CIVIL LAW REVIEWER TABLE of CONTENTS SALES Table of Contents Chapter I. The Contract of Sale ..................269 I. Definition (Art 1458, CC) ...................269 II. Elements ...........................................269 III. Stages ...............................................274 IV. Kinds of Sale .....................................275 V. Form ..................................................276 VI. Sale Distinguished From Other Contracts....................................................276 Chapter II. Obligations of the Seller and Buyer .............................................................278 I. Obligations of the Seller ....................278 II. Obligations of the Buyer....................284 Chapter III. Double Sales .............................286 I. General Rule .....................................286 II. Requisites .........................................286 III. Rules Governing Sale of Movables, Immovables and Unregistered Lands ........286 Chapter IV. Risk of Loss..............................288 I. General Rule .....................................288 II. Exceptions.........................................288 Chapter V. Documents of Title....................289 I. In General .........................................289 II. Negotiable Documents of Title..........289 III. Non-Negotiable Documents of Title ..289 Chapter VI. Remedies of the Seller and Buyer .......................................................................291 I. General Remedies (Art. 1191, CC) ...291 II. Remedies of the Seller......................291 III. Remedies of the Buyer......................295 Chapter VII. Extinguishment of Sale ..........298 I. In General .........................................298 II. Conventional Redemption.................298 III. Equitable Mortgage ...........................299 IV. Legal Redemption .............................300 Chapter VIII. Philippine Bulk Sales Law (Act 3952) ..............................................................303 I. Purpose .............................................303 II. Coverage...........................................303 III. Duty of Seller.....................................303 IV. Effect of non-compliance...................304 268 SALES CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE Prof. Roberto N. Dio Faculty Editor SALES SALES TEAM Chapter I. The Contract of Sale I. II. DEFINITION ELEMENTS A. CONSENT B. SUBJECT MATTER C. PRICE III. STAGES A. PREPARATION/NEGOTIATION B. PERFECTION C. CONSUMMATION IV. KINDS A. ABSOLUTE B. CONDITIONAL V. FORM VI. SALE DISTINGUISHED FROM OTHER CONTRACTS A. DONATION B. BARTER C. CONTRACT FOR A PIECE OF WORK D. LEASE OF THINGS E. AGENCY TO BUY AND SELL F. DACION EN PAGO G. CONTRACT TO SELL H. BILATERAL PROMISE TO BUY AND SELL Jaim Mari M. Crisostomo Lead Writer Jessa Mary Ann C. Cedeño Eva Marie Guttierez Kristoffer Gabriel L. Madrid Ros Jean Nonato Writers CIVIL LAW Kristine Bongcaron Patricia Tobias Subject Editors ACADEMICS COMMITTEE Kristine Bongcaron Michelle Dy Patrich Leccio Editors-in-Chief PRINTING & DISTRIBUTION Kae Guerrero 269 SALES DESIGN & LAYOUT Pat Hernandez Viktor Fontanilla Rusell Aragones Romualdo Menzon Jr. Rania Joya I. Definition (Art 1458, CC) Contract where one of the parties (Seller) obligates himself to:   Transfer ownership of and to deliver a determinate thing; LECTURES COMMITTEE Michelle Arias Camille Maranan Angela Sandalo Heads Katz Manzano Mary Rose Beley Sam Nuñez Krizel Malabanan Arianne Cerezo Marcrese Banaag Volunteers and the other (Buyer) to pay a price certain in money or its equivalent. II. Elements The case of (Coronel v CA, 1996) enumerates the 3 elements of a valid contract of sale namely:  Consent  Subject matter  Price _______ A. CONSENT Meeting of minds upon the thing which is the object of the contract and the price. (Art 1475, CC) Requisites— 1. Capacity 2. Offer and acceptance 3. No vitiation MOCK BAR COMMITTEE Lilibeth Perez BAR CANDIDATES WELFARE Dahlia Salamat LOGISTICS Charisse Mendoza SECRETARIAT COMMITTEE Jill Hernandez Head Loraine Mendoza Faye Celso Mary Mendoza Joie Bajo Members CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE CAPACITY All persons who have capacity to enter into obligations may enter into a contract of sale (Art 1489, CC) Kinds of Incapacity— 1. Absolute Incapacity (MInD-CI) (Art. 1327, CC) a. Minors b. Insane or Demented c. Deaf-mutes who do not know how to write d. Civil Interdiction e. Judicially-declared Incompetents(Art. 39)  Prodigals  Imbeciles  Absence & presumption of death  Persons not of unsound mind but by reason of age, disease, weak mind, and other similar causes, cannot take care of themselves and manage their property without outside aid (Easy prey for deceit and exploitation) 2. Relative Incapacity a. Husband and Wife (Art 1490, CC)— (Asked in 75, 76, 00, 02, 06) General Rule: Cannot sell property to each other Exceptions: 1. Separation of property in marriage settlement, OR 2. Judicial separation of property. b. Alienage (Art. 39, CC)— Aliens disqualified to purchase acquire property. c. Rationale: Guardianship is a trust of the highest order, and the trustee can not be allowed to have any inducement o neglect his ward’s interest. (Phil Trust Co v Roldan, 1956) Executors and Administrators— Property of estate under administration their d. Public Officers and Employees— Property of State/any of its subdivisions/GOCC, the administration of which was entrusted to them. e. Lawyers— Property or rights in litigation in which they take part because of their profession Rationale: Lawyer may have undue influence over client. Greed may get the better of the sentiments of loyalty and disinterestedness. (Valencia v Cabanting, 1991) Prohibition is definite and permanent, cannot be cured by ratification. (Rubias v Batiller, 1973) Exceptions: An assignment to a lawyer by his client of an interest in the property does not violate Art 1491, where  A judgment has been rendered and has become final; and  In case of contingency fee arrangements. The interest of the lawyer maybe annotated as an adverse claim on the property awarded to his client (Director of Lands v Ababa, 1979) f. Justices, Judges, prosecuting attorneys, clerks— Property or rights in litigation or levied upon on execution Rationale: to prevent fraud and to surround their profession with prestige Prohibition applies only on sales or assignment during the pendency of litigation involving the property. (Macariola v Asuncion, 1963) Effects of Incapacity— 1. Absolute Incapacity  If both parties are incapacitated: UNENFORCABLE (Art. 1403 (3)) 270 SALES or Exception: if acquisition is through hereditary succession c. Trusteeship (Art. 39) 3. Specific Incapacity (Art. 1491, CC) (AGEPLJ) a. Agents— Property whose administration or sale was entrusted to them Exception: principal gives consent. b. Guardian— Cannot purchase property of person under his guardianship CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE   If only 1 party is incapacitated: VOIDABLE -If necessaries are sold and delivered to an incapacitated person: must pay a reasonable price therefore. (Art 1489, CC) “Necessaries” – those which are indispensable for sustenance, dwelling, clothing, medical attendance, education and transportation. (Art 194, Family Code)  the provisions of law governing the form of contracts. (Art. 1475, CC) A private instrument signed by the defendant reciting that he bought from the plaintiff a property at a specific address for a specific price to be paid as soon as a bill of sale is signed is not a mere draft but a perfected agreement and hence, obligatory, even if there was no statement as to area or price per meter. (Goyena v. Tambunting, 1902) 2. Relative Incapacity  Sale between spouses is VOID.  Rationale: (as provided in the case of Medina v CIR, 1961) rd  To protect 3 persons who may have contracted with the spouse  To avoid undue advantage of the dominant spouse over the weaker spouse.  To avoid indirect prohibition against donations between spouses.  Such prohibition shall likewise apply to common law spouses. (CalimlimCanulas v Fortun, 1984) BUT if already sold to a third person who relied on the title of his immediate seller, reconveyance to the seller spouse is no longer available (Cruz v CA, 1997) 3. Specific Incapacity  Contracts expressly prohibited by law are void and cannot be ratified. Neither can the right to set-up the defense of illegality be waived. (Art. 1409 (7), CC)  Sales entered into by guardians, administrators, and agents (specific incapacities) in violation of Art. 1491 may be ratified by means of and in the form of a new contract when the cause of nullity has ceased to exist. Ratification is valid only from date of execution of the new contract and does not retroact.  Those entered into by public officer/employees, justices and judges, and lawyers also in violation of Art. 1491 are inexistent and void from the beginning. (Rubias v Batiller, 1973). OFFER AND ACCEPTANCE Form and Offer—  Offer must be certain as to the object and price (Art. 1319, CC)  Business advertisements of things for sale are not offers but mere invitations to make an offer  Exception: If otherwise provided (Art. 1325, CC)  Advertisements for bidders are simply invitations to make proposals (Asked in 80)  Advertiser not bound to accept the highest or lowest bid  Exception: Unless the contrary appears (Art. 1326, CC) Form of Acceptance—  unconditional  Qualified acceptance = counter-offer (Art. 1319, CC)  May be express or implied (Art. 1320, CC)  Acceptance must be in accordance with the terms and conditions of the offer. There is no meeting of the minds if the offer lapsed even though the offeree later on was willing to accept the terms and conditions of the offer. (Beaumont vs. Prieto, 1916) 271 SALES MUST NOT BE VITIATED  A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. (Art. 1330, 1390 (2), CC)  There is fraud where through insidious words or machinations of one of contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to. (Art. 1338, CC) _______ In General—  The contract of sale is perfected at the moment there is meeting of the 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 B. SUBJECT MATTER Requisites— 1. Licit 2. Existing, future or contingent 3. Determinate or determinable CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE come into existence: the price even if the contract is considered as thing does not actually not made and there is no came into existence obligation to pay the price In case of doubt the presumption is in favor of emptio rei speratae since it is more in keeping with the commutative character of the contract. MUST BE LICIT (ART. 1459) The thing is licit when— 1. Within the commerce of man (Art 1347, CC) Example of properties that are not within the commerce of man: a. Those belonging to the State or its political subdivisions intended for public use or public service. (Art 420, CC). b. Church c. Narcotics or dangerous drugs except upon prescription (RA 6425, the dangerous drugs act of 1972) 2. Rights are also licit when not intransmissible (Art 1347, CC) Sale of future inheritance is void. (Art. 1347, CC)— 1. The rights to succession are transmitted from the moment of the death of the decedent (Art. 777, CC). Thus, one cannot sell or promise to sell what he expects to inherit from a living person. (Rivero v. Serrano, 1950) 2. -Heir may sell his hereditary rights (which have accrued). When the subject matter is illicit, the contract of sale is void (Art. 1409 (7)) EXISTING, FUTURE, CONTINGENT The goods which form the subject of a contract of sale may be either— 1. existing goods owned or possessed by the seller; 2. goods to be manufactured, raised, acquired by the seller, also called “future goods”; 3. whose acquisition of the seller depends upon a contingency which may or may not happen. (Art 1462, CC) 4. Things having potential existence may be the object of a contract of sale. (Art 1461, CC) Sale of MERE hope or expectancy Valid BUT subject to condition that the thing will come into existence Example: “Next catch” of a fisherman. Emptio Rei Speratei Valid Parties make the contract depend upon the existence of a thing,  If the thing does not Sale of VAIN hope or expectancy Void Example: Sale of a falsified raffle ticket which will never win. DETERMINATE OR DETERMINABLE  A thing is determinate when it is particularly designated or physically segregated from all others of the same class. (Art 1460, CC)  A thing is determinable when it is capable of being made determinate at the time the contract was entered into without the necessity of a new or further agreement between the parties. (Art 1460, CC)  Failure to state the exact location of the land does not make the subject matter indeterminate, so long as it can be located. (Camacho v C,A 2007)  The fact that the exact area of subject land in the contract of sale is subject to the result of a survey does not render the subject matter indeterminate. (Heirs of Juan San Andres v. Rodriguez (2000)) Particular Kinds— 1. Future Goods Sale of future goods or those goods which are to be manufactured, raised, or acquired by seller after the perfection of the sale is valid (Art 1462, CC). “Future goods” are those capable of future existence. 2. Sale of Undivided Interest or Share a. Sole owner of a thing may sell an undivided interest therein. (Art 1463,CC) Ex., a fraction (½ or half) or percentage (50%), or “my share in the property.” b. The sale of an undivided share in a specific mass of fungible goods makes the buyer a co-owner of the entire mass in proportion to the amount he bought. (Art 1464,CC) c. Co-owner cannot sell more than his share (Yturralde v CA, 1972) (Asked in 01, 02) 3. Sale of Things in Litigation a. Sale of things under litigation entered into by defendant, without the approval of the litigants or the court is rescissible. (Art 1381 (4)) b. NO RESCISSION where the thing is rd legally in the possession of 3 persons who did not act in bad faith (Art 1385 (2)) 272 SALES Emptio Spei Void Parties intend the contract to exist at all events  Buyer will have to pay CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE 4. Things Subject to Resolutory Condition Sale of things subject to a resolutory condition, i.e. things acquired under legal or conventional right of redemption, or subject to reserva troncal, may be the object of a contract of sale. (Asked in 99) (Art 1465, CC) 5. Quantity of Subject Matter not determinate The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract provided it is possible to determine the same, without the need of new contract. (Art. 1349, CC) _______ 2. But if thing or part thereof has been delivered and appropriated by the buyer, he must pay a reasonable price therefore. a. What is reasonable price? A question of fact dependent on circumstances. (Art 1474, CC) b. In the case of Philippine Free Press v CA (2005), the court held that the price was reasonable based on factual determination predicated on offered evidence (Company’s Balance Sheet showed the book value or fair market value of its shares) IN MONEY OR ITS EQUIVALENT   Example of “equivalent”: Letters of credit If price is partly in money and partly in another thing: Determine manifest intention of the parties to see whether it was barter or sale. (Art 1468,CC) If intention does not clearly appear, it shall be considered a barter if the value of the thing exceed the amount of money or its equivalent.(Art 1468,CC) C. PRICE Requisites (Ce-MoRe)— 1. Certain or ascertainable at the time of perfection 2. In Money or its equivalent 3. Real CERTAIN OR ASCERTAINABLE AT THE TIME OF PERFECTION Price considered certain in the following cases— 1. Fixed by agreement of the parties a. Fixing of price cannot be left to discretion of one of the parties b. BUT if such is accepted by the other, sale is perfected. (Art 1473, CC) 2. Determination is left to the judgment of a specified person a. If unable or unwilling: Sale is inefficacious UNLESS parties subsequently agree about the price. b. If in bad faith/by mistake: Courts may fix price rd c. If 3 person is prevented from fixing price by fault of seller or buyer: Innocent party may avail of remedies. 3. It be so in reference to another thing, or when the price fixed is that which the thing have on a definite day, or in a particular exchange or market, OR when the amount fixed is above or below the price on such day, exchange or market. (Art 1472, CC) If price cannot be determined (Asked in 76)— 1. Sale is inefficacious (Art. 1474, CC) 273 SALES  REAL Meaning of Real— When buyer has an intention to pay and the seller has an expectation to receive the price 1. If simulated: Sale is VOID; BUT act may be shown to have been a donation or some other act or contract. (Art 1471, CC) 2. In Labagala vs. Santiago (2001), Petitioner admittedly did not pay any centavo for the property. Hence, the sale is void. If Price is false (real consideration is not the same as that stated in the contract)— 1. Sale is void 2. UNLESS proved to be founded on another true and lawful price (Art 1353, CC) _______ Gross Inadequacy of Price— 1. General Rule: Does not affect a contract of sale. (Art 1470,CC)  The stipulation in a contract of sale which states that the consideration is “P1 and other valuable considerations” does not make the contract void. Gross inadequacy of price does not affect the contract of sale except that it may indicate a defect in consent. (Bagnas v. C.A., 1989) CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE 2. Exceptions: a. It may indicate a defect in consent such as fraud, mistake, or undue influence b. It may indicate that the contract was in reality a donation or some other act or contract c. Inadequacy would make the contract of sale rescissible where a contract was entered into by the guardian of a ward or a representative of an absentee, without the court’s approval, and the owner suffers lesion by more than ¼ of the value of the thing sold. (Art 1381 (1) (2), CC) Manner of Payment— Disagreement on the manner of payment is tantamount to a failure to agree on the price. (Toyota Shaw vs. CA, 1995)   agreed period, at a fixed price. (De la Cavada vs. Diaz, 1918) An option is not of itself a purchase, but merely secures the privilege to buy. A consideration for an optional contract is just as important as the consideration for any other kind of contract. If there was no consideration for the option, then it cannot be enforced any more that any other contract where no consideration exists. (Baviera) b. Difference from Sale: SALE Bilateral OPTION CONTRACT Unilateral: gives a right to buy or to sell, but imposes no obligation on the part of the option-holder, aside from the consideration for the offer Sale of right to purchase III. Stages A. Negotiation/Preparation From the time the parties indicate interest in the contract up to the time said contract is perfected 1. Offer a. General Rule: Offer may be withdrawn at any time without even communicating such withdrawal to the interested buyer. b. Exception: 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. (Art 1324, CC) c. Exception to the exception: Cannot be withdrawn within the period if offer is founded upon a consideration. (Art 1324 and 1479, CC) Sale of property 274 SALES c. 2. Option Contract (Asked in 75, 77, 80, 93, 02) a. Definition  An accepted unilateral promise to buy or sell supported by a consideration distinct from the price (Art 1479, CC)  An optional contract is a privilege existing in one person, for which he had paid a consideration, which gives him the right to buy, for example, certain merchandise or certain specified property, if he chooses, at any time within the Right of first refusal (Asked in 93, 96, 98, 02, 08)  As to enforceability  Equatorial Realty Development vs. Mayfair, (1996): If the right to the first offer is embodied in the contract, it should be executed according to the terms stipulated. The right should be enforced according to the law on contracts and not on the panoramic and indefinite rule on human relations. This juridical relation is not amorphous nor is it merely preparatory.  When the grantee fails to exercise the right  Paranaque Kings vs. CA, (1997): Only after the grantee st fails to exercise its right of 1 priority under the same terms and conditions within the period agreed upon, could the grantor validly offer to sell the property rd to a 3 person under the same terms as offered to the grantee.  As to the effects of the violation of the right  Rosencor Devt. Corp. Vs. Inquing (2001): A sale made in violation of a right of first refusal is valid but rescissible, and may be the subject of an action for specific performance.  However, before the sale to the rd 3 person may be rescinded, he CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE  must have been actually or constructively aware of the st right of 1 refusal at the time he bought it. The sanction for the enforcement of the right of first refusal against third persons is based on Art. 19 of NCC, as no real right was created on the property. Option Money vs. Earnest Money (Limson vs. Ca, 2001)— OPTION MONEY Separate and distinct consideration from the purchase price Given when sale is not yet perfected When given, the wouldbe-buyer is not required to buy, but may even forfeit it depending on the terms of the option Grantee of option is still undecided whether or not to buy or sell the property (Baviera) EARNEST MONEY Part of purchase price (Art 1482, CC) Given only when there is already a sale When given, the buyer is bound to pay the balance  Difference from sale: ST SALE RIGHT OF 1 REFUSAL Bilateral Unilateral Price and other Price and other terms are yet to terms of payment be agreed upon are certain the thing to be sold must be determinate Buyer manifests his earnest desire to buy the property _______ C. Consummation  Distinction from Option Contract RIGHT OF 1 ST OPTION CONTRACT Separate consideration is necessary Grantee has the right to buy or sell REFUSAL a separate No need for consideration No right to buy or sell, only a st right to match the 1 offer to buy should the grantor decide to sell IV. Kinds of Sale (Asked in 97, 00) A. Absolute Sale Sale is not subject to any condition whatsoever; title passes to the buyer upon delivery of thing sold B. Conditional Sale Contract is subject to certain conditions (usually the payment of the purchase price); title will only pass once the conditions have been fulfilled In some cases, the Court makes finer distinctions between a conditional sale and a contract to sell: a. Contract to sell- The fulfilment of the suspensive condition, which is the full payment of the price, will not automatically transfer ownership to the buyer although the property may have been previously delivered to him. b. Conditional Sale: The fulfilment of the suspensive condition renders the sale absolute and affects the seller’s title thereto such that if there was previous delivery of the property, the seller’s ownership or title the property is automatically transferred to the buyer. (Ursal vs. CA, 2005) _______ B. Perfection (Asked in ’88 and ’91) When Perfected— 1. Contract of sale is a consensual contract, hence perfected at the moment of the meeting of the minds of the parties as to the object of the contract and the price. (Art 1475,CC) 2. It is the proof of all the essential elements of the contract of sale, and not the mere giving of earnest money, which establishes the existence of a perfected sale. (Platinum Plans Phils. vs. Cucueco, 2006) Effect of Perfection— From the moment of the perfection of the contract of sale, the parties may reciprocally demand performance, subject to the provisions of the Statute of Frauds. (Art 1475,CC) Earnest Money— Definition- paid in advance of the purchase price agreed upon by the parties in a contract of sale, given by the buyer to the seller, to bind the latter to the bargain. (Asked in 93, 02) SALES Begins when the parties perform their respective undertakings under the sale. It culminates in the extinguishment of the sale. (See obligations of seller and buyer, Chapter II) 275 CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE V. Form General rule: No form required as to validity since sale is perfected by consent of the parties. The sale may be (Art.1483,CC): 1. Written 2. Oral 3. Partly written and partly oral 4. Inferred from the conduct of the parties Exceptions: 1. Statute of Frauds (Art,1403 (2),CC) a. Contract or some memorandum thereof must be in writing and subscribed by the party or his agent, otherwise contract is unenforceable. Unless ratified by failure to object to oral evidence or acceptance of benefits under the contract b. What are under the Statute of Frauds:  Sale of goods, chattels, or things in action at a price not less than P500  Sale not to be performed within 1 year  Sale of real property or an interest therein (Art 1358, CC) c. Applies only to executory contracts, not to contracts either totally or partially performed. (Iñigo v. Estate of Maloto, 1967) 2. Sale of realty by an agent Agent’s authority must be in writing, otherwise the sale is void (Art.1874, CC) 3. Sale of large cattle To be valid, transfer of large cattle must be registered with the municipal treasurer (Sec.529, Revised Administrative Code) Electronic Commerce Act (RA 8792) 1. Electronic documents have the legal effect, validity or enforceability of any other document or legal writing 2. As long as electronic document maintains its integrity and reliability and is capable of being displayed to the person to whom it is to be presented, containing the electronic signature of the person sending it. (Sec 7, 8 of RA 8792) VI. Sale Distinguished Contracts A. DONATION SALE Onerous Perfected consent From Other by mere DONATION Gratuitous Must comply with the formalities required by law. (Art 745, CC) 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 or some other contract. (Art.1471.CC) B. BARTER SALE Consideration is price in money or its equivalent BARTER Consideration another thing is 276 SALES Barter is a contract where one of the parties binds himself to give one thing in consideration of the other’s promise to give another thing (Art.1638, CC) If consideration consists partly in money and partly in another thing, the intention of the parties determines whether the contract is one of sale or barter:  If manifest intention is not clear: Barter when the value of thing is more than the amount of money or its equivalent, otherwise, sale. (Art.1468) C. CONTRACT FOR A PIECE OF WORK SALE Goods are manufactured or procured in the ordinary course of business For the general market, whether on hand or not CONTRACT FOR A PIECE OF WORK Goods are manufactured for customer upon his special order Specifically for customer The fact that the object were made by the seller only when customers placed their orders, does not alter the nature of the contract of sale, for it only accepted such orders as called for the employment of such materials as it ordinarily manufactured or was in a position habitually to manufacture such. (Celestino Co & Co vs. Collector, 1956) When each product or system executed is always UNIQUE and could not mass-produce the product because of its very nature, such is a CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE SALE Consideration Buyer: thing Seller: price Title passes to the buyer BILATERAL PROMISE TO BUY AND SELL Consideration is the promise made by the other (Baviera) No transfer of title contract for a piece of work. (Commissioner vs. Engineering Equipment and Supply Co., 1975) D. LEASE OF THINGS SALE No pre-existing debt Creates an obligation DACION EN PAGO Pre-existing debt Extinguishes the obligation (mode of payment) Price is value of the thing given Price is more freely agreed upon, fixed by the parties There is a novation of the contract of loan into a contract of sale when the creditor agrees to accept a thing in payment of the debt. Hence, if the thing given in payment turns out to belong to another, the creditor’s remedy should be governed by the law on sales, not loan. (Baviera) E. CONTRACT TO SELL (Asked in 97, 01, 03) Contract of Sale Ownership is transferred upon delivery Non-payment is resolutory condition a Contract to Sell Ownership is only transferred upon full payment of price Full payment is a positive suspensive condition, hence non payment would not give rise to the obligation to transfer ownership Contract to sell No perfected sale yet A subsequent buyer is presumed to be a buyer in good faith 277 SALES Conditional Contract of Sale Sale is already perfected A subsequent buyer is presumed to be a buyer in bad faith NOTE: Contract to Sell is an executory contract, while a Contract of Sale is a consummated contract. F. BILATERAL PROMISE TO BUY AND SELL (Asked in 80, 91) A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. (Art 479, CC) Like a sale, the thing must be determinate and the price certain. CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the SELLER and BUYER Chapter II. Obligations of the Seller and Buyer I. OBLIGATIONS OF THE SELLER A. TO TRANSFER OWNERSHIP B. TO WARRANT AGAINST EVICTION AND HIDDEN DEFECTS C. TO PRESERVE THE THING D. TO PAY FOR THE EXPENSES FOR THE EXECUTION AND REGISTRATION OF THE DEED OF SALE OBLIGATIONS OF THE BUYER A. TO ACCEPT DELIVERY B. TO PAY THE PRICE OF THE THING SOLD  Seller’s residence b. In case of specific goods, which the parties knew to be at some other place when the contract was perfected, that place is the place of delivery c. If goods are at the time of sale possessed by a third person, then there is no delivery until he acknowledges to the buyer that he holds the goods for buyer. II. I. Obligations of the Seller 4. When to Deliver Absent a stipulation as to time, delivery must be made within a reasonable time; demand or tender of delivery shall be made at a reasonable hour. Ways of Effecting Delivery— 1. Actual Delivery a. When deemed made: when the thing sold is placed in the control and possession of the vendee (Art. 1497) b. Not always essential to passing of title (Art. 1475) c. Parties may agree when and on what conditions the ownership in the subject of the contract shall pass to the buyer (example: Art 1478 where ownership will only pass after full payment of the price) 2. Constructive Delivery a. Execution of public instrument (Art 1498, par. 1)  General rule: produces the same legal effects of actual delivery.  Exceptions:  The intention of the parties is otherwise.  At the time of execution, the subject matter was not subject to the control of the seller which must subsist for a reasonable length of time after execution. (Pasagui v Villablanca, 68 SCRA 18)  “Control” over thing sold must be such that seller is capable of physically transferring it to buyer b. Symbolic Delivery  Delivery of keys of the place or depositary where the movable is stored or kept. (Art 1498, CC)  Unless otherwise agreed, when symbolic delivery has been made, the seller is not obliged to remove tenants to place the buyer in actual A. To transfer ownership (Asked in 84, 98, 99, 03) Obligation to transfer ownership and to deliver is really implied in every contract of sale (Arts. 1458-1459) Transfer of ownership requires delivery (Art. 1495) General Concepts— 1. Delivery comprises 2 obligations in Art. 1495: a. Actual duty to deliver b. Transfer of ownership – can only be accomplished via delivery 2. What to Deliver a. Thing sold (Art. 1495) b. Fruits (Art. 1164 & 1537) c. Accessions and accessories (Art. 1166 & 1537)  Improvements by seller at his expense grants him a usufructuary right.  No indemnification  But he may remove it to the extent that there is no damage (Art. 1538) 3. Where to Deliver a. A hierarchy is followed (STOR):  Stipulation  Usage of trade  Seller’s place of business (office) SALES Obligations of the Seller (TWPP)— 1. Transfer ownership 2. Warrant against eviction and hidden defects 3. Preserve the thing 4. Pay for the expensed for the execution and registration of the deed of sale 278 CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the SELLER and BUYER possession of the property as he has already complied with his obligation to transfer ownership of and deliver the thing sold. (Power Commercial and Industrial Corp. v. CA, 1997; Sabio v. The International Corporate Bank, Inc., 2001) c. Tradition Longa Manu (Long Hand)  Delivery of thing by mere agreement.  Example: Seller points to the property without actually transferring physical possession thereof.  When an employer assigned all its rights and title to all surplus property salvaged by the contractor, tradition longa manu takes place. Delivery is upon the moment a thing is salvaged. (Board of Liquidators v. Floro, 1960)  F.A.S.: “Free Alongside” Seller bears the expenses of transportation until he delivers the goods alongside a vessel at a named port. d. Tradition Brevi Manu (Short Hand) MOVABLE is delivered when the buyer had the thing already in his possession before the sale took place, not as owner but as lessee, borrower, or depositary. e. Tradition Constitutum Possessorium Seller continues to be in possession of the property sold, by virtue of a lease contract agreement with the vendee. f. Delivery to a Common Carrier  General Rule: Delivery to the courier or carrier tantamount to delivery to buyer.  Exceptions  Seller reserved title by the form of the bill of lading, with intent to remain the owner, not merely for the purpose of securing payment, OR  Contrary intent appears in the contract (i.e. seller is required to deliver goods to buyer at the point of destination)  F.O.B.: “Free on Board” When seller bears the expenses of transportation up to the F.O.B. point.  C.I.F.: “Cost, Insurance, Freight” Price quoted includes the costs of the goods, insurance, and freight charges on the goods up to the point of destination. Completeness of Delivery— 1. When may the seller refuse to deliver: a. No payment yet or no period for payment has been fixed in the contract (Art.1524); b. The buyer loses the right to make use of the term, as when:  He becomes insolvent UNLESS he gives a guaranty or security for the debt;  He does not does not furnish the seller the guaranties or securities he promised;  He impairs the guaranties or securities or they disappear fortuitously UNLESS he immediately gives new ones equally satisfactory;  He violates any undertaking, in consideration of which the seller agreed to the period;  He attempts to abscond. (Art.1536) 2. Rules on Sales of Goods a. When Quantity less than expected  Buyer may reject all  Buyer accepts with knowledge of seller’s inability to deliver the rest – buyer pays at contract price  Buyer has used or disposed prior to knowing seller’s inability to deliver the rest – buyer pays fair value b. Quantity more than expected  If divisible, buyer may reject excess  If indivisible, buyer may reject all c. Quality different or different goods  If divisible, buyer may accept the goods compliant with contract and reject those that are not  If indivisible, buyer may reject all (Art. 1522) d. Sale of specific mass of goods In the sale of fungibles where the measure or weight has not been agreed upon nor is there a fixed rate based upon a measurement, the subject matter of the sale is a determinate object – the specific mass; seller is merely required to deliver such mass even if actual quantity falls short of parties’ estimate (Art. 1480) 279 SALES CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the SELLER and BUYER e. Delivery by installments  By default, buyer is not bound to accept delivery of goods by instalments  In a contract of delivery by installment to be paid for via installment as well, delay or breach may not necessarily mean breach of the entire contract; depending on the circumstances, breach may be severable and the aggrieved party is entitled to damages and not rescission. (Art. 1583) 3. Rules on Sales of Immovables a. Sale at a fixed rate per unit of measure  Seller bound to deliver entire land  If the area is less than that stated, buyer may rescind or demand a proportionate reduction in price  If a part of the land is not of the quality stated in the contract, buyer may rescind or demand a proportionate reduction in price  Buyer may only avail of rescission if the area deficiency is 10% or more of total area or if the inferior value of the part of the land exceeds 10% of the price agreed upon. (Art. 1539)  If the area turns out to be greater than that stated, buyer may accept area included and reject the excess or accept all and pay a proportionate increase in price (Art. 1540) b. Sale for lump sum  Follows the same rule as the sale of a specific mass which is explained above  There is no change in price even if area or number turns out to be greater or lesser than that stated (Art. 1542)  Exception: when the excess or deficiency is no longer reasonable; in Asian v Jalandoni, 1923, 644 sq m was found to be unreasonable.  Exception to the exception: when buyer expressly assumes risk on actual area of the land. (Garcia v Veloso, 1941)  If the price per unit or measure is not provided for in the contract, then the rules of lump sum sale should prevail. (Sta. Ana v Hernandez, 1966) Effect of Delivery— 1. Delivery, generally, results in transfer of ownership from seller to buyer. 2. As such, it also transfers the risk of loss of the thing sold to the buyer. 3. Acceptance is not a condition for the completeness of delivery; even with such refusal of acceptance, delivery will be deemed completed and produce its legal effects. 4. By default, expenses of and incidental to putting the goods into a deliverable state must be borne by seller. (Art. 1521) When delivery does not transfer title— 1. Sale on approval, trial, or satisfaction General Rule: Title remains with the seller Exceptions: a. Buyer signifies his approval or acceptance to the seller or does any other act adopting the transaction b. Retains the goods without giving notice of rejection after the time fixed has expired, if no time has been fixed, after the expiration of a reasonable time (Art 1502, CC) Difference between sale on approval and sale on return Sale on Approval Ownership does not pass upon delivery Sale on Return Ownership passes upon delivery, but buyer may revest ownership in the seller by returning or tendering the goods within the time fixed in the contract Depends on the will of the buyer Subject to a resolutory condition Risk of loss remains with the buyer 280 SALES Depends on the character or quality of goods Subject to a suspensive condition Risk of loss remains with the seller 2. Express Reservation If it was stipulated that ownership in the thing shall not pass to the purchaser until he has fully paid the price. (Art 1478, CC) 3. Implied Reservation The following are instances when there is an implied reservation of ownership a. Goods are shipped, but by the bill of lading goods are deliverable to the seller or his agent, or to the order of the seller or his agent CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the SELLER and BUYER b. Bill of lading is retained by the seller or his agent. c. When the seller of the goods draws on the buyer for the price and transmits the bill of exchange and bill of lading to the buyer, and the latter does not honor the bill of exchange by returning the bill of lading to the seller. 4. When sale not valid eg. When the thing sold is a public property 5. When Seller is not the owner (Asked in 77, 78, 86, 87) General Rule: Ownership is not acquired by the buyer. One cannot give what one does not have. (Art 1505, CC) Exceptions: (RE-ROM) a. Seller has a Right to transfer ownership  Seller need not be the owner of the thing at the time of perfection of the contract It is sufficient that seller has a right to transfer ownership thereof at the time it is delivered (Art. 1459)  One who sells something he does not own yet is bound by the sale when he acquires the thing later (Bucton vs Gabar, 55 SCRA 469) b. Estoppel: Owner is by his conduct precluded from denying the seller’s authority to sell. (Art. 1434) c. Registered land bought in good faith  General rule: Buyer need not go beyond the Torrens title  Exception: When he has actual knowledge of facts and circumstances that would impel a reasonably cautious man to make further inquiry d. Order of courts Statutory Sale In execution sale, the buyer merely steps into the shoes of the judgment debtor (Rule 39, sec. 33, ROC) e. When goods are purchased in Merchant’s store, Fair, or Market (Art 1505, CC) The policy of the law has always been that where the rights and interest of the vendor clash with that of an innocent buyer for value, the latter must be protected. (Sun Brothers and Co. V. Velasco, (1958) 6. Sale by person having a voidable title a. True owner may recover the thing when provided the ff. requisites concur:  Subject matter is movable  Owner has either lost the thing or has been unlawfully deprived. (Art 559, CC) b. Reimbursement is necessary before owner can recover when:  Buyer acted in good faith  Acquired at a public auction (Art 559, CC) c. Recovery no longer possible when:  Buyer in good faith  Acquired it at a merchant’s store, fair or market. (Art 1506, CC) __________ B. To warrant against eviction & hidden defects (Art. 1495; 1547) Warranties— A statement or representation made by the seller contemporaneously and as part of the contract of sale, having reference to the character, quality, or title of the goods, and by which he promises or undertakes to ensure that certain facts are or shall be as he then represents. Effects of Warranties— 1. Natural tendency is to induce buyer to purchase the subject matter 2. Buyer purchases subject matter relying thereon 3. Seller liable for damages in case of breach Effects of Waivers— Only applicable to waiver of warranty against eviction (see the following section) – parties may increase or decrease warranty against eviction but the effect depends on good/bad faith of the seller 1. Seller in bad faith and there is warranty against eviction – null and void 2. buyer without knowledge of a particular risk, made general renunciation of warranty – not waiver but merely limits liability of seller in case of eviction (pay value of subject matter at time of eviction) 3. buyer with knowledge of risk of eviction assumed its consequences and made a waiver – vendor not liable 4. waiver to a specific case of eviction – wipes out warranty as to that specific risk but not as to eviction caused by other reasons 281 SALES CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the SELLER and BUYER Express Warranty Concealment of facts does not necessarily amount to false representation False Representation  When concealment of facts comes with an active misstatement of fact or a partial statement of fact such that withholding of that unsaid portion makes that which is stated absolutely false  However, buyer who fails to inspect condition of property despite ample opportunity to do so and no opposition on the part of seller cannot later on allege false representation. (Phil Mftg Co. v Go Jucco, 1926) This is because buyer’s duty to inspect remains despite false representation by the seller. Buyer has the duty to exercise due diligence. Condition v. Warranty— Condition Pertains to and affects the existence of the obligation Non-happening does not amount to breach of contract Must be stipulated May attach to either to the seller’s duty to deliver thing or some other circumstance Warranty Goes into the performance of an obligation and may, in itself, be an obligation Non-fulfillment constitutes breach of contract Stipulation or operation of law Always relates to the subject matter or the seller’s obligations as to the subject matter  If seller has promised that the condition should happen or be performed, the buyer may treat the nonperformance of the condition as a breach of warranty. (Art.1545) 282 SALES Form— 1. Express Warranty (APIR) For there to be express warranty, the following requisites must concur: a. An affirmation of fact or any promise relating to the thing sold; b. The natural tendency of such affirmation or promise is to induce the buyer to buy; c. The buyer buys the thing relying thereon. (Art. 1546) d. Made before the sale not upon delivery or any other point An express warranty can be made by and also be binding on the seller even in the sale of a second hand article. (Moles v. IAC, 1989) Express Warranty What is specifically represented as true in said document cannot be considered as mere dealer's talk. (Moles v. IAC, 1989) Dealer’s or Trader’s Talk  Affirmation of the value of the thing or statement of the seller’s opinion only is not a warranty unless: - The seller made it as an expert; - It was relied upon by the buyer. (Art.1546)  Ordinarily, what does not appear on the face of the written instrument (Moles v. IAC, 1989) 2. Implied Warranty a. Implied Warranty of Title b. Implied Warranty against Encumbrance / Non-Apparent Servitudes c. Implied Warranty against Hidden Defects (Art. 1547)  Implied warranty as to Merchantable Quality and Fitness of Goods  Implied warranty against Redhibitory Defect in the Sale of Animals (Art. 1572)  Quality and Fitness of Goods in Sale by Sample or Description d. Other Warranties Implied Warranty of Title— 1. Implied warranty arises by operation of law and need not be stipulated in the contract of sale. 2. Warranty of Seller’s Right to Sell: seller warrants his right to sell at the time the ownership is to pass.  Inapplicable to a sheriff, auctioneer, mortgagee, pledgee, or other person professing to sell by virtue of authority in fact or law. (Art. 1547) 3. Warranty against Eviction: seller warrants that buyer, from the time ownership passes, shall have and enjoy legal and peaceful possession of the thing. Its requisites are: a. Buyer is deprived of the whole or a part of the thing sold; CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the SELLER and BUYER b. Eviction is by final judgment c. Final judgment based on a right prior to the sale or an act imputable to the vendor d. Seller is summoned and made codefendant in the suit for eviction at the instance of the buyer. (Power Commercial and Industrial Corp. v. CA, 1997) Implied Warranty against Encumbrance / Non-Apparent Servitudes— Requisites for breach: 1. Thing sold is an immovable 2. Burden or servitude encumbering the thing sold is a. Non-apparent to the naked eye b. Not mentioned in the agreement c. Of such nature that it must be presumed that the buyer would not have bought it had he been aware thereof d. Not recorded in the Registry of Property unless there is an express warranty that the thing is free from all burdens and encumbrances (Art.1560) Implied warranty against Hidden Defects— Requisites for breach: 1. The defect renders the thing sold unfit for the use for which it was intended OR diminishes its fitness for such use to such an extent that had the buyer been aware thereof, he would not have bought it or would have paid a lower price; 2. The defect is not patent or visible; 3. The buyer is not an expert who, by reason of his trade or profession, should have known the defect 4. The seller is aware of the hidden fault or defect, OR even he is not aware thereof, if there is no stipulation to the contrary (Arts.1561 &1566) Implied warranty as to Merchantable Quality and Fitness of Goods— Merchantable Quality: 1. Where the goods are brought by description from a seller who deals in goods of that description (Art.1562) 2. In a sale by sample, if the seller is a dealer in goods of that kind and the defect is not apparent on reasonable examination of the sample (Art.1566) Fitness for a particular purpose: Where the buyer expressly or impliedly makes known to the seller the particular purpose for which the goods are acquired AND it appears that the buyer relies on the (Art.1562(1)) seller’s skill or judgment Other Warranties— 1. Warranty in Sale of Consumer Goods Consumer goods – goods primarily for personal, family, household or agricultural purposes, which shall include but not limited to food, drugs, cosmetics, and devices : (Sec.4(q), RA 7493 Consumer Act of the Phil) Kinds: a. “Full warranty”- if the written warranty meets the minimum standards b. “Limited warranty- if the written warranty does not meet the minimum standards (Sec.6(c), RA7394) Minimum standard for warranties that the warrantor shall: a. 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; b. 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 SALES Implied warranty against Redhibitory Defect in the Sale of Animals (Art. 1572)—  Redhibitory defect- a hidden defect of animals of such nature that expert knowledge is not sufficient to discover it, even in case a professional inspection has been made  No warranty in case of (Art. 1574): a. Animals sold at fairs or public auctions b. Livestock sold as condemned  The following sales are void (Art. 1575): a. Sale of animals suffering from contagious diseases b. Sale of animals unfit for the purpose for which they are acquired as stated in the contract  Veterinarian liable if he fails to discover or disclose the hidden defect through ignorance or bad faith (Art 1576)  Seller liable if animal dies within 3 days after its purchase due to a disease that existed at the time of sale. (Art 1578) 283 CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the SELLER and BUYER written warranty was caused by damage due to unreasonable use thereof. (Sec.68(d), RA 7394) 2. Warranty in sale of Subdivision Lot or Condominium Units The owner or developer shall be answerable and liable for the facilities, improvements, infrastructures or other forms of development represented or promised in brochures, advertisements and other sales propaganda disseminated by the owner or developer or his agents and the same shall form part of the sales warranties enforceable against said owner or developer, jointly and severally. (Sec.19, PD 957: The Subdivision and Condominium Buyers’ Protective Decree) __________ C. To preserve the thing, pending delivery, with proper diligence (Art. 1163) Duration: From the perfection of sale until delivery (Art 1480) Default standard of care: Diligence of a good father of a family General rule: seller is liable for loss or deterioration (Art. 1174) Exception: fortuitous event (Art. 1174) Exception to exception: seller is still liable for fortuitous event if 1. Law provides for it (e.g. delay or promising to deliver the same thing to 2 or more persons with different interests – Art. 1165) 2. By stipulation 3. Nature of obligation requires assumption of risk Fungibles sold for a price fixed according to weight, number or measure: duty to preserve begins only after the things are weighed, counted or measured except when seller is already in delay. __________ D. To pay for the expenses for the execution and registration of the deed of sale (Art. 1487) General rule: The seller has the duty to pay for the expenses for the execution and registration of the deed of sale Exception: if there is a stipulation to the contrary (Art. 1487) Expenses incurred subsequent to the transfer of title are to be borne by the buyer, unless caused by the fault of the seller II. Obligations of the Buyer Obligations of the Buyer— 1. To Accept delivery 2. To Pay the price of the thing sold Pertinent Rules— 1. In a contract of sale, the seller is not required to deliver the thing sold until the price is paid nor is the buyer required to pay the price before the thing is delivered in the absence of an agreement to the contrary (Art 1524) 2. If stipulated, then the buyer is bound to accept delivery and to pay the price at the time and place designated 3. If there is no stipulation as to the time and place of payment and delivery, the buyer is bound to pay at the time and place of delivery 4. In the absence also of stipulation, as to the place of delivery, it shall be made wherever the thing might be at the moment the contract was perfected (Art. 1521) 5. If only the time for delivery of the thing sold has been fixed in the contract, the vendee is required to pay even before the thing is delivered to him. First Obligation: accept delivery— 1. Form a. Express: buyer intimates acceptance b. Implied:  Goods delivered to the buyer and he does any act in relation to them that is inconsistent with the ownership of the seller.  After the lapse of a reasonable time, the buyer retains the goods without intimating to the seller that he has rejected them. (Art.1585) 2. Manner Right of Inspection: reasonable opportunity to examine the goods upon delivery. If there is a stipulation that delivery is preconditioned on payment, then buyer has no right of inspection until he has paid. (Art.1584) Exception: in case such right of inspection is permitted by agreement or usage trade. 284 SALES CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the SELLER and BUYER 3. Effect of Refusal to accept a. If buyer refuses to accept goods, having the right to do so, he is not bound to return them to the seller; it being sufficient that he notifies the seller of his refusal to accept  If he voluntarily constitutes himself a depositary of the goods, he shall be liable as such. (Art.1587) b. Unjust refusal to accept still results to transfer of ownership; title to the goods passes to the buyer from the moment they are placed at his disposal, except if ownership has been reserved by the seller (Art.1588) Second Obligation: pay the price of the thing sold (Art. 1582)— 1. Payment of interest Buyer is liable for interest when: (SFD) a. Interest is stipulated; b. Thing sold produces fruits or income; c. Buyer is in default - interest accrues from the time of judicial or extrajudicial demand for payment 2. Suspension of payments Buyer may suspend payment when: a. his ownership or possession of the thing is disturbed or b. he has reasonable grounds to fear such disturbance by a vindicatory action or a foreclosure of mortgage Exceptions: buyer cannot suspend payment when: a. seller gives security for the return of the price in a proper case b. it has been stipulated that, notwithstanding any such contingency, the buyer shall be bound to pay (Art. 1590) Suspension may continue until the seller has caused the disturbance or danger to cease  A mere act of trespass shall not authorize the suspension of the payment. (Art.1590) 3. Sale of real property  In the sale of immovable property, buyer may pay even beyond the expiration of the period agreed upon, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act, despite a stipulation providing for ipso jure rescission (Art.1592) (Asked in 88, 00) After demand, court may not grant him a  new term (Heirs of Escanlar, et.al. v. CA, 1997) R.A. 6552 (Maceda Law) – applies to sale or financing of real estate on installment (Rillo v. Court of Appeals,1997)  Buyer is awarded a grace period of 1 month per year of installments paid or 60 days, whichever is higher, within which he may pay without additional interest o may be used once every 5 years of the life of the contract or any of its extensions  If contract is to be cancelled, seller must first: o 30 day notice of cancellation, and o refund cash surrender value to buyer; amount is equivalent to 50% of total payments made including deposits, options and down-payments plus 5% for every year in excess of 5 years of the life of the contract or any of its extensions 285 SALES CIVIL LAW REVIEWER Chapter III. DOUBLE SALES Chapter III. Double Sales (Asked in 77, 87, 89, 98, 01, 04) I. General Rule II. Requisites III. Rules governing sale of movables, immovables and unregistered lands IV. Purchaser in good faith both registration in its ordinary and strict sense and cancellation, annotation, and even marginal notes. (Cheng v. Genato, 1998) NOTE: Pencilled entries on the title are not considered registration (AFPMBAI v. Court of Appeals, 1999). C. Sale by Virtue of Execution and Attachment Art. 1544 does NOT apply to the sale of unregistered land at an execution sale because a buyer of unregistered land at a execution sale only steps into the shoes of the judgment debtor, and merely acquires the latter's interest in the property sold as of the time the property was levied upon. (Carumba v. CA, 1970) I. General Rule Prior tempore, potior jure (“he who is first in time is preferred in right”) applies. II. Requisites Requisites (Cheng v Genato, 1998) 1. 2 or more valid sales; 2. Same subject matter; 3. 2 or more buyers with conflicting interests at odds over the rightful ownership of the thing sold; 4. Same seller III. Rules Governing Sale of Movables, Immovables and Unregistered Lands A. Sale of Movables Ownership shall be transferred to the person who may have first taken possession in good faith. B. Immovables 1. Ownership belongs to the person who: a. In good faith first recorded in the Registry of Property; OR b. If there is no inscription, ownership passes to the person who in good faith was first in possession; OR c. In the absence thereof, to the person who presents the oldest title, PROVIDED there is good faith. NOTE: good faith is required all the time. NOTE: a. “Oldest Title” – any public document showing acquisition of the land in good faith. To constitute “title,” the transmission of ownership must appear in a public document [Art. 1358 (1)] b. Examples: Deed of Sale, Deed of Donation, Deed of Trust 2. Registration includes any entry made in the Primary Entry Book of the registry, including D. Sale of Unregistered Land 1. Instrument or deeds establishing, transmitting, acknowledging, modifying or extinguishing rights with respect to lands not registered under the Land Registration Act or the Spanish Mortgage Law, are required to be registered in the Registry of Property rd to prejudice 3 persons, although such registration is understood to be “w/o rd prejudice to a 3 party with a better right”. (PD 1528 Sec 113) 2. Art. 1544 applies to unregistered land subject to a conventional sale (because of Art. 1358) but NOT to unregistered land subject to judicial sale. E. Purchaser in good faith (Asked in 76, 86, 08) 1. General Characteristics a. One who buys the property of another, without notice that some other person has a right to or interest in such property, and who pays a full and fair price for the sale, at the time of the purchase or before he has notice of the claim/interest of some other person in the property. (Agricultural and Home Extension Development Group v CA, 1992) b. A buyer could not have failed to know or discover that the land sold to him was in adverse possession; hence he is deemed to have acted in bad faith. (Heirs of Ramon Duran v Uy, 344 SCRA 238) 286 SALES CIVIL LAW REVIEWER Chapter III. DOUBLE SALES 2. Presumption Gen Rule: As a rule, he who asserts the status of a purchaser in good faith and for value, has the burden of proving such assertion. This onus probandi cannot be discharged by mere invocation of the legal presumption of good faith, i.e., that everyone is presumed to act in good faith (Mathay v CA, 295 SCRA 556) When buyer is presumed to be in bad faith: a. Annotation of adverse claim: Places any subsequent buyer of the registered land in bad faith. (Balatbat v CA, 261 SCRA 128) b. Annotation of Lis Pendens: Buyer cannot be considered an innocent purchaser for value where it ignored the lis pendens on the title. Lis Pendens Annotation of Adverse Claim may be cancelled only in one instance, i.e., after the claim is adjudged invalid or unmeritorious by the Court 287 SALES maybe cancelled even before the action is finally terminated for causes which may not be attributable to the claimant Both are intended to protect the interest of a claimant by posing as notices and caution to those said with the property that same is subject to a claim. NOTE: The two are not contradictory or repugnant to one another; nor does the existence of one automatically nullify the other, and if any of the registrations should be considered unnecessary or superfluous, it would be the notice of lis pendens (A. Doronila Resources Development Inc v CA, 1988) CIVIL LAW REVIEWER Chapter IV. RISK of LOSS Chapter IV. Risk of Loss I. II. GENERAL RULE EXCEPTION I. General Rule  Res perit domino: Owner bears risk of loss  Ownership is not transferred until delivery II. Exceptions 1. Contrary stipulation 2. An obligation to deliver a generic thing is not extinguished by loss. (Art 1263, CC) 3. Risk of loss of specific things is subject to the ff: a. When loss occurs before perfection, such loss is borne by seller b. When loss occurs at time of perfection, loss must have occurred before the contract was entered into, without the knowledge of both parties TOTAL LOSS PARTIAL LOSS (Or loss which results in substantial change in character) Buyer may withdraw from the contract OR Buy the remainder at a proportionate price 288 SALES Contract ineffective. is  Because there can be no contract without an object c. When loss occurs after perfection but before delivery  Seller bears risk of loss  Buyer does not bear risk of loss until goods are delivered to him CIVIL LAW REVIEWER Chapter V. DOCUMENTS of TITLE Chapter V. Documents of Title I. IN GENERAL II. NEGOTIABLE DOCUMENTS OF TITLE III. NON-NEGOTIABLE DOCUMENTS OF TITLE I. In General Who may negotiate it? (Art.1512,CC)— 1. Owner 2. Person to whom the possession or custody of the document has been entrusted by the owner a. If bailee undertakes to deliver the goods to such person b. If document is in such form that it may be negotiated by delivery A person to whom a document has been negotiated acquires— 1. Rights of the vendor 2. Rights of the original consignee A person who negotiates a document of title warrants— 1. Genuineness of document 2. Legal right to negotiate or transfer 3. No knowledge of fact which would impair the validity or worth of the document 4. Right to transfer the title to the goods and merchantability or fitness for a particular purpose, whenever such warranties would have been implied had the contract been transfer the goods without a document He does not warrant that— 1. Common carrier will fulfill its obligation to deliver the gods 2. Previous indorsers will fulfill their obligation (Art. 1516-1517, CC) Goods in the hands of the carrier covered by a negotiable document cannot be attached or levied upon, UNLESS— 1. Document is first surrendered to the carrier; or 2. Impounded by the court; or 3. Its negotiation is enjoined. (Art. 15191520,CC) Definition— 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) Examples: bill of lading, quedan, warehouse receipts, trust receipts Purpose— 1. Evidence of possession or control of goods described therein 2. Medium of transferring title and possession over the goods described therein without having to effect actual delivery thereof (Villanueva) 3. The custody of a negotiable warehouse receipts issued to the order of the owner, or to bearer, is a representation of title upon which bona fide purchasers for value are entitled to rely, despite breaches of trust or violations of agreement on the part of the apparent owner. (Siy Cong Bieng vs. HSBC, 56 Phil 598) 289 SALES II. Negotiable Documents of Title Definition— Document of title which states that the goods referred to therein will be delivered to the bearer, or to the order of any person named in such document (Art. 1508, CC). TERMS OF THE DOCUMENT Goods are deliverable to bearer Endorsed in blank by the person to whose order the goods were deliverable Goods are deliverable to the order of a specified person HOW NEGOTIATED By delivery of the document to another III. Non-Negotiable Documents of Title   Goods described in a non-negotiable document of title are deliverable only to a specified person Carrier will not deliver the goods to any holder of the document or to whom such document may have been endorsed by the consignee Must present the deed of sale or donation in his favor  By indorsement of such person (Art. 1509,CC) CIVIL LAW REVIEWER Chapter V. DOCUMENTS of TITLE  “Negotiation” [negotiable document of title] VS. “Transfer” [non-negotiable document of title]: Transfer The assignment of rights of the consignee of a non-negotiable document of title to another; or Document of title was ordered sold or assigned, without indorsement. Negotiation (Art. 1508) Delivery of a negotiable document of title to another if by the terms thereof, the goods are deliverable to bearer, or when the document was endorsed in blank by the person to whose order the goods are deliverable. In a negotiable document of title, the buyer may acquire a better title. Transferee does not acquire a better title than his transferor 290 SALES CIVIL LAW REVIEWER Chapter VI. REMEDIES of the SELLER and BUYER Chapter VI. Remedies of the Seller and Buyer I. GENERAL REMEDIES A. SPECIFIC PERFORMANCE B. RESCISSION C. DAMAGES II. REMEDIES OF THE SELLER A. IN THE SALE OF MOVABLES 1. EXTRAJUDICIAL REMEDIES 2. JUDICIAL REMEDIES B. IN THE SALE OF IMMOVABLES 1. RESCISSION FOR ANTICIPATORY BREACH 2. SPECIFIC PERFORMANCE WITH DAMAGES 3. RESCISSION WITH DAMAGES 4. MACEDA LAW III. REMEDIES OF THE BUYER A. FOR BREACH OF OBLIGATION TO PRESERVE B. FOR BREACH OF OBLIGATION TO DELIVER C. FOR BREACH OF WARRANTY a. Possessory lien over the goods— Right to retain possession of goods until payment or tender of the whole price, or unless he agrees to sell on credit (15261529, 1503, 1535) When available:  Goods are sold without stipulation as to credit  Goods are sold on credit, but term of credit has expired  Buyer becomes INSOLVENT When lost:  Seller delivers goods to carrier or other bailee for transmission to the buyer under a straight or nonnegotiable bill of lading  Buyer/his agent lawfully obtains possession of goods  Seller waives it  Not lost in remainder of goods when only partial delivery is made (unless such is symbolic delivery of the whole)  Not lost by mere fact that seller obtained a judgment for the price When revived: Goods are returned by the buyer in a wrongful repudiation of the contract b. Right of stoppage in transitu— An extension of the lien for the price; entitles unpaid seller to resume possession of the goods while they are in transit before the goods come in possession of the vendee (1530-1532, 1535, 1636[2]) Available when: INSOLVENT Vendee becomes 291 SALES I. General Remedies (Art. 1191, CC) The following remedies arise from the bilateral nature of the contract of sale: 1. Specific performance (Asked in 02) 2. Rescission (Asked in 03, 08)  General rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. vs. Hawaiian-Philippine Co., (1925)) 3. Damages 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 (Art 1169, CC) Prescriptive periods— 1. 10 years if based on written contract 2. 6 years if based on oral contract II. Remedies of the Seller A. In the Sale of Movables 1. Extrajudicial or Self-Help Remedies [NOTE: No need to resort to the courts; as long as possession of the goods has not yet passed to the buyer] When are goods in transit?  From time of delivery to the carrier or other bailee by the seller, for the purpose of transmission to the buyer, until the buyer or his agent takes such delivery from the carrier.  Even when goods have reached their ultimate destination, if buyer rejects them and carrier retains possession CIVIL LAW REVIEWER Chapter VI. REMEDIES of the SELLER and BUYER  To terminate transit by delivery to a middleman, delivery must be to keep, not to transport. When are goods no longer in transit?  Buyer obtained delivery of the goods before such have reached their ultimate destination  Goods have arrived at ultimate destination, but carrier refuses to deliver  Carrier enters into a new contract with the buyer upon arrival of the goods at their ultimate destination How exercised?  By obtaining actual possession of the goods  By giving notice of his claim to the carrier/other bailee who has possession of the goods  Carrier must redeliver goods to seller, or according to his instructions  Carrier not obliged to redeliver until the negotiable document of title, if any, has been surrendered for cancellation Seller’s right to stoppage in transitu not affected even if buyer has sold or disposed of the goods; Unless the seller assented c. Special right of resale— Available to unpaid seller who has a right of lien or who has stopped the goods in transitu (1533) Purpose: For seller to liquidate his damages  He must do so within a reasonable time and in such manner as to obtain the best price possible.  Resale = fair sale if in accordance with established business practices, with no attempt to take advantage of the original buyer.  Resale may be in a private or public sale, but seller cannot buy indirectly or directly.  For resale to be valid, buyer need not be notified of an intention to resell or the time and place of the resale. Effects:  Seller is no longer liable to the original buyer upon the contract of sale or for any profit made by the resale  Buyer at resale acquires good title as against the original owner  In case resale is at a loss, seller entitled to recover the difference from the original buyer  Seller may recover damages from original buyer for breach of contract d. Special right to rescind: RETURN of the title over the undelivered goods to the seller, and right to recover DAMAGES for breach of contract (1534) Available to unpaid seller who has a right of lien or who has stopped the goods in transitu When available:  Seller expressly reserved right to rescind in case buyer defaults  Buyer has been in default in payment for an unreasonable time Transfer of title shall not be held to have been rescinded by the unpaid seller until he manifests by notice to the buyer or some other overt act an intention to rescind. 2. Judicial Remedies of an unpaid seller a. Action for the price or specific performance (1595)— Conditions:  the goods has passed to the buyer  Price is payable on a certain day, irrespective of delivery of the goods  Buyer can set up the defense that seller could not or did not intend to deliver the goods  Seller was notified by the buyer of his repudiation of the contract after the seller has completed the manufacture of the goods/had procured the goods to be delivered and the goods could not readily be resold for a reasonable price b. Action for damages for nonacceptance, if buyer wrongfully neglects or refuses to accept and pay for the goods (1596) 292 SALES CIVIL LAW REVIEWER Chapter VI. REMEDIES of the SELLER and BUYER c. Rescission by giving the buyer notice of the election to rescind (1597) Under this rule, rescission would bar an action on the contract because it means cancellation of the contractual obligations between the parties. (Baviera) d. Special rule for sale of movables by instalments – Recto Law (1484, 1485) (Asked in ‘99) Applies in cases of:  Sale of movables in installment  Levy Hermanos vs. Gervacio, (1939): The rule is intended to apply to sales of movables, the price of which is payable in 2 or more installments, but not to straight-term sales where the price is payable in full, after making a down payment because the law aims to protect improvident buyers who may be tempted to buy beyond their means.  Lease of personal property with option to buy  When lessor has deprived the lessee of the possession or enjoyment of the thing (Ex. When lessor files a complaint for replevin against lessee) SALES Measure of damages: Estimated loss directly and naturally resulting in the ordinary course of events from the buyer’s breach  Where there is available market for goods: Difference between the contract price and the market price at the time the goods ought to have been accepted or if no time was fixed, at the time of refusal to accept  If the resale was made with diligence, resale price is evidence of market value, taking into account whether or not the goods could be readily sold  Where labor/expense was necessary for seller to fulfill his obligation: Labor performed and expenses made by seller before receiving notice of buyer’s repudiation or countermand  Profit that the seller would have made if sale had been fully performed  Also applies when seller assigns his credit to someone else Alternative Remedies of the unpaid seller under Recto Law  Specific Performance  Cancellation of sale: If vendee fails to pay 2 or more installments  When the seller cancels the sale by repossessing the property sold, he is barred from exacting payment for its price.  Foreclosure of Chattel Mortgage: If vendee fails to pay 2 or more installments  If seller chooses this remedy, he shall have no further action to recover any unpaid balance, and any stipulation to the contrary shall be void  Motors vs. Sapinoso, (1970): 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 act on his part and did not result from a “further action” instituted by Northern Motors.  Bachrach Motor Co., Inc. v. Millan, (1935): Purpose of the law is to remedy the abuses committed in foreclosure of chattel mortgages. It prevents mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing the suit against the mortgagor for a deficiency judgment. The almost invariable result of this procedure was that the mortgagor found himself minus 293 CIVIL LAW REVIEWER Chapter VI. REMEDIES of the SELLER and BUYER the property and still owing practically the full amount of his original indebtedness. Nonato vs. IAC (1985): Remedies are ALTERNATIVE, not cumulative, i.e. exercise of one bars exercise of the others NOTE: “Unpaid Seller” (1525): e. When the whole of the price has not been paid or tendered; f. 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. _________ B. In the Sale of Immovables 1. Rescission for Anticipatory Breach (1591) a. Available when seller has reasonable grounds to fear the loss of the immovable property sold and its price b. Example: Buyer destroys the building sold, there being no security therefor, and buyer becomes insolvent c. Court has no discretion to compel the seller to wait for the expiration of the period to pay, or to grant the buyer more time to pay 2. Specific Performance + Damages (1191) a. Seller may choose between specific performance and rescission, with damages in either case b. Court has discretion, for a just cause, to give the buyer more time to pay even if the seller chooses rescission 3. Rescission + Damages (1191) a. If seller chose specific performance, and such becomes impossible, he may still avail of rescission b. If absolute sale, seller must make a demand for rescission  Judicially, OR  By a notarial act c. Necessary even if automatic rescission is stipulated d. Effect of lack of demand: Buyer can still pay e. Effect of demand: Court may not grant buyer a new term 4. Maceda Law: Sale of Residential Realty on Installments (Asked in 77, 89, 99, 00) RA 6552: An Act To Provide Protection for Buyers of Real Estate on Installment Payments DOES not apply to: a. Industrial lots b. Commercial buildings c. Sale to tenants under Reform Code (RA 3844) Agricultural Imposes ADDITIONAL REQUIREMENTS FOR A VALID RESCISSION: a. If buyer has paid at least 2 years of installments: GRN  Grace period: 1 month per year of installment payments made. BUT buyer may only avail of it only once in every 5 years  Refund of Cash Surrender Value (CSV): 50% of total amount paid + st 5% for every year after the 1 5 years of installments  BUT not greater than 90% of total amount paid  Notice of cancellation of demand for rescission by notarial act, effective 30 days from the buyer’s receipt thereof and upon full payment of CSV b. If buyer has paid less than 2 years: GN  Grace period: at least 60 days  Notice of cancellation or demand for rescission by notarial act, effective 30 days upon receipt thereof c. Down payments, deposits, or options on the contract shall be included in the total number of installments made 294 SALES d. Seller may go to court for judicial rescission in lieu of a notarial act of rescission e. During the grace period, buyer shall have the right:  To sell or assign his rights, to be evidenced in a notarial instrument  To update his account  To pay in advance any installment, or the full unpaid balance of the price, without any interest CIVIL LAW REVIEWER Chapter VI. REMEDIES of the SELLER and BUYER deficiency from goods of the same kind and quality, UNLESS a contrary intent appears. III. Remedies of the Buyer  General rule: Courts will refuse to decree specific performance with respect to chattels, because damages are a sufficient remedy  Exception: Buyer is entitled to the specific thing which to him has special value and which he cannot readily obtain in the market OR where damages would not furnish a complete and adequate remedy (Baviera) _________ A. Remedy for breach of obligation to preserve If thing is lost— 1. Without fault of seller: No breach; Obligation is extinguished 2. Through fault of seller (or through fortuitous event, if seller is liable): Damages A thing is lost when it— 1. Perishes 2. Goes out of commerce 3. Disappears in such a way that its existence is unknown or it cannot be recovered If thing deteriorates— Without fault of seller No breach  Impairment shall be borne by buyer Through fault of seller Rescission + damages Or Specific performance + damages Real Estate (1539-1543)— 1. If at the rate of a certain price per unit of measure or number: Less (in area or quality) than what was agreed upon: Proportional reduction of price OR Rescission, if:  Lack in area is at least 1/10 of what is stated, or inferior value of thing sold exceeds 1/10 of price  Buyer would not have bought the property has he been aware of the inferior quality or smaller area More Reject the excess OR Accept the whole and pay at contract rate [NOTE: Also applies to judicial sales (1541)] 2. If for a lump sum: Everything is within boundaries, even if less or more than stated area No remedy Rudolf Lietz, Inc. v. CA, (2005): Where both the area and the boundaries of the immovable are declared, the area covered within the boundaries of the immovable prevails over the stated area. Not everything is within boundaries Proportional reduction in price OR Rescission 295 SALES _________ B. Remedy for breach of obligation to deliver Delivery of wrong quantity (1522)— Goods are less than what was contracted Reject the goods OR Accept and pay  At contract rate if buyer accepts knowing that seller won’t perform in full  At fair value: If goods were used before knowing that seller won’t be able to perform in full More Reject the excess (Or the whole, if indivisible) OR Accept the whole and pay at contract rate Prescriptive period: 6 months, counted from date of delivery _________ C. Remedy for breach of warranty Express Warranty— 1. Prescriptive period: Period specified in express warranty OR 4 years, if no period is specified (following the general rule on rescission of contracts) 2. Remedies: a. Accept goods + demand diminution/extinction of price b. Accept goods + damages c. Refuse to accept goods + damages d. Rescind (Refuse to accept or return or offer to return) + recover price paid 3. Rescission not available when buyer: a. Knew of breach of warranty when he accepted the goods without protest Art. 1464. Civil Code. In the sale of an undivided share of a specific mass of fungible goods, 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 CIVIL LAW REVIEWER Chapter VI. REMEDIES of the SELLER and BUYER b. Fails to notify the seller about election to rescind within a reasonable period of time c. Fails to return or offer to return the goods to the seller in substantially a good condition as they were when delivered, unless deterioration was due to breach of warranty 4. Measure of damages: Difference between value of goods at time of delivery and the value they would have had if they had answered to the warranty 5. Effects of rescission: a. Buyer no longer liable for price  Entitled to return of any part of price paid, concurrently with or immediately after an offer to return the goods b. If seller refuses to accept offer to return goods: buyer deemed bailee for seller and has right of lien to secure payment of part of price paid c. If property sold for nonpayment of taxes due and not made known to the buyer before the sale: seller liable d. Judgment debtor also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment 2. If there is waiver of warranty: a. Seller acted in bad faith: Waiver is void, seller liable for eviction b. Buyer made waiver without knowledge of risks of eviction: Seller liable only for the value of thing sold at time of eviction c. Buyer made waiver with knowledge of risks: Seller not liable, buyer assumed the consequences Implied warranty against encumbrances (1560)— 1. Rescission: Within 1 year from execution of deed of sale OR 2. Damages: Within 1 year from execution of deed of sale or discovery of the burden or servitude Implied warranty against hidden defects (1567-1571)— 1. If thing is not lost: a. Withdraw from contract (accion redhibitoria) + damages b. Demand a proportionate reduction of the price (accion quanti minoris) + damages 2. If thing is lost: Due to hidden fault  If seller aware of defect, buyer may demand: - Return of price Refund of expenses of contract - Damages  If seller not aware of defect: Buyer may demand price and expenses BUT NOT damages Due to fortuitous event or fault of buyer Demand: - Price paid minus value of thing when it was lost - Damages, if seller acted in bad fait 296 SALES Implied warranty (1555,1556)— TOTAL EVICTION Enforce liability for eviction - Demand from seller: VICED  Value of thing sold at time of eviction  Income or fruits, if he has been ordered to deliver them to the party who won the eviction suit  Costs of eviction suit and in a proper case, suit against seller for warranty  Expenses of the contract, if buyer has paid them  Damages and interests, and ornamental expenses, IF sale was made in bad faith against eviction PARTIAL EVICTION Enforce liability (demand VICED) OR Rescind  If he would not have bought the thing sold without the part lost BUT he must return the thing without other encumbrances than those which it had when he acquired it 1. Rules: a. Buyer need not appeal from decision to hold seller liable for eviction b. When adverse possession commenced before sale, but prescription period completed after transfer: seller is not liable Prescriptive period: 6 months from delivery Implied warranty against redhibitory defects of animals— 1. Remedies a. Withdraw from contract + damages b. Demand a proportionate reduction of the price + damages CIVIL LAW REVIEWER Chapter VI. REMEDIES of the SELLER and BUYER 2. If sale is rescinded: a. Buyer must return animal in condition in which it was sold and delivered b. Buyer shall be liable for injury due to his negligence. 3. Prescriptive period: 40 days from delivery Warranty in sale of consumer goods (RA 7394, Sec.68)— If implied warranty accompanies express warranty, both will be of equal duration. EXPRESS WARRANTY 1. Demand repair within 30 days  Extendible for causes beyond the control of the warrantor 2. Demand refund of price minus amount directly attributable to the use of the consumer prior to the discovery of the nonconformity IMPLIED WARRANTY 1. Retain the goods and recover damages OR 2. Reject the goods, cancel contract and recover from seller so much of the purchase price as has been paid + damages 297 SALES CIVIL LAW REVIEWER Chapter VII. EXTINGUISHMENT of SALE Chapter VII. Extinguishment of Sale I. II. III. IV. IN GENERAL CONVENTIONAL REDEMPTION EQUITABLE MORTGAGE LEGAL REDEMPTION I. In General 4. Co-owners of an immovable, if they sold their interests to the same person, may only redeem their respective shares a. Vendee cannot be compelled to agree to a partial redemption b. If the co-owners sold their interest to the same person who previously bought the share of a co-owner subject to a right of redemption, then the latter may be compelled to redeem the whole property From whom to redeem— 1. Vendee a retro 2. His heirs, assigns or agents 3. Subsequent purchaser of property, even if the right to redeem was not mentioned in the subsequent contract; except if registered land, where the right to redeem must be annotated in the title 4. If several heirs, then the right of redemption can be exercised against each heir for his share of the property How exercised— 1. Returning the ff. to the buyer: (PEN) a. Price of the sale; b. Expenses of the contract and other legitimate payments made by reason of the sale; c. Necessary and useful expenses made on the thing sold 2. Complying with any other stipulation agreed upon, if any. NOTE: 1. BPI Family Savings Bank, Inc. v. Veloso, (2004): The general rule in redemption is that it is not sufficient that a person offering to redeem manifests his desire to do so. The statement of intention must be accompanied by an actual and simultaneous tender of payment for the full amount of the repurchase price. 2. Paez v. Magno, (1949):Tender of payment is enough (i.e., consignation is not necessary), if made on time, as a basis for action against the buyer to compel him to resell. But that tender does not in itself relieve the buyer from his obligation to pay the price when redemption is allowed by the court. Effect of redemption— 1. The seller shall receive the thing free from all charges or mortgages constituted by the buyer BUT he shall respect leases executed by the buyer in good faith and in accordance with local custom. 2. If there are growing fruits at the time of sale II. Conventional Redemption Definition— 1. Vendor reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon. (Art 1601,CC) 2. Available when the seller reserves the right to repurchase the thing sold in the same instrument of sale as one of the stipulations of the contract (Villarica v CA, 1968) Period (Asked in 77)— General Rule: Follow period stipulated in contract, but should not exceed 10 years. 1. If no period stipulated, then it shall be four years from the execution of the contract 2. But 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 By whom exercised— 1. Vendor 2. His heirs, assigns or agents 3. Creditor, if he has exhausted the property of the vendor SALES Generally, extinguished by the same causes as all other obligations (Arts.1600 &1231) (P3 3 PLAN-C -R ) 1. Payment/performance 2. Prescription 3. Loss of thing due 4. Annulment a. Novation 5. Condonation/remission 6. Confusion/merger 7. Compensation 8. Rescission 9. Resolutory condition fulfilled 10. Redemption (Conventional or Legal) 298 CIVIL LAW REVIEWER Chapter VII. EXTINGUISHMENT of SALE and at the time of redemption: no reimbursement or prorating if the buyer did not pay indemnity at the time of sale 3. If there were no growing fruits at the time of sale, but some exist at the time of redemption: fruits prorated (buyer entitled to part corresponding to time he possessed the land in the last year, counted from the anniversary of the date of sale) Effect of non-redemption— Ownership is consolidated in the buyer BUT the consolidation shall not be recorded in the Registry of property w/o a judicial order, after the vendor has been duly heard. Right to Redeem vs. Option to Purchase (Villanueva)— Right to Redeem Not a separate contract but part of a main contract of sale, and cannot exist unless reserved at the time of the perfection of the main contract of sale Does not need its separate consideration to be valid and effective Option to Purchase Generally a principal contract and may be created independent of another contract the realty taxes having been paid by them, the contracts which purported to be pacto de retro transactions are presumed to be equitable mortgages, whether registered or not, there being no third parties involved. Legaspi v. Spouses Ong, (2005): A pactum commissorium is a stipulation enabling the mortgagee to acquire ownership of the mortgaged properties without need of foreclosure proceedings which is a nullity being contrary to the provisions of Article 2088 of the Civil Code. The inclusion of such stipulation in the deed shows the intention to mortgage rather than to sell. A pactum commissorium is contrary to the nature of a true pacto de retro sale since ownership of the property sold is immediately transferred to the vendee a retro upon execution of the sale, subject only to the repurchase of a vendor a retro within the stipulated period. 299 SALES Must have a consideration separate and distinct from the purchase price to be valid and effective (Arts. 1324 and 1479) The period of the option contract may be beyond the 10-year period May be exercised by notice of its exercise to the offeror Sale with right to repurchase Right to repurchase the thing sold granted to the vendor in a separate instrument from the deed of sale Equitable mortgage When any of the cases in Art. 1602 arise The maximum period for the exercise of the right to repurchase cannot exceed 10 years Requires in addition a tender of payment of the amount required by law, including consignment thereof if tender of payment cannot be made effectively on the buyer III. Equitable Mortgage (Asked in 79, 80, 82, 84, 86, 89, 91, 05) Definition— Molina v. CA, (2003): An equitable mortgage is defined as one which, although lacking in some formality, or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law. Tan v. Valdehueza, (2003): The Valdehuezas having remained in possession of the land and Presumption that a contract is an equitable mortgage arises when (5P-R)— 1. Price unusually inadequate; 2. Possession retained by the seller as lessee or otherwise; 3. Period of redemption extended (or granted anew) upon or after the expiration of the right to repurchase; 4. Part of the purchase price retained by the seller; 5. Payment of taxes on the thing sold borne by the seller; 6. Any other case where it may be fairly inferred that the Real intention of the parties is for the transaction to secure a debt or other obligation. For the presumption of an equitable mortgage to arise under Art. 1602, 2 requisites must concur (Molina v. CA, 2003)— 1. That the parties entered into a contract denominated as a contract of sale, and 2. That their intention was to secure an existing debt by way of a mortgage. CIVIL LAW REVIEWER Chapter VII. EXTINGUISHMENT of SALE In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage (Art. 1603) Rationale behind provision on equitable mortgage— 1. Circumvention of usury law 2. Circumvention of prohibition against pactum commissorium – creditor cannot appropriate the things given by way of pledge or mortgage since remedy here is foreclosure. Remedies of apparent vendor— 1. If the instrument does not reflect the true agreement, the remedy is reformation 2. If decreed to be an equitable mortgage, then any money, fruits or other benefit to be received by the buyer as rent or otherwise considered as interest. 3. If decreed as a true sale with right to purchase- seller may redeem w/in 30 days from finality of judgment, even if the period for redemption has expired. Period to Redeem— To whom granted a. Co-owner (Art 1620) b. Adjoining owner of Rural Land (Article 1621) c. Adjoining owner of urban land (Art. 1622) Period 30 days from notice - In writing - By the seller - Of the actual execution and delivery of the deed of sale Doromal v. CA: Actual knowledge of the sale is immaterial Conejero v. CA: the law did not provide for a particular mode of written notice, thus any compliance with “written notice” should suffice, including the giving of a copy of the deed of sale 30 days from the date the assignee demands payment from debtor IV. Legal Redemption Definition—  Right to be subrogated: a. upon the same terms and conditions stipulated in the contract, b. 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 (Art 1619, CC)  Applies to transfers of ownership by onerous title where subrogation is possible. Hence, it cannot apply to barter or to transfer by gratuitous title or hereditary succession. Applies to sales with pacto de retro (BAVIERA citing MANRESA)  Manner— 1. a formal offer to redeem or 2. filing of an action in court together with the consignation of the redemption price within the reglementary period Debtor in case a credit or incorporeal right in litigation is sold (Art.1634) Applicant or his widow or legal heirs in case of sale of homestead (Sec.119, Public Land Act) Taxpayer in case of tax sale (Sec. 215, NIRC) Judgment debtor, successor–in- interest, or creditor with subsequent lien, in case of execution sale (Rule 39, Sec.27, ROC) Debtor-mortgagor, successors-in- interest, judicial/judgment creditor, any person having a lien on the property, in case of extrajudicial foreclosure of mortgage (Act No. 3135. Sec. 6. ) Debtor-mortgagor in case of judicial foreclosure of real estate mortgage IF the mortgagee is a bank or a banking institution. (The General Banking Law of 2000) 300 SALES 5 yrs. from conveyance date of 1 year from forfeiture date of 1 year from the date of registration of the certificate of sale 1 year from the date of the sale 90 days from finality of judgment CIVIL LAW REVIEWER Agricultural lessee w/o knowledge of sale of landholding (Agrarian Land Reform Code, Sec.12) 2 years from the registration of the sale Chapter VII. EXTINGUISHMENT of SALE Order of preference if two or more wish to exercise the right: a. Owner with smaller land area b. If same land area, then the one who first requested the redemption Ortega v. Orcine, (1971): What constitutes “rural” or “urban” is to be determined from the character of the community or vicinity in which it is found, and NOT from the nature of the land itself nor the purpose to which it is devoted 3. Redemption by adjoining land-owners of urban land (applies only to small portions of urban land) (Art. 1621) Right of Pre-emption Owner of any adjoining land has a right of preemption at a reasonable price when: -Urban land is so small and so situated that a major portion of it cannot be used for any practical purpose w/in a reasonable time; -Was bought merely for speculation; -Was resold Arises before sale No rescission because no sale exists yet The action is directed against prospective seller Right of Redemption If the resale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a reasonable price Priority if 2 or more adjoining owners want to redeem: owner whose intended use of the land appears to be best justified Arises after sale There can be rescission of the original sale Action is directed against buyer Instances of Legal Redemption— 1. Redemption by Co-owners (Art. 1621) A co-owner of a thing may exercise the right of redemption in case the shares of all the co-owners or any of them are sold to a third person a. Third person” refers to all persons who are not heirs of the vendor, by will or intestate succession b. The right is available not only to original co-owners, but to those who had later acquired the share of the co-owner c. But the right of redemption may be exercised by a co-owner only when part of the community property is sold to a stranger. When the portion is sold to another co-owner, the right does not arise because a new participant is not added to the co-ownership (Fernandez v. Taun) 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, they may also do so in proportion to the share they may respectively have in the thing owned in common Rationale: Public Policy, since ownership is a hindrance to development and administration of property (BAVIERA) cothe the 301 SALES 4. Redemption of Credit Available when it is sold while in litigation (From the time the complaint is answered) NOT available when the assignment in favor of: a. Co-heir/co-owner of right assigned b. Creditor in payment of his credit c. Possessor of a tenement or piece of land which is subject to the right assigned How exercised: reimburse the assignee for the: a. Price paid b. Judicial expenses incurred c. Interest on the price from date of payment 2. Redemption by Adjoining Land-owners of rural land (Art. 1621) The ff. Requisites must concur: a. A piece of rural land is alienated b. Area does not exceed one hectare When not applicable: a. The grantee does not own any rural land b. Adjacent lands are separated by brooks, drains, roads and other apparent servitudes for the benefit of other estates CIVIL LAW REVIEWER Chapter VII. EXTINGUISHMENT of SALE the sale up to the time of redemption -Any assessment or taxes which the purchaser may have paid 5. Under the Public Land Act Coverage: a. Every conveyance of land acquired under a free patent or homestead b. The ownership of the land must have been transferred to another. If the transaction is a mere promise to sell, there is no right yet to redeem c. This refers to conveyances made after the prohibited 5 years from the issuance of the patent or grant Period: a. Within 5 years from the date of conveyance b. If pacto de retro sale, the period to redeem cannot be less than 5 years Who may redeem: a. Gen Rule: Applicant, widow, or heirs b. Exception: land is sold to another member of the family of the applicant, or his direct descendant or heir c. From whom: Subsequent purchasers 7. Under the Agrarian Land Reform Code Lessees right of pre-emption a. The agricultural lessee shall have the preferential right to buy under the same reasonable terms and conditions, in case the lessor decides to hold the landholding b. Conditions:  The landholding must be preempted by the DAR  When two or more lessees, each shall have preferential right only to the extent of the area cultivated by him c. Period: 180 days from notice in writing Lessees right of redemption a. Sec. 12 RA 3844: In case landholding is rd sold to 3 person without the knowledge of the lessee, the latter shall have the right to redeem the same at a reasonable price and consideration b. Period: within 180 days from notice in writing 302 SALES 6. Redemption in Execution Sales Who may redeem Foreclosure and In extra judicial foreclosure -Debtor -Successor in interest -Judicial or judgment creditor of said debtor -Junior encumbrancer In execution sales -Judgment debtor -Successor in interest -Creditor having a lien on the property sold by attachment, judgment or mortgage on the property subsequent to the judgment Extra judicial foreclosure - within 1 year from the date of the sale Execution sale - within 12 months after the sale If land is mortgaged in favor of a bank - within 1 year after the sale (not available in case of a corporate mortgagor) -Amount of the purchase -Interest at 1% per month from the time of Period to redeem Amount of redemption CIVIL LAW REVIEWER Chapter VIII. PHILIPPINE BULK SALES LAW Chapter VIII. Philippine Bulk Sales Law (Act 3952) I. II. III. IV. PURPOSE COVERAGE DUTY OF SELLER EFFECT OF NON-COMPLIANCE III. Duty of Seller 1. Sworn statement of list of creditors  Contents: o Names + addresses of all creditors o Amount of indebtedness due or owing  When delivered: Before any part of the purchase price is received, or any promissory note or evidence of indebtedness therefor  Delivered to: o Buyer, mortgagee or agent o If corporation: president, vicepresident, treasurer or secretary o If partnership firm: a member thereof 2. Pro-rata application of the purchase or mortgage money to the payment of listed creditors 3. Inventory of the goods, wares, merchandise, provisions or materials  When made: at least 10 days before sale or mortgage  Contents:  Quantity  Cost price of each article (as far as possible) 4. Notice to listed creditors  When made: at least 10 days before transfer of possession  How: personally or by registered mail  Contents: Price, terms and conditions of sale, transfer, mortgage or assignment 5. Consideration for the sale, transfer, mortgage or assignment  Must not be nominal I. Purpose Purpose (Villanueva)—  To compel the seller in bulk to execute and deliver a verified list of his creditors to his buyer, and notice of intended sale to be sent in advance to said creditors and to use the proceeds to cover payment of outstanding liabilities  To protect creditor of merchant stores The Law is constitutional as a valid exercise of police power of the State. (Liwanag v. Menghraj, (1941)) 303 SALES II. Coverage The Law covers all transactions, whether done in good faith or not, that fall within the description of what is “bulk sale” (Villanueva) Transactions Covered— Applies to sales and transfers in bulk, including any sale, transfer, mortgage or assignment of: 1. A stock of goods, wares, merchandise, provisions or materials NOT in the ordinary course of trade and the regular prosecution of the business of the seller, transferor, mortgagor, or assignor 2. All, or substantially all, of the business or trade theretofore conducted by the seller, transferor, mortgagor, or assignor 3. All, or substantially all, of the fixtures and equipment used in and about the business of the seller, transferor, mortgagor, or assignor When not applicable— 1. Written waiver by vendor, transferor, mortgagor or assignor, as shown by verified statements 2. To executors, administrators, receivers, assignees in insolvency, or public officers, acting under judicial process. CIVIL LAW REVIEWER Chapter VIII. PHILIPPINE BULK SALES LAW IV. Effect of non-compliance On Transaction Itself— If the purchase or mortgage money is not applied pro-rata to the bona fide claims of listed creditors: Sale, transfer or mortgage shall be FRAUDULENT and VOID. On Seller, Assignor— Mortgagor, Transferor or Violation Failure to comply with the obligation to prepare and deliver the sworn statement listing his creditors and the application pro-rata of the proceeds to the creditors. (Sec 4) Sanction criminal liability Section 7: Transfer by any person, firm or corporation “as owner of any stock of goods, wares, merchandise, provisions or materials, in bulk” of title to the same without consideration or for a nominal consideration only, subjects him to criminal liability 304 SALES On Buyer, Mortgagee, Transferee or Assignee— The Law imposes no direct obligation, thus a buyer in bulk sale cannot be deemed to be subject to the criminal liability under the Law [NOTE: Criminal liability: 6 months to 5 years imprisonment, or fine of P5K or less, or both.] - end of Sales -
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