 . Indeed. Ona.67 thus — 64 65 240 SCRA 78 (1995). 1458). tended to go into the act of transferring ownership. it is essential that the seller is the owner of the property he is selling.

68 b. Being a sale. 324 SCRA 346 (2000). 68 69 Ibid. hence. This is the reason why Article 2085 of the Civil Code. at p.SUBJECT MATTER 95 Sale. requires among other things. the forced seller. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection.69 held that a foreclosure sale. Spouses Cyrus Lim. though essentially a “forced sale. is perfected by mere consent. which is manifested the moment there is a meeting of the minds as to the offer and acceptance thereof on three (3) elements: subject matter. Cavite Development Bank v. in providing for the essential requisites of the contract of mortgage. being a consensual contract. the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. Exception: When Seller Must Be Owner at Time of Sale The exception to the rule that ownership by the seller is not essential at the time of perfection would be in the case of judicial sale. . Ownership by the seller on the thing sold at the time of perfection of the contract of sale is not an element for its perfection. is obliged to pay the bid price in money or its equivalent. 696. that the mortgagor or pledgor be the absolute owner of the thing mortgaged. under which the mortgagor in default. becomes obliged to transfer the ownership of the thing sold to the highest bidder who. in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan. the sale is still valid.” is still a sale in accordance with Article 1458 of the Civil Code. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered. in turn. price and terms of payment of the price. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold.

under Article 1434 the seller’s “title passes by operation of law to the buyer. but that previous physical delivery of the subject matter must have been done. . the seller sells a subject matter over which he is not the owner. but also to other kinds of property. was a valid sale even though at the time of sale. However. Quijada v. the subsequent acquisition of title by a seller validates the sale and title passes to the buyer by operation of law. Court of Appeals.96 LAW ON SALES c. Subsequent Acquisition of Title by Seller Article 1434 of the Civil Code provides that when at the time of perfection. —oOo— 70 299 SCRA 695 (1998). when the resolutory condition did occur which effectively reverted ownership back to the seller. provided there has been previous delivery of the subject matter by the seller to the buyer. it is essential that there not only exist a valid sale.70 recognized that the sale of a land previously donated by the seller to a local government unit under a resolutory condition. ownership in the property was still with the local government. It should be noted that for the transfer of ownership ipso jure to happen under Article 1434.” The Court expresslly recognized that the rule under Article 1434 applies not only to sale of goods. including real property.

the ideal consideration for a contract of sale would be “price” as a “sum certain in money or its equivalent. the usual or defined consideration for a sale is price.3 that the concept of “contract of sale” under Article 1458 of the Civil Code is “in effect.” In essence. at p. Court of Appeals. Court of Appeals. Ibid.97 CHAPTER 4 PRICE AND OTHER CONSIDERATION By definition under Article 1458.1 thus: “Consideration. such as the prestation or promise of a thing or service by another.”2 In other words. more properly denominated as cause. Therefore.4 the existence of the “obligation to pay the 1 2 320 SCRA 428 (1999). This is in line with the principal doctrine reiterated by the Court in Polytechnic University of the Philippines v. it is possible that a “sale” may still be valid when it has for its cause or consideration an item other than price. but that a contract of sale may still validly exist and thereby be governed by the Law on Sales. 97 . 428. 4 271 SCRA 605 (1997). Consider the Supreme Court’s ruling in Torres v.” However. 3 368 SCRA 691 (2001). Court of Appeals. paraphrasing Commissioner of Internal Revenue v. it would be valid for a sale of the subject matter to have as its consideration the expectation of profits from the subdivision project as part of the joint venture arrangement between the parties. can take different forms. when it is supported by other valuable considerations. a ‘catchall’ provision which effectively brings within its grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.

e. Civil Code. AFP Retirement and Separation Benefits System. 1471. 228 SCRA 183 (1993).98 LAW ON SALES price” does not play a critical role in defining a sale.1458 and 1468. 11 Arts. Civil Code. buyer could not unilaterally withdraw from a valid sale on the ground that the interest rate of 24% set on the payment of the price on installments was odious. 345 (1911). 20 Phil. Cromwell. Court of Appeals. (i. In the same manner..9 REQUISITES FOR VALID PRICE The price or consideration of a contract of sale must have the following requisites at the time of the perfection of the sale.”5 MEANING OF “PRICE” “Price” signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him. 1308. 10 Art. Civil Code. at p. thus: “Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. 9 Bortikey v. it would be a violation of the essential characteristic of “obligatory force”8 of contracts of sale. thus: (a) It must be REAL. 607.7 otherwise.6 A seller cannot unilaterally increase the price previously agreed upon with the buyer. because the “obligation to transfer ownership and deliver possession” of the subject matter is the more defining element of sale. 477 SCRA 511 (2005). provided that valuable consideration is present. it must be VALUABLE CONSIDERATION).11 and Ibid. 8 Art. even when the need to adjust the price of sale is due to increased construction cost. Inchausti & Co.10 (b) It must be in MONEY OR ITS EQUIVALENT. 6 5 . v. 7 Government Service Insurance v.

would not grant the seller the right to rescind the sale after the buyer has duly consigned the price with the courts. 1. It is also essential that the requisites for the price promote the onerous. namely the price. then neither the contract of sale nor the price can be considered as wholly simulated. b. . Civil Code.14 although the act may be shown to have 12 13 Art. the sale is void. for there was valuable consideration. a. 1458. When Price Is Real Price is “real” when at the perfection of the sale. Santos. 367 SCRA 559 (2001). there is legal intention on the part of the buyer to pay the price. Ong. 14 Yu Bun Guan v. commutative and bilateral-reciprocal characteristics of the contract of sale. and the non-payment of the price because of the refusal of the seller to turn-over the title to the bank.PRICE AND OTHER CONSIDERATION 99 (c) It must be CERTAIN or ASCERTAINABLE. Peñalosa v. must be real.13 held that when the parties execute a Deed of Absolute Sale over a parcel of land with the understanding that the price indicated therein would be paid from the proceeds of the loan to be obtained by the buyer from a bank using the subject property as mortgage collateral. 363 SCRA 545 (2001). the requisites provided by law for a “valid” price to support a valid sale are intended to preserve the integrity and enforceability of the underlying obligation of the buyer to pay. it is essential that consideration agreed upon. and legal expectation on the part of the seller to receive such price as the value of the subject matter he obligates himself to deliver.12 As in the case for subject matter for sales. When Price Is Simulated When the price is simulated because neither party to the Deed of Sale had any intention whatsoever that the amount will be paid. Price Must Be Real Since a contract of sale is an onerous and commutative contract.

made the sale void. Montecillo v. the indication in the covering instrument that the price has been agreed upon and paid. Civil Code. or some other contract. Heirs of Catalina Roque. 16 15 . Vda. has been considered to be an indication of simulation of price. and the parties may recover from each other what they may have given under the ‘contract.17 the Court considered it to be the “most protuberant index of simulation” of the price when there is a “complete absence of an attempt in any manner on the part of the buyer to assert his rights of ownership over the land and rice mill in question. v. Santiago. 40 Phil. 385 SCRA 244 (2002). In another case. then the principle of in pari delicto nonovitar actio should apply. 74 SCRA 83 (1976). then it is a wholly simulated price.19 the Court held that the admission by the buyer that he did not pay any centavo for the property. 17 Suntay v. 20 Perez & Co. Reynes. The failure of the buyer to take possession of the property allegedly sold to him is a clear badge of fraud. 921 (1920). The Court has held that “[i]n absolute simulation. 251 SCRA 430 (1995). Court of Appeals. However. Lim.100 LAW ON SALES been in reality a donation. when in fact there has been no such payment. 432. 1471. 19 Labagala v. 371 SCRA 360 (2001). In one case. there is a colorable contract but without any substance. An absolutely simulated contract is void.’”16 The determination of what was the intent of the parties at perfection has been drawn by the Court from the contemporenous and subsequent acts of the parties. Ladanga v. especially when evidence showed that the deed of sale was forged. 446 SCRA 54. Heirs of Spouses Balite v. such principle Art. at p. 67 (2004). As discussed below. which denies all recovery to the guilty parties inter se. 18 Ibid. 131 SCRA 361 (1984).20 When the price is completely simulated. and the underlying contract of sale is void for lack of consideration. de Catindig v.15 The whole issue therefore boils down to contractual intent: if there was no intent by the parties at the time of perfection to pay and to receive the price stipulated.”18 and therefore considered the sale utterly void. Flores. Court of Appeals. because the parties have no intention to be bound by it.

Meeting of Minds as to Price In Mapalo v. one of the parties may ask for the reformation of the instrument to the end that such true intention may be expressed.23 In one case. 67. 28 17 SCRA 114 (1966). the Court ruled that there was only a relative simulation of the contract which remained valid and enforceable.. especially when the interest of the Government or third parties would be adversely affected by the reformation of the instrument. If the price indicated in the covering instrument is false. . Lim.22 c.”26 Nevertheless. 458 SCRA 652 (2005).28 the spouses Mapalo. Court of Appeals. their true intention is not expressed in the instrument purporting to embody their agreement . the parties’ real agreement binds them. In another case. 317 SCRA 696 (1999). v. 25 Heirs of Spouses Balite v. such a contract is relatively simulated .21 but does not apply to inexistent and void contracts where the price is merely simulated.PRICE AND OTHER CONSIDERATION 101 applies to cases where the nullity arises from the illegality of the consideration or the purpose of the contract.27 d. but not declared. 27 Spouses Doromal. Court of Appeals.” 24 Macapagal v. 446 SCRA 56 (2004). 367 SCRA 559 (2001). at p. Ong. Mapalo. . and what is stated in the covering deed is not the one intended to be paid. When Price Is False Price is “false” when there is a real price upon which the minds of the parties had met.. Yu Bun Guan v. 26 Ibid. the contract of sale is valid. but the underyling deed is subject to reformation to indicate the real price upon which the minds of the parties have met. Remorin. 23 Article 1359 of the Civil Code provides that “When. who were simple illiterate farmers. there having been a meeting of the minds of the parties to a contract. 22 21 . but subject to reformation.24 when the parties intended to be bound by the contract except that it did not reflect the actual purchase price of the property. the parties may be held bound by the false price indicated in the instrument under estoppel principle. were made to sign a deed of sale over Modina v.25 the Court held that “if the parties state a false cause in the contract to conceal their real agreement. Sr. 66 SCRA 575 (1975).

there was no real consideration as to the western half of the property. aside from the false consideration of 5500. since there was in fact no intention to enter into a sale.102 LAW ON SALES their registered land although they were told that they were signing a donation for the eastern half of said property in favor of the brother. Effect of Non-Payment of Price If the price is fixed but is later on remitted or condoned. 363 SCRA 545 (2001). e. It ruled that according to Manresa. what is meant by a contract that states a false consideration is one that has in effect a real consideration but the same is not the one stated in the document. were made to sign a Deed of Absolute Sale on the representation by the buyer that the document was merely to evidence their lending of money. It was void. Although the deed of sale stated a consideration of 5500. the Court differentiated between a contract that had no consideration from one which merely contained a false consideration. the contract was one with no consideration and not one that merely states a false consideration.00. Peñalosa v. Similar is the decision in Rongavilla v. the situation constituted more than just fraud and vitiation of consent to give rise to a voidable contract. The failure to pay the price does not cancel a sale for lack of consideration.00. and there was no consideration or price agreed upon. . no such consideration was paid. On the issue over the western part of the land which was never intended to be conveyed by the spouses. Santos.29 where the Court held that when two aged ladies. for then the price would not be fictitious. and its inexistence was permanent and incurable and could not be subject of prescription. which made the contract void. this is perfectly all right. for there is still consideration.30 The failure to pay the price or the balance thereof does not render the sale inexistent or invalid. there was no consent at all. but merely 29 30 294 SCRA 289 (1998). In Mapalo. not versed in English. therefore. Court of Appeals. The failure to pay a real price goes not into perfection of the sale but into its consummation.

because the price stipulated is known by both parties as simulated. 74 SCRA 83 (1976). and it becomes a binding and valid contract upon the meeting of the minds on the price.31 Vda. Heirs of Rufina Morales. irrespective of the manner of payment they agreed upon. Court of Appeals. If the minds of the parties never meet as to the price. the contract is undoubtedly void. it is perfected by the mere consent of the parties. v. . when in fact it has not yet been paid (e.PRICE AND OTHER CONSIDERATION 103 gives rise to a right in favor of the seller to either demand specific performance or rescission of the contract of sale. although the non-payment of the price is a cause either for specific performance or for rescission. Delivery of the thing 31 32 Province of Cebu v. the second portion is hard to accept per se. 34 74 SCRA 83. has in fact never been paid by the purchaser to the vendor.g.”34 It is not the fact of payment of the price that determines the validity of a contract of sale. the contract of sale is valid.33 Although the first part of the ruling is correct that a contract of sale is void if the price stipulated is simulated. 37 261 SCRA 128 (1996). 131 SCRA 361 (1984). 36 Ibid. although the parties showed on the face of the covering deed that the price had been paid.32 held that a contract of sale is void and produces no effect whatsoever where the price. 35 Ladanga v.” Sale is a consensual contract. de Catindig. a separate promissory note is executed to cover the payment of the purchase price).37 which held: “A contract of sale being consensual. if the minds of the parties have met as to the price. which appears thereon as paid. Heirs of Catalina Roque. where it says that a sale is void where “the purchase price which appears thereon as paid has in fact never been paid by the purchaser to the vendor. since sale is not a “real contract.35 On the other hand. 385 SCRA 244 (2002). 546 SCRA 315 (2008). in a contract of sale where the price agreed upon was a real price. Reynes. Court of Appeals.36 Therefore.. This position has been confirmed in Balatbat v. 88 (1976). 33 Reiterated in Montecillo v. the contract of sale is still valid. or even by the breach of that manner of payment agreed upon.

Soliva v. a clause becomes a condition only when the terms of the agreement clearly make it so. 41 Gil v. for which the vendor may exercise his legal remedies. also Peñalosa v. Generally. 40 Ibid. 140. the happening of a resolutory condition ipso jure extinguishes the obligation or the contract which it modifies without need of further action on the part of the obligee. Reynes. 363 SCRA 545 (2001). Reiterated in Bravo-Guerrero v. 439 SCRA 273 (2004). Bravo. at p. .104 LAW ON SALES bought or payment of the price is not necessary for the perfection of the contract. 417 SCRA 277 (2003). Court of Appeals. the non-payment of the price constitutes a mere breach of contract that allows the seller. Blas v. either to seek specific performance or for rescission. Failure to pay the consideration is different from lack of consideration. Second. 188. existed and discharges the obligations created thereunder. Where the deed of sale states that the purchase price has been paid but in fact has never been paid.42 the Court held — . Villalba. Villalba. 411 SCRA 18 (2003). Lately. Santos. for a time. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission. 417 SCRA 277 (2003). 477 SCRA 666 (2005). Court of Appeals. .”38 Heirs of Pedro Escanlar v. Ibid. Jr. 281 SCRA 176 (1997).”41 First. and failure of the vendee to pay the price after the execution of the contract does not make the sale null and void for lack of consideration but results at most in default on the part of the vendee. Reiterated in Soliva v. 39 38 . 42 385 SCRA 244 (2002). Angeles-Hutalla. at p. the non-payment of the price is a resolutory condition which extinguishes the transaction that. at his option. v. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract.”40 It is unfortunate that the Court often states that the nonpayment of the price in a contract of sale “is a resolutory condition which extinguishes the transactions. 465 SCRA 244 (2005). in Montecillo v. The Intestate Estate of Marcelo M. Court of Appeals. Carrascoso.39 also held: “In a contract of sale. The Intestate Estate of Marcelo M.

44 held that when the Deed of Sale was executed merely to facilitate the transfer of the property to the buyer pursuant to an agreement to enable the buyer to construct a commercial building and to sell the property to the children. The Court. but that in truth the agreement was a mere subterfuge on the part of the buyer. . plus interests income for the accommodation. at p. 367 SCRA 559 (2001). the Court held that where the registered owner of land (Mate). when in fact it has never been paid. that would be considered a “badge of simulation” and would render the contract void.43 The ruling of the Court would mean that when the deed of sale declares that the price has been paid. more so when fraud has not been considered an efficient cause to render a contract void. the agreement cannot be taken as a consideration for the sale which the Court held to be void. f. but rather voidable by reason of vice in the consent of the party-victim. in order to accommodate a relative (Josefina) who was threatened to be criminally sued by a creditor (Tan) for issuance of bouncing checks. Ong. held — 43 44 Ibid.45 which sustained the validity of the arrangement even when fraud may have been the intention of the party accommodated. . quoting from the decision of the respondent court. In Mate. executed a Deed of Absolute Sale with a right of repurchase in favor of said creditor. 256. The ruling in Yu Bun Guan is in stark contrast to the Court’s earlier decision in Mate v. . the fact that the checks bounced did not render the sale void for having a fictitious consideration. and for which the registered owner received post-dated checks from the kin to cover the amount necessary for him to repurchase the property.PRICE AND OTHER CONSIDERATION 105 the deed of sale is null and void ab initio for lack of consideration. Court of Appeals. Accommodation Does Not Make Sale Void for Lack of Price Yu Bun Guan v. 45 290 SCRA 463 (1998).

00 from her. g. Court of Appeals. at pp. being his cousin.000. .. . and therefore void and inexistent. 269 SCRA 15 (1997). With this arrangement.00.00 from her which impelled him to execute such contract. 467-468. appellant was convinced he had a good bargain. .000.400. Also. but also his receipt of 5420. Simulation of Price Affects Delivery of Subject Matter When a contract of sale is fictitious. and the failure to pay the price. Unfortunately his expectation crumbled. 46 47 Ibid. But care should be made to distinguish between a simulated price that affects delivery. false) the underlying sale would still be valid and enforceable provided there is another consideration (apart from the false price) to support the sale. appellant got a check of 51.”46 Mate is a prime example to show that even when undoubtedly the price stipulated in the covering instrument is simulated (i.e. on the other hand.000. Traders Royal Bank v. Nemo potest nisi quod de jure potest — no man can do anything except what he can do lawfully. by allowing his titles to be in possession of Tan for a period of six months. It is not only appellant’s kindness to Josefina.47 Delivery of the subject matter made pursuant to a sale that is void for lack of consideration therefore does not transfer ownership to the buyer. no title over the subject matter of the sale can be conveyed. appellant secured her another check for 5420.106 LAW ON SALES “In preparing and executing the deed of sale with right of repurchase and in delivering to Tan the land titles. as there was no consideration for the same. xxx xxx xxx “It is plain that consideration existed at the time of the execution of the deed of sale with right of repurchase. on one hand. To ensure that he could repurchase his lots. which does not affect the efficacy of delivery of the subject matter. appellant actually accommodated Josefina so she would not be charged criminally by Tan.

166 (1989). a check or draft.g. he caused to be delivered goods of the PRDC to the 48 49 40 Phil. 50 176 SCRA 159 (1989). (PRDC). though not resolved.49 The essence of the ruling is that there was never any real price agreed upon. the transaction can still be considered a contract of sale when this is the manifest intention of the parties. 53 102 Phil. 52 176 SCRA 159. 2.. In Republic v.. at pp. This shows that the consideration for a valid contract of sale can be the price and other additional consideration. and partly in another thing. contracted with the Bureau of Prison for the purchase of 100 tons of designated logs.51 to the effect that services are not the equivalent of money insofar as said requirement is concerned and that a contract is not a true sale where the price consists of services or prestations. in Bagnas v. e. and the failure to delivery the price was one of the indications to show its simulation.48 held that a sale is null and void and produces no effect whatsoever where the same is without cause or consideration in that the purchase price which appears thereon as paid has in fact never been paid by the purchaser to the vendor. 59-60.50 that Article 1458 “requires that ‘equivalent’ be something representative of money. but only a small payment of the purchase price was made. even Article 1468 of the Civil Code recognizes that if the consideration of the contract consists partly in money. 3rd ed. 921 (1920). Phil. Perez & Co. Price Must Be in Money or Its Equivalent: “Valuable Consideration” Article 1458 of the Civil Code. 51 Vol. in defining the obligation of the buyer. 921.PRICE AND OTHER CONSIDERATION 107 Early on. . v. pp. In lieu of the balance of the purchase price. provides that he must pay the price certain in money or its equivalent. but quoted from syllabus at p.”52 Nevertheless. 960 (1958). 8. Ibid. It had been proposed. allegedly acting for the Philippine Resources Development Corp.53 Apostol. Flores. Court of Appeals. citing Manresa. Resources Development. 941-942.

. The Government asserted that the subject matter of its litigation with Apostol was a sum of money allegedly due to the Bureau of Prison from Apostol and not the goods reportedly turned over by Apostol in payment of his private debt to the Bureau of Prison and the recovery of which was sought by PRDC. is always paid in terms of money and the supposed payment being in kind. PRDC had no legal interest in the very subject matter in litigation as to entitle it to intervene.108 LAW ON SALES Bureau of Prison as payment for the outstanding price.”54 The Court held that the Government’s contentions were untenable.” which means payment of the price need not be in money. Whether the goods claimed by PRDC belong to it and delivered to the Bureau of Prison by Apostol in payment of his account is sufficient payment therefor. 54 Ibid. even by dation in payment. as was the case in Republic. is for the court to pass upon and decide after hearing all the parties in the case. and for this reason. certainly PRDC would be affected adversely if its claim of ownership to such goods were upheld. The Government argued that the goods which belonged to PRDC were not connected with the sale because “Price . at p. 965. the term “equivalent” of price can cover other than money or other media of exchange. One of the issues resolved in the case was whether PRDC had the right to intervene in the sales transaction executed between Apostol and the Bureau of Prisons and in the suit brought by the Government to enforce such sale. as it defines a contract of sale. but rather the consummation stage where the price agreed upon (which ideally should be in money or its equivalent) can be paid under the mutual arrangements agreed upon by the parties to the contract of sale. it is no payment at all. Republic is not at all authority to say that under Article 1458. . ruling that Article 1458 provides that the purchaser may pay “a price certain in money or its equivalent.. since Republic covers not the perfection stage of a contract of sale. PRDC therefore had a positive right to intervene in the case because should the trial court credit Apostol with the value price of the materials delivered by him.

” Money being the highest form or representation of commercial value in society. cause or consideration that would promote the onerous nature of the contract of sale. This shows the essence of sale is the existence of the obligation of the seller to transfer ownership and delivery possession of the subject matter. Concept of “Valuable Consideration” Ong v.00) and the other valuable considerations. it constituted valid cause or consideration to validate the sale and delivery of the land. therefore that other forms of cause or consideration which are “valuable” would support a valid contract of sale. The significance of the use of the term “price to be in money or its equivalent” is for the law to demonstrate the ideal example of the onerous nature of sales. removes any doubt that of what is “valuable consideration” and functions merely as the model of prestation. Court of Appeals. Ong. that it must be supported by a “valuable consideration.55 held that when the covering contract for the sale of a parcel of land clearly provides that the consideration for the sale was the expectation of profits from the subdivision project. In all.” The Court held that since no evidence was adduced to show that the consideration stated in the deed was not paid or was 55 56 320 SCRA 428 (1999).57 considered the validity of a sale of real property where the consideration stated in the deed was “One Peso (51. There is little doubt. a. In Polytechnic University of the Philippines v.56 it was held that the cancellation of liabilities of the seller constitute valid consideration for sale. the requisite that the price must be in money or its equivalent is one that has not been held steadfast by the Supreme Court as determinative of the validity of a sale. Court of Appeals. although an essential element of a valid contract. 368 SCRA 691 (2001). Adequacy of Price to Make It “Real”. being essentially a generic obligation. may be subject to variations. . 57 139 SCRA 133 (1985).PRICE AND OTHER CONSIDERATION 109 Torres v. whereas the price.

60 176 SCRA 159 (1989).” 59 Ibid. although the actual consideration may have been much more. and no other true and lawful cause having been shown. and though they will state a false or nominal consideration in their covering deed.00).”59 The essence of the Ong ruling is that in our jurisdiction. 58 Article 1354 provides: “Although the cause is not stated in the contract.60 which covered a sale of real property where the consideration stated in the covering deed was “the sum of ONE PESO (51. such as a contract of sale. not merely voidable.” In that case. it is presumed that it exists and is lawful. at p. the Court held “that the apparent inadequacy is of no moment since it is the usual practice in deeds of conveyance to place a nominal amount although there is a more valuable consideration given. being rendered and to be rendered for my [seller’s] benefit. . such circumstance alone. does not necessarily justify the inference [that the buyers] were not purchasers in good faith or for value. unless the debtor proves the contrary.00 is not unusual in “deeds of conveyance adhering to the Anglo-Saxon practice of stating a nominal consideration. The ruling was affirmed in Bagnas v.” In any event. provided that valuable consideration was in fact agreed upon. the Court finds both said deeds. and what prevails in Philippine jurisdiction is that for consideration to support an onerous contract. it would have to be “valuable consideration” under the Roman Law concept. it is possible for parties to a sale to agree on an adequate consideration. it is presumed to exist under Article 1354 of the Civil Code. Moreover. and services rendered. the Court noted that the gross disproportion between the consideration stipulated and the value of the property.110 LAW ON SALES simulated. would show that the price stated was “a false and fictitious consideration. 136.00 was suspicious. even assuming that said consideration of 51. it would not affect the validity of the contract of sale. Philippine jurisprudence has not accepted the Anglo-Saxon concept that “any” consideration is enough to support a contract. Court of Appeals. In effect through Ong. insofar as they purport to be sales.58 It held that the statement in the deed of the consideration of 51. Philippine Currency.

It is not normal human behavior for parties to a contract of sale to execute a deed of sale without a settled consideration and later agree on a further consideration. at pp. 55 O.”61 Therefore. Bagnas should not be interpreted to mean that although the parties agreed that services was agreed upon to be part of the consideration. the fact that no service was rendered would make the contract “void. otherwise there would be no price certain. 166-167. Arimas. In Arimas v.” since the non-performance of the service agreed upon does not go into the validity of the contract but actually grants to the seller or his successors-in-interests the right to rescind the contract for breach thereof. 61 62 Ibid. The Court held that the consideration appearing in the supplement must have been part of the consideration for the sale of the hacienda. The consideration is generally agreed upon as a whole even if it consists of several parts. even though a consideration is real in the sense that it was agreed upon and there is every intention of the parties to pay and receive such price.62 the controversy was on the real terms of the sale of a hacienda. it would still be considered fictious and render the sale void if it is a mere nominal price. since both the original deed and the supplement were signed by the parties.PRICE AND OTHER CONSIDERATION 111 but void ab initio. The essence of the ruling in Bagnas was that evidence was adduced to indicate that there was no real intention to pay any indicated valuable consideration. . Two documentary evidence were adduced: one was the deed of sale and another document purporting to be a supplement which contained part of the consideration to which the seller consented to sell his hacienda. he refused to sign it at first because the consideration was too small. and even if it is contained in one or more instruments. The seller averred that when buyer first came to him with the first document. 8682 (1959). The seller finally signed it when they agreed on further considerations which were embodied in the supplement (the second document).G.

” Even before the fixing of the price by the designated third party. 3. as to prevent one party from unilaterally withdrawing from the contract. 26 Phil. it being sufficient for the latter purpose that the price is left to the judgment of a specified person. In that case.64 it was held that in order to perfect a sale it is only that the parties agree upon the thing sold and that the price is fixed. Price Must Be Certain or Ascertainable at Perfection Price is certain when it has been expressed and agreed in terms of specific pesos and/or centavos. To illustrate. albeit conditional. such contract was a contract subject to a suspensive condition. in Barretto v. even before the designated thirdparty had fixed a price there was already an existing contract of sale..63 for to consider a contract of sale already existing when the price has yet to be fixed by one of the parties would render the contract to be without the characteristics of “mutuality” or “obligatory force. Price Fixed by Third Party The designation of a third party to fix the price is valid. 200 (1913).112 LAW ON SALES There would be no meeting of minds as to the consideration. Santa Marina. or that the determination thereof be left to the judgment of a specified person or persons. in order that the price may be considered ascertainable. it shall be sufficient that it be so with reference to another thing certain. a contract of sale is deemed to be perfected and existing. that the price will be fixed by the thirdparty designated by the parties. 63 64 Art. The fixing of the price cannot be validly left to the discretion of one of the contracting parties. This affirms the proposition that money represents the best model of valuable consideration. . a. i. Civil Code. Under Article 1469 of the Civil Code.e. 1473. however. and such designation by itself makes the price ascertainable as to give rise to a valid contract of sale. and the contract of sale could not be perfected.

there is no longer a contract upon which the courts have any jurisdiction to fix the price.PRICE AND OTHER CONSIDERATION 113 Under Article 1469. 1474. under the principle that when a party prevents a condition from happening. such formula is not allowed for the determination of the subject matter of the sale. the law declares the contract of sale “inefficacious. Art. and its non-happening extinguished the underlying contract. 1186. 67 Art.67 b. 1469. consequently. in a manner of speaking. as the case may be. Civil Code.” 66 65 . the parties do not have a cause of action to seek from the court the fixing of the price because. the designation of a third party to choose among the subject matter is not allowed. In such a case.66 That means that the party may demand from the the courts for the fixing of the reasonable price. In order that a contract of sale can exist. Art. The designation of a third party to fix the subject matter is not provided by law. and would in fact authorize any of the purported party to withdraw from the arrangement. the party not at fault may have such remedies against the party in fault as are allowed the seller or the buyer. In the unlikely event that the parties have agreed on the price and the terms of payment but cannot agree as to an array of similar subjects available for the contract.”65 When the third party designated is prevented from fixing the price by fault of either the seller or the buyer. Fixing of Subject Matter by Third Party Although under Article 1469 of the Civil Code. those are the only two instances where the parties to the contract can seek court remedy to fix the price. that condition can be deemed fulfilled by the other party. and when adopted would not give rise to a binding and valid sale. if the designated third party fixes the price in bad faith or by mistake. the designation by the parties of a third party to fix the price gives rise to a valid (albeit conditional) contract of sale. the condition imposed on the contract of sale has not happened. When the designated third party is either unable or unwilling to fix the price. Civil Code. Civil Code: “The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

71 68 69 Arts. could the subject matter be physically segregated or particularly designated by the courts without further agreement between the contracting parties. liquids. On the other hand. and generally cannot be extinguished by fortuitous event. 1460. The test of being determinable covers a of test of capacity: based on the formula agreed by the parties at the time of perfection. c.68 The test of whether the subject matter is determinate is one of fact: whether the subject matter has been physically segregated or particularly designated. Civil Code. provided said amount be certain. the obligation to deliver the subject matter and the title thereto can only be complied with at the point when the thing is either physically segregated or particularly designated. 13 SCRA 762 (1965). or in a particular exchange or market. and it is not a generic obligation. 1472. Civil Code. when the price fixed is that which the thing would have on a definite day. any money can be used to pay the price. .114 LAW ON SALES the parties must have agreed on a subject matter which is determinate or determinable.69 The difference in rules between subject matter and price on designation of third party springs from the essence of the obligations they pertain to: the obligation to pay the price is essentially a fungible obligation. Art. the designation of a third party to set the price is allowed. Price Ascertainable in Reference to Other Things Certain The price of securities. 70 Lawyer’s Cooperative v. Tabora. or in such exchange or market. and therefore its designation cannot be left to the will of a third party who may choose a subject matter beyond the capacity of the seller to comply with his obligations to deliver the same.70 Therefore. 71 Art. and other things shall also be considered certain. the price which is the subject of the obligation of the buyer is essentially generic. 1458 and 1460. but rather a “species” obligation. Civil Code. or when an amount is fixed above or below the price on such day. grain.

468 SCRA 597 (2005). Manner of Payment of Price Must Be Agreed Upon Although the Civil Code provisions governing the contract of sale do not explicitly require that a meeting of the minds of the parties must include the terms or manner of payment of the price. Navarra v. Aenlle. 285 (1904). Court of Appeals.. v. the same is deemed to be an essential ingredient before a valid and binding contract of sale can be said to exist.115 The price of a thing is certain at the point of perfection by reference to another thing certain. 527 SCRA 562 (2007).74 Note that the law does not use the term “void. Fernando. or in any other manner. 77 Marnelego v. 74 Art. Mitsui v. PNB. A seller may be willing to accept a comparative lower price for the object of the sale if it McCullough v. since it is part of the prestation of the contract.72 or known factors or stipulated formula.77 Manner of payment of the price goes into the essence of what makes price certain or ascertainable. 4. which cannot be rendered void by what happens after perfection. Even from an economist’s point of view.75 and without which there can be no valid sale. 477 SCRA 173 (2005). Ramos. Planters Dev. 1474. Sr. 75 Development Bank of the Philippines v. 3 Phil. 344 SCRA 492 (2000). 73 72 . 624 (1919). such as to certain invoices then in existence and clearly identified by the agreement. Bank. Manila Metal Container Corp. the contract of sale is inefficacious. 39 Phil.76 nor can an action for specific performance be made against the alleged seller. 76 Edrada v. Banco Filipino Savings and Mortgage Bank. Cruz v. the manner and terms of payment of the price is an integral part of the concept of “price” because of the time value of money. Effect of Unascertainability Where the price cannot be determined in accordance with any of the preceding rules. 511 SCRA 444 (2006).” because of the implied acknowledgment that the existence of the formula allowed by law at the point of perfection has actually rendered a contract valid albeit conditional.73 d. Manila. 480 SCRA 399 (2006). Civil Code.

” then such “acceptance” did not produce a binding and enforceable contract of sale. He cannot now unilaterally withdraw from it by disavowing the obligation created by the stipulation in the contract. he consented to the imposition of interest [24% per annum] on the contract price. The amount of the stated contract price paid in full today is worth much more that a series of small payments totaling the same amount. and earned interest income therefrom. had it received the full cash price. Since he opted to purchase the land on installment basis.82 where the parties had agreed on the determinate subject matter (a parcel of land). there was therefore no complete meeting of the minds and there is no basis to sue on a “contract” that does not exist.78 the Court pointed out that the buyer “was free to decide on the manner of payment [of the purchase price].”79 The Court further held — The rationale behind having to pay a higher sum on the installment is to compensate the vendor for waiting a number of years before receiving the total amount due. could have deposited the same in a bank. 82 51 SCRA 439 (1973).81 held that when the manner of payment of the purchase price is discussed after “acceptance. and the total 78 79 477 SCRA 511 (2005). and yet would be demanding a higher price if the purchase price were to be paid over a long stretch of time. Velasco v. . Respondent vendor. 514.116 LAW ON SALES is payable within a short period of time as to allow him to make investments or apply the proceeds to earn more profits. To assert that mere prompt payment of the monthly installments should obviate imposition of the stipulated interest is to ignore an economic fact and negate one of the most important principles on which commerce operates. Ibid. Thus. in Bortikey v. 515. AFP Retirement and Separation Benefits System. either in cash or installment. 81 1 SCRA 1180 (1961). Court of Appeals. 80 Ibid. at p..”80 Navarro v. at p. for instance. Sugar Producer’s Corp.

would have the same requisites that the law imposes on price to support a valid contract of salecertain or at least ascertainable. then also. 85 336 SCRA 737 (2000). 83 Reiterated in Limketkai Sons Milling. However. 255 SCRA 626 (1996). Court of Appeals.000. v. Court of Appeals.85 although the parties had agreed on the real properties purchased and the price.PRICE AND OTHER CONSIDERATION 117 purchase price. Court of Appeals.83 In Leabres v. without any indication therein of the total purchase price of the land or of the monthly installments to be paid. the receipt was merely an acknowledgment of the sum of 51. Inc. The Court held that the receipt cannot be the basis of a valid sale. there was still no valid sale. The Court held that although part of the downpayment has been paid.00. a definite agreement on the manner of payment of the purchase price was an essential element in the formation of a binding and enforceable contract of sale. can support a valid and binding contract of sale. there was still no valid sale since the evidence showed that they failed to arrive at mutually acceptable terms of payment scheme. unknown to both parties. but subject to the same condition affixed to the price. . In San Miguel Properties Philippines. v. such as when the fixing of the price is left to a third party. but not on the manner of payment of the agreed price.” being an integral part of the price. despite the 45-day extension given by the seller. held that although a downpayment had already been made by the buyer and received by the seller. The point being made is this: that the “terms of payment. 278 SCRA 720 (1997). Uraca v. Huang. then the terms of payment are deemed to have been agreed upon and the sale would be valid. 84 146 SCRA 158 (1986). Court of Appeals. If a price.84 the main cause of action was based on a receipt issued for an alleged sale of the subject property. 286 SCRA 76 (1998). Inc. if the terms of payment are provided for in a formula or process that does not require the agreement of the parties for the formula to work. Co v.

Proper Understanding of Doctrine on Agreement on Terms of Payment of Price The imperative need for the meeting of the minds of the parties on the terms of payment of the price should be qualified by the proper understanding that terms of payment do not always have to be expressly agreed.. Under Article 1179 of the Civil Code. In each of those cases therefore. the price is deemed to be by operation of law immediately demandable upon the perfection of the contract. the parties were to have a mode of payment of the price other than immediate payment. price is deem to be demandable at once. a.87 it was held that where there is no other basis for the payment 86 87 477 SCRA 173 (2005). Sr. when the law supplies by default such terms. Court of Appeals.86 held that the absence of any stipulation on the manner of payment of the purchase price would support the position that the agreement between the parties was really a contract to sell. Cruz v. is demandable at once. In all other cases. or upon a past event unknown to the parties. under the species “an agreement to agree to enter into a contract of sale. Velasco. Fernando. In Development Bank of the Philippines v. . there could not have been a final meeting of the minds of the parties as to the price because both parties in each case knew and expected that certain negotiations still had to be made with respect to the manner of payment of the price.118 LAW ON SALES On the other hand. 344 SCRA 492 (2000).” Therefore. and Leabres indicates clearly that in each of the cases. in the absence of any stipulation or agreement or actuation indicating that a different term of payment would be applicable and for which a meeting of the minds must be achieved. A close reading of the rulings in Navarro.” which essentially constitutes obligations to do and not subject to an action for specific performance. “[e]very obligation whose performance does not depend upon a future or uncertain event.

88 89 Art. 295 SCRA 677 (1998). delivered by the seller itself.90 involving the sale of parcels of land by the NHA. 5. the contract is inefficacious. . 90 424 SCRA 147 (2004). or in any other manner.” Note that in such a case. the Court could then have directed the trial court to fix the reasonable prices for the housing units already appropriated by the buyers.89 where the Court refused to make effective the contracts of sale in spite of the fact that the buyers were already in possession of the housing units. on the ground that the evidence “shows that the price was merely an estimate. However. when it was still clear that the final price had yet to be agreed upon. Grace Baptist Church. Civil Code. the author has looked critically at that portion of the decision in Raet v. he must pay a reasonable price therefore. When There Is Sale Even When No Price Has Been Agreed Upon Article 1474 of the Civil Code provides: “Where the price cannot be determined in accordance with the preceding articles. The same ruling was reached in National Housing Authority v.” Under the authority in Article 1474. 1474. What is reasonable price is a question of fact dependent on the circumstances of each particular case.PRICE AND OTHER CONSIDERATION 119 of the subsequent amortization in a Deed of Conditional Sale the reasonable conclusion one can reach is that the subsequent payments shall be made in the same amount as the first payment. Therefore. Court of Appeals. where possession had been turned over to the buyer which had introduced improvements thereon.88 Article 1474 seems to present the only exception where there would still be a valid sale even when there has been no meeting of the minds as to the price or any other consideration. the courts have authority to fix the reasonable price for the subject matter appropriated by the buyer. if the thing or any part thereof has been delivered to and appropriated by the buyer.

and (b) The position does not seem to be supported by the immediately subsequent term “or in any other manner” by which price cannot be ascertained. which makes the contract entirely void. liquids based on a trading price). the proposition of ejusdem generis to qualify Article 1474 only to situations where the price is certain or ascertainable would be totally inapplicable. What Does Article 1474 Mean by “Preceding Articles”? When Article 1474 states that where the price cannot be determined “in accordance with the preceding articles. the contract is inefficacious. Under such scenario. to which does the phrase “preceding articles” refer to? It is posited that the phrase “preceding articles” should start with Article 1469 which provides ascertainable of price with reference to another thing certain. It also covers Article 1473 where the formula for the fixing of the price is left to the discretion of a party. or a specified formula. In other words.” or in any other manner. etc. grain. which is the basis to apply the principle of ejusdem generis.. the phrase “preceding articles” in Article 1474 should be construed to refer to all articles preceding. namely Articles 1469 to 1473. which prohibits the fixing of the price by any of the parties. which clearly implies the non-exclusivity of the provision only to sales of contract which are valid but rendered inefficacious. Notice that within the coverage of the “preceding articles” is Article 1471 which covers the situation when the price is completely simulated and therefore gives rise to a void contract of sale. although it may still be saved as a donation where the consideration is shown to be pure liberility. up to Article 1473.120 LAW ON SALES a. . especially when: (a) Articles 1469 and 1472 are not even consecutive articles and the non-joinder of the articles in-between is wholly arbitrary. would have no logical or legal basis. To posit that the phrase “preceding articles” in Article 1474 can be interpreted to cover only Article 1469 (price is fixed in reference to another thing certain or left to a third-party’s determination) and Article 1472 (price of securities.

and its essence is truly Philippine development. as such value may be established in the usual course of proof. though not certain. Obviously. 93 Ibid. SALES. which provide for sales which are not void because the price. 50 Phil. inability to get things done. Lizarraga Hermanos. the use of the term “inefficacious” was not meant to exclude void sales. Law Center (1981 ed. Furthermore. as the trial judge pointed out. from the focal point of price. Concept of “Appropriation”.). it violated a term of the contract and made itself liable for the true value of the things contracted about.” because within the coverage of “preceding articles” are Articles 1469 and 1472. at p. published by U. 397-398. The case-law basis91 of Article 1474 is attributed to Robles v.93 91 92 BAVIERA. The standard dictionary definition of “inefficacious” means “the inability to produce the effect wanted.” The use of the word “inefficacious” does not exclude void sale contracts when the price is neither certain or ascertainable. is ascertainable. thus: . c. that an unjust enrichment of the defendant [buyer] would result from allowing it to appropriate the movables without compensating the plaintiff therefor.PRICE AND OTHER CONSIDERATION 121 b. What Does Article 1474 Mean by “Inefficacious”? Article 1474 uses the word “inefficacious” rather than “void. 50. Article 1474 is not an old provision of the Spanish Civil Code by the use of the term “(n)” at the end thereof. In other words.92 which established the appropriation doctrine under Article 1474 founded on the principles of unjust enrichment and estoppel. As the defendant partially frustrated the appraisal.. at pp. 387 (1927). it must occur to any one.. but more to be able to include valid conditional contracts of sale (which have become inefficacious) in the same group as void contracts.P. . but with common law origin. Summation The proper way to evaluate Article 1474 is to determine its rationale or underlying policy.

Ross-Meehan Foundaries v. The other important conclusion to be drawn from the background material on Article 1474 is that it is actually meant to cover all sale contract situations where there must have been at least a meeting of the minds or an agreement to buy and sell the 94 TOLENTINO. (2nd) 991. citing American case-law: If the terms of a sale are complete except for an agreement with reference to the price. citing Standard Coal Co. 693. even if there is no agreement as to price. William. 261 S. 1014. and may also apply to void sale contract situation where the defect is as to the price. 149 Tenn. the law implies a price equivalent to the reasonable value of the goods in cases where the buyer has appropriated the things sold. 227 Ky. he cannot thereafter refuse to pay for it at that price. at pp. and not for the reasonable value of the goods. V. . although there was a meeting of the minds as to the subject matter.94 There are two important points that can be drawn from the foregoing. CIVIL CODE OF THE PHILIPPINE (1959 ed.) Vol.W. 269 Pac. Hence. Tolentino has the following discussions on Article 1474. 73. Caskey v. v. where goods used by the buyer who knows the seller’s price for such goods.W.122 LAW ON SALES The ponente of Robles was Justice Street. he is liable for that price. and the doctrine enunciated is common-law in nature. And where the buyer accepts delivery knowing the price claimed by the seller. thus: (a) The doctrine is based on the principle of unjust enrichment directed against the buyer who is not allowed to retain the subject matter of the sale without being liable to pay the price even when no such agreement on the price was previously made. Nashville Bridge Co. 11 S. 674.. Stewart. 13-14. and (b) The doctrine applies even when there is a “no contract” situation because of no meeting of the minds as to the price. Thus.

(Of course. and also because it would violate the essential characteristic of “binding effect” of every contract. because the undoing of the contract and the return of the subject matter to the seller would not present unjust enrichment to either party.) The gravamen of Article 1474 would mean that in spite of the lack of an agreement as to price or defect in the agreement as to . When Article 1474 uses the twin concepts of “delivery” and “appropriation” it seems to say that it would not apply to a situation where there has only been delivery but no appropriation. and even if the subject matter has remained the same. including a contract of sale. that would be valid since it would constitute “mutual withdrawal” which is one of the modes of extinguishing a valid contract. the return is not “legally possible. and seeks to recover the subject matter? That seems not possible if the subject matter has already been appropriated. But supposing the seller does not wish to take advantage of the remedy. and requiring its return would therefore be unfair to the seller? If one looks at the dictionary definition of “appropriate” (“to set apart for some special use.PRICE AND OTHER CONSIDERATION 123 subject matter. if both buyer and seller agree to the return. which is coupled with tradition. use as one’s own”) it seems that the use of such word under Article 1474 is meant to cover the situation of “acceptance” by the buyer as the counterpart of delivery on the part of the seller. and consequently. Does “appropriation” mean to partly consume or transform the subject matter in such a manner that it cannot be returned in its original manner to the seller. take possession of. and having treated thereafter the subject matter as his own. the “binding effect” of the contract is deemed to have kicked-in. and that it is meant to be a remedy clause in favor of the seller who has delivered the subject matter in accordance with an agreement (though it may not be a full contract yet) with the buyer who has received it and appropriated it. even when it does not involve transformation. At that point a valid contract of sale is deemed to have come into being. to take for oneself. especially when the buyer had already incurred expenses.” as it would amount to unilateral withdrawal from the binding effect of the contract.

95 where the Court held that sales invoices are not evidence of payment since they are only evidence of the receipt of the goods. Court of Appeals. and (c) There was delivery by the seller and appropriation by the buyer. (b) There was an agreement that price would be paid which fails to meet the criteria of being certain or ascertainable. We begin with the decision in El Oro Engravers v. RULINGS ON RECEIPTS AND OTHER DOCUMENTS EMBODYING PRICE The Supreme Court has followed a particular set of rulings when it comes to situations where a receipt or some other written agreement has been entered into by the parties on the issue of whether there is a valid and binding contract of sale between the parties. It may also be an indication that “appropriation” under Article 1474. Taking our cue from the rulings of the Supreme Court in Raet and NHA discussed above. would necessarily entail a “transformation” of the subject matter of sale such that it can no longer be returned to its original state. the concept of “appropriation” under Article 1474 is not applicable to real estate and that the rights of the parties to a purported sale would be under the principles applicable to builders in good faith. as to warrant the fixing of reasonable price to prevent unjust enrichment.124 LAW ON SALES price. 95 546 SCRA 42 (2008). and that the best evidence to prove payment of the price is the official receipt issued by the seller. even when applied only to movables. there would nevertheless be a valid contract of sale upon which an action for specific performance would prosper for the recovery of the price when the following elements are present: (a) There was a meeting of the minds of the parties of sale and purchase as to the subject matter. . of the subject matter of the sale.

which are considerations that would exclude the contract from the coverage of the Statute of Frauds.00 on a Toyota pickup. The requisites of a valid Contract of Sale namely 1) consent or meeting of the minds of the parties. 2) determinate subject matter. Ibid.98 a written agreement was entered into between a prospective buyer of a vehicle and the sales representative of the car dealer.PRICE AND OTHER CONSIDERATION 125 In the case of Leabres v. v.97 Although not particularly referring to it. with an understanding on a separate subsequent instrument that the balance would be financed through a financing company. Court of Appeals. . the facts of the case indicate that not only was there partial payment of the price. which provided and acknowledged a downpayment of 5100. Court of Appeals.00). at p. There was no agreement as to the total purchase price of the land nor to the monthly installment to be paid by the [buyer]. The Court held that there was never any perfected contract between the parties under the agreement that only provided for 96 97 146 SCRA 158 (1986).00.000. Basing its ruling on the language of the receipt.000. 98 244 SCRA 320 (1995). which covers only executory contracts. However. The receipt itself was evidence of partial execution of the sale. it can be presumed that the Court had the Statute of Frauds in mind when it held that the contract was unenforceable because the memorandum allegedly evidencing the sale did not contain all the requisites of price. the Court held — An examination of the receipt reveals that the same can neither be regarded as a contract of sale or a promise to sell.96 where the buyer sought to enforce his purchase of a parcel of land based primarily on a receipt signed by the seller acknowledging the sum of 51. There was merely an acknowledgment of the sum of One Thousand Pesos (51.000. Inc. 165. 3) price certain in money or its equivalent—are lacking in said receipt and therfore the “sale” is not valid nor enforceable. but likewise the alleged buyer was given actual possession of the land. In Toyota Shaw.

101 the seller executed a “Receipt of Down Payment” in favor of the buyer acknowledging the receipt therein of the downpayment as purchase price of the property described therein.000.00 made no specific reference to a sale of a vehicle.00 “earnest money” was part of the purchase price.000.126 LAW ON SALES a downpayment of 5100. The provision on the downpayment of 5100. The Coronel ruling is consistent with the doctrine that sale being governed by the Statute of Frauds. No obligation on the part of Toyota to transfer ownership of a determinate thing to Sosa and no correlative obligation on the part of the latter to pay therefore a price certain appears therein. The Court held that there was a perfected contract of sale. 100 .000. then the only conclusion that could be made was that there was no sale. Genato. in Cheng v. 357 SCRA 209 (2001).000.102 the receipt signed by the seller acknowledging receipt of the sum of 550. and indicating the balance of the purchase price. but did not indicate the total purchase price nor the manner by which the balance shall be paid: “It is not a contract of sale. In Coronel v. much less was there showing of a perfected sale between the parties nor any indication that the buyer was bound to pay any balance of purchase price. with specific obligation to transfer the title upon full payment of the balance. Court of Appeals. In Limson v. did not provide further stipulations as to the full contract price 99 Ibid. In contrast. requires that the memorandum that would evidence the contract should contain all the essential requisites of the subject matter and price. 102 300 SCRA 722 (1998).00. there being no reservation of any title until full payment of the purchase price. 101 263 SCRA 15 (1996).”99 Such was the ruling of the Court even when the evidence showed that the balance of the purchase price was subsequently agreed upon. 328. Court of Appeals.00 as “partial payment” for the real property described by titles in the receipt. at p.100 it was held that when there is nothing in the receipt to indicate that the 520.

v. then generally it does not matter if the written evidence issued pursuant thereto (be it an agreement or a receipt) does contain all of the requisites.104 where the Court held that a contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the 103 104 Ibid. The fact of having received part of the purchase price would therefore have placed the contract outside of the coverage of the Statute of Frauds as partially executed contract and therefore parol evidence presented to prove the other elements of the contract of sale would have been the order of the day. a reading of the decision in Cheng nevertheless indicates that evidence was adduced to support the other terms of the contract to sell. Cheng contrasted the receipt from that was issued in Coronel thus: In Coronel. but the Court determined the binding effect of the sale based on the receipt that was issued. 291 SCRA 66 (1998). this Court found that the petitioners therein clearly intended to transfer title to the buyer which petitioner themselves admitted in their pleading. Inc. The agreement of the parties therein was definitely outlined in the “Receipt of Down Payment” both as to property. . If one were to consider that a sale is a consensual contract and if upon the meeting of the minds of the parties all the essential requisites are present. the purchase price. at p. 738.103 Again.PRICE AND OTHER CONSIDERATION 127 or the manner of payment thereof. This is the same reasoning adopted in Xentrex Automotive. The Court ruled that there was neither a valid nor enforceable “sale” since the requisites of a valid contract of sale are lacking in said receipt. then a valid contract of sale should nevertheless exist and the only issue would be its enforceability under the Statute of Frauds. the delivery of the seller of the property and the manner of the transfer of title to the specific conditiont upon the transfer in their names of the subject property the Coronels will execute the deed of absolute sale. Court of Appeals.

107 to remind us of the commercial importance of receipts and invoices. The sales clerks merely indicate a description and the price of each item sold without bothering to fill up all the available spaces in the particular receipt or invoice. in David v. . as far as practicable. 107 349 SCRA 363 (2001). In Tigno v. in itself. Tiongson. and it was in breach of its contract. Aquino. would not be conclusive of the inexistence of a sale since consideration is always presumed. Hooven Comalco Industries. these commercial forms are not always fully accomplished to contain all the necessary information describing the whole business transaction.105 the Court clarified that the sale of real property on installments even when the receipt or memorandum evidencing the same does not provide for the stated installments. which unfortunately has become a common business practice of traders and businessmen. When it therefore comes to treating the legal consequences of receipts embodying the price or the portion thereof. the Statute of Frauds is not applicable because it only applies to executory and not to completed. 444 SCRA 61 (2003). it obliged itself to sell to the buyer a determinate thing for a price certain in money. executed. it would not hurt if businessmen and traders would strive to make the receipts and invoices they issue complete. Inc.00 and by pulling out a unit from the assembler. in material particulars. to have sold the car subsequently to another buyer..106 the Court held that the absence of receipts or any proof of consideration. In most cases. When the dealer of motor vehicles accepts a deposit of 550. and without proper regard for any legal repercussion for such neglect. thus: We are not unaware of the slipshod manner of preparing receipts. or partially executed contracts. 105 106 313 SCRA 63 (1999). the rulings of the Court have not followed a consistent doctrine. when there has already been partial payment. Likewise. Certainly.0000.128 LAW ON SALES price. order slips and invoices. We can only quote what the Court held in Lagon v.

mistake. De Delfin v. Although sale is an onerous and commutative contract. except as it may indicate a defect in the consent.111 held that “the hardness of the bargain or the inadequacy of the price is not sufficient ground for the cancellation of a contract otherwise free from invalidating defects. Kasilag. 112 436 SCRA 141 (2004). and except in cases specified by law. which governs contracts in general.110 the Court held that there is gross inadequacy in price if a reasonable man will not agree to dispose of his property at that amount. Requiring a one-to-one correspondence between the value of the subject property and the price is difficult. 111 40 O.PRICE AND OTHER CONSIDERATION 129 These documents are not mere scraps of paper bereft of probative value but vital pieces of evidence of commercial transactions. Dollota. at p. 203 (1940). See also Ereñeta v.108 INADEQUACY OF PRICE Under Article 1355 of the Civil Code. p. Article 1470 on contracts of sale. . and would leave no room for bargaining and discounts. 110 Dorado Vda. They are written memorials of the details of the consummation of contracts. or undue influence indicative of a defect in consent is present. 54 SCRA 13 (1973). As was discussed previously. Specifically. 15. the characteristic that the contract of sale is onerous is met whenever the consideration 108 109 Ibid. or that the parties really intended a donation or some other act or contract. 379. it is provided that lesion or inadequacy of cause shall not invalidate a contract.G. Bautista v.” Recently. Alarcon v. Bezore. provides that “gross inadequacy of price does not affect a contract of sale. Court of Appeals. there is no requirement that the price given should be exactly the value of the subject matter delivered. unless fraud. 542 SCRA 397 (2008). unless there has been fraud. mistake or undue influence. Supp.”109 In one case.112 reiterated that the mere inadequacy of the price does not affect the validity of the sale when both parties are in a position to form an independent judgment concerning the transaction.

115 15 SCRA 306 (1965). 92 SCRA 476 (1979). Court of Appeals. There must be. and when the two meet on a fair field the inferior cannot murmur if the battle goes against him.113 where it held — The fact that one may be worsted by another. 769 (1916). 116 Lagunzad v.114 As held in Tayengco v. 127 SCRA 512 (1984). One man cannot complain because another is more able. a violation of law. 787-788.” and the test for its “commutativeness” is met when parties believe honestly that they received good value for what they have given up in exchange. at pp. Courts operate not because one person has been defeated or overcome by another. These principles are reflected in the classic language used by the Court in Vales v. Courts cannot constitute themselves guardians of persons who are not legally incompetent. make ridiculous contracts. Ibid. all they have in the world. Rulona. or even against his better judgment.130 LAW ON SALES is “valuable consideration. but it is not sufficient ground for the cancellation of a voluntary contract of sale which is otherwise free from invalidating defects such as vitiated consent. Contracts are valid even though one of the parties entered into it against his own wish and desire. 114 113 . use miserable judgment.115 inadequacy of price may be a ground for setting aside an execution sale. the commission of what the law knows as an actionable wrong. Men may do foolish things. Soto Vda. before the courts are authorized to lay hold of the situation and remedy it. even if shocking to the conscience. but because he has been defeated or overcome illegally. in addition. and lose money by them — indeed. Villa.116 35 Phil. of itself. De Gonzales. but not for that alone can the law intervene and restore. or better trained. or has better sense of judgment than he has. any more than it protects the strong because he is strong. Clarin v. The law furnishes no protection to the inferior simply because he is inferior. furnishes no cause of complaint.

PRICE AND OTHER CONSIDERATION 131 Even a threat of eminent domain proceedings by the government cannot be legally classified as the kind of imminent. See also Loyola v. Distinguished from Simulated Price Bravo-Guerrero v.118 has held that “simulation of contract” and “gross inadequacy of price” are distinct legal concepts. 261. A simulated or fictitious contract has no legal effect whatsoever because there is no real agreement between the parties. that property rights must yield to the valid exercise by the state of its all-important power of eminent domain. Bravo. 290 SCRA 532 (1998). 326 SCRA 285 (2000). . with different effects. 119 Ibid at p. . the contract is simulated and void. and that the concept of a simulated sale is incompatible with inadequacy of price. Rescissible Contracts of Sale Inadequacy of price is a ground for rescission of conventional sale in case of rescissible contracts covered under Article 1381 of the Civil Code. Gross inadequacy of price by itself will not result in a void contract. . serious and wrongful injury to a contracting party as to vitiate his consent. and eventually accept. thus: “When the parties to an alleged contract do not really intend to be bound by it. unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract. and (b) Those agreed upon in representation of absentees. if the latter should suffer lesion by more than one-fourth (1/4) of the value of the object of the sale. . namely: (a) Those entered into by guardians whenever the ward whom they represent suffer lesion by more than one-fourth (1/4) of the value of the object of the sale.”119 2. 117 118 Babasa v. and it does not even affect the validity of a contract of sale. 465 SCRA 244 (2005).117 1. Court of Appeals. Private landowners ought to realize. Court of Appeals.

.123 The proper remedy of the alleged seller. but to foreclose on the quitable mortgage. since the more inadequate the winning bid at public sale. 1602. Judicial Sale Gross inadequacy of price may avoid judicial sale of real property. but to exercise the right of redemption. Salvador. 351 SCRA 294 (2001). and to pay off the indebtedness which is secured. Simeon. who is actually an equitable mortgagor. 15 SCRA 306 (1965). Civil Code. 36 SCRA 567 (1970). the courts must be allowed to come in to protect the supposed seller from a bad bargain that is really not of his own doing.120 In addition. de Gordon v. Sales with Right to Repurchase In a conventional sale with a right to repurchase feature. The difference in ruling for judicial sale is because the contract of sale is not the result of negotiations and bargaining.122 In this case. Vda. Acabal.124 120 Pascua v. Court of Appeals. 161 SCRA 1 (1988). Court of Appeals. 4. Court of Appeals. In such a case. However. 15 SCRA 307 (1965). a better price can be obtained. the more easily it is for the owner to redeem the property. 124 Briones-Vasquez v.132 LAW ON SALES 3. 123 Art. the inadequacy must be such as to be shocking to the conscience of man.121 But even if the foregoing requisites are shown. the proper remedy is not rescission. the property of the supposed seller would be sold at public auction without his intervention. in the event of a resale. 109 SCRA 388 (1981). 454 SCRA 555 (2005). 121 Cu Bie v. Reiterated in Cometa v. Court of Appeals. Acabal v. there must be showing that. 450 SCRA 644 (2005). the gross inadequacy of price raises a presumption of equitable mortgage. but to have it reformed or declared a mortgage contract. the remedy of the alleged buyer would not be to appropriate the subject matter as a buyer for that would be pactum commissorium. is not to rescind the contract of sale. for a judicial sale to be set aside on the ground of inadequacy of price. in fact. Court of Appeals. a judicial sale will not be set aside by the court when there is a right of redemption. 122 De Leon v. On the other hand. Tayengco v.

a party’s motive for entering into the contract do not affect the contract. and “is the immediate. thus: “The motives of the contracting parties for the lowering of price of the sale — in the present case.PRICE AND OTHER CONSIDERATION 133 WHEN MOTIVE NULLIFIES SALE In a contract of sale. the Court obseved that the cause of the vendor in entering into the contract is to obtain the price. different from the motive of the parties.” from motive.”128 under Article 1318 of the Civil Code defining the essential requisite of contracts. when the motive predetermines the cause. 129 446 SCRA 54 (2004). 85. and when the primary motive is illegal. However.127 x x x The realization of the mistake as regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract inexistent. as a rule. 314 SCRA 69. 81 (1999). . on the other hand. Court of Appeals. 238 SCRA 96 (1994). The Court ruled: “Ordinarily. direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties. their motivation being to pay lower taxes on the transaction. In Heirs of Spouses Balite v. at p. the reduction 125 126 Olegario v. which is the particular reason of a contracting party which does not affect the other party.129 where the parties to a sale agreed to a consideration.126 distinguished “cause” which is the essential reason which moves the contracting parties to enter into it. Court of Appeals. The motive of the vendor (NHA). is to use said lands for housing. such as when the sale was executed over a parcel of land to illegally frustrate a person’s right to inheritance and to avoid payment of estate tax. consideration is. In Uy. 83. but the amount reflected in the final Deed of Sale was lower. Lim. which covered a contract of sale of a piece of land. the sale is void because illegal motive predetermined the purpose of the contract. 127 Ibid. while that for the vendee is the acquisition of the land. 128 Ibid. the motive may be regarded as the cause.125 Uy v. the Court ruled that the contract of sale remained valid and enforceable upon the terms of the real consideration. at p.

.134 LAW ON SALES of the capital gains tax liability — should not be confused with the consideration. 68-69. Although illegal. the motives neither determine nor take the place of the consideration. at pp.”130 —oOo— 130 Ibid.

250 SCRA 523 (1995). The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof.. Limketkai Sons Milling. (b) PERFECTION or “birth” of the contract. conception or generation stage. The perfection stage of the contract takes place upon the concurrence of the essential elements thereof. Inc. which is the period of negotiation and bargaining. dealing with the 1 Toyota Shaw. and (c) CONSUMMATION or “death” of the contract.”2 POLICITACION STAGE Policitacion or negotiation stage actually deals with legal matters arising prior to the perfection of sale. v. Inc. v. which is process of fulfillment or performance of the terms agreed upon in the contract. 244 SCRA 320 (1995). 268 SCRA 160 (1997). Court of Appeals..135 CHAPTER 5 FORMATION OF SALE STAGES IN THE LIFE OF SALE The phases that a contract of sale goes through have been summarized by the Supreme Court to be as follows: (a) POLICITACION. Inc. negotiation. Court of Appeals. Jovan Land.1 The negotiation stage “covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). Court of Appeals. 238 SCRA 602 (1994). v. which is the point in time when the parties come to agree on the terms of the sale. ending at the moment of perfection. preparation. 2 Ang Yu Asuncion v. . 135 . Court of Appeals.

613 (1994).” which signifies the right to choose with whom to contract and what to contract. as the main object of their existence. until a contract is perfected. an owner of property is free to offer the subject property for sale to any interested person. Court of Appeals. mutual promises to buy and sell or contracts to sell. Planters Dev. Since none of the legal creatures within the policitacion stage constitute a sale. acceptance. 511 SCRA 444 (2006). options. thus: “In the Law on Sales. or unaccepted unilateral promise to buy or to sell. first of all. Bank. 1911. 527 SCRA 562 (2007). option contract. the policitacion stage is populated of legal creatures which are not contracts of sale as defined under Article 1458 of the Civil Code.. it would be proper to quote the warning of Justice Vitug in his dissenting opinion in Equatorial Realty Dev.136 LAW ON SALES concepts of invitation to make offer. Mayfair Theater. however. and is not duty bound to sell the same to the occupant thereof. PNB. 5 Raroque v.8 thus: “It would be perilous a journey. 316 SCRA 386 (1999). These relations. absent any prior agreement vesting the occupants the right of first priority to buy. Court of Appeals. 511 SCRA 444 (2006). 4 Ang Yu Asuncion v.”7 In essence. Navarra v. v. but each of them has. 7 Gabelo v. there is “freedom to contract. PNB. v. Normally. Marquez. and even agency to sell or agency to buy. It is important to consider that at policitation stage. negotiation is formally initiated by an offer. Policitacion. a valid and binding sale. are not considered binding commitments. and at any time prior to the perfection of the contract. v. either negotiating party may stop the negotiation.6 and walk away from the situation. supply agreement. Inc. 6 Ibid. right of first refusal. the fervent hope of becoming or effecting into realization. does not give rise to any obligation or right. offer.5 and creates no privity between the purported seller (offeror) and buyer (offerees). 37 O. 238 SCRA 602. Inc. prior to acceptance. 8 264 SCRA 483 (1996). which. Also Manila Metal Container Corp. generally without adverse legal consequences.3 an imperfect promise (policitacion) is merely an offer4 by an offeror to an offeree. must be certain. 3 Manila Metal Container Corp. . to try to seek out a common path for such juridical relations as contracts..G.

By way of exception to the general rule. Art. 530. and if certain and accepted directly. it would mean that the general rule (which treats advertisements as mere invitations to make offers). The exception to this general rule is when “it appears otherwise. then it constitute an offer covered by the phrase “unless it appears otherwise. the general rule would be meaningless. consequences and legal implication. unless the contrary appears. in their concepts. Advertisements and Invitations Article 1325 of the Civil Code provides that “unless it appears otherwise. But if this view were accepted. 1325. substantially enough. 11 Art. but “mere invitations to make an offer.FORMATION OF SALE 137 and rights of first refusal since they differ. it has been viewed that when the advertisement specifies a determinate subject matter.” and not a mere invitation to make an offer.”9 1. and once absolutely accepted would give rise to a valid and binding contract to sell. it could never be accepted to give rise to a valid 9 Ibid. Civil Code. the price and terms of payment. or mere proposals. 1326.” in which case such advertisements would constitute offers. If that be the case. as to be equivalent to an offer certain.” business advertisements of things for sale are not definite offers. with the manner of payment thereof provided. advertisements for bidders are simply invitations to make proposals.11 The general rule for advertisements is that they are less than offers.”10 Likewise. at p. would give rise to a valid and binding sale. 10 . and the advertiser is not bound to accept the highest or lowest bidder. and constitute merely invitations to make an offer. since always lacking any of the three (3) requisites to constitute a certain offer. the direct acceptance of such advertisements thereof do not give rise to a valid and binding sale. because such a situation would always be covered by the exception. price certain or ascertainable. would never apply to a situation when it covers a determinate subject matter. Civil Code.

the situation would be exactly the same. or when it is addressed to a particular offeree. . 14 Laudico v. Civil Code. 1320 of Civil Code provides that “The person making the offer may fix the time. the expiration of the period without further act or its withdrawal prior to acceptance would destroy the offer. In other words. it remains legally a mere invitation so long as it is addressed to the public at large. Court of Appeals. 270 (1922). Such 12 Art. since such an advertisement (lacking at least one of the three requisites) would always not constitute a valid offer. even without the general rule provided under Article 1325.16 and the offeree has no authority to treat it as consisting of separate and distinct parts. 1324. Prieto. and may fix the time. Beaumont v. 16 Art. place and manner of acceptance.” 13 Art. The better view to the author is that even when the advertisement contains a certain offer. and the exception comes in whenever it expressly provides that the first absolute acceptance shall be binding. 41 Phil. 15 Art.12 it may be withdrawn or destroyed by the offeror prior to its acceptance. all of which must be complied with. 671 (1916). Offers An offer. 1323 of the Civil Code provides that “the offer may be withdrawn at any time before acceptance by communication such withdrawal. place and manner of acceptance. 2. 1321. PNB. 499 SCRA 276 (2006). v. 511 SCRA 444 (2006).13 and it is not even necessary that the offeree learns of the withdrawal.138 LAW ON SALES and binding sale. 17 Ibid.15 The offeror has the right to attach to an offer any term or condition he desires.14 If the offer is given for a period. Civil Code. since he must accept and comply with all the requirements provided in the offer. with no useful purpose to serve.” See also Manila Metal Container Corp. Such view would make Article 1325 a surplusage. is subject to the complete will of the offeror. Arias. prior to its acceptance. Villegas v. he has no choice to reject that portion of the offer which is disadvantageous and accept only that which is beneficial. 43 Phil.17 The offeree has only the choice to accept or reject the offer in its entirety.

173.FORMATION OF SALE 139 an offer will be extinguished by the happening of the resolutory condition. An offer which has not been accepted absolutely would thereby be extinguished and cannot be further accepted. Manila Metal Container Corp. which would then replace and repeal the original offer. 20 Art. A counter-offer is always considered in law a rejection of the original offer. 21 Emphasis supplied. 33 Phil. whereas. 1319.20 3. or insolvency of either offeror or offeree. 19 Art. provides that: “When the offeror has allowed the offeree a certain period to accept. except when the option is founded upon a consideration. and in all cases. 511 SCRA 444 (2006). Option Contracts a. v. Civil Code.”21 In connection therewith. The offeree has the choice to indicate further negotiations by making a counter-offer. 183 (1916). . or the certainty that the suspensive condition will not happen.” 18 Logan v. Determining the “Location” of Options The second paragraph of Article 1479 of the Civil Code governing options. the offer may be withdrawn at any time before acceptance by communicating such withdrawal.. before the acceptance is conveyed and received by the offeror. Article 1324 of the Civil Code.18 and has the effect of extinguishing the original offer. or after the lapse of the period. insanity. the conditional acceptance will constitute a counteroffer which must be accepted absolutely in order to give rise to a valid sale. PNB. an offer becomes ineffective upon the death. civil interdiction. 1323. which covers offers and acceptance in general. as something paid or promised. Civil Code.19 Finally. Philippine Acetylene Co. provides that “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. without need of further action on the part of the offeror.

. which should properly mean: When the option is founded upon a proper consideration.” bounded by the principles of mutuality and obligatory force. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option. 439 SCRA 649 (2004). the right or privilege to buy at the election or option of the other party. but he does sell something. from another person.22 defined an option contract as a privilege existing in one person. or which gives to the owner of the property the right to sell or demand a sale. 333 SCRA 643 (2000). 24 240 SCRA 565 (1995). Machuca. then the offer may not be withdrawn at any time during the option period. v. Macatangay. . b. Diaz. thus — It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. Enriquez de la Cavada v.”25 Adelfa Properties emphasized that an option is not of itself a purchase. for which he had paid a consideration and which gives him the right to buy certain merchandise or certain specified property. but merely secures the privilege to buy. 23 Also Laforteza v. He does not sell his land. or in compliance with. certain terms and conditions. he does not then agree to sell it. it is not a sale of property.23 Adelfa Properties.24 held that an option is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time. it has essentially become a “contracted offer. see also Villamor v. aside from the consideration for the offer. Until 22 37 Phil. Definition and Essence of Option Contract Earlier.140 LAW ON SALES The exception would mean the opposite of what the previous phrase provides for. 982 (1918). Jr. 25 See also Abalos v. Inc. or under. Court of Appeals. that is. Court of Appeals. Buot v. but a sale of the right to purchase. 202 SCRA 607 (1991). Court of Appeals. 357 SCRA 846 (2001). at any time within the agreed period at a fixed price. if he chooses. It is also sometimes called an “unaccepted offer.

Prieto. 502. . at p. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price.29 . . 426 SCRA 282 (2004). Inc. 670 (1916).26 Equatorial Realty Dev. It binds the party who has given the option. at p. .”30 Carceller v. whether or not to enter into a principal contract. indicate the definite price at which the person granting the option. 375 SCRA 209 (2001). to enter into such contract with the one to whom the option was granted.. Court of Appeals. It is a 26 Ibid. and.31 enunciated the binding effects of options. 31 302 SCRA 718 (1999). in order to be valid and enforceable. Reiterated in Tayag v. 579. among other things.. Reiterated in Limson v. Inc. it is not. 41 Phil. citing Beaumont v. at p. for a fixed period and under specified conditions. if the latter should decide to use the option. thus — An option is a preparatory contract in which one party grants to the other. within that period. properly speaking. transfer. . Court of Appeals. or agree to transfer. 500. 28 Ibid. but is merely a contract by which the owner of property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. is willing to sell. 29 Ibid. v. or any interest or right in the subject matter. any title to. not to enter into the principal contract with any other person during the period designated. The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract. emphasis supplied. It must be supported by consideration. 505. at p. Mayfair Theater. Lacons. must. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option.27 held that an option contract is one “necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at a predetermined fixed price. 27 264 SCRA 483 (1996). 30 Ibid.28 . the power to decide. a contract and does not vest.FORMATION OF SALE 141 acceptance. . which seems to be a more comprehensive definition of an option.

it is essentially a unilateral contract. Characteristics and Obligations Constituted in an Option Contract.” Although a separate consideration must exist for an option contract to be valid. Spouses Syrus Lim.142 LAW ON SALES separate agreement distinct from the contract which the parties may enter into upon the consummation of the option. or essentially a “valuable consideration. to be valid. 324 SCRA 346 (2000). 33 Nool v. See also Cavite Development Bank v. 276 SCRA 149 (1997). An option without separate consideration from the offered purchase price is void as a contract. since only the optioner is obliged under an option contract. unlike a sale.32 c. since the meeting of the minds as to the subject matter and the price would also give rise to the option contract. 336 SCRA 737 (2000). 32 Ibid. but his exercise of the option does not necessarily depend upon his ability to pay the separate consideration. such a lease or a mortgage.”34 An option contract is also a consensual contract.” More importantly. even when the separate consideration for the option itself has not been paid. there can be a valid option contract even when no separate consideration is paid by the optionee. 724. as in the case when the option if included within another valid contract. for it must have a separate consideration from the purchase price. Court of Appeals.33 Consideration in an option contract may be anything of value. This is clear from the wordings of Article 1324 which describes the separate consideration of an option as “something paid or promised. Court of Appeals. unlike in sale where it must be the price certain in money or its equivalent. even when the optionee has not paid the separate consideration. at p. . since Article 1324 describes the separate consideration of an option as “something paid or promised. 34 San Miguel Properties Philippines. an option contract is an onerous contract like sale. Inc. Compared with Sale When compared to a sale. Limson v. 357 SCRA 209 (2001). Huang. It is true that the optionee is obliged to pay a separate consideration for the option right. v.

A contract of sale.”35 Again. emphasis supplied. the owner is no longer bound by his offer. Adelfa Properties held that “[t]he distinction between an ‘option’ and a contract of sale is that an option is an unaccepted offer: It states the terms and conditions on which the owner is willing to sell his land. 580 (1995). the subject matter of an option contract is the accepted promise to sell or accepted promise to buy. unaccepted promise “to sell” or unaccepted promise “to buy”). the main issue on the subject matter of a valid option contract is whether the option or right secured is on an obligation “to do” (i.FORMATION OF SALE 143 The most important distinction with sale. or an obligation “to give” (i.. unlike in a sale.. he must give notice to the other party. If an acceptance is not made within the time fixed.” Although a valid option contract has for its subject matter an option in favor of the offeree. essentially an intangible subject matter or a right. If the holder does so elect. if the holder elects to accept them within the time limited. 443 SCRA 231. Vazquez v. and the accepted offer thereupon becomes a valid and binding contract. is that the subject matter of an option contract is actually not the subject matter of the sought sale. and the option is at an end.e.36 (b) personal obligation not to withdraw the offer or option during option period. unaccepted obligation to transfer ownership and delivery possession of the subject matter).. a valid option is in essence a “contracted certain offer. 255 (2004). Thus.e. The offer and the acceptance are concurrent. it is also constituted of the following obligations on the part of the offeror: (a) personal obligation not to offer to any third party the sale of the object of the option during the option period. fixes definitely the relative rights and obligations of both parties at the time of its execution. and 35 36 240 SCRA 565. Consequently. and leaves no choice to either party whether to withdraw or to proceed with the contract. on the other hand. but rather the option to purchase such subject matter. since the minds of the contracting parties meet in the terms of the agreement. . More pointedly. Ayala Corp.

38 except if there has been partial execution of the underlying sale. the resulting sale contract itself would be subject to the Statute of Frauds and cannot be proved by oral evidence. 37 38 Ibid. (ii) for a price certain. 173 (1988). and therefore can be proved by parol evidence. Court of Appeals. . is not a species of the genus sale. since with the exercise of an oral option. it is not covered by the Statute of Frauds. d. Elements of Valid Option Contract The elements of a valid option contract are therefore as follows: (a) CONSENT or the meeting of the minds upon: (b) SUBJECT MATTER: an option right to an unaccepted unilateral offer to sell/accepted promise to sell.” the third obligation may either be a personal obligation “to enter into a contract of sale. 161 SCRA 167. (c) PRESTATION: A consideration separate and distinct from the purchase price for the option given. See Montilla v. Since an option contract. including the manner of payment thereof.37 Although the first two obligations in a valid option contract are personal obligations “to do” and “not to do. prior to its valid exercise.” or may already constitute an “offer to transfer ownership and deliver possession of the subject matter on a price certain” conditioned only upon the exercise by the offeree of the option within the option period.144 LAW ON SALES (c) obligation to hold the subject matter for sale to the offeree in the event that offeree exercises his option during the option period. This leaves very little comfort. or unaccepted unilateral offer to buy/accepted promise to buy: (i) a determinate or determinable object.

e.43 The more controlling concept is the “separateness” of such consideration from the purchase price agreed upon. Huang. 45 202 SCRA 607 (1991).42 e. 336 SCRA 737 (2000). San Miguel Properties Philippines v. 41 246 SCRA 540 (1995). when any of the requisites is missing. it is void as an option contract. Limson v. valuable. in order that such a promise may be binding upon the promissor. v. Inc.41 held that although an option to buy is not a contract of purchase and sale.. real. certain or ascertainable. in an option contract the consideration may be anything or undertaking of value. licit.” and therefore its consequences are very similar to a certain offer floated in the legal world. Huang.FORMATION OF SALE 145 It is imperative therefore. determinate or determinable) and the price (i. even when the option is supported by a separate consideration. 336 SCRA 737 (2000). Inc. a deed of option was executed between the same parties over 39 Equatorial Realty Dev. Kilosbayan. Court of Appeals.40 ruled that in an option. but like a contract of sale. 43 San Miguel Properties Philippines v. 40 239 SCRA 356 (1994). Court of Appeals. the price and the manner of payment thereof. Inc.. with terms of payment stipulated).. 42 See also Art. 44 Salame v. This emphasizes the point that a valid option contract is nothing more than a “contracted certain offer. v. Morato. Mayfair Theater.e.39 Otherwise. it must contain a price certain.45 the buyers previously bought one-half of the parcel of land from the sellers at an agreed price of 570. possible thing. Court of Appeals. 264 SCRA 483 (1996). Subsequently. Court of Appeals. Meaning of “Separate Consideration” Unlike in a sale where the price refers to cash or its equivalent (“valuable consideration”). 375 SCRA 209 (2001). 239 SCRA 356 (1995). and its exercise would not result into a valid sale. 1479.00 per square meter. that the option must have all the requisites required for subject matter (i. an option contract by its statutory definition can only arise when the minds of the parties have met as to the specific object thereof. Civil Code. Salame v..44 In Villamor v. .

00 per square meter “which was greatly higher than the actual reasonable prevailing price. 49 440 SCRA 190 (2004). 46 47 Ibid. it was interposed by the sellers-offerors that the option was void for lack of consideration separate and distinct from the purchase price stipulated. de Quirino v. 48 29 SCRA 1 (1969). When the deed of option was sought to be exercised thirteen years later. Ibid. which the Court considered to be fine. . like lease.48 held that an option to buy the leased premises at a stipulated price in the lease contract is not without a separate consideration for in reciprocal contracts.”47 and that such cause or consideration is clear from the deed itself.49 held that the condition that the spouses-borrowers will pay monthly interest during the oneyear option period granted to them by the bank after the spouses had failed to exercise their original legal right of redemption on the foreclosed property. 615. Court of Appeals. the obligation or promise of each party is the consideration for that of the other.”46 It held that the cause or the impelling reason on the part of the buyers-offerees in executing the deed of option as appearing in the deed itself was the sellers-offerors’ having agreed to buy the original half of the land at 570. the essential reason which moves the contracting parties to enter into the contract. Dijamco v.146 LAW ON SALES the other half with an express provision therein that the only reason why the buyers earlier agreed to purchase the first half at that high price was because of the undertaking of the sellers to sell the other half later also at the same price. was considered to be the separate consideration to hold the resulting option contract valid. so long as it was not part of the price to be paid for the other parcel of land. Palarca. at p. Note that the separate consideration under the option was in fact an integral part of the higher price they paid originally for the first parcel of land bought. Vda. Villamor held that the consideration of the deed of option is “the why of the contracts.

does not have its own consideration and is supported by the same consideration that pertains to the principal contract of mutuum. f. Ibid. .900. Rigos (discussed hereunder) which refused to apply the presumption of existence of consideration for option contracts. so that if the option is exercised prior to its withdrawal. since there may be no valid contract without a cause or consideration. of 50 51 6 SCRA 946 (1962). 949. his accepted promise partakes.52 that although no consideration is expressly mentioned in an option contract. it is presumed that it exists and may be proved. the promissor is not bound by his promise and may.50 an option to buy attached to a real estate mortgage was deemed to be valid stipulation. That shows clearly the wide range of “cause or consideration” that can validly support an option contract. 481 (1947). accordingly. When Option Is Without Separate Consideration Sanchez v. which is distinct from that which would support the sale. at p. Rigos. and “the mortgagor’s promise to sell is supported by the same consideration as that of the mortgage itself.53 held that without a consideration separate from the purchase price. thus — In an accepted unilateral promise to sell.FORMATION OF SALE 147 Earlier in Soriano v. This is in stark contrast to the 1972 pronouncement in Sanchez v.”51 The ruling in Soriano is significant considering that a real estate mortgage itself. 53 45 SCRA 368 (1972). 52 78 Phil. Bautista. an option contract would be void. as a contract. the contract is binding. the Court had ruled in the 1947 decision in Montinola v. Pending notice of its withdrawal. and once proven. being merely an accessory contract. however. that is equivalent to an offer being accepted prior to withdrawal and would give rise to a valid and binding sale. In any event.00 should the option be exercised. an additional amount having been agreed upon to make up the entire price of 53. but would still constitute a valid offer. Cojuangco. withdraw it.

there is in fact practically no difference between a contract of option to purchase land and an offer or promise to sell it.57 Moreover. However. the Sanchez doctrine expressly overturned the rulings in Southwestern Sugar Molasses Co. Prieto. The Sanchez doctrine expressly affirmed the earlier ruling in Atkins. lately it seems that. No reliance can be placed upon the provisions of Article 1354 of the Civil Code which presumes the existence of a consideration in every contract. Article 1479 being the specific provision. although not binding as a contract for lack of separate consideration.56 which held that — .148 LAW ON SALES the nature of an offer to sell which. v. Comple. Kroll & Co.55 which treated an accepted promise to sell.. Inc. if accepted. since in the case of an option contract. the purchaser has the right to decide whether he will buy the land. 376. or when the offer or promise to sell the property is accepted in conformity with the terms and conditions specified in such option. or promise. results in a perfected contract of sale. . when use is made of the option. 249 (1955). without expressly overturning nor modifying the Sanchez doctrine. It also conformed with the earlier ruling in Beaumont v.. 670 (1916). and that right becomes a contract when it is exercised. Atlantic Gulf & Pacific Co. 59 15 SCRA 162 (1965). at p. Cua.. there 54 55 Ibid. what amounts to the same thing. 58 97 Phil. 57 Ibid. 948 (1958).59 which held that when an option is not supported by a separate consideration it is void and can be withdrawn notwithstanding the acceptance made previously by the offeree. 102 Phil.58 and Mendoza v. v. at p.. nevertheless having capacity to generate a bilateral contract of sale upon acceptance. 688. In both cases. offer. 56 41 Phil. requires such separate consideration for an option to be valid.54 Sanchez also held that the burden of proof to show that the option contract was supported by a separate consideration is with the party seeking to show it. or.

Acceptance of Offer to Create Option Necessary to Apply Sanchez Doctrine Vazquez v. nor was there any attempt to show that the withdrawal of the option was made prior to acceptance or exercise thereof. was considered an option not supported by consideration separate and distinct from the price. then Justice Davide declared rather boldly that “even if the promise is accepted. the offeree has the burden of proving that the option is supported by a separate 60 61 161 SCRA 167 (1988).63 both involving options without separate considerations. No reference was made to Sanchez.FORMATION OF SALE 149 has been a movement back towards the previously discarded Southwestern Sugar ruling. Indeed. private respondent was not bound thereby in the absence of a distinct consideration. while the Diamante statement referred only to the Montilla decision. Natino did not refer to Sanchez at all. 197 SCRA 323 (1991).” without even reference to Sanchez or at least stating that its doctrine has been set aside.64 not only reiterated the Sanchez ruling that in an option contract. In Yao Ka Sin Trading v. Natino v. Court of Appeals. in Montilla v. 63 206 SCRA 52 (1992). Intermediate Appellate Court. 64 199 SCRA 102 (1991). Court of Appeals. the rulings were made as though oblivious of the Sanchez doctrine. although accepted by the offeree. Court of Appeals.61 held that a commitment by a bank to resell a property to the owner within a specified period.62 and Diamante v. Court of Appeals. . and therefore. g. ruled that the oral promise to sell was not binding upon the offeror in view of the absence of any consideration distinct from the stipulated price. 62 209 SCRA 763 (1991).60 despite allegations of having accepted and demanded the option. nor did it seek to distinguish whether there was acceptance before the bank withdrew its commitment. Thus. quoting Article 1479. not binding upon the bank relying upon the Southwestern Sugar ruling.

66 held that when the option contract does not contain a period when the option can be exercised. Under Article 1144(1) of the Civil Code. actions upon written contract must be brought within ten (10) years. 202 SCRA 607 (1991). and thereafter. 68 Dizon v.68 65 66 Dizon v.150 LAW ON SALES consideration. 67 Tuason. Court of Appeals. 302 SCRA 288 (1999). it also held that the Sanchez doctrine (i.. 131 (1960). v. de Asis. Period of Exercise of Option Villamor v. Option Not Deem Part of Renewal of Lease An option to purchase attached to a contract of lease when not exercised within the original period is extinguished and cannot be deemed to have been included in the implied renewal of the lease even under the principle of tacita reconduccion. Jr. Court of Appeals. but valid as an offer). h. it cannot be presumed that the exercise thereof can be made indefinitely. It held that not even the annotation of the option contract on the title to the property can be considered a proper acceptance of the option. nevertheless the action for specific performance to enforce the option to purchase must be filed within ten (10) year after the accrual of the cause of action as provided under Article 1144 of the New Civil Code. Ibid. Even when an option is exercised within the option period by the proper tender of the amount due.e. . is void as a contract. the right of option would prescribe. Court of Court of Appeals. and even render uncertain the status of the subject matter.67 the Court held that the lessee loses his right to buy the leased property for a stipulated price per square meters upon his failure to make the purchase within the time specified. In an earlier case. that the option contract not supported by a separate consideration. can only apply if the option has been accepted and such acceptance is communicated to the offeror. 107 Phil.65 i.

00 x x x.70 discussed “substantial” compliance with the exercise of an option.”71 Within fifteen days prior to the expiration of the lease period.69 held that in an option to buy. the leased premises therefor for the aggregate amount of 51. Court of Appeals. notice of the exercise of the option need not be coupled with actual payment of the price. In other words. The Court held that since the facts showed clearly that there was every intention on the part of the lessor to dispose the 69 70 46 SCRA 654 (1972). 721.FORMATION OF SALE 151 j. so long as this is delivered to the owner of the property upon performance of his part of the agreement. provided that the same is available and actually delivered to the offeror upon execution and delivery by him of the corresponding deed of sale. The option shall be exercised by a written notice to the LESSOR at anytime within the option period and the document of sale over the aforedescribed properties has to be consummated within the month immediately following the month when the LESSEE exercised his option under this contract.000. 302 SCRA 718 (1999). When the request was denied after the expiration of the lease period. In Carceller. 71 Ibid. the party in whose favor the option contract exist may validly and effectively exercise his right by merely advising the offeror of the decision to buy and expressing his readiness to pay the stipulated price. the lessee sent a written notice exercising his option to purchase.800. the lessee sent a written notice requesting for a six-month extension of the lease contract to give him ample time to raise sufficient funds in order to exercise the option. Proper Exercise of Option Nietes v. a Lease Agreement with option to purchase was executed which granted lessee the option to purchase the leased property “within the lease period. . and may even be viewed as an instance when the Court allowed the exercise of the option beyond the original option period. Court of Appeals. Carceller v. at p. The lessor refused the exercise on the ground that it was made beyond the option period.

and it is only then that the principle of substantial compliance would have relevance. the purchase price would have to be the fair market value of the property at the time the option was exercised.152 LAW ON SALES leased premises under the option. k. then the exercise of the option within a reasonable period after the end of the lease. immediately after the lessee was informed of the denial of the request for the extension of the lease. Effects of Exercise of Option In Heirs of Luis Bacus v. The performance of one obligation is conditional on the simultaneous fulfillment of the other obligation . However. the refusal of the offeror to comply with the demand by the offeree to comply with the exercise of his option may be enforced by an action for specific performance which seems contrary to the earlier ruling in Ang Yu Asuncion discussed hereunder.. and the lessee had intended to purchase the leased premises.72 the Court held that once an option is exercised: “The [o]bligations under an option to buy are reciprocal obligations.. Court of Appeals. Also significant in Carceller was the ruling of the Court that in a valid option contract. with legal interests thereon. Carceller sort-of recognized that notice within the option period of clear intention to purchase the property pursuant to such option. and having invested very substantial amount to introduce improvements therein. with request for leeway within which to be able to raise the funds to close the deal is a valid or at least substantial exercise of the option. . should be considered still a valid exercise of the option that would give grounds for an action for specific performance against the lessor to execute the necessary sale contract in favor of the lessee. when private respondent opted to buy the 72 371 SCRA 295 (2001). In essence. In other words. The delay of 18 days was considered neither “substantial” nor “fundamental” that would defeat the intention of the parties when they executed the lease contract with option to purchase. the acceptance or exercise of the option must still be made within the option period to give rise to a valid and binding sale.

”75 l. then there is already a sale contract existing. at p. They were not obliged to make actual payment.” would convert the option contract “into a bilateral promise to sell and to buy where both [parties] were then reciprocally bound to comply with their respective undertakings. 75 Ibid. 76 238 SCRA 602 (1994). their obligation was to advise petitions of their decision and their readiness to pay the price. Limson v. however. then the “timely. In essence. affirmatively and clearly accept[ance of] the offer. it held that when an option is properly exercised. or.FORMATION OF SALE 153 property.. before the offeror’s coming to know of such fact. 301. if an acceptance has been made. must not be exercised whimsically or arbitrarily. i. Court of Appeals.) (b) The right to withdraw. otherwise. Summary Rules When Period Is Granted to Promisee Ang Yu Asuncion v.74 held that when there is an option contract. thus: (a) If the period itself is not founded upon or supported by a separate consideration. the option.76 summarized the applicable rules where a period is given to the offeree within which to accept the offer. (This is in accordance with the Sanchez doctrine.”73 The Court was actually describing the principles that apply to a sale that had arisen by the proper exercise of the option. 357 SCRA 209 (2001). it could give rise to a damage claim 73 74 Ibid. at p. the offeror is still free and has the right to withdraw the offer before its acceptance. Only upon petitioners’ actual execution and delivery of the deed of sale were they required to pay. Court of Appeals. . 218.e. and the laws applicable to sales shall then apply. by communicating that withdrawal to the offeree.

the granting of a consideration separate and distinct from the purchase price of the intended sale.154 LAW ON SALES under Article 19 of the Civil Code which ordains that “every person must. it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee. a contract of “option” is deemed perfected. anytime during the option period. act with justice. however. does not guarantee to the optionee that he has the absolute right to exercise the option. (d) The option. however. an acceptance by the optionee would give rise to a valid . is an independent contract by itself. (e) In these cases. Ang Yu Asuncion would hold therefore that in an option contract. care should be taken of the real nature of the consideration given. for if in fact. before the optioner breaches his obligation and withdraws the offer. the optioner-offeror withdraws the offer before its acceptance by the optionee-offeree. in the exercise of his right and in the performance of his duties. The separate consideration merely guarantees that within the option period. and it is to be distinguished from the projected main agreement which is obviously yet to be concluded. the main contract could be deemed perfected. and observe honesty and good faith. the latter may not sue for specific performance on the proposed contract since it has failed to reach its own stage of perfection. give everyone his due. If. renders himself liable for damages for breach of the option. and it would be a breach of that contract to withdraw the offer during the agreed period. The optioner-offeror. in fact.” (c) If the period has a separate consideration. a similar instance would be an “earnest money” in sale that can evidence its perfection.

and for the optioner to demand for.” Under the Ang Yu Asuncion ruling.FORMATION OF SALE 155 and binding sale. i. the offeree a certain period to accept. That would be contrary to the language of Article 1324 of the Civil Code that recognizes the right of the offeror to withdraw the offer only when there is no separate consideration to support the period given: “When the offeror has allowed. the offer is accepted before a breach of the option. when it held that — The optionee has the right. This rule is clear from Ang Yu Asuncion. he would be saddled with the same dilemma: if the optioner withdraws the offer prior to the time he (the optionee) shall have exercised the option or accepted the offer.e. Such a rule would practically be the same as the Sanchez doctrine when no separate consideration is given for the option.. insofar as the optionee is concerned. as something paid or promised. whether he has received consideration or not for the grant of the option. to buy. he could in either case withdraw the offer prior to the time the optionee shall have exercised the option. Court of Appeals. and that an acceptance within the option period after the optioner shall have unlawfully withdrawn the offer would not give rise to a sale. whether or not he gives a separate consideration for the option. but not the obligation. To the optioner. the offer may be withdrawn at any time before acceptance by communicating such withdrawal. except when the option is founded upon a consideration. his acceptance could not give rise to a valid and binding sale. a separate consideration on the option. . Ang Yu Asuncion does not therefore provide for a “commercially sound” doctrine because it emasculates the effectiveness of an option supported by a consideration separate. Once the option is exercised timely. a bilateral promise to sell and to buy ensures and both parties are then reciprocally bound to comply with their respective undertakings. And yet in the subsequent ruling in Carceller v.77 the Court granted the optioner leeway to enforce the 77 302 SCRA 718 (1999). and removes any motivation for the optionee to give.

156 LAW ON SALES conditional exercise of his option right even after the option period and after the optioner-offeror-lessor had in fact given clear notice of the withdrawal of the option. would be the case of Guerrero v. he would first negotiate its sale to the promissee). at p.e. If there should be any action accruing to [mortgagee] it would be a personal action for damages against [mortgagor]. The Ang Yu Asuncion treatment of the option contract is also not consistent with the doctrine it adopted for a “lesser form” of option called the “right of first refusal. It is just a personal obligation of the mortgagor.. the sale was legal and valid. But the fact that in the instrument the mortgagor undertook.79 78 79 96 Phil. obligation or promise to sell the parcel of land to the mortgagee does not bind the land.” The author therefore dares to predict that in the future the Supreme Court would “adjust” the prevailing doctrine to conform to the essence of its rulings on rights of first refusal.. Rights of First Refusal One of the early cases that covered the situation of a right of first refusal (i. If [the buyer] was guilty of fraud which would be a ground for rescission of the contract of sale in his favor. discussed hereunder. 42. bound and promised to sell the parcel of land to the mortgagee. If [the buyer] contributed to the breach of the contract by [mortgagor].. [mortgagor] and not [mortgagee] would be the party entitled to bring the action for annulment. a promise on the part of the owner that if he decides to sell the property in the future. such undertaking. . the former together with the latter may also be liable for damages. 3. thus — The registration of the three instruments created a real right in favor of the mortgagee. and even granted the remedy of specific performance requested by the optionee to compel the optioner to execute the covering Deed of Absolute Sale. So that when [mortgagor] sold one-half of the parcel of land (the western part) . Ibid.78 where the promise was part of the undertaking of the mortgagor to the mortgagee. 37 (1954). Yñigo.

In giving judicial recognition to the “right of first refusal” pertaining to transactions covering specific property. even when the third-party buyer was entering into the purchase of the subject property in bad faith. Bocaling & Co. holding that “[t]he respondent court correctly held that the Contract of Sale was not voidable but rescissible. 526-527 (1996). under a right of first refusal situation. a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons. Mayfair Theater. Bocaling & Co. Under Articles 1380 to 1381(3) of the Civil Code. 82 Ibid. the Court distinguished it from either a sale or an option contract. It also recognized that a buyer of a real property who is aware of the existing lease agreement over it cannot claim good faith nor lack of awareness of the right of first priority provided therein.”82 Guzman. like creditors. the Court would not allow an action for specific performance or a rescission of the sale to a third party which constitute the breach of the promise. 675-676 (1992). The status of creditors could be validly accorded the [lessees] for they had substantial interest that were prejudiced by the sale of the subject property to the petitioner without recognizing their right of first priority under the Contract of Lease.. the obligation or promise of each party is the consideration for that of the other. since in reciprocal contracts. at p.80 The only remedy afforded to the promissee was an action to recover damages. 675. but lessor subsequently sold the property to another entity. Inc. it has only itself to blame.. such as a lease. While the Court classified the “right of first refusal” to be “an innovative This was the same position of Justice Romero in her concurring and dissenting opinion in Equatorial Realty Dev.81 where the right of first refusal was included in a contract of lease.FORMATION OF SALE 157 Note that in Guerrero. 81 206 SCRA 668. for it is its duty to inquire into the terms of the lease contract. v. Ang Yu Asuncion had the opportunity to revisit rights of first refusal. Bonnevie. The Court effectively reversed itself in 1992 in Guzman. 80 . v. Inc. 264 SCRA 483. and failing to do so. also held that it was incorrect to say that there was no consideration in an agreement of right of first refusal.

among other things. it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by. however. Subsequently. In a right of first refusal.158 LAW ON SALES juridical relation. a clear certainty on both the object and the cause or consideration of the envisioned contract. while the object might be made determinate..84 modified the principle pertaining to the right of first refusal. the Court in Equatorial Realty Dev. Inc. nor would it sanction an action for specific performance without thereby negating the indispensable consensual element in the perfection of contracts. even if that right is supported by a separate consideration. Mayfair Theater. its breach cannot justify correspondingly an issuance of a writ of execution under judgment recognizing the mere existence of such right of first refusal. 614-615 (1994). including the price. Prior thereto. the pertinent scattered provisions of the Civil Code on human [relations]. v. Inc. would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms.” it pointed out that it cannot be deemed a perfected sale under Article 1458 of the Civil Code.83 Consequently. the exercise of the right. Ang Yu Asuncion held that if only a right of first refusal is constituted over a subject parcel of land. because it merely pertains to a specific property without containing an agreement as to the price or the terms of payment in case of exercise of the right of first refusal. that obviously are yet to be later firmed up. nor an option contract under either Articles 1319 and 1479 thereof. among other laws of general application. thus — An option or an offer would require. where it held that in a contract of lease which gave the lessee a 30-day exclusive option to purchase the leased 83 84 238 SCRA 602. . 264 SCRA 483 (1996). At most.. it would authorize the grantee to sue for recovery of damages under Article 19 of the Civil Code on abuse of right.

the requirement of a separate consideration for the option. . in order to be valid and enforceable. The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract.. . 670 (1916). Equatorial Realty held that such ruling would render ineffectual or inutile the provisions on right of first refusal so commonly inserted in contracts such as lease contracts. . pp.FORMATION OF SALE 159 property in the event the lessor should desire to sell the same. is a contract of option. there can be no contract without the requisite. is willing to sell. or Article 1479 on promises to buy and sell. with regard to the stipulations made in the said document. As such. .85 unequivocal was our characterization of an option contract as one necessarily involving the choice granted to another for a distinct and separate consideration as to whether or not to purchase a determinate thing at pre-determined fixed price. among other things. 85 86 41 Phil. It held that there need not be a separate consideration in a right of first refusal since such stipulation is part and parcel of the entire contract of lease to which it may be attached to. for . Prieto. 500-502.86 In spite of the Ang Yu Asuncion ruling that found that right of first refusal provisions are not governed by Article 1324 of the Civil Code on withdrawal of offer. among others. such contractual stipulation which does not provide for a price certain nor the terms of payment. There was. . . and this omission is a bar which precluded our holding that the stipulations contained . . But it is not shown that there was any cause or consideration for that agreement. a meeting of minds on the part of the one and the other.. must. thus — As early as 1916. indicate the definite price at which the person granting the option. in the case of Beaumont vs. . actually grants a right for first refusal and is not an option clause or an option contract. the consideration for the lease includes the consideration for the right of first refusal. therefore. has no applicability. of the cause for the obligation to be established. Ibid.

the resulting contract is rescissible by the person in whose favor the right of first refusal was given. Also. This juridical relation is not amorphous nor is it merely preparatory. This may apply here if the contract is limited to the buying and selling of the real property. . [lessee] has to accept the offer. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations. the obligation of [lessor] to first offer the property to [lessee] is embodied in a contract. It is Paragraph 8 on the right of first refusal which created the obligation. There is something to execute and that is of [lessor] to comply with its obligation to the property under the right of first refusal according to the terms at which they should have been offered then to [lessee]. Court of Appeals decision. Paragraph 8 of the two leases can be executed according to their terms. a right of first refusal clause or contract cannot be the subject of an action for specific performance because of lack of an agreement on the price. and thereby confirms the Ang Yu Asuncion doctrine that on its own. the Court stated that there was nothing to execute because a contract over the right of first refusal belongs to a class of preparatory/juridical relations governed not by law on contracts but by the codal provisions on human relations. and although no particular price was stated in the covenant granting the right of first refusal. The latter remedy encourages multiplicity of suits.160 LAW ON SALES The Court decreed in Equatorial Realty that in a situation where the right of first refusal clause found in a valid lease contract was violated and the property was sold to a buyer who was aware of the existence of such right. thus — Under the Ang Yu Asuncion vs. In essence. the same price by which the third-party buyer bought the property shall be deemed to be the price by which the right of first refusal shall therefore be exercisable. However. the Equatorial Realty ruling pins the enforceability of a right of first refusal on the obligatory force of the main contract of lease to which it is attached to. at the price when that offer should have been made.

thus — Therefore. 268 SCRA 727. v. 741 (1997).87 which held that the right of first refusal may be provided for in a lease contract. but subsequently the property was sold at sale of the property 59 Million to a third party. Parañaque Kings Enterprises. Court of Appeals. even when nothing of such requirement is provided for in their agreement. it cannot be exercised. .FORMATION OF SALE 161 a. Parañaque Kings reiterated the rule that the third-party who bought the property from the seller who violated the right of first refusal granted to the lessee of the property cannot claim to be a 87 88 325 SCRA 210 (2000). when such right is not stipulated in the lease contract. it became necessary for the seller to have gone back to the party with the right of first option at that higher price. Inc. like a contract of lease. Limited Application of Equatorial Realty Ruling It is clear from the decision in Equatorial Realty that the ruling applies only to rights of first refusal attached to a valid principal contract. Martinez. if the exercise of the option was offered at 55 Million which was refused. Only if the person with such right of first option fails to exercise his right of first priority could the seller thereafter lawfully sell the subject property to others. and verbal grants of such right cannot be enforceable since the right of first refusal must be clearly embodied in a written contract. the price for which it was sold to a third party should have likewise been first offered to the party entitled to the option.88 held that in order to have full compliance with the contractual right granting a lessee the first option to purchase the property leased. which anyway would be considered under the doctrines applicable to option contracts. however. and only under the same terms and conditions previously offered to the party with the right of first option. and that the Ang Yu Asuncion ruling would still apply. v. to rights of first refusal constituted as separate contracts. that the ruling has no application. The principle was affirmed in Sen Po Ek Marketing Corp.

Court of Appeals. The ordinary language of a right of first refusal clause simply means that should the lessor-promissor decide to sell the leased property during the term of the lease. and the series of negotiations that transpire between the lessor and the lessee on the basis of such preference is deemed a compliance of such clause even when no final purchase agreement is perfected between the parties. especially when the complaint prayed for the annulment of the sale of the property to him. 91 499 SCRA 276 (2006). Riviera seems to mandate the “written notice” rule applicable for the rescission and cancellation of contracts of sale. 259. Villegas v. at p. .162 LAW ON SALES stranger to the arrangement and not a proper party in the action for rescission since such buyer actually steps into the shoes of the owner-lessor of the property by virtue of his purchase and assumed all the obligations of the lessor under the lease contract. The lessor would then be at liberty to offer the sale to a third party who paid a higher price.89 held that “a lease with a proviso granting the lessee the right of first priority ‘all things and conditions being equal. Court of Appeals. if previous to the sale to the third party.”90 In addition. especially. Riviera Filipina. and there is no violation of the right of the lessee. but of the first privity to buy the property in the event that the owner sells the same” in a situation where the right of first refusal was contained in a contract of lease. Lately.’ meant that there should be identity of the terms and conditions to be offered to the lessee and all other prospective buyers. It recognized that when a lease contains right of first refusal the lessor has the legal duty to the lessee not to sell the lease property to any one at any price until after the lessor has made an offer to sell the property to the lessee and the lessee has failed to accept it. Inc. with the lessee to enjoy the right of first priority.91 held that a “right of first refusal is a contractual grant not of the sale of a property. v. Ibid. such sale should first be offered to the lessee. as in the case of Riviera. a written notice was sent by the lessor 89 90 380 SCRA 245 (2002).

Bonnevie. (2) Sublessee May Not Take Advantage of Right of First Refusal of Sublessor A right of first refusal granted in the contract of lease in favor of the lessee cannot be availed of by the sublessee because such 92 Guzman. Various Rulings On Rights of First Refusal Contained in Lease Agreement (1) Rentals Deemed to Be Consideration to Support Right Lucrative Realty and Dev. again under the same terms as offered to the grantee. Bernabe.”95 The reasoning of the Court is rather strange considering that by its previous rulings. 206 SCRA 668 (1992). 368 SCRA 691 (2001). v.. Polytechnic University of the Philippines v. Bonnevie. an enforceable right of first refusal does not need consideration for its validity and effectivity. at p. 94 392 SCRA 679 (2002). Court of Appeals. v. Conculada v.94 held that “[I]t is not correct to say that there is no consideration for the grant of the right of first refusal if such grant is embodied in the same contract of lease.93 b. Rosencor Development Corp.FORMATION OF SALE 163 to the lessee confirming that the latter has lost his right of first refusal. Inquing. . Bocaling & Co. 93 Guzman. v. Jr. Court of Appeals. 367 SCRA 164 (2001). Since the stipulation forms part of the entire lease contract. the consideration for the lease includes the consideration for the grant of the right of first refusal. The prevailing doctrine therefore is that a sale entered into in violation of a right of first refusal of another person found in a valid principal contract is rescissible. v. Corp. 685. Only after the lessee grantee fails to exercise its rights under the same terms and within the period contemplated can the owner validly offer to sell the property to a third person. Bocaling & Co. 95 Ibid. 354 SCRA 119 (2001). since it is merely a stipulation in a valid principal contract.92 The basis of the right of first refusal must be the current offer of the seller to sell or the offer to purchase of a prospective buyer. 206 SCRA 668 (1992).

Proposed Doctrine on Option Contracts Vis-à-Vis Right of First Refusal Rulings a. 99 264 SCRA 483. the so-called “right of first refusal” is an innovative juridical relation. 100 Ibid. Court of Appeals. Dizon v. Inc. Court of Appeals. the eminent justice rightfully asked the question. and had the contract of lease granted the lessee the right to assign the lease. Justice Vitug posited that “a right of first refusal cannot have the effect of a contract because. Alternative Doctrine of Enforceability of Rights of First Refusal In both his main decision in Ang Yu Asuncion and in his dissenting opinion in Equatorial Realty Dev. it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code.98 4. then the assignee would be entitled to exercise such right as he steps into the shoes of the assignor-lessee.97 The right to exercise the option to purchase expired with the termination of the original contract of lease. then at what price or consideration would be the basis of specific performance?100 And to which his answer in Ang Yu Asuncion was — In the law on sales. Neither can the right of 96 97 Sadhwani v. .164 LAW ON SALES sublessee is a stranger to the lessor who is bound to respect the right of first refusal in favor of the lessee only. certain basic terms would have yet to be determined and fixed. by its very essence. 396 SCRA 152 (2003). 98 Ibid. 531.. Needless to point out.96 (3) Right Does Not Extend with the Extension of the Lease A provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee.”99 for lacking in any meeting of the minds as to the certain price for the determinate subject matter. 281 SCRA 75 (1997). if there could be a “breach of contract” of the right of first refusal.

101 Outside of being a stipulation in a valid contract. . the separate consideration is given by the promissee to support a contractual commitment on the part of the promissor that if the promissory ever decides to sell the determinate subject matter. . Prior thereto.FORMATION OF SALE 165 first refusal. among other laws of general application. . when supported by a separate consideration. 614-615. that obviously are yet to be later firmed up. and when supported by a separate consideration. while the object might be made determinate the exercise of the right. In a right of first refusal. not rise to the level of becoming a binding contractual commitment? The author believes that such an agreement would be a valid contractual relation. like a contract of lease. the pertinent scattered provisions of the Civil Code on human conduct.” In other words. or possibly an offer under Article 1319 of the same Code . among other things.” would be a binding contract between the promissor and the promissee. . understood in its normal concept. Article 1479 . including the price. per se be brought within the purview of an option under . 101 238 SCRA 602. .” Under such a premise. . . [as both of them] require. then he will negotiate in good faith with the promissee for the possibility of entering into a sale. Binding oneself to enter into negotiations for a contract to sell or a contract of sale is essentially an personal obligation “to do. a clear certainly on both the object and the cause or consideration of the envisioned contract. would be depended not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms. it can at best be so described as merely belonging to class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by. “I give that you may do. within the coverage of the innominate contract do ut facias. may an agreement between promissor and promissee granting the latter a right of first refusal over a determinate subject matter. however. the “Agreement on Right of First Refusal.

If Not at a Higher Level Than. for the “right of first refusal contract” being valid and binding.. . . b. The obligation is not to enter into a sale.. . The result would not be the same as that posited by Justice Vitug. or to decide whether or not to enter into a principal contract.102 distinguished an option from a right of first refusal.166 LAW ON SALES like much in the case of a valid option contract under Articles 1319 and 1479 of the Civil Code. .. then promissor has complied with his obligation. Rights of First Refusal Vazquez v. . for a fixed period and at a determined price. including the price. its breach can never be remedied by an action for specific performance. thus: “An option is a preparatory contract in which one party grants to another. but rather to negotiate in good faith for the possibility of entering into a sale. Enforceability of Option Rights Should Be at Par With. rather than the difficult cause of action for recovery of damages based on “abuse of right” under Article 19 of the Civil Code on Human Relations. the exercise of the right would be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with another but also on terms. while the object might be made determinate. Ayala Corp. since the underlying obligation in a “right of first refusal contract” is a personal obligation to do. because of the underlying public policy against involuntary servitude. In a right of first refusal. but that the remedy of rescission for breach of contract would be available which would allow recovery of damages under Contract Law. the remedy of specific performance is unavailable by reason of the nature of the underlying obligation. and when the promissor has in fact negotiated in good faith. the privilege to buy or sell. and a “mutual promises to negotiate a possible contract of sale over a determinate subject matter” would be akin to the mutual promise to buy and sell under said Article 1479. However. but the parties’ minds could not meet on the price and the terms of payment. that are yet to be firmed 102 443 SCRA 231 (2004).

and would validate the rationale of Article 1324 of the Civil Code on why a separate consideration is required for a valid option contract. at p. the ‘offer’ may be withdrawn anytime by communicating the withdrawal to the other party.e. the exercise of the option) by the optionee during the option period would still give rise to a valid sale over the subject property. The Court should therefore revisit its ruling in Ang Yu Asuncion on option contracts. 256. 255.103 . This position seems to be affirmed in the recent ruling in Carceller.. Such a situation does not affect the above proposed rule since the acceptance of the offer (i. If the 103 104 Ibid. Ibid. constituted of determinate subject matter. .”104 Vazquez therefore emphasizes the rather obvious point: if an option. and any attempt to so withdraw the offer during the option period shall be void. can be withdrawn within the option period to remove any hope of an action to enforce a sale. then more so can the offeror withdraw a right of first refusal and destroy any chance of there ever coming into being a sale upon which an action for specific performance could be achieved. but that the rules on third party buyer in good faith should prevail. at p. the optionee shall have the right to exercise the option or accept the offer at anytime during the option period and the same would give rise to a valid and binding contract of sale. The rulings of the Court in Equatorial Realty and Parañaque Kings would have the legal effect of placing rights of first refusal attached to principal contracts like lease.. he cannot withdraw the offer during the option period. of having greater legal enforceability than option contracts which are supported by separate consideration. if separate consideration has been received by the optioner for the grant of the option. Consequently. In the same manner.FORMATION OF SALE 167 up. The better rule would be that in case an option is supported by a separate consideration. certain price. It may happen that the optioner does not only withdraw the offer during the option period but also sells the property to a third party during that period. with separate consideration..

but wants to maintain an option to be able to get out of it later on. Court of Appeals. This arrangement is recognized in one case105 by the Supreme Court. Art. 739 (1939). and the remedy of the optionee (who has become the buyer in a valid and binding sale) is to sue the optioner (who has become the seller) for recovery of damages for breach of contract of sale. wherein the main obligation is a person obligation “to do. he would be a proper party to the action for specific performance that the optionee can bring against the optioner once he has exercised his option. 105 106 Spouses Doromal. v. then he is protected by law. 5. Civil Code. with clear option on the part of the buyer to withdraw from the contract by forfeiting the earnest money.” Such contracts to sell are really within the policitacion stage for they do not represent a species of a sale defined under Article 1458 of the Civil Code. 67 Phil. 66 SCRA 575 (1975). Mutual Promises to Buy and Sell The promise to sell a determinate thing coupled with a correlative promise to buy at a specified price is binding as an executory agreement. Yu Jose. 107 Tan Tiah v. . 1479. In any event the ruling in Ang Yu Asuncion would suggest that the best scheme for a prospective buyer to take if he is interested in a specific property. otherwise.107 Such an arrangement would be the “true” contract to sell. there is no valid and enforceable contract to sell. rather than to sue for damages for breach of the option contract as held in Ang Yu Asuncion. would be the earnest money scheme.106 Even in this case the certainty of the price must also exist. Sr. On the other hand.168 LAW ON SALES third party buyer bought the property from the optioner knowing of the existence of the option in favor of the optionee. which embodies the main obligation of the seller to enter into a contract of sale upon full compliance with the condition of the buyer fully paying the purchase price. whereby a sale is perfect upon the granting of the earnest money. if the third party buyer bought the property in good faith and for value.

In the same manner. 1459 and Atkins. citing Art. This doctrine is in stark contrast to another line of decisions that hold that a contract to sell merely contains obligations “to agree” to enter into contracts of sale. 111 263 SCRA 15 (1996). and compliance therewith may accordingly be exacted. v. 110 11 CAR 57 (1967). which is an executory contract. 109 202 SCRA 607 (1991). Reforma.109 held that acceptance of the option offered. and being personal obligations may not be enforced by specific performance. the offeree. Cua Hian Tek. 102 Phil. and breach of which does not authorize an action for specific performance but recovery of damages seems to have been affirmed by the Court in Coronel v. . is equivalent to an acceptance of an offer to sell for a price certain and creates a bilateral contract to sell and buy and upon acceptance.111 where it held that: “In a contract to sell. This doctrine which looks at the contract to sell or mutual promises to buy and sell as constituting merely personal obligation to enter into a sale. The Court of Appeals in Gan v.. or damages for breach thereof where it is not possible to carry out its terms. Kroll and Co. Ang Yu Asuncion held that “[a]n unconditional mutual promise to buy and sell.110 held that in an agreement to buy and sell. can be obligatory on the parties. Court of Appeals. title to the property does not pass to the promissee and the contracting parties are merely given the right to demand fulfillment of the contract in the proper cases. The ruling covers a form of “contract to sell” that are within the perfection stage of sales defined by Article 1458 for they embody the main obligation of the seller “to transfer ownership and delivery possession” of the subject matter upon fulfillment of the condition that buyer pays the purchase price. 948 (1958). upon the fulfillment of the suspensive condition which is the full payment 108 Supra.FORMATION OF SALE 169 On the other hand.”108 which means that an action for specific performance is available. Villamor v. as long as the object is made determinate and the price is fixed. Inc. Court of Appeals. ipso facto assumes obligations of a buyer.

but they do not make the contract void ab initio but only voidable. . over which the latter agrees and obligates himself to pay the price. PERFECTION STAGE: OFFER AND ACCEPTANCE A contract of sale is “born” from the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price and the manner of its payment. In sales particularly. the contract is perfected when the seller obligates himself. 113 Valdez v. Katipunan. 375 SCRA 199 (2002). which when obtained would restore the parties to the status quo ante insofar as legally and equitably possible. and the contract is binding upon the parties unless annulled by proper court action. 344 SCRA 284 (2000).”113 Consent may be vitiated by any of the following: mistake. 439 SCRA 273 (2004). ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. nor serve as a binding juridical relation. This meeting of the minds speaks of the intent of the parties entering into the contract respecting the subject matter and the consideration thereof. Court of Appeals. 115 Ang Yu Asuncion v. it cannot be an independent source of obligation. intimidation.170 LAW ON SALES of the purchase price.” The various issues on the matter are discussed in greater details in Chapter 11.114 Until a sale is perfected. to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. Also Blas v. 375 SCRA 199 (2002). Mariano. Angeles-Hutalla. Katipunan v. undue influence and fraud. for a price certain. Katipunan. the Court held that a “sale is at once perfected when a person (the seller) obligates himself for a price certain. Court of Appeals. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. 238 SCRA 602 (1994). 114 Katipunan v. Heirs of Jose P. violence.112 In succinct language. 439 SCRA 55 (2004). to deliver and to transfer ownership of a thing or right to the buyer.115 112 Santos v.

v. Planters Dev. C & C Commercial Corp. 202 SCRA 607 (1991). Mariano. 117 116 . to give something or to render some service. which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.117 Article 1319 defines “consent” or “meeting of minds” as “manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.119 held that “[F]or a contract. Consent that Perfects a Sale Being a consensual contract. unconditional and without variance of any sort from the proposal. 511 SCRA 444 (2006). Court of Appeals. are perfected by mere consent. 118 Manila Metal Container Corp.” which means that an “offer certain” is met by an Santos v.” It stresses that the offer must be certain. 527 SCRA 562 (2007). like a contract to sell. National Grains Authority v. 120 Ibid. Bank. and the acceptance absolute — it must be plain. with respect to the other. 171 SCRA 131 (1989). Heirs of Jose P.FORMATION OF SALE 171 In one case. in general. Court of Appeals. 119 340 SCRA 720 (2000). unequivocal. involves a meeting of minds between two persons whereby one binds himself. Villamor v. 1. Navarra v. Contracts. at p. the same cannot be considered valid when the evidence presented shows that there had been no meeting of the minds between the supposed seller and the corresponding buyer. Offer Must Be “Certain” For the perfection of a valid sale. there must be a “meeting of minds. Intermediate Appellate Court. Article 1475 of the Civil Code provides that the sale is perfected at the moment there is a “meeting of minds” upon the thing which is the object of the contract and upon the price. Philippine National Bank.116 the Court held that even when there is a duly executed written document purporting to be a sale. Gomez v. 728. PNB.”120 2. v. 344 SCRA 284 (2000). The offer must be certain and the acceptance absolute.118 and that a qualified acceptance constitutes merely a counter-offer which must in turn be absolutely accepted to give rise to a valid and binding contract. 175 SCRA 1 (1989).

and that it would not be legally proper to modify the conditions imposed by the offeror without his consent. . The absence of even just one of the essential requisites pertaining to either subject matter or price in the terms of the offer. Prieto. 41 Phil. no matter how absolutely it is accepted.122 held that promises are binding when and so long as they are accepted in the exact terms in which they are made.121 held that in order for an acceptance to have the effect of converting an offer to sell into a perfected contract.. Beaumont v. even when such offer is absolutely accepted by the offeree.e. which is what gives rise to the birth of the contract. makes such offer “not certain. and determinate or at least determinable. including on the terms of payment thereof. Acceptance Must Be “Absolute” Zayco v. money or its equivalent (i. Serra. what makes an offer “certain” is when it is floated by the offeror having within its terms the description of the subject matter that has all three requisites of “possible thing. and with a price that has the requisites of being real. In order that the acceptance of a proposition or offer may be efficacious. and it will not be so.172 LAW ON SALES “absolute acceptance. 3. 670 (1916). can never give rise to a valid sale. for in that case.” licit. it will not be in conformity with the offer. it is necessary that such acceptance should be unequivocal and unconditional and the acceptance and proposition shall be without any variation 121 122 44 Phil.” any other offer which is not certain. Clarifying the extent by which acceptance must be absolute. In the Law on Sales. In other words. and must be certain or at least ascertainable. 326 (1923).” and cannot give rise to a valid sale. if it involves any new proposition. constitute valuable consideration). it must be plain and unconditional. an offer is “certain” only where there is an offer to sell or an offer to buy a subject matter and for a price having all the seven essential requisites mandated by law for subject matter and price. perfect and binding upon the parties thereto.

came to an agreement with a buyer over a parcel of land at an agreed price of 51. 183. Notwithstanding the final agreement. A couple of days later. The BPI representative stated that there was no harm in trying to ask for payment on terms because in previous transactions.126 the Bank of the Philippine Islands (BPI). 460 SCRA 170 (2005).123 the use of the term “to negotiate” in the acceptance letter given by the buyer was held to indicate that there was as yet no absolute acceptance of the offer made. the buyer inquired if it was possible to pay on credit terms the purchase price. Inc. however. BPI informed the buyer that the lot was no longer for sale.124 the Court held that placing the word “Noted” and signing such note at the bottom of the written offer cannot be considered an acceptance that would give rise to a valid sale: “By no stretch of imagination. Ong. there was no perfected sale.’ is a clear indication that there is no perfected contract of sale to speak of. Dacuycuy.”125 In Limketkai Sons Milling. . 125 Ibid.FORMATION OF SALE 173 whatsoever. can the mere ‘NOTING’ of such an offer be taken to mean an approval of the supposed sale. The Court cited Villonco doctrine in upholding 123 124 104 SCRA 668 (1981). Court of Appeals. In Yuvienco v. The Court held that there was a perfected contract between BPI and the buyer there having been mutual consent between the parties. In DBP v.000. v. Quite the contrary. the very circumstance that the offer to purchase was merely ‘NOTED’ by the branch manager and not ‘approved. Any modification or deviation from the terms of the offer annuls the latter and frees the offeror. the same had been allowed by the BPI board. at p. The buyer brought an action for specific performance against BPI which claimed that with the offer to pay the purchase price in credit terms. the subject matter was definite. and the consideration was determined.00 per square meters to be paid in cash. since the term is practically the opposite of the idea that an agreement has been reached. 126 250 SCRA 523 (1995). represented by a duly authorized officer.

which amounts to a rejection of the original offer. v. And although subsequently. And contrary to the petitioner’s assertion that its offer was accepted by BPI. an essential requirement for the acceptance of the offer which was clearly specified in BPI’s documents. the seller 127 128 255 SCRA 626 (1996). a sale is perfected. Court of Appeals. ‘So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer. The requisite form under Article 1358 of the Civil Code requiring the deed to be in a public instrument was held merely for greater efficacy or convenience and the failure to comply therewith did not affect the validity and binding effect of the act between the parties. On motion for reconsideration. a contract is formed. whether such request is granted or not. .174 LAW ON SALES the resolution and held: “It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be a binding acceptance.128 where it held that from the moment a party accepts without qualification another party’s offer to sell within the period stipulated therein. thus — This was not the case herein considering that petitioner’s acceptance of the offer was qualified.’” The Court also held that the fact that the deed of sale still had to be signed and notarized did not mean that no contract had already been perfected since a sale of land is valid regardless of the form it may have been entered into. Court of Appeals. 278 SCRA 702 (1997). The Court had an opportunity in 1997 to re-visit its original ruling in Limketkai in its decision in Uraca v. Neither was petitioner able to prove that its offer to buy the subject property was formally approved by the beneficial owner of the property and the Trust Committee of the Bank. in Limketkai Sons Milling. there was no showing that petitioner complied with the terms and conditions explicitly laid down by BPI for prospective buyers.127 the Court reversed it earlier resolution. Inc. holding that the acceptance of the offer was not unqualified and absolute because it was not identical in all respects with that of the offer so as to produce consent.

Inc.FORMATION OF SALE 175 required a much higher price than the original offer. 244 SCRA 320 (1995). The subsequent bargaining for an increase price did not result into a novation since there was no final agreement nor was there a resulting new contract: “Since the parties failed to enter into a new contract that could have extinguished their previously perfected contract of sale. .400. When sellers saw the buyers.050.00 to be paid in 30 days. and subsequently sold the property to another party.”129 On the other hand.050. in Toyota Shaw. the first sale remained valid and binding and is not deemed novated by the fact of negotiation thereafter done on the price.00 but counter-proposed that it be paid in installments with a down payment of 51.050.” The problem with Toyota Shaw ruling is that. In Uraca the sellers-lessors offered in writing to the buyers-lessees the sale of the premises they were renting for 51.000.000. the buyers agreed to the price of 51.00 as erroneously stated in their letter-offer. there arose a valid and binding sale since undisputedly the contractual elements of consent. v.130 the Court held that a document cannot constitute a sale even when it provides for a downpayment “since the provision on the downpayment made no specific reference to a sale of a vehicle. The seller did not accept the counter-offer.000.400. Definiteness as to the price is an essential element of a binding agreement to sell personal property.00.000.00 in cash or manager’s check and not the 51.00 remained valid and binding and enforceable against the sellers and the second-buyer.000. and the buyer negotiated on the matter but no final agreement was reached. when the evidence showed that other elements necessary to constitute a valid contract were agreed 129 130 Ibid.000.00.000. Court of Appeals. 711. outside of Statute of Frauds consideration. From the moment of acceptance of the original offer of the sellers by the buyers. the sellers required a higher price of 51. which offer was accepted unconditionally in writing by the buyers. there can be novation of the latter. After some haggling.000. object certain and cause occurred. at p. and the balance of 5400. it considered that a “contract” of sale is only what is embodied in the document. The Court held that the original sale at 51.

The better ruling in Toyota Shaw would have been that the suspensive condition did not materialize (i. and sent a written response to Villonco Realty stating that: the lots in the Sta.00. . stating that since Villonco Realty.131 illustrates how certain deviations may be made in the acceptance and the same would still convert the offer into a valid and binding sale. returned the amount of 5100. had given merely a counter-offer to the original offer made by Bormaheco. When “Deviation” Allowed Villonco v. and that Bormaheco had a right to withdraw from the offer. The Court held that there was a perfected sale that arose from the exchange of correspondences. Bormaheco. sale would be subject to the purchase by Bormaheco of Sta.000.e.. Ana lots. which will be returned if the sale is not consummated. and that the interest of 10% would be computed on a per annum basis.176 LAW ON SALES upon albeit not included in the document. with the deviation that if the sale is not consummated it will earn interest of 10%. there was a correction or modification contained in the acceptance. and that in turn Bormaheco had certain amendments to the reply received from Villonco Realty. Ana were particularly described as those belonging to National Shipping Company. 131 65 SCRA 352 (1975). with earnest money of 5100. accompanied by a check for the 5100. a. and that the deed of sale would be executed in 45 days.000. In that case.00. it refused to proceed with the sale of the Buendia lots to Villonco Realty. Ana lots. Bormaheco sent a written offer to Villonco Realty providing for the following terms for the sale of its Buendia lots: 5400 per square meters.00 earnest money. there was only a standing counter-offer which has not been accepted. Bormaheco encashed the check. even if literally. not granting of the financing by the indicated finance company) as to render the contract inefficacious.000. Villonco Realty gave a written reply confirming the terms. no sale had been perfected. Even when Bormaheco was able to purchase the Sta.

Acceptance May Be Express or Implied Acceptance may be evidenced by some act. d. the offeror may still withdraw his offer anytime before he has knowledge of the acceptance. Sr.133 acceptance of the terms of the sale of co-ownership rights through an agent was expressed by the co-owners signing as witnesses to the covering deed of sale. communicated to the offeror. Bormaheco had encashed the same.. In Oesmer v. that upon receipt of the check covering the earnest money. such as payment of the purchase price. 514 SCRA 228 (2007). b. 11 CAR 57 (1967). 134 Art. or conduct. and payment of real estate taxes thereon. 135 Gan. Acceptance by Letter or Telegram Acceptance made by letter or telegram does not bind the offeror except from the time it came to his knowledge. and similar acts showing buyer’s assent to the contract.FORMATION OF SALE 177 the changes were not substantial. that clearly manifest the intention or determination to accept the offer to buy or sell. Acceptance Subject to Suspensive Condition Even when there is a meeting of minds as to the subject matter and the price. Corp. even if an acceptance has been mailed or sent to the offeror. Court of Appeals.135 132 133 340 SCRA 720 (2000). . either in a formal or an informal manner. declaration of the property for taxation purposes. if the sale is subject to suspensive condition. In Gomez v. 1319. Reforma.132 the acceptance on the part of the buyer was manifested through a plethora of acts. v. c. Paraiso Dev. but merely clarificatory. there is deemed to be no perfected sale. Civil Code. Such is corroborated also by the fact.134 Therefore.

Where notice has not been given that the sale by auction is subject to a right to bid on behalf of the seller. it shall be unlawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf. 1187. any bidder may retract his bid. 140 Ibid.138 Until such announcement is made. Heirs of Rufina Morales. Acceptance in Auction Sales A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer.136 held that there can be no perfected sale of a subdivision lot where the award thereof was expressly made subject to approval by higher authorities and there eventually was no acceptance manifested by the supposed awardee. it shall be unlawful for the auctioneer to employ or induce any person to bid at such 136 137 133 SCRA 777 (1984). but because the condition has not happened. or in other customary manner. the contract itself and its underlying obligations are not yet demandable. Court of Appeals. there is already a contract upon the meeting of the minds. 138 Province of Cebu v. and in case of non-happening of the condition. as the consequence of the retroactive effect of the non-happening of a suspensive condition. Civil Code. 546 SCRA 315 (2008). Civil Code. then the contract is extinguished as though the contract has never been entered into. since the principles of mutuality and obligatory force come into play. and the auctioneer may withdraw the goods from the sale.139 Where the goods are put up for sale by auction in lots. Art. each lot is the subject of a separate contract of sale.137 e. . Also. unless the auction has been announced to be without reserve. To the author. 139 Art.140 A right to bid may be reserved expressly by or on behalf of the seller. 1476.178 LAW ON SALES People’s Homesite & Housing Corp. v. the more appropriate doctrine should be that when a sale is made subject to a suspensive condition.

Thus. 512 SCRA 411 (2007). Earnest Money a. the presumption is founded upon the fact that there must first be a valid sale. Villonco v. On the other hand. 148 65 SCRA 352 (1975). 146 Reiterated in Manila Metal Container Corp. Postal Savings Bank. in San Miguel Properties Philippines v. the nonfulfillment of which would be a negative resolutory condition. whenever earnest money is given in a sale. 149 262 SCRA 464 (1996). 262 SCRA 464. 484 (1996). but the proof of the concurrence of all the essential elements of the sale which establishes the existence of a perfected sale. Bormaheco. Huang.149 the receipt of “earnest money” could not lead to the 141 142 Ibid. PNB. in Philippine National Bank v. Court of Appeals.142 4. 47 Phil. or knowingly to take any bid from the seller or any person employed by him. Court of Appeals. 511 SCRA 444 (2006).147 it was held that the presumption under Article 1482 does not apply when earnest money is given in a contract to sell.FORMATION OF SALE 179 sale on his behalf or the seller. .148 held that even when the sale is subject to a condition. Function of Earnest Money Under Article 1482 of the Civil Code. 144 Philippine National Bank v. 772 (1925). v. 143 Escueta v.”144 Also. it shall be considered as part of the price and as proof of the perfection of the contract.145 it was held that it is not the giving of earnest money. 143 The rule is “no more than a disputable presumption” and prevails only “in the absence of contrary or rebuttal evidence. whether they knew of such conditions or not. 147 517 SCRA 57 (2007).141 The owner of the property sold at auction may provide the terms under which the auction will proceed and the same are binding upon all bidders. 145 336 SCRA 732 (2000). Caguiat. the acceptance of the earnest money would prove that the sale is conditionally consummated or partly executed subject to the fulfillment of the condition. Leoquinco v. Lim.146 In Serrano v.

152 150 151 66 SCRA 575 (1975). 152 Chua v. For example. so that if the suspensive condition does not take place. is the preferred concept under the law. Court of Appeals. the parties would stand as if the conditional obligation had never existed. San Miguel Properties Philippines v. as a guarantee that the buyer would not back out. then what was given is not earnest money as defined under Article 1482 of the Civil Code. .” b. but nothing prevents the parties to the sale to treat earnest money differently. and that if they should do so they would forfeit the amount paid. The Court treated the initial deposit given by the buyer to the sell in Philippine National Bank “not strictly as earnest money.180 LAW ON SALES conclusion that there was a valid and binding sale because of documentary evidence showing that the parties entered into a contract to sell. that would not by itself give rise to a valid and binding sale. Huang. especially when at the time the amount is given. in Spouses Doromal. 401 SCRA 54 (2003). Varying Treatments of Earnest Money The concept of “earnest money” given under Article 1482 of the Civil Code. Court of Appeals. the final terms of the purchase had not been agreed upon.151 The same is also true when earnest money is given under the terms of a contract to sell. considering that it is not clear that there was already a definite agreement as to the price. was acknowledged by the sellers to have been received under the concept of the old Civil Code. in which case the provisions of Article 1482 would also be inapplicable. Spouses Doromal took into consideration that even with the payment of the earnest money. v. Sr. 336 SCRA 737 (2000). but as part of the consideration to [seller’s] promise to reserve the subject property for the [buyer].150 the amount given as earnest money by the buyer. When the amount is given only as a guarantee that the buyer would not back out of the sale. which is akin to a conditional sale where the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event.

viz. amounts received as part of the downpayment and to be credited to the payment of the total purchase price could not be forfeited when the buyer should fail to pay the balance of the price. Effect of Rescission on Earnest Money Received In the absence of a specific stipulation. consequently. especially in the absence of a clear and express agreement thereon. while option money is the money given as a distinct consideration for an option contract..FORMATION OF SALE 181 c. v.156 When the seller seeks to rescind the sale. he is not required to buy. Inc. Court of Appeals.: (a) Earnest money is part of the purchase price. whenever earnest money is given in a sale. 156 Ibid. Distinguishing Earnest Money and Option Money Adelfa Properties. Oesmer v. while when the would-be buyer gives option money. it shall be considered as part of the purchase price and as proof of the perfection of the contract. Court of Appeals. Corp. Inc. the buyer is bound to pay the balance. v.155 Under Article 1482 of the Civil Code.154 d. (b) Earnest money is given only where there is already a sale. Reiterated in Limson v. but may even forfeit it depending on the terms of the option. 375 SCRA 209 (2001). Court of Appeals. while option money applies to a sale not yet perfected. 299 SCRA 141 (1998). 580 (1995). the seller of real estate cannot keep the earnest money received to answer for the damages sustained in the event the sale fails due to the fault of the prospective buyer. and (c) When earnest money is given. 240 SCRA 565.153 enumerates the distinctions between earnest money and option money. 154 153 . 514 SCRA 228 (2007). 155 Goldenrod. Paraiso Dev.

unless otherwise agreed. Performance Should Not Affect Perfection Since sale is a consensual contract. 1319. the expenses of.163 where the seller quoted to the buyer the 157 Ibid. the expenses for the execution and registration of the sale shall be borne by the seller. 1487. which occurs when the minds of the parties have met as to the subject matter. putting the goods into a deliverable state must be borne by the seller. Civil Code. 162 Equitable Realty Dev. Civil Code. Inc. then the ability of the parties to perform the contract (after perfection) does not affect the perfection of the contract. 1521.160 In the case of goods.162 7.. the sale’s place of perfection is where there is a meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Inc. such rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest. Mayfair Theater. 161 Art. Civil Code.158 In case of acceptance through letter or telegram. unless there is a stipulation to the contrary. Its seems from the decision that the requirement for restitution prohibits the rescinding seller from recovering part of the damages caused by reason of failure of the buyer to proceed with the sale. and incidental to..159 6. In Johannes Schuback & Sons Phil. Court of Appeals. .182 LAW ON SALES under Article 1385 of the Civil Code. it is presumed that the contract was entered into in the place where the offer was made. 158 Art. 160 Art. v. Expenses of Execution and Registration In general. price and terms of payment. 159 Ibid.157 5. Place of Perfection Generally. 332 SCRA 139 (2000).161 The duty to withhold taxes due on the sale is imposed on the seller. Trading Corp. v. 163 227 SCRA 719 (1993).

261 SCRA 128 (1996). part number. ownership in the thing shall pass from the vendor to the vendee upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid. Court of Appeals. and the buyer had sent in reply a purchase order. 1478. for the opening of a letter of credit is not to be deemed a suspensive condition. by item number. in the course of its dealings with private respondent. cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Article 1191 of the New Civil Code. The facts herein do not show that the petitioner reserved title to the goods until private respondent had opened a letter of credit. Devoid of any stipulation that “ownership in the thing shall not pass to the purchaser until he has fully paid the price” [citing Art. It is not among the essential requirements of a contract of sale enumerated in Article[s] 1305 and 1474 of the Civil Code. quantity. at p. however. even when the required letter of credit had not been opened by the buyer. . the absence of any of which will prevent the perfection of the contract from taking place. does not prevent the perfection of the contract between the parties. The failure of the buyer to make good the price does not.FORMATION OF SALE 183 items offered for sale. thus — This omission. The opening of a letter of credit in favor of a vendor is only a mode of payment. Non-payment only creates a right to 164 165 Ibid. description and unit price and total price. there was already a perfected sale. . New Civil Code]. 722. did not incorporate any provision declaring their contract of sale without effect until after the fulfillment of the act of opening a letter of credit.164 In Balatbat v. thus — .165 the Court reiterated the rule that the non-payment of the price does not render void nor reverse the effects of the perfection of the contract of sale. in law. Petitioner. .

provided the seller has a right to transfer ownership at the time of delivery. rules relating to 166 167 Ibid.184 LAW ON SALES demand the fulfillment of the obligation or to rescind the contract. except for Statute of Frauds which govern enforceability (i.. and of validity and enforceability of contracts of sale. it nevertheless considered a situation where the seller is not the owner both at the time of perfection and delivery of the subject matter as to be similar to item number 5 of Article 1409 of the Civil Code as to “contemplate an impossible service. at p.” which prevents the seller from complying with his obligation under Art. In Nool v. the comparison to “impossible service” is misplaced because the obligations created under a valid sale are real obligations “to give” and not personal obligations or service. 140.168 the Court. . void. 158 SCRA 375 (1988). it should be noted that the discussions in this section point out that rules on forms. In addition. performance). the Court on other occasions has taken the position that when the seller is no longer the owner of the land sold at the time of sale. Court of Appeals. the contract is void. held that although Articles 1402 and 1459 of the Civil Code recognize that the seller need not be the owner of the subject matter at the time of perfection. and do not necessarily apply to third parties whose rights may be affected adversely by the terms of a sale. and therefore would render the contract “inoperative — and by the same analogy. FORM OF SALES By way of introduction. Court of Appeals. 168 276 SCRA 149 (1997).” As stated by the author elsewhere in this book.167 in spite of the fact that Articles 1402 and 1459 of the Civil Code recognize that a sale is valid even the subject matter is not owned by the seller at the time of perfection. Dignos v.166 However. are strictly kept within the contractual relationship of the seller and buyer pursuant to the characteristic of relativity of every contract. 1459 to transfer ownership.e.

modification or extinguishment of real rights over immovable property” must appear in a public document. if not done.171 likewise held that the sale over land was not registered does not affect its validity. Husain. 1. or may be inferred from the conduct of the parties. it is binding between the parties. Form Not Generally Important for Validity of Sale Article 1483 provides that.” In other words. 490 (1902). Thus. or partly in writing and partly by word of mouth. and 1405.FORMATION OF SALE 185 form and validity pertain more to the perfection stage of a sale. would not adversely affect the validity or enforceability of the contract between the contracting parties themselves. and would not necessarily be binding doctrines when it comes to the performance stage of a sale. however. transmission. Gallar v. being consensual in nature. thus: “Formalities intended for greater efficacy or convenience or to bind third persons. and that the sale would be consummated and title transferred upon delivery of the land to the buyer. it specifically provides that “sales of real property or an interest therein are governed by Articles 1403. 171 389 SCRA 316 (2002). Also F. no form is really required for its validity. Requirement for Public Instrument for Immovables under Article 1358 In contrast. or by word of mouth.170 Universal Robina Sugar Milling Corp.169 held that the sale of land under private instrument is valid. “a contract of sale may be made in writing. Tambunting. Irureta Goyena v. Article 1483 stresses that sale being a consensual contract.” a. 2. Heirs of Angel Teves. 1 Phil. No. subject to the provisions of the Statute of Frauds.” The same article also provides that all other contracts not enumerated therein where the amount involved exceeds 169 170 20 SCRA 186 (1967). . Article 1358 of the Civil Code provides that “[a]cts and contracts which have for their object the creation. v.

173 172 . Court of Appeals. Tayag. Talusan v. Agasen v. Martinez v.172 held that the provisions thereof on the necessity of public document are for purposes of convenience. Court of Appeals. v. and provide that when a contract is enforceable under the Statute of Frauds. even documents enumerated under Article 1358 which are not found in a public instrument are still valid and enforceable. No. chattels or things in action are governed by Articles 1403. 362 SCRA 29 (2001). and such remedy may be exercised simultaneously with the action upon the contract. Santos v. “[b]ut sales of goods. Dalion v. 314 SCRA 345 (1999). 358 SCRA 38 (2001). Martinez v. 2 and 1405. Court of Appeals. 325 SCRA 504 (2000). Court of Appeals. But when it comes to third parties. Court of Appeals.175 Limketkai Sons Milling. Reiterated in Agasen v.” Despite the seemingly mandatory provisions of Article 1358.173 Thus. and that the article merely grants a cause of action to the party to the contract in a suit to sue to compel the other party to have the document covering the contract. not for validity or enforceability. Court of Appeals. 175 Reiterated in Caoili v. 176 250 SCRA 523 (1995). 174 Reiterated in Heirs of Ernesto Biona v. Court of Appeals.00 must appear in writing.186 LAW ON SALES 5500.177 held that an unregistered deed of sale of a condominium unit has no binding effect with respect to third persons who have no knowledge of it. acknowledged before a notary public. 353 SCRA 714 (2001).176 held that the fact that the deed of sale still has to be signed and notarized did not mean that no contract has already been perfected — the requisite form under Article 1358 is merely for greater efficacy or convenience and the failure to comply therewith does not affect the validity and binding effect of the act between the parties. Inc. 325 SCRA 504 (2000). Likewise. 177 356 SCRA 263 (2001). 178 476 SCRA 679 (2005). even a private one.178 held that a sale of 182 SCRA 872 (1990). the parties may avail themselves of the right and remedy to compel the other party to observe such form. Manalili. Court of Appeals.174 Both Articles 1357 and 1406 of the Civil Code refer to Article 1358. and a public document is necessary for its registration in the Registry of Deeds.

otherwise. Court of Appeals. v. Function of Deed of Sale The deed of sale operates as a formal or symbolic delivery of the property sold and authorizes the buyer to use the document as proof of ownership. Court of Appeals. Salonga v. Court of Appeals. there must be evidence that is clear. 181 Ladignon v. a deed of sale enjoys the presumption of regularity and due execution. 182 Yason v. 465 SCRA 244 (2005). To make it a public document. 336 SCRA 42 (2000). convincing and more than merely preponderant.182 Likewise. Court of Appeals. a deed of sale must be properly subscribed and acknowledged before a notary public. the document should be upheld. Concepcion. Bravo. 449 SCRA 458 (2005).180 Consequently. 180 Bravo-Guerrero v. Garcia v. . Power Commercial and Industrial Corporation v.179 The ability to cover all forms of sale. a notarized Deed of Absolute Sale carries the evidentiary weight conferred upon it with respect to its execution. Inc. between bare allegations and the notarized deed of absolute sale. and neither is the notarization of a document 179 Manuel R. makes the execution of a public document one of the highest form of constructive delivery in the Law on Sales. 184 Also Nazareno v. and to contradict the same. which is a public documents. whether the subject matter is tangible or intangible.181 In addition. Arciaga. and when so acknowledged. b. Court of Appeals. a “Deed of Absolute Sale” that is a public document has in its favor the presumption of regularity. the latter.184 because it is not the function of the notary public to validate an instrument that was never intended by the parties to have any binding legal effect. 183 470 SCRA 291 (2005). 312 SCRA 180 (1999). 274 SCRA 597 (1997). 343 SCRA 637 (2000). Dulay Enterprises.FORMATION OF SALE 187 a piece of land appearing in a private deed cannot be considered binding on third persons if it is not embodied in a public instrument and recorded in the Registry of Deeds.183 summarized the principles involved when it held that notarization of the document does not guarantee its validity nor those of its contents. prevails for being prima facie evidence. 257 SCRA 174 (1996).

instruments affecting title to real property. v.191 where the signature of the sellers were not affixed on their names but actually were found in the acknowledgment of the notarized Deed of Absolute Sale. The execution and notarization of a deed of sale. IAC. Navarro & Co. Santos. 162 SCRA 823. Vailoces. as to its due execution and authenticity. 186 185 . Court of Appeals. the buyer’s immediate taking of possession and occupation of the property subject matter of the contract corroborates the truthfulness and authenticity of the deed of sale. it remains a private document. Domingo v. Alcos v. In Dalumpines v. 367 SCRA 368 (2001). 366 SCRA 395 (2001).190 and merely converted them into private documents.188 R.e. Court of Appeals. is not conclusive presumption of delivery of possession. 444 SCRA 61 (2003). when a deed of sale is merely subscribed and sworn to by way of jurat (as contrasted from a notarial acknowledgment). Aquino. Aquino.186 conversely. nor is it conclusive of the true agreement of the parties thereto. subject to the requirements of proof under Section 20. 190 Also Tigno v.F. it did not affect the validity thereof nor the contents therein. 187 Santos v.185 On the other hand. the seller’s continued possession of the property makes dubious the sale between the parties..187 On the other hand. Santos.188 LAW ON SALES conclusive of the nature of the transaction conferred by the said document. the Court held that the deed was not entitled to full faith and credit considering that the notary public who is designated by law to certify to the due execution of deeds. though a form of constructive delivery. 189 361 SCRA 139 (2001). 191 336 SCRA 538 (2000). which remained valid contracts of sale between the parties. 837 (1988). 188 Tigno v. i. 366 SCRA 395 (2001). did not observe utmost care in the Santos v. Rule 132 of the Rules of Court. it would not be a public document because it was invalidly notarized. 444 SCRA 61 (2003).189 held that even if the Deeds of Sale were notarized by one who was not a notary public. since sale is a consensual contract and is perfected by mere consent.

2103 which requires that the notary public shall certify that the person acknowledging the instrument or document is known to him and that he is the same person who executed it. in Lumbres v. .FORMATION OF SALE 189 performance of his duty and took for granted the solemn duties appertaining to his office. When Form of Sale Affects Its Validity The general rule therefore is that form is not important for the validity of a sale. After all. In Gomez v. 281 SCRA 207 (1997). Civil Code. citing People’s Industrial and Commercial Corporation v. Tablada. In this case. did not void the transaction between the parties “for it is truism that the execution of the Deed of Absolute Sale effectively rendered the previous Contract to Sell ineffective and cancelled. Court of Appeals. the sale thereof by the agent (even when the sale itself is in writing) would be void.192 the Court upheld the Contract to Sell. the notary public cannot acknowledge an inexistent contract for want of the signatures of the contracting parties.” On the other hand. the Contract to Sell . contrary to the requirements under Section 1 of Public Act No. 193 516 SCRA 575 (2007). except in the following instances: (a) The power to sell a piece of land or interest therein must be in writing..193 the Court held that substantial variance in the terms between the Contract to Sell and the concomitant Deed of Absolute Sale. otherwise.” through the process of novation. under the law there exists a binding contract between the parties whose minds have met on a certain matter notwithstanding that they did not affix their signatures to its written form. and acknowledged that the same is his free act and deed. 2.194 192 340 SCRA 720 (2000). . constitutes the law between the contracting parties. Court of Appeals. Jr. 1874. which explicitly provided for additional terms and conditions upon which the lot awardees are bound: “Although unsigned. . 194 Art.

Pres. PANAMIN was succeeded by the Office of Muslim Affairs and Cultural Communities under Executive Order No. 197 Tac-an v. 122-B (1987). Act No. Decree 690 (amended by PD 719). 120 of Comm. Act No. Rep. Act No. provided that conveyances and encumbrances made by non-Christians shall not be valid unless duly approved by the Commission on National Integration (CNI). Civil Code. 1581. and that the power granted to an agent to institute a suit and to appear at Art. has been repealed by Rep. 122 (1987). Revised Adm. Act 141 (The Public Land Act). and the provincial governor. v. and no sale of large cattle shall be valid unless the sale is registered with the municipal treasurer who shall issue a certificate of transfer. under Rep. 4252. which power to approve was transferred to the Commission of Mindanao and Sulu under Rep. Briefly. Court of Appeals.195 and (c) Sale of land by “non-muslim hill tribe cultural minorities all throughout the Philippines” is void if not approved by the National Commission on Indigenous Peoples (NCIP). hill tribe cultural minorities all throughout the Philippines. which in turn was succeeded by the Office of the Northern Cultural Communities under Executive Order No. Sec. 196 195 .196 which took over the previous requisite of approval by the Provincial Governor under Section 145 of Administrative Code of Mindanao and Sulu.198 held that the authority of an agent to execute a contract for the sale of real estate must be conferred in writing and must give him specific authority. under Sec.” was transferred to the Presidential Assistant on National Minorities (PANAMIN) under the Office of the President. replaced the CNI with the Southern Philippines Development Authority (SPDA) for Regions IX to XII and transferred CNI’s power to the SPDA with respect to Muslims. 8371. 3872. otherwise the sale would be void. Act No. 129 SCRA 319 (1984). which in turn was succeeded in 1997 by the National Commission on Indigenous Peoples (NCIP) under Rep. Act No.197 Cosmic Lumber Corp.190 LAW ON SALES (b) Sale of large cattle must be in writing. 8371. which provides that any transaction involving real property with non-Christian tribes shall bear the approval of the governor. Section 145 of the Revised Administrative Code of Mindanao and Sulu. and that the express mandate required by law to enable an appointee of an agency couched in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. 529. 4252 (19 June 1965). while the power over “non-muslim. Code. 198 265 SCRA 168 (1996). Court of Appeals.

otherwise. the authority of the individual acting as agent must be in writing. the authority of the latter shall be in writing. Court of Appeals. Delos Reyes v.FORMATION OF SALE 191 pre-trial and enter into any stipulation of facts and/or compromise agreement does not include the authority to sell the land by way of compromise. Court of Appeals. City-Lite Realty Corp. 414 SCRA 190 (2003). which requires that when the sale of a piece of land or any interest therein is through an agent. 313 SCRA 632 (1999). Bernabe. Court of Appeals201 held that when the sale by a corporation involves a piece of land. 204 459 SCRA 439 (2005). the sale is void and cannot be saved under principles of estoppel and apparent authority. the Court held in Torcuator v. Corp. Firme v. Thus. and more tell295 SCRA 677 (1998). 376 SCRA 222 (2002). Raet v. 202 Pineda v. 201 325 SCRA 385 (2000). and any sale effected under such authority is void. otherwise.199 held that Article 1874 of the Civil Code requires for the validity of a sale involving land that the agent should have an authorization in writing.203 It should also be noted that just because the authority of the agent to sell a parcel of land is in writing.204 that a special power of attorney authorizing the agent to execute a sale in their favor is not the memorandum required under Article 1403 of the Civil Code to take the sale out of the provisions of the Statute of Frauds because it does not contain the essential elements of the purported contract. Bukal Enterprises and Dev. v. such sale would be void under Article 1874 of the Civil Code.. Court of Appeals. 200 199 . the sale shall be void. 203 Dizon v.200 held that when a son enters into an oral sale covering a real property registered in the name of his father. Court of Appeals. does not mean that the actual sale would therefore be exempt from the requirements of the Statute of Frauds. 396 SCRA 154 (2003). without which the resulting sale entered into in behalf of the principle would be void.202 Even the receipt by the supposed agent of part of the purchase price does not validate the void sale.

Torcuator v. the purpose being to prevent fraud and perjury in the enforcement of obligations depending for their evidence on the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidenced by a writing signed by the party to be charged. Barcelona. should embody the essentials of the contract. La Tondeña. 207 459 SCRA 439 (2005). Paraiso Dev.205 it was held that when the Contract to Sell was signed by the co-owners themselves as witnesses. 24 (1939). . 53 O.208 205 206 514 SCRA 228 (2007). Barcelona v. as contemplated by Article 1403 of the Civil Code.206 It is now contained in Article 1403(2) of the Civil Code. 68 Phil. The written note or memorandum. such as agreements for the sale of real property. 373. Nature and Purpose of Statute of Frauds The Statute was introduced in the Philippines by Section 335 of Act No.192 LAW ON SALES ingly. Corp. 190 (Code of Civil Procedure) and subsequently found in Section 21. 208 Shoemaker v..207 well described the Statute in the following manner: The term “Statute of Frauds” is descriptive of the statutes which require certain classes of contracts.G. does not even refer to any agreement for the sale of the property. Rule 123 of the old Rules of Court. In Oesmer v. The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses. 3. then the written authority mandated under Article 1874 was no longer required because their signature was equivalent to the co-owner-principals selling the property directly and in their own right. STATUTE OF FRAUDS: WHEN FORM IS IMPORTANT FOR ENFORCEABILITY a. Bernabe. to be in writing.

210 c. or some note or memorandum thereof. Article 1403(2) of the Civil Code provides that the following agreements shall be unenforceable by action. “unless the same.FORMATION OF SALE 193 Since the rules under the Statute of Frauds pertain not to perfection. or by his agent:” (a) A sale agreement which by its terms is not to be performed within a year from the making thereof.211 209 210 414 SCRA 190.209 held that “[t]he application of the Statute of Frauds presupposes the existence of a perfected contract. Exceptions to Coverage of Statute in Sales Contracts Although a sale transaction may fall under any of the foregoing covered transactions under the Statute of Frauds. evidence of the agreement cannot be received without the writing. . be in writing. Firme v.00. but to enforceability and proof. (2003). Civil Code. Art.. 1403.” b. and subscribed by the party charged. In any of the above transactions. and subscribed by the party charged or his agent. and (c) A sale of real property or of an interest therein. chattels or things in action. Bukal Enterprises and Dev. then they operate only when there is an underlying contract that is validly perfected. Civil Code. 1403. Corp. or a secondary evidence of its contents. (b) An agreement for the sale of goods. the following sales would still not be covered and would be enforceable: (a) When there is a note or memorandum thereof in writing. 211 Art. at a price not less than 5500. Sales Coverage in Statute of Frauds Insofar as applicable to sales.

216 it was held that various correspondences when taken together would constitute sufficient memorandum — since they include the names of the parties. Heirs of Candido Rubi. 110. 306 SCRA 408 (1999). it must contain “all the essential terms of the contract” of sale. Republic Act 8792. 215 92 Phil.215 held that the sufficient memorandum may be contained in two or more documents. Court of Appeals. Berg v. Nature of Memorandum Article 1403 of the Civil Code clearly states the nature of the memorandum that would take the transaction out of the coverage of the Statute of Frauds against proof by oral evidence: it must be in writing and subscribed by the party charged. Inc. v. Lacanilao v.194 LAW ON SALES (b) When there has been partial consummation of the sale. 115 (1952). In First Philippine International Bank v. Court of Appeals. Magdalena Estate.212 (c) When there has been a failure to object to the presentation of evidence aliunde as to the existence of a contract.219 makes it clear that it is not enough that “the total price or consideration is mentioned in some Ibid.214 d. 219 104 SCRA 668 (1981). 216 252 SCRA 259 (1996). 217 Reiterated in City of Cebu v. 214 The Electronic Commerce Act.213 and (d) When sales are effected through electronic commerce. Yuvienco v. Barretto v. Espino. 218 22 SCRA 1000 (1968). 964 (1924). The party charged of course would either be the seller or buyer against whom the sale is sought to be enforced.. Court of Appeals. 250 SCRA 523 (1995). 46 Phil. the terms and conditions of the contract.. the price and a description of the property as the object of the contract.217 In addition. 213 212 . Dacuycuy. 262 SCRA 486 (1996). Limketkai Sons Milling. Inc.218 held that for the memorandum to take the sale transaction out of the coverage of the Statute of Frauds. Paredes v. Manila Railroad Co.

221 Yuvienco thus held that “in any sale of real property on installment.”220 that the manner by which the price is to be paid has to be found in the or memorandum. the Statute of Frauds is not applicable because it only applies to executory and not to completed. 223 313 SCRA 63 (1999). hence the indispensability of providing in any sale of the terms of payment when not expressly or impliedly intended to be in cash. Tiongson. payment or installments or staggered payment of the total price is entirely a different matter from cash payment.224 the Court agreed with the reasoning of the Court of Appeals that when in the series of exhibits there is a patent absence of any deed of sale categorically conveying the subject property and was not subscribed by the party charged. 222 Ibid. it is indisputable that the value of money varies from day to day. 680. at pp. In the reality of the economic world and the exacting demands of business interest monetary in character. 680-681. at p. v.223 that the sale of real property on installments even when the receipt or memorandum evidencing the same does not provide for the stated installments. thus — .”222 In spite of the Yuvienco ruling. 224 255 SCRA 626 (1996). Inc.. when there has already been partial payment. the Statute of Frauds read together with the perfection requirements of Article 1475 of the Civil Code must be understood and applied in the sense that the idea of payment on installments must be in the requisite of a note or memorandum therein contemplated. considering the unpredictable trends in the sudden fluctuation of the rate of interest. In Limketkai Sons Milling.FORMATION OF SALE 195 note or memorandum and there is no need of any indication of the manner in which such total price is to be paid. the Court held in David v.. Court of Appeals. In other words. thus — 220 221 Ibid. or partially executed contracts. Ibid. . it did not constitute the memoranda required by law. executed.

and therefore oral testimony could not take their place without violating the parol evidence rule. Partial Performance Partial performance of the sale would take the same outside the coverage of the Statute of Frauds. the transaction involved definitely falls within the ambit of the Statute of Frauds.225 e. In addition.” 225 Ibid.196 LAW ON SALES To consider them sufficient compliance with the Statute of Frauds is to betray the avowed purpose of the law to prevent fraud and perjury in the enforcement of the obligations. Article 1403 of the Civil Code specifically states that the Statute of Frauds shall not apply when “the buyer accept[s] and receive[s] a part of such goods and chattels. of such things in action. stretching their import beyond what is written in black and white. at p. or pay at the time some part of the purchase money. the Court found that the exhibits failed to establish the perfection of the sale. chattels. considering that the documents adduced by the petitioner do not embody the essentials of the contract of sale aside from not having been subscribed by the party charged or its agent.. if not violative of the Statute of Frauds and opening the doors to fraud. 641.. or things in action. or the evidence. In fine. the examination and evaluation of the notes or memoranda adduced by the petitioner was confined and limited to within the four corners of the documents. or some of them. In adherence to the provisions of the Statute of Frauds. would certainly be uncalled for. To go beyond what appears on the face of the documents constituting the notes or memoranda. the very evil sought to be avoided by the statute. When it comes to sale of goods. . . It held that it was irregular for the trial court to have admitted in evidence testimony to prove the existence of a sale of a real property between the parties despite the persistent objection made by alleged seller’s counsel as early as the first scheduled hearing.

Vda. especially when Article 1405 specifically states that contracts covered by the Statute of Frauds “are ratified . The Intestate Estate of Marcelo M. with no intention to part with the title until the purchase price is paid. does not constitute partial performance and does not take the case out of the Statute of Frauds.226 held that delivery of the deed to the agent of the buyer. Manila Railroad Co. 462 SCRA 614 (2005). 528 SCRA 63 (2007).” Earlier on Baretto v. .227 held that the partial execution of a sale over real property takes the transaction out of the provisions of the Statute of Frauds. the sale is valid and binding. the doctrine of partial performance should also apply to such contracts. 229 Reiterated in Ainza v.228 the Court reiterated the principle that the Statute of Frauds applies only to executory contracts and not to contracts either partially or totally performed. 200 SCRA 74 (1991). 227 226 . Deliarte. 228 404 SCRA 145 (2003).. and consequently even when not complete in form. so long as the essential requisites of consent of the contracting parties.229 It held that where one party has performed his obligation. such as the acceptance of the purchase price and using the proceeds to pay outstanding loans. 964 (1924). de Jomoc v. oral evidence will be admitted to prove the agreement. 230 417 SCRA 277 (2003). .230 the Court held that “the admission by the petitioner that she had accepted payments under the oral contract of sale took the case 46 Phil. Arrogante v. a contract that violates the Statute of Frauds is ratified by the acceptance of benefits under the contract. by acceptance of benefits under them. In Alfredo v. In Soliva v. and that in addition.FORMATION OF SALE 197 Although Article 1403 does not state the same principle applicable to sale of real property or interest therein. Borras. object and cause of the obligation concur and they were clearly established to be present (even by parol evidence). Court of Appeals. Villalba. Padua.

for the benefit of third parties. 284-285. or by secondary evidence of the contents of such document. The earliest pronouncement on this point was in Gorospe v. 29 Phil. noted that “[f]ormal requirements are. a contract of sale of realty cannot be proven by means of witnesses.233 and this was especially so when the claimants-alleged-buyers were not even in possession of the subject realty. who are granted legal remedies against the contract.”235 Claudel v. for nowhere does the law or jurisprudence prescribe that the sale be put in writing before such contract can validly cede or transmit rights over a certain real property between 231 232 Ibid at pp. 23.” but as to the immediate parties to the sale. at p. therefore.713.”231 f. at p. duly subscribed by the party charged.236 reiterated the rule that a sale of land once consummated. 236 199 SCRA 113 (1991). . is valid regardless of the form it may have been entered into.232 where the Court held that since the enactment of the Statute of Frauds — . Effect of Partial Execution on Third Parties The doctrine of partial execution when covering sale of real properties cannot be applied to third parties. 233 Ibid. 234 286 SCRA 698 (1998). . Court of Appeals. No other evidence. in so far as regards such contracts. 21 (1914).198 LAW ON SALES out of the scope of the Statute of Frauds . or by his agent. Ilayat. but must necessarily be evidenced by a written instrument. . . 235 Ibid. therefore. . can be received except the documentary evidence referred to. [rendering] it valid and enforceable.234 in explaining the nature of a sale as a consensual contract. Court of Appeals. and these are valueless as evidence unless they are drawn up in writing in the manner aforesaid. “[n]on-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. Fule v.

after premising that the “rule of thumb is that a sale of land. This confirms the variance in principles involving movables and immovables. the Court quoted directly Article 1403. once consummated. disputes the ownership of the property. In the case of immovables. and seemingly recognized under Article 1403 which treats partial execution as applicable only to goods. are met. at pp. 74 Phil. even third parties would be bound to recognized and expect that he must be the proper owner of the movable. Under Article 559 of the Civil Code “possession of movable property acquired in good faith is equivalent to a title. Thus. which provides that only a note or memorandum can take the sale of real property out of the provisions of the Statute of Frauds.” held that “in the event that a third party. the person against whom that claim is brought cannot present any proof of such sale and hence has no means to enforce the contract. Court of Appeals. as in this case. unlike the subparagraph pertaining to sale of movables. The Court however held that in the event that a third party disputes the ownership of the property. 238 Ibid. the Statute of Frauds was precisely devised to protect the parties in a sale of real property so that no such contract is enforceable unless certain requisites.237 The Court in Claudel. when an alleged buyer has been given possession of a movables.FORMATION OF SALE 199 the parties themselves. 163 SCRA 713 (1988). Consequently. It will be recalled that nothing in the subparagraph pertaining to the sale of real property contains any provisions on partial performance. 70 (1942). recording of the sale or its being evidenced by a written instrument are usually the accepted means of informing the public of the sale or disposition of the immovable. the person against whom that claim is brought can not present any proof of such sale and hence has no means to enforce the contract. . 237 See also Diama v.”238 In reaching such conclusion. Macalibo. 119-120. Zaide v. specially under the Torrens system.” No similar provisions apply to immovables. for purpose of proof. is valid regardless of the form it may have been entered into.

Court of Appeals. the execution of a public instrument on dealings with registered land is not even sufficient by itself to bind third parties. because a sale must necessarily be evidenced by a written instrument when it involves third parties. Formal requirements are. in Londres v. is only for convenience. Article 1358 of the Civil Code. De Selma:241 that while the sale of land appearing in a private deed is binding between the parties. a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith with their respective contractual commitments. Court of Appeals. De Rax v. Non-compliance with formal requirements does not adversely affect the validity of the contract or the contractual rights and obligations of the parties. Recently. doctrine is what the Court held in Secuya v. under the Torrens system. the wrong designation of the lot in the Deed of Absolute Sale even when notarized will not diminish the right of the buyer to the title and possession of the actual subject matter of their meeting of minds with the seller. The more pertinent. 54-55 (1999).200 LAW ON SALES In Alba Vda.239 the Court held that reliance on testimony of witnesses as secondary evidence to prove a sale. it cannot be considered binding on a third 239 240 314 SCRA 36. Vda. for the purpose of binding or informing third parties. 241 326 SCRA 244 (2000). However.240 the Court summarized the prevailing rulings on the matter — A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. Consequently. since registration is the operative act. and thereby prevailing. which requires certain contracts to be embodied in a public instrument. therefore. will not prosper against counter-evidence disputing such sale. Being consensual. and registration of the instrument is needed only to adversely affect third parties. . 394 SCRA 133 (2002).

Leonardo. and in fact extended a portion of the son’s house into the segregated portion. he refused to comply with the agreement. by the acceptance of benefits under them. g. etc. This is in accordance with the provision of Article 1405 which states that contracts covered by the Statute of Frauds “are ratified . the same may be considered as partial performance. but accompanied by other acts. Once the plaintiff had obtained title to the land. such as possession. payment of taxes. and must involve an act or “complicity” on the party sought to be changed. The Court held that it is not only partial payment of the purchase price that is the only manner of partial performance to take the contract out of the coverage of the Statute of Frauds. relinquishment of rights.242 the plaintiff and defendant. came to an agreement that the defendant would desist from pressing her claim under an agreement that once the plaintiff obtains a title thereto. Partial performance to constitute as an exception to the Statute of Frauds must by itself pertain to the subject matter or to the price of the purported sale. . rendition of services. the latter would sell a specified portion thereof to the former at a stipulated price. Plaintiff had even refused tender of the purchase price by the defendant. 870 (1958). the making of improvements. if it is not embodied in a public instrument and recorded in the Registry of Deeds. .” 242 103 Phil. It also held that although tender of payment by itself would not be considered partial performance. such as building of improvements. Nature and Coverage of Partial Performance In Ortega v.FORMATION OF SALE 201 persons. These requisites are essential because partial performance must amount to estoppel against the party sought to be charged. . who had a conflicting claim on a parcel of land. It recognized other modes which constitute partial performance. despite the fact that the defendant had already caused a survey and segregation of the portion of the land they agreed upon.

246 Donato C. Value of Business Forms to Prove Sale Business forms. 347 SCRA 13 (2000). the party is deemed to have waived any defects on the contract under the Statute of Frauds. Inc. Court of Appeals. 250 SCRA 523 (1995). Lacanilao v. Waiver of Provisions of Statute of Frauds The third ground by which a covered sale contract would be enforceable in spite of the fact that it is not contained in a deed. order slip. or a note or memorandum. First Philippine International Bank v. The early case of Barretto v.244 Likewise. 244 243 . pursuant to Article 1405 of the Civil Code. Court of Appeals.245 i. 252 SCRA 259 (1996). is when the party against whom such oral contract is sought to be proved. Court of Appeals. which are issued by the seller in the ordinary course of the business are not always fully accomplished to contain all the necessary information describing in detail the whole business transaction — more often than not they are accomplished perfunctorily without proper regard to any legal repercussion for such neglect such that despite their being often incomplete. Court of Appeals. e. The Statute of Frauds will not apply by reason of the failure of party to object to oral testimony proving such party’s counteroffer.246 46 Phil. said business forms are commonly recognized in ordinary commercial transactions as valid between the parties and at the very least they serve as an acknowledgment that a business transaction has in fact transpired.243 held that where timely objections are made to the introduction of parol evidence to prove a sale of real property and due exceptions are taken to the adverse rulings.. the cross-examination on the contract is deemed a waiver of the defense of the Statute of Frauds. such evidence must be disregarded by the courts and the contract cannot be enforced. This is embodied in Article 1405 of the Civil Code. delivery charge invoice and the like. 262 SCRA 486 (1996). 245 Limketkai Sons Milling. v. by such utter failure to object. 964 (1924). hence. v. Cruz Trading Corp. fails to object during trial to the presentation of oral evidence to prove the contract.g.202 LAW ON SALES h. Manila Railroad Co..

Sec. . or that it is merely incorporated by reference in that electronic data message. retrieved or produced electronically. 249 Sec. and — 247 248 Donato C. Legal Recognition of Electronic Data Message Under Section 6 of the Electronic Commerce Act. Electronic Commerce Act. electronic documents shall have the legal effect. characteristic and/or sound in electronic form. information shall not be denied validity or enforceability solely on the ground that it is in the form of an electronic data message purporting to give rise to such legal effect. symbols or other modes of written expression. validity or enforceability as any other document or legal writing. Cruz Trading Corp. 5(f). order slip and charge invoice may be inadequate to establish the case for the vendor but their probative weight must be evaluated not in isolation but in conjunction with the other evidence adduced such as testimony of a witness and the demand letter.FORMATION OF SALE 203 By themselves. representing the identity of a person and attached to or logically associated with the electronic data message or electronic document or any methodology or procedures employed or adopted by a person and executed or adopted by such person with the intention of authenticating or approving an electronic data message or electronic document.249 b. 5(e). Legal Recognition of Electronic Documents Under Section 7 of the Act. figures. by which a fact may be proved or affirmed. recorded. 347 SCRA 13 (2000). stored. described or however represented. Electronic Commerce Act. v.247 4. data.248 It defines an “electronic signature” as that referring to any distinctive mark. The Act defines an “electronic document” as that referring to information or the representation of information. processed. transmitted. which is received. Court of Appeals. Sales Effected as Electronic Commerce a.

in that — (i) The electronic document has remained complete and unaltered. . 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. that no provision of the Act shall apply to vary any and all requirements of existing laws on formalities required in the execution of documents for their validity. or any change which arises in the normal course of communication. apart from the addition of any endorsement and any authorized change.204 LAW ON SALES (a) Where the law requires a document to be in writing. storage and display. 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. (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 exists a reliable assurance as to the integrity of the document from the time when it was first generated in its final form. (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. and (ii) That document is capable of being displayed to the person to whom it is to be presented. It is expressly provided.

7. 7. demonstrated and proved by means of electronic data messages or electronic documents and no contract shall be denied validity or enforceability on the sole ground that it is in the form of an electronic data message or 250 251 Sec.252 Under Section 16(1) of the Act.FORMATION OF SALE 205 For evidentiary purposes. 12. 252 Sec.251 Under Section 12 of the Act. ibid. except as otherwise agreed by the parties. and the electronic data message or electronic document meeting. . an electronic document shall be the functional equivalent of a written document under existing laws. except the rules relating to authentication and best evidence. the acceptance of an offer and such other elements required under existing laws for the formation of contracts may be expressed in. nothing in the application of the rules on evidence shall deny the admissibility of an electronic data message or electronic document in evidence — (a) On the sole ground that it is in electronic form. or (b) On the ground that it is not in the standard written form. ibid. and other relevant factors shall be given due regard. ibid. in any legal proceedings. Sec. the reliability of the manner in which its originator was identified. an offer. the reliability of the manner in which it was generated. In assessing the evidential weight of an electronic data message or electronic document.250 The Act does not modify any statutory rule relating to the admissibility of electronic data messages or electronic documents. stored or communicated. and complying with the requirements under Section 6 or 7 hereof shall be the best evidence of the agreement and transaction contained therein.

to have executed or provided the electronic signature. in order to proceed further with the transaction. or that any or all of the elements required under existing laws for the formation of the contracts is expressed. (b) Said method is reliable and appropriate for the purpose for which the electronic document was generated or communicated. Legal Recognition of Electronic Signatures Under Section 8 of the Act. (c) It is necessary for the party sought to be bound. Presumption Relating to Electronic Signatures Section 9 of the Act specifically provides that in any proceedings involving an electronic signature. 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. d.206 LAW ON SALES electronic documents. in the light of all circumstances. c. it shall be presumed that: . not alterable by the parties interested in the electronic document. 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. demonstrated and proved by means of electronic data messages or electronic documents. including any relevant agreement. 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.

issuing a receipt for goods. electronic transactions made through networking among banks. and vice versa. (b) Notifying a person of terms and conditions of the contract. shall be deemed consummated upon the actual dispensing of cash or the debit of one account and the corresponding credit to another. Electronic Commerce in Carriage of Goods The Electronic Commerce Acts is expressly applicable to any action in connection with. or person similarly situated to another arising therefrom shall be considered absolute and shall not be subjected to the process of preference of credits. including but not limited to: (a) Furnishing the marks. That the obligation of one bank. entity. and giving instructions to a carrier. e. a contract of carriage of goods. and (b) The electronic signature was affixed by that person with the intention of signing or approving the electronic document unless the person relying on the electronically signed electronic document knows or has notice of defects in or unreliability of the signature or reliance on the electronic signature is not reasonable under the circumstances. f. whether such transaction is initiated by the depositor or by an authorized collecting party: Provided. or linkages thereof with other entities or networks. stating or declaring the nature or value of goods. and confirming that goods have been loaded.FORMATION OF SALE 207 (a) The electronic signature is the signature of the person to whom it correlates. or in pursuance of. quantity or weight of goods. number. Consummation of Electronic Transactions Under Section 16(2) of the Act. .

and giving notice of loss of. ibid.253 g. 253 254 Sec. that requirement is met if the action is carried out by using one or more electronic data messages or electronic documents. Sec. ibid. (f) Granting acquiring. or damage to goods. transferring or negotiating rights in goods. 25. surrendering. . Rule on Transport Documents254 The Act provides for the following rules when it covers the transport documents for carriage of goods effected through electronic commerce. thus: (a) Subject to paragraph (c) below. authorizing release of goods. (b) Paragraph (a) above applies whether the requirement therein is in the form of an obligation or whether the law simply provides consequences for failing either to carry out the action in writing or to use a paper document.208 LAW ON SALES (c) Claiming delivery of goods. 26. (g) Acquiring or transferring rights and obligations under the contract. renouncing. (e) Undertaking to deliver goods to a named person or a person authorized to claim delivery. where the law requires that any action referred be carried out in writing or by using a paper document. (d) Giving any other notice or statement in connection with the performance of the contract.

257 Sec.255 A paper document issued in these circumstances shall contain a statement of such termination.FORMATION OF SALE 209 (c) If a right is to be granted to. 26(5). ibid. one person and no other person. or use of. 26(6).256 If a rule of law is compulsorily applicable to a contract of carriage of goods which is in. that requirement is met if the right or obligation is conveyed by using one or more electronic data messages or electronic documents: Provided. the standard of reliability required shall be assessed in the light of the purpose for which the right or obligation was conveyed and in the light of all the circumstances. and if the law requires that. a paper document. or is evidenced by. For the purposes of paragraph (c) immediately above. the right or obligation must be conveyed to that person by the transfer. That a reliable method is used to render such electronic data messages or electronic document unique. that rule shall not be inapplicable to such a contract of carriage of goods which is evidenced by one or more electronic data messages or electronic documents by reason of the fact that the contract is evidenced by such electronic data message or electronic documents instead of by a paper document. . ibid. The replacement of electronic data messages or electronic documents by paper documents shall not affect the rights or obligations of the parties involved. in order to effect this. a paper document. including any relevant agreement. or an obligation is to be acquired by. 26(5). no paper document used to effect any such action is valid unless the use of electronic data message or electronic document has been terminated and replaced by the use of paper documents. ibid. Where one or more electronic data messages or electronic documents are used to effect any action. Sec.257 255 256 Sec.

the owner of the property may prove that the contract is really a loan with mortgage by raising as an issue the fact that the document does not express the true intent and agreement of the parties. 6. and the lien created thereby ought not to be defeated by requiring compliance with the formalities necessary to the validity of a voluntary real estate mortgage. Inc. v. Form in “Sales on Return or Approval” Industrial Textile Manufacturing Company of the Philippines. In such case. . 100 (1916). Santos.. or as a means for perpetrating fraud.261 held that an equitable mortgage is not different from a real estate mortgage. 260 312 SCRA 539 (1999). LPJ Enterprises. unless such 258 259 34 Phil. at p. or is proved by parol evidence: “The courts will not be used as a shield for fraud. when such was the intention of the parties. parol evidence then becomes competent and admissible to prove that the instrument was in truth given merely as a security for the repayment of a loan. would have no application.210 LAW ON SALES 5. 108.”259 Lapat v. 262 217 SCRA 322 (1993).262 held that the conditions under Article 1502 of the Civil Code which govern the sales on return or on approval. Ibid. although the agreement for redemption or defeasance rests wholly in parol.258 relying upon precedents in the United States. Suba. Even when a document appears on its face to be a sale with pacto de retro. Rosario. Form in Equitable Mortgage Claims In Cuyugan v. the Supreme Court held that the Statute of Frauds does not stand in the way of treating an absolute deed as a mortgage.260 held that a contract should be construed as a mortgage or a loan instead of a pacto de retro sale when its terms are ambiguous or the circumstances surrounding its execution or its performance are incompatible or inconsistent with a sale. Inc. 261 408 SCRA 664 (2003). Equitable mortgages occupy such a hallowed position in Philippine jurisprudence such that Rosales v.

On the other hand. he should have done so at the time the contract was made. clearly requires an express written agreement to make a sale contract either a ‘sale on return’ or a ‘sale on approval’. JUR. Ibid. v. 266 310 SCRA 464. and verbal grants of such right cannot be enforceable since the right of first refusal must be clearly embodied in a written contract.”263 7. Civil Code. The ruling therefore constituted in effect an addition to the contracts covered by the Statute of Frauds. 367 SCRA 559 (2001). Manila Banking Corp. Ong. the buyer cannot accept part and reject the rest of the goods since this falls outside the normal intent of the parties in the ‘on approval’ situation. 264 263 . If the purchaser desired to incorporate a stipulation securing to him the right of return.266 held that when the parties enter into a sale to which they did not intend to be legally bound. 481 (1999). 327. Parol or extrinsic testimony could be not be admitted for the purpose of showing that an invoice or bill of sale that was complete in every aspect and purporting to embody a sale without condition or restriction constituted a contract of sale or return. then it is completely void and non-existent. 1409(2). Court of Appeals. Yu Bun Guan v. quoting from 67 AM. 733-748. Right of First Refusal Must Be Contained in Written Contract Sen Po Ek Marketing Corp.265 Rosario v. v. Martinez. 325 SCRA 210 (2000).FORMATION OF SALE 211 conditions to such effect have been distinctly provided for in the contract between the parties to the sale. Silverio. 466 SCRA 438 (2005). pp. WHEN SALE COMPLETELY SIMULATED When a sale is absolutely simulated. 265 Art.264 ruled that when the right of first refusal is not stipulated in the lease contract. at p. The Supreme Court held that “[T]he provisions of the Uniform Sales Act and the Uniform Commercial Code from which Article 1502 was taken. it cannot be exercised. 2d.

. 270 Also Mendezona v. . the Court held that it did not show that the agreement was simulated. Court of Appeals.269 defined “simulation” as “the declaration of a fictitious will. for the purposes of deception.. to collect rentals from the alleged vendee is contrary to the principle of ownership and a clear badge of simulation that renders the whole transaction void and without force and effect.. In Villaflor v. the appearances of a juridical act which does not exist or is different with that which was really executed.267 held that the failure of the alleged buyers to take exclusive possession of the property sold to them. Also in a simulated contract. 376 SCRA 482 (2002). The delivery of the certificate of ownership and execution of the deed of absolute sale were suspensive conditions. Such conditions did not affect the perfection of the contract or prove simulation. Court of Appeals. deliberately made by the agreement of the parties. 280 SCRA 297 (1997). produces no legal effects. Santiago v. 269 326 SCRA 285 (2000). Ozamiz. and 267 268 278 SCRA 98 (1997). in order to produce. and does not convey property rights nor in any way alter the juridical situation of the parties.212 LAW ON SALES such is void and is not susceptible of ratification.. Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal effect or in any way alter the juridical situation of the parties. or in the alternative. which gave rise to the corresponding obligation on the part of the buyer to pay the last installments of the consideration..”270 The requisites for simulation are: (a) An outward declaration of will different from the will of the parties. the parties have no intention to be bound by the contract. Loyola v. Court of Appeals. (b) The false appearance must have been intended by mutual agreement.268 although the agreement to sell did not absolutely transfer ownership of the land to the buyer. .

v.274 —oOo— 271 Loyola v. Court of Appeals. and the action for the declaration of the contract’s nullity is imprescriptible.271 However. When a sale is void. without evidence presented to bolster the clause that the signature appearing on the Deeds of Sale is a forgery is not enough. the remedy of accion pauliana is available when the subject matter is a conveyance. R. 379 SCRA 490 (2002). since forgery is never presumed. v.FORMATION OF SALE 213 (c) The purpose is to deceive third persons. 466 SCRA 438 (2005). 526 SCRA 51 (2007). Bancom Finance Corp. otherwise valid. undertaken in fraud of creditors.F. the right to set up its nullity or nonexistence is available to third persons whose interests are directly affected thereby. 273 Fil-Estate Golf and Dev. 274 Manila Banking Corp. Inc. 326 SCRA 285 (2000).. positive and convincing evidence. Silverio.. Navarro. v. and must be proven by clear.272 warned that the bare assertion. Vailoces. . Navarro & Co. 272 361 SCRA 139 (2001).273 Likewise. See also Cruz v.

he becomes liable to the buyer for breach of such obligation. To Preserve the Subject Matter Article 1163 of the Civil Code lays down a rule applicable to obligations and contracts in general. The ancillary obligation to preserve the subject matter of the sale involves a personal obligation “to do. it covers the twin-obligations of the seller 214 . as when the thing deteriorates or is lost through seller’s fault. he is already obliged to take care of the subject matter with the diligence of a good father of a family.” and arises as a necessary legal assurance to the buyer that the seller would be able to comply fully with the main obligation to deliver the object of sale. the seller is bound: (a) to transfer the ownership of. unless the law or the stipulation of the parties requires another standard of care. Even in the definition of sale under Article 1458. To Deliver the Subject Matter Under Article 1495 of the Civil Code. that “[E]very person obliged to give a determinate thing is also obliged to take care of it with the proper diligence of a good father of a family.” When a sale covers a specific or determinate object. 2.” rather than a real obligation “to give. upon perfection and even prior to delivery.214 LAW ON SALES CHAPTER 6 PERFORMANCE OR CONSUMMATION OF SALE OBLIGATIONS OF SELLER 1. and (b) to deliver the thing. which is the object of the sale to the buyer. and although the seller still owns the subject matter. otherwise.

the transferee has a right to the fruits of the thing from the time the obligation to deliver it arises. it is not the prior payment of price that determines the effects of delivery of the subject matter. whether actual or constructive. v. . that the seller 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. the principal and most important of which being the conveyance of ownership. 1 2 13 Phil. In spite of the reciprocal nature of a sale. however. As early as in Kuenzle & Streiff v. Ocejo. he shall acquire no real right over them until the same has been delivered to him.PERFORMANCE OR CONSUMMATION OF SALE 215 “to transfer the ownership of and to deliver a determinate thing. 3. without prejudice to the right of the seller to claim payment of the price. 37 Phil. To Deliver the Fruits and Accessories Under Article 1164 of the Civil Code. and all the fruits shall pertain to the buyer from the day on which the contract was perfected. 631 (1918). the means by which the seller can transfer the ownership of the subject matter is by the mode of tradition or delivery. Watson & Co.. Perez & Co.” Although the wordings of both Articles 1458 and 1495 seem to separate “delivery” of the subject matter from the “transfer of ownership. which applies only to an obligation to deliver a determinate thing. International Banking Corp. Every obligation to deliver a determinate thing is coupled with a specific provision under Article 1537.1 the Supreme Court held that where there is no express provision that the title shall not pass until payment of the price. Normally therefore. title passes from the moment the thing sold is placed in the possession and control of the buyer.” nonetheless. as a consequence of a valid sale. and the thing sold has been delivered. the delivery of the subject matter ipso jure transfers its ownership to the buyer.2 also held that delivery produces its natural effects in law. 26 (1909)..

And there is said to be delivery if and when the thing sold ‘is placed in the control and possession of the vendee. then necessarily the accessories and fruits must from then on be held for the account of the buyer.216 LAW ON SALES Unlike in the principle of res perit domino where it is the owner of the thing who bears the risk of loss and benefits from the fruits of the thing owned. the seller is then obliged to “warrant the thing which is the object of the sale.” The warranties of the seller are discussed in details in Chapter 12. v. Ibid. which the buyer acquires only upon delivery of the thing to him in any of the ways specified in Articles 1497 to 1501 of the Civil Code. it is an act by which one party parts with 3 4 370 SCRA 56 (2001). 4. To Warrant the Subject Matter Under Article 1495 of the Civil Code. and since the subject matter is intended for delivery to the buyer from the point of perfection of the sale. or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. Inc. This is in accordance with the principle that the accessories always follow the principal.3 had explained quite vividly the mode of tradition when it held that “ownership of the thing sold is a real right.. the buyer already has certain rights enforceable against the seller. .’”4 The Court held further that delivery is a composite act. Non nudis pactis sed traditione dominia rerum transferantur. at p. even prior to delivery and transfer of ownership thereof to the buyer. Essence of Tradition Equatorial Realty Dev. not merely by contract. but also by tradition or delivery. TRADITION AS A CONSEQUENCE OF A VALID SALE 1. 70. in a sale involving a determinate subject matter. This right is transferred. pertaining to the subject matter. Inc. in which both parties must join and the minds of both parties concur. Mayfair Theater.. with the fulfillment of the primary obligation to deliver the subject matter.

. Santos. Without that intention. the rule has always been that tradition that is effected by reason of a valid sale would produce its legal consequences. citing Norkis Distributors. Court of Appeals. and the other acquires the right to and the possession of the same. there is a valid sale. 26 (1909). Court of Appeals. Pan Oriental Shipping Co.8 The essence of the Equatorial Realty and Santos rulings is that tradition produces its legal consequences from the fact that delivery is effected pursuant to a valid sale. 405. 9 Union Motor Corp. Inc. Garcia. or particularly intend it at the point of delivery. is not essential for delivery by the seller to achieve its legal effects. 8 Kuenzle & Streiff v.PERFORMANCE OR CONSUMMATION OF SALE 217 the title to and the possession of the property. International Banking Corp.”7 This is quite an inelegant way to put forth the principle on tradition based on two factors: (a) Acceptance. 261 SCRA 128 (1996). Watson & Co. 12 SCRA 276 (1964). Froilan v. 37 Phil. 366 SCRA 395 (2001). which gives legal effect to the act is the actual intention of the vendor to deliver.9 it was held that there is no transfer of ownership by the 370 SCRA 56 (2001). at p. 7 Ibid. if in the affirmative. 13 Phil. if in the negative. 698-699 (1991). 193 SCRA 694.. v. in one case. without the parties having to say so. and (b) An express intention on the matter by the parties to a sale. Perez & Co. although an obligation on the part of the buyer. 6 5 .. and Abuan v. Ocejo. at the point of delivery is not essential for tradition to produce its legal consequences. v. The legal effects of the parties’ intention must be gauged at the point of perfection by which the obligation to deliver the subject matter is created: was there mutual intention and agreement to transfer the ownership of the subject matter. 361 SCRA 506 (2001). and its acceptance by the vendee. 631 (1918).5 Santos v. Court of Appeals. v. 14 SCRA 759 (1965). Besides. Consequently. we have a simulated sale which is void ab initio. Balatbat v.6 held that “the critical factor in the different modes of effecting delivery. there is no tradition.

a. and thereby there was deem to have been delivery. the seller himself introduced the tenant to the buyers as the new owners of the land.e. . simply because there was no valid sale behind the purported act of constructive delivery. Alfredo v. title held by the bank’s buyer was void) under the elementary principle of nemo dat quod non habet. In that decision.10 it was held that when the auction sale of the subject properties to the bank was void.218 LAW ON SALES execution of a deed of sale merely intended to accommodate the buyer to enable him to generate funds for his business venture.. Types of Delivery The Law on Sales under the Civil Code recognizes two general types of delivery that will effectively transfer ownership of the subject matter to the buyer and would constitute compliance by the seller of his obligations under a valid contract of sale: (a) actual or physical delivery. and (b) constructive delivery.. Actual Delivery Under Article 1497 of the Civil Code. Pan Oriental Shipping Co. 12 404 SCRA 145 (2003). one cannot give what one does not have. 366 SCRA 324 (2001). no valid title passed in its favor. Borras. In another case. 12 SCRA 276 (1964). Court of Appeals.11 held that in the absence of stipulation to the contrary. the subsequent sale and delivery of the properties thereof by the bank was also nullity (i. consequently. 1. the ownership of the thing sold passes to the buyer upon the actual or constructive delivery thereof. there is actual or physical delivery when the thing sold is placed in the control and 10 11 Tsai v. and from that time on the buyers acted as landlord.12 held that it is not necessary that the seller himself delivers title of the property to the buyer because the thing sold is understood as delivered when it is placed in the control and possession of the buyer. Froilan v.

and may be any “manner signifying an agreement that the possession is transferred from the vendor to the vendee. at p. Power Commercial considered that the lot sold had been placed under the control of the buyer. 610. and to terminate said occupants’ actual possession thereof. the execution thereof shall be equivalent to 13 14 People v. and that the latter is understood to have control of the subject matter of sale. .” as the prime example to highlight the doctrines to cover all types of constructive delivery comes from its applicability to all types of subject matter. constructive delivery can take several forms.” The essence of most forms of constructive delivery is the existence of an agreement between the seller and the buyer.14 held that for both actual or constructive delivery “[t]he key word is control. 15 Ibid. Constructive Delivery Under Article 1496 of the Civil Code. in the case of both movables and immovables.”15 in determining the legal effect of tradition. v.PERFORMANCE OR CONSUMMATION OF SALE 219 possession of the buyer. 338 SCRA 330 (2000). nonetheless control can take other forms other than actual physical possession. as evidenced by the subsequent filing by the buyer of an ejectment suit.13 Although possession is the best gauge when there is control. which signified that the buyer was the new owner which intended to obtain for itself. Court of Appeals. whether movable or immovable. a. Execution of Public Instrument Under Article 1498 of the Civil Code. 2. not possession. Power Commercial and Industrial Corp. The discussions on the execution of a public instrument as a form of constructive delivery should be considered as setting the same basic premise or principles as to all other forms of constructive delivery. tangible or intangible. Tan. when the sale is made through a public instrument. Thus. 274 SCRA 597 (1997). The importance of using the “execution of a public instrument pursuant to a valid sale.

18 Velarde v. Torcuator v.16 In several cases. Grimalt. 1462 of the old Civil Code. Thus. Court of Appeals. 17 Manuel R. such as a contract of lease or a joint venture. 20 Phil. 6 Phil. 96 (1906). 21 149 SCRA 31 (1987). at p.18 Of course. Court of Appeals. Therefore. if from the deed the contrary does not appear or cannot clearly be inferred.21 held that the legal effects and consequences of actual or physical delivery. the execution thereof 16 Florendo v. when the sale is made through a public instrument. 225 SCRA 678 (1993). Also Roman v. Bernabe. Inc.e. the foregoing rules apply only to a public instrument that evidences a valid sale. the special power of attorney can be interpreted as tied up with any number of property arrangements.17 the Court held that the notarized deed of sale has two functions: (a) It operates as a formal or symbolic delivery of the property sold. Dulay Enterprises. and constitutes valid compliance by the seller of his primary obligations under the sale. 388 (1911). 312 SCRA 180 (1999). in fact. 19 459 SCRA 439 (2005). Court of Appeals. which held that “When the sale is made by means of a public instrument the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract.” (at p. also apply equally to constructive delivery: “Similarly. the general rule is that the execution of a public instrument has the same legal effects as actual or physical delivery. Court of Appeals.220 LAW ON SALES the delivery of the subject matter of sale. citing Art. and (b) It authorizes the buyer to use the document as proof of ownership. v. i.. thus: “Taken by itself.”20 (1) Constructive Delivery Has the Same Legal Effect as Actual or Physical Delivery Municipality of Victorias v. 20 Ibid. Garcia v. Court of Appeals.19 held that a special power of attorney authorizing the agents to execute a deed of sale over the property can by no means be interpreted as delivery or conveyance of ownership over said property. 274 SCRA 597 (1997). it transfers the ownership of the subject matter to the buyer. Power Commercial and Industrial Corp. . Foz. 99). v. 451. 361 SCRA 56 (2001).

Cruz. Reiterated in Caoibes. nevertheless.. Inc.PERFORMANCE OR CONSUMMATION OF SALE 221 shall be equivalent to the delivery of the thing which is the object of the contract. v.. (2006). if from the deed. Caoibes-Pantoja. See also Manuel R. Such presumption is destroyed when the delivery is not effected because of legal impediment . International Corporate Bank. the contrary does not appear or cannot be clearly inferred. v.23 where the Court held — Under Article 1498 . . v. Dulay Enterprises.. This Court has held that the execution of a public instrument gives rise only to a prima facie presumption of delivery. transfer of ownership by symbolic delivery under Article 1498 can still be effected through the execution of the deed of conveyance. perfected and completed ownership and title to the subject property. 496 SCRA 273 364 SCRA 385 (2001). Notwithstanding the presence of illegal occupants on the subject property. it is of no legal consequence that respondents were never in actual possession or occupation of the subject property. It is well-established that ownership and possession are two entirely different legal concepts. Just as possession is not a definite proof of ownership. 23 24 (1993). at p. the mere execution of the deed of conveyance in a public instrument is equivalent to the delivery of the property. 43.25 where the Supreme Court held that “[N]owhere in the Civil Code is it provided that the execution of a Deed of Sale is a conclusive presumption of delivery of possession of a piece of real estate. 22 Ibid. Jr. They. Corp. prior physical delivery or possession is not legally required..”22 The concept has been aptly summed-up in Sabio v..” The Ten Forty Realty ruling confuses between the twin functions of a public instrument. negated by the failure of the vendee to take actual possession of the land sold..24 The author therefore takes exception to the ruling in Ten Forty Realty and Dev. 25 . neither is non-possession inconsistent with ownership. Thus. Court of Appeals. 225 SCRA 678 410 SCRA 484 (2003).

Auditor. Suburban held that since the execution of the public instrument was preceded by actual delivery of the subject real 26 27 Art. but not the only ingredient. when in the execution of a public instrument. Phil. a public instrument being the main. the title to the property should remain with the seller. and. 1498. in what constitutes constructive delivery. and it becomes an integral part of tradition when coupled with other requirements mandated by jurisprudence. there is a stipulation to the contrary. its material delivery could not have been made. therefore. (b) In case of sale by installments.27 held that such express reservation or contrary inference would be present when: (a) A certain date is fixed for the purchaser to take possession of the property subject of the conveyance. and second. control over the subject matter at the time of execution and the passage of reasonable time for the control to remain. 63 SCRA 397 (1975).222 LAW ON SALES first being merely an evidence of a sale. (2) When Execution of Public Instrument Does Not Produce Effects of Delivery There are cases when the execution of public instruments covering valid sales do not produce the effects of tradition. By itself a deed of sale is merely a species of evidence. First. . v. or (d) Where the seller has no control over the thing sold at the moment of the sale. it is stipulated that until the last installment is made. namely.26 Phil. Suburban Dev. (c) When the seller reserves the right to use and enjoy the property until the gathering of the pending crops. Civil Code.

”33 28 29 Ibid. 30 261 SCRA 128 (1996). 364 SCRA 523 (2001). ownership in the thing shall pass from the seller to the buyer upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid.32 where the resolution of the issues boiled down to whether there was an actual sale of the employer’s plant and facilities. Failure of the buyer to make good the price does not. 1478].. 31 Ibid. transfer of ownership] unless the plant and its facilities are unconditionally conveyed .”28 This well-established rule is contrary to what was said in Heirs of Severina San Miguel v. 138-139..30 held that “[D]evoid of stipulation that ‘ownership in the thing shall not pass to the purchaser until he has fully paid the price’ [Art. did not transfer ownership of the subject matter by the delivery thereof. v. NLRC. at pp. or upon delivery of the thing sold. 32 200 SCRA 766 (1991).” In fact. thus: “In the absence of an express stipulation to the contrary.29 that “[i]n a contract of sale. 772. at p. but title passes by the delivery. which did not preclude the transmission of ownership. 1191. at p. by virtue of a ‘final or absolute deed of sale’ in accordance with the terms and conditions stated in the agreement between the parties.”31 In Fortune Tobacco Corp. Court of Appeals. in law. Court of Appeals.PERFORMANCE OR CONSUMMATION OF SALE 223 estate. there can be no actual sale thereof [i. . then tradition was effected in spite of the condition stated in the instrument that the seller should first register the deed of sale and secure a new title in the name of the buyer before the latter shall pay the balance of the purchase price.e. 33 Ibid. the Court held that the execution of the deed of conditional sale with provision that the final deed of sale was to be executed only upon full payment. the payment of the purchase price of the goods is not a condition precedent to the transfer of title to the buyer. It also held that “even accepting that the plant and its facilities have been sold on a conditional basis. title only passes to the vendee upon full payment of the stipulated consideration. 406. Balatbat v. cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Art..

notwithstanding the execution of the instrument. 408. the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name. at p.. in order that this symbolic delivery may produce the effect of tradition. the subject matter was not subject to the control of the seller. Felix. at the moment of the sale. The thing sold must be placed in his control. 404 (1918). .224 LAW ON SALES Secondly. The “moment of sale” referred to was of course the consummation stage. then the legal effects of delivery would not happen. Ibid. Addison v. When there is no impediment whatsoever to prevent the thing sold from passing into the tenancy of the purchaser by the sole will of the vendor. because such tenancy and enjoyment are opposed by the interposition of another will.34 held earlier that it is the duty of the seller to deliver the thing sold. its material delivery could have been made. so that “at the moment of sale. it is necessary that the vendor shall have such control over the thing sold that. It is not enough to confer upon the purchaser the ownership and the right of possession. at p. 408. It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract.” . then fiction yields to reality — the delivery has not been effected. when at the time of the execution of the public instrument. its material delivery could have been made. thus — The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed “in the hands and possession of the vendee..36 34 35 38 Phil. 36 Ibid. emphasis supplied.”35 which talks of capacity rather than an actual physical delivery. and that symbolic delivery by the execution of a public instrument is equivalent to actual delivery only when the thing sold is subject to the control of the seller. but. But if. symbolic delivery through the execution of a public instrument is sufficient.

Macke & Chandler. the buyer was fully aware of the existence of squatters on the property at the time of the transactions and even undertook the job of evicting them. 409. Go Inqui. Wilson. by the mere execution of the public instrument. The Court held that the buyer cannot contend later on that the execution of the deed of sale in a public document did not operate as a symbolic delivery to transfer possession to the buyer due to the presence of occupants on the lot sold. such agreement would perfectly be valid. 38 37 . 56-57 (1907). Otherwise. at p.PERFORMANCE OR CONSUMMATION OF SALE 225 Addison however recognized that “if the sale had been made under the express agreement of imposing upon the purchaser the obligation to take the necessary steps to obtain the material possession of the thing sold.” In Power Commercial. 8 Phil. Civil Code. if constructive delivery cannot do the job without actual delivery being made later on. Tan Leonco v. 611-612 (1909). and there is no implication in the ruling that for constructive delivery to produce the effects of tradition. 14 Phil. 274 SCRA 597 (1997). 39 Articles 1477 and 1495. 531 (1907). 8 Phil. In effect. Addison does not intend to place constructive delivery at a lower category than that of actual delivery. v.”37 and there would have been full compliance by the seller of his obligations under the sale. Kuenzle & Streiff v. Fidelity & Deposit Co. delivery remains an indispensable requisite as our law does not admit the doctrine of transfer of property by mere consent. and it were proven that she knew that the thing was in the possession of a third person claiming to have property rights therein.39 The Civil Code provides that delivery can either Ibid. The Addison doctrine was reiterated in Power Commercial and Industrial Corp. Court of Appeals. thus: Although most authorities consider transfer of ownership as the primary purpose of sale. 51. 610. then constructive delivery would not in reality be a separate form of tradition. it has to be coupled by subsequent actual delivery or by the actual taking of physical possession by the buyer. v.38 where the Court emphasized that the operative word in the doctrine is not “possession” but “control.

Thirdly. 404. Lesaca.226 LAW ON SALES be (1) ACTUAL (Article 1497) or (2) CONSTRUCTIVE (Articles 1498-1501).. not possession. Vda. Villablanca. De Sarmiento v. as a species of constructive delivery. 275 SCRA 267 (1997). “or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee.. however. 32 (1988). since under Article 1496 of the Civil Code. Inc. 408 (1918). Intermediate Appellate Court. 40 Addison v. Court of Appeals. delivery was effected through the execution of said deed. of the land . 38 Phil. from the decision in Pasagui v. 902-03 (1960). the statement in Power Commercial that “our law does not admit the doctrine of transfer of property by mere consent.40 in which case this legal fiction must yield to reality. traditio longa manu and other forms of symbolic delivery involve a mere agreement that buyer is now the owner and possessor of the subject matter. 108 Phil. that in order that the execution of public instrument to produce the effect of tradition. effects the transfer of ownership through the execution of a public document.42 we can infer an additional element into the Addison doctrine. 41 Reiterated in Solid Homes. the ownership of the thing sold is acquired by the buyer from the moment it is delivered to him in any of the ways specified by law.” As discussed hereunder. The key word is control. 42 68 SCRA 18 (1975). We can only “infer” the ruling from the decision because Pasagui actually covered the main issue of whether the proper action that should have been filed was one of forcible entry. v. Its efficacy can. it was therefore a decision. 168 SCRA 22. Felix.41 Nevertheless. Considering that the deed of sale between the parties did not stipulate or infer otherwise.” is not accurate. 900. which required plaintiff’s prior possession. but that such control or ability to transfer physical possession and enjoyment must subsist for a reasonable length of time after the instrument’s execution. . be prevented if the vendor does not possess control over the thing sold. and Danguilan v. not only must the seller have actual control of the object of the sale at the execution of the instrument. Symbolic delivery (Article 1498).

and despite the facts showing that the third-party claimants of the subject parcel of land came into possession after the instrument was executed.. but on jurisdiction and proper remedy.46 where a brother bought through a deed of absolute sale a tractor from his brother168 SCRA 22 (1988).43 and Vda. control at time of delivery and passage of reasonable time). Jr. 108 Phil. as a mode of delivery. possession or control of the subject real estate. Court of Appeals. otherwise. 44 43 . The implied Pasagui ruling of control for a reasonable period after execution of the instrument is an important ingredient for constructive delivery. De la Cruz. The rationale for such inferred ruling should apply equally to all forms of constructive delivery. Santos. Lesaca. The ruling has since obtained doctrinal status when it was reiterated in Danguilan v. which presumption can be rebutted by clear and convincing evidence. 900 (1960). Intermediate Appellate Court. Reiterated in Engreso v. 401 SCRA 217 (2003). such as when the buyer failed to take actual possession or there was continued enjoyment by the seller of possession. Corp. would create undue burden on the part of the buyer. Cruz. the burden must continue to be with the seller to grant the buyer reasonable period to take possession of the subject matter. 46 198 SCRA 826 (1991). the execution of a public instrument.45 (3) Special Variation to Addison Doctrine The Addison doctrine seemed to have been strained in the case of Dy. who would be compelled to literally “jump” into the possession of the subject matter soon after signing the instrument.PERFORMANCE OR CONSUMMATION OF SALE 227 not on sale. de Sarmiento v. that without the other requisites mandated by jurisprudence (i. v. v. for he would then obtain no remedy from the seller.e. 410 SCRA 484 (2003). Ten Forty Realty and Dev. since tradition being an obligation on the part of the seller. 366 SCRA 395 (2001). It held that although a public instrument had been executed to cover the sale. 45 Santos v. the mere execution of a public instrument does not create a conclusive presumption of delivery. there was no delivery ever made by the seller even by constructive delivery as to conclude that the buyer ever had title.44 It is clear therefore.

(Art. there was constructive delivery already upon the execution of the public instrument pursuant to Art. Justice Gutierrez held in Dy. at p. that “[T]he mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. Jr. . 830. Nevertheless. Ibid. or if the latter already had it in his possession for any other reason. 1498 and upon the consent or agreement of the parties when the thing sold cannot be immediately transferred to the possession of the vendee. In ruling for the brother-buyer. actual delivery of the subject tractor could not be made..”48 With the acknowledgment that actual 47 48 Ibid. The judgment creditor insisted that at the time of the execution of the deed of sale. at p. since the tractor was already sold to the brother-buyer. which at the time of the execution of the instrument. However. The issue before the Court was whether the execution effected upon the tractor to enforce the brother-seller’s judgment debt was still valid. if the thing sold cannot be transferred to the possession of the vendee at the time of sale. The purchase was with the knowledge of the mortgagee who insisted that delivery to the buyer shall be made only upon the clearing of the check payment on the mortgage debt.228 LAW ON SALES seller. 831. In the meantime.”47 He held that in addition to Article 1498 of the Civil Code which recognized the execution of public instrument as constructive delivery. the tractor was executed upon by a judgment creditor of the brotherseller while still in the possession of the mortgagee. 1499). under Article 1499. Justice Gutierrez recognized that “[I]n the instant case. was mortgaged to and in the possession of the mortgagee. He had a right to sell it although he was under obligation to secure the written consent of the mortgagor. no constructive delivery was effected since the consummation of the sale was dependent upon the clearance and encashment of the check which was issued in payment of the tractor. it is provided that the delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties.

as to have made the brotherbuyer the owner of the subject matter. ruling is to consider that when it comes to a third-party and the issue centers on the title or ownership of the subject matter of a sale. Civil Code) Said property continues to belong to the mortgagor. even if at the time of sale. Neither could it be said that [the mortgagee] was the owner of the subject tractor because the mortgagee can not become the owner of or convert and appropriate to himself the property mortgaged.PERFORMANCE OR CONSUMMATION OF SALE 229 delivery could not be effected. . the variation in Dy. provided that at the time of the execution there was no legal impediment on the part of the seller to transfer title to the buyer.”49 The only proper way to treat the Dy. at p. 49 50 Ibid. Ibid. and it were proven that she knew that the thing was in the possession of a third person claiming to have property rights therein. (Art. Jr. control or possession of the subject matter was not in the hands of the seller.”50 and therefore execution of the public document by itself would produce the legal effects of tradition and effectively transfer ownership to the buyer. 2088. Justice Gutierrez held that “[W]hile it is true that [the seller] was not in actual possession and control of the subject tractor. In addressing this particular point raised by the respondent Court of Appeals in its appealed decision. since Addison itself recognized that “if the sale had been made under the express agreement of imposing upon the purchaser the obligation to take the necessary steps to obtain the material possession of the thing sold. 831-832. constructive delivery through the execution of the public instrument could not produce the effects of tradition. under the Addison doctrine. his right of ownership was not divested from him upon his default. Jr. 409. is not really that crucial. In any event. but only insofar as title is concerned. then constructive delivery by the execution of the public instrument would produce the effect of tradition. at pp. even when the subject matter is in the hands of a third party. such agreement would perfectly be valid. because possession of the tractor was with the mortgagee.

” c.230 LAW ON SALES b. the would-be buyer was already in possession of the would-be subject matter of the sale. 449 SCRA 99 (2005). Thus. but as a lessee or any other form of possession other than in the concept of owner. Symbolic Delivery As to movables. where before the sale. the seller held possession of the subject matter in the concept of owner. prior to the sale. . Civil Code. 53 Art. 54 281 SCRA 176 (1997). would-be buyers were in possession of the subject property as lessees. 1500. the seller continues to hold physical possession thereof no longer in the concept of an owner. Court of Appeals. 1498. and cannot take a form relating to the payment of the purchase price.52 held that the issuance of an acknowledgment receipt of the partial payment for the property bought cannot be taken to mean a transfer of ownership thereof to the buyer because “no constructive delivery of the real property could have been effected by virtue thereof. Amigo v. Traditio Brevi Manu This mode of delivery is opposite that of constitutum possessorium. constructive delivery may also be made by the delivery of the keys of the place or depository where the movable is stored or kept. he would now hold possession in the concept of an owner. and pursuant to the contract. Teves. Heirs of Pedro Escanlar v. Upon sale to them of the rights. and pursuant to sale.54 illustrates the application of traditio brevi manu.51 Symbolic delivery must involve or cover the subject matter. Lorenzo Dev. Constitutum Possessorium This mode of constructive delivery takes effect when at the time of the perfection of the sale. 96 Phil. interests and participation as to the one-half (½) portion pro indiviso. v. not in the concept of lessees anymore 51 52 Art. 252 (1954). Corp. say as a lessee. Court of Appeals. they remained in possession.53 d. In that case.

such as when the seller points the property subject matter of the sale by way of delivery without need of actually delivering physical possession thereof. its delivery can only be effected by constructive delivery. Article 1501 of the Civil Code recognizes three (3) types of constructive delivery specifically applicable to incorporeal property.PERFORMANCE OR CONSUMMATION OF SALE 231 but as owners now through symbolic delivery known as traditio brevi manu. Thus. f. if from the deed the contrary does not appear or cannot clearly be inferred.55 Therefore. under Article 1499 of the Civil Code. the delivery of movable property may be made by the mere consent or agreement of the contracting parties. Traditio Longa Manu This is delivery of a thing merely by agreement. Civil Code. 1513. e. (b) By the placing of the titles of ownership in the possession of the buyer. or (c) The use and enjoyment by the buyer of the rights pertaining to the incorporeal property. if the thing sold cannot be transferred to the possession of the buyer at the time of the sale. thus: (a) When the sale is made through a public instrument. and also the title of the persons to whom the documents was originally. with the seller’s consent. the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. the buyer of the goods 55 Art. . Delivery by Negotiable Document of Title A person to whom a negotiable document of title has been duly negotiated acquires thereby such title to the goods as transferor had or had ability to convey to a purchaser in good faith for value. g. Delivery of Incorporeal Property An incorporeal property having no physical existence.

the premise being that the carrier acts as an agent of the buyer. and always subject to the terms of any agreement with the transferor. If the seller omits to do so. the seller must make such contract with the carrier on behalf of the buyer as may be reasonable. the buyer may decline to treat the delivery to the carrier as delivery to himself. Cerna Corp.T. 1523. 57 56 . the seller must give such notice to the buyer as may enable him to insure them during their Art. 58 Art. the seller is authorized or required to send the goods to the buyer. Delivery Through Carrier Delivery through a carrier as a form of constructive delivery necessarily pertains only to a sale of goods. Norkis Distributors v. v. whether named by the buyer or not.57 h.56 Since an invoice is not a negotiable document of title. This default rule is best illustrated by Article 1523 of the Civil Code. where. the issuance thereof would not constitute constructive delivery. Court of Appeals. the buyer to whom a document of title has been transferred by assignment. Unless otherwise authorized by the buyer. Civil Code.58 Unless otherwise agreed. if in pursuance of a sale. Court of Appeals. On other hand. 221 SCRA 19 (1993). 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. acquires only his transferor’s title to the goods. P. unless a contrary intent appears. having regard to the nature of the goods and the other circumstances of the case. The general rule. 193 SCRA 694 (1991). Civil Code. and in the absence of stipulation or circumstances to the contrary. for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer. or may hold the seller responsible for damages. and the goods are lost or damaged in the course of the transit. 1514.232 LAW ON SALES can by the process of negotiation of the covering document have a title better than that of his immediate seller. delivery to carrier is deemed delivery to the buyer. delivery of the goods to a carrier.

O. 59 60 Art. they signify that the price fixed covers not only the costs of the goods. and if the seller fails to do so. v. Soriano Y Cia. Yangco. . 606 (1918). Sales In mercantile contracts of American origin.f. “f.b.o. v. 38 Phil.” stands for the words “free on board. (3) C. 62 Behn Meyer & Co. 606 (1918).PERFORMANCE OR CONSUMMATION OF SALE 233 transit.I.b. delivery of the goods to the carrier is equivalent to delivery to the buyer.” found in British contracts stand for costs.B. delivery of the goods alongside the vessel completes the effect of tradition. A. only when the vessel has arrived at the point of destination would there be delivery to the buyer and prior to that point in time. the price). but also the cost of insurance and freight. depending on whether the goods are to be delivered “f.A.61 Under an “f. “the seller pays all charges and is subject to risk until the goods are placed alongside the vessel. (2) F. and at that point the risk of loss pertains to the buyer.o. destination” arrangement. the amount quoted by the seller and agreed to by the buyer.” and under such arrangement the seller shall bear all expenses until the goods are delivered. 602.59 (1) F. the risk of loss over the subject matter of the sale will be borne by the seller.S.”60 In other words.F.o.. Civil Code. insurance.e. but the expense of freight and insurance to be paid by the seller. 1523. shipping point” arrangement..b.i.62 Under that arrangement. Under an “f. 505 (1955).. v. sales. 602. There are two schools of thought on the effect of delivery under c. 38 Phil. and freight. 97 Phil. Yangco.b. 61 Behn Meyer & Co.f. Sales The letters “c. Collector.” at the point of shipment or at the point of destination. Sales Under such arrangement.o.i. the goods shall be deemed to be at his risk during such transit. covers not only the cost of the merchandise (i.

then clearly the buyer has obtained ownership over the goods during the shipment period since this is required under the insurance law for the buyer to have insurable interest. since the insurance over the goods shipped is for the account of the buyer. .f. In addition. On the other hand. at p.f. transfers the property to the vendee.63 where the shipping terms were “c. 602 (1918). then it would mean that the carrier acts as an agent of the buyer who pays the freight.i. Yangco. and the seller must continue to bear the risk of loss during the shipment period since this is an integral part of his obligation under the agreed terms of the sale.i. Meyer & Co.i.” arrangement “signifies that the price fixed covers not only the costs of the goods. if the seller is to pay the freight.f. price. It held that “[A] specification in a contract relative to the payment of freight can be taken to indicate the intention of the parties in regard to the place of delivery. v. and for which responsibility he gets a package price.. it is reasonable to suppose that he does so because the goods become his at the point of shipment.f. In the early case of Behn.i. as part of the price he has obligated himself to pay.”64 The implication is clear therefore in Behn Meyer & Co. that means that both parties agree that the seller takes on the responsibility of insuring the goods and providing for their shipment to the buyer. the Court held that “[I]f the contract be silent as to the person or mode by which the goods are to be sent. in the usual and ordinary course of business. the inference 63 64 38 Phil. Manila” on goods coming from New York. since in a c. Under such circumstances.234 LAW ON SALES Under the first school of thought. delivery by the vendor to a common carrier. Ibid. but the expense of freight and insurance to be paid by the seller. that a “c. arrangement. and therefore delivery to the carrier is delivery to the buyer. 605. The other school of thought provides that in quoting a c.” and therefore seller bears the risk of loss during shipment. the costs of insurance and freight are ultimately to be borne by the buyer. delivery by the seller of the goods to the carrier is not equivalent to delivery to the buyer. If the buyer is to pay the freight.

PERFORMANCE OR CONSUMMATION OF SALE 235 is equally strong that the duty of the seller is to have the goods transported to their ultimate destination and that title to property does not pass until the goods have reached their destination. 606-607. at p. covering costs. then this must be taken to mean “that the contract price.”65 Nevertheless.” arrangement was accompanied with the word “Manila” which was the point of destination.69 upholds the first school of thought that “[t]here is no question that under an ordinary C. at p. delivery to the buyer is complete upon delivery of the goods to the carrier and tender of the shipping and other documents required by the contract and the insurance policy taken in the buyer’s behalf. who has agreed to pay for such amounts.b. 67 Ibid. arrangement. and Pacific Vegetable agree with the second school of thought that since c. this is taken to indicate that the delivery is to be made at the port of destination. On the other hand General Foods v.’ merely make rules of presumption which yield to proof of contrary intention.i. Behn. in a c.o. Pacific Coast” (the point of destination). as it was judicially interpreted. 606.”67 In Pacific Vegetable Oil Corp.i. Meyer & Co. and.” Behn. . 605-606. Supreme Court Advance Decisions. the risk of loss for the account of the buyer arises only when the vessel arrives at the point of destination. 29 April 1955. 637 (1956). 68 G.f.R. Meyer & Co. NACOCO. 65 66 Ibid. ordinarily therefore. signifies that the delivery was to be made at Manila. upheld the principle that “both of the terms ‘c. No.68 the Court held that under an arrangement “c.’ and ‘f. Singzon. he does this for the account and benefit of the buyer.i. includes both insurance and freight expenses to be paid by the seller. Ibid. v.”70 General Foods therefore holds that although it is the seller who may make the arrangement for the insurance coverage and freightage of the goods. “the vendor is to pay not only the cost of the goods. 341.I.f. at pp. at pp. but also the freight and insurance expenses.i.f.”66 The Court then held that since in the instant case the “c. agreement.F. insurance. 69 100 Phil.f. L-7917. 70 Ibid.f. and freight.i.

EFFECTS AND COMPLETENESS OF DELIVERY For tradition to produce the twin legal consequences of transferring ownership to the buyer and effecting the fulfillment of the primary obligations of the seller. and although the Court did not place significance on the indication of “New York” it held that “[t]here is equally no question that the parties may. by express stipulation or impliedly (by making the buyer’s obligation depend on arrival and inspection of the goods). however. rather easily. The lesson learned from all of these is that the shipping arrangements in a sale create. .236 LAW ON SALES In General Foods.”71 The Court took into consideration that the price agreed upon was to be based on “net landed weights” and it held that delivery by the seller to the carrier in Manila of the goods covered was not delivery to the buyer. modify a CIF contract and throw the risk upon the seller until arrival in the port of destination. and (b) Delivery must be effected when seller has ownership over the subject matter of sale so delivered. 341. to any stipulation or even intimation to the contrary. by commercial usage. at p. certain presumptive effects. The courts have therefore tended to look at other stipulations or indications in the agreement to find the true intentions of the parties as to the transfer of the risk of loss before they would apply the presumptive effects of such acronyms. namely: (a) Delivery must be made pursuant to a valid sale. two principles must apply. and the risk of loss of the goods during the voyage was to be borne by the seller. such presumptive effects must give away. 71 Ibid. the price was quoted “CIF New York” (the point of destination).

the seller is bound to deliver in such manner only. Naval v. unless the buyer specifically designated someone to receive delivery.72 b. no title over the subject matter of the sale can be conveyed. (Nemo dat quod non habet. nevertheless when at the time of delivery there is no proof that the seller had ownership and as in fact the tax declaration to the subject property was in the name of another person. as there was no consideration for the same. 240 SCRA 789 (1995). Court of Appeals. . though tax declaration do not prove ownership of the property of the declarant. Nool v. Delivery Must Be Made Pursuant to a Valid Sale Since tradition takes effect in the consummation stage of sale. Although tax declaration is not evidence of title. 483 SCRA 102 (2006). 483 SCRA 102 (2006). Consequently. Delivery Must Be Made By Seller Who Has Ownership over the Subject Matter Likewise. Court of Appeals. Nemo potest nisi quod de jure potest — No man can do anything except what he can do lawfully. This stems from the principle that no man can dispose of that which does not belong to him. Naval v. Hooven Comalco Industries. 73 Noel v. Court of Appeals. 72 Traders Royal Bank v. When a sale is fictitious. and therefore void and inexistent.74 held that where it is stipulated that deliveries must be made to the buyer or his duly authorized representative named in the contracts. delivery would produce the effect of transferring ownership only if at the time of delivery the seller still had ownership over the subject matter. Yap. Cadungog v. 269 SCRA 15 (1997). tax declarations and receipts can be strong evidence of ownership of land when accompanied by possession for a period sufficient for prescription. 469 SCRA 561 (2005). it presupposes that there has been a valid passage through perfection stage that has given rise to a valid and binding sale that is capable of performance. 371 SCRA 49 (2001). Tangalin v.)73 c. To Whom Delivery Must Be Made Lagoon v. Court of Appeals. Court of Appeals. 74 349 SCRA 363 (2001). 276 SCRA 149 (1997). Court of Appeals. 364 SCRA 523 (2001). Court of Appeals.PERFORMANCE OR CONSUMMATION OF SALE 237 a. Heirs of Severina San Miguel v.. delivery would produce the effect of transferring ownership to the buyer only when it is made pursuant to a valid sale. Inc.

(b) If. (c) Where the seller delivers to the buyer a quantity of goods larger than what he contracted to sell. When Buyer Refuses to Accept Since delivery of the subject matter of the sale is an obligation on the part of the seller. delivery. however. the buyer may reject them. 1. Under Article 1588 of the Civil Code. the seller is still legally obliged to take certain steps as not to be held liable for consequent loss or damage to the goods. the title thereto passes to him from the moment they are placed at his disposal. will produce its legal effects. he must pay for them at the contract rate. transferring the risk of loss of the subject matter to the buyer who has become the owner thereof. as. but if the buyer accepts or retains the goods so delivered. the acceptance thereof by the buyer is not a condition for the completeness of delivery. However.238 LAW ON SALES d. Court of Appeals.75 Even with such refusal of acceptance. for example. the buyer may accept the 75 La Fuerza v. whether actual or constructive. the buyer shall not be liable for more than the fair value to him of the goods so received. when the buyer’s refusal to accept the goods is without just cause. . Rules on Effects of Delivery for Movables Article 1522 of the Civil Code provides the rules on the delivery of goods — (a) Where the seller delivers to the buyer a quantity of goods less than what he contracted to sell. knowing that the seller is not going to perform the contract in full. 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. even under such circumstances. 23 SCRA 1217 (1968).

and by the bill of lading the goods are deliverable to the seller or his agent. 1521. 78 Art. Reservation of Ownership Despite delivery.78 Article 1503 of the Civil Code gives the following instances when there is an implied reservation of ownership: (a) Where goods are shipped. if the subject matter is indivisible. the buyer may accept the contracted goods and reject the rest. the seller thereby reserves the ownership in the goods. if except from the form of the bill of lading. But. such as when the parties stipulate that ownership will not transfer until the purchase price is fully paid. if the subject matter is indivisible.77 or until certain conditions are fulfilled. if the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate.76 b. Art. When Goods Held by Third Party Where the goods at the time of sale are in the possession of a third person. Civil Code.PERFORMANCE OR CONSUMMATION OF SALE 239 goods covered in the contract and reject the rest. Civil Code. the buyer may reject the whole of the goods. ownership will not transfer to the buyer in case of express reservation. ownership would have passed to the buyer on shipment of the goods. the buyer may reject the goods entirely. 1503. the seller’s 76 77 Art. Civil Code. 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. . or (d) Where the seller delivers to the buyer the goods contracted but mixed with goods of a different description. a. 1478.

(b) Where goods are shipped. (c) 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 seller thereby reserves a right to the possession of the goods as against the buyer. Civil Code. but possession of the bill of lading is retained by the seller or his agent. however. and by the bill of lading the goods are deliverable to the order of the buyer or of his agent.79 c. without notice of the facts making the transfer wrongful. if the bill of lading provides that the goods are deliverable to the buyer or to the order of the person named therein. in addition to the obligation of the seller to deliver the accessories and accessions in the condition in which they were upon the perfection of the contract.80 the seller 79 80 Art. and ownership is still transferred to the buyer. In the last case. although the bill of exchange has not been honored. Civil Code.240 LAW ON SALES property in the goods shall be deemed to be only for purpose of securing performance of the buyer’s obligations. 1537. provided that such purchaser has received delivery of the bill of lading endorsed by the consignee named therein. Art. in which case the buyer bears the risk of loss. . 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. or of the goods. or goods from the buyer will obtain the ownership in the goods. one who purchases in good faith for value the bill of lading. 1503. Obligation as to Accessories and Accessions In the sale of movables.

sales of goods by sample and/or description. 1481.85 81 82 Art.PERFORMANCE OR CONSUMMATION OF SALE 241 must deliver to the buyer a quantity of goods that should not be less than what he contracted to sell. or without consideration of their weight. . 840. it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description. nor is the price agreed upon by the parties to be based upon such measurement. therefore. Fonacier.84 By their very nature. 85 Last paragraph of Art. should be distinguished from the sale of specific mass under Article 1480 which provides for the “sale of fungible things. number. otherwise the buyer may reject them.81 d. a determinate object. 84 Art.82 which involved the sale of iron ore.”83 e. notwithstanding that the quantity delivered is less than the amount estimated by them. Civil Code. Civil Code. or measure. so that all that was required of the seller Gaite was to deliver in good faith to his buyer all of the ore found in the mass. made independently and for a single price. Civil Code. 1522. 83 Ibid. 1481. emphasis supplied. the mass. 2 SCRA 830 (1961). then the “subject matter of the sale is. at p. Sale in Mass of Movables The sale of movables under Article 1522 of the NCC. should allow the buyer a reasonable opportunity of inspection or of comparing the bulk with the sample or the description before accepting their delivery. it was held that if there is no provision in the contract for the measuring or weighing of the fungible movables sold in order to complete or perfect the sale.” In Gaite v. Sale by Description and/or Sample In a sale of goods by description or sample. the sale may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample. and if the contract be by sample as well as by description. and not the actual number of units or tons contained therein.

Engel v. but the want of identity is not apparent on inspection.90 held that when the machine delivered by the seller is in accordance with the description stated in the sales contract. Ibid. v.242 LAW ON SALES Mendoza v. 184. the purchaser will not be released from his obligation to accept and pay for the goods by deviations on the part of the seller from the exact terms of the contract. which is not present and there is no opportunity to inspect or examine the same. the buyer not knowing whether the seller’s representations are true or false. or as otherwise stated. 90 56 Phil. especially where in that case the three sets of furniture were manufactured according to the specifications provided by the buyer.”87 Mendoza described a “sale of goods by description” as one where “a seller sells things as being of a particular kind.. or has seen the goods. but relying on them as true. Mariano Velasco & Co. thus: “To constitute a sale by sample. Pacific Commercial Co. Ermita Market & Cold Stores. 115 (1924). at pp. and not in accordance with the replicas displayed in the seller’s shop. . the buyer cannot refuse to pay the balance of the purchase price and the cost of installation even if it proves that the machine cannot be used 86 87 441 SCRA 172 (2004). David. 617 (1932). if the purchaser had acquiesced to such deviations after due notice thereof. 89 47 Phil.89 held that even in sales by description and/or sample.”88 The Court in Mendoza also held that the term “sale by sample” does not include an agreement to manufacture goods to correspond with the pattern. at p. where the buyer has not seen the article sold and relies on the description given to him by the seller.86 held that there is “sale by sample” when a small quantity is exhibited by the seller as a fair specimen of the bulk. 88 Ibid. 184-185. it must appear that the parties treated the sample as the standard of quality and that they contracted with reference to the sample with the understanding that the product to be delivered would correspond with the sample.

Court of Appeals. because “[d]elivery. 342.” no ownership could have been transferred to the buyer although he took possession thereof.93 held that for a sale to be considered and construed as a “sale or return” or a “sale on approval. g. at p. if no time has been fixed. or other similar terms. Form of Such Special Sales Industrial Textile Manufacturing Co. then if a time has been fixed for the return of the goods.. Article 1502 provides that when goods are delivered to the buyer on approval or on trial or on satisfaction. “Sale on Approval. and. e. the ownership therein passes to the buyer only: (a) when he signifies his approval or acceptance to the seller or does any other act adopting the transaction. if no time has been fixed. the ownership passes to the buyer on delivery.. Satisfaction. within a reasonable time. . “On Sale or Return” Under Article 1502 of the NCC. h. Inc. f.. 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.g. Trial. on the expiration of a reasonable time. 93 217 SCRA 322 (1993). v. or tradition.. or Acceptance” On the other hand. Ibid..” there must be a clear 91 92 150 SCRA 336 (1987).91 held that when the sale of a movable is “sale on acceptance. but he may revest the ownership in the seller by returning or tendering the goods within the time fixed in the contract.”92 and in that case there was as yet no contract when delivery was effected.PERFORMANCE OR CONSUMMATION OF SALE 243 satisfactorily for the purposes for which he bought it when such purpose was not made known to the seller. sale. or (b) if the buyer does not signify his approval or acceptance. as a mode of acquiring ownership must be in consequence of a contract . but retains the goods without giving notice of rejection. on the expiration of such time. Vallarta v. LPJ Enterprises. or.

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agreement to either of such effect, otherwise, the provisions of Article 1502 of the Civil Code governing such sales cannot be invoked by either party to the contract, and therefore must be in writing, and cannot be proved by parol evidence:
... The provision in the Uniform Sales Act and the Uniform Commercial Code from which Article 1502 was taken, clearly requires an express written agreement to make a sales contract either a “sale or return” or a “sale on approval.” Parol or extrinsic testimony could not be admitted for the purpose of showing that an invoice or bill of sale that was complete in every aspect and purporting to embody a sale without condition or restriction constituted a contract of sale or return. If the purchaser desired to incorporate a stipulation securing to him the right to return, he should have done so at the time the contract was made. On the other hand, the buyer cannot accept part and reject the rest of the goods since this falls outside the normal intent of the parties in the “on approval” situation.94

i. Written Proof of Delivery Lao v. Court of Appeals,95 confirmed that in case of goods, delivery is generally evidenced by a written acknowledgment of a person that he has actually received the thing or the goods, as in delivery receipts, under the following rules: (a) A bill of lading cannot substitute for a delivery receipt, because it is a written acknowledgment of receipt of the goods by the carrier and an agreement to transport and deliver them at a specific place to a person named or upon his order; it does not evidence receipt of the goods by the consignee or the person named in the bill of lading; and

94 95

Ibid, at p. 327, citing 67 AM JUR 2D, pp. 733-748. 325 SCRA 694 (2000).

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245

(b) A factory consignment invoice is not evidence of actual delivery of the goods since in the invoice nothing more than a detailed statement of the nature, quantity and cost of the thing sold, and it not proof that the thing or goods were actually delivered to the buyer or the consignee. j. Time and Place of Delivery Whether it is for the buyer to take possession of the goods or for 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 such contract, express or implied, or usage of trade to the contrary, the place of delivery is seller’s place of business, if he has one, and if not, his residence.96 In case of a 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.97 Where by a 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.98 Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour; and what may be a reasonable hour is a question of fact.99 k. Seller Shall Pay Expenses of Delivery Unless otherwise agreed, the expenses in putting the goods into a deliverable state must be borne by the seller.100 2. Rules on Effects of Delivery for Immovables The following rules to determine completeness of delivery shall apply when the subject matter of the sale is an immovable:
96 97

Art. 1521, Civil Code. Art. 1521, Civil Code. 98 Art. 1521, Civil Code. 99 Art. 1521, Civil Code. 100 Art. 1521, Civil Code.

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a. Where Immovables Sold Per Unit or Number 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 seller is obliged to deliver to the buyer, if the latter should demand it, all that may have been stated in the contract. If this should not be possible, the buyer may choose between a proportional reduction of the price, or the rescission of the contract when in the latter case, the lack of area be not less than one-tenth (1/10) of that stated.101 In Rudolf Lietz, Inc. v. Court of Appeals,102 it was held that the statement of the area of the immovable is not conclusive and the price may be reduced or increased depending on the area actually delivered. The rule applies, even when the area is the same, if any part of the immovable is not of the quality specified in the contract; provided that rescission may take place when the inferior value of the thing sold exceeds one-tenth (1/10) of the price agreed upon.103 Even when the smaller area or inferiority of quality does not conform to the minimum amount or value provided by law to allow rescission on the part of the buyer, nevertheless, if the buyer would not have bought the immovable had he known of its smaller area or inferior quality, he may rescind the sale.104 On the other hand, if there is a greater area or number in the immovable than that stated in the contract, the buyer 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.105 The foregoing rules also apply to judicial sales.106

101 102

Art. 1539, Civil Code. 478 SCRA 451 (2005). 103 Art. 1539, Civil Code. 104 Art. 1539, Civil Code. 105 Art. 1540, Civil Code. 106 Art. 1541, Civil Code.

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b. Where Immovables Sold for a Lump Sum 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 lesser area or number than that stated in the contract,107 especially with the use of qualifying words of “more or less” in describing the area.108 The same rule applies when two or more immovables are 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 buyer does not accede to the failure to deliver what has been stipulated.109 Nevertheless, in both Asiain v. Jalandoni,110 and Roble v. Arbasa,111 the Court held that although under Article 1542, in the sale of real estate by lump sum, there shall be no increase or decrease of the price although there be a greater or lesser area or number than that stated in the contract, the rule admits of exception because the sale of land under description “more or less” or similar words in designating quantity covers “only a reasonable excess or deficiency.”112 In Roble, the Court held that a deficiency or excess of “644 square meters” is not reasonable. The exception to this rule is when expressly the buyer assumes the risk on the actual area of the land bought.113

Art. 1542, Civil Code. Esguerra v. Trinidad, 518 SCRA 186 (2007). 109 Art. 1542, Civil Code. See also Azarraga v. Gay, 52 Phil. 599 (1928), and Teran v. Villanueva, 56 Phil. 677 (1932). 110 45 Phil 296 (1923). 111 362 SCRA 69 (2001). 112 Reiterated in Rudolf Lietz, Inc. v. Court of Appeals, 478 SCRA 451 (2005). 113 Garcia v. Velasco, 72 Phil. 248 (1941).
108

107

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c. Lump Sum Sale versus Sale by Unit of Measure or Number Santa Ana v. Hernandez,114 clarified the governing rule in the sale of real property, whether to treat it as a lump-sum sale or a sale per unit of measure or number. In that case, the sellersspouses sold to the buyer two separate portions of a much bigger land indicating in the instrument the total purchase price and the areas of each of the sold portions totaling 17,000 square meters, plus an indication of the boundaries. Subsequently, the buyer refused to vacate the areas occupied by her which were in excess of 17,000 square meters but which she alleged where within the boundaries described in the instrument. In affirming that the contract between the parties was a lump-sum sale, and therefore the buyer was entitled to occupy all portions within the boundaries stated in the instrument, even if they exceed 17,000 square meters, the Court held that “the sale made was of a definite and identified tract, a corpus certum, that obligated the vendors to deliver to the buyer all the land within the boundaries, irrespective of whether its real area should be greater or smaller than what is recited in the deed. ... To hold the buyer to no more than the area recited on the deed, it must be made clear therein that the sale was made by unit of measure at a definite price for each unit.”115 The Court also held that “[i]f the defendant intended to buy by the meters he should have so stated in the contract.” Also, based on the ruling of the Supreme Court of Spain, in construing Article 1471 of the Spanish Civil Code, which was copied verbatim in Article 1542 of our Civil Code, the Court held that it “is highly persuasive that as between the absence of a recital of a given price per unit of measurement, and the specification of the total area sold, the former must prevail and determines the applicability of the norms concerning sales for a lump sum.116 In short, Santa Ana provides that if the price per unit of measure or number is not expressly provided for in the
114 115

18 SCRA 973 (1966). Ibid, at p. 979. 116 Ibid, at p. 980, citing Goyena v. Tambunting, 1 Phil. 490 (1902).

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contract, the rules of lump sum sale shall prevail in the sale of real property. Balantakbo v. Court of Appeals,117 reiterated that the rule is quite well-settled that what really defines a piece of land is not the area calculated with more or less certainty mentioned in the description but the boundaries therein laid down as enclosing the land and indicating its limits: where the land is sold for a lump sum and not so much per unit of measure or number, the boundaries of the land stated in the contract determine the effects and scope of the sale not the area thereof.118 In Esguerra v. Trinidad,119 the Court held —
Under Article 1542, what is controlling is the entire land included within the boundaries, regardless of whether the real area should be greater or smaller than that recited in the deed. This is particularly true since the are of the land ... was described in the deed as “humigit kumulang,” that is, more or less. A caveat is in order, however, the use of “more or less” or similar words in designating quantify covers only a reasonable excess or deficiency. A vendee of land sold in gross or with the description “more or less” with reference to its area does not thereby ipso facto take all risks of quantity in the land. Numerical data are not of course the sole gauge of unreasonableness of the excess of deficiency in area. Courts must consider a host of other factors, in one case (Roble v. Arbas, 362 SCRA 69 [2001]), the Court found substantial discrepancy in area due to contemporaneous circumstance. Citing change in the physical nature of the property, it was therein established that the excess area at the southern portion was a product of reclamation, which explained why the land’s technical description in the deed of sale indicated the seashore as its southern boundary, hence the inclusion of the reclaimed area was declared unreasonable.” The increase by a fourth of a fraction
117 118

249 SCRA 323 (1995). Reiterated in Rudolf Lietz, Inc. v. Court of Appeals, 478 SCRA 451 (2005). 119 518 SCRA 186 (2007).

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of the area indicated in the deed of sale cannot be considered an unreasonable excess.120

d. Where Immovables Sold in Mass A judicial sale in mass of separate known lots or parcels will not be set aside, unless it is made to appear that a larger sum could have been realized from a sale in parcels or that a sale of less than the whole would have been sufficient to satisfy the debt.121 e. Expenses of Delivery and Registration on Real Estate As discussed in greater details in the appropriate chapters, the rules pertaining to, and the effects of, tradition, whether actual or constructive, vary greatly when the subject matter of a valid sale is real property, especially so when it is registered land. This is because of the rather peremptory effect of “registration in good faith as the operative act” principle under the Torrens system embodied in the Property Registration Decree,122 and the priority of registration in good faith to determine ownership preference in double sales rules in Article 1544 of the Civil Code. The Supreme Court held in 2003 in Chua v. Court of Appeals,123 that registration of the title of the buyer over the purchased real estate is not an ingredient necessary for tradition to have full effect, thus —
The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and the transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of title is still registered in the name of
120 121

Ibid, at pp. 198-199. Republic v. NLRC, 244 SCRA 564 (1995). 122 Pres. Decree 1529. 123 401 SCRA 54 (2003).

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the seller. As between the seller and buyer, ownership is transferred not by issuance of a new certificate of title in the name of the buyer but by the execution of the instrument of sale in a public document.124 x x x. The recording of the sale with the proper Registry of Deeds and the transfer of the certificate of title in the name of the buyer are necessary only to bind third parties to the transfer of ownership. As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument conveying the real estate. Registration of the sale with the Registry of Deeds, or the issuance of a new certificate of title, does not confer ownership on the buyer. Such registration or issuance of a new certificate of title is not one of the modes of acquiring ownership.

Chua also held that although the buyer of a parcel of land has more interest in having the capital gains tax paid immediately since this is a pre-requisite to the issuance of a new Torrens title in his name, nevertheless, as far as the government is concerned, the capital gains tax remains a liability of the seller since it is a tax on the seller’s gain from the sale of the real estate. The Court also emphasized that the payment of the capital gains tax is not a pre-requisite to the transfer of ownership to the buyer, and that the transfer of ownership took effect upon the signing and notarization of the deed of absolute sale. Earlier, Jose Clavano, Inc. v. HLURB,125 held that a judgment on a sale that decrees the obligations of the seller to execute and deliver the deed of absolute sale and the certificate of title, does not necessarily include within its terms the obligation on the part of the seller to pay for the expenses in notarizing the deed of sale and in obtaining new certificate of title. The ruling in Jose Clavano, Inc. is contrary to the Court’s subsequent ruling in Chua where the Court decreed the obligations of the seller to deliver the documents necessary to allow the buyer to be able to effect registration of his purchase.
124 125

Ibid, at p. 70. 378 SCRA 172 (2002).

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In fact, Vive Eagle Land, Inc. v. Court of Appeals,126 subsequently held that under Article 1487 of the Civil Code, the expenses for the registration of the sale should be shouldered by the seller unless there is a stipulation to the contrary; and that under Article 1495, the seller is obliged to transfer title over the property and deliver the same to the vendee. The ruling in Vive Eagle Land is again in stark contrast to the Court’s earlier ruling in Chua that registration of the title of the buyer over the purchased real estate is not an ingredient necessary for tradition to have full effect, and therefore “the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and the transfer of ownership to the buyer.”

DOUBLE SALES
1. Rules on Double Sales Must Be Considered as Rules on Tradition 127 The various rules on double sales, including those provided under Article 1544 of the Civil Code, are rules that pertain to the consummation stage in the life of a sale; they cover the effects and consequences of tradition in a particular situation where the same seller has sold the same subject property to two or more buyers who do not represent the same interests. Consequently, the various rules on double sales usually can only operate under the same premise that tradition, whether actual or constructive, can be made operative, that is: (a) The conflicting sales are all valid and demandable sales, pursuant to which tradition was or could be effected; and (b) The seller who effected multiple sales to various buyers over the same subject matter actually had ownership to convey.128
444 SCRA 445 (2004). The rules on double sales under Article 1544 of the Civil Code find no relevance in an ordinary donation. Hemedes v. Court of Appeals, 316 SCRA 347 (1999). 128 Consolidated Rural Bank (Cagayan Valley), Inc. v. Court of Appeals, 448 SCRA 347 (2005).
127 126

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253

Nevertheless, the rules on double sales, although essentially applicable within the stage of consummation, have a way of dictating or pre-empting the principles of perfection. This will be discussed at the appropriate points below. The substantive discussions are better introduced with the following proposition that may be obvious to many readers already, thus: although Article 1544 may provide for the rules on double sales for all types of movables and immovables, nonetheless, the rules therein are not the only existing and prevailing rules on double sales; that in fact, Article 1544 is merely reflective and implementative of civil law principles in Property Law, as well as special laws on registration of land and other real estates. 2. Article 1544 as the Platform for Discussion Article 1544 of the Civil Code provides that if the same thing should have been sold to different buyers, the ownership shall be given: (a) When subject matter is movable, to the buyer: • Who may have first taken possession thereof in good faith;

(b) When subject matter is immovable, to the buyer: • • “Who in good faith first recorded [the sale] in the Registry of Property;” “Should there be no inscription, ... to the person who in good faith was first in the possession” of the subject matter; “[I]n the absence thereof, to the person who presents the oldest title, provided there is good faith.”

The best way to appreciate Article 1544 is perhaps to consider that it is more reflective of the doctrinal values on what

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Philippine society considers to be the best gauge of determining who between disputing claimants would be preferred. When it comes to movable properties, our society has determined that one who possesses in good faith should be preferred against another who merely interposes a claim even though he be also in good faith. In other words, possession and enjoyment of movable property are considered to be the public’s best gauge of who owns a movable. This principle is expressed in Article 559 of the Civil Code, which provides that the “possession of movable property acquired in good faith is equivalent to title,” which may be good even against the real owner of such movable. When it comes to immovable properties, their importance in civil society would require that they be governed by a system of registration upon which the public may be able to clearly determine who owns a particular property and what claims and liens pertain thereto. This is the reason why in many of it decisions, the Supreme Court holds that the execution of a private document or the transfer of physical possession over real property binds only the parties thereto, but that there must be compliance with “[f]ormal requirements ... for the benefit of third parties;”129 that although the “rule of thumb is that a sale of land, once consummated, is valid regardless of the form it may have been entered into,” this only applies to the contracting parties and “in the event that a third party ... disputes the ownership of the property, the person against whom that claim is brought can not present any proof of such sale and hence has no means to enforce the contract;”130 and that other than a proper memorandum of the sale, but more importantly, the registration of that sale with the Registry of Deeds is what binds registered land.131 Thus, under Article 1544, the buyer in good faith who is able to effect registration of his purchase is preferred. If we continue through the hierarchy of values when it comes to double sales over immovables reflected in Article 1544, we find
Fule v. Court of Appeals, 286 SCRA 698 (1998). Claudel v. Court of Appeals, 199 SCRA 113 (1991); also Alba Vda. De Rax v. Court of Appeals, 314 SCRA 36 (1999). 131 Secuya v. Vda. De Selma, 326 SCRA 244 (2000).
130 129

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that the second rule that grants preference to a buyer who first takes possession of the immovable in good faith, is consistent with the essence of the principle that the sale, even when it is valid and enforceable, is merely a “title” or the legal justification to acquire ownership, but it is tradition that is the “mode” by which ownership is transferred to a buyer. Consequently, outside the applicability of the primary rule on registration, the buyer who first obtains possession of the subject matter in good faith is preferred against another claiming buyer, under the inversely phrased principle of Nemo dat quod non habet, that “No man can receive from his seller what the latter no longer has.” Finally, in the absence of first inscription or first possession, both in good faith, Article 1544 reflects in the third rule applicable to double sales of immovable the principle of prius tempore, potior jure, which means that the first buyer, having the oldest title in good faith, should be preferred. 3. Two Divergent Systems When It Comes to Land Although registration of a sale occupies the highest preference for determining who owns land and other real estate, it has assumed two divergent paths in Philippine jurisdiction, between “registered land” (which is covered by the Torrens system) and “unregistered land” (not covered by the Torrens system). Registration under the Torrens system was previously governed by Act No. 496 (The Public Land Act), but now governed by Pres. Decree No. 1529 (The Property Registration Decree). Annotation or registration of transactions over unregistered land was governed by Act No. 3344, but is now also provided for in Pres. Decree No. 1529. The doctrinal difference between the two sets of registration systems for real estate is quite stark. a. The Case for Registered Land Section 51 of Pres. Decree No. 1529 embodies the “registration in good faith as the operative act” doctrine, thus —
Sec. 51. Conveyance and other dealings by registered owners. — An owner of registered land may

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convey, mortgage, lease, charge or otherwise deal with the same in accordance with existing laws ... But no deed, mortgage, lease, or other voluntary instrument, except a will, purporting to convey or affect registered land shall take effect as a conveyance or bind the land, but shall operate only as a contract between the parties and as evidence of authority to the Register of Deeds to make registration. The act of registration shall be the operative act to convey or affect the land insofar as third persons are concerned, and in all cases under this Decree, the registration shall be made in the office of the Register of Deeds for the province or city where the land lies.

Abrigo v. De Vera,132 affirms that the rule in double sales under Article 1544, whereby the buyer who is able to first register the purchase in good faith “is in full accord with Section 51 of PD 1529 which provides that no deed, mortgage, lease, or other voluntary instrument — except a will purporting to convey or affect registered land, shall take effect as a conveyance or bind the land until its registration.”133 (1) Article 1544 Does Not Overcome the Priority Rules Under P.D. No. 1529. It should be emphasized that a clear distinction should be drawn between the term “registration” which is the judicial or administrative process by which a parcel of land is placed for the first time within the coverage of the Torrens system, from the term “registration” which is intended to cover the annotation or inscription of a contract, transaction or legal process in the Register of Deeds covering a property, which may or may not be registered land. Only the second meaning of “registration” is meant to be covered by the rules on double sales under Article 1544. More importantly, since the legal effect of registration under Article 1544 pertains only to double sales, the coverage
432 SCRA 544 (2004). Ibid, at p. 551. Also Carumba v. Court of Appeals, 31 SCRA 558 (1970); Radiowealth Finance Co. v. Palileo, 197 SCRA 245 (1991).
133 132

In other words. the registration principle under Pres. Court of Appeals. the rules on double sales under Article 1544 cannot formally be applied. mortgage. like lease. 3344. For example.PERFORMANCE OR CONSUMMATION OF SALE 257 and the effects of registration under Section 51 of Pres. as against the second buyer who bought the same property when it was already 134 135 323 SCRA 430 (2000). Decree No. Inc. 1459 has a wider scope. Another example is the decision in Naawan Community Rural Bank.. which provide that registration is the “operative act” by which dealings on registered land. agency designation. in case of successive registrations.134 held that when two certificates of title are issued to different persons covering the same land in whole or in part. the person holding a prior certificate is entitled to the land as against a person who relies on a subsequent certificate. 1459 cover not only sales contracts. the person holding title which was issued of an earlier date must prevail. v. etc. and thereby a more pre-emptive effect. Decree No. but all other forms of annotated voluntary contracts and transactions. and instead the particular doctrine under the Torrens System would apply. Liao v. 395 SCRA 43 (2003). shall be recognized as existing and binding upon third parties.135 where the Court held that invoking the rules on double sales and “priority in time” would be misplaced by a first buyer who bought the land not within the Torrens system but under Act No. . whether they be voluntary or involuntary. i. where more than one certificate is issued over the same land. contracts to sell. and.e. A reading of the various decisions of the Supreme Court on the matter clearly indicates that the rules of double sales under Article 1544 do not overcome nor pre-empt the specific rules under the Torrens system for registered land. Liao applied the principle under the Torrens system that a certificate is not conclusive evidence of title if the same land had been registered and an earlier certificate for the same is in existence. options. than the narrow double sales application of Article 1544 of the Civil Code. Court of Appeals.

Decree No. 3344 which is not effective form of registration under Article 1544 of the Civil Code. x x x..137 where the Court emphasized that the legal priority of registration of sale under Pres.258 LAW ON SALES registered under the Torrens System. De Vera. or other voluntary instruments affecting land not registered under the Torrens system shall be valid.” and that Sec. except as between the parties thereto. The Case for Unregistered Land If we consider that Act No. now provides that — Sec. 1529. unless such instrument shall have been recorded in the manner prescribed in the office of the Register of Deeds x x x. except when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make such inquiry.. 136 137 Ibid. 1529 cannot be overcome by an earlier registration under Act No. 113 of Pres. 113. conveyance. mortgage. b. . 432 SCRA 544 (2004). . Naawan Community Rural Bank held that the formal registration proceedings undertaken on the property and the subsequent issuance of a title over the land under the Torrens system had the legal effect of cleansing title on the property of all liens and claims which were not annotated therein. Recording of instruments relating to unregistered lands — No deed. at p. thus: “It is a well-known rule in this jurisdiction that persons dealing with registered land have the legal right to rely on the fact of the Torrens Certificate of Title and to dispense with the need to inquire further. It shall be understood that any recording made under this section shall be without prejudice to a third party with a better right. lease. The ruling in Naawan Community Rural Bank was reiterated in Abrigo v. 50. 3344 embodied the principle that “registration is without prejudice to a third party with a better right. Decree No.”136 In addition.

Who therefore is the “third 138 Dagupan Trading Co. De Vera. now Section 113 of the Property Registration Decree. This is the main reason why in many leading decisions. how would you consider the other line of decisions of the Supreme Court which have applied Article 1544 in situations where there has been double sales of unregistered land? 139 A reading (and re-reading) of the leading and relevant decisions of the Supreme Court covering double sales situations over unregistered land would lead to one clear conclusion: That the rules on double sales for immovables under Article 1544 are applicable to unregistered land. 39 Phil. Court of Appeals.” then such rules on double sales as found in Article 1544 would be applicable to unregistered land. Berenguer. 1459. Naval v. Inc. 139 Lichauco v. and thereby always favors the first buyer. the Supreme Court has declared that the rules on double sales under Article 1544 of the Civil Code have no application to unregistered land. . Pilapil. 3344. Roxas. 7 SCRA 452 (1963). 5 SCRA 781 (1962). 14 SCRA 179 (1965). 643 (1919). Carumba v. Dischoso v. Secondly. “first to possess in good faith” and the “person with the oldest title in good faith. but only insofar as they do not undermine specific rules and legislations that have a higher hierarchical enforcement value. potior jure. v. 113 of Pres. 197 SCRA 245 (1991). 3344 of protecting the “third party with a better right. Naawan Community Rural Bank. Macam. and now Section.” are consistent with the principle under Act No. The author posits that the better way to construe the principle “without prejudice to a third party with a better right” under Act No. if we accept that the two other rules found in Article 1544. v. 3344. Abrigo v. Hanopol v. v. Valerio. 395 SCRA 43 (2003).138 This sweeping statement has led to much confusion on the applicable rule when it comes to double sales of unregistered land. 9 SCRA 761 (1963). Firstly.PERFORMANCE OR CONSUMMATION OF SALE 259 then we would must come to the conclusion that the “first to register in good faith” rule under Article 1544 would be wholly inapplicable to unregistered land. Palileo. Court of Appeals. 31 SCRA 558 (1970). 432 SCRA 544 (2004). Decree No. is to say that it implements the primary doctrine of Prius tempore. such as the “without prejudice to a better right” provision under Act No. namely. Court of Appeals. Radiowealth Finance Co. Espiritu v. 483 SCRA 102 (2006).

Thus. 643 (1919). first to take possession in good faith). In the case at bar. . Consequently.. it was the prescriptive right that had supervened... at pp. 3344 is much more than the mere prior deed of sale in favor of the first vendee. Or. 7 SCRA 452 (1963). but rather a mode by which ownership is directly affected. there appears to be no clear evidence of Hanopol’s possession of the land in controversy. “was not shown to be a purchaser in bad faith.”142 140 141 39 Phil.260 LAW ON SALES party with a better right” for unregistered land? Is it always the first buyer under the concept of “oldest title in good faith” under Article 1544? In both Lichauco v. the first vendee can be said to have better right than the second purchaser. Berenguer. with the execution of the notarial deed of sale. 456-457. according to the trial court. if not actually and physically..141 the Court defined the buyer with a “better right” as more than just having in his favor an earlier deed of sale. other facts and circumstances exist which.. at least constructively. Hanopol alleged that the Siapos took possession of the same land under claim of ownership in 1945 and continued and were in such possession at the time of the filing of the complaint against them in 1948. . as also suggested in that case. even on this score. In the Lichauco case just mentioned.140 and Hanopol v. when they sold the said land to . Pilapil. such possession was transmitted to the latter.. appellee Pilapil . like acquisitive prescription or when one who has taken possession of the property bought either by actual or constructive delivery (i.. The Court thus held in Hanopol — It thus appears that the “better right” referred to in Act No. in addition to his deed of sale. Hanopol cannot have a better right than appellee Pilapil who.e. In fact. in his complaint against the vendors. since the Siapos were in actual occupancy of the property under claim of ownership.. 142 Ibid.

the second buyer was the highest bidder in the public auction of the same land. Court of Appeals. 144 31 SCRA 558 (1970). where rules under Article 1544 cannot overcome the particular provisions of the Rules of Court.144 had distinguished the applicability of Article 1544 depending on whether the land is registered under the Torrens system or is unregistered land. 1997 Rules of Civil Procedure).PERFORMANCE OR CONSUMMATION OF SALE 261 The consistent ruling of the Court that although registration under Act No. whereas. now under Section 113 of Pres. Bayoca v. Court of Appeals. Decree No. and yet registration by the first buyer under Act No. 483 SCRA 102 (2006). would have legal effect only when it is consistent with the principle of protecting “a third party with a better right. 3344 of his sale by the second buyer cannot of itself overcome the sale to the first buyer. Fule. 391 (1950). registration under Act No. the first buyer had a private deed of sale which was never registered. Nogales. the essence of the Carumba ruling is not that Article 1544 is wholly inapplicable to unregistered land. 3344 can have the effect of constructive notice to the second buyer that can defeat his right as a buyer in good faith.143 In other words. 3344. Carumba v.” which essentially refers to the first buyer in a double sales situation involving unregistered land. In Carumba. and merely acquires the latter’s interest in the property sold as of the time the property was levied upon. 3344. but that the specific provision of now Section 143 Bautista v.” as expressly provided for in then Section 35. For example. . and the sale to him was registered under Act No. 85 Phil. Rule 39 of the Revised Rules of Court on execution sale (now Section 33. but he took possession of the land. 1459. Rule 39. In other words. Carumba ruled that the provisions of Article 1544 granting priority to the buyer who registers in good faith over the other buyer who takes possession in good faith are inapplicable to unregistered land because “the purchaser of unregistered land at a sheriff’s execution sale only steps into the shoes of the judgment debtor. Naval v. Another situation covers the sale of unregistered land under a public auction sale. 340 SCRA 154 (2000).

246-247. Following this principle. 496) clearly provides that the act of registration is the operative act to convey or affect registered lands insofar as third person are concerned. this Court has time and again held that a purchaser in good faith of registered land (covered by a Torrens Title) acquires a good title as against all the transferees thereof whose right is not recorded in the registry of deed at the time of sale. Thus. Rule 39 of the 1997 Rules of Civil Procedure providing that the purchaser at public auction “shall be substituted to and acquire all the rights.” overrides the provision of Article 1544 when it involves unregistered land since under Act No.. at pp. title. Ibid. thus: .145 citing Carumba. 1529 (amending Section 50 of Act No.. Section 51 of Presidential Decree No. the provisions of Section 33.262 LAW ON SALES 33. if such transfer was unrecorded. a person dealing with registered land is not required to go behind the register to determine the condition of the property. 3344 registration of instruments affecting unregistered lands is “without prejudice to a third party with a better right. it is the act of registration that operates to convey and affect registered land. He is only charged with notice of the burdens on the property which are noted on the face of the register or certificate of title. in Radiowealth Finance Co. . interest and claim of the judgment obligor to the property as of the time of the levy. Palileo. the Court noted that under the Torrens system. and that therefore a bona fide purchaser of a registered land at an execution sale (in spite of the merely “stepping into the shoes of the judgment debtor” rule for public auctions done pursuant to the Rules of Court) acquires a good title as against a prior transferee. There is no ambiguity regarding the application of the law with respect to lands registered under the Torrens System. v. Rule 39 of the 1997 Rules of Civil 145 146 197 SCRA 245 (1991).” In contrast.146 Radiowealth Finance confirms the proposition that even in the purchase of registered land under levy on execution.

at p. Thus — . although coupled with possession. Espiritu v. and merely acquires the latter’s interest in the property sold as of the time the property was levied upon. But since Radiowealth Finance involved the issue of whether the rules in Article 1544 are applicable to an unregistered land purchased at a judicial sale recorded under Act No. 496. . 1955. the earlier unregistered sale. appellants’ contention that they have a better right than that claimed by appellee would seem to be meritorious in the light of the facts of the case and the provisions of Article 1544 of the New Civil Code. Decree No.. Ibid. emphasis supplied.” nevertheless the subsequent discussions in the decision meant to cover only the situation where the subject unregistered land was first sold by conventional sale. cannot overturn the effect of the registration in good faith of the second judicial sale. in which case again the provision of now Section 33. Rule 39 of the 1997 Rules of Civil Procedure would be made to apply. which was earlier sold by the judgment debtor in a conventional sale. but unrecorded.147 held that where the owner sold his a parcel of unregistered land to two different parties — assuming that both sales are valid — the buyer whose deed of sale was first registered under the provisions of Act No.PERFORMANCE OR CONSUMMATION OF SALE 263 Procedure cannot overturn the specific provisions of Pres. the Court again upheld the principle in Carumba. Valerio.148 147 148 9 SCRA 761 (1963). If both are valid.” Although an obiter. and subsequently sold by public auction. since “the purchaser of unregistered land at a sheriff’s execution sale only steps into the shoes of the judgment debtor. 1529. 763. 3344. it not being disputed that the Deed of Sale in favor of the appellee was registered under the provisions of Act 3344 on June 16.. while Exhibits 1 and 2 were similarly registered eleven days before. Although Radiowealth Finance declared that “Article 1544 of the Civil Code has no application to land not registered under Act No. which provide that it is registration that is the operative act to convey or affect registered lands. and therefore. 3344 would have a better right.

Under that same global set of rules on double sales. and what should determine the rights of the second buyer would be the then Section 35. Pres. Rule 39 of the Revised Rules of Court on execution sale. while the other was an execution sale in favor of the judgment creditor of the owner made after the same property had been registered and issued a title “free from all liens and encumbrances. Macam. cannot apply to unregistered land. 1529). where Article 1544 is only a component. this rule was demonstrated in Dagupan Trading Co. v. providing for absolute first priority to the buyer who has it in his favor. the second buyer at the execution sale actually bought nothing since the judgment debtor no longer had rights to the property previously sold.” Article 1544 should not apply. 14 SCRA 179 (1965). except for the fact that the first sale involved the land itself.264 LAW ON SALES In Dischoso v. This particular rule. .e. the principle embodied in the Rules of Court as to the risk being taken by the highest bidder. registration in good faith under the Torrens system (i. Roxas. while the second sale involved the right to repurchase the said land. for obvious reasons. Global Rules on Double Sales In a global set of rules on double sales. Dagupan Trading admitted that “[i]f the property covered by the conflicting sales were unregistered land [then the first 149 150 5 SCRA 781 (1962). which would overcome the rules provided for in Article 1544.149 the substantive discussions in the decision presumed that Article 1544 would have been applicable to the double sales of an unregistered coconut land. Decree No.. But because registration for registered land has the highest priority. Oddly enough. occupy the second highest priority rule.150 which held that where one of the two conflicting sales of a piece of land was executed before the land was registered. is considered to be of the highest order. 4. Such a position of the Court meant that since the land was previously sold to the first buyer. this second rule can pertain only to cases involving unregistered land.

were the land involved in the conflicting transaction was a duly registered land. with the first buyer having registered his purchase under Act No. and the second buyer subsequently being able to obtain a title by having the land registered under the Torrens system. which provides for the registration of all instruments on land neither covered by the Spanish Mortgage Law or the Torrens system. 3344. .151 where both buyers bought the same parcel of land from the same seller when it was still unregistered land. Court of Appeals. and held that the registration contemplated under this provision has been held to refer to registration under the Torrens system. that Article 1544 had no application to double sales which both covered the same unregistered land at the time of both sales. and introduced considerable improvements thereon. especially when the first buyer “took possession of the land conveyed as owner thereof. What the Court held applicable was the rules on double sales of unregistered land under Act No. the second buyer at public auction would prevail since “the registration of the deed of sale is the operative act that gives validity to the transfer. and therefore the provisions of then Section 35. and that the registration of an instrument involving unregistered land in the Registry of Deeds creates constructive 151 483 SCRA 102 (2006). which considers the act of registration as the operative act that binds the land. the Court held that the case did not fall in either cases. 3344. Rule 39 of the Rules of Court were applied in direct conflict with the provisions of the Torrens system that guaranteed the title to the land. The Court considered the subsequent registration of the land as a technicality that could not cancel and render ineffective the previous unregistered sale and conveyance of title and ownership in favor of the first buyer. Under that law.” whereas.” Nevertheless.PERFORMANCE OR CONSUMMATION OF SALE 265 buyer] would undoubtedly have the better right in view of the fact that his claim is based on a prior sale. The Court held in Naval.” The Dagupan Trading ruling found application in Naval v. registration by the first buyer is constructive notice to the second buyer that can defeat his right as such buyer in good faith.

3344. Court of Appeals. what does the first rule under Article 1544 on “first to register in good faith” still cover? This is where things become truly confusing based on the conflicting decisions of the Court. Inc. the Court held that it cannot detract from the fact that she acquired the land as unregistered land. Under a global set of rules pertaining to double sales. v. although the second buyer was able to register the land under the Torrens system. The rulings in Dagupan Trading and Naval cover unusual cases. with constructive knowledge of the previous sale which was deemed to have placed her in bad faith. Fule. the rulings in Dagupan Trading and Naval are diametrically opposed to the rulings in Naawan Community Rural Bank and Abrigo discussed above. The Court clarified that the issue of good faith or bad faith of the buyer under Article 1544 or that under the Property Registration Decree is relevant only where the subject of the sale is registered land and the purchaser is buying the same from the registered owner of whose title to the land is clean. 85 Phil. and her act of registration under the Torrens system cannot cleanse her title of defect that it carried under the provisions of Act No. 391 (1950). with registration under the Torrens system and the rule on public auction sales under the Rules of Court.266 LAW ON SALES notice and binds third person who may subsequently deal with the same property. the particular rules provided under Article 1544 take only third rung. 395 SCRA 43 (2003).152 In Naval. constituting equitable exception to the basic tenets laid down in Carumba and Radiowealth Finance. . More importantly. cited in Naawayan Community Rural Bank. but in fact she was the one who had the land subsequently registered. the second buyer did not buy the land from a registered owner thereof. coming in first and second. In Naval. respectively. There is a line of decisions that says that the “first to register in good faith” rule in Article 1544 covers precisely the “absolutely first” rule of registration being the operative fact under the Torrens 152 See also Bautista v. If this were the case.

but includes priority rules covering other forms of transactions. and yet the Court has applied the “first to register in good faith” rule for double sales involving unregistered land. “chain of title” theory). In his concurring opinion in Carbonell v. . nor of the specific rules on auction sale under the Rules of Court. although of utmost priority application. Decree No.” is embodied within the “oldest 153 Bautista v. it must be observed that the principle of “registration in good faith as the operative act. Decree No. 1459 covers even contracts to sell and other processes within the policitacion stage and will even protect the title of a purchaser in good faith and for value who derives his title from one who had void title (i. since the provisions of Article 1544. 85 Phil. The author offers no clear solution to these issues. like attachment and executions. Decree No. Nogales. For whatever it is worth. the rules on double sales under Article 1544 of the Civil Code are strictly applicable to double sales only when they are valid and demandable and the issues arise only at the consummation stage. involuntary dealings with registered land. and has no application to unregistered land. As pointed out earlier. Fule. one has to go through the tests provided in Article 1544 before one may apply the main rule of prius tempore. priority in right. goes beyond contracts of sale. although not the main rule.. the priority rule under Pres. however. potior jure. Bayoca v. the “first in time.e. Whereas. 154 69 SCRA 99 (1976). encumbrances. 1459.e. constitute nevertheless the primary rule. 391 (1950). is that the main rule is not the primary rule.” under Pres.PERFORMANCE OR CONSUMMATION OF SALE 267 system. which is “First in time. Court of Appeals. Court of Appeals.. i. Naval v. 340 SCRA 154 (2000). 1546. The other position holds that the rules embodied in Article 1544 of the Civil Code presume that the issues to be resolved do not fall within the priority rules of the Torrens system under Pres.153 albeit in favor of first buyer. priority in right. like liens. 483 SCRA 102 (2006).154 then Justice Teehankee had explained that Article 1544 is not the only rule pertaining to double sales.” The peculiarity of it all. as in fact the main rule is essentially a principle not embodied directly in a statutory provision. In addition.

155 without giving due acknowledgment to the author. The foregoing requisites of “double sales” were quoted directly by the Court in Cheng v. a. the rule “first in time. . Essential Elements for Applicability of Article 1544 Whether the subject matter of double sales be movable or immovable.” would occupy the bottom rung. or at least be voidable. Nonetheless. (b) The two (or more) sales transactions must pertain to exactly the same subject matter. (c) The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests. This is a critical requirement because the rules under Article 1544 being applications of rules of delivery at consummation stage. 5. priority in right. in a case where one of the 155 300 SCRA 722 (1998). can operate only from the premise that tradition was effected “as a consequence of a valid sale. Nature of Two Sales Involved For Article 1544 test to even apply. jurisprudence has confirmed that for the provisions of Article 1544 to apply. in a global rule of double sales.” Thus. sales.268 LAW ON SALES title in good faith” provided in Article 1544. which is a concept developed hereunder. both sales involved in the dispute must be valid. the following requisites must concur: (a) The two (or more) sales transactions must constitute valid sales. and (d) The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller. Genato.

having been registered in bad faith. thus — The fact that the second contract is not considered void under Article 1409 and that Article 1544 does not declare void a deed of sale registered in bad faith does not mean that said contract is not void. Court of Appeals.” In effect. much less delivery of the subject matter. v. Jr. Article 1544 specifically provides who shall be the owner in case of a double sale (sic) of an immovable property. 158 Ibid. Article 1544 will be meaningless. Jr. Otherwise. considered the failure of the second buyer to comply with the registration requirement under Article 1544 in good faith to make his sale void. Inc. 9 SCRA 761 (1963). at p. 19.e. Caram. Also San Lorenzo Dev. the provisions of Article 1544 were held to be inapplicable. Jr. 449 SCRA 99 (2005).PERFORMANCE OR CONSUMMATION OF SALE 269 sales was void for having forged the signature of the seller. otherwise. v. To give full effect to this provision. The proper doctrine in Caram.158 Since Article 1544 provides for rules on tradition. Laureta. tradition pursuant to a void contract would not create any legal effect.156 We therefore look with rabid curiosity at the pronouncement in Caram. the attempt to transfer ownership in the person of the second buyer would 156 Espiritu v. 157 103 SCRA 7 (1981). 533 SCRA 350 (2007). Corp.157 where in a double sales situation it held that that “the second contract of sale.. are matters that go into consummation and cannot legally affect the status of a sale valid at perfection. Valerio.. Registration. the status of the two contracts must be declared valid so that one vendee may contract must be declared void to cut off all rights which may arise from said contract. Cattleya Land. Article 1410 of the Civil Code of the Philippines provides that any action or defense for the declaration of the inexistence of a contract does not prescribe. is that the attempt to deliver the subject matter pursuant to a second valid sale would not produce the legal effects of delivery (i. Fudot v. is null and void. it must operate under the premise that the contracts upon which the rules are to operate would have to be valid contracts. .

under a deed of absolute sale.160 what were involved were the sales by the owner of the same parcel of land to two buyers: the first buyer under a conditional sale. Alindogon. which was good only for 30-days. Sr. did not grant to the first buyer any advantage because “[a] preventive precautionary notice only protects the interests and rights of the person who secures it against those who acquire an interest in the property subsequent thereto. only for a period of 159 160 Torrecampo v. and then.”161 The Court also held that the registration of the adverse claim. such as when one or both the contracts in dispute are contracts to sell. and the failure of the seller to effect proper delivery does not render the contract void.159 In the early case of Mendoza v. In any event. before the performance of the condition. but merely constitutes a breach as the basis for rescission. they have no application when the covered valid contracts are not yet demandable sales. the first buyer obtained an “anotacion preventiva” (now equivalent to an adverse claim). Applicability of Rules on Double Sales to Contracts to Sell and Adverse Claims Since the rules on double sales are rules pertaining to tradition at consummation stage. The second buyer paid the purchase price and obtained possession of the property.. and can be rescinded for breach of the obligation to deliver. but the second contract itself would remain a valid contract. especially where the condition has not been performed or complied with. 42 Phil. at p. Kalaw. 236 (1921). The lack of ownership on the part of the seller does not affect the validity of an otherwise valid sale. 517 SCRA 84 (2007). and the second buyer. can hardly be said to be a sale of property. 161 Ibid. b. Mendoza held that the rules on double sales under the then Article 1473 of the old Civil Code were not applicable on the ground that there was no double sales situation since the first sale was a conditional sale: “[A] conditional sale.270 LAW ON SALES produce no legal consequences). 238. .

164 where the first sale was under a “Deed of Conditional Sale. Coronel v. could prevail over the subsequent consummated absolute contracts of sale effected in favor of the lessees who have refused to vacate the premises. the ruling that a conditional sale does not constitute a sale for the application of the rules on double sales under Article 1544 has likewise been abrogated in Andalin v. The Court ruled that it is essential to distinguish a contract to sell and a conditional contract of sale. More importantly. otherwise it would be equivalent to sanctioning the performance by the seller of his obligations under the deed subject to his own will and caprices.” In Adalin. 165 263 SCRA 15 (1996). It cannot affect the rights or interest of persons who acquired an interest in property theretofore. Likewise.165 earlier held that Article 1544 on double sales does not apply where the earlier sale is a contract to sell. which required the seller to eject the existing lessees on the property sold. 69 SCRA 99 (1976). Court of Appeals. at p. The Court held that the non-compliance by the seller of the undertaking to eject the lessees cannot be considered a legal justification for him to renege on the first sale. the Court applied the provisions of Article 1544 on double sales and held that the subsequent buyers were already aware of the first conditional sale and therefore they were in bad faith. 164 280 SCRA 536 (1997). and that seller cannot employ his own failure to comply with his undertaking to justify his obligation under the conditional sale.”162 The pronouncements in Mendoza on the non-effect of an adverse claim have of course been clarified by the ruling in Carbonell v. . 162 163 Ibid. 239.” while the second sale was under “Deeds of Sale of Registered Land.163 where the annotation of the adverse claim by the first buyer was deemed to be equivalent to the registration required under Article 1544. In contrast. the Court had to resolve the issue of whether the first unconsummated conditional sale. Court of Appeals.PERFORMANCE OR CONSUMMATION OF SALE 271 thirty days. and their knowledge of the first sale gave preference to the first sale. Court of Appeals.

of course.166 It seems therefore. may be sued for damages by the intending [first] buyer. . that the distinction has further been blurred by the Court in Cheng v. cannot be deemed a buyer in bad faith and the prospective [first] buyer cannot seek the relief of reconveyance of the property. but to a third person. thus: In a contract to sell. 166 167 Ibid.167 as being effectively “the first in time. are lacking in a contract to sell — .168 In that case. and the buyer under the contract of sale albeit conditional is always preferred. at p. there being no previous sale of the property. as distinguished from a conditional contract of sale. 168 300 SCRA 722 (1998). the rules of Article 1544 on double sales do not apply.272 LAW ON SALES especially in cases where the subject property is sold by the owner not to the party the seller contracted with. for instance. namely that there must be valid sales transactions. Corp. 28. The contract to be binding upon the obligee or the vendor depends upon the fulfillment or non-fulfillment of an event. a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price. Genato. that when one of the sales is a contract to sell. San Lorenzo Dev. however. for neither a transfer of ownership nor a sales transaction has been consummated. v.. 449 SCRA 99 (2005). but the latter. the Court held that the rules on double sales under Article 1544 are not applicable to a contract to sell because of the circumstances that must concur in order for the provisions to Article 1544 on double sales to apply. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller’s title per se. There is no double sale in such case.” It is interesting to note. Court of Appeals.. and buyers must be at odds over the rightful ownership of the subject matter who must have bought from the very same seller.

PORTIOR JURE (first in time. Reiterated in Ong v. and the other buyer bought the right to redeem the same parcel of land. Article 1544 was deemed to be inapplicable. 34 Phil.PERFORMANCE OR CONSUMMATION OF SALE 273 Notwithstanding this contrary finding [that it is a contract to sell] we are of the view that the governing principle of Article 1544. who in turn bought it from Mr. would be considered as “first in time. There Must Be “Sameness” of Subject Matter In a case where one buyer bought the parcel of land. For not only was the contract between herein respondents first in time. stronger in right). 17 (1916). it was also registered long before petitioner’s intrusion as second buyer. Seller. 789-790 (1962). Civil Code. There Must Involve the Same Seller In a case where Buyer 1 bought the thing from Mr. Solera v. at p. 530 SCRA 432 (2007). This principle only applies when the special rules provided in the aforecited article of the Civil Code do not apply or fit the specific circumstances mandated under said law or by jurisprudence interpreting the article. successors and predecessors-in-interest theories are not applicable to be able to obtain application of the provisions of Article 1544. 171 Cruzado v. 5 SCRA 781. 170 169 . should apply in this situation.” c. X. Rodaje. the issue between Buyer 1 and Buyer 2 cannot be resolved by using the provisions of Article 1544 since they do not have the same immediate seller. 485 SCRA 464 (2006). but the right to redeem. Olasiman. 740.170 d.171 As will be noted.169 The Cheng ruling can only be interpreted to mean that the contract to sell whereby the suspensive conditions are first fulfilled. Seller. Dischoso v. Jurisprudence teaches us that the governing principle of PRIMUS TEMPORE. because the subject of the second sale is not the land itself. Bustos. Ibid. and the contending Buyer 2 bought the same subject matter from Mr. Roxas.

. 174 69 SCRA 99 (1976). the second purchaser cannot acquire any right. 530 SCRA 432 (2007). it covers a situation where a single vendor sold one and the same immovable property to two or more buyers. Court of Appeals. this requisite has been reiterated lately in Consolidated Rural Bank (Cagayan Valley). Reiterated in Sigaya v.. citing C. who race against each other to comply with the hierarchical modes provided for in said article to have preferential right over the subject matter. And even if the sale was made by the same person. VILLANUEVA. who in addition to paying cash to the Seller also updated the mortgage lien on said land with the mortgagee bank. PHILIPPINE LAW ON SALES. it is necessary that the conveyance must have been made by a party who has an existing right in the thing and the power to dispose of it. 360. Ong v. Rodaje. Court of Appeals. This is not so. as explained in Carbonell v. in a manner of speaking. a contest between two buyers. A week later.. Article 1544 Is Not a Contest Between Two Protagonists Running the Same Race When one reads the language of Article 1544 one may be led to believe that the rules govern. It cannot be invoked where the two different contracts of sale are made by two different persons.274 LAW ON SALES Although a number of decisions have been rendered by the Court applying Article 1544 principles even in case of successive sales from the same original seller. 173 Ibid.174 In Carbonell. 467 SCRA 341 (2005). More specifically. because it had been acquired by the first purchaser in full dominion. 100 (1995). one of them not being the owner of the property sold. Inc. Reiterated in Solera v. Mayuga. 485 SCRA 464 (2006). v. at p. the Seller sold under a private instrument a registered parcel of land to Buyer 1. the Seller sold the same 172 448 SCRA 347 (2005). if the second sale was made when such person was no longer the owner of the property. Olasiman.173 e. .172 where the Court held — [The provisions of Article 1544 of the Civil Code] contemplate a case of double or multiple sales by a single vendor.

When the Buyer 1 learned of the sale to Buyer 2. The principle comes out more clearly by reading the separate opinion of then Justice Teehankee. who took possession thereof. Buyer 2 who may have entered into the sale in good faith. the Buyer 1 under Article 1544 does not start from the same level as the subsequent buyers of the same subject matter. Being the first buyer. who starts his reasoning from the premise that both Buyer 1 and Buyer 2 were purchasers in good faith at . In ruling for Buyer 1. Subsequently. Buyer 1’s recording of the adverse claim should be deemed to have been done in good faith and should emphasize Buyer 2’s bad faith when she registered her deed of sale thereafter. he registered an adverse claim on the title of the land with the Registry of Deeds. Buyer 1’s good faith subsisted and continued to exist when she recorded her adverse claim prior to the registration of Buyer 2’s deed of sale. would become a buyer in bad faith by his subsequent acquisition of knowledge of the first sale. the Court in the main decision held that when Buyer 1 bought the lot from the Seller. Buyer 1 always has priority rights over subsequent buyers of the same property. Buyer 1’s prior purchase of the land was made in good faith. she was the only buyer thereof and the title of Seller was still in his name solely encumbered by a bank mortgage duly annotated thereon. As culled from the reasoning in the main decision of Carbonell. especially when the main decision imputed bad faith on the part of Buyer 2 even at the time she entered into the second sale over the property. In other words. despite his subsequent acquisition of knowledge of the second or subsequent sale.PERFORMANCE OR CONSUMMATION OF SALE 275 parcel of land to Buyer 2. Such a state of affairs does not clearly come across from a reading of the Carbonell main decision. But the good faith of Buyer 1 remains and subsists throughout. Whereas. Hence. Buyer 1 was not aware — and she could not have been aware — of any sale to Buyer 2 as there was no such sale to Buyer 2 then. Buyer 1 necessarily is in good faith compared to the second or subsequent buyer. Buyer 2 registered his sale. Nor did Buyer 1’s good faith cease when she found out earlier of the subsequent sale to Buyer 2.

to register first her purchase as against the second buyer. Parungao. The second buyer must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership through prior registration as provided by law. 472 SCRA 241 (2005). 535 SCRA 123 (2007). 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.e. stronger in right).175 In essence. . The Carbonell principle in applying Article 1544 can be likened to a race where it is only Buyer 2 who must run the track and achieve certain goals in order to dislodge Buyer 1 who already 175 Ibid. Tanglao v. Reiterated in Ulep v. at pp. but posits the main rule prius tempore. among them.. potior jure (first in time. thus: The governing principle here is prius tempore. since such knowledge taints his prior registration with bad faith. Court of Appeals.276 LAW ON SALES the respective dates of their purchases. if he wishes to obtain preference of title to the subject matter. Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights except only as provided by the Civil Code and that is where the second buyer first registers in good faith the second sale ahead of the first. in ignorance of the first sale and of the first buyer’s rights) — from the time of acquisition until the title is transferred to him by registration or failing registration. potior jure. Such knowledge of the first buyer does not bar her from availing of her rights under the law. 122-123. he must show that he acted in good faith throughout (i. then Justice Teehankee indicated that the positive steps provided under Article 1544 are directed to Buyer 2. 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. but not to Buyer 1 because he is already by the rule of “first in time priority in rights” the preferred buyer. by delivery of possession.

for there is no way that legally Buyer 2 can topple Buyer 1 from the winner’s box. Buyer 1 can knowingly or unknowingly finish the race in his favor by simply registering his sale. or take possession of the property without knowing of the first sale and before Buyer 1 takes possession thereof. Buyer 2. 129 SCRA 656 (1984). On the other hand. even if Buyer 1 learns of the second buyer. that practically ends the race. Buyer 1. the only way by which Buyer 2 can win the race at the prescribed manner under Article 1544 is not to know during the race that he is in a race against Buyer 1 who merely sits or stands on the winner’s box without registering his own sale. Cruz v. without knowing that there is already a winner. i. And yet. the decision in Caram.177 seem to point out that Buyer 1 never even has to leave the winner’s box in order to end the race by having to register his sale. Cabana. If Buyer 1 registers his sale now aware of Buyer 2.PERFORMANCE OR CONSUMMATION OF SALE 277 stands at the winner’s box. he must register his sale without knowing of the first sale and before the first sale is registered.. v. Practically. Jr. The only manner by which Buyer 1 by doing nothing could possibly lose is for Buyer 2 to register his sale before the second buyer learns of the first buyer. In those cases it was ruled that the knowledge of the first unregistered sale by Buyer 2 ends the race altogether either because (a) the 103 SCRA 7 (1981). Buyer 1 can end the race by registering his sale. 177 176 . Buyer 1 is basically the winner of the race without doing anything. Gatmaitan v. Court of Appeals.e. Court of Appeals. even as Buyer 2 runs the race (without actually knowing that he is in a race with the first buyer). 200 SCRA 37 (1991). by the fact that he is the first buyer. Laureta. Vda. de Jomoc v. In further refinement of the Carbonell doctrine on the main rule of priority in time. Buyer 1 just need to draw the attention of the second buyer as to his (Buyer 1’s) existence. Somehow.176 and subsequent rulings. must run the race in a prescribed manner to win. so long as Buyer 2 has not registered his sale. 200 SCRA 74 (1991). because his good faith remains throughout. That is why the specification of “good faith” in Article 1544 is addressed only to the second or subsequent buyer.

183 340 SCRA 154 (2000). 181 278 SCRA 702 (1997).. . as the case may be. knowledge of the second unregistered sale by Buyer 1 is not equivalent to registration in favor of Buyer 2 because the act required of the second buyer under Article 1544 seems to be a positive act of registration or taking of possession. by delivery of possession. 179 263 SCRA 15 (1996). 180 Ibid.e. Spouses Mabanta. when the second buyer. at p. when it held that “before the second buyer can obtain priority over the first.178 As summarized by Justice Melo in Coronel v. 69 SCRA 99 (1976). or (b) knowledge of the first sale makes Buyer 2 one in bad faith. acquires possession of the property ahead of the first buyer. the exception being: (a) when the second buyer. Court of Appeals. Unless. at p. title or ownership will not transfer to him to the prejudice of the first buyer. 182 Ibid. 663 (1984). provision on double sale (sic) presumes title or ownership to pass to the first buyer. Nogales. 399 SCRA 573 (2003)..180 Uraca v. and (b) should there be no inscription by either of the two buyers. the second buyer must act in good faith in regis178 Carbonell v. in good faith. 358 SCRA 38 (2001). ignorance of the first sale and of the first buyer’s rights) — from the time of acquisition until the title is transferred to him by registration or failing registration. he must show that he acted in good faith throughout (i. before he learns of the first sale. On the other hand. 37. Caban. but see dissenting opinion of Justice Muñoz-Palma. Court of Appeals.181 summarized it succinctly... Court of Appeals. Court of Appeals:179 The . registers the sale ahead of the first buyer.. 712.278 LAW ON SALES knowledge by Buyer 2 of the first sale is equivalent to registration in favor of Buyer 1. the second buyer satisfies these requirements.183 held that “to merit protection under Article 1544 . See also Martinez v. in good faith. quoting from Cruz v. Gabriel v.”182 Bayoca v. 129 SCRA 656. and only a good faith second buyer is qualified to run the race.

Thus. Corp. Peculiar Developments The rather well-established Carbonell doctrine seems to be undergoing indirect erosions by the obiter ruling in San Lorenzo Dev. v.185 it was held that by applying Article 1544.PERFORMANCE OR CONSUMMATION OF SALE 279 tering the deed. at pp. that is. .”187 The Court thereby decreed the annotation of lis pendens by the first buyer as ineffective to overcome the previous possession acquired in good faith by the second buyer. f. the registrant must have no knowledge of the defect or lack of title of his vendor or must not have been aware of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.186 where the Court held that the provisions of Article 1544 presented an actual race between the two buyers in equal level. Impliedly included in the ruling is that the annotation of lis pendens by the first buyer 184 185 Ibid. such second buyer cannot defeat the first buyer’s title.”184 In Escueta v. and if title has been issued to the second buyer. 186 449 SCRA 99 (2005). Court of Appeals. it has been held that in cases of double sale[s] of immovables. a second buyer of the property who may have had actual or constructive knowledge of such defect in the seller’s title cannot be a registrant in good faith. 187 Ibid. at p. the act of registration must be coupled with good faith — that is. Verily. 512 SCRA 411 (2007). without knowledge of any defect. in the title of the property sold. thus: “When the thing sold twice is an immovable. what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith. both made in good faith. because the annotation was done at the time when first buyer already knew of the second sale. 166. the one who acquires it and first records it in the Registry of Property. the first buyer may seek reconveyance of the property subject of the sale. shall be deemed the owner. 115-116. Lim.

at pp. g. v. 191 295 SCRA 556 (1998). often even against the owner of the property who had acted with negligence. 123-124.. 449 SCRA 99 (2005). without knowledge of any defect in the title of the property sold. (1) Burden of Proof Mathay v. a buyer in good faith and for value. 190 189 . Court of Appeals. Portic v. 431 SCRA 116 (2004). Mabanta. is contrary to the established principle that by the annotation of the lis pendens the second buyer is deemed to have learned of the first sale. with notice of a flaw. Corp. Court of Appeals. Cristobal.”188 As the Court said in Occeña v. What is material is whether the second buyer first registers the second sale in good faith.”190 This seems to be in conformity with the principle in the Law on Property that the law will protect an innocent purchaser.. i. 399 SCRA 573 (2003). 546 SCRA 577 (2005). i. v. The defense of indefeasibility of a Torrens title does not extend to a transferee who takes the certificate of title in bad faith. he who asserts the status of a purchaser in good faith and for value.189 “[i]n all cases [of double sales].e. it would be important to note that each of the tests that have to be hurdled by the second or subsequent buyer must be done in “good faith. Reiterated in Consolidated Rural Bank (Cagayan Valley). Who Is Purchaser in Good Faith? Since the tests provided for in Article 1544 are really addressed to the second or subsequent buyers. Corp. has the burden of proving such assertion. Alfredo v. Esponilla.280 LAW ON SALES cannot qualify to be equivalent to the requisite of registration under Article 1544. Court of Appeals. good faith is essential. Inc. 404 SCRA 145 (2003). 448 SCRA 347 (2005).e. Ibid. San Lorenzo Dev. Borras. It is the basic premise of the preferential rights granted to the one claiming ownership over an immovable. This particular obiter ruling in San Lorenzo Dev. which is equivalent to registration in favor of the first buyer.191 held that as a rule. This onus probandi cannot 188 Gabriel v.

. 324 SCRA 126 (2000). Ong. i. Samson.PERFORMANCE OR CONSUMMATION OF SALE 281 be discharged by mere invocation of the legal presumption of good faith. Court of Appeals. Court of Appeals. at pp. San Roque Realty and Dev. Court of Appeals. 382 SCRA 130 (2002). Heirs of Aguilar-Reyes v. Corp. Corp. Cruz. quoting from Co v. Millena v. 261 SCRA 128 (1996). 532 SCRA 493 (2007). Universal Robina Sugar Milling Corp. 196 Ibid. 535 SCRA 123 (2007). (2) Requisite of Full Payment Agricultural and Home Extension Dev. Portic v. Raymundo v. 366 SCRA 324 (2001). v. Spouses Mijares. 565-565. Heirs of Aguilar-Reyes v. 382 SCRA 130 (2002). it actually includes as an element of good faith that there must be full payment on the part of the buyer.194 where the Court held that it is anxiomatic that good faith is always presumed in the absence of any direct evidence of bad faith. 421 SCRA 310 (2004). Mathay v. Tanongon v. 546 SCRA 577 (2005).197 192 Reiterated in Tsai v. The element of having paid in full as part of good faith determination has since been consistently reiterated in subsequent Supreme Court rulings. 389 SCRA 316 (2002). Court of Appeals. Court of Appeals. Court of Appeals. 298 SCRA 388 (1998).193 and Ten Forty Realty and Dev.e. 485 SCRA 346 (2006). Reiterated in Diaz-Duarte v.”196 If we take a close look at the definition given. Aguirre v. 295 SCRA 556 (1998). 194 410 SCRA 484 (2003). Court of Appeals. v. Court of Appeals. 196 SCRA 705 (1996). 197 Veloso v. Balatbat v. v. 260 SCRA 593 (1996). 526 SCRA 514 (2007). Cristobal. 195 213 SCRA 563 (1992). Galvez v. Spouses Mijares. 193 247 SCRA 336 (1995). 410 SCRA 97 (2003). Diaz-Duarte v. 410 SCRA 97 (2003). 298 SCRA 388 (1998). Heirs of Angel Teves. Tanglao v. Republic. Ong. Court of Appeals. Samson. Court Appeals. Bondong. Tanongon v.195 defines a “purchaser in good faith” as “one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. . Parungao. Group v.192 Reference must be made however to the isolated rulings in Santiago v. that everyone is presumed to act in good faith.

whether or not the occupants possess the land en concepto dueño. expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the occupants. Also Modina v.. Nevertheless. As is the common practice in the real estate industry. thus: .e. it is also a firmly settled rule that where there are circumstances which would put a party on guard and prompt him to investigate or inspect the property being sold to him. Court of Appeals. it would 198 295 SCRA 556 (1998). Should he find out that the land he intends to buy is occupied by anybody else other than the seller who. (3) Obligation to Investigate Known Facts Mathay v. he may do so only when he acts with equity. as in this case. it is. The doctrine is also consistent with the bilateral-reciprocal nature of contracts of sale: that a party to a sale cannot demand fulfillment from the other when he himself is in default or not ready to comply with his own obligation. Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of title. 317 SCRA 696 (1999). such as the presence of occupants/tenants thereon. an ocular inspection of the premises involved is a safeguard a cautious and prudent purchaser usually takes. Court of Appeals. i..282 LAW ON SALES This concept of good faith including the requisite of the buyer having paid in full the purchase price may seem contrary to wellestablished principle that the effects of tradition over the subject matter are unhindered by the fact that the buyer has not paid the purchase price. in the concept of owner.198 also discussed the principle that actual lack of knowledge of the flaw in title by one’s transferor is not enough to constitute a buyer to be in good faith. is not in actual possession. which is that he is an innocent purchaser for value and in good faith. of course. .. since the operative doctrine under Article 1544 is that the second or subsequent buyer is being granted an opportunity to take the subject matter from the clutches of the first buyer by positive act.

575-576. In Expresscredit Financing a mortgage was constituted on a parcel of land which had previously been sold to the first buyer who took possession and enjoyment thereof without having registered his purchase.PERFORMANCE OR CONSUMMATION OF SALE 283 then be incumbent upon the purchaser to verify the extent of the occupant’s possessory rights. to ascertain whether the property being offered as security for the debt has already been sold to another to prevent injury to prior innocent buyers. 202 473 SCRA 570 (2005). because it would be standard in his business. Heirs of AguilarReyes v. the mortgagee is charged with greater diligence that ordinary buyers or encumbrances for value. 382 SCRA 130 (2002). Spouses Mijares. as a matter of due diligence required of banks and financing companies.”199 As held in Aguirre v. but are obliged to enter upon an investigation of the actual condition and occupants of the subject property.202 expressed the special rule that applies to persons or entities who regularly engage in dealing with real estate. The mortgagee who eventually ended buying the property at the public auction held for the foreclosure of the mortgage. Court of Appeals. Escueta v. Velasco. v. Parungao. including real estate loans. Court of Appeals. Samson. was deemed not eligible to claim to be a buyer in good faith when his business was in the constructing and selling townhouses and extending credit to the public. They cannot simply rely upon the title. The failure of a prospective buyer to take such precautionary steps would mean negligence on his part and would thereby preclude him from claiming or invoking the rights of a “purchaser in good faith.200 a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard. 535 SCRA 123 (2007). 201 Reiterated in Tanongon v. 533 SCRA 451 (2007). 410 SCRA 97 (2003). at pp. The Court held that in such an instance. . Reiterated in Tanglao v.201 (4) Special Rule on Real Estate Market Players Expresscredit Financing Corp. Bermudez v. 199 Ibid. 512 SCRA 411 (2007). 200 421 SCRA 310 (2004). and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor. Lim.

Esponilla. 208 Ibid. Uy. Parungao. 204 203 . Their only purpose was to give notice to third persons and to the whole world that any interest they might acquire in the property pending litigation would be subject to the result of the suit. 408 SCRA 291 (2003). the buyer can hardly be regarded as a buyer in good faith. Bondong. Heirs of Ramos Durano. 344 SCRA 238 (2000). 205 422 SCRA 101 (2004). Tanglao v. De Roxas v.206 The rule is settled that a buyer of real property which is in the possession of persons other than the seller must be wary and should investigate the rights of those in possession. 358 SCRA 38 (2001). Heirs of Celestial. Reiterated in Heirs of Severa P. the purchaser must go beyond the certificate of title and make inquiries concerning the rights of the actual possessor. and the fact that there were already occupants on the property should put a buyer on inquiry as to the nature of the occupant’s right over the property. Raymundo v. 30 SCRA 565 (1998). 206 Reiterated in Occeña v. Court of Appeals.207 (6) Existence of Lis Pendens Agricultural and Home Extension Dev. Consolidated Rural Bank (Cagayan Valley). Court of Appeals. Heirs of Celestial v. otherwise without such inquiry. v. Court of Appeals.203 it was held that a purchaser who is aware of facts which should put a reasonable man upon his guard cannot turn a blind eye and later claim that he acted in good faith. Court of Appeals.205 held that where the land sold is in the possession of a person other than the vendor.”208 The ruling seems reasonable when it is a third party who annotates a lis pendens.204 Heirs of Trinidad de Leon Vda.284 LAW ON SALES (5) Land in Adverse Possession In Martinez v. 326 SCRA 267 (2000). at p. Gregorio v. 526 SCRA 514 (2007). Group also pointed out that even the annotation of lis pendens on the title to the property by third parties does not place the buyer thereof in bad faith since “these did not have the effect of establishing a lien or encumbrance on the property affected. 448 SCRA 347 (2005). v. 207 Republic v. 535 SCRA 123 (2007). 431 SCRA 116 (2004). Inc. Sr. 566. De Guzman.

209 where the Court held that a buyer could not be considered an innocent purchaser where it ignored the notice of lis pendens on the title when it bought the lot. A contrary ruling was issued in Limketkai Sons Milling. Group should be considered absurd (see discussions below) in that in the case of adverse claim (which has a lower binding category than lis pendens) its annotation is equivalent to registration and would place a subsequent buyer in bad faith. The rule has been reiterated in Po Lam v. Court of Appeals. Inc. Court of Appeals.211 (7) Annotation of Adverse Claim In Balatbat v. the registration of an adverse claim places any subsequent buyer of the registered parcel of land in bad faith.212 it was held that in the realm of double sales. 211 Carbonell v. 69 SCRA 99 (1976). Court of Appeals. .210 In any event. A purchaser of a value piece of property cannot just close his eyes to facts which should put a reasonable man upon his guard and then claim that he acted in good faith and under the belief that there was no defect or lack of title of the vendor. Court of Appeals. 212 261 SCRA 128 (1996). the ruling in Agricultural and Home Extension Dev. for — [S]he should have known that there was a pending case and an annotation of adverse claim was made in the title of the property before the Register of Deeds and she could have discovered that the subject property was already sold. It is incumbent upon the vendee of the property to ask for the delivery of the owner’s duplicate copy of the title from the vendor. 316 SCRA 721 (1999).. because such annotation is equivalent to registration or at least affects the good faith situation of the second buyer.. v. One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that 209 210 250 SCRA 523 (1995). .PERFORMANCE OR CONSUMMATION OF SALE 285 but would not be good law if it is one of the disputing buyers who annotates the lien.

215 (8) Existence of Relationship In Pilapil v. since the buyers “are deemed to have constructive knowledge by virtue of their relationship” to their sellers.217 the Court refused to recognize good faith in the person of a buyer who lived in the same area and was familiar to the members of the family of the seller.214 If the annotation of an adverse claim. 215 250 SCRA 523 (1995). 217 421 SCRA 310 (2004). as was the ruling in Limketkai Sons Milling. Court of Appeals. then logically. he purchased the disputed property from [seller] on the basis of 213 214 Ibid. not being really third parties. In Aguirre v. knew of the previous sales and cannot be considered in good faith.216 the Court held that the sale to one’s daughter and sons will give rise to the conclusion that the buyers. which was good for 30-days only is sufficient to place a subsequent buyer in bad faith. v. Court of Appeals. 566 (1995). . 216 250 SCRA 560. tangible fact that can be seen or touched. 142-143.213 The principle providing that the prior annotation of adverse claim places subsequent buyers in bad faith has been reiterated in Alfredo v. Borras. but rather a state or condition of mind which can only be judged of by actual or fancied tokens or signs. since “he deliberately chose to close his eyes to said facts and despite his personal knowledge to the contrary. and the same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and investigation as might be necessary to acquaint him with the defects in the title of his vendor.286 LAW ON SALES he has acquired title thereto in good faith as against the true owner of the land or of an interest therein. Inc. or the want of it is not a visible. at pp. 404 SCRA 145 (2003). Court of Appeals. the annotation of a lis pendens should have the same legal effect. Good faith.

222 Annotation of an adverse claim or lis pendens have been held to produce the same effect as formal registration. It is the entry made in the registry which records solemnly and permanently the right of ownership and other real rights. one who buys from one who is not the registered owner is expected to examine not only the certificate of title but all factual circumstances necessary for him to determine if there are any flaws in the title of the transferor. including both registration in its ordinary and strict sense.223 Curiously Ibid. or in his capacity to transfer the land. 219 218 . 221 h. 222 Cheng v. and even marginal notes. Balatbat v. 300 SCRA 722 (1998). Court of Appeals.219 the Court held that a stipulation in the deed of sale providing that any losses which the buyer may incur in the event the title turns out to be vested in another person are to be borne by the buyer alone. 221 Reiterated in Chua v. 321. 472 SCRA 241 (2005). 543 (1995). Also Ulep v. 250 SCRA 523. 521 SCRA 68 (2007). 223 Carbonell v. Inc. Soriano. Court of Appeals. (10) When Dealing With Non-Registered Owner In R. 69 SCRA 99 (1976). annotation. Paredes v. Genato. showed that the buyer did not purchase the subject matter in good faith without notice of any defect in the title of the seller. v. Court of Appeals. at p. 261 SCRA 128 (1996). and cancellation. Court of Appeals.R.220 the Court held that while one who buys from the registered owner does not need to look behind the certificate of title. (9) Stipulations in Deed Showing Bad Faith In Limketkai Sons Milling. Requisites of Prior Registration “Registration” means any entry made in the books of the registry. 220 517 SCRA 369 (2007). Caliling.PERFORMANCE OR CONSUMMATION OF SALE 287 the misrepresentation of the latter in his Affidavit of Transfer that he is the sole surviving heir of [the decedent]”218 who was the registered owner of the land.

in San Lorenzo Dev. 340 SCRA 154 (2000). 228 278 SCRA 702 (1997). 340 SCRA 154 (2000). 225 224 . Court of Appeals. Bayoca v. 252 SCRA 457 (1996). Nogales. not sold under public auction sale. Court of Appeals. potior jure (first in time. Court of Appeals. On the other hand. Bayoca v. 227 Santiago v. stronger in rights). In several other cases. thus — Jurisprudence teaches us that “(t)he governing principle is primus tempore. 226 Vda.228 held that the prior registration of the disputed property by the second buyer does not by itself confer ownership or a better right over the property. (1) Prior Registration By the Second Buyer Must Always Be in Good Faith Uraca v. Corp. registration by the first buyer under Act No. 483 SCRA 102 (2006). de Alcantara v. 3344 can have the effect of constructive notice to the second buyer that can defeat his right as such buyer.288 LAW ON SALES though. 391 (1950). Nogales. Court of Appeals. Bautista v. the Court held that the registration of the Extrajudicial Partition which merely mentions the sale is not the registration covered under Article 1544 on double sales and cannot prevail over the registration of the pacto de retro sale.227 it was held that the declaration of purchase for taxation purpose does not comply with the required registration.226 In another case. v. but not vice versa. 85 Phil. 247 SCRA 336 (1995).224 the Court did not consider the subsequent registration of lis pendens to be equivalent to the registration required under Article 1544 as to have greater effect on the prior possession in good faith by the second buyer. Fule. Naval v. Court of Appeals. and the fact alone does not even itself constitute evidence of ownership. Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights 449 SCRA 99 (2005).225 the Court held that in the case of unregistered land. and that Article 1544 requires that such registration must be coupled with good faith.

and such knowledge tainted his registration with bad faith.”229 Esquivias v. 231 533 SCRA 350 (2007). Court of Appeals. This is the priced exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer. except where 229 Ibid. Court of Appeals. (2) The Need for Second Buyer to Do Positive Act under Article 1544 The Carbonell doctrine that Article 1544 is addressed particularly to the second buyer to do a positive act. by delivery of possession. knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register the second sale. was reiterated in Fudot v. in ignorance of the first sale and of the first buyer’s right) — from the time of acquisition until the title is transferred to him by registration or failing registration. quoting from Cruz v. as provided by the Civil Code. Limson v. among them... 230 272 SCRA 803 (1997).230 held that while the deed of sale of a second buyer was registered ahead of the deed of sale of the first buyer. to register first her purchase as against the second buyer. 357 SCRA 209 (2001).PERFORMANCE OR CONSUMMATION OF SALE 289 except where the second buyer registers in good faith the second sale ahead of the first. Reiterated in Bautista v. But in converso. Such knowledge of the first buyer does not bar her from availing of her rights under the law. 129 SCRA 656. that before the second buyer can obtain priority over the first. he must show that he acted in good faith throughout (i. 322 SCRA 294 (2000). 712. the prior registration cannot prevail over the deed of sale in favor of the first buyer because the second buyer at that time already knew of the prior sale to the first buyer. . Court of Appeals. at p.231 where the Court held — Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights. the second buyer must act in good faith in registering his deed. To merit protection under Article 1544.e. 663 (1984). Cabana. since such knowledge taints his prior registration with bad faith. Cattleya Land Inc.

(b) Possessors in good faith are those who are not aware of any flaw in their title or mode of acquisition. 410 SCRA 484 (2003). Cruz. Such knowledge of the first buyer does not bar him from availing of his rights under the law. knowledge gained by the second buyer of the first sake defeats his rights even if he is first to registered the second sale. v. upon those who allege bad faith on the part of the possessors rests the burden of proof.290 LAW ON SALES the second buyer registers in good faith the second sale ahead of the first as provided by the aforequoted provision of the Civil Code. The “juridical parameters” summarized by Ten Forty Realty. First to Possess in Good Faith Ten Forty Realty and Dev.233 held that in the absence of inscription in double sales. In particular. and (d) Good faith is always presumed. . Also Tanglao v. 131-132 (2007).232 i. 1544. to merit the protection of Art. 362. Corp. (c) Buyers of real property that is in the possession of persons other than the seller must be wary — they must investigate the rights of the possessors. at p. since such knowledge taints his prior registration with bad faith it is thus essential. the law gives preferential right to the buyer who in good faith is first in possession. However. under the following jurisprudential parameters: (a) Possession mentioned in Article 1544 includes not only material but also symbolic possession. among them to register first his purchase as against the second buyer. the Court had ruled consistently 232 233 Ibid. Parungao. do not all conform to the previous rulings rendered by the Court under Article 1544. second paragraph. 535 SCRA 123. that the second realty buyer must act in good faith in registering his deed of sale.

3344. In that case the Court held that under Article 1544. 643 (1918). Court of Appeals. at p. and the buyer has the burden of showing that he was the first to register or possess in good faith. It involves facts and circumstances — in addition to a deed of sale — which.” such as acquisition of possession by the second buyer either by actual delivery or through the execution of a public instrument. was considered to mean “more than a mere prior deed of sale in favor of the first buyer. 295 SCRA 556 (1998). 3344. the buyer who has in possession the Torrens title and had the deed of sale registered must prevail. 235 7 SCRA 452 (1963). 421 SCRA 310 (2004). Tsai v. Court of Appeals.238 emphasized the rule that buyer-registrant in good faith always has preference to the buyer-possessor in good faith. 1459. Ownership shall belong to the buyer who in good faith registers it first in the registry of property. 366 SCRA 324 (2001). referred to in Act No. Also Liao v. citing Lichauco v. in case of double sales of an immovable — . would make it clear that the first buyer has a better right than the second purchaser. Tañedo v. Court of Appeals. 39 Phil.” Hanopol v. even when in point in time. now Sec. Aguirre v. presumption of good faith cannot apply.” is consistent with the provision under then Act No. combined.235 held that the “better right” that cannot be prejudiced by the registration of a second sale of a parcel of unregistered land. 456. 236 Ibid. the possession in good faith happened ahead of the registration in good faith.236 (1) Registration in Good Faith Always Pre-empts Possession in Good Faith Santiago v.. Berenguer. Although the deed of sale in favor of private respondents was Mathay v. 113 of Pres.234 The rule of “first to possess in good faith. Court of Appeals. Decree No. Pilapil.237 held that in double sales of real property.. that registration of a transaction over unregistered land shall be without prejudice to a “third party with a better right.PERFORMANCE OR CONSUMMATION OF SALE 291 in the past. that under double sales. 238 252 SCRA 80 (1996). Court of Appeals. 237 247 SCRA 336 (1995). 234 . Court Appeals. 323 SCRA 430 (2000).

and is preferred to the notice of lis pendens annotated by the second buyer subsequently. 241 Ibid. pursuant to a final judgment. other than vendor or any other person or persons privy to or claiming any right to interest under it.292 LAW ON SALES later than the one in favor of petitioner. 142. 261 SCRA 128 (1996). . petitioners have not registered the sale to them at all. 242 Ibid. 88. which is deemed sufficient compliance as mandated by law and serves notice to the whole world. and hence ownership shall vests in the person acquiring it who in good faith first recorded it in the Registry of Property. ownership would vest in the former because of the undisputed fact of registration. As between two purchasers. Subsequently. at p. represented by the Clerk of Court under the Rules of Court.240 the seller sold his proindiviso share in a registered land co-owned with his children. at p. the writ was conditioned as follows “subject to the valid rights and interest of third persons over the same portion thereof. has a preferred right over the other who has not registered his title even if the latter is in actual possession of the immovable property. even if the latter is in actual possession of the immovable property. The first buyer had caused the annotation of an adverse claim on the title of the subject property.”241 The Court held that “[a]s between two purchasers. the one who has registered the sale in his favor. The Court held that undoubtedly this was a case of double sales of immovable property covered by Article 1544. On the other hand. the one who registered the sale in his favor has a preferred right over the other who has not registered his title. at p. In addition. the same entire lot was sold again by the same seller and his children.”242 239 240 Ibid. Balatbat held that although the second buyer was in possession of the subject property by virtue of the writ of possession issued by the court. 134.239 In Balatbat v. Court of Appeals. Petitioners contend that they were in possession of the property and that private respondents never took possession thereof.

. At the time of the sale of the property to SLDC.. Corp. or interest in. . . However. Following the foregoing definition. at p. we rule that SLDC qualifies as a buyer in good faith .. More fundamentally. in its obiter ruling on the particular issue raised in San Lorenzo Dev.. given the superiority of the right of SLDC to the claim of Babasanta the annotation 243 244 449 SCRA 99.D. at which time the sale in favor of SLDC had long been consummated [with the] ..243 x x x. Babasanta apparently relies on the principle of constructive notice incorporated in Section 52 of the Property Registration Decree (P. Time and again. or before he has notice of the claim or interest of some other person in the property.PERFORMANCE OR CONSUMMATION OF SALE 293 And yet. 117. such property and pays a full and fair price for the same at the time of such purchase. Ibid.. 1529)244 . the vendors were still the registered owners of the property and were in fact in possession of the lands. this Court has ruled that a person dealing with the owner of registered land is not bound to go beyond the certificate of title as he is charged with notice of burdens on the property which are noted on the face of the register or on the certificate of title. No. A purchaser in good faith is one who buys property of another without notice that some other person has a right to. “Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery and possession in good faith which admittedly had occurred prior to [Second Buyer] SLDC’s knowledge of the transaction in favor of [First Buyer] Babasanta?” the Court ruled — We do not hold so... the constructive notice operates as such by the express wording of Section 52 from the time of the registration of the notice of lis pendens which in this case was effected only on 2 June 1989. transfer ownership over the property to SLDC is concerned. to wit. 116...

resulting in the material and symbolic possession thereof being transferred 245 246 Ibid. If the registration is done in bad faith. 118. 247 Ibid. at p. It was ruled that since the sale to the first buyer was in a public instrument it was clearly tantamount to a delivery of the land. which was registered in bad faith. 245 The San Lorenzo obiter ruling above-quoted is disturbing on two points: (a) it equates the annotation of a lis pendens only to qualifying the state of minds of the buyers (whether they be in good faith or bad faith) and does not equate it to be a species of registration under the Torrens system. and the buyer who has taken possession first of the property in good faith shall be preferred. 248 184 SCRA 584 (1990). 213 SCRA 415 (1992). and (b) it holds that prior possession by the second buyer in good faith has “superiority” to a subsequent registration by the first buyer who has knowledge of the second sale. (2) Possession Under Article 1544 Refers to Material and Symbolic Possession In Navera v.”247 Yet a reading of Abarquez would show that the ruling was addressed to the second buyer. Court of Appeals. the buyer of the first deed of sale executed in a public instrument had a better right. San Lorenzo cites Abarquez v. Court of Appeals. although the subsequent buyer took material possession thereof. the registration constitutes a registration in bad faith and does not confer upon him any right. it is as if there is no registration at all. at p.294 LAW ON SALES of the notice of lis pendens cannot help Babasanta’s position a bit and it is irrelevant to the good or bad faith characterization of SLDC as a purchaser.246 to say that “this Court had the occasion to rule that if a vendee in a double sale registers the sale after he has acquired knowledge of a previous sale. . 119. that his prior registration cannot overcome the earlier possession by the first buyer.248 where both deeds of sale over the same registered parcel of land were not registered with the Registry of Deeds.

Court of Appeals. . Navera held that the possession mentioned in Article 1544 for determining who has better right when the same piece of land has been sold several times by the same seller includes not only the material but also the symbolic possession thereof. Navera reiterated the doctrine laid down earlier under the old Civil Code provision on double sales (then Article 1473) in the cases of Quimson v. 116-117.. at p. 251 449 SCRA 99 (2005). Corp.253 249 250 87 Phil. 159 (1950). So that when subsequently the second buyer took material possession of the same land.252 . Rosete. Ramos.PERFORMANCE OR CONSUMMATION OF SALE 295 to the latter.250 (3) Possession Acquired in Good Faith Is Stable Status When the second buyer who takes possession of the subject matter in good faith.. 253 Ibid. 614 (1919). 116. from the time of execution of the first deed up to the moment of transfer and delivery of possession of the lands to SLDC. it had acted in good faith and the subsequent annotation of lis pendens has no effect at all on the consummated sale between SLDC and the Spouses Lu.251 answered this particular issue in favor of the second buyer when it held: Did the registration of the sale after the annotation of the notice of lis pendens obliterate the effects of delivery and possession in good faith which admittedly had occurred prior to SLDC’s knowledge of the transaction in favor of Babasanta? We do not hold so. Simply stated. he did so merely as a detainer. must he remain in good faith subsequently thereafter in order to claim priority based on possession under Article 1544 of the Civil Code? San Lorenzo Dev. at pp. SLDC had no knowledge of the prior transaction of the Spouses Lu with Babasanta.249 and Sanchez v. 40 Phil. At the time both deeds were executed. v. 252 Ibid.

255 300 SCRA 722 (1998). provided there is good faith.296 LAW ON SALES j. 740. and the proper doctrine applicable should be the main rule of “Priority in time.” That means there is no race to run at all because the first buyer should always win over subsequent buyers. priority in right. potior jure. Priority in Time Rule Applies In either of the following situations. When Article 1544 Does Not Apply. 256 Ibid. which legal rule should apply to the case? In the first situation. priority in right.”256 Notice that the rule of “first in time. which is actually the main rule in double sales. Court of Appeals. at p. thus: (a) Where not all the requisites necessary to make Article 1544 applicable are present. Inc. or (b) Where the requisites to make Article 1544 applicable were present. This observation is consistent then with the statement in Cheng v.254 Article 1544 rules on double sales provide for special rules and when the transactions do not fit the specific circumstances mandated under the article or by jurisprudence interpreting the article.255 that the “governing principle” under Article 1544 is “first in time. but that either the first to register or first to possess rules were not complied with. priority in right. priority in rights. then the “oldest title” rule merely reflects the general rule of “First in time. Article 1544 provides that ownership should go “to the person who presents the oldest title. 448 SCRA 347 (2005). then there is no basis to apply such rules.” Is the buyer who has the oldest title in good faith not necessarily the chronological first buyer under a valid and demandable sale? If the answer is in the affirmative. v. Genato.” In the second situation. it would be the general rule of Prius tempore.” is a rule that falls back to perfection stage: Who between contending buyers is “first in time” would be that buyer who chronologically 254 Essentially lifted by Consolidated Rural Bank (Cagayan Valley). .

or any person authorized to receive. 259 Montecillo v.”259 Buyer is also obliged to pay interest for the period between delivery of the subject matter and the payment of the price when: (a) the same has been stipulated. the principle of “First in time. 1582.257 Mere sending of a letter by the buyer expressing his intention to pay without the accompanying payment is not considered a valid tender of payment. 260 Art. at most. from the time of judicial or extrajudicial demand.PERFORMANCE OR CONSUMMATION OF SALE 297 had the first perfected and valid sale over the same subject matter with the same seller. 1589. it gives the seller the right to sue for 257 258 Art. then the first buyer in point of time should be preferred because his title (i.” occupies the cellar position only when special rules do not apply. (b) should object delivered produce fruits or income. Reynes. Under a global set of rules pertaining to double sales. the legal basis upon which he can claim ownership over the subject matter). 385 SCRA 244 (2002). Civil Code. Bernabe. priority in right.260 Non-payment of the consideration in the sale does not prove simulation.258 Unless the parties have agreed to the payment of the price to any other party.. Pay the Price Buyer is obliged to pay for the price at the time and place stipulated in the contract. The rationale of the rule is that if none of the contending buyers have validly effected a transfer of ownership in his favor through any of the modes of tradition.e. Torcuator v. . OBLIGATIONS OF BUYER 1. or (c) in case the buyer is in default. 459 SCRA 439 (2005). then its payment to be effective must be made to the seller in accordance with Art. Civil Code. 1240 of the Civil Code which provides that “[P]ayment shall be made to the person in whose favor the obligation has been constituted or his successor in interest. perhaps because it is the least representative of the mode of tradition. was first in time.

264 (1) Exception: C. If the time and place should not have been stipulated.O. Opportunity to Inspect Goods Where goods are delivered to the buyer. 264 Art. which he has not previously examined. 1582. the buyer is not entitled to examine the goods before the payment of the 261 262 Villaflor v. Civil Code. upon the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price. 280 SCRA 297 (1997). 1584. Art. the buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them. to rescind the contract under Article 1191 of the Civil Code.D. Sales Where goods are delivered to a carrier in accordance with an order from or agreement with the buyer. he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract. he retains the goods without intimating to the seller that he has rejected them. Civil Code.261 2. Generally in a sale. after the lapse of a reasonable time. the payment must be made at the time and place of the delivery of the thing sold.263 a. 263 Art. Accept Delivery of Thing Bought The buyer is bound to accept delivery of the thing bought at the time and place stipulated in the contract. or when.” or otherwise. in case of a substantial breach.298 LAW ON SALES collection. if there is no stipulation to the contrary. whether such terms are indicated by marking the goods with words “collect on delivery. . payment of the price is a “resolutory condition” and the remedy of the seller is to exact fulfillment or. and he does any act in relation to them which is inconsistent with the ownership of the seller. Civil Code. Court of Appeals. 1585.262 In case of goods. or when the goods have been delivered to him.

Goods Sold Deliverable by Installments Unless otherwise agreed. if after acceptance of the goods. where goods are delivered to the buyer. it depends in each case on the terms of the contract and the circumstances of the case. Civil Code. and he refuses to accept them.268 However.269 d. whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages for breach of the entire contract. Civil Code. 1584. 1583. which are to be separately paid for. Civil Code. 268 Art. 1586. acceptance of the goods by the buyer shall not discharge the seller from liability in damages or other legal remedy for breach of promise or warranty in the sale. 269 Art. or ought to know. of such breach.PERFORMANCE OR CONSUMMATION OF SALE 299 price. and the seller makes defective deliveries in respect of one or more installments. Effect of Acceptance of Goods on Seller’s Warranty In the absence of an agreement to the contrary. . 1586. 267 Art.266 Where the sale covers goods to be delivered by stated installments. 265 266 Art. Civil Code.267 c. Refusal to Accept Goods Unless otherwise agreed. the buyer of goods is not bound to accept delivery thereof by installments. having the right to do so. Civil Code. Art. in the absence of agreement or usage of trade permitting such examination.265 b. 1583. giving rise to a claim for compensation but not to a right to treat the whole contract as broken. the seller is excused. or the buyer neglects or refuses without just cause to take delivery of or pay for one or more installments. the buyer fails to give notice to the seller of breach in any promise or warranty within a reasonable time after the buyer knows. or whether the breach is severable.

270 If he voluntarily constitutes himself as a depository. Civil Code. the title thereto passes to him from the moment they are placed at his disposal. he shall be liable as such. 1587. 1587. in the absence of stipulation. and it is sufficient that he notifies the seller of his refusal.271 On the other hand.300 LAW ON SALES he is not bound to return them to the seller. Civil Code.272 —oOo— 270 271 Art. 1588. . Civil Code. Art. when the buyer’s refusal to accept the goods is without just cause. 272 Art.

598 (1932). operates as the transfer of possession and ownership of the goods referred to therein. 301 . 413 (1921). 42 Phil. goods represented by such document. In an early case. either by endorsement or by delivery. 56 Phil. 1636. National Bank. quedan. In another case. as proof of the possession or control of the goods.301 CHAPTER 7 DOCUMENTS OF TITLE DEFINITION AND FUNCTION A “document of title of goods” includes any bill of lading. and had the effect of divorcing the property covered from the estate of the insolvent. Hongkong & Shanghai Bank. and (b) As the medium of transferring title and possession over the goods described therein. it is a representation that the one to whom the possession of the receipt has been so entrusted has the title to the goods. but the entrusting of the receipt is more than the mere delivery of the goods.1 Documents of title therefore serve two (2) functions: (a) As evidence of the possession or control of the goods described therein. or warehouse receipt or order for the delivery of goods. 1 2 Art. Siy Cong Bieng v. Civil Code. or any other document used in the ordinary course of business in the sale or transfer of goods. dock warrant. v. without having to effect actual delivery thereof.2 the Supreme Court held that a warehouse receipt represents the goods. or authorizing or purporting to authorize the possessor of the document to transfer or receive.3 the Court held that the endorsement and delivery of a negotiable quedan prior to the filing of the petition for insolvency. 3 Philippine Trust Co.

that the delivery is pursuant to a valid underlying sale. the provisions of the Warehouse Receipts Act and the Bonded Warehouse Act constitute the primary sets of rules governing warehouse receipts. a. as amended. quedans and warehouse receipts. 3893. Articles 1507 to 1520. to deal with the goods described therein as though he had physically delivered them to the buyer. they were promulgated part of the the New Civil Code as of a later date than the provisions of the Warehouse Receipts Act4 and the Bonded Warehouse Act. when the document of title is negotiable in character. Dealings through documents of title represent a species of constructive delivery.e. and that the seller had ownership of the goods described therein to effect proper delivery. Legislature was fully aware of the existing provisions of the Warehouse Receipts Act and the Bonded Warehouse Act.5 yet the New Civil Code includes within the enumerations of what constitute “documents of title” under Article 1636. appear as original provisions (“n”). by fiction of law. 2137. and therefore operate under the same premise as other forms of delivery.302 LAW ON SALES Through the document of title. and have neither been derived nor taken from the old Civil Code. the seller is allowed. the public policy behind the State’s protective mantle on the effects of negotiation. Act No. When Articles 1507 to 1520 were being considered as integral part on the Title on Sales. i. However. namely.. . as in fact many of the key principles were copied from said statutes. Consequently. the invalidity of the underlying sale or the actual lack of ownership of the seller of the goods described therein. as amended. In addition. Warehouse Receipts and Bonded Warehouse Acts The provisions of the Civil Code on documents of title. and the provisions of 4 5 Act No. would still effectively transfer ownership to the buyer who takes the document of title in due course. and the buyer may take the document of title as though he had actually taken possession and control over the goods described therein.

Negotiable Document of Title A document of title in which it is stated that the goods referred to therein are deliverable “to bearer. for their common acceptance by persons engaged in commerce. and expressing in statutory language the customs and usages which the tests of time have proven to be efficient and effective in the commercial world. Rationale for Documents of Title Documents of title are not innovations or inventions of law.DOCUMENTS OF TITLE 303 Articles 1507 to 1520 of the Civil Code should be treated as having suppletory effect. . the provisions on documents of title are geared towards assuring the public to take.” or “to order” of any person named in such document. but evolved from the commercial practices of merchants and gained much acceptance under clearly defined commercial customs.6 6 Art. and that buyers should be assured that they may deal with the evidence thereof with the same effect as though “they could feel the merchandise” themselves. accept. especially those which are negotiable in character. Through the incorporation into our statutes of the commercial system of documents of title. Civil Code. is a negotiable document of title. the State has therefore placed its “seal of approval” and legal guarantee upon the institution of documents of title. and deal with transactions over goods and merchandise by means of the documents of title issued in representation thereof. Therefore. TYPES OF DOCUMENTS OF TITLE 1. Documents of title have been recognized by the State as the medium by which such transactions be promoted by the instruments which evidence the merchandise covered. The developmental imperatives of commercial transactions required that merchants should be allowed to transact with goods and merchandise without having to physically carry them around. b. 1507.

Non-Negotiable Document of Title Consequently. did not destroy the validity nor the negotiability of the document of title. Asia Banking Corporation.9 NEGOTIATION OF NEGOTIABLE DOCUMENTS OF TITLE 1. or which contains words of like import. Who Can Negotiate A negotiable document of title may be negotiated by: (a) The owner thereof (i. to the order of a specified person.” when the evidence clearly showed that it was intended to cover tobacco coming from Isabela. warehouseman or other bailee to deliver the goods to bearer. . 1510. has placed upon it the words “non negotiable. 705 (1922). Herridge.. Effects of Errors on Documents of Title Clerical errors in the words of negotiability. is a non-negotiable document of title. v. such as the use of the term “by the order” instead of “to the order” does not destroy the negotiability of a warehouse receipt.” “not-negotiable” or the like. 975 (1924). to a specified person or order. Effects of Use of “Non-Negotiable” Terms on Negotiable Documents of Title If a document of title which contains an undertaking by a carrier. 49 Phil. such document may nevertheless be negotiated by the holder and is a negotiable document of title. a document of title which does not state that the goods referred to therein are deliverable either to bearer or to the order of any person named therein. or 7 8 Roman v. 9 Art. American Foreign Banking Corp.8 4. 3.e.304 LAW ON SALES 2. 46 Phil. nor the effects of the negotiation thereof. the person to whom it was originally issued). Civil Code.7 The wrongful designation of the subject of the warehouse receipt indicating the tobacco as “Cagayan tobacco.

Art. 13 Art. coupled with a delivery thereof. where such person or a subsequent endorsee of the document has endorsed it in blank or to the bearer. Civil Code. if.” and (b) Even when originally the document of title was issued “to the order” of a specified person. 1508. Civil Code. .13 10 11 Art. 1509. How Negotiation Properly Effected a.10 2. any holder may endorse the same to himself or to any specified person. warehouseman or other bailee issuing the same undertakes to deliver the goods “to bearer. and in such case the document shall thereafter be negotiated only by the endorsement of such endorsee.DOCUMENTS OF TITLE 305 (b) Any person to whom the possession or custody of the document has been entrusted by the owner. 1508. By Delivery Alone A negotiable document of title may be negotiated by delivery alone (without need of endorsement) in the following cases: (a) Where by the terms of the document the carrier. By Endorsement and Delivery A negotiable document of title may be negotiated only by the endorsement of the person to whose order the goods are by the terms of the document deliverable. Civil Code. or if at the time of such entrusting the document is in such form that it may be negotiated by delivery.11 In either of the above-enumerated cases. 12 Art. Civil Code. 1512. by the terms thereof the bailee undertakes to deliver the goods to the order of the person to whom the possession or custody of the document has been entrusted.12 b.

14 3. 1513. the clear import of these provisions is that if the owner of the goods 14 15 Art. (b) Such title to the goods as the person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in good faith and for value. to bearer or to another specified person. it may again be negotiated by the endorsement of such person in blank. Subsequent negotiations may be made in like manner. The result is that by dealing with the negotiable document of title it is as though the parties to the sale were dealing directly with the goods covered thereby.15 The legal effects of proper negotiation is the assurance to the buying or negotiating public of the protective mantle that the law places upon their faith in accepting a negotiable document of title as a medium to transact on the goods covered thereby. If endorsed to a specified person. Effects of Proper Negotiation A person to whom a negotiable document of title has been duly negotiated acquires thereby: (a) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in good faith and for value. Although the law does not include “one who takes by trespass or a finder” within the description of those who may negotiate. Civil Code. Civil Code. Art. . and (c) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directly with him. 1509.306 LAW ON SALES Such endorsement may be in blank. to bearer or to a specified person.

.” meaning that the transferee would thereby own the document of title. 56 Phil. Effects of Merely Transfering/Delivering of “Order” Negotiable Documents of Title The following are the legal effects when a negotiable document of title deliverable to order is not properly negotiated. the title to the goods. “may be transferred by the holder by delivery to a purchaser or donee. (b) The legal consequence of such transfer under Article 1514 is that the “person to whom a document has been transferred. Hongkong & Shanghai Bank. the transferee acquires a right against the transferor to compel him to endorse 16 Siy Cong Bieng v.e. including the bailee.” meaning as between the transferor and the transferee. and the endorsement of the transferor is essential for negotiation. acquires thereby as against the transferor. . (c) Under Article 1515. thus: (a) Under Article 1511 of the Civil Code. subject to the terms of any agreement with the transferor. the goods are owned by the transferee. not a bearer document). 598 (1932). where a negotiable document of title is transferred for value by delivery.DOCUMENTS OF TITLE 307 permits another to have the possession or custody of negotiable warehouse receipts running to the order of the latter. but not negotiated.16 4. or to bearer. despite breaches of trust or violations of agreement on the part of the apparent owner. a negotiable document of title which is not in such form that it can be negotiated by delivery (i. it is a representation of title upon which bona fide purchasers for value are entitled to rely. but not as to the rest of the world.

loss. may recover it from the person in possession of the same. (b) That the owner of the document was deprived of the possession of the same by: • loss • fraud • theft • conversion • accident • mistake • duress if the person to whom the document was negotiated paid value therefor in good faith without notice of the breach of duty. the validity of the negotiation of a negotiable document of title is not impaired by the following facts: (a) That the negotiation was a breach of duty on the part of the person making the negotiation. and it is deliverable to bearer. meaning that the negotiation shall take effect as of the time when the endorsement is actually made. the latter may validly impart title thereto to a holder in due course. under Article 1518.” the same cannot apply to a . Effects and Consequences of Unauthorized Negotiation In spite of the provision in Article 1512 of the Civil Code that only the owner of the document of title or his assignee can negotiate the same. accident. Since a negotiable document of title cannot be dealt with apart from the goods that it covers.308 LAW ON SALES the document unless a contrary intention appears. 5. fraud. duress or conversion (referred to hereinafter as “holder in due course”). mistake. Even when the owner loses the negotiable document of title to a thief. who is essentially a buyer in good faith and for value. theft. nevertheless. necessarily the legal consequences as to the effects of unauthorized negotiation thereof would also pertain to the goods that it describes. It is important to note also that although Article 559 of the Civil Code provides that an owner “who has lost any movable or has been unlawfully deprived thereof.

The only real defense that can validly be raised against the holder in due course of a negotiable document of title (and therefore as to his title to the goods covered thereby) would be forgery of the endorsement of the owner when such endorsement is necessary to effect proper negotiation.17 it was held that as between the owner of a negotiable document of title who endorsed it in blank and entrusted it to a friend. In Siy Long Bieng v. under the principle that as between two innocent persons. the latter is preferred.DOCUMENTS OF TITLE 309 holder in due course of a negotiable document of title because the enumerated instances in Article 1518 includes specifically “loss. fraud.. Hongkong and Shanghai Banking Corp. 598 (1932).” The effects of unauthorized negotiation of a negotiable document of title are much more liberal and protective of the holder (i. than in the case of a holder in due course for negotitable instruments under the Negotiable Instruments Law. There is practically no real defense against an assignee or holder of the negotiable document of title in good faith and for value. accident [and] conversion. The protection to a buyer in good faith and for value also encourages velocity in commerce as the prospective buyer does not have to waste time and effort having to assure himself of the authority of the person so negotiating and the validity of his title and possession over the goods covered by the document of title. buyer) who takes it in good faith and for value.. and the holder of such negotiable document of title to whom it was negotiated and who received it in good faith and for value. theft. It is in protecting the rights and contractual expectations of a buyer in good faith that the law encourages the public to accept by way of negotiations and at face value negotiable documents of title. he who made the loss possible should bear the loss. which rules are different to those applied when the 17 56 Phil.e. . The immediately foregoing comments refer to problems relating to the custody and negotiation of a negotiable document of title.

but which under Article 1625 would require its appearance in a public instrument. Civil Code. 1511.” 2.20 18 19 Art. 1511. Art. on the topic Effects When Owner of the Document of Title Has No Title to the Goods. How Assignment Made A non-negotiable document cannot be negotiated and the endorsement of such a document gives the transferee no additional right. and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document. and (b) The right to notify the bailee who issued the document of the transfer thereof. Civil Code.19 Since a non-negotiable document of title constitutes an incorporeal right. ASSIGNMENT OF NON-NEGOTIABLE DOCUMENTS OF TITLE 1. as against the transferor: (a) The title to the goods. . otherwise it “shall produce no effect as against third persons. Civil Code. Effects of Transfer by Assignment A person to whom a non-negotiable document of title has been duly assigned acquires thereby. subject to the terms of any agreement with the transferor. 20 Art.310 LAW ON SALES problem relates to the goods covered by the negotiable document of title. 1514. Such separate rules are discussed below. its sale constitutes actually an assignment which under Article 1624 is perfected by mere consent.18 A document of title which is not in such form that it can be negotiated by delivery may be transferred by the holder by delivery to a purchaser or donee.

Article 1517 of the Civil Code 21 Art. and one who assigns a non-negotiable document of title are the same.21 The warranties of one who negotiates a negotiable document of title. warrants that: (a) The document is genuine. Unlike under the Negotiable Instruments Law which imposes warranties on the endorser. unless a contrary intention appears. WARRANTIES ON NEGOTIATION AND ASSIGNMENT OF DOCUMENTS OF TITLE A person who for value negotiates or transfers a document of title by endorsement or delivery. (d) He has a right to transfer the title to the goods. (c) He has no knowledge of any fact which would impair the validity or worth of the document. the assignee merely steps into the shoes of his immediate assignor.DOCUMENTS OF TITLE 311 Unlike in the negotiation of a negotiable document of title which ipso jure makes the bailee liable to the holder thereof. whenever such warranties would have been implied if the contract of the parties had been to transfer without a document of title the goods represented thereby. (b) He has a legal right to negotiate or transfer it. there is no legal relationship between the assignee and the bailee until the latter is informed by the former of the assignment of the covering document of title. and (e) The goods are merchantable or fit for a particular purpose. 1516. in the assignment of a non-negotiable document of title. including one who assigns for value a claim secured by a document of title. Likewise. Civil Code. .

who is rightfully entitled to the goods? 1. for which the document of title has been issued by the bailee. and the document of title is properly assigned or negotiated to a buyer in good faith and for value? As between the real owner of the goods and the buyer in good faith and for value. the situation would have to be governed by the formula provided under Article 559 of the Civil Code. What happens in a situation where the legal owner of the document of title (i. had valid title to the goods described therein and deposited with the bailee.. When Goods Covered by Non-Negotiable Document Where the goods are covered by a non-negotiable document of title. the seller/assignor of the document of title also warrants the existence and legality of the documents of title at the time of sale. but that he does not warrant the solvency of the debtor (i. . unless it has been sold as doubtful. under Article 1628 thereof. or the transferor thereof. and under the premise that the assignee-buyer had obtained possession of the goods by the proper notification to the baillee of such purchase. and the defect or illegality pertained only to the custody and negotiation of the document of title. the person who deposited the goods with the bailee). the bailee). had in fact no valid title to the goods deposited.e.” Since the assignment of a document of title is covered by the species “assignment” under Chapter 8 of the Title on Sales of the Civil Code. EFFECTS WHEN OWNER OF THE DOCUMENT OF TITLE HAS NO LEGAL TITLE TO THE GOODS The foregoing discussions on the effects of negotiations and assignment are premised on the fact that the owner of the document of title.e.. unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge.312 LAW ON SALES expressly states that “[t]he indorsement of a document of title shall not make the indorser liable for any failure on the part of the bailee who issued the document or previous indorsers thereof to fulfill their respective obligations.

the premise would have to be that by issuing such negotiable document the bailee has constituted himself as an agent to possess the goods for the benefit of the holder of the document as his principal. the assignee-buyer receives no title even if the goods are delivered to him under the principle Nemo dat quod non habet. the assignee-buyer’s title to the goods is preferred even against the owner who can no longer recover the goods. but is granted directly under the aegis of Article 559 which states that “[t]he possession of the movable property acquired in good faith is equivalent to title. When Goods Covered by Negotiable Document In a situation where the goods are covered by a negotiable document of title properly negotiated to the holder-buyer. the owner may recover against the bailee. On the other hand. is clearly evidenced by his being a holder in due course of the negotiable document of title. If the owner had neither lost nor been unlawfully deprived of the goods. then it becomes apparent that the same principles under Article 559 of the Civil Code would have to apply. even when the latter is in good faith and bought for value. and in such case the assigneebuyer’s title to the goods must be derived from that of the assignorseller’s. 2. if the owner had lost the goods or been unlawfully deprived thereof. if the owner had lost or been unlawfully deprived of the goods. If the assignor-seller had no title to the goods sold. In such cases. which by itself would constitute as an original source of ownership under Article 559. the assignee-buyer’s ownership to the goods is not derived from the assignor-seller. . then the holder-buyer acquires valid ownership of such goods because his possession in good faith and for value. On the other hand. the owner may recover against the assignee-buyer.” In such situations.DOCUMENTS OF TITLE 313 In all situations where the owner had neither lost nor been unlawfully deprived of the goods. it does not even matter if the assignor-seller had no ownership at all to the goods he sold to the assignee-buyer since the latter’s title is not dependent on the assignor-seller’s title. because Article 559 expressly does not give to the assignee-buyer any original title.

under the principle Nemo dat quod non habet.” and since both those predecessors-in-interest had no title. garnishments and levies by the creditors of the transferor of the negotiable document of title. Article 559 does not give him a basis for original title to the goods (because the owner had lost or been unlawfully deprived of the goods). the buyer takes only such title to the goods as “the person negotiating the document to him had or had ability to convey. the buyer takes none also. but since the seller had no title to the goods. In addition. which protects a holder in due course of a negotiable documents of title against attachments. even when the latter is a holder in due course with respect to the negotiable document of title. under Article 1513 of the Civil Code. The foregoing conclusions are supported by the language of Article 1519 of the Civil Code. based on the following reasons: (a) As a holder in due course.314 LAW ON SALES and therefore against the holder-buyer. to the goods.” as well as “such title to the goods as the person to whose order the goods were to be delivered by the terms of the document. (b) As a buyer in good faith and for value. the holder-buyer also has no title thereto. and therefore such buyer derives his source of ownership from that of his seller’s. and who does not sell them under authority or with the consent of . only under the indispensable premise the “goods are delivered to a bailee by the owner or by a person whose act in conveying the title to [the goods] to a purchaser in good faith for value would bind the owner” of such goods. or had void titles. Article 1505 of the Civil Code provides that “where goods are sold by a person who is not the owner thereof. and a possessor in good faith and for value with respect to the goods.

Although the assignment of a non-negotiable document of title would involve the assignment of incorporeal right. must notify the bailee who issued the document of the transfer thereof. and the remedy of the buyer-holder is to run after the transferor of the negotiable document of title. but his title has not been avoided. the rules of warranties clearly provide that owner has “title to the goods” as one of his warranties. then it would constitute an actionable breach of warranties. Article 1506 provides that “[w]here the seller of goods has a voidable title thereto. Finally. provided he buys them in good faith. and without notice of the seller’s defect. When Non-Negotiable Document of Title Under Article 1625 of the Civil Code. for value. RULES ON LEVY/GARNISHMENT OF GOODS COVERED BY DOCUMENTS OF TITLE 1. Furthermore.” The article does require that the minimum requirements for the buyer to obtain valid title to goods by reason of delivery is that at least the seller had voidable title thereto. nevertheless the binding effect of the assignment on the bailee and third persons would have to follow specific provisions governing documents of title.DOCUMENTS OF TITLE 315 the owner. at the time of sale. and consequently if it turns out that owner does not have title to the goods. the buyer acquires good title to the goods. Under Article 1514. the buyer requires no better title to the goods than the seller had. and the principle under said article cannot extend to benefit a buyer in good faith and for value who takes delivery of the goods from a seller who had void title thereto. when an assignment of credit or other incorporeal right is made through a public instrument. it would also bind third persons. a person to whom a non-negotiable document of title has been transferred.” Article 1505 provides for exception to the principle of Nemo dat quod non habet that it provides. and the case of goods covered by a negotiable instrument is not within any of the exceptions. and only then does .

the title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the goods by a creditor of the transferor.316 LAW ON SALES the transferee acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document. Even when by the execution of a public instrument to assign the non-negotiable document of title. actions can be taken by the original owner to defeat the transfer of the title and/or possession of the goods. possession and ownership of the document of title (by assignment) does not necessarily bring with it possession or title over the goods covered thereby. the assignment or sale by the original owner of the non-negotiable document of title. . 1514. Civil Code. does not transfer possession or title over the goods covered by the document of title.22 In effect. 2. 1532. until actual notification is made to the bailee of the transfer or assignment of the goods. the transferor can still exercise possessory lien over the goods covered by notification thereof to the bailee prior to the time that the transferee-assignee shall have notified the bailee of the assignment to him of the document of title. When Negotiable Document of Title If goods are delivered to a bailee by the owner or by a person whose act in conveying the title to them to a purchaser in good 22 23 Art. Civil Code.23 In the case of a non-negotiable document of title. it is the notification of the bailee of the assignment that is the operative act that will transfer title and/or possession of the goods in favor of the transferee-assignee. ownership over the document of title is transferred to the assignee. nevertheless. even when executed in a public instrument. Art. or by a notification to such bailee by the transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor. Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title.

1520. while in possession of such bailee. and vice-versa. Civil Code. 26 Art. Civil Code.25 The special rules on goods covered by a negotiable document of title show that in such case ownership and possession of the document itself is equivalent to the holder having actual ownership and possession of the goods covered thereby.DOCUMENTS OF TITLE 317 faith for value would bind the owner and a negotiable document of title is issued for them.24 The bailee shall in no case be compelled to deliver up the actual possession of the goods until the document is surrendered to him or impounded by the court. 1519. The goods are treated to be inseparable from the negotiable document of title covering them. Civil Code. Art. 1519. In such case. such goods cannot thereafter. .26 —oOo— 24 25 Art. be attached by garnishment or otherwise or be levied under an execution unless the document be first surrendered to the bailee or its negotiation enjoined. a creditor whose debtor is the owner of a negotiable document of title shall be entitled to such aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such document or in satisfying the claim by means thereof as is allowed at law or in equity in regard to property which cannot readily be attached or levied upon by ordinary legal process.

” PHILOSOPHICAL DISCUSSIONS ON STAGES IN THE LIFE OF SALE Sale has two stages in its life. Court of Appeals. although it may involve a period of time. considering that sale is a progressive contract. Court of Appeals. Jovan Land. Inc. is best conceptualized as that “point in time” when the sale. Limketkai Sons Milling. the perfection stage and the performance or consummation stage. begins to exist: upon a meeting of minds as to the subject matter to be delivered and the price to be paid. provide revealing angles in the way one looks into the nature of the contract of sale. v. sale has variant stages as it goes through its legal existence. and like the metamorphosis that a larva undergoes. or (b) only has a voidable title thereto. v. Inc. Court of Appeals. 244 SCRA 320 (1995). The perfection stage. 318 . Court of Appeals. Toyota Shaw. and the stages. The author begs indulgence with the reference to “sale” as though it were a person or a “being.318 LAW ON SALES CHAPTER 8 SALE BY A NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE “LIFE” OF CONTRACT OF SALE Discussions on the legal effects of the sale by a seller who (a) is not the owner of the subject matter sold. of its “life. as a contractual reality. 238 SCRA 602 (1994). as it were.” “sell.” This is resorted to only for the purpose of demonstrating more clearly the essence of its “life.1 1 Ang Yu Asuncion v.” and “sold” in evolving doctrinal pronouncements on the nature of sale itself. v.” The discussions hereunder would also demonstrate the rather loose manner by which the Supreme Court uses the terms “sale. 268 SCRA 160 (1997). Inc. 250 SCRA 523 (1995).

and payment of the price on the part of the buyer. unenforceable. voidable. it gives rise to no 2 3 Ibid.3 When there is breach. it cannot be enforced in court. Art. If the sale is valid at perfection.SALE BY A NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE “LIFE” OF CONTRACT OF SALE 319 On the other hand. consummation cannot change the nature of such contract. In a sale. consummation goes into the performance. or rather does not inexorably. The point that is being made is this: Perfection is the only stage in the life of a sale that determines whether the contract exists at all and the nature of its existence. or void contract. If the contract is voidable it is valid until annulled or it can be ratified. whether it is a valid. 1191. We next tackle the concepts of “breach” and “rescission” in relation to sale. consummation stage merely is the “living-out” of that kind of life that has been set by the perfection stage. and the payment of the price by the buyer. if it is rescissible. The concepts of breach and rescission therefore presuppose the existence of a valid sale. when a sale is void. the consummation stage covers the period when the obligations that arise from the legal existence of the sale are to be performed: delivery of possession and transfer of ownership of the subject matter by the seller. result into every aspect of the consummation stage. unless it falls within the exceptions provided for by law. it remains valid throughout its life and consummation has no choice but to lead the life of a valid contract and the consequences thereof. it is subject to rescission within the period provided for by law. there is breach when any party does not comply with what is incumbent upon him under the contract: delivery of possession and transfer of ownership on the part of the seller. rescissible. . no attempt at performance can change its inexistence. or the manner by which the sale as a contract. whereas. and if it is void.2 The consummation stage presupposes that the perfection stage has happened. and no prior demand is required to establish breach because of the reciprocal nature of the obligations. if it is unenforceable. Civil Code. the other party not at fault may then rescind or resolve the sale. Perfection goes into the very essence or birth of the sale. but the perfection stage does not necessarily. leads out its life. although it is valid.

Jovan Land. Court of Appeals. 1465. or even if it existed then but did not belong in ownership to the seller at that time of perfection. 312 SCRA 528 (1999). Leabres v. . Villalba. 7 Art. Civil Code. Court of Appeals. 4 Art. a valid sale can cover a subject matter that is not existing or having only a potential existence at the time of perfection. 8 Art. Quijada v. WHEN SELLER IS NOT OWNER OF THE SUBJECT MATTER 1. Peñalosa v. The point being made is this: Both breach and rescission are legal concepts that necessarily pertain to the consummation or performance stage. 417 SCRA 277 (2003). neither does it allow a rescission of a contract that in the first place has no legal existence. Court of Appeals. nor does it require the payment of price for its validity.6 Although a sale ordinarily covers existing things. 263 SCRA 15 (1996).. Sugar Producer’s Corp. At Perfection Sale is consensual in nature since it is perfected or comes into legal being by mere consent. Coronel v.7 or even a thing subject to a resolutory condition. as in fact they are premised upon a previous perfection having taken place. Court of Appeals. 1 SCRA 12180 (1961). The Intestate Estate of Marcelo M. 5 Balatbat v. 1475 Civil Code.5 Consent or perfection of the sale is manifested by the meeting of the offer and the acceptance on three items: (a) subject matter. 163-164 (1997). Also. 6 Navarro v. Court of Appeals. 268 SCRA 160. Civil Code. 146 SCRA 158 (1986).8 and ownership of the subject matter by the seller at the time of perfection is not an essential requirement for the validity of the sale. and they do not attack the very essence of perfection. v. 363 SCRA 545 (2001).320 LAW ON SALES obligations that can be breached. such as delivery in real contracts. 9 Arts. and (c) terms of payment of the price. 299 SCRA 695 (1998). Santos. 261 SCRA 128 (1996). Inc. (b) price. Soliva v. a valid sale exists to bind both seller and buyer even if at the time of perfection the seller was not the owner thereof since it does not even exist yet.9 In other words. 1461. Civil Code.4 and not by performance of an act. Co v. 1459 and 1475. Court of Appeals.

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Perfection of a sale merely creates the obligation on the part of the seller to transfer ownership, but by itself perfection does not transfer ownership. The law states that “the vendor must have a right to transfer the ownership thereof at the time it is delivered,”10 and that ownership of the thing sold is not transferred by perfection but “shall be transferred to the vendee upon the actual or constructive delivery thereof.”11 Consummation stage concerns itself with the actual transfer of ownership of the subject matter and the payment of the price; perfection stage merely concerns itself with the creation of the obligations to transfer and to pay. Therefore, it is not critical for valid perfection of a sale to come about, that the seller at that time is the owner of the subject matter of the sale, or even that the subject matter should exist at the time of perfection. This truism is bolstered by the fact that the law on estoppel provides that “[w]hen the 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.”12 It is obvious that Article 1434 uses the word “sells” to refer to the perfection stage of a sale since it includes “and delivers it” as an additional part of its qualification. 2. At Consummation Article 1505 of the Civil Code provides that “where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had.” The article does not say that the sale of goods by a non-owner renders the contract void; it describes the consequences when delivery under a sale is effected when the seller is not the owner of the thing delivered. As the Supreme Court aptly held: “It is a well-settled principle in law that no one can give what one does not have — nemo dat quod non habet. Accordingly, one can sell
10 11

Art. 1459, Civil Code. Art. 1477, Civil Code. 12 Art. 1434, Civil Code.

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only what one owns or is authorized to sell, and the buyer can acquire no more than what the seller can transfer legally.”13 In Mindanao Academy, Inc. v. Yap,14 a widow, without the consent or authority of her co-owners-children, sold school properties to buyer Yap, who obtained possession of the properties by virtue of the sale, and took over the operations of the school. Consequently, the other co-owners brought two actions against buyer Yap: one for annulment of sale, and the other for rescission. The two cases having been tried together, the trial court ruled that the sale was null and void. On appeal, the Court upheld the decision of the trial court, as follows:
The lower court did not rule categorically on the question of rescission considering it unnecessary to do so in view of its conclusion that the contract of sale is null and void. This conclusion is premised on two grounds: (a) the contract purported to sell properties of which the sellers were not the only owners ...; and (b) the prestation involved in the sale was indivisible, and therefore incapable of partial annulment, inasmuch as the buyer Yap, by his own admission, would not have entered into the transaction except to acquire all of the properties purchased by him.15

In affirming the “nullity of the sale,” by the fact that the seller “sold” under the sale properties that she did not own solely, the Court seemed to have reasoned improperly. Certainly, a seller may validly “sell” (enter into a valid and binding sale) properties which he entirely does not own at the time of perfection. Such contract is valid, and an action to annul such contract is improper; and it is his failure to comply with his obligation to transfer ownership over the subject matter that would give rise to an action for rescission with damages. But really much depends on what the Court meant to cover by the term “contract of sale” as being “null and void.”
13 Gonzales v. Heirs of Thomas and Paula Cruz, 314 SCRA 585, 597 (1999). Also Segura v. Segura, 165 SCRA 368 (1988). 14 13 SCRA 190 (1965). 15 Ibid, at p. 194; emphasis supplied.

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If the sale referred to in Mindanao Academy was considered as a “contract” defined by law as “a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something,”16 such sale was certainly not null and void even though the seller was not the owner of the thing sold at the time of perfection. On the other hand, if the sale was being considered at its consummation stage, that by tradition it has transferred ownership to the buyer, then indeed such transfer of ownership was “null and void” for a seller cannot transfer ownership by delivery of a thing which he does not own, even as a consequence of a valid sale. Mindanao Academy therefore indicates to us the difficulties of not distinguishing which stage in the life of the sale is being referred to: is it the “contract” as an agreement that gives rise to obligations (perfected contract), or is it the living contract as a manner of performance (consummated contract). In Estoque v. Pajimula,17 Buyer 1 bought a designated 1/3 southeastern portion of a large tract of land (lot 802) from the seller who was then a pro-indiviso one-third co-owner thereof. Subsequently, the seller, having obtained the ownership of the entire property from his co-owners, sold the remaining 2/3 portion thereof to Buyer 2. Buyer 1 thereupon sought to exercise the statutory right of redemption,18 as a co-owner of the property as against Buyer 2 on the basis that since the seller was merely a co-owner at the time of the sale to her, Buyer 1 merely acquired one-third pro-indiviso title to the property, making her a co-owner thereof. In ruling against Buyer 1, the Court held:
... While on the date of the sale to [Buyer 1] said contract may have been ineffective, for lack of power in the vendor to sell the specific portion described in the deed, the transaction was validated and became fully effective when the next day ... the vendor ... acquired the entire interest of her remaining co-owners ... and thereby became the sole owner. ... Article 1434 of the Civil Code of the Philippines clearly prescribes that —
16 17

Art. 1305, Civil Code. 24 SCRA 59 (1968). 18 Art. 1620, Civil Code.

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“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.” Pursuant to this rule, [Buyer 1] became the actual owner of the southeastern third of lot 802 ... Wherefore, she never acquired an undivided interest in lot 802 ...19

Again in Estoque we encounter difficulties with the structure of the ruling which held as “ineffective” a sale upon its execution (“on the date of the sale”) just because seller lacked the power “to sell the specific portion described in the deed.” Such lack of power to transfer ownership does not affect the validity of a sale, since the subject matter at perfection had all the statutory requisites to make the sale valid: it was existing, licit and determinate. On the other hand, the reasoning in Estoque is not bad when taken in the sense that if we focus on the execution of the deed of sale, as a public document, equivalent to constructive delivery to transfer ownership of the subject matter to Buyer 1, then the Court was correct in saying that such “sale” (i.e., the transfer of ownership by constructive delivery) was indeed ineffective as of the date of the execution of the deed, since the seller could not validly transfer a specific one-third portion which he did not own. But again, we have to cut and dice in order to get the Court’s conclusion right, when it would all be so easy to state clear doctrinal pronouncements by specifying what particular stage is being referred to. In Almendra v. Intermediate Appellate Court,20 the Court, in holding “void” the “sale” of a particular one-half portion of a conjugal property by the surviving spouse held —
The unquestionability of the due execution of the deeds of sale notwithstanding, the Court may not put an imprimatur on the intrinsic validity of all the sales. The ... sale ... of one-half portion of the conjugal
19 20

Ibid, at p. 63; emphasis supplied. 204 SCRA 142 (1991).

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property ... may only be considered valid as a sale of Aleja’s one-half interest therein. Aleja could not have sold the particular hilly portion specified in the deed of sale in the absence of proof that the conjugal partnership property had been partitioned after the death of Santiago. Before such partition, Aleja could not claim title to any definite portion of the property for all she had was an ideal or abstract quota or proportionate share in the entire property.21

The Court in Almendra obviously used the words “sale” and “sold” to cover the consummated stage of the sale referred to. It reiterated the principle on the issue of ownership at the time of consummation in Noel v. Court of Appeals,22 thus —
In a contract of sale, it is essential that the seller is the owner of the property he is selling. The principal obligation of a seller is “to transfer the ownership of” the property sold (Civil Code of the Philippines, Art. 1458). This law stems from the principle that nobody can dispose of that which does not belong to him (Azcona v. Reyes, 59 Phil. 446 [1934]; Coronel v. Ona, 33 Phil. 456 [1916]). NEMO DAT QUOD NON HABET.23

In Development Bank of the Philippines v. Court of Appeals,24 the Court continued to view the sale by a non-owner of the subject property to be void instead of treating the tradition aspect as having no effect on transferring ownership to the buyer, thus —
As a general rule, if one buys the land of another, to which the seller is supposed to have a good title, and in consequence of facts unknown alike to both parties, the seller has in fact no title at all, equity will cancel the sale and cause the purchase money to be restored to the buyer, putting both parties in status quo. “This is because the declaration of nullity of a contract which is void ab initio operates to restore things to the
21 22

Ibid, at p. 149. 240 SCRA 78 (1995). 23 Ibid, at p. 88. 24 249 SCRA 331 (1995).

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state and condition in which they were found before the execution thereof.”

Therefore, the purchaser is entitled to recover the money paid by him where the contract is set aside by reason of the mutual material mistake of the parties as to the identity or quantity of the land sold. And where a purchaser recovers the purchase money from a vendor who fails or refuses to deliver the title, he is entitled as a general rule to interest on the money paid from the time of payment.25 Although the Court talks about the effect of declaration of nullity of a sale, the proper remedy was actually rescission and the same ends sought to be achieved would have happened, which was restitution. In Nool v. Court of Appeals,26 the Court recognized the principle that the absence of ownership by the seller at the time of perfection does not render the sale void. Nevertheless, the Court relied on the concept of “impossible service” as the basis to hold the sale void, thus:
In the present case, it is clear that the sellers no longer had any title to the parcels of land at the time of sale. Since ... the alleged contract of repurchase, was dependent on the validity of the [main contract of sale], it is itself void. A void contract cannot give rise to a valid one. Verily, Article 1422 of the Civil Code provides that “(a) contract which is the direct result of a previous illegal contract, is also void and inexistent.” We should however add that Dignos did not cite its basis for ruling that a “sale is null and void” where the sellers “were no longer the owners” of the property. Such a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Art. 1409 of the Civil Code. Moreover, [Article 1462 of] the Civil Code itself recognizes a sale where the goods are to be “acquired x x x by the seller
25 26

Ibid, at pp. 337-338. 276 SCRA 149 (1997).

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after the perfection of the contract of sale” clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. In the present case however, it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers, as the buyers themselves have already acquired title and delivery thereof from the rightful owner, the DBP. Thus, such contract may be deemed to be inoperative and may thus fall, by analogy, under item No. 5 of Article 1409 of the Civil Code: “Those which contemplate an impossible service.” Article 1459 of the Civil Code provides that “the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered.” Here, delivery of ownership is no longer possible. It has become impossible.”27

The problem with the foregoing reasoning is that it treats seller’s obligations as personal obligations “to do” which would then be covered by paragraph 5 of Article 1409. Fact is that seller’s obligations are real obligations “to give” and therefore do not fall within the category of “impossible service;” and if indeed the obligation to delivery ownership can no longer be complied with, the remedy is not to declare the sale void, but actually to rescind the sale for breach of contract. Recently though, in Cavite Development Bank v. Spouses Syrus Lim,28 the Court explained the proper application of the Latin maxim Nemo dat quod non habet, as properly applicable to the consummation of a sale thus:
Nemo dat quod non habet as an ancient Latin maxim says, One cannot give what one does not have. In applying this precept to a contract of sale, a distinction must be kept in mind between the “perfection” and the “consummation” stages of the contract. A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object
27 28

Ibid, at pp. 157-158. 324 SCRA 346 (2000).

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of the contract and upon the price. It is, therefore, not required that, at the perfection stage, the seller be the owner of the thing sold or even that such subject matter of the sale exists at that point in time. Thus, under Article 1434 of the Civil Code, when a person sells or alienates a thing which, at that time, was not his, but later acquires title thereto, such title passes by operation of law to the buyer or grantee. This is the same principle behind the sale of “future goods” under Art. 1462 of the Civil Code. However, under Art. 1459, at the time of delivery or consummation stage of the sale, it is required that the seller be the owner of the thing sold. Otherwise, he will not be able to comply with his obligation to transfer ownership to thebuyer. It is at the consummation stage where the principle of nemo dat quod non habet applies.29

3. Sale by Co-Owner of the Whole Property or Definite Portion Thereof The rule in co-ownership is that none of the co-owners may claim any right, title or interest to a particular portion of the thing owned in common. A co-owner has no right to sell a divided part of the real estate;30 although he is the owner of an undivided half of a tract of land, he has a right to sell and convey an undivided half, but he has no right to divide the lot into two parts, and convey the whole of one part by metes and bounds.31 When a co-owner sells a particular portion of the property owned in common, the early rule was that the sale is void as it attempts to sell a particular portion of the property, but is valid as to the spiritual share of the co-owner-seller. In Lopez v. Cuaycong,32 where a co-owner sold the particular portion of the property owned in common when there has been no partition yet, the Court held: “The fact that the contract of sale made by a coowner purports to sell a concrete portion of the property held in
29 30

Ibid, at pp. 355-356. Acabal v. Acabal, 454 SCRA 555 (2005); Barcenas v. Tomas, 454 SCRA 593 Lopez v. Ilustre, 5 Phil. 567 (1906). 74 Phil. 601 (1944).

(2005).
31 32

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common, does not render the sale void, for it is a well-established principle that the binding force of a contract must be recognized as far as it is legally possible to do so.”33 The rule therefore is when prior to partition a co-owner sells the entire property owned in common, the sale of the property itself is void (i.e., the attempt to transfer ownership of the entire property by virtue of the sale), but valid as to his spiritual share.34 On the other hand, when a co-owner prior to partition sells a definite portion of the property owned in common, the sale as to that portion is not valid as to the other co-owners, but valid as to his spiritual share, if indeed the buyer would have still bought such spiritual share had he known that the definite portion sold would not be acquired by him. Bailon-Casilao v. Court of Appeals,35 outlined the effects of sale by one co-owner without the consent of all the co-owners, thus:
The rights of a co-owner of a certain property are clearly specified in Article 493 of the Civil Code. ... As early as 1923, this Court has ruled that even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other co-owners who did not consent to the sale (Punsalan v. Boon Liat, 44 Phil. 320 [1923]). This is because under the aforementioned codal provision, the sale or other disposition affects only his undivided share and the transferee gets only what would correspond to his grantor in the partition of the thing owned in common. [Ramirez v. Bautista, 14 Phil. 528 [1909])... From the foregoing, it may be deduced that since a co-owner is entitled to sell his undivided share, a sale of the entire property by one co-owner without the consent of the other co-owners is not null and void. However, only the rights of the co-owner-seller are
Ibid, at p. 602. Lopez v. Cuaycong, 74 Phil. 601 (1944). Reiterated in Fernandez v. Fernandez, 363 SCRA 811 (2001); Acabal v. Acabal, 454 SCRA 555 (2005); Panganiban v. Oamil, 542 SCRA 166 (2008). 35 160 SCRA 738 (1988).
34 33

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transferred, thereby making the buyer a co-owner of the property.36

The effects of the sale of the entire property by one of the coowners, without the consent of the other co-owners, as affecting only the seller’s pro-indiviso share, has been revisited lately in Paulmitan v. Court of Appeals,37 which rightly found that the sale by a co-owner of the entire property without the consent of the other co-owners cannot be considered as null and void.38 Tomas Claudio Memorial College, Inc. v. Court of Appeals,39 held that when a co-owner sells the entire property, the sale is valid as to his spiritual share since “a co-owner is entitled to sell his individual share” and the proper action to take is not the nullification of the sale, or for recovery of possession of the property owned in common from the other co-owners, but for division or partition of the entire property.40 The foregoing rulings seem to gloss over the commercial fact that often the meeting of minds between the seller and the buyer comes about by the commutative nature of the transaction, i.e., that the buyer was willing to pay a higher price, if he thought the seller was obliging himself to sell the entire property or a definite portion thereof. If it turns out that the seller had no capacity to do so, because he is in fact merely a co-owner, then it may happen more often than not that the sale is void under the provisions of Article 1409(6) “where the intention of the parties relative to the principal object of the contract cannot be ascertained.” Otherwise, to compel the buyer to stick by the terms of the contract, would lead to either or both of two things: (a) you compel the buyer to accept a subject matter (i.e., spiritual share) to which he never agreed to buy; and (b) to pay the agreed price for a subject matter
Ibid, at pp. 744-745. 215 SCRA 866 (1992). 38 Reiterated in Aguirre v. Court of Appeals, 421 SCRA 310 (2004); Heirs of the Late Spouses Aurelio and Esperanza Balite v. Lim, 446 SCRA 54 (2004). 39 316 SCRA 502 (1999). Reiterated in Santos v. Lumbao, 519 SCRA 408 (2007); Republic v. Heirs of Francisca Dignos-Sorono, 549 SCRA 58 (2008). 40 Reiterated in Heirs of Romana Ingjug-Tiro v. Casals, 363 SCRA 435 (2001), Fernandez v. Fernandez, 363 SCRA 811 (2001); and Aguirre v. Court of Appeals, 421 SCRA 310 (2004).
37 36

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(spiritual share) which commands a smaller value in the market. The solutions given by the Court would often lead to unjustment enrichment on the part of the seller. On the other hand, if the proferred solution is that the buyer shall be compelled to accept delivery of the spiritual share in the property intended to be bought, and mandate that he will be paying a smaller amount as the price for the spiritual portion, then it really amounts to making a new contract between them, where the subject matter has drastically changed, as well as the price. The proper solution it seems to the author is that, the original contract terms be upheld as valid (which is so, as discussed above), but the option is granted to the buyer to either seek for rescission for breach of seller’s obligation to deliver the object agreed upon, or to accept partial delivery, i.e., only the spiritual portion, which appropriate reduction of price, similar to the rules in sale of real property per unit of measure or number. 4. Exceptions to Rule on Effect of Sale of Definite Portion by Co-owner The general rule on the effect of the sale of the entire property owned in common by one of the co-owners, to be void as a sale of the whole property or any definite portion thereof (i.e., to validly effect transfer of ownership), but valid as to the co-owner-seller’s spiritual share, is subject to a number of exceptions: Firstly, it does not apply to a situation where the subject matter is indivisible in nature or by intent. In Mindanao Academy, Inc. v. Yap,41 where one of the co-owners sold the school and its properties owned in common with other co-owners, the Court held that the sale of the entire property owned in common by one of the co-owners was “void,” and could not even be binding as to the spiritual share of the seller since the prestation involved in the sale was indivisible, and therefore incapable of partial annulment, inasmuch as the buyer would not have entered into the transaction except to acquire all of the properties purchased by him.42
41 42

13 SCRA 190 (1965). Ibid, at p. 194.

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Secondly, when a sale of a particular portion of the thing owned in common is with the consent of the other co-owners, the legal effect is different. In Pamplona v. Moreto,43 the Court held that when there has been no express partition of the subject matter owned in common, but the co-owners who sells points out to his buyers the boundaries of the part he was selling, and the other co-owners make no objection, there is in effect already a partial partition, and the sale of the definite portion can no longer be assailed by the other co-owners. Thirdly, in Imperial v. Court of Appeals,44 it was held that a co-owner who sells one of the two lands owned in common with another co-owner, and does not turn-over one-half of the proceeds of the sale to the other co-owner, the latter by law and equity may lay exclusive claim to the remaining parcel of land. Fourthly, would be the effect of the ipso jure transfer of ownership under Article 1434 of the Civil Code. In Pisueña v. Heirs of Petra Unating,45 the Court held that when co-heirs sell and deliver the entire lot owned in common with their father who was still alive at that time, and subsequently the father dies, then the buyer becomes the owner of the entire property bought pursuant to the provisons of Article 1434 of the Civil Code which upholds the validity of a sale by one who previously did not have, but who subsequently acquired, title to the property sold. Finally, would be the binding effect of registration under the Torrens System. Cruz v. Leis,46 held that although a co-owner may validly sell only her co-ownership interests, and that the sale of the entire property or of a particular portion thereof is void, nevertheless, when Torrens title to the conjugal property indicates that the wife is the only owner thereof being described as a “widow,” then one who buys such property from the wife in good faith and for value, will acquire valid title thereto against the heirs of the deceased spouse: “The rationale for this rule
43 44

96 SCRA 775 (1980). 259 SCRA 65 (1996). 45 313 SCRA 384 (1999). 46 327 SCRA 570 (2000).

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that ‘a person dealing with registered land is not required to go behind the register to determine the condition of the property. He is only charged with notice of the burdens on the property which are noted on the face of the register or the certificate of title. To require him to do more is to defeat one of the primary objects of the Torrens system.’”47

EXCEPTIONS TO RULES ON LEGAL EFFECTS OF SALE BY A NON-OWNER
The discussions that follow immediately hereunder pertain to applicable rules in consummation stage that pertain to issues as to preference of ownership between the original owner of the property who is a third party to a sale between a seller and a buyer over the same property; essentially, there is only one sale involved, with the original owner being a stranger to said contract. The rules should therefore not be confused with the set of rules governing double sales. Although Article 1505 provides that where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, it also provides for the following exceptions: (a) When the owner is, by his conduct, precluded from denying the seller’s authority to sell; (b) When the contrary is provided for in recording laws; (c) When the sale is made under statutory power of sale or under the order of a court of competent jurisdiction; and (d) When the sale is made in a merchant’s store in accordance with the Code of Commerce and special laws.

47

Ibid, at p. 578.

The first two additional exceptions will be discussed in their proper sections below. 1. 2. the sale by a seller who at the time of delivery had voidable title to the thing delivered.334 LAW ON SALES Other exceptions to the main principle enunciated under Article 1505 would be the following: (e) Under Article 1506. . (f) In case of movables. Recording Laws Except on the effect of registration of chattel mortgage and its subsequent foreclosure and sale at public auction.48 where the seller sold a parcel of land to the buyer at the time the seller was not yet the owner of the land sold. In Bucton v. the acquisition after one year by the seller of the ownership of said land was automatically transferred to the buyer. while the third item is discussed in Chapter 10. such title passes by operation of law to the buyer or grantee. When Real Owner Estopped An example when the owner is estopped is Article 1434 of the Civil Code that provides that when a person who is not the owner of a thing sells or alienates title thereto. acquisition of possession in good faith under a claim of ownership. under Article 559. and the jurisprudential rules that have come to govern the hierarchy of 48 55 SCRA 499 (1974). and (g) Special rights of an unpaid seller of goods to resell under Articles 1526 and 1533 of the Civil Code. and the seller was estopped from questioning the title of his buyer. makes the possessor the rightful owner of the movable. where the real owner has not lost or been unlawfully deprived of the movable. Gabar.

G. . This is a case of an imperfect or void title ripening into a valid one. Velasco:49 Under paragraph (3) of Article 1505 of the Civil Code. Judicial Sale Judgments of courts divesting the registered owner of title and vesting them in the other party are valid although the courts may not be the owner of the land. the sale by a sheriff of land levied upon at public auction would validly transfer ownership to the highest bidder. a person who buys a thing at a merchant’s store after the same has been put on display thereat. there are at present no other recording laws pertaining to movables that provide the same principle as “registration as the operative act” principle applicable to registered land under The Property Registration Decree... 4. Statutory Power. as a result of some intervening causes. The policy of the law has always been that where the rights and interests of a vendor come into clash with that of an innocent buyer for value. although the sheriff in executing the certificate of sale has no ownership over said property. 3.SALE BY A NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE “LIFE” OF CONTRACT OF SALE 335 claims on shares of stock of a corporation. acquires a valid title to the thing although his predecessors in interest did not have any right of ownership over it. for a buyer cannot be reasonably expected to look behind the title of every article when he buys at a store. . v. the latter must be protected. Also. Sale at Merchant Store The reason for validating the sale and transfer of ownership to buyers who bought from merchant stores is well summarized in the syllabus in Sun Brothers & Co. The doctrine of caveat emptor is 49 54 O. 5143 (1958). This rule is necessary in a country such as ours where free enterprise prevails. protecting innocent third parties who have made purchases at merchants’ stores in good faith and for value appears to be a wise and necessary rule not only to facilitate commercial sales on movables but to give stability to business transactions.

and provided also that the firm or person maintaining that office is actually engaged in the business of buying and selling. for it is a necessary element that there must also be goods or wares stored therein or on display. It would logically follow then that if the cut-off point under Article 1506 is the delivery of the subject matter to the buyer by the seller. It held that “placing of an order for goods and the making of payment thereto at a principal office does not transform said office into a store. 859 (1959). . perfection stage of sale involves the obligation to transfer ownership. the buyer does not obtain good title to the property. but does not cover nor convey ownership itself. 50 51 101 Phil.50 when it held that a “store” is any place where goods are kept for sale. Bugsuk Lumber Co. the buyer acquires a good title to the goods.”51 5. or where goods are deposited and sold by one engaged in buying and selling them. it must cover the consummation stage. What constitutes “merchant store” can be culled from City of Manila v. but his title has not been avoided at the time of sale. and without notice of the seller’s defect of title. Sale by a Seller Who Has Voidable Title on the Subject Matter Sold Under Article 1506. Article 1506 talks of “title” or ownership to the property which covers the consummation stage. at p..” When the article states that “title has not been avoided at the time of sale. for value.336 LAW ON SALES now rarely applied. Ibid. provided he buys them in good faith.” what stage of the sale is referred to as the cut-off point? It would seem that if the rest of the provisions of Article 1506 would require that the buyer should have paid value therefor. “Where the seller of goods has a voidable title thereto. if the seller’s voidable title thereto is avoided after the perfection of the sale but before delivery. 866. and if it is ever mentioned it is more of an exception rather than the general rule.

250 SCRA 523 (1995).54 By 52 53 Limketkai Sons Milling. 1529. when the seller of a parcel of land has only voidable or void title to the property. and in spite of actual or constructive delivery. Court of Appeals. takes only the same title to the land which his seller had. valid title) than that of his seller. has only voidable title to the subject parcel of land.” which require not only a valid underlying sale. 54 Pres. The only exception to this principle of Nemo dat quod non habet is the “registration in good faith as the operative act” doctrine embodied in Sec. instead of the buyer insisting that the seller guarantee its title to the land and recognize the right of the buyer to proceed against the seller if the title to the land turns out to be defective as when the land belongs to another person. 543. Applicable Rules to Immovables Do the rules provided for under Articles 1505 and 1506. Consequently. v. . at p. following the principle under Article 1506? The answer seems to be in the negative. except for the application of the Torrens system. and instead the reverse is found in the deed of sale providing that any losses which the buyer may incur in the event the title turns out to be vested in another person are to be borne by the buyer alone.. would the buyer in good faith and for value take a “better title” to the land (i.SALE BY A NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE “LIFE” OF CONTRACT OF SALE 337 The buyer is not in good faith may be determined from the language of the deed of sale. if a seller at the time of sale and delivery. as held by the Court in one case:52 “The language of the deed of sale may show bad faith on the part of the buyer. apply to immovables? For example. Ibid. since the essence of the coverage of Articles 1505 and 1506 would be “goods.”53 6. 113 of the Property Registration Degree. then the buyer. Decree No. but necessarily the element of transfer of possession embodied as the primary test of ownership for movables under Article 559 of the Civil Code. In the deed.e. Inc. even though in good faith and for value. show that the buyer did not purchase the subject matter in good faith without notice of any defect in the title of the seller.

thus — . Where innocent third persons. the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. Ibid.55 In that decision. thus — .” on the ground that it is still a sale in accordance with Article 1458 of the Civil Code. at p. the Court held that even when the sale is void for being based on a fictitious transfer from a previous seller to the current seller (as the former did not own the property in its entirety when sold). The sanctity of the Torrens system must be preserved. in turn. since the effect of such outright cancellation will be to impair public confidence in the certificate of title. the court cannot disregard such rights and order the cancellation of the certificate. the general rule that the direct result of a previous void contract cannot be valid... otherwise. Reiterated in Clemente v. Spouses Cyrus Lim. is inappicable when it will directly contravene the Torrens system of registration. though essentially a “forced sale.338 LAW ON SALES way of illustration. 57 324 SCRA 346 (2000). relying on the correctness of the certificate of title thus issued. Every person dealing with the registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property.. the forced seller. Razo. Being a sale.56 In Cavite Development Bank v. Court of Appeals. everyone dealing with the property registered under the system will have to inquire in every instance as to whether the title had been regularly or irregularly issued. 509. This is the reason why Article 2085 of the Civil 55 56 291 SCRA 495 (1998). becomes obliged to transfer the ownership of the thing sold to the highest bidder who. acquire rights over the property. .57 the Court applied the same principle to a foreclosure sale.. 452 SCRA 769 (2005). under which the mortgagor in default. we can rely upon the ruling in Heirs of Spouses Benito Gavino v. is obliged to pay the bid price in money or its equivalent. contrary to the evident purpose of the law.

relied upon what appears on the face of the certificate of title. are not required to go beyond what appears on the face of the title. a situation where. the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. . 60 341 SCRA 572 (2000).59 the Court held that the defense of indefeasibility of Torrens title is unavailing to properties and other improvements situated or built therein. and not under a forged deed. at p. in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan. The public interest in upholding the indefeasibility of a certificate of title. 58 59 Ibid. requires among other things. This is the doctrine of “the mortgagee in good faith” based on the rule that all persons dealing with property covered by a Torrens Certificate of Title. as buyers or mortgagees. despite the fact that the mortgagor is not the owner of the mortgaged property. Court of Appeals. in good faith. the principle is premised on the existence of a valid sale. such that the mere fact that the lot where the factory and disputed properties stand was in the name of the bank did not automatically mean that everything found on the lot also belonged to the bank. as evidence of the lawful ownership of the land or of any encumbrance thereof.SALE BY A NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE “LIFE” OF CONTRACT OF SALE 339 Code. 358. especially when there was a letter received by the buyer revealing such fact.58 It should be noted that in Tsai v. Inc.60 reiterated that an innocent purchaser for value is one who purchases a titled land by virtue of a deed executed by the registered owner himself. protects a buyer or mortgagee who. Insurance Services and Commercial Traders. There is however. his title being fraudulent. Court Appeals. v. Likewise. 366 SCRA 324 (2001). in providing for the essential requisites of the contract of mortgage. that the mortgagor or pledgor be the absolute owner of the thing mortgaged.

47 SCRA 160 (1972). Although it may be settled jurisprudence that the term “unlawfully deprived. 165 (1972). 3796 (30 June 1957). Pahati. 9 Phil. Sotelo. If the possessor of a movable lost or of which the owner has been unlawfully deprived. Valera v.S. 788 (1956). then the original owner cannot recover the movable.”61 which includes not only cases of theft and robbery. and even if he offers to reimburse the buyer. 147 (1914). but including one occasioned by swindling or estafa.62 nonetheless the rule under Article 559 is subject to the following exceptions: (a) By cross-reference to Article 1505. has acquired it in good faith at a public sale. 47 SCRA 160. All the foregoing cases “have one factor in common: Persons not duly authorized to do so pawned or pledged jewelry in favor of innocent third persons. 98 Phil. the article provides that one who has lost any movable or has been unlawfully deprived thereof. Dizon v. Jimenez. Lucena. In addition. 47 (1911). Suntay. Raymundo.” Tagatac v. 53 O. Finick. No. if the possessor in good faith acquired title from a seller who at the time of delivery had a voidable title thereto. Arenas v. 535 (1907). v. 12 3792. 28 Phil. Suntay. 62 61 .340 LAW ON SALES 7. Dizon v. U. and (b) By cross-reference to Article 1506. 19 Phil. 8 Phil. he cannot recover the movable from the buyer who bought it at a merchant store.” would cover situations when the original owner has been “dispossessed without his consent. Cruz v. 479 (1908). Del Rosario v. even if the owner of a movable has lost it or has been unlawfully deprived thereof.G. the owner cannot obtain its return without reimbursing the price paid therefor. “Title” as to Movable Properties Article 559 of the Civil Code provides that possession of movable property acquired in good faith is equivalent to title. may recover it from the person in possession of the same. even if the owner of a movable has lost it or has been unlawfully deprived thereof.

On the issue as to who was the rightful owner of the vehicle. buyer sold the vehicle to another person. and eventually the vehicle was sold to Jimenez. but the title to the thing sold would not revert to the seller until the sale has been set aside by a competent court. In EDCA Publishing & Distributing Corp. v. Jimenez. Aznar also held that the provisions of Article 1506 would not apply to the present possessor since it was essential that his seller should have a voidable title at least.G.SALE BY A NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE “LIFE” OF CONTRACT OF SALE 341 In Tagatac v. who bought it in good faith and for value. Feist was convicted for estafa. Santos. Yapdiangco. 3792 (30 June 1957). the acquisition subsequently of another person who took it in good faith. 65 184 SCRA 614 (1990). which check bounced. In the case of the present possessor his seller did not even have any title to the property since it was never sold to him nor delivered to him pursuant to a valid or at least voidable sale. The impostor sold the books to Santos. at the most it would give Tagatac a right to rescind the contract. the rights of stranger in good faith.64 where the owner had not yet consented to the sale of the vehicle when it was taken and driven away by the would-be buyer. Subsequently.65 an impostor identifying himself as a professor obtained delivery of books from EDCA and for which he issued a check that subsequently bounced. No. In the case of Aznar v. . Until that is done. acquired before resolution of the contract are entitled to protection. the Court held that Tagatac cannot be deemed to have been unlawfully deprived of the vehicle as the term is used in Article 559 since the failure of Feist to pay the purchase price of the vehicle or the issuance of a check for its price without funds to answer therefor did not or could not affect the validity of the transfer of title of the subsequent buyer who acquired the car in good faith. 12. In the meantime. 63 64 53 O. 13 SCRA 486 (1965). would still entitle the original owner to recover the same since it constituted unlawful deprivation under Article 559 entitling the owner to recover it from any possessor thereof.63 Tagatac was the owner of a vehicle she sold to Feist who issued a check to cover the purchase price.

it remained valid. so that when delivery was effected pursuant to such voidable contract. the buyer obtains good title and the original owner has no cause of action to recover. tradition effectively and legally transferred ownership to the buyer. but merely may be considered vitiation of consent as to make the contract voidable. the Court ruled that deceit or fraud. even though he was a deceitful person. . which do not render the contract void but merely voidable (valid until annulled) resulted into the existence of a sale. It also correctly ruled that the nonpayment of the price by the bouncing of the check went into the performance of the contract and not to its perfection and therefore non-payment could not reverse the coming into existence of the sale by the meeting of minds of the parties. the Court held non-payment of the purchase price by the impostor. In the resulting suit over the books between EDCA and Santos.342 LAW ON SALES who bought them in good faith and for value. but the one who takes the movable is able to sell and deliver the movable to another person who takes it in good faith and for value before the owner is able to rescind the earlier sale. did not amount to unlawful deprivation under Article 559. In Tagatac. In denying the contention of EDCA that it had been “unlawfully deprived” of the books. and What is gratifying from a reading of the foregoing three cases is that the Court incisively distinguished between the perfection stage and the consummation stage of the sale to arrive at a proper resolution of the issues. although amounting to fraud. which means that if the owner has been unlawfully deprived by means of deceit pertaining to the non-payment of the purchase price. but that so long as the contract has not been annulled. The implication of the Tagatac and EDCA Publishing rulings is that Article 1506 represents an operative act which would constitute a further exception to the provisions of Article 559. and the subsequent sale and delivery by the impostor of the books to Santos effectively transferred ownership to Santos. the Court held that Santos did not have to establish his ownership over the books since under Article 559 his possession of books acquired in good faith is equivalent to title.

the Court held the line that non-delivery of the vehicle by the seller could not have possibly given any sort of title to the would-be buyer. that ownership in the thing sold shall not pass to the buyer until full payment of the purchase price only if there is stipulation to that effect. thus: The contract of sale is consensual and is perfected once agreement is reached between the parties on the subject matter and the consideration. Non-payment only creates a right to demand payment or to rescind the contract.SALE BY A NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE “LIFE” OF CONTRACT OF SALE 343 In Aznar. But absent the stipulation noted. end this chapter.. and that ownership is not transferred by contract merely (i. perfection of the contract) but by tradition or delivery. at p.. delivery of the thing sold will effectively transfer ownership to the buyer who can in turn transfer it to another. in EDCA. .e. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. 1478. It is clear from the above provisions. and by the succeeding quoted passages.66 —oOo— 66 Ibid. the rule is that such ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been paid. Finally. and the latter could not in turn convey any title. particularly the last one quoted. or to criminal prosecution in the case of bouncing checks. ART. to his own buyer to bring the case under Article 1506. According to the Civil Code: .. the Court with much lucidity said. 618. valid or voidable. The Court pointed out that perfection of the contract does not transfer ownership. Otherwise.

The Roman law principle embodied in the Spanish Civil Code previously applicable to the Philippines. since the United States was then our biggest and most important trading partner. and the benefits flowing from the fruits and improvements. provided that the sale is unconditional. The discussions hereunder cover only contracts of sale where the subject matter is determinate or specific. FRUITS AND OTHER BENEFITS Analysis of the prevailing doctrines in Philippine jurisdiction on the risk of loss and deterioration. after perfection of the sale but before delivery.1 In drafting the Title on Sales of the New Civil Code. 1263 of the New Civil Code provides that: “In an obligation to deliver a generic thing. the grafting together of civil and common law principles in our Law on Sales has yielded confusing and varying interpretations. offer interesting study on the convergence of disparate principles in civil law and common law. mandated that from the moment of perfection of sale.344 LAW ON SALES CHAPTER 9 LOSS AND DETERIORATION. Unfortunately.” 344 . nonetheless. the loss or destruction of anything of the same kind does not extinguish the obligation. the consequences of deterioration of the subject matter without the fault of the seller 1 Art. the Code Commission engrafted many provisions of the Uniform Sales Law of the United States to achieve a common set of rules on sales on both sides of the Pacific. since a determinable generic subject matter does not deteriorate nor is it subject to loss. Although the principles provided that ownership of the subject matter is transferred to the buyer only upon delivery thereof by the seller. the risk of loss on a determinate subject matter passes to the buyer without need of delivery. of the object of sale.

fruits and improvement of the purported subject matter are the same: such loss. fruits and improvements shall pertain to the purported seller. were for the account of the buyer. BEFORE PERFECTION Before the perfection of a sale. This legal fusion on principles have caused the current confusion that prevails on the issue of risk of loss.LOSS AND DETERIORATION. in the absence of any stipulation to the contrary. even when the legal principles were different. the Code Commission decided to adopt the common law principle that it should be the owner of the subject matter of the sale that should bear the risk of loss (res perit domino). under common law principles. in a sale. On the other hand. any improvement or fruits of the subject matter after perfection are for the benefit of the buyer. and he must still pay the price agreed upon even when eventually the subject matter delivered is no longer in the same condition. However. the purported subject matter bears no legal or even equitable relationship to the purported buyer. but the perfection of an unconditional sale with availability of the subject matter for delivery. but they maintained the civil law principle that ownership can only be transferred by delivery. Under the same principle. deterioration. Therefore. In amending the provisions relating to the risk of loss. deterioration. prior to perfection. it is not delivery under common law that transfers ownership to the buyer. and . FRUITS AND OTHER BENEFITS 345 shall likewise be borne by the buyer. When it comes to goods. the legal consequences from the point of perfection were the same in both legal systems: upon perfection of an unconditional sale involving specific or determinate subject matter. Notwithstanding the extent of the negotiations that have taken place. it is the owner who bears the risk of loss (res perit domino). the risk of loss. the rules on loss. deterioration and the benefits of fruits and improvements. ownership of the subject matter is transferred to the buyer from the moment the contract is entered into and the goods are available to be delivered to the buyer. since he owns the thing.

Ibid. but subject to the condition that the seller must clear his title to the vessel. perfected by mere consent without need of delivery. at p. 1475 of the New Civil Ibid. The seller demanded for the payment of the purchase price as agreed upon. the schooner sunk during a severe storm. the Court held that “[o]wnership is not considered transmitted until the property is actually delivered and the purchaser has taken possession of the same and paid the price agreed upon. In any event.00 payable in three installments. Code. 98. even though neither has been actually delivered. in which case the sale is considered perfected.500. finding that no sale had been perfected between the parties.”3 The Court held that the facts clearly show that no sale had been perfected. 4 5 . The civil law concept of risk of loss was exemplified by the early case of Roman v. Roman upheld the principle that “[a] sale shall be considered perfected and binding as between vendor and vendee when they have agreed as to the thing which is the object of the contract and as to the price. 1450 of the old Civil Code.”4 Unfortunately. now Art. before the buyer would commit to buy at the agreed price.” such a statement of course belied the consensual nature of the contract of sale. Grimalt held that the articles of the old Civil Code relative to the injury or benefit of the thing sold after the contract has been perfected and those relative to the obligations to deliver a specified thing and the extinction of such obligation 2 3 6 Phil. Ibid.”5 Although the Court used the word “perfected.346 LAW ON SALES therefore no assumption of risk of loss or deterioration can be ascribed to the latter. 96 (1906). But before delivery to the buyer could be done. at p. and therefore “the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it.2 which was decided under the Spanish Civil Code then in force in the Philippines. 99. citing Art. The seller then went about clearing his title to the schooner and prepared it for delivery to the buyer. Grimalt. The case involved the negotiations for the sale of a schooner for a total sum of 51.

shall be to the account of the buyer. From the language of the decision of Grimalt the implication was clear under the old Civil Code: that had the contract been perfected. if the subject matter is lost. the buyer may choose between withdrawing from the contract and demanding the remaining part. FRUITS AND OTHER BENEFITS 347 when the thing is either lost or destroyed. AT THE TIME OF PERFECTION Under Article 1493 of the New Civil Code. if at the time the sale is perfected. the law decrees the same effect as if the sale is void. the contract shall be “without any effect. there is really no point is pursuing the contract since the seller is not in a position to comply with his obligation to deliver the subject matter. if the sale was divisible. 1494. This was supported by then Article 1452 of the old Civil Code (now Article 1480 of the New Civil Code) that any injury to or benefit from the thing sold. the subject matter has been entirely lost. Therefore. New Civil Code. and as binding the buyer to pay the agreed price for the goods in which the ownership will pass. However. were not applicable to the case. paying its price in proportion to the total sum agreed upon. the goods have perished in part or have wholly or materially deteriorated in quality as to be substantially changed in character. Tolentino 6 Art. the buyer may treat the sale as either avoided. or as valid in all of the existing goods or in so much thereof as have not deteriorated.” But if the thing should have been lost in part only. after the contract has been perfected. it uses the phrase “without any effect.6 Article 1493 does not hold a sale at “perfection” to be void when the object thereof is lost. . In sale of specific goods. and without the knowledge of the seller.” Strictly speaking.LOSS AND DETERIORATION. the buyer would have borne the risk of loss. even without the schooner being delivered to the buyer to transfer ownership. from the moment of perfection to the time of delivery. the physical existence or non-existence of the subject matter is not important for perfection of the sale.

the rule on loss differ from the rules on deterioration. fruits and improvements. with the adoption of the common law rule on the risk of loss in the period from perfection and before delivery. then the implication is that after perfection the buyer then bears the risk of loss and deterioration even without prior delivery to him. Loss of Subject Matter The Title on Sales of the New Civil Code has retained the Roman law rule that ownership is transferred only by delivery. . Unfortunately. 1. it is the owner of the thing (the seller before delivery) who bears the consequences of its loss. 37. p. CIVIL CODE OF THE PHILIPPINES. Vol. 89. the civil law principle that ownership of the thing sold shall be transferred to the buyer only upon actual or constructive delivery thereof is now clearly expressed in Article 7 8 TOLENTINO. CIVIL CODE OF THE PHILIPPINES. V (1990 ed. In such case. p. whether actual or constructive. deterioration and benefits after perfection: If the subject matter is lost at the point of perfection. and the seller bears the loss and the buyer is relieved of his obligations under the contract.348 LAW ON SALES holds that “the contract never comes into existence. V (1959 ed.8 Nevertheless. deterioration.”7 Paras also refers to such a contract as being “void” when at the time of perfection. with respect to the same object sold. AFTER PERFECTION BUT BEFORE DELIVERY After perfection of the sale. PARAS. ideally the rules on loss. but has adopted the common law principle of res perit domino. because there can be no annulment of something that does not exist. On one hand. Vol.).). i. there is no need of an action to annul the contract..e. citing 10 MANRESA 119. the provisions of Articles 1493 and 1494 of the New Civil Code should be instructive of how to treat loss. fruits and improvements should be governed by the same set of principles. There can be no sale without a thing to be sold. the subject matter thereof is lost.

Court of Appeals.”10 Secondly. deterioration or improvement of the thing before its delivery. may compel the seller to make the delivery. Article 1480 of the New Civil Code (based on Article 1452 of the old Civil Code). the goods remain at the seller’s risk until the ownership therein is transferred to the buyer. shall be governed by Articles 1163 to 1165. in addition to the right to recover damages. which provides that “[u]nless otherwise agreed. Article 1504 is worded to cover only “goods. the obligation to deliver a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the seller. the vendor 9 Union Motor Corp v. Thirdly.” Unfortunately. it is provided that when what is to be delivered is a determinate thing. Under cross-referred Article 1262. as applied to a sale. the risk of loss is borne by the seller under the rule of res perit domino. This shows that the underlying obligation in a sale is a real obligation and therefore may be subject to the remedy of specific performance. after the contract has been perfected. “goods” include all chattels personal but not things in action or money of legal tender in the Philippines. 361 SCRA 506 (2001). provides that “[a]ny injury to or benefit from the thing sold. and includes growing fruits or crops. from the moment of the perfection of the contract to the time of delivery. FRUITS AND OTHER BENEFITS 349 1477 of the New Civil Code.” As applied to the sale. 10 Under Article 1636(1) of the New Civil Code. Court of Appeals. but when the ownership therein is transferred to the buyer the goods are at the buyer’s risk whether actual delivery of the goods has been made or not. Article 1538 of the New Civil Code provides that “[i]n case of loss. although the Supreme Court has held that the general rule under Philippine jurisdiction is that after perfection but before delivery. Chrysler Philippines v. the general principle of res perit domino is now covered by Article 1504 of the New Civil Code. under cross-referred Article 1165. the rules in Article 1189 shall be observed. the buyer.LOSS AND DETERIORATION. . 133 SCRA 567 (1984).9 the statutory bases for such doctrine are not clear-cut and sometimes conflicting. Firstly. On the other hand. and before he has incurred in delay. and 1262.

Vol. provides that “the following rules shall be observed in case of the improvement. V (1990 ed.”12 Buyer should pay even if he does not receive the 11 12 PARAS.” which is consistent with Article 1262 which provides that in “[a]n 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.). In such a case. and (b) “If the thing is lost without the fault of the debtor [seller]. the buyer is not required to pay. the seller shall be obliged to pay damages. which embodies civil law principles. and before he has incurred in delay. but the obligation [of the buyer] to pay is not extinguished”11 as the necessary consequence even when the underlying contract is reciprocal because “this happens only when the seller is able to deliver but does not.350 LAW ON SALES being considered the debtor. Ibid. the obligation shall be extinguished. But like Article 1480. which essentially embodies civil law principles. depends on the proper interpretation of the “extinguishment of obligation” clauses under Articles 1189 and 1262. p. and which applies to contracts in general. 58. Paras interprets Articles 1189 and 1262 to mean “that the obligation of the seller to deliver is extinguished. for lack of reciprocity. . It is different if the law excuses the seller.” Article 1538 is a new article not based on any provision of the old Civil Code. Article 1538 is a specific provision in the Title on Sales invoking provisions of loss applicable to contracts in general in Article 1189. which is not well-settled in our jurisdiction. but not the buyer. Article 1189. CIVIL CODE OF THE PHILIPPINES. loss or deterioration of the thing:” (a) If the thing is lost through the fault of the seller.” Whether it is the seller or the buyer who bears the risk of loss of the subject matter from perfection but before delivery.

p. pp. Or.). believes that in reciprocal obligations.LOSS AND DETERIORATION. 58. if the thing is lost before delivery. the extinguishment of the obligation due to loss of the thing “affects both debtor and creditor. Vol. he who gives nothing has no reason to demand anything. the entire juridical relation is extinguished. on the other hand. This is the result of the reciprocal character of the obligations.”15 He further writes: The rule is that the risk pertains to the debtor. IV (1991 ed. so that if the creditor has himself an obligation.14 Tolentino. The debtor is released from liability. which means that if an obligation is extinguished by the loss of the thing or impossibility of performance through fortuitous events. 15 TOLENTINO. since “there was a cause or consideration. the contractor cannot recover the agreed compensation. in a contract of a piece of work where the contractor furnished both labor and material. citing 3 COLLIN & CAPITANT 734. PADILLA. 16 Ibid. 2 VON TUHR. at p. 840-841. This is a logical consequence of the principle of res perit domino recognized in the code. the thing purchased still existed. but he cannot demand the prestation which has been stipulated for his benefit. at the time the contract was perfected. the lessee is not obliged to pay the stipulated rental. this is likewise extinguished. the counter-prestation is also extinguished. if the thing leased is destroyed by fortuitous event. Padilla takes the same position as Paras. . CIVIL CODE. The legal effect being that the buyer assumes the risk of loss of the object of the sale from the time of perfection up to the time of delivery. Thus. DE BUEN. CIVIL CODE OF THE PHILIPPINES.16 13 14 Ibid. while the buyer’s obligation to pay the price subsists. he is released from his obligation to deliver the thing. and states that when the subject matter of the sale is lost without the fault of the seller. FRUITS AND OTHER BENEFITS 351 object lost through a fortuitous event. 337. The debtor must return to the creditor whatever the latter may have already delivered by reason of the obligation. OBLIGACIONES 110.”13 Paras cites no authority for his position on this matter.

the buyer need not pay the price. would be for the account of the buyer. the legal effect of the application of either Article 1480 or Article 1538 is that after perfection of the sale but before delivery. Before delivery.352 LAW ON SALES Under Tolentino’s interpretation. 82-82. The buyer is then 17 18 BAVIERA. even when he is not yet the owner of the subject property. . and not being in breach of his obligation. where loss is borne by the vendor. Baviera also affirms such varying rules and says that “Article 1189 embodied the rule in Roman Law regarding sales subject to a condition precedent. JURADO. the seller is excused from complying with his obligation. If the thing is lost through a fortuitous event. while the deterioration and improvement.”17 Jurado. if the determinate subject of the sale is lost through the fault of the seller. but deterioration or improvement of the thing is for the account of the buyer. but the buyer is still obliged to pay for the purchase price. the effect of both Articles 1480 and 1538 would be that the risk of loss is still to be borne by the seller from the time of perfection up to before delivery of thing. However. affirmed the view of Tolentino. the rule on loss under Article 1189. If we were to take Tolentino’s position.18 If we were therefore to take Paras’s stand. he cannot be held liable for damages by the buyer. but he would no longer be liable for damages if the thing is lost through fortuitous event. the seller is excused from his obligation to deliver the thing. the risk of loss is to be borne by the buyer. SALES (1981 ed. as being more just and equitable and being more in conformity with the principle of res perit domino. pp.). would be different from the rule on deterioration and improvement: the loss of the thing would be for the account of the seller.). although recognizing and discussing the other views on the matter. it is the buyer who bears the risk of loss even if he never became the owner of the subject matter. 658-659. As a result. CIVIL LAW REVIEWER (1980 ed. but can recover damages for breach of contract. pp. should the determinate subject matter be lost through fortuitous event.

without a counter-part in the old Civil Code. Consequently. 1636.” and it applies the common law principle of res perit domino. Article 1504 is a new provision in the present Civil Code. but when the ownership is transferred to the buyer the goods are at the buyer’s risk whether actual delivery of the goods has been made or not. New Civil Code. the risk of loss would have been borne by the seller. except that: (a) Where delivery of the goods has been made to the buyer or to a bailee for the buyer. Also. the goods remain at the seller’s risk until the ownership therein is transferred to the buyer. The position would then make Articles 1480 and 1538 consistent with the provisions of Articles 1504. The term “goods” includes all chattels personal and growing fruits or crops. the seller’s estate has diminished by the value of the thing lost.19 19 Art. but not things in action or money of legal tender. The net effect of course is that the buyer ends up not the poorer. . the goods are at the buyer’s risk from the time of such delivery. 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. unless otherwise agreed. (b) 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. by its language. the rules it establishes on the risk of loss pertain specifically to “goods. FRUITS AND OTHER BENEFITS 353 not obliged to pay the price because of the inability of the seller to comply with his obligation. Under Article 1504.LOSS AND DETERIORATION. whereas. and the provisions of Articles 1480 and 1538 do not contradict the adopted principle under the new Civil Code of res perit domino.

What dilutes full reliance on Article 1504 is that as worded. 2. supra. . the mere perfection of the contract of sale. who remains the owner thereof. Fruits and Improvements Under Article 1504. except when the subject matter is “goods” in which case the risk of loss is borne by the seller. Article 1504 therefore is the clearest evidence that the Civil Code has adopted the principle of res perit domino in the Law on Sales. from the moment of perfection of the sale.354 LAW ON SALES Under the Paras position. as distinguished from a contract to sell. Therefore. This embodies the common law principle of res perit domino. delivery not being essential for such transfer of ownership. but when the ownership is transferred to the buyer. the goods remain at the seller’s risk until the ownership therein is transferred to the buyer. authors like Jurado. and holds that “under American law. it clearly contradicts the rules of deterioration. at pp. have opined that the general rule on the Law on Sales is that from perfection but before delivery. Paras states that Article 1504 contradicts directly Article 1480. the goods are at the buyer’s risk whether actual delivery of the goods has been made or not. Article 1504 contradicts the rule in Articles 1480 and 1538 where the risk of loss is to be borne by the buyer from perfection of the sale but before delivery. Thus. transfers ownership. from perfection up to before delivery of the subject matter of the sale. and strictly speaking the buyer is not bound to pay the same amount if he receives a subject matter that is much more inferior than to what it was 20 PARAS.”20 If we were to apply the language of Article 1504 therefore. 111-112. to which rules all authors are in accord. the New Civil Code has retained the principle of delivery as the mode by which ownership is transferred. fruits and improvements. the effects of deterioration of the subject matter should be borne by the seller. but unlike the American principle that ownership of the goods is transferred by the perfection of an unconditional sale. Deterioration. the risk of loss of the subject matter is borne by the buyer.

and 1262. Under Article 1189 of the Civil Code. Under Articles 1480 any injury to or benefit from the thing sold. To the same extent. If such be the construction of Article 1504. with indemnity for damages in either case. the improvements shall inure to the benefit of the buyer. the buyer may choose between the rescission of the obligation and its fulfillment. shall be governed by Articles 1163 to 1165. the impairment is to be borne by the buyer. but before delivery. Under Article 1538 of the New Civil Code. the rules in Article 1189 shall be observed. but it would grant either party a legal excuse not to proceed with the contract because of developments that ensued since perfection not through the fault of the other party. not only does it yield absurd results. he shall have no other right than that granted to the usufructuary. after the contract has been perfected. (b) If the thing deteriorates through the fault of the seller. since any fruit or improvement of the subject matter after perfection. from the moment of the perfection of the contract to the time of delivery. then the buyer is obliged to pay more than the agreed price if the subject matter is more than what it was at the time of the perfection of the contract. or by time. (d) If the thing is improved at the expense of the seller.LOSS AND DETERIORATION. It further . in case of deterioration or improvement of the thing before its delivery. should also pertain to the seller as the owner thereof. the following rules shall govern the deterioration of the thing during the pendency of a condition suspending the efficacy of the seller’s obligation to deliver the subject matter: (a) When the thing deteriorates without the fault of the seller. (c) If the thing is improved by its nature. FRUITS AND OTHER BENEFITS 355 at the time of perfection. the seller being considered the debtor. as it is applicable to a sale.

or measure. but at the point of delivery. or measured and delivered. number. . or measure. the goods shall be at the buyer’s risk. Again. or the civil law rule based on the perfection of contract. Under Article 1537. made independently and for a single price. whereas. note that both the common law rule and the civil law rule had a common point of transfer of the risk of loss and deterioration and the benefits of fruits and improvement: perfection of the sale. The only logical and reasonable conclusion one can derive from the foregoing discussions is that the rule of res perit domino provided in Article 1504 on goods. the rules of risk of loss based on res perit domino determined by delivery. or without consideration of their weight. are different from the rules pertaining to deterioration. This also shows that because of the faulty grafting into the Philippine Law of Sales of common law principle.356 LAW ON SALES provides that this rule shall apply to sale of fungible things. counted. the risk shall not be imputed to the buyer until they have been weighed. when ownership of the goods has been transferred to the buyer. the hybrid rule on the risk of loss under the present Civil Code happens not at the point of perfection. applies only to “loss” and has no application to issues pertaining to deterioration or fruits and improvements over the subject matter of the sale. the seller 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 buyer from the day on which the contract is perfected. AFTER DELIVERY Under Article 1504. One of the exceptions provided by the article is when the delivery of the goods has been made to the buyer 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. fruits and improvement based on res perit domino under the common law rule determined by the perfection of the contract. unless the latter has incurred in delay. Should fungible things be sold for a price fixed according to weight. number.

DETERIORATION. the goods are still at the buyer’s risk. but also because in the very contract itself. 3313. The other exception provided is that if actual delivery had been delayed through the fault of either the buyer or seller. In Song Fo & Co. Tabora. v. FRUITS AND OTHER BENEFITS 357 although ownership is not yet with the buyer.23 Lawyer’s Cooperative also disposed of the defense of the buyer of pleading force majeure in exempting himself from paying for the books which were lost to fire. Narciso. it was agreed that loss or damage to the books after delivery to the buyer shall be borne by the buyer. the goods are at the risk of the party at fault. 55 O.21 the Court held that after the delivery of the vessel by the seller to the buyer. his obligation does not pertain to the delivery of the subject matter. FRUITS AND IMPROVEMENTS From all the foregoing. nevertheless. 23 Also Lawyer’s Coop. the risk of loss would be borne by the buyer although he was not the owner yet. In Lawyer’s Cooperative v. and it was lost. it would seem that the prevailing doctrine under our jurisdiction on the subject matter of a sale 21 22 33 Phil. and the ability to pay in money or legal tender is never lost through fortuitous event. it was held that despite the loss of the books in a fire. not only because such was agreed merely to secure the performance by the buyer of his obligation. v. under the condition that ownership thereof will be transferred to the buyer upon his full payment of the purchase price.LOSS AND DETERIORATION. 3 (1915). the buyer was still obliged to pay the balance of the purchase price. as applied to the buyer in a sale. but to the payment of the purchase price. .22 the ownership of the books purchased on installment were retained by the seller. although they have already been delivered to the buyer. The Court held that although an obligor is relieved from his obligation under the rule that an obligor should be held exempt from liability when the loss occurs through a fortuitous event. 13 SCRA 762 (1965). Oria.G. STRUCTURING PROPER DOCTRINE ON LOSS.

It is only after perfection and before delivery that title and beneficial interests actually do not pertain to the same person since title remains with the seller. even assuming negotiation was in the process. as well as benefits from the fruits and improvements of the subject matter of sale.25 (c) When what is to be delivered is a determinate thing. and benefits from the fruits and improvements. buyer bears both the risk of loss and deterioration. This is clear from the provisions of the New Civil Code which govern the responsibilities of the obligor in an obligation to deliver a determinate thing. At that point. neither title nor beneficial interests pertain to the seller and therefore he ceases to have any legal relation to the subject matter and should not be affected by anything that may happen to the subject matter without his fault. . as in fact there is no legal relationship that exists at that point between him and the seller on the subject matter of the would-be sale. Art. New Civil Code. all for the benefit of the obligee: (a) 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. The buyer has no risk nor participation in any of those aspects since neither title nor beneficial interest over the subject matter pertains to him. 1164. the obligor who incurs fraud. After delivery which effectively transfers title and beneficial interest to the buyer. negligence. both title and beneficial interests pertain to the seller and therefore he must bear the risk of loss. but beneficial interest actually pertains to the buyer. deterioration. Prior to perfection.358 LAW ON SALES generally depends on the issue of title pursuant to the principle of res perit domino or beneficial interest to the subject property. New Civil Code. 1163. or delay.24 (b) The obligee has a right to the fruits of the thing from the time the obligation to deliver it arises. or contravene the 24 25 Art.

but where there is an existing obligation to deliver a deter26 27 Arts. However. The resolution to this issue would be and should be that the person who should bear the risk of loss should be the party who had greater stake on the subject matter at the point of loss. consequently. when the sale is conditional. Under common law. . There is enough authority in our laws to support such a conclusion. The proper resolution therefore should be obtained from the same legal authorities from whence the Code Commission copied the res perit domino doctrine. the buyer. deterioration or improvement. but beneficial interest is with the buyer. the perfection thereof does not serve to transfer title to the buyer. title remains with the seller and beneficial interest would be with the buyer. who should suffer the loss and deterioration thereof. New Civil Code. FRUITS AND OTHER BENEFITS 359 tenor of their agreement. since under our jurisdiction perfection by itself does not transfer ownership. both title and beneficial interest would be in the same person.LOSS AND DETERIORATION. even though they may not have been mentioned.26 (d) The obligation to give a determinate thing includes that of delivering all its accessions and accessories. the common law system. We would then have the same situation where title has remained with the seller. and benefit from the fruits and improvements? In American jurisprudence such issue does not arise during such period because there is a confluence between perfection and transfer of ownership at perfection when the sale is unconditional. Art. Under Article 1189. from perfection up to delivery. Therefore. the buyer during that period is actually the beneficial owner. during said period.27 When title and beneficial interest over the subject matter of the sale do not pertain to the same person. are liable for damages. 1165 and 1170. even prior to delivery to transfer ownership. the ordinary enforcement of the principle of res perit domino would not apply since although the seller is the formal owner. New Civil Code. 1166.

should be the party who at that point in time is understood to have the beneficial interest over the subject matter. where delivery of the goods has been made to the buyer or to a bailee for the buyer. title did not determine who bears the risk. although the goods remain at the risk of the owner thereof. then he who bears the risk of loss or deterioration. which in this case would be the seller. the goods are at the buyer’s risk from the time of such delivery. New Civil Code. such as sale on approval or trial. such as C. When title and beneficial interest do not merge in the same party.29 the general rule is that the owner must bear the risk of loss. New Civil Code.360 LAW ON SALES minate thing.28 or where the buyer does not intend to have dominion. 1524 and 1584. When the seller intends to have control over the goods until the buyer has complied with certain obligations. sale. Under Article 1504. because such title was merely nominal. In such instances. and the beneficial interest is with the buyer.O. To perhaps oversimplify the unifying doctrine on the risk of loss. and therefore he must bear the risk of loss. Art. the benefits and improvements over the subject matter are for the account of the obligee-buyer. the same shall always be for the account of the person or party who has both title and beneficial interest over the property or subject matter of the sale. since the accompanying obligations of the obligor shows that he possesses the goods for the benefit of the buyer. 1502.D. —oOo— 28 29 Arts. deterioration and improvement. and who benefits from the improvement of the thing. not merely nominal. the title that has remained with the seller is dominical. . use or control over the goods until certain conditions are met. and in turn he must bear the risk of deterioration. although the seller has ownership still over the subject matter. In such case. 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.

Inc. Laureta. Court of Appeals. 199 SCRA 285 (1991). Court of Appeals. Jr. or to order the return of the vessels without the sale first being rescinded. 3 Samson v.361 CHAPTER 10 REMEDIES OF PARTIES INTRODUCTION In the realm of performance. but is essentially used to determine whether the buyer. v.2 or to determine whether the buyer assumed the risks and contingencies attached to the subject matter of sale.4 the Supreme Court held that while the buyer purchases vessels at its own risk. 4 Union Insurance Society of Canton v. such assumed risk pertained only to the possibility of the sale being rescinded. 238 SCRA 397 (1994). In another case. can be considered a buyer in good faith. which required the buyer to be aware of the supposed title of the seller to the subject matter. 2 Caram. Claunan. the doctrine is not meant to excuse the seller from his warranties. 1 Salvoro v. 87 SCRA 349 (1978).5 the Court held that the rule of caveat emptor also applies to execution sales. 103 SCRA 7 (1981). and consequently. 516 SCRA 681 (2007). Therefore. the main rule in Sales was that of caveat emptor (“Let the buyer beware”). in the absence of a formal rescission of the sale. 260 SCRA 431 (1996). Corp. Tañega. it would be erroneous to make such buyer liable for the value of the vessels lost. 5 Allure Manufacturing. v.3 In one case.1 Today. the sheriff does not warrant the title to the property sold by him and it is not incumbent on him to place the purchaser in possession of the property. Oro Land Realty Dev. Court of Appeals. 361 . in taking delivery of the subject matter of sale. and that a buyer who buys without checking the seller’s title takes all the risks and losses consequent to such failure. v.

341 SCRA 572 (2000). or. Oro Land Realty Dev.10 Heirs of Spouses Gavino v. Jr. v. 1593. Court of Appeals. 508 SCRA 62 (2006). having appeared. Court of Appeals. Insurance Services and Commercial Traders. v. 291 SCRA 495 (1998).362 LAW ON SALES The principles embodied in our Torrens system present an exception to the caveat emptor rule. the seller may maintain an action to rescind the sale. Civil Code. Erasusta. should not have appeared to receive it. 8 Heirs fo Ramon Durano. 344 SCRA 238 (2000). Uy. v. in case the buyer. 495 SCRA 319 (2006). note must be taken of what the Court held in Erquiaga v. v. Corp.7 and that one must conduct in ocular examination of the land or real estate he is purchasing and cannot just realy upon the description in the title. jurisprudence still supports the rules that one who deals with registered land must still ensure that he is dealing with the actual registered owner. Heirs of Celestial v. he should not have tendered the price at the same time. 10 Art. Sr.” REMEDIES IN CASES OF MOVABLES A.6 Although.9 that “A basic premise of the doctrine of ‘Let the buyer beware’ is that there be no false representation by the seller. Court of Appeals. ORDINARY REMEDIES OF SELLER 1. since under such system a buyer need only rely upon the title of a registered land and has no obligation to look beyond such title. Court of Appeals. Briones. upon the expiration of the period fixed for the delivery of the thing. Movables in General In the sale of movables. Finally. Inc. unless a longer period has been stipulated for its payment. 7 6 . 516 SCRA 681 (2007).8 In addition. Heirs of Celestial. the Law on Sales provides for certain remedies available to the seller and the buyer in case of breach of contract on the part of the other party. and has no place in contemporary business ethics. Dela Ceña v. 408 SCRA 291 (2003). The ancient defense of caveat emptor belongs to a bygone age. 9 367 SCRA 357 (2001). Claunan.

irrespective of delivery or of transfer of title. No Transfer of Ownership to Buyer — When the ownership in the goods has not passed. if they cannot readily be resold for a reasonable price.14 b. 1595. it shall be a defense to such an action that the seller at any time before the judgment in such action has manifested an inability to perform the sale on his part or an intention not to perform it. 1595. 1595.REMEDIES OF PARTIES 363 2. if the buyer refuses to receive them. the seller may maintain an action for the price although the ownership in the goods has not passed.e. the seller may treat the goods as the buyer’s and may maintain an action for the price.11 i. Sale of Goods a. Civil Code.12 When Price Payable on Certain Day — Where the price is payable on a certain day. thereafter.. When Buyer Wrongfully Neglects/Refuses to Accept Goods Where the buyer wrongfully neglects or refuses to accept and pay for the goods. 1596. Civil Code. may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. an action for specific performance. Civil Code. 12 . 14 Art. the seller may maintain an action against him for damages for non-acceptance. Civil Code.13 However. and the buyer wrongfully neglects or refuses to pay such price. Non-Payment of Price by Buyer Ownership Transferred to Buyer — Where the ownership of the goods has passed to the buyer who wrongfully neglects or refuses to pay for them according to the terms of the contract.15 in accordance with the following rules: 11 Art. the seller may offer to deliver the goods to the buyer. 13 Art. the seller may maintain an action against him for the price of the goods. 1595. Art. and. 15 Art. Civil Code.

and (d) The profits the seller would have made if the contract or the sale had been fully performed shall be considered in awarding damages. 16 Art. (c) If the buyer repudiates the contract or notifies the seller to proceed no further. if no time was fixed for acceptance. by being able to achieve legal effects without need of seeking the intervention of the courts.364 LAW ON SALES (a) Damages shall cover the estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach of contract. 1596.16 B. Civil Code. the measure of damages is the difference between the contract price and market or current price at the time or times when the goods ought to have been accepted. . or. then at the time of the refusal to accept. provided it does not involve physical intrusion into the person or privacy of the buyer in default. in the absence of special circumstances showing proximate damage of a different amount. SPECIAL REMEDIES OF “UNPAID SELLER” OF GOODS The provisions of the Civil Code on the remedies of an unpaid seller demonstrate the intention of the Code Commission to empower individuals with remedies “to take matters into their own hands” when the circumstances warrant the same. (b) Where there is an available market for the goods in question. buyer shall be liable for labor performed or expenses of material amount is necessary on the part of the seller to enable him to fulfill his obligations under the sale made before receiving notice of the buyer’s repudiation or countermand.

the minimum requirement is that the goods are in the possession of the seller so as to prevent an actual physical tussle with the buyer in the exercise of such remedies. the insolvency of the buyer. The term “unpaid seller” includes an agent of the seller to whom the bill of lading has been indorsed. or otherwise.REMEDIES OF PARTIES 365 The remedies of an unpaid seller are similar to the “doctrine of self-help” embodied in Article 429 of the Civil Code. Rights of Unpaid Seller When a seller is an “unpaid seller” as defined by law. or (b) When a bill of exchange or other negotiable instrument has been received as conditional payment. or any other person who is in the position of a seller. 1. 17 Art.17 2. the seller of goods is deemed to be an “unpaid seller” either: (a) When the whole of the price has not been paid or tendered. or is directly responsible for the price. . and the condition on which it was received has been broken by reason of the dishonor of the instrument. Definition of “Unpaid Seller” Under Article 1525 of the Civil Code. 1525. the unpaid seller is entitled to the following rights or remedies: (a) Possessory lien. In the case of the remedies of the unpaid seller. or consignor or agent who has himself paid. Civil Code. (b) Stoppage in transitu. which authorizes the owner or lawful possessor of a thing to use force as may be reasonably necessary to repel or prevent an actual or threatened unlawful physical invasion or usurpation of his property. whether or not ownership over the goods has been transferred to the buyer.

18 19 Art. Civil Code. a right of withholding delivery similar to and co-extensive with his right of lien. in addition to his other remedies. 20 Art. in the absence of stipulation to the contrary. Possessory Lien The general rule is that when it comes to movables. 3. . Civil Code. delivery of the goods to the buyer transfers ownership to the latter. 1526. the special rights to resell and to rescind can be availed of by the unpaid seller only when either of the two prior rights of possessory lien or stoppage in transitu have been exercised by the unpaid seller. if the buyer has not paid him the price. notwithstanding that the ownership in the goods may have passed to the buyer.366 LAW ON SALES (c) Special right of resale.18 However. as in fact. and the non-payment of the price does not prevent such transfer of ownership as a result of tradition to take effect. The designation “special” is attached to the rights to resell and to rescind.19 Where the ownership in the goods has not passed to the buyer. The four (4) remedies of an unpaid seller have a hierarchical application. 1526.20 The possessory lien of the unpaid seller is exerciseable only in the following instances: (a) Where the goods have been sold without any stipulation as to credit. the unpaid seller has. Civil Code. If the seller is an unpaid seller as defined by law. because they are rights accorded only to the unpaid seller as technically defined by law. or if no period for the payment has been fixed in the contract. Art. 1524. the seller is not bound to deliver the thing sold. the unpaid seller still has a lien on the goods or right to retain them for the price while he is in possession of them. and (d) Special right to rescind. and are not of the same nature as the right to rescind accorded under Article 1191 of the Civil Code to reciprocal contracts.

23 b. 1535.24 c. When Part Delivery Effected Where an unpaid seller has made part delivery of the goods. When Negotiable Document of Title Issued If a negotiable document of title has been issued for goods. whether such negotiation be prior or subsequent to the notification to the carrier. Art. 1527. . The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. Instances When Possessory Lien Lost The unpaid seller of goods loses his lien on the goods whenever: (a) Seller delivers the goods to a carrier or other bailee for the purpose of transmission to buyer without reserving the ownership in the goods or the right to the possession thereof. Civil Code. 23 Art. of the seller’s claim to a lien. 21 22 Art.22 a. Civil Code.21 The unpaid seller’s right of lien is not affected by any sale. or other disposition of the goods which the buyer may have made.REMEDIES OF PARTIES 367 (b) Where the goods have been sold on credit. 1535. or other bailee who issued such document. Civil Code. unless the seller assented thereto. no seller’s lien shall defeat the right of any purchaser for value and in good faith to whom such document has been negotiated. 24 Art. but the term of credit has expired. (c) Where the buyer becomes insolvent. unless such part delivery has been made under such circumstances as to show an intent to waive the lien or right of retention. he may exercise his right of lien on the remainder. 1528. Civil Code.

when the buyer of goods is or becomes insolvent. having a lien thereon. When Negotiable Document of Title Issued If a negotiable document of title has been issued for goods.26 Under Article 1530 of the Civil Code. no seller’s right to stoppage in transitu shall defeat the right of any purchaser for value and in good faith to whom such document 25 26 Art. Art. does not lose his lien by reason only that he has obtained judgment or decree for the price of the goods. In that case. 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. 4. Civil Code. Stoppage in Transitu Notwithstanding that the ownership in the goods may have passed to the buyer. that is to say. the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu. when he parts with physical possession of the goods. However. a right of stopping the goods in transitu after he has parted with the possession of them. in case of the insolvency of the buyer. as when he delivers the goods to the carrier. unless the seller assented thereto. 1526.27 a. the unpaid seller losses his possessory lien. (c) By waiver thereof. he still has the remedy of stoppage in transitu. he may resume possession of the goods at any time while they are in transit.25 As will be noted. the unpaid seller of goods. The unpaid seller’s right of stoppage in transitu is not affected by any sale or other disposition of the goods which the buyer may have made. 27 Art. but only if the buyer has in the meantime become insolvent. the unpaid seller of goods has. 1529. Civil Code.368 LAW ON SALES (b) The buyer or his agent lawfully obtains possession of the goods. 1535. . Civil Code.

28 b. 1531. 1636(2). even if the seller has refused to receive them back. a buyer is deemed insolvent who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due. of the seller’s claim to right of stoppage in transitu. Civil Code. until the buyer. whether such negotiation be prior or subsequent to the notification to the carrier. water. or other bailee for the purpose of transmission to the buyer. Civil Code.REMEDIES OF PARTIES 369 has been negotiated. 30 Art. . the carrier or other bailee acknowledges to the buyer or his agent that 28 29 Art. (b) After the arrival of the goods at the appointed destination. Art. or air.30 d. When Buyer Is Deemed “Insolvent” Under the Law on Sales. Civil Code. or (b) If the goods are rejected by the buyer.29 c. 1535. whether insolvency proceedings have been commenced or not. or his agent in that behalf. When Goods Are Deemed No Longer In Transit Goods are no longer in transit when: (a) The buyer or his agent obtains delivery of the goods before their arrival at the appointed destination. or other bailee who issued such document. and the carrier or other bailee continues in possession of them. When Goods Are Deemed “In Transit” Goods are in transit to authorize the unpaid seller to exercise his right of stoppage in transitu: (a) From the time they are delivered to a carrier by land. takes delivery of them from such carrier or other bailee.

whether they are in the possession of the carrier as such or as agent of the buyer.33 f. or his agent in that behalf. (c) The carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent. Civil Code.370 LAW ON SALES he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent (and it is immaterial that further destination for the goods may have been indicated by the buyer). to be effectual. freight train. Art. the remainder of the goods may be stopped in transitu. 1531.31 If the goods are delivered to a ship. When notice is given. it is a question depending on the circumstances of the particular case. Civil Code. . unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods. 33 Art. or airplane chartered by the buyer. such notice may be given either to the person in actual possession of the goods or to his principal. by 31 32 Art. How Right Is Exercised The unpaid seller may exercise his right of stoppage in transitu either by: (a) Obtaining actual possession of the goods. truck. Civil Code. In the latter case the notice. or (b) Giving notice of his claim to the carrier or other bailee in whose possession the goods are. When Part Delivery Already Made If part delivery of the goods has been made to the buyer.32 e. 1531. 1531. must be given at such time and under such circumstances that the principal.

the seller. 36 Art. or 34 35 Art. Civil Code. 1532. or other bailee in possession of the goods. but only under the conditions provided by law. 5. 1532.37 a. Civil Code. or according to the directions of. 1526. The expenses of such delivery must be borne by the seller. (b) Where the seller has been expressly reserved in case the buyer should make default.36 It is only when the unpaid seller has exercised either his right of possessory lien or his right of stoppage in transitu. . and under any of the following conditions: (a) The goods are of perishable nature.35 g. When Right Exercisable The special right of resale can be made only when the unpaid seller has previously exercised either his right of possessory lien or stoppage in transitu. Civil Code. When Goods Covered by Negotiable Document of Title When a negotiable document of title representing goods has been issued by the carrier or other bailee.REMEDIES OF PARTIES 371 the exercise of reasonable diligence. that he can then proceed with his other special rights of resale or to rescind. may prevent a delivery to the buyer. Art. he shall not be obliged to deliver or justified in delivering the goods to the unpaid seller unless such document is first surrendered for cancellation. the unpaid seller has a special right of resale. 1532. Special Right to Resell Goods Notwithstanding that the ownership in the goods may have passed to the buyer. 37 Art. he must redeliver the goods to. Civil Code.34 When notice of stoppage in transitu is given by the seller to the carrier.

39 even before the formal statutory adoption of the remedies of an unpaid seller. Civil Code. when the sale is still executory in stage... The vendor in such case is entitled to resell the goods.38 In Hanlon v.372 LAW ON SALES (c) Where the buyer has been in default in the payment of the price for an unreasonable time. and the obligation of the company to deliver the shares could not arise until Hanlon should pay or tender payment of the money. at pp. 40 Ibid. to dispose of the property. he holds the buyer for the difference. Hausserman. when the buyer fails to pay the purchase price: .40 Katigbak v. In the present case the contract between Hanlon and the mining company was executory as to both parties. 1533.. But it has never been held that there is any need of an action of rescission to authorize the vendor. the buyer is liable for the difference. 40 Phil. Court of Appeals. 815-816. If he is obliged to sell for less than the contract price. if he sells for as much as or more than the contract price. 41 4 SCRA 243 (1962). . to resell the movables subject matter of the sale. and if he is obliged to sell it for less than the contract price. who is still in possession.. The situation is similar to that which arises every day in business transactions in which the purchaser of goods upon an executory contract fails to take delivery and pay the purchase price. the breach of contract by the original buyer is damnum absque injuria. 796 (1920). at p.41 held that if the buyer fails to take delivery and pay the purchase price of the subject matter of the contract. where the buyer fails to pay the price and take delivery . is entitled to resell the same. without need of first rescinding the contract judicially. 42 Ibid. the seller.42 38 39 Art. 245. the Court had already recognized the right of a seller.

1533. 45 Art. he can effect these. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the sale.45 e. Civil Code. even if at the time of tradition.REMEDIES OF PARTIES 373 b. even without judicial action.44 This is the special feature of the right of the unpaid seller to resell: not only is he able to destroy or obliterate the ownership over the goods in the original buyer. 1533. Art. the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. and subject to this requirement may make 43 44 Art. Civil Code. Effect of Having Exercised Right of Resale When the unpaid seller has exercised his right of resale. he shall not thereafter be liable to the original buyer upon the sale or for any profit made by such resale. the destruction or taking away of ownership in one person and placing it in another person in such manner can only be done through court action. d. Ordinarily. 1533. the buyer acquires a good title as against the original buyer. but may recover from the buyer damages for any loss occasioned by the breach of the sale.43 c. he is also able to transfer ownership to the subsequent buyer. Standard of Care and Disqualification in Resale The seller is bound to exercise reasonable care and judgment in making a resale. Transfer of Ownership Where a resale is made by the unpaid seller. Civil Code. Notice to Defaulting Buyer It is not essential to the validity of a resale that notice of an intention to resell the goods be given by the seller to the original buyer. It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original buyer. . he no longer had ownership over the goods. But in the case of an unpaid seller.

but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default 46 47 Art. 1526. 49 Art.49 c.374 LAW ON SALES a resale either by public or private sale. but may recover from the buyer damages for any loss occasioned by the breach of the contract. . however. Art. Civil Code. 1534. the unpaid seller has a special right to extrajudicially rescind the sale. He cannot. 1533. Civil Code. When Right May Be Exercised An unpaid seller having the right of lien or having stopped the goods in transitu. It is not necessary that such overt act should be communicated to the buyer.46 6. may rescind the transfer of title and resume the ownership in the goods. where: (a) The seller has expressly reserved the right to do so in case the buyer should make default.48 b. Effect of Exercise of Such Right The seller shall not thereafter be liable to the buyer upon the sale. Civil Code. Transfer of Title The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. Civil Code. or (b) The buyer has been in default in the payment of the price for an unreasonable time. Special Right to Rescind Notwithstanding that the ownership in the goods may have passed to the buyer. 48 Art.47 a. directly or indirectly buy the goods. 1534.

and maintain an action against the seller for damages for breach of warranty.52 2. . (b) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty. 1598. avail of the following remedies: (a) Accept or keep the goods and set up against the seller. return them or offer to return them 50 51 Art. 52 Art. Civil Code.50 C. at his election. payment of the price and otherwise. without giving the seller the option of retaining the goods on payment of damages. Civil Code. 1598. REMEDIES OF BUYER 1. the buyer may. the breach of warranty by way of recoupment in diminution or extinction of the price.REMEDIES OF PARTIES 375 for an unreasonable time before the right of rescission was asserted. 1534. the buyer may seek action for specific performance to direct that the contract shall be performed specifically. Art. (c) Refuse to accept the goods. (d) Rescind the sale and refuse to receive the goods or if the goods have already been received. Failure of Seller to Deliver Where the seller has broken a contract to deliver specific or ascertained goods. Breach of Seller’s Warranty Under Article 1599 of the Civil Code. where there is a breach of warranty by the seller in the sale of goods. Civil Code. or upon such terms and conditions as to damages.51 The judgment or decree may be unconditional. as the court may deem just.

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to the seller and recover the price or any part thereof which has been paid. When the buyer has claimed and been granted a remedy in any of these ways, no other remedy can thereafter be granted, without prejudice to the buyer’s right to rescind, even if previously he has chosen specific performance when fulfillment has become impossible.53 3. Suspension of Payments in Anticipation of Breach Under Article 1590 of the Civil Code, should the buyer be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the seller has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the buyer shall be bound to make the payment. A mere trespass shall not authorize the suspension of the payment of the price. a. Remedy of Buyer for Pending Suit The pendency of suit over the subject matter of the sale justifies the buyer in suspending payment of the balance of the purchase price by reason of aforesaid vindicatory action filed against it. The assurance made by the seller that the buyer did not have to worry about the case because it was pure and simple harassment is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the buyer is bound to make payment even with the existence of a vindicatory action if the seller should give a security for the return of the price.54

53 54

Art. 1191, second paragraph, Civil Code. Adelfa Properties, Inc. v. Court of Appeals, 240 SCRA 565, 586 (1995).

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D. RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS
1. Coverage of Law Article 1484 of the Civil Code provides for the remedies of a seller in contracts of sale of personal property by installments, and incorporates the provisions of Act No. 4122 passed by the Philippine Legislature on 9 December 1939, known as the “Installment Sales Law,” but more popularly referred to as the “Recto Law,” which then amended Article 1454 of the Civil Code of 1889.55 Under Article 1484 of the New Civil Code, in a sale of personal property the price of which is payable in installments, the seller may exercise any of the following remedies: (a) Exact fulfillment of the obligation, should the buyer fail to pay any installment; (b) Rescind the sale, should the buyer’s failure to pay cover two or more installments; (c) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the buyer’s failure to pay cover two or more installments. The article specifically provides that if the seller should foreclose on the mortgage constituted on the thing sold, he shall have no further action against the purchaser to recover “any unpaid balance of the price” and any agreement to the contrary shall be void. The original wordings of the Recto Law which introduced Article 1454-A in the old Civil Code had used the term “unpaid balance owing” instead of the present wording limiting it to the “unpaid balance of the price,” thus —
ART. 1454-A. In a contract for the sale of personal property payable in installments, failure to pay two or more installments shall confer upon the vendor the right to cancel the sale or foreclose the mortgage if one has been given on the property, without reimbursement to
55

Macondray & Co., Inc. v. Ablaza, 71 Phil. 297 (1941).

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the purchaser of the installments already paid, if there be an agreement to this effect. However, if the vendor has chosen to foreclose the mortgage he shall have no further action against the purchaser for the recovery of any unpaid balance owing by the same, any agreement to the contrary shall be null and void.

a. Rationale of Recto Law The passage of the Recto Law was meant to remedy the abuses committed in connection with the foreclosure of chattel mortgages and to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against the mortgagor for a deficiency judgment. The invariable result of such a procedure was that the mortgagor found himself minus the property and still owing practically the full amount of his original indebtedness.56 The Recto Law “aims to correct a social and economic evil, the inordinate love for luxury of those who, without sufficient means, purchase personal effects, and the ruinous practice of some commercial houses of purchasing back the goods sold for a nominal price besides keeping a part of the price already paid and collecting the balance, with stipulated interest, cost and attorney’s fees. ... And although, of course, the purchaser must suffer the consequences of his imprudence and lack of foresight, the chastisement must not be to the extent of ruining him completely and, on the other hand, enriching the vendor in a manner which shocks the conscience. The object of the law is highly commendable.”57 b. When Is Sale “on Installments?” In Levy Hermanos, Inc. v. Gervacio,58 the seller sold a car whereby the buyer paid an initial payment, and issued a promissory
56 Bachrach Motor Co. v. Millan, 61 Phil. 409 (1935); Cruz v. Filipinas Investment & Finance Corp., 23 SCRA 791 (1968); PCI Leasing and Finance, Inc. v. Giraffe-X Creative Imaging, Inc., 527 SCRA 405 (2007). 57 Manila Trading and Supply Co. v. Reyes, 62 Phil. 461, 463-464, 467 (1935). 58 69 Phil. 52 (1939).

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note for the balance payable on or before a specified date, with stipulated interest. When the buyer failed to pay the note at its maturity, the seller foreclosed the mortgage constituted on the car and sold the same at public auction, which resulted into a deficiency judgment. When the action was brought to collect on the deficiency, the buyer sought the application of the provisions of the then Article 1454-A of the old Civil Code, and held that the seller could no longer collect on the balance unpaid. The Court held that the provisions of the Recto Law cannot apply to a sale where there is an initial payment, and the balance payable in the future, because the same is not a sale on installment but actually a “straight sale.” Since such a sale is not covered by the Recto Law, the barring effects of the law cannot be made to apply, and the seller may recover the unpaid balance of the purchase price against the buyer even when the latter shall have lost by foreclosure the subject matter of the sale. The Court held that when there is only one payment to be paid in the future, there is no basis to apply the Recto Law, since under the language of then Article 1454-A, the buyer needs to have defaulted in the payment of two or more installments to allow the seller to rescind or foreclose on the chattel mortgage. In addition, the Court held that the Recto Law “is aimed at those sales where the price is payable in several installments, for, generally, it is in these cases that partial payments consists in relatively small amounts, constituting thus a great temptation for improvident purchasers to buy beyond their means. There is no such temptation where the price is to be paid in cash, or, as in the instant case, partly in cash and partly in one term, for, in the latter case, the partial payments are not so small as to place purchasers off their guard and delude them to a miscalculation of their ability to pay.”59 c. Loans and Financing Transactions The provisions of the Recto Law are applicable to financing transactions derived or arising from sales of movables on
59

Ibid, at p. 54.

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installments, even if the underlying contract at issue is a loan because the promissory note had been assigned or negotiated by the original seller. In Industrial Finance Corp. v. Ramirez,60 the seller who sold his car to the buyer payable in eighteen monthly installments, secured by a chattel mortgage on the car, which mortgaged was assigned by the seller to a finance company, which brought an action for specific performance coupled with a prayer for a writ of replevin to recover the possession of the car and if effected would proceed with the extrajudicial foreclosure thereof. In discussing whether the action taken by the finance company amounted to “virtual foreclosure of the chattel mortgage,” the Court applied the provisions of Article 1484 of the Civil Code, even when clearly, as to the finance company, its involvement in the affair was as assignee of the mortgage contract. Zayas, Jr. v. Luneta Motor Company,61 affirmed that Article 1484 would apply to a person or entity which has financed the purchase on installments of a motor vehicle, where the seller subsequently assigns the loan documents to the financing person or entity. In that case, the Court held that “the nature of the transaction as a sale of personal property on installment basis remains. When, therefore, Escaño Enterprises, assigned its rights vis-á-vis the sale to respondent Luneta Motor Company, the nature of the transaction ... did not change at all. As assignee, respondent Luneta Motor Company had no better rights than assignor Escaño Enterprises under the same transaction. The transaction would still be a sale of personal property in installments covered by Article 1484 of the New Civil Code. To rule otherwise would pave the way for subverting the policy underlying Article 1484 of the New Civil Code, on the foreclosure of chattel mortgages over personal property sold on installment basis.”62 In all other cases, where the financing transaction is not derived from a sale, the provisions of the Recto Law do not
77 SCRA 152 (1977). 117 SCRA 726 (1982). Reiterated in Nonato v. Intermediate Appellate Court, 140 SCRA 255 (1985). 62 Ibid, at pp. 732-733.
61 60

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apply. Thus, in PAMECA Wood Treatment Plant, Inc. v. Court of Appeals,63 the Court held that a mortgagee-bank is not prevented from recovering on a deficiency caused by the foreclosure and sale at public auction of the mortgage movable which security arose from a loan given to the mortgagor. The provisions of Article 1484 cannot be applied by analogy or by equity since the provisions apply to a sale on installments. d. Contracts to Sell Movables Not Covered When the contract governing the sale of movables is a contract to sell, then the rules on rescission and substantial breach are not applicable, since when the suspensive condition upon which the contract is based fails to materialize, it would extinguish the contract, and consequently there is no contract to rescind.64 Nevertheless, the provisions of Article 1597 would apply which would grant the seller the right to “rescind” the contract “by giving notice of his election so to do to the buyer.”65 2. Remedies Provided Under Article 1484 a. Nature of Remedies under Article 1484 Should the buyer of a personal property default in the payment of two or more of the agreed installments, the vendor or seller has the option to avail of any of these three remedies: (a) Exact fulfillment by the purchaser of the obligation; (b) Rescind or cancel the sale; or (c) Foreclose the mortgage on the purchased personal property, if one was constituted. The remedies under Article 1484 have been recognized as alternative, not cumulative, in that the exercise of one would bar the exercise of the others.66
63 64

310 SCRA 281, 289 (1999). Visayan Sawmill Company, Inc. v. Court of Appeals, 219 SCRA 378 (1993). 65 Ibid. 66 Bachrach Motor Co. v. Millan, 61 Phil. 409 (1935); Manila Trading and Supply

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The remedies cannot also be pursued simultaneously, as when a complaint is filed to exact fulfillment of the obligation, to seize the property purchased and to foreclose the mortgage executed thereof.67 In Borbon II v. Servicewide Specialists, Inc.,68 the Court discussed the alternative nature of the remedies provided under Article. 1484, thus:
The remedies under Article 1484 of the Civil Code are not cumulative but alternative and exclusive x x x.69 In an ordinary alternative obligation, a mere choice categorically and unequivocally made and then communicated by the person entitled to exercise the option concludes the parties. The creditor may not thereafter exercise any other option, unless the chosen alternative proves to be ineffectual or unavailing due to no fault on his part. This rule, in essence, is the difference between alternative obligations, on the one hand, and the alternative remedies, upon the other hand, where in the latter case, the choice generally becomes conclusive upon the exercise of the remedy. For instance, in one of the remedies expressed in Article 1484 of the Civil Code, it is only when there has been a foreclosure of the chattel mortgage that the vendee-mortgagor would be permitted to escape from a deficiency liability. Thus, if the case is one for specific performance, even when this action is selected after the vendee has refused to surrender the mortgaged property to permit an extrajudicial foreclosure, the property may still be levied on execution and an alias writ may be issued if the proceeds thereof are insufficient to satisfy the judgment credit. So, also, a mere demand
Co. v. Reyes, 72 Phil. 461 (1935); Pacific Commercial Co. v. De la Rama, 72 Phil. 380 (1941) Manila Motors, Inc. v. Fernandez, 99 Phil. 782 (1956); Radiowealth v. Lavin, 7 SCRA 804 (1963); Cruz v. Filipinas Investment and Finance Corp., 23 SCRA 791 (1968); Nonato v. Intermediate Appellate Court, 140 SCRA 255 (1985); Delta Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992); Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996). 67 Luneta Motor Co. v. Dimagiba, 3 SCRA 884 (1961). 68 258 SCRA 634 (1996). 69 Ibid, at p. 639.

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to surrender the object which is not heeded by the mortgagor will not amount to a foreclosure, but the repossession thereof by the vendor-mortgagee would have the effect of foreclosure.70

b. Two Groups of Barring Effects of Remedies Article 1484 of the Civil Code actually has two (2) levels of barring effects: the first level on the choice of remedies (vertical); and the second level, on the non-recovery of any unpaid balance when it comes to the remedies of rescission and foreclosure (horizontal). There can be no mixing of the effects of the remedies provided in Article 1484. In Tajanlangit v. Southern Motors, Inc.,71 the Court held that although the subject matter of the sale on installment was mortgaged to secure the note issued to the seller for the balance of the purchase price, where the seller actually chose to collect on the note and did not seek foreclosure of the mortgage, and although the execution of the judgment resulted in the levy on execution and eventual sale at public auction of the very subject matter of the sale, nevertheless, the barring effect of foreclosure cannot be applied, and the seller had every right to recover on the unpaid balance of the purchase price from the buyer. The Court held: “[The seller] had a right to select among the three remedies established in Article 1484. In choosing to sue on the note, it was not thereby limited to the proceeds of the sale, on execution, of the mortgaged good.”72 In Southern Motors, Inc. v. Moscoso,73 a direct plea was made to the Court insisting that “considering [the] history of the [Recto] law, the circumstances leading to its enactment, the evil that the law was intended to correct and the remedy afforded,” then when the seller who had in fact obtained a preliminary attachment of the subject property and sold it at public auction where he became the only bidder, should not be allowed to recover the balance
70 71

Ibid, at pp. 640-641. 101 Phil. 606 (1957). 72 Ibid, at p. 610. 73 2 SCRA 168 (1961).

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although his complaint may assert that the remedy of specific performance was being sought. It was proposed to the Court that “the matter should be looked at, not by the allegations in the complaint, but by the very effect and result of the procedural steps taken and that [seller] tried to camouflage its acts by filing a complaint purportedly to exact the fulfillment of an obligation, in an attempt to circumvent the provisions of Article 1484 of the new Civil Code.”74 The Court refused the view that the substance of the proceedings should be looked into and that the barring effects of foreclosure should also be applied to specific performance when the effect was the same as foreclosure. The Court held: “The complaint is an ordinary civil action for recovery of the remaining unpaid balance due on the promissory note. The [seller] had not adopted the procedure or methods outlined by Sec. 14 of the Chattel Mortgage Law but those prescribed for ordinary civil actions, under the Rules of Court.”75 The Court found nothing unlawful or irregular in seller’s act of attaching the mortgaged subject matter of the sale itself, since a mortgage creditor may recover judgment on the mortgage debt and cause an execution on the mortgaged property and may cause an attachment to be issued and levied on such property, upon beginning his civil action. In his concurring opinion, Justice J.B.L. Reyes wrote that the argument of the buyer “ignores a substantial difference between the effect of foregoing the chattel mortgage and attaching the mortgaged chattel. The variance lies in the ability of the debtor to retain possession of the property attached by giving a counterbond and thereby discharging the attachment. This remedy the debtor does not have in the event of foreclosure.”76 The rule that in installment sales, if the action instituted is for specific performance and the mortgaged property is subsequently attached and sold, the sale does not amount to a foreclosure
74 75

Ibid, at pp. 170-171. Ibid, at p. 171. 76 Ibid, at p. 172.

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385

of the mortgage, has been upheld in subsequent decisions and seems now well-established.77 3. Remedy of Specific Performance The general rule is that when the seller has chosen specific performance, he can no longer seek for rescission nor foreclosure of the chattel mortgage constituted on the thing sold. Although it can be reasoned that even if the seller had chosen specific performance, but the same has become impossible, he may still choose rescission pursuant to the provisions of Article 1191 of the Civil Code, which provides that the non-defaulting party to a reciprocal obligation “may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible;” nonetheless, it is difficult to see how the generic obligation of the buyer to pay can become impossible. The seller is deemed to have chosen specific performance to foreclose the resort to the other two remedies under Article 1484, when he files an action in court for recovery. Generally, the mere sending of demand letters to the buyer to pay the balance of the purchase price should not be considered as having barred the resort to either the remedies of rescission or foreclosure. A judgment in an action for specific performance may be executed on all personal and real properties of the buyer which are not exempt from execution and which are sufficient to satisfy such judgment, which would include the subject matter of the sale upon which payment is being sought. It has been held therefore that the mere fact that the seller secured possession of the property subject of the sale by installments did not necessarily mean that the seller would resort to a foreclosure of the mortgage constituted thereon.78 4. Remedy of Rescission When a seller chooses the remedy of rescission, then generally he is under obligation to make restitution, which
77 78

Industrial Finance Corp. v. Ramirez, 77 SCRA 152 (1977). Palma v. Court of Appeals, 232 SCRA 714 (1994).

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would include the return of any amount of the purchase price that the buyer may have paid. However, under the terms of Article 1486 of the Civil Code which provides that “a stipulation that the installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances.” A stipulation for the forfeiture of the amounts paid by the buyer even when the contract is rescinded is not really contrary to the “mutual restitution” characteristic of the remedy of rescission, since to a great extent it offers a means of restitution to the obligee for the loss in value or deterioration of the thing subject of the sale, or recompense for the lost opportunity suffered by the seller due to the default of the buyer. In fact, when the remedy of rescission is chosen, the rescinding party may recover damages against the party in default, since the recovery of damages is supposed to make the rescinding party “whole” again to bring him back to the position he was prior to the entering into the contract. In the same manner, the stipulation of the forfeiture of the amounts paid by the buyer in case of rescission can also be considered a measure of recompense for damages suffered by the seller, and this is more the rationale since when the forfeiture becomes unconscionable the courts may reduce the effect of such stipulation pursuant to the provision of Article 1486 which provides that such stipulation is valid only “insofar as the same may not be unconscionable under the circumstances.” In Delta Motor Sales Corp. v. Niu Kim Duan,79 the Court recognized that “[a] stipulation in a contract that the installments paid shall not be returned to the vendee is valid insofar as the same may not be unconscionable under the circumstances,”80 The Court took pains to show that the treatment of the forfeited installments as rental is more than justified by the retention and use of the air-conditioning units by the buyer for 22 months. However, even if the contract stipulates a forfeiture of the amounts paid in the event of rescission, the Court in Bricktown
79 80

213 SCRA 259 (1992). Ibid, at p. 263.

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387

Development Corp. v. Amor Tierra Dev. Corp.,81 held that “we have intimated that the relationship between parties in any contract must always be characterized and punctuated by good faith and fair dealing.”82 The Court denied forfeiture of the amounts paid by taking into consideration that prior to rescission, several negotiations were held between the parties to try to amend the relationship. a. When Rescission Deemed Chosen The general rule is that the seller is deemed to have chosen the remedy of rescission, and can no longer avail of the other two (2) remedies under Article 1484, when he has clearly indicated to end the contract, such as when he sends a notice of rescission, or takes possession of the subject matter of the sale, or when he files an action for rescission. Nonato v. Intermediate Appellate Court,83 held that when the seller’s assignee, a financing company, is able to take back possession of the motor vehicle with a condition that the vehicle could be redeemed by the buyers within fifteen (15) days, then such taking of possession is clearly with the intent to cancel the contract. Earlier in Vda. de Quiambao v. Manila Motor Co., Inc.,84 the Court held that only the taking back of the property coupled with “an unequivocal desire on its part to rescind its contract” or “for the purpose of appropriating the same,” would suffice to bar the seller from proceeding with specific performance. In that case, it was not the seller who demanded a return of the subject motor vehicle, but rather it was the buyer who voluntarily returned the same to postpone the satisfaction of the enforcement of the judgment debt obtained by the seller on the unpaid balance of the purchase price.

81 82

239 SCRA 126 (1994). Ibid. 83 140 SCRA 255 (1985). 84 3 SCRA 445 (1961).

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b. Barring Effect of Rescission The present version of the Recto Law under Article 1484 only provides for a barring on recovery of balance only when it comes to the remedy of foreclosure. Delta Motor Sales Corp. v. Niu Kim Duan,85 would assert that “[t]he third option or remedy, however, is subject to the limitation that the vendor cannot recover any unpaid balance of the price and any agreement to the contrary is void,”86 implying no such barring effect to the remedy of rescission. Nevertheless, it recognized that when the seller takes possession of the subject property in rescission of the sale, the seller is barred from recovering the balance of the price. Although no barring effect is expressly provided for the remedy of rescission under the present language of Article 1484 of the Civil Code, the same is implicit from the nature of the remedy of rescission, which requires mutual restitution. Under Article 1385 of the Civil Code, even a non-defaulting party cannot seek rescission unless he is in a position to return what he has received under the contract. In other words, when the unpaid seller shall have chosen the remedy of rescission, then generally he cannot seek further action on the purchase price against the buyer, and in fact, where there is no stipulation to the contrary, the seller is even obliged to return any portion of the purchase price he received from the buyer, although he can recover damages. In Nonato v. Intermediate Appellate Court,87 Justice Escolin, in concluding that the seller’s assignee had chosen to rescind the sale by having taken possession of the subject motor vehicle, held that since it has “opted to cancel the sale of the vehicle, it is thus barred from exacting payment from the [buyers] of the balance of the price of the vehicle which it had already repossessed. It cannot have its cake and eat it too.”88 Perhaps it was a good judgment to limit the statutory barring effect of Article 1484 to the remedy of foreclosure and allowed
85 86

213 SCRA 259 (1992). Ibid, at p. 264. 87 140 SCRA 255 (1985). 88 Ibid, at p. 259.

The complete barring effect on the remedy of foreclosure under the Recto Law which covers any and all further claims against the buyer. v. even for attorney’s fees and stipulated damages and interests. 64 Phil. When Remedy of Foreclosure Deemed Chosen When the seller shall have chosen to foreclose on the mortgage constituted on the subject matter of the sale. and at which time he can no longer resort to either the remedies of specific performance or rescission. precisely to make him again whole resulting from the breach of the defaulting party. and in fact seek to achieve opposite results: rescission seeks to cancel the contract and to waive further claim on the purchase price. Eustaquio.89 is contrary to the nature of the remedy of rescission that allows the non-defaulting party in a reciprocal obligation to recover damages. The two remedies are not the same. that an action for foreclosure seeks the same objective as an action for specific performance: to recover from the buyer the price agreed upon in the sale.REMEDIES OF PARTIES 389 the barring effect of rescission to continue to be governed by the very nature of the remedy itself. 5. Otherwise. a lumping together of the remedies of rescission and foreclosure into the same barring effect clause. . whereas. he can seek neither the remedies of specific performance nor rescission. Note however. the filing of an action for foreclosure should be the point in which the seller is deemed to have chosen such remedy. 446 (1937). yet the Court 89 Macondray & Co. would have the unintended consequence that any and all interpretations and constructions of the Court having to do with the barring effect of foreclosure would be tied to the barring effect on the remedy of rescission when it comes to sale of movables on installments. Although generally. Foreclosure of Chattel Mortgage Constituted on Subject Property a. foreclosure seeks to pursue and realize on the purchase price of the sale.

92 Ibid. since no actual foreclosure pursuant to the relevant provisions of the Rules of Court have been pursued. 93 77 SCRA 152 (1977).90 Universal Motors Corp. Sy Hian Tat. . the filing of such complaint does not amount to having chosen the remedy of foreclosure.91 held that the filing by the seller of an action for the issuance of a writ of replevin. 91 28 SCRA 161 (1969).93 held that even with the filing of an action denominated as “replevin with damages” where the allegations of the complaint sought the repossession of the movable to allow extrajudicial foreclosure and sale of the same. and in the alternative should the movable not be recovered sought for the recovery of the unpaid balance of the price. Barring Effect of Foreclosure It is the foreclosure and actual sale at public action of the mortgaged chattel that shall bar further recovery by the seller of any balance on the purchaser’s outstanding obligation not satisfied by the sale. Fernandez. v. preparatory to having it levied upon under a writ of attachment. Ramirez. v. 62 Phil. the seller has 90 Manila Trading & Supply Co. The Court held that “the mere fact that [the seller] has secured possession of the truck in question does not necessarily mean that it will foreclose its mortgage. prior to that point in time. 782 (1956). at p. Manila Motor Co. It is quite possible that [the seller] wanted merely to be sure that the truck is not lost or rendered valueless. Reyes. 166. Inc.390 LAW ON SALES held that the point by which the seller is deemed to have chosen the remedy of foreclosure is only at the time of actual sale of the subject property at public auction pursuant to the foreclosure proceedings commenced. there is no showing at all that [the seller] is causing the sale thereof at public auction or is even preparing to do so. and the actual recovery of possession of the subject property. v. 99 Phil.. would not amount to a foreclosure. b. Indeed.”92 Industrial Finance Corp. even with the attachment of the mortgage contract on the complaint itself. v. 461 (1935).

94 In Northern Motors. Filipinas Investment & Finance Corp. on the ground that Article 1484 prohibited further action “against the purchaser” only. there is no reason why a mortgage creditor should be barred from accepting. 95 33 SCRA 356 (1970). 96 Ibid.. 409 (1935)..”96 c. the Court held that “[T]o sustain [seller’s] argument is to overlook the fact that if the guarantor should be compelled to pay the balance 94 Manila Motor Co. v. 461 (1935).. v. The Court held that “If the mortgage creditor.. it sought to recover the deficiency judgment by foreclosing on the real estate mortgage constituted by third-party mortgagors. Inc. Millan. without gaining any advantage or benefit. the seller was not obliged to refund said payments after foreclosure to the buyer. the seller had received further payments from the buyer. Sapinoso. 62 Phil. Barring Effect on Other Securities Given for Payment of Price In Cruz v.REMEDIES OF PARTIES 391 every right to receive payments on the unpaid balance of the price from the buyer. if prior to the actual sale of the subject property at public auction. In holding that the seller could no longer proceed to foreclose on the real estate mortgage pursuant to the barring effect provided under Article 1484 of the Civil Code. Reyes. before the actual foreclosure sale. at pp. . 97 23 SCRA 791 (1968). before a foreclosure sale.97 where the seller had already foreclosed on the chattel mortgage constituted on the subject property of the sale.95 although the seller had already filed an action for foreclosure. 361-362. 61 Phil. and without causing any disadvantage or harm to the vendee-mortgagor. is not precluded from recovering the unpaid balance of the price although he has filed an action of replevin for the purpose of extrajudicial foreclosure. Manila Trading & Supply Co. payments made by the buyer. or if a mortgage creditor who has elected to foreclose but who subsequently desist from proceeding with the auction sale. is not barred from suing on the unpaid account . v.

only then should the seller proceed to foreclose on the chattel mortgage. 100 120 SCRA 246 (1983). Universal Motors Corp. but should include extrajudicial proceedings by virtue of which the seller may be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy. Civil Code).100 held that if under the Cruz doctrine a seller is prohibited from having a recourse against the additional security put up by a third party insofar as how the burden would ultimately fall on the buyer himself is concerned. Filipinas Investment and Finance Corp. Previous classroom discussions of Cruz have always lead to the issue of what would be the effect if instead of proceeding first on the foreclosure of the chattel mortgage constituted on the subject matter of the sale. and public policy overturned. Thus. there is no ground why such seller should not likewise be precluded from further extrajudicially foreclosing the additional security put up by the buyer himself.”98 Cruz also held that the further “action” being barred under Article 1484 is not limited to judicial proceedings. so that ultimately. 98 99 Ibid. the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art. the protection given by Article 1484 would be indirectly subverted.392 LAW ON SALES of the purchase price. the seller should first proceed to foreclose on the real estate mortgage constituted by a third-party mortgagor. and should there be deficiency judgment. 61 SCRA 121 (1974). Pascual v..99 reiterated the Cruz doctrine as it denied the position taken by the seller that Article 1484 withholds from the seller the right to recover any deficiency from the purchaser after the foreclosure of the chattel mortgage and not a recourse to the additional security put up by a third party to guarantee the purchaser’s performance of his obligation. 797. 2066. .. at p. despite the earlier foreclosure of the chattel mortgage given by him. Ridad v. it will be the buyer who will be made to bear the payment of the balance of the price.

Inc. where the seller first forecloses on the third-party real estate mortgage. then it would be easy to say that one cannot escape by indirection the matter prohibited by law.. and the seller-mortgagee is deemed to have renounced any right thereto. then by simply reversing the process followed in Cruz. there can be no further recovery of the deficiency.REMEDIES OF PARTIES 393 One school of thought held that since it is the actual foreclosure and sale at public auction of the subject matter of the sale that creates the barring effect. The issue was finally addressed. then it would be certainly unfair to the seller who at that point has not even taken any action to recover any amount of the purchase price. in Borbon II v. such a position would render void and ineffective any real estate mortgage constituted to secure the payment of the purchase price. Servicewide Specialists. the seller would be able to effect the same result sought to be avoided in Cruz. guarantees or other security arrangement. if indeed the reverse process is pursued. when does the barring effect actually come in? If the barring effect comes in after foreclosure on the real estate mortgage. the barring effect comes by the fact that the seller seeks to foreclose the real estate mortgage.101 where it held that when the assignee forecloses on the chattel mortgage. in addition to the chattel mortgage constituted thereon. Nevertheless. the Court held that in the event the seller-mortgagee first seeks the enforcement of the additional mortgages. since by barring the initial foreclosure thereof. he must then be held to have lost by waiver or non-choice his lien on the chattel mortgage of the 101 258 SCRA 634 (1996). On the other hand. A contrario. In addition. that would not be in accordance with the language of Article 1484 and the jurisprudential pronouncements of the Court itself which held that it is the actual sale at public action when the barring effect becomes effective. . albeit by obiter. it would be like saying only the foreclosure of the chattel mortgage can be availed of by the seller. The other school of thought posited that if we were to take the rationale given in Cruz.

it explicitly stated that “if the vendor has chosen to foreclose the mortgage he shall have no further action against the purchaser for the recovery of any unpaid balance owing by the same. and adopting the present version of Article 1484 which limits the right of recovery to “any unpaid balance of the price. 446 (1937). it would have so stated. 64 Phil. but the barring effect as to prevent recovery of deficiency judgment does not come into play since the Court confirmed that the seller “may still levy on it. 104 Ibid. include interest on the principal. at p.”102 d. similar to an action for specific performance. although.394 LAW ON SALES personal property sold by and mortgaged back to him.” The extent of the barring effect of foreclosure was then all-encompassing and did not limit itself to the balance of the purchase price. 453. v. and the costs.” then clearly the Legislature has “so stated” and therefore the barring effect of the present version 102 103 Ibid. .. Extent of Barring Effect Under the original version of the Recto Law. Therefore. Inc. 640. he may still levy on it. the proceeds obtained therefrom are insufficient to cover the full amount of the secured obligation which in the case at bar as shown by the note and by the mortgage deed. at p. Eustaquio.” then it follows that in enacting the present Civil Code. expenses of collection. in Macondray & Co. The implication is that the remedy of foreclosing the chattel mortgage is no longer available. attorney’s fees.103 the Court held that the words “any unpaid balance” should be interpreted as having reference to the deficiency judgment to which the mortgagee may be entitled where. any agreement to the contrary shall be null and void. “Were it the intention of the Legislature to limit its meaning to the unpaid balance of the principal. after the mortgaged chattel is sold at public auction.”104 If we were to follow the line in Eustaquio that if it were the intention of Legislature to limit the barring effect to the unpaid balance of the price “it would have so stated.

in our 105 30 SCRA 564 (1969). that the necessary expenses incurred in the prosecution by the mortgagee of the action for replevin so that he can regain possession of the chattel. even after actual foreclosure. Filipinas Investment & Finance Corp. e.105 held that when a defaulting buyer-mortgagor refuses to surrender the chattel to the seller to allow the latter to be able to proceed with foreclosure. should be allowed to recover expenses and attorney’s fees incurred in trying to obtain possession of the chattel. even to the extent of using violence which is unwarranted in law. or if he conceals the chattel to place it beyond the reach of the mortgagee. current jurisprudence upholds the full barring effect on recovery even of the present language of Article 1484. Nevertheless. then the seller.REMEDIES OF PARTIES 395 of the Recto Law is only on the purchase price. The Court held — Where the mortgagor plainly refuses to deliver the chattel subject of the mortgage upon his failure to pay two or more installments. the next step in such situations being the filing of an action for replevin to the end that he may recover immediate possession of the chattel and. enforce his rights in accordance with the contractual relationship between him and the mortgagor as embodied in their agreement. Perverse Buyer-Mortgagor By way of exception to the complete barring effect on the remedy of foreclosure. Recoverable expenses would. v. and cannot cover stipulations in the contract for damages. Ridad. thereafter. what then is the mortgagee expected to do? It is part of conventional wisdom and the rule of law that no man can take the law into his own hands. Since the mortgagee would enforce his rights through the means and within the limits delineated by law. should be borne by the mortgagor. interests and attorney’s fees. . then it logically follows as a matter of common sense. so it is not to be supposed that the Legislature intended that the mortgagee should wrest or seize the chattel forcibly from the control and possession of the mortgagor.

that in spite of the limiting language of the present Article 1484. at pp. the interests of justice dictate that the issue on liquidated damages and attorney’s fees must be considered and resolved. or if he concealed the chattel to place it beyond the reach of the mortgagee. Agustin v. In Borbon II v. could rightly be awarded. 271 SCRA 457 (1997). Servicewide Specialist.396 LAW ON SALES view. 572-573. emphasis supplied. include expenses properly incurred in effecting seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin.. when the current version of Article 1484 was effective and which limited the barring effect only to “any unpaid balance of the price. Court of Appeals.106 The transaction in Ridad was entered into in 1964. as long as they 106 107 Ibid. Furthermore. . that thereby constrained the latter to seek court relief. the necessary expenses incurred in the prosecution by the mortgagee of the action for replevin so that he can regain possession of the chattel should be borned by the mortgagor. Inc. where the mortgagor unjustifiably refused to surrender the chattel subject of the mortgage upon failure of two or more installments. the expenses incurred for the prosecution of the case. We may safely presume therefore. or if he conceals the chattel to place it beyond the reach of the mortgagee.107 held that where the mortgagor plainly refuses to deliver the chattel subject of the mortgage upon his failure to pay two or more installments. and the decision itself promulgated in 1969.” And yet the Court in Ridad applied without reservation the 1937 Eustaquio doctrine completely barring any recovery by the seller against the buyer after the former has foreclosed on the chattel subject of the sale. but the repossession thereof by the vendor-mortgagee would have the effect of foreclosure. such as attorney’s fees. the Court held: A mere demand to surrender the object which is not heeded by the mortgagor will not amount to a foreclosure. the Eustaquio doctrine still applies. Hence.

REMEDIES OF PARTIES 397 bear relevance and close relation to those specifically raised.” Article 1486 provides that “a stipulation that the rents paid shall not be returned to the lessee shall be valid insofar as the same may not be unconscionable under the circumstances. in the transfer of title to the lessee. Barrueco. . notwithstanding failure to specifically raise them. the provisions of Article 1484 are expressly made applicable to “contracts purporting to be leases of personal property with option to buy. The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results. LEASE WITH OPTION TO PURCHASE Under Article 1485 Civil Code. 110 Ibid. provided the so-called rent has been duly paid. v. Court of Appeals. De Jose v. or with stipulations that if the rent throughout the term is paid.110 Elisco Tool Manufacturing Corp. 67 Phil.111 recognized that “[t]his Court has long been aware of the practice 108 109 258 SCRA 634 (1996). but that nevertheless the underlying contract would not prevent the transfer of ownership of the subject matter to the buyer-lessee upon fulfillment of the condition of the full payment of the “rents.” The Court has recognized that sellers who do not wish to enter into conditional contracts of sale have often resorted to lease with options to purchase. but who do not wish openly to make a bargain in that form. 195.”109 thus: Sellers desirous of making conditional sales of their goods.108 E. Vda. 111 307 SCRA 731 (1999). at p. for one reason or another. by the terms of the bargain. title shall thereupon vest in the lessee. 191 (1939). have frequently resorted to the device of making contracts in the form of leases either with options to the buyer to purchase for a small consideration at the end of term. when the lessor has deprived the lessee of the possession or enjoyment of the thing.

In PCI Leasing and Finance. thus — The demand could only be that the [lessee] need not return the equipment if it paid the 58.47 outstanding balance. 422-423. PCI Leasing and Finance. for the entire 36-month lease period or the surrender of the financed asset and pain of legal action. Giraffe-X Creative Imaging. if the [lessee] was not minded to exercise its option of acquiring the equipment by returning them.”112 The provision of the Recto Law may be to apply to lease arrangements over moveables which do not expressly provide for an option on the part of the lessee to purchase.657.114 was interpreted to reveal the real agreement that the lessee had the option to purchase the property leased. 527 SCRA 405 (2007).47. Giraffe-X Creative Imaging. nonetheless.657. v. Also. Inc. then it need not pay the outstanding balance.248.115 a. at pp. 113 527 SCRA 405 (2007). ineluctably suggest that the [lessee] can keep possession of the equipment if it exercise its option to acquire the same by paying the unpaid balance of the purchase price. v.398 LAW ON SALES of vendors of personal property of denominating a sale on installment as one of lease to prevent the ownership of the object of the sale from passing to the vendee until and unless the price is fully paid. 421. Inc.. 115 Ibid.248. the demand made by the lessor which “fashioned its claim in the alternative: payment of the full amount of the 58. 741. What Is the Barring Effect on Such Contracts? The issue that arises when it comes to purported contracts of lease with option to purchase is whether the taking back of 112 Ibid. .113 although the Financing Lease Agreement entered into did not provide an option to purchase in favor of the lessee. 114 Ibid. Stated otherwise. at p. This is the logical import of the letter: that the transaction in this case is a lease only.. representing the unpaid balance. The so-called monthly rentals are in truth monthly amortization of the price of the leased office equipment. Inc. Inc. at p.

116 117 66 Phil. Heacock Company v. it was held that when a purported lease contract of personal property is determined to be a conditional sale. 66 Phil. Buntal Manufacturing Co. and for which the seller-lessor could no longer obtain from the buyer-lessee a reimbursement of the unpaid rentals. Calupita. 245 (1938). Thus. . if the taking back of possession or enjoyment of the leased movable is equivalent to foreclosure.REMEDIES OF PARTIES 399 possession or enjoyment of the property leased as treated by Article 1485 carries the concept of rescission or foreclosure. In the 1938 case of H. as an act of rescission. In the early case of Manila Gas Corp. which means that even after taking back possession or enjoyment. then the barring effect of rescission is applicable. the fixing of the price of the machine in the contract of lease was considered as a factor in considering the contract as of sale payable on installments because the fixing of a fixed purchase price is not the usual feature of a lease. attorney’s fees. the lessor-seller will be able to collect damages as may be warranted by the circumstances. or even unpaid but accrued rentals. and forfeiting all rentals previously paid.. The distinction is critical. because if the taking back of possession or enjoyment of the leased movable is treated as a rescission. the seller-lessor may elect between compliance with or rescission of the obligation. and not even the expenses incurred in repairing the movable. whether in the form of damages. if such has been stipulated. then although the seller-lessor may forfeit in his favor all rentals previously paid. the barring effect would be equivalent to that of rescission. In that case. and it has been shown that the buyer-lessee has not complied with his obligation to pay the “rentals” due under the contract. 747 (1938).E. On the other hand.117 the Court treated the return of the sewing machine subject of the contract of lease with option to purchase.116 the Court considered that the only remedies of the seller-lessor would be specific performance and rescission. v. he can no longer collect any further amounts against the buyer-lessee. with indemnity for damages and interest in either case. In that case.

Heacock Company do not provide us with any useful guide in resolving the issue posed because they were both decided when the Recto Law was not yet a feature included in the pertinent Civil Code provision. the Court held that the waiver of the provisions of Art. upon demand of the seller-lessor. at p. the contracts in question are subject to the provision that when the lessor in such case “has chosen to deprive the lessee of the enjoyment of such personal property. the barring effect of “foreclosure” was not a matter that the Court had to face when the decisions were rendered.E.”119 118 119 93 Phil. . 271 (1953). Consequently. the buyer-lessee voluntarily returned the vehicles. 274.S. the seller-lessor was without further remedy to recover the accrued rentals thereon. When the lessee defaulted in the payment of the rentals. “any agreement to the contrary being null and void. thus: Being leases of personal property with option to purchase as contemplated in the above-article. 1454-A was void because said article expressly provided that any waiver of its benefit would be void. v. U. but refused to pay the rentals in arrears.118 decided on the proper coverage of then Article 1454-A (now Article 1484) of the Civil Code when it came to purported lease contracts of personal property with option to purchase. the seller-lessor had leased eight army vehicles under the stipulation that the value of the vehicles was divided into twelve equal parts to be made as monthly and by the end of the period. the vehicles would be owned by the buyer-lessee. In that case. Ibid. and indeed the only remedy available to the seller-lessor was either specific performance or rescission. The contract also provided waiver of the benefits of Article 1454-A of the Civil Code. When the action was brought by the seller-lessor to recover on the rentals.400 LAW ON SALES The rulings in both Manila Gas Corporation and H. Commercial Co.” “he shall have no further action” against the lessee “for the recovery of any unpaid balance” owing by the latter. The Court also ruled that with the recovery of the possession of all the vehicles. Halili.

Upon completion of the payments.. but to be leased back with option to purchase to the buyers. It is basic that a contract is what the law defines it and what the parties intend it to be. The case of Filinvest Credit Corp.e. Court of Appeals. which agreed to finance the purchase only if the machinery be purchased in the name of the finance company. and there was even an underlying real estate mortgage constituted on the real property of the buyerlessee. and that the buyers would execute a real estate mortgage in favor of the finance company to secure the financed amount. The finance company interposed that it merely financed the purchase and therefore any defect on the machinery should be addressed to the real and original seller. and to annul the real estate mortgage.120 provides us with a more auspicious setting to resolve the issue because it was decided based on the current versions of Articles 1484 and 1485. i. It is apparent here that the intent of the parties to the subject contract is for the so-called rentals to be the installment payments. then the rock crusher. to rescind the contract of lease with option to purchase. v. 120 178 SCRA 188 (1989). and they found that it did not have the features they desired. the finance company obtained ownership of the rock crusher.REMEDIES OF PARTIES 401 Note that in its ruling in Halili. that is why it was able to enter into a contract of lease with option to purchase with the buyer. “The nomenclature of the agreement cannot change its true essence. The buyers then commenced an action to enjoin the foreclosure. When the buyers had received delivery of the machinery. a sale on installments. In that case the buyers had inspected and tested a rock crusher and thereafter sought to have the purchase financed by Filipinas Credit Corporation. not what it is called by the parties. The Court held that in any event. The finance company began the process of extra-judicially foreclosing on the real estate mortgage. . they stopped paying the installment obligations. the Court uses the language of then Article 1454-A which refers to the effects of foreclosure. subject matter of the contract.

by retaining ownership over the property in the guise of being the lessor. There arises therefore no need to constitute a chattel mortgage over the movable sold. Through the set-up. This form of agreement has been criticized as a lease only in name. particularly paragraph (3) thereof. no definite ruling on the nature barring effect under Article 1485 was issued.”121 The Court explained the rationale of Article 1485 of the Civil Code: Indubitably. in effect. the Court holding therein that the buyers-lessees have defaulted on their contract with the finance company. More importantly. after repossessing the property and.402 LAW ON SALES would become the property of the [buyers-lessees]. at p. gets to keep all the installments-cum-rentals already paid. likewise. would give the impression that in the case of purported contracts of lease with option to buy.122 The reasoning of the Court as afore-quoted would clearly imply that the rationale behind the Recto Law found in Article 1484 is meant to cover purported lease of personal property with option to purchase and are considered a circumvention of the prohibition under Article 1484 in order to obviate the need to constitute a chattel mortgage over the movable sold. cancelling the contract of sale. in the event the vendee-lessee defaults in the payment of the installments. 195. and therefore dismissed the complaint of the buyerslessees. the vendor. 193-194. the taking back of possession or enjoyment of the leased movable by the sellerlessor would amount to both a foreclosure that bars all other 121 122 Ibid. the right to repossess the same. A reading of the ratiocination in both Halili and Filinvest Credit Corp. However. without going through the process of foreclosure. . the vendor. the device — contract of lease with option to buy — is at times resorted to as a means to circumvent Article 1484. Ibid. at pp. retains.

not every deprivation of possession would result in producing the barring effect under Article 1485 of the Civil Code. v. when structured as a lease with option to purchase is equivalent to a security arrangement whereby the subject movables are mortgaged by the buyer to the seller. to deprive the lessee of possession of the leased equipment. and barred all action to recover any amount from the lessee. However. . the same is treated legally as a foreclosure and the barring effect applicable to foreclosure remedy.REMEDIES OF PARTIES 403 actions of whatever nature.123 the Court held that under a purported contract of lease with option to purchase which is covered under Articles 1484 and 1485. Giraffe-X Creative Imaging. since the remedies provided for in Article 1484 are alternative. 527 SCRA 405 (2007). Inc. Consequently. the condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying Article 1485 which would be fulfilled by the filing by the lessor of a complaint for replevin to recover possession of movable property and its enforcement by the sheriff. not rescission. in PCI Leasing and Finance. Court of Appeals. Therefore. By and large. not cumulative — the exercise of one bar the exercise of the others. 123 124 307 SCRA 731 (1999). Inc. Lately. when the purported lessor takes possession of the subject movable. and not rescission that would still authorize the seller the right to recover damages to make him whole. there would be no barring effect by reason of the enforcement of the writ. through replevin. in choosing. it seems to be the thinking of the Court that a sale of movables on installment. is given application. waived its right to bring an action to recover unpaid rentals. the Court also held that if the main purpose for seeking recovery of the personal property under a writ of replevin was merely to ensure enforcement of the remedy of specific performance under Article 1484(1). In Elisco Tool Manufacturing Corp..124 the Court held that when the lessor in a lease with option to purchase. v.

125 On failure of the buyer to pay the price. Failure of Buyer to Pay Price a. much less dissolve the sale. Although Article 1592 also provides that “[a]fter the demand [of the seller]. if the seller has reasonable grounds to fear the loss of the immovable property sold and its price. Court of Appeals. the Court has tended to interpret Article 1592 liberally in favor of the buyer to 125 126 Ocampo v. by itself. the court may not grant [the buyer] a new term. bar the transfer of the ownership or possession. Ibid. even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place. .404 LAW ON SALES REMEDIES IN CASES OF IMMOVABLES A.126 Under Article 1592 of the Civil Code. the seller has the option under Article 1592 of the Civil Code to rescind the sale upon judicial or notarial demand. he may immediately sue for the rescission of the sale. the provisions of Article 1191 of the Civil Code on rescission shall be observed.” nevertheless in cases of residential immovables. Should such ground not exist. as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. the buyer may pay. REMEDIES OF SELLER 1. Rescission under Article 1592 The failure of the buyer to pay the price in full within a fixed period does not. 2. 233 SCRA 551 (1994). in the sale of immovable property. even after the expiration of the period. which means that upon substantial breach by the buyer for failure to comply with his obligation to pay the price when due. Anticipatory Breach Under Article 1591 of the Civil Code. the seller may sue for rescission of the sale.

128 In Luzon Brokerage v. . Tuason & Co. according to Art. b. the said article applies only 127 128 31 SCRA 829 (1970). nor to allow either a rescission or cancellation on the part of the seller in spite of clear default on the part of the buyer holding: Plaintiff maintains that this provision governs contracts of sale. plaintiff will thereby recover everything due thereto. 832-833. fees and costs. interests. Inc.129 the Court held that if Article 1592 is applicable to a sale contract. We feel that. such as the one entered into by the parties in this case. Maritime Bldg. the decision appeal from may be upheld upon the authority of Art. at pp. the filing of a crossclaim in court may be constituted as a judicial demand for rescission that satisfies the requirement of said article. of the propriety of applying said Art.127 despite the rescission clause provided for in the contract to sell a residential lot in a subdivision project. 1234 of said Code: “If the obligation has been substantially performed in good faith. Under these circumstances. 1234 of the Civil Code.M.. Thus. pursuant to its contract with the defendant. Contracts to Sell Not Covered by Article 1592 In J. Ibid. including such damages as the former may have suffered in consequence of the latter’s default.. not contracts to sell.. the obligor may recover as though there has been a strict and complete fulfillment. 129 43 SCRA 93 (1972). the Court refused to rule on the proper application of Article 1592 to the case.” . accordingly. for. the trial court sentenced the defendant to pay all such installments. Javier. 1592 thereto. however. The Court also held that in any event Article 1592 of the Civil Code has no application to a contract to sell. less damages suffered by the obligee. in the interest of justice and equity. Regardless.. We find that plaintiff herein has not been denied substantial justice. v.REMEDIES OF PARTIES 405 give him every opportunity to comply with his obligation and proceed to take the subject immovable.

all amounts paid in accordance with the agreement together with the improvements on the premises shall be considered as rents and as payment for damages suffered by reason of such breach. notwithstanding any such contingency. In upholding such ruling. Saldana. a mere act of trespass shall not authorize the suspension of the payment of the price. 130 131 55 SCRA 324 (1974). merely undertaking to convey it provided the buyer strictly complied with the terms of the contract. should the buyer be disturbed in the possession or ownership of the thing acquired. but not to one in which the seller retained ownership of the immovable object of the sale. Ibid. the Court held that “the judgment is fair and just and in accordance with law and equity.406 LAW ON SALES to ordinary sale transferring ownership simultaneously with the delivery of the real property sold. or it has been stipulated that. by a vindicatory action or a foreclosure of mortgage. unless the seller gives a security for the return of the price in a proper case. besides the larger stipulated interests on both lots. Again. the buyer shall be bound to make the payment. Nevertheless. Resort to Equitable Resolutions In Legarda Hermanos v. was entitled to the conveyance of one fully paid lot of his choice. c. the Court held that the buyer of the two small residential lots on installment contracts on a ten-year basis who has faithfully paid for eight continuous years on the principal alone already more than the value of one lot. 325. REMEDIES OF BUYER 1.”131 B. Suspension of Payment Under Article 1590 of the Civil Code. . or should he have reasonable grounds to fear such disturbance.130 the contract between the parties covering the purchase of two residential lots clearly provided that in case of default on the part of the buyer. the buyer may suspend the payment of the price until the seller has caused the disturbance or danger to cease. at p.

In Casa Filipinas Realty Corp.’”133 Relucio v. De los Santos. Ibid. at p. lighting systems and other basic requirements’ for the health and safety of home and lot buyers. v. operators and/or sellers ‘have reneged on their representations and obligations to provide and maintain properly subdivision roads. The sections also grant to the buyer the option to be reimbursed the total amount paid. National Housing Authority. 153 SCRA 399 (1987). 133 132 .135 Lim v. In Case of Subdivision or Condominium Projects Sections 23 and 24 of Pres. provide that no installment payments made by the buyer in a subdivision or condominium project for the lot or unit he contracts to buy shall be forfeited in favor of the owner or developer when the buyer. Brillante-Garfin. Decree 957 “was issued in the wake of numerous reports that many real estate subdivision owners. It was designed to stem the tide of ‘fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers free from liens and encumbrances. he may not be ousted from the subdivision. 241 SCRA 165 (1995). 137 177 SCRA 14 (1989). 135 See also Antipolo Realty Corp. 136 8 SCRA 798 (1963).132 the Court held that Pres. Decree 957.134 held that the decree vests upon the buyer the option to demand reimbursement of the total amount paid. developers. Court of Appeals. or to wait for further development of the subdivision or condominium project. water systems. 134 187 SCRA 405 (1990).137 recognized the right of a buyer in a subdivision land to compel the seller to complete the roads and other facilities of the subdivision. v. after due notice to the owner or developer desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same.136 and Consing v. sewerage. Office of the President.REMEDIES OF PARTIES 407 2. drainage. and when the latter opts for the latter alternative by waiting for the proper development of the site. 173.

”139 In Gold Loop Properties. v. 142 Casa Filipinas Realty Corp. 241 SCRA 165 (1995). 24. 957 Section 23 of Pres. The buyer is entitled to a copy of the deed. 140 350 SCRA 371 (2001). and a proper access to a residence is essential to its enjoyment. Notice Required under Section 23 of P. Office of the President. and when the seller has so defaulted in such obligation. 957 In Eugenio v. supra. otherwise. he would not be informed of the rights and obligations under the contract.. in Cho Chien v. . 957 provides for the nullification of a contract to sell in the event that the seller. Retroactive Application of P. Drilon. at p. the buyer “should be entitled to a proportionate reduction in her purchase price of the two lots.142 b.143 the Court held that the failure to develop a subdivision constitute legal justification for the nonpayment of amortization by the buyer on installment under the land purchase agreements entered into prior to the enactment 138 139 Lim v. Sta Lucia Realty & Dev. Inc.. Court of Appeals. Decree 957 does not require that a notice be given first by the buyer to the seller before a demand for refund can be made as the notice and demand can be made in the same letter or communication. v. Court of Appeals.D. at the time the contract was entered into did not posses a certificate of registration and a license to sell.408 LAW ON SALES even when nothing to that effect is stipulated in the sale: “A seller’s duty is to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purposes contemplated .141 it was held that nothing in P.D. supra. at p.. 143 252 SCRA 106 (1996).. Yet.”138 The seller cannot shift to the buyer the burden of providing for an access to and from the subdivision. Inc. Delos Santos.140 it was held that a buyer of a condominium unit is justified in suspending payment of his monthly amortization where the seller fails to give a copy of the Contract to Sell despite repeated demands therefore.D. a. 141 513 SCRA 570 (2007). 802. Consing v.

D. the law must favor the weak and the disadvantaged. 957 was enacted with no other end in view than to provide a protective mantle over helpless citizens who may fall prey to the manipulations and machinations of ‘unscrupulous subdivisions and condominium sellers. Decree 957 which may even be applied retroactively. it is obvious that the law — as an instrument of social justice — must favor the weak.. at p. must be enforced. as an instrument of social justice.146 the Court held that a buyer of a property at a foreclosure sale may not dispossess prior purchasers on installments of individuals lots therein.REMEDIES OF PARTIES 409 of Pres. 957 did not expressly provide for retroactivity in its entirety. 146 252 SCRA 5 (1996). . in this instance. As between small lot buyers and the gigantic financial institution which the developers deal with.147 xxx. but such can be plainly inferred from the unmistakable intent of the law.D. 145 144 . circumstances and conditions it sought to remedy. 111. P. 10.. 147 Ibid. nor compel them to pay again for the lots which they previously brought from the defaulting mortgagor-subdivision developer.D. Office of the President. that it was thereby relieved of taking any other step to verify the over-reaching Ibid. See also Union Bank of the Philippines v. Decree 957: “P. as culled from its preamble and from the situation. small lot buyers and aspiring homeowners.”145 In Philippine National Bank v. 110. yet the same can be plainly inferred from the unmistakable intent of the law to protect innocent lot buyers from scheming subdivision developers. at p. The intent of the law. thus: While P. “We cannot over emphasize the fact that the BANK cannot barefacedly argue that simply because the title or titles offered as security were clean of any encumbrance or lien. at p. based on the provisions of Pres. including. 957 did not expressly provide for retroactivity in its entirety. Housing and Land Use Regulatory Board.144 x x x It goes without saying that. Ibid. 210 SCRA 558 (1992).

149 C. and when unconditionally conferred. OIympia Housing Inc. 150 Sec. The enactment on September 14. 6552 entitled “An Act to Provide Protection to Buyer of Real Estate on Installment Payments.15. Act No. 151 86 SCRA 305 (1978). 239 SCRA 126 (1995). The Court held: . Bricktown Dev.” which inter alia compels the seller of real estate on installments (but excluding Ibid. 149 148 .. 2. it should be construed as a right. entitled the “Realty Installment Buyer Protection Act” (also the “Maceda Law”). MACEDA LAW: SALES OF REAL ESTATE ON INSTALLMENTS Republic Act 6552. Panasiatic Travel Corp. Corp.. 395 SCRA 298 (2003). 1972 by Congress of Republic Act No.. at p. Rep. The law declares as “public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Did it not enter the mind of the responsible officers of the BANK that there may even be subdivision residents who have almost completed their installment payments?”148 3. not an obligation of the debtor. Amor Tierra Dev..410 LAW ON SALES implications should the subdivision be auctioned on foreclosure. The BANK could not have closed it eyes that it was dealing over a subdivision where there were already houses constructed. the grace period is effective without further need of demand either calling for the payment of the obligation or for honoring the right. provides for certain protection to particular buyers of real estate payable on installments.151 the Court viewed the enactment of the Maceda Law as a confirmation of its jurisprudential rulings that recognizes the seller’s right of cancellation of sale on installments of industrial and commercial properties with full retention of previous payments.. Right to Grace Period Stipulated When a grace period is provided for in the contract of sale. v. v. Corp. 6552. Maritime Bldg.150 In Luzon Brokerage v.

Court of Appeals. Daroya. F. v.B.” Ibid. Corp.155 gave an allencompassing diatribe on the purpose and objectives of the Maceda Law. Dela Cruz Vda. particularly residential lots. with a refund of certain percentages of payments made on account of the cancelled contract. thus: “The Realty Installment Buyer Protection Act. Corp. De Manzano. The Act in modifying the terms of the application of Art. J. 10.152 This view was reiterated by Rillo v. commercial buildings among others from the Act’s coverage) to grant one month grace period for every one year of installments made before the contract to sell may be cancelled for non-payment of the installments due forecloses any overturning of this Court’s long-established jurisprudence. 327-328. Rodriguez. Management & Dev.. 154 Reiterated in Cordero v. 109 Phil.L. at pp. which is simply an event that prevents the obligation of the seller to convey title from acquiring binding force.REMEDIES OF PARTIES 411 industrial lots. per Reyes. 153 152 . the applicable law is the Maceda Law which recognizes in conditional sales of all kinds of real estate.154 Active Realty & Dev. 533 SCRA 242 (2008).” (Manuel vs. whether industrial. the right of the seller to cancel the contract upon non-payment of an installment by the buyer. or residential. 155 382 SCRA 152 (2002).). 1592 Civil Code reaffirms the vendor’s right to cancel unqualifiedly in the case of industrial lots and commercial buildings (as in the case at bar) and requires a grace period in other cases. 506 SCRA 451 (2006).153 which held that in the case of a contract to sell land. Pagtulungan v. 1.S. commercial. Republic Act 6552 recognizes in conditional sales of all kinds of real estate (industrial and commercial as well as residential) the non-applicability of Article 1592 (1504) Civil Code to such contracts to sell on installments and the right of the seller to cancel the contract (in accordance with the established doctrine of this Court) upon non-payment “which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. 274 SCRA 461 (1997).

[its] declared policy is to protect buyers of real estate on installment basis against onerous and oppressive condition. 158. at p. entrap innocent buyers by requiring cash deposits for reservation agreements which often time include.”156 a. 144 SCRA 693 (1986). Real estate developers thus enjoy an unnecessary advantage over lot buyers who they often exploit with iniquitous results.A. “Role” of Maceda Law It would seem that more than just providing for a substantial and procedural setting for the rescission and cancellation of contracts covered therein. Most of these contracts of adhesion. Thus. To help especially the low income lot buyers. as “a policy statement” of the State in protecting the interests of buyers of residential real estate on installments. The law seeks to address the acute housing shortage problem in our country that has prompted thousands of middle and lower class buyers of houses. Court of Appeals157 the Court took the Law “as an expression of public policy to protect buyers of real estate on installments against onerous and oppressive conditions (Sec. 2 of Republic 156 157 Ibid. onerous default clauses where all the installment payment made will be forfeited to pay any installment due even if the buyers had made payments for several years. without an opportunity to question the onerous provisions therein as the contract is offered to them on a “take it or leave it” basis. . mostly low income earners eager to acquire a lot upon which to build their homes. They get to forfeit all the installment payments of defaulting buyers and resell the same lot to another buyer with the same exigent conditions. Lot buyers. drawn exclusively by the developers. the Maceda Law in whole is relied upon and used by the courts. readily affix their signatures on these contracts. lots and condominium units to enter into all sorts of contracts with private housing developers involving installment schemes. including the Supreme Court. the legislature enacted R. in the McLaughlin v. in fine print.412 LAW ON SALES or more popularly known as the Maceda Law. 6552 delineating the rights and remedies of lot buyers and protect them from one sided and pernicious contract stipulations.

at pp. v. the Court took into consideration Section 3 of the Law which provided for the indispensability of notice of cancellation to the buyer and declared “it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. at p. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments.”158 If that be the case. which provided for automatic extrajudicial rescission upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month. 12 SCRA 639 (1983). it could not have encompass(ed) the cancellation of the contracts to sell pursuant to an automatic cancellation clause which had become operational long before the approval of the law. Corp. 700. 6552).161 the Court extended the formal requirements of rescission under the Maceda Law to apply even to contracts entered into prior to the effectivity of the Maceda Law. without need of notice and with forfeiture of all installments paid. v. therefore. thus: “As with Presidential Decrees Nos. 162 People’s Industrial and Commercial Corp. Republic Act No. Clave. However. 9576 and 1344.”160 b. Retroactive Application of Law In Siska Dev. 66-67. Office of the President.REMEDIES OF PARTIES 413 Act No.159 which involved a contract to sell entered into by the parties in 1965 (the Maceda Law took effect in 1972). 6552 does not expressly provide for its retroactive application and. the Court refused to apply retroactively the terms of the Maceda Law. 161 231 SCRA 674 (1994). 281 SCRA 206 (1997).”162 Ibid. Although the Maceda Law was inapplicable. 160 Ibid. v. Inc. Court of Appeals. in one case. 159 158 . Take for example the case of Palay. then the value of the Maceda Law goes beyond its language and can be interpreted to further a policy that may not even be found within its language.

Inc. the Maceda Law clearly includes in its provisions both contracts of sale and contracts to sell. thus: “the law is aimed at those sales where the price is payable in several installments. 54. it is in these cases that partial payments consists in relatively small amounts.”164 In any event. but also “financing” of such acquisitions. Maceda Law Covers Contracts to Sell The employment of the term “cancellation” under the Maceda Law clearly indicates that it covers contracts to sell residential real estate on installments. Transactions Covered It should be noted that the Maceda Law does not cover all sales of realty on installments. This conclusion is clear from the use by the Law of the twin terms of “notice of cancellation or the demand for rescission” of the contract. 3. the Maceda Law covers not only “sales” on installments of real estate. including residential condominium apartments. as to sales of movables. for.414 LAW ON SALES 1.”163 Unlike Article 1592 of the Civil Code. which the Court has interpreted not to be applicable to contracts to sell. constituting thus a great temptation for improvident purchasers to buy beyond their means. Ibid. 163 164 Sec. equally should apply to sale of real estate in installments. at p. the public policy behind the Maceda Law is so all-encompassing with respect to residential real estate and condominium units. we would adopt for the Maceda Law the same definition of “sale by installments” held by Levy Hermanos. for sales of movables by installments. that it would cover even sales or financing transactions which may not fit into the “installment” concept. . generally. Act 6552. Rep. The rationale of Levy Hermanos. It expressly covers “all transactions or contracts involving the sale or financing of real estate on installment payments. which should involve at least two (2) installments to be paid in the future at the time of the perfection of the contract. But unlike the Recto Law on movables. a. but primarily residential real estate. Inc. On the other hand.

the [Maceda Law] invoked by [buyer] . etc. and not what happens at consummation. at p. precisely when the conditions attaching to the contract to sell (such as non-payment of the installments) is not fulfilled which have the effect of “extinguishing” the contract. 165 166 348 SCRA 391 (2000).. the non-fulfillment of condition under a contract to sell does not take it out of the Maceda Law. and (c) Sales to tenants under agrarian reform laws. although involving sales on installments. there is no doubt under the provisions of the Maceda Law that it covers both contracts of sale and contracts to sell on installments condominium units. find no application to the present case because said laws presuppose the existence of a valid and effective contract to sell a condominium. and the coverage is based on the nature of the contract and subject matter at the time of perfection. thus: (a) Sales covering industrial lots..”166 The reasoning in Mortel is defective for the following reasons: First. KASSCO. (b) Sales covering commercial buildings (and commercial lots by implication).REMEDIES OF PARTIES 415 For that reason. Consequently.e.. the author finds quite surprising the ruling in Mortel v. Secondly.). Inc.165 which held that when a contract to sell is constituted over a condominium unit subject to the suspensive condition which is the acquisition of individual condominium certificates of title (CCT) over the building which seller undertook to accomplish within one year from the date of execution. Therefore. Ibid. Transactions Excluded from Coverage The following transactions. then the non-fulfillment of the condition extinguished the contract meant that “the contract to sell did not take into effect. the Maceda Law governs the effective remedies and consequences available to the parties (i. 398. . notarial rescission and return of cash surrender value. are expressly excluded from the coverage of the Law. 2..

since other transactions over immovables. 290 SCRA 330 (1998).167 a. . and more importantly. the Court held that the Maceda Law normally applies to the sale or financing of real estate on installments payments. Court of Appeals. An example would be the sale on installment of commercial or office condominium units. commercial buildings. does not have any rights promoted under the Maceda Law which contains provisions for the benefits of real estate buyers on installments. a. It has no application to a sale on installment of a commercial building. 3844. depend on whether or not he has paid less than or more than two (2) years of installments. although not within the enumerated exclusions are to be considered as excluded because they are not within the clearly expressed coverage. the unpaid installments due within the total grace period 167 168 Odyssey Park.416 LAW ON SALES The enumeration of the transactions not covered by the Maceda Law is not exclusive. Lagandao v. although binding itself to the terms of the contracts of sale.168 3. No. Rights Granted The rights granted to a buyer of real estate in a sale or financing covered by the Maceda Law. Maceda Law Cannot Be Invoked by Highest Bidder in Foreclosure Proceedings The Court has ruled that the terms of the Maceda Law cannot be invoked by a person or entity who acquired the subdivision lots in a foreclosure sale on the mortgaged constituted thereon by the developer. is not the real party to the original installment sales. In one case. and excludes “industrial lots. 280 SCRA 253 (1997). he is entitled to the following rights in case he defaults in the payments of succeeding installments: (a) To pay.A. v. Court of Appeals. At Least Two (2) Years Installments Paid Where the buyer has paid at least two (2) years of installments. Such person or entity. and sales to tenants under R. Inc. without additional interest.

170 the Court dispensed with the additional formality of a demand on the seller’s part for recission superfluous since the action filled was one for “annulment of contract. after five (5) years of installments.171 it was held that the letter notice given by the seller’s counsel which merely made formal demand upon 169 170 Layug v.169 it was held that a decision rendered is an ejectment case operated as the required notice of cancellation. In an earlier case. pursuant to Section 3(b) of the Maceda Law. Leaño v. Court of Appeals. deposits or options on the contract shall be included in the computation of the total number of installments made. 171 Pagtulungan v. In one case. an additional 5% every year but not to exceed 90% of the total payments made. Down payments. if any. (2) How Cancellation of Contract Can Be Effected The actual cancellation of the contract shall take place after thirty (30) days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. which is kindred concept of rescission by notarial act. 167 SCRA 627 (1988).REMEDIES OF PARTIES 417 earned by him. (b) If the contract is cancelled. De Manzano. Intermediate Appellate Court.” In another case. the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to 50% of the total payments made and. 533 SCRA 242 (2008). 369 SCRA 36 (2001). which is fixed at the rate of one (1) month grace period for every one (1) year of installment payments. Dela Cruz Vda. . (1) Exercise of Grace Period The right to make use of the grace period can be exercised by the buyer only once in every five (5) years of the life of the contract and its extensions.

Compensation Rule on Amortization Payments The Court’s ruling in Leaño v. It was also reitereated that a case for unlawful detainer does not exempt the seller from complying with the notarial act required under the law. Nevertheless. the buyer shall still be entitled to a grace period of sixty (60) days from the date the installment became due. Leaño held that although the contract to sell allows a total of 10 years within which to pay the purchase price. . nevertheless. he is under Article 1169 already in default and liable for the damages stipulated in the contract. b. the buyer cannot ignore the stipulation on the monthly amortization payments required under the contract by claiming that the ten-year period within which to pay has not elapsed. the Court agreed with the trial court that the default committed by the buyer in respect of the obligation could be compensated by the interest and surcharges imposed upon the buyer under the contract. c. Court of Appeals.172 recognizes the principle of compensation to be applicable to remedies under the Maceda Law. When the buyer fails to pay any monthly amortization. Less Than Two (2) Years Installments Paid In case where less than two (2) years of installments were paid. the seller may cancel the contract after thirty (30) days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. If the buyer fails to pay the installments due at the expiration of the grace period.418 LAW ON SALES the buyer to vacate the premises in question did not serve the same requirement as that of notice of cancellation or demand for recission “by a notarial act” as required under the Maceda Law. 172 369 SCRA 36 (2001).

e. and Mgt. v. Formula to Compute the Installment Mode In Jestra Dev. 144 SCRA 693 (1986).66 for the period covering the downpayment. provided he complies with the procedure provided for in the Law.000 with 30% thereof or 5750. . i. which suit was eventually compromised. and then to divide them by the stipulated mode of payment..000 was to be paid in 10 years of equal payment of 534.666. then either rescission or cancellation of the contract becomes a matter of right on the part of the seller. The result was quite substantial in that the Court found the buyer to have paid less than 2 years of installments. Thus. In McLaughlin v.500. the Court has interpreted it otherwise. and the balance of 51. and refused to apply the monthly amortization of 534.174 the parties had entered into a contract of conditional sale of real property. semi-annual or annual. When the buyer defaulted in the payment of the installments. Court of Appeals.750.173 the Court clarified that the proper formula to apply in determining how many installments have been made is to include any payment made as downpayment or reservation fee as part of the installments made. in Jestra.REMEDIES OF PARTIES 419 d.000 was to a downpayment payable in six montly installments. 4. and therefore not entitled to receive any cash surrender value to complete the effect of the notice of cancellation of the Contract to Sell. quarterly. with 173 174 513 SCRA 413 (2007). a complaint was filed by the seller in court for the rescission of the deed of conditional sale. with the stipulated purchase price payable on installments. Interpretation of Grace Period and Mode of Cancellation Although a formal reading of the provisions of the Maceda Law would imply that once a buyer fails to avail of the grace period granted to him. Corp. where the Contract to Sell provided for a total Purchase Price of 52.983 as the divisor to all payments made by the buyer.983 the Court used the stipulated divisor of 5121. Pacifico. whether it is monthly.

420 LAW ON SALES the buyer agreeing on a scheduled payment of the balance of the purchase price. this prevented the cancellation of the contract of conditional sale. Second. On appeal. the court held that if the motion for the issuance of the writ of execution is considered as the notice of cancellation under the Law. McLaughlin would hold notarial act as merely applicable to rescission. the seller could cancel the contract only thirty (30) days after the receipt of such notice. McLaughlin would provide for two grace periods: the first grace period is the one provided for expressly . First. McLaughlin ruling therefore clearly provides for two basic doctrines applicable to the Maceda Law. the buyer still can prevent rescission or cancellation of the contract within the 30-day period when rescission or cancellation is to take effect. the seller subsequently refused to accept further payment and eventually filed a motion with the trial court for the issuance of a writ of execution to declare the rescission of the contract of conditional sale. and then concluded that since the tender of payment of the balance of the purchase price was made within said thirty (30) day period. and tendered with the trial court the balance due to the seller on the sale. Although there was no doubt that the buyer was no longer entitled to the benefits of the grace period under the Maceda Law. although the Law seem to require rescission and cancellation to be both by notarial act. When the buyer failed to pay on the dates provided for in the compromise agreement. all payments previously made shall be forfeited in favor of the seller as liquidated damages. the Court upheld the right of the buyer to prevent the rescission of the contract by his tender of the balance of the purchase price. based on the provisions of the Maceda Law. and the forfeiture of all payments of the buyer previously made. whereas “notice of cancellation” need not be by notarial act. McLaughlin would hold that even after the expiration of the grace period provided by the Law. The buyer filed a motion for reconsideration on the order granting the writ of execution. In other words. The compromise agreement approved by the court also provided that in case of failure of the buyer to comply with the terms of payment.

the distinction between the two types of grace period. breach of contract. and the other would be the period before rescission or cancellation actually takes effect. The McLaughlin ruling would therefore encourage buyers of real estate on installments covered by the Maceda Law not to take advantage of the statutory grace period. de Manzano. Dela Cruz Vda. and the buyer may still reinstate the contract by updating the account. whereas. In Leaño v. because even with its expiration. 553 SCRA 292 (2008). which is a minimum of 60 days. de Manzano. by paying-up the unpaid balance prior to the expiration of the 30-day period provided in the Maceda Law for effectivity of the notice of rescission or cancellation. This is true even when a decision has been rendered in an ejectment case which would operate as the required notice of cancellation. 175 369 SCRA 36. these was still no actual cancellation of the conditional sale. Dela Cruz Vda. Pagtulungan v. Perhaps. even when these are stipulated in the contract. . is that in the statutory grace period. availment of the right to update the installment payments is without interest and penalties. 176 Reiterated in Villadar v.176 Leaño affirmed the principle that even when the requisite notice of cancellation is given but the buyer has not been given the cash surrender value of the payments made. tender and consignation must all give way to the explicit provisions of the Maceda Law that grants to the buyer a minimum 60-day grace period and the requirement that notarial notice of cancellation or rescission shall be effective only after 30-days from service thereof.175 the Court held that in cases falling under the Maceda Law. the issues as to rescission or cancellation. Zaballa. Pagtulungan v. 533 SCRA 242 (2008)(2001). they have a jurisprudential grace period which allows them to prevent the rescission or cancellation of their contracts even after they have received the demand for rescission or notice of cancellation. the buyer would be liable for and would have to include in his payments the stipulated interests and penalties incurred. in the period prior to the effectivity of the rescission or cancellation of the contract. Court of Appeals.REMEDIES OF PARTIES 421 by the Law. 545 SCRA 325 (2008).

the seller is required to refund to the buyer the cash surrender value of the payments on the property. and that the actual cancellation of the contract can only be deemed to take place upon the expiration of a 30day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value. 179 Sec. .422 LAW ON SALES The principle was reiterated in Active Realty & Dev. 5.177 which held that the refund of the cash surrender value is one of the mandatory twin requriements for a valid and effective cancellation under the Maceda Law. The Court held that In addition to the notarial act of rescission. and absence of which would mean that the contract remains valid and subsisting. Daroya. 5. v. at the option of the first buyer. Act 6552. the Maceda Law provides for the following rights to the buyer: (a) 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. However. 395 SCRA 298 (2003). since the lot had already been sold to an innocent second buyer. Other Rights Granted to Buyer In addition. Rep.. Panasiatic Travel Corp. in that case. Olympia Housing v. The deed of sale assignment shall be done by notarial act. the seller was ordered to refund to the first buyer the actual market value of the lot sold with 12% interest per annum or to deliver a substitute lot.179 (b) To pay in advance any installment or the full unpaid balance of the purchase price 177 178 382 SCRA 152 (2002).178 held that the Maceda law recognizes the right of the seller to cancel the contract but any such cancellation must be done in conformity with the requirements therein prescribed. Corp.

since “the policy of that law. If the Maceda Law has any relevance at all. The Court further held that “Section 3(b) of the same law does not grant petitioner [developer] any legal ground to cancel the contracts 180 181 Sec. is ‘to provide protection to buyers of real estate on installment payments. 182 Ibid.’”182 Therefore. it is to protect the buyer. 7. 345. Act 6552. one who buys the property from the developer and who steps into the shoes of the seller under the Contract to Sell cannot claim any right or protection under the Law.REMEDIES OF PARTIES 423 any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property.180 Notice that the provisions of Section 6 of the Maceda Law render nugatory all provisions in loan agreements covering the financing of residential real estate and condominium units “pretermination penalty clauses” whereby any payment ahead to the scheduled amortization was met with a penalty clause to compensate the bank or financial institution for the inability of such pre-payment to earn interest income on the loan. Maceda Law Cannot Be Availed of by Developer In Lagandaon v. Effect of Contrary Stipulations Under Section 7 of the Maceda Law. at p. 6552 is ‘to protect buyers of real estate on installment payments against onerous and oppressive conditions. . 6. Court of Appeals.181 the Court held that the Maceda Law has no application to protect the developer or one who succeeds the developer. Rep. 290 SCRA 330 (1998). any stipulation in any contract entered into contrary to the provisions of the Law. the declared public policy espoused by Republic Act No. not the developer-seller or his successor-in-interest. shall be null and void. 6.’ As clearly specified in Section 3. as embodied in its title.

Seven Brothers Shipping Corp. the latter is entitled to reimbursement of the purchase money paid by him. . rather. together with all sums paid out by him in improvements introduced on the property. v. Court of Appeals.184 —oOo— 183 184 Ibid. 246 SCRA 33 (1995). taxes. and other expenses by him.424 LAW ON SALES to sell. it prescribes the responsibility of the seller in case the ‘contract[s are] cancelled.’”183 CANCELLATION OF JUDICIAL SALE Where a judicial sale is voided without fault of the purchaser. A judicial sale can only be set aside upon the return to the buyer of the purchase price with simple interest.

In addition. and. in the process. even the Supreme Court has began to blur what used to be different remedies. of the Civil Code. With the passage of the Maceda Law which had lumped together both remedies of rescission and cancellation into a uniform procedural straight-jacket when it comes to sale and financing contracts involving residential real estates. the differences between the remedy of rescission as it pertained to contracts of sale. and the effects of cancellation or extinguishment due to non-fulfillment of a suspensive condition in contracts to sell. seemed well-defined.425 CHAPTER 11 REMEDIES OF RESCISSION AND CANCELLATION FOR SALES OF IMMOVABLES: CONTRACT OF SALE VERSUS CONTRACT TO SELL Previously. Remedy of “Rescission” Not Covered This chapter does not cover the remedy of “rescission” when it pertains to rescissible contracts defined under Articles 1381 et seq. where economic damage or lesion is the main basis for allowing the rescission of what otherwise is a valid 425 . the study of the remedies of rescission and cancellation would also place in focus the issue of whether contracts to sell are within the definition of “sale” under Article 1458 of the Civil Code. has almost made indistinguishable the substantive differences between a contract of sale and a contract to sell involving immovables. REMEDY OF RESCISSION OR RESOLUTION 1.

and the price with its interest. 4 Ibid. the reparation of damages for the breach is purely secondary. Court of Appeals. 366 SCRA 41 (2001). . Such remedy in rescissible contracts is subsidiary in nature and cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the damage sustained.L. 1382. Civil Code. together with the fruits. v. it being unjust that a party be held bound to fulfill his promises when the other violates his.4 1 2 Art. Reyes had pointed out the distinctions between the two types of rescissions in his concurring opinion in Universal Food Corp. which remedy is principal in nature and the legal premise of which is substantial breach of contract. Justice J.426 LAW ON SALES contract.2 apply equally to rescission covered by Article 1191. Court of Appeals. It is not a subsidiary action. that violates the reciprocity between the parties. As expressed in the old Latin aphorism: “Non servanti fidem. The point being made is this: Before a party employs in legal argument a principle of rescission to bolster his case. such rescission can be carried out only when he who demands rescission can return whatever he may be obliged to restore. he has to be sure which of the remedies of rescission he is invoking.” Hence. Reiterated in Iringan v. 1385. at pp.B. and that consequently. On the other hand. Civil Code. This rescission is a principal action retaliatory in character.3 thus — The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant.1 Such characterization has no application to the remedy of “rescission” under Article 1191 of the Civil Code. non est fides servanda. the principles that rescission of rescissible contracts creates the obligation to return the things which were the object of the contract. Art. 22-23. 3 33 SCRA 22 (1970). and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligation by the defendant.

as expressly provided in Articles 1383 and 1384. When Principles of Rescission for Rescissible Contract Applied to Resolution of Sale On the basis of the clear distinctions between the two remedies of rescission and resolution.”5 The eminent jurist explained the apparent confusion between the two types of remedies: “It is probable that the petitioner’s confusion arose from the defective technique of the new Code that terms both instances as ‘rescission’ without distinctions between them. that differentiated ‘resolution’ for breach of stipulations from ‘rescission’ by reason of lesion or damage.8 a.7 the Court has held that the prescriptive period applicable to rescission or resolution under Article 1191 and 1592 is found in Article 1144 which provides that the action upon a written contract should be brought within ten (10) years from the rights of action accrue. the action cannot be maintained or continued. Court of Appeals. thus: “On the contrary. and does not apply to cases under Article 1191. and not the four (4) year period provided for rescissible contracts. 7 Iringan v. 366 SCRA 41 (2001). Court of Appeals. at p. the cause of action is subordinated to the existence of that prejudice. because it is the raison d’ etre as well as the measure of the right to rescind. 23. 8 Art. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines.”6 In another case. 6 5 . at p. in the rescission by reason of lesion or economic prejudice.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 427 He also distinguished rescission under Article 1191 from the remedy of rescission for rescissible contracts. 310 SCRA 1 (1999). Ibid. 1389. 23. the author takes exceptions Ibid. considering that patent difference in causes and results of either action. Difference between remedies of resolution and rescission reiterated in Ong v. Hence. unlike the previous Spanish Civil Code of 1889. Civil Code. where the defendant makes good the damages caused. But the terminological vagueness does not justify confusing one case with the other.

and the buyer in turn is obligated to pay a price certain in money or its equivalent. not to replace. In ruling that the sellers could not avail of the remedy of rescission under Article 1191. Suria held that since a contract of sale obligates the seller to transfer the ownership of and to deliver a determinate thing to the buyer. The mortgage contract therefore was only meant to secure.” where the mortgage was constituted to secure the payment of the purchase price. the obligation to pay the price). then by the execution of the deed of mortgage. 11 314 SCRA 69 (1999).11 demonstrates an instance when the remedy of rescission or resolution was not 9 151 SCRA 661 (1987).9 which involved a “Deed of Sale with Mortgage. the relationship between the parties is no longer one of buyer and seller because the contract of sale has been perfected and consummated.. In other words. and could not exist without principal contractual obligation (i. such as foreclosure. the obligation of the buyer to pay the purchase price. 10 .”10 The ruling.e. the buyer was deemed to have fulfilled his end of the bargain: “The payments on an installment basis secured by the execution of a mortgage took the place of a cash payment.428 LAW ON SALES to the ruling in Suria v.B. b.. Intermediate Appellate Court. which was part and parcel of the contract of sale entered into between the parties. went on to conclude that the situation is “different” and held that the remedy of rescission under Article 1384 of the Civil Code is merely subsidiary in the absence of legal remedies available to the seller. It is already one of a mortgagor and a mortgagee. Ibid. Court of Appeals. although taking note of Justice J. 667. at p.L. When Rescission Should Have Been Applied The decision in Uy v. Reyes’ reasoning in Universal Food Corp. The reasoning fails to take into consideration that the mortgage contract was merely a subsidiary contract. The sellers sought to rescind the contract of sale (instead of foreclosing) by reason of the failure of the buyer to pay the balance of the purchase price secured by the mortgage contract.

which is the essential reason for the contract. However. which were the object of the sale. The Court held — The cancellation. at pp. The realization of the mistake as regards the quality of the land resulted in the negation of the motive/cause thus rendering the contract inexistent .REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 429 applied by the Court. direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties. Accordingly. were not suitable for housing. was not a rescission under Article 1191.12 Perhaps the better solution would have been to allow rescission on the ground that it violated the warranty on the 12 Ibid. In other words. Rather.. which is the particular reason of a contracting party which does not affect the other party. therefore. 82-85. . Cause is the essential reason which moves the contracting parties to enter into it. [under] Article 1318 of the Civil Code [defining the essential requisite of contracts]. a contract of sale covered the purchase of eight (8) residential lots. In Uy. the motive may be regarded as the cause . when it seemed the more appropriate solution to the issues raised. should be distinguished from motive. and it was determined that three (3) of the lots delivered were subject to landslide and could not be used for the construction of residential building... when the motive predetermines the cause. Ordinarily. x x x. x x x. The trial court held that the rescission effected by the buyer was not the appropriate remedy since in such a case the seller had delivered and did not commit any breach of his obligation.. a party’s motive for entering into the contract do not affect the contract. Cause. and the buyer-NHA did not suffer any injury by the performance thereof. the cause is the immediate. we hold that the NHA was justified in canceling the contract. the cancellation was based on the negation of the cause arising from the realization that the lands.

where the obligation of the party to a contract of sale is subject to any condition which is not performed. in accordance with Articles 1385 and 1388 and the Mortgage Law.430 LAW ON SALES indicated use of the subject matter. 2. In the sale of immovable property. He may also seek rescission. The court shall decree the rescission claimed.” Under Article 1545 of the Civil Code. a specific remedy of rescission is provided for under Article 1592 of the Civil Code. which would entitle the other party to rescind. if the latter should become impossible. 1592. This is understood to be without prejudice to the rights of third persons who have acquired the thing. In other words. Rescission may have also been justified for breach of warranty against hidden defects. In the sales of immovables on installments. thus: ART. even though it may have been stipulated that upon failure to . in case one of the obligors should not comply with what is incumbent upon him. the quality of the land was an implied condition for the NHA to enter into the contract. the other party may also treat the non-performance of the condition as a breach of warranty. The facts did indicate that “NHA would not have entered into the contract were the lands not suitable for housing. Remedy of “Rescission” Covered The remedy of rescission covered by this chapter is that referred to in Article 1191 of the Civil Code. 1191. with the payment of damages in either case. The injured party may choose between the fulfillment and the rescission of the obligation. the other party may refuse to proceed with the contract or he may waive performance of the condition. even after he has chosen fulfillment. unless there be just cause authorizing the fixing of a period. if the other party promised that the condition should happen or be performed. thus — ART. The power to rescind obligations is implied in reciprocal ones.

14 13 . Court of Appeals. 333 SCRA 643 (2000).14 that “to rescind” is to declare a contract void at its inception and to put on end to it as though it never was. v. 17 Odyssey Park. Court of Appeals. 314 SCRA 69 (1999).18 the Court characterized the failure of a party to comply Jacinto v. 250 SCRA 223 (1995). citing Ocampo v. in one case. 15 Romero v. which have been covered in more details in the previous chapter. Article 1592 has been construed to apply to all sales of immovables even when there is no stipulation on automatic rescission.16 In yet another case. Decree No. Laforteza v. Court of Appeals.17 it held that the breach contemplated in Article 1191 is the obligor’s failure to comply with an obligation already extant. a. the court may not grant him a new term. 957. as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. Court of Appeals.”13 Two other laws have varied the power to rescind covered in Article 1191 when it comes to immovables. the vendee may pay. Kaparaz. it is not merely to terminate the contract and release the parties from further obligations to each other. After the demand. Velarde v. even after the expiration of the period. Inc. the Maceda Law and Section 23 of Pres. Ironically. Nature of the Remedy of Rescission or Resolution The Supreme Court has ruled in one case. 209 SCRA 246 (1992). 233 SCRA 551 (1994). but to abrogate it from the beginning and to restore the parties to their relative positions as if no contract had been made. 361 SCRA 56 (2001). namely. Court of Appeals. 16 Uy v. Machuca. 280 SCRA 253. In another case.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 431 pay the price at the time agreed upon the rescission of the contract shall of right take place. because of the use of the phrase “even though. 260 (1997). 18 Gil v. and does not cover the failure of a condition to render binding that obligation.15 the Court held that the right of rescission of a party to an obligation under Article 1191 is predicated on a breach of faith by the other party that violates the reciprocity between them. Court of Appeals. 411 SCRA 18 (2003).

Inc. pursuant to the principle laid down in Article 1234 which states that “[I]f the obligation has been substantially performed in good faith. it is within the power of the courts to fix a period to allow the defaulting party an opportunity to comply with his obligation. and in fact he does rescind the contract.. Inc. v. less damages suffered by the obligee.19 b. v. .” Even when there is substantial breach as to allow the rightful party to rescind.. Inc. 22 Ibid. the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing.432 LAW ON SALES with his obligation in reciprocal contracts as the happening of “a resolutory condition for which the remedy is either rescission or specific performance under Article 1191 of the New Civil Code.. 21 43 SCRA 93 (1972). 101..” 20 Luzon Brokerage Co. This is especially so when the breach constitutes mere negligence (culpa) as distinguished from fraud or malice (dolo) which is defined as a “conscious and intentional design to evade the normal fulfillment of existing obligations. Rescission Must Be Based on Substantial Breach The power to rescind under Article 1191 is based only on substantial breach... Maritime Building Co. an attitude repugnant to the stability and obligatory force of contracts.21 held that when the buyer in not paying the balance of the purchase price had acted in bad faith..”20 Luzon Brokerage Co. Inc. the obligor may recover as though there has been a strict and complete fulfillment.. Maritime Building Co.”22 19 This ruling would perhaps find basis under Article 1545 which provides that “Where the ownership in the thing has not passed.” It had been generally understood that the happening of a resolutory condition ipso facto extinguishes the contract without need of the exercise of any remedy of rescission. at p. such buyer would not be entitled to ask the courts to give it further time to make payment and thereby erase the default or breach that it had deliberately incurred: “To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred . 43 SCRA 93 (1972).

and the price with its interests.24 On the other hand. Restitution as Consequence of Rescission The last paragraph in Article 1191 cross-refers to Articles 1385 and 1388 which apply to rescissible contracts. 312 SCRA 528 (1999). rescission creates the obligation to return the things which were the object of the contract but such rescission can only be carried out when the one who demands rescission can return whatever he may be obliged to restore.25 the Court held that a provision in the contract providing for forfeiture of the amounts paid in a contract of sale is valid being in the nature of a penal clause (now governed by Article 1226) and within the ambit of the freedom of the parties to stipulate See also Supercars Management & Dev. Early on in The Manila Racing Club v.” Co v.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 433 c. Corp. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. 446 SCRA 34 (2004). Under Article 1385. whoever acquires in bad faith the things alienated in fraud of creditors. 25 69 Phil. Consequently. This principal has been applied to rescission of reciprocal obligations under Article 1191 of the Civil Code. together with their fruits. the employment of the remedy of rescission “creates the obligation to return the things which were the object of the contract. shall indemnify the latter for damages suffered by them on account of the alienation. “Under Article 1385 of the Civil Code. and such stipulation would be enforceable to the extent that it is reasonable. d. the primary consequence of an effective exercise of the remedy of rescission or resolution would be mutual restitution. The Manila Jockey Club. Flores. Court of Appeals. whenever it should be impossible for him to return them. 55 (1939).”23 The same article also provides that rescission shall not take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith and that indemnity for damages may be demanded from the person causing the loss. under Article 1388. When Forfeiture of Payments Allowed in Rescission The effect of restitution in the remedy of rescission may be stipulated against. consequently. 24 23 . v.

“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. Uy v. 31 Ibid. Machuca.29 held that the power to rescind. Flores. Court of Appeals. In addition. 279 SCRA 590 (1997).” Nevertheless. it should be noted that the Court may still allow. Court of Appeals. 446 SCRA 34 (2004). is given only to the injured party.30 held that when rescission of a contract of sale is based on Article 1191. and that consequently. since “[i]n its double purpose of insuring compliance with the contract and of otherwise measuring beforehand the damages which may result from non-compliance. 29 314 SCRA 69 (1999). Pangilinan v. 27 26 . Court of Appeals.28 such forfeiture even in the absence of a forfeiture clause. citing Co v. morals or public order because it was voluntarily and knowingly agreed upon. as a reasonable compensation for the use of the subject matter of the contract. rescission can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. 30 333 SCRA 643 (2000).” Thus.27 held: “The seller’s right in a contract to sell with reserved title to extrajudicially cancel the sale upon failure of the buyer to pay the stipulated installments and retain the sums and installments already received has long been recognized by the well-established doctrine of 39 years standing. e. v. therefore. Corp. 28 340 SCRA 720 (2000).434 LAW ON SALES in a contract (now governed by Article 1306). Court of Appeals. Who May Demand Rescission Since rescission is predicated on a breach of faith by the other party that violates the reciprocity between them.31 Ibid. Article 1486 now provides that in the sale of personal property on installments.”26 Parenthetically. Laforteza v. 312 SCRA 528 (1999). at p. it is not contrary to law. as in its decision in Gomez v. mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract. Also Supercars Management & Dev. 57.

v..34 and requires confirmation of such remedy by the courts. Hospital de San Juan de Dios.. 84 Phil. may be resorted to by the other party extrajudicially. 135 SCRA 323 (1985).R. Tan. the general provisions of Article 1191 should give way to the particular provisions of Article 1592 which provides that when there has been a demand made on the buyer for rescission either judicially or by a notarial act. 433 and 539. Maritime Building Co. Nonetheless. Luzon Brokerage Co. 35 Gaboya v. consequently.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 435 f. the specification in the contract that in case of breach.. 8784. Cui. 36 Luzon Brokerage Co. 38 SCRA 85 (1971). 171 (1973). whether express or implied. unless there be just cause authorizing the fixing of the period. G.. Maritime Building Co. Republic v.. Calasanz. 32 Ocejo. take the law into his own hands and must resort to the aid of the courts to enforce his rights.. Perez & Co. the remedy of rescission is inherently judicial in nature. Angeles v. International Banking Corp. v. the other party has a right to rescind does not generally confer any additional right. Inc. No. even one with a valid and lawful cause of action.32 in accordance with the general principle that “No man may. 1956. 33 See Arts. Rescission Generally Judicial in Nature In a true contract of sale. p. De la Rama Steamship Co. Inc. v.”36 g. 37 Phil. May 21. 631 (1918). IV. a provision granting the nondefaulting party a right to rescind would be superfluous because such remedy is inherent in a contract of sale under Article 1191. 34 TOLENTINO. Inc. Inc. 820 (1949).35 In the case of immovables. COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES. 99 Phil.” has been the statutory basis by which the Court has held that the injured party himself cannot resolve the obligation. the Court has recognized the validity and effectivity of an express stipulation by the parties to a reciprocal contract that rescission in case of default by one party. 43 SCRA 95 (1972). v. 86 SCRA 305 (1978). “the court may not grant him a new term. (1956).. since the third paragraph of Article 1191 which provides that the courts “shall decree the rescission claimed. Vol. Civil Code.”33 The remedy of rescission in reciprocal contracts is not absolute. When Extrajudicial Rescission Allowed To the general principle that rescission must be exercised judicially. . 1034 Unrep.

37 held that “there is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause cancellation thereof. then Pangilinan v. Court of Appeals. Since Article 1191 makes available to the injured either of the alternative remedies to rescind or to enforce fulfillment of the contract. Pan Oriental Shipping Co. and the only relevant provision granted the mortgagee the power to rescind the contract “as it may see fit in case of breach of the terms thereof by the mortgagor. but in order to determine whether or not the rescission was proper. at pp. Ibid.”38 Curiously enough though. Iringan v. if the obligor does not comply with what is incumbent upon him. Where such propriety is sustained.. Froilan v.. Reiterated in Gomez v. 286. Court of Appeals. the Court held that a 12 SCRA 276 (1964). 340 SCRA 720 (2000). In that decision. 38 37 . 40 Ibid. 41 366 SCRA 41 (2001). the decision of the court will be merely declaratory of the revocation.. even without court intervention. 597-598.40 In contrast. at p. . The rationale for the foregoing is that in contracts providing for automatic revocation. the contract in Froilan did not expressly give to the mortgagee the right to cancel the agreement.41 provides for the legal consequences when there is no contractual clause allowing extrajudicial rescission. 39 279 SCRA 590 (1997).” which ordinarily would still mean seeking remedy of rescission through court action.. There is nothing in this law which prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention. but it is not in itself the revocatory act.39 has held that — . with damages in either case..436 LAW ON SALES Earlier. Court of Appeals. judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission without judicial intervention.

394 SCRA 250 (2002). 43 42 . even when the factual basis therefor (substantial breach) be present in the situation. 461 SCRA 186 (2005). The right cannot be exercised solely on a party’s own judgment that the other committed a breach of the obligation. Rescission Requires Positive Act Rescission is a remedy that would have no automatic application. the letter written by respondent declaring his intention to rescind did not operate to validly rescind the contract. even if the right to rescind is made available to the injured party. The party entitled to rescind should apply to the court for a decree of rescission. 48. Court of Appeals. 44 Reiterated in Heirs of Jesus M. and the courts are granted power to deny rescission should there be grounds which justify the allowance of a term for the performance of the obligation. Mascuñana v. the obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent upon him. The operative act which produces the resolution of the contract is the decree of the court and not the mere act of the vendor. thus — Consequently.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 437 stipulation in a sale allowing rescission under Article 1191 is valid. since it is legally possible that he may waive rescission and proceed with specific performance.” since rescission must be invoked judicially.44 h. Being primarily a remedy. This principle is affirmed in the language of Article 1592 that does not allow automatic Ibid. Since a judicial or notarial act is required by law for a valid rescission to take place.43 where the Court held that a seller cannot unilaterally and extrajudicially rescind a sale where there is no express stipulation authorizing it.42 The essence of the doctrine has been reiterated in Spouses Benito v. rescission requires a positive act on the part of the injured party. at p. and that unilateral rescission will not be judicially favored or allowed if the breach is not substantial and fundamental to the fulfillment of the obligation. Saquitan-Ruiz. but it does not grant “automatic rescission.

Thus. since the seller did not sue for either specific performance nor rescission.438 LAW ON SALES rescission to take place even by stipulation. and that although judicial resolution of a contract would in turn give rise to mutual restitution. . the Court held that such written demand did not amount to a demand for rescission under Article 1592. On the other hand. Olympia Housing v. Panasiatic Travel Corp. instead of decreeing rescission. such action would be different from an action for reconveyance of possession. it would not necessarily arise when the action filed was for reconveyance.. and the only notice given to the buyer was a demand to vacate the premises. In City of Cebu v. the Court held that in an action for rescission. 312 SCRA 528 (1999). Heirs of Candido Rubi. 473 SCRA 79 (2005). Heruela. without any express provision to that effect. but the seller did not give a notice of rescission. Co v. nevertheless. may authorize for a just cause the fixing of a period. unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial act). In addition. Court of Appeals. 48 Reiterated in Ramos v. the seller is not precluded from going to the courts to demand judicial rescission in lieu of a notarial act of rescission. when the buyer failed to pay the stipulated purchase price in accordance with the terms of the contract. an action for reconveyance filed to recover possession of the subject matter of the sale. then the seller would have no right.45 involving a sale of real property. to forfeit the payments already made by the buyer.48 45 46 306 SCRA 408 (1999).47 held that in the sale of real property. and cannot be deemed necessarily included in. however. 47 395 SCRA 298 (2003). and mandates a positive act of notarial or judicial demand on the part of the unpaid seller. rescission to resolve a contract of sale should be distinguished from. the court.46 ruled that although the failure of the buyer to pay the balance of the purchase price was a breach of her obligation under Article 1191.

it is expressly recognized that “[a] promise to buy and sell a determinate thing for a price certain is reciprocally demandable. 1. Court of Appeals. in the application of the rules on double sales. including the appropriate remedies available to the contracting parties. Consequently. except as modified by the fact that contracts to sell are primarily subject to suspensive conditions. v.49 49 Mendoza v. and the other to pay therefor a price certain in money or its equivalent. 162 SCRA 564 (1990). San Lorenzo Dev. it has been generally held that they have no applications to contracts to sell.” which obviously covers a contract to sell. if contracts to sell fall within the same genus as contracts of sale. as a contract where “one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing. Cheng v. Importance of Proper Characterization of Contract to Sell It is the author’s position that both a contract of sale and a contract to sell may be governed by the genus “sale” as defined by Article 1458 of the Civil Code. under Article 1479. For example. it would be worthwhile to discuss briefly what clearly were the agreed differences between the two types of sale contracts. 236 (1921).” In addition. a provision in the Title on Sale. Court of Appeals.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 439 CONTRACT OF SALE VERSUS CONTRACT TO SELL Since this chapter will employ the differences between a contract of sale and a contract to sell to evaluate the evolving characterization of the remedies of rescission or resolution and cancellation. Kalaw. . Corp. Genato. Lim v. The importance of characterizing contracts to sell as species of the genus “sale” under Article 1458 is to determine the set of laws that govern such contracts. 449 SCRA 99 (2005). then the rules and principles applicable to contracts of sale would also apply to contracts to sell. 42 Phil. 300 SCRA 722 (1998).” especially when the article also provides that “[a] contract of sale may be absolute or conditional. and therefore must be governed by the doctrines pertaining to conditional contracts.

but rather an obligation “to do. which has led to conflicting rulings on important issues related to such contracts. As discussed hereunder. Court of Appeals. when the underlying primary obligation is not an obligation “to give” (i. the prospective seller explicitly reserves the transfer of title to the prospective buyer. it may be appropriate to look at recent pronouncements of the Court that indicate that it has not yet clearly pinned down the essence of contracts to sell. What the seller agrees or obliges himself to do is to fulfill his 50 51 263 SCRA 15 (1996). 26. “that is. Ibid.”51 thus — . however. the Supreme Court itself has not definitively decided on the proper classification of contracts to sell. through Justice Melo.” Such contracts to sell can also fall within the definition of “mutual promise to buy and sale” under Article 1479 of the Civil Code.50 the Court. held that a contract to sell “may not be considered a contract of sale because the first essential element is lacking.” which constitutes essentially of an obligation “to enter into a contract of sale. which for present purposes we shall take as the full payment of the purchase price. mainly on the appropriate remedies available to parties in cases of “breach. In Coronel v. Recent Rulings that Consider Contracts to Sell Not Covered by the Genus Sale To jumpstart the discussions on the matter.” which is consent or meeting of the minds. the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event. that there is a class of “contracts to sell” that do not fall within the genus sale as defined under Article 1458.” 2.e. consent to transfer ownership in exchange for the price.. to transfer ownership and delivery possession of the subject matter). ... meaning.440 LAW ON SALES It cannot be denied. In a contract to sell. at p.

. 468 SCRA 597 (2005). 27.. that is.55 held that — Ibid..REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 441 promise to sell the subject property when the entire amount of the purchase price is delivered to him. the happening of the suspensive condition does not give rise to an executory contract of sale subject to an action for specific performance. 532 SCRA 74 (2007). Ibid. the prospective seller’s obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code.. 55 262 SCRA 464 (1996). Reiterated in Edrada v. full payment of the purchase price. In other words. even upon the fulfillment of the suspensive condition (i. Stated positively. upon the fulfillment of the suspensive condition which is the full payment of the purchase price. at p.52 Coronel therefore defined a “contract to sell” as “a bilateral contract whereby the prospective seller. since the prospective seller still has to convey title to the prospective buyer by entering into a contract of sale.”53 Under such ruling. Inc. Ironically. 54 Ibid. Ramos.54 Accordingly. Reyes. 539 SCRA 193 (2007). 28. Court of Appeals. since the obligation of the “seller” is to enter into a contract of sale.e. the non-fulfillment of which prevents the obligation to sell from arising and thus. emphasis supplied. merely a personal obligation “to do” which cannot be the subject of an action for specific performance. Castillo v. only a few days before the Coronel decision. the full payment of the purchase price partakes of a suspensive condition.. the full payment of the purchase price).. ownership is retained by the prospective seller without further remedies by the prospective buyer. the Court in Philippine National Bank v. 26-27. while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer. ownership will not automatically transfer to the buyer although the property may have been previously delivered to the buyer. at p. 53 52 . PR Builders. Reiterated in Hulst v. at pp. binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon.

Jr. Tiongson.58 the Court clearly treated a contract to sell as within the same genus as a contract of sale. x x x. 58 340 SCRA 720 (2000). the parties would stand as if the conditional obligation had never existed.442 LAW ON SALES A contract to sell is akin to a conditional sale where the efficacy or obligatory force of the vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event so that if the suspensive condition does not take place. held explicitly that there was a perfected contract. 545 SCRA 325 (2008). there is no contract of sale upon which an action for specific performance may be interposed. 59 Reiterated in Demafelis v. In Gomez v. brought about by the stipulation that the deed of sale and corresponding title would be issued only after full payment).59 Ibid. Court of Appeals. To a great extent. 477-478. it may be some other condition or conditions that have been stipulated and must be fulfilled before the contract is converted from a contract to sell or at the most an executory sale into an executed one. v. Reiterated in Almocera v. 57 56 . 538 SCRA 305 (2007). David denies the characterization under Coronel that upon fulfillment of the suspensive condition. If it were not full payment of the purchase price upon which depends the passing of title from the vendor to the vendee. One form of conditional sales is what is now popularly termed as “Contract to Sell..e. Zaballa.56 More telling is the ruling in David v. in spite of the finding that underlying agreement was a contract to sell (i. Villador. 313 SCRA 63 (1999).. when it held that — To be sure. at pp. a contract of sale may either be absolute or conditional. and granted the remedy of specific performance.57 where the Court..” where ownership or title is retained until the fulfillment of a positive suspensive condition normally the payment of the purchase price in the manner agreed upon. Ong. Court of Appeals. 546 SCRA 164 (2008). .

727-729. use of terms has thereby undermined the jurisprudential rules pertaining to the remedies available to the parties. to give something or to render some service. 44.60 Leaño v. . ownership thereto automatically transfers to the buyer by operation of law. Court of Appeals. v. and that “[t]he transfer of ownership and title would occur after full payment of the price. 60 Ibid. where the primary obligations created is an obligation to do.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 443 For a contract..”62 In Carrascoso. the contract of sale is thereby perfected. with respect to the other. like a contract to sell. at pp. are perfected by mere consent.61 held that in a contract to sell real property on installments. Jr. x x x. and the other.e. 225 SCRA 37 (1993). but that the contract’s efficacy is subjected to a suspensive condition.citing Galang v. Court of Appeals. Contracts. 61 369 SCRA 36 (2001). at p. to enter into a contract of sale. without any further at having to be performed by the seller. the full payment of the purchase price is a positive condition. 62 Ibid. 63 477 SCRA 666 (2005). in general. Also Villamaria. The offer must be certain and the acceptance absolute. Court of Appeals. The confusing. Court of Appeals. The foregoing rulings all point to one thing: that the Supreme Court uses the same term “contract to sell” to identify two different types of conditional contracts — one where the underlying contract embodies bilateral-reciprocal real obligations to give. such that if there had already been previous delivery of the property subject of the sale to the buyer. i.63 the Court held that if the suspensive condition is fulfilled. Jr. v. 487 SCRA 571 (2006). which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. subject to fulfillment of the obligation of the buyer to fully pay the purchase price. involves a meeting of minds between two persons whereby one binds himself.

Ibid. The Court held that the stipulation that the “payment of full consideration based on a survey shall be due and payable in five (5) years from 64 65 263 SCRA 15. For example. in that “a contract to sell . 30 (1996).64 explains the rationale on why parties would opt to enter into a contract to sell instead of a contract of sale. the Court has often employed the actuations of the parties during consummation to characterize what the contract essentially was at the point of perfection. Court of Appeals. Although the principle is that what the seller decides to do at consummation stage should not change the essential characterization of the contract at the point of perfection. 66 . Rationale for Parties Entering into Contracts to Sell Coronel v.66 held that a sale. that even in a true contract of sale or a conditional contract of sale. transfer of ownership to the buyer may be expressly withheld even when delivery is effected by the seller. “On Where” the Suspensive Condition Is Pinned Determines Nature of a Sale The main ingredient of a contract to sell.”65 It should be noted. Rodriguez. 30-31.. which it shares with a conditional contract of sale. is that it contains clearly a stipulation that must amount to a suspensive condition. for not every modality introduced in a sale contract would necessarily be a condition. at pp. nonetheless. even when denominated as a “Deed of Conditional Sale.. Reiterated in Cebu v.” should still be construed to be an absolute sale where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind until or unless the price is paid. (1999). Heirs of Candido Rubi. 306 SCRA 408 332 SCRA 769 (2000). Rulings Characterizing Contracts to Sell a. is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor. b. Heirs of San Andres v.444 LAW ON SALES 3.

According to a line of decisions. Court of Appeals. On the other hand. both a conditional contract of sale and a contract to sell are subject to a suspensive condition. Gonzales v.67 held that the provision in the contract that the lessee-buyer shall be obliged to purchase the property only if the lessor-seller is able to obtain separate title to the property in his name. as well as the extinguishment or loss of those already acquired. Inc.” was not a condition which affected the efficacy of the contract of sale. citing Rose Packing Company. Court of Appeals. it would amount to a conditional contract of sale. 597 (1999). 68 67 . it merely provided the manner by which the full consideration is to be computed and the time when it is to be paid. the parties would stand as if the conditional obligation had never existed. at p. was a conditional obligation to purchase the land and governed by Article 1181 of the Civil Code. which usually takes the form of the full payment of the purchase price by the buyer..” The Court held that the underlying contract was a contract to sell. so that if that event does not take place. Heirs of Thomas and Paula Cruz. It held that the term “condition” in the context of 314 SCRA 585. for in the latter case. or subject to. the main ingredient in a contract to sell is the existence of a stipulation or agreement imposing a suspensive condition on the effectivity or demandability of the contract itself. in Romero v. and not just on the obligation of the seller to transfer and deliver the subject matter. J. 601. 69 250 SCRA 223 (1995). Gaite v.69 the Court held that a perfected contract of sale (as distinguished from a contract to sell) may either be absolute or conditional depending on whether the agreement is devoid of.”68 Therefore. any condition on the passing of title of the thing to be conveyed or on the obligation of a party thereto. Thus. v. which provides that “In conditional obligations. Ibid. and consequently “[t]he obligatory force of a conditional obligation is subordinated to the happening of a future and uncertain event. Fonacier. shall depend upon the happening of the event which constitutes the condition.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 445 the execution of a formal deed of sale. 167 SCRA 309 (1988) per Paras. 2 SCRA 831 (1961). the acquisition of rights.

The seller’s failure to remove the squatters from the property within the stipulated period gave the buyer the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. 309 SCRA 532 (1998). An ejectment case was brought by seller. Court of Appeals. the failure of such condition would prevent the juridical relation itself from coming into existence. the seller was obliged to evict the squatters on the property. therefore the ejectment of the squatters was a condition. In Romero the parties entered into a “Deed of Conditional Sale” with the provision that should the seller fail to eject the squatters from the property within 60 days from the contract date. 72 281 SCRA 176 (1997). The Court held that the seller could neither seek rescission of the contract of sale.446 LAW ON SALES a perfected contract of sale pertains in reality to the compliance by one party of an undertaking the fulfillment of which would beckon in turn the demandability of the reciprocal prestation of the other party.70 from the other situation where the condition is imposed upon the perfection of the contract itself. the downpayment shall be returned to the buyer. only the condition is avoided leaving unaffected the obligation itself. the other party may either refuse to proceed or waive said condition. the operative act of which sets into motion the period of the payment of the balance of the purchase price. Reiterated in Lim v. nor could he challenge the agreement as not being duly perfected contract. Court of Appeals. It also held that where the so-called “potestative condition” is imposed not on the birth of the obligation but on its fulfillment. 263 SCRA 569 (1996). 1545. Babasa v.72 where the sale contract contained the stipulation “this Contract of Sale of Art. Court of Appeals. Civil Code. The seller then offered to return to the buyer the downpayment contending that there is no contract to enforce with the non-fulfillment of the condition imposed under the contract.71 In Heirs of Pedro Escanlar v. 71 70 . and Caoili v. but judgment was rendered after the 60-day period had lapsed. It distinguished between one situation where the condition is imposed on an obligation of a party which is not complied with. Court of Appeals. 314 SCRA 345 (1999). Since under the agreement.

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447

rights, interests and participations shall become effective only upon the approval by the Honorable Court,” it was held that the non-happening of the condition did not affect the validity of the contract itself, thus —
There has arisen here a confusion in the concepts of validity and the efficacy of a contract. Under Art. 1318 of the Civil Code, the essential requisites of a contract are: consent of the contracting parties; object certain which is the subject matter of the contract and cause of the obligation which is established. Absent one of the above, no contract can arise. Conversely, where all are present, the result is a valid contract. However, some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of the contract. In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a valid one. However, it did not bear the stamp of approval of the court. This notwithstanding, the contract’s validity was not affected. ... In other words, only the effectivity and not the validity of the contract is affected.73

Heirs of Pedro Escanlar distinguishes between the demandability or efficacy of a sale from the requisites by which it is constituted as a valid contract; that a contract to sell constitutes a “valid contract,” but it may not be wholly demandable until the suspensive condition upon which it based is fulfilled. To a great extent, it denies the “lack of consent” characterization of Coronel for contracts to sell. Coronel itself recognized the distinction between a contract to sell and a conditional contract of sale along these lines, thus —
A contract to sell ... may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of
73

Ibid, at p. 190.

448

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consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated. ... However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller. In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.74

The usual form of such an agreement is making the fulfillment of the buyer’s obligation to pay in full the purchase price as the condition upon which: (a) Only then shall arise a demandable sale contract; (b) The obligation of the seller “to sell” the subject matter of the shall only then arise; or (c) The obligation of the seller to transfer the ownership of the subject matter sold shall then arise. It would seem from Coronel, that from the standpoint of perfection it is not the existence of a clause “reserving ownership with the seller even when there would be delivery of the subject
74 Ibid, at pp. 27-28, citing Homesite and Housing Corp. v. Court of Appeals, 133 SCRA 777 (1984). See also Santos v. Court of Appeals, 337 SCRA 67 (2000); Abesamis v. Court of Appeals, 361 SCRA 328 (2001); Almira v. Court of Appeals, 399 SCRA 351 (2003); Vidal, Jr. v. Tayamen, 531 SCRA 147 (2007); Hulst v. PR Builders, Inc., 532 SCRA 74 (2007).

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matter to the buyer” that determines whether there is a contract to sell, but to where the suspensive condition (i.e., full payment of the purchase) is pinned to: the first two above-enumerated conditions would give rise to a contract to sell, while the third type of condition would give rise to a conditional contract of sale. c. Requisite Stipulations for Contracts to Sell There is another line of decisions, that seems to be the main school of thought, which holds that what determines whether a sale contract is a “contract to sell” is that there must exist an agreement, whether express or implied, at the time of perfection of the sale contract, that the obligation of the seller to transfer ownership to the buyer pursuant to a sale (even when physical possession may have been effected) is conditioned upon the full payment by the buyer of the purchase price. The existence of such agreement as an integral component of a contract to sell, lies in locating the existence of two (2) clauses, namely: (a) Reservation of the ownership of the subject matter with the seller, even if there should be delivery thereof to the buyer; and (b) Reservation of the right of the seller to rescind the contract extrajudicially in the event the suspensive condition (usually the full payment of the purchase price) does not happen. The prevailing doctrine therefore is that absent any stipulation in the deed or in the meeting of minds reserving title over the property to the seller until full payment of the purchase price and giving the seller the right to unilaterally rescind the contract is case of non-payment, makes the contract one of sale rather than a contract to sell.75
75 Tugaba v. Vda. De Leon, 132 SCRA 722 (1984); Dignos v. Court of Appeals, 158 SCRA 375 (1988); Topacio v. Court of Appeals, 211 SCRA 291 (1992); Almira v. Court of Appeals, 399 SCRA 351 (2003); Vda. De Mistica v. Naguiat, 418 SCRA 73 (2003); Valdez v. Court of Appeals, 439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004); Portic v. Cristobal, 456 SCRA 577 (2005).

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(1) Reservation of Ownership by Seller The existence or non-existence of the “reservation of ownership with seller” clause, has been a critical consideration for the Court in determining the nature of a sale contract because it considers that the essence of a true contract of sale under Article 1458 is the “passing of ownership of the subject matter.” Thus, the Court has often ruled that in a contract of sale, ownership over the subject matter generally passes to the buyer as a result of the tradition thereof; whereas, in a contract to sell, the delivery of the subject matter does not pass ownership to the buyer even though he possesses the same, under the stipulation that ownership shall pass only upon full payment of the purchase price;76 and that the remedies available to the seller would depend on this particular point. Thus, Manuel v. Rodriguez,77 held that in a contract of sale, delivery will effectively transfer ownership of the subject matter to the buyer, and the seller cannot recover ownership by the fact of non-payment of the price without rescinding the contract through judicial action. On the other hand, in a contract to sell, since delivery does not transfer ownership to the buyer, the nonpayment of the purchase price prevents the obligation to sell from arising and thus ownership is retained by the seller without further remedies.78 In Padilla v. Spouses Paredes,79 where the contract between the parties provided that: (a) the sellers agree not to alienate, encumber, or in any manner to modify the right of title to said property; (b) the sellers shall pay real estate taxes thereon until it has been transferred to the buyer; (c) that on the full payment of the purchase price of the property, the sellers will execute and deliver a deed conveying to the buyer the title in fee simple free from all liens and encumbrances; the Court held that said
76 Valarao v. Court of Appeals, 304 SCRA 155 (1999); Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002); Chua v. Court of Appeals, 401 SCRA 54 (2003); Demafelis v. Court of Appeals, 538 SCRA 305 (2007); Castillo v. Reyes, 539 SCRA 193 (2007); Villador, Jr. v. Zaballa, 545 SCRA 325 (2008). 77 109 Phil. 1 (1960). 78 Ong v. Court of Appeals, 310 SCRA 1 (1999). 79 328 SCRA 434 (2000).

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provisions signify that the title to the property remains in the sellers until the buyer should have fully paid the purchase price, which is a typical characteristic of a contract to sell. In other cases,80 even in the absence of such express stipulation, when it is clearly evidenced that the seller did not intend to transfer title to the buyer until full payment of the purchase price, the contract was still deemed to be a contract to sell. It must be noted, however, that in the natural course of things, a positive agreement or stipulation to such effect must accompany the perfection of a sale, since delivery or tradition by itself (pursuant to a valid sale) would transfer ownership without need of express stipulation to that effect. To illustrate, in City of Cebu v. Heirs of Candido Rubi,81 the Court held that the agreement between the buyer and seller that the offer and acceptance was for a bid price to be paid in cash, not in staggered payments, taken together with the fact that there was no expressed or apparent intent to reserve ownership over the lot until full payment was made, lead to no other conclusion that the parties entered into a contract of sale and not a contract to sell. Nevertheless, the Supreme Court has also ruled otherwise, in the sense that by the subsequent acts or omissions of the parties and not by an express reservation clause, it is possible to derive such situation to determine that the contract between them is a contract to sell. In Adelfa Properties, Inc. v. Court of Appeals,82 two features convinced the Court that the parties never intended to transfer ownership to petitioner except upon full payment of the purchase price: “Firstly, the exclusive option to purchase, although it provided for automatic rescission of the contract and partial forfeiture of the amount already paid in case of default, does not mention that petitioner is obliged to return possession or ownership
City of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999); Santos v. Court of Appeals, 337 SCRA 67 (2000). 81 306 SCRA 408 (1999). 82 240 SCRA 575 (1995). See also Ong v. Court of Appeals, 240 SCRA 565, 576577 (1995).
80

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of the property as a consequence of non-payment. There is no stipulation anent reversion or reconveyance of the property to herein private respondents in the event that the petitioner does not comply with its obligation. With the absence of such a stipulation, although there is a provision on the remedies available to the parties in case of breach, it may legally be inferred that the parties never intended to transfer ownership to the petitioner prior to completion of payment of the purchase price.”83 The Court further held that “[I]n effect, there was an implied agreement that ownership shall not pass to the purchaser until he had fully paid the price. Article 1478 of the Civil Code does not require that such a stipulation be expressly made. Consequently, an implied stipulation to that effect is considered valid and therefore, binding and enforceable between the parties. It should be noted that under the law and jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell.”84 On the other hand, Babasa v. Court of Appeals,85 ruled that a “Conditional Sale of Registered Lands,” which required the final payment of the balance of the purchase price only when the seller is able to obtain clean titles to the properties sold within twenty (20) months from the date of the sale, was still an absolute sale, and not a contract to sell, because “In the instant case, ownership over [the subject properties] passed to [Vendee] both by constructive and actual delivery. Constructive delivery was accomplished upon the execution of the contract ... without reservation of title on the part of the [Vendor] while actual delivery was made when [Vendee] took unconditional possession of the lots and leased them to its associate company.”86 The Court has equated stipulations (which are looked into at the perfection stage of the contract) with actual transfer of ownership, which dwells into the performance of the obligations under a contract. What should determine the nature of the contract, and therefore the available remedies in case of breach, should
83 84

240 SCRA 575, 577. Ibid, at p. 577. 85 290 SCRA 532 (1998). 86 Ibid, at p. 540. Also Buot v. Court of Appeals, 357 SCRA 846 (2001).

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be the existence or non-existence of the requisite stipulations at the time of perfection, and not by what the parties do or fail to do during performance stage. To illustrate, in Santos v. Court of Appeals,87 in characterizing the contract, the Court held that “Article 1458 ... expressly obliges the vendor to transfer ownership of the thing sold as an essential element of a contract of sale. This is because the transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale. ... When the circumstances categorically and clearly show that no valid transfer of ownership was made by the vendors to the vendee, their agreement cannot be deemed a contract of sale, but merely a contract to sell, where ownership is reserved by the vendor and is not to pass until full payment of the purchase price, which constitutes a positive suspensive condition.”88 The test employed by the Court seems to be an after-thefact (i.e., after perfection) determination of whether the seller has by tradition transferred ownership to the buyer. Tradition does not determine the nature of the contract, but is pursued only as a consequence of the contract. If seller refuses to deliver in spite of a clear obligation to do so, that would be a breach that should entitle the buyer to rescind the contract. On the other hand, when there is an express stipulation that seller will not transfer ownership until buyer shall have fully paid the purchase price, the refusal of the seller to effect tradition until the buyer shall have complied with his own obligation, would not authorize the buyer to rescind the contract for then there would be no breach. (2) Agreement as to Deed of Absolute Sale In a number of decisions, the Supreme Court has considered as an important factor whether there is a stipulation or promise that the seller shall execute a deed of absolute sale upon completion of payment of the purchase price by the buyer, or whether the agreement between the parties is embodied in a private document. In other words, such situations are treated as
87 88

337 SCRA 67 (2000). Ibid, at pp. 75-76.

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equivalent to reservation of title in the name of the seller until the buyer shall have completed the payment of the price. Thus, in Chua v. Court of Appeals,89 the Court held that “[t]he absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price,”90 especially when the seller retained possession of the certificate of title and all other documents relative to the sale until there was full payment of the purchase price. The present rule therefore is the absence of a formal deed of conveyance is taken as a strong consideration that the underlying agreement is a contract to sell, since there is a strong indication that the parties did not intend to immediately transfer title, but only a transfer after full payment of the price.91 However, there are also cases where the Court did not consider such factor as determinative. For example, in Dignos v. Court of Appeals,92 where there was an express stipulation that the sellers would execute a final deed of absolute sale in favor of the buyer upon payment of the balance of the purchase price, the contract was still construed not to be a contract to sell, since nowhere in the contract in question was there a stipulation to the effect that title to the property sold is reserved in the seller until full payment of the purchase price, nor was there a stipulation giving the seller the right to unilaterally rescind the contract the moment the buyer fails to pay within a fixed period.93 Closely connected with the lack of a formal deed of sale to evidence the sale is when only a receipt is issued by the seller to the buyer, for partial payment of the price. Thus, in Chua v. Court of Appeals,94 the Court held that when the meeting of the minds
401 SCRA 54 (2003). Ibid, at p. 67. 91 Manuel v. Rodriguez, 109 Phil. 1 (1960); Roque v. Lapuz, 96 SCRA 741 (1980); Alfonso v. Court of Appeals, 186 SCRA 400 (1990); Lacanilao v. Court of Appeals, 262 SCRA 486 (1996); David v. Tiongson, 313 SCRA 63 (1999); Rayos v. Court of Appeals, 434 SCRA 365 (2004); Cruz v. Fernando, 477 SCRA 173 (2005). 92 158 SCRA 375 (1988). 93 Same ruling in Jacinto v. Kaparaz, 209 SCRA 246 (1992). 94 401 SCRA 54 (2003).
90 89

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of the parties is evidenced merely by a receipt which provided that the earnest money shall be forfeited in case the buyer fails to pay the balance of the purchase price on the stipulated sale, that would indicate that the agreement between the parties was a contract to sell: “This is in the nature of a stipulation reserving ownership in the seller until full payment of the purchase price. This is also similar to giving the seller the right to rescind unilaterally the contract the moment the buyer fails to pay within a fixed period.”95 (3) Reservation of Right to Extrajudicially Rescind in Event of Non-Fulfillment of Condition Although it seems established in our jurisdiction that in order to find a sale contract to be a true “contract to sale,” it must contain a clause which reserves to the seller the right to rescind the contract without need of court action in the event the buyer fails to pay the purchase price as agreed upon, such a doctrinal requirement appears incongruent to the nature of a contract to sell, as one where the contract itself is subject to a suspensive condition. In a contract to sell, where the suspensive condition has not been fulfilled, no further remedy is necessary since ipso jure the contract would have already been extinguished by nonhappening of the condition. However, if there has been previous delivery of the subject matter to the buyer, although seller has by reservation retained ownership over the subject matter, since the seller still cannot take the law into his own hands, the seller would still have to seek court action to recover possession from the buyer if the latter refuses to voluntarily return the subject matter. However, such action is not for rescission but actually merely a recovery of possession. Article 539 of the Civil Code provides that “[e]very possessor has a right to be respected in his possession; and should he be disturbed therein he shall be protected in or restored to said possession by means established by the laws and the Rules of Court.” In turn, Article 433 provides that “[a]ctual possession under a claim of ownership raises a
95

Ibid, at p. 67.

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disputable presumption of ownership [and] [t]he true owners must resort to judicial process for the recovery of the property.” On the other hand, in a contract of sale, the non-fulfillment of the condition would authorize the seller to rescind the contract or to waive the condition and seek enforcement of the contract, in accordance with Article 1545 of the Civil Code. Thus, in Babasa v. Court of Appeals,96 the Court held that when the obligation of the buyer to fully pay the purchase price was made subject to the condition that the seller first delivers the clean title over the parcel bought within twenty (20) months from the signing of the contract, such condition was imposed merely on the performance of the obligation, as distinguished from a condition imposed on the perfection of the contract. The non-happening of the condition merely granted the buyer the right to rescind the contract or even to waive it and enforce performance on the part of the seller, all in consonance with Art. 1545 which provides that “[w]here the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the non-performance of the condition as a breach of warranty.” Dignos v. Court of Appeals,97 which involved a “Deed of Conditional Sale” over a parcel of land, what was executed was a private instrument, which among others provided, that the sellers would execute a final deed of absolute sale in favor of the buyer upon payment of the balance of the purchase price. In holding that the contract was not a contract to sell, but a contract of sale, the Court held that “a deed of sale is absolute in nature although denominated as a ‘Deed of Conditional Sale,’ where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the vendor until full payment of the purchase price, nor is there a stipulation giving the vendor the right to unilaterally rescind the contract the moment
96 97

290 SCRA 532 (1998). 158 SCRA 375 (1988).

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the vendees fails to pay within a fixed period.98 Somehow, the logic of such ruling sounds unconvincing when taken from the essence of a true contract to sell. A contract to sell, precisely because it constitutes a contract subject to a suspensive condition, does not require a specific stipulation that the seller (who is the obligee) has the right to “rescind” or more properly to terminate the contract when the condition does not happen, since such effect is ipso jure, and any express stipulation granting such right is superfluous. It is in fact in a contract of sale that such a stipulation must appear, otherwise, the seller cannot extrajudicially rescind the contract and has to go to court for such remedy. In other words, contrary to the ratiocination in Dignos, the absence of such provision granting the seller the right to rescind extrajudicially should be interpreted to mean that the contract is a contract to sell, and the presence of that provision would indicate that it is a contract of sale. In Topacio v. Court of Appeals,99 the Court, in determining whether the contract is one of sale or a contract to sell, held that “[n]owhere in the transaction is it indicated that BPI [seller] reserved its title on the property nor did it provide for any automatic rescission in case of default. So when petitioner failed to pay the balance of 5875,000.00 despite several extensions given by private respondent, the latter could not validly rescind the contract without complying with the provision of Article 1592 or Article 1191 on notarial or judicial rescission respectively.”100 The author would agree with Topacio in that if there is no provision reserving title with the seller, it would be construed as a contract of sale, because without such reservation, and the subject property is delivered to the buyer, it would produce the effect of tradition and there is no suspensive condition to talk about. What seems enigmatic in Topacio are the discussions of the Court on the effect of earnest money in determining whether the contract is one of sale or contract to sell, thus —
98 Ibid, at p. 382; emphasis supplied; citing Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 86 SCRA 305 (1978); Tabuga v. Vda. de Leon, 132 SCRA 722 (1984). 99 211 SCRA 291 (1992). 100 Ibid, at p. 295.

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The payment by the petitioner of 5375,000.00 on November 28, 1991 which respondent accepted, and for which an official receipt was issued x x x was the operative act that gave rise to a perfected contract of sale between the parties. Article 1482 of the Civil Code provides: x x x… Earnest money is something of value to show that the buyer was really in earnest, and given to the seller to bind the bargain. Under the Civil Code, earnest money is considered part of the purchase price and as proof of the perfection of the contract. The 5375,000.00 given by petitioner representing 30% of the purchase price is earnest money... Based on the aforecited article the parties have agreed on the object of the contract which is the house and lot ... and even before November 27, 1985 (the date petitioner sent his letter together with the 30% downpayment), the parties have agreed on the price which is 51,250,000.00.101

The impression one gets from the afore-quoted discussions in Topacio is the implication that a contract of sale is one that is perfected because the parties have agreed on the three (3) elements to constitute a valid sale: subject matter and the price and its mode of payment; whereas, a contract to sell is not a perfected contract. Such implication is misleading, for both a contract of sale and a contract to sell are perfected contracts; although the first is binding and demandable, the latter is binding but with obligations subject to suspensive conditions. And just because earnest money has been given, does not determine whether it is a contract of sale or a contract to sell, for indeed even in a contract to sell a substantial portion of the purchase price may have been paid, but that alone does not convert it into a contract of sale. Therefore, in the subsequent decision in Philippine National Bank v. Court of Appeals,102 the Court held that provision of
101 102

Ibid, at pp. 294-295. 262 SCRA 464, 482-483 (1996).

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Article 1482 on earnest money gives no more than a disputable presumption, and when the letter agreements between the parties do not contain the substantial condition precedents, do not lead to the conclusion that there was a contract to sell at all. In any event, as previously discussed above, the failure to find a provision in a sale contract reserving power on the part of the seller to extrajudicially rescind the contract in the event the buyer fails to pay the purchase price would not qualify arrangement to be one of contract to sell. 4. Substantial Breach Issue Relevant Only in Contracts of Sale In a contract of sale, rescission can be availed of only in case there has been substantial breach; whereas, in a contract to sell, the doctrine of substantial breach has no application, since the non-happening of the condition by whatever means or reason, substantial or not, ipso jure prevents the obligation to sell from arising. Thus, in Heirs of Pedro Escanlar v. Court of Appeals,103 the Court held that in a sale of real property on installments, when the buyer has defaulted and the seller, instead of rescinding, accepted late payments beyond the deadline stipulated, the seller in effect waived and was estopped from exercising their right to rescind under Article 1592 of the Civil Code. This is in stark contrast to the ruling of the Court under the same situation pertaining to contracts to sell, in Santos v. Court of Appeals,104 where it held that “[f]ailure to pay the price agreed upon in a contract to sell is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition.”105

103 104

281 SCRA 176, 193-194 (1997). 337 SCRA 67 (2000). 105 Ibid, at p. 77.

It should be noted however. absent any written agreement to the effect signed by the parties. that the non-fulfillment of the condition. 357 SCRA 846 (2001). 108 280 SCRA 536 (1997). Spouses Paredes. the acceptance of partial payment cannot be deemed a waiver of the right to cancel the contract. that the contract “was dependent on the sellers not changing their minds about selling the property. which would bring about breach of a contract of sale or cancellation of the contract to sell.108 the Court held liable the seller who re-sold the subject matter during the time when the condition had not yet been fulfilled. Crux of the Distinction In a rather simplistic manner of considering the issue. should be distinguished from the “pendency” of the happening of the condition. inasmuch as the suspensive condition was not fulfilled.”109 5. 554. Court of Appeals. it can only be considered as an act of tolerance on the part of the seller that could not modify the contract. in Adalin v. it is only fair and just that the buyers be allowed to recover what they had paid in expectancy that the condition would happen. even if the buyers did not mistakenly make partial payments. .460 LAW ON SALES In Padilla v. For example. holding that nothing in the law justifies the seller to undertake a radical change of posture to justify the re-selling of the property previously sold under a Contract of Conditional Sale. at best. otherwise.” the author would dare say that a contract of sale and a contract to sell are the opposite ways of approaching the very same sale transaction 106 107 328 SCRA 434 (2000). Court of Appeals. there would be unjust enrichment on the part of the seller. to hold that pending the happening of the condition. in a contract to sell. 109 Ibid.106 the Court held that in a contract to sell. and apart from a contract to sell which embodies only the primary obligation of the seller to “enter into a contract of sale. at p.107 the Court held that pursuant to the second paragraph of Article 1188 of the Civil Code. In Buot v.

performance stage is reached (i. When. p. Therefore.110 On the other hand. delivery would transfer ownership to the buyer. 110 AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES. such seeming similarity between the two types of sale contracts is clear only when both are compared in their perfection stages. although it is possible that the suspensive condition may take other form rather than its reference to the full payment of the purchase price.. the manner and effect of extinguishment of obligations subject to conditions should make both the contract of sale and the contract to sell basically the same since in an obligation subject to a suspensive condition. . the non-happening thereof prevents the obligation from arising. however. In a contract of sale.e. when no obligation has been performed. even if there is no corresponding agreement between the parties. a contract to sell is one where the reciprocal obligations created are deemed to be subject to the full payment of the purchase price as constituting the normal suspensive condition for the obligation of the seller to deliver possession and/or transfer ownership.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 461 at the executory stage. The contract of sale is basically one where the reciprocal obligations created are deemed to be subject to one another as each being the resolutory condition for the other. with respect to the obligation to transfer ownership of the subject matter. when the subject matter of the sale has been delivered by the seller to the buyer). That is why Article 1191 provides that the “power to rescind” is implied in reciprocal obligations. whereas in an obligation subject to a resolutory condition. However. a contract of sale assumes different consequences from a contract to sell. Vol. It is a condition imposed exclusively by law. As Tolentino aptly observed: This article recognizes an implied or tacit resolutory condition in reciprocal obligations. the happening thereof extinguishes in almost like manner the obligation as if it never arose. IV. and therefore rescission must COMMENTARIES 170 (1973).

and refuses to voluntarily return the subject matter of the sale.e. Inc. mere notice of cancellation would be sufficient under Supreme Court rulings. in a contract to sell. GOVERNING PROVISIONS AND PRINCIPLES FOR REMEDIES OF RESCISSION AND CANCELLATION 1. generally. court action is necessary to rescind a contract of sale. whereas. v. it is Articles 1591 and 1592 which specifically govern the power to rescind contracts of sale covering immovables. there is no practical difference in remedies available to the innocent party in both a contract of sale and a contract to sell for purposes of rescission. 35 SCRA 103 (1970). since both can be done extrajudicially: in a contract of sale. in a contract to sell.462 LAW ON SALES necessarily be done judicially since only the courts can grant the remedy of recalling ownership that has passed to the buyer and reverting it to the seller. Article 1591 states that “[s]hould the vendor have reasonable grounds to fear the loss of immovable property sold 111 University of the Philippines v. . delivery of the subject matter does not transfer ownership to the buyer. Clave. and therefore when the condition is not fulfilled (i. it is not for the rescission of the contract. the subject matter of sale has not been delivered to the buyer). non-payment of the purchase price) no court intervention is needed to “rescind” the contract since ownership has remained with the seller. by express agreement.111 When performance stage has been reached. by mere notarial notice of rescission under Article 1592 the contract may be rescinded. De los Angeles. 124 SCRA 638 (1983). the legal provisions governing the remedies of parties covering sales of immovables were Articles 1191. Genato.. Although Article 1191 provides for the power of rescission in reciprocal contracts in general. Pre-Maceda Law Period Prior to the passage of the Maceda Law. 300 SCRA 722 (1998).e. Cheng v. 1591 and 1592 of the Civil Code. On the other hand. In their executory stages (i. but for the recovery of the possession from the buyer who is not entitled thereto. no such court action is necessary to rescind a contract to sell. If court intervention is necessary.. Palay.

113 112 . Article 1592 provides that even when automatic rescission may have been expressly stipulated. in a few instances and on grounds of equity. Heirs of Rufina Morales. 310 SCRA 1 (1999). In one case.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 463 and its price. nonetheless. a. not being included within the enumerated contracts therein. 328 SCRA 434 (2000). the court may not grant him a new term. 304 SCRA 155 (1999). have no application to a contract to sell. and the consignation. Gomez v. of the balance of the purchase price before the trial court operated as full payment. Court of Appeals. the buyer may still remove the default by payment of what is due as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. 340 SCRA 720 (2000). Therefore.” otherwise. Pangilinan v. Court of Appeals. Spouses Paredes. 279 SCRA 590 (1997). Court of Appeals. Valarao v. given the buyer reprieve. he may immediately sue for the rescission of the sale. the provisions of Article 1191 must be observed.114 Province of Cebu v. which require rescission either by judicial action. Padilla v. the remedy of rescission under Articles 1380 et seq. do not apply to contracts to sell. 546 SCRA 315 (2008). which resulted in the extinguishment of the buyer’s obligation under the contract of sale.112 the Court held that Article 1592 allows the buyer of an immovable property to pay as long as no demand for rescission has been made. 114 Ong v. Article 1592 contains the principle that the remedy of rescission requires the taking of a positive act on the part of the non-defaulting party. Remedy of Rescission under Articles 1191 and 1592 Have No Application to Contracts to Sell Articles 1191 and 1592. even after the seller had given notarial demand for rescission. Court of Appeals. As discussed above.113 Likewise.” the Supreme Court has. or notarial act. if no such grounds exist. nor is lesion or damage the basis upon which remedy can be sought under a contract to sell. Although Article 1592 provides that “[a]fter the demand.

464 LAW ON SALES In the early cases of Caridad Estates. the failure of which is not a breach. Santero. 1 (1960). the non-payment of the price would automatically. 116 115 . Under the New Civil Code. Manuel held that the contention of the buyer that the seller — . Court of Appeals. and had no application to a contract to sell. where non-payment is a resolutory condition. In contracts to sell. at p. Rodriguez. extinguish the contract. the facts did indicate that formal demands were made upon buyers and eventually a case to recover possession where the grace period provided by the Maceda Law was never invoked. Also.. In making such ruling.115 and Manuel v. such payment. Ong v.116 the Court had held that then Article 1504 (now Article 1592) applied only to a contract of sale of immovable.118 discussed the rationale on why the remedy of rescission cannot apply to a contract to sell. thus: “In a contract of sale. the title to the property passes to the vendee upon the delivery of the thing sold. while in a contract to sell. Inc. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale. The application of the Maceda Law never figured in the resolution of the case perhaps because it was never invoked by the buyers. 117 Ibid. 118 310 SCRA 1 (1999). piggery and a ricemill. is a positive suspensive condition. 10. as we said. had no right to cancel the contract as there was only a “casual breach” is likewise untenable. the subject matter of the purchase constituted of residential areas. even without the need of further action nor of the remedy of rescission. v. Likewise.117 The reasoning in Manuel is to the effect that since a contract to sell is constituted by a suspensive condition on the full payment of the price. 114 (1940). 71 Phil.. ownership is. by agreement. casual or serious. 109 Phil. where ownership is retained by the seller and is not to pass until the full payment of the price. which is not the case [here]. but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force in accordance with Article 1117 of the Old Civil Code [now Article 1184].

. in this instance.”120 b.. v. Failure to pay.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 465 reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. In a contract to sell. v. v. Genato. under the principle of equity. with interests.M. Same ruling as in Luzon Brokerage Co. 121 31 SCRA 829 (1970). 274 SCRA 461 (1997). Court of Appeals.. the payment of the purchase price is a positive suspensive condition. the Court granted additional period of 60 days from receipt of judgment for the buyer to make all installment payments in arrears plus interests. although the principle of substantial breach and the remedies of rescission found in Articles 1191 and 1592 have no application to contracts to sell involving immovable.. Court of Appeals.. Ibid. Javier. Saldana. Cheng v.. Inc. Tuazon Co. Spouses Paredes. Padilla v. not a failure of a condition to render binding that obligation. casual or serious. Santos v. but even after default he was willing and had offered to pay all the arrears. 337 SCRA 67 (2000). although demand for rescission had already been made. 328 SCRA 434 (2000). 120 119 . Rillo v.121 where the buyer had religiously been paying his monthly installments for eight years. 300 SCRA 722 (1998). In Legarda Hermanos v. Maritime Building Co.119 It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor’s failure to comply with an obligation already extant. at p. 314 SCRA 585 (1999). Inc. 46 SCRA 381 (1972). Equity Resolution for Contracts to Sell Prior to the applicability of the Maceda Law. but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. 10. the Supreme Court has on occasion applied them. Gonzales v. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. In J. 280 SCRA 253 (1997). Inc. Court of Appeals. is not even a breach but merely an event which prevents the vendor’s obligation to convey title from acquiring biding force.122 although the buyer clearly defaulted in the payment of his installments on a contract Also Odyssey Park. Heirs of Thomas and Paula Cruz. the failure of which is not a breach. Inc.. 122 55 SCRA 324 (1974).

In Lacanilao v.123 which involved a verbal contract to sell a residential lot. sometimes the Court still adhered to the strict rule that substantial compliance will not be a basis to save a buyer who has failed to pay the contract price in a contract to sell. although not enough to cover the purchase price of the two lots. In spite of previous decisions applying equity reasoning for treating a contract to sell as a contract of sale when the subject matters involve residential real estate. the Court acknowledged the “impropriety” of applying Article 1592. the Court nevertheless awarded ownership over one of the two (2) lots jointly purchased by the buyer. whether casual or substantial.M. Court of Appeals. for the non-happening of the condition. is not a breach but prevents the obligations from arising. . the obligor may recover as though there had been a strict and complete fulfillment. when it found that the total amount of installments paid. 490. In both J.” Reliance upon Article 1234 was misplaced for it embodies the concept of “casual breach” (which would not authorized the exercise of the remedy of rescission) from “substantial breach.466 LAW ON SALES to sell covering two parcels of land. the Court found the transaction to be a contract to sell “where ownership is retained by the seller until payment of the price in full. less damages suffered by the oblige. were enough to cover fully the purchase price of one lot. and Legarda Hermanos. extinguishes the underlying contract as though it never existed.” both concepts of which are inapplicable to a contract to sell. but that there would be denial of “substantial justice” for the leeway given to the buyers pursuant to Article 1234 of the Civil Code which provides that “[i]f the obligation has been substantially performed in good faith. such payment is a positive suspensive condition. or more accurately. Ibid. at p.”124 The Court also 123 124 262 SCRA 486 (1996). The Court deemed that there was substantial performance insofar as one of the lots concerned as to prevent rescission thereof. Tuazon Co. failure of which is not really a breach but an event that prevents the obligation of the vendor to convey title in accordance with Article 1184 of the Civil Code.

”126 In Rillo v. at p.”125 To the author. is first and foremost a court of law. such party may refuse to proceed with the contract or he may waive performance of the condition. the same cannot be enforced so as to overrule a positive provision of law in favor of the [seller]. 490-491. v. . Hence. 128 280 SCRA 253 (1997).128 which covered a contract to sell commercial lots. Inc. Court of Appeals.127 the Court recognized that since the contract between the parties was a contract to sell covering non-residential immovables. which is simply an event that prevents the obligation of the seller to convey title from acquiring binding force. residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer. The foregoing rulings show the accommodating attitude of the Supreme Court to buyers of residential real estate who have exhibited a measure of good faith in complying with their obligation to pay the purchase price even under a contract to sell. This was the same ruling in Odyssey Park. the application of the principle of equity was inappropriate in Lacanilao because not a single centavo had been paid by the buyers pursuant to the alleged verbal sale. while aware of its equity jurisdiction. Ibid. Court of Appeals. for which they could have obtained a right of first refusal or could have consigned the purchase price in court when the seller allegedly refused to execute the deed of sale in their favor. It also provides the buyer on installments in case he defaults in the payment of succeeding installments. while equity might tilt on the side of the [buyers]. 491. 127 274 SCRA 461 (1997). as to go beyond form and accompanying rules on the effects 125 126 Ibid.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 467 referred to Article 1545 which provides that “where the obligation of either party to a contract of sale is subject to any condition which is not performed. commercial. The Court took into account the fact that the buyers have been occupying the lot as lessees for almost three (3) decades. at pp. it ruled that in such case the applicable law is the Maceda Law which recognizes in conditional sales of all kinds of real estate (industrial. However. it held that: “This Court.

. and bring the matter to court. i. c. In other words. nevertheless. a contract to sell. the Court has required as a minimum procedural rule for the “rescission” (i. it is free to resort to judicial action in its own behalf. whereas. the Court has maintained a stern adherence to the form chosen by the parties for their contract. such as Article 1592. Formal Notice Required to Cancel Contracts to Sell Although legal provisions requiring notarial rescission.468 LAW ON SALES of non-happening of the suspensive condition to achieve equity based on the circumstances present in a case. and act accordingly. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not 129 35 SCRA 103 (1970). and implement the accompanying legal effects concomitant with such form of sale. being ever subject to scrutiny and review by the proper court. it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional.. should the court. Then.e. in the case where the subject matter is commercial or industrial real estate. after due hearing. and the consequent indemnity awarded to the party prejudiced. If the other party denies the rescission is justified. without previous court action. the responsible party will be sentenced to damages.. the party who deems the contract violated may consider it resolved or rescinded. cancellation) of a contract to sell that at least notice be given by the seller to the buyer.” thus — Of course. decide that the resolution of the contract was not warranted. in the contrary case.e.129 mentions such requirement for the “rescission” of a contract to sell to be “effective. De los Angeles. University of the Philippines v. but it proceeds at its own risk. the resolution will be affirmed. have no application to contracts to sell involving real property.

and the same is always subject to the final determination of a court of law..REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 469 correct in law.. the other party is not barred from questioning in court such abuse or error. . 108. the party injured by the other’s breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages. or the power to cancel or resolve a contract to sell when the condition of payment of the purchase price is not fulfilled. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest.. What it did stress was that the factual bases for either rescission or cancellation may not be present to warrant the exercise of either such remedies.”130 University of the Philippines therefore did not question the validity of the power to rescind a contract of sale extrajudicially when stipulated. Otherwise. the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit. is met by the fact that “in case of abuse or error by the rescinder. “the act of a party treating a contract as canceled or resolved .” The only pronouncement that University of the Philippines explained was that every act of rescission or cancellation would be provisional unless the courts decree the existence of a factual basis for such extrajudicial act. no amount of reading of University of the Philippines explains the basis of why it held that in the cancellation of a contract to sell. emphasis supplied. other than perhaps the implied 130 131 Ibid. Ibid. at p. must be made known to the other.. 107. It further held that the fears expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render nugatory the general rule requiring judicial action and lead to abuse. instead of the rescinder.”131 However. But nowhere did the decision explain why notice to the other party was essential. at p. emphasis supplied.

However. Nevertheless.134 So that notice to the defaulting party cannot be the operative act to make the cancellation or resolution of a contract to sell valid and effective. 76. 364 SCRA 768 (2001). had not been transferred to the buyer. and that had possession been transferred to the 96 SCRA 69 (1980). the facts of Torralba still show that despite its pronouncements notice was given by the seller to the buyer before “rescinding” the contract to sell. the contract between the parties was deemed ipso facto rescinded. the courts should decree the cancellation to have become effective. emphasis supplied. 133 132 . De los Angeles. 134 Reiterated in AFP Mutual Benefit Asso. although the covering contract was a contract to sell. Indeed. Ibid. as the Court itself held in a later case of Torralba v. there was no contract to rescind in court because from the moment the petitioner defaulted in the timely payment of the installments. The contract executed by the petitioner and the PHHC expressly provided that the contract shall be deemed annulled and cancelled and the PHHC shall be at liberty to take possession of said property and dispose the same to any other person upon default of the petitioner to pay the installments due. v. at p. whether there was notice or not. One cannot say that Torralba decided as it did because essentially even possession of the subject property. Hence. if the factual basis for an extrajudicial rescission or cancellation is present.470 LAW ON SALES fairness to allow the other party the right to question in court the propriety of the act of the seller.132 on the contention of the buyer that the seller should have resorted to a judicial decree rescinding the contract to sell before awarding the lot to another buyer — This contention is untenable.133 Torralba thus correctly expressed the principle that the nonfulfillment of the condition ipso facto cancels or resolves a contract to sell so that there is legally nothing else to do at that point. in a contract to sell. Court of Appeals.

even in a contract to sell. 135 136 182 SCRA 564 (1990). As stressed in University of the Philippines vs. Court of Appeals. 644. as held in previous jurisprudence. But even then. without need of notice and with forfeiture of all installments paid.137 a “Contract to Sell” a piece of land expressly provided that the contract shall be automatically rescinded upon default in payment of any monthly installment after the lapse of 90 days from the expiration of the grace period of one month. that judicial action for rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and condition. even in the cited cases. at p.135 expressly applied the University of the Philippines ruling as allowing the seller “to consider the contract to sell between them terminated for non-payment of the stipulated consideration. at p. Ibid. the seller treated the contract as canceled without notice to the buyer. Walfrido de los Angeles the act of a party in treating a contract as cancelled should be made known to the other. and certainly notice is not required to have such a cause of action. . there was at least a written notice sent to the defaulter informing him of the rescission. on why notice of cancellation of a contract to sell by virtue of non-fulfillment of the suspensive condition must be given to the other party seems to be either of two things as aforequoted: first. but for recovery of possession. 138 Ibid. it has always been the practice. v. In ruling that the cancellation was void because of lack of notice. the Court held — Well settled is the rule.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 471 buyer. For failure of the buyer to pay installments due. Lim v. Clave. 572. the court action is not one really to rescind. In Palay.138 The reasoning of Palay. However.”136 and the only risk involved is that the courts may not affirm the factual basis upon which to base the non-happening of the suspensive condition. judicial action is necessary to recover the property from the buyer. Inc. Inc. 137 124 SCRA 638 (1983).

in mandating notice to the other party is that even under the Maceda Law. Moreover. the Court held — The contention that private respondent had waived his right to be notified under paragraph 6 of the contract is neither (sic) meritorious because it was a contract of adhesion. However. a standard form of petitioner corporation. and intelligently made. Palay. and even when not contained in 139 Ibid. The other legal basis of Palay. such waiver follows only where liberty of choice has been fully accorded.472 LAW ON SALES and second. Inc. such notice to the other party is required simply and peculiarly because such special law requires it. But then. expressly waived notice on the part of the buyer in case the seller should seek to rescind or cancel the contract. A waiver must be certain and unequivocal. For cases covered by Maceda Law. In disallowing such waiver. and especially on the general principles governing the effects of non-fulfillment of the suspensive condition in a contract to sell. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments. Inc. is an aberration of what otherwise would be established principles of cancellation in contracts to sell. emphasis supplied. at pp. . it was so decreed in University of the Philippines. Inc. The second is unsupported by any reasoning found in University of the Philippines. why should the provisions of a special and peculiar law govern? The contract to sell in Palay. had decreed that a waiver of notice in a contract of adhesion is void. as discussed below. notice of cancellation is required to be given to the buyer by notarial act. The first reasoning is unacceptable because a usage or practice without legal or logical basis should be abandoned. the Maceda Law. for cases not covered by the Maceda Law. and private respondent had no freedom to stipulate. 646-647. it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions.139 In one swoop.

the parties would stand as if the condition obligation had never existed.. If the suspensive condition does not take place.141 300 SCRA 722 (1998).. Resultantly. to the [buyers] for his decision to rescind their contract. 141 140 .REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 473 a contract of adhesion. verbal or written. 735-737.. It is always subject to the scrutiny and review by the courts in case the alleged defaulter brings the matter to the proper courts. In many cases. [there was] default . Genato. 219 SCRA 378 (1993).140 reiterated the ruling that — Even assuming in gratia argumenti that . . in order to avoid and prevent the defaulting party from assuming the offer as still in effect due to the obligee’s tolerance for such non-fulfillment.. The application of the doctrine of prior notice of cancellation of contracts to sell has been applied to movables in Visayan Sawmill Co. [seller] is not relieved from the giving of a notice. litigations of this sort shall be prevented and the relations among would-be parties may be preserved ... such waiver is invalid for being contrary to public policy when it covers real estate sold on installment basis. even though we upheld the validity of a stipulation in a contract to sell authorizing automatic rescission for a violation of its terms and condition. Inc. Ibid. the execution by [seller] of the affidavit to annul the contract is not even called for. both in equity and justice. The act of a party in treating a contract as cancelled should be made known to the other. v.. This rule validates. Nevertheless. Cheng v.. For such act is always provisional. When a contract is subject to a suspensive condition.. For with or without the aforesaid affidavit their non-payment to complete the full downpayment of the purchase price ipso facto avoids their contract to sell. its birth or effectivity can take place only if and when the even which constitutes the condition happens or is fulfilled. Court of Appeals. at least a written notice must be sent to the defaulter informing him of the same. emphasis supplied. it being subjected to a suspensive condition. at pp. in their Contract to Sell. contracts such as the one at bar.

Ocampo v.. there we have it (for now. notice to the defaulting buyer. Rescission Principles Applied to Contracts to Sell By the nature of a contract to sell.” ruled to be a contract to sell. that should the Vendee fail to pay any of the monthly installments. 144 Ibid.142 What form of notice is required for the declaration of cancellation of a contract to sell? We take our cue from what the Court held in Dignos v. Court of Appeals. 143 158 SCRA 375 (1988).. v. Maritime Building Co. 384. Inc.143 that such notice should be in a public instrument pursuant to the provision of Article 1358 of the Civil Code which requires “that acts and contracts which have for their object the extinguishment of real rights over immovable property must appear in a public document. . Court of Appeals. To illustrate.. become 142 See Jison v. 145 43 SCRA 95 (1972).. This doctrine has since then been consistently adhered to in cases subsequent cases for all types of immovables. and therefore there is really nothing to resolve or rescind. provided only — (d) . 164 SCRA 339 (1988). Court of Appeals. require at the very least to be effective or operative. or otherwise fail to comply with any of the terms and conditions herein stipulated. Inc. when due.145 the “Deed of Conditional Sale. 233 SCRA 551. at p. at least): notice of extrajudicial rescission of a contract of sale and even cancellation of a contract to sell even when the suspensive condition has not been fulfilled.474 LAW ON SALES So.”144 d.. And certainly. then this Deed of Conditional Sale shall automatically and without any further formality. the remedy of rescission is irrelevant to contracts to sell because the non-fulfillment of the suspensive condition of full payment of the purchase price prevents a contract of sale from even materializing. in Luzon Brokerage Co. 561-562 (1994). any stipulation authorizing the seller to “rescind” the contract to sell in the event the buyer fails to fully pay the purchase price is a mere surplusage.

refuse conveyance and retain the sums or installments already received. emphasis supplied.146 Strictly speaking the afore-quoted provision did not create a right of automatic rescission because even without such clause. Ibid. as in the case at bar.”148 The emphasized quotation imply therefore that upon full payment 146 147 Ibid. 387 (1972). 148 46 SCRA 381. the Court ruled that “in a contract to sell. where such rights are expressly provided for. The only additional right that the provision did create was the right of forfeiture of payments previously made. and all sums so paid by the Vendee by reason thereof. Such a conclusion does not correspond with the nature of a contract to sell. at p. 104-105. at pp. would have to be expressly reserved in the deed in order to be binding. to extrajudicially terminate the operation of the contract. the non-payment of the installments would ipso jure result in the obligation to sell not arising at all. shall be considered as rentals and the Vendor shall then and there be free to enter into the premises.147 A reading of the afore-quoted reasoning would imply that even the right to “rescind” a contract to sell where ownership has been retained by the seller. . In the resolution denying the first motion for reconsideration. the full payment of the price through the punctual performance of the monthly payments is a condition precedent to the execution of the final sale and to the transfer of the property from the owner to the proposed buyer. so that there will be no actual sale until and unless full payment is made. 98. Luzon Brokerage held that — The distinction between contracts of sale and contracts to sell with reserved title has been recognized by this Court in repeated decisions upholding the power of the promissor under contracts to sell in case of failure of the other party to complete payment. On the insistence by the buyer that the seller could not extrajudicially rescind or resolve the contract but must first seek recourse to the courts. take possession thereof or sell the properties to any other party.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 475 null and void.

We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price. Roque v.” However. it refused to grant the buyer the benefit of the period under Article 1191. elects to rescind or 149 150 96 SCRA 741 (1980). Roque therefore has brought us to a critical junction: substantial compliance or whether there has been good faith or bad faith on the part of the buyer in defaulting in the payment of the purchase price is and should be irrelevant when the agreement on hand is one of contract to sell..149 reiterated the Luzon Brokerage ruling that “in a contract to sell. so that there will be no actual sale until and unless full payment is made. Roque held that the provisions of Article 1592 had no application.151 Under such premise. Ibid. it seemed wrong for Roque to thereafter hold that “We agree with the respondent Court of Appeals that Article 1191 of the New Civil Code is the applicable provision where the obligee. 1191 of the New Civil Code is the applicable provision where the obligee .. since the Court found that only 4 out of 116 monthly installments were ever paid. and since the buyer has long been in default. elects to rescind or cancel his obligation to delivery the ownership. Amazingly however. 755.476 LAW ON SALES of the price. the Court held that “Art. 757. at p. emphasis supplied. at p.”150 The contract having been construed as a contract to sell. such payment being a positive suspensive condition and failure of which is not a breach. Lapuz.. . like petitioner herein. the full payment of the price through the punctual performance of the monthly payments is a condition precedent to the execution of the final sale and to the transfer of the property from the owner to the proposed buyer. casual or serious. there automatically arises a contract of sale which may be enforced by an action for specific performance. but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force.. thus — . 151 Ibid.

. because it granted the sellers an absolute and automatic right of rescission. The buyer insisted that the provision insofar as it provided that in case of specified breaches of its terms. the Court plunged deep into the doctrinal pronouncements on rescission. but nevertheless.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 477 cancel his obligation to deliver the ownership of the two lots in question for failure of the respondent to pay in full the purchase price. In other words.154 which also involved a contract to sell a parcel of land. Calasanz. 154 135 SCRA 323 (1985). the entire obligation would have 152 This particular ruling in Roque was reiterated in Alfonso v. Roque ruled out the granting of new period pursuant to Article 1191 on the basis that the buyer has introduced substantial improvements on the lots since “to grant the same would place the vendor at the mercy of the buyer who can easily construct substantial improvement on the land but beyond the capacity of the vendor to reimburse in case he elects to rescind the contract by reason of the vendee’s default or deliberate refusal to pay or continue paying the purchase price of the land. Clearly. 153 Ibid. Court of Appeals. 760.00 the plaintiffsappellee had already paid the monthly installments for a period of almost nine (9) years. in only a short time. at p. . the reference to the remedy of rescission was not relevant at all to the contract to sell. and despite the fact that the contract at issue was a contract to sell. where the issue was the validity of the provision providing for automatic cancellation on failure of the buyer to comply with the installments terms thereof.152 In addition.” and then implied that had the buyer substantially paid the purchase price. the sellers have the right to declare the contract canceled and of no effect. 186 SCRA 400 (1990). the Court would have upheld the new 90 day period granted by the Court of Appeals.. is so slight and casual when we consider that apart from the initial downpayment of 5392. held that the breach of the contract adverted to by the seller — . to be void.”153 The “mixing-up” of doctrinal pronouncements was glaringly displayed subsequently in Angeles v.

in spite of several extension granted to him in the past by the seller when he had failed to meet the deadlines. Court of Appeals. Such payment is Ibid. Court of Appeals.158 Jacinto v. while continuing to enjoy the petitioner’s property. Is it a contract of sale or a contract to sell? The two are not. The remedy of rescission and all its accompanying doctrinal baggages have been expressly made applicable to contracts to sell. Inc. and reward his defaults and contractual breaches.159 in determining whether the seller had a right to rescind an agreement involving the sale of a parcel of land. thus — Requiring the sellers to execute a deed of absolute sale in favor of Mercado would penalize the former for their magnanimity in granting the latter extensions of time to complete payment of the price of the sale (which he never did). 157 195 SCRA 205 (1991). of course. 159 209 SCRA 246 (1992). 158 SCRA 375 (1988). Dignos v. 210.156 On the other hand. ownership is retained by the seller and is not to pass until full payment of the price.157 refused to grant any further reprieve to a buyer who had not paid the balance of the purchase price of the house and lot he bought under a contract to sell.478 LAW ON SALES been paid x x x to sanction the rescission made by the defendants-appellants will work injustice to (sic) the plaintiffs-appellees. v.155 In effect. Court of Appeals. at p. and make doctrinal pronouncements pertaining to contracts of sale applicable to it. 143 SCRA 663 (1986). 156 155 . In the latter case. 331. the same. Joseph & Sons Enterprises. justice and equity had been the bases to erode the fundamental nature of a contract to sell. at p. It was downhill from that time on. held — Vital to the resolution of the controversy is the determination of the true nature of the questioned agreement. Kaparaz. 158 Ibid. Gimenez v.

leading to what the author considers an erroneous conclusion that express reservation of the power to rescind is essential in a contract to sell arrangement. Inc. not even the courts can make the obligation effective.160 So once in a while. to argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale.’”. Otherwise stated.” The paragraph talks of rescission. But where is one to put one’s self.. 160 Ibid. as capsulized in Luzon Brokerage Co. where non-payment is a resolution question. when the suspensive condition has not been fulfilled. Inc. according to the Court. in this confusion of Supreme Court pronouncements? What ruined it for Jacinto is the fact that it took the same position of Dignos that the absence in the contract of a reservation on the part of the seller the right to unilaterally rescind the contract the moment the vendee fails to pay within the fixed period. the buyer would still have been validly granted an opportunity to pay the accrued installments because of the third paragraph of Article 1191 which provides that “The Court shall decree the rescission claimed... at pp. because the suspensive condition did not happen.. But then Jacinto went on to say that even if it were a contract to sell and resolution would have been the proper remedy. but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. casual or serious. and doctrinal pronouncements having to do with rescission are not made to apply to the latter.. the Court recognizes the fundamental difference between a contract of sale and a contract to sell. . In such a situation. Maritime Building Co. and legally.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 479 a positive suspensive condition the failure of which is not a breach. unless there be just cause authorizing the fixing of a period. indicated that it is a contract of sale and not a contract to sell. vs. “there can be no rescission or resolution of an obligation as yet non-existent. 254-255.

Siska Dev’t Corp. it merely provides for a procedure in aid of the remedy of rescission. v. when it held that “[t]he requirement of notice of the rescission under the Maceda Law does not change the time or mode of performance or impose new conditions or dispense with the stipulations regarding the binding effect of the contract.” In Siska Dev’t. Corp. dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the parties. There is an impairment if a subsequent law changes the terms of a contract between the parties. imposes new conditions. emphasis supplied.”163 a. the actual rescission or cancellation thereof shall take place “thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act.162 on the contention that the application of the Maceda Law to a contract to sell that had been entered into prior its enactment would constitute a violation of the non-impairment clause of the Constitution.”164 161 The discussions on the operative aspects of the Maceda Law are found in the previous Chapter 10. By legislative injunctions. 163 Ibid. at p.. Office of the President of the Phils.480 LAW ON SALES 2. provided for the proper application of the provisions of the Maceda Law with respect to the other rules pertaining to contracts of sale. Maceda Law Does Not Overcome Other Applicable Rules to Contracts to Sell More importantly. Maceda Law Period161 The Maceda Law has further blurred the basic distinction between a contract of sale and a contract to sell. the Maceda Law has decreed that whether it be a contract of sale or a contract to sell. Neither does it withdraw the remedy for its enforcement. at least in the specific types of residential real estate and condominium units covered by said law. At most. . 162 231 SCRA 674 (1994). 680. the Court held that the “[i]mpairment is anything that diminishes the efficacy of the contract. 164 Ibid.

Jr.165 held that the protective mantle of the Maceda Law to buyers of residential real estate would not serve to validate a contract to sell which is void for failure of the parties to agree on the manner of payment of the purchase price. and would grant the buyer an opportunity to cure the defect even when notarial notice of cancellation has been effected and the 30-day requisite period has expired. Corp. say between two buyers as to the same property bought. the Court ruled against the first buyer under a contract to sell. This shows that the rules under the Maceda Law are applicable only to issues of rescission between the seller and the buyer. but also the applicability of the doctrine that prohibits “rescission” for casual or slight breaches even involving contracts to sell.168 165 166 482 SCRA 108 (2006). at p. The decision was arrived at even when the facts showed that there was never any notarial cancellation of the first sale as mandated under the Maceda Law. The other issue that pertains to the application of the Maceda Law when it comes to contract to sell involving residential real estate and condominium units is whether the Supreme Court would apply the “substantial breach” doctrine under Article 1191. Ibid. Boston Bank of the Philippines v. 167 182 SCRA 564 (1990). 140. Loy. thus: “Republic Act No.. . and do not overcome prevailing rules when it involves a controversy. In Siska Dev’t. Manalo. and in fact without reference to the Maceda Law.”166 Another example would be the case of Lim v. Court of Appeals. 405 SCRA 316 (2003).167 where the issue was who between two “buyers” of the same property had preference of the same subject matter. 168 Reiterated in Liu v.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 481 For example. 6552 applies only to a perfected contract to sell and not to a contract with no binding and enforceable effect. and in favor of the second buyer under a contract of sale under the well-established doctrine that the rules on double sale have no application to favor a buyer under a contract to sell. the Court not only reaffirmed the necessity of notice of cancellation in contracts to sell..

AT PERFECTION: 1. and since the buyer has paid less than two years of installment. the Court re-affirmed its protective mode only for a buyer who in good faith has sought to fulfill his obligation to pay the price. 332 SCRA 769 (2000). Court of Appeals. he could only have availed of the 60-day grace period. RECAP OF THE RULINGS An outline survey of Supreme Court decisions covering the bases of determining whether a sale is one of contract of sale or a contract to sell would often show contradictory pronouncements on the matter.169 which involved a contract to sell a residential condominium unit. Requisite Contractual Stipulations — In a contract to sell. Heirs of San Andres v. there must be a stipulation that: (a) Full payment of the purchase price by the buyer constitutes a suspensive condition on the obligation of the seller to sell and transfer ownership of the subject matter. the seller had a right to cancel the contract. thus: A. and 169 170 274 SCRA 461 (1997). Rodriguez. which it did by the filing of the judicial action for rescission. and having failed in that. . the Court held that the applicable law in resolving the issue would be the Maceda Law. where the buyer had defaulted on the payment of the amortization payments despite several chances given to him by the seller.482 LAW ON SALES In Rillo v. Particularly. on the issue on whether the seller could rescind the contract to sell when the buyer had not committed substantial breach under Article 1191.170 (b) Accompanied by stipulations or agreements that: • ownership of the subject matter shall remain with the seller until full payment of the price.

340 SCRA 720 (2000). Inc. Court of Appeals. 43 SCRA 95 (1972). De Mistica v. v. Ong. 487 SCRA 571 (2006). 313 SCRA 63 (1999). Court of Appeals. Adelfa Properties. Jr. Naguiat. Villanueva. Court of Appeals. 96 SCRA 741 (1980).. 175 Roque v. Inc. 173 Contra to (a): What really defines a contract to sell is the express stipulation that the effectivity or demandability of the contract is subject to the happening of a suspensive condition (usually full payment of the price).. Zaballa. Ong v. Jacinto v. the contract would still be considered a contract to sell. Almocera v. v. 545 SCRA 325 (2008).REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 483 • specific right is granted to the seller to extrajudicially rescind or cancel the contract in case of default. Court of Appeals. 240 SCRA 575 (1995). Tiongson. in which case it is a conditional contract of sale. Court of Appeals. 172 Coronel v. 418 SCRA 73 (2003). 546 SCRA 164 (2008). Topacio v. Court of Appeals. 27 (1996). v. Court of Appeals.175 171 Vda. Court of Appeals. 173 Luzon Brokerage Co. 439 SCRA 273 (2004). Gomez v. 250 SCRA 223 (1995). .. 174 Romero v. 211 SCRA 219 (1992). Angeles-Hutalla. Lapuz. 281 SCRA 176 (1997). Babasa v. Jr. 263 SCRA 15. 263 SCRA 15 (1996). Blas v.174 Contra to (b): The Court has also ruled that even in the absence of such stipulations. 439 SCRA 55 (2004). Court of Appeals. Villador. Heirs of Pedro Escanlar v. 399 SCRA 351 (2003). because of the absence of deeds of conveyance covering registered land where the operative act of sale is registration of the deed of sale. Coronel v. v. Kaparaz.172 The lack of a stipulation allowing the seller to rescind the contract in the event the buyer fails to comply with his obligation to pay the purchase price clearly prevents the contract from being classified as a contract to sell. Almira v. Court of Appeals. Maritime Building Co. 240 SCRA 565 (1995).171 The lack of stipulation expressly reserving title to the seller in spite delivery of the subject matter to the buyer would not constitute the transaction into a contract to sell. 290 SCRA 532 (1998). Court of Appeals. David v. Inc. Court of Appeals. Court of Appeals. Demafelis v. Valdez v. 538 SCRA 305 (2007). 209 SCRA 246 (1992). as distinguished from a situation where the suspensive condition modifies not the contract itself but rather only the obligation of the seller to sell and deliver the subject matter.

Cruz v. v. Odyssey Park. 262 SCRA 486 (1996). 96 SCRA 741 (1980). 178 Roque v. Court of Appeals. 280 SCRA 253 (1997). 258 SCRA 325 (1996). 262 SCRA 486 (1996). but an event that prevents the obligation of the seller to convey title from acquiring obligatory force. Fernando. Blas v. payment of the price is a suspensive condition.484 LAW ON SALES ➣ But See Contra Rulings in Dignos v. casual or serious.178 Contra: Where there is an express stipulation that the sellers would execute a final deed of absolute sale in favor of the buyer upon payment of the balance of the purchase price. Fernando.176 and in Portic v. the agreement is a contract to sell. the contract would still not be a contract to sell. Stipulation on Execution of Deed of Absolute Sale — When there is a stipulation or promise that the seller shall execute a deed of absolute sale upon completion of payment of the purchase price by the buyer. 177 176 . where nowhere in the contract in question is a proviso or stipulation to the effect that title to the property sold is reserved in the seller until full payment of the purchase price. 310 SCRA 1 (1999). 179 Dignos v. 477 SCRA 173 (2005). 456 SCRA 659 (2005). Court of Appeals. 439 SCRA 273 (2004). Cruz v. Stipulation on the Payment of Price — In contract to sell. Court of Appeals. Rayos v. Padilla v. nor is there a stipulation giving the seller the right to unilaterally rescind the contract the moment the buyer fails to pay within a fixed period. Court of Appeals. Court of Appeals. Court of Appeals. Lacanilao v. Court of Appeals. Court of Appeals. Angeles-Hutalla. 434 SCRA 365 (2004). Cristobal. 328 SCRA 434 (2000).179 3.177 which held that registration does not vest title. Inc. failure of which is not a breach. Lacanilao v. 274 SCRA 461 (1997). Rillo v. 180 Salazar v. Court of Appeals. Ong v. 477 SCRA 173 (2005). Lapuz. because it would be equivalent to reservation of title clause. 158 SCRA 375 (1988). but when the contract to sell expressly reserves title with the seller until full payment of the purchase price. 2.180 158 SCRA 375 (1988). Spouses Paredes.

532 SCRA 74 (2007). Vidal.184 (b) If delivery of the subject matter has not been made. Legal Effect of Full Payment of Price — In a contract to sell. 461 SCRA 186 (2005). Reyes. Sr. 394 SCRA 250 (2002). full payment of the price constitutes the happening of the condition which would convert it into an executory contract of sale. Court of Appeals. Court of Appeals.185 Contra: There is still no perfected or executory contract of sale.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 485 Contra: If there has been substantial compliance with the obligation to pay the price. 389 SCRA 3167 (2002). 477 SCRA 666 (2005). by agreement. reserved in the seller and is not to pass to the buyer until full payment of the purchase price. then it allows the buyer to demand for specific performance. 369 SCRA 36 (2001). Court of Appeals. Court of Appeals. Carrascoso. ownership is. Tayamen. then cancellation cannot be effected.182 2. then ownership is transferred ipso jure to the buyer. Legal Effect of Delivery Made — In contract of sale.181 B. Jr. Heirs of Angel Teves. whereas. it merely gives rise to an action to enforce the obligation of the seller to enter into a contract of sale. 539 SCRA 193 (2007). Mascuñana v. DURING CONSUMMATION STAGE 1. Court of Appeals.183 thus: (a) If delivery of the subject matter had previously been made. Inc. v. Tiongson. PR Builders. Castillo v. in a contract to sell. 262 SCRA 464 (1996). . there is no transfer of ownership to buyer even 181 Spouses Benito v. Court of Appeals. 401 SCRA 54 (2002). Saquitan-Ruiz. 258 SCRA 325 (1996). 183 Philippine National Bank v. 182 Salazar v. Universal Robina Sugar Milling Corp. Heirs of Jesus M. Chua v. v. 313 SCRA 63 (1999). 184 Leaño v. Hulst v. for unilateral rescission will not be judicially favored or allowed if the breach is not substantial and fundamental to the fulfillment of the obligation.. 531 SCRA 147 (2007). the title to the property passes to the buyer upon the delivery of the thing sold. 185 David v. v.

and much less can there be demand to deliver the subject matter when no contract of sale has been executed. PR Builders. 394 SCRA 250 (2002). failure of which is not really a breach but an event that prevents the obligation of the vendor to convey title in accordance with Article 1184 of the Civil Code. .. Siska Development Corp. 280 SCRA 253 (1997). Tayamen. the non-payment of the purchase price is a breach. 187 Lacanilao v. where ownership is retained by the seller until payment of the price in full. Odyssey Park. Inc. and when substantial in nature. Palay. Clave. Legal Effect of Non-Payment of Price — (a) In contract of sale. v. 189 96 SCRA 69 (1980). 164 SCRA 339 (1988). Saquitan-Ruiz. Court of Appeals. 532 SCRA 74 (2007). Ocampo v. 532 SCRA 74 (2007). such payment is a positive suspensive condition. 186 Coronel v. Office of the President. 262 SCRA 486 (1996). Spouses Benito v.189 (ii) In residential real estate. v. 233 SCRA 551 (1994). PR Builders.188 ➢ But see contra ruling in Torralba v. Court of Appeals. 27 (1996). would allow the seller to rescind the sale. Sr. it would not extinguish the contract to sell. Vidal. 263 SCRA 15. Abesamis v. Court of Appeals. 361 SCRA 328 (2001). Hulst v.”187 Contra to (b): (i) Even when the basis for the breach of the condition is present. Court of Appeals.. De los Angeles. Court of Appeals. 124 SCRA 638 (1983). Jison v. a notice of “rescission” or cancellation must be made on buyer to effect the extinguishment of the contract to sell. Inc.186 3. 35 SCRA 103 (1970). Hulst v. 531 SCRA 147 (2007). Court of Appeals. when the non-payment of the purchase price constitute merely a casual breach. 231 SCRA 674 (1994). v. De los Angeles.486 LAW ON SALES when delivery was previously made. v. Inc. and the courts may extend equity rights to the buyer. (b) In contract to sell. 188 University of the Philippines v. Inc.

191 Romero v. Inc. Court of Appeals. rescission may be pursued with forfeiture of the 190 The Caridad Estates. since ownership was retained by the seller by express reservation until full payment of the price. 114 (1940). 279 SCRA 590 (1997). v. the non-happening of the condition may be waived by the obligee who may still seek specific performance. Santero. and seller cannot recover ownership until and unless the contract is resolved or rescinded by court action. 532 SCRA 74 (2007).REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 487 C. 263 SCRA 569 (1996). the non-happening of the condition prevents the contract from coming into existence (i. then no action is necessary other than recovery of possession in case buyer refuses to voluntarily deliver. Whereas in contract to sell. 109 Phil. the issue of breach is completely irrelevant. Salazar v. the basis of rescission must be substantial breach. in contract to sell. and the contract is extinguished. it would mean that ownership has been transferred to the buyer. Court of Appeals. Whereas. in a contract to sell. Inc. Manuel v. 192 Luzon Brokerage Co. Inc.. REMEDIES AVAILABLE: 1. extinguishes the contract) and consequently neither rescission or specific performance may be pursued. . Hulst v.. Vidal. Pangilinan v. When Condition on Price Payment Not Fulfilled: (a) In contract of sale. 1 (1960). Lim v. Whereas.. if seller had delivered the subject matter previously without reserving title. 250 SCRA 223 (1995). 258 SCRA 325 (1996).e. 531 SCRA 147 (2007). Court of Appeals. v. v. PR Builders. Rodriguez. Court of Appeals. 71 Phil..192 (d) In contract of sale and conditional contract of sale. Tayamen. Maritime Building Co. 43 SCRA 93 (1972)..190 (b) In conditional contract of sale.191 (c) In conditional contract of sale. Sr. Inc.

31 SCRA 829 (1970). J. in contract to sell. Tuazon Co. nevertheless. the remedies of rescission The Manila Racing Club v.195 Even when the suspensive condition has not happened. it becomes imperative that the amounts paid must be returned and there would be no basis upon which to retain them since there was no breach upon which a claim of damage may be interposed. Javier. Office of the President. Clave. whereas. v. v. but when there is a suspensive condition. 231 SCRA 674 (1994). 194 193 . 196 University of the Philippines v. v.194 ➣ But see contrary ruling in Lacanilao v. Siska Dev. The Manila Jockey Club. De los Angeles. Saldana. in contract to sell. 195 262 SCRA 486 (1996).488 LAW ON SALES amounts paid when that has been expressly provided for. which would extinguish thereby the contract to sell.197 2. Palay.. Inc. 55 SCRA 3246 (1974). v. Office of the President. 69 Phil. 124 SCRA 638 (1983). Court of Appeals. Laws Applicable – In contract of sale.M. such extinguishment can only have legal effect if notice of cancellation is given to the buyer. Corp. 231 SCRA 674 (1994). Legarda Hermanos v. 197 96 SCRA 69 (1980). Whereas. Corp. Inc. Article 1545 allows the seller to choose between rescission or waiving the condition. the applicable rules are found in Articles 1191 and 1592 providing for the remedy of rescission. Siska Dev. the doctrine of substantial breach to allow rescission and court discretion under Article 1191 have been made to apply to contracts to sell involving residential immovables.193 Contra to (d): Based on equity principles. De los Angeles. 35 SCRA 103 (1970). 55 (1939).196 ➣ But see contrary ruling in Torralba v.

143 SCRA 663 (1986). 109 Phil. 304 SCRA 155 (1999)..REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 489 being incompatible thereto. 46 SCRA 381 (1972).201 But: The requirements of the Maceda Law on grace period. 279 SCRA 590 (1997). . Court of Appeals. 209 SCRA 246 (1992). 199 Topacio v. Santero. 86 SCRA 305 (1978). 96 SCRA 741. 135 SCRA 323 (1985). 280 SCRA 253 (1997). Court of Appeals. 71 Phil. Santos v. Manuel v. Inc. 274 SCRA 461 (1997). 274 SCRA 461 (1997). Pangilinan v. Spouses Paredes. Joseph & Sons Enterprises. 182 SCRA 564 (1990). Lapuz.. v. 201 Caridad Estates. Inc. 274 SCRA 461 (1997). 328 SCRA 434 (2000). 86 Phil. Court of Appeals. 1 (1960). Inc. Court of Appeals. 86 SCRA 305 (1978). Inc. Inc. Inc.202 —oOo— 198 Luzon Brokerage Co. Court of Appeals.. Valarao v. Jacinto v. Court of Appeals. 262 SCRA 486 (1996). Calasanz. cash surrender value and prescribed manner of notarial rescission or cancellation must always apply. 202 Rillo v. v. Inc. 200 Luzon Brokerage Co. Albea v. v. Odyssey Park.. Court of Appeals. v. 314 SCRA 585 (1999).. Padilla v. Kaparaz. 759 (1980). Maritime Building Co. with application of the doctrine of substantial breach. Inquimboy. 337 SCRA 67 (2000).199 The issue of whether the breach was casual or serious under Article 1191 is completely irrelevant in a contract to sell.200 Contra: There have been several instances when Article 1191 was made to apply to a contract to sell involving residential real estate. v. Court of Appeals. Court of Appeals. Inc. 114 (1940). Court of Appeals. 211 SCRA 219 (1992). Court of Appeals. Luzon Brokerage v.. Court of Appeals. v. 477 (1950). Roque v. Lim v. Rillo v. Odyssey Park. whether it is a contract of sale or contract to sell. 280 SCRA 253 (1997).198 the applicable rules are found in Articles 1184 and 1545. Angeles v.. Rillo v. involving installment sales of residential real estate and residential condominium unit. Maritime Building Co. Martime Building. Rodriguez. Heirs of Thomas and Paula Cruz. Lacanilao v. Gonzales v.

Machuca. Under Art. Court of Appeals.490 LAW ON SALES CHAPTER 12 CONDITIONS AND WARRANTIES CONDITIONS Article 1545 of the Civil Code grants two alternative remedies to a party where the obligation of the other party to a contract of sale is subject to any condition which is not performed. thus — There has arisen here a confusion in the concepts of validity and the efficacy of a contract. or (b) he may waive performance of the condition.2 In Heirs of Pedro Escanlar v.3 where the sale contract contained the stipulation that “this Contract of Sale of rights. interests and participations shall become effective only upon the approval by the Honorable Court. Laforteza v. and that the choice is not with the obligor but with the injured party. 2 1 490 . Florendo. 549 SCRA 527 (2008). 333 SCRA 643 (2000). 1318 of the Civil Code. Court of Appeals. while the failure to comply with the second condition only gives the other party the option to either refuse to proceed with the sale or to waive the condition as mandated under Article 1545. in that such first party may either: (a) refuse to proceed with the contract. Romero v. 263 SCRA 569 (1996).” it was held that the non-happening of the condition did not affect the validity of the contract itself. Court of Appeals. object certain 250 SCRA 223 (1995). 3 281 SCRA 176 (1997). Reiterated in Lim v. the essential requisites of a contract are: consent of the contracting parties.1 emphasized the distinction between a condition imposed on the perfection of the contract and a condition imposed on the performance of an obligation: The failure to comply with the first condition results in the failure of the contract. Republic v.

. the non-happening of the condition. the contract’s validity was not affected. 6 279 SCRA 118 (1997). no contract can arise. . In other words. held that a stipulation that the deed of sale and corresponding certificate of title would be issued after full payment.” the formal assumption of mortgage was a condition to the seller’s consent. the result is a valid contract. 190. which would then be a contract to sell. which goes into consummation stage. it did not bear the stamp of approval of the court. On the other hand. Ramos v. However. but rather the effect of transfer of ownership. the Deed of Sale. .6 held that under a “Sale with Assumption of Mortgage. some parties introduce various kinds of restrictions or modalities. Court of Appeals. Absent one of the above. However. although it may extinguish the obligation upon which it is based. the seller remained the owner and mortgagor of the property and retained the right to redeem the foreclosed property. at p. only the effectivity and not the validity of the contract is affected. however. generally does not amount to a breach of the contract of sale. no sale was perfected. In the instant case. affect the validity of the contract. The gravamen of Ramos was not the perfection of the valid contract of sale. complying as it does with the essential requisites. Tiongson.4 David v.CONDITIONS AND WARRANTIES 491 which is the subject matter of the contract and cause of the obligation which is established. DISTINCTIONS BETWEEN CONDITIONS AND WARRANTIES Unlike in the non-fulfillment of a warranty which would constitute a breach of the contract. did not prevent the perfection of a contract. and that where the mortgagee has not approved the assumption of mortgage by the buyer. where all are present. is a valid one.5 citing Escanlar. so that without approval by the mortgagee.. 4 5 Ibid. 313 SCRA 63 (1999). This notwithstanding. Conversely. the lack of which will not.

while a warranty may form part of the obligation or contract by provision of law. and (c) Condition may attach itself either to the obligations of the seller or of the buyer. (b) Condition must be stipulated by the parties in order to form part of an obligation. the buyer may treat the fulfillment by the seller of his obligation to deliver the same. 7 Art.492 LAW ON SALES Under Article 1545 of the Civil Code. as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing. warranty.7 Such stipulation would elevate the condition to a warranty. where the ownership in the things has not passed. whether express or implied. 1545. Civil Code. as described and as warranted expressly or by implication in the contract of sale. the other party may also treat the non-performance of the condition as a breach of warranty. if the party has promised that the condition should happen or be performed. the following difference also apply: (a) Condition generally goes into the root of the existence of the obligation. In addition to the foregoing differences in the legal effects of the non-happening of the condition and non-fulfillment of the warranty. and the non-happening of the condition would itself constitute a breach of such warranty. whereas a warranty goes into the performance of such obligation. and would entitle the other party to sue for damages. On the other hand. . without the parties having expressly agreed thereto. relates to the subject matter itself or to the obligations of the seller as to the subject matter of the sale. whereas. and in fact may constitute an obligation in itself.

where the ejectment of the occupants of the lot sold . its effects and consequences were not specified either. it should have included in the contract a provision similar to that referred to in Romero vs.. If the parties intended to impose on the [sellers] the obligation to eject the tenants from the lot sold. and not to a condition that was not met. The terms of the contract are so clear as to leave no room for any other interpretation.. the provision adverted to in the contract pertains to the usual warranty against eviction.. xxx. v. such “failure” was not stipulated as a condition — whether resolutory or suspensive — in the contract.8 demonstrates the difference in the legal effect between a condition and a warranty: The alleged “failure” of [sellers] to eject the lessees from the lot in question and to deliver actual and physical possession thereof cannot be considered a substantial breach of a condition for two reasons: first. at pp. Court of Appeals. 607-608. Failure to remove the squatters within the stipulated period gave the other party the right to either refuse to proceed with the agreement or to waive that condition of ejectment in consonance with Article 1545 of the Civil Code .. i.. it is important to note that the following 8 9 274 SCRA 597 (1997). to pay the balance of the purchase price. was the operative act which set into motion the period of [buyer’s] compliance with his own obligation.e. and second. Ibid.CONDITIONS AND WARRANTIES 493 Power Commercial and Industrial Corp. As stated. Court of Appeals.9 EXPRESS WARRANTIES Since the breach of an express warranty makes the seller liable for damages. . xxx.

” In Azarraga v. 1546. Art. unless made by an expert and the other party has relied on the former’s special knowledge.12 In this connection.11 the Court held that a warranty is an affirmation of fact or any promise made by a seller in relation to the thing sold. and experience teaches that it is exceedingly risky to accept it at its face value. or dealer’s talk.10 In Goodyear Philippines. are the usual and ordinary means used by sellers to obtain a high price 10 Art.13 the Court recognized that the law allows considerable latitude to seller’s statements. 13 52 Phil. Also Carrascoso. or in regard to its qualities and characteristics. Article 1341 of the Civil Code provides that “[A] mere expression of an opinion does not signify fraud. 1546.494 LAW ON SALES requisites must be present in order that there be an express warranty in a contract of sale: (a) It must be an affirmation of fact or any promise by the seller relating to the subject matter of the sale. An affirmation of the value of the thing. Civil Code. Sy. unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer. 12 . 599 (1928). 477 SCRA 666 (2005). and that the decisive test is whether the seller assumes to assert a fact of which the buyer is ignorant of. 11 474 SCRA 427 (2005). Gay. The Court held that assertions concerning the property which is the subject of a contract of sale. v. (b) The natural tendency of such affirmation or promise is to induce the buyer to purchase the thing. Court of Appeals. Inc. and (c) The buyer purchases the thing relying on such affirmation or promise thereon. shall not be construed as a warranty. or any statement purporting to be a statement of the seller’s opinion only. v. Civil Code. Jr.

”16 Whereas.” It held that the actual existence of a tenancy relationship on the subject land did not breach the first general express warranty. 162 SCRA 636 (1988). claims of any tenant and/or agricultural workers. 603. whether or not the parties were aware of them. by express contractual stipulation. since the existence of tenancy relationship thereon cannot be considered a lien or encumbrance that the seller warranted did not exist at the time of sale. IMPLIED WARRANTIES Implied warranties are those which by law constitute part of every contract of sale. an agent of the seller may bind himself to such warranties.CONDITIONS AND WARRANTIES 495 and are always understood as affording to buyers no ground for omitting to make inquiries. thus: “A man who relies upon such an affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his property does so at his peril. 641-642. Although only a seller is bound by the implied warranties of law. v. RJL Martinez. Investments & Development. since “[I]t is a relationship which any buyer of agricultural land should reasonably expect to be present and which it is its duty to specifically look into and provide for. and must take the consequences of his own imprudence. the second more specific express warranty by its very wordings did take such tenancy relationship into consideration as a part of the express warranty.” and another express warranty that the subject land was “free from all liens. Inc. Inc. at p.15 which involved the sale of agricultural land. 16 Ibid. encumbrances. adverse claims. either arising as compensation for disturbance or from improvements. . 17 Schmid and Oberly. Court of Appeals. at pp.”14 To illustrate further. 166 SCRA 493 (1988). nevertheless. and whether or not the parties intended them.17 14 15 Ibid. v. distinguished between the legal effects of an express warranty which provided that the subject land was “free from all liens and encumbrances.

and not to any representation as to ownership and the capacity to transfer the same at the point of perfection. pledgee.18 Since warranty goes into the issue of performance of obligation. 1548. the buyer shall from that time have and enjoy the legal and peaceful possession of the thing. mortgagee. it amounts to clear assumption of risk on the part of the buyer. for the warranty on the part of the seller that he has the capacity to sell. 1547. or other person professing to sell by virtue of authority in fact or law. there is 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. Civil Code. 2. unless a contrary intention appears. Warranty Against Eviction In a contract of sale. The foregoing warranty shall not be applicable to render liable a sheriff. as when the obligation of the seller is subject to a condition. the warranty of the seller “that he has a right to sell” refers only to the transfer of ownership at the point of consummation. is the essence of sale.20 The vendor shall answer for the eviction even though nothing has been said in the contract on the subject. 20 Art.” there can be no legal waiver of such warranty without changing the basic nature of the relationship. 21 Art. Civil Code. there is an implied warranty on the part of the seller that when the ownership is to pass. . unless.21 18 19 Art..e. to transfer ownership of the subject matter pursuant to the sale.496 LAW ON SALES 1.19 Although Article 1547 uses the phrase “unless a contrary intention appears. 1547. for the sale of a thing in which a third person has a legal or equitable interest. auctioneer. Art. Civil Code. Warranty That Seller Has Right to Sell In a contract of sale. Civil Code. unless a contrary intention appears. i. 1547.

. and (d) Seller has been summoned and made co-defendant in the suit for eviction at the instance of the buyer.. (c) Basis thereof is by virtue of a right prior to the sale made by the seller.22 The warranty cannot be enforced until a final judgment has been rendered. Escaler v. Power Commercial and Industrial Corporation v.. Court of Appeals. 21 Phil. Court of Appeals.e. 274 SCRA 597 (1997). 25 274 SCRA 597 (1997). Power Commercial and Industrial Corp. When There Is Breach of Warranty Against Eviction The seller’s implied warranty against eviction only applies (i.e. 127 (1911). 138 SCRA 1 (1985). 22 Canizares Tiana v. Torrejos. (i. Civil Code. and it even undertook the job of ejecting the squatters which in fact filed suit to eject the occupants. 1557. Court of Appeals. (b) Eviction is by a final judgment.24 There is no need for the buyer to resist to the fullest the action for eviction taken against him. 24 Art. whereby the buyer loses the thing acquired or a part thereof. and the seller. and by having given the seller proper notice of the eviction.CONDITIONS AND WARRANTIES 497 a. 23 Art. Civil Code. by making him a party to the case) the buyer is deemed to have complied with what is incumbent upon him. since the warranty is a covenant on the part of the seller.25 held that there can be no action for breach of the said warranty when the buyer was well aware of the presence of the tenants at the time the buyer entered into the sale transaction.23 The buyer need not appeal from the decision in order that the seller may become liable for eviction. the whole or part of the thing sold. v. there has been a breach of warranty) when the following conditions are present: (a) Purchaser has been deprived of. 1549. being a party to the case. or evicted from. must then take the lead to resist the claim of the third party on the subject matter of the sale.

Court of Appeals. p. the respondents as vendor/s should be made parties to the suit at the instance of petitionersvendees. therefore. and that is to give notice of the complaint.29 b.”27 Escaler v. by registered mail. or for a separate price for each of them.26 held that “[N]o discussion. a part of the thing sold of such importance. with a copy of the opposition the buyer filed in the eviction suit. instead of enforcing the vendor’s liability for eviction. The same rule shall be observed when two or more things have been jointly sold for a lump sum. that he would not have bought it without said part. should be made here as to whether or not the vendor had means of defense. The Court held that — This is not the kind of notice prescribed by the aforequoted Articles 1558 and 1559 of the New Civil Code .. either by way of asking that the former be made a co-defendant or by the filing of a third-party complaint against said vendors. All of this counts very little..30 He may exercise this right of action. 1556.28 held that the breach of warranty against eviction cannot be enforced against the seller when the only thing that the buyer did was to furnish the seller. at p. when it clearly appears that the buyer would not have purchased one without the other. 30 Art. Lualhati. Once this is proven. 28 138 SCRA 1 (1985). Ibid. 371 (1925). and the vendor cannot set up anything against it. without going through formally summoning the seller to be a party to the case. TOMO X. by reason of the eviction. Civil Code. in relation to the whole. his right to the warranty is perfect. quoting MANRESA in COMENTARIOS AL CODIGO CIVIL ESPAÑOL. . but with the obligation to return the thing without other encumbrances than those which it had when he acquired it. There is only one condition to be complied with by the vendee. Eviction in Part Should the buyer lose. 212. Civil Code.498 LAW ON SALES Jovellano v. 29 Ibid.31 26 27 47 Phil. 31 Art. 7. 1556. he may demand the rescission of the contract.

e.37 the Court ruled that in execution sales.34 Nevertheless. Corp. the buyer shall have the right to demand of the seller: 32 33 Art. unless it is otherwise decreed in the judgment.33 d. the rule of caveat emptor applies. and that “[i]n fact the buyer at such sales takes the property subject to the superior right of other parties. 34 Art. .35 held that although in voluntary sales. the sheriff does not warrant the title to the property sold by him. In another case. in case eviction occurs. 36 Ibid. no such obligation is owed by the owner whose land is sold at execution sale. v. Civil Code. Civil Code. Court of Appeals. Santiago Land Dev. the seller shall not be liable for breach of warranty against eviction. Art. Amounts for Which Seller Is Liable in Case of Eviction Under Article 1555 of the Civil Code. 35 276 SCRA 674 (1997). Applicability to Judicial Sales The judgment debtor is also responsible for eviction in judicial sales. when the warranty has been agreed upon or nothing has been stipulated on this point. v. 37 Allure Manufacturing. the vendor can be expected to defend his title because of his warranty to the vendees.”36 as provided expressly under the Rules of Court. 1550. 1552.CONDITIONS AND WARRANTIES 499 c. Inc. 1551. Particular Causes Given by Law When adverse possession had been commenced before the sale but the prescriptive period is completed after the transfer. 199 SCRA 285 (1991).32 If the property is sold for nonpayment of taxes due and not made known to the buyer before the sale. Civil Code. and it is not incumbent on him to place the purchaser in possession of the property. at p. Court of Appeals. 677. the seller is liable for the eviction.

and (e) Damages and interests and ornamental expenses. if the buyer merely renounces the warranty in general terms. (c) Costs of the suit which caused the eviction. On the other hand. be it greater or lesser than the price of the sale. f. . the effect of waiver depends on the nature of such waiver. In other words. (d) Expenses of the contract. or suppress” the implied warranty against eviction.500 LAW ON SALES (a) Return of the value which the thing sold had at the time of the eviction. whether it is general or specific waiver. if the seller acted in bad faith then any stipulation exempting the seller from the obligation to answer for eviction shall be void. and. if the buyer has paid them. a general waiver of the warranty does not create the effect of waiver but merely limits the liability of the seller to the value of the thing sold at the time of eviction. if the sale was made in bad faith. Civil Code.38 When the waiver is of a specific case of 38 Art. diminish. Waiver of Warranty and Effects Thereof Although Article 1548 of the Civil Code provides that the contracting parties to a contract of sale “may increase. Under Article 1553. without knowledge of a particular risk. in a proper case. if buyer has been ordered to deliver them to the party who won the suit against him. the seller shall only pay the value which the thing sold had at the time of the eviction. the seller shall not be liable. and eviction should take place. and whether done in good faith or bad faith on the part of the seller. 1554. those of the suit brought against the seller for the warranty. nonetheless. (b) Income or fruits. Should the buyer have made the waiver with knowledge of the risks of eviction and assumed its consequences.

the waiver has the effect of wiping out the warranty as to that specific risk. but not as to eviction caused by other reasons not covered in the waiver. 3.41 39 40 94 SCRA 413 (1979). when the buyer cannot show that he is a buyer in good faith. 1560.39 has. J. 41 Art. the warranty shall