Sales

BarOps Head I PY Caunan

Acads Head I Beth Liceralde

Subject Head I Jas Gapatan

Faculty Adviser I
 TABLE OF CONTENTS
I. INTRODUCTION..................................................................................................................................................................................................................... 1
A. DEFINITION OF SALE .......................................................................................................................................................................................................1
B. CHARACTERISTICS OF A CONTRACT OF SALE ....................................................................................................................................................................1
C. KINDS OF A CONTRACT OF SALE ......................................................................................................................................................................................1
D. SALE AS DISTINGUISHED FROM OTHER CONTRACTS ...........................................................................................................................................................1

II. PARTIES TO A CONTRACT OF SALE ................................................................................................................................................................................3

CAPACITY OF PARTIES ........................................................................................................................................................................................................3

III. SUBJECT MATTER .............................................................................................................................................................................................................5

REQUISITES OF A VALID SUBJECT MATTER ............................................................................................................................................................................5

IV. OBLIGATION OF THE SELLER TO TRANSFER OWNERSHIP ......................................................................................................................................8

A. SALE BY A PERSON NOT THE OWNER ................................................................................................................................................................................8
B. SALE BY ONE HAVING A VOIDABLE TITLE ...........................................................................................................................................................................9

V. PRICE....................................................................................................................................................................................................................................10
REQUISITES OF A VALID PRICE ...........................................................................................................................................................................................10

VI. FORMATION OF THE CONTRACT OF SALE..................................................................................................................................................................13

PREPARATORY STAGE..............................................................................................................................................................................................13
PERFECTION STAGE ..................................................................................................................................................................................................15
FORMALITIES OF THE CONTRACT ...........................................................................................................................................................................15

VII. TRANSFER OF OWNERSHIP .........................................................................................................................................................................................18

A. MANNER OF TRANSFER.................................................................................................................................................................................................18
B. KINDS OF DELIVERY .....................................................................................................................................................................................................18
C. DOUBLE SALES ...........................................................................................................................................................................................................20

VIII. RISK OF LOSS OR DETERIORATION ........................................................................................................................................................................ 23

A. GENERAL RULE ...........................................................................................................................................................................................................23
B. WHEN OWNERSHIP IS TRANSFERRED .............................................................................................................................................................................24

IX. DOCUMENTS OF TITLE ................................................................................................................................................................................................... 24

A. NEGOTIABLE DOCUMENTS OF TITLE ...............................................................................................................................................................................24
B. NON-NEGOTIABLE DOCUMENTS OF TITLE ........................................................................................................................................................................26

X. REMEDIES OF AN UNPAID SELLER.................................................................................................................................................................................27

MEANING OF UNPAID SELLER ..................................................................................................................................................................................27
REMEDIES OF AN UNPAID SELLER...........................................................................................................................................................................27

XI. PERFORMANCE OF THE CONTRACT ............................................................................................................................................................................31

A. DELIVERY OF THE THING SOLD .....................................................................................................................................................................................31
B. PAYMENT OF PRICE .....................................................................................................................................................................................................35

XII. WARRANTIES ..................................................................................................................................................................................................................37

A. EXPRESS WARRANTIES ................................................................................................................................................................................................37
B. IMPLIED WARRANTIES ..................................................................................................................................................................................................38
C. BUYER’S WAIVER IN CASE OF BREACH OF WARRANTY ..................................................................................................................................................42

XIII. BREACH OF CONTRACTS ........................................................................................................................................................................................... 43

A. SALE OF GOODS.....................................................................................................................................................................................................43
B. SALE OF IMMOVABLES AND THINGS OTHER THAN GOODS .............................................................................................................................45
C. SALE OF MOVABLES ON INSTALLMENT ..............................................................................................................................................................45
D. SALE OF IMMOVABLES ON INSTALLMENT ..........................................................................................................................................................46

XIV. EXTINGUISHMENT OF THE SALE................................................................................................................................................................................47

A. CONVENTIONAL REDEMPTION.............................................................................................................................................................................47
B. LEGAL REDEMPTION..............................................................................................................................................................................................50

XV. BULK SALES LAW...........................................................................................................................................................................................................53

A. ACT NO. 3952.............................................................................................................................................................................................................53
B. RA 3952 ....................................................................................................................................................................................................................54

XVI. RETAIL TRADE LIBERALIZATION ACT ......................................................................................................................................................................56

RA 8762 ........................................................................................................................................................................................................................56
CA 108 ..........................................................................................................................................................................................................................59
I. Introduction
I. Introduction
A. Definition of sale
CC Art. 1458
By the contract of sale one of the contracting
parties obligates himself to transfer the ownership
and to deliver a determinate thing, and the other
to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.
 The definition in Art 1458 brings about the
creation of two sets of obligations: for the
seller, (1) to transfer ownership and (2)
deliver possession of the subject matter; for
the buyer: to pay the price. Obligations, as
referred to in the Article, are obligations to
give; thus it may be the subject of actions for
specific performance. (Villanueva)
B. Characteristics of a contract of sale
1. NOMINATE
It has a peculiar name and form as prescribed
in the law
2. CONSENSUAL
It is founded upon and completed by mere
consent of the contracting parties1 (See Article
1475)
CC Art. 1475
The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is
the object of the contract and upon the price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions of
the law governing the form of contracts. (1450a)
3. COMMUTATIVE
It is a contract in which each of the contracting
parties gives a thing of value and receives an
equivalent
4. BILATERAL
It is a contract in which both the contracting
parties are bound to fulfill the obligations
reciprocally towards each other (i.e. the vendor
becomes bound to deliver the thing sold and the
vendee to pay the price for it)
1
QUIJADA V. CA: Sale being a consensual contract, is
perfected by mere consent, which is manifested the moment
there is a meeting of the minds as to the offer and acceptance
thereof on 3 elements: price, subject matter and terms of
payment. 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. What the law requires is that the seller has the
right to transfer ownership at the time the thing sold is
delivered.
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5. ONEROUS
As opposed to gratuitous, because the thing is
sold in consideration of a price and vice versa
6. PRINCIPAL
It can stand on its own; unlike an accessory
contract
C. Kinds of a contract of sale
1. ABSOLUTE
Where the sale is not subject to any condition
whatsoever and where title passes to the buyer
upon the delivery of the thing sold.
2. CONDITIONAL
Where the sale contemplates a contingency
and in general, where the contract is subject to
certain conditions (usually the full payment of the
purchase price). Conditions are attached to the
contract; the title will only pass once the conditions
have been fulfilled.
D. Sale as distinguished from other
contracts
1. SALE VS. CONTRACT FOR A PIECE OF
WORK2
CC Art. 1467
A contract for the delivery at a certain price of an
article which the vendor in the ordinary course of
his business manufactures or procures for the
general market, whether the same is on hand at
the time or not, is a contract of sale, but if the
goods are to be manufactured specially for the
customer and upon his special order, and not for
the general market, it is a contract for a piece of
work.
CC Art. 1713
By the contract for a piece of work the contractor
binds himself to execute a piece of work for the
employer, in consideration of a certain price or
compensation. The contractor may either employ
only his labor or skill, or also furnish the material.
CC Art. 1714
If the contractor agrees to produce the work from
material furnished by him, he shall deliver the
thing produced to the employer and transfer
dominion over the thing. This contract shall be
2
CELESTINO V. COLLECTOR: A factory which habitually
makes sash, windows and doors, and sells the goods to the
public is a manufacturer. The fact that the windows and doors
are made by it only when customers place their orders and
according to such form or combination as suit the fancy of the
purchasers does not alter the nature of the establishment;
COMMISSIONER V. ENGINEERING: The test of a contractor
is that he renders service in the course of an independent
occupation, representing the will of his employer only as to
the result of his work, and not as to the means by which it is
accomplished.
I. Introduction
governed by the following articles as well as by the
pertinent provisions on warranty of title and
against hidden defects and the payment of price in
a contract of sale.
CC Art. 1715
The contract shall execute the work in such a
manner that it has the qualities agreed upon and
has no defects which destroy or lessen its value or
fitness for its ordinary or stipulated use. Should the
work be not of such quality, the employer may
require that the contractor remove the defect or
execute another work. If the contract fails or
refuses to comply with this obligation, the
employer may have the defect removed or another
work executed, at the contractor's cost.
 In a contract for work, labor or materials or
for a piece of work, 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; while in a contract of
sale, the thing transferred is one which would
have existed and been the subject of sale to
some other person, even if the order had not
been given. (De Leon)
 This follows the Massachusetts Rule: a meantime by a third person. (1540a)
contract for the delivery at a certain price of
an article which the vendor, in the ordinary
course of his business, manufactures or
procures for the general market, whether the
same is on hand at the time or not, is a
contract of sale. But if the goods are to be
manufactured specially for the customer and
upon his special order and not for the general
market, it is a contract for a piece of work.
(Baviera)
2. SALE VS. AGENCY TO BUY AND SELL3
CC Art. 1466
In construing a contract containing provisions
characteristic of both the contract of sale and of
the contract of agency to sell, the essential clauses
of the whole instrument shall be considered. (n)
3. SALE VS. BARTER OR EXCHANGE
CC Art. 1468
If the consideration of the contract consists partly
in money, and partly in another thing, the
transaction shall be characterized by the manifest
intention of the parties. If such intention does not
clearly appear, it shall be considered a barter if the
value of the thing given as a part of the
3
QUIROGA V. PARSONS: In the contract in the instant case,
what was essential, constituting its cause and subject matter,
was that the plaintiff was to furnish the defendant with the
beds which the latter might order, at the stipulated price, and
that the defendant was to pay this price in the manner agreed
upon. These are precisely the essential features of a contract
of purchase and sale. There was the obligation on the part of
the plaintiff to supply the beds, and, on that of the defendant,
to pay their price. These features exclude the legal conception
of an agency or older to sell whereby the mandatory or agent
receives the thing to sell it, and does not pay its price, but
delivers to the principal the price he obtains from the sale of
the thing to a third person, and if he does not succeed in
selling it, he returns it.
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consideration exceeds the amount of the money or
its equivalent; otherwise, it is a sale. (1446a)
CC Art. 1638
By the contract of barter or exchange one of the
parties binds himself to give one thing in
consideration of the other's promise to give
another thing. (1538a)
CC Art. 1639
If one of the contracting parties, having received
the thing promised him in barter, should prove that
it did not belong to the person who gave it, he
cannot be compelled to deliver that which he
offered in exchange, but he shall be entitled to
damages. (1539a)
CC Art. 1640
One who loses by eviction the thing received in
barter may recover that which he gave in exchange
with a right to damages, or he may only demand
an indemnity for damages. However, he can only
make use of the right to recover the thing which he
has delivered while the same remains in the
possession of the other party, and without
prejudice to the rights acquired in good faith in the
CC Art. 1641
As to all matters not specifically provided for in this
Title, barter shall be governed by the provisions of
the preceding Title relating to sales. (1541a)
4. SALE VS. DACION EN PAGO
CC Art. 1245
Dation in payment, whereby property is alienated
to the creditor in satisfaction of a debt in money,
shall be governed by the law of sales. (n)
Dacion En Pago Sale
Presupposes a preexisting Obligations are created
debt & extinguishes the from the perfection of the
debt contract
Price is the value of the Fixing of the price is more
thing given freely agreed upon
(Manresa)
5. SALE VS. DONATION
CC Art. 725
Donation is an act of liberality whereby a person
disposes gratuitously of a thing or right in favor of
another, who accepts it.
 Under Art 1471, when the price of the
contract of sale is simulated, the sale may be
void but the act may be shown to have been
in reality a donation x x x On the other hand,
a purported donation may have other
considerations placed on the donee, thus it
becomes critical to determine what rule
applies (law on sales or law on donations)
(Villanueva)
I. Introduction Sales
6. SUMMATION: TESTS TO DETERMINE THE
NATURE OF THE CONTRACT II. Parties to a Contract of Sale
4 Tests Sale = object: Piece of Work Capacity of parties
transfer of = object:
ownership service CC Art. 1489
(mental, All persons who are authorized in this Code to
physical labor)
obligate themselves, may enter into a contract of
1. Nature of Ordinary Extra-ordinary sale, saving the modifications contained in the
business following articles.
Where necessaries are those sold and delivered to
2. Existence of Does not Depends on
a minor or other person without capacity to act, he
thing order
must pay a reasonable price therefor. Necessaries
3. Market General Specific are those referred to in Article 290. (1457a)
Clientele
CC Art. 1490
4. Statute of Covered Not covered The husband and the wife cannot sell property to
frauds each other, except:
1. When a separation of property was agreed upon
in the marriage settlements; or
4 Tests (but the Sale Agency to Sell
ultimate test is: 2. When there has been a judicial separation or
intention of the property under Article 191. (1458a)
parties)
CC Art. 1491
1. Risk of Loss Borne by Borne by The following persons cannot acquire by purchase,
seller principal, not even at a public or judicial auction, either in person
agent or through the mediation of another:
1. The guardian, the property of the person or
2. Payment Buyer Principal, not
persons who may be under his guardianship;
agent
2. Agents, the property whose administration or
3. Exclusive Remittance test sale may have been entrusted to them, unless
Dealership the consent of the principal has been given;
3. Executors and administrators, the property of
4. Return of None Mandatory the estate under administration;
unsold goods 4. Public officers and employees, the property of
the State or of any subdivision thereof, or of
any government-owned or controlled
corporation, or institution, the administration of
Sale Barter
which has been intrusted to them; this
1. Intention of provision shall apply to judges and government
parties experts who, in any manner whatsoever, take
part in the sale;
2. Value of thing Money > thing Thing > Money 5. Justices, judges, prosecuting attorneys, clerks
vs. Value of of superior and inferior courts, and other
money officers and employees connected with the
administration of justice, the property and
rights in litigation or levied upon an execution
2 Tests Sale Dacion En Pago before the court within whose jurisdiction or
territory they exercise their respective
1. Debt None Pre-existing functions; this prohibition includes the act of
acquiring by assignment and shall apply to
2. Stage of Perfection Extinguishment lawyers, with respect to the property and rights
contract which may be the object of any litigation in
which they may take part by virtue of their
profession.
6. Any others specially disqualified by law.
(1459a)

CC Art. 1492
The prohibitions in the two preceding articles are
applicable to sales in legal redemption,
compromises and renunciations. (n)

1. ABSOLUTE INCAPACITY

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II. Parties to a Contract of Sale
 Those who have the legal capacity to give
consent to contracts may validly enter into a
contract of sale, unless specifically prohibited
by law. However, when necessaries are sold
and delivered to a minor or other
incapacitated person, the latter must pay a
reasonable price therefore. Necessaries are
those indispensable for sustenance, clothing,
dwelling, education, and medical treatment.
2. RELATIVE INCAPACITY
MARRIED PERSONS
As regards contracts with third parties
CC Art. 73
Either spouse may exercise any legitimate
profession, occupation, business or activity without
the consent of the other. The latter may object
only on valid, serious, and moral grounds.
In case of disagreement, the court shall decide
whether or not:
1. The objection is proper; and
2. Benefit has occurred to the family prior to the
objection or thereafter. If the benefit accrued
prior to the objection, the resulting obligation
shall be enforced against the separate property
of the spouse who has not obtained consent.
The foregoing provisions shall not prejudice the
rights of creditors who acted in good faith. (117a)
CC Art. 96
The administration and enjoyment of the
community property shall belong to both spouses
jointly. In case of disagreement, the husband's
decision shall prevail, subject to recourse to the
court by the wife for proper remedy, which must be
availed of within five years from the date of the
contract implementing such decision.
In the event that one spouse is incapacitated or
otherwise unable to participate in the
administration of the common properties, the other
spouse may assume sole powers of administration.
These powers do not include disposition or
encumbrance without authority of the court or the
written consent of the other spouse. In the absence
of such authority or consent, the disposition or
encumbrance shall be void. However, the
transaction shall be construed as a continuing offer
on the part of the consenting spouse and the third
person, and may be perfected as a binding contract
upon the acceptance by the other spouse or
authorization by the court before the offer is
withdrawn by either or both offerors. (206a)
CC Art. 124
The administration and enjoyment of the conjugal
partnership shall belong to both spouses jointly. In
case of disagreement, the husband's decision shall
prevail, subject to recourse to the court by the wife
for proper remedy, which must be availed of within
five years from the date of the contract
implementing such decision.
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In the event that one spouse is incapacitated or
otherwise unable to participate in the
administration of the conjugal properties, the other
spouse may assume sole powers of administration.
These powers do not include disposition or
encumbrance without authority of the court or the
written consent of the other spouse. In the absence
of such authority or consent, the disposition or
encumbrance shall be void. However, the
transaction shall be construed as a continuing offer
on the part of the consenting spouse and the third
person, and may be perfected as a binding contract
upon the acceptance by the other spouse or
authorization by the court before the offer is
withdrawn by either or both offerors. (165a)
As regards contracts between spouses
CC Art. 87
Every donation or grant of gratuitous advantage,
direct or indirect, between the spouses during the
marriage shall be void, except moderate gifts
which the spouses may give each other on the
occasion of any family rejoicing. The prohibition
shall also apply to persons living together as
husband and wife without a valid marriage. (133a)
CC Art. 1490
The husband and the wife cannot sell property to
each other, except:
1. When a separation of property was agreed upon
in the marriage settlements; or
2. When there has been a judicial separation or
property under Article 191. (1458a)
 There is a potential circumvention of the
policy of the law if sales between spouses are
allowed if there was a judicial separation of
property, since undue influence is not
completely erased by the separation of
property. This prohibition also applies to
common-law unions4. (Villanueva)
SPECIAL DISQUALIFICATIONS (SEE CC ARTS. 1491
AND 1492 IN THE PREVIOUS PAGE)
1. It is immaterial that no damage is suffered by
the owner. The contract is void as the law
seeks to prevent said persons from being
tempted to take advantage of their position.
They occupy a position of trust and confidence
in relation to the property under their
administration or jurisdiction.
2. Agents can not buy the property of their
principalj without the consent of the latter.
BROKERS, however, do not come within the
prohibition, as their authority consists merely in
looking for a buyer or seller, and to bring the
latter and his principal together to consummate
4
CALIMLIM-CANULLAS V. FORTUN: …if transfers or
conveyances between spouses were allowed during marriage,
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, as well as to protect the institution
of marriage, which is the cornerstone of family law. The
prohibitions apply to a couple living as husband and wife
without benefit of marriage, otherwise, "the condition of those
who incurred guilt would turn out to be better than those in
legal union."
II. Parties to a Contract of Sale
the transaction. Of course, after the agency is
terminated, the agent can buy the property of
the principal, which was formerly under his
administration.
3. Although executors and administrators can not
buy the property under their administration, an
executor may buy the hereditary rights of an
heir to the estate under his administration,
because the buyer, in such case, can not get
the share of the heir in the estate until after the
administration is ended.
4. With regard to the lawyers, the prohibition does
not apply to other properties of the client, nor
to assignments of the property formerly in
litigation when such assignment will take effect
only after final judgment (compensation of
lawyers payable on a contingent basis, unless
unconscionable).5
5. Examples of other persons especially
disqualified by law are: (1) aliens purchasing
private agricultural lands (Art XII, Secs 3 & 7,
Consti); (2) an unpaid seller having a right of
lien…(Art 133 par 5) (Baviera)
5
RUBIAS V. BATILLER: the purchase by a lawyer of the
property in litigation from his client is categorically prohibited
by Art. 1491, paragraph (5) of the Civil Code, and that
consequently, plaintiff's purchase of the property in litigation
from his client was void and could produce no legal effect
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III. Subject Matter
Requisites of a valid subject matter
1. MUST BE EXISTING, FUTURE, OR
CONTINGENT
CC Art. 1348
Impossible things or services cannot be the object
of contracts. (1272)
CC Art. 1462
The goods which form the subject of a contract of
sale may be either existing goods, owned or
possessed by the seller, or goods to be
manufactured, raised, or acquired by the seller
after the perfection of the contract of sale, in this
Title called "future goods."
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a
contingency which may or may not happen. (n)
CC Art. 1347
All things which are not outside the commerce of
men, including future things, may be the object of
a contract. All rights which are not intransmissible
may also be the object of contracts.
No contract may be entered into upon future
inheritance except in cases expressly authorized by
law.
All services which are not contrary to law, morals,
good customs, public order or public policy may
likewise be the object of a contract. (1271a)
 Emption rei speratai – If the parties make the
contract depend upon the existence of a thing,
so that if the thing does not come into
existence the contract is considered as not
made ad there is no obligation to pay the
price, such contract is valid under [Art. 1461
(2), CC; it is what the Roman law designates
as emptio rei speratae (purchase of an
expected thing).
 Emptio spei – If the parties intend the
contract to exist at all events, so that the
buyer will have to pay the price even if the
thing does not actually came into existence . .
. it is called emtio spei (purchase of hope or
expectancy”. This contract is, however, void
under Art. 1461. (Tolentino)
CC Art. 1461
Things having a potential existence may be the
object of the contract of sale.
The efficacy of the sale of a mere hope or
expectancy is deemed subject to the condition that
the thing will come into existence.
The sale of a vain hope or expectancy is void. (n)
CC Art. 1347
All things which are not outside the commerce of
men, including future things, may be the object of
a contract. All rights which are not intransmissible
may also be the object of contracts.
III. Subject Matter
No contract may be entered into upon future
inheritance except in cases expressly authorized by
law.
All services which are not contrary to law, morals,
good customs, public order or public policy may
likewise be the object of a contract. (1271a)
 Law prohibits sale of future inheritance. The
rights to succession are transmitted from the
moment of the death of the decedent so one
cannot sell or promise to sell what he expects
to inherit from a living person. But the law
allows an heir to sell his interests in an
inheritance
 The object of the contract of sale must be licit,
meaning within the commerce of man, and
determinate. Determinate has been expanded
to cover generic things, future things and
things in potential existence 6.
 Things subject to a resolutory condition may
be the object of the contract of sale.(Article
1465)
2. MUST BE LICIT
CC Art. 1347
All things which are not outside the commerce of
men, including future things, may be the object of
a contract. All rights which are not intransmissible
may also be the object of contracts.
No contract may be entered into upon future
inheritance except in cases expressly authorized by
law.
All services which are not contrary to law, morals,
good customs, public order or public policy may
likewise be the object of a contract. (1271a)
CC Art. 1459
The thing must be licit and the vendor must have a
right to transfer the ownership thereof at the time
it is delivered. (n)
CC Art. 1575
The sale of animals suffering from contagious
diseases shall be void.
A contract of sale of animals shall also be void if
the use or service for which they are acquired has
been stated in the contract, and they are found to
be unfit therefor. (1494a)
 The sale of narcotics or dangerous drugs
except upon prescription, or any wild bird or
mammal, or rare wild plants protected by law
or of tubli or other poisonous plants or fruits,
dynamited fish or other aquatic animals,
gunpowder, dynamite, explosives or blasting
supplies, firearms or ammunitions are
prohibited by law therefore are illicit.
6 8
PICHEL V. ALONZO: The subject matter of the contract of
sale in question are the fruits of the coconut trees on the land
during the years from September 15, 1968 up to January 1,
1976, which subject matter is a determinate thing. Under Art.
1461 of the New Civil Code, things having a potential
existence may be the object of the contract of sale;
SIBAL VS. VALDEZ: pending crops which have potential
existence may bethe subject matter of sale.
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 Properties belonging to the State or its
political subdivision which are intended for
public use or public service or for the
development of natural wealth are outside the
commerce of man.
 Churches are also outside the commerce of
man.
 But public property when no longer intended
for public use or service form part of the
patrimonial property of the State and
therefore can be leased or sold.
3. MUST BE DETERMINATE
CC Art. 1460
A thing is determinate when it is particularly
designated or physical segregated from all other of
the same class.
The requisite that a thing be determinate is
satisfied if at the time the contract is entered into,
the thing is capable of being made determinate
without the necessity of a new or further
agreement between the parties. (n)
DETERMINATE VS. DETERMINABLE7
A thing is determinate if it can be physically
segregated, particularly designated; capable of
being made determinate without need of another
agreement. It is determinable if it is capable of
being determined via another agreement.
4. PARTICULAR KINDS
GENERIC THINGS
CC Art. 1246
When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor
cannot demand a thing of superior quality. Neither
can the debtor deliver a thing of inferior quality.
The purpose of the obligation and other
circumstances shall be taken into consideration.
(1167a)
CC Art. 1409
The following contracts are inexistent and void
from the beginning:
6. Those where the intention of the parties relative
to the principal object of the contract cannot be
ascertained;
 Generic things could also become subject
matters of a contract of sale provided (1) they
have been physically segregated8 /
7
MELLIZA V. CITY OF ILOILO: The requirement of the law
that a sale must have for its object a determinate thing, is
fulfilled as long as, at the time the contract is entered into,
the object of the sale is capable of being made determinate
without the necessity of a new or further agreement between
the parties
YU TEK V. GONZALEZ: This court has consistently held that
there is a perfected sale with regard to the "thing" whenever
the article of sale has been physically segregated from all
other articles. In the case at bar the undertaking of the
defendant was to sell to the plaintiff 600 piculs of sugar of the
first and second classes. There was no delivery under the
contract. Now, if called upon to designate the article sold, it is
clear that the defendant could only say that it was "sugar." He
III. Subject Matter
particularly designated, and (2) they are
capable of substitution
FUTURE GOODS
CC Art. 1462
The goods which form the subject of a contract of
sale may be either existing goods, owned or
possessed by the seller, or goods to be
manufactured, raised, or acquired by the seller
after the perfection of the contract of sale, in this
Title called "future goods."
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a
contingency which may or may not happen. (n)
Sales
of the Province which the property is situated,
a notice of the pendency of the action.
 From the moment of the filing of such notice,
3rd persons are charged with notice of the
litigation & take the property subject to the
outcome of the litigation. (Baviera and De
Leon)
THINGS SUBJECT TO A RESOLUTORY CONDITION
CC Art. 1465
Things subject to a resolutory condition may be the
object of the contract of sale. (n)
5. QUANTITY OF SUBJECT MATTER9

SALE OF UNDIVIDED INTEREST OR SHARE CC Art. 1349

The object of every contract must be determinate
CC Art. 1463 as to its kind. The fact that the quantity is not
The sole owner of a thing may sell an undivided determinate shall not be an obstacle to the
interest therein. (n) existence of the contract, provided it is possible to
determine the same, without the need of a new
CC Art. 1464 contract between the parties. (1273)
In the case of fungible goods, there may be a sale
of an undivided share of a specific mass, though
the seller purports to sell and the buyer to buy a
definite number, weight or measure of the goods in
the mass, and though the number, weight or
measure of the goods in the mass is undetermined.
By such a sale the buyer becomes owner in
common of such a share of the mass as the
number, weight or measure bought bears to the
number, weight or measure of the mass. If the
mass contains less than the number, weight or
measure bought, the buyer becomes the owner of
the whole mass and the seller is bound to make
good the deficiency from goods

SALE OF THINGS IN LITIGATION

CC Art. 1381
The following contracts are rescissible:
4. Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;

CC Art. 1385
2. Neither shall rescission 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.

 Sales of things under litigation entered into by

defendants without the knowledge & approval
of the litigants or of the court are rescissible.
 However, rescission cannot take place when
the things are legally in the possession of 3rd
persons who did not act in bad faith (&
without knowledge of defect)
 In an action affecting the title or the right of
possession of real property, the plaintiff may
record in the office of the Registrar of Deeds 9
SCHUBACK V. CA: Although the quantity to be ordered was
made determinate only on December 29, 1981, quantity is
immaterial in the perfection of a sales contract. What is of
importance is the meeting of the minds as to the object and
could only use this generic name for the thing sold. We cause, which from the facts disclosed, show that as of
conclude that the contract in the case at bar was merely an December 24, 1981, these essential elements had already
executory agreement; a promise of sale and not a sale. concurred.

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IV. Obligation of the Seller to Transfer Ownership
IV. OBLIGATION OF THE SELLER TO
TRANSFER OWNERSHIP
A. Sale by a person not the owner
CC Art. 1636
In the preceding articles in this Title governing the
sale of goods, unless the context or subject matter
otherwise requires:
1. "Document of title to goods" includes any bill of
lading, dock warrant, "quedan," or warehouse
receipt or order for the delivery of goods, or
any other document used in the ordinary course
of business in the sale or transfer of goods, as
proof of the possession or control of the goods,
or authorizing or purporting to authorize the
possessor of the document to transfer or
receive, either by endorsement or by delivery,
goods represented by such document.
"Goods" includes all chattels personal but not
things in action or money of legal tender in the
Philippines. The term includes growing fruits or
crops.
"Order" relating to documents of title means an
order by endorsement on the documents.
"Quality of goods" includes their state
condition.
"Specific goods" means goods identified and
agreed upon at the time a contract of sale is
made.
An antecedent or pre-existing claim, whether for
money or not, constitutes "value" where goods
or documents of title are taken either in
satisfaction thereof or as security therefor.
2. A person is insolvent within the meaning of this
Title who either has ceased to pay his debts in
the ordinary course of business or cannot pay
his debts as they become due, whether
insolvency proceedings have been commenced
or not.
3. Goods are in a "deliverable state" within the
meaning of this Title when they are in such a
state that the buyer would, under the contract,
be bound to take delivery of them. (n)
CC Art. 559
The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully
deprived thereof may recover it from the person in
possession of the same.
If the possessor of a movable lost or which the
owner has been unlawfully deprived, has acquired
it in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid
therefor. (464a)
CC Art. 1505
Subject to the provisions of this Title, where goods
are sold by a person who is not the owner thereof,
and who does not sell them under authority or with
the consent of the owner, the buyer acquires no
better title to the goods than the seller had, unless
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the owner of the goods is by his conduct precluded
from denying the seller's authority to sell.
Nothing in this Title, however, shall affect:
1. The provisions of any factors' act, recording
laws, or any other provision of law enabling the
apparent owner of goods to dispose of them as
if he were the true owner thereof;
2. The validity of any contract of sale under
statutory power of sale or under the order of a
court of competent jurisdiction;
3. Purchases made in a merchant's store, or in
fairs, or markets, in accordance with the Code
of Commerce and special laws. (n)
CC Art. 1431
Through estoppel an admission or representation is
rendered conclusive upon the person making it,
and cannot be denied or disproved as against the
person relying thereon.
GENERAL RULE
No one can transfer a better title than what he
has over the property sold. Only the owner of the
goods or one authorized by the owner to sell can
transfer title thereto to the buyer10.
EXCEPTIONS
or
ESTOPPEL (CC ART 1505)
Even if the person who sold the thing was not
the owner, if he should subsequently acquire
ownership thereof, his conveyance is deemed valid
& his title passes by operation of law to the buyer11
If the owner of the goods is precluded by his
conduct from denying the seller’s authority to sell,
buyer may acquire a better title, although the
seller had neither the title nor the authority to sell
the goods.
RECORDING LAWS; TORRENS SYSTEM – PD 1529
None in the Phils. But NCC relies on the
general principle of law that one deals with an
agent at his own risk.
10
AZNAR V. YAPDIANGCO: In the case on hand, the car in
question was never delivered to the vendee by the vendor as
to complete or consummate the transfer of ownership by
virtue of the contract. It should be recalled that while there
was indeed a contract of sale between Vicente Marella and
Teodoro Santos, the former, as vendee, took possession of
the subject matter thereof by stealing the same while it was in
the custody of the latter's son. Art. 712 above contemplates
that the act be coupled with the intent of delivering the thing.
11
SIY CONG BIEN V. HSBC: Since plaintiff had voluntarily
clothed the person who negotiated the quedans with all the
attributes of ownership and upon which the bank relied, it is
estopped to deny that the bank had a valid title to the
quedans;
JALBUENZA V. LIZARRAGA: Bigelow on Estoppel says: ". . .
it is now a well established principle that where the true owner
of property, for however short a time, holds out another, or,
with knowledge of his own right, allows another to appear, as
the owner of or as having full power of disposition over the
property, the same being in the latter's actual possession, and
innocent third parties are thus led into dealing with some
[such] apparent owner, they will be protected." (as cited in
Hernaez vs. Hernaez)
IV. Obligation of the Seller to Transfer Ownership
COURT ORDERS
The general principle that the vendor must be
the owner or the one authorized by the owner to
sell the goods in order to pass title over them to
the buyer does not apply when the sale takes place
by virtue of a power granted by law or by a court.
Thus a sale by the sheriff, or by other execution or
subject of foreclosure, is valid even if the owner did
not authorize or consent to the sale (Baviera).
Sales
contract is annulled, the latter acquired a valid
title13.
 An antecedent or pre-existing claim, WON for
money constitutes “value” where goods or
document of titloe are taken in satisfaction
thereof or as security therefore

Validity of sale under statutory power (legal

sale – e.g. law authorizing sale of patrimonial
property to a specific person at auction) or of court
to sell (judicial sale e.g. writ of execution levying
upon the debtor’s property at auction)

PURCHASE AT A MERCHANT’S STORE, MARKET OR

FAIR12

Purpose of the exception

1. To protect innocent purchasers who buy at
merchant stores, market or fair
2. To facilitate commercial sales in movables
3. To give stability to business transactions

B. Sale by one having a voidable title

CC Art. 1506
Where the seller of goods has a voidable title
thereto, but his title has not been avoided at the
time of the sale, the buyer acquires a good title to
the goods, provided he buys them in good faith, for
value, and without notice of the seller's defect of
title. (n)

CC Art. 559
The possession of movable property acquired in
good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully
deprived thereof may recover it from the person in
possession of the same.
If the possessor of a movable lost or which the
owner has been unlawfully deprived, has acquired
it in good faith at a public sale, the owner cannot
obtain its return without reimbursing the price paid
therefor. (464a)

 Seller can transfer a valid title to an innocent

purchaser for value, unless title was annulled.
 So long as the goods are still in the
possession of the 1st buyer, they may still be
recovered by the vendor in an action for
annulment.
 But once it has been transferred to an
innocent purchaser for value before the
12
SUN BROTHERS V. VELASCO: 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, the
latter must be protected. The rule
appears to be a wise and necessary rule not only to facilitate
commercial sales on movables but to give stabilityto business
transactions.
MASICLAT V. CENTENO: The transaction between Ramon
Masiclat and his unknown seller took place on Miranda Street
and not in the public market and this is . . . conclusive. Hence,
Art. 1505 CC, invoked by the petitioners, has no application.
13
DE GARCIA V. CA: Respondent Angelina D. Guevara,
having been unlawfully deprived of the diamond ring in
question, was entitled to recover it from petitioner Consuelo
S. de Garcia who was found in possession of the same. The
only exception the law allows is when there is acquisition in
good faith of the possessor at a public sale, in which case the
owner cannot obtain its return without reimbursing the price.
(Cruz v. Pahati; Aznar v. Yapdiangco);
REBULLIDA V. BUSTAMANTE: It appearing that the ring in
question was lost or was stolen from the place where the
lawful owner deposited it, the case squarely falls under Art.
464 of the Civil Code, which provides that the “one who has
lost personal property or who has been unlawfully deprived of
it may recover it from whoever is possessing it.” The mere
fact that the possessor, even in good faith, ad purchased the
ring from another person would not bar the right of the owner
to recover it once the identity and the owner’s deprivation are
established.

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V. Price
V. Price14
CC Art 1469
Should such person or persons be unable or
unwilling to fix it, the contract shall be
inefficacious, unless the parties subsequently agree
upon the price.
If the third person or persons acted in bad faith or
by mistake, the courts may fix the price.
Where such third person or persons are prevented
from fixing the price or terms by fault of the seller
or the buyer, the party not in fault may have such
remedies against the party in fault as are allowed
the seller or the buyer, as the case may be.
(1447a)
CC Art. 1470
Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect
in the consent, or that the parties really intended a
donation or some other act or contract. (n)
CC Art. 1471
If the price is simulated, the sale is void, but the
act may be shown to have been in reality a
donation, or some other act or contract. (n)
CC Art. 1472
The price of securities, grain, liquids, and other
things shall also be considered certain, when the
price fixed is that which the thing sold would have
on a definite day, or in a particular exchange or
market, or when an amount is fixed above or below
the price on such day, or in such exchange or
market, provided said amount be certain. (1448)
CC Art. 1473
The fixing of the price can never be left to the
discretion of one of the contracting parties.
However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected.
(1449a)
CC Art. 1474
Where the price cannot be determined in
accordance with the preceding articles, or in any
other manner, the contract is inefficacious.
However, if the thing or any part thereof has been
delivered to and appropriated by the buyer he
must pay a reasonable price therefor. What is a
reasonable price is a question of fact dependent on
the circumstances of each particular case. (n)
 A contract of sale is null & void and produces
no effect whatsoever if the same is without
cause or consideration or that the price which
appears to have been paid has in fact never
been paid.
 The existence of a contract is permanent &
incurable.
 The statement of a false cause in contracts
shall render them void if it should not be
14
INCHAUSTI V. CROMWELL: Price is 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
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proven that were founded upon another cause
which is true & lawful (1471, 1353)
 If the price is simulated, the sale is void but
the act may be shown to have been in reality
a donation, or some other act or contract
(1471)
Requisites of a valid price
1. MUST BE REAL
CC Art. 1471
If the price is simulated, the sale is void, but the
act may be shown to have been in reality a
donation, or some other act or contract. (n)
CC Art. 1386
Rescission referred to in Nos. 1 and 2 of Article
1381 shall not take place with respect to contracts
approved by the courts. (1296a)
CC Art. 1353
The statement of a false cause in contracts shall
render them void, if it should not be proved that
they were founded upon another cause which is
true and lawful. (1276)
CC Art. 1354
Although the cause is not stated in the contract, it
is presumed that it exists and is lawful, unless the
debtor proves the contrary. (1277)
CC Art. 1470
Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect
in the consent, or that the parties really intended a
donation or some other act or contract. (n)
CC Art. 1381
The following contracts are rescissible:
1. Those which are entered into by guardians
whenever the wards whom they represent
suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
2. Those agreed upon in representation of
absentees, if the latter suffer the lesion stated
in the preceding number;
3. Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the
claims due them;
4. Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;
5. All other contracts specially declared by law to
be subject to rescission. (1291a)
FALSE PRICE
There is a true price but it was not written
down or stipulated in the contract. There was a
consideration although it was not found in the
contract (Real consideration not stated)
V. Price
SIMULATED PRICE15
There was no price paid. The parties merely
said there was a price and “created” their own
price (no consideration but stated)
2. MUST BE IN MONEY OR ITS EQUIVALENT
CC Art. 1458
By the contract of sale one of the contracting
parties obligates himself to transfer the ownership
and to deliver a determinate thing, and the other
to pay therefor a price certain in money or its
equivalent.
A contract of sale may be absolute or conditional.
(1445a)
CC Art. 1468
If the consideration of the contract consists partly
in money, and partly in another thing, the
transaction shall be characterized by the manifest
intention of the parties. If such intention does not
clearly appear, it shall be considered a barter if the
value of the thing given as a part of the
consideration exceeds the amount of the money or
its equivalent; otherwise, it is a sale. (1446a)
 The price should be in money or its equivalent16
(e.g. letters of credit & other negotiable
instruments). Otherwise, the transaction might
be barter or an innominate contract.
 Property given to the creditor in satisfaction of
a debt in money with the PRICE PAID IN
ADVANCE is a sale.
DATION IN PAYMENT SALE
Presupposes a prior Obligations are created
existing credit & from the perfection of the
extinguishes the obligation contract
 Fixing of the price is more or less arrived at
with ample contractual freedom than the
value of the thing given in dation.
15
MAPALO V. MAPALO: a contract of purchase and 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;
BAGNAS V. CA: upon the consideration alone that the
apparent gross, not to say enormous, disproportion between
the stipulated price (in each deed) of P1.00 plus unspecified
and unquantilled services and the undisputably valuable real
estate allegedly sold — worth at least P10,500.00 going only
by assessments for tax purposes which, it is well-known, are
noteriously low indicators of actual value — plainly and
unquestionably demonstrates that they state a false and
fictitious consideration, and no other true and lawful cause
having been shown, the Court finds both said deeds, insofar
as they purport to be sales, not merely voidable, but void ab
initio.
16
REPUBLIC V. PHIL. RESOURCES: Although Art. 1458 of
the new Civil Code provides that price . . . is always paid in
terms of money and the supposed payment being in kind it is
no payment at all," yet the same article provides that the
purchaser may pay "a price certain in money or its equivalent"
which means that payment of the price need not be money.
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3. MUST BE CERTAIN OR ASCERTAINABLE AT
TIME OF PERFECTION17
CC Art. 1474
Where the price cannot be determined in
accordance with the preceding articles, or in any
other manner, the contract is inefficacious.
However, if the thing or any part thereof has been
delivered to and appropriated by the buyer he
must pay a reasonable price therefor. What is a
reasonable price is a question of fact dependent on
the circumstances of each particular case. (n)
CC Art. 1469
In order that the price may be considered certain,
it shall be sufficient that it be so with reference to
another thing certain, or that the determination
thereof be left to the judgment of a special person
or persons.
Should such person or persons be unable or
unwilling to fix it, the contract shall be
inefficacious, unless the parties subsequently agree
upon the price.
If the third person or persons acted in bad faith or
by mistake, the courts may fix the price.
Where such third person or persons are prevented
from fixing the price or terms by fault of the seller
or the buyer, the party not in fault may have such
remedies against the party in fault as are allowed
the seller or the buyer, as the case may be.
(1447a)
CC Art. 1470
Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect
in the consent, or that the parties really intended a
donation or some other act or contract. (n)
CC Art. 1471
If the price is simulated, the sale is void, but the
act may be shown to have been in reality a
donation, or some other act or contract. (n)
CC Art. 1472
The price of securities, grain, liquids, and other
things shall also be considered certain, when the
price fixed is that which the thing sold would have
17
TOYOTA SHAW V. CA: Article 1458 of the Civil Code
defines a contract of sale and Art. 1475 specifically provides
when it is deemed perfected. The document (in Exhibit “A”,
see case), executed and signed by the petitioner's sales
representative, is not a contract of sale. 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 therefor a price certain appears therein. The provision on
the downpayment of P100,000 made no specific reference to a
sale of a vehicle. If it was intended for a contract of sale, it
could only refer to a sale on installment basis, as the VSP
executed the following day confirmed. But nothing was
mentioned about the full purchase price and the manner the
installments were to be paid. This Court had already ruled that
a definite agreement on the manner of payment of the price is
an essential element in the formation of a binding and
enforceable contract of sale. This is so because the agreement
as to the manner of payment goes into the price such that a
disagreement on the manner of payment is tantamount to a
failure to agree on the price. Definiteness as to the price is an
essential element of a binding agreement to sell personal
property.
V. Price
on a definite day, or in a particular exchange or
market, or when an amount is fixed above or below
the price on such day, or in such exchange or
market, provided said amount be certain. (1448)
CC Art. 1473
The fixing of the price can never be left to the
discretion of one of the contracting parties.
However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected.
(1449a)
4. MANNER OF PAYMENT MUST BE AGREED
UPON18
5. HOW PRICE IS DETERMINED
CC Art. 1469
In order that the price may be considered certain,
it shall be sufficient that it be so with reference to
another thing certain, or that the determination
thereof be left to the judgment of a special person
or persons.
Should such person or persons be unable or
unwilling to fix it, the contract shall be
inefficacious, unless the parties subsequently agree
upon the price.
If the third person or persons acted in bad faith or
by mistake, the courts may fix the price.
Where such third person or persons are prevented
from fixing the price or terms by fault of the seller
or the buyer, the party not in fault may have such
remedies against the party in fault as are allowed
the seller or the buyer, as the case may be.
(1447a)
A. BY A THIRD PERSON19
B. BY THE COURTS
Art. 1469.
3. If the third person or persons acted in bad faith
or by mistake, the courts may fix the price.
18
VELASCO V. CA: It is not difficult to glean from the
aforequoted averments that the petitioners themselves admit
that they and the respondent still had to meet and agree on
how and when the down-payment and the installment
payments were to be paid. Such being the situation, it cannot,
therefore, be said that a definite and firm sales agreement
between the parties had been perfected over the lot in
question. Indeed, this Court has already ruled before that a
definite agreement on the manner of payment of the purchase
price is an essential element in the formation of a binding and
enforceable contract of sale. The fact, therefore, that the
petitioners delivered to the respondent the sum of P10,000 as
part of the down-payment that they had to pay cannot be
considered as sufficient proof of the perfection of any
purchase and sale agreement between the parties under Art.
1482 of the new Civil Code;
NAVARRO V. SUGAR’S PRODUCERS: When the manner of
payment of purchase price is discussed after acceptance,,
then such acceptance did not produce a binding and
enforceable contract of sale. There was no complete meeting
of the minds
19
BARRETTO V. SANTA MARINA: It is necessary to a
perfected sale that the parties agree upon the thing sold and
that the price be fixed, it being sufficient for the latter purpose
that the price be left to the judgment of a specified person.
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C. BY REFERENCE TO DEFINITE DAY, PARTICULAR
EXCHANGE MARKET20
CC Art. 1472
The price of securities, grain, liquids, and other
things shall also be considered certain, when the
price fixed is that which the thing sold would have
on a definite day, or in a particular exchange or
market, or when an amount is fixed above or below
the price on such day, or in such exchange or
market, provided said amount be certain. (1448)
D. BY REFERENCE TO ANOTHER THING CERTAIN
E. NEVER BY ONE PARTY
CC Art. 1473. The fixing of the price can never be
left to the discretion of one of the contracting
parties. However, if the price fixed by one of the
parties is accepted by the other, the sale is
perfected. (1449a)
6. INADEQUACY OF PRICE21
CC Art. 1355
Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue
influence. (n)
CC Art. 1470
Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect
in the consent, or that the parties really intended a
donation or some other act or contract. (n)
CC Art. 1381
The following contracts are rescissible:
1. Those which are entered into by guardians
whenever the wards whom they represent
suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
2. Those agreed upon in representation of
absentees, if the latter suffer the lesion stated
in the preceding number;
3. Those undertaken in fraud of creditors when the
latter cannot in any other manner collect the
claims due them;
4. Those which refer to things under litigation if
they have been entered into by the defendant
without the knowledge and approval of the
litigants or of competent judicial authority;
5. All other contracts specially declared by law to
be subject to rescission. (1291a)
CC Art. 1602
The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
20
Price is certain at the point of perfection by reference to
another thing certain, such as to certain invoices then in
existence and clearly identified by the agreement
(MCCOLLOUGH V. AENLLE) or known factors or stipulated
formula (MITSUI V. MANILA)
21
ERENETE V. BEZORE: That the consideration in the sale
was "cheap" is not a ground for the infirmity of the sale.
Inadequacy of cause in a contract does not of itself invalidate
the contract.
V. Price
1. When the price of a sale with right to
repurchase is unusually inadequate;
2. When the vendor remains in possession as
lessee or otherwise;
3. When upon or after the expiration of the right
to repurchase another instrument extending the
period of redemption or granting a new period
is executed;
4. When the purchaser retains for himself a part of
the purchase price;
5. When the vendor binds himself to pay the taxes
on the thing sold;
6. In any other case where it may be fairly
inferred that the real intention of the parties is
that the transaction shall secure the payment of
a debt or the performance of any other
obligation.
In any of the foregoing cases, any money, fruits, or
other benefit to be received by the vendee as rent
or otherwise shall be considered as interest which
shall be subject to the usury laws. (n)
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VI. FORMATION OF THE CONTRACT OF
SALE
PREPARATORY STAGE
1. OFFER
CC Art. 1475
The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is
the object of the contract and upon the price.
From that moment, the parties may reciprocally
demand performance, subject to the provisions of
the law governing the form of contracts. (1450a)
FORM OF OFFER22
The offer must be certain. Business
advertisements/advertisements for bidders are
mere invitations to make an offer, unless otherwise
stated.
CC Art. 1319
Consent is manifested by the meeting of the offer
and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must
be certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not
bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is
presumed to have been entered into in the place
where the offer was made. (1262a)
CC Art. 1325
Unless it appears otherwise, business
advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (n)
CC Art. 1326
Advertisements for bidders are simply invitations to
make proposals, and the advertiser is not bound to
accept the highest or lowest bidder, unless the
contrary appears. (n)
FORM OF ACCEPTANCE
1. The acceptance must be absolute23.
2. The acceptance must be plain and
unconditional.
22
VILLONCO V. BORMAHECO: 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. 'So long as it is clear
that the meaning of the acceptance is positively and
unequivocally to accept-the offer, whether such request is
granted or not, a contract is formed.'” Thus, it was held that
the vendor's change in a phrase of the offer to purchase,
which change does not essentially change the terms of the
offer, does not amount to a rejection of the offer and the
tender of a counter-offer
23
ZAYCO V SERRA: In an offer to sell, the acceptance must
be plain and unconditional to have the effect of converting the
offer to sell to a perfect contract. It will not be so if it involves
any new proposal, for in that case it would not mean
conformity with the offer, which is what gives rise to the
generation of the contract.
VI. Formation of Contract of Sale
3. To bind the offeror, the offeree must comply
with the conditions of the offer. Where the
acceptance was not in accordance with the
terms and conditions of the offer, the offer
lapsed even though the offeree later on was
willing to accept the terms and conditions of the
offer.
VICES VITIATING CONSENT
CC Art. 1330
A contract where consent is given through mistake,
violence, intimidation, undue influence, or fraud is
voidable. (1265a)
CC Art. 1331
In order that mistake may invalidate consent, it
should refer to the substance of the thing which is
the object of the contract, or to those conditions
which have principally moved one or both parties
to enter into the contract.
Mistake as to the identity or qualifications of one of
the parties will vitiate consent only when such
identity or qualifications have been the principal
cause of the contract.
A simple mistake of account shall give rise to its
correction. (1266a)
CC Art. 1338
There is fraud when, through insidious words or
machinations of one of the contracting parties, the
other is induced to enter into a contract which,
without them, he would not have agreed to. (1269)
24
2. OPTION CONTRACT
CC Art. 1479
A promise to buy and sell a determinate thing for a
price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding
upon the promissor if the promise is supported by
a consideration distinct from the price. (1451a)
CC Art. 1324
When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at
any time before acceptance by communicating
such withdrawal, except when the option is
founded upon a consideration, as something paid
or promised. (n)
ELEMENTS OF A VALID OPTION CONTRACT
1. Consent
24
DE LA CAVADA V DIAZ: An option contract is a privilege
existing in one person, for which he had paid a consideration
and which gives him the right to buy certain merchandise or
certain specified property, from another person, if he chooses,
at any time within the agreed period at a fixed price
LIMSON V CA: An option is not of itself a purchase, but
merely secures the privilege to buy. It is not a sale of
property, but a sale of the right to purchase. Its distinguishing
characteristic is that it imposes no binding obligation on the
person holding the option, aside from the consideration for the
offer. Although the consideration of P20,000 was referred to
as earnest money, such was not an earnest money. Rather, it
was an option money.
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2. Subject matter: an option right or accepted
unilateral offer to buy, or an option right or
accepted unilateral offer to sell a determinate
object for a price certain, including the manner
of payment thereof
3. Prestation: a consideration25 separate and
distinct from the purchase price for the option
given
 It must be in writing. [NOTE that the
prescription of written contracts is 4 years.]
3. RIGHT OF FIRST REFUSAL26
4. BILATERAL PROMISE TO BUY AND SELL
(See Article 1479 supra)
1. Both parties are bound by his promise, although
nothing has been paid or delivered27.
2. An executory contract of sale the promise of
one is the consideration for the promise of the
other.
3. In a bilateral promise, it is necessary that the
thing be determinate and the price already
fixed.
4. It gives the right to demand fulfillment of the
contract but does not pass title or dominion
over the property.
25
SORIANO V BAUTISTA: An option to buy attached to a
real estate mortgage is a valid stipulation, and the
mortgagor’s promise to sell is supported by the same
consideration as that of the mortgage itself, which is distinct
and from that which would support the sale, an additional
amount having been agreed upon to make up the entire price
of P3,900 should the option be exercised. (NOTE: The
significance of this ruling is that it shows the wide range of
“consideration” that can validly support an option contract,
e.g., the real mortgage itself);
SANCHEZ V RIGOS: (NOTE: The significance of this ruling is
that it shows that the only importance of a consideration for
an option is that the option cannot be withdrawn by the
grantor during the stipulated period.)
26
EQUATORIAL REALTY DEVELOPMENT, INC. V MAYFAIR
THEATER: In the present case, no fixed price is stated in the
contract of lease of the property in case of sale. Therefore, it
cannot be an option contract; it is more akin to a right of first
refusal, in which no separate consideration is required as it is
already included in the reciprocal obligations of the parties in
the contract of lease. Although it cannot be legally categorized
as an option, it is nevertheless a valid and binding stipulation
between the parties.
PARAÑAQUE KINGS ENTERPRISES V CA: The basis of the
right of first refusal must be the current offer to sell of the
seller of offer to purchase of any prospective buyer. Only after
could the owner validly offer to sell the property to a third
person under the same terms as offered to the grantee
27
DE LA CAVADA V DIAZ: A promise made by one party, if
in accordance with the form required by law, may be a good
consideration for a promise made by another. In this case, the
defendant promised to convey the land as soon as they
become registered. The plaintiff promised to pay the
defendant the price in accordance with the terms of their
contract. An option contract is a privilege existing in one
person for which he had paid a consideration, which gives him
the right to buy during the certain period. The contract of
option, being different from the contract, may be entered into
by the parties upon the consummation of the option, its
consideration is likewise entirely different.
VI. Formation of Contract of Sale Sales

PERFECTION STAGE28 Considered payment of part of the price; proof

of perfection of the contract; may be given as a
guarantee that the vendee would not back out.
1. WHEN DEVIATION ALLOWED

The rule that “acceptance must be absolute” is EARNEST MONEY OPTION MONEY
not really absolute because certain deviations may (LIMSON V. CA –
be made in the acceptance. Even with such FOOTNOTE 24)
deviations, the offer will still be converted into a Part of the purchase Distinct consideration for
valid and binding contract. price an option contract

2. SALE BY AUCTION Given only when there is Given when the sale is not
already a sale yet perfected
CC Art. 1476. In the case of a sale by auction:
1. Where goods are put up for sale by auction in When given, the buyer is When given, the would-be
bound to pay the balance buyer is not bound to pay
lots, each lot is the subject of a separate
the balance; he may even
contract of sale.
forfeit it
2. A sale by auction is perfected when the
auctioneer announces its perfection by the fall
of the hammer, or in other customary manner. 4. PLACE OF PERFECTION
Until such announcement is made, any bidder
may retract his bid; and the auctioneer may (See Art. 1319 at page 15) – where the offer was
withdraw the goods from the sale unless the made
auction has been announced to be without
reserve. FORMALITIES OF THE CONTRACT
3. A right to bid may be reserved expressly by or
on behalf of the seller, unless otherwise
1. GENERAL RULE: FORM NOT IMPORTANT
provided by law or by stipulation.
4. Where notice has not been given that a sale by
CC Art. 1483
auction is subject to a right to bid on behalf of
Subject to the provisions of the Statute of Frauds
the seller, it shall not be lawful for the seller to
and of any other applicable statute, a contract of
bid himself or to employ or induce any person
sale may be made in writing, or by word of mouth,
to bid at such sale on his behalf or for the
or partly in writing and partly by word of mouth, or
auctioneer, to employ or induce any person to
may be inferred from the conduct of the parties.
bid at such sale on behalf of the seller or
(n)
knowingly to take any bid from the seller or any
person employed by him. Any sale contravening
CC Art. 1358
this rule may be treated as fraudulent by the
The following must appear in a public document:
buyer. (n)
1. Acts and contracts which have for their object
the creation, transmission, modification or
 Contract is perfected when the auctioneer
extinguishment of real rights over immovable
accepts the bid by the fall of the hammer or
property; sales of real property or of an interest
gavel or in any other customary manner.
therein a governed by Articles 1403, No. 2, and
 If auction is announced to be “without
1405;
reserve,” goods cannot be withdrawn from the
2. The cession, repudiation or renunciation of
sale after the bid is made.
hereditary rights or of those of the conjugal
 By taking part in the auction and offering
partnership of gains;
bidding, the buyer voluntarily submitted to
3. The power to administer property, or any other
the terms and conditions of the auction sale
power which has for its object an act appearing
announced in the notice.
or which should appear in a public document, or
 Puffing/by-bidding – means employed by
should prejudice a third person;
owner to increase the price of the bids; illegal.
4. The cession of actions or rights proceeding from
an act appearing in a public document.
3. EARNEST MONEY (CF. OPTION MONEY)
2. EXCEPTIONS
CC Art. 1482
Whenever earnest money is given in a contract of
A. STATUTE OF FRAUDS
sale, it shall be considered as part of the price and
as proof of the perfection of the contract. (1454a)
CC Art. 1403.
The following contracts are unenforceable, unless
PAYMENT OF EARNEST MONEY
they are ratified:
2. Those that do not comply with the Statute of
28 Frauds as set forth in this number. In the
FULE V CA: Contracts are perfected by mere consent. From
this moment, the parties are bound not only to fulfillment of following cases an agreement hereafter made
what has been expressly stipulated but also to all shall be unenforceable by action, unless the
consequences which, according to their nature, may be in same, or some note or memorandum, thereof,
keeping with good faith, usage and law. Being consensual, a be in writing, and subscribed by the party
contract of sale has the force of law and they are expected to
abide in good faith by their contractual commitments.
charged, or by his agent; evidence, therefore,

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VI. Formation of Contract of Sale
of the agreement cannot be received without
the writing, or a secondary evidence of its
contents:
a. An agreement that by its terms is not to be
performed within a year from the making
thereof;
d. An agreement for the sale of goods, chattels
or things in action, at a price not less than
five hundred pesos, unless the buyer accept
and receive part of such goods and chattels,
or the evidences, or some of them, of such
things in action or pay at the time some part
of the purchase money; but when a sale is
made by auction and entry is made by the
auctioneer in his sales book, at the time of
the sale, of the amount and kind of property
sold, terms of sale, price, names of the
purchasers and person on whose account
the sale is made, it is a sufficient
memorandum;
e. An agreement of the leasing for a longer
period than one year, or for the sale of real
property or of an interest therein;
CC Art. 1405
Contracts infringing the Statute of Frauds, referred
to in No. 2 of Article 1403, are ratified by the
failure to object to the presentation of oral
evidence to prove the same, or by the acceptance
of benefit under them.
Purpose of statute
To prevent fraud and perjury in the
enforcement of obligations depending for their
evidence upon the unassisted memory of
witnesses.
Exceptions to statute of frauds
1. When there is a note or memorandum thereof
in writing, and subscribed by the party charged
or his agent
2. When there has been partial consummation
3. When there has been a failure to object to the
presentation of evidence
4. Sales through electronic commerce
B. SALE OF REALTY THROUGH AN AGENT
CC Art. 1874
When a sale of a piece of land or any interest
therein is through an agent, the authority of the
latter shall be in writing; otherwise, the sale shall
be void. (n)
 The agent’s authority to sell should be in
writing; otherwise, void29.
29
CITY LITE REALTY V CA: There was no perfected contract
between F.P. Holdings and City Lite. Art. 1874 provides that
when the sale of the piece of land or any interest therein is
through an agent, the authority of the agent shall be in
writing; otherwise, the sale shall be void. The absence of the
authority to sell can be determined from the written
memorandum issued by F.P. Holding’s president, requesting
Metro Drug’s assistance in finding buyers. Final evaluation,
appraisal and acceptance can only be made by F.P. Holdings.
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C. SALE OF LARGE CATTLE
Revised Administrative Code Sec. 529
No transfer of large cattle shall be valid unless the
same is registered and a certificate of transfer
obtained as herein provided; but large cattle under
two years of age may be registered and branded
gratis for the purpose of effecting a valid transfer
are made at the same time.
 Registration is made with the municipal
treasurer.
D. SECONDARY EVIDENCE
Before secondary evidence may be introduced
of the terms of the sale, due execution and
subsequent loss of the original instrument must be
proved.
Due execution
May be proved by the testimony of the person
who executed it, the person before whom its
execution was acknowledged, or any person who
was present and saw it executed and delivered, or
whom, after its execution and delivery, saw it and
recognized the signatures, or by a person to whom
the parties to the instrument had previously
confessed the execution thereof.
E. RA 8792 -- ELECTRONIC COMMERCE ACT
[PERTINENT PROVISIONS PROVIDED INFRA]
Sec. 7. Legal Recognition of Electronic documents
Electronic documents shall have the legal effect,
validity or enforceability as any other document or
legal writing, and-
a. Where the law requires a document to be in
writing, that requirement is met by an
electronic document if the said electronic
document maintains its integrity and
reliability and can be authenticated so as to
be usable for subsequent reference, in that
i. The electronic document has remained
complete and unaltered, apart from the
addition of any endorsement and any
authorized change, or any change which
arises in the normal course of
communication, storage and display; and
ii. The electronic document is reliable in the
light of the purpose for which it was
generated and in the light of all relevant
circumstances.
b. Paragraph (a) applies whether the
requirement therein is in the form of an
obligation or whether the law simply
provides consequences for the document not
being presented or retained in its original
from.
c. Where the law requires that a document be
presented or retained in its original form,
that requirement is met by an electronic
document if-
i. There exists a reliable assurance as to
the integrity of the document from the
time when it was first generated in its
final from; and
VI. Formation of Contract of Sale
ii. That document is capable of being
displayed to the person to whom it is to
be presented: Provided, That no
provision of this Act shall apply to vary
any and all requirements of existing laws
on formalities required in the execution
of documents for their validity.
For evidentiary purposes, an electronic document
shall be the functional equivalent of a written
document under existing laws.
This Act does not modify any statutory any
statutory rule relating to admissibility of electronic
data massages or electronic documents, except the
rules relating to authentication and best evidence.
Sec. 8. Legal Recognition of Electronic Signatures
An electronic signature on the electronic document
shall be equivalent to the signature of a person on
a written document if the signature is an electronic
signature and proved by showing that a prescribed
procedure, not alterable by the parties interested in
the electronic document, existed under which-
a. A method is used to identify the party
sought to be bound and to indicate said
party's access to the electronic document
necessary for his consent or approval
through the electronic signature;
b. Said method is reliable and appropriate for
the purpose for which the electronic
document was generated or communicated,
in the light of all circumstances, including
any relevant agreement;
c. It is necessary for the party sought to be
bound, in or order to proceed further with
the transaction to have executed or provided
the electronic signature; and
d. The other party is authorized and enable to
verify the electronic signature and to make
the decision to proceed with the transaction
authenticated by the same.
Sec. 11. Authentication of Electronic Data
Messages and Electronic Documents
Until the Supreme Court by appropriate rules shall
have so provided, electronic documents, electronic
data messages and electronic signatures, shall be
authenticated by demonstrating, substantiating
and validating a claimed identity of a user, device,
or another entity is an information or
communication system, among other ways, as
follows;
a. The electronic signatures shall be
authenticated by proof that a letter,
character, number or other symbol in
electronic form representing the persons
named in and attached to or logically
associated with an electronic data message,
electronic document, or that the appropriate
methodology or security procedures, when
applicable, were employed or adopted by
such person, with the intention of
authenticating or approving in an electronic
data message or electronic document;
b. The electronic data message or electronic
document shall be authenticated by proof
that an appropriate security procedure,
when applicable was adopted and employed
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for the purpose of verifying the originator of
an electronic data message or electronic
document, or detecting error or alteration in
the communication, content or storage of an
electronic document or electronic data
message from a specific point, which, using
algorithms or codes, identifying words or
numbers, encryptions, answers back or
acknowledgement procedures, or similar
security devices.
The Supreme Court may adopt such other
authentication procedures, including the use of
electronic notarization systems as necessary and
advisable, as well as the certificate of
authentication on printed or hard copies of the
electronic documents or electronic data messages
by electronic notaries, service providers and other
duly recognized or appointed certification
authorities.
The person seeking to introduce an electronic data
message or electronic document in any legal
proceeding has the burden of proving its
authenticity by evidence capable of supporting a
finding that the electronic data message or
electronic document is what the person claims it on
be.
In the absence of evidence to the contrary, the
integrity of the information and communication
system in which an electronic data message or
electronic document is recorded or stored may be
established in any legal proceeding
a. By evidence that at all material times the
information and communication system or
other similar device was operating in a
manner that did not affect the integrity of
the electronic data message or electronic
document, and there are no other
reasonable grounds to doubt the integrity of
the information and communication system;
b. By showing that the electronic data message
or electronic document was recorded or
stored by a party to the proceedings who is
adverse in interest to the party using it; or
c. By showing that the electronic data message
or electronic document was recorded or
stored in the usual and ordinary course of
business by a person who is not a party to
the proceedings and who did not act under
the control of the party using the record.
VII. Transfer of Ownership Sales

VII. TRANSFER OF OWNERSHIP Sale on Return

 Ownership passes on delivery but buyer may
revest such ownership to the seller by
A. Manner of transfer returning or tendering goods within the time
fixed or within a reasonable time
 As opposed to a Conditional Sale (where title
CC Art. 1477
passes upon full payment or satisfaction of
The ownership of the thing sold shall be transferred
condition passing of legal title), in sale on
to the vendee upon the actual or constructive
return, title passes on delivery
delivery thereof. (n)
Sale on Approval
CC Art. 1496
 Title passes – in case of goods sent to the
The ownership of the thing sold is acquired by the
buyer on the hope that the latter will find
vendee from the moment it is delivered to him in
them satisfactory and order that type of goods
any of the ways specified in Articles 1497 to 1501,
– when the goods are used or when they were
or in any other manner signifying an agreement
retained beyond a reasonable time
that the possession is transferred from the vendor
to the vendee. (n)
Executory Sales
 Ownership of the thing shall not pass until the
1. GENERAL RULE
price is fully paid
 Seller may reserve the right of possession or
Ownership of thing shall transfer to the vendee
ownership in the goods until certain conditions
upon the ACTUAL or CONSTRUCTIVE DELIVERY of
have been fulfilled
the thing sold30
B. EXPRESS RESERVATION
OR: any manner signifying an agreement that
possession is transferred from vendor to vendee
CC Art. 1478
(Art. 1496)
The parties may stipulate that ownership in the
thing shall not pass to the purchaser until he has
 Contract of sale constitutes a RIGHT to
fully paid the price. (n)
TRANSFER or ACQUISITION of OWNERSHIP
 Delivery is the method of accomplishing this
C. IMPLIED RESERVATION
right
CC Art. 1503
2. EXCEPTIONS
When there is a contract of sale of specific goods,
the seller may, by the terms of the contract,
A. SALE ON APPROVAL, TRIAL, OR SATISFACTION
reserve the right of possession or ownership in the
goods until certain conditions have been fulfilled.
CC Art. 1502
The right of possession or ownership may be thus
When goods are delivered to the buyer "on sale or
reserved notwithstanding the delivery of the goods
return" to give the buyer an option to return the
to the buyer or to a carrier or other bailee for the
goods instead of paying the price, the ownership
purpose of transmission to the buyer.
passes to the buyer of delivery, but he may revest
the ownership in the seller by returning or
tendering the goods within the time fixed in the B. Kinds of Delivery
contract, or, if no time has been fixed, within a
reasonable time. (n) 1. REAL DELIVERY

 When goods are delivered to the buyer on CC Art. 1497

approval or on trial or on satisfaction, or other
similar terms, the ownership therein passes to
the buyer:
1. When he signifies his approval or
acceptance to the seller or does any other
act adopting the transaction;
2. If he does not signify his approval or
acceptance to the seller, but retains the
goods without giving notice of rejection,
then if a time has been fixed for the return
of the goods, on the expiration of such
time, and, if no time has been fixed, on
the expiration of a reasonable time. What
is a reasonable time is a question of fact.
30
KUENZIE V. MACKE & CHANDLER: the ownership of
personal property can not be transferred to the prejudice of
third persons except by delivery of the property itself; and
that a sale without delivery gives the would-be purchaser no
rights in said property except those of a creditor
The thing sold shall be understood as delivered,
when it is placed in the control and possession of
the vendee. (1462a)
 “Delivered” – when placed in the control and
possession of the vendee; conveyance of
ownership without prejudice to the right of
vendor to claim payment of the price31
31
BEAN V. CADWALLER: Actual manual delivery of an article
sold is not essential to the passing of the title thereto (art
1450, Civil Code) unless made so by the terms of the contract
or by an understanding of the parties. The parties to the
contract may agree when and on what conditions the property
in the subject of the contract was passed to the prospective
owner

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VII. Transfer of Ownership
2. CONSTRUCTIVE DELIVERY
SYMBOLIC
CC Art. 1498
When the sale is made through a public
instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the
object of the contract, if from the deed the
contrary does not appear or cannot clearly be
inferred.
With regard to movable property, its delivery may
also be made by the delivery of the keys of the
place or depository where it is stored or kept.
(1463a)
Delivery by public instrument 32
 When sale is made through a public
instrument, the EXECUTION thereof shall be
equivalent to delivery IF from the deed the
contrary does not appear
» operates as formal/symbolic delivery
» authorizes buyer to use such document as
proof of ownership
 Symbolic delivery may produce the effect of
tradition if vendor have had such control over
the thing sold that at the moment of the sale,
its material delivery could have been made
 GENERAL RULE: he who purchases through a
public instrument should be deemed a
“possessor in fact” and this presumption
should give way before proof to the contrary
 A person must be in ACTUAL POSSESSION to
be able to transfer CONSTRUCTIVE
POSSESSION through public instrument
Traditio Longa Manu
Delivery takes place when the thing is placed
in the sight of the purchaser so that he can take
possession of it at pleasure
CC Art. 1499
The delivery of movable property may likewise be
made by the mere consent or agreement of the
contracting parties, if the thing sold cannot be
32
FLORENDO V. FOZ: It is the material delivery of the
property sold which the defendant must make in compliance
with the contract, inasmuch as the formal delivery de jure was
made, according to the provisions of article 1462, 2nd
paragraph, of the same code: When the sale should be 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, if in said instrument the contrary does not
appear or may be clearly inferred. As the contrary does not
appear nor is to be inferred from the public instrument
executed by the defendant, its execution was really a formal
or symbolical delivery of the property sold and authorized the
plaintiff to use the tile of ownership as proof that he was
thenceforth the owner of the property;
MASALLO V. CESAR: As Matea Crispino admits, however,
that she did not have possession of the land when she
executed and delivered her deed to plaintiff, the mere
execution and delivery of the deed did not constitute a
delivery of possession
SPOUSES VELARDE V. CA: The general rule, therefore, is
that the execution of public instrument has the same legal
effects as actual or physical delivery, i.e., it transfers
ownership of the subject matter to the buyer, and constitutes
valid compliance by the seller of his obligations under the
contract of sale.
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transferred to the possession of the vendee at the
time of the sale, or if the latter already had it in his
possession for any other reason. (1463a)
Traditio Brevi Manu33
Delivery of movable property takes place when
the vendee had the thing already in his possession
before the sale took place, not as owner but as
lessee, borrower or depositary.
Traditio Constitutum Possessorium
CC Art. 1500
There may also be tradition constitutum
possessorium. (n)
 In traditio constitutum possessorium, the
vendor remains in possession of the property
sold, by virtue of a lease agreement with the
vendee34.
 Vendee became as lessor, the legal possessor
while the vendor is in material possession of
the property in the name and representation
of the vendee.
3. DELIVERY TO COMMON CARRIER
CC Art. 1503
When there is a contract of sale of specific goods,
the seller may, by the terms of the contract,
reserve the right of possession or ownership in the
goods until certain conditions have been fulfilled.
The right of possession or ownership may be thus
reserved notwithstanding the delivery of the goods
to the buyer or to a carrier or other bailee for the
purpose of transmission to the buyer.
33
HEIRS OF PEDRO ESCANLAR V. CA: The September 15,
1978 sale of rights, interests and participation as to 1/2
portion pro indiviso of the two subject lots is a contract of sale
for the following reasons: First, private respondents as sellers
did not reserve unto themselves the ownership of the property
until full payment of the unpaid balance of P225,000.00.
Second, there is no stipulation giving the sellers the right to
unilaterally rescind the contract the moment the buyer fails to
pay within the fixed period. 24 Prior to the sale, petitioners
were in possession of the subject property as lessees. Upon
sale to them of the rights, interests and participation as to the
1/2 portion pro indiviso, they remained in possession, not in
concept of lessees anymore but as owners now through
symbolic delivery known as traditio brevi manu. Under Article
1477 of the Civil Code, the ownership of the thing sold is
acquired by the vendee upon actual or constructive delivery
thereof
34
BAUTISTA V SIOSON: Even if the vendor sells the
property again to another, the second purchaser cannot
acquire ownership as he bought the property from a mere
tenant. In a case which frequently occurs, where the vendor,
on the same date on which the deed of sale is executed, by
means of a constitutum possessorium agreement converts
himself into a tenant or lessee of the property that he sold,
and continues in possession thereof as such tenant, the
purchaser who acquired the property through delivery or
symbolic tradition, with all the consequent effects of a deed of
conveyance, is deemed to be in possession thereof by the
express will of the contracting parties, and therefore, it must
be recognized that, through such constitutum possessorium
agreement, the purchaser, who by that covenant becomes the
lessor, is in lawful possession of the leased property, and that
the vendor, by the same covenant, converted himself into the
lessee and is in material possession of the leased property in
the name and representation of the purchaser, its lawful
owner.
VII. Transfer of Ownership
Where goods are shipped, and by the bill of lading
the goods are deliverable to the seller or his agent,
or to the order of the seller or of his agent, the
seller thereby reserves the ownership in the goods.
But, if except for the form of the bill of lading, the
ownership would have passed to the buyer on
shipment of the goods, the seller's property in the
goods shall be deemed to be only for the purpose
of securing performance by the buyer of his
obligations under the contract.
Where goods are shipped, and by the bill of lading
the goods are deliverable to order of the buyer or
of his agent, but possession of the bill of lading is
retained by the seller or his agent, the seller
thereby reserves a right to the possession of the
goods as against the buyer.
Where the seller of goods draws on the buyer for
the price and transmits the bill of exchange and bill
of lading together to the buyer to secure
acceptance or payment of the bill of exchange, the
buyer is bound to return the bill of lading if he does
not honor the bill of exchange, and if he wrongfully
retains the bill of lading he acquires no added right
thereby. If, however, the bill of lading provides
that the goods are deliverable to the buyer or to
the order of the buyer, or is indorsed in blank, or
to the buyer by the consignee named therein, one
who purchases in good faith, for value, the bill of
lading, or goods from the buyer will obtain the
ownership in the goods, although the bill of
exchange has not been honored, provided that
such purchaser has received delivery of the bill of
lading indorsed by the consignee named therein, or
of the goods, without notice of the facts making
the transfer wrongful. (n)
CC Art. 1523
Where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods
to the buyer, delivery of the goods to a carrier,
whether named by the buyer or not, for the
purpose of
Unless otherwise agreed, where goods are sent by
the seller to the buyer under circumstances in
which the seller knows or ought to know that it is
usual to insure, the seller must give such notice to
the buyer as may enable him to insure them during
their transit, and, if the seller fails to do so, the
goods shall be deemed to be at his risk during such
transit. (n)
GENERAL RULE
Delivery of goods to carrier is considered
delivery to the buyer, and hence, title passed to
the buyer at the point of shipment
EXCEPTION
Seller may reserve title by the form of the bill
of lading with intent to remain the owner for all
purposes and not merely for the sole purpose of
securing payment, or unless contrary intent
appears in the contract of sale
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TERMS, “F.O.B.”; “C.I.F.”; “F.A.S.”
f.o.b.
“Free on board” means that the seller bears
expenses of transportation up to the f.o.b. point.
c.i.f.
“Cost, insurance, freight” signifies that the
price quoted includes the costs of the goods,
insurance, and freight charges on the goods up to
the place of destination
f.a.s.
“Free alongside” means that the seller bears
the expenses of transportation until he delivers the
goods alongside a vessel at a named post.
 These terms may be used only in connection
with fixing the price and will not be construed
as fixing the place of delivery to the buyer
 Best indication of the intention of parties as to
the place of delivery is the manner and place
of payment agreed upon by the parties
» Where price is payable upon proof of
shipment, then the buyer agrees to accept
delivery at the point of shipment
» Where the price is payable only upon
arrival of the goods at the point of
destination, then that is the place of
delivery to the buyer
EFFECT OF FORM OF BILL OF LADING
 Ownership is retained: The seller may consign
the goods to himself or to his agent and thus
prevent title from passing to the buyer until
the latter pays the price
 Mere possession is retained: The seller may
consign the goods to the order of the buyer on
the latter’s agent but by retaining the bill of
lading, he thereby prevents the buyer from
obtaining the goods from the carrier until
price is paid
C. Double Sales
CC Art. 1544
If the same thing should have been sold to
different vendees, the ownership shall be
transferred to the person who may have first taken
possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the ownership
shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in
the possession; and, in the absence thereof, to the
person who presents the oldest title, provided
there is good faith. (1473)
 If the same thing should have been sold by
the owner to different buyers, the question as
to who of the latter acquired ownership
depends on the nature of the thing sold.
VII. Transfer of Ownership
GENERAL RULE
Prior tempore, prior jure35
SALE OF MOVABLES36
CC Art. 1544 (1)
If the same thing should have been sold to
different vendees, the ownership shall be
transferred to the person who may have first taken
possession thereof in good faith, if it should be
movable property.
SALE OF IMMOVABLES
CC Art. 1544 (2)
Should it be immovable property, the ownership
shall belong to the person acquiring it who in good
faith first recorded it in the Registry of Property.
 To be entitled to priority, the second buyer
must not only show prior recording of his deed
but must have acted in good faith, without
knowledge of the existence of another
alienation by the vendor to another
 POSSESSOR IN GOOD FAITH: one who is not
aware that there exists in his title or mode of
acquisition any flaw which invalidates it
» good faith is always presumed; burden of
proof is on person alleging bad faith
» good faith of second buyer must continue
until his contract ripens into ownership by
tradition or recording
» as to Torrens title: it is enough that
purchaser examines the latest certificate of
title issued in the name of his vendor and
he need not trace its origin to prior
certificates of title
SALE BY VIRTUE OF EXECUTION OR ATTACHMENT
General Rule
Article 1544 not applicable to execution sales
because the purchaser at such sales is substituted
to or acquires whatever rights, title or interests the
judgment debtor may have over the property as of
the time of levy. [It is the duty of the purchaser,
before bidding, to ascertain the rights of the
judgment debtor over the property.]
Exception
Attachment or execution cannot prejudice prior
unrecorded sales made by the judgment debtor,
and is preferred only over claims contracted
subsequent to its recording
35
CARBONELL V CA: Jose Poncio sold his lot to Carbonell on
27 Jan 1955 and 4 days later sold the same property to
Infante. A formal deed of sale was executed in favor of
Infante. Carbonell, upon seeing Infante building a wall around
the lot, registered an adverse claim on the property. The deed
of sale in favor of Infante was later registered and the latter
was thereafter in possession of the lot. Held: The second sale
was not valid. As there in inscription, prior registration in good
faith is pre-condition to a superior title. Carbonell registered
her adverse claim four days before the registration of the
property by Infante.
36
RIVERA V ONG: Ong Che has a better title to the property
(over which he and Rivera had overlapping claims). He was a
purchaser of the articles in good faith, acquired possession by
virtue of his purchase, and therefore has a better title than
the first purchaser.
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Exception to the Exception
Above rule does not apply to lands registered
under Act 496 which provides that registration of
instruments shall be the “operative act to convey
and affect the land”; hence, prior unrecorded sale
cannot prejudice execution sales if no third-party
claim was presented before the execution sale took
place. [Third persons are not required to go beyond
the register and determine the condition of the
property.]
UNREGISTERED LAND
P.D. 1529, Sec. 113
Recording of instruments relating to unregistered
lands. - No deed, conveyance, mortgage, lease, or
other voluntary instrument affecting land not
registered under the Torrens system shall be valid,
except as between the parties thereto, unless such
instrument shall have been recorded in the manner
herein prescribed in the office of the Register of
Deeds for the province or city where the land lies.
a. The Register of Deeds for each province or
city shall keep a Primary Entry Book and a
Registration Book. The Primary Entry Book
shall contain, among other particulars, the
entry number, the names of the parties, the
nature of the document, the date, hour and
minute it was presented and received. The
recording of the deed and other instruments
relating to unregistered lands shall be
effected by any of annotation on the space
provided therefor in the Registration Book,
after the same shall have been entered in
the Primary Entry Book.
b. If, on the face of the instrument, it appears
that it is sufficient in law, the Register of
Deeds shall forthwith record the instrument
in the manner provided herein. In case the
Register of Deeds refuses its administration
to record, said official shall advise the party
in interest in writing of the ground or
grounds for his refusal, and the latter may
appeal the matter to the Commissioner of
Land Registration in accordance with the
provisions of Section 117 of this Decree. It
shall be understood that any recording made
under this section shall be without prejudice
to a third party with a better right.
c. After recording on the Record Book, the
Register of Deeds shall endorse among other
things, upon the original of the recorded
instruments, the file number and the date as
well as the hour and minute when the
document was received for recording as
shown in the Primary Entry Book, returning
to the registrant or person in interest the
duplicate of the instrument, with appropriate
annotation, certifying that he has recorded
the instrument after reserving one copy
thereof to be furnished the provincial or city
assessor as required by existing law.
d. Tax sale, attachment and levy, notice of lis
pendens, adverse claim and other
instruments in the nature of involuntary
dealings with respect to unregistered lands,
if made in the form sufficient in law, shall
VII. Transfer of Ownership Sales
likewise be admissible to record under this
section.
e. For the services to be rendered by the
Register of Deeds under this section, he
shall collect the same amount of fees
prescribed for similar services for the
registration of deeds or instruments
concerning registered lands.

 Registration requirement is understood to be

without prejudice to third party with a better
right37
 Mere registration of sale in one’s favor does
not give him any right over the land:
» if the vendor was not the owner of the land
» if the vendor has already parted with his
ownership before such sale in favor of third
party who had previously taken possession
of the land, even though the prior sale was
unrecorded
 A person having a “better right” would be one
who had previously acquired ownership
thereof through the modes of acquiring
ownership under the Civil Code: tradition as a
result of sale, donation, succession and
prescription38

FIRST IN POSSESSION IN GOOD FAITH

If neither vendee registered the sale in his
favor or registration was done in bad faith, the
vendee who was first in possession in good faith
acquired ownership of the land39

OLDEST TITLE
If neither of the vendees registered their deeds
of sale nor acquired possession of the land sold,
the one who can present the oldest title provided
there is good faith, has the better right.

“Older title” means any document showing

acquisition of the land in good faith, like a deed of
sale or a receipt for the price;

Public document is not included as there is

delivery thru a public instrument, unless the
contrary can be clearly inferred therefrom

37
NAAWAN RURAL BANK V. CA: It is a well-known rule in
this jurisdiction that persons dealing with registered land have
the legal right to rely on the face of the Torrens Certificate of
Title and to dispense with the need to inquire further, except
when the party concerned has actual knowledge of facts and
circumstances that would impel a reasonably cautious man to
make such inquiry.
38
HANOPOL V PILAPIL: A better right which is unrecorded
and which would prevail over a recorded sale is one which was
gained independently of the sale, as title by prescription.
39
SANCHEZ V RAMOS: Delivery may be actual or
constructive. Thus, if the first sale is evidenced in a public
instrument, there is delivery of the thing sold, if the contrary
does not appear in the deed.
QUIMSON V ROSETE: Possession includes not only material
but also symbolic possession which is acquired through the
execution of a public instrument. As the land was considered
delivered by the execution of the public instrument, the
vendor remained in possession by mere tolerance of the first
vendee. Hence, when the land was sold again to defendant,
the vendor did not transmit anything to him, and the
possession of the latter was a mere detainer. The first vendee
acquired ownership by delivery thru the execution of a public
instrument.

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VIII. Risk of Loss or Deterioration
VIII. RISK OF LOSS OR DETERIORATION
A. General Rule
CC Art. 1263
In an obligation to deliver a generic thing, the loss
or destruction of anything of the same kind does
not extinguish the obligation. (n)
 An obligation to deliver a generic thing is not
extinguished by loss because genus never
perishes.
NOTE that the next 3 situations contemplate loss of
specific things
1. WHEN LOSS OCCURS BEFORE PERFECTION
When loss occurred before perfection, it is
borne by the seller. This is because ownership is
still with him40.
2. WHEN LOSS OCCURS AT THE TIME OF
PERFECTION
CC Art. 1493
If at the time the contract of sale is perfected, the
thing which is the object of the contract has been
entirely lost, the contract shall be without any
effect.
But if the thing should have been lost in part only,
the vendee may choose between withdrawing from
the contract and demanding the remaining part,
paying its price in proportion to the total sum
agreed upon. (1460a)
CC Art. 1494
Where the parties purport a sale of specific goods,
and the goods without the knowledge of the seller
have perished in part or have wholly or in a
material part so deteriorated in quality as to be
substantially changed in character, the buyer may
at his option treat the sale:
1. As avoided; or
2. As valid in all of the existing goods or in so
much thereof as have not deteriorated, and as
binding the buyer to pay the agreed price for
the goods in which the ownership will pass, if
the sale was divisible. (n)
 If at the time the sale is perfected, the thing
had been lost entirely, the contract shall be
ineffective. This is because there can be no
contract without an object.
 The loss must have occurred before the
contract was entered into, without the
knowledge of both parties.
 Options of buyer when there is partial loss and
a loss which results in substantial change in
character
» Withdraw from the contract
40
ROMAN V GRIMALT: The sale was not perfected as the
buyer agreed to buy the vessel, provided that the title was in
proper form. As the vendor failed to perfect his title, the loss
was borne by him
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» Buy the remainder at a proportionate price
3. WHEN LOSS OCCURS AFTER PERFECTION
BUT BEFORE DELIVERY
CC Art. 1496
The ownership of the thing sold is acquired by the
vendee from the moment it is delivered to him in
any of the ways specified in Articles 1497 to 1501,
or in any other manner signifying an agreement
that the possession is transferred from the vendor
to the vendee. (n)
CC Art. 1504
Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is
transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at
the buyer's risk whether actual delivery has been
made or not, except that:
1. Where delivery of the goods has been made to
the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in
the goods has been retained by the seller
merely to secure performance by the buyer of
his obligations under the contract, the goods
are at the buyer's risk from the time of such
delivery;
2. Where actual delivery has been delayed through
the fault of either the buyer or seller the goods
are at the risk of the party in fault. (n)
CC Art. 1406
When a contract is enforceable under the Statute
of Frauds, and a public document is necessary for
its registration in the Registry of Deeds, the parties
may avail themselves of the right under Article
1357.
CC Art. 1189
When the conditions have been imposed with the
intention of suspending the efficacy of an obligation
to give, the following rules shall be observed in
case of the improvement, loss or deterioration of
the thing during the pendency of the condition:
1. If the thing is lost without the fault of the
debtor, the obligation shall be extinguished;
2. If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages; it
is understood that the thing is lost when it
perishes, or goes out of commerce, or
disappears in such a way that its existence is
unknown or it cannot be recovered;
3. When the thing deteriorates without the fault of
the debtor, the impairment is to be borne by
the creditor;
4. If it deteriorates through the fault of the debtor,
the creditor may choose between the rescission
of the obligation and its fulfillment, with
indemnity for damages in either case;
5. If the thing is improved by its nature, or by
time, the improvement shall inure to the benefit
of the creditor;
6. If it is improved at the expense of the debtor,
he shall have no other right than that granted
to the usufructuary. (1122)
VIII. Risk of Loss or Deterioration
CC Art. 1538
In case of loss, deterioration or improvement of the
thing before its delivery, the rules in Article 1189
shall be observed, the vendor being considered the
debtor. (n)
 When loss occurs after perfection but before
delivery, the seller bears the risk of loss. The
buyer does not bear the risk of loss until the
goods are delivered, actually or
constructively. This is because the rule is a
combination of the common-law rule that the
owner bears the risk of loss (res perit
domino), and the Roman law requiring
delivery to transfer ownership.
B. When ownership is transferred
GENERAL RULES
1. The risk of loss shall be borne by the owner.
2. Ownership is transferred upon delivery.
EXCEPTIONS
1. Contrary stipulation41
2. Security title42
3. Delay through the fault of the buyer or the
seller43 – at the risk of the party at fault
41
SUN BROS. APPLIANCES V PEREZ: The law allows an
agreement which stipulates that (1) where goods are sold and
delivered to the buyer, the title is to remain in the seller until
full payment, [but] (2) the loss or destruction of the property
while in the possession of the buyer before payment, does not
relieve him from the obligation to pay the price; in which case,
the buyer suffers the loss. The reasons for its validity are:
First, the absolute and unconditional nature of the vendee’s
promise to pay for the goods. Second, the vendor has fully
performed his contract and the vendee received what he
bargained for. Third, the policy of providing an incentive to
care properly for the goods, which is under the control and
dominion of the vendee.
42
LAWYER’S COOP. V TABORA: Despite the loss of the
books in a fire, the risk of loss would be borne by the buyer
although he was not the owner yet. This is because the
stipulation “ownership shall only be transferred upon full
payment” was agreed merely to secure the performance by
the buyer of his obligation. Moreover, in the contract, it was
agreed that loss or damage to the books after delivery to the
buyer shall be borne by the buyer.
While under the rule, an obligor should be exempt from
liability when the loss occurs in a fortuitous event, this cannot
be used by the buyer as a defense to exempt himself from
paying. His obligation does not pertain to the delivery of the
subject matter, but to the payment of the purchase price. The
ability to pay in money or legal tender is never lost through a
fortuitous event.
43
NORTH NEGROS SUGAR CO. V CIA. GEN DE TABACOS:
If there was delay in accepting delivery but there was
segregation of goods, such that place of delivery was at the
seller’s warehouse, the buyer bears the risk of loss. This is
because the seller becomes merely a depositary.
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IX. DOCUMENTS OF TITLE
Document of title – a document used in the
ordinary course of business in the sale or transfer
of goods, as proof of the possession or control of
the goods, or authorizing or purporting to authorize
the possessor of the document to transfer or
receive, either by endorsement or by delivery,
goods represented by such document. (Art. 1636)44
The functions of documents of title are (1)
Evidence of the possession or control of the goods
described therein (2) Medium of transferring title
and possession over the goods described therein
without having to effect actual delivery thereof
(Villanueva)
CC Art. 1511
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.
A non-negotiable document cannot be negotiated
and the endorsement of such a document gives the
transferee no additional right. (n)
A. Negotiable documents of title
CC Art. 1507
A document of title in which it is stated that the
goods referred to therein will be delivered to the
bearer, or to the order of any person named in
such document is a negotiable document of title.
(n)
 Negotiable document of title – a document of
title in which it is stated that the goods
referred to therein will be delivered to the
bearer, or to the order of any person named
in such document.
1. HOW NEGOTIATED
CC Art. 1508
A negotiable document of title may be negotiated
by delivery:
1. Where by the terms of the document the
carrier, warehouseman or other bailee issuing
the same undertakes to deliver the goods to the
bearer; or
2. Where by the terms of the document the
carrier, warehouseman or other bailee issuing
the same undertakes to deliver the goods to the
order of a specified person, and such person or
a subsequent endorsee of the document has
indorsed it in blank or to the bearer.
Where by the terms of a negotiable document of
title the goods are deliverable to bearer or where a
negotiable document of title has been indorsed in
blank or to bearer, any holder may indorse the
same to himself or to any specified person, and in
44
PHIL. TRUST CO. V NATIONAL BANK: The purpose of
documents of title is that the seller is allowed by fiction of law
to deal with the goods described therein as though he had
physically delivered them to the buyer; and the buyer may
take the document of title as though he had actually taken
possession and control over the goods described therein
IX. Documents of Title
such case the document shall thereafter be
negotiated only by the endorsement of such
endorsee. (n)
CC Art. 1509
A negotiable document of title may be negotiated
by the endorsement of the person to whose order
the goods are by the terms of the document
deliverable. Such endorsement may be in blank, to
bearer or to a specified person. If indorsed to a
specified person, it may be again negotiated by the
endorsement of such person in blank, to bearer or
to another specified person. Subsequent
negotiations may be made in like manner. (n)
CC Art. 1510
If a document of title which contains an
undertaking by a carrier, warehouseman or other
bailee to deliver the goods to bearer, to a specified
person or order of a specified person or which
contains words of like import, has placed upon it
the words "not negotiable," "non-negotiable" or the
like, such document may nevertheless be
negotiated by the holder and is a negotiable
document of title within the meaning of this Title.
But nothing in this Title contained shall be
construed as limiting or defining the effect upon
the obligations of the carrier, warehouseman, or
other bailee issuing a document of title or placing
thereon the words "not negotiable," "non-
negotiable," or the like. (n)
TERMS OF THE DOCUMENT HOW
NEGOTIATED
 Goods are deliverable to By delivery of the
bearer document to
 Endorsed in blank by the another
person to whose order the
goods were deliverable
Goods are deliverable to the By indorsement of
order of a specified person such person
2. WHO MAY NEGOTIATE IT
CC Art. 1512
A negotiable document of title may be negotiated:
1. By the owner therefor; or
2. By any person to whom the possession or
custody of the document has been entrusted by
the owner, if, by the terms of the document the
bailee issuing the document undertakes to
deliver the goods to the order of the person to
whom the possession or custody of the
document has been entrusted, or if at the time
of such entrusting the document is in such form
that it may be negotiated by delivery. (n)
3. RIGHTS ACQUIRED BY NEGOTIATION
CC Art. 1513
A person to whom a negotiable document of title
has been duly negotiated acquires thereby:
1. Such title to the goods as the person
negotiating the document to him had or had
ability to convey to a purchaser in good faith for
value and also such title to the goods as the
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person to whose order the goods were to be
delivered by the terms of the document had or
had ability to convey to a purchaser in good
faith for value; and
2. The direct obligation of the bailee issuing the
document to hold possession of the goods for
him according to the terms of the document as
fully as if such bailee had contracted directly
with him. (n)
 A person to whom a document has been
negotiated acquires
» rights of the vendor
» rights of the original consignee
 Thus, a buyer of a document of title may
acquire a better title than his vendor, since he
acquires the rights of the original consignee.
4. UNAUTHORIZED NEGOTIATION
CC Art. 1518
The validity of the negotiation of a negotiable
document of title is not impaired by the fact that
the negotiation was a breach of duty on the part of
the person making the negotiation, or by the fact
that the owner of the document was deprived of
the possession of the same by loss, theft, fraud,
accident, mistake, duress, or conversion, if the
person to whom the document was negotiated or a
person to whom the document was subsequently
negotiated paid value therefor in good faith without
notice of the breach of duty, or loss, theft, fraud,
accident, mistake, duress or conversion. (n)
 There is a conflict between Art. 1512 and Art.
1518 since under Art. 1512, only the owner of
the document or one to whom possession of
the document has been entrusted may
negotiate it. However, under Art. 1518, the
validity of the negotiation of a negotiable
document of title is not impaired by the fact
that the negotiation was a breach of duty on
the part of the person making the negotiation,
or by the fact that the owner of the document
was deprived of the possession of the same
by loss, theft, fraud, accident, mistake,
duress, or conversion. (Baviera)
5. IMPLIED WARRANTIES
CC Art. 1516
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 unless a contrary intention
appears, warrants:
1. That the document is genuine;
2. That he has a legal right to negotiate or transfer
it;
3. That he has knowledge of no fact which would
impair the validity or worth of the document;
and
4. That he has a right to transfer the title to the
goods and that the goods are merchantable or
fit for a particular purpose, whenever such
warranties would have been implied if the
contract of the parties had been to transfer
IX. Documents of Title
without a document of title the goods
represented thereby. (n)
CC Art. 1517
The endorsement of a document of title shall not
make the endorser liable for any failure on the part
of the bailee who issued the document or previous
endorsers thereof to fulfill their respective
obligations. (n)
 A person who negotiates a document of title
warrants
1. the genuineness and validity of the
document;
2. his right to negotiate it; and,
3. all the warranties of a vendor of goods.
 But he does not warrant that
1. the common carrier will fulfill its obligation
to the deliver the goods; or
2. the previous indorsers will fulfill their
obligation.
6. CREDITOR’S RIGHT AGAINST THE GOODS
CC Art. 1519
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 faith for value would
bind the owner and a negotiable document of title
is issued for them they cannot thereafter, while in
possession of such bailee, 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. 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.
(n)
CC Art. 1520
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. (n)
 Goods in the hands of the carrier covered by a
negotiable document cannot be attached or
levied upon, UNLESS
» the document be first surrendered to the
carrier; or
» impounded by the court; or
» its negotiation be enjoined.
RATIONALE FOR THE RULE
A negotiable document of title represents the
goods; hence it is not allowable for a carrier to
deliver the goods without the surrender of the bill
of lading to them, or for the law to allow
attachment on the goods.
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B. Non-negotiable documents of title
1. HOW TRANSFERRED
CC Art. 1514
A person to whom a document of title has been
transferred, but not negotiated, acquires thereby,
as against the transferor, the title to the goods,
subject to the terms of any agreement with the
transferor.
If the document is non-negotiable, such person
also acquires the right to notify the bailee who
issued the document of the transfer thereof, 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.
Prior to the notification to such bailee by the
transferor or transferee of a non-negotiable
document of title, 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, or by a notification to
such bailee by the transferor or a subsequent
purchaser from the transfer of a subsequent sale of
the goods by the transferor. (n)
2. RIGHTS ACQUIRED BY TRANSFER OF
DOCUMENT OF TITLE
CC Art. 1515
Where a negotiable document of title is transferred
for value by delivery, and the endorsement of the
transferor is essential for negotiation, the
transferee acquires a right against the transferor to
compel him to endorse the document unless a
contrary intention appears. The negotiation shall
take effect as of the time when the endorsement is
actually made. (n)
 The law makes a distinction between
“negotiation” [negotiable document of title]
and “transfer” [non-negotiable document of
title].
» Transfer
▪ the assignment of rights of the
consignee of a non-negotiable
document of title to another
▪ where an order document of title was
sold or assigned, without indorsement
 The transferee does not acquire a better title
than his transferor [unlike in a negotiable
document of title, where the buyer may
acquire a better title].
X. Remedies of an Unpaid Seller
X. REMEDIES OF AN UNPAID SELLER
MEANING OF UNPAID SELLER
CC Art 1524
The seller of goods is deemed to be an unpaid
seller within the meaning of this Title:
1. When the whole of the price has not been paid
or tendered;
2. When a bill of exchange or other negotiable
instrument has been received as conditional
payment, and the condition on which it was
received has been broken by reason of the
dishonor of the instrument, the insolvency of
the buyer, or otherwise.
In Articles 1525 to 1535 the term "seller" includes
an agent of the seller to whom the bill of lading has
been indorsed, or a consignor or agent who has
himself paid, or is directly responsible for the price,
or any other person who is in the position of a
seller. (n)
UNPAID SELLER
If the whole price has not been paid or
tendered, or when the check received as
conditional payment was dishonored by non-
payment or insolvency of the buyer.
SELLER
Includes the agent of the seller to whom the
bill of lading was endorsed, or the consignor or
agent who had paid the price or is responsible for
the price, or any other person who is in the
position of a seller.
REMEDIES OF AN UNPAID SELLER
CC Art 1526
Subject to the provisions of this Title,
notwithstanding that the ownership in the goods
may have passed to the buyer, the unpaid seller of
goods, as such, has:
1. A lien on the goods or right to retain them for
the price while he is in possession of them;
2. In case of the insolvency of the buyer, a right of
stopping the goods in transitu after he has
parted with the possession of them;
3. A right of resale as limited by this Title;
4. A right to rescind the sale as likewise limited by
this Title.
Where the ownership in the goods has not passed
to the buyer, the unpaid seller has, in addition to
his other remedies a right of withholding delivery
similar to and coextensive with his rights of lien
and stoppage in transitu where the ownership has
passed to the buyer. (n)
 If ownership over the goods had not yet
passed to the buyer: the seller, as owner,
could retain the goods or resell them to
another, without prejudice to his liability for
damages for any breach of contract
committed by him.
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 If ownership had passed to the buyer but the
goods are still in the possession of the seller
or are in transit to the buyer: the unpaid
seller could withhold delivery or stop the
goods in transit should the buyer become
insolvent. As a consequence of his lien over
the goods, the unpaid seller could resell the
goods to another or resume ownership over
them, without court order, and may still used
the buyer for damages
1. LIEN
CC Art 1527
Subject to the provisions of this Title, the unpaid
seller of goods who is in possession of them is
entitled to retain possession of them until payment
or tender of the price in the following cases,
namely:
1. Where the goods have been sold without any
stipulation as to credit;
2. Where the goods have been sold on credit, but
the term of credit has expired;
3. Where the buyer becomes insolvent.
The seller may exercise his right of lien
notwithstanding that he is in possession of the
goods as agent or bailee for the buyer. (n)
CC Art 1528
Where an unpaid seller has made part delivery of
the goods, he may exercise his right of lien on the
remainder, unless such part delivery has been
made under such circumstances as to show an
intent to waive the lien or right of retention. (n)
CC Art 1529
The unpaid seller of goods loses his lien thereon:
1. When he delivers the goods to a carrier or other
bailee for the purpose of transmission to the
buyer without reserving the ownership in the
goods or the right to the possession thereof;
2. When the buyer or his agent lawfully obtains
possession of the goods;
3. By waiver thereof.
The unpaid seller of goods, having a lien thereon,
does not lose his lien by reason only that he has
obtained judgment or decree for the price of the
goods. (n)
 The unpaid seller’s lien implies that he has a
right to retain possession of the goods until
payment or tender of the whole price, unless
he agreed to sell on credit.
 If the unpaid seller agrees to sell on credit, he
may refuse to deliver them if the buyer
becomes insolvent, or if the term of the credit
had expired and the price has not been paid.
 Loss of lien: the unpaid seller losses his lien
when:
1. he delivers the goods to the carrier or
other bailee, consigning them to the buyer
under a straight or non-negotiable bill of
lading, or
2. when the goods were delivered to the
buyer, or
3. when he waived his lien.
X. Remedies of an Unpaid Seller
 It is not lost on the remainder of the goods
when only partial delivery was made, unless
such was intended to operate as symbolical
delivery of the whole. The lien is not lost by
the mere fact that the seller had already
obtained judgment for the price.
 Revival of lien: the unpaid seller’s lien is
revived if the goods are returned by the buyer
in wrongful repudiation of the contract.
2. STOPPAGE IN TRANSITU
CC Art 1530
Subject to the provisions of this Title, when the
buyer of goods is or becomes insolvent, the unpaid
seller who has parted with the possession of the
goods has the right of stopping them in transitu,
that is to say, he may resume possession of the
goods at any time while they are in transit, and he
will then become entitled to the same rights in
regard to the goods as he would have had if he had
never parted with the possession. (n)
CC Art 1531
Goods are in transit within the meaning of the
preceding article:
1. From the time when they are delivered to a
carrier by land, water, or air, or other bailee for
the purpose of transmission to the buyer, until
the buyer, or his agent in that behalf, takes
delivery of them from such carrier or other
bailee;
2. If the goods are rejected by the buyer, and the
carrier or other bailee continues in possession
of them, even if the seller has refused to
receive them back.
Goods are no longer in transit within the meaning
of the preceding article:
1. If the buyer, or his agent in that behalf, obtains
delivery of the goods before their arrival at the
appointed destination;
2. If, after the arrival of the goods at the
appointed destination, the carrier or other
bailee acknowledges to the buyer or his agent
that he holds the goods on his behalf and
continues in possession of them as bailee for
the buyer or his agent; and it is immaterial that
further destination for the goods may have
been indicated by the buyer;
3. If the carrier or other bailee wrongfully refuses
to deliver the goods to the buyer or his agent in
that behalf.
If the goods are delivered to a ship, freight train,
truck, or airplane chartered by the buyer, it is a
question depending on the circumstances of the
particular case, whether they are in the possession
of the carrier as such or as agent of the buyer.
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, 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. (n)
CC Art 1532
The unpaid seller may exercise his right of
stoppage in transitu either by obtaining actual
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possession of the goods or by giving notice of his
claim to the carrier or other bailee in whose
possession the goods are. Such notice may be
given either to the person in actual possession of
the goods or to his principal. In the latter case the
notice, to be effectual, must be given at such time
and under such circumstances that the principal,
by the exercise of reasonable diligence, may
prevent a delivery to the buyer.
When notice of stoppage in transitu is given by the
seller to the carrier, or other bailee in possession of
the goods, he must redeliver the goods to, or
according to the directions of, the seller. The
expenses of such delivery must be borne by the
seller. If, however, a negotiable document of title
representing the goods has been issued by the
carrier or other bailee, he shall not obliged to
deliver or justified in delivering the goods to the
seller unless such document is first surrendered for
cancellation. (n)
CC Art 1533
Where the goods are of perishable nature, or
where the seller expressly reserves the right of
resale in case the buyer should make default, or
where the buyer has been in default in the
payment of the price for an unreasonable time, an
unpaid seller having a right of lien or having
stopped the goods in transitu may resell the goods.
He shall not thereafter be liable to the original
buyer upon the contract of sale or for any profit
made by such resale, but may recover from the
buyer damages for any loss occasioned by the
breach of the contract of sale.
Where a resale is made, as authorized in this
article, the buyer acquires a good title as against
the original buyer.
It is not essential to the validity of resale that
notice of an intention to resell the goods be given
by the seller to 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
contract of 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.
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.
The seller is bound to exercise reasonable care and
judgment in making a resale, and subject to this
requirement may make a resale either by public or
private sale. He cannot, however, directly or
indirectly buy the goods. (n)
CC Art 1534
An unpaid seller having the right of lien or having
stopped the goods in transitu, may rescind the
transfer of title and resume the ownership in the
goods, where he expressly reserved the right to do
so in case the buyer should make default, or where
the buyer has been in default in the payment of the
price for an unreasonable time. The seller shall not
thereafter be liable to the buyer upon the contract
of sale, but may recover from the buyer damages
X. Remedies of an Unpaid Seller
for any loss occasioned by the breach of the
contract.
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. It is not
necessary that such overt act should be
communicated to the buyer, 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
for an unreasonable time before the right of
rescission was asserted. (n)
CC Art 1535
Subject to the provisions of this Title, the unpaid
seller's right of lien or stoppage in transitu is not
affected by any sale, or other disposition of the
goods which the buyer may have made, unless the
seller has assented thereto.
If, however, a negotiable document of title has
been issued for goods, no seller's lien or right of
stoppage in transitu shall defeat the right of any
purchaser for value in good faith to whom such
document has been negotiated, whether such
negotiation be prior or subsequent to the
notification to the carrier, or other bailee who
issued such document, of the seller's claim to a lien
or right of stoppage in transitu. (n)
 Old common law remedy which is an
extension of the lien for the price and entitles
the unpaid seller to resume possession of the
goods while they are in transit before the
goods come in possession of the vendee if the
later is or becomes insolvent.
 Goods are considered to be in transit from the
time they are delivered to a carrier or other
bailee by the seller for the purpose of
transmission to the buyer, until the buyer or
his agent takes delivery of them from the
carrier. To terminate the transit by delivery to
a middleman, it must be delivery to keep, not
to transport.
 Goods are still considered to be in transit even
if they reached their ultimate destination
when the buyer rejects them and they remain
in the possession of the carrier.
 Goods are no longer in transit if the buyer or
his agent obtained delivery of the goods even
before they reached their ultimate destination,
or when the goods arrived at the ultimate
destination but the carrier or other bailee
wrongfully refuses to deliver the goods to the
buyer or his agent, or when the carrier, upon
arrival of the goods at the ultimate
destination, enters into a new contract with
the buyer or his agent.
 If there was partial delivery of the goods to
the buyer, the remainder of the goods may be
stopped in transitu, unless such part delivery
has been made under such circumstances as
to show an agreement with the buyer to give
up possession of the whole. Where the
buyer has taken some portion of the whole
mass which was then susceptible of
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possession, there is constructive possession of
the whole.
SALE OF GOODS IN TRANSIT
The unpaid seller’s right of lien or stoppage in
transitu is not affected by any sale or other
disposition of the goods which the buyer may have
made unless the seller has assented thereto.
 Where a negotiable document of title has
been issued for the goods, no seller’s lien or
right of stoppage in transitu cannot defeat the
rights of any purchaser for value in good faith
to whom such document has been negotiated.
 Where the document of title is a straight bill of
lading, the seller’s right of stoppage will not
be cut off as the transferee acquires no
greater or added rights than his transferor.
RIGHT OF STOPPAGE; HOW EXERCISED
The unpaid seller may exercise his right by
1. obtaining actual possession of the goods or
2. by giving notice of his claim to the carrier
or other bailee in whose possession the
goods are.
When notice of stoppage in transit is given to
the carrier, the latte must redeliver the goods to,
or according to the directions of, the seller. If
however, a negotiable document of title
representing the goods has been issued by the
carrier, the latter shall not be obliged to deliver the
goods unless such document is first surrendered
for cancellation.
3. RESALE
CC Art 1533
Where the goods are of perishable nature, or
where the seller expressly reserves the right of
resale in case the buyer should make default, or
where the buyer has been in default in the
payment of the price for an unreasonable time, an
unpaid seller having a right of lien or having
stopped the goods in transitu may resell the goods.
He shall not thereafter be liable to the original
buyer upon the contract of sale or for any profit
made by such resale, but may recover from the
buyer damages for any loss occasioned by the
breach of the contract of sale.
Where a resale is made, as authorized in this
article, the buyer acquires a good title as against
the original buyer.
It is not essential to the validity of resale that
notice of an intention to resell the goods be given
by the seller to 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
contract of 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.
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.
X. Remedies of an Unpaid Seller
The seller is bound to exercise reasonable care and
judgment in making a resale, and subject to this
requirement may make a resale either by public or
private sale. He cannot, however, directly or
indirectly buy the goods. (n)
 When the goods are of perishable nature, or
where the seller expressly reserves the right
of resale in case the buyer should default in
payment, or where the buyer has been in
default for an unreasonable length of time,
the unpaid seller, having a right of lien or
having stopped the goods in transitu, may
resell the goods and recover from the buyer
damages for breach of contract.
 The resale may be in a public or private sale,
but the seller cannot buy them directly or
indirectly. The seller is entitled to any profit
he may make out of the resale.
 In case he sells them at a loss, he is entitled
to recover the difference from the original
buyer. It is not essential to the validity of a
resale that previous notice of an intention to
resell or notice of the time and place or resale
be given to the original buyer.
 Damages recoverable: Whether the action is
for damages or to recover loss from a resale,
the purpose is to compensate the seller for
loss for breach of contract. Thus, if the
purchaser fails to take delivery and pay the
price, the vendor, without need of first
rescinding the contract judicially, is entitled to
resell, and if obliged to sell for less than the
contract price, the buyer is liable for the
difference.
 Due diligence must be exercised to secure the
highest price obtainable in the best available
market. The burden of showing it was
exercised is on the vendor.
Sales
manifested by notice to the buyer or by some other
overt act an intention to rescind. It is not
necessary that such overt act should be
communicated to the buyer, 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
for an unreasonable time before the right of
rescission was asserted. (n)
 An unpaid seller having the right of lien or
having stopped the goods in transitu may
rescind the transfer of title and resume
ownership in the goods where he expressly
reserved the right to do so in case the buyer
defaults, or where the buyer has been in
default in payment of the price for an
unreasonable time. The transfer of title shall
not be held to have been rescinded by the
unpaid seller until he manifests by notice to
the buyer or by some overt act an intention to
rescind. After rescinding the transfer of title,
the seller may still recover damages from the
buyer for breach of contract.
 As used in Art. 1534, the term “rescind” is
equivalent to return of the title over the
undelivered goods to the seller and the right
to recover damages for loss due to breach of
contract.

4. RESCISSION45

CC Art 1534
An unpaid seller having the right of lien or having
stopped the goods in transitu, may rescind the
transfer of title and resume the ownership in the
goods, where he expressly reserved the right to do
so in case the buyer should make default, or where
the buyer has been in default in the payment of the
price for an unreasonable time. The seller shall not
thereafter be liable to the buyer upon the contract
of sale, but may recover from the buyer damages
for any loss occasioned by the breach of the
contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has

45
MERCHANTS REFRIGERATING CORP v TITMAN: A
rescission of the contract would accomplish the following
results:
(1) termination of the original contract
(2) return of the title to the undelivered portion of the goods
to the seller
(3) release of the buyer from his obligation to take and pay
for the balance of the goods
(4) the unpaid seller would be free to pursue its remedies on
quantum meruit to recover what it had delivered to the buyer
(Merchants Refrigerating Co. v Benjamin Titman Corp)

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XI. Performance of the Contract
XI. PERFORMANCE OF THE CONTRACT
A. Delivery of the Thing Sold
1. PLACE, TIME, AND MANNER OF DELIVERY
CC Art. 1521
Whether it is for the buyer to take possession of
the goods or of the seller to send them to the
buyer is a question depending in each case on the
contract, express or implied, between the parties.
Apart from any such contract, express or implied,
or usage of trade to the contrary, the place of
delivery is the seller's place of business if he has
one, and if not his residence; but in case of a
contract of sale of specific goods, which to the
knowledge of the parties when the contract or the
sale was made were in some other place, then that
place is the place of delivery.
Where by a contract of sale the seller is bound to
send the goods to the buyer, but no time for
sending them is fixed, the seller is bound to send
them within a reasonable time.
Where the goods at the time of sale are in the
possession of a third person, the seller has not
fulfilled his obligation to deliver to the buyer unless
and until such third person acknowledges to the
buyer that he holds the goods on the buyer's
behalf.
Demand or tender of delivery may be treated as
ineffectual unless made at a reasonable hour. What
is a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and
incidental to putting the goods into a deliverable
state must be borne by the seller. (n)
CC Art. 1169
xxx In reciprocal obligations, neither party incurs in
delay if the other does not comply or is not ready
to comply in a proper manner with what is
incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other
begins. (1100a)
CC Art. 1524
The vendor shall not be bound to deliver the thing
sold, if the vendee has not paid him the price, or if
no period for the payment has been fixed in the
contract. (1466)
 Generally, payment and delivery of the thing
sold are concurrent acts, in consonance with
the rule in reciprocal obligations. Agreement
of the parties determines whether it is for the
buyer to take possession of the goods or for
the seller to send them to the buyer. Absent
stipulation to the contrary, the ff. rules shall
be observed:
1. The buyer should take delivery of the
goods from the seller’s place of business if
he has one, and if none, his residence.
2. In case of sale of specific goods which, at
the time of the sale, are known to the
parties to be in ANOTHER PLACE, the
buyer should take delivery from such
place.
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3. DEMAND or TENDER of PAYMENT shall be
made at a reasonable hour. Where by
agreement, the seller is bound to send the
goods to the buyer, he is bound to send
them within the time agreed upon, or if no
time was fixed, within a reasonable time.
REASONABLE TIME for delivery is
determined by the circumstances attending
the particular transaction
4. Where the goods at the time of the sale
are in the possession of a THIRD PERSON,
there is NO delivery UNLESS and UNTIL
such their person ACKNOWLEDGES to the
buyer that the holds the goods on the
latter’s behalf.
5. EXPENSES of placing the goods in a
DELIVERABLE STATE shall be borne by the
SELLER unless otherwise stipulated.
6. If the sale involves a specific thing, the
vendor is bound to deliver the thing sold
and its accessions and accessories in the
condition in which they were upon the
perfection of the contract.
7. All of the fruits of the thing shall pertain to
the vendee from the time of the perfection
of the contract but he does not acquire a
real right over it until they are delivered to
him.
8. The vendee has the obligation to pay the
expenses incurred by the vendor in the
production, gathering and preservation of
the fruits.
WHEN TIME IS OF ESSENCE46
Time is of the essence of the contract
whenever the intention of the parties is clear that
performance of its terms shall be accomplished
exactly at the stipulated day or implied from the
nature of the contract itself, the subject matter or
the circumstances under which the contract is
made
WHEN NOT BOUND TO DELIVER
CC Art. 1524
The vendor shall not be bound to deliver the thing
sold, if the vendee has not paid him the price, or if
no period for the payment has been fixed in the
contract. (1466)
CC Art. 1536
The vendor is not bound to deliver the thing sold in
case the vendee should lose the right to make use
of the terms as provided in Article 1198. (1467a)
46
SMITH BELL v MATTI: In this case, the seller had done all
that could be expected when he placed the machinery at the
disposal of the buyer on Apr 1919. When the time of delivery
is not fixed in the contract, time is not of the essence;
delivery could hence be made within a reasonable time.
SOLER v CHELSEY: Defendant cannot be compelled to accept
delivery as he gave his consent to the contract, on the
assurance of the plaintiff that the goods were “on the way”
when as a matter of fact, they were not yet shipped at the
time. This assertion was an essential element of the contract.
REPUBLIC V LITTON: Court ruled for plaintiff. It was shown
that the goods were intended for election purposes, and the
purchase order provided that the stipulated delivery period
shall not be exceeded.
XI. Performance of the Contract
CC Art. 1198
The debtor shall lose every right to make use of
the period:
1. When after the obligation has been contracted,
he becomes insolvent, unless he gives a
guaranty or security for the debt;
2. When he does not furnish to the creditor the
guaranties or securities which he has promised;
3. When by his own acts he has impaired said
guaranties or securities after their
establishment, and when through a fortuitous
event they disappear, unless he immediately
gives new ones equally satisfactory;
4. When the debtor violates any undertaking, in
consideration of which the creditor agreed to
the period;
5. When the debtor attempts to abscond. (1129a)
 The vendor is not bound to deliver the thing
sold in case the vendee should lose the right
to make use of the stipulated term in the
following cases:
1. When the vendee becomes insolvent
2. When the vendee does not furnish the
guaranties or securities he has promised
3. When the guaranties or securities given were
impaired through the vendee’s acts or were
lost or destroyed through a fortuitous event,
unless he gives new equally satisfactory
guaranties or securities
4. When the vendee violates any condition for
which he was granted the term
5. When the vendee attempts to abscond
NOTE: Art. 1467 has been replaced by Art. 1198
which provides that the vendee shall lose the
benefit of the term when, after the obligation has
been contracted, he becomes insolvent, unless he
gives a guaranty or security. “Insolvency” under
this article cannot be understood in the sense
of a judicially declared insolvency or
suspension of payments, because the debtor
cannot give a security or guaranty in such
case. The doctrine therefore in Visayan
Distributors v Flores interpreting insolvency in Art
1467 old CC as something which must be judicially
declared or something which involves suspension
of payments, no longer holds.
2. SALE OF GOODS
DELIVERY BY INSTALLMENT
CC Art. 1583
Unless otherwise agreed, the buyer of goods is not
bound to accept delivery thereof by installments.
Where there is a contract of sale of goods to be
delivered by stated installments, which are to be
separately paid for, and the seller makes defective
deliveries in respect of one or more installments, or
the buyer neglects or refuses without just cause to
take delivery of or pay for one more installments, it
depends in each case on the terms of the contract
and the circumstances of the case, whether the
breach of contract is so material as to justify the
injured party in refusing to proceed further and
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suing for damages for breach of the entire
contract, or whether the breach is severable, giving
rise to a claim for compensation but not to a right
to treat the whole contract as broken. (n)
General Rule
The buyer is not bound to accept delivery of
goods by installments.
Exception
When otherwise stipulated
 In case of a contract that calls for the delivery
of the goods at stated intervals which are to
be paid for separately, the terms of the
contract and the circumstances surrounding
the case would determine whether prompt
payment or delivery is of the essence such
that a delay or breach would entitle the
aggrieved to treat the entire contract as
broken OR to regard each breach as
severable. SEVERABILITY depends on whether
the breach is so material as to justify the
aggrieved party in refusing to proceed further
with the entire contract or so immaterial that
the breach is severable, giving rise merely to
a claim for damages
DELIVERY OF WRONG QUANTITY
CC Art. 1522
Where the seller delivers to the buyer a quantity of
goods less than he contracted to sell, the buyer
may reject them, but if the buyer accepts or
retains the goods so delivered, knowing that the
seller is not going to perform the contract in full,
he must pay for them at the contract rate. If,
however, the buyer has used or disposed of the
goods delivered before he knows that the seller is
not going to perform his contract in full, the buyer
shall not be liable for more than the fair value to
him of the goods so received.
Where the seller delivers to the buyer a quantity of
goods larger than he contracted to sell, the buyer
may accept the goods included in the contract and
reject the rest. If the buyer accepts the whole of
the goods so delivered he must pay for them at the
contract rate.
Where the seller delivers to the buyer the goods he
contracted to sell mixed with goods of a different
description not included in the contract, the buyer
may accept the goods which are in accordance with
the contract and reject the rest.
In the preceding two paragraphs, if the subject
matter is indivisible, the buyer may reject the
whole of the goods.
The provisions of this article are subject to any
usage of trade, special agreement, or course of
dealing between the parties. (n)
General Rule
The buyer is not bound to accept delivery of a
quantity of goods more or less than that agreed
upon or to accept goods which are of a description
different from that agreed upon.
XI. Performance of the Contract
Exception
There is usage of trade, special stipulation or
course of dealing to the contrary.
Remedies
1. Where the seller delivers a quantity less than
that agreed upon, the buyer may reject them. If
the buyer accepts or retains that goods
delivered, knowing the inability of the seller to
deliver the rest, the buyer is bound to pay for
them at the contract rate. If the buyer has used
or disposed of the goods before knowing the
inability of the seller to deliver the rest, the
buyer shall pay not more than the fair value of
the goods. (NOTE: “fair value” means the price
of the goods in the open market.)
2. If the quantity delivered is more than that
agreed upon, the buyer may reject the excess,
unless the subject matter is indivisible, in which
case, the buyer may reject the whole.
3. Where the seller delivers the goods mixed with
goods of a different description not included in
the contract, the buyer may accept the goods
which are in accordance with the contract, and
reject the rest, unless the subject matter is
indivisible, in which case, the buyer may reject
the whole.
 Delivery by the seller of only a part of an
entire contract would itself be an indication
that he might not intend to fully perform.
PRESUMPTION: Buyer knows that the seller
might intend to not fully perform, if said
purchaser accepts a partial delivery on an
entire contract, absent any statement to the
contrary. (The law applies peculiarly to
installment and divisible contracts.)
3. SALE OF IMMOVABLES
CC Art. 1539
The obligation to deliver the thing sold includes
that of placing in the control of the vendee all that
is mentioned in the contract, in conformity with the
following rules:
If the sale of real estate should be made with a
statement of its area, at the rate of a certain price
for a unit of measure or number, the vendor shall
be obliged to deliver to the vendee, if the latter
should demand it, all that may have been stated in
the contract; but, should this be not possible, the
vendee may choose between a proportional
reduction of the price and the rescission of the
contract, provided that, in the latter case, the lack
in the area be not less than one-tenth of that
stated.
The same shall be done, even when the area is the
same, if any part of the immovable is not of the
quality specified in the contract.
The rescission, in this case, shall only take place at
the will of the vendee, when the inferior value of
the thing sold exceeds one-tenth of the price
agreed upon.
Nevertheless, if the vendee would not have bought
the immovable had he known of its smaller area of
inferior quality, he may rescind the sale. (1469a)
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CC Art. 1540
If, in the case of the preceding article, there is a
greater area or number in the immovable than that
stated in the contract, the vendee may accept the
area included in the contract and reject the rest. If
he accepts the whole area, he must pay for the
same at the contract rate. (1470a)
CC Art. 1541
The provisions of the two preceding articles shall
apply to judicial sales. (n)
CC Art. 1542
In the sale of real estate, made for a lump sum and
not at the rate of a certain sum for a unit of
measure or number, there shall be no increase or
decrease of the price, although there be a greater
or less area or number than that stated in the
contract.
The same rule shall be applied when two or more
immovables as sold for a single price; but if,
besides mentioning the boundaries, which is
indispensable in every conveyance of real estate,
its area or number should be designated in the
contract, the vendor shall be bound to deliver all
that is included within said boundaries, even when
it exceeds the area or number specified in the
contract; and, should he not be able to do so, he
shall suffer a reduction in the price, in proportion to
what is lacking in the area or number, unless the
contract is rescinded because the vendee does not
accede to the failure to deliver what has been
stipulated. (1471)
CC Art. 1543
The actions arising from Articles 1539 and 1542
shall prescribe in six months, counted from the day
of delivery. (1472a)
WHERE PRICE IS AT CERTAIN RATE PER UNIT OF
MEASURE
The seller is bound to deliver the entire land
sold in accordance with the terms of the contract.
General Rule
The vendee has to option to demand a
proportionate reduction of the price or
rescission of the contract: if price is fixed at a
certain rate per unit of measure and the area is
delivered is less than that stated in the contract, or
even if the area is correct but part of the land is
not of the quality stated in the contract
Exception
Where the entire land is not of the quality
stated in the contract, as in such a case, the
consent must have been obtained by mistake or
fraud (contract may then be voidable.)
CC Art. 1539. See above.
XI. Performance of the Contract
SALE FOR A LUMP SUM47
CC Art. 1542. See above.
 If the sale of real property is for a lump sum,
there shall be no increase or decrease in the
price, whether the actual area delivered
turned out to be greater or less than that
stated in the contract.
 If besides mentioning the boundaries, the
area should also be stated in the contract, the
vendor shall be bound to deliver all that is
included within said boundaries and there
shall be no increase or decrease in the price
whether the area so delivered be greater or
less than that stated in the contract.48
 If the vendor fails to deliver all the land
included within said boundaries, as where part
of the land belongs to a third person, the
vendee shall have the option to demand a
reduction in the price in proportion to the
deficiency in the area stated in the
contract or a rescission of the contract
(Actions prescribe in six months from date of
delivery.)
4. INSPECTIONS AND ACCEPTANCE
RIGHT OF INSPECTION
CC Art. 1584
Where goods are delivered to the buyer, which he
has not previously examined, he is not deemed to
have accepted them unless and until he has had a
reasonable opportunity of examining them for the
purpose of ascertaining whether they are in
conformity with the contract if there is no
stipulation to the contrary.
Unless otherwise agreed, when the seller tenders
delivery of goods to the buyer, he is bound, on
request, to afford the buyer a reasonable
opportunity of examining the goods for the purpose
of ascertaining whether they are in conformity with
the contract.
Where goods are delivered to a carrier by the
seller, in accordance with an order from or
agreement with the buyer, upon the terms that the
goods shall not be delivered by the carrier to the
buyer until he has paid the price, whether such
terms are indicated by marking the goods with the
words "collect on delivery," or otherwise, the buyer
is not entitled to examine the goods before the
47
AZARRAGA v GAY: Where the price was for a lump sum
and the area which was stated in the contract to be 98
hectares, turned out to be only 60 hectares, but the purchaser
had previously investigated and inspected the condition of the
land, and had ample opportunity to do so, the purchaser
cannot later on allege that the vendor made false
representation.
ASIAIN v JALANDONI: There was mutual mistake which
was so material as would go into the essence of the contract.
Rescission is proper. The buyer would have not have bought
the land had he known of the smaller area or inferior quantity.
48
ROBLE v ARBASA: A vendee of land, when sold in gross or
with the description "more or less" with reference to its area,
does not thereby ipso facto take all risk of quantity in the
land. The use of "more or less" or similar words in designating
quantity covers only a reasonable excess or deficiency.
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payment of the price, in the absence of agreement
or usage of trade permitting such examination. (n)
 The buyer is entitled to examine the goods to
decide whether he will become the owner, and
until the examination is completed or waived,
he is under NO obligation to accept them. He
may however waive this right by simply
refusing to inspect the goods, taking them as
they are or by any other similar act.
MANIFESTATION OF ACCEPTANCE
CC Art. 1585
The buyer is deemed to have accepted the goods
when he intimates to the seller that he has
accepted them, or when the goods have been
delivered to him, and he does any act in relation to
them which is inconsistent with the ownership of
the seller, or when, after the lapse of a reasonable
time, he retains the goods without intimating to
the seller that he has rejected them. (n)
 The buyer is deemed to have accepted the
goods when:
1. He intimates to the seller that the has
accepted them
2. The goods have been delivered to him and
he does any act in relation to them which is
inconsistent with the ownership of the seller
3. After the lapse of a reasonable time, he
retains the goods without intimating to the
seller that he has rejected them.
 Exercise of acts of ownership over the goods
is a manifestation of acceptance, such as
making use of them as owner, making
alterations in the goods or subjecting it to the
process of manufacture. EXCEPTION: Buyer’s
right to make a test of goods, but only if
necessary, to enable him to determine
whether to accept or reject the goods.
BREACH OF WARRANTY
CC Art. 1586
In the absence of express or implied agreement of
the parties, acceptance of the goods by the buyer
shall not discharge the seller from liability in
damages or other legal remedy for breach of any
promise or warranty in the contract of sale. But, if,
after acceptance of the goods, the buyer fails to
give notice to the seller of the breach in any
promise of warranty within a reasonable time after
the buyer knows, or ought to know of such breach,
the seller shall not be liable therefor. (n)
 The purpose of the notice of breach of
warranty is to PROTECT the seller against
belated damage claims which would prevent
the seller from making an adequate and
proper investigation of his alleged liability.
 Acceptance of delivery means an ASSENT to
become OWNER of the goods on the part of
the buyer, but not an assent that the goods
fulfill the description and terms of the
contract.
 XI. Performance of the Contract
REFUSAL TO ACCEPT
CC Art. 1587
Unless otherwise agreed, where goods are
delivered to the buyer, and he refuses to accept
them, having the right so to do, he is not bound to
return them to the seller, but it is sufficient if he
notifies the seller that he refuses to accept them. If
he voluntarily constitutes himself a depositary
thereof, he shall be liable as such. (n)
CC Art. 1588
If there is no stipulation as specified in the first
paragraph of article 1523, when the buyer's refusal
to accept the goods is without just cause, the title
thereto passes to him from the moment they are
placed at his disposal. (n)
CC Art. 1589
The vendee shall owe interest for the period
between the delivery of the thing and the payment
of the price, in the following three cases:
1. Should it have been so stipulated;
2. Should the thing sold and delivered produce
fruits or income;
3. Should he be in default, from the time of
judicial or extrajudicial demand for the payment
of the price. (1501a)
 Unless otherwise agreed, when the goods are
delivered to the buyer and he has a right to
refuse to accept them, he need not return
them. It is sufficient that the buyer notifies
the seller that he refuses to accept the goods,
and thereafter, the former becomes the
depository of the rejected goods.
 However, where title already passed to the
buyer and there was a breach of warranty, the
buyer may RESCIND the contract by returning
or offering to return the goods to the seller
and recover the price which had been paid.
, thing sold, the remedy of the buyer is to
REFUSAL TO ACCEPT
CC Art. 1582
The vendee is bound to accept delivery and to pay
the price of the thing sold at the time and place
stipulated in the contract.
If the time and place should not have been
stipulated, the payment must be made at the time
and place of the delivery of the thing sold. (1500a)
CC Art. 1504
Unless otherwise agreed, the goods remain at the
seller's risk until the ownership therein is
transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at
the buyer's risk whether actual delivery has been
made or not, except that:
1. Where delivery of the goods has been made to
the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership in
the goods has been retained by the seller
merely to secure performance by the buyer of
his obligations under the contract, the goods
are at the buyer's risk from the time of such
delivery;
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2. Where actual delivery has been delayed through
the fault of either the buyer or seller the goods
are at the risk of the party in fault. (n)
B. Payment of Price
1. LIABILITY FOR INTEREST
Art. 1582, 1589. See above.
 The buyer shall owe interest on the price from
the time the thing is delivered up to the time
of payment if there is stipulation requiring
interests, or even if there is none, if the thing
delivered produces fruits or income, or if the
buyer incurs in default from the time of
judicial or extra-judicial demand for payment
2. SUSPENSION OF PAYMENT
CC Art. 1590
Should the vendee 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 vendor 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 vendee shall be bound to make
the payment. A mere act of trespass shall not
authorize the suspension of the payment of the
price. (1502a)
 “Disturbance” or threat of disturbance – must
come through a vindicatory action or
foreclosure of mortgage, and not through a
mere threat or claim of a third person.
 If the third person claims a servitude on the
demand rescission of the contract or payment
of the proper indemnity.
 In order that the buyer may have a right to
suspend payment, it is absolutely necessary
that the cause of disturbance or danger be
based on a fact arising before the sale or if it
arose after the sale, the cause is imputable to
the vendor or his successor in interest.49
3. SALE OF REAL PROPERTY
CC Art. 1592
In the sale of immovable property, even though it
may have been stipulated that upon failure to pay
the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee
may pay, even after the expiration of the period,
as long as no demand for rescission of the contract
49
BARENG v CA: The vendee had a right to suspend
payment from the time he was informed of the co-owner’s
claim. But such right ceased from the time a compromise was
reached between the co-owners whereby the vendor agreed to
give to the co-owner two-thirds of whatever he could collect
from the buyer. After the compromise, when the vendor
brought an action against the buyer to collect the balance,
said buyer owed interests on the amount from the time of the
filing of the complaint.
XI. Performance of the Contract
has been made upon him either judicially or by a
notarial act. After the demand, the court may not
grant him a new term. (1504a)
CC Art. 1560
If the immovable sold should be encumbered with
any non-apparent burden or servitude, not
mentioned in the agreement, of such a nature that
it must be presumed that the vendee would not
have acquired it had he been aware thereof, he
may ask for the rescission of the contract, unless
he should prefer the appropriate indemnity. Neither
right can be exercised if the non-apparent burden
or servitude is recorded in the Registry of Property,
unless there is an express warranty that the thing
is free from all burdens and encumbrances.
Within one year, to be computed from the
execution of the deed, the vendee may bring the
action for rescission, or sue for damages.
One year having elapsed, he may only bring an
action for damages within an equal period, to be
counted from the date on which he discovered the
burden or servitude. (1483a)
CC Art. 1664
The lessor is not obliged to answer for a mere act
of trespass which a third person may cause on the
use of the thing leased; but the lessee shall have a
direct action against the intruder.
There is a mere act of trespass when the third
person claims no right whatever. (1560a)
EFFECT OF NON-PAYMENT
CC Art. 1191
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of
a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388
and the Mortgage Law. (1124)
 In absolute sales of real property, even if
there is a stipulation providing for ipso jure
rescission, in case of default in payment, the
law requires the seller to demand the
resolution of the contract from the buyer
judicially or by a notarial act, before such
stipulation could be given effect. Otherwise,
the buyer could still pay the price EVEN after
the expiration of the period to pay.50
50
DELA CRUZ v LEGAZPI: The injured party may choose
between fulfillment and rescission of the obligation, with
payment of damages in either the rescission claimed unless
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R.A. 6553; P.D. 957 (SECS. 23 AND 24)
 Approved on 26 Aug 1972, the Realty
Installment Buyer Protection Act declared
that it is a public policy to protect buyers of
real-estate on installments, including
residential condominiums, apartments,
excluding industrial lots, commercial buildings
and lands sold under R.A. 3844 as amended,
against onerous and oppressive conditions
 R.A. 6552, sec 2, in sale or financing of real
estate on installment payments where the
buyer has paid at least two years of
installments, provides that in case such buyer
defaults in the payment of the succeeding
installments, he has a right to pay, without
additional interests, the arrears within a
grace period of one month for every year
of installment payments made;
 In the same case, if the contract is cancelled,
the seller shall refund to the buyer the case
surrender value of payments made,
equivalent to 50% of total payments and an
additional 5% for every year after five years
of the life of the contract and its extensions, if
any.
 Actual cancellation shall not take place until
after 30 days from receipt by the buyer of the
notice of cancellation or demand for rescission
by a notarial act, and only upon full payment
of the cash surrender value to the buyer.51
there is just cause authorizing the granting of a new period,
as in this case.
51
ACTIVE REALTY v DAROYA: In this case, respondent
has already paid in four (4) years a total of
P314,860.76 or P90,835.76 more than the contract
price of P224,035.00. Also, the records clearly show that
the petitioner failed to comply with the mandatory twin
requirements for a valid and effective cancellation under the
law,19 i.e., he failed to send a notarized notice of cancellation
and refund the cash surrender value.
VALARAO v CA: The Court held that the rescission of the
contract and the forfeiture of the payments already made
could not be effected as per the pertinent provision of the
aforementioned law. Section 3(a) of Maceda Law provided
that a buyer “…who has paid at least two years of installments
is entitled to pay, without additional interest the unpaid
installment due within the total grace period earned by
him, which is hereby fixed at a rate of one month grace
period for every year of installment payments made.
Hence, since the private respondent was entitled to a one-
month grace period for every year of installments paid, she
had a total grace period of three months from 31 December
1990
OLYMPIA HOUSING v PANASIATIC TRAVEL:
Unfortunately for petitioner, it would be incorrect to apply
Layug c IAC to the instant case. Layug is basically an action
for annulment of contract, a kindred concept of rescission,
whereas the instant case before the Court is one for recovery
of possession on the thesis of a prior rescission of the contract
covering the property. Not only is an action for reconveyance
conceptually different from an action for rescission but that,
also, the effects that flow from an affirmative judgment in
either case would be materially dissimilar in various respects.
The judicial resolution of a contract gives rise to mutual
restitution which is not necessarily the situation that can arise
in an action for reconveyance. Additionally, in an action for
rescission (also often termed as resolution), unlike in an
action for reconveyance predicated on an extrajudicial
rescission (rescission by notarial act), the Court, instead of
XI. Performance of the Contract
 Down-payments, deposits or options in the
contract shall be included in the computation
of the total number of installments made. The
right to pay the arrears within the grace
period could only be availed of by the buyer
once in every five years of the life of the
contract and its extensions, if any.
 In case of less than two years of installments
were paid, the grace period shall be not less
than 60 days from the date the installment
became due. If the buyer fails to pay within
the grace period, the seller may cancel the
contract within 30 days from receipt by the
buyer of the notice of cancellation or demand
for rescission of the contract by a notarial act.
 During the grace period or before the actual
cancellation of the contract, the buyer shall
have the right to:
1. sell or assign his rights, to be evidenced in a
notarial instrument, to a third person
2. update his account
3. pay in advance any installment or the full
unpaid balance of the price without interest
decreeing rescission, may authorize for a just cause the fixing
of a period.
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XII. WARRANTIES
A. Express Warranties
Warranty – where one party promised that the
contingency or some act fixed by the contract shall
be performed, like a promise that the goods are of
a certain kind and character or that certain state of
facts would exist, the promise constitutes a
warranty, and failure of which gives rise to an
action for its breach.
Breach: the buyer may
1. accept goods + maintain an action for
damages
2. accept goods + set up breach of warranty
as a recoupment in diminution/ extinction
of price
3. refuse to accept goods and maintain action
for damages
4. rescind + refuse to accept goods; or return
(or offer to return) goods + recover price
paid
1. DISTINGUISHED FROM CONDITION
CC Art. 1545
Where 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
nonperformance of the condition as a breach of
warranty.
Where the ownership in the thing has not passed,
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. (n)
CONDITION
An uncertain event or contingency fixed by
parties, the existence or happening of which was
necessary to the efficacy of the contract, and
failure of which permits the injured party to treat
the contract as at an end, but creates no right of
action. Where a condition is not performed, the
buyer may refuse to proceed with the contract, or
accept the goods and waive performance of the
condition.52
52
ROMERO v CA, LIM v CA: distinguished condition imposed
on perfection on the contract vs condition imposed on
performance of obligation; failure to comply with 1st condition
results in failure of contract, while failure to comply with 2nd
only gives other party option to either refuse to proceed with
the sale or to waive the condition as mandated under Art
1545.
XII. Warranties
Distinctions according to Villanueva53
Condition Warranty
Generally goes into the Goes into the performance
root of the existence of of such obligation, and in
the obligation fact may constitute an
obligation in itself
Must be stipulated by the May form part of obligation
parties in order to form by contract or provision of
part of an obligation law, without parties having
agreed thereto
May attach itself either to Whether express
obligation of seller to implied, relates to subject
deliver possession or matter itself or to the
transfer ownership over obligations of the seller as
subject matter of sale to the subject matter of
the sale
2. DISTINGUISHED FROM OPINION, DEALER’S
TALK
CC Art. 1546
Any affirmation of fact or any promise by the seller
relating to the thing is an express warranty if the
natural tendency of such affirmation or promise is
to induce the buyer to purchase the same, and if
the buyer purchase the thing relying thereon. No
affirmation of the value of the thing, nor any
statement purporting to be a statement of the
seller's opinion only, shall be construed as a
warranty, unless the seller made such affirmation
or statement as an expert and it was relied upon
by the buyer. (n)
WARRANTY
An affirmation of fact or any promise by seller
relating to the thing which has a natural tendency
to induce the buyer to purchase the same, relying
on such promise of affirmation
OPINION/DEALER’S TALK
An affirmation of the value of the thing or any
statement of the seller’s opinion shall not be
construed as a warranty, unless the seller made
such an affirmation as an expert and it was relied
upon by the buyer
TEST
Whether the vendor assumes to assert a fact
of which the buyer is ignorant, in which case it is a
warranty, or whether it is merely an expression of
an opinion or judgment on the part of the seller on
a matter of which the seller has no special
knowledge and on which the buyer may be
expected also to have an opinion or exercise his
judgment.
“IN GOOD CONDITION” VS. “EXCELLENT QUALITY”
The first relates to the quantity, kind or
condition of the goods sold, it is an affirmation of
fact or promise, and not a mere expression of an
opinion; the second is not an express warranty and
the purchaser must rely on the implied warranty
53
(Law on Sales , 2004)
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that the goods are merchantable; mere expression
of an opinion54
3. DISTINGUISHED FROM FALSE
REPRESENTATION55
B. Implied Warranties56
1. IMPLIED WARRANTY OF TITLE
CC Art. 1547
In a contract of sale, unless a contrary intention
or
appears, there is:
1. An implied warranty on the part of the seller
that he has a right to sell the thing at the time
when the ownership is to pass, and that the
buyer shall from that time have and enjoy the
legal and peaceful possession of the thing;
2. An implied warranty that the thing shall be free
from any hidden faults or defects, or any charge
or encumbrance not declared or known to the
buyer.
This Article shall not, however, be held to render
liable a sheriff, auctioneer, mortgagee, pledgee, or
other person professing to sell by virtue of
authority in fact or law, for the sale of a thing in
which a third person has a legal or equitable
interest. (n)
CC Art. 1548
Eviction shall take place whenever by a final
judgment based on a right prior to the sale or an
act imputable to the vendor, the vendee is
deprived of the whole or of a part of the thing
purchased.
The vendor shall answer for the eviction even
though nothing has been said in the contract on
the subject.
54
SONGCO v SELLNER: Opinion or dealer’s talk is not
warranty. Opinion or dealer’s talk is the usual or ordinary
means used by sellers to get a high price and is understood as
affording to buyers no ground for omitting to make inquiries.
Caveat emptor. A man who relies on such an affirmation does
so at his own peril and must take the consequences of his
imprudence.
What would make a misrepresentation void: (a) false
representation is as to matters of fact substantially affecting
buyer’s interest, and not as to matters of opinion, judgment,
probability or expectation; (b) the party to the contract who
has special/expert knowledge takes advantage of the
ignorance of another to impose upon him the false
representation.
MOLES v IAC: Ordinarily, what does not appear on the face
of the written instrument should be regarded as dealer's or
trader's talk; conversely, what is specifically represented as
true in said document, as in the instant case, cannot be
considered as mere dealer's talk
55
PHIL. MANUFACTURING v. Go JUCCO: An intention to
deceive or mislead the other party to his prejudice is an
essential element of fraud. Concealment of facts does not
necessarily amount to false representation, unless there was
an active misstatement of fact or a partial statement of fact,
such that withholding of that which is not stated makes that
which is stated absolutely false.
XII. Warranties
The contracting parties, however, may increase,
diminish, or suppress this legal obligation of the
vendor. (1475a)
CC Art. 1549
The vendee need not appeal from the decision in
order that the vendor may become liable for
eviction. (n)
CC Art. 1550
When adverse possession had been commenced
before the sale but the prescriptive period is
completed after the transfer, the vendor shall not
be liable for eviction. (n)
CC Art. 1551
If the property is sold for nonpayment of taxes due
and not made known to the vendee before the
sale, the vendor is liable for eviction. (n)
CC Art. 1552
The judgment debtor is also responsible for
eviction in judicial sales, unless it is otherwise
decreed in the judgment. (n) 57
CC Art. 1553
Any stipulation exempting the vendor from the
obligation to answer for eviction shall be void, if he
acted in bad faith. (1476)
CC Art. 1554
If the vendee has renounced the right to warranty
in case of eviction, and eviction should take place,
the vendor shall only pay the value which the thing
sold had at the time of the eviction. Should the
vendee have made the waiver with knowledge of
the risks of eviction and assumed its
consequences, the vendor shall not be liable.
(1477)
CC Art. 1555
When the warranty has been agreed upon or
nothing has been stipulated on this point, in case
eviction occurs, the vendee shall have the right to
demand of the vendor:
1. The return of the value which the thing sold had
at the time of the eviction, be it greater or less
than the price of the sale;
2. The income or fruits, if he has been ordered to
deliver them to the party who won the suit
against him;
3. The costs of the suit which caused the eviction,
and, in a proper case, those of the suit brought
against the vendor for the warranty;
4. The expenses of the contract, if the vendee has
paid them;
5. The damages and interests, and ornamental
expenses, if the sale was made in bad faith.
(1478)
CC Art. 1556
Should the vendee lose, by reason of the eviction,
a part of the thing sold of such importance, in
57
SANTIAGO LAND v CA: Although in voluntary sales or
transaction, the vendor can be expected to defend his title
because of his warranty to the vendees: no such obligation is
owed by the owner whose land is sold at execution sale.
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relation to the whole, that he would not have
bought it without said part, he may demand the
rescission of the contract; but with the obligation
to return the thing without other encumbrances
that those which it had when he acquired it.
He may exercise this right of action, instead of
enforcing the vendor's liability for eviction.
The same rule shall be observed when two or more
things have been jointly sold for a lump sum, or for
a separate price for each of them, if it should
clearly appear that the vendee would not have
purchased one without the other. (1479a)
CC Art. 1557
The warranty cannot be enforced until a final
judgment has been rendered, whereby the vendee
loses the thing acquired or a part thereof. (1480)
CC Art. 1558
The vendor shall not be obliged to make good the
proper warranty, unless he is summoned in the suit
for eviction at the instance of the vendee. (1481a)
CC Art. 1559
The defendant vendee shall ask, within the time
fixed in the Rules of Court for answering the
complaint, that the vendor be made a co-
defendant. (1482a)
2. IMPLIED WARRANTY AGAINST HIDDEN
ENCUMBRANCES OR DEFECTS58
CC Art. 1561
The vendor shall be responsible for warranty
against the hidden defects which the thing sold
may have, should they render it unfit for the use
for which it is intended, or should they diminish its
fitness for such use to such an extent that, had the
vendee been aware thereof, he would not have
acquired it or would have given a lower price for it;
but said vendor shall not be answerable for patent
defects or those which may be visible, or for those
which are not visible if the vendee is an expert
who, by reason of his trade or profession, should
have known them. (1484a)
CC Art. 1562
In a sale of goods, there is an implied warranty or
condition as to the quality or fitness of the goods,
as follows:
1. Where the buyer, expressly or by implication,
makes known to the seller the particular
purpose for which the goods are acquired, and
it appears that the buyer relies on the seller's
skill or judgment (whether he be the grower or
58
MOLES v IAC: …we have to consider the rule on
redhibitory defects contemplated in Article 1561 of the Civil
Code. A redhibitory defect must be an imperfection or defect
of such nature as to engender a certain degree of importance.
An imperfection or defect of little consequence does not come
within the category of being redhibitory.
INVESTMENTS AND DEV’T INC. v CA: “Implied warranty
against hidden faults or defects under Art 1547 of the Civil
Code cover only those that make the object of the sale unfit
for the use for which it was intended at the time of the sale,
and that in the sale of agricultural land, the existing tenancy
relationship pertaining thereto cannot be considered as hidden
fault or defect.
XII. Warranties
manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit
for such purpose;
2. Where the goods are brought by description
from a seller who deals in goods of that
description (whether he be the grower or
manufacturer or not), there is an implied
warranty that the goods shall be of
merchantable quality. (n)
CC Art. 1563
In the case of contract of sale of a specified article
under its patent or other trade name, there is no
warranty as to its fitness for any particular
purpose, unless there is a stipulation to the
contrary. (n)
CC Art. 1564
An implied warranty or condition as to the quality
or fitness for a particular purpose may be annexed
by the usage of trade. (n)
CC Art. 1565
In the case of a contract of sale by sample, if the
seller is a dealer in goods of that kind, there is an
implied warranty that the goods shall be free from
any defect rendering them unmerchantable which
would not be apparent on reasonable examination
of the sample. (n)
CC Art. 1566
The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even
though he was not aware thereof.
This provision shall not apply if the contrary has
been stipulated, and the vendor was not aware of
the hidden faults or defects in the thing sold.
(1485)
CC Art. 1567
In the cases of Articles 1561, 1562, 1564, 1565
and 1566, the vendee may elect between
withdrawing from the contract and demanding a
proportionate reduction of the price, with damages
in either case. (1486a)
CC Art. 1568
If the thing sold should be lost in consequence of
the hidden faults, and the vendor was aware of
them, he shall bear the loss, and shall be obliged
to return the price and refund the expenses of the
contract, with damages. If he was not aware of
them, he shall only return the price and interest
thereon, and reimburse the expenses of the
contract which the vendee might have paid.
(1487a)
CC Art. 1569
If the thing sold had any hidden fault at the time of
the sale, and should thereafter be lost by a
fortuitous event or through the fault of the vendee,
the latter may demand of the vendor the price
which he paid, less the value which the thing had
when it was lost.
If the vendor acted in bad faith, he shall pay
damages to the vendee. (1488a)
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CC Art. 1570
The preceding articles of this Subsection shall be
applicable to judicial sales, except that the
judgment debtor shall not be liable for damages.
(1489a)
CC Art. 1571
Actions arising from the provisions of the preceding
ten articles shall be barred after six months, from
the delivery of the thing sold. (1490)
WARRANTIES IN SALE OF ANIMALS
CC Art. 1577
The redhibitory action, based on the faults or
defects of animals, must be brought within forty
days from the date of their delivery to the vendee.
This action can only be exercised with respect to
faults and defects which are determined by law or
by local customs. (1496a)
CC Art. 1578
If the animal should die within three days after its
purchase, the vendor shall be liable if the disease
which cause the death existed at the time of the
contract. (1497a)
CC Art. 1579
If the sale be rescinded, the animal shall be
returned in the condition in which it was sold and
delivered, the vendee being answerable for any
injury due to his negligence, and not arising from
the redhibitory fault or defect. (1498)
CC Art. 1580
In the sale of animals with redhibitory defects, the
vendee shall also enjoy the right mentioned in
article 1567; but he must make use thereof within
the same period which has been fixed for the
exercise of the redhibitory action. (1499)
SALE BY SAMPLE OR DESCRIPTION
CC Art. 1481
In the contract of sale of goods by description or
by sample, the contract may be rescinded if the
bulk of the goods delivered do not correspond with
the description or the sample, and if the contract
be by sample as well as description, it is not
sufficient that the bulk of goods correspond with
the sample if they do not also correspond with the
description.
The buyer shall have a reasonable opportunity of
comparing the bulk with the description or the
sample. (n)
CC Art. 1565
In the case of a contract of sale by sample, if the
seller is a dealer in goods of that kind, there is an
implied warranty that the goods shall be free from
any defect rendering them unmerchantable which
would not be apparent on reasonable examination
of the sample. (n)
3. IMPLIED WARRANTY OF QUALITY
XII. Warranties
CC Art. 1562
In a sale of goods, there is an implied warranty or
condition as to the quality or fitness of the goods,
as follows:
1. Where the buyer, expressly or by implication,
makes known to the seller the particular
purpose for which the goods are acquired, and
it appears that the buyer relies on the seller's
skill or judgment (whether he be the grower or
manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit
for such purpose;
2. Where the goods are brought by description
from a seller who deals in goods of that
description (whether he be the grower or
manufacturer or not), there is an implied
warranty that the goods shall be of
merchantable quality. (n)
CC Art. 1563
In the case of contract of sale of a specified article
under its patent or other trade name, there is no
warranty as to its fitness for any particular
purpose, unless there is a stipulation to the
contrary. (n)
CC Art. 1564
An implied warranty or condition as to the quality
or fitness for a particular purpose may be annexed
by the usage of trade. (n)
CC Art. 1599
Where there is a breach of warranty by the seller,
the buyer may, at his election:
1. Accept or keep the goods and set up against
the seller, the breach of warranty by way of
recoupment in diminution or extinction of the
price;
2. Accept or keep the goods and maintain an
action against the seller for damages for the
breach of warranty;
3. Refuse to accept the goods, and maintain an
action against the seller for damages for the
breach of warranty;
4. Rescind the contract of sale and refuse to
receive the goods or if the goods have already
been received, return them or offer to return
them 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 anyone of these ways, no other
remedy can thereafter be granted, without
prejudice to the provisions of the second
paragraph of Article 1191.
Where the goods have been delivered to the
buyer, he cannot rescind the sale if he knew of
the breach of warranty when he accepted the
goods without protest, or if he fails to notify the
seller within a reasonable time of the election to
rescind, or if he fails to return or to offer to
return the goods to the seller in substantially as
good condition as they were in at the time the
ownership was transferred to the buyer. But if
deterioration or injury of the goods is due to the
breach or warranty, such deterioration or injury
shall not prevent the buyer from returning or
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offering to return the goods to the seller and
rescinding the sale.
Where the buyer is entitled to rescind the sale
and elects to do so, he shall cease to be liable
for the price upon returning or offering to return
the goods. If the price or any part thereof has
already been paid, the seller shall be liable to
repay so much thereof as has been paid,
concurrently with the return of the goods, or
immediately after an offer to return the goods in
exchange for repayment of the price.
Where the buyer is entitled to rescind the sale
and elects to do so, if the seller refuses to
accept an offer of the buyer to return the goods,
the buyer shall thereafter be deemed to hold the
goods as bailee for the seller, but subject to a
lien to secure payment of any portion of the
price which has been paid, and with the
remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526.
5. In the case of breach of warranty of quality,
such loss, in the absence of special
circumstances showing proximate damage of a
greater amount, is the difference between the
value of the goods at the time of delivery to the
buyer and the value they would have had if
they had answered to the warranty. (n)
4. ADDITIONAL WARRANTIES IN SALE OF
CONSUMER PRODUCTS
RA 7394 Art. 68 Additional Provisions on
Warranties
In addition to the Civil Code provisions on sale with
warranties, the following provisions shall govern
the sale of consumer products with warranty:
a. Terms of express warranty. - Any seller or
manufacturer who gives an express
warranty shall:
1. set forth the terms of warranty in clear
and readily understandable language and
clearly identify himself as the warrantor;
2. identify the party to whom the warranty
is extended;
3. state the products or parts covered;
4. state what the warrantor will do in the
event of a defect, malfunction of failure
to conform to the written warranty and
at whose expense;
5. state what the consumer must do to avail
of the rights which accrue to the
warranty; and
6. stipulate the period within which, after
notice of defect, malfunction or failure to
conform to the warranty, the warrantor
will perform any obligation under the
warranty.
b. Express warranty - operative from moment
of sale. - All written warranties or
guarantees issued by a manufacturer,
producer, or importer shall be operative
from the moment of sale.
1. Sales Report. - All sales made by
distributors of products covered by this
Article shall be reported to the
manufacturer, producer, or importer of
the product sold within thirty (30) days
XII. Warranties
from date of purchase, unless otherwise
agreed upon. The report shall contain,
among others, the date of purchase,
model of the product bought, its serial
number, name and address of the buyer.
The report made in accordance with this
provision shall be equivalent to a
warranty registration with the
manufacturer, producer, or importer.
Such registration is sufficient to hold the
manufacturer, producer, or importer
liable, in appropriate cases, under its
warranty.
2. Failure to make or send report. - Failure
of the distributor to make the report or
send them the form required by the
manufacturer, producer, or importer shall
relieve the latter of its liability under the
warranty: Provided, however, That the
distributor who failed to comply with its
obligation to send the sales reports shall
be personally liable under the warranty.
For this purpose, the manufacturer shall
be obligated to make good the warranty
at the expense of the distributor.
3. Retail. - The retailer shall be subsidiarily
liable under the warranty in case of
failure of both the manufacturer and
distributor to honor the warranty. In
such case, the retailer shall shoulder the
expenses and costs necessary to honor
the warranty. Nothing therein shall
prevent the retailer from proceeding
against the distributor or manufacturer.
4. Enforcement of warranty or guarantee. -
The warranty rights can be enforced by
presentment of a claim. To this end, the
purchaser needs only to present to the
immediate seller either the warranty card
of the official receipt along with the
product to be serviced or returned to the
immediate seller. No other documentary
requirement shall be demanded from the
purchaser. If the immediate seller is the
manufacturer's factory or showroom, the
warranty shall immediately be honored.
If the product was purchased from a
distributor, the distributor shall likewise
immediately honor the warranty. In the
case of a retailer other than the
distributor, the former shall take
responsibility without cost to the buyer of
presenting the warranty claim to the
distributor in the consumer's behalf.
5. Record of purchases. - Distributors and
retailers covered by this Article shall
keep a record of all purchases covered by
a warranty or guarantee for such period
of time corresponding to the lifetime of
the product's respective warranties or
guarantees.
6. Contrary stipulations: null and void. - All
covenants, stipulations or agreements
contrary to the provisions of this Article
shall be without legal effect.
c. Designation of warranties. - A written
warranty shall clearly and conspicuously
designate such warranty as:
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1. "Full warranty" if the written warranty
meets the minimum requirements set
forth in paragraph (d); or
2. "Limited warranty" if the written
warranty does not meet such minimum
requirements.
d. Minimum standards for warranties. - For the
warrantor of a consumer product to meet
the minimum standards for warranty, he
shall:
1. remedy such consumer product within a
reasonable time and without charge in
case of a defect, malfunction or failure to
conform to such written warranty;
2. permit the consumer to elect whether to
ask for a refund or replacement without
charge of such product or part, as the
case may be, where after reasonable
number of attempts to remedy the defect
or malfunction, the product continues to
have the defect or to malfunction.
The warrantor will not be required to
perform the above duties if he can show
that the defect, malfunction or failure to
conform to a written warranty was
caused by damage due to unreasonable
use thereof.
e. Duration of warranty. - The seller and the
consumer may stipulate the period within
which the express warranty shall be
enforceable. If the implied warranty on
merchantability accompanies an express
warranty, both will be of equal duration.
Any other implied warranty shall endure not
less than sixty (60) days nor more than one
(1) year following the sale of new consumer
products.
f. Breach of warranties. –
1. In case of breach of express warranty,
the consumer may elect to have the
goods repaired or its purchase price
refunded by the warrantor. In case the
repair of the product in whole or in part
is elected, the warranty work must be
made to conform to the express warranty
within thirty (30) days by either the
warrantor or his representative. The
thirty-day period, however, may be
extended by conditions which are beyond
the control of the warrantor or his
representative. In case the refund of the
purchase price is elected, the amount
directly attributable to the use of the
consumer prior to the discovery of the
non-conformity shall be deducted.
2. In case of breach of implied warranty,
the consumer may retain in the goods
and recover damages, or reject the
goods, cancel and contract and recover
from the seller so much of the purchase
price as has been paid, including
damages.
C. Buyer’s Waiver In Case Of Breach Of
Warranty
XII. Warranties
CC Art. 1599
xxx Where the goods have been delivered to the
buyer, he cannot rescind the sale if he knew of the
breach of warranty when he accepted the goods
without protest, or if he fails to notify the seller
within a reasonable time of the election to rescind,
or if he fails to return or to offer to return the
goods to the seller in substantially as good
condition as they were in at the time the ownership
was transferred to the buyer. But if deterioration or
injury of the goods is due to the breach or
warranty, such deterioration or injury shall not
prevent the buyer from returning or offering to
return the goods to the seller and rescinding the
sale. xxx
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XIII. BREACH OF CONTRACTS
A. SALE OF GOODS
1. REMEDIES OF THE SELLER
ACTION FOR THE PRICE
CC Art. 1595
Where, under a contract of sale, the ownership of
the goods has passed to the buyer and he
wrongfully neglects or refuses to pay for the goods
according to the terms of the contract of sale, the
seller may maintain an action against him for the
price of the goods.
Where, under a contract of sale, the price is
payable on a certain day, irrespective of delivery or
of transfer of title and the buyer wrongfully
neglects or refuses to pay such price, the seller
may maintain an action for the price although the
ownership in the goods has not passed. But 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 contract of
sale on his part or an intention not to perform it.
Although the ownership in the goods has not
passed, if they cannot readily be resold for a
reasonable price, and if the provisions of article
1596, fourth paragraph, are not applicable, the
seller may offer to deliver the goods to the buyer,
and, if the buyer refuses to receive them, may
notify the buyer that the goods are thereafter held
by the seller as bailee for the buyer. Thereafter the
seller may treat the goods as the buyer's and may
maintain an action for the price. (n)
ACTION FOR DAMAGES
CC Art. 1596
Where the buyer wrongfully neglects or refuses to
accept and pay for the goods, the seller may
maintain an action against him for damages for
nonacceptance.
The measure of damages is the estimated loss
directly and naturally resulting in the ordinary
course of events from the buyer's breach of
contract.
Where there is an available market for the goods in
question, the measure of damages is, in the
absence of special circumstances showing
proximate damage of a different amount, the
difference between the contract price and the
market or current price at the time or times when
the goods ought to have been accepted, or, if no
time was fixed for acceptance, then at the time of
the refusal to accept.
If, while labor or expense of material amount is
necessary on the part of the seller to enable him to
fulfill his obligations under the contract of sale, the
buyer repudiates the contract or notifies the seller
to proceed no further therewith, the buyer shall be
liable to the seller for labor performed or expenses
made before receiving notice of the buyer's
repudiation or countermand. The profit the seller
would have made if the contract or the sale had
XIII. Breach of Contracts
been fully performed shall be considered in
awarding the damages. (n)
RESCISSION
CC Art. 1597
Where the goods have not been delivered to the
buyer, and the buyer has repudiated the contract
of sale, or has manifested his inability to perform
his obligations thereunder, or has committed a
breach thereof, the seller may totally rescind the
contract of sale by giving notice of his election so
to do to the buyer. (n)
2. REMEDIES OF THE BUYER
SPECIFIC PERFORMANCE
CC Art. 1598
Where the seller has broken a contract to deliver
specific or ascertained goods, a court may, on the
application of the buyer, direct that the contract
shall be performed specifically, without giving the
seller the option of retaining the goods on payment
of damages. The judgment or decree may be
unconditional, or upon such terms and conditions
as to damages, payment of the price and
otherwise, as the court may deem just. (n)
BREACH OF WARRANTY
CC Art. 1599
Where there is a breach of warranty by the seller,
the buyer may, at his election:
1. Accept or keep the goods and set up against
the seller, the breach of warranty by way of
recoupment in diminution or extinction of the
price;
2. Accept or keep the goods and maintain an
action against the seller for damages for the
breach of warranty;
3. Refuse to accept the goods, and maintain an
action against the seller for damages for the
breach of warranty;
4. Rescind the contract of sale and refuse to
receive the goods or if the goods have already
been received, return them or offer to return
them 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 anyone of these ways, no other
remedy can thereafter be granted, without
prejudice to the provisions of the second
paragraph of Article 1191.
Where the goods have been delivered to the
buyer, he cannot rescind the sale if he knew of
the breach of warranty when he accepted the
goods without protest, or if he fails to notify the
seller within a reasonable time of the election to
rescind, or if he fails to return or to offer to
return the goods to the seller in substantially as
good condition as they were in at the time the
ownership was transferred to the buyer. But if
deterioration or injury of the goods is due to the
breach or warranty, such deterioration or injury
shall not prevent the buyer from returning or
offering to return the goods to the seller and
rescinding the sale.
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Where the buyer is entitled to rescind the sale
and elects to do so, he shall cease to be liable
for the price upon returning or offering to return
the goods. If the price or any part thereof has
already been paid, the seller shall be liable to
repay so much thereof as has been paid,
concurrently with the return of the goods, or
immediately after an offer to return the goods in
exchange for repayment of the price.
Where the buyer is entitled to rescind the sale
and elects to do so, if the seller refuses to
accept an offer of the buyer to return the goods,
the buyer shall thereafter be deemed to hold the
goods as bailee for the seller, but subject to a
lien to secure payment of any portion of the
price which has been paid, and with the
remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526.
5. In the case of breach of warranty of quality,
such loss, in the absence of special
circumstances showing proximate damage of a
greater amount, is the difference between the
value of the goods at the time of delivery to the
buyer and the value they would have had if
they had answered to the warranty. (n)
CC Art 1571
Actions arising from the provisions of the preceding
ten articles shall be barred after six months, from
the delivery of the thing sold. (1490)
RESCISSION
CC Art. 1599
Where there is a breach of warranty by the seller,
the buyer may, at his election:
1. Accept or keep the goods and set up against
the seller, the breach of warranty by way of
recoupment in diminution or extinction of the
price;
2. Accept or keep the goods and maintain an
action against the seller for damages for the
breach of warranty;
3. Refuse to accept the goods, and maintain an
action against the seller for damages for the
breach of warranty;
4. Rescind the contract of sale and refuse to
receive the goods or if the goods have already
been received, return them or offer to return
them 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 anyone of these ways, no other
remedy can thereafter be granted, without
prejudice to the provisions of the second
paragraph of Article 1191.
Where the goods have been delivered to the
buyer, he cannot rescind the sale if he knew of
the breach of warranty when he accepted the
goods without protest, or if he fails to notify the
seller within a reasonable time of the election to
rescind, or if he fails to return or to offer to
return the goods to the seller in substantially as
good condition as they were in at the time the
ownership was transferred to the buyer. But if
deterioration or injury of the goods is due to the
breach or warranty, such deterioration or
XIII. Breach of Contracts
injury shall not prevent the buyer from returning
or offering to return the goods to the seller and
rescinding the sale.
Where the buyer is entitled to rescind the sale
and elects to do so, he shall cease to be liable
for the price upon returning or offering to return
the goods. If the price or any part thereof has
already been paid, the seller shall be liable to
repay so much thereof as has been paid,
concurrently with the return of the goods, or
immediately after an offer to return the goods in
exchange for repayment of the price.
Where the buyer is entitled to rescind the sale
and elects to do so, if the seller refuses to
accept an offer of the buyer to return the goods,
the buyer shall thereafter be deemed to hold the
goods as bailee for the seller, but subject to a
lien to secure payment of any portion of the
price which has been paid, and with the
remedies for the enforcement of such lien
allowed to an unpaid seller by Article 1526.
5. In the case of breach of warranty of quality,
such loss, in the absence of special
circumstances showing proximate damage of a
greater amount, is the difference between the
value of the goods at the time of delivery to the
buyer and the value they would have had if
they had answered to the warranty. (n)
B. SALE OF IMMOVABLES AND THINGS
OTHER THAN GOODS
CC Art. 1191
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of
a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388
and the Mortgage Law. (1124)
CC Art. 1192
In case both parties have committed a breach of
the obligation, the liability of the first infractor shall
be equitably tempered by the courts. If it cannot
be determined which of the parties first violated
the contract, the same shall be deemed
extinguished, and each shall bear his own
damages. (n)
CC Art 1385
Rescission creates the obligation to return the
things which were the object of the contract,
together with their fruits, and the price with its
interest; consequently, it can be carried out only
when he who demands rescission can return
whatever he may be obliged to restore.
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Neither shall rescission 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.
In this case, indemnity for damages may be
demanded from the person causing the loss.
(1295)
CC Art. 1591
Should the vendor have reasonable grounds to fear
the loss of immovable property sold and its price,
he may immediately sue for the rescission of the
sale.
Should such ground not exist, the provisions of
Article 1191 shall be observed. (1503)
C. SALE OF MOVABLES ON
INSTALLMENT59
CC Art. 1484
In a contract of sale of personal property the price
of which is payable in installments, the vendor may
exercise any of the following remedies:
1. Exact fulfillment of the obligation, should the
vendee fail to pay;
2. Cancel the sale, should the vendee's failure to
pay cover two or more installments;
3. Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
vendee's failure to pay cover two or more
installments. In this case, he shall have no
further action against the purchaser to recover
any unpaid balance of the price. Any agreement
to the contrary shall be void. (1454-A-a)60
59
LEVY v GERVACIO: CC Art 1454 is aimed at sales where
the price is payable in several installments. A cash payment
(in sales with two installments) cannot be considered as a
payment in installments, and even if it can be so considered,
still the law does not apply, for it requires nonpayment of two
or more installments in order that its provisions may be
invoked. In this case, only one installment was unpaid.
60
TAJANLANGIT v SOUTHERN MOTORS: It is true that
there was a chattel mortgage on the goods sold, but Southern
Motors elected to sue the note exclusively – to exact
fulfillment of the obligation to pay. It had the right to
select among the three remedies established in Art 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.
FILINVEST v CA: The remedies IN 1484 are alternative
and not cumulative. Hence, the exercise of one bars the
exercise of the others.
NONATO v IAC: The corporation is barred from exacting
payment from Nonato of the balance of the price of the
vehicle when it had already repossessed it.
CRUZ v FILIPINAS INVESTMENTS: The vendor of
personal property sold on installment basis is precluded, after
foreclosing the chattel mortgage on the thing sold, from
having a recourse against the additional security put up by a
third party to guarantee the purchaser’s performance of his
obligation.
NORTHERN MOTORS v SAPINOSO: What Art 1484 (3)
prohibits is “further action against the purchaser to recover
any unpaid balance of the price;” and although this Court has
construed the word “action” to mean “any judicial or
extrajudicial proceeding by virtue of which the vendor may
lawfully be enabled to exact recovery of the supposed
unsatisfied balance of the purchase price from the purchaser
or his privy,” there is no occasion at this stage to apply the
restrictive provision of the said article because there has not
yet been a foreclosure sale resulting in a deficiency. The
payment of the sum of P1,250 of Sapinoso was a voluntary
XIII. Breach of Contracts
CC Art. 1485
The preceding article shall be applied to contracts
purporting to be leases of personal property with
option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.
(1454-A-a)
CC Art. 1486
In the case referred to in two preceding articles, a
stipulation that the installments or rents paid shall
not be returned to the vendee or lessee shall be
valid insofar as the same may not be
unconscionable under the circumstances. (n)
CC Art. 1533
Where the goods are of perishable nature, or
where the seller expressly reserves the right of
resale in case the buyer should make default, or
where the buyer has been in default in the
payment of the price for an unreasonable time, an
unpaid seller having a right of lien or having
stopped the goods in transitu may resell the goods.
He shall not thereafter be liable to the original
buyer upon the contract of sale or for any profit
made by such resale, but may recover from the
buyer damages for any loss occasioned by the
breach of the contract of sale.
Where a resale is made, as authorized in this
article, the buyer acquires a good title as against
the original buyer.
It is not essential to the validity of resale that
notice of an intention to resell the goods be given
by the seller to 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
contract of 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.
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.
The seller is bound to exercise reasonable care and
judgment in making a resale, and subject to this
requirement may make a resale either by public or
private sale. He cannot, however, directly or
indirectly buy the goods. (n)
 When the seller assigns his credit to another
person, the latter may likewise avail of the
remedies under Art 1484 (assuming case is
one of sale of movables on installment). If the
remedy chosen is rescission, a stipulation in
the contract that the installments paid shall
not be returned to the vendee is valid insofar
as the same may not be unconscionable under
the circumstances61
act on his part and did not result from a “further action”
instituted by Northern Motors.
BORBON v SERVICE-WIDE SPECIALIST:
When the seller assigns his credit to another person, the latter
is likewise bound by the same law. Accordingly, when the
assignee forecloses on the mortgage, there can be no further
recovery of the deficiency, and the seller-mortgagee is
deemed to have renounced any right thereto.
61
Villanueva citing Delta Motor v. Niu Kim Duan, 213 SCRA
259
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D. SALE OF IMMOVABLES ON
INSTALLMENT
1. ANTICIPATORY BREACH
CC Art. 1591
Should the vendor have reasonable grounds to fear
the loss of immovable property sold and its price,
he may immediately sue for the rescission of the
sale.
Should such ground not exist, the provisions of
Article 1191 shall be observed. (1503)
2. PD 957, SECTION 23 & 2462
PD 957 Sec. 23 Non-Forfeiture of Payments
No installment payment made by a buyer in a
subdivision or condominium project for a lot or unit
he contracted to buy shall be forfeited in favor of
the owner or developer when the buyer, after due
notice to the owner or developer, desists from
further payment due to the failure of the owner or
developer to develop the subdivision or
condominium project according to the approved
plans and within the time limit for complying with
the same. Such buyer may, at his option, be
reimbursed the total amount paid including
amortization interests but excluding delinquency
interests, with interest thereon at the legal rate.
PD 957 Sec. 24 Failure to pay installments
The rights of the buyer in the event of his failure to
pay the installments due for reasons other than
failure of the owner or developer to develop the
project shall be governed by Republic Act No. 6552
3. RA 6552 “MACEDA LAW”: SALE OF
RESIDENTIAL REALTY ON INSTALLMENT63
62
CASA FILIPINAS REALTY v OP: PD 957 to stem the tide
of “fraudulent manipulations perpetrated by unscrupulous
subdivision and condominium sellers and operators, such as
failure to deliver titles to buyers or titles free from liens and
encumbrances. Should the notice requirement in Sec 23 be
construed as required to be given before a buyer desists from
further paying, the intent of the law to protect subdivision lot
buyers will tend to be defeated.
BRICKTOWN DEV’T v TIERRA: When a grace period is
provided for in the contract of sale, it should be construed as
a right, not an obligation of the debtor, and when
unconditionally conferred, the grace period is effective without
further need of demand either calling for the payment of the
obligation or for honoring the right.
63
MCLAUGHLIN v CA: Sec 4 of RA 6552 provides: “In case
where less than two years of installments were paid, the seller
shall give the buyer a grace period of not less than sixty days
from the date the installment became due. If the buyer fails
to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days
from receipt by the buyer of the notice of the cancellation or
the demand for rescission of the contract by a notarial act.”
Flores tendered the manager’s check after 17 days, which is
well within the 30-day period. However, Flores did not follow
tender of payment with consignation. Since McLaughlin
refused to accept the tender of payment, it was incumbent
upon Flores to deposit the amount in court.
XIII. Breach of Contracts
4. RESCISSION ON SALE ON
RESIDENTIAL REALTY ON INSTALLMENT
NON-
CC Art 1191
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of
a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388
and the Mortgage Law. (1124)
CC Art 1592
In the sale of immovable property, even though it
may have been stipulated that upon failure to pay
the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee
may pay, even after the expiration of the period,
as long as no demand for rescission of the contract
has been made upon him either judicially or by a
notarial act. After the demand, the court may not
grant him a new term. (1504a)
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XIV. EXTINGUISHMENT OF THE SALE
CC Art. 1600
Sales are extinguished by the same causes as all
other obligations, by those stated in the preceding
articles of this Title, and by conventional or legal
redemption. (1506)
CC Art. 1231
Obligations are extinguished:
1. By payment or performance;
2. By the loss of the thing due;
3. By the condonation or remission of the debt;
4. By the confusion or merger of the rights of
creditor and debtor;
5. By compensation;
6. By novation.
Other causes of extinguishment of obligations, such
as annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed
elsewhere in this Code. (1156a)
A. CONVENTIONAL REDEMPTION
DEFINITION
In conventional redemption, the vendor reserves
the right to repurchase the thing sold, with the
obligation of returning the price of the sale the
expenses of the contract, the necessary and useful
expenses made on the thing, and other payments
made by reason of the sale.64
DISTINGUISHED FROM EQUITABLE
MORTGAGE
EQUITABLE MORTGAGE
One which, although lacking in some formality
or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to
charge real property as a security for debt, and
contains nothing impossible or contrary to law
BADGES OF AN EQUITABLE MORTGAGE65
CC Art. 1602
The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
1. When the price of a sale with right to
repurchase is unusually inadequate;
2. When the vendor remains in possession as
lessee or otherwise;
3. When upon or after the expiration of the right
to repurchase another instrument extending the
64
VILLARICA v CA: The right of repurchase is not a right
granted the vendor by the vendee in a subsequent
instrument, but is a right reserved by the vendor in the same
instrument of sale as one of the stipulations of the contract.
TORRES v CA: For a sale to be one a retro, it is necessary
that the right be reserved in the same contract
65
CLARAVALL v CA: The urgent necessity for money of the
apparent vendor, the inadequacy of the consideration for the
supposed sale, and the extension of the period of redemption
are circumstances which are indicative that the contract is an
equitable mortgage.
XIV. Extinguishment of the Sale Sales
period of redemption or granting a new period consideration in order to separate and distinct from
is executed; be valid and effective purchase price
4. When the purchaser retains for himself a part of
the purchase price; May not be beyond the 10 May be beyond the 10
5. When the vendor binds himself to pay the taxes year period year period
on the thing sold;
6. In any other case where it may be fairly Requires tender of May be exercised by
inferred that the real intention of the parties is payment of amount notice
required by law, including
that the transaction shall secure the payment of
consignment thereof if
a debt or the performance of any other
tender cannot be made
obligation. In any of the foregoing case, any effectively
money, fruits, or other benefit to be received by
the vendees as rent or otherwise shall be
considered as interest which shall be subject to PERIOD OF REDEMPTION
the usury laws.
CC Art. 1606
 A contract shall be construed as an equitable The right referred to in Article 1601, in the absence
mortgage when any of the circumstance in of an express agreement, shall last four years from
Art. 1602 is present. the date of the contract.
Should there be an agreement, the period cannot
Reason for the rule exceed ten years.
To curtail the practice of creditors in making
However, the vendor may still exercise the right to
their agreement of mortgage appear in the form of
repurchase within thirty days from the time final
a sale with pacto de retro, in order to circumvent
judgment was rendered in a civil action on the
the prohibition of pactum commissorium in pledge
basis that the contract was a true sale with right to
and mortgage
repurchase. (1508a)
CC Art. 2208
GENERAL RULE
The creditor cannot appropriate the things given by
Period starts running at the date of the
way of pledge or mortgage, or dispose of them.
execution of the contract.
Any stipulation to the contrary is null and void
EXCEPTION
 Because in making it appear a pacto de retro
When there is a suspensive condition.
sale, the creditors can do away with
foreclosure proceedings
WHEN NO PERIOD AGREED UPON
Period: Four (4) years from the date of the
Remedy
contract
Reformation of the instrument [must be
brought within 10 years]
WHEN PERIOD AGREED UPON67
1. If the agreement is construed to be an
The period is binding and it may also be
equitable mortgage, any money or other benefit
extended, as long as it does not exceed 10 years.
received as “rents,” shall be considered as
“interest.”
Reason for limitation
2. Where the agreement is upheld as a pacto de
A pacto de retro is a suspension of title and it
retro sale, the vendor may still exercise the
is against public interest to permit such uncertainty
right within 30 days from the time the
to continue for a long time.
judgment becomes final.
EXERCISE OF THE RIGHT TO REDEEM68
DISTINGUISHED FROM OPTION TO BUY66

Right of redemption Option to buy

Not a separate contract, Principal contract and may
but merely part of a main be created independent of
contract of sale; cannot another contract
exist unless reserved at
the time of the perfection
of the main contract of
sale
Need not have separate Must have a consideration
66
ADIARTE v TUMANENG: An agreement to repurchase
becomes an option to buy when entered into after the time to
redeem stipulated had already expired, because then the
vendee a retro became the absolute owner of the thing sold,
and the subsequent grant of the right to repurchase is a new
agreement.
67
TAYAO v DULAY: Although the stipulation as to the period
may be unclear or void, a period of redemption was agreed
upon. Thus, it is the 10-year period that applies, not the 4-
year period.
BALUYOT v VENEGAS: The object of the sale cannot be
repurchased during the first 10 years.
The stipulation is void and against public policy.
BANDONG v Austria : The provisions of the contract,
whereby the parties undertook by express agreement to
secure to the vendors a right to repurchase in the month of
March of any year after the date of the contract, were valid
and binding upon the parties for a period of ten years from
the date of the contract but wholly without force and effect
thereafter.
68
GARGOLLO v DUERO: The vendor a retro is not given the
option to require the vendee a retro to remove the useful
improvement, but must pay for the useful improvements
introduced by the vendee a retro; otherwise, the latter may
retain possession of the thing until reimbursement is made.

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XIV. Extinguishment of the Sale
 A vendor must manifest his right to redeem in
writing. This must be accompanied with an
actual or simultaneous tender of payment of
the redemption price.
» Redemption price – includes the amount of
the sale, the expenses of the contract and
other legitimate payments made by the
vendee by reason of such sale, and the
necessary and useful expenses made on
the thing by the vendee.
 It is only when the vendee flatly refused that
tender of payment is not necessary.
Consignation of the redemption price in court
is not necessary to preserve the right. In the
absence of the vendee a retro, the right may
be exercised by filing a suit against him and
consigning the amount in court.
 The exercise of redemption is not limited only
to the total redemption price enumerated in
Art 1616 of the CC, since said legal provision
is not restrictive nor exclusive. It includes
other stipulations which may have been
agreed upon69
BY WHOM EXERCISED
CC Art. 1610
The creditors of the vendor cannot make use of the
right of redemption against the vendee, until after
they have exhausted the property of the vendor.
(1512)
CC Art. 1611
In a sale with a right to repurchase, the vendee of
a part of an undivided immovable who acquires the
whole thereof in the case of article 498, may
compel the vendor to redeem the whole property,
if the latter wishes to make use of the right of
redemption. (1513)
CC Art. 1612
If several persons, jointly and in the same
contract, should sell an undivided immovable with
a right of repurchase, none of them may exercise
this right for more than his respective share.
The same rule shall apply if the person who sold an
immovable alone has left several heirs, in which
case each of the latter may only redeem the part
which he may have acquired. (1514)
CC Art. 1613
In the case of the preceding article, the vendee
may demand of all the vendors or co-heirs that
they come to an agreement upon the purchase of
the whole thing sold; and should they fail to do so,
the vendee cannot be compelled to consent to a
partial redemption. (1515)
 Who may redeem
1. Vendor
2. His heirs or assigns
3. His agent
 The creditors of the vendor cannot make use
of the right of redemption against the vendee,
69
Villanueva citing Solid Homes v. CA, 275 SCRA 267
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until after they have exhausted the property
of the vendor.
 If several persons, jointly and in the same
contract, should sell an undivided immovable
with a right of repurchase, none of them may
exercise this right for more than his respective
share. The same rule shall apply if the person
who sold an immovable alone has left several
heirs.
 When the co-owners of an indivisible
immovable, in order to end the co-ownership,
sold their interests absolutely to the same
person who previously bought the share of a
co-owner subject to a right of redemption, the
latter can be compelled to redeem the whole
property.
FROM WHOM TO REDEEM
CC Art. 1615
If the vendee should leave several heirs, the action
for redemption cannot be brought against each of
them except for his own share, whether the thing
be undivided, or it has been partitioned among
them.
But if the inheritance has been divided, and the
thing sold has been awarded to one of the heirs,
the action for redemption may be instituted against
him for the whole. (1517)
CC Art. 1608
The vendor may bring his action against every
possessor whose right is derived from the vendee,
even if in the second contract no mention should
have been made of the right to repurchase, without
prejudice to the provisions of the Mortgage Law
and the Land Registration Law with respect to third
persons. (1510)
 From whom to redeem
1. Vendee a retro
2. His heirs or assigns
3. His agent
EFFECT OF REDEMPTION
CC Art. 1617
If at the time of the execution of the sale there
should be on the land, visible or growing fruits,
there shall be no reimbursement for or prorating of
those existing at the time of redemption, if no
indemnity was paid by the purchaser when the sale
was executed.
Should there have been no fruits at the time of the
sale and some exist at the time of redemption,
they shall be prorated between the redemptioner
and the vendee, giving the latter the part
corresponding to the time he possessed the land in
the last year, counted from the anniversary of the
date of the sale. (1519a)
CC Art. 1618
The vendor who recovers the thing sold shall
receive it free from all charges or mortgages
constituted by the vendee, but he shall respect the
leases which the latter may have executed in good
XIV. Extinguishment of the Sale
faith, and in accordance with the custom of the
place where the land is situated. (1520)
 The vendor can eject a lessee only after the
expiration of the period of lease or of the
period for redemption.
 The vendor a retro is entitled to the return of
the thing with damages for the use and
occupation if the same.
EFFECT OF NON-REDEMPTION
CC Art. 1607
In case of real property, the consolidation of
ownership in the vendee by virtue of the failure of
the vendor to comply with the provisions of article
1616 shall not be recorded in the Registry of
Property without a judicial order, after the vendor
has been duly heard. (n)
CC Art. 1606
xxx However, the vendor may still exercise the
right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the
basis that the contract was a true sale with right to
repurchase.70
 The ownership of the vendee becomes
absolute and irrevocable by operation of law.
 The vendee is not entitled to recover damages
by virtue of non-redemption, notwithstanding
a stipulation in the contract for payment of
damages.
B. LEGAL REDEMPTION
DEFINITION
Legal redemption is the right to be subrogated,
upon the same terms and conditions stipulated in
the contract, in the place of one who acquires a
thing by purchase or dation in payment, or by any
other transaction whereby ownership is transmitted
by onerous title.
WHEN PERIOD OF LEGAL REDEMPTION
BEGINS
CC Art. 1623
The right of legal pre-emption or redemption shall
not be exercised except within thirty days from the
notice in writing by the prospective vendor, or by
the vendor, as the case may be. The deed of sale
shall not be recorded in the Registry of Property,
unless accompanied by an affidavit of the vendor
that he has given written notice thereof to all
possible redemptioners.
70
ABILLA v GABONSENG: The applicability of Article 1606
rests on the bona fide intent of the vendor a retro, i.e.,
respondent in this case. If he honestly believed that the
transaction was an equitable mortgage, the said article applies
and he can still repurchase the property within thirty days
from finality of the judgment declaring the transaction as a
sale with pacto de retro. Parenthetically, it matters not what
the vendee intended the transaction to be.
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The right of redemption of co-owners excludes that
of adjoining owners. (1524a)71
 Laches seems to be a special exception to
notice rule under Art 1623.72
REDEMPTION AMONG CO-OWNERS
CC Art. 1620
A co-owner of a thing may exercise the right of
redemption in case the shares of all the other co-
owners or of any of them, are sold to a third
person. If the price of the alienation is grossly
excessive, the redemptioner shall pay only a
reasonable one.
Should two or more co-owners desire to exercise
the right of redemption, they may only do so in
proportion to the share they may respectively have
in the thing owned in common. (1522a)
WHEN THE RIGHT MAY BE EXERCISED
When a share of a co-owner is sold to a third
person, who is a stranger.
THRUST OF THE LAW
To reduce the number of co-owners until the
community is done away with.
WHEN THE RIGHT IS NOT AVAILABLE
1. Where the share of the co-owner is sold to
another co-owner
2. Where the share of a co-owner was merely
mortgaged
 Should two or more co-owners desire to
exercise the right, they may only do so in
proportion to the share they may respectively
have in the thing owned in common.
REDEMPTION AMONG ADJOINING OWNERS
The law distinguishes between rural and urban
lands. The distinction is based on the character of
the community or vicinity in which it is found.
This is to encourage the maximum development
and utilization of lands.
RURAL LANDS
CC Art. 1621
The owners of adjoining lands shall also have the
right of redemption when a piece of rural land, the
71
HERMOSO v CA : It was error for the respondent court to
rule that the right of the petitioner to redeem the alienated
share had long proscribed. This finding fails to take into
account that the period of legal redemption is not a
prescriptive period. It is a condition precedent to the exercise
of the right of redemption. It is a period set by law to restrict
the right of the person exercising the right of legal
redemption. It is not one of prescription. While the law
requires that the notice must be in writing, it does not state
any particular form thereof, so long as the reasons for a
written notice are present. The records of the case show that
the sale of the brothers’ share was deliberately hidden from
the petitioners. For sometime after the sale, the petitioners
were ignorant about its execution. When they somehow
heard rumors about it, they had to take one step after another
to find out if the information was true.
72
Villanueva citing Alonzo v. IAC
XIV. Extinguishment of the Sale
area of which does not exceed one hectare, is
alienated, unless the grantee does not own any
rural land.
This right is not applicable to adjacent lands which
are separated by brooks, drains, ravines, roads and
other apparent servitudes for the benefit of other
estates.
If two or more adjoining owners desire to exercise
the right of redemption at the same time, the
owner of the adjoining land of smaller area shall be
preferred; and should both lands have the same
area, the one who first requested the redemption.
(1523a)
When the right may be exercised
When a piece of rural land not exceeding 1 ha.,
is alienated [unless the grantee does not own any
rural land]
Thrust of the law
1. to prevent the rural land not exceeding 1 ha.
from passing into the hands of a person other
than the adjacent owners who can make use of
the alienated property for the development of
their own lands
2. To consolidate scattered small agricultural lands
under one ownership
When the right is not available
Adjacent lands which are separated by brooks,
drains, ravines, roads and other apparent
servitudes for the benefit of other estates [because
owners cannot be said to be adjoining owners
anymore]
 If two or more adjoining owners desire to
exercise the right of redemption at the same
time, the owner of the adjoining land of
smaller area shall be preferred; and should
both lands have the same area, the one who
first requested the redemption.
URBAN LANDS73
CC Art. 1622
Whenever a piece of urban land which is so small
and so situated that a major portion thereof cannot
be used for any practical purpose within a
reasonable time, having been bought merely for
speculation, is about to be re-sold, the owner of
any adjoining land has a right of pre-emption at a
reasonable price.
If the re-sale has been perfected, the owner of the
adjoining land shall have a right of redemption,
also at a reasonable price.
When two or more owners of adjoining lands wish
to exercise the right of pre-emption or redemption,
the owner whose intended use of the land in
question appears best justified shall be preferred.
(n)
73
ORTEGA v ORCINE The term “urban” in Art. 1622 does not
necessarily refer to the nature of the land itself but to the
character of the community or vicinity in which it is found.
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When the right may be exercised
When a piece of urban land which is so small
and so situated that a major portion thereof cannot
be used for any practical purpose within a
reasonable time, having been bought merely for
speculation, is about to be resold
Thrust of the law
To discourage speculation in real estate and
aggravate the housing problem.
When the right is not available
When the urban land is transferred under an
“exchange” of properties [because there is no
resale]74
 When two or more owners of adjoining lands
wish to exercise the right of pre-emption or
redemption, the owner whose intended use of
the land in question appears best justified
shall be preferred.
ASSIGNMENT OF A CHOSE IN ACTION
CC Art. 1634
When a credit or other incorporeal right in litigation
is sold, the debtor shall have a right to extinguish it
by reimbursing the assignee for the price the latter
paid therefor, the judicial costs incurred by him,
and the interest on the price from the day on which
the same was paid.
A credit or other incorporeal right shall be
considered in litigation from the time the complaint
concerning the same is answered.
The debtor may exercise his right within thirty days
from the date the assignee demands payment from
him. (1535)
When the right may be exercised
When a credit or other incorporeal right in
litigation is sold.
Thrust of the law
To discourage speculation in lawsuits which
would make the courts an instrument for profit.
When the right is not available [because the
assignee has a valid interest in the right or
property assigned]
1. When the assignment of a credit was made
before any litigation
2. Assignments made to a co-heir or co-owner of
the credit, to a creditor in payment of his credit,
to the possessor of a tenement or land which is
subject to the assigned credit. (Art. 1635)
REDEMPTION OF HOMESTEAD
CA 141 Sec. 119
Every conveyance of land acquired under a free
patent or homestead, when proper, shall be
subject to repurchase by the applicant, his widow
or legal heirs within 5 years from the date of
conveyance.
74
SEN PO EK MARKETING v. MARTINEZ:
Article 1622 is not applicable to a lessee trying to buy the land
he is leasing.
XIV. Extinguishment of the Sale
WHO MAY REDEEM
1. The applicant
2. His widow
3. Legal heirs
PERIOD OF REDEMPTION
Within 5 years from the date of conveyance
REDEMPTION IN TAX SALES
NIRC of 1997. Sec. 215 Forfeiture to
Government for Want of Bidder
In case there is no bidder for real property exposed
for sale as herein above provided or if the highest
bid is for an amount insufficient to pay the taxes,
penalties and costs, the Internal Revenue Officer
conducting the sale shall declare the property
forfeited to the Government in satisfaction of the
claim in question and within two (2) days
thereafter, shall make a return of his proceedings
and the forfeiture which shall be spread upon the
records of his office. It shall be the duty of the
Register of Deeds concerned, upon registration
with his office of any such declaration of forfeiture,
to transfer the title of the property forfeited to the
Government without the necessity of an order from
a competent court.
Within one (1) year from the date of such
forfeiture, the taxpayer, or any one for him may
redeem said property by paying to the
Commissioner or the latter's Revenue Collection
Officer the full amount of the taxes and penalties,
together with interest thereon and the costs of
sale, but if the property be not thus redeemed, the
forfeiture shall become absolute.
WHO MAY REDEEM
1. the delinquent taxpayer
2. anyone for him
PERIOD OF REDEMPTION
Within 1 year from the date of sale
REDEMPTION BY A JUDGMENT DEBTOR
Rules of Court. Rule 39. Sec. 27 Who may
redeem real property so sold
Real property sold as provided in the last preceding
section, or any part thereof sold separately, may
be redeemed in the manner hereinafter provided,
by the following persons:
a. The judgment obligor, or his successor in
interest in the whole or any part of the
property;
b. A creditor having a lien by virtue of an
attachment, judgment or mortgage on the
property sold, or on some part thereof,
subsequent to the lien under which the
property was sold. Such redeeming creditor
is termed a redemptioner.
WHO MAY REDEEM
1. the judgment obligor
2. his successors-in-interest
3. creditor having a lien by virtue of an
attachment
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PERIOD OF REDEMPTION
Within 1 year from the date of registration of
the certificate of sale
REDEMPTION IN EXTRAJUDICIAL
FORECLOSURE OF MORTGAGES
Act No. 3135. Sec. 6
In extrajudicial foreclosure of mortgage, the
debtor, his successors-in-interest, any judicial or
judgment creditor of said debtor, or any junior
encumbrancer may redeem the property within 1
year from the date of the sale.75
WHO MAY REDEEM
1. the debtor
2. his successors- in-interest
3. judicial creditor/judgment creditor of the debtor
4. any person having a lien on the property
PERIOD OF REDEMPTION
Within 1 year from the date of the sale
REDEMPTION IN JUDICIAL FORECLOSURE OF
MORTGAGES
RA 879176 Sec. 47 Foreclosure of Real Estate
Mortgage
In the event of foreclosure, whether judicially or
extra-judicially, of any mortgage on real estate
which is security for any loan or other credit
accommodation granted, the mortgagor or debtor
whose real property has been sold for the full or
partial payment of his obligation shall have the
right within one year after the sale of the real
estate, to redeem the property by paying the
amount due under the mortgage deed, with
interest thereon at rate specified in the mortgage,
and all the costs and expenses incurred by the
bank or institution from the sale and custody of
said property less the income derived therefrom.
However, the purchaser at the auction sale
concerned whether in a judicial or extra-judicial
foreclosure shall have the right to enter upon and
take possession of such property immediately after
the date of the confirmation of the auction sale and
administer the same in accordance with law. Any
petition in court to enjoin or restrain the conduct of
foreclosure proceedings instituted pursuant to this
provision shall be given due course only upon the
filing by the petitioner of a bond in an amount fixed
by the court conditioned that he will pay all the
damages which the bank may suffer by the
enjoining or the restraint of the foreclosure
proceeding.
Notwithstanding Act 3135, juridical persons whose
property is being sold pursuant to an extrajudicial
foreclosure, shall have the right to redeem the
property in accordance with this provision until, but
not after, the registration of the certificate of
foreclosure sale with the applicable Register of
Deeds which in no case shall be more than three
(3) months after foreclosure, whichever is earlier.
75
This provision is taken from Baviera only– not sure if this is
the exact wording of the law.
76
The General Banking of Law of 2000
XIV. Extinguishment of the Sale
Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act
shall retain their redemption rights until their
expiration.
GENERAL RULE
No right to redeem is granted to the debtor-
mortgagor when there has been judicial foreclosure
of real estate mortgage.
EXCEPTION
When the mortgagee is a bank or a banking
institution.
LEGAL RIGHT TO REDEEM UNDER
AGRARIAN REFORM CODE
RA 3844. Sec. 12 Lessee’s Right of Redemption
In case the landholding is sold to a third person
without the knowledge of the agricultural lessee,
the latter shall have the right to redeem the same
at a reasonable price and consideration; Provided,
That the entire landholding sold must be
redeemed: Provided, further, That where there are
two or more agricultural lessees, each shall be
entitled to said right of redemption only to the
extent of the area actually cultivated by him. The
right of redemption under this Section may be
exercised within two years from the registration of
the sale, and shall have priority over any other
right of legal redemption.
WHO MAY REDEEM
The lessee who has no knowledge of the sale
to a third person
PERIOD OF REDEMPTION
Within 2 years from the registration the sale
CONDITIONS FOR REDEMPTION
The entire landholding sold must be redeemed
 Where there are two or more agricultural
lessees, each shall be entitled to said right of
redemption only to the extent of the area
actually cultivated by him
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XV. BULK SALES LAW77
A. Act No. 3952
ACT NO. 3952. An act to regulate the sale,
transfer, mortgage or assignment of goods,
wares, merchandise, provisions or materials,
in bulk, and prescribing penalties for the
violation of the provisions thereof.
Sec 1
This Act shall be known as "The Bulk Sales Law."
Sec. 2 Sale and transfer in bulk
Any sale, transfer, mortgage or assignment of a
stock of goods, wares, merchandise, provisions, or
THE
materials otherwise than in the ordinary course of
trade and the regular prosecution of the business
of the vendor, mortgagor, transferor, or assignor,
or sale, transfer, mortgage or assignment of all, or
substantially all, of the business or trade
theretofore conducted by the vendor, mortgagor,
transferor, or assignor, or of all, or substantially
all, of the fixtures and equipment used in and
about the business of the vendor, mortgagor,
transferor, or assignor, shall be deemed to be a
sale and transfer in bulk, in contemplation of this
Act: Provided, however, That if such vendor,
mortgagor, transferor or assignor, produces and
delivers a written waiver of the provisions of this
Act from his creditors as shown by verified
statements, then, and in that case, the provisions
of this section shall not apply.
Sec. 3 Statement of creditors
It shall be the duty of every person who shall sell,
mortgage, transfer, or assign any stock of goods,
wares, merchandise, provisions or materials in
bulk, for cash or on credit, before receiving from
the vendee, mortgagee, or his, or its agent or
representative any part of the purchase price
thereof, or any promissory note, memorandum, or
other evidence therefor, to deliver to such vendee,
mortgagee, or agent, or if the vendee, mortgagee,
or agent be a corporation, then to the president,
vice-president, treasurer, secretary or manager of
said corporation, or, if such vendee or mortgagee
be a partnership firm, then to a member thereof, a
written statement, sworn to substantially as
hereinafter provided, of the names and addresses
of all creditors to whom said vendor or mortgagor
may be indebted, together with the amount of
indebtedness due or owing, or to become due or
owing by said vendor or mortgagor to each of said
creditors, which statement shall be verified by an
oath to the following effect:
PHILIPPINE ISLANDS
PROVINCE OR CITY OF _________________}
Before me, the undersigned authority, personally
appeared __________________ (vendor,
77
LIWANAG v MENGHRAJ: The constitutional right to
dispose freely of one’s property is not absolute. The creditor
should be protected in his rights against the debtor. The
State, in the exercise of its police power, seeks to protect such
creditor against insolvent and fraudulent vendors
XV. Bulk Sales Law
mortgagor, agent or representative, as the case
may be), bearing cedula No. ____________ issued
at ___________ on the day of _____________
who, by me being first duly sworn, upon his oath,
deposes and states that the foregoing statement
contains the names of all of the creditors of
________________ (vendor, or mortgagor)
together with their addresses, and that the amount
set opposite each of said respective names, is the
amount now due and owing, and which shall
become due and owing by _____________ (vendor
or mortgagor) to such creditors, and that there are
no creditors holding claims due or which shall
become due, for or on account of goods, wares,
merchandise, provisions or materials purchased
upon credit or on account of money borrowed, to
carry on the business of which said goods, wares,
merchandise, provisions or materials are a part,
other than as set forth in said statement.
______________________
Subscribed and sworn to before me this
__________ day of _________, 19____, at
_____________.
Sec. 4 Fraudulent and void sale, transfer or
mortgage
Whenever any person shall sell, mortgage,
transfer, or assign any stock of goods, wares,
merchandise, provisions or materials, in bulk, for
cash or on credit, and shall receive any part of the
purchase price, or any promissory note, or other
evidence of indebtedness for said purchase price or
advance upon mortgage, without having first
delivered to the vendee or mortgagee or to his or
its agent or representative, the sworn statement
provided for in section three hereof, and without
applying the purchase or mortgage money of the
said property to the pro rata payment of the bona
fide claim or claims of the creditors of the vendor
or mortgagor, as shown upon such sworn
statement, he shall be deemed to have violated
this Act, and any such sale, transfer or mortgage
shall be fraudulent and void.
Sec. 5 Inventory
It shall be the duty of every vendor, transferor,
mortgagor, or assignor, at least ten days before
the sale, transfer or execution of a mortgage upon
any stock of goods, wares, merchandise, provisions
or materials, in bulk, to make a full detailed
inventory thereof and to preserve the same
showing the quantity and, so far as is possible with
the exercise of reasonable diligence, the cost price
to the vendor, transferor, mortgagor or assignor of
each article to be included in the sale, transfer or
mortgage, and notify every creditor whose name
and address is set forth in the verified statement of
the vendor, transferor, mortgagor, or assignor, at
least ten days before transferring possession
thereof, personally or by registered mail, of the
price, terms conditions of the sale, transfer,
mortgage, or assignment.
Sec. 6
Any vendor, transferor, mortgagor or assignor of
any stock of goods, wares, merchandise, provisions
or materials, in bulk, or any person acting for, or
on behalf of any such vendor, transferor,
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mortgagor, or assignor, who shall knowingly or
willfully make, or deliver or cause to be made or
delivered, a statement, as provided for in section
three hereof, which shall not include the names of
all such creditors, with the correct amount due and
to become due to each of them, or shall contain
any false or untrue statement, shall be deemed to
have violated the provisions of this Act.
Sec. 7
It shall be unlawful for any person, firm or
corporation, as owner of any stock of goods,
wares, merchandise, provisions or materials, in
bulk, to transfer title to the same without
consideration or for a nominal consideration only.
Sec. 8
Nothing in this Act contained shall apply to
executors, administrators, receivers, assignees in
insolvency, or public officers, acting under judicial
process.
Sec. 9
The sworn statement containing the names and
addresses of all creditors of the vendor or
mortgagor provided for in section three of this Act,
shall be registered in the Bureau of Commerce.
For the registration of each such sworn statement
a fee of five pesos shall be charged to the vendor
or mortgagor of the stock of goods, wares,
merchandise, provisions or materials, in bulk.
Sec. 10
The provisions of this Act shall be administered by
the Director of the Bureau of Commerce and
Industry, who is hereby empowered, with the
approval of the Department Head, to prescribe and
adopt from time to time such rules and regulations
as may be deemed necessary for the proper and
efficient enforcement of the provisions of this Act.
Sec. 11
Any person violating any provision of this Act shall,
upon conviction thereof, be punished by
imprisonment not less than six months, nor more
than five years, or fined in sum not exceeding five
thousand pesos, or both such imprisonment and
fine, in the discretion of the court.
Sec. 12
This Act shall take effect on its approval.
B. RA 3952
Sec. 2
Any sale, transfer, mortgage or assignment of a
stock of goods, wares, merchandise, provisions, or
materials otherwise than in the ordinary course of
trade and the regular prosecution of the business
of the vendor, mortgagor, transferor, or assignor,
or any sale, transfer, mortgage or assignment of
all, or substantially all, of the business or trade
theretofore conducted by the vendor, mortgagor,
transferor, or assignor, or of all, or substantially
all, of the fixtures and equipment used in and
about the business of the vendor, mortgagor,
transferor or assignor, shall be deemed to be a
XV. Bulk Sales Law Sales
sale and transfer in bulk, in contemplation of this without consideration or for a nominal
Act: Provided, however, that if such vendor, consideration only
mortgagor, transferor or assignor produces and
delivers a written waiver of the provisions of this PENALTY: 6 months – 5 years imprisonment; fine
Act from his creditors as shown by verified of < P5,000; or both; penalty imposable to the
statements, then, and in that case, the provisions debtor
of this section shall not apply.

THRUST OF THE LAW

To protect persons who extended credit to

merchants, relying on the fact that their stock of
merchandise was not to be sold in bulk, but kept
up and replenished from time to time (with the
extension of credit comes the presupposition of
continuance in the business of merchandising)

TYPES OF TRANSACTIONS COVERED78

1. Any sale, transfer, mortgage or assignment of a

stock of goods, wares, merchandise, provisions
or materials otherwise than in the ordinary
course of trade and the regular prosecution of
the business
2. Any sale, transfer, mortgage or assignment of
all, or substantially all, of the business or trade
theretofore conducted by the vendor, etc.
3. Any sale, transfer, mortgage or assignment of
all, or substantially all, of the fixtures and
equipment used in and about the business of
the vendor, etc.

Stock – common use when applied to goods in a

mercantile house refers to those which are kept for
sale

COMPLIANCE REQUIREMENT

1. Delivery of the list of creditors to the vendee or

mortgagee before receiving the consideration
2. Application of the consideration to the pro-rata
payment of the claims of creditors appearing in
the list
3. Preparation of a full, detailed inventory of the
goods sold or mortgaged
4. Dotification to creditors at least 10 days before
delivery

EFFECTS OF NON-COMPLIANCE

1. If the purchase or mortgage money is not

applied pro-rata to the payment of the bona
fide claims of the creditors of the
vendor/mortgagor, the sale, transfer, or
mortgage shall be fraudulent and void.
2. The law penalizes any intentional omission of
the names of the creditors in the required list,
with the correct amount due or to become due,
or any false or untrue statement therein. The
law also penalizes any transfer of title in bulk,

78
PEOPLE v WONG: The object of the sale in this case is not
covered by the provision alleged to have been infringed.
Wong’s business was a foundry shop that manufactures iron
works and processes or casts metalsMerchandise – something
that is sold everday and is constantly going out of the store
and being replaced by other goods.

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XVI. Retail Trade Liberalization Act
XVI. RETAIL TRADE LIBERALIZATION
ACT
RA 8762
RA 8762. An act liberalizing the retail trade
business, repealing for the purpose RA 1180,
as amended, and for other purposes.
Sec. 1 Title
This Act shall be known as the "Retail Trade
Liberalization Act of 2000."
Sec. 2 Declaration of Policy
It is the policy of the State to promote consumer
welfare in attracting, promoting and welcoming
productive investments that will bring down prices
for the Filipino consumer, create more jobs,
promote tourism, assist small manufacturers,
stimulate economic growth and enable Philippine
goods and services to become globally competitive
through the liberalization of the retail trade sector.
Pursuant to this policy, the Philippine retail industry
is hereby liberalized to encourage Filipino and
foreign investors to forge an efficient and
competitive retail trade sector in the interest of
empowering the Filipino consumer through lower
prices, higher quality if goods, better services and
wider choices.
Sec. 3 Definition
As used in this Act:
1. "Retail Trade" shall mean any act, occupation or
calling of habitually selling direct to the general
public merchandise, commodities or goods for
consumption, but the restriction of this law shall
not apply to the following:
a. Sales by a manufacturer, processor, laborer,
or worker, to the general public the products
manufactured, processed or produced by
him if his capital does not exceed One
Hundred Thousand Pesos (P100,000.00);
b. Sales by a farmer or agriculturist selling the
products of his farm;
c. Sales in restaurant operations by a hotel
owner or inn-keeper irrespective of the
amount of capital: Provided, that the
restaurant is incidental to the hotel
business; and
d. Sales which are limited only to products
manufactured, processed or assembled by a
manufacturer through a single outlet,
irrespective of capitalization.
2. "High-end or luxury goods" shall refer to goods
which are not necessary for life maintenance
and whose demand is generated in large part
by the highest income groups. Luxury goods
shall include, but are not limited to, products
such as: jewelry, branded or designer clothing
and footwear, wearing apparel, leisure and
sporting goods, electronics and other personal
effects.
Sec. 4 Treatment of Natural-Born Citizen Who Has
Lost His Philippine Citizenship
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A natural-born citizen of the Philippines who has
lost his Philippine citizenship but who resides in the
Philippines shall be granted the same rights as
Filipino citizens for purposes of this Act.
Sec. 5 Foreign Equity Participation
Foreign-owned partnerships, associations and
corporations formed and organized under the laws
of the Philippines may, upon registration with the
Securities and Exchange Commission (SEC) and
the Department of Trade and Industry (DTI) or in
case of foreign-owned single proprietorships, with
the DTI, engage or invest in the retail trade
business, subject to the following categories:
Category A - Enterprises with paid-up capital of the
equivalent in Philippine Pesos of less than Two
Million Five Hundred Thousand US Dollars
(US$2,500,000.00) shall be reserved exclusively
for Filipino citizens and corporations wholly-owned
by Filipino citizens.
Category B - Enterprises with a minimum paid-up
capital of the equivalent in Philippine Pesos of Two
Million Five Hundred Thousand US Dollars
(US$2,500,000.00) may be wholly owned by
foreigners except for the first two (2) years after
the effectivity of this Act wherein foreign
participation shall be limited to not more than
(60%) of total equity.
Category C - Enterprises with a paid-up capital of
the equivalent in Philippine Pesos of Seven Million
Five Hundred Thousand US Dollars
(US$7,500,000.00) or more maybe wholly owned
by foreigners: Provided, however, that in no case
shall the investments for establishing a store in
Categories B and C be less than the equivalent in
Philippine Pesos of Eight Hundred Thirty Thousand
US Dollars (US$830,000.00).
Category D - Enterprises specializing in high-end or
luxury products with a paid up capital of the
equivalent in Philippine Pesos of Two Hundred Fifty
Thousand US Dollars (US$250,000.00) per store
may be wholly-owned by foreigners.
The foreign investor shall be required to maintain
in the Philippines, the full amount of the prescribed
minimum capital. Unless the foreign investor has
notified the SEC and the DTI of its intention to
repatriate its capital and cease operations in the
Philippines. The actual use in Philippine operations
of the inwardly remitted minimum capital
requirements shall be monitored by the SEC.
Failure retail stores shall secure a certification from
the Bangko Sentral ng Pilipinas (BSP) and the DTI,
which will verify or confirm inward remittance of
the minimum required capital investment.
Sec. 6. Foreign Investors Acquiring Shares of
Stock of Local Retailers. - Foreign Investors
acquiring shares from existing retail stores whether
or not publicly listed whose net worth is in excess
of the peso equivalent of Two Million Five Hundred
Thousand US Dollars (US$2,500,000.00) may
purchase only up to a minimum of sixty percent
(60%) of the equity thereof within the first two (2)
years from the effectivity of this Act and thereafter,
they may acquire the remaining percentage
XVI. Retail Trade Liberalization Act
consistent with the allowable foreign participation
as herein provided.
Sec. 7. Public Offering of Shares of Stock. - All
retail trade enterprises under Categories B and C in
which foreign ownership exceeds eighty percent
(80%) of equity shall offer a minimum of thirty
percent (30%) of their equity to the public through
any stock exchange in the Philippines within eight
(8) years from their start of operations.
Sec. 8 Qualifications of Foreign Retailers
No foreign retailer shall be allowed to engage in
retail trade in the Philippines unless all the
following qualifications are met:
a. A minimum of Two Hundred Million US
Dollars (US$200,000,000.00) net worth in
its parent corporation for Categories B and
C, and Fifty Million US Dollars
(US$50,000,000.00) net worth in its parent
corporation for Category D;
b. Five (5) retailing branches or franchises in
operation anywhere around the world unless
such retailers has at least one (1) store
capitalized at a minimum of Twenty-Five
Million US Dollars (US$25,000,000.00);
c. Five (5)-year track record in retailing; and
d. Only nationals from, or judicial entities
formed or incorporated in, countries which
allow the entry of Filipino retailers, shall be
allowed to engage in retail trade in the
Philippines.
The DTI is hereby authorized to pre-qualify all
foreign retailers, subject to the provisions of this
Act, before they are allowed to conduct business in
the Philippines.
The DTI shall keep a record of qualified foreign
retailers who may, upon compliance with law,
establish retail stores in the Philippines. It shall
ensure that the parent retail trading company of
the foreign investor complies with the qualifications
on capitalization and track record prescribed in this
section.
The Inter-Agency Committee on Tariff and Related
Matters of the National Economic Development
Authority (NEDA) Board shall formulate and
regularly update a list of foreign retailers of high-
end or luxury goods and render an annual report
on the same to Congress.
Sec. 9 Promotional of Locally Manufactured
Products
For ten (10) years after the effectivity of this Act,
at least thirty percent (30%) of the aggregate cost
of the stock inventory of foreign retailers falling
under Categories B and C and ten percent (10%)
for Category D, shall be made in the Philippines.
Sec. 10 Prohibited Activities of Qualified Foreign
Retailers
Qualified foreign retailers shall not be allowed to
engage in certain retailing activities outside their
accredited stores through the use of mobile or
rolling stores or carts, the use of sales
representatives, door-to-door selling, restaurants
and sari-sari stores and such other similar retailing
activities: Provided, that a detailed list of
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prohibited activities shall hereafter be formulated
by the DTI.
Sec. 11 Implementing Agency; Rules and
Regulations
The monitoring and regulation of foreign sole
proprietorships, partnerships, associations or
corporations allowed to engage in retail trade shall
be the responsibility of the DTI. This shall include
resolution of conflicts.
The DTI, in coordination with the SEC, the NEDA
and the BSP, shall formulate and issue the
implementing rules and regulations necessary to
implement this Act within ninety (90) days after its
approval.
Sec. 12 Penalty Clause
Any person who shall be found guilty of violation of
any provision of this Act shall be punished by
imprisonment of not less than six (6) years and
one (1) day but not more than eight (8) years, and
a fine of not less than One Million Pesos
(P1,000,000.00) but not more than Twenty Million
Pesos (P20,000,000.00).
In the case of associations, partnerships or
corporations, the penalty shall be imposed upon its
partners, president, directors, managers and other
officers responsible for the violation. If the
offender is not a citizen of the Philippines, he shall
be deported immediately after service of sentence.
If the Filipino offender is a public officer or
employee, he shall, in addition to the penalty
prescribed herein, suffer dismissal and permanent
disqualification from public office.
Sec. 13 Repealing Clause
Republic Act No. 1180, as amended, is hereby
repealed. Republic Act No. 3018, as amended, and
all other laws, executive orders, rules and
regulations or parts thereof inconsistent with this
Act are repealed or modified accordingly.
Sec. 14. Separability Clause
If any provision of this Act shall be held
unconstitutional, the other provisions not otherwise
affected thereby shall remain in force and effect.
Sec. 15 Effectivity
This Act shall take effect fifteen (15) days after its
approval and publication in at least two (2)
newspapers of general circulation in the
Philippines.
1. SCOPE AND DEFINITION OF RETAIL
TRADE79
RETAIL TRADE
Any act, occupation or calling of habitually
selling direct to the general public merchandise,
commodities or goods for consumption
79
KING v HERNAEZ : 79 There is no distinction between
control and non-control positions with respect to employment
of aliens. The Retail Trade Law read in connection with the
Anti-Dummy Act seeks a complete ban on aliens.
XVI. Retail Trade Liberalization Act
EXCEPT
1. Sales by a manufacturer, processor, laborer or
worker of products made by him if his capital is
less than or equal to 100,000 pesos
2. Sales by a farmer or agriculturist of the
products of his farm
3. Sales limited only to products manufactured,
processed or assembled by the manufacturer in
a single outlet irrespective of capitalization
“GENERAL PUBLIC”
Activities of seller must be such that the target
clientele are not only a particular person or group
of persons.
 SEC Opinion No. 11, series of 2003: Engaging
in the selling of merchandise as an incident to
the primary purpose of a corporation does not
constitute retail trade (e.g., operation of
pharmacy by a hospital) within the purview of
the Act (Villanueva)
2. RIGHTS OF FORMER NATURAL-BORN
FILIPINOS
Natural-born Filipinos who have lost their
citizenship but who reside in the Philippines shall
be given the same rights as Filipino citizens with
respect to this law.
3. CATEGORIES OF RETAIL TRADE
ENTERPRISES
Sec. 5 Foreign Equity Participation
Foreign-owned partnerships, associations and
corporations formed and organized under the laws
of the Philippines may, upon registration with the
Securities and Exchange Commission (SEC) and
the Department of Trade and Industry (DTI) or in
case of foreign-owned single proprietorships, with
the DTI, engage or invest in the retail trade
business, subject to the following categories:
Category A - Enterprises with paid-up capital of the
equivalent in Philippine Pesos of less than Two
Million Five Hundred Thousand US Dollars
(US$2,500,000.00) shall be reserved exclusively
for Filipino citizens and corporations wholly-owned
by Filipino citizens.
Category B - Enterprises with a minimum paid-up
capital of the equivalent in Philippine Pesos of Two
Million Five Hundred Thousand US Dollars
(US$2,500,000.00) may be wholly owned by
foreigners except for the first two (2) years after
the effectivity of this Act wherein foreign
participation shall be limited to not more than
(60%) of total equity.
Category C - Enterprises with a paid-up capital of
the equivalent in Philippine Pesos of Seven Million
Five Hundred Thousand US Dollars
(US$7,500,000.00) or more maybe wholly owned
by foreigners: Provided, however, that in no case
shall the investments for establishing a store in
Categories B and C be less than the equivalent in
Philippine Pesos of Eight Hundred Thirty Thousand
US Dollars (US$830,000.00).
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Category D - Enterprises specializing in high-end or
luxury products with a paid up capital of the
equivalent in Philippine Pesos of Two Hundred Fifty
Thousand US Dollars (US$250,000.00) per store
may be wholly-owned by foreigners.
The foreign investor shall be required to maintain
in the Philippines, the full amount of the prescribed
minimum capital. Unless the foreign investor has
notified the SEC and the DTI of its intention to
repatriate its capital and cease operations in the
Philippines. The actual use in Philippine operations
of the inwardly remitted minimum capital
requirements shall be monitored by the SEC.
Failure retail stores shall secure a certification from
the Bangko Sentral ng Pilipinas (BSP) and the DTI,
which will verify or confirm inward remittance of
the minimum required capital investment.
4. HOW ALIENS MAY INVEST IN RETAIL
TRADE IN THE PHILIPPINES
Sec. 8 Qualifications of Foreign Retailers
No foreign retailer shall be allowed to engage in
retail trade in the Philippines unless all the
following qualifications are met:
e. A minimum of Two Hundred Million US
Dollars (US$200,000,000.00) net worth in
its parent corporation for Categories B and
C, and Fifty Million US Dollars
(US$50,000,000.00) net worth in its parent
corporation for Category D;
f. Five (5) retailing branches or franchises in
operation anywhere around the world unless
such retailers has at least one (1) store
capitalized at a minimum of Twenty-Five
Million US Dollars (US$25,000,000.00);
g. Five (5)-year track record in retailing; and
h. Only nationals from, or judicial entities
formed or incorporated in, countries which
allow the entry of Filipino retailers, shall be
allowed to engage in retail trade in the
Philippines.
The DTI is hereby authorized to pre-qualify all
foreign retailers, subject to the provisions of this
Act, before they are allowed to conduct business in
the Philippines.
The DTI shall keep a record of qualified foreign
retailers who may, upon compliance with law,
establish retail stores in the Philippines. It shall
ensure that the parent retail trading company of
the foreign investor complies with the qualifications
on capitalization and track record prescribed in this
section.
The Inter-Agency Committee on Tariff and Related
Matters of the National Economic Development
Authority (NEDA) Board shall formulate and
regularly update a list of foreign retailers of high-
end or luxury goods and render an annual report
on the same to Congress.
XVI. Retail Trade Liberalization Act
5. RULES ON FOREIGN RETAILERS IN THE
PHILIPPINES
6. PENALTY CLAUSE
Sec. 12 Penalty Clause
Any person who shall be found guilty of violation of
any provision of this Act shall be punished by
imprisonment of not less than six (6) years and
one (1) day but not more than eight (8) years, and
a fine of not less than One Million Pesos
(P1,000,000.00) but not more than Twenty Million
Pesos (P20,000,000.00).
In the case of associations, partnerships or
corporations, the penalty shall be imposed upon its
partners, president, directors, managers and other
officers responsible for the violation. If the
offender is not a citizen of the Philippines, he shall
be deported immediately after service of sentence.
If the Filipino offender is a public officer or
employee, he shall, in addition to the penalty
prescribed herein, suffer dismissal and permanent
disqualification from public office.
CA 108
CA 108 (Anti-Dummy Act). An act to punish
acts of evasion of the laws on the
nationalization of certain rights, franchises or
privileges.
Sec. 1 Penalty
In all cases in which any constitutional or legal
provisions requires Philippine or any other specific
citizenship as a requisite for the exercise or
enjoyment of a right, franchise or privilege, any
citizen of the Philippines or of any other specific
country who allows his name or citizenship to be
used for the purpose of evading such provision,
and any alien or foreigner profiting thereby, shall
be punished by imprisonment for not less than five
nor more than fifteen years, and by a fine of not
less than the value of the right franchise or
privilege, which is enjoyed or acquired in violation
of the provisions hereof but in no case less than
P5000.
The fact that the citizen of the Philippines or of any
specific country charged with a violation of this Act
had, at the time of the acquisition of his holdings in
the corporations or associations referred to in
section two of this Act, no real or personal
property, credit or other assets the value of which
shall at least be equivalent to said holdings, shall
be evidence of a violation of this Act.
Sec. 2 Simulation of minimum capital stock
In all cases in which a constitutional or legal
provision requires that, in order that a corporation
or association may exercise or enjoy a right,
franchise or privilege, not less than a certain per
centum of its capital must be owned by citizens of
the Philippines or of any other specific country, it
shall be unlawful to falsely simulate the existence
of such minimum stock or capital as owned by such
citizens, for the purpose of evading said provision.
The president or managers and directors or
trustees of corporations or associations convicted
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of a violation of this section shall be punished by
imprisonment of not less than five nor more than
fifteen years, and by a fine not less than the value
of the right, franchise or privilege, enjoyed or
acquired in violation of the provisions hereof but in
no case less than P5000.
Sec. 2-A Unlawful use, Exploitation or enjoyment
Any person, corporation, or association which,
having in its name or under its control, a right,
franchise, privilege, property or business, the
exercise or enjoyment of which is expressly
reserved by the Constitution or the laws to citizens
of the Philippines or of any other specific country,
or to corporations or associations at least sixty per
centum of the capital of which is owned by such
citizens, permits or allows the use, exploitation or
enjoyment thereof by a person, corporation or
association not possessing the requisites prescribed
by a the Constitution or the laws of the Philippines;
or leases, or in any other way, transfers or conveys
said right, franchise, privilege, property or business
to a person, corporation or association not
otherwise qualified under the Constitution, or the
provisions of the existing laws; or in any manner
permits or allows any person, not possessing the
qualifications required by the Constitution, or
existing laws to acquire, use, exploit or enjoy a
right, franchise, privilege, property or business, the
exercise and enjoyment of which are expressly
reserved by the Constitution or existing laws to
citizens of the Philippines or of any other specific
country, to intervene in the management,
operation, administration or control thereof,
whether as an officer, employee or laborer therein
with or without remuneration except technical
personnel whose employment may be specifically
authorized by the Secretary of Justice, and any
person who knowingly aids, assists or abets in the
planning consummation or perpetration of any of
the acts herein above enumerated shall be
punished by imprisonment for not less than five
nor more than fifteen years and by a fine of not
less than the value of the right, franchise or
privilege enjoyed or acquired in violation of the
provisions hereof but in no case less than five
thousand pesos: Provided, however, That the
president, managers or persons in charge of
corporations, associations or partnerships violating
the provisions of this section shall be criminally
liable in lieu thereof: Provided, further, That any
person, corporation or association shall, in addition
to the penalty imposed herein, forfeit such right,
franchise, privilege, and the property or business
enjoyed or acquired in violation of the provisions of
this Act: And provided, finally, That the election of
aliens as members of the board of directors or
governing body of corporations or associations
engaging in partially nationalized activities shall be
allowed in proportion to their allowable
participation or share in the capital of such entities.
Sec. 2-B
Any violation of the provisions of this Act by the
spouse of any public official, if both live together,
shall be cause for the dismissal of such public
official.
XVI. Retail Trade Liberalization Act Sales
Sec. 2-C
The exercise, possession or control by a Filipino
citizen having a common-law relationship with an
alien of a right, privilege, property or business, the
exercise or enjoyment of which is expressly
reserved by the Constitution or the laws to citizens
of the Philippines, shall constitute a prima facie
evidence of violation of the provisions of Section 2-
A hereof.

Sec. 3
Any corporation or association violating any of the
provisions of this Act shall, upon proper court
proceedings, be dissolved.

Sec. 3-A Reward to informer

In case of conviction under the provisions of this
Act, twenty-five per centum of any fine imposed
shall accrue to the benefit of the informer who
furnishes to the Government original information
leading to said conviction and who shall be
ascertained and named in the judgment of the
court. If the informer is a dummy, who shall
voluntarily take the initiative of reporting to the
proper authorities any violation of the provisions of
this Act and assist in the prosecution, resulting in
the conviction of any person or corporation
profiting thereby or involved therein, he shall be
entitled to the reward hereof in the sum equivalent
to twenty-five per centum of the fine actually paid
to or received by the Government, and shall be
exempted from the penal liabilities provided for in
this Act.

Sec. 4
This Act shall take effect upon its approval.

Approved, October 30, 1936.

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UP College of Law

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Review Committee
I
Subject Committee
[Subject] I
Armi Bayot [head] . Keisie Marfil . Paulyne
Information Management
Committee I Regalado Theresa Roldan . Lem Arenas
Chino Baybay . Tristan Tresvalles . Al Siason