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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.

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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).
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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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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.
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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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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.
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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).

63 62 . 370 SCRA 56 (2001). 404 SCRA 74 (2003). 65 Ibid. 1470. Court of Appeals. nevertheless. 287 SCRA 102 (1998).. Art. 38 (1995). de Leon. 40 O. de Leon. Inc.68 held that while a sale is perfected by mere consent. Supp. Court of Appeals. p. Alcantara-Daus v.64 held that: “Indeed. 68 404 SCRA 74 (2003). 69 251 SCRA 30.”66 sale is merely title that creates the obligation on the part of the seller to transfer ownership and deliver possession. Mayfair Theater. at p. All the respondents believed that they received the commutative value of what they gave. 64 416 SCRA 263 (2003). Although in one case the Court defined a “sale” as a “contract transferring dominion and other real rights in the thing sold. all that sellers believed was that they received the commutative value of what they gave. Court of Appeals.63 Only recently Buenaventura v. but the real right of ownership is transferred only “by tradition” or delivery thereof to the buyer. but rather for vitiation in consent. or a real right over a thing arising from Alarcon v. In Acap v. 67 Equatorial Realty Dev. Alcantara-Daus v. it would be delivery or tradition that is the mode to transfer ownership and possession to the buyer. but on its own sale is not a mode that transfers ownership. 15.. the seller assumes the obligation to transfer ownership and to deliver the thing sold. Upon the perfection of the sale. v. but such annulment is not for inadequacy of price.”65 6. 66 Titong v.14 LAW ON SALES from invalidating effects. there is no requirement that the price be equal to the exact value of the subject matter of sale. 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. in which case the sale may be annulled.62 Inadequacy of price may show vice in consent.67 Thus. Civil Code. ownership of the thing sold is acquired only upon its delivery to the buyer. 203 (1940). Kasilag. Inc.69 the Court held that an asserted right or claim to ownership.G. 272.

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

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. Court of Appeals. words. Lao v. Since it is tradition or delivery as the mode by which ownership over the subject matter is transferred to the buyer. 337 SCRA 67 (2000).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. Court of Appeals.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. even when there has been no actual or constructive delivery thereof by the seller. the Court has held that the title given to it by the parties is not as much significant as its substance. Court of Appeals. as well as “by their conduct. actions and deeds prior to. 76 Lao 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.”76 74 Romero v. 75 Santos v. 337 SCRA 67 (2000). 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. 275 SCRA 237 (1997). 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. 250 SCRA 223 (1995). the Roman Law concept of mandating delivery of possession of the subject matter as the essence of the sale contract would be logical. In determining the nature or essential characteristic of a contract purported to be a sale. . and by its perfection does not affect the ownership nor effect the transfer thereof to the buyer. Santos v. Court of Appeals. Spouses Cyrus Lim. Cavite Dev. during and immediately after executing the agreement. 324 SCRA 346 (2000). Court of Appeals. 275 SCRA 237 (1997). Bank v.

82 unlike in a donation by the decedent. otherwise the donation is void. Court of Appeals. 81 Arts. 80 Art. whereas donation is a gratuitous contract. For example. 725.”83 Santos v. 337 SCRA 67 (2000). Article 748 allows an oral donation provided that there is a simultaneous delivery of the thing or of the document representing the right donated. that is. and not what the contracting parties call it. the donation of an immovable must be in a public document.” 1. a valid sale for valuable consideration does not diminish the estate of the seller.80 whereas donation. there is no diminution of the estate but merely substitution of values. Estimo. When the disposition is for valuable consideration. Art.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. Civil Code. must comply with the formalities mandated by law for its validity. Under Article 749. 745 to 749. otherwise the donation is void. 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. Civil Code.78 Sale is essentially an onerous contract. taking into consideration its essential elements.00.000. then the acceptance must be in writing.NATURE OF SALE 17 In one case.77 the Court held that “[A] contract is what the law defines it to be. From Donation Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another person. the property sold is replaced by the equivalent monetary consideration. 83 Ibid. and the acceptance may be in the same instrument or a separate public document. 1457. 725. 82 404 SCRA 683 (2003). As observed in Manongsong v. and if the value of the movable exceeds 55. at p. 695. who accepts it. The transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale. in the donation of movable. although consent is also required. 78 77 .79 A sale is perfected by mere consent. Civil Code. being a solemn contract. Civil Code. 79 Art.

the sale itself may be void. as either a barter or sale. and Manalo v. the solemnities provided for by the Law on Donations are wholly irrelevant. and the real intention is that the subject matter is being donated to the supposed “buyer. 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. 1641. On the other hand. even if the contract is called a “donation”.. a contract may be entered into in the form of a “sale” and may end up being governed by the Law on Donations. “but the act may be shown to have been in reality a donation or some other act or contract. From Barter By barter or exchange.84 In such cases. 183 (1911). Under Article 726 of the Civil Code. which are both governed by the Law on Sales. the governing rule on perfection of sale by mere consent does not resolve whether the real contract is valid. In such a case. even when there may be a formal price agreed upon.” In such a case. 85 84 . because other consideration or burdens are placed upon the donee.e. even when the donor imposes upon the donee a burden.18 LAW ON SALES Under Article 1471 of the Civil Code. 496 (1911). 20 Phil. it becomes an “onerous” donation. Romil. the issue of what is the applicable rule (i. a purported donation may have been executed by the parties. if it is simulated. the perfection and enforceability of the contract happen upon consent. but it is not mere liberality that permeates the contract as the only consideration. one of the parties binds himself to give one thing in consideration of the other’s promise to give Art. and since the relationship is governed by the Law on Sales. De Mesa.85 2. Civil Code. 20 Phil. when the price of a sale is simulated. Law or Sales or Law on Donation) becomes critical in determining the validity and enforceability of the contract. but which is less than the value of the thing given. Application of these principles may be seen in Carloz v.” In other words. since being a donation. there is still a donation. the formality for donation should also have been complied with for the transaction to be considered valid.

(ii) It is a sale. by sale.NATURE OF SALE 19 another thing. (b) When Intention Does Not Appear and Consideration Consists Partly in Money and Partly in Another Thing: (i) It is a barter. where the value of the thing given as part of the consideration exceeds the amount of money given or its equivalent. it may still be a sale and not a barter. Civil Code. v.88 in somewhat a complete defiance of the doctrine of separate juridical personality of a corporation from its stockholders. 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. 86 87 Art.86 whereas. 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. 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. a. where the value of the thing given as part of the consideration equals or is less than the amount of money given. 1458. Civil Code. 88 157 SCRA 349 (1988). 1638. IAC. 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.87 It is interesting to note that in Delpher Trades Corp. Art. . when such was the intention of the parties.

92 Art. From Contract for a Piece-of-Work By the contract for a piece-of-work.92 covers only “resale” and does not cover exchanges of properties. The two rules specifically provided for barter contracts.90 Nonetheless. Civil Code. but which are similar anyway to the rules on warranty against eviction applicable to sale. the right of legal redemption granted by law to an adjoining owner of an urban land. but he shall be entitled to damages. Civil Code. are as follows: (a) If one of the contracting parties. Secondly. 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. but without prejudice to the rights acquired in good faith by a third person. and personal property bought at 5500. having received the thing promised in barter. Civil Code.20 LAW ON SALES The distinctions between sale and barter are merely academic. Civil Code. 45 SCRA 409 (1972). do not apply to barter. since aside from two separate rules applicable to barter. should prove that it did not belong to the person who gave it. Article 1641 provides that barter shall be governed by the Law on Sales. City of Manila. 93 De Santos v. Firstly. 1639. 1640. in consi89 90 Art. the contractor binds himself to execute a piece of work for the employer.00 or more. .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.91 which apply to the sale of real property. there are a few instances when the difference between the two types of contracts is critical. Art. 91 Art. as to all matters not specifically provided for. he cannot be compelled to deliver that which he offered in exchange. 1403. 1622. the rules on the Statute of Frauds.93 3.

pp. 1713. a transfer of ownership is involved and a party necessarily walks away with an object. 99 20 Phil.94 The similarity between a sale and a contract for a piece of work has been recognized in Commissioner of Internal Revenue v. whether the contract be one of sale or one for a piece of work.96 Ineluctably. 271 SCRA 605. 98 Cited in Commissioner of Internal Revenue v. COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES. PHILIPPINE LAW ON SALES. and by their simple facts.99 the issue was whether the seller could be made liable for sales tax on the Art. or also furnish the material.NATURE OF SALE 21 deration of a certain price or compensation. Court of Appeals and Ateneo de Manila University. Statutory Rule on Distinguishing Sale from Contract for a Piece-of-Work In the early case of Inchausti & Co.98 For example. a.”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. under a sale. V. 618. the client or customer walks away from the transaction bringing with him an object. 271 SCRA 605 (1997). the contractor may either employ only his labor or skill. 7-9 (1995). Civil Code. in both instances. which is a contract for a piece-of-work. More complicated situations have. Cromwell. 618. In both cases. 1-2 (1992). v. pp. 96 Quoting from TOLENTINO. because essentially. however. Court of Appeals and Ateneo de Manila University. 95 94 . since: “Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. or he may request the artist himself to execute the painting for a price certain. 345 (1911). one can determine the nature of the contract involved. and covered by rulings of the Supreme Court. one may buy a painting from an art gallery.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. Vol. 97 271 SCRA 605. the resulting object and the price or consideration paid may be the same. The foregoing illustrations are rather easy. arisen. citing VILLANUEVA.

labor. 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. nevertheless. it is a contract for a piece of work. The jurisprudential doctrine that became the basis of Article 1467 therefore indicated that the term “upon special order” is . held that the distinction between a sale and a contract for work. or a thing which would have existed and been the subject of sale to some other person. thus: ART. Article 1467 of the Civil Code gave the statutory rules in distinguishing a sale from a contract for a pieceof-work. In that case. since it was proven customary to sell hemp in bales. employing language similar to the Inchausti & Co. or. 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. at least. to cover contracts for piece-of-work.22 LAW ON SALES price it received from bailing the hemp that it sold to its customers. the Court held that the hemp was in existence in baled form before the agreements of sale were made. ruling. and not for the general market. but if the goods are to be manufactured specially for the customer and upon his special order. 1467. A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market whether the same is on hand at the time or not. and that it would have been baled. Inchausti & Co. for sale to someone else. would have been in existence even if none of the individual sales in question had been consummated. (n) which gives two tests for distinction: (a) Manufacturing in the ordinary course of business to cover sales contracts. and (b) Manufacturing upon special order of customers. Subsequently. even if the order had not been given. is a contract of sale.

. . the underlying relationship would be that of a contract for a piece-ofwork.e. 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. door and window factory as a manufacturer-seller (i. (b) That the products were made only when customers placed their orders. and that it was actually a manufacturer. In Celestino Co v. Collector of Internal Revenue. for it was obvious that fulfilling the order. sales tax). windows and doors.100 a duly registered co-partnership did business under the trade name “Oriental Sash Factory. The Court held that the company could not claim the lower contractor’s tax.e. The company averred and adduced evidence to show that since it manufactured sash. in 1952 it began to claim tax liability only to the lower contractor’s tax (i. only required the employment of such materialsmoldings..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. panels as it ordinarily 100 99 Phil. Notice that in Celestino Co the thrust of the taxpayer position in the implementation of the “upon special order” test was more of timing. 841 (1956). did not alter the nature of the establishment. 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. taking into consideration the following: (a) The Company habitually made sash. for a piece-of-work). frames. with its sales subject to the higher sales tax.” Although in previous years it paid the higher sales taxes on the gross receipts of its sash. its contractual relations with its customers was that of a contract for a piece-of-work. as it had represented itself as manufacturer (factory) in its stationery and in advertisements to the public.

159 SCRA 199 (1988).” 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. Arnoldus Carpentry Shop. at p.”101 Celestino Co implies that the test of “special orders” under Article 1467 of the Civil Code is not one of timing. 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. 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. Inc. 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. and (c) The nature of the products manufactured was such that “[a]ny builder or homeowner. may order windows or doors of the kind manufactured. or habit. . and they would require the use of extraordinary skills or equipment.24 LAW ON SALES manufactured or was in a position to habitually manufacture. The principles of Celestino Co were reiterated in the later decision in Commissioner of Internal Revenue v.102 101 102 Ibid. if to be performed by a manufacturer.” In that case. with sufficient money. 846. 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.” and it was not true that it served special customers only or confined its services to them alone. It also conceded that if the company “accepts a job that requires the use of extraordinary or additional equipment.

it is a contract of sale. and that just because the thing came into existence after. even though it may be entirely made after.” In resolving that EEI was a contractor and therefore subject only to the lower compensating tax. Engineering Equipment and Supply Company.”105 By the foregoing test. the Court held that “[t]he distinction between a contract of sale and one for work. and in consequence of. does not necessarily qualify the underlying transaction to be a contract for a piece-of-work. which was engaged in the design and installation of central type air-conditioning system. 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. at p. 597. In countering the assessment. and was motivated to be produced by reason of.103 the Engineering Equipment and Supply Company (EEI). 103 104 64 SCRA 590 (1975). and no change or modification of it is made at defendant’s request. instead of the compensating tax it paid as a contractor. but a contractor engaged in the design. Engineering Equipment confirms the abandonment of the timing application of the “upon special order” test under Article 1467.NATURE OF SALE 25 In Commissioner of Internal Revenue v. EEI claimed that it is not a manufacturer and seller of air-conditioning units and spare parts or accessories thereof. was assessed the advance sales tax for its importation of parts and materials as a manufacturer and seller of the central airconditioning system. “which is essentially a tax on the sale of service or labor of a contractor rather than on the sale of articles subject. Ibid.”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. a specific order. . 105 Ibid. the defendants order for it. 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. supply and installation of the central type of airconditioning system.

and does not need to employ extraordinary skills and equipment. do not prevail. as not merely one of timing of the flow of the transactions. the purpose for which the various air conditioning areas are to be used. . “taking into consideration in the process such factors as the area of the space to be air conditioned. and other electrical appliances which are or may be in the plan. In addition. both Celestino Co and Engineering Equipment established the proper application of the “upon special order” test under Article 1467. at p. Take for example. it could not do so because of the variable factors that had to be taken into consideration. The Court noted that EEI undertook negotiations and execution of individual contracts for the design. lighting.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. by looking at the other facts in Engineering Equipment. we are also able to deduce that some of the other tests. Taken together. if we look 106 Ibid. 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. And yet. that would classify the underlying transaction as a sale. and the sources of heat gain or cooling load on the plant such as sun load. In that case it was held that when the manufacturer engages in the same activity in the ordinary course of business. supply and installation.” 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. to determine whether the contract is a sale or for a piece-of-work.”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.” when it took into consideration the nature of execution of each order. the habituality test enunciated in Celestino Co. including the statutory ones. 598. the number of persons occupying or would be occupying the premises.

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

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

112 a. Civil Code. 1891 and 1897. the seller warrants. In sale.115 However. Civil Code. a contract of agency to sell. From its very nature. 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. In sale.113 even in the presence of an irrevocability clause. the agent is not obliged to pay the price. 115 Art. Involving obligations to do (i. after delivery. contracts of agency to sell or to buy are essentially different from sales. and is merely obliged to deliver the price which he may receive from the buyer. 1868. and one characterized as highly fiduciary. because the object of the agency arrangement is the purchase or sell of a determinate object. to represent the principal). in an agency to buy. a person binds himself to render some service or to do something in representation or on behalf of the principal. the agent does not become the owner of the thing subject of the agency. the buyer. because it covers an underlying fiduciary relationship. sale is not unilaterally revocable. the buyer himself pays for the price of the object.e. Civil Code. Arts. in an agency to sell. 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. even if the object is delivered to him. 1919 and 1920. which constitutes his main obligation. 4. is not governed by the Statute of Frauds. 1897. unlike a sale.NATURE OF SALE 29 Finally a contract for a piece-of-work. 112 113 Art.. Civil Code. whereas. there is a tendency to confuse one with the other. 114 Arts. with the consent or authority of the latter.114 In sale. becomes the owner of the subject matter. Nevertheless. in an agency. From Agency to Sell or to Buy By the contract of agency. is essentially revocable. .

Art.30 LAW ON SALES it is legally possible for an agent or a broker to voluntarily bind himself to the warranties of the seller. v. and that said obligations were implied from the commercial agency or at least were instructed and disobeyed. to keep the beds on public exhibition. 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 was obliged under the contract to pay for the beds within a specified period after delivery even when not yet sold. 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. Quiroga subsequently sought the rescission of the agreement claiming that Parsons. In Quiroga v. the essential clauses of the whole instrument shall be considered. 118 38 Phil. and to order the beds in dozen and in no other manner. Parsons. . in an agency to sell. However. RJL Martinez.118 plaintiff Quiroga granted to defendant Parsons the right to sell as an “agent” the “Quiroga beds” in the Visayas. Inc. 116 117 Schmid and Oberly. and to pay for the advertisement expenses incurred. Civil Code. and any profit received should pertain to the principal.117 b. 166 SCRA 493 (1988).116 Finally. at a discount of 25% as commission for the sales. to open an establishment in Iloilo.” The Supreme Court has identified what constitute the “essential clauses” to warrant a conclusion as to the proper nature of the contract in issue. Except for the ordering the beds in dozens. in other words. the agent is disqualified from receiving any personal profit from the transaction covered by the agency. had violated its obligation not to sell the beds at higher prices than those of the invoices. as agent. he invoked the essential revocability of agency as his legal basis to rescind the agreement. 501 (1918). 1891. Quiroga insisted that Parsons was his agent. because of the fiduciary nature of the relationship.

” 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. and that Puyat had received a discount from Starr Piano Company. he returns it. Inc. at p. and not what it is called by the contracting parties. v. 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. it sought to 119 Ibid. and. 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. on the part of the defendant. and if he does not succeed in selling it. revoke) the contract therefore depended on whether it was one of sale or agency to sell. 506. Later. if the defendant so preferred. 402 (1941). the parties designated the arrangement as an agency did not mean the characterization to be conclusive. Ibid. 121 72 Phil. to pay their price. Arco Amusement Company. but delivers to the principal the price he obtains from the sale of the thing to a third person. 505. at p.NATURE OF SALE 31 Whether Quiroga could rescind (i. when Arco found out that Puyat had quoted to Arco not the net price but the list price. 120 .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.. 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. at the plaintiff’s request. on receiving the beds. By virtue of the contract between the plaintiff and the defendant. “[b]ut it must be understood that a contract is what the law defines it to be. or before.e. was necessarily obliged to pay their price within the term fixed. or in cash.”120 In Gonzalo Puyat & Sons. and does not pay its price. the latter.

” 123 72 Phil. as the provision is only an additional price which Arco bound itself to pay. 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. 124 Ibid. Being a contract of sale and purchase. such as change in prices. and which stipulation was not incompatible with the contract of purchase and sale. but rather a sale. any benefit or profit received from the transaction must inure to Arco. 125 Ibid. the same did not necessarily make it an agent.”124 The Court held that such stipulation “is incompatible with the pretended relation of agency between the petitioner and the respondent. and found that the letters between the parties clearly stipulated for fixed prices on the equipment ordered. 407 (1941). 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. as the principal. loss of the goods not covered by insurance or failure of the Starr Piano Company to properly fill the orders as per specifications. Firstly. the Court looked into the provisions of their contract. Every stipulation exempting the agent from the obligation to render an account shall be void. 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. 402. even though it may not be owing to the principal.”125 Although under their agreement. the plaintiff (respondent) might still legally hold the defendant (petitioner) to the prices fixed. the Court also did not sustain the allegation of fraud by Gonzalo Puyat & Sons against Arco.”123 The Court held that “whatever unforeseen events might have taken place unfavorable to the defendant (petitioner).32 LAW ON SALES recover the same under the premise that being only its agent. it held that “the contract is the law between the parties and should include all the things they are 122 Art. 1891 of the Civil Code provides: “. . because in agency. Gonzalo Puyat & Sons was entitled to receive 10% commission. . .122 In construing that the underlying contract between Arco and Puyat was not an agency to buy. mistake in their quotation.

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

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

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

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

544 SCRA 369 (2008). Vda. Court of Appeals. Philippine Acetylene Co. 144 Bank of Philippine Islands v. East West Banking Corp. v.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. De Jayme v. 377 SCRA 341 (2002). as when re-possession of the subject matter of a trust receipt is only by way of security.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. for consent to dacion is an essential elements. that the pre-existing obligation is thereby extinguished.145 In one case. especially when it is a bank.”143 The legal effects of a dacion en pago come into effect only when both the debtor and creditor agree to the terms thereof. Court of Appeals.. SEC. Inc. 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.. there is no dacion. Atlantic Gulf and Pacific Company of Manila. When there is no such transfer of ownership in favor of the creditor.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. 111 SCRA 421 (1982). Inc. it ought to know. Quoting from the earlier decision 374 SCRA 332 (2002). 147 553 SCRA 677 (2008). 541 SCRA 294 (2007)... v. San Agustin. 145 Estanislao v. 390 SCRA 380 (2002). See also Filinvest Credit Corp.. since it is essential that the transfer must be accompanied by a “meeting of the minds between the parties on whether the loan .. and must abide by the legal consequence thereof.142 where the Court held that a transfer of property between debtor and creditor does not automatically amount to a dacion en pago. 143 142 . 146 First Global Realty v. It must be noted that there is an implication in Social Security System v.144 But once the creditor agrees to a dacion. would be extinguished by dacion en pago.

.149 The Court in Atlantic Gulf went on to rule that “This statement unequivocally evinces its consent to the dacion en pago . 553 SCRA 677.. Civil Code. since the ruling only centered around which tribunal had jurisdiction on such cause of action. 686. In any case. De Jayme v. and for a period which may be definite or indefinite. common consent if an essential prerequisite.38 LAW ON SALES in Vda. lies in the non-implementation of the approved and agreed dacion en pago on the part of the SSS.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. Court of Appeals. The controversy. to have the effect of totally extinguishing the debt or obligation. In its modern concept. a suit for specific performance and one incapable of pecuniary estimation beyond the competence of the Commission. 151 Art. respondents filed a suit to obtain its enforcement which is. 6. underscoring supplied.. .”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. instead. at p. From Lease In a contract of lease. be it sale or novation. 152 Arts. 150 553 SCRA 677. As such. Civil Code.. 1643. doubtless. 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. at pp. 1484 and 1485.152 It may be stipulated in such contract that the lessee has the option 148 149 390 SCRA 380 (2002). the lessor binds himself to give to another (the lessee) the enjoyment or use of a thing for a price certain.148 Atlantic Gulf which part held: . 686-687.

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

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

371 SCRA 360 (2001). 11 Art. INSANE OR DEMENTED PERSONS.13 1. 12 Art. the absence thereof cannot give rise to a valid 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. contracts entered into by such legally incapacitated persons are not void. AND DEAF-MUTES Generally.” The Title on Sales in the Civil Code specifically provides that although a minor is not capacitated to validly enter into a sale. he must pay a reasonable 7 8 Art.8 Nonetheless. 1397. except insofar as he has been benefited by the thing or price received by him. Civil Code. minors. Necessaries A minor is without legal capacity to give consent to a sale. 3128.11 whereas. 371 SCRA 360 (2001). but merely voidable.10 Contracts entered into during lucid intervals by insane or demented persons are generally valid. 9 Art. 1399. 13 Art. Civil Code. subject to annulment or ratification.14 nonetheless. meaning “valid until annulled.7 and therefore are disqualified from being parties to a sale. and deafmutes who do not know how to write. 1393. those entered into in a state of drunkenness. Civil Code. Civil Code. are merely voidable. “[w]here necessaries are sold and delivered to a minor or other person without capacity to act. 14 Labagala v. 10 Art.PARTIES OF A SALE 41 MINORS. insane and demented persons. 1328.12 When the defect of the contract consists in the incapacity of one of the parties. and since consent is an essential requisite of every contract. have no legal capacity to contract. Santiago. Civil Code. Labagala v. Santiago. . Civil Code. emphasis supplied. or during a hypnotic spell. 1327. the defective consent gives rise to a voidable sale. the incapacitated person is not obliged to make any restitution.

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

6809. Paulina Rigonan was already of advanced age and senile. barely over a year when the deed was allegedly executed . at the time of the execution of the alleged contract. 236.. The unrebutted testimony . 3.”17 Emancipation would terminate parental authority over the person and property of the minor. Family Code. Act No. Court of Appeals. shows that at the time of the alleged execution of the 17 18 Art. since by merely reaching 18 years of age.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... 234.19 rendering emancipation by marriage at the age of 18 years inutile. 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.” but also on the findings of the Court that — .. Under the present Family Code. even without marrying.. Family Code. which is now legally impossible. but before copies of the deed were entered in the registry allegedly [much later]. . Voluntary emancipation by registration of the public instrument requires that the minor be at least 18 years old. 20 367 SCRA 368 (2001).. She died an octogenarian .. marriages entered into below eighteen years of age are void.18 including validly entering into contracts of sale. because at eighteen years of age there is no longer a minor who may be voluntarily emancipated. 19 Arts. 2 and 5. 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. who shall then be qualified and responsible for all acts of civil life..PARTIES OF A SALE 43 years of age. one is already of legal age.. which was repealed by Rep. Art... . Family Code.

and firmly protecting her property rights then she is undeniably incapacitated.” which gives rise only to an action for rescission or specific performance. that Paulina played with her waste and urinated in bed. and that the deed was merely forged. advanced age. which constitute only vice in consent. . namely: (a) Incapacity to give consent (senility.. and serious illness). we are in agreement with the trial court’s finding and conclusion on the matter.. Paulina was already incapacitated physically and mentally. However. 380. Thus. Moreover. 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.44 LAW ON SALES deed. there is no receipt to show that said price was paid to and received by her. when such age or infirmities have impaired the mental faculties so as to prevent the person from properly.. and (c) That the consideration was “grossly and shockingly inadequate. at p. and would render the contract merely voidable.” which under Article 1470 of the Civil Code “does not affect a contract of sale.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. It is unfortunate for Domingo to have declared the sale “void ab initio” on grounds that legally do not render it so. (b) That “price was never paid to and received. Ibid. except as it may indicate a defect in the consent. intelligently.”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. at p. or that the parties 21 22 Ibid. 380.

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

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

Court of Appeals. was held void ab initio because it was in contravention of the mandatory requirements of Article 166 of the Civil Code.” In another case. 30 Abalos v. In addition. under Article 124 of the Family Code.29 even when the property regime prevailing was the conjugal partnership of gains.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. a. or (b) when there has been a judicial decree for the separation of property. the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person. spouses cannot sell property to each other. Status of Prohibited Sales Between Spouses Contracts entered into in violation of Articles 1490 and 1492 are not merely voidable. but have been declared by the Supreme 28 Art. 2. Family Code.. since the resulting contract lacked one of the essential elements of “full consent. 291 SCRA 372 (1998). Jr. Guiang v.PARTIES OF A SALE 47 case. Article 1492 provides that the prohibition relating to spouses selling to one another is applicable even to sales in legal redemption. Sales Between Spouses Under Article 1490 of the Civil Code.28 In one case. 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. 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. 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. However. 29 . except: (a) when a separation of property was agreed upon in the marriage settlements. 96. it conceded that as an exception. compromises and renunciations. Macatangay.

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

would necessarily reduce the estate of the donor and increase the estate of the donee. do not make such exception in case of donations. (b) To avoid a situation where the dominant spouse would unduly take advantage of the weaker spouse. Article 133. thereby effectively defrauding the latter. being an onerous and commutative contract. the evils sought to be avoided under Articles 133 and 1490 are the same. 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. But unlike Article 1490 which exempts from its prohibition sales between spouses governed by the complete separation of property regime. 38 SCRA 284 (1971). and now Article 87 of the Family Code. and (c) To avoid an indirect violation of the prohibition against donations between spouses under Article 133 of the Civil Code. would result in the separate estates of the spouses being of the same value as before the sale and no fraud could result. either to the 36 Matabuena v. Cervantes.PARTIES OF A SALE 49 b. 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.” Therefore. . being a gratuitous contract. while a sale between such spouses. seeks to prevent the first two evils enumerated above. Article 133 of the Civil Code.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. which declares void every donation between spouses during marriage.

the dominant spouse may unduly influence the weaker spouse. sales between spouses governed by complete separation of property regime). a sale is not possible because there simply cannot be a purchase of what a party-buyer already owns. be defrauded. In a complete separation of property regime. the separate creditors of the selling spouses could equally. 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. 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. legally get away with it.. it would seem that the evils sought to be avoided also pertain to such situations. For in a complete separation of property regime. and with greater impunity. there is greater danger of undue influence or fraud in situations where the spouses are governed by the complete separation of property regime. Indeed. used this same reasoning in distinguishing the difference in effect between a sale and donation on the legitimes of forced heirs. if not with greater degree. 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. 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. c. or any other regime for that matter. there would seem to be greater risk that by allowing spouses to sell to one another. 404 SCRA 683 (2003). and indeed. 37 Manonsong v. . The position however. In addition. as the law allows.50 LAW ON SALES spouses or to their creditors.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. Estimo.e. where the spouses are bound only by their separate properties to their separate creditors and not to the creditors of the other spouses.

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

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.52 LAW ON SALES approach to the 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. 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. rather than of two lovers falling headover-heels for one another. either at the time of the execution of the marriage settlements. if a spouse takes time and effort to insulate his or her properties from the other spouse. In that case. Whereas. now Article 87 of the Family Code. the absolute prohibition under Article 133. After all. 38 38 SCRA 284 (1971). In the end. On the other hand. the sister of the deceased common-law husband. or would allow his or her properties to be involved in a suit covering the creditors of the other spouse. Applicability of Incapacity to Common Law Spouses In Matabuena v. or who during marriage would be cold-blooded as to agree and seek court separation of their properties. sought to annul the previous donation by the deceased during his lifetime to his then common law spouse. Cervantes. clearly indicates that it would be unlikely that one spouse would allow the other spouse to influence him or her.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. . or by judicial action during marriage. irrespective of their property regime. why would he or she later on involve himself or herself in the fraudulent manipulations of the other spouse. on donations between spouses. 3. should also be made to apply to sales between spouses. precisely to venture upon a future course of defraudation or being in a position to defraud either his weaker spouse or his separate creditors.

Fortun. 287-288. at pp.PARTIES OF A SALE 53 although the two subsequently married thereafter. but specifically because Article 1490 prohibits sales between spouses. that Article 1409 of the Civil Code declares such contracts void as being contrary to morals and public policy. 41 129 SCRA 675 (1984). reason and morality alike demand that the disabilities attached to marriage should likewise attach to [common-law relationship]. 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. Today.”39 In addition. so that the danger that the law seeks to avoid is correspondingly increased.” It held that “[i]f the policy of the law . bespeaks greater influence of one party over the other. . . 288. For it is not to be doubted that assent to such irregular connection . a basic policy in civil law. that would destroy the system of conjugal partnership. It was also designed to prevent the exercise of undue influence by one spouse over the other. .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. The Court held the donation to be void. the Court held that “[s]o long as marriage remains the cornerstone of our family law. . The Court gave the following reasoning for its ruling: And this is so because if transfers or conveyances between spouses were allowed during marriage. and not only because Article 1352 declares them void for having an unlawful cause. which is the cornerstone of family law. although Article 133 of the Civil Code considers as void a “donation between the spouses during the marriage. . then there is every reason to apply the same prohibitive policy to persons living together as husband and wife without the benefit of nuptials. 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. . at p. as well as to protect the institution of marriage. a prejudice deeply rooted in our ancient law . in Calimlim-Canullas v. Ibid. 40 .”40 In 1984.

otherwise. 1490 the husband and wife cannot sell property to one another as a rule which. then reconveyance is no longer available to common-law spouse. for policy consideration and the dictates of morality require that the prohibition apply to common-law relationship. 495.” Those provisions are dictated by public interest and their criterion must be imposed upon the will of the parties. 281 SCRA 491 (1997). at p. or of any government-owned or 42 43 Ibid. “the condition of those who incurred guilt would turn out to be better that those in legal union. (b) Guardian. (d) Public officers and employees. unless the consent of the principal has been given. at p.54 LAW ON SALES prohibition apply (sic) to a couple living as husband and wife without the benefit of marriage. (c) Executor or administrator. with respect to the property whose administration or sale may have been entrusted to him.42 Calimlim-Canullas ruling was reiterated in Cruz v. Court of Appeals. 680.”44 but that when registered property has been conveyed subsequently to a third-party-buyer in good faith and for value. 44 Ibid. with respect to the property of the person who is under his guardianship. with respect to the property of the estate under his administrations. . since under the Torrens system every buyer has a right to rely upon the title of his immediate seller. with respect to property of the State or any subdivision thereof. 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.43 but which held that “[a]lthough under Art.

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

108.” In the 1911 case of Wolfson v. 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. at p. or purpose is contrary to laws.50 covering the purchase by a lawyer of the property of his client under litigation. object.” In Rubias v. 147 (1929).”49 In other words.51 the Court discussed why it became necessary in Philippine jurisdiction to abandon Manresa’s position and consider such contracts as void. in Director of Lands v. 51 51 SCRA 120 (1973). 340 (1911). public order or public policy” or which are “expressly prohibited or declared 47 48 20 Phil. it does not state expressly that the resulting contracts are “void.47 the Court held that the sale’s “voidability can not be asserted by one not a party to the transaction or his representative. Later. 49 Ibid. Batiller. and not merely voidable. Citing Manresa Vol. 50 53 Phil. Estate of Martinez.”48 that “considering the question from the point of view of the civil law. 10. Wolfson had classified such contracts as being merely voidable or annullable. Abagat. .56 LAW ON SALES Article 1491 does not also state the legal consequences of having entered into contracts in violation of said article. i. p.. Now then as the code does not recognize such nullity by the mere operation of law. the view taken by the code. good customs. and not void. the Court cited two precedent cases decided in Spain holding such a contract as merely “invalid.e. 343. we must limit ourselves to classifying as void all acts done contrary to the express prohibition of the statute. 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. morals.

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

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

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. The rationale for the absolute disqualifications set by Article 1491. v. 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. If the contract is still fully executory. necessitates the annulment of the transaction. 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. the other party can simply set up the nullity as defense. Roldan.”58 c.”57 and that “If the contract has already been fulfilled. 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. but if any party should bring an action to enforce it.”59 57 58 Supra. Vol. . 59 Philippine Trust Co. 136 quoting from TOLENTINO. 99 Phil. stating that “[A]ny person may invoke the inexistence of the contract whenever juridical effects found thereon are asserted against him. at p.PARTIES OF A SALE 59 to the same subject matter and the same price. 392 (1956). 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. Idem. These are issues yet to be addressed by the Court. 578-579. b. and the trustee cannot be allowed to have any inducement to neglect his ward’s interest. is in line with “the general doctrine that each of [such relationships] is a trust of the highest order. no party need bring an action to declare its nullity. pp. IV.” and therefore to avoid “[t]he temptation which naturally besets a [person holding such a fiduciary position] so circumstanced.

317 SCRA 696. Ltd. Guardians. they are not prohibited to buy for themselves. the guardian 60 Modina v. 279-80 (1916). or to bargain for them. 392 (1956). in matters of trade. . administrators and executors are necessarily officers of the courts since they are appointed or confirmed to such position pursuant to judicial proceedings. Nolting and Garcia.. commerce or navigation.. the negotiation between other parties. Administrators and Executors Guardians. Meyer and Co. negotiating contracts relative to property with the custody of which he has no concern.”62 3. v.” 61 166 SCRA 493 (1988). 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. v. When the court authority was granted. therefore. .. quoting from Behn.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. on a commission. for others. the sale would still be void. a separate action may be brought to determine the question of ownership. at p. A broker is one whose occupation it is to bring parties together to bargain. 63 99 Phil.61 “[a] broker is generally defined as one who is engaged.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. 274. Court of Appeals. never acting in his own name but in the name of those who employed him.. Roldan. Consequently. In Philippine Trust Co.60 2. he is strictly a middleman and for some purpose the agent of both parties. 35 Phil. As held in Schmid & Oberly v. and to bring the former and the latter together to consummate the transaction. 501. RJL Martinez Fishing Corp. Agents “Brokers” do not come within the coverage of the prohibition as their authority consist merely in looking for a buyer or a seller. 62 Ibid.

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

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

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

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

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. 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. even when the very terms of the arrangement would grant to the lawyer an interest in the property subject of the litigation. although the subject property is the subject of a final judgment. .79 a.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. Cabanting.82 recognized that contingent fee arrangement is recognized under Canon 13 of the Canons of Professional Ethics. Ababa held: “A contract for a contingent fee is not covered by Article 1491 because the transfer or assignment of 79 80 Valencia v. In excluding contingent fee arrangement from the coverage of Article 1491. Ababa. 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. Vda. 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. the client is not without remedy because the court will amply protect him. Court of Appeals. 196 SCRA 302 (1991). the disqualification still applies. 427 (1956). 82 88 SCRA 513 (1979). Harden. Director of Lands v. 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. de Laig v. 100 Phil. 81 86 SCRA 641 (1978). Contingent Fee Arrangements Recto v.PARTIES OF A SALE 65 proceeding still pending.

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

negotiation and bargaining between the lawyer and the client on the property that was the subject of litigation would be on armslength basis. as it applies to lawyers cover only the period during which the property is still subject to litigation. if not void. 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. Perhaps. a contingency fee arrangement is simply an obligation subject to a suspensive condition. the “pendency of litigation” doctrine is sound mainly because when litigation has finally been terminated. 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. 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. then it is not covered “by the during the pendency of litigation” doctrine. may in fact be negotiated and bargained for between the lawyer and the client during the pendency of litigation. does the purchase become less reprehensible. a contingency fee arrangement actually puts two negotiators toe- . since the canons cannot override a direct statutory provision. If it is void and against public policy for a lawyer to purchase the property of his client under litigation. 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. After all. and no undue influence can be exercised anymore by the lawyer on the client. although effective and demandable only after litigation. Precisely. A contingency fee arrangement. and therefore would rightly be covered by Article 1491. not because contingent fee arrangements are recognized in the Canons of Professional Ethics. a period in which the lawyer would exercise moral and professional influence over his client. and the client legally and practically is no longer at the mercy of his lawyer.PARTIES OF A SALE 67 under Article 1491.

which is essentially still a monetary claim with the property subject of litigation not being sold or assigned to the lawyer. 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 are always subject to the courts’ discretionary review to ensure that clients are protected from over-bearing lawyers. It may be a case of two handicapped persons venturing together into the unknown. and the lawyer. but as a measure to determine the value of the attorney’s fee. 525.68 LAW ON SALES to-toe who are both handicapped. . and does not justify a particular contingency fee arrangement that directly grants to the lawyer proprietary interests in the property subject of litigation. 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. at p. since lawyers are officers of the courts. As held 86 Supra. or at least the uncertain. 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. and that contingency fee arrangement are not just contracts. make a contract for a contingent fee to be paid out of the proceeds of the litigation. 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. by the loss of the case. but no means with which to pay for legal services unless he can.’”86 But even that reasoning only supports a contingency fee arrangement in general. many otherwise meritorious causes of action would never find competent legal representation. even one that grants to the lawyer a proprietary claim on the subject matter of litigation. Without a contingency fee arrangement. the Court deems itself solicitous when it comes to contingency fee arrangement. Indeed. whose actuations are always subject to court supervision. with the sanction of law. In addition. 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.

Supra. who are also court officers. at p. at p. the Court does not hesitate to apply Article 1491 prohibitions to test the validity of such an arrangement.PARTIES OF A SALE 69 in Fabillo. 525. 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. nevertheless when the consideration for such service allows the lawyer to obtain ownership and possession of the client’s property in litigation. which essentially is a contract for service. 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. discussed in the next chapter. . the client is not without remedy because the court will amply protect him. —oOo— 87 88 Supra. not money-making. and yet jurisprudence does not allow exception to their contracts. administrators or executors.”87 Perhaps the only true justification is what Ababa held that: “Finally. Although a contingency fee arrangement has for its main subject matter the service of the lawyer. 37. “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. The final issue to tackle is why a contingency fee arrangement. 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. 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.”88 But even then such a safeguard is also present with respect to the prohibited contracts entered into by guardians. 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.

Lack of Any Requisite Results in Non-existent Sale When the subject matter agreed upon fails to meet the requisites above-enumerated. no remedy can be maintained. 1460. is important in considering the applicability of doctrines that pertain to void contracts (e. The issue of whether there is a void contract.7 or at least a. Civil Code. 1462. 1465. Civil Code. which would have 1 2 Art.5 in other words. 70 . or the resulting contract of sale would be void under various cases provided under Article 1409 of the Civil Code.1 having potential existence. 5 Art. 6 Art. 4 Art. Civil Code.” (b) It must be LICIT.2 a future thing. 1459. Civil Code.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. Civil Code.3 or even contingent4 or subject to a resolutory condition. 7 Art. Civil Code. Art. 3 Art. 1461. 1462.g..6 and (c) It must be DETERMINATE DETERMINABLE. 1462. the situation would either engender a “no contract” situation. Civil Code. also Art. and courts generally leave the parties where they are). it must be a “POSSIBLE THING. 1347 of the Civil Code.

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

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

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

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

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

things subject to resolutory condition may be the object of the contract of sale. Emptio spei typifies a situation where the commutative nature of a contract of sale seems not to be complied with. if the resolutory condition happens to extinguish the thing. but rather to emptio rei speratae. affirming the requisite of “possibility” of the subject matter as contrasted from an impossible subject matter. An example of emptio spei is the sale of a sweepstakes ticket. but rather the ticket. by buying a ticket. 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. upon the fulfillment of said conditions.00. shall return to each what . Is that not the same consideration when. 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. 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. one may be able to win a million pesos.” it should be noted that such condition does not really refer to emptio spei. or the chance to win.76 LAW ON SALES the government agency is a valid sale since it involves the sale of the a “future thing.00. Sale of Things Subject to Resolutory Condition Under Article 1465 of the Civil Code.” but really it was a sale subject to the condition that seller will acquire the property. the parties. and the buyer has no right to recover the amount paid for the ticket. if the ticket does not win. where the buyer purchases the ticket with the hope that upon the draw the ticket would win him. for say 5100. b. for say 5100. the sale is still valid. thus.00 bet. say for a 5100. 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. The object of the sale is not the prize. say a million pesos. However.

when the obligation imposes reciprocal prestations upon the parties. Subjecting the object of sale (i. In other words. 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 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.” The ruling in Gaite v. including an object of sale subject to a condition.” This default rule will thus preserve the commutative nature of sale. In determining how restitution could best be achieved between the parties. 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).SUBJECT MATTER 77 they have received. with the obligation on the part of the seller to return the price he has received thereby. the contract of sale is void. Fonacier. shall retroact to the day of the constitution of the obligation. otherwise. .e. once the condition has been fulfilled. or an existing contract of sale is extinguished.” and unless the stipulation is clear. 13 2 SCRA 830 (1961).13 should also be considered where it held that a contract of sale being an onerous and commutative contract. a clause should be interpreted as a term rather than as a condition. Nevertheless. d. Article 1187 provides that “The effect of a conditional obligation to give. under a free-market system. or a present object subject to a resolutory condition. that the rules of interpretation would incline the scales in favor of “the greatest reciprocity of interests. the fruits and interest during the pendency of the condition shall be deemed to have been mutually compensated. the subject matter must be existing or must come to existence to be delivered to the buyer..

Thus.78 LAW ON SALES This would emphasize that. Civil Code.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. Court of Appeals. 20 Art. Subject Matter Must Be Licit The subject matter of the contract of sale must be licit. This echoed the earlier observation of the Court in Commissioner of Internal Revenue v. Court of Appeals. 16 Art. but essentially constitute the delivery of the ownership and possession of the subject matter as an integral undertaking. like barter (which does not have the element of “price”). a distinction should be drawn between a sale of future hereditary 14 15 368 SCRA 691. and dacion en pago (which really is a mode of performance of a pre-existing obligation).21 However. the essence of a contract of sale is the meeting of minds that bring about the obligation to transfer the ownership.17 When the subject matter is illicit.18 The sale of animals suffering from contagious diseases. 17 Art. Even other contracts that are not strictly sales contracts. Court of Appeals.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. 271 SCRA 605. and deliver the possession. 617 (1997). . 1459. Civil Code. Civil Code. 18 Art. tend to be governed by the Law on Sales. 1347. 1409(1). 1575. as distinguished from other similar contracts. of subject matter. 1575. Civil Code. Tañedo v.16 A thing is licit and may be the object of a contract when it is not outside the commerce of men.” 2. 705 (2001). the Supreme Court in Polytechnic University v. the resulting contract of sale is void. and all rights which are not intransmissible.19 and those which are unfit for the use or service for which they are acquired as stated in the contract. Civil Code. 21 Art. 1347.20 is void. 19 Art. The sale of future inheritance is also void. Civil Code. 252 SCRA 80 (1996).

SUBJECT MATTER 79 rights and a waiver of an acquired hereditary rights. 31 Alonso v. 39 (1995). 323 SCRA 430 (2000). Act No. since the first presumes the existence of a contract of sale between the parties.. Inc.28 firearms and ammunitions. Rep. Some of them are those where subject matter is prohibited. Court of Appeals.29 and sale of realty by non-Christians. 2590. Rep. 145. Cebu Country Club. 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. 30 Sec. 25 Sec. is null and void.27 gunpowder and explosives. Act No. 1. 32 299 SCRA 695 (1998). 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. 29 Pres. 1120.22 Again. e. 28 Sec. 9.23 wild birds or mammals. 26 Rep.31 Quijada v. Act No.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.30 The sale of friar land without the consent of the Secretary of Agriculture required under Act No. Liao v. Act No. 7. Act No. 23 22 . narcotics. 24 Sec. even though it is determinate and existing and capable of actual delivery. 1. Act No. Therefore. Court of Appeals. the illegality of the subject matter. 1. Revised Adm. 428. Decree No.24 rare wild plants. Act No. 4252.25 poisonous plants or fruits.26 dynamited fish. and renders the sale void. Rep. 251 SCRA 30. or any other derivative mode of acquiring ownership. a. 1288. in favor of co-heirs. Court of Appeals. 27 Sec. undermines the demandability of the underlying obligation of the seller to deliver.g. 2255.. 3983. Code. Sales Declared Illegal by Law There are various special laws that declare certain sales contracts as illegal and therefore void. 6425. 375 SCRA 390 (2002).

Civil Code. cannot apply in this case. Determinate Subject Matter A thing is determinate or specific when it is particularly designated or physically segregated from all others of the same class. 1460.34 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. Catito. 36 Art. in that patrimonial properties of a local government unit. especially those conditionally owned by said unit. Subject Matter Must Be Determinate or at Least Determinable a. such as the open seas and the heavenly bodies. the maxim nemo cum alterius deter detremento protest (No person should unjustly enrich himself at the expense of another). as being outside the commerce of men. 406 SCRA 55 (2003). and under the doctrines ex dolo oritur actio and in pari delicto potior est conditio defendentis. Sales in violation of land reform laws declaring tenants-tillers as the full owners of the lands they till. 380 SCRA 306 (2002). neither a court of equity nor a court of law will administer a remedy. Gigantana. as well as 33 34 Ibid.35 3. It held that the “objects referred to as outside the commerce of man are those which cannot be appropriated. since the action is proscribed by the Constitution or by the application of the in pari delicto doctrine. 35 Siacor v. are null and void. The transactions was void ab initio for being in violation of the constitutional prohibition against aliens owning private land.”33 Frenzel v. . the basis upon which to enforce seller’s obligation to deliver. 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. Consequently.80 LAW ON SALES the commerce of men under Article 1409(4)” of the Civil Code.36 When the subject matter of a sale is determinate.

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

could be determined by simply referring to the Arellano plan. the exact area of the land needed. In essence. the requisite of being “determinable” is met when at perfection.39 it was held that where the lot is described to be adjoining the “previously paid lot” on three sides thereof. without the parties needing to draw-up a new contract. 313 SCRA 63 (1999).500. . it would actually render the sale void under Article 1409(6) because the original contractual intention of the parties cannot be determined. 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. In David v.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.” the object is deemed to be “determinable” and sufficient to support a valid contract of sale. Rodriguez. then it would undermine the very enforceability and demandability of the underlying obligation to deliver. 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.” which had long been in existence and it specifically provided for the land areas needed for the city hall site. 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. In San Andres v. Therefore. Rosita Venture-Muslan where she already paid the sum of 51.82 LAW ON SALES it specifically referred to such other portions of the lots required by the “Arellano plan. nor even to clarify matters or explain their intentions. Tiongson. which was the subject matter of the sale. without needing to get back to any one or both the parties of the object of their intention.00. When the formula requires the court to have to go back to the parties to determine their confirmation. and would run 39 40 332 SCRA 769 (2000). at the time of the perfection of the contract.

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

has complied with the characteristic of being determinable. the ability to enforce the obligation of the seller to deliver would be totally lacking. Court of Appeals. since quantity constitutes an essential ingredient to achieve the requisite of the goods being determinate or determinable. Without agreement as to quantity. the subject matter.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. If it were otherwise. and not by the mere lot number assigned to it in the certificate of title.” has been reiterated in Londres v. the nature and quality. the actual quantity of goods as subject matter of sale would also be essential in the meeting of the minds. When Quantity of Subject Matter Not Essential for Perfection The meeting of the minds on the identity. . although essentially generic or fungible. in its actual setting and by its physical metes and bounds.84 LAW ON SALES parties. it is what makes the subject matter determinate or at least determinable. 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.” Such characteristic prevents the seller from delivering something not within the contemplation of the buyer and perhaps much inferior than the price agreed upon. how much or how many of the described goods could be the object 42 94 SCRA 133 (2002). 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 at the same time. This is borne by the fact that when the nature and quantity of the subject matter is agreed upon. and perhaps superior compared to the price agreed upon. The doctrine that “one sell or buys real property as he sees it. it prevents the buyer from demanding the delivery of an object not contemplated by the seller. of the subject matter is essential for the purpose of perfection of sale. d. Logically.

Intermediate Appellate Court. being the palay grains produced in Soriano’s farmland and the NFA was to pay the same depending upon its quality. because such aspect go into the very core of such contract embodying the essential characteristic of mutuality or obligatory force. and although the exact quantity had not been agreed upon. it was provided in the agreement that the seller was allowed to deliver within a specified quota of 2. and to which NFA was obliged to comply and pay the purchase price for the grains actually delivered by the seller-farmer Soriano. The object of the contract. 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. 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.” 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 1460.43 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. This position is supported by Article 1349 of the Civil Code which provides that “every contract must be determinate as to its kind. In National Grains Authority v. The 43 171 SCRA 131 (1989). without the need of a new contract between the parties.SUBJECT MATTER 85 of an action for specific performance? Even granting arguendo that an action for specific performance is available against such a seller. Soriano initially offered to sell palay grains produced in his farmland to NFA.640 cavans. thus — In the case at bar. . provided it is possible to determine the same.640 cavans. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract. When the latter accepted the offer by noting in Soriano’s Farmer’s Information Sheet a quota of 2.

” In this case. On 24 December 1981. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract. not on December 29. however. we differ as to the exact date when it occurred. the buyer confirmed to purchase on the indicated prices and in fact issued a purchase order which.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. as in fact the quantities were confirmed latter on 29 December 1981. 1981.. 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.640 cavans. 227 SCRA 719 (1993). without the need of a new contract between the parties.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. Although the quantity to be ordered was made determinate only on December 29. description. . quantity is immaterial in the 44 45 Ibid.. thus — While we agree with the trial court’s conclusion that indeed a perfection of the contract was reached between the parties. at p. for perfection took place. v. Trading Corp. did not contain the quantities per unit but the buyer merely bound itself to submit the quantities about a week thereafter. but rather on December 24. Article 1349 of the New Civil Code provides: “. Court of Appeals. The Court held that a binding contract of sale existed between parties upon issuance of the purchase order. 136. part number. Soriano can deliver so much of his produce as long as it does not exceed 2. provided it is possible to determine the same. and not upon the confirmation of the buyer of the quantities covered by the order.45 the seller had made a formal offer on the following matters pertaining to engine parts: item number. 1981. quantity. unit price. In Johannes Schuback & Sons Phil.” and therefore complies with the requisite of being determinable. 1981.

provided that they fulfill the characteristic of being “determinable” at the point of perfection. and yet in the latter case at the time of perfection of the contract. but rather what is perfected is a preparatory contract to enter into a contract of sale. but unlike a contract of sale.46 However. or what is called in commercial parlance a “supply agreement. 1981. at p. 722. . the author disagrees with the rulings of the Supreme Court. The ruling in Johannes Schuback relied upon National Grains Authority. which essentially involves obligations “to do” (i. 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. The foregoing rulings in effect support the doctrine that certain generic objects may be the proper object of a contract of sale. at the moment of meeting upon the description. there is indeed a perfected and valid contract. would have at the perfection thereof goods whose quality and unit price would have been agreed upon by the parties. quality and unit price of the goods.” A supply agreement. much like a contract of sale. there was in fact a maximum quantity agreed upon. and terms of payment. but the parties have in fact come into an agreement as to the quality thereof and the price. these essential elements had already concurred. there is already a valid and binding contract. What is of importance is the meeting of the minds as to the object and cause.e. Thus. even when the exact quantity of the subject matter of the contract of sale has not been agreed upon. but it is an agreement to enter into a contract of sale. to 46 Ibid..SUBJECT MATTER 87 perfection of sales contract. In other words. show that as of December 24. 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. that the resulting contract is always a contract of sale. However. which from the facts disclosed.

like all other valid contracts. delivered no part of the sugar promised. Gonzales. v. who received payment. Although the sale of determinable generic thing is valid.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. . In Yu Tek & Co. since by definition generic object are never lost. however. 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. he interposed the defense of force majeure because he was not able to harvest any sugar in his plantation due to a storm. Gonzales. 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. 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. and non-compliance would constitute a breach of contract. e. then even generic things that fall within said definition can validly support a contract of sale. before such time. the obligation to deliver the subject matter can only be complied with when the subject matter has been made determinate. 384 (1915). and when a suit was brought against him to recover the amount paid and stipulated damages for breach of contract. without designating any particular lot of sugar or the particular source thereof. Generic Non-Determinable Objects Since “determinable” objects may be the valid subject matter of a sale. until the quantity agreed upon has been selected and is 47 29 Phil. Such an agreement. rather than real obligations to deliver and to pay. relativity and obligatory force. have the characteristic of consensuality. either by physical segregation or particular designation.88 LAW ON SALES enter into actual contracts of sale).

Article 1246 covers only “quality” of a generic subject matter. Neither can the debtor [seller] deliver a thing of inferior quality. Article 1246 of the Civil Code provides that “[w]hen the obligation consists in the delivery of an indeterminate or generic thing. Under Article 1409(6) of the Civil Code.SUBJECT MATTER 89 capable of being physically designated or appropriated.).” As one author has held. CIVIL CODE OF THE PHILIPPINES ANNOTATED. any generic subject matter would validly support a contract of sale. 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.” 48 PARAS. 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 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. Vol. whose quality and circumstances have not been stated. Again. 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. the contract is void. The purpose of the obligation and other circumstances shall be taken into consideration. so that when it is the “kind” and “quantity” that cannot be determined without need of a new agreement of the parties.” The courts therefore have power to set the appropriate quality of the subject matter of a sale when the same is determinable generic. 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 creditor [buyer] cannot demand a thing of superior quality. The article cannot be taken to mean that even when the subject matter is not determinable. at p. either by physical segregation or particular designation. IV (1994 ed. . 375.48 f.

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

Court of Appeals. 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.56 otherwise. 404 SCRA 74 (2003). 364 SCRA 523 (2001). Alcantara-Daus v. 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. the buyer acquires no better title to the goods than the seller 409 SCRA 438 (2003). 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.57 Article 1505 of the Civil Code provides that when goods are sold by a person who is not the owner thereof. he need not be the owner thereof at the time of perfection.54 affirmed the principle that a prior mortgage of the property does not prevent the mortgagor from selling the property. 56 Art. In fact. Seller’s Obligation to Transfer Ownership Required at Time of Delivery In general.55 Although the seller must be the owner of the thing in order to transfer ownership to the buyer. it is sufficient that he be the owner at the time of the delivery. 1459. de Leon. Civil Code. Civil Code. 4. and who does not sell them under authority or with the consent of the owner. Court of Appeals. 1462. he may be held liable for breach of warranty against eviction. Heirs of Severina San Miguel v. 55 54 . 57 Art.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. It also noted that the law even considers void a stipulation forbidding the owner of the property from alienating the mortgaged immovable. i.

however. People. it is likewise clear that the sellers can no longer deliver the object of the sale to the buyers. 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. Court of Appeals. the right to repurchase attached to the sale would also be void. Esguerra v. in Nool v. 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. 62 276 SCRA 149 (1997).92 LAW ON SALES had. nevertheless it held — In the present case however. and consequently.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.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. Civil Code. a. Conflicting Rulings Lately. Mananzala v. 13 CAR 113 (1968). . 60 108 Phil.62 the Court held that sale by one who is not the owner of the subject matter is void. Villacorta. 1078 (1960).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. 61 286 SCRA 722 (1998). provided he acquires title to the property later on. unless there is estoppel on the part of the owner. Court of Appeals. 1505.58 but this pertains only to the consummation stage of the sale and does not affect the validity of the contract itself. Hilltop v. as the buyers themselves have already 58 59 Art.

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

Indeed. Art. Citing Azcona v. 59 Phil. The principal obligation of a seller is “to transfer the ownership of” the property sold (Civil Code of the Philippines. even when stipulated at perfection.64 invoked the principle that — In a contract of sale. 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.65 NEMO DAT QUOD NON HABET. Therefore. 446 (1934). the seller not having complied with his obligation to delivery the subject matter.94 LAW ON SALES of a valid sale. his conventional right of redemption or repurchase never arose. the earlier decision in Noel v.. 456 240 SCRA 78. 88.67 thus — 64 65 240 SCRA 78 (1995). Noel did not say that the contract of sale is void if the seller is not the owner at the time of perfection. 66 67 . 33 Phil.” These principles have been summarized in Quijada v. unless there has been delivery of the subject matter to the buyer. an aspect of consummation. Coronel v. Court of Appeals. 299 SCRA 695 (1998). in the case of Nool. and essentially only after full consummation of the obligation of the seller to deliver the subject matter of sale. which concerned primarily the resolution of the issue of prescription. Court of Appeals.” 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. Ona. what it did say is that a seller cannot “dispose of that which does not belong to him. (1916). that redemption rights do not arise.. tended to go into the act of transferring ownership. 1458). In fact.66 A close reading of Noel. it is essential that the seller is the owner of the property he is selling. Reyes. rather than as a doctrine that pertains to the status of a sale upon perfection. This law stems from the principle that nobody can dispose of that which does not belong to him .

This is the reason why Article 2085 of the Civil Code. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. the sale is still valid. 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. price and terms of payment of the price. is obliged to pay the bid price in money or its equivalent. at p. in turn. Cavite Development Bank v. the forced seller. 68 69 Ibid. being a consensual contract. 696. . 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. under which the mortgagor in default.69 held that a foreclosure sale. becomes obliged to transfer the ownership of the thing sold to the highest bidder who. Spouses Cyrus Lim. is perfected by mere consent. 324 SCRA 346 (2000). in anticipation of a possible foreclosure sale should the mortgagor default in the payment of the loan. that the mortgagor or pledgor be the absolute owner of the thing mortgaged. 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.SUBJECT MATTER 95 Sale. requires among other things. in providing for the essential requisites of the contract of mortgage.68 b. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered. Being a sale. though essentially a “forced sale. 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. hence. the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale.” is still a sale in accordance with Article 1458 of the Civil Code.

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

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

607.1458 and 1468. even when the need to adjust the price of sale is due to increased construction cost. Court of Appeals. thus: “Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence of sale. 1308. 11 Arts. provided that valuable consideration is present. 345 (1911). Civil Code.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. because the “obligation to transfer ownership and deliver possession” of the subject matter is the more defining element of sale. Cromwell. 8 Art. In the same manner.7 otherwise. at p.”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.6 A seller cannot unilaterally increase the price previously agreed upon with the buyer. 6 5 . it must be VALUABLE CONSIDERATION).11 and Ibid. AFP Retirement and Separation Benefits System. 9 Bortikey v.e.. Inchausti & Co. thus: (a) It must be REAL. 228 SCRA 183 (1993). (i. Civil Code. Civil Code. 477 SCRA 511 (2005). 20 Phil.98 LAW ON SALES price” does not play a critical role in defining a sale. 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. 1471. 10 Art. it would be a violation of the essential characteristic of “obligatory force”8 of contracts of sale. 7 Government Service Insurance v.10 (b) It must be in MONEY OR ITS EQUIVALENT. v.

14 although the act may be shown to have 12 13 Art. Peñalosa v. the sale is void. and the non-payment of the price because of the refusal of the seller to turn-over the title to the bank.12 As in the case for subject matter for sales. b. must be real. 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. 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.PRICE AND OTHER CONSIDERATION 99 (c) It must be CERTAIN or ASCERTAINABLE. Santos. Price Must Be Real Since a contract of sale is an onerous and commutative contract. it is essential that consideration agreed upon. Ong.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. would not grant the seller the right to rescind the sale after the buyer has duly consigned the price with the courts. there is legal intention on the part of the buyer to pay the price. 367 SCRA 559 (2001). namely the price. a. then neither the contract of sale nor the price can be considered as wholly simulated. 363 SCRA 545 (2001). . When Price Is Real Price is “real” when at the perfection of the sale. Civil Code. commutative and bilateral-reciprocal characteristics of the contract of sale. for there was valuable consideration. 1458. 14 Yu Bun Guan v. It is also essential that the requisites for the price promote the onerous. 1. 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.

An absolutely simulated contract is void. v. Vda. which denies all recovery to the guilty parties inter se.100 LAW ON SALES been in reality a donation. Heirs of Catalina Roque. Reynes. In one case. such principle Art. 251 SCRA 430 (1995). de Catindig v. As discussed below. Civil Code. Lim. then it is a wholly simulated price. especially when evidence showed that the deed of sale was forged. Montecillo v. or some other contract.19 the Court held that the admission by the buyer that he did not pay any centavo for the property. In another case. and the parties may recover from each other what they may have given under the ‘contract. 17 Suntay v.’”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. 371 SCRA 360 (2001).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. Court of Appeals. Santiago. because the parties have no intention to be bound by it. 921 (1920). 385 SCRA 244 (2002). then the principle of in pari delicto nonovitar actio should apply. The Court has held that “[i]n absolute simulation. 18 Ibid. 16 15 . Heirs of Spouses Balite v. when in fact there has been no such payment. 19 Labagala v. Court of Appeals. 1471.20 When the price is completely simulated. Ladanga v. 446 SCRA 54. at p. has been considered to be an indication of simulation of price. 20 Perez & Co. 432. Flores.”18 and therefore considered the sale utterly void. 40 Phil. there is a colorable contract but without any substance. 131 SCRA 361 (1984). However. 74 SCRA 83 (1976). 67 (2004).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. and the underlying contract of sale is void for lack of consideration. the indication in the covering instrument that the price has been agreed upon and paid. The failure of the buyer to take possession of the property allegedly sold to him is a clear badge of fraud. made the sale void.

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

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

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

477 SCRA 666 (2005). Where the deed of sale states that the purchase price has been paid but in fact has never been paid.104 LAW ON SALES bought or payment of the price is not necessary for the perfection of the contract. Reiterated in Bravo-Guerrero v. Reiterated in Soliva v. a clause becomes a condition only when the terms of the agreement clearly make it so. Blas v. Bravo. . at p. Court of Appeals. in Montecillo v. The Intestate Estate of Marcelo M. 363 SCRA 545 (2001). 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. . either to seek specific performance or for rescission. 281 SCRA 176 (1997). The Intestate Estate of Marcelo M. Jr. 140. 40 Ibid. for a time. 439 SCRA 273 (2004). 411 SCRA 18 (2003). the non-payment of the price is a resolutory condition which extinguishes the transaction that. Court of Appeals. Reynes.”41 First. 417 SCRA 277 (2003). 417 SCRA 277 (2003). existed and discharges the obligations created thereunder. 41 Gil v. Villalba.42 the Court held — . Generally. 42 385 SCRA 244 (2002).”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. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission. Santos. 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. for which the vendor may exercise his legal remedies. Soliva v. at p. Carrascoso. the non-payment of the price constitutes a mere breach of contract that allows the seller. Failure to pay the consideration is different from lack of consideration. Ibid. also Peñalosa v. Angeles-Hutalla. 465 SCRA 244 (2005). Second. 39 38 . Lately. Villalba. at his option. v.39 also held: “In a contract of sale.”38 Heirs of Pedro Escanlar v. 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. 188. Court of Appeals.

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

But care should be made to distinguish between a simulated price that affects delivery. no title over the subject matter of the sale can be conveyed.000.47 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. With this arrangement.400. . Nemo potest nisi quod de jure potest — no man can do anything except what he can do lawfully. appellant was convinced he had a good bargain. as there was no consideration for the same. 269 SCRA 15 (1997). Traders Royal Bank v. g. xxx xxx xxx “It is plain that consideration existed at the time of the execution of the deed of sale with right of repurchase. at pp. . on the other hand.00 from her which impelled him to execute such contract. and the failure to pay the price. but also his receipt of 5420.00. and therefore void and inexistent. To ensure that he could repurchase his lots. It is not only appellant’s kindness to Josefina. by allowing his titles to be in possession of Tan for a period of six months. appellant actually accommodated Josefina so she would not be charged criminally by Tan. being his cousin. Court of Appeals. which does not affect the efficacy of delivery of the subject matter. Also. 46 47 Ibid. appellant secured her another check for 5420.. Unfortunately his expectation crumbled.”46 Mate is a prime example to show that even when undoubtedly the price stipulated in the covering instrument is simulated (i.00 from her. on one hand.000. 467-468.000. Simulation of Price Affects Delivery of Subject Matter When a contract of sale is fictitious. 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 51.106 LAW ON SALES “In preparing and executing the deed of sale with right of repurchase and in delivering to Tan the land titles.e. .

in Bagnas v. It had been proposed. and partly in another thing. allegedly acting for the Philippine Resources Development Corp.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.. but quoted from syllabus at p. 2. the transaction can still be considered a contract of sale when this is the manifest intention of the parties. Ibid. 921.g. 52 176 SCRA 159. a check or draft. and the failure to delivery the price was one of the indications to show its simulation. 53 102 Phil. even Article 1468 of the Civil Code recognizes that if the consideration of the contract consists partly in money. 921 (1920). In lieu of the balance of the purchase price. Resources Development.53 Apostol. 59-60.50 that Article 1458 “requires that ‘equivalent’ be something representative of money. 960 (1958).PRICE AND OTHER CONSIDERATION 107 Early on. Court of Appeals.. pp. 8. citing Manresa. e. but only a small payment of the purchase price was made. 50 176 SCRA 159 (1989). Phil. 166 (1989). 941-942. . at pp. In Republic v.49 The essence of the ruling is that there was never any real price agreed upon.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. Perez & Co. Flores. 51 Vol. v. (PRDC).”52 Nevertheless. contracted with the Bureau of Prison for the purchase of 100 tons of designated logs. in defining the obligation of the buyer. This shows that the consideration for a valid contract of sale can be the price and other additional consideration. Price Must Be in Money or Its Equivalent: “Valuable Consideration” Article 1458 of the Civil Code. though not resolved. provides that he must pay the price certain in money or its equivalent. 3rd ed. he caused to be delivered goods of the PRDC to the 48 49 40 Phil.

since Republic covers not the perfection stage of a contract of sale. 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. and for this reason.. 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. PRDC had no legal interest in the very subject matter in litigation as to entitle it to intervene.”54 The Court held that the Government’s contentions were untenable. as was the case in Republic. ruling that Article 1458 provides that the purchaser may pay “a price certain in money or its equivalent. is always paid in terms of money and the supposed payment being in kind. The Government argued that the goods which belonged to PRDC were not connected with the sale because “Price . 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.” which means payment of the price need not be in money. certainly PRDC would be affected adversely if its claim of ownership to such goods were upheld. 54 Ibid.108 LAW ON SALES Bureau of Prison as payment for the outstanding price. even by dation in payment. the term “equivalent” of price can cover other than money or other media of exchange.. it is no payment at all. 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. is for the court to pass upon and decide after hearing all the parties in the case. 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. Republic is not at all authority to say that under Article 1458. at p. . 965.

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.” Money being the highest form or representation of commercial value in society. Court of Appeals. Concept of “Valuable Consideration” Ong v. 368 SCRA 691 (2001).” 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). Adequacy of Price to Make It “Real”. it constituted valid cause or consideration to validate the sale and delivery of the land. cause or consideration that would promote the onerous nature of the contract of sale. In all. although an essential element of a valid contract.56 it was held that the cancellation of liabilities of the seller constitute valid consideration for sale. Ong. 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. being essentially a generic obligation. 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. a. that it must be supported by a “valuable consideration. . 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. 57 139 SCRA 133 (1985). In Polytechnic University of the Philippines v. therefore that other forms of cause or consideration which are “valuable” would support a valid contract of sale.57 considered the validity of a sale of real property where the consideration stated in the deed was “One Peso (51. Court of Appeals. may be subject to variations. whereas the price.PRICE AND OTHER CONSIDERATION 109 Torres v.00) and the other valuable considerations. removes any doubt that of what is “valuable consideration” and functions merely as the model of prestation. There is little doubt.

Court of Appeals. . In effect through Ong.” In any event. and no other true and lawful cause having been shown. it would not affect the validity of the contract of sale. would show that the price stated was “a false and fictitious consideration. and though they will state a false or nominal consideration in their covering deed. 58 Article 1354 provides: “Although the cause is not stated in the contract.00). 60 176 SCRA 159 (1989). and services rendered. being rendered and to be rendered for my [seller’s] benefit.00 was suspicious. although the actual consideration may have been much more.” In that case. such circumstance alone. such as a contract of sale. 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.” 59 Ibid. the Court finds both said deeds. it is possible for parties to a sale to agree on an adequate consideration. and what prevails in Philippine jurisdiction is that for consideration to support an onerous contract. it is presumed to exist under Article 1354 of the Civil Code.110 LAW ON SALES simulated. insofar as they purport to be sales. Moreover. 136. Philippine jurisprudence has not accepted the Anglo-Saxon concept that “any” consideration is enough to support a contract. Philippine Currency. the Court noted that the gross disproportion between the consideration stipulated and the value of the property.58 It held that the statement in the deed of the consideration of 51.00 is not unusual in “deeds of conveyance adhering to the Anglo-Saxon practice of stating a nominal consideration.60 which covered a sale of real property where the consideration stated in the covering deed was “the sum of ONE PESO (51.”59 The essence of the Ong ruling is that in our jurisdiction. provided that valuable consideration was in fact agreed upon. unless the debtor proves the contrary. at p. The ruling was affirmed in Bagnas v. not merely voidable. even assuming that said consideration of 51. it is presumed that it exists and is lawful. does not necessarily justify the inference [that the buyers] were not purchasers in good faith or for value. it would have to be “valuable consideration” under the Roman Law concept.

55 O.” 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 Therefore. The consideration is generally agreed upon as a whole even if it consists of several parts. 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. 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. since both the original deed and the supplement were signed by the parties. The Court held that the consideration appearing in the supplement must have been part of the consideration for the sale of the hacienda. The seller finally signed it when they agreed on further considerations which were embodied in the supplement (the second document). and even if it is contained in one or more instruments. the fact that no service was rendered would make the contract “void. 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. Arimas. In Arimas v. he refused to sign it at first because the consideration was too small. otherwise there would be no price certain. it would still be considered fictious and render the sale void if it is a mere nominal price.G. 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.PRICE AND OTHER CONSIDERATION 111 but void ab initio.62 the controversy was on the real terms of the sale of a hacienda. Bagnas should not be interpreted to mean that although the parties agreed that services was agreed upon to be part of the consideration. The seller averred that when buyer first came to him with the first document. 166-167. 8682 (1959). 61 62 Ibid.

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.e. 3.” Even before the fixing of the price by the designated third party. and such designation by itself makes the price ascertainable as to give rise to a valid contract of sale. in Barretto v. Price Fixed by Third Party The designation of a third party to fix the price is valid. it being sufficient for the latter purpose that the price is left to the judgment of a specified person. that the price will be fixed by the thirdparty designated by the parties. in order that the price may be considered ascertainable. Santa Marina.112 LAW ON SALES There would be no meeting of minds as to the consideration. a.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. or that the determination thereof be left to the judgment of a specified person or persons. To illustrate. albeit conditional. 63 64 Art. Under Article 1469 of the Civil Code. 26 Phil. a contract of sale is deemed to be perfected and existing. The fixing of the price cannot be validly left to the discretion of one of the contracting parties. even before the designated thirdparty had fixed a price there was already an existing contract of sale. . 200 (1913). i.. and the contract of sale could not be perfected. Civil Code. however. This affirms the proposition that money represents the best model of valuable consideration. 1473. such contract was a contract subject to a suspensive condition. In that case. it shall be sufficient that it be so with reference to another thing certain.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. as to prevent one party from unilaterally withdrawing from the contract.

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

grain. or in a particular exchange or market. The test of being determinable covers a of test of capacity: based on the formula agreed by the parties at the time of perfection. or in such exchange or market. and generally cannot be extinguished by fortuitous event. and it is not a generic obligation. Civil Code. the designation of a third party to set the price is allowed. 1472. 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. any money can be used to pay the price. On the other hand. Civil Code. could the subject matter be physically segregated or particularly designated by the courts without further agreement between the contracting parties.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. c. and other things shall also be considered certain.70 Therefore. Art. when the price fixed is that which the thing would have on a definite day. Tabora.71 68 69 Arts. 71 Art. Civil Code. provided said amount be certain. 13 SCRA 762 (1965). but rather a “species” obligation. liquids. 1460.114 LAW ON SALES the parties must have agreed on a subject matter which is determinate or determinable. 1458 and 1460. or when an amount is fixed above or below the price on such day. . the price which is the subject of the obligation of the buyer is essentially generic. 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 Lawyer’s Cooperative v.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. Price Ascertainable in Reference to Other Things Certain The price of securities.

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

. 81 1 SCRA 1180 (1961).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. AFP Retirement and Separation Benefits System. Ibid.82 where the parties had agreed on the determinate subject matter (a parcel of land). either in cash or installment.78 the Court pointed out that the buyer “was free to decide on the manner of payment [of the purchase price]. at p. for instance. Velasco v.. 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.” then such “acceptance” did not produce a binding and enforceable contract of sale.”80 Navarro v. at p. Since he opted to purchase the land on installment basis. Sugar Producer’s Corp. 80 Ibid. 515.81 held that when the manner of payment of the purchase price is discussed after “acceptance. and earned interest income therefrom. He cannot now unilaterally withdraw from it by disavowing the obligation created by the stipulation in the contract. Thus. there was therefore no complete meeting of the minds and there is no basis to sue on a “contract” that does not exist. and yet would be demanding a higher price if the purchase price were to be paid over a long stretch of time. Respondent vendor. Court of Appeals. 82 51 SCRA 439 (1973). 514. and the total 78 79 477 SCRA 511 (2005). could have deposited the same in a bank. had it received the full cash price. 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. in Bortikey v.”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.

The Court held that although part of the downpayment has been paid.000. Co v. held that although a downpayment had already been made by the buyer and received by the seller.85 although the parties had agreed on the real properties purchased and the price. then also. Uraca v. . despite the 45-day extension given by the seller. Court of Appeals. 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. Huang. If a price. can support a valid and binding contract of sale. v. 83 Reiterated in Limketkai Sons Milling. but not on the manner of payment of the agreed price. then the terms of payment are deemed to have been agreed upon and the sale would be valid.” being an integral part of the price. 255 SCRA 626 (1996). 85 336 SCRA 737 (2000). Court of Appeals.83 In Leabres v. Inc. such as when the fixing of the price is left to a third party. without any indication therein of the total purchase price of the land or of the monthly installments to be paid. Inc. Court of Appeals. However. The Court held that the receipt cannot be the basis of a valid sale.00. v. The point being made is this: that the “terms of payment. there was still no valid sale. 84 146 SCRA 158 (1986). 286 SCRA 76 (1998). but subject to the same condition affixed to the price. the receipt was merely an acknowledgment of the sum of 51.84 the main cause of action was based on a receipt issued for an alleged sale of the subject property. unknown to both parties. there was still no valid sale since the evidence showed that they failed to arrive at mutually acceptable terms of payment scheme. Court of Appeals. In San Miguel Properties Philippines. 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. would have the same requisites that the law imposes on price to support a valid contract of salecertain or at least ascertainable. 278 SCRA 720 (1997).PRICE AND OTHER CONSIDERATION 117 purchase price.

price is deem to be demandable at once. . Fernando.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.. under the species “an agreement to agree to enter into a contract of sale. 344 SCRA 492 (2000). 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. Velasco. In all other cases. is demandable at once. “[e]very obligation whose performance does not depend upon a future or uncertain event. A close reading of the rulings in Navarro. In each of those cases therefore.87 it was held that where there is no other basis for the payment 86 87 477 SCRA 173 (2005). In Development Bank of the Philippines v. 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. or upon a past event unknown to the parties.” which essentially constitutes obligations to do and not subject to an action for specific performance.” Therefore.118 LAW ON SALES On the other hand. 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. Under Article 1179 of the Civil Code. 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. a. Cruz v. and Leabres indicates clearly that in each of the cases. when the law supplies by default such terms. Court of Appeals. Sr.

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 Court could then have directed the trial court to fix the reasonable prices for the housing units already appropriated by the buyers. delivered by the seller itself. . when it was still clear that the final price had yet to be agreed upon. What is reasonable price is a question of fact dependent on the circumstances of each particular case.” Under the authority in Article 1474. he must pay a reasonable price therefore. 1474. 5. 295 SCRA 677 (1998). 88 89 Art.” Note that in such a case.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. 90 424 SCRA 147 (2004). the courts have authority to fix the reasonable price for the subject matter appropriated by the buyer. Civil Code. 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. or in any other manner.90 involving the sale of parcels of land by the NHA. if the thing or any part thereof has been delivered to and appropriated by the buyer. Court of Appeals. where possession had been turned over to the buyer which had introduced improvements thereon.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. However. The same ruling was reached in National Housing Authority v. on the ground that the evidence “shows that the price was merely an estimate. the author has looked critically at that portion of the decision in Raet v. Grace Baptist Church. Therefore. the contract is inefficacious.

which makes the contract entirely void. although it may still be saved as a donation where the consideration is shown to be pure liberility. up to Article 1473. 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. . 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.120 LAW ON SALES a. 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. the proposition of ejusdem generis to qualify Article 1474 only to situations where the price is certain or ascertainable would be totally inapplicable.” or in any other manner. the contract is inefficacious. which is the basis to apply the principle of ejusdem generis. namely Articles 1469 to 1473. or a specified formula. In other words. grain. which clearly implies the non-exclusivity of the provision only to sales of contract which are valid but rendered inefficacious. Under such scenario. etc. 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. especially when: (a) Articles 1469 and 1472 are not even consecutive articles and the non-joinder of the articles in-between is wholly arbitrary.. the phrase “preceding articles” in Article 1474 should be construed to refer to all articles preceding. would have no logical or legal basis. which prohibits the fixing of the price by any of the parties. 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. liquids based on a trading price). It also covers Article 1473 where the formula for the fixing of the price is left to the discretion of a party.

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

(2nd) 991. 261 S. 674. 149 Tenn. 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. 1014. and (b) The doctrine applies even when there is a “no contract” situation because of no meeting of the minds as to the price. at pp. 11 S.122 LAW ON SALES The ponente of Robles was Justice Street. 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. and the doctrine enunciated is common-law in nature. Stewart. William.W. and may also apply to void sale contract situation where the defect is as to the price. he cannot thereafter refuse to pay for it at that price. Caskey v. although there was a meeting of the minds as to the subject matter. And where the buyer accepts delivery knowing the price claimed by the seller. citing American case-law: If the terms of a sale are complete except for an agreement with reference to the price. Thus. where goods used by the buyer who knows the seller’s price for such goods.. the law implies a price equivalent to the reasonable value of the goods in cases where the buyer has appropriated the things sold.) Vol. citing Standard Coal Co. and not for the reasonable value of the goods. 227 Ky. Tolentino has the following discussions on Article 1474. Ross-Meehan Foundaries v. Nashville Bridge Co. Hence. 693. 73. he is liable for that price. V. . 13-14. CIVIL CODE OF THE PHILIPPINE (1959 ed. even if there is no agreement as to price.W. 269 Pac.94 There are two important points that can be drawn from the foregoing. v.

(Of course. take possession of. to take for oneself. 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 . and also because it would violate the essential characteristic of “binding effect” of every contract. and even if the subject matter has remained the same. if both buyer and seller agree to the return. and having treated thereafter the subject matter as his own. that would be valid since it would constitute “mutual withdrawal” which is one of the modes of extinguishing a valid contract. 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. especially when the buyer had already incurred expenses. which is coupled with tradition.PRICE AND OTHER CONSIDERATION 123 subject matter. even when it does not involve transformation. 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 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. including a contract of sale. and consequently. At that point a valid contract of sale is deemed to have come into being. the return is not “legally possible. 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. the “binding effect” of the contract is deemed to have kicked-in.” as it would amount to unilateral withdrawal from the binding effect of the contract. 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 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.

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. (b) There was an agreement that price would be paid which fails to meet the criteria of being certain or ascertainable. and that the best evidence to prove payment of the price is the official receipt issued by the seller. . We begin with the decision in El Oro Engravers v. even when applied only to movables. It may also be an indication that “appropriation” under Article 1474. Court of Appeals. 95 546 SCRA 42 (2008).124 LAW ON SALES price. of the subject matter of the sale. would necessarily entail a “transformation” of the subject matter of sale such that it can no longer be returned to its original state. 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. 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. and (c) There was delivery by the seller and appropriation by the buyer. Taking our cue from the rulings of the Supreme Court in Raet and NHA discussed above. as to warrant the fixing of reasonable price to prevent unjust enrichment.95 where the Court held that sales invoices are not evidence of payment since they are only evidence of the receipt of the goods.

with an understanding on a separate subsequent instrument that the balance would be financed through a financing company. which are considerations that would exclude the contract from the coverage of the Statute of Frauds.00). In Toyota Shaw. 98 244 SCRA 320 (1995).PRICE AND OTHER CONSIDERATION 125 In the case of Leabres v. The requisites of a valid Contract of Sale namely 1) consent or meeting of the minds of the parties.000.000. which covers only executory contracts.98 a written agreement was entered into between a prospective buyer of a vehicle and the sales representative of the car dealer. The receipt itself was evidence of partial execution of the sale. 3) price certain in money or its equivalent—are lacking in said receipt and therfore the “sale” is not valid nor enforceable. . 2) determinate subject matter.00 on a Toyota pickup.000. There was merely an acknowledgment of the sum of One Thousand Pesos (51. 165. Court of Appeals. the facts of the case indicate that not only was there partial payment of the price. 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). at p. Court of Appeals. Inc. There was no agreement as to the total purchase price of the land nor to the monthly installment to be paid by the [buyer].00. 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. 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. v. However. which provided and acknowledged a downpayment of 5100. but likewise the alleged buyer was given actual possession of the land. Basing its ruling on the language of the receipt. Ibid.97 Although not particularly referring to it.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.

The Coronel ruling is consistent with the doctrine that sale being governed by the Statute of Frauds.000. In Limson v. In Coronel v. 328. then the only conclusion that could be made was that there was no sale. 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. at p.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. Court of Appeals.00 as “partial payment” for the real property described by titles in the receipt. in Cheng v.00 made no specific reference to a sale of a vehicle.126 LAW ON SALES a downpayment of 5100. The provision on the downpayment of 5100.102 the receipt signed by the seller acknowledging receipt of the sum of 550. there being no reservation of any title until full payment of the purchase price.00 “earnest money” was part of the purchase price. 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.00. Court of Appeals.000. 102 300 SCRA 722 (1998). In contrast. 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. did not provide further stipulations as to the full contract price 99 Ibid. 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. Genato. 100 . with specific obligation to transfer the title upon full payment of the balance. 357 SCRA 209 (2001). The Court held that there was a perfected contract of sale.100 it was held that when there is nothing in the receipt to indicate that the 520. and indicating the balance of the purchase price. requires that the memorandum that would evidence the contract should contain all the essential requisites of the subject matter and price.000.000.

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. 738. 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. Inc. Court of Appeals. 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. Cheng contrasted the receipt from that was issued in Coronel thus: In Coronel. 291 SCRA 66 (1998). then a valid contract of sale should nevertheless exist and the only issue would be its enforceability under the Statute of Frauds.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. this Court found that the petitioners therein clearly intended to transfer title to the buyer which petitioner themselves admitted in their pleading. 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.103 Again. but the Court determined the binding effect of the sale based on the receipt that was issued. at p. the purchase price. .PRICE AND OTHER CONSIDERATION 127 or the manner of payment thereof. The agreement of the parties therein was definitely outlined in the “Receipt of Down Payment” both as to property. v. This is the same reasoning adopted in Xentrex Automotive. 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. a reading of the decision in Cheng nevertheless indicates that evidence was adduced to support the other terms of the contract to sell.

in material particulars. 107 349 SCRA 363 (2001). it obliged itself to sell to the buyer a determinate thing for a price certain in money. . when there has already been partial payment. 444 SCRA 61 (2003). Hooven Comalco Industries. order slips and invoices. it would not hurt if businessmen and traders would strive to make the receipts and invoices they issue complete. Tiongson. Certainly. in itself. We can only quote what the Court held in Lagon v.107 to remind us of the commercial importance of receipts and invoices.106 the Court held that the absence of receipts or any proof of consideration. the Statute of Frauds is not applicable because it only applies to executory and not to completed. these commercial forms are not always fully accomplished to contain all the necessary information describing the whole business transaction. Aquino. the rulings of the Court have not followed a consistent doctrine. to have sold the car subsequently to another buyer. executed. in David v. and without proper regard for any legal repercussion for such neglect. Likewise. In most cases.. 105 106 313 SCRA 63 (1999).0000. Inc. In Tigno v.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. When it therefore comes to treating the legal consequences of receipts embodying the price or the portion thereof.128 LAW ON SALES price. 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. which unfortunately has become a common business practice of traders and businessmen. or partially executed contracts. would not be conclusive of the inexistence of a sale since consideration is always presumed. and it was in breach of its contract. thus: We are not unaware of the slipshod manner of preparing receipts. as far as practicable. When the dealer of motor vehicles accepts a deposit of 550.00 and by pulling out a unit from the assembler.

the characteristic that the contract of sale is onerous is met whenever the consideration 108 109 Ibid. 111 40 O.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.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. unless fraud. at p. there is no requirement that the price given should be exactly the value of the subject matter delivered. As was discussed previously. Alarcon v.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.” Recently. . Court of Appeals. provides that “gross inadequacy of price does not affect a contract of sale.108 INADEQUACY OF PRICE Under Article 1355 of the Civil Code. See also Ereñeta v. 542 SCRA 397 (2008). p. 379. or undue influence indicative of a defect in consent is present. and would leave no room for bargaining and discounts. mistake. Article 1470 on contracts of sale. Kasilag. De Delfin v.”109 In one case. 15. Although sale is an onerous and commutative contract. it is provided that lesion or inadequacy of cause shall not invalidate a contract. unless there has been fraud.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. Supp. 110 Dorado Vda. 203 (1940). and except in cases specified by law.G. which governs contracts in general. or that the parties really intended a donation or some other act or contract. except as it may indicate a defect in the consent. 54 SCRA 13 (1973). Requiring a one-to-one correspondence between the value of the subject property and the price is difficult. 112 436 SCRA 141 (2004). mistake or undue influence. Bezore. Specifically. They are written memorials of the details of the consummation of contracts. Dollota. Bautista v.

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

if the latter should suffer lesion by more than one-fourth (1/4) of the value of the object of the sale. . the contract is simulated and void. 326 SCRA 285 (2000). and that the concept of a simulated sale is incompatible with inadequacy of price.118 has held that “simulation of contract” and “gross inadequacy of price” are distinct legal concepts. 290 SCRA 532 (1998).”119 2.117 1. Bravo. Private landowners ought to realize. 261. 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.PRICE AND OTHER CONSIDERATION 131 Even a threat of eminent domain proceedings by the government cannot be legally classified as the kind of imminent. thus: “When the parties to an alleged contract do not really intend to be bound by it. with different effects. that property rights must yield to the valid exercise by the state of its all-important power of eminent domain. and it does not even affect the validity of a contract of sale. . unless it signifies a defect in the consent or that the parties actually intended a donation or some other contract. 117 118 Babasa v. Distinguished from Simulated Price Bravo-Guerrero v. . Court of Appeals. and (b) Those agreed upon in representation of absentees. and eventually accept. 119 Ibid at p. 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. . Gross inadequacy of price by itself will not result in a void contract. A simulated or fictitious contract has no legal effect whatsoever because there is no real agreement between the parties. See also Loyola v. Court of Appeals. 465 SCRA 244 (2005). serious and wrongful injury to a contracting party as to vitiate his consent.

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

In Uy. . their motivation being to pay lower taxes on the transaction. the reduction 125 126 Olegario v. In Heirs of Spouses Balite v. The motive of the vendor (NHA). is to use said lands for housing. on the other hand. when the motive predetermines the cause. while that for the vendee is the acquisition of the land. 238 SCRA 96 (1994). as a rule. Court of Appeals. 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. 83.126 distinguished “cause” which is the essential reason which moves the contracting parties to enter into it.125 Uy v. thus: “The motives of the contracting parties for the lowering of price of the sale — in the present case. direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties. and “is the immediate. 129 446 SCRA 54 (2004). 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. which is the particular reason of a contracting party which does not affect the other party. 127 Ibid.129 where the parties to a sale agreed to a consideration. which covered a contract of sale of a piece of land. at p. 128 Ibid. The Court ruled: “Ordinarily. and when the primary motive is illegal.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.”128 under Article 1318 of the Civil Code defining the essential requisite of contracts. 81 (1999).PRICE AND OTHER CONSIDERATION 133 WHEN MOTIVE NULLIFIES SALE In a contract of sale. Court of Appeals. the Court ruled that the contract of sale remained valid and enforceable upon the terms of the real consideration. However. a party’s motive for entering into the contract do not affect the contract. but the amount reflected in the final Deed of Sale was lower. at p. the motive may be regarded as the cause. the sale is void because illegal motive predetermined the purpose of the contract. Lim. 85. consideration is.” from motive. 314 SCRA 69.

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

268 SCRA 160 (1997). v. 238 SCRA 602 (1994). 250 SCRA 523 (1995). which is process of fulfillment or performance of the terms agreed upon in the contract. v. Inc. which is the period of negotiation and bargaining. 2 Ang Yu Asuncion v. (b) PERFECTION or “birth” of the contract.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).. dealing with the 1 Toyota Shaw. 244 SCRA 320 (1995).”2 POLICITACION STAGE Policitacion or negotiation stage actually deals with legal matters arising prior to the perfection of sale. The stage of consummation begins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof. negotiation. Court of Appeals. Inc. 135 . Jovan Land. Limketkai Sons Milling. preparation. 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. The perfection stage of the contract takes place upon the concurrence of the essential elements thereof. Court of Appeals. and (c) CONSUMMATION or “death” of the contract. Inc. which is the point in time when the parties come to agree on the terms of the sale.. . Court of Appeals. conception or generation stage. v. ending at the moment of perfection.

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

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

41 Phil. it remains legally a mere invitation so long as it is addressed to the public at large. Villegas v. 2.14 If the offer is given for a period.16 and the offeree has no authority to treat it as consisting of separate and distinct parts. he has no choice to reject that portion of the offer which is disadvantageous and accept only that which is beneficial. 1324. In other words.” See also Manila Metal Container Corp.138 LAW ON SALES and binding sale. all of which must be complied with. 14 Laudico v. even without the general rule provided under Article 1325. PNB. place and manner of acceptance.12 it may be withdrawn or destroyed by the offeror prior to its acceptance. and may fix the time.” 13 Art. since such an advertisement (lacking at least one of the three requisites) would always not constitute a valid offer. 16 Art. 270 (1922). Court of Appeals.13 and it is not even necessary that the offeree learns of the withdrawal. 1323 of the Civil Code provides that “the offer may be withdrawn at any time before acceptance by communication such withdrawal. 671 (1916). 1321. Arias. 511 SCRA 444 (2006). since he must accept and comply with all the requirements provided in the offer. Prieto.15 The offeror has the right to attach to an offer any term or condition he desires. 17 Ibid. Civil Code. place and manner of acceptance. Offers An offer. Civil Code. 1320 of Civil Code provides that “The person making the offer may fix the time.17 The offeree has only the choice to accept or reject the offer in its entirety. Beaumont v. or when it is addressed to a particular offeree. the expiration of the period without further act or its withdrawal prior to acceptance would destroy the offer. Such 12 Art. and the exception comes in whenever it expressly provides that the first absolute acceptance shall be binding. Such view would make Article 1325 a surplusage. is subject to the complete will of the offeror. 43 Phil. prior to its acceptance. with no useful purpose to serve. . The better view to the author is that even when the advertisement contains a certain offer. 499 SCRA 276 (2006). 15 Art. v. the situation would be exactly the same.

which would then replace and repeal the original offer. the offer may be withdrawn at any time before acceptance by communicating such withdrawal. 19 Art. except when the option is founded upon a consideration. whereas. The offeree has the choice to indicate further negotiations by making a counter-offer. . A counter-offer is always considered in law a rejection of the original offer. An offer which has not been accepted absolutely would thereby be extinguished and cannot be further accepted. 1319. 183 (1916). insanity. which covers offers and acceptance in general. and in all cases.” 18 Logan v. Civil Code. 1323.18 and has the effect of extinguishing the original offer. civil interdiction. PNB.FORMATION OF SALE 139 an offer will be extinguished by the happening of the resolutory condition. an offer becomes ineffective upon the death. 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.”21 In connection therewith. or insolvency of either offeror or offeree.20 3. 20 Art. Philippine Acetylene Co. or the certainty that the suspensive condition will not happen. Civil Code. Manila Metal Container Corp. without need of further action on the part of the offeror.19 Finally. 33 Phil. Determining the “Location” of Options The second paragraph of Article 1479 of the Civil Code governing options.. as something paid or promised. 173. 21 Emphasis supplied. 511 SCRA 444 (2006). Option Contracts a. provides that: “When the offeror has allowed the offeree a certain period to accept. the conditional acceptance will constitute a counteroffer which must be accepted absolutely in order to give rise to a valid sale. Article 1324 of the Civil Code. v. or after the lapse of the period. before the acceptance is conveyed and received by the offeror.

but merely secures the privilege to buy.140 LAW ON SALES The exception would mean the opposite of what the previous phrase provides for. that is. 24 240 SCRA 565 (1995). for which he had paid a consideration and which gives him the right to buy certain merchandise or certain specified property. aside from the consideration for the offer. 25 See also Abalos v. but he does sell something. which should properly mean: When the option is founded upon a proper consideration. or which gives to the owner of the property the right to sell or demand a sale. Buot v. certain terms and conditions. but a sale of the right to purchase.” 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. 333 SCRA 643 (2000).22 defined an option contract as a privilege existing in one person. he does not then agree to sell it. Court of Appeals. v. from another person. Diaz. or under. Jr.. Macatangay.23 Adelfa Properties. Machuca. Court of Appeals. 202 SCRA 607 (1991). Inc. . at any time within the agreed period at a fixed price. Enriquez de la Cavada v. 982 (1918). It is also sometimes called an “unaccepted offer.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. 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. 357 SCRA 846 (2001). it has essentially become a “contracted offer. see also Villamor v. Definition and Essence of Option Contract Earlier. 23 Also Laforteza v. He does not sell his land. Court of Appeals. the right or privilege to buy at the election or option of the other party. if he chooses. it is not a sale of property. b. Until 22 37 Phil. then the offer may not be withdrawn at any time during the option period. 439 SCRA 649 (2004). or in compliance with.”25 Adelfa Properties emphasized that an option is not of itself a purchase.

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

Compared with Sale When compared to a sale. to be valid. Court of Appeals. even when the optionee has not paid the separate consideration. 336 SCRA 737 (2000). for it must have a separate consideration from the purchase price. since Article 1324 describes the separate consideration of an option as “something paid or promised. 33 Nool v.32 c.” More importantly. 357 SCRA 209 (2001). unlike a sale.142 LAW ON SALES separate agreement distinct from the contract which the parties may enter into upon the consummation of the option. An option without separate consideration from the offered purchase price is void as a contract. Spouses Syrus Lim. 32 Ibid. an option contract is an onerous contract like sale. or essentially a “valuable consideration. Huang. since only the optioner is obliged under an option contract. even when the separate consideration for the option itself has not been paid. Limson v. such a lease or a mortgage. 276 SCRA 149 (1997). there can be a valid option contract even when no separate consideration is paid by the optionee. since the meeting of the minds as to the subject matter and the price would also give rise to the option contract.” Although a separate consideration must exist for an option contract to be valid. it is essentially a unilateral contract. See also Cavite Development Bank v. v. at p. unlike in sale where it must be the price certain in money or its equivalent. but his exercise of the option does not necessarily depend upon his ability to pay the separate consideration. Inc. 34 San Miguel Properties Philippines.”34 An option contract is also a consensual contract. It is true that the optionee is obliged to pay a separate consideration for the option right. Characteristics and Obligations Constituted in an Option Contract. This is clear from the wordings of Article 1324 which describes the separate consideration of an option as “something paid or promised. 724.33 Consideration in an option contract may be anything of value. 324 SCRA 346 (2000). Court of Appeals. . as in the case when the option if included within another valid contract.

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

Court of Appeals. including the manner of payment thereof. since with the exercise of an oral option. d. prior to its valid exercise.38 except if there has been partial execution of the underlying sale. Since an option contract.” the third obligation may either be a personal obligation “to enter into a contract of sale. (ii) for a price certain. 161 SCRA 167.37 Although the first two obligations in a valid option contract are personal obligations “to do” and “not to do. 173 (1988). (c) PRESTATION: A consideration separate and distinct from the purchase price for the option given. 37 38 Ibid. or unaccepted unilateral offer to buy/accepted promise to buy: (i) a determinate or determinable object.” 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. 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 resulting sale contract itself would be subject to the Statute of Frauds and cannot be proved by oral evidence. is not a species of the genus sale. See Montilla v. and therefore can be proved by parol evidence. This leaves very little comfort.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. it is not covered by the Statute of Frauds. .

a deed of option was executed between the same parties over 39 Equatorial Realty Dev. v. determinate or determinable) and the price (i. that the option must have all the requisites required for subject matter (i. it must contain a price certain. Meaning of “Separate Consideration” Unlike in a sale where the price refers to cash or its equivalent (“valuable consideration”).FORMATION OF SALE 145 It is imperative therefore.39 Otherwise. possible thing. Court of Appeals. 45 202 SCRA 607 (1991). 336 SCRA 737 (2000). Civil Code. 44 Salame v..00 per square meter. certain or ascertainable.45 the buyers previously bought one-half of the parcel of land from the sellers at an agreed price of 570.42 e. it is void as an option contract. Inc. Inc. real. . 336 SCRA 737 (2000). 43 San Miguel Properties Philippines v.. in order that such a promise may be binding upon the promissor. when any of the requisites is missing. in an option contract the consideration may be anything or undertaking of value.40 ruled that in an option. Morato. v.e. 1479. an option contract by its statutory definition can only arise when the minds of the parties have met as to the specific object thereof. Court of Appeals. Huang. 264 SCRA 483 (1996). Inc. licit..” and therefore its consequences are very similar to a certain offer floated in the legal world. and its exercise would not result into a valid sale. 239 SCRA 356 (1995). 40 239 SCRA 356 (1994)..44 In Villamor v. even when the option is supported by a separate consideration. Subsequently. but like a contract of sale.e. 375 SCRA 209 (2001). Court of Appeals. 42 See also Art. the price and the manner of payment thereof. This emphasizes the point that a valid option contract is nothing more than a “contracted certain offer. Huang. Salame v. valuable.43 The more controlling concept is the “separateness” of such consideration from the purchase price agreed upon. 41 246 SCRA 540 (1995). Kilosbayan. Mayfair Theater.41 held that although an option to buy is not a contract of purchase and sale. San Miguel Properties Philippines v. with terms of payment stipulated). Court of Appeals. Limson v.

Dijamco v. 46 47 Ibid. the essential reason which moves the contracting parties to enter into the contract. 49 440 SCRA 190 (2004). like lease. 615. Court of Appeals. Villamor held that the consideration of the deed of option is “the why of the contracts.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. de Quirino v. which the Court considered to be fine. at p.00 per square meter “which was greatly higher than the actual reasonable prevailing price. the obligation or promise of each party is the consideration for that of the other. Palarca. When the deed of option was sought to be exercised thirteen years later.”47 and that such cause or consideration is clear from the deed itself. 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. was considered to be the separate consideration to hold the resulting option contract valid. 48 29 SCRA 1 (1969). Ibid.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. it was interposed by the sellers-offerors that the option was void for lack of consideration separate and distinct from the purchase price stipulated. so long as it was not part of the price to be paid for the other parcel of land.”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 570.48 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.

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

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

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

Even when an option is exercised within the option period by the proper tender of the amount due. Court of Court of Appeals. can only apply if the option has been accepted and such acceptance is communicated to the offeror. Court of Appeals.150 LAW ON SALES consideration.65 i. v.66 held that when the option contract does not contain a period when the option can be exercised. 131 (1960). 68 Dizon v. but valid as an offer). it cannot be presumed that the exercise thereof can be made indefinitely. . 107 Phil. Ibid.68 65 66 Dizon v.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. 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. 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. h. Court of Appeals. that the option contract not supported by a separate consideration. Under Article 1144(1) of the Civil Code. de Asis. Period of Exercise of Option Villamor v.e. it also held that the Sanchez doctrine (i. the right of option would prescribe. and thereafter. 67 Tuason. is void as a contract. and even render uncertain the status of the subject matter. 202 SCRA 607 (1991). Jr. In an earlier case. 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. 302 SCRA 288 (1999).. actions upon written contract must be brought within ten (10) years.

The lessor refused the exercise on the ground that it was made beyond the option period. Court of Appeals. Proper Exercise of Option Nietes v. 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. the lessee sent a written notice exercising his option to purchase.”71 Within fifteen days prior to the expiration of the lease period.800. 302 SCRA 718 (1999). Carceller v.000.00 x x x.69 held that in an option to buy. When the request was denied after the expiration of the lease period. 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). . In other words. 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. the leased premises therefor for the aggregate amount of 51. 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. and may even be viewed as an instance when the Court allowed the exercise of the option beyond the original option period. a Lease Agreement with option to purchase was executed which granted lessee the option to purchase the leased property “within the lease period. Court of Appeals. notice of the exercise of the option need not be coupled with actual payment of the price. In Carceller. 721.70 discussed “substantial” compliance with the exercise of an option. provided that the same is available and actually delivered to the offeror upon execution and delivery by him of the corresponding deed of sale. at p.FORMATION OF SALE 151 j. 71 Ibid. so long as this is delivered to the owner of the property upon performance of his part of the agreement.

152 LAW ON SALES leased premises under the option. 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. when private respondent opted to buy the 72 371 SCRA 295 (2001).. 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. Also significant in Carceller was the ruling of the Court that in a valid option contract. 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. The performance of one obligation is conditional on the simultaneous fulfillment of the other obligation . Effects of Exercise of Option In Heirs of Luis Bacus v. However. In essence. . and it is only then that the principle of substantial compliance would have relevance. k.. the acceptance or exercise of the option must still be made within the option period to give rise to a valid and binding sale. 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 purchase price would have to be the fair market value of the property at the time the option was exercised.72 the Court held that once an option is exercised: “The [o]bligations under an option to buy are reciprocal obligations. Court of Appeals. immediately after the lessee was informed of the denial of the request for the extension of the lease. and having invested very substantial amount to introduce improvements therein. Carceller sort-of recognized that notice within the option period of clear intention to purchase the property pursuant to such option. and the lessee had intended to purchase the leased premises. then the exercise of the option within a reasonable period after the end of the lease. In other words. with legal interests thereon.

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

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

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

he would first negotiate its sale to the promissee). But the fact that in the instrument the mortgagor undertook. would be the case of Guerrero v.. Rights of First Refusal One of the early cases that covered the situation of a right of first refusal (i. and even granted the remedy of specific performance requested by the optionee to compel the optioner to execute the covering Deed of Absolute Sale.e. If there should be any action accruing to [mortgagee] it would be a personal action for damages against [mortgagor]. Ibid. at p. 3. .78 where the promise was part of the undertaking of the mortgagor to the mortgagee. thus — The registration of the three instruments created a real right in favor of the mortgagee. such undertaking. 37 (1954). bound and promised to sell the parcel of land to the mortgagee.79 78 79 96 Phil. Yñigo.” 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. It is just a personal obligation of the mortgagor.. obligation or promise to sell the parcel of land to the mortgagee does not bind the land. the sale was legal and valid. 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. 42. discussed hereunder. [mortgagor] and not [mortgagee] would be the party entitled to bring the action for annulment. So that when [mortgagor] sold one-half of the parcel of land (the western part) . If [the buyer] contributed to the breach of the contract by [mortgagor]. the former together with the latter may also be liable for damages.. a promise on the part of the owner that if he decides to sell the property in the future. If [the buyer] was guilty of fraud which would be a ground for rescission of the contract of sale in his favor.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.

Bocaling & Co. 675. 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. 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. a contract otherwise valid may nonetheless be subsequently rescinded by reason of injury to third persons. v. even when the third-party buyer was entering into the purchase of the subject property in bad faith.80 The only remedy afforded to the promissee was an action to recover damages. 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. such as a lease. 82 Ibid. 81 206 SCRA 668. 526-527 (1996). Under Articles 1380 to 1381(3) of the Civil Code. In giving judicial recognition to the “right of first refusal” pertaining to transactions covering specific property. Bonnevie. 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. Bocaling & Co. the obligation or promise of each party is the consideration for that of the other. 264 SCRA 483. Inc. The Court effectively reversed itself in 1992 in Guzman. also held that it was incorrect to say that there was no consideration in an agreement of right of first refusal. v. 80 .”82 Guzman. since in reciprocal contracts. like creditors. 675-676 (1992). and failing to do so. for it is its duty to inquire into the terms of the lease contract. it has only itself to blame. but lessor subsequently sold the property to another entity..81 where the right of first refusal was included in a contract of lease. the Court distinguished it from either a sale or an option contract. under a right of first refusal situation. holding that “[t]he respondent court correctly held that the Contract of Sale was not voidable but rescissible..FORMATION OF SALE 157 Note that in Guerrero. Ang Yu Asuncion had the opportunity to revisit rights of first refusal. Inc. Mayfair Theater. at p.

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

500-502. 85 86 41 Phil. . such contractual stipulation which does not provide for a price certain nor the terms of payment. therefore. But it is not shown that there was any cause or consideration for that agreement. 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.. has no applicability. . or Article 1479 on promises to buy and sell. with regard to the stipulations made in the said document. thus — As early as 1916.85 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. for . . Prieto. among others. in order to be valid and enforceable. must. indicate the definite price at which the person granting the option. Ibid. The rule so early established in this jurisdiction is that the deed of option or the option clause in a contract. 670 (1916). pp. there can be no contract without the requisite.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. a meeting of minds on the part of the one and the other. among other things. . and this omission is a bar which precluded our holding that the stipulations contained . . the consideration for the lease includes the consideration for the right of first refusal. is willing to sell. in the case of Beaumont vs. is a contract of option.FORMATION OF SALE 159 property in the event the lessor should desire to sell the same. actually grants a right for first refusal and is not an option clause or an option contract. As such. . . 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.. There was. . of the cause for the obligation to be established. the requirement of a separate consideration for the option.

The latter remedy encourages multiplicity of suits. 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].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. 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. 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. This juridical relation is not amorphous nor is it merely preparatory. and thereby confirms the Ang Yu Asuncion doctrine that on its own. 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. . the obligation of [lessor] to first offer the property to [lessee] is embodied in a contract. Court of Appeals decision. and although no particular price was stated in the covenant granting the right of first refusal. In essence. This may apply here if the contract is limited to the buying and selling of the real property. It is Paragraph 8 on the right of first refusal which created the obligation. However. It should be enforced according to the law on contracts instead of the panoramic and indefinite rule on human relations. thus — Under the Ang Yu Asuncion vs. at the price when that offer should have been made. Paragraph 8 of the two leases can be executed according to their terms. [lessee] has to accept the offer. Also. 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. the resulting contract is rescissible by the person in whose favor the right of first refusal was given.

Parañaque Kings Enterprises.87 which held that the right of first refusal may be provided for in a lease 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.FORMATION OF SALE 161 a. v. and only under the same terms and conditions previously offered to the party with the right of first option. 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. thus — Therefore. 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.88 held that in order to have full compliance with the contractual right granting a lessee the first option to purchase the property leased. and that the Ang Yu Asuncion ruling would still apply. . and verbal grants of such right cannot be enforceable since the right of first refusal must be clearly embodied in a written contract. v. Inc. but subsequently the property was sold at sale of the property 59 Million to a third party. 741 (1997). 268 SCRA 727. it cannot be exercised. however. Martinez. 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). it became necessary for the seller to have gone back to the party with the right of first option at that higher price. The principle was affirmed in Sen Po Ek Marketing Corp. Court of Appeals. even when nothing of such requirement is provided for in their agreement. if the exercise of the option was offered at 55 Million which was refused. to rights of first refusal constituted as separate contracts. like a contract of lease. which anyway would be considered under the doctrines applicable to option contracts. when such right is not stipulated in the lease contract. that the ruling has no application.

91 held that a “right of first refusal is a contractual grant not of the sale of a property. 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. . Villegas v. a written notice was sent by the lessor 89 90 380 SCRA 245 (2002). with the lessee to enjoy the right of first priority. 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. if previous to the sale to the third party. especially. 91 499 SCRA 276 (2006). at p.89 held that “a lease with a proviso granting the lessee the right of first priority ‘all things and conditions being equal. Riviera seems to mandate the “written notice” rule applicable for the rescission and cancellation of contracts of sale. v. The lessor would then be at liberty to offer the sale to a third party who paid a higher price. Riviera Filipina. such sale should first be offered to the lessee. 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.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. as in the case of Riviera.’ meant that there should be identity of the terms and conditions to be offered to the lessee and all other prospective buyers. 259. Court of Appeals. 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. Inc. Court of Appeals. Ibid.”90 In addition. and there is no violation of the right of the lessee. Lately. especially when the complaint prayed for the annulment of the sale of the property to him.

93 Guzman. Bocaling & Co. Bonnevie. an enforceable right of first refusal does not need consideration for its validity and effectivity. v. Rosencor Development Corp. v.. since it is merely a stipulation in a valid principal contract. 94 392 SCRA 679 (2002).”95 The reasoning of the Court is rather strange considering that by its previous rulings. Conculada v. (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. . 206 SCRA 668 (1992). 368 SCRA 691 (2001). Bernabe. 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.93 b. 95 Ibid. Bonnevie. Court of Appeals. Polytechnic University of the Philippines v. 206 SCRA 668 (1992). 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.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.FORMATION OF SALE 163 to the lessee confirming that the latter has lost his right of first refusal. v. 685.94 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. 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. Various Rulings On Rights of First Refusal Contained in Lease Agreement (1) Rentals Deemed to Be Consideration to Support Right Lucrative Realty and Dev. Jr. Bocaling & Co. again under the same terms as offered to the grantee. Court of Appeals. Inquing. 367 SCRA 164 (2001). Corp. at p. 354 SCRA 119 (2001). v.

the eminent justice rightfully asked the question.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.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.98 4. Neither can the right of 96 97 Sadhwani v. Dizon v. 98 Ibid. if there could be a “breach of contract” of the right of first refusal. Inc. Proposed Doctrine on Option Contracts Vis-à-Vis Right of First Refusal Rulings a. by its very essence. Court of Appeals. Needless to point out. 99 264 SCRA 483. 396 SCRA 152 (2003). 531. the so-called “right of first refusal” is an innovative juridical relation. 281 SCRA 75 (1997). 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.”99 for lacking in any meeting of the minds as to the certain price for the determinate subject matter. . certain basic terms would have yet to be determined and fixed.. Court of Appeals. it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. 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. 100 Ibid. 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.97 The right to exercise the option to purchase expired with the termination of the original contract of lease. then the assignee would be entitled to exercise such right as he steps into the shoes of the assignor-lessee.

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

In a right of first refusal.. while the object might be made determinate. but that the remedy of rescission for breach of contract would be available which would allow recovery of damages under Contract Law.166 LAW ON SALES like much in the case of a valid option contract under Articles 1319 and 1479 of the Civil Code. 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. . Rights of First Refusal Vazquez v. Enforceability of Option Rights Should Be at Par With. because of the underlying public policy against involuntary servitude. and when the promissor has in fact negotiated in good faith. that are yet to be firmed 102 443 SCRA 231 (2004).102 distinguished an option from a right of first refusal. However. . The obligation is not to enter into a sale. The result would not be the same as that posited by Justice Vitug. 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. Ayala Corp. b.. If Not at a Higher Level Than. 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. 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. for a fixed period and at a determined price. its breach can never be remedied by an action for specific performance. or to decide whether or not to enter into a principal contract. since the underlying obligation in a “right of first refusal contract” is a personal obligation to do. the remedy of specific performance is unavailable by reason of the nature of the underlying obligation. .. including the price. but the parties’ minds could not meet on the price and the terms of payment. for the “right of first refusal contract” being valid and binding. the privilege to buy or sell. then promissor has complied with his obligation. . .

255. In the same manner.. if separate consideration has been received by the optioner for the grant of the option. Ibid. and would validate the rationale of Article 1324 of the Civil Code on why a separate consideration is required for a valid option contract.e. constituted of determinate subject matter. If the 103 104 Ibid. with separate consideration. he cannot withdraw the offer during the option period. the exercise of the option) by the optionee during the option period would still give rise to a valid sale over the subject property. 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. the ‘offer’ may be withdrawn anytime by communicating the withdrawal to the other party. This position seems to be affirmed in the recent ruling in Carceller. The better rule would be that in case an option is supported by a separate consideration. but that the rules on third party buyer in good faith should prevail. at p. at p. 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. Such a situation does not affect the above proposed rule since the acceptance of the offer (i. . Consequently. The Court should therefore revisit its ruling in Ang Yu Asuncion on option contracts.FORMATION OF SALE 167 up. 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.”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.103 . certain price.. can be withdrawn within the option period to remove any hope of an action to enforce a sale. 256. of having greater legal enforceability than option contracts which are supported by separate consideration. 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.

v. 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. Court of Appeals. Sr. rather than to sue for damages for breach of the option contract as held in Ang Yu Asuncion. 107 Tan Tiah v. 105 106 Spouses Doromal. This arrangement is recognized in one case105 by the Supreme Court. Art. if the third party buyer bought the property in good faith and for value.106 Even in this case the certainty of the price must also exist. 739 (1939).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.107 Such an arrangement would be the “true” contract to sell. would be the earnest money scheme. otherwise. . 1479. Yu Jose. whereby a sale is perfect upon the granting of 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. 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. 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. 66 SCRA 575 (1975). with clear option on the part of the buyer to withdraw from the contract by forfeiting the earnest money. 5. 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. there is no valid and enforceable contract to sell. 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. but wants to maintain an option to be able to get out of it later on. On the other hand. then he is protected by law. wherein the main obligation is a person obligation “to do. Civil Code.

and compliance therewith may accordingly be exacted. 109 202 SCRA 607 (1991). citing Art. 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. or damages for breach thereof where it is not possible to carry out its terms. 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.110 held that in an agreement to buy and sell.109 held that acceptance of the option offered. the offeree. Kroll and Co. 102 Phil.FORMATION OF SALE 169 On the other hand. Court of Appeals. The Court of Appeals in Gan v. Court of Appeals. which is an executory contract.. Inc. as long as the object is made determinate and the price is fixed. Reforma. . 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. 111 263 SCRA 15 (1996).111 where it held that: “In a contract to sell. 110 11 CAR 57 (1967). ipso facto assumes obligations of a buyer. and being personal obligations may not be enforced by specific performance. In the same manner. 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. Cua Hian Tek. Villamor v. 948 (1958). 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. 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. v. can be obligatory on the parties. Ang Yu Asuncion held that “[a]n unconditional mutual promise to buy and sell. 1459 and Atkins. upon the fulfillment of the suspensive condition which is the full payment 108 Supra.”108 which means that an action for specific performance is available.

115 Ang Yu Asuncion v. 113 Valdez v. Katipunan v. 238 SCRA 602 (1994). and the contract is binding upon the parties unless annulled by proper court action. to deliver and to transfer ownership of a thing or right to the buyer. violence. nor serve as a binding juridical relation. Mariano. for a price certain. the Court held that a “sale is at once perfected when a person (the seller) obligates himself for a price certain. Court of Appeals. Katipunan. 375 SCRA 199 (2002). This meeting of the minds speaks of the intent of the parties entering into the contract respecting the subject matter and the consideration thereof.115 112 Santos v. to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. .112 In succinct language. 344 SCRA 284 (2000). which when obtained would restore the parties to the status quo ante insofar as legally and equitably possible. 439 SCRA 55 (2004). over which the latter agrees and obligates himself to pay the price. Katipunan.” The various issues on the matter are discussed in greater details in Chapter 11.170 LAW ON SALES of the purchase price. Court of Appeals. it cannot be an independent source of obligation. In sales particularly.”113 Consent may be vitiated by any of the following: mistake. but they do not make the contract void ab initio but only voidable.114 Until a sale is perfected. 439 SCRA 273 (2004). intimidation. Heirs of Jose P. the contract is perfected when the seller obligates himself. 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. undue influence and fraud. ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. Angeles-Hutalla. Also Blas v. 114 Katipunan v. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale. 375 SCRA 199 (2002).

527 SCRA 562 (2007). National Grains Authority v. Navarra v. unequivocal. 344 SCRA 284 (2000).” which means that an “offer certain” is met by an Santos v.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. Planters Dev. involves a meeting of minds between two persons whereby one binds himself.119 held that “[F]or a contract. 118 Manila Metal Container Corp. like a contract to sell. are perfected by mere consent. with respect to the other. 175 SCRA 1 (1989). there must be a “meeting of minds. C & C Commercial Corp. at p. unconditional and without variance of any sort from the proposal. Heirs of Jose P. and the acceptance absolute — it must be plain.FORMATION OF SALE 171 In one case.”120 2. Philippine National Bank. to give something or to render some service. 117 116 .” It stresses that the offer must be certain. The offer must be certain and the acceptance absolute. 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. v. 728. 171 SCRA 131 (1989). which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Gomez v. Mariano. Contracts.116 the Court held that even when there is a duly executed written document purporting to be a sale. Consent that Perfects a Sale Being a consensual contract. Offer Must Be “Certain” For the perfection of a valid sale. v. Villamor v. 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. 1. Court of Appeals. Bank. 120 Ibid. in general. Intermediate Appellate Court. 202 SCRA 607 (1991). Court of Appeals. 119 340 SCRA 720 (2000).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. PNB. 511 SCRA 444 (2006).

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

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

Inc.128 where it held that from the moment a party accepts without qualification another party’s offer to sell within the period stipulated therein. there was no showing that petitioner complied with the terms and conditions explicitly laid down by BPI for prospective buyers. On motion for reconsideration. Court of Appeals. ‘So long as it is clear that the meaning of the acceptance is positively and unequivocally to accept the offer. which amounts to a rejection of the original offer.127 the Court reversed it earlier resolution. 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. 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. the seller 127 128 255 SCRA 626 (1996).’” 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. an essential requirement for the acceptance of the offer which was clearly specified in BPI’s documents. . whether such request is granted or not. 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. And although subsequently.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. v. thus — This was not the case herein considering that petitioner’s acceptance of the offer was qualified. a sale is perfected. a contract is formed. 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. And contrary to the petitioner’s assertion that its offer was accepted by BPI.

FORMATION OF SALE 175 required a much higher price than the original offer.000.000. 244 SCRA 320 (1995). and the buyer negotiated on the matter but no final agreement was reached.00 remained valid and binding and enforceable against the sellers and the second-buyer.000.”129 On the other hand.000.400. when the evidence showed that other elements necessary to constitute a valid contract were agreed 129 130 Ibid.000. and subsequently sold the property to another party. From the moment of acceptance of the original offer of the sellers by the buyers.000. In Uraca the sellers-lessors offered in writing to the buyers-lessees the sale of the premises they were renting for 51. .000. the sellers required a higher price of 51. there arose a valid and binding sale since undisputedly the contractual elements of consent. the first sale remained valid and binding and is not deemed novated by the fact of negotiation thereafter done on the price.00.050. which offer was accepted unconditionally in writing by the buyers. there can be novation of the latter.00 in cash or manager’s check and not the 51. Court of Appeals. Definiteness as to the price is an essential element of a binding agreement to sell personal property.400. at p.” The problem with Toyota Shaw ruling is that. in Toyota Shaw. After some haggling. the buyers agreed to the price of 51.000. object certain and cause occurred.00.00 but counter-proposed that it be paid in installments with a down payment of 51.050. 711. Inc.050. and the balance of 5400.00 to be paid in 30 days. When sellers saw the buyers. The Court held that the original sale at 51. v. The seller did not accept the counter-offer. it considered that a “contract” of sale is only what is embodied in the document. outside of Statute of Frauds consideration.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.00 as erroneously stated in their letter-offer. 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.

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

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

178 LAW ON SALES People’s Homesite & Housing Corp. or in other customary manner. each lot is the subject of a separate contract of sale.137 e.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. the contract itself and its underlying obligations are not yet demandable. and the auctioneer may withdraw the goods from the sale. 546 SCRA 315 (2008). Also. as the consequence of the retroactive effect of the non-happening of a suspensive condition. Art.138 Until such announcement is made. Civil Code. 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. since the principles of mutuality and obligatory force come into play. 139 Art. unless the auction has been announced to be without reserve. the more appropriate doctrine should be that when a sale is made subject to a suspensive condition. 1187. . Civil Code. but because the condition has not happened. 140 Ibid. To the author. any bidder may retract his bid. 138 Province of Cebu v. and in case of non-happening of the condition.140 A right to bid may be reserved expressly by or on behalf of the seller. it shall be unlawful for the auctioneer to employ or induce any person to bid at such 136 137 133 SCRA 777 (1984). then the contract is extinguished as though the contract has never been entered into. Where notice has not been given that the sale by auction is subject to a right to bid on behalf of the seller. v. 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. 1476. Court of Appeals.139 Where the goods are put up for sale by auction in lots. there is already a contract upon the meeting of the minds.

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

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

Inc. 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. (b) Earnest money is given only where there is already a sale. 155 Goldenrod. while option money is the money given as a distinct consideration for an option contract.: (a) Earnest money is part of the purchase price. 154 153 . especially in the absence of a clear and express agreement thereon. viz.153 enumerates the distinctions between earnest money and option money. Effect of Rescission on Earnest Money Received In the absence of a specific stipulation. 514 SCRA 228 (2007).154 d. Reiterated in Limson v. Oesmer v. 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.156 When the seller seeks to rescind the sale. Court of Appeals. Inc. 375 SCRA 209 (2001). he is not required to buy.FORMATION OF SALE 181 c. v. Distinguishing Earnest Money and Option Money Adelfa Properties. 299 SCRA 141 (1998). the buyer is bound to pay the balance.. Court of Appeals. while option money applies to a sale not yet perfected. v. 240 SCRA 565. but may even forfeit it depending on the terms of the option. consequently. 580 (1995).155 Under Article 1482 of the Civil Code. Paraiso Dev. whenever earnest money is given in a sale. 156 Ibid. it shall be considered as part of the purchase price and as proof of the perfection of the contract. and (c) When earnest money is given. while when the would-be buyer gives option money. Corp. Court of Appeals.

182 LAW ON SALES under Article 1385 of the Civil Code. and incidental to. 1521. Place of Perfection Generally.. putting the goods into a deliverable state must be borne by the seller. it is presumed that the contract was entered into in the place where the offer was made. Mayfair Theater. then the ability of the parties to perform the contract (after perfection) does not affect the perfection of the contract. 1487. Performance Should Not Affect Perfection Since sale is a consensual contract. v. Expenses of Execution and Registration In general. Court of Appeals. Civil Code. Inc. price and terms of payment. 163 227 SCRA 719 (1993). 158 Art.163 where the seller quoted to the buyer the 157 Ibid.157 5. v. the expenses for the execution and registration of the sale shall be borne by the seller.159 6. 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. Trading Corp.160 In the case of goods. unless there is a stipulation to the contrary. such rescission creates the obligation to return the things which were the object of the contract together with their fruits and interest.158 In case of acceptance through letter or telegram. . the expenses of.. Civil Code. In Johannes Schuback & Sons Phil. 161 Art. 162 Equitable Realty Dev.161 The duty to withhold taxes due on the sale is imposed on the seller. 159 Ibid. 1319. which occurs when the minds of the parties have met as to the subject matter. 160 Art. unless otherwise agreed. 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. 332 SCRA 139 (2000). Civil Code.162 7. Inc.

even when the required letter of credit had not been opened by the buyer.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. the absence of any of which will prevent the perfection of the contract from taking place. Non-payment only creates a right to 164 165 Ibid. 1478. in law. The failure of the buyer to make good the price does not. thus — This omission. It is not among the essential requirements of a contract of sale enumerated in Article[s] 1305 and 1474 of the Civil Code. . 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.FORMATION OF SALE 183 items offered for sale. 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. there was already a perfected sale. and the buyer had sent in reply a purchase order. . however. Devoid of any stipulation that “ownership in the thing shall not pass to the purchaser until he has fully paid the price” [citing Art. for the opening of a letter of credit is not to be deemed a suspensive condition.164 In Balatbat v. 722. does not prevent the perfection of the contract between the parties. Petitioner. description and unit price and total price. Court of Appeals. quantity. at p. by item number. 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. . 261 SCRA 128 (1996). The opening of a letter of credit in favor of a vendor is only a mode of payment. The facts herein do not show that the petitioner reserved title to the goods until private respondent had opened a letter of credit. thus — . New Civil Code]. part number. in the course of its dealings with private respondent.

1459 to transfer ownership. FORM OF SALES By way of introduction. the contract is void. 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.166 However. at p. In Nool v. except for Statute of Frauds which govern enforceability (i. rules relating to 166 167 Ibid. and do not necessarily apply to third parties whose rights may be affected adversely by the terms of a sale. .” As stated by the author elsewhere in this book. Court of Appeals.184 LAW ON SALES demand the fulfillment of the obligation or to rescind the contract. performance). 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. provided the seller has a right to transfer ownership at the time of delivery.. 158 SCRA 375 (1988). and of validity and enforceability of contracts of sale.e. In addition. void. 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. and therefore would render the contract “inoperative — and by the same analogy. 140. 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. Court of Appeals. it should be noted that the discussions in this section point out that rules on forms.” which prevents the seller from complying with his obligation under Art. 168 276 SCRA 149 (1997). Dignos v.168 the Court.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. are strictly kept within the contractual relationship of the seller and buyer pursuant to the characteristic of relativity of every contract.

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

and provide that when a contract is enforceable under the Statute of Frauds.174 Both Articles 1357 and 1406 of the Civil Code refer to Article 1358. 325 SCRA 504 (2000). 178 476 SCRA 679 (2005). and such remedy may be exercised simultaneously with the action upon the contract.00 must appear in writing. Court of Appeals. Manalili. Court of Appeals. Agasen v. 325 SCRA 504 (2000). Court of Appeals. 362 SCRA 29 (2001).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. Talusan v. the parties may avail themselves of the right and remedy to compel the other party to observe such form. v.186 LAW ON SALES 5500. 174 Reiterated in Heirs of Ernesto Biona v. acknowledged before a notary public. No. 173 172 . 175 Reiterated in Caoili v. “[b]ut sales of goods. 358 SCRA 38 (2001). not for validity or enforceability.173 Thus. 177 356 SCRA 263 (2001).178 held that a sale of 182 SCRA 872 (1990). 353 SCRA 714 (2001). Martinez v. Court of Appeals. Court of Appeals. But when it comes to third parties. Martinez v. 2 and 1405. Tayag. Court of Appeals.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.” Despite the seemingly mandatory provisions of Article 1358. Likewise. chattels or things in action are governed by Articles 1403. and a public document is necessary for its registration in the Registry of Deeds. even a private one.172 held that the provisions thereof on the necessity of public document are for purposes of convenience. 314 SCRA 345 (1999). Court of Appeals.175 Limketkai Sons Milling. 176 250 SCRA 523 (1995). Dalion v. Santos v. Reiterated in Agasen v. Inc. Court of Appeals. even documents enumerated under Article 1358 which are not found in a public instrument are still valid and enforceable. and that the article merely grants a cause of action to the party to the contract in a suit to sue to compel the other party to have the document covering the contract.

182 Yason v. 336 SCRA 42 (2000).181 In addition. and to contradict the same. a notarized Deed of Absolute Sale carries the evidentiary weight conferred upon it with respect to its execution. the latter. 465 SCRA 244 (2005). 449 SCRA 458 (2005). 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. which is a public documents. b. 343 SCRA 637 (2000). and neither is the notarization of a document 179 Manuel R. Garcia v. 180 Bravo-Guerrero v. v. and when so acknowledged. 312 SCRA 180 (1999). Power Commercial and Industrial Corporation v.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.182 Likewise. 183 470 SCRA 291 (2005). whether the subject matter is tangible or intangible. Concepcion. between bare allegations and the notarized deed of absolute sale. Court of Appeals. a deed of sale must be properly subscribed and acknowledged before a notary public. 184 Also Nazareno v. 274 SCRA 597 (1997). Inc. the document should be upheld. Court of Appeals. convincing and more than merely preponderant. Bravo.180 Consequently. a deed of sale enjoys the presumption of regularity and due execution. Court of Appeals. otherwise. 181 Ladignon v. prevails for being prima facie evidence. 257 SCRA 174 (1996). To make it a public document. 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. Court of Appeals. Arciaga. Salonga v. . Court of Appeals. makes the execution of a public document one of the highest form of constructive delivery in the Law on Sales. a “Deed of Absolute Sale” that is a public document has in its favor the presumption of regularity.179 The ability to cover all forms of sale. there must be evidence that is clear.183 summarized the principles involved when it held that notarization of the document does not guarantee its validity nor those of its contents.

186 conversely. which remained valid contracts of sale between the parties. did not observe utmost care in the Santos v. Santos. 837 (1988). Navarro & Co. 444 SCRA 61 (2003). 367 SCRA 368 (2001). Santos. Aquino. 190 Also Tigno v. 444 SCRA 61 (2003)..e. when a deed of sale is merely subscribed and sworn to by way of jurat (as contrasted from a notarial acknowledgment).185 On the other hand. 188 Tigno v. IAC.187 On the other hand. the seller’s continued possession of the property makes dubious the sale between the parties. instruments affecting title to real property.F.188 LAW ON SALES conclusive of the nature of the transaction conferred by the said document. 191 336 SCRA 538 (2000).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. Alcos v. though a form of constructive delivery. Rule 132 of the Rules of Court. Court of Appeals. The execution and notarization of a deed of sale. Vailoces. is not conclusive presumption of delivery of possession. since sale is a consensual contract and is perfected by mere consent. nor is it conclusive of the true agreement of the parties thereto.189 held that even if the Deeds of Sale were notarized by one who was not a notary public. Aquino. 187 Santos v. 366 SCRA 395 (2001). it remains a private document. it did not affect the validity thereof nor the contents therein. 366 SCRA 395 (2001). Court of Appeals. 162 SCRA 823. v. as to its due execution and authenticity. 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. subject to the requirements of proof under Section 20.190 and merely converted them into private documents. 189 361 SCRA 139 (2001). i.188 R. In Dalumpines v. 186 185 . Domingo v. it would not be a public document because it was invalidly notarized. 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.

and acknowledged that the same is his free act and deed.FORMATION OF SALE 189 performance of his duty and took for granted the solemn duties appertaining to his office. the sale thereof by the agent (even when the sale itself is in writing) would be void.” On the other hand. 2. 281 SCRA 207 (1997). Tablada. otherwise. . the Contract to Sell .193 the Court held that substantial variance in the terms between the Contract to Sell and the concomitant Deed of Absolute Sale. 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.194 192 340 SCRA 720 (2000). Civil Code. Jr. 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. . 1874. In Gomez v. When Form of Sale Affects Its Validity The general rule therefore is that form is not important for the validity of a sale.” through the process of novation. . constitutes the law between the contracting parties. contrary to the requirements under Section 1 of Public Act No. citing People’s Industrial and Commercial Corporation v. After all. except in the following instances: (a) The power to sell a piece of land or interest therein must be in writing. In this case. Court of Appeals. the notary public cannot acknowledge an inexistent contract for want of the signatures of the contracting parties.192 the Court upheld the Contract to Sell.. 194 Art. which explicitly provided for additional terms and conditions upon which the lot awardees are bound: “Although unsigned. 193 516 SCRA 575 (2007). Court of Appeals. 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. in Lumbres v.

Sec. Revised Adm. Code. Court of Appeals. 129 SCRA 319 (1984). v. which in turn was succeeded by the Office of the Northern Cultural Communities under Executive Order No.190 LAW ON SALES (b) Sale of large cattle must be in writing. 122 (1987). 8371. provided that conveyances and encumbrances made by non-Christians shall not be valid unless duly approved by the Commission on National Integration (CNI). Pres. has been repealed by Rep. 1581.195 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). 3872. 196 195 . 197 Tac-an v. Act No. 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. 120 of Comm. hill tribe cultural minorities all throughout the Philippines. Civil Code. which provides that any transaction involving real property with non-Christian tribes shall bear the approval of the governor. which power to approve was transferred to the Commission of Mindanao and Sulu under Rep. Rep. while the power over “non-muslim. 198 265 SCRA 168 (1996).196 which took over the previous requisite of approval by the Provincial Governor under Section 145 of Administrative Code of Mindanao and Sulu. Decree 690 (amended by PD 719). under Sec. 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. Act No. 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. and that the power granted to an agent to institute a suit and to appear at Art. Act No. 529. under Rep. Act 141 (The Public Land Act). Act No. Briefly. Act No. Section 145 of the Revised Administrative Code of Mindanao and Sulu. 4252 (19 June 1965). 8371. which in turn was succeeded in 1997 by the National Commission on Indigenous Peoples (NCIP) under Rep.197 Cosmic Lumber Corp. otherwise the sale would be void. Court of Appeals. and the provincial governor.” was transferred to the Presidential Assistant on National Minorities (PANAMIN) under the Office of the President.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. PANAMIN was succeeded by the Office of Muslim Affairs and Cultural Communities under Executive Order No. 4252. 122-B (1987).

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. Delos Reyes v.202 Even the receipt by the supposed agent of part of the purchase price does not validate the void sale. 203 Dizon v. 396 SCRA 154 (2003). Thus. the authority of the latter shall be in writing. Court of Appeals. Court of Appeals. 204 459 SCRA 439 (2005). 376 SCRA 222 (2002). which requires that when the sale of a piece of land or any interest therein is through an agent. v. without which the resulting sale entered into in behalf of the principle would be void. Corp. the sale shall be void. 201 325 SCRA 385 (2000). 313 SCRA 632 (1999). otherwise. does not mean that the actual sale would therefore be exempt from the requirements of the Statute of Frauds. Court of Appeals. and more tell295 SCRA 677 (1998). Court of Appeals. otherwise. City-Lite Realty Corp. 414 SCRA 190 (2003). 200 199 . the Court held in Torcuator v. the authority of the individual acting as agent must be in writing.200 held that when a son enters into an oral sale covering a real property registered in the name of his father. and any sale effected under such authority is void. Court of Appeals201 held that when the sale by a corporation involves a piece of land. 202 Pineda v. Raet v. Bukal Enterprises and Dev. such sale would be void under Article 1874 of the Civil Code. the sale is void and cannot be saved under principles of estoppel and apparent authority. Bernabe.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. Firme v.203 It should also be noted that just because the authority of the agent to sell a parcel of land is in writing.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..

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. as contemplated by Article 1403 of the Civil Code. . 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.206 It is now contained in Article 1403(2) of the Civil Code. 3. The written note or memorandum. 190 (Code of Civil Procedure) and subsequently found in Section 21.207 well described the Statute in the following manner: The term “Statute of Frauds” is descriptive of the statutes which require certain classes of contracts. to be in writing. such as agreements for the sale of real property. Torcuator v. 24 (1939). 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. STATUTE OF FRAUDS: WHEN FORM IS IMPORTANT FOR ENFORCEABILITY a. 373. does not even refer to any agreement for the sale of the property. 208 Shoemaker v.205 it was held that when the Contract to Sell was signed by the co-owners themselves as witnesses.192 LAW ON SALES ingly.208 205 206 514 SCRA 228 (2007).. 207 459 SCRA 439 (2005). Barcelona v. Paraiso Dev. 53 O. Nature and Purpose of Statute of Frauds The Statute was introduced in the Philippines by Section 335 of Act No. should embody the essentials of the contract. 68 Phil. Bernabe. In Oesmer v. Barcelona. Rule 123 of the old Rules of Court. Corp.G. La Tondeña.

be in writing. 211 Art. at a price not less than 5500. 1403. chattels or things in action. Corp. .00. and (c) A sale of real property or of an interest therein. but to enforceability and proof. and subscribed by the party charged. Article 1403(2) of the Civil Code provides that the following agreements shall be unenforceable by action. (2003).210 c. Bukal Enterprises and Dev.FORMATION OF SALE 193 Since the rules under the Statute of Frauds pertain not to perfection. evidence of the agreement cannot be received without the writing. or a secondary evidence of its contents.209 held that “[t]he application of the Statute of Frauds presupposes the existence of a perfected contract. Art. In any of the above transactions. Civil Code. Firme v. “unless the same. or some note or memorandum thereof. 1403. or by his agent:” (a) A sale agreement which by its terms is not to be performed within a year from the making thereof.. and subscribed by the party charged or his agent. 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. the following sales would still not be covered and would be enforceable: (a) When there is a note or memorandum thereof in writing. (b) An agreement for the sale of goods.” b. then they operate only when there is an underlying contract that is validly perfected. Sales Coverage in Statute of Frauds Insofar as applicable to sales.211 209 210 414 SCRA 190. Civil Code.

Magdalena Estate. 214 The Electronic Commerce Act. Barretto 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.194 LAW ON SALES (b) When there has been partial consummation of the sale. Dacuycuy. The party charged of course would either be the seller or buyer against whom the sale is sought to be enforced.214 d. 216 252 SCRA 259 (1996). Limketkai Sons Milling. 217 Reiterated in City of Cebu v. Lacanilao v. 219 104 SCRA 668 (1981). the terms and conditions of the contract. Paredes v. it must contain “all the essential terms of the contract” of sale. Berg v. 262 SCRA 486 (1996). Yuvienco v. Court of Appeals. Manila Railroad Co. Espino.212 (c) When there has been a failure to object to the presentation of evidence aliunde as to the existence of a contract.. 250 SCRA 523 (1995). Court of Appeals. 218 22 SCRA 1000 (1968). Heirs of Candido Rubi. 110. Republic Act 8792.219 makes it clear that it is not enough that “the total price or consideration is mentioned in some Ibid. 964 (1924).. the price and a description of the property as the object of the contract. 306 SCRA 408 (1999). 46 Phil. Inc.216 it was held that various correspondences when taken together would constitute sufficient memorandum — since they include the names of the parties.215 held that the sufficient memorandum may be contained in two or more documents.213 and (d) When sales are effected through electronic commerce. 213 212 . 215 92 Phil.218 held that for the memorandum to take the sale transaction out of the coverage of the Statute of Frauds.217 In addition. Inc. 115 (1952). Court of Appeals. In First Philippine International Bank v. v.

224 255 SCRA 626 (1996). 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. the Statute of Frauds is not applicable because it only applies to executory and not to completed. v. . In Limketkai Sons Milling.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.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. thus — 220 221 Ibid. Inc. hence the indispensability of providing in any sale of the terms of payment when not expressly or impliedly intended to be in cash. 223 313 SCRA 63 (1999). or partially executed contracts. Ibid.. the Court held in David v. In the reality of the economic world and the exacting demands of business interest monetary in character. In other words. 680. Court of Appeals.”222 In spite of the Yuvienco ruling. when there has already been partial payment.”220 that the manner by which the price is to be paid has to be found in the or memorandum. payment or installments or staggered payment of the total price is entirely a different matter from cash payment. 222 Ibid. at pp. it did not constitute the memoranda required by law. executed. thus — .221 Yuvienco thus held that “in any sale of real property on installment. 680-681. at p.. considering the unpredictable trends in the sudden fluctuation of the rate of interest. Tiongson. it is indisputable that the value of money varies from day to day.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.

the very evil sought to be avoided by the statute. In adherence to the provisions of the Statute of Frauds. . In addition.” 225 Ibid. 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. When it comes to sale of goods. To go beyond what appears on the face of the documents constituting the notes or memoranda. and therefore oral testimony could not take their place without violating the parol evidence rule.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. would certainly be uncalled for. or pay at the time some part of the purchase money. the transaction involved definitely falls within the ambit of the Statute of Frauds. Partial Performance Partial performance of the sale would take the same outside the coverage of the Statute of Frauds. stretching their import beyond what is written in black and white. or the evidence. the Court found that the exhibits failed to establish the perfection of the sale. chattels.. or things in action. 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. or some of them. In fine. 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. 641. . of such things in action. if not violative of the Statute of Frauds and opening the doors to fraud. at p..225 e. 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.

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

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

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

for the purpose of binding or informing third parties. 241 326 SCRA 244 (2000). and registration of the instrument is needed only to adversely affect third parties.239 the Court held that reliance on testimony of witnesses as secondary evidence to prove a sale. . Article 1358 of the Civil Code. Court of Appeals. Court of Appeals. 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. and thereby prevailing. under the Torrens system. However. Non-compliance with formal requirements does not adversely affect the validity of the contract or the contractual rights and obligations of the parties. Formal requirements are. doctrine is what the Court held in Secuya v. 394 SCRA 133 (2002). will not prosper against counter-evidence disputing such sale. Being consensual. because a sale must necessarily be evidenced by a written instrument when it involves third parties. therefore.200 LAW ON SALES In Alba Vda.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. 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. Consequently. 54-55 (1999). since registration is the operative act. The more pertinent. Recently. in Londres v. De Rax v. is only for convenience. Vda. the execution of a public instrument on dealings with registered land is not even sufficient by itself to bind third parties. it cannot be considered binding on a third 239 240 314 SCRA 36. which requires certain contracts to be embodied in a public instrument. De Selma:241 that while the sale of land appearing in a private deed is binding between the parties.

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

the party is deemed to have waived any defects on the contract under the Statute of Frauds. v. This is embodied in Article 1405 of the Civil Code.. 964 (1924). 245 Limketkai Sons Milling. pursuant to Article 1405 of the Civil Code. such evidence must be disregarded by the courts and the contract cannot be enforced. Value of Business Forms to Prove Sale Business forms. Cruz Trading Corp.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. Court of Appeals. 250 SCRA 523 (1995). Manila Railroad Co. 244 243 . Court of Appeals. Inc. 246 Donato C.246 46 Phil. The early case of Barretto v. 347 SCRA 13 (2000). hence.g. First Philippine International Bank v. 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. e. the cross-examination on the contract is deemed a waiver of the defense of the Statute of Frauds. order slip. 252 SCRA 259 (1996). fails to object during trial to the presentation of oral evidence to prove the contract.. 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.244 Likewise. Court of Appeals. Lacanilao v. The Statute of Frauds will not apply by reason of the failure of party to object to oral testimony proving such party’s counteroffer. v.245 i. 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. by such utter failure to object. delivery charge invoice and the like. 262 SCRA 486 (1996). or a note or memorandum. is when the party against whom such oral contract is sought to be proved.202 LAW ON SALES h.

data. validity or enforceability as any other document or legal writing. recorded. electronic documents shall have the legal effect. 249 Sec. 5(f). which is received.249 b.FORMATION OF SALE 203 By themselves. Legal Recognition of Electronic Documents Under Section 7 of the Act. 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. 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. Electronic Commerce Act. . Electronic Commerce Act. stored. Cruz Trading Corp. described or however represented. Sec. figures. v. processed. symbols or other modes of written expression. Sales Effected as Electronic Commerce a. 347 SCRA 13 (2000). Legal Recognition of Electronic Data Message Under Section 6 of the Electronic Commerce Act. or that it is merely incorporated by reference in that electronic data message.248 It defines an “electronic signature” as that referring to any distinctive mark. 5(e). The Act defines an “electronic document” as that referring to information or the representation of information. 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. and — 247 248 Donato C. Court of Appeals. by which a fact may be proved or affirmed. retrieved or produced electronically. characteristic and/or sound in electronic form.247 4. transmitted.

in that — (i) The electronic document has remained complete and unaltered. or any change which arises in the normal course of communication. .204 LAW ON SALES (a) Where the law requires a document to be in writing. 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. 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. It is expressly provided. apart from the addition of any endorsement and any authorized change. (c) Where the law requires that a document be presented or retained in its original form. 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. and (ii) That document is capable of being displayed to the person to whom it is to be presented. (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. 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.

in any legal proceedings. Sec.FORMATION OF SALE 205 For evidentiary purposes. In assessing the evidential weight of an electronic data message or electronic document. ibid. ibid. the reliability of the manner in which its originator was identified. the reliability of the manner in which it was generated. except as otherwise agreed by the parties. 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. an offer. and the electronic data message or electronic document meeting. 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. and complying with the requirements under Section 6 or 7 hereof shall be the best evidence of the agreement and transaction contained therein.251 Under Section 12 of the Act.252 Under Section 16(1) of the Act. 7. . or (b) On the ground that it is not in the standard written form.250 The Act does not modify any statutory rule relating to the admissibility of electronic data messages or electronic documents. 12. ibid. and other relevant factors shall be given due regard. stored or communicated. 252 Sec. 7. except the rules relating to authentication and best evidence. an electronic document shall be the functional equivalent of a written document under existing laws.

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

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

. (d) Giving any other notice or statement in connection with the performance of the contract. 25. (g) Acquiring or transferring rights and obligations under the contract. renouncing. that requirement is met if the action is carried out by using one or more electronic data messages or electronic documents. or damage to goods. 26. (f) Granting acquiring. 253 254 Sec. (e) Undertaking to deliver goods to a named person or a person authorized to claim delivery. transferring or negotiating rights in goods. 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. and giving notice of loss of. where the law requires that any action referred be carried out in writing or by using a paper document. ibid.253 g. Sec. ibid. (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. surrendering.208 LAW ON SALES (c) Claiming delivery of goods. authorizing release of goods. thus: (a) Subject to paragraph (c) below.

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

Even when a document appears on its face to be a sale with pacto de retro.. 6. Form in Equitable Mortgage Claims In Cuyugan v. 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.258 relying upon precedents in the United States. 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. or as a means for perpetrating fraud. although the agreement for redemption or defeasance rests wholly in parol. would have no application. at p. Equitable mortgages occupy such a hallowed position in Philippine jurisprudence such that Rosales v. 108.210 LAW ON SALES 5. In such case. 262 217 SCRA 322 (1993). or is proved by parol evidence: “The courts will not be used as a shield for fraud. LPJ Enterprises.”259 Lapat v. 261 408 SCRA 664 (2003). 260 312 SCRA 539 (1999).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.262 held that the conditions under Article 1502 of the Civil Code which govern the sales on return or on approval. v. the Supreme Court held that the Statute of Frauds does not stand in the way of treating an absolute deed as a mortgage. Ibid. . Suba. 100 (1916). Inc. Rosario. Form in “Sales on Return or Approval” Industrial Textile Manufacturing Company of the Philippines.261 held that an equitable mortgage is not different from a real estate mortgage. Inc. when such was the intention of the parties. unless such 258 259 34 Phil. Santos. 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.

FORMATION OF SALE 211 conditions to such effect have been distinctly provided for in the contract between the parties to the sale. it cannot be exercised. v.264 ruled that when the right of first refusal is not stipulated in the lease contract. 481 (1999).265 Rosario v.”263 7. 367 SCRA 559 (2001). he should have done so at the time the contract was made. 733-748. pp. quoting from 67 AM. Civil Code. clearly requires an express written agreement to make a sale contract either a ‘sale on return’ or a ‘sale on approval’. 264 263 .266 held that when the parties enter into a sale to which they did not intend to be legally bound. 466 SCRA 438 (2005). The ruling therefore constituted in effect an addition to the contracts covered by the Statute of Frauds. On the other hand. v. If the purchaser desired to incorporate a stipulation securing to him the right of return. 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. JUR. at p. 265 Art. Right of First Refusal Must Be Contained in Written Contract Sen Po Ek Marketing Corp. 2d. Ong. then it is completely void and non-existent. 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. 327. The Supreme Court held that “[T]he provisions of the Uniform Sales Act and the Uniform Commercial Code from which Article 1502 was taken. Ibid. 325 SCRA 210 (2000). Court of Appeals. Yu Bun Guan v. Martinez. Manila Banking Corp. 266 310 SCRA 464. WHEN SALE COMPLETELY SIMULATED When a sale is absolutely simulated. Silverio. 1409(2). and verbal grants of such right cannot be enforceable since the right of first refusal must be clearly embodied in a written contract.

Court of Appeals.. 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. Also in a simulated contract. 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. Santiago v. Court of Appeals. the Court held that it did not show that the agreement was simulated.268 although the agreement to sell did not absolutely transfer ownership of the land to the buyer. which gave rise to the corresponding obligation on the part of the buyer to pay the last installments of the consideration. Court of Appeals. Such conditions did not affect the perfection of the contract or prove simulation. for the purposes of deception. 270 Also Mendezona v. In Villaflor v.. Loyola v. . produces no legal effects.269 defined “simulation” as “the declaration of a fictitious will. 376 SCRA 482 (2002). Ozamiz. The delivery of the certificate of ownership and execution of the deed of absolute sale were suspensive conditions. or in the alternative. in order to produce. and does not convey property rights nor in any way alter the juridical situation of the parties. . and 267 268 278 SCRA 98 (1997). . 269 326 SCRA 285 (2000).”270 The requisites for simulation are: (a) An outward declaration of will different from the will of the parties. (b) The false appearance must have been intended by mutual agreement.212 LAW ON SALES such is void and is not susceptible of ratification.267 held that the failure of the alleged buyers to take exclusive possession of the property sold to them. 280 SCRA 297 (1997).. deliberately made by the agreement of the parties. the appearances of a juridical act which does not exist or is different with that which was really executed. the parties have no intention to be bound by the contract..

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

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

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. Normally therefore. International Banking Corp. In spite of the reciprocal nature of a sale. . which applies only to an obligation to deliver a determinate thing. the means by which the seller can transfer the ownership of the subject matter is by the mode of tradition or delivery. 1 2 13 Phil. and the thing sold has been delivered.” Although the wordings of both Articles 1458 and 1495 seem to separate “delivery” of the subject matter from the “transfer of ownership. As early as in Kuenzle & Streiff v.. without prejudice to the right of the seller to claim payment of the price. v. 37 Phil.PERFORMANCE OR CONSUMMATION OF SALE 215 “to transfer the ownership of and to deliver a determinate thing. and all the fruits shall pertain to the buyer from the day on which the contract was perfected. it is not the prior payment of price that determines the effects of delivery of the subject matter. the transferee has a right to the fruits of the thing from the time the obligation to deliver it arises. the delivery of the subject matter ipso jure transfers its ownership to the buyer. Ocejo.1 the Supreme Court held that where there is no express provision that the title shall not pass until payment of the price. 26 (1909).. 3. Watson & Co. the principal and most important of which being the conveyance of ownership. 631 (1918). Perez & Co. To Deliver the Fruits and Accessories Under Article 1164 of the Civil Code. title passes from the moment the thing sold is placed in the possession and control of the buyer. whether actual or constructive. however. he shall acquire no real right over them until the same has been delivered to him.2 also held that delivery produces its natural effects in law. as a consequence of a valid sale. Every obligation to deliver a determinate thing is coupled with a specific provision under Article 1537.” nonetheless.

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

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

one cannot give what one does not have.10 it was held that when the auction sale of the subject properties to the bank was void. 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. 366 SCRA 324 (2001). 1. 12 SCRA 276 (1964). and (b) constructive delivery.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. the seller himself introduced the tenant to the buyers as the new owners of the land.11 held that in the absence of stipulation to the contrary. Actual Delivery Under Article 1497 of the Civil Code.. no valid title passed in its favor.. and from that time on the buyers acted as landlord. there is actual or physical delivery when the thing sold is placed in the control and 10 11 Tsai v.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. Froilan v. Court of Appeals. consequently. a. and thereby there was deem to have been delivery. the subsequent sale and delivery of the properties thereof by the bank was also nullity (i.e. Pan Oriental Shipping Co. title held by the bank’s buyer was void) under the elementary principle of nemo dat quod non habet. In that decision. Borras. 12 404 SCRA 145 (2003). . the ownership of the thing sold passes to the buyer upon the actual or constructive delivery thereof. Alfredo v. In another case. simply because there was no valid sale behind the purported act of constructive delivery.

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

and constitutes valid compliance by the seller of his primary obligations under the sale. 20 Phil. citing Art.21 held that the legal effects and consequences of actual or physical delivery. Dulay Enterprises. the foregoing rules apply only to a public instrument that evidences a valid sale.”20 (1) Constructive Delivery Has the Same Legal Effect as Actual or Physical Delivery Municipality of Victorias v. 96 (1906). v. i. it transfers the ownership of the subject matter to the buyer. thus: “Taken by itself. . 6 Phil. the general rule is that the execution of a public instrument has the same legal effects as actual or physical delivery. 451. 312 SCRA 180 (1999). Court of Appeals. when the sale is made through a public instrument. Thus. 18 Velarde v. Power Commercial and Industrial Corp.16 In several cases. Bernabe.220 LAW ON SALES the delivery of the subject matter of sale. Court of Appeals. 274 SCRA 597 (1997).” (at p. the special power of attorney can be interpreted as tied up with any number of property arrangements. 361 SCRA 56 (2001). Garcia v. also apply equally to constructive delivery: “Similarly. v. Torcuator v. Court of Appeals.18 Of course. such as a contract of lease or a joint venture.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. Inc. 1462 of the old Civil Code. at p. Grimalt.e. 225 SCRA 678 (1993).. Court of Appeals. 388 (1911). in fact. 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. 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. 20 Ibid. the execution thereof 16 Florendo v. 99). Foz. 19 459 SCRA 439 (2005). Also Roman v. if from the deed the contrary does not appear or cannot clearly be inferred. Therefore. 21 149 SCRA 31 (1987). 17 Manuel R. and (b) It authorizes the buyer to use the document as proof of ownership.

24 The author therefore takes exception to the ruling in Ten Forty Realty and Dev. it is of no legal consequence that respondents were never in actual possession or occupation of the subject property.23 where the Court held — Under Article 1498 .” The Ten Forty Realty ruling confuses between the twin functions of a public instrument. v. This Court has held that the execution of a public instrument gives rise only to a prima facie presumption of delivery. Caoibes-Pantoja. It is well-established that ownership and possession are two entirely different legal concepts. Dulay Enterprises.PERFORMANCE OR CONSUMMATION OF SALE 221 shall be equivalent to the delivery of the thing which is the object of the contract. .. at p. Just as possession is not a definite proof of ownership.. 225 SCRA 678 410 SCRA 484 (2003). Notwithstanding the presence of illegal occupants on the subject property. v.. 496 SCRA 273 364 SCRA 385 (2001). nevertheless. Thus. Such presumption is destroyed when the delivery is not effected because of legal impediment . See also Manuel R.. v. neither is non-possession inconsistent with ownership. prior physical delivery or possession is not legally required. perfected and completed ownership and title to the subject property... Corp. Court of Appeals. They. 23 24 (1993). 43. transfer of ownership by symbolic delivery under Article 1498 can still be effected through the execution of the deed of conveyance. Cruz.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. Reiterated in Caoibes. negated by the failure of the vendee to take actual possession of the land sold. Inc. (2006). 22 Ibid. 25 . the contrary does not appear or cannot be clearly inferred. if from the deed. the mere execution of the deed of conveyance in a public instrument is equivalent to the delivery of the property. Jr.”22 The concept has been aptly summed-up in Sabio v. International Corporate Bank.

Civil Code. its material delivery could not have been made. Suburban Dev.222 LAW ON SALES first being merely an evidence of a sale. Auditor. (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. v. there is a stipulation to the contrary. First. or (d) Where the seller has no control over the thing sold at the moment of the sale. namely. By itself a deed of sale is merely a species of evidence. 63 SCRA 397 (1975).26 Phil. Suburban held that since the execution of the public instrument was preceded by actual delivery of the subject real 26 27 Art. it is stipulated that until the last installment is made. therefore. in what constitutes constructive delivery. 1498. a public instrument being the main. control over the subject matter at the time of execution and the passage of reasonable time for the control to remain. and. and second. and it becomes an integral part of tradition when coupled with other requirements mandated by jurisprudence. . but not the only ingredient. (c) When the seller reserves the right to use and enjoy the property until the gathering of the pending crops. the title to the property should remain with the seller. (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. when in the execution of a public instrument. Phil.

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

Addison v. Felix. its material delivery could have been made. . then fiction yields to reality — the delivery has not been effected.”35 which talks of capacity rather than an actual physical delivery. thus — The Code imposes upon the vendor the obligation to deliver the thing sold. 404 (1918). symbolic delivery through the execution of a public instrument is sufficient.. The thing is considered to be delivered when it is placed “in the hands and possession of the vendee. when at the time of the execution of the public instrument. at p. the subject matter was not subject to the control of the seller. so that “at the moment of sale. It is not enough to confer upon the purchaser the ownership and the right of possession. in order that this symbolic delivery may produce the effect of tradition.224 LAW ON SALES Secondly. its material delivery could have been made. 36 Ibid. 408. then the legal effects of delivery would not happen. Ibid. 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.34 held earlier that it is the duty of the seller to deliver the thing sold.” . emphasis supplied. 408. at the moment of the sale. it is necessary that the vendor shall have such control over the thing sold that. But if. The “moment of sale” referred to was of course the consummation stage. the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name.. notwithstanding the execution of the instrument. 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. at p. The thing sold must be placed in his control. 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.36 34 35 38 Phil. but. because such tenancy and enjoyment are opposed by the interposition of another will.

38 where the Court emphasized that the operative word in the doctrine is not “possession” but “control. 274 SCRA 597 (1997). Go Inqui. and there is no implication in the ruling that for constructive delivery to produce the effects of tradition. 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. such agreement would perfectly be valid. Fidelity & Deposit Co.”37 and there would have been full compliance by the seller of his obligations under the sale. 38 37 . 56-57 (1907). if constructive delivery cannot do the job without actual delivery being made later on. Otherwise. Court of Appeals. 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. thus: Although most authorities consider transfer of ownership as the primary purpose of sale. by the mere execution of the public instrument.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. delivery remains an indispensable requisite as our law does not admit the doctrine of transfer of property by mere consent.39 The Civil Code provides that delivery can either Ibid. 39 Articles 1477 and 1495. Wilson. 611-612 (1909). Tan Leonco v. Addison does not intend to place constructive delivery at a lower category than that of actual delivery. v. 8 Phil. In effect. and it were proven that she knew that the thing was in the possession of a third person claiming to have property rights therein. 531 (1907). v. 14 Phil. at p. Kuenzle & Streiff v. 610. The Addison doctrine was reiterated in Power Commercial and Industrial Corp. 51. Civil Code. 8 Phil. 409. Macke & Chandler.” In Power Commercial. 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.

not possession. 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.. effects the transfer of ownership through the execution of a public document.” As discussed hereunder. be prevented if the vendor does not possess control over the thing sold.” is not accurate. however. 408 (1918). Vda. from the decision in Pasagui v. 900. 41 Reiterated in Solid Homes. 38 Phil. and Danguilan v. “or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. 168 SCRA 22. Intermediate Appellate Court. 32 (1988).226 LAW ON SALES be (1) ACTUAL (Article 1497) or (2) CONSTRUCTIVE (Articles 1498-1501). Considering that the deed of sale between the parties did not stipulate or infer otherwise. 275 SCRA 267 (1997). Lesaca. Court of Appeals. it was therefore a decision.40 in which case this legal fiction must yield to reality. Villablanca. delivery was effected through the execution of said deed. 42 68 SCRA 18 (1975). Symbolic delivery (Article 1498). since under Article 1496 of the Civil Code. v. The key word is control. as a species of constructive delivery. the statement in Power Commercial that “our law does not admit the doctrine of transfer of property by mere consent. 40 Addison v.. of the land . that in order that the execution of public instrument to produce the effect of tradition.42 we can infer an additional element into the Addison doctrine. De Sarmiento v. Felix. Inc. Thirdly.41 Nevertheless. 108 Phil. not only must the seller have actual control of the object of the sale at the execution of the instrument. 902-03 (1960). 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. 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. 404. . which required plaintiff’s prior possession. 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. Its efficacy can.

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

which at the time of the execution of the instrument. actual delivery of the subject tractor could not be made. (Art. In the meantime. 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. at p. In ruling for the brother-buyer. that “[T]he mortgagor who gave the property as security under a chattel mortgage did not part with the ownership over the same. Justice Gutierrez recognized that “[I]n the instant case.”47 He held that in addition to Article 1498 of the Civil Code which recognized the execution of public instrument as constructive delivery. 1498 and upon the consent or agreement of the parties when the thing sold cannot be immediately transferred to the possession of the vendee. there was constructive delivery already upon the execution of the public instrument pursuant to Art. at p. Nevertheless. if the thing sold cannot be transferred to the possession of the vendee at the time of sale. 831.. He had a right to sell it although he was under obligation to secure the written consent of the mortgagor. since the tractor was already sold to the brother-buyer. However. or if the latter already had it in his possession for any other reason. under Article 1499. Justice Gutierrez held in Dy. the tractor was executed upon by a judgment creditor of the brotherseller while still in the possession of the mortgagee. Ibid. 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. The judgment creditor insisted that at the time of the execution of the deed of sale. 1499). 830. Jr.228 LAW ON SALES seller. .”48 With the acknowledgment that actual 47 48 Ibid. it is provided that the delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties. was mortgaged to and in the possession of the mortgagee. The issue before the Court was whether the execution effected upon the tractor to enforce the brother-seller’s judgment debt was still valid.

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. 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. 409. . Jr. at pp. at p. as to have made the brotherbuyer the owner of the subject matter. because possession of the tractor was with the mortgagee.”50 and therefore execution of the public document by itself would produce the legal effects of tradition and effectively transfer ownership to the buyer. Civil Code) Said property continues to belong to the mortgagor. In any event. but only insofar as title is concerned. control or possession of the subject matter was not in the hands of the seller. 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. Jr. then constructive delivery by the execution of the public instrument would produce the effect of tradition.PERFORMANCE OR CONSUMMATION OF SALE 229 delivery could not be effected. 2088. (Art. 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. his right of ownership was not divested from him upon his default. Justice Gutierrez held that “[W]hile it is true that [the seller] was not in actual possession and control of the subject tractor. such agreement would perfectly be valid. even if at the time of sale. In addressing this particular point raised by the respondent Court of Appeals in its appealed decision. 831-832. even when the subject matter is in the hands of a third party. 49 50 Ibid. Ibid. the variation in Dy. constructive delivery through the execution of the public instrument could not produce the effects of tradition. and it were proven that she knew that the thing was in the possession of a third person claiming to have property rights therein. is not really that crucial. under the Addison doctrine.

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

Article 1501 of the Civil Code recognizes three (3) types of constructive delivery specifically applicable to incorporeal property. (b) By the placing of the titles of ownership in the possession of the buyer. Civil Code.PERFORMANCE OR CONSUMMATION OF SALE 231 but as owners now through symbolic delivery known as traditio brevi manu. . Delivery of Incorporeal Property An incorporeal property having no physical existence. the delivery of movable property may be made by the mere consent or agreement of the contracting parties. and also the title of the persons to whom the documents was originally. or (c) The use and enjoyment by the buyer of the rights pertaining to the incorporeal property. thus: (a) When the sale is made through a public instrument. if the thing sold cannot be transferred to the possession of the buyer at the time of the sale. Thus. under Article 1499 of the Civil Code. 1513. g. Traditio Longa Manu This is delivery of a thing merely by agreement. 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. e. if from the deed the contrary does not appear or cannot clearly be inferred. f. the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract. 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. with the seller’s consent.55 Therefore. the buyer of the goods 55 Art. its delivery can only be effected by constructive delivery.

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. 1523. Civil Code. delivery to carrier is deemed delivery to the buyer. Cerna Corp.57 h. 193 SCRA 694 (1991). if in pursuance of a sale. the buyer to whom a document of title has been transferred by assignment. If the seller omits to do so. whether named by the buyer or not.232 LAW ON SALES can by the process of negotiation of the covering document have a title better than that of his immediate seller. The general rule. delivery of the goods to a carrier. P. Court of Appeals. Norkis Distributors v. the seller must give such notice to the buyer as may enable him to insure them during their Art. Unless otherwise authorized by the buyer. the issuance thereof would not constitute constructive delivery. acquires only his transferor’s title to the goods. 221 SCRA 19 (1993). and always subject to the terms of any agreement with the transferor. Delivery Through Carrier Delivery through a carrier as a form of constructive delivery necessarily pertains only to a sale of goods. the seller must make such contract with the carrier on behalf of the buyer as may be reasonable. unless a contrary intent appears. the seller is authorized or required to send the goods to the buyer. This default rule is best illustrated by Article 1523 of the Civil Code. and in the absence of stipulation or circumstances to the contrary. the premise being that the carrier acts as an agent of the buyer.T. the buyer may decline to treat the delivery to the carrier as delivery to himself. for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer. Civil Code. Court of Appeals. On other hand.58 Unless otherwise agreed. 1514. 58 Art. 57 56 . where. having regard to the nature of the goods and the other circumstances of the case. and the goods are lost or damaged in the course of the transit. or may hold the seller responsible for damages. v.56 Since an invoice is not a negotiable document of title.

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

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

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

by express stipulation or impliedly (by making the buyer’s obligation depend on arrival and inspection of the goods). however.236 LAW ON SALES In General Foods. certain presumptive effects. 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. and the risk of loss of the goods during the voyage was to be borne by the seller. 341. two principles must apply. such presumptive effects must give away. by commercial usage. 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. The lesson learned from all of these is that the shipping arrangements in a sale create. namely: (a) Delivery must be made pursuant to a valid sale. at p. to any stipulation or even intimation to the contrary. the price was quoted “CIF New York” (the point of destination). modify a CIF contract and throw the risk upon the seller until arrival in the port of destination.”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. 71 Ibid. rather easily. . 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. and (b) Delivery must be effected when seller has ownership over the subject matter of sale so delivered.

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

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

if except from the form of the bill of lading. a.77 or until certain conditions are fulfilled. the buyer may accept the contracted goods and reject the rest. But. Civil Code. the buyer may reject the whole of the goods. if the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate. 1521. 1478.78 Article 1503 of the Civil Code gives the following instances when there is an implied reservation of ownership: (a) Where goods are shipped. Art. ownership would have passed to the buyer on shipment of the goods. Reservation of Ownership Despite delivery. the seller’s 76 77 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. the buyer may reject the goods entirely. the seller thereby reserves the ownership in the goods. or (d) Where the seller delivers to the buyer the goods contracted but mixed with goods of a different description. ownership will not transfer to the buyer in case of express reservation. such as when the parties stipulate that ownership will not transfer until the purchase price is fully paid. 1503. if the subject matter is indivisible. 78 Art. and by the bill of lading the goods are deliverable to the seller or his agent.PERFORMANCE OR CONSUMMATION OF SALE 239 goods covered in the contract and reject the rest. Civil Code. if the subject matter is indivisible.76 b. 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. .

240 LAW ON SALES property in the goods shall be deemed to be only for purpose of securing performance of the buyer’s obligations. . however. although the bill of exchange has not been honored. 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. if the bill of lading provides that the goods are deliverable to the buyer or to the order of the person named therein. (b) Where goods are shipped. one who purchases in good faith for value the bill of lading. In the last case. or of the goods. but possession of the bill of lading is retained by the seller or his agent. and ownership is still transferred to the buyer.80 the seller 79 80 Art. (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. and by the bill of lading the goods are deliverable to the order of the buyer or of his agent. in which case the buyer bears the risk of loss. the seller thereby reserves a right to the possession of the goods as against the buyer. the buyer is bound to return the bill of lading if he does not honor the bill of exchange. Civil Code.79 c. Obligation as to Accessories and Accessions In the sale of movables. provided that such purchaser has received delivery of the bill of lading endorsed by the consignee named therein. without notice of the facts making the transfer wrongful. and if he wrongfully retains the bill of lading he acquires no added right thereby. Art. 1537. Civil Code. 1503. or goods from the buyer will obtain the ownership in the goods.

or without consideration of their weight.84 By their very nature. Civil Code. nor is the price agreed upon by the parties to be based upon such measurement. the sale may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample. a determinate object. . 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. at p. 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. 83 Ibid.” In Gaite v.81 d. 1481. and if the contract be by sample as well as by description. 1522. 840.”83 e. should be distinguished from the sale of specific mass under Article 1480 which provides for the “sale of fungible things. Sale by Description and/or Sample In a sale of goods by description or sample. otherwise the buyer may reject them. Civil Code. the mass. Sale in Mass of Movables The sale of movables under Article 1522 of the NCC. 84 Art. 2 SCRA 830 (1961). made independently and for a single price. should allow the buyer a reasonable opportunity of inspection or of comparing the bulk with the sample or the description before accepting their delivery.82 which involved the sale of iron ore. 85 Last paragraph of Art. notwithstanding that the quantity delivered is less than the amount estimated by them. sales of goods by sample and/or description. it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description. therefore.85 81 82 Art. Fonacier. number. and not the actual number of units or tons contained therein. or measure. 1481. then the “subject matter of the sale is.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. Civil Code. emphasis supplied.

89 held that even in sales by description and/or sample. 115 (1924).86 held that there is “sale by sample” when a small quantity is exhibited by the seller as a fair specimen of the bulk. v. Pacific Commercial Co. at pp. 184.”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. Ibid. 88 Ibid. . but relying on them as true.. 184-185.242 LAW ON SALES Mendoza v. where the buyer has not seen the article sold and relies on the description given to him by the seller. Ermita Market & Cold Stores.90 held that when the machine delivered by the seller is in accordance with the description stated in the sales contract. 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. especially where in that case the three sets of furniture were manufactured according to the specifications provided by the buyer. 617 (1932). David. or has seen the goods. which is not present and there is no opportunity to inspect or examine the same. Engel v.”87 Mendoza described a “sale of goods by description” as one where “a seller sells things as being of a particular kind. if the purchaser had acquiesced to such deviations after due notice thereof. 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). or as otherwise stated. Mariano Velasco & Co. the buyer not knowing whether the seller’s representations are true or false. and not in accordance with the replicas displayed in the seller’s shop. 89 47 Phil. 90 56 Phil. but the want of identity is not apparent on inspection. thus: “To constitute a sale by sample. 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.

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

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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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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

and instead the particular doctrine under the Torrens System would apply. Decree No. Liao v.e. etc. in case of successive registrations. 3344.135 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. Decree No. 395 SCRA 43 (2003). like lease.134 held that when two certificates of title are issued to different persons covering the same land in whole or in part. than the narrow double sales application of Article 1544 of the Civil Code. agency designation. v. For example. which provide that registration is the “operative act” by which dealings on registered land.PERFORMANCE OR CONSUMMATION OF SALE 257 and the effects of registration under Section 51 of Pres. the person holding title which was issued of an earlier date must prevail. where more than one certificate is issued over the same land. contracts to sell. Inc. and thereby a more pre-emptive effect. 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. whether they be voluntary or involuntary. Another example is the decision in Naawan Community Rural Bank. the person holding a prior certificate is entitled to the land as against a person who relies on a subsequent certificate.. and. . 1459 cover not only sales contracts. 1459 has a wider scope. the rules on double sales under Article 1544 cannot formally be applied. Court of Appeals. mortgage. as against the second buyer who bought the same property when it was already 134 135 323 SCRA 430 (2000). but all other forms of annotated voluntary contracts and transactions. options. shall be recognized as existing and binding upon third parties. i. the registration principle under Pres. 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. In other words. Court of Appeals.

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

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

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

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

There is no ambiguity regarding the application of the law with respect to lands registered under the Torrens System.. Following this principle.. Palileo. 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. Rule 39 of the 1997 Rules of Civil 145 146 197 SCRA 245 (1991). 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.145 citing Carumba.” overrides the provision of Article 1544 when it involves unregistered land since under Act No. 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. interest and claim of the judgment obligor to the property as of the time of the levy.262 LAW ON SALES 33. 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.146 Radiowealth Finance confirms the proposition that even in the purchase of registered land under levy on execution. Section 51 of Presidential Decree No. 496) clearly provides that the act of registration is the operative act to convey or affect registered lands insofar as third person are concerned. v. 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. in Radiowealth Finance Co. it is the act of registration that operates to convey and affect registered land. the Court noted that under the Torrens system. Thus. thus: .” In contrast. 1529 (amending Section 50 of Act No. title. Ibid. 246-247. the provisions of Section 33. . if such transfer was unrecorded. at pp.

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

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

Under that law. were the land involved in the conflicting transaction was a duly registered land. 3344. 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. with the first buyer having registered his purchase under Act No. Court of Appeals. and that the registration of an instrument involving unregistered land in the Registry of Deeds creates constructive 151 483 SCRA 102 (2006). . 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. and held that the registration contemplated under this provision has been held to refer to registration under the Torrens system. which considers the act of registration as the operative act that binds the land. 3344. What the Court held applicable was the rules on double sales of unregistered land under Act No. which provides for the registration of all instruments on land neither covered by the Spanish Mortgage Law or the Torrens system. registration by the first buyer is constructive notice to the second buyer that can defeat his right as such buyer in good faith.” whereas. and therefore the provisions of then Section 35. 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. and the second buyer subsequently being able to obtain a title by having the land registered under the Torrens system.” The Dagupan Trading ruling found application in Naval v.” 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 that the case did not fall in either cases. The Court held in Naval.151 where both buyers bought the same parcel of land from the same seller when it was still unregistered land. 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.

the rulings in Dagupan Trading and Naval are diametrically opposed to the rulings in Naawan Community Rural Bank and Abrigo discussed above. 3344. Fule. constituting equitable exception to the basic tenets laid down in Carumba and Radiowealth Finance. 395 SCRA 43 (2003). 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. In Naval. 391 (1950). 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. v. the second buyer did not buy the land from a registered owner thereof.266 LAW ON SALES notice and binds third person who may subsequently deal with the same property. coming in first and second. with registration under the Torrens system and the rule on public auction sales under the Rules of Court. although the second buyer was able to register the land under the Torrens system. Court of Appeals. respectively. and her act of registration under the Torrens system cannot cleanse her title of defect that it carried under the provisions of Act No. Under a global set of rules pertaining to double sales. If this were the case. The rulings in Dagupan Trading and Naval cover unusual cases. cited in Naawayan Community Rural Bank. but in fact she was the one who had the land subsequently registered. the particular rules provided under Article 1544 take only third rung. 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. with constructive knowledge of the previous sale which was deemed to have placed her in bad faith.152 In Naval. . the Court held that it cannot detract from the fact that she acquired the land as unregistered land. Inc. More importantly. 85 Phil.

. 391 (1950). Decree No.” is embodied within the “oldest 153 Bautista v. In his concurring opinion in Carbonell v. 154 69 SCRA 99 (1976).153 albeit in favor of first buyer.PERFORMANCE OR CONSUMMATION OF SALE 267 system. constitute nevertheless the primary rule.. Decree No. and has no application to unregistered land. Court of Appeals. 1546. which is “First in time. potior jure. priority in right. the “first in time. Whereas. 340 SCRA 154 (2000).e. Naval v. . involuntary dealings with registered land. it must be observed that the principle of “registration in good faith as the operative act. one has to go through the tests provided in Article 1544 before one may apply the main rule of prius tempore. 1459. encumbrances. 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. In addition. Bayoca v. however. like liens. is that the main rule is not the primary rule. 483 SCRA 102 (2006). i. like attachment and executions.” The peculiarity of it all. 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. The author offers no clear solution to these issues. For whatever it is worth. since the provisions of Article 1544. the priority rule under Pres. nor of the specific rules on auction sale under the Rules of Court. 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. although not the main rule. Nogales. although of utmost priority application. goes beyond contracts of sale. Decree No.e. as in fact the main rule is essentially a principle not embodied directly in a statutory provision.154 then Justice Teehankee had explained that Article 1544 is not the only rule pertaining to double sales. 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. “chain of title” theory). priority in right. Court of Appeals. Fule.” under Pres. 85 Phil. As pointed out earlier.

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

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

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. they have no application when the covered valid contracts are not yet demandable sales. In any event. 238. which was good only for 30-days. and then. .. The lack of ownership on the part of the seller does not affect the validity of an otherwise valid sale. the first buyer obtained an “anotacion preventiva” (now equivalent to an adverse claim).”161 The Court also held that the registration of the adverse claim. only for a period of 159 160 Torrecampo v. 42 Phil. 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. can hardly be said to be a sale of property. and the failure of the seller to effect proper delivery does not render the contract void. but merely constitutes a breach as the basis for rescission. 236 (1921).159 In the early case of Mendoza v. 517 SCRA 84 (2007). The second buyer paid the purchase price and obtained possession of the property. Kalaw. under a deed of absolute sale. before the performance of the condition. and the second buyer. at p. 161 Ibid.270 LAW ON SALES produce no legal consequences). Alindogon. b.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. and can be rescinded for breach of the obligation to deliver. such as when one or both the contracts in dispute are contracts to sell. 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. Sr. but the second contract itself would remain a valid contract. especially where the condition has not been performed or complied with.

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

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

Ibid. Dischoso v.” c. PORTIOR JURE (first in time.170 d. successors and predecessors-in-interest theories are not applicable to be able to obtain application of the provisions of Article 1544.171 As will be noted. 789-790 (1962). and the other buyer bought the right to redeem the same parcel of land. 170 169 . Rodaje. 171 Cruzado v. For not only was the contract between herein respondents first in time. Reiterated in Ong v.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. 485 SCRA 464 (2006). 34 Phil. 740. There Must Involve the Same Seller In a case where Buyer 1 bought the thing from Mr. at p. should apply in this situation. because the subject of the second sale is not the land itself. Article 1544 was deemed to be inapplicable. and the contending Buyer 2 bought the same subject matter from Mr. who in turn bought it from Mr. Jurisprudence teaches us that the governing principle of PRIMUS TEMPORE. 5 SCRA 781. Bustos. stronger in right). would be considered as “first in time. 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. Solera v. Seller. X. it was also registered long before petitioner’s intrusion as second buyer. 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. Civil Code.169 The Cheng ruling can only be interpreted to mean that the contract to sell whereby the suspensive conditions are first fulfilled. Seller. 530 SCRA 432 (2007). Roxas. 17 (1916). There Must Be “Sameness” of Subject Matter In a case where one buyer bought the parcel of land. Olasiman. but the right to redeem.

.173 e. Ong v. because it had been acquired by the first purchaser in full dominion. 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. . this requisite has been reiterated lately in Consolidated Rural Bank (Cagayan Valley). a contest between two buyers. citing C. Court of Appeals. A week later. the Seller sold the same 172 448 SCRA 347 (2005). Mayuga. if the second sale was made when such person was no longer the owner of the property. 174 69 SCRA 99 (1976). This is not so. Rodaje. Olasiman. the second purchaser cannot acquire any right. 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. 485 SCRA 464 (2006). VILLANUEVA. the Seller sold under a private instrument a registered parcel of land to Buyer 1. who in addition to paying cash to the Seller also updated the mortgage lien on said land with the mortgagee bank. Reiterated in Solera v.174 In Carbonell. 530 SCRA 432 (2007). who race against each other to comply with the hierarchical modes provided for in said article to have preferential right over the subject matter.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. as explained in Carbonell v. More specifically. Reiterated in Sigaya v. . it covers a situation where a single vendor sold one and the same immovable property to two or more buyers. 100 (1995). And even if the sale was made by the same person. one of them not being the owner of the property sold. 360. 173 Ibid. Inc. Court of Appeals. It cannot be invoked where the two different contracts of sale are made by two different persons. at p.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. in a manner of speaking. PHILIPPINE LAW ON SALES.. 467 SCRA 341 (2005). v.

the Court in the main decision held that when Buyer 1 bought the lot from the Seller.PERFORMANCE OR CONSUMMATION OF SALE 275 parcel of land to Buyer 2. Buyer 1 necessarily is in good faith compared to the second or subsequent buyer. Whereas. 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 starts his reasoning from the premise that both Buyer 1 and Buyer 2 were purchasers in good faith at . he registered an adverse claim on the title of the land with the Registry of Deeds. 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. who took possession thereof. would become a buyer in bad faith by his subsequent acquisition of knowledge of the first sale. Nor did Buyer 1’s good faith cease when she found out earlier of the subsequent sale to Buyer 2. In ruling for Buyer 1. Buyer 1 always has priority rights over subsequent buyers of the same property. As culled from the reasoning in the main decision of Carbonell. Buyer 2 registered his sale. Subsequently. Being the first buyer. 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. despite his subsequent acquisition of knowledge of the second or subsequent sale. 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. Buyer 2 who may have entered into the sale in good faith. In other words. 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. 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. Buyer 1’s prior purchase of the land was made in good faith. 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. Hence. the Buyer 1 under Article 1544 does not start from the same level as the subsequent buyers of the same subject matter.

but posits the main rule prius tempore. by delivery of possession. stronger in right). he must show that he acted in good faith throughout (i. 535 SCRA 123 (2007). Parungao.276 LAW ON SALES the respective dates of their purchases. 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. at pp. then Justice Teehankee indicated that the positive steps provided under Article 1544 are directed to Buyer 2. 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. thus: The governing principle here is prius tempore. 472 SCRA 241 (2005). but not to Buyer 1 because he is already by the rule of “first in time priority in rights” the preferred buyer. Such knowledge of the first buyer does not bar her from availing of her rights under the law. potior jure (first in time. since such knowledge taints his prior registration with bad faith.. .175 In essence. Tanglao v. 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. potior jure. 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. 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. Court of Appeals. 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. if he wishes to obtain preference of title to the subject matter. among them. 122-123. Reiterated in Ulep v.e. to register first her purchase as against the second buyer.

even as Buyer 2 runs the race (without actually knowing that he is in a race with the first buyer). he must register his sale without knowing of the first sale and before the first sale is registered. 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). Vda. v. Jr. Somehow. 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. Cabana. because his good faith remains throughout. In further refinement of the Carbonell doctrine on the main rule of priority in time. 129 SCRA 656 (1984). 200 SCRA 74 (1991). so long as Buyer 2 has not registered his sale. i. or take possession of the property without knowing of the first sale and before Buyer 1 takes possession thereof. by the fact that he is the first buyer. Gatmaitan v. That is why the specification of “good faith” in Article 1544 is addressed only to the second or subsequent buyer. 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. Buyer 1 just need to draw the attention of the second buyer as to his (Buyer 1’s) existence. On the other hand. Buyer 1 can end the race by registering his sale.176 and subsequent rulings. even if Buyer 1 learns of the second buyer.PERFORMANCE OR CONSUMMATION OF SALE 277 stands at the winner’s box. Buyer 2. that practically ends the race. Buyer 1. must run the race in a prescribed manner to win. 177 176 . Court of Appeals. Buyer 1 is basically the winner of the race without doing anything. Practically. for there is no way that legally Buyer 2 can topple Buyer 1 from the winner’s box..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.e. without knowing that there is already a winner. Court of Appeals. the decision in Caram. de Jomoc v. 200 SCRA 37 (1991). Buyer 1 can knowingly or unknowingly finish the race in his favor by simply registering his sale. And yet. Cruz v. If Buyer 1 registers his sale now aware of Buyer 2. Laureta.

the second buyer must act in good faith in regis178 Carbonell v. 183 340 SCRA 154 (2000). 69 SCRA 99 (1976). 182 Ibid. Court of Appeals. Nogales.. 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. 179 263 SCRA 15 (1996)..278 LAW ON SALES knowledge by Buyer 2 of the first sale is equivalent to registration in favor of Buyer 1.181 summarized it succinctly. registers the sale ahead of the first buyer. Court of Appeals. in good faith. but see dissenting opinion of Justice Muñoz-Palma. title or ownership will not transfer to him to the prejudice of the first buyer. Court of Appeals. quoting from Cruz v. and only a good faith second buyer is qualified to run the race.. when the second buyer.183 held that “to merit protection under Article 1544 . when it held that “before the second buyer can obtain priority over the first.178 As summarized by Justice Melo in Coronel v. 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.180 Uraca v.e. 399 SCRA 573 (2003). Court of Appeals:179 The . 181 278 SCRA 702 (1997). Gabriel v. acquires possession of the property ahead of the first buyer. .. in good faith. and (b) should there be no inscription by either of the two buyers. the exception being: (a) when the second buyer. 663 (1984). or (b) knowledge of the first sale makes Buyer 2 one in bad faith. he must show that he acted in good faith throughout (i. See also Martinez v. 180 Ibid.”182 Bayoca v. before he learns of the first sale. the second buyer satisfies these requirements. at p. Spouses Mabanta. Unless. Caban. 358 SCRA 38 (2001). by delivery of possession. On the other hand. 712. 37. provision on double sale (sic) presumes title or ownership to pass to the first buyer. 129 SCRA 656. at p. as the case may be..

such second buyer cannot defeat the first buyer’s title. f. 186 449 SCRA 99 (2005). 115-116. at pp. . Thus. 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.185 it was held that by applying Article 1544. at p. it has been held that in cases of double sale[s] of immovables. Impliedly included in the ruling is that the annotation of lis pendens by the first buyer 184 185 Ibid. the first buyer may seek reconveyance of the property subject of the sale. 512 SCRA 411 (2007). 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. v. 187 Ibid.186 where the Court held that the provisions of Article 1544 presented an actual race between the two buyers in equal level. the one who acquires it and first records it in the Registry of Property. Corp. Verily.”184 In Escueta v. 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. the act of registration must be coupled with good faith — that is. Lim. both made in good faith. without knowledge of any defect. in the title of the property sold. 166.PERFORMANCE OR CONSUMMATION OF SALE 279 tering the deed. thus: “When the thing sold twice is an immovable. Court of Appeals. 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. and if title has been issued to the second buyer. shall be deemed the owner. because the annotation was done at the time when first buyer already knew of the second sale. Peculiar Developments The rather well-established Carbonell doctrine seems to be undergoing indirect erosions by the obiter ruling in San Lorenzo Dev.

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

v. Tanongon v. Diaz-Duarte v. Ong. (2) Requisite of Full Payment Agricultural and Home Extension Dev. Spouses Mijares. 298 SCRA 388 (1998). Portic v. Reiterated in Diaz-Duarte v. i. 195 213 SCRA 563 (1992). . 196 SCRA 705 (1996). Bondong. Cristobal. 382 SCRA 130 (2002). Tanglao v. 366 SCRA 324 (2001). Court of Appeals.192 Reference must be made however to the isolated rulings in Santiago v. Millena v. 260 SCRA 593 (1996). Court of Appeals. v. Court of Appeals. Court of Appeals. Galvez v. Mathay v. Ong. 261 SCRA 128 (1996).e. 485 SCRA 346 (2006).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. Samson. Court of Appeals.PERFORMANCE OR CONSUMMATION OF SALE 281 be discharged by mere invocation of the legal presumption of good faith. Court of Appeals. 324 SCRA 126 (2000). Raymundo v. Republic. 382 SCRA 130 (2002). Aguirre v. Universal Robina Sugar Milling Corp. 526 SCRA 514 (2007). Spouses Mijares. 389 SCRA 316 (2002). Heirs of Aguilar-Reyes v. 535 SCRA 123 (2007). 193 247 SCRA 336 (1995). Samson. 565-565. Heirs of Aguilar-Reyes v. 532 SCRA 493 (2007). Group v. 295 SCRA 556 (1998). v. at pp.”196 If we take a close look at the definition given. 194 410 SCRA 484 (2003). Parungao. 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. 421 SCRA 310 (2004). 196 Ibid. Court of Appeals. 410 SCRA 97 (2003). Court of Appeals. San Roque Realty and Dev. that everyone is presumed to act in good faith. 410 SCRA 97 (2003). Corp. Balatbat v. Court of Appeals. Corp. Cruz. 298 SCRA 388 (1998).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. quoting from Co v. Court Appeals. 546 SCRA 577 (2005). 197 Veloso v. it actually includes as an element of good faith that there must be full payment on the part of the buyer.193 and Ten Forty Realty and Dev.. Heirs of Angel Teves.

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. . such as the presence of occupants/tenants thereon. expected from the purchaser of a valued piece of land to inquire first into the status or nature of possession of the occupants. 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. in the concept of owner. is not in actual possession. 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.. (3) Obligation to Investigate Known Facts Mathay v.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. Court of Appeals.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. 317 SCRA 696 (1999). an ocular inspection of the premises involved is a safeguard a cautious and prudent purchaser usually takes. whether or not the occupants possess the land en concepto dueño.e. as in this case. Should he find out that the land he intends to buy is occupied by anybody else other than the seller who. Nevertheless. it would 198 295 SCRA 556 (1998). of course. he may do so only when he acts with equity. thus: . it is.. which is that he is an innocent purchaser for value and in good faith. Also Modina v. i. As is the common practice in the real estate industry.. Although it is a recognized principle that a person dealing on a registered land need not go beyond its certificate of title. Court of Appeals.

PERFORMANCE OR CONSUMMATION OF SALE 283 then be incumbent upon the purchaser to verify the extent of the occupant’s possessory rights. Escueta v. Parungao. 200 421 SCRA 310 (2004). Court of Appeals. They cannot simply rely upon the title. Lim. 512 SCRA 411 (2007). v.”199 As held in Aguirre v. . at pp. 575-576. but are obliged to enter upon an investigation of the actual condition and occupants of the subject property. because it would be standard in his business. Bermudez v.200 a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard. including real estate loans. 410 SCRA 97 (2003). 202 473 SCRA 570 (2005). 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. The Court held that in such an instance.202 expressed the special rule that applies to persons or entities who regularly engage in dealing with real estate. Reiterated in Tanglao v. The mortgagee who eventually ended buying the property at the public auction held for the foreclosure of the mortgage. the mortgagee is charged with greater diligence that ordinary buyers or encumbrances for value. 535 SCRA 123 (2007). 533 SCRA 451 (2007). Court of Appeals.201 (4) Special Rule on Real Estate Market Players Expresscredit Financing Corp. 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. and then claim that he acted in good faith under the belief that there was no defect in the title of the vendor. 199 Ibid. Heirs of AguilarReyes v. Samson. 201 Reiterated in Tanongon v. 382 SCRA 130 (2002). 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. Spouses Mijares. Velasco. 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. as a matter of due diligence required of banks and financing companies.

Reiterated in Heirs of Severa P. the buyer can hardly be regarded as a buyer in good faith.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. Heirs of Celestial v. 535 SCRA 123 (2007). 358 SCRA 38 (2001). Inc.207 (6) Existence of Lis Pendens Agricultural and Home Extension Dev. Heirs of Ramos Durano. 206 Reiterated in Occeña v. Consolidated Rural Bank (Cagayan Valley). Court of Appeals. Heirs of Celestial.205 held that where the land sold is in the possession of a person other than the vendor.204 Heirs of Trinidad de Leon Vda. Sr. Raymundo v. 431 SCRA 116 (2004). 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. 208 Ibid. De Guzman. Court of Appeals. De Roxas v.284 LAW ON SALES (5) Land in Adverse Possession In Martinez v. 326 SCRA 267 (2000). 526 SCRA 514 (2007).”208 The ruling seems reasonable when it is a third party who annotates a lis pendens. 566. 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. 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. Uy. 207 Republic v. 408 SCRA 291 (2003). Parungao. 30 SCRA 565 (1998). v. at p. Esponilla. 204 203 .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. 205 422 SCRA 101 (2004). Bondong. 448 SCRA 347 (2005). Court of Appeals. otherwise without such inquiry. the purchaser must go beyond the certificate of title and make inquiries concerning the rights of the actual possessor. 344 SCRA 238 (2000). Gregorio v. v. Tanglao v.

. Court of Appeals. 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). the registration of an adverse claim places any subsequent buyer of the registered parcel of land in bad faith. Court of Appeals. . 211 Carbonell v. Inc.PERFORMANCE OR CONSUMMATION OF SALE 285 but would not be good law if it is one of the disputing buyers who annotates the lien. 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. 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.211 (7) Annotation of Adverse Claim In Balatbat v. v..210 In any event. 69 SCRA 99 (1976).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. 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. 316 SCRA 721 (1999).212 it was held that in the realm of double sales. A contrary ruling was issued in Limketkai Sons Milling. Court of Appeals. the ruling in Agricultural and Home Extension Dev. 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. The rule has been reiterated in Po Lam v. . 212 261 SCRA 128 (1996). because such annotation is equivalent to registration or at least affects the good faith situation of the second buyer. Court of Appeals.

Court of Appeals.214 If the annotation of an adverse claim.215 (8) Existence of Relationship In Pilapil v. but rather a state or condition of mind which can only be judged of by actual or fancied tokens or signs. he purchased the disputed property from [seller] on the basis of 213 214 Ibid. 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. as was the ruling in Limketkai Sons Milling. 215 250 SCRA 523 (1995). since “he deliberately chose to close his eyes to said facts and despite his personal knowledge to the contrary. 216 250 SCRA 560. which was good for 30-days only is sufficient to place a subsequent buyer in bad faith.213 The principle providing that the prior annotation of adverse claim places subsequent buyers in bad faith has been reiterated in Alfredo v. 142-143. Court of Appeals. the annotation of a lis pendens should have the same legal effect.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.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. at pp. then logically. Court of Appeals. tangible fact that can be seen or touched. v. knew of the previous sales and cannot be considered in good faith. not being really third parties. since the buyers “are deemed to have constructive knowledge by virtue of their relationship” to their sellers. Good faith. 217 421 SCRA 310 (2004). 566 (1995). . Inc. 404 SCRA 145 (2003). In Aguirre v. Borras. or the want of it is not a visible.216 the Court held that the sale to one’s daughter and sons will give rise to the conclusion that the buyers.

223 Carbonell v. showed that the buyer did not purchase the subject matter in good faith without notice of any defect in the title of the seller. Also Ulep v.220 the Court held that while one who buys from the registered owner does not need to look behind the certificate of title.223 Curiously Ibid. Court of Appeals. (10) When Dealing With Non-Registered Owner In R. and cancellation. Soriano. 220 517 SCRA 369 (2007). 543 (1995). 69 SCRA 99 (1976). Caliling. at p. 472 SCRA 241 (2005). 521 SCRA 68 (2007). v. Genato.222 Annotation of an adverse claim or lis pendens have been held to produce the same effect as formal registration. Requisites of Prior Registration “Registration” means any entry made in the books of the registry. Paredes v.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.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. 321. 300 SCRA 722 (1998). 250 SCRA 523. 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. Court of Appeals. Court of Appeals.R. 261 SCRA 128 (1996). 222 Cheng v. Court of Appeals. Inc. (9) Stipulations in Deed Showing Bad Faith In Limketkai Sons Milling. annotation. 219 218 . 221 Reiterated in Chua v. Balatbat v. 221 h. It is the entry made in the registry which records solemnly and permanently the right of ownership and other real rights. including both registration in its ordinary and strict sense. or in his capacity to transfer the land. and even marginal notes.

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

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

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

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

at p. Petitioners contend that they were in possession of the property and that private respondents never took possession 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. On the other hand. 261 SCRA 128 (1996). ownership would vest in the former because of the undisputed fact of registration.239 In Balatbat v. The Court held that undoubtedly this was a case of double sales of immovable property covered by Article 1544. The first buyer had caused the annotation of an adverse claim on the title of the subject property. . even if the latter is in actual possession of the immovable property. the one who has registered the sale in his favor. 88. the one who registered the sale in his favor has a preferred right over the other who has not registered his title. the writ was conditioned as follows “subject to the valid rights and interest of third persons over the same portion thereof.”241 The Court held that “[a]s between two purchasers. which is deemed sufficient compliance as mandated by law and serves notice to the whole world. 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. In addition. pursuant to a final judgment. 241 Ibid. at p.240 the seller sold his proindiviso share in a registered land co-owned with his children. represented by the Clerk of Court under the Rules of Court. 142. and is preferred to the notice of lis pendens annotated by the second buyer subsequently. the same entire lot was sold again by the same seller and his children. 134.”242 239 240 Ibid. at p. Subsequently. and hence ownership shall vests in the person acquiring it who in good faith first recorded it in the Registry of Property. Court of Appeals. As between two purchasers. 242 Ibid. petitioners have not registered the sale to them at all. 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.

A purchaser in good faith is one who buys property of another without notice that some other person has a right to.PERFORMANCE OR CONSUMMATION OF SALE 293 And yet. Following the foregoing definition. 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. in its obiter ruling on the particular issue raised in San Lorenzo Dev. Ibid. 116. such property and pays a full and fair price for the same at the time of such purchase..D. transfer ownership over the property to SLDC is concerned. More fundamentally... given the superiority of the right of SLDC to the claim of Babasanta the annotation 243 244 449 SCRA 99.. 117. However. or before he has notice of the claim or interest of some other person in the property. 1529)244 . we rule that SLDC qualifies as a buyer in good faith . . 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.. No.243 x x x.. Time and again. the vendors were still the registered owners of the property and were in fact in possession of the lands. . “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.. Corp. to wit. at p. Babasanta apparently relies on the principle of constructive notice incorporated in Section 52 of the Property Registration Decree (P.. . at which time the sale in favor of SLDC had long been consummated [with the] . At the time of the sale of the property to SLDC. or interest in..

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. 213 SCRA 415 (1992). (2) Possession Under Article 1544 Refers to Material and Symbolic Possession In Navera v. it is as if there is no registration at all.”247 Yet a reading of Abarquez would show that the ruling was addressed to the second buyer. the buyer of the first deed of sale executed in a public instrument had a better right. and the buyer who has taken possession first of the property in good faith shall be preferred. although the subsequent buyer took material possession thereof. that his prior registration cannot overcome the earlier possession by the first buyer. Court of Appeals. If the registration is done in bad faith. 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. resulting in the material and symbolic possession thereof being transferred 245 246 Ibid. 119. 248 184 SCRA 584 (1990). .248 where both deeds of sale over the same registered parcel of land were not registered with the Registry of Deeds. San Lorenzo cites Abarquez v. 118. 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. the registration constitutes a registration in bad faith and does not confer upon him any right.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. Court of Appeals. which was registered in bad faith. 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. 247 Ibid. at p.

40 Phil.. from the time of execution of the first deed up to the moment of transfer and delivery of possession of the lands to SLDC. So that when subsequently the second buyer took material possession of the same land. v.253 249 250 87 Phil. at p. Ramos. Simply stated. 116. 116-117. 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.PERFORMANCE OR CONSUMMATION OF SALE 295 to the latter. 159 (1950). he did so merely as a detainer. SLDC had no knowledge of the prior transaction of the Spouses Lu with Babasanta. At the time both deeds were executed.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. 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. 253 Ibid. at pp.252 . 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.. Court of Appeals. 614 (1919). 251 449 SCRA 99 (2005).249 and Sanchez v.250 (3) Possession Acquired in Good Faith Is Stable Status When the second buyer who takes possession of the subject matter in good faith. 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. Corp. 252 Ibid. . Rosete.

then the “oldest title” rule merely reflects the general rule of “First in time. which is actually the main rule in double sales. 256 Ibid.” 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. but that either the first to register or first to possess rules were not complied with. then there is no basis to apply such rules. potior jure. v. Inc. priority in right.296 LAW ON SALES j. at p. thus: (a) Where not all the requisites necessary to make Article 1544 applicable are present. priority in rights. 448 SCRA 347 (2005). it would be the general rule of Prius tempore. Genato. and the proper doctrine applicable should be the main rule of “Priority in time. 740. When Article 1544 Does Not Apply. provided there is good faith.”256 Notice that the rule of “first in time. Priority in Time Rule Applies In either of the following situations.” That means there is no race to run at all because the first buyer should always win over subsequent buyers. . priority in right.255 that the “governing principle” under Article 1544 is “first in time. priority in right. Court of Appeals. Article 1544 provides that ownership should go “to the person who presents the oldest title. This observation is consistent then with the statement in Cheng v. 255 300 SCRA 722 (1998).” 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).” In the second situation.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. or (b) Where the requisites to make Article 1544 applicable were present. which legal rule should apply to the case? In the first situation.

priority in right.” occupies the cellar position only when special rules do not apply. 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. 1582. Under a global set of rules pertaining to double sales. was first in time. perhaps because it is the least representative of the mode of tradition.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. it gives the seller the right to sue for 257 258 Art.e.. OBLIGATIONS OF BUYER 1. 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. (b) should object delivered produce fruits or income. Torcuator v. at most. Pay the Price Buyer is obliged to pay for the price at the time and place stipulated in the contract.258 Unless the parties have agreed to the payment of the price to any other party. or (c) in case the buyer is in default. 259 Montecillo v. Civil Code. 385 SCRA 244 (2002).260 Non-payment of the consideration in the sale does not prove simulation. Civil Code. then the first buyer in point of time should be preferred because his title (i. or any person authorized to receive. Reynes. 260 Art. . 1589. Bernabe. 459 SCRA 439 (2005). the legal basis upon which he can claim ownership over the subject matter). the principle of “First in time. then its payment to be effective must be made to the seller in accordance with Art.”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.PERFORMANCE OR CONSUMMATION OF SALE 297 had the first perfected and valid sale over the same subject matter with the same seller. from the time of judicial or extrajudicial demand.

263 Art. Sales Where goods are delivered to a carrier in accordance with an order from or agreement with the buyer. 280 SCRA 297 (1997). if there is no stipulation to the contrary. payment of the price is a “resolutory condition” and the remedy of the seller is to exact fulfillment or. 264 Art. 1582. . Civil Code.” or otherwise. Opportunity to Inspect Goods Where goods are delivered to the buyer. upon the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price. whether such terms are indicated by marking the goods with words “collect on delivery. to rescind the contract under Article 1191 of the Civil Code. Art. If the time and place should not have been stipulated. 1584. the payment must be made at the time and place of the delivery of the thing sold. Court of Appeals. Civil Code. the buyer is not entitled to examine the goods before the payment of the 261 262 Villaflor v.262 In case of goods. or when. 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. after the lapse of a reasonable time.264 (1) Exception: C. or when the goods have been delivered to him. the buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them. which he has not previously examined.298 LAW ON SALES collection. 1585.D. in case of a substantial breach.O. Civil Code. Generally in a sale.261 2. 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.263 a. and he does any act in relation to them which is inconsistent with the ownership of the seller. he retains the goods without intimating to the seller that he has rejected them.

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

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

or warehouse receipt or order for the delivery of goods. 1636. 56 Phil. quedan. 1 2 Art. Civil Code. and (b) As the medium of transferring title and possession over the goods described therein. Hongkong & Shanghai Bank. 301 . v. it is a representation that the one to whom the possession of the receipt has been so entrusted has the title to the goods. 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. National Bank. and had the effect of divorcing the property covered from the estate of the insolvent.301 CHAPTER 7 DOCUMENTS OF TITLE DEFINITION AND FUNCTION A “document of title of goods” includes any bill of lading. 3 Philippine Trust Co. In an early case. 42 Phil. or any other document used in the ordinary course of business in the sale or transfer of goods. In another case. 413 (1921). dock warrant. but the entrusting of the receipt is more than the mere delivery of the goods. goods represented by such document. either by endorsement or by delivery.1 Documents of title therefore serve two (2) functions: (a) As evidence of the possession or control of the goods described therein. as proof of the possession or control of the goods.3 the Court held that the endorsement and delivery of a negotiable quedan prior to the filing of the petition for insolvency. Siy Cong Bieng v. 598 (1932). operates as the transfer of possession and ownership of the goods referred to therein.

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

especially those which are negotiable in character. b. 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. 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. Through the incorporation into our statutes of the commercial system of documents of title. Therefore. .6 6 Art. 1507. Negotiable Document of Title A document of title in which it is stated that the goods referred to therein are deliverable “to bearer. Civil Code.DOCUMENTS OF TITLE 303 Articles 1507 to 1520 of the Civil Code should be treated as having suppletory effect. TYPES OF DOCUMENTS OF TITLE 1. for their common acceptance by persons engaged in commerce. 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. 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. is a negotiable document of title. the provisions on documents of title are geared towards assuring the public to take. but evolved from the commercial practices of merchants and gained much acceptance under clearly defined commercial customs.” or “to order” of any person named in such document. and deal with transactions over goods and merchandise by means of the documents of title issued in representation thereof. accept. Rationale for Documents of Title Documents of title are not innovations or inventions of law. the State has therefore placed its “seal of approval” and legal guarantee upon the institution of documents of title.

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

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.10 2. Civil Code. 12 Art. where such person or a subsequent endorsee of the document has endorsed it in blank or to the bearer. or if at the time of such entrusting the document is in such form that it may be negotiated by delivery. coupled with a delivery thereof. Civil Code. any holder may endorse the same to himself or to any specified person. How Negotiation Properly Effected a. 1508.DOCUMENTS OF TITLE 305 (b) Any person to whom the possession or custody of the document has been entrusted by the owner. 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.12 b. 13 Art. Art. Civil Code. if. 1508. 1509.11 In either of the above-enumerated cases. warehouseman or other bailee issuing the same undertakes to deliver the goods “to bearer. . Civil Code.” and (b) Even when originally the document of title was issued “to the order” of a specified person.13 10 11 Art. 1512. and in such case the document shall thereafter be negotiated only by the endorsement of such endorsee. 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.

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. 1509. Art. 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.306 LAW ON SALES Such endorsement may be in blank. Although the law does not include “one who takes by trespass or a finder” within the description of those who may negotiate. If endorsed to a specified person. Civil Code. 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. it may again be negotiated by the endorsement of such person in blank. Subsequent negotiations may be made in like manner. to bearer or to another specified person. (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. 1513. to bearer or to a specified person. . the clear import of these provisions is that if the owner of the goods 14 15 Art. Civil Code. 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.14 3.

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

nevertheless. Since a negotiable document of title cannot be dealt with apart from the goods that it covers. 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. may recover it from the person in possession of the same. meaning that the negotiation shall take effect as of the time when the endorsement is actually made.” the same cannot apply to a . duress or conversion (referred to hereinafter as “holder in due course”). theft. Even when the owner loses the negotiable document of title to a thief.308 LAW ON SALES the document unless a contrary intention appears. loss. 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. who is essentially a buyer in good faith and for value. under Article 1518. 5. mistake. fraud. 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. necessarily the legal consequences as to the effects of unauthorized negotiation thereof would also pertain to the goods that it describes. (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 latter may validly impart title thereto to a holder in due course. accident. and it is deliverable to bearer.

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. 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. In Siy Long Bieng v. the latter is preferred.. 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. which rules are different to those applied when the 17 56 Phil.e. 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.. 598 (1932). The immediately foregoing comments refer to problems relating to the custody and negotiation of a negotiable document of title.” The effects of unauthorized negotiation of a negotiable document of title are much more liberal and protective of the holder (i. Hongkong and Shanghai Banking Corp. accident [and] conversion. under the principle that as between two innocent persons. 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.DOCUMENTS OF TITLE 309 holder in due course of a negotiable document of title because the enumerated instances in Article 1518 includes specifically “loss. 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. fraud. . he who made the loss possible should bear the loss.

20 18 19 Art. and (b) The right to notify the bailee who issued the document of the transfer thereof. 20 Art. ASSIGNMENT OF NON-NEGOTIABLE DOCUMENTS OF TITLE 1. Effects of Transfer by Assignment A person to whom a non-negotiable document of title has been duly assigned acquires thereby. . otherwise it “shall produce no effect as against third persons.310 LAW ON SALES problem relates to the goods covered by the negotiable document of title. its sale constitutes actually an assignment which under Article 1624 is perfected by mere consent. 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. Civil Code. subject to the terms of any agreement with the transferor. Civil Code.19 Since a non-negotiable document of title constitutes an incorporeal right. as against the transferor: (a) The title to the goods. Art. Such separate rules are discussed below. 1511. 1511. 1514.18 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. but which under Article 1625 would require its appearance in a public instrument. Civil Code.” 2. 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.

Unlike under the Negotiable Instruments Law which imposes warranties on the endorser. Likewise. (b) He has a legal right to negotiate or transfer it. and (e) The goods are merchantable or fit for a particular purpose. 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. including one who assigns for value a claim secured by a document of title. 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. unless a contrary intention appears. and one who assigns a non-negotiable document of title are the same. in the assignment of a non-negotiable document of title.21 The warranties of one who negotiates a negotiable document of title. . Article 1517 of the Civil Code 21 Art. (d) He has a right to transfer the title to the goods. 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. (c) He has no knowledge of any fact which would impair the validity or worth of the document. 1516. 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. warrants that: (a) The document is genuine. 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.” 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. for which the document of title has been issued by the bailee.. had valid title to the goods described therein and deposited with the bailee. and under the premise that the assignee-buyer had obtained possession of the goods by the proper notification to the baillee of such purchase. the situation would have to be governed by the formula provided under Article 559 of the Civil Code. unless it has been so expressly stipulated or unless the insolvency was prior to the sale and of common knowledge. and the defect or illegality pertained only to the custody and negotiation of the document of title.e. the seller/assignor of the document of title also warrants the existence and legality of the documents of title at the time of sale. under Article 1628 thereof. unless it has been sold as doubtful. What happens in a situation where the legal owner of the document of title (i. had in fact no valid title to the goods deposited.. the person who deposited the goods with the bailee). When Goods Covered by Non-Negotiable Document Where the goods are covered by a non-negotiable document of title. 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. or the transferor thereof.e. the bailee). but that he does not warrant the solvency of the debtor (i. who is rightfully entitled to the goods? 1. .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.

” In such situations. is clearly evidenced by his being a holder in due course of the negotiable document of title. and in such case the assigneebuyer’s title to the goods must be derived from that of the assignorseller’s. which by itself would constitute as an original source of ownership under Article 559. because Article 559 expressly does not give to the assignee-buyer any original title. 2. if the owner had lost or been unlawfully deprived of the goods. the owner may recover against the bailee. the assignee-buyer’s ownership to the goods is not derived from the assignor-seller. if the owner had lost the goods or been unlawfully deprived thereof.DOCUMENTS OF TITLE 313 In all situations where the owner had neither lost nor been unlawfully deprived of the goods. even when the latter is in good faith and bought for value. On the other hand. On the other hand. 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. If the owner had neither lost nor been unlawfully deprived of 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. then the holder-buyer acquires valid ownership of such goods because his possession in good faith and for value. then it becomes apparent that the same principles under Article 559 of the Civil Code would have to apply. If the assignor-seller had no title to the goods sold. 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. the owner may recover against the assignee-buyer. the assignee-buyer’s title to the goods is preferred even against the owner who can no longer recover the goods. . 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. In such cases. the assignee-buyer receives no title even if the goods are delivered to him under the principle Nemo dat quod non habet.

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

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

actions can be taken by the original owner to defeat the transfer of the title and/or possession of the goods. 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. does not transfer possession or title over the goods covered by the document of title. ownership over the document of title is transferred to the assignee. . possession and ownership of the document of title (by assignment) does not necessarily bring with it possession or title over the goods covered thereby. 1514. 2. Civil Code. 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. 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. Even when by the execution of a public instrument to assign the non-negotiable document of title. the assignment or sale by the original owner of the non-negotiable document of title. 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. 1532. even when executed in a public instrument.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.22 In effect. nevertheless. Art. Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title.23 In the case of a non-negotiable document of title. Civil Code. 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.

Art. such goods cannot thereafter. Civil Code. 1519. while in possession of such bailee. In such case.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. 1519. 1520. and vice-versa. .26 —oOo— 24 25 Art.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. 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. Civil Code. 26 Art.DOCUMENTS OF TITLE 317 faith for value would bind the owner and a negotiable document of title is issued for them. The goods are treated to be inseparable from the negotiable document of title covering them. Civil Code. 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.

Court of Appeals. Limketkai Sons Milling. or (b) only has a voidable title thereto. The perfection stage. v. Court of Appeals. The author begs indulgence with the reference to “sale” as though it were a person or a “being. as a contractual reality.” This is resorted to only for the purpose of demonstrating more clearly the essence of its “life.” PHILOSOPHICAL DISCUSSIONS ON STAGES IN THE LIFE OF SALE Sale has two stages in its life. sale has variant stages as it goes through its legal existence. begins to exist: upon a meeting of minds as to the subject matter to be delivered and the price to be paid. considering that sale is a progressive contract. 244 SCRA 320 (1995). 268 SCRA 160 (1997). Court of Appeals.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. Inc.” The discussions hereunder would also demonstrate the rather loose manner by which the Supreme Court uses the terms “sale. v. as it were. 318 . v. is best conceptualized as that “point in time” when the sale. of its “life. provide revealing angles in the way one looks into the nature of the contract of sale. Inc. 250 SCRA 523 (1995). Court of Appeals. and like the metamorphosis that a larva undergoes. Inc. 238 SCRA 602 (1994). the perfection stage and the performance or consummation stage. Toyota Shaw. Jovan Land.” and “sold” in evolving doctrinal pronouncements on the nature of sale itself.1 1 Ang Yu Asuncion v. and the stages. although it may involve a period of time.” “sell.

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

. as in fact they are premised upon a previous perfection having taken place. Civil Code. Inc. Villalba. 6 Navarro v. 363 SCRA 545 (2001). Co v.. 5 Balatbat v.7 or even a thing subject to a resolutory condition. Sugar Producer’s Corp.4 and not by performance of an act. and (c) terms of payment of the price.5 Consent or perfection of the sale is manifested by the meeting of the offer and the acceptance on three items: (a) subject matter.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. The Intestate Estate of Marcelo M. Civil Code. 9 Arts. At Perfection Sale is consensual in nature since it is perfected or comes into legal being by mere consent. v. 1461. such as delivery in real contracts. and they do not attack the very essence of perfection. 1475 Civil Code. a valid sale can cover a subject matter that is not existing or having only a potential existence at the time of perfection. Court of Appeals. Also. 7 Art. or even if it existed then but did not belong in ownership to the seller at that time of perfection. 1465. 8 Art. Court of Appeals. Jovan Land. WHEN SELLER IS NOT OWNER OF THE SUBJECT MATTER 1. 263 SCRA 15 (1996). 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. Peñalosa v.320 LAW ON SALES obligations that can be breached. Court of Appeals. 1459 and 1475. 417 SCRA 277 (2003). 268 SCRA 160.9 In other words. Coronel v. neither does it allow a rescission of a contract that in the first place has no legal existence.6 Although a sale ordinarily covers existing things. Court of Appeals. 163-164 (1997). 312 SCRA 528 (1999). Leabres v. The point being made is this: Both breach and rescission are legal concepts that necessarily pertain to the consummation or performance stage. 1 SCRA 12180 (1961). Court of Appeals. Civil Code. Soliva v. Santos. 299 SCRA 695 (1998). 146 SCRA 158 (1986). Court of Appeals. nor does it require the payment of price for its validity. 4 Art. (b) price. Quijada v. 261 SCRA 128 (1996).

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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.

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

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. 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. 5143 (1958). as a result of some intervening causes. The doctrine of caveat emptor is 49 54 O. . the sale by a sheriff of land levied upon at public auction would validly transfer ownership to the highest bidder. Also. a person who buys a thing at a merchant’s store after the same has been put on display thereat. although the sheriff in executing the certificate of sale has no ownership over said property. 3. v. 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. 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.. 4.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. the latter must be protected. This rule is necessary in a country such as ours where free enterprise prevails.. for a buyer cannot be reasonably expected to look behind the title of every article when he buys at a store. . 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. acquires a valid title to the thing although his predecessors in interest did not have any right of ownership over it. Statutory Power. 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.G.

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

would the buyer in good faith and for value take a “better title” to the land (i. 1529.”53 6. Inc. if a seller at the time of sale and delivery. even though in good faith and for value. at p. 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. . show that the buyer did not purchase the subject matter in good faith without notice of any defect in the title of the seller. v. takes only the same title to the land which his seller had.e. Consequently. when the seller of a parcel of land has only voidable or void title to the property. has only voidable title to the subject parcel of land. and in spite of actual or constructive delivery. valid title) than that of his seller. 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.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. 113 of the Property Registration Degree. but necessarily the element of transfer of possession embodied as the primary test of ownership for movables under Article 559 of the Civil Code. Applicable Rules to Immovables Do the rules provided for under Articles 1505 and 1506. following the principle under Article 1506? The answer seems to be in the negative. 543. 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. Decree No. Ibid. In the deed. since the essence of the coverage of Articles 1505 and 1506 would be “goods. 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. then the buyer. apply to immovables? For example.54 By 52 53 Limketkai Sons Milling. 250 SCRA 523 (1995).” which require not only a valid underlying sale. Court of Appeals. 54 Pres.

338 LAW ON SALES way of illustration. we can rely upon the ruling in Heirs of Spouses Benito Gavino v. at p. acquire rights over the property. though essentially a “forced sale. Spouses Cyrus Lim.57 the Court applied the same principle to a foreclosure sale.. contrary to the evident purpose of the law. Court of Appeals. This is the reason why Article 2085 of the Civil 55 56 291 SCRA 495 (1998).. thus — . thus — . the rule that the seller must be the owner of the thing sold also applies in a foreclosure sale. the forced seller. Being a sale. the general rule that the direct result of a previous void contract cannot be valid. in turn.55 In that decision.56 In Cavite Development Bank v. 57 324 SCRA 346 (2000). otherwise. Ibid. 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).. relying on the correctness of the certificate of title thus issued.. Reiterated in Clemente v.” on the ground that it is still a sale in accordance with Article 1458 of the Civil Code. . since the effect of such outright cancellation will be to impair public confidence in the certificate of title. 509. Razo. Where innocent third persons. becomes obliged to transfer the ownership of the thing sold to the highest bidder who. 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. 452 SCRA 769 (2005). The sanctity of the Torrens system must be preserved. is inappicable when it will directly contravene the Torrens system of registration. 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. under which the mortgagor in default. is obliged to pay the bid price in money or its equivalent. the court cannot disregard such rights and order the cancellation of the certificate.

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. the principle is premised on the existence of a valid sale. and not under a forged deed. 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. relied upon what appears on the face of the certificate of title. requires among other things. his title being fraudulent. despite the fact that the mortgagor is not the owner of the mortgaged property. a situation where. v. at p. Court Appeals. 358. the mortgage contract and any foreclosure sale arising therefrom are given effect by reason of public policy. Likewise. 366 SCRA 324 (2001). are not required to go beyond what appears on the face of the title. protects a buyer or mortgagee who. especially when there was a letter received by the buyer revealing such fact. Insurance Services and Commercial Traders. 58 59 Ibid. . that the mortgagor or pledgor be the absolute owner of the thing mortgaged. Court of Appeals.58 It should be noted that in Tsai v. as buyers or mortgagees.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. in providing for the essential requisites of the contract of mortgage. as evidence of the lawful ownership of the land or of any encumbrance thereof. Inc. 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. There is however. 60 341 SCRA 572 (2000).SALE BY A NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE “LIFE” OF CONTRACT OF SALE 339 Code. in good faith.59 the Court held that the defense of indefeasibility of Torrens title is unavailing to properties and other improvements situated or built therein.

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

Subsequently. . buyer sold the vehicle to another person. 3792 (30 June 1957). the rights of stranger in good faith. 65 184 SCRA 614 (1990).SALE BY A NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE “LIFE” OF CONTRACT OF SALE 341 In Tagatac v. which check bounced. the acquisition subsequently of another person who took it in good faith. but the title to the thing sold would not revert to the seller until the sale has been set aside by a competent court. No. On the issue as to who was the rightful owner of the vehicle. Feist was convicted for estafa. 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. and eventually the vehicle was sold to 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. Santos. In EDCA Publishing & Distributing Corp. In the meantime. 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. 13 SCRA 486 (1965).G. Jimenez. In the case of Aznar v. Yapdiangco. 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. 12.64 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. at the most it would give Tagatac a right to rescind the contract. v.63 Tagatac was the owner of a vehicle she sold to Feist who issued a check to cover the purchase price. acquired before resolution of the contract are entitled to protection. Until that is done. The impostor sold the books to Santos.65 an impostor identifying himself as a professor obtained delivery of books from EDCA and for which he issued a check that subsequently bounced. who bought it in good faith and for value. 63 64 53 O.

although amounting to fraud. In Tagatac. In the resulting suit over the books between EDCA and Santos. 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. so that when delivery was effected pursuant to such voidable contract. the Court ruled that deceit or fraud. did not amount to unlawful deprivation under Article 559. and the subsequent sale and delivery by the impostor of the books to Santos effectively transferred ownership to Santos. even though he was a deceitful person. the buyer obtains good title and the original owner has no cause of action to recover.342 LAW ON SALES who bought them in good faith and for value. In denying the contention of EDCA that it had been “unlawfully deprived” of the books. which do not render the contract void but merely voidable (valid until annulled) resulted into the existence of a sale. 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 non-payment of the purchase price by the impostor. but that so long as the contract has not been annulled. 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. which means that if the owner has been unlawfully deprived by means of deceit pertaining to the non-payment of the purchase price. but merely may be considered vitiation of consent as to make the contract voidable. 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. 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. . it remained valid. tradition effectively and legally transferred ownership to the buyer.

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

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

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

Ibid. The civil law concept of risk of loss was exemplified by the early case of Roman v. Code. the schooner sunk during a severe storm. 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. now Art. but subject to the condition that the seller must clear his title to the vessel. 1450 of the old Civil Code. The seller then went about clearing his title to the schooner and prepared it for delivery to the buyer. The seller demanded for the payment of the purchase price as agreed upon.”4 Unfortunately. at p.2 which was decided under the Spanish Civil Code then in force in the Philippines. in which case the sale is considered perfected. The case involved the negotiations for the sale of a schooner for a total sum of 51.” such a statement of course belied the consensual nature of the contract of sale. 4 5 . 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. But before delivery to the buyer could be done. 96 (1906). 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.346 LAW ON SALES therefore no assumption of risk of loss or deterioration can be ascribed to the latter.”3 The Court held that the facts clearly show that no sale had been perfected.00 payable in three installments. Ibid. before the buyer would commit to buy at the agreed price. 99.500. even though neither has been actually delivered. 98. perfected by mere consent without need of delivery. finding that no sale had been perfected between the parties. Grimalt. and therefore “the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it. at p. In any event.”5 Although the Court used the word “perfected. citing Art. 1475 of the New Civil Ibid.

6 Article 1493 does not hold a sale at “perfection” to be void when the object thereof is lost. the goods have perished in part or have wholly or materially deteriorated in quality as to be substantially changed in character. if the subject matter is lost. even without the schooner being delivered to the buyer to transfer ownership.LOSS AND DETERIORATION. 1494.” But if the thing should have been lost in part only. 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. or as valid in all of the existing goods or in so much thereof as have not deteriorated. 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 buyer may treat the sale as either avoided. if at the time the sale is perfected. after the contract has been perfected. However. if the sale was divisible. from the moment of perfection to the time of delivery.” Strictly speaking. and as binding the buyer to pay the agreed price for the goods in which the ownership will pass. shall be to the account of the buyer. were not applicable to the case. Tolentino 6 Art. it uses the phrase “without any effect. New Civil Code. . In sale of specific goods. the law decrees the same effect as if the sale is void. the physical existence or non-existence of the subject matter is not important for perfection of the sale. the buyer may choose between withdrawing from the contract and demanding the remaining part. and without the knowledge of the seller. the subject matter has been entirely lost. Therefore. the contract shall be “without any effect. From the language of the decision of Grimalt the implication was clear under the old Civil Code: that had the contract been perfected. AT THE TIME OF PERFECTION Under Article 1493 of the New Civil Code. the buyer would have borne the risk of loss. FRUITS AND OTHER BENEFITS 347 when the thing is either lost or destroyed. paying its price in proportion to the total sum agreed upon.

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

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

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

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

CIVIL LAW REVIEWER (1980 ed. it is the buyer who bears the risk of loss even if he never became the owner of the subject matter. but he would no longer be liable for damages if the thing is lost through fortuitous event. affirmed the view of Tolentino. JURADO. the buyer need not pay the price. The buyer is then 17 18 BAVIERA. if the determinate subject of the sale is lost through the fault of the seller. the seller is excused from his obligation to deliver the thing. and not being in breach of his obligation. would be for the account of the buyer. pp. but can recover damages for breach of contract. .”17 Jurado. he cannot be held liable for damages by the buyer. However.). but deterioration or improvement of the thing is for the account of the buyer. If the thing is lost through a fortuitous event. 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. Baviera also affirms such varying rules and says that “Article 1189 embodied the rule in Roman Law regarding sales subject to a condition precedent. should the determinate subject matter be lost through fortuitous event. the rule on loss under Article 1189. SALES (1981 ed. the risk of loss is to be borne by the buyer. even when he is not yet the owner of the subject property. where loss is borne by the vendor. As a result. as being more just and equitable and being more in conformity with the principle of res perit domino. 82-82.18 If we were therefore to take Paras’s stand. 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. 658-659. while the deterioration and improvement. the seller is excused from complying with his obligation. If we were to take Tolentino’s position. although recognizing and discussing the other views on the matter.352 LAW ON SALES Under Tolentino’s interpretation. would be different from the rule on deterioration and improvement: the loss of the thing would be for the account of the seller. pp. but the buyer is still obliged to pay for the purchase price.

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

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

with indemnity for damages in either case. To the same extent. after the contract has been perfected. the seller being considered the debtor. the rules in Article 1189 shall be observed. the impairment is to be borne by the buyer. should also pertain to the seller as the owner thereof. the improvements shall inure to the benefit of the buyer. 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. from the moment of the perfection of the contract to the time of delivery. FRUITS AND OTHER BENEFITS 355 at the time of perfection. (b) If the thing deteriorates through the fault of the seller. he shall have no other right than that granted to the usufructuary. the buyer may choose between the rescission of the obligation and its fulfillment. since any fruit or improvement of the subject matter after perfection. It further . shall be governed by Articles 1163 to 1165. in case of deterioration or improvement of the thing before its delivery. as it is applicable to a sale. but before delivery. (c) If the thing is improved by its nature. (d) If the thing is improved at the expense of the seller. 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. and 1262. Under Articles 1480 any injury to or benefit from the thing sold.LOSS AND DETERIORATION. Under Article 1538 of the New Civil Code. If such be the construction of Article 1504. or by time. 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. not only does it yield absurd results. Under Article 1189 of the Civil Code.

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

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

. 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. even assuming negotiation was in the process. 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. but beneficial interest actually pertains to the buyer. and benefits from the fruits and improvements. After delivery which effectively transfers title and beneficial interest to the buyer.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. 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. buyer bears both the risk of loss and deterioration. New Civil Code. as well as benefits from the fruits and improvements of the subject matter of sale. Prior to perfection. 1163.24 (b) The obligee has a right to the fruits of the thing from the time the obligation to deliver it arises. 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. 1164. or delay. negligence. Art. 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. or contravene the 24 25 Art. At that point. the obligor who incurs fraud.25 (c) When what is to be delivered is a determinate thing. deterioration. 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. both title and beneficial interests pertain to the seller and therefore he must bear the risk of loss. New Civil Code.

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

29 the general rule is that the owner must bear the risk of loss. 1502.28 or where the buyer does not intend to have dominion. then he who bears the risk of loss or deterioration. such as C. not merely nominal. which in this case would be the seller. New Civil Code. where delivery of the goods has been made to the buyer or to a bailee for the buyer. 1524 and 1584. Art. In such instances. When the seller intends to have control over the goods until the buyer has complied with certain obligations.360 LAW ON SALES minate thing. 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. and therefore he must bear the risk of loss. deterioration and improvement. the title that has remained with the seller is dominical. although the goods remain at the risk of the owner thereof. and who benefits from the improvement of the thing. and in turn he must bear the risk of deterioration.O. Under Article 1504. such as sale on approval or trial. the benefits and improvements over the subject matter are for the account of the obligee-buyer. title did not determine who bears the risk. To perhaps oversimplify the unifying doctrine on the risk of loss. New Civil Code. although the seller has ownership still over the subject matter. . 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.D. and the beneficial interest is with the buyer. —oOo— 28 29 Arts. use or control over the goods until certain conditions are met. sale. When title and beneficial interest do not merge in the same party. the goods are at the buyer’s risk from the time of such delivery. since the accompanying obligations of the obligor shows that he possesses the goods for the benefit of the buyer. In such case. because such title was merely nominal. should be the party who at that point in time is understood to have the beneficial interest over the subject matter.

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

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

Sale of Goods a.REMEDIES OF PARTIES 363 2.14 b. 12 . the seller may maintain an action against him for damages for non-acceptance.e.11 i. Art. When Buyer Wrongfully Neglects/Refuses to Accept Goods Where the buyer wrongfully neglects or refuses to accept and pay for the goods. No Transfer of Ownership to Buyer — When the ownership in the goods has not passed. Civil Code. 1595. thereafter..13 However. an action for specific performance. may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Civil Code. Civil Code. Civil Code. 13 Art. if the buyer refuses to receive them. 1595. and. 1596. Civil Code. the seller may maintain an action against him for the price of the goods.15 in accordance with the following rules: 11 Art. the seller may offer to deliver the goods to the buyer. 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. 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.12 When Price Payable on Certain Day — Where the price is payable on a certain day. and the buyer wrongfully neglects or refuses to pay such price. 1595. 14 Art. the seller may treat the goods as the buyer’s and may maintain an action for the price. 1595. irrespective of delivery or of transfer of title. 15 Art. if they cannot readily be resold for a reasonable price. the seller may maintain an action for the price although the ownership in the goods has not passed.

(b) Where there is an available market for the goods in question. if no time was fixed for acceptance. 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. . 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. 1596. 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. or. provided it does not involve physical intrusion into the person or privacy of the buyer in default. 16 Art. (c) If the buyer repudiates the contract or notifies the seller to proceed no further. then at the time of the refusal to accept. Civil Code.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. in the absence of special circumstances showing proximate damage of a different amount. by being able to achieve legal effects without need of seeking the intervention of the courts.16 B. 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.

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. the insolvency of the buyer. In the case of the remedies of the unpaid seller. (b) Stoppage in transitu. or (b) When a bill of exchange or other negotiable instrument has been received as conditional payment. Civil Code. 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.17 2. 1525. whether or not ownership over the goods has been transferred to the buyer. 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. or otherwise. 1. or any other person who is in the position of a seller.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. or is directly responsible for the price. 17 Art. The term “unpaid seller” includes an agent of the seller to whom the bill of lading has been indorsed. the unpaid seller is entitled to the following rights or remedies: (a) Possessory lien. Rights of Unpaid Seller When a seller is an “unpaid seller” as defined by law. . or consignor or agent who has himself paid. 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.

3. in addition to his other remedies. notwithstanding that the ownership in the goods may have passed to the buyer. and (d) Special right to rescind. delivery of the goods to the buyer transfers ownership to the latter. Civil Code. Civil Code. or if no period for the payment has been fixed in the contract. as in fact. a right of withholding delivery similar to and co-extensive with his right of lien. the unpaid seller has. and are not of the same nature as the right to rescind accorded under Article 1191 of the Civil Code to reciprocal contracts. . Art. 1526. Possessory Lien The general rule is that when it comes to movables. 20 Art. if the buyer has not paid him the price. and the non-payment of the price does not prevent such transfer of ownership as a result of tradition to take effect. 1524.18 However.19 Where the ownership in the goods has not passed to the buyer. in the absence of stipulation to the contrary.366 LAW ON SALES (c) Special right of resale. Civil Code. The four (4) remedies of an unpaid seller have a hierarchical application. The designation “special” is attached to the rights to resell and to rescind. 1526. the seller is not bound to deliver the thing sold. 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. 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. 18 19 Art. because they are rights accorded only to the unpaid seller as technically defined by law.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. If the seller is an unpaid seller as defined by law.

(c) Where the buyer becomes insolvent. Civil Code. or other bailee who issued such document. he may exercise his right of lien on the remainder. 1528.22 a. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. Art.23 b. 23 Art. Civil Code. no seller’s lien shall defeat the right of any purchaser for value and in good faith to whom such document has been negotiated. 21 22 Art. whether such negotiation be prior or subsequent to the notification to the carrier. 24 Art.24 c. When Negotiable Document of Title Issued If a negotiable document of title has been issued for goods. 1527. of the seller’s claim to a lien. Civil Code. unless such part delivery has been made under such circumstances as to show an intent to waive the lien or right of retention. unless the seller assented thereto. 1535. 1535. 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. but the term of credit has expired. Civil Code. When Part Delivery Effected Where an unpaid seller has made part delivery of the goods. . 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.21 The unpaid seller’s right of lien is not affected by any sale.

27 a. Stoppage in Transitu Notwithstanding that the ownership in the goods may have passed to the buyer. 27 Art. In that case. the unpaid seller of goods. having a lien thereon. in case of the insolvency of the buyer. he still has the remedy of stoppage in transitu. Civil Code. When Negotiable Document of Title Issued If a negotiable document of title has been issued for goods. (c) By waiver thereof. he may resume possession of the goods at any time while they are in transit. does not lose his lien by reason only that he has obtained judgment or decree for the price of the goods. . a right of stopping the goods in transitu after he has parted with the possession of them. unless the seller assented thereto. when the buyer of goods is or becomes insolvent. that is to say.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. when he parts with physical possession of the goods. the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu. as when he delivers the goods to the carrier. 4. the unpaid seller losses his possessory lien.368 LAW ON SALES (b) The buyer or his agent lawfully obtains possession of the goods. but only if the buyer has in the meantime become insolvent. Art. 1529. Civil Code.25 As will be noted. 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. Civil Code. However. 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. 1535. the unpaid seller of goods has. 1526.

1535. the carrier or other bailee acknowledges to the buyer or his agent that 28 29 Art. or other bailee for the purpose of transmission to the buyer. Civil Code. or other bailee who issued such document. 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. whether insolvency proceedings have been commenced or not. whether such negotiation be prior or subsequent to the notification to the carrier. or (b) If the goods are rejected by the buyer. 30 Art.28 b. 1531. takes delivery of them from such carrier or other bailee.30 d. 1636(2). or his agent in that behalf. . When Buyer Is Deemed “Insolvent” Under the Law on Sales. or air. Civil Code. 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.REMEDIES OF PARTIES 369 has been negotiated. (b) After the arrival of the goods at the appointed destination. even if the seller has refused to receive them back.29 c. water. of the seller’s claim to right of stoppage in transitu. Civil Code. 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. Art. and the carrier or other bailee continues in possession of them. until the buyer.

How Right Is Exercised The unpaid seller may exercise his right of stoppage in transitu either by: (a) Obtaining actual possession of the goods. Civil Code. to be effectual. must be given at such time and under such circumstances that the principal.31 If the goods are delivered to a ship. 1531.33 f. 1531. When Part Delivery Already Made If part delivery of the goods has been made to the buyer. . or his agent in that behalf. the remainder of the goods may be stopped in transitu. Civil Code. or airplane chartered by the buyer. Art. Civil Code. When notice is given. or (b) Giving notice of his claim to the carrier or other bailee in whose possession the goods are. by 31 32 Art. In the latter case the notice.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). 33 Art.32 e. truck. 1531. (c) The carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent. such notice may be given either to the person in actual possession of the goods or to his principal. whether they are in the possession of the carrier as such or as agent of the buyer. freight train. 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. it is a question depending on the circumstances of the particular case.

Civil Code. Civil Code. Art. but only under the conditions provided by law. the seller. the unpaid seller has a special right of resale. he must redeliver the goods to.34 When notice of stoppage in transitu is given by the seller to the carrier. The expenses of such delivery must be borne by the seller. 1532. Civil Code. 1532. 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.37 a. Civil Code. 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. 1532. that he can then proceed with his other special rights of resale or to rescind. Special Right to Resell Goods Notwithstanding that the ownership in the goods may have passed to the buyer. and under any of the following conditions: (a) The goods are of perishable nature. . 37 Art. may prevent a delivery to the buyer.REMEDIES OF PARTIES 371 the exercise of reasonable diligence. or 34 35 Art. 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.35 g. 36 Art. 5. or according to the directions of. (b) Where the seller has been expressly reserved in case the buyer should make default. or other bailee in possession of the goods.36 It is only when the unpaid seller has exercised either his right of possessory lien or his right of stoppage in transitu. 1526.

40 Phil. and the obligation of the company to deliver the shares could not arise until Hanlon should pay or tender payment of the money. where the buyer fails to pay the price and take delivery . the buyer is liable for the difference. 796 (1920). In the present case the contract between Hanlon and the mining company was executory as to both parties. the Court had already recognized the right of a seller. if he sells for as much as or more than the contract price. 815-816.38 In Hanlon v. 41 4 SCRA 243 (1962). without need of first rescinding the contract judicially.. Court of Appeals. The vendor in such case is entitled to resell the goods. to resell the movables subject matter of the sale. at pp. and if he is obliged to sell it for less than the contract price.40 Katigbak v. Civil Code. 40 Ibid. when the buyer fails to pay the purchase price: . But it has never been held that there is any need of an action of rescission to authorize the vendor. 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. at p. to dispose of the property. when the sale is still executory in stage.. If he is obliged to sell for less than the contract price. who is still in possession.42 38 39 Art. he holds the buyer for the difference.372 LAW ON SALES (c) Where the buyer has been in default in the payment of the price for an unreasonable time. Hausserman.. 42 Ibid.39 even before the formal statutory adoption of the remedies of an unpaid seller.. the seller. 245.41 held that if the buyer fails to take delivery and pay the purchase price of the subject matter of the contract. is entitled to resell the same. 1533. the breach of contract by the original buyer is damnum absque injuria. .

1533. he no longer had ownership over the goods. even if at the time of tradition. Effect of Having Exercised Right of Resale When the unpaid seller has exercised his right of resale. 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. Standard of Care and Disqualification in Resale The seller is bound to exercise reasonable care and judgment in making a resale. Ordinarily. . 1533. the buyer acquires a good title as against the original buyer. 1533. and subject to this requirement may make 43 44 Art. Transfer of Ownership Where a resale is made by the unpaid seller. but may recover from the buyer damages for any loss occasioned by the breach of the sale. he can effect these.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. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the sale. 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. Civil Code. Civil Code. d.45 e. he is also able to transfer ownership to the subsequent buyer. even without judicial action. 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. Civil Code. 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.43 c. 45 Art.REMEDIES OF PARTIES 373 b. he shall not thereafter be liable to the original buyer upon the sale or for any profit made by such resale. But in the case of an unpaid seller. Art.

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

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

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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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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.

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

the seller has 90 Manila Trading & Supply Co. It is quite possible that [the seller] wanted merely to be sure that the truck is not lost or rendered valueless.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. preparatory to having it levied upon under a writ of attachment. 91 28 SCRA 161 (1969). Manila Motor Co. Reyes.90 Universal Motors Corp. v.. and the actual recovery of possession of the subject property. 99 Phil. Ramirez. 166. the filing of such complaint does not amount to having chosen the remedy of foreclosure. since no actual foreclosure pursuant to the relevant provisions of the Rules of Court have been pursued. and in the alternative should the movable not be recovered sought for the recovery of the unpaid balance of the price. 461 (1935). b.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. 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. 62 Phil. v. 782 (1956). . Sy Hian Tat. 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.”92 Industrial Finance Corp. Inc. even with the attachment of the mortgage contract on the complaint itself.91 held that the filing by the seller of an action for the issuance of a writ of replevin. Fernandez. 92 Ibid. Indeed. would not amount to a foreclosure. v. v. there is no showing at all that [the seller] is causing the sale thereof at public auction or is even preparing to do so. at p. prior to that point in time. 93 77 SCRA 152 (1977).

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

and public policy overturned..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..”98 Cruz also held that the further “action” being barred under Article 1484 is not limited to judicial proceedings. so that ultimately. the guarantor will in turn be entitled to recover what she has paid from the debtor vendee (Art. 100 120 SCRA 246 (1983). . the protection given by Article 1484 would be indirectly subverted. Civil Code). Thus. 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. at p.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. despite the earlier foreclosure of the chattel mortgage given by him. only then should the seller proceed to foreclose on the chattel mortgage. Filipinas Investment and Finance Corp. 797. 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 should there be deficiency judgment. the seller should first proceed to foreclose on the real estate mortgage constituted by a third-party mortgagor.392 LAW ON SALES of the purchase price. 98 99 Ibid. Ridad v. 61 SCRA 121 (1974). 2066. Universal Motors Corp. it will be the buyer who will be made to bear the payment of the balance of the price. 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. Pascual v.

in Borbon II v. it would be like saying only the foreclosure of the chattel mortgage can be availed of by the seller. the Court held that in the event the seller-mortgagee first seeks the enforcement of the additional mortgages. A contrario. and the seller-mortgagee is deemed to have renounced any right thereto. .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. Servicewide Specialists. 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 addition to the chattel mortgage constituted thereon. since by barring the initial foreclosure thereof. where the seller first forecloses on the third-party real estate mortgage. when does the barring effect actually come in? If the barring effect comes in after foreclosure on the real estate mortgage. 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. there can be no further recovery of the deficiency. then it would be easy to say that one cannot escape by indirection the matter prohibited by law. guarantees or other security arrangement. The issue was finally addressed. Nevertheless. Inc. if indeed the reverse process is pursued. such a position would render void and ineffective any real estate mortgage constituted to secure the payment of the purchase price. albeit by obiter. On the other hand.101 where it held that when the assignee forecloses on the chattel mortgage. In addition.. the barring effect comes by the fact that the seller seeks to foreclose the real estate mortgage. 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). the seller would be able to effect the same result sought to be avoided in Cruz. then by simply reversing the process followed in Cruz. The other school of thought posited that if we were to take the rationale given in Cruz.

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. include interest on the principal.” then clearly the Legislature has “so stated” and therefore the barring effect of the present version 102 103 Ibid. in Macondray & Co. although. 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. after the mortgaged chattel is sold at public auction. “Were it the intention of the Legislature to limit its meaning to the unpaid balance of the principal. at p. 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. Inc. Therefore.394 LAW ON SALES personal property sold by and mortgaged back to him.. at p. attorney’s fees. 453. 64 Phil.” then it follows that in enacting the present Civil Code. 640. 446 (1937). 104 Ibid. it would have so stated.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. . The implication is that the remedy of foreclosing the chattel mortgage is no longer available. expenses of collection.”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. similar to an action for specific performance.”102 d. he may still levy on it.” The extent of the barring effect of foreclosure was then all-encompassing and did not limit itself to the balance of the purchase price. v. any agreement to the contrary shall be null and void. Extent of Barring Effect Under the original version of the Recto Law. Eustaquio. and adopting the present version of Article 1484 which limits the right of recovery to “any unpaid balance of the price. and the costs.

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. 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. e. . Perverse Buyer-Mortgagor By way of exception to the complete barring effect on the remedy of foreclosure. or if he conceals the chattel to place it beyond the reach of the mortgagee. v. interests and attorney’s fees. Since the mortgagee would enforce his rights through the means and within the limits delineated by law. Recoverable expenses would. then it logically follows as a matter of common sense. current jurisprudence upholds the full barring effect on recovery even of the present language of Article 1484. then the seller. should be allowed to recover expenses and attorney’s fees incurred in trying to obtain possession of the chattel. should be borne by the mortgagor.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. thereafter. Ridad. and cannot cover stipulations in the contract for damages.REMEDIES OF PARTIES 395 of the Recto Law is only on the purchase price. even after actual foreclosure. enforce his rights in accordance with the contractual relationship between him and the mortgagor as embodied in their agreement. 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. 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. 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. in our 105 30 SCRA 564 (1969). Filipinas Investment & Finance Corp. Nevertheless. even to the extent of using violence which is unwarranted in law.

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. as long as they 106 107 Ibid. could rightly be awarded. .” 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. at pp.. Hence. the Eustaquio doctrine still applies. the Court held: A mere demand to surrender the object which is not heeded by the mortgagor will not amount to a foreclosure. We may safely presume therefore. that in spite of the limiting language of the present Article 1484. Furthermore. 271 SCRA 457 (1997). Inc. the interests of justice dictate that the issue on liquidated damages and attorney’s fees must be considered and resolved. include expenses properly incurred in effecting seizure of the chattel and reasonable attorney’s fees in prosecuting the action for replevin. Servicewide Specialist. 572-573. In Borbon II v. that thereby constrained the latter to seek court relief. emphasis supplied. where the mortgagor unjustifiably refused to surrender the chattel subject of the mortgage upon failure of two or more installments. when the current version of Article 1484 was effective and which limited the barring effect only to “any unpaid balance of the price.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. Court of Appeals. such as attorney’s fees.396 LAW ON SALES view. Agustin v. the expenses incurred for the prosecution of the case.106 The transaction in Ridad was entered into in 1964. or if he conceals the chattel to place it beyond the reach of the mortgagee. or if he concealed the chattel to place it beyond the reach of the mortgagee. but the repossession thereof by the vendor-mortgagee would have the effect of foreclosure.

title shall thereupon vest in the lessee. provided the so-called rent has been duly paid. by the terms of the bargain. 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. . Vda. Court of Appeals. Barrueco. 110 Ibid. for one reason or another.” 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.110 Elisco Tool Manufacturing Corp. but who do not wish openly to make a bargain in that form. LEASE WITH OPTION TO PURCHASE Under Article 1485 Civil Code. the provisions of Article 1484 are expressly made applicable to “contracts purporting to be leases of personal property with option to buy. or with stipulations that if the rent throughout the term is paid.108 E. 191 (1939).”109 thus: Sellers desirous of making conditional sales of their goods. 111 307 SCRA 731 (1999). at p. notwithstanding failure to specifically raise them.111 recognized that “[t]his Court has long been aware of the practice 108 109 258 SCRA 634 (1996). The so-called rent must necessarily be regarded as payment of the price in installments since the due payment of the agreed amount results.REMEDIES OF PARTIES 397 bear relevance and close relation to those specifically raised. when the lessor has deprived the lessee of the possession or enjoyment of the thing. De Jose v. 195. 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.” 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. v. in the transfer of title to the lessee. 67 Phil.

In PCI Leasing and Finance. thus — The demand could only be that the [lessee] need not return the equipment if it paid the 58. . at p. 527 SCRA 405 (2007). 741. Inc. 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. Inc. then it need not pay the outstanding balance. at p. Also. Stated otherwise. the demand made by the lessor which “fashioned its claim in the alternative: payment of the full amount of the 58. The so-called monthly rentals are in truth monthly amortization of the price of the leased office equipment. nonetheless. at pp. Inc.. for the entire 36-month lease period or the surrender of the financed asset and pain of legal action. Giraffe-X Creative Imaging.115 a. v. 114 Ibid. 421.657. 113 527 SCRA 405 (2007). PCI Leasing and Finance.113 although the Financing Lease Agreement entered into did not provide an option to purchase in favor of the lessee..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.657.248. representing the unpaid balance. if the [lessee] was not minded to exercise its option of acquiring the equipment by returning them. 422-423.47. v. This is the logical import of the letter: that the transaction in this case is a lease only. Giraffe-X Creative Imaging.248. 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. Inc.”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. 115 Ibid.47 outstanding balance.114 was interpreted to reveal the real agreement that the lessee had the option to purchase the property leased.

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

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.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 buyer-lessee voluntarily returned the vehicles. Ibid. Commercial Co.” “he shall have no further action” against the lessee “for the recovery of any unpaid balance” owing by the latter. U. In that case. the seller-lessor was without further remedy to recover the accrued rentals thereon. The Court also ruled that with the recovery of the possession of all the vehicles. When the action was brought by the seller-lessor to recover on the rentals. thus: Being leases of personal property with option to purchase as contemplated in the above-article. When the lessee defaulted in the payment of the rentals.E. 271 (1953). The contract also provided waiver of the benefits of Article 1454-A of the Civil Code. and indeed the only remedy available to the seller-lessor was either specific performance or rescission. but refused to pay the rentals in arrears. Halili. Consequently. . “any agreement to the contrary being null and void. v.S. the barring effect of “foreclosure” was not a matter that the Court had to face when the decisions were rendered.400 LAW ON SALES The rulings in both Manila Gas Corporation and H. 1454-A was void because said article expressly provided that any waiver of its benefit would be void. the vehicles would be owned by the buyer-lessee. 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. 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. 274.”119 118 119 93 Phil. upon demand of the seller-lessor.

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

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

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

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

The Court also held that in any event Article 1592 of the Civil Code has no application to a contract to sell. We find that plaintiff herein has not been denied substantial justice. 1592 thereto. such as the one entered into by the parties in this case. at pp. . Maritime Bldg. 1234 of the Civil Code. according to Art. Thus. for. Contracts to Sell Not Covered by Article 1592 In J. in the interest of justice and equity. the obligor may recover as though there has been a strict and complete fulfillment. b. pursuant to its contract with the defendant. Javier. however. the decision appeal from may be upheld upon the authority of Art.” .. including such damages as the former may have suffered in consequence of the latter’s default. not contracts to sell. less damages suffered by the obligee.. Ibid. We feel that. 1234 of said Code: “If the obligation has been substantially performed in good faith. 129 43 SCRA 93 (1972). Regardless. the said article applies only 127 128 31 SCRA 829 (1970).127 despite the rescission clause provided for in the contract to sell a residential lot in a subdivision project. interests. 832-833. Under these circumstances. 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. accordingly. v.M. the Court refused to rule on the proper application of Article 1592 to the case. Tuason & Co. of the propriety of applying said Art.128 In Luzon Brokerage v... plaintiff will thereby recover everything due thereto. fees and costs.129 the Court held that if Article 1592 is applicable to a sale contract.REMEDIES OF PARTIES 405 give him every opportunity to comply with his obligation and proceed to take the subject immovable. the filing of a crossclaim in court may be constituted as a judicial demand for rescission that satisfies the requirement of said article. the trial court sentenced the defendant to pay all such installments. Inc.

besides the larger stipulated interests on both lots. merely undertaking to convey it provided the buyer strictly complied with the terms of the contract. REMEDIES OF BUYER 1. should the buyer be disturbed in the possession or ownership of the thing acquired. Nevertheless. or should he have reasonable grounds to fear such disturbance. or it has been stipulated that. was entitled to the conveyance of one fully paid lot of his choice. 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. the buyer shall be bound to make the payment. by a vindicatory action or a foreclosure of mortgage. the Court held that “the judgment is fair and just and in accordance with law and equity. Saldana. Ibid. c. at p. In upholding such ruling. Resort to Equitable Resolutions In Legarda Hermanos v. notwithstanding any such contingency. unless the seller gives a security for the return of the price in a proper case.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.”131 B. . Again. Suspension of Payment Under Article 1590 of the Civil Code. but not to one in which the seller retained ownership of the immovable object of the sale.406 LAW ON SALES to ordinary sale transferring ownership simultaneously with the delivery of the real property sold. a mere act of trespass shall not authorize the suspension of the payment of the price. 325. 130 131 55 SCRA 324 (1974). 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.

134 held that the decree vests upon the buyer the option to demand reimbursement of the total amount paid. sewerage. v. v. In Casa Filipinas Realty Corp. Decree 957 “was issued in the wake of numerous reports that many real estate subdivision owners.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. 153 SCRA 399 (1987). Court of Appeals. Brillante-Garfin. developers. Ibid. drainage. 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. 134 187 SCRA 405 (1990).135 Lim v. lighting systems and other basic requirements’ for the health and safety of home and lot buyers. he may not be ousted from the subdivision. National Housing Authority. Office of the President. or to wait for further development of the subdivision or condominium project. De los Santos. 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.132 the Court held that Pres. 136 8 SCRA 798 (1963). It was designed to stem the tide of ‘fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers free from liens and encumbrances. and when the latter opts for the latter alternative by waiting for the proper development of the site.136 and Consing v. water systems.’”133 Relucio v. 133 132 . 241 SCRA 165 (1995). 135 See also Antipolo Realty Corp.REMEDIES OF PARTIES 407 2. 173. The sections also grant to the buyer the option to be reimbursed the total amount paid. Decree 957. at p. operators and/or sellers ‘have reneged on their representations and obligations to provide and maintain properly subdivision roads. In Case of Subdivision or Condominium Projects Sections 23 and 24 of Pres. 137 177 SCRA 14 (1989).

140 350 SCRA 371 (2001). 24. supra. in Cho Chien v. 142 Casa Filipinas Realty Corp. 802. 957 Section 23 of Pres. Retroactive Application of P. at p. 957 In Eugenio v. Inc. supra. The buyer is entitled to a copy of the deed. at p.142 b.141 it was held that nothing in P. v. . 141 513 SCRA 570 (2007). he would not be informed of the rights and obligations under the contract.”139 In Gold Loop Properties. 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. the buyer “should be entitled to a proportionate reduction in her purchase price of the two lots.D.. Yet.. Consing v. 241 SCRA 165 (1995).D. Sta Lucia Realty & Dev. 143 252 SCRA 106 (1996). otherwise.D. Delos Santos. v. a. and a proper access to a residence is essential to its enjoyment. at the time the contract was entered into did not posses a certificate of registration and a license to sell. 957 provides for the nullification of a contract to sell in the event that the seller.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.”138 The seller cannot shift to the buyer the burden of providing for an access to and from the subdivision.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 . Office of the President.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. and when the seller has so defaulted in such obligation. Court of Appeals. Notice Required under Section 23 of P. Drilon... Inc. Court of Appeals.

the law must favor the weak and the disadvantaged. The intent of the law.REMEDIES OF PARTIES 409 of Pres.”145 In Philippine National Bank v. . Decree 957: “P.D. circumstances and conditions it sought to remedy. nor compel them to pay again for the lots which they previously brought from the defaulting mortgagor-subdivision developer. based on the provisions of Pres. in this instance. 210 SCRA 558 (1992). it is obvious that the law — as an instrument of social justice — must favor the weak. 146 252 SCRA 5 (1996).D. 957 did not expressly provide for retroactivity in its entirety. Housing and Land Use Regulatory Board. as culled from its preamble and from the situation.147 xxx. P. 957 did not expressly provide for retroactivity in its entirety. 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. that it was thereby relieved of taking any other step to verify the over-reaching Ibid. 147 Ibid. 145 144 . Office of the President. As between small lot buyers and the gigantic financial institution which the developers deal with. including. 10. at p. Ibid. 111. yet the same can be plainly inferred from the unmistakable intent of the law to protect innocent lot buyers from scheming subdivision developers. thus: While P.D. but such can be plainly inferred from the unmistakable intent of the law. must be enforced.. 110. See also Union Bank of the Philippines v. “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.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.144 x x x It goes without saying that. Decree 957 which may even be applied retroactively. at p. at p. small lot buyers and aspiring homeowners. as an instrument of social justice..

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

De Manzano.S. 10. at pp.155 gave an allencompassing diatribe on the purpose and objectives of the Maceda Law. Dela Cruz Vda.. J. 506 SCRA 451 (2006). 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.REMEDIES OF PARTIES 411 industrial lots. 155 382 SCRA 152 (2002). particularly residential lots. whether industrial. 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. 274 SCRA 461 (1997).B. 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. 153 152 . 109 Phil. the applicable law is the Maceda Law which recognizes in conditional sales of all kinds of real estate.153 which held that in the case of a contract to sell land. v. the right of the seller to cancel the contract upon non-payment of an installment by the buyer.” Ibid.). Rodriguez. Corp. thus: “The Realty Installment Buyer Protection Act. per Reyes. 327-328. which is simply an event that prevents the obligation of the seller to convey title from acquiring binding force. 1. 154 Reiterated in Cordero v.” (Manuel vs.L. Management & Dev. Daroya. Court of Appeals.154 Active Realty & Dev. 533 SCRA 242 (2008). The Act in modifying the terms of the application of Art.152 This view was reiterated by Rillo v. commercial. F. or residential. with a refund of certain percentages of payments made on account of the cancelled contract. Corp. Pagtulungan v.

lots and condominium units to enter into all sorts of contracts with private housing developers involving installment schemes. 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. 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. Most of these contracts of adhesion. To help especially the low income lot buyers. [its] declared policy is to protect buyers of real estate on installment basis against onerous and oppressive condition. the legislature enacted R. “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.”156 a. as “a policy statement” of the State in protecting the interests of buyers of residential real estate on installments. Lot buyers. 144 SCRA 693 (1986). the Maceda Law in whole is relied upon and used by the courts. 6552 delineating the rights and remedies of lot buyers and protect them from one sided and pernicious contract stipulations. in the McLaughlin v.412 LAW ON SALES or more popularly known as the Maceda Law. They get to forfeit all the installment payments of defaulting buyers and resell the same lot to another buyer with the same exigent conditions. Thus. entrap innocent buyers by requiring cash deposits for reservation agreements which often time include. Real estate developers thus enjoy an unnecessary advantage over lot buyers who they often exploit with iniquitous results. including the Supreme Court. . 2 of Republic 156 157 Ibid. 158. readily affix their signatures on these contracts. in fine print. drawn exclusively by the developers. 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. 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. at p.A.

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. Office of the President. v. 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. Clave. therefore. v. v. 161 231 SCRA 674 (1994). 159 158 .”160 b. 162 People’s Industrial and Commercial Corp. Retroactive Application of Law In Siska Dev. Court of Appeals. Take for example the case of Palay. 9576 and 1344. 6552). thus: “As with Presidential Decrees Nos. at p.”158 If that be the case. 281 SCRA 206 (1997). in one case.REMEDIES OF PARTIES 413 Act No.”162 Ibid.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. Inc. Although the Maceda Law was inapplicable. Corp. at pp. 160 Ibid.159 which involved a contract to sell entered into by the parties in 1965 (the Maceda Law took effect in 1972). However. 12 SCRA 639 (1983). 700. without need of notice and with forfeiture of all installments paid. Republic Act No. 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. 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. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments. the Court refused to apply retroactively the terms of the Maceda Law. 66-67. 6552 does not expressly provide for its retroactive application and.

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

the [Maceda Law] invoked by [buyer] .)..e. Transactions Excluded from Coverage The following transactions. although involving sales on installments. are expressly excluded from the coverage of the Law. and not what happens at consummation. Inc. 398. then the non-fulfillment of the condition extinguished the contract meant that “the contract to sell did not take into effect. at p. the non-fulfillment of condition under a contract to sell does not take it out of the Maceda Law.. and the coverage is based on the nature of the contract and subject matter at the time of perfection. and (c) Sales to tenants under agrarian reform laws.”166 The reasoning in Mortel is defective for the following reasons: First.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. KASSCO.REMEDIES OF PARTIES 415 For that reason. 165 166 348 SCRA 391 (2000). the author finds quite surprising the ruling in Mortel v. Secondly.. Ibid. find no application to the present case because said laws presuppose the existence of a valid and effective contract to sell a condominium. 2. 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. Consequently. etc. 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. notarial rescission and return of cash surrender value. (b) Sales covering commercial buildings (and commercial lots by implication).. the Maceda Law governs the effective remedies and consequences available to the parties (i. thus: (a) Sales covering industrial lots.

Inc. Rights Granted The rights granted to a buyer of real estate in a sale or financing covered by the Maceda Law. In one case. the unpaid installments due within the total grace period 167 168 Odyssey Park. although binding itself to the terms of the contracts of sale. No. 290 SCRA 330 (1998). since other transactions over immovables. An example would be the sale on installment of commercial or office condominium units. the Court held that the Maceda Law normally applies to the sale or financing of real estate on installments payments. without additional interest. commercial buildings. v. is not the real party to the original installment sales.167 a. At Least Two (2) Years Installments Paid Where the buyer has paid at least two (2) years of installments.168 3. and sales to tenants under R. . and more importantly. Lagandao v. and excludes “industrial lots. 280 SCRA 253 (1997). does not have any rights promoted under the Maceda Law which contains provisions for the benefits of real estate buyers on installments. although not within the enumerated exclusions are to be considered as excluded because they are not within the clearly expressed coverage. Court of Appeals.A. depend on whether or not he has paid less than or more than two (2) years of installments. a. It has no application to a sale on installment of a commercial building. he is entitled to the following rights in case he defaults in the payments of succeeding installments: (a) To pay. Court of Appeals. Such person or entity. 3844.416 LAW ON SALES The enumeration of the transactions not covered by the Maceda Law is not exclusive. 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.

(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. which is kindred concept of rescission by notarial act. Intermediate Appellate Court.169 it was held that a decision rendered is an ejectment case operated as the required notice of cancellation. (b) If the contract is cancelled. Down payments. which is fixed at the rate of one (1) month grace period for every one (1) year of installment payments. 533 SCRA 242 (2008). . 167 SCRA 627 (1988).171 it was held that the letter notice given by the seller’s counsel which merely made formal demand upon 169 170 Layug v. after five (5) years of installments. 369 SCRA 36 (2001).REMEDIES OF PARTIES 417 earned by him. an additional 5% every year but not to exceed 90% of the total payments made. Leaño v. De Manzano. Court of Appeals. if any. In one case. In an earlier case. (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. 171 Pagtulungan v. pursuant to Section 3(b) of the Maceda Law. 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.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. Dela Cruz Vda. deposits or options on the contract shall be included in the computation of the total number of installments made.” In another case.

172 369 SCRA 36 (2001). the buyer shall still be entitled to a grace period of sixty (60) days from the date the installment became due. Nevertheless. 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. he is under Article 1169 already in default and liable for the damages stipulated in the contract. 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. Leaño held that although the contract to sell allows a total of 10 years within which to pay the purchase price. Less Than Two (2) Years Installments Paid In case where less than two (2) years of installments were paid. c. Compensation Rule on Amortization Payments The Court’s ruling in Leaño v. 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. 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.172 recognizes the principle of compensation to be applicable to remedies under the Maceda Law. Court of Appeals. b. . When the buyer fails to pay any monthly amortization. nevertheless. 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.

In McLaughlin v.983 the Court used the stipulated divisor of 5121. v.000 was to be paid in 10 years of equal payment of 534. where the Contract to Sell provided for a total Purchase Price of 52.174 the parties had entered into a contract of conditional sale of real property.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. quarterly. Thus.750. 4. whether it is monthly. and Mgt. with the stipulated purchase price payable on installments. and the balance of 51.983 as the divisor to all payments made by the buyer. The result was quite substantial in that the Court found the buyer to have paid less than 2 years of installments.e. semi-annual or annual. and therefore not entitled to receive any cash surrender value to complete the effect of the notice of cancellation of the Contract to Sell.666. a complaint was filed by the seller in court for the rescission of the deed of conditional sale.66 for the period covering the downpayment. which suit was eventually compromised. with 173 174 513 SCRA 413 (2007). .000 with 30% thereof or 5750.REMEDIES OF PARTIES 419 d. 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. Court of Appeals. provided he complies with the procedure provided for in the Law. and refused to apply the monthly amortization of 534. in Jestra. and then to divide them by the stipulated mode of payment. Formula to Compute the Installment Mode In Jestra Dev. When the buyer defaulted in the payment of the installments. Pacifico. then either rescission or cancellation of the contract becomes a matter of right on the part of the seller.500.000 was to a downpayment payable in six montly installments. Corp. i. 144 SCRA 693 (1986).. the Court has interpreted it otherwise.

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

Court of Appeals. availment of the right to update the installment payments is without interest and penalties. the issues as to rescission or cancellation. which is a minimum of 60 days. and the other would be the period before rescission or cancellation actually takes effect. de Manzano.175 the Court held that in cases falling under the Maceda Law. Perhaps. 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. these was still no actual cancellation of the conditional sale. the distinction between the two types of grace period. Pagtulungan v. 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. breach of contract.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. Pagtulungan v. de Manzano. even when these are stipulated in the contract. because even with its expiration. In Leaño v. and the buyer may still reinstate the contract by updating the account. This is true even when a decision has been rendered in an ejectment case which would operate as the required notice of cancellation. in the period prior to the effectivity of the rescission or cancellation of the contract. the buyer would be liable for and would have to include in his payments the stipulated interests and penalties incurred. 176 Reiterated in Villadar v.REMEDIES OF PARTIES 421 by the Law. . 553 SCRA 292 (2008). Zaballa. 545 SCRA 325 (2008). Dela Cruz Vda. Dela Cruz Vda. 533 SCRA 242 (2008)(2001). 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. 175 369 SCRA 36. whereas. 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. is that in the statutory grace period.

5. 5. 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. 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.422 LAW ON SALES The principle was reiterated in Active Realty & Dev. The Court held that In addition to the notarial act of rescission. 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. Corp. 179 Sec. and absence of which would mean that the contract remains valid and subsisting. The deed of sale assignment shall be done by notarial act. . Olympia Housing v. at the option of the first buyer. since the lot had already been sold to an innocent second buyer. Panasiatic Travel Corp. Daroya.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. Rep. Other Rights Granted to Buyer In addition.. 395 SCRA 298 (2003). the seller is required to refund to the buyer the cash surrender value of the payments on the property. However.179 (b) To pay in advance any installment or the full unpaid balance of the purchase price 177 178 382 SCRA 152 (2002). Act 6552.178 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. in that case. v.

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. . 7. 290 SCRA 330 (1998).181 the Court held that the Maceda Law has no application to protect the developer or one who succeeds the developer. Court of Appeals. 6. 345. as embodied in its title. any stipulation in any contract entered into contrary to the provisions of the Law. 6. 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. since “the policy of that law. it is to protect the buyer. Effect of Contrary Stipulations Under Section 7 of the Maceda Law. the declared public policy espoused by Republic Act No. If the Maceda Law has any relevance at all. Rep.’ As clearly specified in Section 3. at p.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. is ‘to provide protection to buyers of real estate on installment payments. Maceda Law Cannot Be Availed of by Developer In Lagandaon v.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.’”182 Therefore. not the developer-seller or his successor-in-interest. 6552 is ‘to protect buyers of real estate on installment payments against onerous and oppressive conditions. shall be null and void. 182 Ibid. Act 6552.

246 SCRA 33 (1995). taxes.’”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. Court of Appeals. it prescribes the responsibility of the seller in case the ‘contract[s are] cancelled. v. together with all sums paid out by him in improvements introduced on the property. .424 LAW ON SALES to sell. and other expenses by him. rather.184 —oOo— 183 184 Ibid. the latter is entitled to reimbursement of the purchase money paid by him. Seven Brothers Shipping Corp.

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. REMEDY OF RESCISSION OR RESOLUTION 1.425 CHAPTER 11 REMEDIES OF RESCISSION AND CANCELLATION FOR SALES OF IMMOVABLES: CONTRACT OF SALE VERSUS CONTRACT TO SELL Previously. seemed well-defined. In addition. of the Civil Code. 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. even the Supreme Court has began to blur what used to be different remedies. in the process. the differences between the remedy of rescission as it pertained to contracts of sale. and. 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. and the effects of cancellation or extinguishment due to non-fulfillment of a suspensive condition in contracts to sell. where economic damage or lesion is the main basis for allowing the rescission of what otherwise is a valid 425 .

426 LAW ON SALES contract. that violates the reciprocity between the parties. 3 33 SCRA 22 (1970). 22-23. Court of Appeals. the principles that rescission of rescissible contracts creates the obligation to return the things which were the object of the contract. 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.L.” Hence. On the other hand. such rescission can be carried out only when he who demands rescission can return whatever he may be obliged to restore. non est fides servanda.B. 1385. Justice J.4 1 2 Art. and that consequently. v. 4 Ibid. 366 SCRA 41 (2001).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. Civil Code. 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. 1382. he has to be sure which of the remedies of rescission he is invoking. . Reiterated in Iringan v. Civil Code. It is not a subsidiary action. Art. it being unjust that a party be held bound to fulfill his promises when the other violates his. which remedy is principal in nature and the legal premise of which is substantial breach of contract. Court of Appeals. The point being made is this: Before a party employs in legal argument a principle of rescission to bolster his case.1 Such characterization has no application to the remedy of “rescission” under Article 1191 of the Civil Code. This rescission is a principal action retaliatory in character. together with the fruits. and the price with its interest. As expressed in the old Latin aphorism: “Non servanti fidem.2 apply equally to rescission covered by Article 1191. Reyes had pointed out the distinctions between the two types of rescissions in his concurring opinion in Universal Food Corp. at pp. the reparation of damages for the breach is purely secondary.

Court of Appeals. 23. where the defendant makes good the damages caused. But the terminological vagueness does not justify confusing one case with the other. 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. the action cannot be maintained or continued. 23.”6 In another case. unlike the previous Spanish Civil Code of 1889. 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. 7 Iringan v. that differentiated ‘resolution’ for breach of stipulations from ‘rescission’ by reason of lesion or damage. the cause of action is subordinated to the existence of that prejudice. 6 5 . at p. Ibid. as expressly provided in Articles 1383 and 1384. and not the four (4) year period provided for rescissible contracts. 310 SCRA 1 (1999). 1389.7 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. 8 Art. because it is the raison d’ etre as well as the measure of the right to rescind.8 a. the author takes exceptions Ibid. and does not apply to cases under Article 1191. Hence.”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. Civil Code. considering that patent difference in causes and results of either action. Court of Appeals. thus: “On the contrary. in the rescission by reason of lesion or economic prejudice. 366 SCRA 41 (2001).REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 427 He also distinguished rescission under Article 1191 from the remedy of rescission for rescissible contracts. at p. Difference between remedies of resolution and rescission reiterated in Ong v.

. 11 314 SCRA 69 (1999).”10 The ruling. In other words. When Rescission Should Have Been Applied The decision in Uy v. The mortgage contract therefore was only meant to secure.” where the mortgage was constituted to secure the payment of the purchase price. The reasoning fails to take into consideration that the mortgage contract was merely a subsidiary contract. 667. which was part and parcel of the contract of sale entered into between the parties. It is already one of a mortgagor and a mortgagee. 10 . 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 obligation to pay the price). 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.L. Reyes’ reasoning in Universal Food Corp.e. not to replace.B. then by the execution of the deed of mortgage. the obligation of the buyer to pay the purchase price.. and could not exist without principal contractual obligation (i. such as foreclosure. Court of Appeals. b. In ruling that the sellers could not avail of the remedy of rescission under Article 1191. 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. Intermediate Appellate Court. and the buyer in turn is obligated to pay a price certain in money or its equivalent.9 which involved a “Deed of Sale with Mortgage.11 demonstrates an instance when the remedy of rescission or resolution was not 9 151 SCRA 661 (1987). Ibid. at p. although taking note of Justice J. 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.428 LAW ON SALES to the ruling in Suria v. the relationship between the parties is no longer one of buyer and seller because the contract of sale has been perfected and consummated.

which is the essential reason for the contract.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 429 applied by the Court. 82-85. when the motive predetermines the cause. x x x. therefore. the cancellation was based on the negation of the cause arising from the realization that the lands. a contract of sale covered the purchase of eight (8) residential lots. a party’s motive for entering into the contract do not affect the contract. 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 . direct and proximate reason which justifies the creation of an obligation through the will of the contracting parties.. the motive may be regarded as the cause . x x x. we hold that the NHA was justified in canceling the contract. 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. Accordingly. Cause is the essential reason which moves the contracting parties to enter into it. were not suitable for housing... Rather. In Uy. [under] Article 1318 of the Civil Code [defining the essential requisite of contracts]. Ordinarily. at pp. when it seemed the more appropriate solution to the issues raised. should be distinguished from motive. In other words..12 Perhaps the better solution would have been to allow rescission on the ground that it violated the warranty on the 12 Ibid. which were the object of the sale. . The Court held — The cancellation. and the buyer-NHA did not suffer any injury by the performance thereof. which is the particular reason of a contracting party which does not affect the other party. 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. However. was not a rescission under Article 1191. Cause. the cause is the immediate.

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

280 SCRA 253. Court of Appeals. Laforteza v. Court of Appeals. it is not merely to terminate the contract and release the parties from further obligations to each other.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. 209 SCRA 246 (1992). 16 Uy v. In another case. 15 Romero v. 14 13 . as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. 260 (1997). Court of Appeals. Kaparaz. citing Ocampo v. the Maceda Law and Section 23 of Pres.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. Article 1592 has been construed to apply to all sales of immovables even when there is no stipulation on automatic rescission. 250 SCRA 223 (1995). and does not cover the failure of a condition to render binding that obligation. 361 SCRA 56 (2001). Court of Appeals. Inc.17 it held that the breach contemplated in Article 1191 is the obligor’s failure to comply with an obligation already extant. Court of Appeals. Decree No. 411 SCRA 18 (2003). because of the use of the phrase “even though.18 the Court characterized the failure of a party to comply Jacinto v. 333 SCRA 643 (2000). the vendee may pay. Ironically. 17 Odyssey Park. a.”13 Two other laws have varied the power to rescind covered in Article 1191 when it comes to immovables. Machuca. namely. 957.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. but to abrogate it from the beginning and to restore the parties to their relative positions as if no contract had been made. Velarde v. Nature of the Remedy of Rescission or Resolution The Supreme Court has ruled in one case. even after the expiration of the period. v. Court of Appeals.16 In yet another case. 314 SCRA 69 (1999). the court may not grant him a new term. in one case. 18 Gil v. which have been covered in more details in the previous chapter. 233 SCRA 551 (1994). After the demand.

”22 19 This ruling would perhaps find basis under Article 1545 which provides that “Where the ownership in the thing has not passed. Inc. v.21 held that when the buyer in not paying the balance of the purchase price had acted in bad faith..” 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. Inc.. 43 SCRA 93 (1972). 101. it is within the power of the courts to fix a period to allow the defaulting party an opportunity to comply with his obligation. 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. and in fact he does rescind the contract...19 b. Inc. Maritime Building Co. 21 43 SCRA 93 (1972).” Even when there is substantial breach as to allow the rightful party to rescind. an attitude repugnant to the stability and obligatory force of contracts. 22 Ibid. Maritime Building Co. at p. the obligor may recover as though there has been a strict and complete fulfillment.”20 Luzon Brokerage Co... less damages suffered by the obligee.. v. . 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 . Inc.” 20 Luzon Brokerage Co. pursuant to the principle laid down in Article 1234 which states that “[I]f the obligation has been substantially performed in good faith. Rescission Must Be Based on Substantial Breach The power to rescind under Article 1191 is based only on substantial breach.. 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.

446 SCRA 34 (2004). Restitution as Consequence of Rescission The last paragraph in Article 1191 cross-refers to Articles 1385 and 1388 which apply to rescissible contracts. This principal has been applied to rescission of reciprocal obligations under Article 1191 of the Civil Code. 55 (1939). whoever acquires in bad faith the things alienated in fraud of creditors. 312 SCRA 528 (1999). When Forfeiture of Payments Allowed in Rescission The effect of restitution in the remedy of rescission may be stipulated against. 24 23 . consequently. under Article 1388. 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.24 On the other hand.”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. Court of Appeals. v. Under Article 1385. Consequently. 25 69 Phil. it can be carried out only when he who demands rescission can return whatever he may be obliged to restore. Flores. the primary consequence of an effective exercise of the remedy of rescission or resolution would be mutual restitution. Corp. Early on in The Manila Racing Club v. together with their fruits. shall indemnify the latter for damages suffered by them on account of the alienation. “Under Article 1385 of the Civil Code.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. The Manila Jockey Club. d. and the price with its interests.” Co v.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 433 c. whenever it should be impossible for him to return them. and such stipulation would be enforceable to the extent that it is reasonable. the employment of the remedy of rescission “creates the obligation to return the things which were the object of the contract.

279 SCRA 590 (1997).434 LAW ON SALES in a contract (now governed by Article 1306). as in its decision in Gomez v.” Nevertheless. citing Co v. and that consequently. Also Supercars Management & Dev. e. Flores. Court of Appeals. 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. is given only to the injured party. Court of Appeals. Court of Appeals. Pangilinan v. Machuca. as a reasonable compensation for the use of the subject matter of the contract. it is not contrary to law.29 held that the power to rescind. Article 1486 now provides that in the sale of personal property on installments. 446 SCRA 34 (2004).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. In addition. 312 SCRA 528 (1999). rescission can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. mutual restitution is required to bring back the parties to their original situation prior to the inception of the contract.”26 Parenthetically. 29 314 SCRA 69 (1999). v. it should be noted that the Court may still allow. Who May Demand Rescission Since rescission is predicated on a breach of faith by the other party that violates the reciprocity between them. at p. 31 Ibid.28 such forfeiture even in the absence of a forfeiture clause. “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. therefore.” Thus. Court of Appeals. 30 333 SCRA 643 (2000). Uy v. Corp. morals or public order because it was voluntarily and knowingly agreed upon. Laforteza v.30 held that when rescission of a contract of sale is based on Article 1191. 27 26 .31 Ibid. 28 340 SCRA 720 (2000). 57.

consequently. since the third paragraph of Article 1191 which provides that the courts “shall decree the rescission claimed. 8784.. the remedy of rescission is inherently judicial in nature. Inc. 99 Phil. G. When Extrajudicial Rescission Allowed To the general principle that rescission must be exercised judicially. Nonetheless. 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.. COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES. Perez & Co. 84 Phil. v. Maritime Building Co.. “the court may not grant him a new term. 86 SCRA 305 (1978). 37 Phil. 33 See Arts. v. 34 TOLENTINO.”36 g. Inc.. (1956). Inc. Angeles v. take the law into his own hands and must resort to the aid of the courts to enforce his rights. Inc. 1034 Unrep. may be resorted to by the other party extrajudicially. unless there be just cause authorizing the fixing of the period. the other party has a right to rescind does not generally confer any additional right.R.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 435 f.34 and requires confirmation of such remedy by the courts. even one with a valid and lawful cause of action. p. Cui. De la Rama Steamship Co. Luzon Brokerage Co. the specification in the contract that in case of breach. Hospital de San Juan de Dios.. No. Republic v. whether express or implied.. Maritime Building Co. v. 36 Luzon Brokerage Co. Vol. IV. 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. Rescission Generally Judicial in Nature In a true contract of sale. 433 and 539. Tan. 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 1191.32 in accordance with the general principle that “No man may.”33 The remedy of rescission in reciprocal contracts is not absolute. 135 SCRA 323 (1985).” has been the statutory basis by which the Court has held that the injured party himself cannot resolve the obligation. 820 (1949). Civil Code. 171 (1973). 631 (1918). Calasanz. 35 Gaboya v.35 In the case of immovables. 38 SCRA 85 (1971). 32 Ocejo. 1956. .. 43 SCRA 95 (1972). v. May 21. International Banking Corp.

”38 Curiously enough though. even without court intervention. the decision of the court will be merely declaratory of the revocation.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. 340 SCRA 720 (2000). 40 Ibid.. 39 279 SCRA 590 (1997). if the obligor does not comply with what is incumbent upon him. Court of Appeals. 41 366 SCRA 41 (2001).. Since Article 1191 makes available to the injured either of the alternative remedies to rescind or to enforce fulfillment of the contract.436 LAW ON SALES Earlier. 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. Ibid. Court of Appeals. Iringan v. Pan Oriental Shipping Co. the Court held that a 12 SCRA 276 (1964). at pp.. but it is not in itself the revocatory act. 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. 286.39 has held that — . with damages in either case. 38 37 . then Pangilinan v. The rationale for the foregoing is that in contracts providing for automatic revocation.41 provides for the legal consequences when there is no contractual clause allowing extrajudicial rescission. Where such propriety is sustained. Reiterated in Gomez v. Froilan v.. 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. 597-598. . Court of Appeals.” which ordinarily would still mean seeking remedy of rescission through court action.40 In contrast. at p. the contract in Froilan did not expressly give to the mortgagee the right to cancel the agreement. but in order to determine whether or not the rescission was proper.. In that decision.

461 SCRA 186 (2005). rescission requires a positive act on the part of the injured party. 44 Reiterated in Heirs of Jesus M. Court of Appeals. The party entitled to rescind should apply to the court for a decree of rescission. Since a judicial or notarial act is required by law for a valid rescission to take place. The right cannot be exercised solely on a party’s own judgment that the other committed a breach of the obligation. at p. The operative act which produces the resolution of the contract is the decree of the court and not the mere act of the vendor. 48.43 where the Court held that a seller cannot unilaterally and extrajudicially rescind a sale where there is no express stipulation authorizing it. Being primarily a remedy. thus — Consequently. 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. since it is legally possible that he may waive rescission and proceed with specific performance. even when the factual basis therefor (substantial breach) be present in the situation. Saquitan-Ruiz.42 The essence of the doctrine has been reiterated in Spouses Benito v. This principle is affirmed in the language of Article 1592 that does not allow automatic Ibid. the obligation is not ipso facto erased by the failure of the other party to comply with what is incumbent upon him. the letter written by respondent declaring his intention to rescind did not operate to validly rescind the contract. 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.” since rescission must be invoked judicially. 43 42 .44 h. Mascuñana v. but it does not grant “automatic rescission. Rescission Requires Positive Act Rescission is a remedy that would have no automatic application.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 437 stipulation in a sale allowing rescission under Article 1191 is valid. 394 SCRA 250 (2002). even if the right to rescind is made available to the injured party.

Court of Appeals. unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial act). Heirs of Candido Rubi. and cannot be deemed necessarily included in. to forfeit the payments already made by the buyer. an action for reconveyance filed to recover possession of the subject matter of the sale. however. rescission to resolve a contract of sale should be distinguished from.48 45 46 306 SCRA 408 (1999). instead of decreeing rescission. the Court held that such written demand did not amount to a demand for rescission under Article 1592. Thus. 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. In addition.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 1191.438 LAW ON SALES rescission to take place even by stipulation.47 held that in the sale of real property. without any express provision to that effect. 48 Reiterated in Ramos v. since the seller did not sue for either specific performance nor rescission. but the seller did not give a notice of rescission. and that although judicial resolution of a contract would in turn give rise to mutual restitution. . and the only notice given to the buyer was a demand to vacate the premises.. the Court held that in an action for rescission. it would not necessarily arise when the action filed was for reconveyance. and mandates a positive act of notarial or judicial demand on the part of the unpaid seller. nevertheless. such action would be different from an action for reconveyance of possession.45 involving a sale of real property. Heruela. the court. 47 395 SCRA 298 (2003). Panasiatic Travel Corp. Co v. 312 SCRA 528 (1999). 473 SCRA 79 (2005). In City of Cebu v. then the seller would have no right. Olympia Housing v. On the other hand. may authorize for a just cause the fixing of a period.

300 SCRA 722 (1998). it has been generally held that they have no applications to contracts to sell. 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. Lim v.49 49 Mendoza v. 162 SCRA 564 (1990).” In addition. in the application of the rules on double sales. 42 Phil. Kalaw.” especially when the article also provides that “[a] contract of sale may be absolute or conditional. Corp. and the other to pay therefor a price certain in money or its equivalent. 449 SCRA 99 (2005).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. For example. 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. v. if contracts to sell fall within the same genus as contracts of sale. Court of Appeals. as a contract where “one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing. 1. including the appropriate remedies available to the contracting parties. Court of Appeals.” which obviously covers a contract to sell. a provision in the Title on Sale. it would be worthwhile to discuss briefly what clearly were the agreed differences between the two types of sale contracts. it is expressly recognized that “[a] promise to buy and sell a determinate thing for a price certain is reciprocally demandable. . under Article 1479. Cheng v. except as modified by the fact that contracts to sell are primarily subject to suspensive conditions. Genato. San Lorenzo Dev. Consequently. and therefore must be governed by the doctrines pertaining to conditional contracts. 236 (1921). then the rules and principles applicable to contracts of sale would also apply to contracts to sell.

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

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

57 56 .. Court of Appeals. x x x. One form of conditional sales is what is now popularly termed as “Contract to Sell. Court of Appeals. Zaballa. in spite of the finding that underlying agreement was a contract to sell (i. the parties would stand as if the conditional obligation had never existed.” 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. 477-478.56 More telling is the ruling in David v. 546 SCRA 164 (2008). a contract of sale may either be absolute or conditional. In Gomez v.58 the Court clearly treated a contract to sell as within the same genus as a contract of sale.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. Ong. 545 SCRA 325 (2008). Jr.. 59 Reiterated in Demafelis v.. when it held that — To be sure. Villador. 58 340 SCRA 720 (2000). Tiongson.e. 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. at pp. Reiterated in Almocera v. there is no contract of sale upon which an action for specific performance may be interposed. v. If it were not full payment of the purchase price upon which depends the passing of title from the vendor to the vendee.57 where the Court. held explicitly that there was a perfected contract. brought about by the stipulation that the deed of sale and corresponding title would be issued only after full payment). 538 SCRA 305 (2007). 313 SCRA 63 (1999). David denies the characterization under Coronel that upon fulfillment of the suspensive condition. . To a great extent.59 Ibid. and granted the remedy of specific performance.

at p.e. 63 477 SCRA 666 (2005).. to give something or to render some service. and that “[t]he transfer of ownership and title would occur after full payment of the price. Court of Appeals. The offer must be certain and the acceptance absolute. i. 62 Ibid. 44. 225 SCRA 37 (1993). like a contract to sell. Court of Appeals. without any further at having to be performed by the seller. but that the contract’s efficacy is subjected to a suspensive condition. x x x. 727-729. Court of Appeals. the full payment of the purchase price is a positive condition. v. 61 369 SCRA 36 (2001). which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract.60 Leaño v. 487 SCRA 571 (2006). v. Court of Appeals.61 held that in a contract to sell real property on installments. . with respect to the other. are perfected by mere consent. 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. use of terms has thereby undermined the jurisprudential rules pertaining to the remedies available to the parties. where the primary obligations created is an obligation to do. Jr. such that if there had already been previous delivery of the property subject of the sale to the buyer. at pp.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 443 For a contract. ownership thereto automatically transfers to the buyer by operation of law. in general. The confusing. to enter into a contract of sale. the contract of sale is thereby perfected. and the other.63 the Court held that if the suspensive condition is fulfilled.”62 In Carrascoso. subject to fulfillment of the obligation of the buyer to fully pay the purchase price. Jr. involves a meeting of minds between two persons whereby one binds himself. Also Villamaria. Contracts. 60 Ibid.citing Galang v.

306 SCRA 408 332 SCRA 769 (2000). 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. transfer of ownership to the buyer may be expressly withheld even when delivery is effected by the seller. 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. that even in a true contract of sale or a conditional contract of sale.444 LAW ON SALES 3.” 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. For example. 66 . for not every modality introduced in a sale contract would necessarily be a condition. even when denominated as a “Deed of Conditional Sale. 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. which it shares with a conditional contract of sale. Heirs of Candido Rubi. Reiterated in Cebu v. 30 (1996). Ibid.”65 It should be noted. Court of Appeals. (1999).66 held that a sale.. Rodriguez. is that it contains clearly a stipulation that must amount to a suspensive condition. the Court has often employed the actuations of the parties during consummation to characterize what the contract essentially was at the point of perfection. nonetheless. Heirs of San Andres v.. 30-31. Rulings Characterizing Contracts to Sell a. Rationale for Parties Entering into Contracts to Sell Coronel v. in that “a contract to sell . “On Where” the Suspensive Condition Is Pinned Determines Nature of a Sale The main ingredient of a contract to sell. b.64 explains the rationale on why parties would opt to enter into a contract to sell instead of a contract of sale. at pp.

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

the operative act of which sets into motion the period of the payment of the balance of the purchase price.72 where the sale contract contained the stipulation “this Contract of Sale of Art. nor could he challenge the agreement as not being duly perfected contract. 314 SCRA 345 (1999). Court of Appeals. the downpayment shall be returned to the buyer. 72 281 SCRA 176 (1997). 263 SCRA 569 (1996). Reiterated in Lim v.71 In Heirs of Pedro Escanlar v. 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. 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. and Caoili v. It also held that where the so-called “potestative condition” is imposed not on the birth of the obligation but on its fulfillment. Babasa v. the other party may either refuse to proceed or waive said condition. Court of Appeals. 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. Civil Code. Since under the agreement.70 from the other situation where the condition is imposed upon the perfection of the contract itself. the seller was obliged to evict the squatters on the property. Court of Appeals. 309 SCRA 532 (1998). the failure of such condition would prevent the juridical relation itself from coming into existence. It distinguished between one situation where the condition is imposed on an obligation of a party which is not complied with. An ejectment case was brought by seller. 71 70 . but judgment was rendered after the 60-day period had lapsed. only the condition is avoided leaving unaffected the obligation itself. therefore the ejectment of the squatters was a condition. 1545. 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. Court of Appeals.

REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES

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.

even if the buyers did not mistakenly make partial payments. Crux of the Distinction In a rather simplistic manner of considering the issue. 109 Ibid. 357 SCRA 846 (2001). It should be noted however. otherwise. in Adalin v. 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 p. For example. should be distinguished from the “pendency” of the happening of the condition. there would be unjust enrichment on the part of the seller. to hold that pending the happening of the condition. that the contract “was dependent on the sellers not changing their minds about selling the property. that the non-fulfillment of the condition. Court of Appeals. Spouses Paredes. at best. it is only fair and just that the buyers be allowed to recover what they had paid in expectancy that the condition would happen. absent any written agreement to the effect signed by the parties. it can only be considered as an act of tolerance on the part of the seller that could not modify the contract. . the acceptance of partial payment cannot be deemed a waiver of the right to cancel the contract.460 LAW ON SALES In Padilla v. and apart from a contract to sell which embodies only the primary obligation of the seller to “enter into a contract of sale.107 the Court held that pursuant to the second paragraph of Article 1188 of the Civil Code. which would bring about breach of a contract of sale or cancellation of the contract to sell.”109 5. inasmuch as the suspensive condition was not fulfilled.” 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. in a contract to sell.106 the Court held that in a contract to sell. 108 280 SCRA 536 (1997). In Buot v.108 the Court held liable the seller who re-sold the subject matter during the time when the condition had not yet been fulfilled. 554.

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

in a contract to sell. v. mere notice of cancellation would be sufficient under Supreme Court rulings. Pre-Maceda Law Period Prior to the passage of the Maceda Law. Cheng v. 124 SCRA 638 (1983). in a contract to sell.111 When performance stage has been reached. GOVERNING PROVISIONS AND PRINCIPLES FOR REMEDIES OF RESCISSION AND CANCELLATION 1. Genato.e.. Although Article 1191 provides for the power of rescission in reciprocal contracts in general. by mere notarial notice of rescission under Article 1592 the contract may be rescinded. 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. 1591 and 1592 of the Civil Code. If court intervention is necessary. it is not for the rescission of the contract. court action is necessary to rescind a contract of sale.e. delivery of the subject matter does not transfer ownership to the buyer. the legal provisions governing the remedies of parties covering sales of immovables were Articles 1191. Clave. Palay. Inc. generally. whereas. and therefore when the condition is not fulfilled (i. On the other hand. 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). non-payment of the purchase price) no court intervention is needed to “rescind” the contract since ownership has remained with the seller. it is Articles 1591 and 1592 which specifically govern the power to rescind contracts of sale covering immovables. by express agreement. but for the recovery of the possession from the buyer who is not entitled thereto.. since both can be done extrajudicially: in a contract of sale. the subject matter of sale has not been delivered to the buyer). In their executory stages (i. 300 SCRA 722 (1998). no such court action is necessary to rescind a contract to sell. De los Angeles. . and refuses to voluntarily return the subject matter of the sale.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.

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

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

Padilla v. under the principle of equity. Failure to pay. In J. In Legarda Hermanos v.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.122 although the buyer clearly defaulted in the payment of his installments on a contract Also Odyssey Park. 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. v.. 280 SCRA 253 (1997). but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. Javier. Inc. not a failure of a condition to render binding that obligation. Court of Appeals. Same ruling as in Luzon Brokerage Co. Cheng v. In a contract to sell. 120 119 . 314 SCRA 585 (1999). Santos v. Court of Appeals. 328 SCRA 434 (2000). the payment of the purchase price is a positive suspensive condition. Inc.. Inc. v. . Equity Resolution for Contracts to Sell Prior to the applicability of the Maceda Law. Heirs of Thomas and Paula Cruz.121 where the buyer had religiously been paying his monthly installments for eight years. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect.. Spouses Paredes. the Court granted additional period of 60 days from receipt of judgment for the buyer to make all installment payments in arrears plus interests. casual or serious. Rillo v.. the failure of which is not a breach. Gonzales v.M. at p. Saldana. Genato. is not even a breach but merely an event which prevents the vendor’s obligation to convey title from acquiring biding force. Tuazon Co.”120 b. Ibid. 121 31 SCRA 829 (1970). the Supreme Court has on occasion applied them. 337 SCRA 67 (2000).. v.. but even after default he was willing and had offered to pay all the arrears.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. 122 55 SCRA 324 (1974). 274 SCRA 461 (1997). 10. with interests. although demand for rescission had already been made. Court of Appeals. 46 SCRA 381 (1972). 300 SCRA 722 (1998). in this instance. Maritime Building Co. Inc.

In Lacanilao v. the obligor may recover as though there had been a strict and complete fulfillment. or more accurately. In both J. such payment is a positive suspensive condition. is not a breach but prevents the obligations from arising. Tuazon Co. . Court of Appeals. 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.123 which involved a verbal contract to sell a residential lot.”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. extinguishes the underlying contract as though it never existed. the Court nevertheless awarded ownership over one of the two (2) lots jointly purchased by the buyer. the Court acknowledged the “impropriety” of applying Article 1592. were enough to cover fully the purchase price of one lot. 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.M.466 LAW ON SALES to sell covering two parcels of land. at p. when it found that the total amount of installments paid. 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. 490. 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. whether casual or substantial.” both concepts of which are inapplicable to a contract to sell. 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.” 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. and Legarda Hermanos. although not enough to cover the purchase price of the two lots. for the non-happening of the condition. Ibid.

v. 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. the same cannot be enforced so as to overrule a positive provision of law in favor of the [seller]. as to go beyond form and accompanying rules on the effects 125 126 Ibid. The Court took into account the fact that the buyers have been occupying the lot as lessees for almost three (3) decades. which is simply an event that prevents the obligation of the seller to convey title from acquiring binding force.128 which covered a contract to sell commercial lots. 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. 128 280 SCRA 253 (1997).”126 In Rillo v. while equity might tilt on the side of the [buyers]. 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. 127 274 SCRA 461 (1997).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. Hence. It also provides the buyer on installments in case he defaults in the payment of succeeding installments. Court of Appeals.”125 To the author. while aware of its equity jurisdiction. at p. 490-491. This was the same ruling in Odyssey Park. 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. it held that: “This Court. 491. . However.127 the Court recognized that since the contract between the parties was a contract to sell covering non-residential immovables. commercial. such party may refuse to proceed with the contract or he may waive performance of the condition. Court of Appeals. Inc. Ibid. at pp. residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer. is first and foremost a court of law.

nevertheless. and implement the accompanying legal effects concomitant with such form of sale. have no application to contracts to sell involving real property.. should the court. University of the Philippines v. and bring the matter to court. the responsible party will be sentenced to damages. 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. after due hearing. . it is free to resort to judicial action in its own behalf. If the other party denies the rescission is justified. Then. without previous court action. the Court has maintained a stern adherence to the form chosen by the parties for their contract.” thus — Of course. i. the Court has required as a minimum procedural rule for the “rescission” (i. a contract to sell. and the consequent indemnity awarded to the party prejudiced. c. In other words. the resolution will be affirmed.e. decide that the resolution of the contract was not warranted. cancellation) of a contract to sell that at least notice be given by the seller to the buyer. such as Article 1592. De los Angeles.e. and act accordingly. being ever subject to scrutiny and review by the proper court. 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). in the case where the subject matter is commercial or industrial real estate. 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. whereas. the party who deems the contract violated may consider it resolved or rescinded. in the contrary case. but it proceeds at its own risk..129 mentions such requirement for the “rescission” of a contract to sell to be “effective.

.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 469 correct in law. Ibid. at p. 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. must be made known to the other. But nowhere did the decision explain why notice to the other party was essential. and the same is always subject to the final determination of a court of law.. other than perhaps the implied 130 131 Ibid. emphasis supplied. 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. 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. Otherwise. or the power to cancel or resolve a contract to sell when the condition of payment of the purchase price is not fulfilled. emphasis supplied. instead of the rescinder. 107. is met by the fact that “in case of abuse or error by the rescinder.”131 However..”130 University of the Philippines therefore did not question the validity of the power to rescind a contract of sale extrajudicially when stipulated.. the other party is not barred from questioning in court such abuse or error. 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. “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. 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. 108. at p.. the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit.

Hence.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. Ibid. emphasis supplied.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. there was no contract to rescind in court because from the moment the petitioner defaulted in the timely payment of the installments. the courts should decree the cancellation to have become effective. had not been transferred to the buyer. 364 SCRA 768 (2001).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. 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. 133 132 . Nevertheless. 134 Reiterated in AFP Mutual Benefit Asso. v. One cannot say that Torralba decided as it did because essentially even possession of the subject property. whether there was notice or not. 76. the contract between the parties was deemed ipso facto rescinded. as the Court itself held in a later case of Torralba v. Indeed. in a contract to sell. 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. De los Angeles. at p. although the covering contract was a contract to sell.470 LAW ON SALES fairness to allow the other party the right to question in court the propriety of the act of the seller. However. if the factual basis for an extrajudicial rescission or cancellation is present. and that had possession been transferred to the 96 SCRA 69 (1980). Court of Appeals.

REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 471 buyer. judicial action is necessary to recover the property from the buyer. However. there was at least a written notice sent to the defaulter informing him of the rescission. the court action is not one really to rescind.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. 135 136 182 SCRA 564 (1990). but for recovery of possession. As stressed in University of the Philippines vs. For failure of the buyer to pay installments due. even in a contract to sell. the Court held — Well settled is the rule. 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. 572. v. and certainly notice is not required to have such a cause of action. Court of Appeals. even in the cited cases. Inc. Lim v. 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. 644. Inc.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. 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. at p. Clave.”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. Ibid. In ruling that the cancellation was void because of lack of notice. 138 Ibid. . In Palay. as held in previous jurisprudence. without need of notice and with forfeiture of all installments paid. at p. it has always been the practice. But even then. 137 124 SCRA 638 (1983).138 The reasoning of Palay.

emphasis supplied. and private respondent had no freedom to stipulate. . 646-647. such notice to the other party is required simply and peculiarly because such special law requires it. The other legal basis of Palay. Inc. and even when not contained in 139 Ibid. But then. is an aberration of what otherwise would be established principles of cancellation in contracts to sell.472 LAW ON SALES and second. Waiver of notice is one such onerous and oppressive condition to buyers of real estate on installment payments. as discussed below. the Maceda Law. why should the provisions of a special and peculiar law govern? The contract to sell in Palay. at pp. in mandating notice to the other party is that even under the Maceda Law. Inc. Inc. and intelligently made. Palay. had decreed that a waiver of notice in a contract of adhesion is void. In disallowing such waiver. for cases not covered by the Maceda Law. 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. and especially on the general principles governing the effects of non-fulfillment of the suspensive condition in a contract to sell. it is a matter of public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. a standard form of petitioner corporation. The second is unsupported by any reasoning found in University of the Philippines. it was so decreed in University of the Philippines. expressly waived notice on the part of the buyer in case the seller should seek to rescind or cancel the contract. such waiver follows only where liberty of choice has been fully accorded. A waiver must be certain and unequivocal. Moreover.139 In one swoop. For cases covered by Maceda Law. The first reasoning is unacceptable because a usage or practice without legal or logical basis should be abandoned. notice of cancellation is required to be given to the buyer by notarial act. However.

735-737.. its birth or effectivity can take place only if and when the even which constitutes the condition happens or is fulfilled. v. at pp. This rule validates. Resultantly. 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. it being subjected to a suspensive condition. 141 140 . In many cases. emphasis supplied. verbal or written. . [seller] is not relieved from the giving of a notice.. [there was] default . in their Contract to Sell.. The act of a party in treating a contract as cancelled should be made known to the other.. It is always subject to the scrutiny and review by the courts in case the alleged defaulter brings the matter to the proper courts. contracts such as the one at bar. such waiver is invalid for being contrary to public policy when it covers real estate sold on installment basis. The application of the doctrine of prior notice of cancellation of contracts to sell has been applied to movables in Visayan Sawmill Co. Genato.. When a contract is subject to a suspensive condition. to the [buyers] for his decision to rescind their contract. the execution by [seller] of the affidavit to annul the contract is not even called for.. at least a written notice must be sent to the defaulter informing him of the same..140 reiterated the ruling that — Even assuming in gratia argumenti that . both in equity and justice. Nevertheless. litigations of this sort shall be prevented and the relations among would-be parties may be preserved . For such act is always provisional. 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. 219 SCRA 378 (1993). Ibid. 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. Court of Appeals.. If the suspensive condition does not take place.141 300 SCRA 722 (1998). Cheng v.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 473 a contract of adhesion. Inc. the parties would stand as if the condition obligation had never existed..

and therefore there is really nothing to resolve or rescind. Inc. 233 SCRA 551. 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. . Court of Appeals. when due.474 LAW ON SALES So. 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. Inc. To illustrate. 145 43 SCRA 95 (1972). Ocampo v. that should the Vendee fail to pay any of the monthly installments. then this Deed of Conditional Sale shall automatically and without any further formality.. become 142 See Jison v. there we have it (for now.” ruled to be a contract to sell. Court of Appeals. notice to the defaulting buyer. This doctrine has since then been consistently adhered to in cases subsequent cases for all types of immovables. Court of Appeals. 164 SCRA 339 (1988).145 the “Deed of Conditional Sale. Maritime Building Co. 384.142 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. And certainly. 143 158 SCRA 375 (1988). Rescission Principles Applied to Contracts to Sell By the nature of a contract to sell.. 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. 144 Ibid. at p. provided only — (d) . 561-562 (1994). require at the very least to be effective or operative.”144 d. v. in Luzon Brokerage Co.... or otherwise fail to comply with any of the terms and conditions herein stipulated.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.

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. and all sums so paid by the Vendee by reason thereof.”148 The emphasized quotation imply therefore that upon full payment 146 147 Ibid. the non-payment of the installments would ipso jure result in the obligation to sell not arising at all. so that there will be no actual sale until and unless full payment is made. emphasis supplied. refuse conveyance and retain the sums or installments already received. 148 46 SCRA 381. 387 (1972).146 Strictly speaking the afore-quoted provision did not create a right of automatic rescission because even without such clause. to extrajudicially terminate the operation of the contract. 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. the Court ruled that “in a contract to sell. at pp. as in the case at bar. would have to be expressly reserved in the deed in order to be binding. 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. 104-105. The only additional right that the provision did create was the right of forfeiture of payments previously made. where such rights are expressly provided for. 98. 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. Such a conclusion does not correspond with the nature of a contract to sell.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 475 null and void. In the resolution denying the first motion for reconsideration. take possession thereof or sell the properties to any other party. Ibid. . at p.

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. Lapuz. Amazingly however. elects to rescind or 149 150 96 SCRA 741 (1980). 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. 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. 1191 of the New Civil Code is the applicable provision where the obligee . Roque v. at p. it refused to grant the buyer the benefit of the period under Article 1191. the Court held that “Art. Ibid. elects to rescind or cancel his obligation to delivery the ownership.. casual or serious.”150 The contract having been construed as a contract to sell. thus — . 755. such payment being a positive suspensive condition and failure of which is not a breach. so that there will be no actual sale until and unless full payment is made. 151 Ibid. . but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force. there automatically arises a contract of sale which may be enforced by an action for specific performance. like petitioner herein. since the Court found that only 4 out of 116 monthly installments were ever paid.151 Under such premise.. at p.149 reiterated the Luzon Brokerage ruling that “in a contract to sell.. Roque held that the provisions of Article 1592 had no application. 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.476 LAW ON SALES of the price.. 757.” However. emphasis supplied. and since the buyer has long been in default.

the sellers have the right to declare the contract canceled and of no effect.” and then implied that had the buyer substantially paid the purchase price. to be void. 154 135 SCRA 323 (1985).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. and despite the fact that the contract at issue was a contract to sell. Calasanz. Court of Appeals. because it granted the sellers an absolute and automatic right of rescission. . 186 SCRA 400 (1990). 760. the Court plunged deep into the doctrinal pronouncements on rescission. Clearly. In other words.152 In addition.. in only a short time. held that the breach of the contract adverted to by the seller — . the reference to the remedy of rescission was not relevant at all to the contract to sell.00 the plaintiffsappellee had already paid the monthly installments for a period of almost nine (9) years. 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. is so slight and casual when we consider that apart from the initial downpayment of 5392. 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. the entire obligation would have 152 This particular ruling in Roque was reiterated in Alfonso v. at p. the Court would have upheld the new 90 day period granted by the Court of Appeals. 153 Ibid.. but nevertheless.”153 The “mixing-up” of doctrinal pronouncements was glaringly displayed subsequently in Angeles v. The buyer insisted that the provision insofar as it provided that in case of specified breaches of its terms.154 which also involved a contract to sell a parcel of land.

Such payment is Ibid. Joseph & Sons Enterprises.158 Jacinto v. Dignos v. Court of Appeals. at p. Kaparaz. 158 SCRA 375 (1988). Gimenez v.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. 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). ownership is retained by the seller and is not to pass until full payment of the price. while continuing to enjoy the petitioner’s property. held — Vital to the resolution of the controversy is the determination of the true nature of the questioned agreement. Inc. justice and equity had been the bases to erode the fundamental nature of a contract to sell. 331. In the latter case. v. It was downhill from that time on. at p.159 in determining whether the seller had a right to rescind an agreement involving the sale of a parcel of land. 157 195 SCRA 205 (1991). Court of Appeals.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. 158 Ibid. 159 209 SCRA 246 (1992). of course. The remedy of rescission and all its accompanying doctrinal baggages have been expressly made applicable to contracts to sell. and reward his defaults and contractual breaches. the same.155 In effect. 143 SCRA 663 (1986). in spite of several extension granted to him in the past by the seller when he had failed to meet the deadlines. 156 155 .156 On the other hand. Is it a contract of sale or a contract to sell? The two are not. 210. Court of Appeals. and make doctrinal pronouncements pertaining to contracts of sale applicable to it.

and doctrinal pronouncements having to do with rescission are not made to apply to the latter. Inc.. indicated that it is a contract of sale and not a contract to sell. and legally. 160 Ibid. In such a situation. vs. because the suspensive condition did not happen.. “there can be no rescission or resolution of an obligation as yet non-existent. unless there be just cause authorizing the fixing of a period. Maritime Building Co. 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.160 So once in a while. But where is one to put one’s self. as capsulized in Luzon Brokerage Co.” The paragraph talks of rescission. not even the courts can make the obligation effective. But then Jacinto went on to say that even if it were a contract to sell and resolution would have been the proper remedy. . at pp. 254-255.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 479 a positive suspensive condition the failure of which is not a breach. where non-payment is a resolution question.. Otherwise stated.’”. according to the Court. to argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale. Inc.. the Court recognizes the fundamental difference between a contract of sale and a contract to sell. but simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. casual or serious. 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. 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.. when the suspensive condition has not been fulfilled.

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.480 LAW ON SALES 2. There is an impairment if a subsequent law changes the terms of a contract between the parties. 164 Ibid. 162 231 SCRA 674 (1994).”164 161 The discussions on the operative aspects of the Maceda Law are found in the previous Chapter 10. imposes new conditions. 163 Ibid. Maceda Law Does Not Overcome Other Applicable Rules to Contracts to Sell More importantly. 680. dispenses with those agreed upon or withdraws remedies for the enforcement of the rights of the parties. At most. Siska Dev’t Corp. it merely provides for a procedure in aid of the remedy of rescission.” In Siska Dev’t. 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. at p.. 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. v. the Court held that the “[i]mpairment is anything that diminishes the efficacy of the contract. Neither does it withdraw the remedy for its enforcement. provided for the proper application of the provisions of the Maceda Law with respect to the other rules pertaining to contracts of sale. at least in the specific types of residential real estate and condominium units covered by said law. 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. Corp. By legislative injunctions. .”163 a. Office of the President of the Phils. emphasis supplied.

405 SCRA 316 (2003). Manalo. 6552 applies only to a perfected contract to sell and not to a contract with no binding and enforceable effect.REMEDIES OF RESCISSION AND CANCELLATION FOR IMMOVABLES 481 For example.. 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. This shows that the rules under the Maceda Law are applicable only to issues of rescission between the seller and the buyer. Court of Appeals. 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. In Siska Dev’t. the Court ruled against the first buyer under a contract to sell.. and in fact without reference to the Maceda Law. Boston Bank of the Philippines v. say between two buyers as to the same property bought. 168 Reiterated in Liu v. 140. thus: “Republic Act No.168 165 166 482 SCRA 108 (2006). . 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. 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. at p.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. Loy.”166 Another example would be the case of Lim v. Ibid. 167 182 SCRA 564 (1990). Jr. the Court not only reaffirmed the necessity of notice of cancellation in contracts to sell. Corp. and do not overcome prevailing rules when it involves a controversy. but also the applicability of the doctrine that prohibits “rescission” for casual or slight breaches even involving contracts to sell.167 where the issue was who between two “buyers” of the same property had preference of the same subject matter.

the Court held that the applicable law in resolving the issue would be the Maceda Law. 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.482 LAW ON SALES In Rillo v. Particularly. Heirs of San Andres v. Requisite Contractual Stipulations — In a contract to sell.170 (b) Accompanied by stipulations or agreements that: • ownership of the subject matter shall remain with the seller until full payment of the price. the seller had a right to cancel the contract. which it did by the filing of the judicial action for rescission. Court of Appeals. and having failed in that. he could only have availed of the 60-day grace period. on the issue on whether the seller could rescind the contract to sell when the buyer had not committed substantial breach under Article 1191. . where the buyer had defaulted on the payment of the amortization payments despite several chances given to him by the seller. 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. AT PERFECTION: 1.169 which involved a contract to sell a residential condominium unit. 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. 332 SCRA 769 (2000). and since the buyer has paid less than two years of installment. Rodriguez. thus: A. and 169 170 274 SCRA 461 (1997).

in which case it is a conditional contract of sale. v. 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). Court of Appeals. Court of Appeals. v. Angeles-Hutalla. 439 SCRA 55 (2004). Coronel v. Zaballa. Court of Appeals. Court of Appeals. Ong.174 Contra to (b): The Court has also ruled that even in the absence of such stipulations. 211 SCRA 219 (1992). . De Mistica v.. Gomez v. Jr. Jacinto v. Court of Appeals. 27 (1996). Inc. 546 SCRA 164 (2008). Babasa v. the contract would still be considered a contract to sell. 487 SCRA 571 (2006). 439 SCRA 273 (2004). Court of Appeals. Maritime Building Co. Villador. Blas v. Heirs of Pedro Escanlar v. 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. Inc. Court of Appeals. 538 SCRA 305 (2007). Adelfa Properties. 240 SCRA 575 (1995). Tiongson. Court of Appeals. 174 Romero v. 96 SCRA 741 (1980). v. 43 SCRA 95 (1972).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. 209 SCRA 246 (1992). 250 SCRA 223 (1995). 263 SCRA 15. Demafelis v. Naguiat. Lapuz.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. v. 240 SCRA 565 (1995). Inc. because of the absence of deeds of conveyance covering registered land where the operative act of sale is registration of the deed of sale. Villanueva. Court of Appeals. Valdez v. 172 Coronel v. Court of Appeals. Almocera v. 290 SCRA 532 (1998). 418 SCRA 73 (2003). 175 Roque v. Jr. 281 SCRA 176 (1997). 173 Luzon Brokerage Co. Ong v. 545 SCRA 325 (2008). Court of Appeals.. Kaparaz. Court of Appeals.175 171 Vda.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. 263 SCRA 15 (1996). 313 SCRA 63 (1999). Court of Appeals. Almira v. 340 SCRA 720 (2000).. 399 SCRA 351 (2003). David v. Topacio v.

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. Padilla v. failure of which is not a breach. 456 SCRA 659 (2005). Inc. Cruz v. 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 which held that registration does not vest title. Court of Appeals. Court of Appeals. Court of Appeals. Cristobal. 280 SCRA 253 (1997). Rillo v. Odyssey Park. payment of the price is a suspensive condition. Lapuz. 262 SCRA 486 (1996). Court of Appeals. Court of Appeals. but when the contract to sell expressly reserves title with the seller until full payment of the purchase price. 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. Lacanilao v. Cruz v. 177 176 .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. Blas v. 262 SCRA 486 (1996). Angeles-Hutalla. 310 SCRA 1 (1999). 179 Dignos v.484 LAW ON SALES ➣ But See Contra Rulings in Dignos v. 2. Court of Appeals. v. 328 SCRA 434 (2000). 258 SCRA 325 (1996). 180 Salazar v. the contract would still not be a contract to sell. the agreement is a contract to sell.180 158 SCRA 375 (1988). casual or serious. 477 SCRA 173 (2005). Court of Appeals.179 3. 434 SCRA 365 (2004). Lacanilao v.176 and in Portic v. Court of Appeals. Rayos v. Spouses Paredes. 96 SCRA 741 (1980). Fernando. but an event that prevents the obligation of the seller to convey title from acquiring obligatory force. 178 Roque v. 158 SCRA 375 (1988). Ong v. Court of Appeals. 439 SCRA 273 (2004). because it would be equivalent to reservation of title clause. Stipulation on the Payment of Price — In contract to sell. Fernando. 274 SCRA 461 (1997). 477 SCRA 173 (2005).

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

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

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

197 2. Palay. v. whereas. v. which would extinguish thereby the contract to sell. 55 SCRA 3246 (1974). 35 SCRA 103 (1970). 195 262 SCRA 486 (1996). 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.195 Even when the suspensive condition has not happened. 196 University of the Philippines v. the applicable rules are found in Articles 1191 and 1592 providing for the remedy of rescission. 124 SCRA 638 (1983). nevertheless. 194 193 . Inc. 31 SCRA 829 (1970). Article 1545 allows the seller to choose between rescission or waiving the condition. Clave.488 LAW ON SALES amounts paid when that has been expressly provided for. Whereas. De los Angeles. J. the remedies of rescission The Manila Racing Club v. Siska Dev. 231 SCRA 674 (1994). Legarda Hermanos v. in contract to sell. Office of the President. such extinguishment can only have legal effect if notice of cancellation is given to the buyer. De los Angeles. Inc. 55 (1939). Javier. in contract to sell. 197 96 SCRA 69 (1980). Office of the President.. Tuazon Co.194 ➣ But see contrary ruling in Lacanilao v. 69 Phil. Siska Dev. Laws Applicable – In contract of sale. but when there is a suspensive condition. The Manila Jockey Club. v.193 Contra to (d): Based on equity principles.M. 231 SCRA 674 (1994). Saldana. Court of Appeals. 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. Corp. v. Corp.196 ➣ But see contrary ruling in Torralba v.

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

Reiterated in Lim v. 263 SCRA 569 (1996). 333 SCRA 643 (2000). Florendo.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. Republic v. the essential requisites of a contract are: consent of the contracting parties. Court of Appeals. in that such first party may either: (a) refuse to proceed with the contract. interests and participations shall become effective only upon the approval by the Honorable Court.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. Under Art. or (b) he may waive performance of the condition. Court of Appeals. 2 1 490 . 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. Romero v. Court of Appeals.3 where the sale contract contained the stipulation that “this Contract of Sale of rights. Laforteza v. 3 281 SCRA 176 (1997). 549 SCRA 527 (2008). thus — There has arisen here a confusion in the concepts of validity and the efficacy of a contract. 1318 of the Civil Code. object certain 250 SCRA 223 (1995). and that the choice is not with the obligor but with the injured party. Machuca.” it was held that the non-happening of the condition did not affect the validity of the contract itself.2 In Heirs of Pedro Escanlar v.

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

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

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 .9 EXPRESS WARRANTIES Since the breach of an express warranty makes the seller liable for damages. Ibid... As stated.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. it should have included in the contract a provision similar to that referred to in Romero vs. v... was the operative act which set into motion the period of [buyer’s] compliance with his own obligation.. Court of Appeals. xxx. at pp. 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.CONDITIONS AND WARRANTIES 493 Power Commercial and Industrial Corp. where the ejectment of the occupants of the lot sold . 607-608. The terms of the contract are so clear as to leave no room for any other interpretation. its effects and consequences were not specified either. i.e. such “failure” was not stipulated as a condition — whether resolutory or suspensive — in the contract. it is important to note that the following 8 9 274 SCRA 597 (1997). xxx. to pay the balance of the purchase price. . and second. Court of Appeals. the provision adverted to in the contract pertains to the usual warranty against eviction.

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

adverse claims. either arising as compensation for disturbance or from improvements. 641-642. nevertheless. whether or not the parties were aware of them. an agent of the seller may bind himself to such warranties. claims of any tenant and/or agricultural workers. 16 Ibid. RJL Martinez. Inc. Inc. v. IMPLIED WARRANTIES Implied warranties are those which by law constitute part of every contract of sale. the second more specific express warranty by its very wordings did take such tenancy relationship into consideration as a part of the express warranty. at p. by express contractual stipulation. distinguished between the legal effects of an express warranty which provided that the subject land was “free from all liens and encumbrances.15 which involved the sale of agricultural land. 162 SCRA 636 (1988).CONDITIONS AND WARRANTIES 495 and are always understood as affording to buyers no ground for omitting to make inquiries. 603. Court of Appeals.17 14 15 Ibid. . 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. encumbrances.”14 To illustrate further. Investments & Development. 17 Schmid and Oberly. and must take the consequences of his own imprudence. 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.” It held that the actual existence of a tenancy relationship on the subject land did not breach the first general express warranty.”16 Whereas. at pp. 166 SCRA 493 (1988). v. 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. Although only a seller is bound by the implied warranties of law. and whether or not the parties intended them.” and another express warranty that the subject land was “free from all liens.

unless a contrary intention appears. Civil Code. as when the obligation of the seller is subject to a condition. 20 Art. pledgee.19 Although Article 1547 uses the phrase “unless a contrary intention appears. 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. auctioneer.” there can be no legal waiver of such warranty without changing the basic nature of the relationship. 1548. or other person professing to sell by virtue of authority in fact or law.. to transfer ownership of the subject matter pursuant to the sale. The foregoing warranty shall not be applicable to render liable a sheriff. there is an implied warranty on the part of the seller that when the ownership is to pass. 1547. Civil Code. Civil Code. i.20 The vendor shall answer for the eviction even though nothing has been said in the contract on the subject. it amounts to clear assumption of risk on the part of the buyer. for the sale of a thing in which a third person has a legal or equitable interest. Civil Code. the warranty of the seller “that he has a right to sell” refers only to the transfer of ownership at the point of consummation. for the warranty on the part of the seller that he has the capacity to sell. 1547.21 18 19 Art. is the essence of sale.18 Since warranty goes into the issue of performance of obligation. unless a contrary intention appears. mortgagee. 2. the buyer shall from that time have and enjoy the legal and peaceful possession of the thing. Warranty Against Eviction In a contract of sale. Art. Warranty That Seller Has Right to Sell In a contract of sale. 21 Art. 1547. . and not to any representation as to ownership and the capacity to transfer the same at the point of perfection. unless.496 LAW ON SALES 1.e.

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

31 26 27 47 Phil.. Civil Code. a part of the thing sold of such importance. 1556.”27 Escaler v.26 held that “[N]o discussion. TOMO X. should be made here as to whether or not the vendor had means of defense. therefore. he may demand the rescission of the contract. or for a separate price for each of them. There is only one condition to be complied with by the vendee. The Court held that — This is not the kind of notice prescribed by the aforequoted Articles 1558 and 1559 of the New Civil Code . when it clearly appears that the buyer would not have purchased one without the other. 31 Art. quoting MANRESA in COMENTARIOS AL CODIGO CIVIL ESPAÑOL. 371 (1925). Ibid. and that is to give notice of the complaint. instead of enforcing the vendor’s liability for eviction. that he would not have bought it without said part. the respondents as vendor/s should be made parties to the suit at the instance of petitionersvendees. his right to the warranty is perfect. at p. and the vendor cannot set up anything against it. . Lualhati. by reason of the eviction.29 b. All of this counts very little. by registered mail. but with the obligation to return the thing without other encumbrances than those which it had when he acquired it.498 LAW ON SALES Jovellano v.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. Once this is proven. The same rule shall be observed when two or more things have been jointly sold for a lump sum. 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. 29 Ibid. Eviction in Part Should the buyer lose. 28 138 SCRA 1 (1985). 7.30 He may exercise this right of action.. without going through formally summoning the seller to be a party to the case. with a copy of the opposition the buyer filed in the eviction suit. 212. 1556. in relation to the whole. p. 30 Art. Court of Appeals. Civil Code.

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

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

however. when the buyer cannot show that he is a buyer in good faith. Tuazon v. Civil Code. Civil Code.39 has. . but not as to eviction caused by other reasons not covered in the waiver.M. unless there is an express warranty that the thing is free from all burdens and encumbrances. 1560.40 (b) If the non-apparent burden or servitude is recorded in the Registry of Deeds. a buyer cannot take refuge on the warranty against eviction when he purchases the land fully aware of a claim by a third party on the title to the land and who was in actual possession thereof. Warranty Against Non-Apparent Servitudes Under Article 1560 of the Civil Code.41 39 40 94 SCRA 413 (1979). Court of Appeals.CONDITIONS AND WARRANTIES 501 expected eviction. When Warranty Not Applicable The warranty does not apply: (a) If the servitude is mentioned in the agreement. 41 Art. it is not entitled to the warranty against eviction. a. 3. held that even when there is no specific waiver. the waiver has the effect of wiping out the warranty as to that specific risk. the warranty shall apply only when the following conditions are present: (a) The immovable sold is encumbered with any non-apparent burden or servitude. J. 1560. not mentioned in the agreement. and (b) The nature of such non-apparent burden or servitude is such that it must presumed that the buyer would not have acquired it had he been aware thereof. Art.

v. 1561. 45 162 SCRA 636 (1988).45 the Court held that the implied warranty against hidden defects under Article 1547 of the Civil Code covers only those that make the object of the sale unfit for the use for which it was intended at the time of sale. Court of Appeals. Inc. in Investments & Development. and that in the sale of agricultural land. by reason of his trade or profession. Civil Code.43 The seller is responsible to the buyer for any hidden faults or defects in the thing sold. The seller is not answerable for patent defects or those which are visible. the buyer may only bring an action for damages within an equal period.502 LAW ON SALES b. even though he was not aware thereof. or even for those which are not visible if the buyer is an expert who. Civil Code. Civil Code. to be counted from the date on which he discovered the burden or servitude. or (b) Should diminish its fitness for such use to such an extent that. Remedies and Prescriptive Period The buyer may either bring an action for rescission or sue for damages only if he does so within one (1) year computed from the execution of the deed. the existing tenancy relationship pertaining 42 43 Art. Art. had the buyer been aware thereof. the seller shall be responsible for warranty against “hidden defect” only when: (a) The nature of the hidden defect is such that it should render the subject matter unfit for the use for which it is intended. For example. 1560. he would not have acquired it or would have given a lower price for it. should have known them. 44 Art. Warranty Against Hidden Defects Under Article 1561 of the Civil Code. .42 4.44 The warranty applies to both movable and immovable subject matters. 1566. If such one year period has lapsed.

also confirmed the principle under Article 1567 of the Civil Code that the remedy of the buyer is either to withdraw from the contract (accion redhibitoria) or to demand a proportionate reduction of the price (accion quanti minoris). a. with damages in either case.CONDITIONS AND WARRANTIES 503 thereto cannot be considered as “hidde