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TABLE OF CONTENTS
I. INTRODUCTION......2
II. PARTIES TO A CONTRACT OF SALE.............9
III. SUBJECT MATTER.........13
IV. OBLIGATION OF THE SELLER TO TRANSFER OWNERSHIP.18
V. PRICE...20
VI. FORMATION OF CONTRACT OF SALE........24
VII. TRANSFER OF OWNERSHIP...34
VIII. RISK OF LOSS46
IX. DOCUMENTS OF TITLE.49
X. REMEDIES OF AN UNPAID SELLER...52
XI. PERFORMANCE OF CONTRACT56
XII. WARRANTIES.64
XIII. BREACH OF CONTRACTS.71
XIV. EXTINGUISHMENT OF THE SALE78
XV. BULK SALES LAW84
XVI. RETAIL TRADE LIBERALIZATION ACT OF 2000.86

I. INTRODUCTION
Definition of sale
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
- A sale is a transaction, a relationship, an activity,
and a contract.
- The essence of a contract of sale is the transfer of
ownership (not possession alone. OWNERSHIP
meaning being able to do with the thing whatever
the owner wants because it is hissubject to
specific limitations though)
- Reason for purchase not just utility (can opt to just
lease if utility is the objective) but OWNERSHIP. In
ownership, there is no liability for damage and no
need to return, as compared to leasing. In
ownership, the owner can use, lease, donate, and
loan. People buy things to own.
Nature of the obligations
Obligations in Art 1458 are REAL obligations to give;
thus it may be the subject of actions for specific
performance.
Reciprocal demandable obligations:
Seller: obligations to transfer ownership and deliver
possession of the subject matter
Buyer: pay a price certain in money or its equivalent.
Essential requisites of a contract of sale
1. Consent meeting of the minds to transfer ownership
in exchange for the price; by virtue of which obligations
to transfer ownership, deliver the thing, and pay the price
occur.
2. Determinate (or determinable) subject matter
object certain, licit, determinate or capable of being
determinate without the necessity of a new or further
agreement between parties
3. Price certain (or cause/consideration) consideration
for the seller is the acquisition of the price certain in
money or its equivalent. For the buyer, it is the
acquisition of the thing which is the object of the
contract.
Dizon v. CA
Facts: Lease contract had an option to purchase.
Overland failed to pay increased rent and it did not
exercise the option. Overland sought to compel the
execution of a deed of sale pursuant to the option to
purchase, receipt of partial payment, and to fix the
period to pay the balance.
Issue: WON contract of sale was perfected. NO.
Held: NO CONTRACT OF SALE PERFECTED, NO
VALID CONSENT. The elements of a contract of sale
are consent, object, and price money. Absence of any of
these negates the existence of a perfected contract of

sale. Sale is a consensual contract and he who alleges it


must show its existence by competent proof. No definite
period beyond the one-year term of lease was agreed
upon, but since the rent was paid on a monthly basis the
period of lease is considered to be renewed monthly.
Having failed to exercise the option to buy within the
stipulated 1 year period, Overland cannot enforce its
option to purchase anymore. Contract of lease expired
without Overland purchasing the property but remained
in possession of it. The implied new lease does not ipso
facto carry with it any implied revival of private
respondents option to purchase the leased premises.
NOTE: Aside from the essential elements of a contract
of sale, there are also natural elements and accidental
elements.
Natural elements: inherent and are deemed to exist
even in the absence of a contrary provision, save those
in the contrary stipulation (warranties against eviction
and hidden defects)
Accidental elements: dependent on the parties
stipulation (e.g. conditions, interest, penalty, time or
place of payment)
Stages of a contract of sale
1. Negotiation offer and acceptance
2. Perfection agreement or meeting of offer and
acceptance
3. Consummation performance. Actual or constructive
delivery and payment of price.
Characteristics of a contract of sale
1. Nominate it has a particular name and form as
prescribed in the law.
- Only a legal justification for performance of the
obligation
- Only a title, not a proof of ownership
- Not a mode of transferring ownership. Sale by itself
does not transfer or affect ownership; the most that
a sale does is to create the obligation to transfer
ownership
- Determining the real character of the contract, the
title given to it by the parties is not as significant as
its substance
2. Consensual it is founded upon and perfected by
mere consent of the contracting parties; voluntarily
given; agreement of the parties to buy and sell
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts. (1450a)
-

intention of parties is controlling


contract becomes the law between the parties
it is in the perfection stage where sale as a contract
begins to exist in the legal world. The coming to
existence of a contract of sale brings with it the

existence of the two sets of obligations on the part of


the seller and the buyer.
Perfected by mere consent

Consequence: The actual delivery of the subject matter


or payment of the price agreed upon are not necessary
components to establish the existence of a valid contract
of sale; and their non-performance do not also invalidate
or render void a sale that has began to exist as a valid
contract at perfection. Non-performance merely
becomes the legal basis for remedies of either specific
performance or rescission, with damages in either case.
3. Commutative it is a contract in which each of the
contracting parties gives a thing of value and receives an
equivalent. Equal value is exchanged for equal value.
The value of the subject matter is equivalent to the price
paid.
- Price at which seller intends to sell the subject
matter is also what the buyer believes the price
should be.
- Test: So long as the party believes in all honesty
that he is receiving equal value for what he gave up
for, then it complies with the commutative character
of the sale, and would not be deemed a donation or
an aleatory contract.
- Commutative nature of the sale cannot and should
not be pushed to absurdity

Buyer pay price certain in money or its


equivalent

Consequence: The power to rescind is implied in


bilateral contracts (including a contract of sale). Such
power need not be stipulated in the contract in order for
the innocent party to invoke the remedy (Art. 1191)
5. Onerous it imposes a valuable consideration, which
is a price certain in money or its equivalent. Cf.
gratuitous, the thing is sold in consideration of a price
and vice versa.
Consequence: All doubts in construing an onerous
contract shall be resolved in that which gives greater
reciprocity of interests (art. 1378)
6. Principal it can stand on its own; unlike an
accessory contract. Does not depend on another
contract for validity
NOTE: Sale is a title, not a mode of transferring
ownership. Mode is the legal means by which dominion
or ownership is created, transferred, or destroyed; title
only constitutes the legal basis by which to affect
dominion or ownership. Therefore, sale by itself does not
transfer or affect ownership. The most that it does is to
create the obligation to transfer ownership. It is delivery
that transfers ownership.

Art. 1355. Except in cases specified by law, lesion or


inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake, or undue
influence.

Kinds of a contract of sale


1. Absolute where the sale is not subject to any
condition whatsoever and where title passes to the buyer
upon the delivery of the thing sold.

Art. 1470. Gross inadequacy of price does not affect a


contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or
some other act or contract.

2. Conditional where the sale contemplates a


contingency and in general, where the contract is subject
to certain conditions (usually the full payment of the
purchase price). Conditions are attached to the contract;
the title will only pass once the conditions have been
fulfilled.

4. Bilateral it is a contract in which both the


contracting parties are bound to fulfill the obligations
reciprocally towards each other (i.e. the vendor becomes
bound to deliver the thing sold and the vendee to pay the
price for it)
Art. 1169 (2). In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.
Art. 1191 (1). The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
Imposes obligations on both parties to the relationship
Seller deliver a determinate thing and transfer
ownership

Sale as distinguished from other contracts


1. sale vs. donation
Art. 725. Donation is an act of liberality whereby a
person disposes gratuitously of a thing or right in favor of
another, who accepts it.
Art. 1471. If the price is simulated, the sale is void, but
the act may be shown to have been in reality a donation,
or some other act or contract.
Under Art 1471, when the price of the contract of sale is
simulated, the sale may be void but the act may be
shown to have been in reality a donation. On the other
hand, a purported donation may have other
considerations placed on the donee, thus it becomes
critical to determine what rule applies (law on sales or
law on donations)
2. sale vs. barter

equivalent
Art. 1468. If the consideration of the contract consists
partly in money, and partly in another thing, the
transaction shall be characterized by the manifest
intention of the parties. If such intention does not clearly
appear, it shall be considered a barter if the value of the
thing given as a part of the consideration exceeds the
mount of the money or its equivalent; otherwise, it is a
sale.
Art. 1638. By the contract of barter or exchange, one of
the parties binds himself to give one thing in
consideration of the others promise to give another
thing.
Art. 1639. If one of the contracting parties, having
received the thing promised him in barter, should prove
that it did not belong to the person who gave it, he
cannot be compelled to deliver that which he offered in
exchange, but he shall be entitled to damages.
Art. 1640. One who loses by eviction the thing received
in barter may recover that which he fave in exchange
with a right to damages, or he may only demand an
indemnity for damages. However, he can only make use
of the right to recover the thing which he has delivered
while the same remains in the possession of the other
party, and without prejudice to the rights acquired in
good faith in the meantime by a third person.
Art. 1641. As to all matters nnot specifically provided for
in this Title, barter shall be governed by the provisions of
the preceding Title relating to sales.
Fule v. CA
Facts: Fule (banker and jeweler) acquired a 10-hectare
property through mortgage which he wanted to sell to Dr.
Cruz, who owned a pair of diamond earrings he wanted
to buy. Negotiations for the barter ensued. The actual
consideration of the sale of the lot was P200,000 and the
jewelry was appraised only at 160k. The parties agreed
that the balance of 40k could be paid later in cash. Fule
filed a complaint praying that the contract of sale be
declared null and void on the ground of fraud and deceit
because the jewelry was fake.
Issue: WON contract of sale was valid. YES.
Held: VALID CONTRACT OF SALE, cant be nullified.
NO BASIS TO NULLIFY THE CONTRACT OF SALE (or
barter). Ownership of the parcel of land and the pair of
jewelry had been transferred to Cruz and Fule,
respectively. Title was passed to the vendee upon the
delivery of the thing sold. No stipulation reserving the
title to the seller until full payment.

Sale

Barter
Nature
A thing is given in A thing is given in
exchange of money or its exchange of another thing

Applicable Law
Law on Sales
Law on Sales
If the consideration is partly in money and partly in
another thing
1. The transaction is characterized by the manifest
intention of the parties
2. If there is no manifest intention:
a. BARTER if the value of the thing is more
valuable than money
b. SALE if the value of the thing is equal or
less than the amount of money
Rule on Money Exchange
If local currency is exchanged for foreign currency, there
is purchase and sale.
If the local currency is exchanged with other
denominations of the local currency also, there is barter.
The rule is the same if a foreign currency is exchanged
in the Philippines for another foreign currency.
3. sale vs. contract for a piece of work
Art. 1467. A contract for the delivery at a certain price of
an article which the vendor in the ordinary course of his
business manufactures or procures for the general
market, whether the same is on hand at the time or not,
is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his
special order, and not for the general market, it is a
contract for a piece of work.
Art. 1713. By the contract for a piece of work the
contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or
compensation. The contractor may either employ only
his labor or skill, or also furnish the material.
Art. 1714. If the contractor agrees to produce the work
from material furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the
thing. This contract shall be governed by the following
articles as well as by the pertinent provisions on
warranty of title and against hidden defects and the
payment of price in a contract of sale.
Art. 1715. The contract shall execute the work in such a
manner that it has the qualities agreed upon and has no
defects which destroy or lessen its value or fitness for its
ordinary or stipulated use. Should the work be not of
such quality, the employer may require that the
contractor remove the defect or execute another work. If
the contract fails or refuses to comply with this
obligation, the employer may have the defect removed
or another work executed, at the contractor's cost.
a) In a contract for work, labor or materials or for a piece
of work, the thing transferred is one not in existence and
which never would have existed but for the order of the
party desiring to acquire it; while in a contract of sale, the

thing transferred is one which would have existed and


been the subject of sale to some other person, even if
the order had not been given.
b) This follows the Massachusetts Rule: a contract for
the delivery at a certain price of an article which the
vendor, in the ordinary course of his business,
manufactures or procures for the general market,
whether the same is on hand at the time or not, is a
contract of sale. But if the goods are to be manufactured
specially for the customer and upon his special order
and not for the general market, it is a contract for a piece
of work.
Celestino v. Collector
Held: A factory which habitually makes sash, windows
and doors, and sells the goods to the public is a
manufacturer. The fact that the windows and doors are
made by it only when customers place their orders and
according to such form or combination as suit the fancy
of the purchasers does not alter the nature of the
establishment;
Commissioner v. Engineering
Held: The test of a contractor is that he renders service
in the course of an independent occupation,
representing the will of his employer only as to the result
of his work, and not as to the means by which it is
accomplished.
Sale

Contract for Piece of


Work
Existence of Thing
The thing transferred is one The thing transferred is
which would have existed not in existence and
and would have bee the would never have existed
subject of sale to some but for the order of the
other person, even if the party desiring to acquire it
order had not been given
Object of the Contract
The primary objective of the The services dominate
contract is a sale of the the contract even though
manufactured item; it is a there is a sale of goods
sale of goods even though involved
the item is manufactured by
labor furnished by the seller
and upon previous order of
the customer
Applicability of the Statute of Frauds
Governed by the Statute of Not within the Statute of
Frauds
Frauds
Rules to determine if the contract is one of sale or a
piece of work (Art. 1467)
Sale if ordered or manufactured in the ordinary course
of business
Piece of work if manufactured specially for the
customer and upon his special order, and not for the
general market
Schools of Thought:

1. Massachusetts Rule: If specially done at the order of


another, this is a contract for a piece of work (Philippine
application)
2. New York Rule: If the thing already exists sale; if not
work
3. English Rule: If material is more valuable sale; if skill
is more valuable work
2. sale vs. agency to buy and sell
Art. 1466. In construing a contract containing provisions
characteristic of both the contract of sale and of the
contract of agency to sell, the essential clauses of the
whole instrument shall be considered.
Art. 1868. By the contract of agency a person binds
himself to render some service or to do something in
representation or on behalf of another, with the consent
or authority of the latter.
Quiroga v. Parsons: In the contract in the instant case,
what was essential, constituting its cause and subject
matter, was that the plaintiff was to furnish the defendant
with the beds which the latter might order, at the
stipulated price, and that the defendant was to pay this
price in the manner agreed upon. These are precisely
the essential features of a contract of purchase and sale.
There was the obligation on the part of the plaintiff to
supply the beds, and, on that of the defendant, to pay
their price. These features exclude the legal conception
of an agency or older to sell whereby the mandatory or
agent receives the thing to sell it, and does not pay its
price, but delivers to the principal the price he obtains
from the sale of the thing to a third person, and if he
does not succeed in selling it, he returns it,
Puyat v. Arco: The contract between the petitioner and
the respondent was one of purchase and sale, and not
one of agency. In agency, the agent is exempted from all
liability in the discharge of his commission provided he
acts in accordance with the instructions received from
his principal (section 254, Code of Commerce), and the
principal must indemnify the agent for all damages which
the latter may incur in carrying out the agency without
fault or imprudence on his part (article 1729, Civil Code).
Sale

Agency to Sell
Transfer of Ownership
Buyer receives the goods Agent receives the goods
as owner
as goods of the principal
who retains his ownership
over them
Obligation as regards the Price
Buyer pays the price
Agent delivers the price,
which he got from his
buyer, to his principal
Right to Return the Thing
Buyer, as a general rule, Agent can return the goods
cannot return the object in case he is unable to sell
sold
the same to a third person

Warranty as to the object sold


Seller warrants the thing Agent makes no warranty
sold
for which he assumes
personal liability as long as
he acts within his authority
and in the name of the
seller
Right over the Thing
Buyer can deal with the Agent in dealing with the
thing sold as he pleases thing received, must act
being the owner
according
to
the
instructions of the principal
Revocability
Contract of sale is not Essentially
revocable,
unilaterally revocable
because it covers an
underlying
fiduciary
relationship between the
principal and the agent
The transfer of title or agreement to transfer it for a price
paid is the essence of sale. If such transfer puts the
transferee in the position of an owner and makes him
liable for the agreed price, the transaction is a sale. On
the other hand, the essence of an agency to sell is the
delivery to an agent, not as his property, but as the
property of his principal, who remains the owner and has
the right to control sales, fix the price and terms, demand
and receive the proceeds less the agents commission
upon sales made.

5. sale vs. dacion en pago


Art. 1245. Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales. (n)
Dao Heng Bank v. Sps. Laigo: Dacion en pago (mode
of extinguishing an existing obligation where property is
alienated to the creditor in satisfaction of a debt in
money) is an objective novation of the obligation, hence,
COMMON CONSENT of the parties is required. There is
no concrete showing that after the appraisal of the
properties, Dao Heng approved respondents proposal to
settle their obligation via dacion en pago. Also,
respondents did not deny proposing to redeem the
mortgages, which dooms their claim of the existence of a
perfected dacion en pago.
Sale
Dacion en Pago
Existence of Credit
No pre-existing credit
Pre-existing credit
Obligation
Obligations are created
Obligations
are
extinguished
Consideration
Seller: the price
Debtor: extinguishment of
Buyer: acquisition of the debt
object
Creditor: acquisition of the

object offered in lieu of the


original credit
Determination of Price
Greater
freedom
in Less
freedom
in
determining the price
determining the price
Payment of Price
Buyer still has to pay the The payment is received by
price
the debtor before the
contract is perfected
6. sale vs. lease
Sale involves an obigation to absolutely transfer title or
ownership to the thing subject thereof
Lease involves the use of a thing for a price and to
return the same upon expiration of the period agreed
upon.
NOTE: A conditional sale may be made in the form of a
lease with option to buy as a device to circumvent the
Recto Law governing the sale of personal property by
installments. It may be stipulated in such contract that
the lessee has the option to buy the leased property for
a small consideration at the end of the term of the lease,
provided that the rent has been duly paid; or if the rent
throughout the term has been paid, title shall vest in the
lessee. When a lease clearly shows that the rentals are
meant to be installment payments to a sales contract,
despite the nomenclature given by the parties, it is a sale
by installments.
Sale
Lease
Transfer of Ownership
Ownership is transferred No transfer of ownership
upon delivery
because the rights of the
lessee are limited to the
use and enjoyment of the
thing leased
Extent of Transfer
Transfer is permanent
Transfer is temporary
Who may Convey the Property
Seller must be the owner Lessor need not be the
at the time the property is owner
delivered
Significance of Price of Object
Usually, the selling price The price of the object,
is mentioned
distinguished from rent, is
usually not mentioned
Summation: tests to determine the nature of the
contract
Tests
Sale
Piece of Work
1. Object
2.
Nature of
business
3. Existence of
thing
4. Market
5.
Statute
frauds

of

Transfer of
ownership
Ordinary
Does
depend
order
General
Covered

Service (mental,
physical labor)
Extra-ordinary
not
on

Depends
order

on

Specific Clientele
Not covered

4 Tests (ultimate
test: intention)
1. Risk of Loss
2. Payment
3. Exclusive
Dealership
4. Return of unsold
goods

Sale
Borne by
seller
Buyer

None
Sale

1.
Intention of
parties
2. Value of thing
vs.
Value
of
money
2 Tests
1. Debt
2. Stage of
contract

Money > thing

Sale
None
Perfection

Agency to Sell
Borne by
principal, not
agent
Principal, not
agent
Remittance test
Mandatory
Barter
Thing > Money

Dacion En Pago
Pre-existing
Extinguishment

Two Major Types of Contract of Sale (Art. 1458, par. 2)


1. Absolute sale no conditions attached; transfer
of ownership I vested upon delivery
2. Conditional sale subject to certain conditions;
delivery does not transfer ownership until the
condition is fulfilled.
Test: If the condition is imposed upon the sellers
obligation to transfer the ownership of and deliver the
thing, there is a conditional sale. Note that the essence
of sale is the acquisition of ownership. HOWEVER, if the
condition is imposed upon the buyers obligation to pay
the price, the sale is still absolute. Payment of the
purchase price is part of the consummation stage (not
perfection stage) of the contract of sale. Perfection of the
contract of sale is not affected by the fact that payment
is subject to conditions, it being the case that a contract
of sale is perfected by mere consent.
CONTRACT TO SELL
1. Exclusive right and privilege to purchase an object
2. A bilateral contract where the prospective seller,
while expressly reserving the ownership of the
subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said
property exclusively to the prospective buyer upon
fulfillment of the positive suspensive condition full
payment of the purchase price. Failure to do so is
not a breach but a situation preventing the obligation
of the vendor to convey title from acquiring
obligatory force. Thus, for its non-fulfillment, there
will be no contract to speak of.
Absent a proviso in the contract that the title to the
property is reversed in the vendor until full payment of
the purchase price or a stipulation giving the vendor the

right to unilaterally rescind the contract the moment the


vendee fails to pay within the fixed period, the
transaction is an absolute contract of sale not a contract
to sell. (Dignos v CA)
The real character of the contract is NOT the title given,
but the intention of the parties. Although a document is
denominated as Deed of Absolute Sale, and there is no
provision therein of reservation of ownership to the
seller, it will be considered as a Contract to Sell if the
true intent of the parties is to transfer the ownership of
the parties only upon the buyers full payment of the
purchase price.
Other cases of Contract to Sell
1. Where subject matter is indeterminate
2. Sale of future goods
3. Stipulation that deed of sale and corresponding
certificate of sale would be issued only after full
payment
Contract of Sale and Contract to Sell, Distinguished
Contract of Sale
Contract to Sell
Obligation Created
The perfection of the contract The perfection of the
gives
rise
to
reciprocal contract only gives rise
demandable obligations.
to
a
reciprocal
Seller:
obligations
to suspensive conditional
transfer ownership and obligation (i.e. nondeliver possession of the demandable
obligations until the
subject matter
Buyer: pay a price certain condition happens) on
the part of the seller to
in money or its equivalent.
transfer
ownership,
only upon fulfillment of
the obligation of the
buyer to pay the price
in full.
Transfer of Ownership
Title passes to the buyer upon Ownership is reserved
delivery of the thing sold
in the seller and will
pass only to the buyer
upon full payment of
the price
Effect of Non-Payment of Price
Failure to pay is a negative Full payment is a
resolutory condition which puts positive
suspensive
an end to the transaction.
condition, the failure of
which is not a breach
Remedies:
but
prevents
the
a. Specific performance
obligation
of
the
b. Rescission (art. 1191)
vendor to convey title
from having binding
force.
In case there has been
delivery of the thing to
the prospective buyer
and the buyer refuses
to surrender the thing
to the seller, no further

legal action need be


taken other than an
action
to
recover
possession.
Conditional Sale and Contract to Sell, Distinguished
Conditional Sale
Contract to Sell
Reservation of Title to the Subject Property
In both cases the seller may reserve the title to property
until fulfillment of the suspensive condition (e.g.
payment)
Effect of Fulfillment of Suspensive Condition
The sale is perfected; if Ownership
is
not
there has been previous automatically transferred to
delivery
of
subject the buyer (even if there has
property to the buyer, been previous delivery to
ownership
automatically him) upon fulfillment of
transfers to the buyer by suspensive condition (i.e.
operation of law without full payment of purchase
any further act on the part price). Seller still has to
of the seller.
conver
to
prospective
buyer by entering into a
contract of absolute sale.
Effect of Sale of the Subject Property to Third Persons
Upon
fulfillment
of There is no double sale
suspensive condition, sale (because there is no
becomes absolute which previous sale of property
affects sellers title
despite
fulfillment
of
suspensive condition)
The third person becomes
buyer in bad faith if he The third person is not a
possesses constructive or buyer in bad faith
actual knowledge of defect
in sellers title
Prospective buyer cannot
seek relief of reconveyance
Subsequent buyer cannot of property, but only sue
defeat the first buyers title under Art. 19 (unjustified
disregard of right)
Luzon Brokerage v. Maritime Building: CONTRACT
TO SELL. To argue that there was only a casual breach
is to proceed from the assumption that the contract was
one of absolute sale, where non payment is a resolutory
condition, which is not the case. It was a contract to sell,
where ownership is retained by the seller until the full
payment of the price (payment as a positive suspensive
condition.) Failure to pay is not a casual or serious
breach, but simply an event that prevented the obligation
of the vendor to convey the title.
Dignos v. CA: DEED OF ABSOLUTE SALE. A deed of
sale is absolute in nature although denominated as a
"Deed of Conditional Sale" where nowhere in the
contract in question is a proviso or stipulation to the
effect that title to the property sold is reserved in the
vendor until full payment of the purchase price, nor is
there a stipulation giving the vendor the right to
unilaterally rescind the contract the moment the vendee
fails to pay within a fixed period. In this case, the

contract has no stipulation which reserves the title on the


vendors nor does it give them the right to unilaterally
resciend upon non-payment of the balance within a fixed
period. All elements of a valid contract of sale under Art.
1458 (consent, determinate subject matter, price) are
present. While it may be conceded that there was no
constructive delivery of the land, as subject Deed of Sale
is a private instrument, it is beyond question that there
was actual delivery thereof.

II. PARTIES TO A CONTRACT OF


SALE
A. Capacity of parties
Art. 1489. All persons who are authorized in this Code to
obligate themselves, may enter into a contract of sale,
saving the modifications contained in the following
articles.
Where necessaries are those sold and delivered to a
minor or other person without capacity to act, he must
pay a reasonable price therefor. Necessaries are those
referred to in Article 290. (1457a)
Art. 1490. The husband and the wife cannot sell
property to each other, except:
(1) When a separation of property was agreed upon in
the marriage settlements; or
(2) When there has been a judicial separation or
property under Article 191. (1458a)
Art. 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in
person or through the mediation of another:
(1) The guardian, the property of the person or persons
who may be under his guardianship;
(2) Agents, the property whose administration or sale
may have been entrusted to them, unless the consent of
the principal has been given;
(3) Executors and administrators, the property of the
estate under administration;
(4) Public officers and employees, the property of the
State or of any subdivision thereof, or of any
government-owned or controlled corporation, or
institution, the administration of which has been intrusted
to them; this provision shall apply to judges and
government experts who, in any manner whatsoever,
take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of justice,
the property and rights in litigation or levied upon an
execution before the court within whose jurisdiction or
territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment
and shall apply to lawyers, with respect to the property
and rights which may be the object of any litigation in
which they may take part by virtue of their profession.
(6) Any others specially disqualified by law. (1459a)

Art. 1492. The prohibitions in the two preceding articles


are applicable to sales in legal redemption, compromises
and renunciations. (n)
General Rule: All persons, whether natural or juridical,
who can bind themselves, have legal capacity to buy
and sell.
Exceptions:
1. Absolute incapacity (minors, demented persons,
imbeciles, deaf and dumb, prodigals, civil interdictees)
Art. 1327. The following cannot give consent to a
contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who
do not know how to write.
Art. 1397. The action for annulment of contracts may be
instituted by all who are thereby obliged principally or
subsidiarily. However, persons who are capable cannot
allege the incapacity of those with whom they
contracted; nor can those who exerted intimidation,
violence, or undue influence, or employed fraud, or
caused mistake base their action upon these flaws of the
contract.
Art. 1399. When the defect of the contract consists in
the incapacity of one of the parties, the incapacitated
person is not obliged to make any restitution except
insofar as he has been benefited by the thing or price
received by him.
General rule: The incapacitated person is not obliged to
make any restitution.
Exceptions:
1. When the incapacitated person has benefited by
the thing or price received by him
2. When necessaries have been sold and delivered
to the incapacitated
a. Where necessaries are sold and
delivered to a minor or other person
without capacity to act, the incapacitated
person must pay a reasonable price
therefore.
b. Necessaries
cover
everything
indispensable for sustenance, dwelling,
clothing, medical attendance according
to the social position of the family, and
also includes education of the person
entitled to be supported until he
completes his education or training for
some profession, trade, vocation, even
beyond the age of majority. (Art. 194,
Family Code)
Sale by Minor
The sale of real property made by minors who have
already passed the ages of puberty and adolescence
and are near the adult age when they pretend to have

already reached their majority, while in fact they have


not, is valid, and they cannot be permitted afterwards to
excuse themselves from compliance with the obligation
assumed by them or to seek their annulment. This
doctrine is entirely in accord with the provision of the
Rule sof Court (Rule 131, Sec. 1) and the principle of
estoppel. (Mercado v. Espiritu)
2. relative incapacity the incapacity is relative when a
person cannot buy a certain property because of a
special prohibition. Incapacity exists only with reference
to certain persons or a certain class of property.
a) married persons (as regards contracts with third
parties)
Art. 73. Either spouse may exercise any legitimate
profession, occupation, business or activity without the
consent of the other. The latter may object only on valid,
serious, and moral grounds.
In case of disagreement, the court shall decide whether
or not:
(1) The objection is proper; and
(2) Benefit has occurred to the family prior to the
objection or thereafter. If the benefit accrued prior to the
objection, the resulting obligation shall be enforced
against the separate property of the spouse who has not
obtained consent.
The foregoing provisions shall not prejudice the rights of
creditors who acted in good faith. (117a)
Art. 96. The administration and enjoyment of the
community property shall belong to both spouses jointly.
In case of disagreement, the husband's decision shall
prevail, subject to recourse to the court by the wife for
proper remedy, which must be availed of within five
years from the date of the contract implementing such
decision.
In the event that one spouse is incapacitated or
otherwise unable to participate in the administration of
the common properties, the other spouse may assume
sole powers of administration. These powers do not
include disposition or encumbrance without authority of
the court or the written consent of the other spouse. In
the absence of such authority or consent, the disposition
or encumbrance shall be void. However, the transaction
shall be construed as a continuing offer on the part of
the consenting spouse and the third person, and may be
perfected as a binding contract upon the acceptance by
the other spouse or authorization by the court before the
offer is withdrawn by either or both offerors. (206a)
Art. 124. The administration and enjoyment of the
conjugal partnership shall belong to both spouses jointly.
In case of disagreement, the husband's decision shall
prevail, subject to recourse to the court by the wife for
proper remedy, which must be availed of within five
years from the date of the contract implementing such
decision.

10

In the event that one spouse is incapacitated or


otherwise unable to participate in the administration of
the conjugal properties, the other spouse may assume
sole powers of administration. These powers do not
include disposition or encumbrance without authority of
the court or the written consent of the other spouse. In
the absence of such authority or consent, the disposition
or encumbrance shall be void. However, the transaction
shall be construed as a continuing offer on the part of
the consenting spouse and the third person, and may be
perfected as a binding contract upon the acceptance by
the other spouse or authorization by the court before the
offer is withdrawn by either or both offerors. (165a)
b) married persons (as regards contracts between
spouses)
Art. 87. Every donation or grant of gratuitous advantage,
direct or indirect, between the spouses during the
marriage shall be void, except moderate gifts which the
spouses may give each other on the occasion of any
family rejoicing. The prohibition shall also apply to
persons living together as husband and wife without a
valid marriage. (133a)
Art. 1490. The husband and the wife cannot sell
property to each other, except:
(1) When a separation of property was agreed upon in
the marriage settlements; or
(2) When there has been a judicial separation or
property under Article 191. (1458a)
HUSBAND AND WIFE
General rule: A sale by one spouse to another is void.
(applies to common-law spouses)
Rationale for the relative incapacity of spouses to sell to
one another:
1. To prevent a spouse from defrauding his
creditors by transferring his properties to the
other spouse;
2. To avoid a situation where the dominant spouse
would unduly take advantage of the weaker
spouse; and
3. To avoid an indirect violation of the prohibition
against donations between spouses (Art. 133
CC)
Exceptions: Regime of separation of property governs
spouses and a judicial separation of property has been
decreed
When the spouses had been legally separated, there is
no more prohibition for them to sell properties to one
another. Once there is legal separation, CPG is
dissolved and they will be governed by the regime of
separation of property.
Persons who can question the validity of the sale
between spouses:
1. Heirs of either of the spouses;
2. Prior creditors

3. The State when it comes to payment of taxes


due on transcations
The prohibition applies to common law spouses because
they cannot be in a better position than those who legally
contract marriage.
Medina v. Collector: Arts. 7 and 10 of the Code of
Commerce do not allow sales between husband and
wife. The transactions permitted are those with strangers
and they do not constitute exceptions to the prohibitory
exception of Art. 1490 CC against sales between
spouses. Sales made by the husband to the wife are
void by virtue of said provision.
The government is an interested party to all matters
involving taxable transactions and, as in this case, is
qualified to question their validity or legitimacy whenever
necessary to block tax ecasion.
Matabuena v. Cervantes: Common-law spouse
executed a deed of donation over his common-law
spouse. Donation void. This same prohibition stated by
Art 133 applies to common law marriages. The essence
of the donation, which the law tries to prohibit, is
essentially the same with common law marriages.
Cruz v CA
Facts: Cruz sold to her common-law husband Suzara a
parcel of land without monetary consideration. She is
now impugning the validity of the sale of the land, which
is now registered in Vizcondes name. Cruz claims that
sale between common-law husband and wife is void
under Art. 1490 of CC and that love, affection and
accomodation is not a valid cause. And since her sale
to Suzara was void, the sale of Suzara to Vizconde must
also be declared null and void.
Issue: WON sale was valid. YES,
Held: SALE WAS VALID, Vizconde now the rightful
owner. Although sale between husband and wife is
prohibited, Cruz can no longer seek reconveyance of the
property as it has already been acquired by Vizconde in
good faith. Third persons dealing with registered land
may safely rely on the correctness of the CT issued and
the law will in no way obligate him to go behind the
certificate to determine the condition of the property first.
A purchaser in good faith is one who buys the property
of another without notice that some other person has a
right to or interest in such property and pays a full and
fair price for the same at the time of the purchase before
he has notice of the claim of another person. At the time
of the sale, nothing was annotated in the certificate to
rd
indicate any adverse claim of a 3 person.
3. special disqualifications (see Articles 1491 and
1492)
TWO GROUPS:
1. Guardians, agents, administrators, and executors
2. Judges, judicial officers, fiscals, and lawyers

11

First group: Contracts may be ratified by a new contract,


while
Second group: Cannot be cured even by a subsequent
contract.
The functional difference between the two groups of
contracts declared void under Art. 1491 is that in the first
group, after the inhibition has ceased, the only real
wrong that subsists is the private wrong to the ward,
principal or restate, and therefore if private parties wish
to condone the private wrongs among themselves, the
State would not stand in the way. On the other hand,
when it comes to the second group, even when the
inhibition has ceased, the exists not only the private
wrong but in fact a public wrong which is a damage to
public service or the high esteem that should be
accorded to the administration of justice in the
Philippines, Therefore, un the second group, even when
the parties seek to ratify the private wrong by executing
a new contract between them when the inhibition no
longer exists, such cannot resurrect and validate a
relationship which continues to be tainted with a public
wrong.
It is immaterial that no damage is suffered by the owner.
The contract is void as the law seeks to prevent said
persons from being tempted to take advantage of their
position. They occupy a position of trust and confidence
in relation to the property under their administration or
jurisdiction.
GUARDIANS:
Guardianship is a trust of the highest order, and the
trustee cannot be allowed to have any inducement to
neglect his wards interest.
The prohibition is not limited to purchase, but includes
other activities.
Sale is only voidable because only private interests are
affected. The defect can be cured by ratification.
Philippine Trust Co. v. Roldan
Facts: Minor Bernardino was under the guardianship of
his stepmother Roldan. Roldan filed a motion asking for
authority to sell the property of the ward (17 parcels of
land) and to invest in a residential house. Motion granted
and lots were sold to Ramos. Ramos executed a deed of
conveyance in favor of Roldan covering the same
parcels of land. Philippine Trust replaced Roldan as
guardian and sought to annul the transaction.
Issue: WON sale can be annulled. YES.
Held: SALE ANNULED. The general doctrine that
guardianship is a trust of the highest order, and the
trustee cannot be allowed to have any inducement to
neglect his wards interest is applicable in this case.
There may be no previous agreement between Roldan
and Ramos to the effect that Ramous would buy the
lands for Roldan but that she planned to get them for
herself may be deduced from the very short time
between the two sales. Only one day had elapsed from
the judicial approval of the sale and the purchase by the
guardian.

AGENTS
The law expressly provides for an exception: the
contract of sale will not be deemed void if the consent of
the principal has been given.
Agents can not buy the property of their principal without
the consent of the latter. BROKERS, however, do not
come within the prohibition, as their authority consists
merely in looking for a buyer or seller, and to bring the
latter and his principal together to consummate the
transaction. He is a mere go-between or middleman
between the seller and the buyer, bringing them together
to make the contract themselves.
Of course, after the agency is terminated, the agent can
buy the property of the principal, which was formerly
under his administration. Neither is he prohibited from
buying properties of the principal which are not included
among the properties of which he was commissioned to
sell.
Agent is one who accepts anothers representation to
perform in his name certain acts of more or less
transcendancy. The agents incapacity to buy his
principals property rests on the fact that greed might get
the better of the sentiments of loyalty and
disinterestedness which should animate an administrator
of agent.
Sale is only voidable because only private interests are
affected. The defect can be cured by ratification.
EXECUTORS AND ADMINISTRATORS
Although executors and administrators can not buy the
property under their administration, an executor may buy
the hereditary rights of an heir to the estate under his
administration, because the buyer, in such case, can not
get the share of the heir in the estate until after the
administration is ended.
Sale is only voidable because only private interests are
affected. The defect can be cured by ratification.
LAWYERS
The prohibition covering lawyers is intended to curtail
any undue influence of the lawyer on his client on
account of their confidential association.
The prohibition does not apply to other properties of the
client, nor to assignments of the property formerly in
litigation, when such assignment will take effect only
after final judgment (compensation of lawyers payable
on a contingent basis, unless unconscionable).
Rubias v. Batiller
Held: SALE VOID. Even assuming that Militante had
anything to sell, the deed of sale executed in 1956 by
him in favor of plaintiff, at a time when plaintiff was
concededly his counsel of record in the land registration
case involving the very land in dispute, was properly
declared inexistent and void by the lower court, as
decreed by CC Art. 1409 in relation to CC Art. 1491.
The permanent disqualification of public and judicial
officers and lawyers grounded on public policy differs

12

from that of guardians, agents, and administrators, as to


whose transactions may be ratified by means of, and in
the form of, a new contract; in which its validity shall be
determined by the circumstances at the time of the
execution of the new contract. The causes of nullity
which have ceased to exist cannot impair the validity of
the new contract. Thus, the object which was illegal at
the time of the first contract, may have already become
lawful at the time of the new contract; or the service
which was impossible may have beome possible; or the
intention which could not be ascertained may have been
clarified by the parties. The ratification or second
contract would then be valid from its execution; however,
it does not retroact to the date of the first contract.
PUBLIC OFFICERS AND EMPLOYEES WITH
RESPECT TO THE PROPERTIES OF THE
GOVERNMENT, ITS SUBDIVISIONS, OR GOCCS,
THAT ARE ENTRUSTED TO THEM
The prohibition regarding officials who intervene in the
administration of justice is intended not only to remove
any occasion for fraud but also to surround them with the
prestige necessary to carry out their functions by freeing
them from al the suspicion which, although unfounded,
tends to discredit the institution by putting into question
the honor of said functions.
Sale is void, public interests being involved therein.
The prohibition includes judges and government experts
who, in any manner, take part in the sale.
JUDGES, JUSTICES, PROSECUTING ATTORNEYS,
CLERKS OF COURTS, ETC., WITH RESPECT TO
PROPERTY IN CUSTODIA LEGIS
The incapacity of justices and judges extends to
properties or rights in litigation in their territorial
jurisdiction.
Thus, an RTC judge can buy properties in litigation
outside of his territorial jurisdiction.
The prohibition extends to properties levied upon by
execution.
Sale is void, public interests being involved therein.
A contract for a contingent fee is not covered because
the transfer or assignment of the property in litigation
takes effect only after the finality of a favorable
judgment.
The fact that the property in question was first
mortgaged by the client to his lawyer and only
subsequently acquired by the latter in a foreclosure sale
long after the termination of the case will not remove it
from the scope of the prohibition for at the time the
mortgage was executed the relationship of lawyer and
client still existed/. To rule otherwise would be to
countenance indirectly what cannot be done directly.
Violation of this prohibition also constitutes a breach of
professional ethics for which the lawyer may be
reprimanded, suspended, or disbarred.

Macariola v. Asuncion

Facts: Judge bought a portion of a lot involved in a civil


case he rendered two years earlier.
Issue: WON sale was valid. YES.
Held: SALE STILL VALID. The prohibition applies only
to the sale or assignment of the property which is the
subject of litigation. In the case at bar, when the
respondent Judge purchased the lot, the case was
already final because none of the parties filed an appeal;
hence, the lot in question was no longer subject of the
litigation. Furthermore, respondent Judge did not buy the
lot in question directly from the plaintiffs but from Dr.
Galapon. While it is true that respondent Judge did not
violate paragraph 5, Article 1491 of the New Civil Code,
it was, however, improper for him to have acquired the
same. He should be reminded of Canon 3 of the Canons
of Judicial Ethics which requires that: "A judge's official
conduct should be free from the appearance of
impropriety, and his personal behavior, not only upon the
bench and in the performance of judicial duties, but also
in his everyday life, should be beyond reproach." The
conduct of respondent gave cause for the litigants, the
lawyers practising in his court, and the public in general
to doubt the honesty and fairness of his actuations and
the integrity of our courts of justice.
EXAMPLES of other persons especially disqualified
by law:
(1) aliens purchasing private agricultural lands (Art XII,
Secs 3 & 7, Consti);
(2) an unpaid seller having a right of lien(Art 133 par
5) (Baviera)

III. SUBJECT MATTER


Requisites of a valid subject matter
Art. 1459. The thing must be licit and the vendor must
have a right to transfer the ownership thereof at the time
it is delivered. (n)
Art. 1460. A thing is determinate when it is particularly
designated or physical segregated from all other of the
same class.
The requisite that a thing be determinate is satisfied if at
the time the contract is entered into, the thing is capable
of being made determinate without the necessity of a
new or further agreement between the parties. (n)
Art. 1461. Things having a potential existence may be
the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is
deemed subject to the condition that the thing will come
into existence.
The sale of a vain hope or expectancy is void. (n)
Art. 1462. The goods which form the subject of a
contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured,

13

raised, or acquired by the seller after the perfection of


the contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency
which may or may not happen. (n)
Art. 1463. The sole owner of a thing may sell an
undivided interest therein. (n)
Art. 1464. In the case of fungible goods, there may be a
sale of an undivided share of a specific mass, though the
seller purports to sell and the buyer to buy a definite
number, weight or measure of the goods in the mass,
and though the number, weight or measure of the goods
in the mass is undetermined. By such a sale the buyer
becomes owner in common of such a share of the mass
as the number, weight or measure bought bears to the
number, weight or measure of the mass. If the mass
contains less than the number, weight or measure
bought, the buyer becomes the owner of the whole mass
and the seller is bound to make good the deficiency from
goods
Art. 1465. Things subject to a resolutory condition may
be the object of the contract of sale. (n)
A. Licit
Art. 1347. All things which are not outside the commerce
of men, including future things, may be the object of a
contract. All rights which are not intransmissible may
also be the object of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be
the object of a contract. (1271a)
Art. 1459. The thing must be licit and the vendor must
have a right to transfer the ownership thereof at the time
it is delivered. (n)
Art. 1575. The sale of animals suffering from contagious
diseases shall be void.
A contract of sale of animals shall also be void if the use
or service for which they are acquired has been stated in
the contract, and they are found to be unfit therefor.
(1494a)
Art. 1409. The following contracts are inexistent and
void from the beginning:
(1) Those whose cause, object, or purpose is contrary to
law, morals, good customs, public order, and public
policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time
of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;

(6) Those where the intention of the parties relative to


the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right
to set up the defense of illegality be waived.
A thing is licit when:
1. It is not outside the commerce of men
2. It is not intransmissible
3. It does not contemplate a future inheritance, unless
expressly authorized by law (Art. 13470
The thing must be licit and the vendor must have a right
to transfer the ownership thereof at the time it is
delivered (Art. 1459)
Where goods are sold by a person who is not the owner
thereof (who does not sell them under authority or with
the consent of the owner), the buyer acquires no better
title to the goods than the seller had (Art. 1505)
When the subject matter is illicit, the resulting contract is
void (Art. 1409 [1])
Kinds of illicit things:
1. Illicit per se (of its nature)
2. Illicit per accidens (because of some provisions of law
declaring it illegal)
Examples of void sale due to being illicit:
1. Sale of animals suffering from contagious diseases
(Art. 1575)
2. Sale of animals if the use or service for which they are
acquired has been stated in the contract, and they are
found to be unfit therefore (Art. 1457)
3. Sale of future inheritance (Art. 1347)
4. Sale of land in violation of the constitutional prohibition
against the transfer of lands to alients (Art. XII,
Constitution)
Martinez v. CA
Facts: Petitioners were registered owners of 2 parcels of
land in Pampanga. There had been problems with the
installation of a dike because RA 2056 which prohibited
the installation of dams and dikes in public waters. The
mayor had been claiming the land to be a public
property.
Issue: WON the land is a river (public property) or
merely a fishpond (private property)
Ratio: The disputed property is bounded practically on
all sides by rivers, as stated in the technical description
of both parcels of land appearing in the original
certificate of title. The lot in question here is a branch of
the main river that has been covered with water since
time immemorial and, therefore, part of the public
domain. Therefore, land of petitioners is a river which is
not capable of private appropriation.
B. Determinate or at least Determinable

14

Art. 1460. A thing is determinate when it is particularly


designated or physical segregated from all other of the
same class.
The requisite that a thing be determinate is satisfied if at
the time the contract is entered into, the thing is capable
of being made determinate without the necessity of a
new or further agreement between the parties. (n)
Determinate thing that which is:
1. Particularly deisignated; or
2. Physically segregated from all others of the same
class.
Determinable thing
Requisites:
1. At the time the contract is entered into, the thing is
capable of being made determinate; and
2. There is no necessity for a new or further agreement
between the parties.
Note: Art. 1165 provides that if the obligation to deliver is
a determinate thing, the creditor has the right to compel
specific performance and to recover damages for breach
of the obligation.
Services cannot be the object of contract of sale
because services are not determinate things and no
transfer of ownership is available in services.
Melliza v. City of Iloilo
Facts: Juliana Melliza donated a parcel of land to Iloilo
city to serve as the site of the Municipal Hall under the
Arellano Plan but the donation was revoked. Lot was
then divided into A, B, C and D. She later sold Lot C&D
but with an annotation stating that she sold the portion
intended to serve as the Municipal Hall according to the
Arellano Plan. Juliana Melliza sold Lot B to Villanueva
who sold to Pio Melliza. At the same time Iloilo donated
the land it had bought to UP Iloilo.
Issue: WON the conveyance of Juliana Melliza to Iloilo
included only Lot C&D or was actually Lot B,C and D
Ratio: It was actually B,C and D. The intention of Juliana
Melliza was to sell the lots sufficient for the construction
of the Iloilo Municipal Hall. The requirement of law that a
sale must have for its object a determinate thing is
fulfilled as long as, at the time the contract is entered
into, the object is capable of being made determinate
without the necessity of a new or further agreement
between the parties. At the time the Arellano plan
existed, the area needed for the Municipal Hall had
already been determined (Lot B, C&D). Thus when
Juliana added the annotation that she was selling the
portion of land intended to be the Municipal Hall, it
included Lot B in the sale.
Atilano v. Atilano
Facts: Eulogio Atilano (E1) purchased a parcel of land
and divided into 5. (Lot A, B, C, D and E). He sold Lot E
to his brother E2. He sold the others leaving Lot A to
himself. Later E2 found out that what he was actually
occupying was Lot A, not Lot E. E2 wanted to exchange
properties with E1 because the actual Lot E was bigger.

Issue: WON an exchange of their property should be


ordered (No)
Ratio: Upon sale of a piece of land, the land is identified
by its metes and bounds not by the lot number in its
certificate of title. The intention of the sale to E2 was to
sell the lot he was already residing at, Lot A. The
designation of it being Lot E was a mere mistake in
drafting the document.
C. Existing, Future, or Contingent
Art. 1347. All things which are not outside the commerce
of men, including future things, may be the object of a
contract. All rights which are not intransmissible may
also be the object of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be
the object of a contract. (1271a)
Art. 1348. Impossible things or services cannot be the
object of contracts. (1272)
Art. 1462. The goods which form the subject of a
contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured,
raised, or acquired by the seller after the perfection of
the contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency
which may or may not happen. (n)
Art. 1461. Things having a potential existence may be
the object of the contract of sale.
The efficacy of the sale of a mere hope or expectancy is
deemed subject to the condition that the thing will come
into existence.
The sale of a vain hope or expectancy is void. (n)
Art. 1347. All things which are not outside the commerce
of men, including future things, may be the object of a
contract. All rights which are not intransmissible may
also be the object of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be
the object of a contract. (1271a)
a) Law prohibits sale of future inheritance. The rights to
succession are transmitted from the moment of the
death of the decedent so one cannot sell or promise to
sell what he expects to inherit from a living person.

15

b) Hereditary rights vs. future inheritance: An heir may


sell his hereditary interest during the pendency of the
settlement of the estate of the decedent, such sale is
subject with outcome of the administration proceedings
as the law allows an heir to sell his interests in an
inheritance.
c) Waiver of hereditary rights vs. sale of hereditary
rights: Waiver of hereditary rights technically a mode of
extinction of ownership where there is abdication or
intentional relinquishment of a known right with
knowledge of its existence and intention to relinquish it,
in favor of the other persons who are co-heirs in the
succession. Sale of hereditary rights: presumes the
existence of a contract or deed of sale between the
parties.
d) The object of the contract of sale must be licit,
meaning within the commerce of man, and determinate.
Determinate has been expanded to cover generic things,
future things and things in potential existence.
e) Things subject to a resolutory condition may be the
object of the contract of sale.(Article 1465)

Effect: The buyer becomes a co-owner with the seller of


the whole mass in the proportion in which the definite
share bought bears to the mass.

Actual or Possible Thing it must be existing, future, or


subject to resolutory condition
A thing is actual when it is existing
A thing is possible when it has potential existence

Emptio spei sale of a mere hope or expectancy (e.g.


sale of a sweepstakes ticket where the buyer purchases
the ticket with the hope that upon the draw, the ticket
would win him a million pesos). The object of the same
is not the prize, but the chance to win.

Goods include all chattels personal but not things in


action or money of legal tender in the Philippines
Kinds of Goods:
1. Existing goods owned and possessed by the seller.
May be the object of sale (Art. 1462)
Art. 1459 provides that the seller must have the right to
transfer the ownership at the time the thing is delivered.
Hence, it is not required that the seller is the owner of
the thing at the moment of the perfection of the contract
of sale.
2. Future goods cover goods that are to be
manufactured, raised, or acquired by the seller after the
perfection of the contract of sale (art. 1462)
Property or goods, which at the time of the sale are not
owned by the seller but which thereafter are to be
acquired by him, cannot be the subject of an executed
sale but may be the subject of a contract for the future
sale and delivery thereof, even though the acquisition of
the goods depends upon a contingency which may or
may not happen. In such case, the vendor assumes the
risk of acquiring the title and making the conveyance, or
responding in damages for the vendees loss of his
bargain.
The sole owner of a thing may sell an undivided interest
therein (art. 1463).
Effect: The buyer becomes a co-owner in the thing sold.
An undivided share of a specific mass may be sold (art.
1464)

If later on, it be discovered that the mass of fungible


goods contains less that what was sold, the buyer
becomes the owner of the whole mass, and the seller
shall supply whatever is lacking from goods of the same
kind and quality.
Things subject to a resolutory condition (e.g. pacto de
retro sale) may be the object of the contract of sale (art.
1465)
Emptio rei speratae sale of a thing with potential
existence, subject to a suspensive condition that the
thing will come into existence. If the subject matter does
not come into existence, the contract is deemed
extinguished as soon as the time expires or if it has
become indubitable that the event will not take place
(Art. 1461)

Emptio Rei Speratae and Emptio Spei, Distinguished


Emptio Rei Speratae
Emptio Spei
Definition
Sale of a thing with Sale of a mere hope or
potential existence
expectancy that the thing
will come to existence;
sale of the hope itself
Effectivity of the Contract
Sale is subject to the Sale is effective even if the
condition that the thing will thing does not come into
exist; if it does not, there is existence, UNLESS it is a
no contract
vain hope
Uncertainty
The uncertainty is with The uncertainty is with
regard to the quantity and regard to the existence of
quality of the thing and not the thing
the existence of the thing
Object of Sale
The object is a future thing The object is a present
thing which is the hope or
expectancy
NOTE: In case of doubt, the presumption is in favor of
emptio rei speratae; it is more in keeping with the
commutative character of the contract.
General rule: A person cannot sell or convey what he
does not have or own.
Exceptions:
1. Sale of a thing having potential existence (Art. 1461)
2. Sale of future goods (Art. 1462)
3. Contract for the delivery at a certain price of an article
which the vendor in his ordinary course of the business

16

manufactures or procures for the general market,


whether the same is on hand at the time or not (Art.
1467)
Pichel v. Alonzo
Facts: Alonzo was awarded a piece of land by the govt
through RA 477 which disallowed any encumberance or
alienation of the land. He entered into an agreement with
Pichel for the sale of the coconut fruits from 1968 to
1976.
Issue: WON the contract was a valid contract of sale
(yes)
Ratio: The contract was a valid contract of sale. The
subject matter of the contract was the fruits of the
coconut trees from 1968 to 1976 which subject matter is
a determinate thing. Pending crops which have potential
existence may be the subject matter of a sale. It cannot
be considered merely a lease because the enjoyment of
the fruits is separate from the land itself.
Things subject to a resolutory condition may be the
object of the contract of sale. (Article 1465)
Things subject to a resolutory condition
Art. 1465. Things subject to a resolutory condition may
be the object of the contract of sale. (n)
D. Quantity of subject matter
Art. 1349. The object of every contract must be
determinate as to its kind. 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 a new contract between the
parties. (1273)
PARTICULAR KINDS
a) generic things
Art. 1246. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the obligation
and other circumstances shall be taken into consideration.
(1167a)
Art. 1409. The following contracts are inexistent and void from
the beginning:
(6) Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
-

Generic things could also become subject


matters of a contract of sale provided (1) they
have been physically segregated/ particularly
designated, and (2) they are capable of
substitution

Yu Tek v. Gonzales
Facts: Yu Tek bought 600 piculs of sugar from Gonzales
for P3,000 within a 3 month period. Agreement

stipulated failure to deliver will cause rescission of the


contract along with P1,200 damages. Gonzales failed to
deliver because of the failure of his crops.
Issue: WON the contract is a perfected contract of sale
(No)
Ratio: Gonzales claims that the contract is perfected
thus the loss relieves him of complying with his
obligation. However, this claim cannot stand because
their contract is actually an executory contract/contract
to sell. The court has consistently held that there is a
perfected sale with regard to the thing whenever the
article of sale has been physically segregated from all
other articles. In this case, the agreement to sell sugar
proves that there was no appropriation of any particular
lot of sugar. Their agreement being merely a generic
collection of sugar, the actual 600 piculs was not yet
determined = no perfected contract of sale.
b) future goods
Art. 1462. The goods which form the subject of a
contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured,
raised, or acquired by the seller after the perfection of
the contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency
which may or may not happen. (n)
c) sale of undivided interest or share
Art. 1463. The sole owner of a thing may sell an
undivided interest therein. (n)
Art. 1464. In the case of fungible goods, there may be a
sale of an undivided share of a specific mass, though the
seller purports to sell and the buyer to buy a definite
number, weight or measure of the goods in the mass,
and though the number, weight or measure of the goods
in the mass is undetermined. By such a sale the buyer
becomes owner in common of such a share of the mass
as the number, weight or measure bought bears to the
number, weight or measure of the mass. If the mass
contains less than the number, weight or measure
bought, the buyer becomes the owner of the whole mass
and the seller is bound to make good the deficiency from
goods
d) sale of things in litigation
Art. 1381. The following contracts are rescissible: (4)
Those which refer to things under litigation if they have
been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority;
Art. 1385. (2) Neither shall rescission take place when
the things which are the object of the contract are legally

17

in the possession of third persons who did not act in bad


faith.
1) Sales of things under litigation entered into by
defendants without the knowledge & approval of
the litigants or of the court are rescissible.
2) However, rescission cannot take place when the
rd
things are legally in the possession of 3
persons who did not act in bad faith (& without
knowledge of defect)
3) In an action affecting the title or the right of
possession of real property, the plaintiff may
record in the office of the Registrar of Deeds of
the Province which the property is situated, a
notice of the pendency of the action.
rd
4) From the moment of the filing of such notice, 3
persons are charged with notice of the litigation
& take the property subject to the outcome of the
litigation.

IV. OBLIGATION OF THE


SELLER TO TRANSFER
OWNERSHIP
SALE BY A PERSON NOT THE OWNER AT TIME OF
DELIVERY General Rule: No one can transfer a better
title than what he has over the property sold. Only the
owner of the goods or one authorized by the owner to
sell can transfer title thereto to the buyer.
Art. 1462. The goods which form the subject of a
contract of sale may be either existing goods, owned or
possessed by the seller, or goods to be manufactured,
raised, or acquired by the seller after the perfection of
the contract of sale, in this Title called "future goods."
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency
which may or may not happen. (n)
Art. 1505. Subject to the provisions of this Title, where
goods are sold by a person who is not the owner thereof,
and who does not sell them under authority or with the
consent of the owner, the buyer acquires no better title
to the goods than the seller had, unless the owner of the
goods is by his conduct precluded from denying the
seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or
any other provision of law enabling the apparent owner
of goods to dispose of them as if he were the true owner
thereof;
(2) The validity of any contract of sale under statutory
power of sale or under the order of a court of competent
jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or
markets, in accordance with the Code of Commerce and
special laws. (n)

Art. 1459. The thing must be licit and the vendor must
have a right to transfer the ownership thereof at the time
it is delivered. (n)
EXCEPTIONS: When ownership transfers by nonowner
1. Estoppel
If the owner of the goods is precluded by his conduct
from denying the sellers authority to sell, buyer may
acquire a better title, although the seller had neither the
title nor the authority to sell the goods.
Art. 1434. When a person who is not the owner of a
thing sells or alienates and delivers it, and later the seller
or grantor acquires title thereto, such title passes by
operation of law to the buyer or grantee.
Hernaez v. Hernaez
Facts: Spouses Hernaez died leaving undivided estate
with descendants. Domingo, their son, sold his entire
share to his son Vicente. Domingo sold his shares to
Alejandro, in connivance with his son. Alejandro filed a
motion asking to be substituted as assignee of the
interests of which he purchased. Rosendo, sibling of
Domingo, with knowledge of the sale, entered into a
contract with Vicente, conveying all Vicentes interest in
the estate. She then instituted action seeking to
subrogate himself in the rights acquired by Alejandro.
Issue: WON Alejandro acquired the shares of the estate
(Yes)
Ratio: Alejandro acquired the rights of Domingo, but
under Art. 1607, Rosendo has the right to subrogate
himself in the place of the buyer if he pays the value of
the purchase within 1 month. LESSON: Alejandro was
able to acquire the share of the estate because the true
owner at the time (Vicente), allowed another (Domingo)
to appear as the owner or one with full authority to
dispose and the innocent 3rd party (Alejandro) is misled
into dealing with such apparent owner.
Siy Cong Bien V. HSBC
Facts: Ranft purchased hemp from Siy Cong Bien. The
hemp were deposited in bonded warehouses evidenced
by quedans. Siy Cong Bien sent quedans (warehouse
receipts) in blank to Raft. Raft delivered said quedans to
HSBC as a pledge for a preexisting debt. Later Raft
died. Siy Cong Bien demanded the return of the
quedans since payment was not made but HSBC
refused.
Issue: WON Siy Cong Bien is estopped from denying
that HSBC had validly acquired title to the quedans
(Yes)
Ratio: Siy Cong Bien voluntarily clothed Raft, who
negotiated the quedans with all the attributes of
ownership, by endorsing it in blank, upon which the bank
relied, he is estopped to deny that the bank had a valid
title to the quedans, despite breach of trust and violation
of the agreement on the part of Raft.
Jalbuena v. Lizarraga

18

Facts: Lizarraga (creditor), caused the sherrif to levy a


suger-mill which was property of Doronilla (debotor and
husband of Jalbuena), who stated that he owned the
sugar-mill. Mill was sold in a public sale to Lopez.
Jalbuena then instituted an action to recover on the
ground that it was her exclusive property.
Issue: WON sale in public sale was valid (Yes)
Ratio: Jalbuena knew that the mill had been levied at
the time the levy was made, and also knew it was sold
as her husbands property. She stood by and permitted
the sale to go forward without protest or action. The
owner of the property, who knowingly permits his
property to be sold at a judicial sale, without asserting
his title or right, cannot afterwards set up his claim.
2. Recording Laws; Torrens System PD 1529
We do not have any similar act to Factors Act in the
Philippines. Instead, the general principle in agency
embodied in the Civil Code adopts the rule that one
deals with an agent at his own risk. Neither do we have
any recording laws relating to goods which would enable
the registered owner to dispose of them as if he were the
true owner.
3. Statutory Sale - Order of Courts
The general principle that the vendor must be the owner
or the one authorized by the owner to sell the goods in
order to pass title over them to the buyer does not apply
when the sale takes place by virtue of a power granted
by law or by a court. Thus a sale by the sheriff, or by
other execution or subject of foreclosure, is valid even if
the owner did not authorize or consent to the sale
Validity of sale under statutory power (legal sale e.g.
law authorizing sale of patrimonial property to a specific
person at auction) or of court to sell (judicial sale e.g.
writ of execution levying upon the debtors property at
auction)
4. Sale in Merchants Store, Market or Fair
An innocent purchaser acquires a better title than his
vendor if he buys the goods from a merchants store,
market or fair.
Purpose of the exception: (1) to protect innocent
purchasers who buy at merchant stores, market or fair
(2) To facilitate commercial sales in movables (3) To
give stability to business transactions
Sun Bros. V. Velasco
Facts: Sun Bros sold refrigerator to Francis Lopez with
stipulation that it shall remain property of Sun Bros until
fully paid. However, Lopez sold the ref to JV Trading,
business store owned by Velasco, misrepresenting
himself to be the absolute owner. Velasco sold to Co
Kang Chiu.
Issue: Who was the lawful owner of the ref? (Co Kang
Chiu)
Ratio: Under 1505(3) Co Kang Chiu acquired a valid title
to the ref, although his predecessors in interest did not
have any right of ownership over it, because he acquired
it in good faith, in a public sale. This is to protect

innocent buyers who buy at merchant stores, fairs or


markets, in order to facilitate commercial sales in
movables and to give stability to business transactions.

Masiclat v. Centeno
Facts: Centeno sold sacks of rice at a store on a street
near the public market. A person offered to buy 15 sacks
of rice, to be paid as soon as he sold his adobe stone,
which was being unloaded, from a truck on the opposite
side of the street. Centeno then order the sacks of rice to
be loaded onto the truck. Masiclat, loaded the rice while
Centeno watched. However the buyer did not come
back. Upon orders of Centeno to unload the rice,
Masiclat objected. Masiclat claimed to have bought the
rice.
Issue: WON Masiclat had better title to the rice over
Centeno (No)
Ruling: Centeno did not lose her ownership over the
rice as she did not intend to part with her ownership over
the rice until the price was paid. This was evident by her
watching the sacks being loaded in the truck. As
masiclat did not buy the rice from a merchants store or
market, he did not acquire a better title than Centeno.
SALE BY A PERSON HAVING A VOIDABLE TITLE
- Seller can transfer a valid title to an innocent
purchaser for value, unless title was annulled.
- So long as the goods are still in the possession of
the 1st buyer, they may still be recovered by the
vendor in an action for annulment.
- But once it has been transferred to an innocent
purchaser for value before the contract is annulled,
the latter acquired a valid title.
- An antecedent or pre-existing claim, WON for
money constitutes value where goods or document
of titloe are taken in satisfaction thereof or as
security therefore
Art. 1506. Where the seller of goods has a voidable title
thereto, but his title has not been avoided at the time of
the sale, the buyer acquires a good title to the goods,
provided he buys them in good faith, for value, and
without notice of the seller's defect of title. (n)
Art. 559. The possession of movable property acquired
in good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully
deprived thereof may recover it from the person in
possession of the same.
If the possessor of a movable lost or which the owner
has been unlawfully deprived, has acquired it in good
faith at a public sale, the owner cannot obtain its return
without reimbursing the price paid therefor. (464a)
Tagatac v. Jimenez (1506 applies)
Facts: Tagatac owned a car bought from California. He
sold it to Feist, posing as a very wealthy man. They
signed a deed of absolute sale and Tagatac delivered
the car in exchange for a postdated check. The checks

19

bounced. Feist then sold the car to Sanchez, who sold it


to Jimenez, who delivered the car to a car exchange to
display it for sale. Tagatac found the car on display and
filed suit for recovery of possession.
Issue: WON Tagatac can recover the car (No)
Ratio: 559 does not apply because Tagatac was not
unlawfully deprived. There was a valid transmission of
ownership from Tagatac to Fiest. The failure to pay price
does not validly affect the transfer. The fraud employed
made the contract merely voidable. Not being voided at
the time Fiest sold it to Sanchez, there was a valid
transmission of ownership under Art 1506. As the car
was again sold to Jimenez, the title acquired by him was
an indefeasible one, even as against the original owner.

house but was left there and was never seen again.
Marella sold the car to Jose Aznar.
Issue: WON Santos had better right to possession (Yes)
Ratio: The ownership was not transferred by mere
contract, it requires delivery of the thing. The car was
never delivered to Marella, he took possession by
stealing the car. Art 559 applies. The effect of the thing
being lost or unlawfully deprived, grants the owner the
right to recover it from the possessor, even if bought in
good faith.

De Garcia v. CA (559 applies)


Facts: Guevarras ring was stolen. While Guevarra was
talking to De Garcia, she recognized her ring in the
finger of De Garcia who said she had bought it from her
friend. They had the ring checked in a store where they
found out it was the same ring stolen. Guevarra sought
to recover the ring.
Issue: WON Guevarra has a right to recover the ring
(Yes)
Ratio: Using Art. 559, Guevarra had been unlawfully
deprived of her ring, thus she was entitled to recover it
from De Garcia who had possession of the ring. The
only exception to the rule is when the thing is acquired in
good faith at a public sale, where owner cannot recover
it without reimbursing the price paid.

Meaning of Price

EDCA Publishing v. Santos (1506)


Facts: A person identifying himself as Prof. Cruz
ordered 406 with EDCA. Upon delivery Cruz issued a
check. Cruz then sold 120 books to Santos. EDCA,
being suspicious over a second order placed by Cruz
even before clearing his first check, investigated and
found out that Cruz was imposter. Cruz was arrested
and the books were seized from Santos.
Issue: WON EDCA had been unlawfully deprived of the
books (No)
Ratio: Art. 1506 applies. EDCA was not unlawfully
deprived of the books because the sale was already
perfected. Having acquired the ownership through
delivery, he could validly transfer ownership to Santos.
Ownership does not pass until full payment only if it is
stipulated. Otherwise, ownership passes upon actual or
constructive delivery even if price has not been paid.
Aznar v. Yapdiangco (559)
Facts: Teodoro Santos advertised the sale of his car.
Marella agreed to buy the car and pay the price after it
was registered in his name. A deed of absolute sale was
executed in Marellas favor. The papers were left with his
son Irineo Santos. Irineo demanded payment from
Marella who said he was short in cash and requested if
they could go to his sisters to borrow money. He sent
Irineo with de Dios to go to his sisters house but
requested for the registration papers to show to his
lawyers. Irineo accompanied de Dios to Marellas sisters

V. PRICE

Art 1469. Should such person or persons be unable or


unwilling to fix it, the contract shall be inefficacious,
unless the parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by
mistake, the courts may fix the price.
Where such third person or persons are prevented from
fixing the price or terms by fault of the seller or the buyer,
the party not in fault may have such remedies against the
party in fault as are allowed the seller or the buyer, as the
case may be. (1447a)
Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or
some other act or contract. (n)
Art. 1471. If the price is simulated, the sale is void, but
the act may be shown to have been in reality a donation,
or some other act or contract. (n)
Art. 1472. The price of securities, grain, liquids, and other
things shall also be considered certain, when the price
fixed is that which the thing sold would have on a definite
day, or in a particular exchange or market, or when an
amount is fixed above or below the price on such day, or
in such exchange or market, provided said amount be
certain. (1448)
Art. 1473. The fixing of the price can never be left to the
discretion of one of the contracting parties. However, if
the price fixed by one of the parties is accepted by the
other, the sale is perfected. (1449a)
Art. 1474. Where the price cannot be determined in
accordance with the preceding articles, or in any other
manner, the contract is inefficacious. However, if the
thing or any part thereof has been delivered to and
appropriated by the buyer he must pay a reasonable
price therefor. What is a reasonable price is a question of
fact dependent on the circumstances of each particular
case. (n)

20

1. A contract of sale is null & void and produces no effect


whatsoever if the same is without cause or
consideration or that the price which appears to have
been paid has in fact never been paid.
2. The existence of a contract is permanent & incurable.
3. The statement of a false cause in contracts shall render
them void if it should not be proven that were founded
upon another cause which is true & lawful (1471, 1353)
4. If the price is simulated, the sale is void but the act may
be shown to have been in reality a donation, or some
other act or contract (1471)
A. Requisites of a valid price
1. must be real
Art. 1471. If the price is simulated, the sale is void, but
the act may be shown to have been in reality a donation,
or some other act or contract. (n)
Art. 1353. The statement of a false cause in contracts
shall render them void, if it should not be proved that
they were founded upon another cause which is true and
lawful. (1276)
Art. 1354. Although the cause is not stated in the
contract, it is presumed that it exists and is lawful, unless
the debtor proves the contrary. (1277)
1. False Price there is a true price but it was not
written down or stipulated in the contract. There was
a consideration although it was not found in the
contract (Real consideration not stated)
2. Simulated Price There was no price paid. The
parties merely said there was a price and created
their own price (no consideration but stated)
Mapalo v. Mapalo
Facts: Miguel Magpalo and Candida Quiba owned a
parcel of land. Miguel donated eastern half to his brother
Maximo. During signing of deed of absolute sale,
Maximo deceived Miguel into signing for the sale of the
entire property. Document stated consideration of P500
but was never received by Miguel Magpalo. 13 years
later, Maximo sold to Narcisos.
Issue: WON the document purposrting to sell the entire
land in favor of Maximo is void for having no
consideration (Yes)
Ratio: There was no donation since liberality as a cause
or consideration did not exist as regards the other half
(western) of the land. As a contract of sale, the essential
elements need to present. In this case, there was no
consideration. a contract of purchase and sale is null
and void and produces no effect whatsoever where the
same is without cause or consideration in that the
purchase price which appears thereon as paid has in
fact never been paid by the purchaser to the vendor;
Ong v. Ong

Facts: Imelda Ong executed a quitclaim deed,


transferring her rights, title and interest to Sandra
Maruzzo, for 1 peso and other valueable considrations.
Later, Imelda revoked the quitclaim then donated the
property to Rex. Sandra sought to recover ownership
and possession.
Issue: WON the quticlaim deed was a valid deed of sale
(Yes)
Ratio: The consideration is not one peso alone, but also
the other valueable considerations. Although the
consideration is not stated in the contract, it is presumed
that it exists unless the debtor proves the contrary. It is
not unusual, however, in deeds of conveyance adhering
to the Anglo-Saxon practice of stating that the
consideration given is the sum of P1.00, although the
actual consideration may have been much more.
Bagnas v. CA
Facts: Hilario Mateum died without any ascendants and
descendants, leaving only collateral relatives, 29 parcels
of land. Other collateral relatives, remote in degree,
show claim to 10 parcels of land registered in 2 deed of
sales, in their favor, purportedly executed by Mateum.
The consideration was 1 peso and services rendered,
being rendered, and to be rendered for my benefit.
Issue: WON the sale is void for want of consideration
(Yes)
Ratio: upon the consideration alone that the apparent
gross, not to say enormous, disproportion between the
stipulated price (in each deed) of P1.00 plus unspecified
and unquantilled services and the undisputably valuable
real estate allegedly sold worth at least P10,500.00
going only by assessments for tax purposes which, it is
well-known, are noteriously low indicators of actual value
plainly and unquestionably demonstrates that they
state a false and fictitious consideration, and no other
true and lawful cause having been shown, the Court
finds both said deeds, insofar as they purport to be
sales, not merely voidable, but void ab initio.
Morales v. CA
Facts: Enrique Montinola, alleged to have lost his
duplicate TCT, requested for a new duplicate. Using this
duplicate, he sold the land to Reyes Abella
Deseos, currently in possession. Original TCT was found
and Montinola mortgaged property to PNB, and sold to
Morales. Morales was advised by Registar of deed that
his TCT was already cancelled by the sale to Reyes.
Morales filed for annulment of sale to Reyes.
Issue: WON the sales to Reyes and later to Abella null
and void (No)
Ratio: Consideration in the deed of sale to Reyes was 1
peso, which is not unusual. Even assuming that said
consideration of P1.00 is suspicious, this circumstance,
alone, does not necessarily justify the inference that
Reyes and the Abellas were not purchasers in good faith
and for value. Neither does this inference warrant the
conclusion that the sales were null and void ab initio.
Indeed, bad faith and inadequacy of the monetary
consideration do not render a conveyance inexistent, for
the assignors liberality may be sufficient cause for a

21

valid contract, whereas fraud or bad faith may render


either rescissible or voidable although valid until
annulled, a contract concerning an object certain,
entered into with a cause and with the consent of the
contracting parties, as in the case at bar.
2. must be in money or its equivalent
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
(1445a)
Art. 1468. If the consideration of the contract consists
partly in money, and partly in another thing, the
transaction shall be characterized by the manifest
intention of the parties. If such intention does not clearly
appear, it shall be considered a barter if the value of the
thing given as a part of the consideration exceeds the
amount of the money or its equivalent; otherwise, it is a
sale. (1446a)
1.The price should be in money or its equivalent (e.g.
letters of credit & other negotiable instruments).
Otherwise, the transaction might be barter or an
innominate contract.
2.Property given to the creditor in satisfaction of a debt
in money with the PRICE PAID IN ADVANCE is a sale.
DATION IN PAYMENT
SALE
Presupposes
a
prior
existing
credit
&
extinguishes the obligation

Obligations are created


from the perfection of the
contract

3. Fixing of the price is more or less arrived at with


ample
contractual freedom than the value of the thing given in
dation.
Republic v. Phil. Resources
Facts: Macario Apostol of Phil. Resources bough logs
from the Bureau of Priosons. However, he defaulted in
paying P34K where an action was instituted against him.
In order to settle the debt, he used inventory (sheets,
pipes, and plates) of Phil Resources in paying. Phil.
Resources complained and sought return of goods.
Issue: WON use of the inventory to pay is allowed (No)
Ratio: Although Art. 1458 of the new Civil Code provides
that price . . . is always paid in terms of money and the
supposed payment being in kind it is no payment at all,"
yet the same article provides that the purchaser may pay
"a price certain in money or its equivalent" which means
that payment of the price need not be money.
3. Must be certain or ascertainable at time of
perfection

Art. 1469. In order that the price may be considered


certain, it shall be sufficient that it be so with reference to
another thing certain, or that the determination thereof
be left to the judgment of a special person or persons.
Should such person or persons be unable or unwilling to
fix it, the contract shall be inefficacious, unless the
parties subsequently agree upon the price.
If the third person or persons acted in bad faith or by
mistake, the courts may fix the price.
Where such third person or persons are prevented from
fixing the price or terms by fault of the seller or the
buyer, the party not in fault may have such remedies
against the party in fault as are allowed the seller or the
buyer, as the case may be. (1447a)
Toyota Shaw v. CA
Facts: Luna Sosa purchased from Toyota Shaw a
Toyota Lite Ace, claiming that he needed the unit not
later than June 17 because he would become a
laughing stock in his hometown if he ddint go home
with the new care. Bernardo, the sales rep, assured that
the unit would be ready by the said date. They executed
Exhibit A which stated: downpayemnt of P100K, the unit
will be released on June 17, the balance would be paid
by credit financing through BA Finance. On June 17,
vehicle was not ready allegedly because BA Finance did
not approve credit financing application, and that they
enough units.
Issue: WON there was a perfected sale and WON Sosa
had a legal and demandable right to delivery of the unit.
(No)
Ratio: Article 1458 of the Civil Code defines a contract
of sale and Art. 1475 specifically provides when it is
deemed perfected. The document (in Exhibit A, see
case), executed and signed by the petitioner's sales
representative, is not a contract of sale. No obligation on
the part of Toyota to transfer ownership of a determinate
thing to Sosa and no correlative obligation on the part of
the latter to pay therefor a price certain appears therein.
The provision on the downpayment of P100,000 made
no specific reference to a sale of a vehicle. If it was
intended for a contract of sale, it could only refer to a
sale on installment basis, as the VSP executed the
following day confirmed. But nothing was mentioned
about the full purchase price and the manner the
installments were to be paid. This Court had already
ruled that a definite agreement on the manner of
payment of the price is an essential element in the
formation of a binding and enforceable contract of sale.
This is so because the agreement as to the manner of
payment goes into the price such that a disagreement on
the manner of payment is tantamount to a failure to
agree on the price. Definiteness as to the price is an
essential element of a binding agreement to sell
personal property.
How price is determined

22

General Rule: Fair Market Value price seller is willing


to sell but is not obliged to and price buyer is willing to
buy but is not obliged to.
a) by a third person
Art. 1469. In order that the price may be considered
certain, it shall be sufficient that it be so with reference to
another thing certain, or that the determination thereof
be left to the judgment of a special person or persons.
b) by the courts
Art. 1469. (3) If the third person or persons acted in bad
faith or by mistake, the courts may fix the price.
c) by reference to definite day, particular exchange
market
Art. 1472. The price of securities, grain, liquids, and
other things shall also be considered certain, when the
price fixed is that which the thing sold would have on a
definite day, or in a particular exchange or market, or
when an amount is fixed above or below the price on
such day, or in such exchange or market, provided said
amount be certain. (1448)
d) by reference to another thing certain
Art. 1469. In order that the price may be considered
certain, it shall be sufficient that it be so with reference to
another thing certain
e) never by one party
Art. 1473. The fixing of the price can never be left to the
discretion of one of the contracting parties. However, if
the price fixed by one of the parties is accepted by the
other, the sale is perfected. (1449a)
Art. 1182. When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will
of a third person, the obligation shall take effect in
conformity with the provisions of this code. (1115)
Inadequacy of price
Art. 1355. Except in cases specified by law, lesion or
inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence.
(n)
Art. 1470. Gross inadequacy of price does not affect a
contract of sale, except as it may indicate a defect in the
consent, or that the parties really intended a donation or
some other act or contract. (n)
When no price agreed

Art. 1474. When the price cannot be determined in


accordance with the preceding articles, or in any other
manner, the contract is inefficacious. However, if the
thing or any part thereof has been delivered to and
appropriated by the buyer, he must pay a reasonable
price therefor. What is a reasonable price is a question
of fact dependent on the circumstance of each particular
case (n)
Manner of Payment must be agreed upon
Velasco v. CA
Facts: Lorenzo Velasco entered into a contract with
Magdalena Estate for the sale of a pacel of land for
P100K. As agreed, Velasco shall play Downpayment of
P10K, followed by P20K then the balance of P70K paid
in installments as soon as P30K downpayment is paid.
After paying P10K, Magdalena refused to accept the
P20K payment. Magdalena claims land was already
leased by Sorroco Velasco, the sister-in-law of Lorenzo,
and Sorroco offered to purchase the property for
Lorenzo. However, she only paid P10K as downpayment
instead of the P30K, which caused Magdalena to rescind
the contract.
Issue: WON Magdalena entered into a consummated
sale with Velasco (No)
Ratio: It is not difficult to glean from the aforequoted
averments that the petitioners themselves admit that
they and the respondent still had to meet and agree on
how and when the down-payment and the installment
payments were to be paid. Such being the situation, it
cannot, therefore, be said that a definite and firm sales
agreement between the parties had been perfected over
the lot in question. Indeed, this Court has already ruled
before that a definite agreement on the manner of
payment of the purchase price is an essential element in
the formation of a binding and enforceable contract of
sale. The fact, therefore, that the petitioners delivered to
the respondent the sum of P10,000 as part of the downpayment that they had to pay cannot be considered as
sufficient proof of the perfection of any purchase and
sale agreement between the parties under Art. 1482 of
the new Civil Code;
Earnest money (cf. option money)
Art. 1482. Whenever earnest money is given in a
contract of sale, it shall be considered as part of the
price and as proof of the perfection of the contract.
(1454a)
Payment of earnest money considered payment of
part of the price; proof of perfection of the contract;
may be given as a guarantee that the vendee would
not back out.
EARNEST MONEY

OPTION MONEY

Part of
price

Distinct consideration for


an option contract

the

purchase

23

Given only when there is


already a sale

Given when the sale is not


yet perfected

When given, the buyer is


bound
to
pay
the
balance

When given, the would-be


buyer is not bound to pay
the balance; he may even
forfeit it

Limson v. CA
Facts: Spouses De Vera through their agent Sanchez,
sold a lot to Limson. Limson paid P20K as earnest
money with 10 days option period to purchase the
property. De Vera informed Limson that the property was
mortgaged to Ramos and asked for the payment of the
balance to pay the mortgage. However, De Vera and
Ramos failed to appear at the meetings. Thus Limson
gave 3 checks to settle the payment. However, he later
found out that the property was sold to Sunvar Realty
Development after finally purchasing the lot.
Issue: WON there was a perfected contract to sell
between Limson and De Vera (No)
Ratio: The contract was an option contract and not a
contract to sell. The contract shall be interpreted by
looking at the inention of the parties, in this case only to
enter into a contract of option. The P20K referred as
earnest money is actually option money. But there is
nothing in the acts, conduct or words of Limson that
clearly manifest a present intention or determination to
accept the offer to buy the property of respondent
spouses within the 10-day option period. Limson only
manifested the intention to exercise the option after the
10 day period.
San Miguel v. Huang
Facts: San Miguel Property owned 2 lots along Meralco
Ave and offered to sell it to Helen Dauz for P52M. Dauz
offered P500K earnest money and tha balance to be
nd
paid in 8 installments. SMP refused. Dauz gave 2 offer
proposing P1M earnest money with 30 day option period
to buy and negotiate the terms and conditions. SMP VP
accepted the offer. Negotiations started but eventually
failed. SMP President returned deposit to Dauz for
failure to agre on the terms and conditions
Issue: WON there was a perfected contract of sale (No,
only an option contract)
Ratio: The P1M given was not earnest money but
merely a deposit which would become earnest money
which would become earnest money should a contract of
sale be made. The amount given was not part of the
purchase price but only a guarantee that they would not
back out. The contract was merely in the negotiation
stage,where the parties agree upon the terms of the
contract. While the parties already agreed on the real
properties which were the objects of the sale and on the
purchase price, the fact remains that they failed to arrive
at mutually acceptable terms of payment

VI. FORMATION OF THE


CONTRACT OF SALE
PREPARATORY STAGE
Art. 1479. A promise to buy and sell a determinate thing
for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price. (1451a)
1. Offer
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts. (1450a)
Villonco v. Bormaheco
Facts: Sale of property was made subject to condition
that Bormaheco will acquire the property in Sta. Ana.
There was a series of negotiations between the parties.
In the counter-offer of buyer Villonco, seller Bormaheco
made certain changes - 1. Changed NASSCOs
property in Sta. Ana: to another property in Sta. Ana
and 2. Inserted the words per annum instead of p.a.
Issue: WON the sale was perfected (YES)
Ratio: It is true that an acceptance may contain a
request for certain changes in the terms of the offer and
yet be a binding acceptance. 'So long as it is clear that
the meaning of the acceptance is positively and
unequivocally to accept-the offer, whether such request
is granted or not, a contract is formed.' Thus, it was held
that the vendor's change in a phrase of the offer to
purchase, which change does not essentially change the
terms of the offer, does not amount to a rejection of the
offer and the tender of a counter-offer.
a) forms of offer
The offer must be certain. Business advertisements or
advertisements for bidders are mere invitations to make
an offer, unless otherwise stated.
Art. 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be
certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge.
The contract, in such a case, is presumed to have been
entered into in the place where the offer was made.
(1262a)

24

Art. 1325. Unless it appears otherwise, business


advertisements of things for sale are not definite offers,
but mere invitations to make an offer. (n)
Art. 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the
contrary appears. (n)
Zayco v. Serra
Facts: Zayco and Serra executed a contract for an
option to buy Palma Central for 1M but no
stipulation was made as to how much the first
payment would be and when it should be paid.
Zayco wrote to Serra accepting the contract
tendering P100,000 as his first payment before the
option period expired. Zayco later learned that
Serra had already sold the property to Whitaker and
Concepcion.
Issue: WON Serra could be compelled to execute
the deed of sale in favour of Zayco (No)
Ratio: In order for an acceptance to have the effect
of converting an offer to sell into a perfect contract,
it must be plain and unconditional. It will not be so if
it involves any new proposition for in that case, it
will not be the acceptants conformity with the offer
w/c is what gives rise to the birth of the contract. In
this case, there was no concurrence of offer and
acceptance. Serras offer did not state the amount
of first payment. When Zayco accepted the offer,
tendering the sum of P100,000 as first payment, his
acceptance involved a proposal, not contained in
the offer, that this precisely, and not any other,
should be the amount of the first payment.
b) form of acceptance
Art. 1319, supra.
1.The acceptance must be absolute.
2.The acceptance must be plain and unconditional.
3.To bind the offeror, the offeree must comply with the
conditions of the offer. Where the acceptance was not
in accordance with the terms and conditions of the
offer, the offer lapsed even though the offeree later on
was willing to accept the terms and conditions of the
offer.
c) vices vitiating consent
Art. 1330. A contract where consent is given through
mistake, violence, intimidation, undue influence, or fraud
is voidable. (1265a)
Art. 1331. In order that mistake may invalidate consent,
it should refer to the substance of the thing which is the
object of the contract, or to those conditions which have
principally moved one or both parties to enter into the
contract.

Mistake as to the identity or qualifications of one of the


parties will vitiate consent only when such identity or
qualifications have been the principal cause of the
contract.
A simple mistake of account shall give rise to its
correction. (1266a)
Art. 1338. There is fraud when, through insidious words
or machinations of one of the contracting parties, the
other is induced to enter into a contract which, without
them, he would not have agreed to. (1269)
2. option contract
Art. 1479, supra.
Art. 1324. When the offerer has allowed the offeree a
certain period to accept, the offer may be withdrawn at
any time before acceptance by communicating such
withdrawal, except when the option is founded upon a
consideration, as something paid or promised. (n)
Elements of a valid option contract
1. CONSENT
2. SUBJECT MATTER: an option right or accepted
unilateral offer to buy, or an option right or
accepted unilateral offer to sell a determinate
object for a price certain, including the manner
of payment thereof
3. PRESTATION: a consideration separate and
distinct from the purchase price for the option
given
It must be in writing. [NOTE that the prescription
of written contracts is 4 years.]
De la Cavada v. Diaz
Facts: Antonio Diaz granted an option to Antonio
Enriquez de la Cavada to purchase his hacienda at
Pitogo. On the same day, De la Cavada accepted the
offer, on condition that the property shall be surveyed and
registered under the Torrens system, and that he would
pay the price after the title has been approved. The
counter-offer was accepted by Diaz. Diaz, even though
he had obtained a registered title to said parcel of land,
refused to comply with his promise. He offered to
transfer to Enriquez one of the two parcels only.
Enriquez refused.
Issue: WON Diaz was obliged to convey all of the
hacienda (YES)
Ratio: The contract is clearly as absolute promise to sell
a definite parcel of land for a fixed price upon definite
conditions. It was not an option contract. An option
contract is a privilege existing in one person, for which he
had paid a consideration, which gives him the right to buy,
for example, certain merchandise of certain specified
property, from another person, if he chooses, at any time
within the agreed period, at a fixed price. The contract of
option is a separate and distinct contract from the contract
which the parties may enter into upon the consummation
of the option. A consideration for an optional contract is
just as important as the consideration for any other kind of
contract.

25

Carcellar v. CA
Facts: Carcellar and SIHI entered into a lease contract
with option to purchase two parcels of land. 3 weeks
before expiration of lease contract, SIHI notified Carcellar.
Carcellar requested for six-month extension of the lease
contract, alleging that he needs ample time to raise
sufficient funds in order to exercise the option. SIHI
replied that the request was disapproved. Carceller
notified SIHI of his decision to exercise the option to
purchase the property.
Issue: WON the option to buy should be allowed despite
the alleged 18-day delay in giving notice (YES)
Ratio: The delay was not a substantial and fundamental
delay amounting to a breach that would defeat the
intention of the parties. SIHI intended to dispose of the
leased property, which Carcellar intended to buy. An
option may be exercised validly even though in a way not
in accord with that stated in the contract, if it would be
consistent with the primary intent of the parties. The letter
of Carceller to SIHI is fair notice of the intent to exercise
the option, despite the request for the extension of the
lease contract.
a) meaning of consideration
Villamor v. CA
Facts: Reyes sold half of her land to Villamor in 1971.
She also executed a Deed of Option in favor of
Villamor for the remaining portion of the lot. Later
however, Reyes offered to repurchase the lot but it was
refused by Villamor, who instead expressed their desire
to purchase the remaining portion of the lot but the
Reyeses ignored them.
Issue: WON there deed of option was valid (YES)
Ratio: The CA found it very difficult to believe that the
Reyeses would agree to a Deed of Option when the
consideration for it was already included and
demandable in the previous Contract of Sale, but
improbabilities do not invalidate a contract.
Consideration is the why of the contract, the essential
reason which moves the contracting parties to enter into
the contract (Gonzales v. Trinidad). The cause of the
impelling reason on the part of private respondent
executing the deed of option as appearing in the deed
itself is the petitioners having agreed to buy the 300 sq.
m. portion at P70/sq.m. which was greatly higher than
the actual reasonable prevailing price. The consideration
here, in terms of money, is P70/sq.m. minus the
prevailing price in 1971 (P25 or P18/sq.m.). Note that
while the Deed of Option was valid, it would be iniquitous
to allow Villamor to demand delivery considering that it
has been 17 years since the execution of the deed (the
propertys market value is now much higher) and that
the Reyeses have no other decent place to live.
Soriano v. Bautista
Facts: Bautista mortgaged land to Soriano with an option
for Soriano to purchase the land within the 2-year period
of the mortgage. Within 2 years, Soriano informed

Bautista of intent to purchase the land. Bautista refused to


sell the land.
Issue: WON Soriano is entitled to special performance
consisting of the execution of the corresponding deed of
sale (YES)
Ratio: Paragraph 5 of the contract renders the
mortgagors right to redeem defeasible at the election of
the mortgagees. This is an option to buy. Bautistas
promise to sell is supported by the same consideration as
that of the mortgage itself, which is distinct from that
which would support the sale, an additional amount
having been agreed upon to make up the entire price of
P3, 900.00, should the option be exercised. The
mortgagors' promise was in the nature of a continuing
offer, non-withdrawable during a period of two years,
which upon acceptance by the mortgagees gave rise to a
perfected contract of purchase and sale. This case shows
the wide range of consideration that can validly support
an option contract, e.g., the real mortgage itself.
b) An option to buy is not a contract of purchase and
sale.
Adelfa Properties v. CA
Facts: Rosario Jimenez-Castaneda, Salud Jimenez
(respondents) and their brothers Jose and Dominador
Jimenez were the registered co-owners of a parcel of
land. Jose and Dominador sold their share consisting of
of the land (the eastern portion) to Adelfa Properties
(petitioner) pursuant to a Kasulatan sa Bilihan ng Lupa;
the Jimenezes subsequently executed a Confirmatory
Extrajudicial Partition Agreement where the 8855 sq m
eastern portion was adjudicated to Jose and Dominador,
while the western portion went to Rosario and Salud.
Adelfa wanted to buy the western portion; it and
Rosario&Salud executed an Exclusive Option to
Purchase. Before Adelfa could make payments, it
received summons of a complaint filed by the nieces and
nephews of Rosario and Salud against R&S, Jose and
Dominador and Adelfa for the annulment of the deed of
sale. Adelfa caused to be annotated on the title of the lot
its option contract with Rosario and Salud and its
contract of sale with Jose and Dominador. Rosario and
Salud, through Francisca Jimenez, informed Bernardo
that they were cancelling the transaction; Bernardos
offer to pay the purchase price provided that P500000
be deducted from the settlement of the civil case was
rejected.
Issue: What kind of agreement had been made between
the parties: a contract to sell, an option contract or
contract of sale? (CONTRACT TO SELL)
Held: There was a showing of a concurrence of Adelfas
offer to buy and Rosario&Saluds acceptance thereof.
The test in determining whether a contract is a "contract
of sale or purchase" or a mere "option" is whether or not
the agreement could be specifically enforced. There is
no doubt that the obligation of Adelfa to pay the
purchase price is specific, definite and certain, and
consequently binding and enforceable.

26

c) Without consideration, VOID as option but VALID as


offer.
Sanchez v. Rigos
Facts: Rigos gave Sanchez an option to purchase her
property within 2 years and said option shall be deemed
"terminated and elapsed," if "Sanchez shall fail to exercise
his right to buy the property" within the stipulated period.
Several tenders of payment were made by Sanchez
within said period, but they were rejected by Mrs. Rigos.
Rigos defense was that the contract between the parties
"is a unilateral promise to sell, and the same being
unsupported by any valuable consideration, by force of
the New Civil Code, is null and void".
Issue: WON Rigos can unilaterally opt not to sell the
land (NO)
Ratio: SC harmonized articles 1479 and 1324 of the
Civil Code to rule that if a promise to sell or is
unsupported by a distinct consideration, the promisor is
not bound by his promise and may, accordingly,
withdraw it; but, pending notice of the withdrawal of his
offer, his promise partakes of the nature of an offer to sell
which, if accepted, results in a perfected contract of sale.
d) Proper exercise of option
Nietes v. CA
Facts: Nietes (lessee) and Garcia (lessor), Garcia being
an owner of the Angeles Educational Institute in Angeles
Pampanga, entered into a Contract of Lease with Option
to Buy. Nietes did not follow the original schedule of
payments, but he maintained that he paid Garcia the
amount, and that Garcia issued receipts when Mrs.
Nietes made the payments. Garcia was going to rescind
the contract because Nietes did not maintain the building
in good condition. Nietes decided that he will exercise
his option to buy the land and building subject matter of
the lease, and that Nietes was ready to pay the balance
of the purchase price in accordance with the contract.
Nietes deposited checks but later also withdrew the
same amount after the checks had been cleared. He
then commenced the present action for specific
performance of Garcias alleged obligation to execute in
Nietes favor a deed of absolute sale of the leased
property, he (Nietes) having mortgaged it to the Peoples
Bank and Trust Company, and to compel Garcia to
accept the balance of the purchase price.
Held: The contract does not say that Nietes had to pay
the stipulated price of P100,000 BEFORE exercising his
option to buy the property. Notice of the creditors
decision to exercise his option to buy need not be
coupled with actual payment of the price, so long as this
is delivered to the owner of the property upon
performance of his part of the agreement. Nietes need
not have deposited the checks, and the withdrawal
thereof soon after does not affect his cause of action.
Nietes effectively exercised his option to buy the
property of Garcia when Garcia acknowledged receipt
from Mrs. Nietes of the partial payment on the purchase

of the property described in the contract of lease with


option to buy
e) There must be acceptance of option
Vasquez v. CA
Facts: Vallejeras sold a parcel of land to the Vasquezes
for P9,000. On the same day, a separate instrument,
denominated as Right to Repurchase, was executed
granting the Vallejeras the right to repurchase the lot for
P12,000 within a period of 10 years. The Vasquezes
secured a TCT in their name. The Vallejeras sold the
same lot to Derrama, after securing the Vasquezes' title,
for the sum of P12,000.00. Upon the protestations of
Vasquezes, the sale was cancelled after the payment of
P12,000.00 by the defendants to Derrama.
Issue: Whether there is a binding right to repurchase
(NO)
Held: It is clear that the right to repurchase was not
supported by a consideration distinct from the price. The
rule is that the promisee has the burden of proving such
consideration. The Vallejeras failed to prove such
consideration. The annotation and registration of the
right to repurchase at the back of the certificate of title
cannot be considered as acceptance of the right to
repurchase. The annotation only served as notice of the
existence of such unilateral promise to resell. Neither
can the signature of the Vasquezes in the document
called "right to repurchase" signify acceptance of the
right to repurchase. The Vallejeras did not sign the offer.
Acceptance should be made by the promisee and not
the promisors. It would be absurd to require the promisor
of an option to buy to accept his own offer instead of the
promisee to whom the option to buy is given. Since the
transaction between the parties was not a sale with right
to repurchase, the private respondents cannot avail of
Article 1601 of the Civil Code which provides for
conventional redemption.
3. right of first refusal
Equatorial Realty v. Mayfair
Facts: Carmelo leased its property to Mayfair whereby
Mayfair constructed thereon the Maxim & Miramar
Theatres. Par8 of the lease contract provided that the
Mayfair will be given 30 days exclusive option to purchase
the property should Carmelo desire to sell it. Mayfairs
negotiations w/ Carmelo didnt ripen into a sale. Carmelo
sold the properties to Equatorial.
Issue: WON paragraph 8 in the lease contracts a right of
first refusal in favor of Mayfair (YES)
Ratio: Par. 8 is not an option clause or option contract but
a contract of a right of first refusal by virtue of Art. 1479.
The right of first refusal is an integral part of the contracts
of lease. The consideration is built into the reciprocal
obligations of the parties. The Ang Yu decision may apply
if the contract is limited to the buying and selling of the
real property. However, the obligation of Carmelo to first
offer the property to Mayfair is embodied in a contract. It

27

should be enforced according to the law on contracts


instead of the panoramic and indefinite rule on human
relations. The sale of the subject real property by Carmelo
to Equatorial must be rescinded since Mayfair was
prejudiced by the sale to Equatorial w/o Carmelo
conferring to Mayfair every opportunity to negotiate within
the 30-day stipulated period.
Vitug, dissenting: a right of first refusal as a simple
juridical relation. It lacks the force of law sufficient to
compel compliance per se or to establish a creditor-debtor
or obligee-obligor relation between the parties. If a right of
first refusal cannot even be properly classed as an offer or
as an option, certainly, and with much greater reason, it
cannot be the equivalent of, nor be given the same legal
effect as, a duly perfected contract. There is no
rescission.
Paraaque Kings v. CA
Facts: Santos and Paraaque Kings entered into a lease
contract. Contract says in case of sale, LESSEE shall
have the first option or priority to buy the properties
subject of the lease. Santos sold the lots to Raymundo
for 5M. It was also offered to Paraaque for P15M and
given ten days to make good the offer which it rejected,
calling the price ridiculous. Paraaque offered to buy the
property for 5M.
Issue: WON the complaint alleging breach of the
contractual right of first option or priority to buy states a
valid cause of action. (YES)
Ratio: Here, the complaint shows that there was an
actionable breach of obligation when Santos sold the
land to Raymundo for P9M without first offering the land
to Paraaque Kings at the same price. Although she
offered the sale to Paraaque Kings for P15M, this offer
does not constitute sufficient compliance with the
condition of the contract. Santos should also have
offered the land at P9M. The basis of the right of refusal
must be the current offer to sell of the seller or offer to
purchase of any prospective buyer and only when the
optionee fails to exercise his right can the same be sold to
third persons under the same terms as offered the
optionee.
Ang Yu v. CA
Facts: Tenants (Ang Yu, et al.) of residential and
commercial spaces owned by Cu Unjieng were granted
priority to acquire the properties they were renting.
During the negotiations, Cu Unjieng offered a price of
P6-million while tenants made a counter offer of P5million. They asked the Cu Unjiengs to put their offer in
writing. The latter failed to specify the terms and
conditions of the offer and the tenants also received
information that Cu Unjieng was about to sell the
properties to private respondent.
Issue: WON the writ of execution ordering Cu Unjieng to
execute the necessary Deed of Sale in favor of the
tenants, was proper (NO)
Ratio: Even if a party is aggrieved by the failure to
honor the right of first refusal, its breach cannot
justify an issuance of a writ of execution, nor would it
sanction an action for specific performance without

thereby negating the indispensable element of


consensuality in the perfection of contracts. The
remedy is an action for damages for abuse of rights.
Rosencor v. Inquing
Facts: The lessees were given a right of first refusal by
the owner, but it was made orally and not in writing. The
representative of the owner sent them an offer to buy the
property for 2M. They counter-offered 1M. Later, they
found out that the property had already been sold by the
owner to Rosencor. They wanted the contract of sale to
be annulled in order for them to exercise their right of first
refusal.
Issue: WON a contract of sale entered into in violation of
a third partys right of first refusal be rescinded in order
that such third party can exercise said right (YES if there
is bad faith which is absent in this case)
Ratio: A contract of sale entered into in violation of a right
of first refusal of another person, while valid, is rescissible.
However, in order for the doctrine to apply, it must be
proven that the vendees acted in bad faith as they were
aware or should have been aware of the right of first
refusal granted to another person by the vendors therein.
Yet, in this case, the right was given orally. A right of first
refusal need not be written to be enforceable and may be
proven by oral evidence. However, it makes it difficult to
prove that the buyer was aware of such right.
Constructive notice cannot apply since even the lease
contract was oral. There must be clear and convincing
proof that Rosencor was made aware of the said right of
first refusal before they can be guilty of bad faith. Remedy
of the lessees for the violation of right of first refusal:
action for damages for the unjustified disregard of their
right.
4. bilateral promise to buy and sell
Article 1479, supra
De la Cavada v. Diaz, supra
1. Both parties are bound by his promise, although
nothing has been paid or delivered.
2. An executory contract of sale the promise of one is
the consideration for the promise of the other.
3. In a bilateral promise, it is necessary that the thing
be determinate and the price already fixed.
4. It gives the right to demand fulfillment of the contract
but does not pass title or dominion over the property.
PERFECTION STAGE
Art. 1475. The contract of sale is perfected at the
moment there is a meeting of minds upon the thing
which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law
governing the form of contracts. (1450a)
Art. 1319. Consent is manifested by the meeting of the
offer and the acceptance upon the thing and the cause

28

which are to constitute the contract. The offer must be


certain and the acceptance absolute. A qualified
acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the
offerer except from the time it came to his knowledge.
The contract, in such a case, is presumed to have been
entered into in the place where the offer was made.
(1262a)
Art. 1325. Unless it appears otherwise, business
advertisements of things for sale are not definite offers,
but mere invitations to make an offer. (n)
Art. 1326. Advertisements for bidders are simply
invitations to make proposals, and the advertiser is not
bound to accept the highest or lowest bidder, unless the
contrary appears. (n)

action, unless the same, or some note or memorandum,


thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
(d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them,
of such things in action or pay at the time some part of
the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is
made, it is a sufficient memorandum;
Art. 1326, supra.

1. when deviation allowed


The rule that acceptance must be absolute is not really
absolute because certain deviations may be made in the
acceptance. Even with such deviations, the offer will still
be converted into a valid and binding contract.
Villonco v. Bormaheco, supra.
2. sale by auction
Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots,
each lot is the subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer
announces its perfection by the fall of the hammer, or in
other customary manner. Until such announcement is
made, any bidder may retract his bid; and the auctioneer
may withdraw the goods from the sale unless the auction
has been announced to be without reserve.
(3) A right to bid may be reserved expressly by or on
behalf of the seller, unless otherwise provided by law or
by stipulation.
(4) Where notice has not been given that a sale by
auction is subject to a right to bid on behalf of the seller,
it shall not be lawful for the seller to bid himself or to
employ or induce any person to bid at such sale on his
behalf or for the auctioneer, to employ or induce any
person to bid at such sale on behalf of the seller or
knowingly to take any bid from the seller or any person
employed by him. Any sale contravening this rule may
be treated as fraudulent by the buyer. (n)
Art. 1403. The following contracts are unenforceable,
unless they are ratified:
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by

1. Contract is perfected when the auctioneer


accepts the bid by the fall of the hammer or
gavel or in any other customary manner.
2. If auction is announced to be without reserve,
goods cannot be withdrawn from the sale after
the bid is made.
3. By taking part in the auction and offering
bidding, the buyer voluntarily submitted to the
terms and conditions of the auction sale
announced in the notice.
4. Puffing/by-bidding means employed by owner
to increase the price of the bids; illegal.
3. perfection
Article 1475, supra.
National Grains Authority v. IAC
Facts: National Grains Authority is a government
agency charged with buying palay grains from qualified
farmers. Leon Soriano offered to sell palay grains to
NFA through William Cabal. Soriano submitted the
required documents for pre-qualifying as a seller. These
documents were processed and Soriano was given a
quota of 2,460 cavans of palay. Soriano delivered 630
cavans of palay. The palay were not rebagged, classified
and weighed. When Soriano demanded payment, it was
held in abeyance since Cabal was investigating an
information that Soriano was not a bona fide farmer and
only took the palay from a rice trader. Cabal
subsequently asked Soriano to withdraw from the NFA
warehouse the 630 cavans he delivered as NFA cannot
legally accept such delivery on the basis of the
certification of BAEX that Soriano is not a bona fide
farmer.
Issue: WON there was a perfected contract of sale
(YES)
Ratio: Soriano initially offered to sell palay grains
produced in his farmland to NFA. When the latter
accepted the offer by noting in Soriano's Farmer's
Information Sheet a quota of 2,640 cavans, there was

29

already a meeting of the minds between the parties. The


object of the contract, being the palay grains produced in
Soriano's farmland and the NFA was to pay the same
depending upon its quality. The fact that the exact
number of cavans of palay to be delivered has not been
determined does not affect the perfection of the contract.
The acceptance referred to which determines consent is
the acceptance of the offer of one party by the other and
not of the goods delivered as contended by petitioners.
From the moment the contract of sale is perfected, it is
incumbent upon the parties to comply with their mutual
obligations or "the parties may reciprocally demand
performance" thereof. The lower courts also found that
Soriano was a bona fide farmer.
Peoples Homesite and Housing v. CA
Facts: PHHC board of directors passed Resolution No.
513 wherein it stated that subject to the approval of the
Quezon City Council of the above-mentioned Consolidation Subdivision Plan, Lot 4. containing 4,182.2 square
meters be, as it is hereby awarded to Spouses Rizalino
Mendoza and Adelaida Mendoza, at a price of twentyone pesos (P21.00)/sqm and that this award shall be
subject to the approval of the OEC (PHHC) Valuation
Committee and higher authorities. City Council
disapproved of the plan. Later, PHHC board of directors
withdrew the tentative award of Lot 4 to the Mendoza
and re-awarding said lot jointly and in equal shares to 5
others who made the initial deposit. The corresponding
deeds of sale were executed in their favor. The subdivision of Lot 4 into five lots was approved by the city council and the Bureau of Lands.
Issue: WON there was a perfected sale of Lot 4, with
the reduced area, to the Mendozas which they can enforce against the PHHC by an action for specific performance (NO)
Ratio: The sale of Lot 4 was conditionally or contingently
awarded to the Mendozas subject to the approval by the
city council of the proposed consolidation subdivision
plan and the approval of the award by the valuation committee and higher authorities. The city council did not approve the subdivision plan. They were advised in 1961 of
the disapproval. In 1964, when the revised plan was approved, the Mendozas should have manifested in writing
their acceptance of the award for the purchase of Lot 4
just to show that they were still interested in its purchase
although the area was reduced and to obviate ally doubt
on the matter. They did not do so. The PHHC board acted within its rights in withdrawing the tentative award.
There was no meeting of the minds, thus, no perfected
contract of sale
4. place of perfection
Article 1319, supra.
5. expenses of execution and registration
Art. 1487. The expenses for the execution and
registration of the sale shall be borne by the vendor,
unless there is a stipulation to the contrary. (1455a)

Art. 1521. Whether it is for the buyer to take possession


of the goods or of the seller to send them to the buyer is
a question depending in each case on the contract,
express or implied, between the parties. Apart from any
such contract, express or implied, or usage of trade to
the contrary, the place of delivery is the seller's place of
business if he has one, and if not his residence; but in
case of a contract of sale of specific goods, which to the
knowledge of the parties when the contract or the sale
was made were in some other place, then that place is
the place of delivery.
Where by a contract of sale the seller is bound to send
the goods to the buyer, but no time for sending them is
fixed, the seller is bound to send them within a
reasonable time.
Where the goods at the time of sale are in the
possession of a third person, the seller has not fulfilled
his obligation to deliver to the buyer unless and until
such third person acknowledges to the buyer that he
holds the goods on the buyer's behalf.
Demand or tender of delivery may be treated as
ineffectual unless made at a reasonable hour. What is a
reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental
to putting the goods into a deliverable state must be
borne by the seller. (n)
FORMALITIES OF THE CONTRACT
1. General rule: form not important
Art. 1483. Subject to the provisions of the Statute of
Frauds and of any other applicable statute, a contract of
sale may be made in writing, or by word of mouth, or
partly in writing and partly by word of mouth, or may be
inferred from the conduct of the parties. (n)
Art. 1356. Contracts shall be obligatory, in whatever
form they may have been entered into, provided all the
essential requisites for their validity are present.
However, when the law requires that a contract be in
some form in order that it may be valid or enforceable, or
that a contract be proved in a certain way, that
requirement is absolute and indispensable. In such
cases, the right of the parties stated in the following
article cannot be exercised. (1278a)
Art. 1357. If the law requires a document or other
special form, as in the acts and contracts enumerated in
the following article, the contracting parties may compel
each other to observe that form, once the contract has
been perfected. This right may be exercised
simultaneously with the action upon the contract.
(1279a)

30

Art. 1358. The following must appear in a public


document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real
property or of an interest therein a governed by Articles
1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary
rights or of those of the conjugal partnership of gains;
(3) The power to administer property, or any other power
which has for its object an act appearing or which should
appear in a public document, or should prejudice a third
person;
(4) The cession of actions or rights proceeding from an
act appearing in a public document.
Dalion v. CA
Facts: A private document of absolute sale was
executed between Sabesaje and Dalion. Sabesaje
denied the fact of the sale contending that the document
sued upon is fictitious since his signature there was
forged.
Issue: WON a public document for transfer of ownership
is necessary (NO)
Ratio: Article 1358 provision on the necessity of a public
document is only for convenience, not for validity or
enforceability. It is not a requirement for the validity of a
contract of sale of a parcel of land that this be embodied
in a public instrument. A contract of sale is a consensual
contract. No particular form is required for its validity.
Secuya v. vda de Selma
Facts: The original owner of a 10,750sqm lot bound
herself to transfer 1/3 of it to Sabellona thru an
Agreement of Partition. Sabellona then sold 3,000sqm of
the 1/3 portion to the Secuyas in a private document.
The 1/3 lot, however, was never actually transferred.
Instead, parts of the original 10,750 lot, including the
portion bought by the Secuyas, was sold to Selma.
Issue: WON there a valid transfer or conveyance of 1/3
of the portion of Lot 5679 by Maxima Caballero in favor
of Pacencia Sabellona (NO)
Ratio: There was no property to partition. Thus, the
Agreement of Partition is actually an express trust.
However, it was repudiated when the land was sold to
another. (as a result, Sabellona could not validly sell the
property). Even if the trust subsists, the Secuyas cannot
prove their claim over it. The private document through
which they acquired the 3,000 sqm lot was lost. While a
sale of a piece of land appearing in a private deed is
binding between the parties, it cannot be considered
binding on third persons, if it is not embodied in a public
instrument and recorded in the Registry of Property.
2. Exceptions: when form important
A. Form important for ENFORCEABILITY

a) Statute of Frauds
Art. 1403. The following contracts are unenforceable,
unless they are ratified:
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them,
of such things in action or pay at the time some part of
the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is
made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein;
Art. 1405. Contracts infringing the Statute of Frauds,
referred to in No. 2 of Article 1403, are ratified by the
failure to object to the presentation of oral evidence to
prove the same, or by the acceptance of benefit under
them.
PURPOSE OF STATUTE: to prevent fraud and perjury
in the enforcement of obligations depending for their
evidence upon the unassisted memory of witnesses.
EXCEPTIONS TO STATUTE OF FRAUDS
a. When there is a note or memorandum thereof in
writing, and subscribed by the party charged or
his agent
b. When there has been partial consummation
c. When there has been a failure to object to the
presentation of evidence
d. Sales through electronic commerce
Paredes v. Espino
Facts: Espino and Paredes agreed about the sale of a
lot, the evidence of which is letters only without any
written contract. It was agreed that only upon Espinos
arrival at Puerto Princesa will the price be paid and the
deed of sale executed. But Espino refused to execute
the deed upon his arrival despite Paredes demand
and willingness to pay. Paredes sought specific
performance.

31

Issue: WON enforcement of the contract pleaded in the


complaint is barred by the Statute of Frauds (NO)
Ratio: The letters, which constitute sufficient
memorandum, embodied the essential terms of the
contract. Statute of Frauds does not require the contract
itself to be in writing. Article 1403, par. (2) is clear that a
written note or memorandum, embodying the essentials
of the contract and signed by party charged, or his
agent, suffices to make the verbal agreement
enforceable, taking it out of the operation of the statute.
Baretto v. Manila
Facts: Barretto allegedly had an oral contract w/ Manila
Railroad whereby the company would buy his house.
Barretto made a deed of sale, but when he delivered
and presented it to the company, the latter refused to
buy. Barretto brings specific performance suit.
Issue: WON there was sufficient performance on
Barrettos part to take the contract out of the Statute of
Frauds (NO)
Ratio: The contract of sale is unenforceable because
delivery of a deed of sale w/o intent to part w/ the title
until paid is not constructive delivery or performance.
The contract is not partially performed to take it out of
the context of the Statute of Frauds. By Manila
Railroads objection to the introduction of parol
evidence to prove the oral contract of sale, said
contract cannot be proven or enforced. If a contract is not
partially performed, it is still within the context of the
Stature of Frauds. Partial performance must be coupled
with intent to perform.
Inigo v. Estate of Maloto
Facts: Inigo (Buyer) & Maloto(seller) had a verbal
contract of sale of a property for w/c buyer paid
the purchase price. The contract & the receipt of
the purchase price were not reduced into writing.
Upon death of seller, her heirs inherited the
property. Buyer demands the execution of a deed
of sale.
Issue: WON the contract is unenforceable under the
statute of frauds (NO)
Ratio: Although a verbal contract without any sort of
memorandum is unenforceable under the Statute of
Frauds, the Statute of Frauds is applicable only to
executory contractsnot to contracts either totally or
partially performed. The complaint here stated that the
deceased Adriana Maloto sold the disputed house and
land to plaintiff; that consideration thereof was paid; that
by reason of such sale, plaintiff performed acts of
ownership thereon. The facts thus alleged are
constitutive of a consummated contract. It matters not
that neither the receipt for the consideration nor the sale
itself was in writing because oral evidence of the
alleged consummated sale of the land is not forbidden
by the Statute of Frauds and may not be excluded in
court.
B. Form important for VALIDITY
a) sale of realty through an agent

Art. 1874. When a sale of a piece of land or any interest


therein is through an agent, the authority of the latter
shall be in writing; otherwise, the sale shall be void. (n)
The agents authority to sell should be in writing;
otherwise, void.
City Lite v. CA
Facts: F.P. Holdings(owner) offered for sale to the
general public its land thru its broker Meldin Roy of Metro
Drug. Roy sent a sales brochure to Atty. Gelacio Mamaril,
a practicing lawyer and registered real estate broker who
in turn passed on these documents to City-Lite Realty
Corporation. City-Lite conveyed its interest to buy in a
letter to Metro Drug after and all correspondence to Metro
Drug. When they met in person, City-Lite and Roy
reached an agreement. For some reason or another and
despite demand, F.P Holdings refused to execute the
corresponding deed of sale in favor of City-Lite
Issue: WON the contract of sale was perfected between
City-Lite and FP Holdings through its agent Meldin Roy
of Metro Drug (NO)
Ratio: Art. 1874 provides that when the sale of the piece
of land or any interest therein is through an agent, the
authority of the agent shall be in writing; otherwise, the
sale shall be void. The absence of the authority to sell
can be determined from the written memorandum issued
by F.P. Holdings president, requesting Metro Drugs
assistance in finding buyers. Final evaluation, appraisal
and acceptance can only be made by F.P. Holdings.
b) sale of large cattle
Sec. 529, Revised Administrative Code. No transfer
of large cattle shall be valid unless the same is
registered and a certificate of transfer obtained as herein
provided; but large cattle under two years of age may be
registered and branded gratis for the purpose of
effecting a valid transfer are made at the same time.
Registration is made with the municipal treasurer.
c) RA 8792 -- Electronic Commerce Act
provisions provided infra)

(pertinent

Sec. 7. Legal Recognition of Electronic documentsElectronic documents shall have the legal effect, validity
or enforceability as any other document or legal writing,
and(a) Where the law requires a document to be in
writing, that requirement is met by an electronic
document if the said electronic document
maintains its integrity and reliability and can be
authenticated so as to be usable for subsequent
reference, in that
i. The electronic document has remained
complete and unaltered, apart from the
addition of any endorsement and any
authorized change, or any change which

32

arises
in
the
normal
course
of
communication, storage and display; and
ii. The electronic document is reliable in the
light of the purpose for which it was
generated and in the light of all relevant
circumstances.
(b) Paragraph (a) applies whether the
requirement therein is in the form of an
obligation or whether the law simply provides
consequences for the document not being
presented or retained in its original from.
(c) Where the law requires that a document be
presented or retained in its original form, that
requirement is met by an electronic document ifi. There exists a reliable assurance as to the
integrity of the document from the time when
it was first generated in its final from; and
ii. That document is capable of being
displayed to the person to whom it is to be
presented: Provided, That no provision of
this Act shall apply to vary any and all
requirements of existing laws on formalities
required in the execution of documents for
their validity.
For evidentiary purposes, an electronic document shall
be the functional equivalent of a written document under
existing laws.
This Act does not modify any statutory any statutory rule
relating to admissibility of electronic data massages or
electronic documents, except the rules relating to
authentication and best evidence.
Sec. 8. Legal Recognition of Electronic Signatures.- An
electronic signature on the electronic document shall be
equivalent to the signature of a person on a written
document if the signature is an electronic signature and
proved by showing that a prescribed procedure, not
alterable by the parties interested in the electronic
document, existed under which(a) A method is used to identify the party sought
to be bound and to indicate said party's access
to the electronic document necessary for his
consent or approval through the electronic
signature;
(b) Said method is reliable and appropriate for
the purpose for which the electronic document
was generated or communicated, in the light of
all circumstances, including any relevant
agreement;
(c) It is necessary for the party sought to be
bound, in or order to proceed further with the
transaction to have executed or provided the
electronic signature; and
(d) The other party is authorized and enable to
verify the electronic signature and to make the
decision to proceed with the transaction
authenticated by the same.
Sec. 11. Authentication of Electronic Data Messages
and Electronic Documents.- Until the Supreme Court by
appropriate rules shall have so provided, electronic

documents, electronic data messages and electronic


signatures, shall be authenticated by demonstrating,
substantiating and validating a claimed identity of a user,
device, or another entity is an information or
communication system, among other ways, as follows;
(a) The electronic signatures shall be
authenticated by proof that a letter, character,
number or other symbol in electronic form
representing the persons named in and attached
to or logically associated with an electronic data
message, electronic document, or that the
appropriate methodology or security procedures,
when applicable, were employed or adopted by
such person, with the intention of authenticating
or approving in an electronic data message or
electronic document;
(b) The electronic data message or electronic
document shall be authenticated by proof that
an appropriate security procedure, when
applicable was adopted and employed for the
purpose of verifying the originator of an
electronic data message or electronic document,
or detecting error or alteration in the
communication, content or storage of an
electronic document or electronic data message
from a specific point, which, using algorithms or
codes,
identifying
words
or
numbers,
encryptions, answers back or acknowledgement
procedures, or similar security devices.
The Supreme Court may adopt such other authentication
procedures, including the use of electronic notarization
systems as necessary and advisable, as well as the
certificate of authentication on printed or hard copies of
the electronic documents or electronic data messages
by electronic notaries, service providers and other duly
recognized or appointed certification authorities.
The person seeking to introduce an electronic data
message or electronic document in any legal proceeding
has the burden of proving its authenticity by evidence
capable of supporting a finding that the electronic data
message or electronic document is what the person
claims it on be.
In the absence of evidence to the contrary, the integrity
of the information and communication system in which
an electronic data message or electronic document is
recorded or stored may be established in any legal
proceeding
a.) By evidence that at all material times the
information and communication system or other
similar device was operating in a manner that
did not affect the integrity of the electronic data
message or electronic document, and there are
no other reasonable grounds to doubt the
integrity of the information and communication
system,
b.) By showing that the electronic data message
or electronic document was recorded or stored
by a party to the proceedings who is adverse in
interest to the party using it; or

33

c.) By showing that the electronic data message or


electronic document was recorded or stored in the usual
and ordinary course of business by a person who is not
a party to the proceedings and who did not act under the
control of the party using the record.

VII. TRANSFER OF OWNERSHIP


Manner of transfer
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive
delivery thereof. (n)
Art. 1496. The ownership of the thing sold is acquired by
the vendee from the moment it is delivered to him in any
of the ways specified in Articles 1497 to 1501, or in any
other manner signifying an agreement that the
possession is transferred from the vendor to the vendee.
(n)
GENERAL RULE: Ownership of thing shall transfer to
the vendee upon the ACTUAL or CONSTRUCTIVE
DELIVERY of the thing sold
OR: any manner signifying an agreement that
possession is transferred from vendor to vendee (Art.
1496)
a. Contract of sale constitutes a RIGHT to TRANSFER
or ACQUISITION of OWNERSHIP
b. Delivery is the method of accomplishing this right
c. Payment of the purchase price is not essential to the
transfer of ownership, as long as the property sold
has been delivered
d. Nonpayment only creates a right to demand
payment or to rescind the contract, or to criminally
prosecute in the case of bouncing checks
Essential elements of tradition:
1. Property under the control of the seller
2. There is intention to deliver or transfer
3. Seller places the buyer in control
Kuenzle v. Macke & Chandler
Facts: Property was sold by an instrument in writing but
was not recorded and was only a private document. In
addition, said property was not delivered.
Issue: Was ownership transferred?
Held: OWNERSHIP NOT TRANSFERRED. The
ownership of personal property cannot be transferred to
the prejudice of third persons except by delivery of the
property itself; and that a sale without delivery gives the
would-be purchaser no rights in said property except
those of a creditor.
EXCEPTIONS: (When delivery does not transfer title)
a. Pactum reservati dominii (contractual reservation of
title) express reservation of ownership (Art. 1478)
b. Contract to sell

c. Sale on acceptance/trial/approval
d. Sale on return/exchange
e. Implied reservation of ownership (Art. 1503)
a) sale on return/exchange
Art. 1502 (1). When goods are delivered to the buyer
"on sale or return" to give the buyer an option to return
the goods instead of paying the price, the ownership
passes to the buyer of delivery, but he may revest the
ownership in the seller by returning or tendering the
goods within the time fixed in the contract, or, if no time
has been fixed, within a reasonable time.
i.
Ownership passes on delivery but buyer may revest
such ownership to the seller by returning or
tendering goods within the time fixed or within a
reasonable time
ii.
Property is sold, but the buyer, who becomes the
owner of the property on delivery; has the option to
return the same to the seller instead of paying the
price; such sale depends upon the discretion of the
buyer.
iii.
Cf. conditional sale as opposed to a conditional
sale (where title passes upon full payment or
satisfaction of condition passing of legal title), in sale
on return, title passes on delivery with privilege of
revesting title in the vendor by returning the goods
iv.
Buyer remains liable for the price though it becomes
impossible without his fault to return the goods
v.
Non-exercise of the privilege of return renders the
sale absolute and the buyer becomes liable for the
price
Rules:
1. Title passes to the buyer upon delivery
2. Buyer bears the risk of loss, remains liable for the
price
3. The option to purchase or return the goods rests
entirely on the buyer without reference to the quality of
the goods.
4. The buyer may revest the ownership in the seller by
returning or tendering the goods within the time fixed in
the contract or within a reasonable time if time is not
fixed.
5. The buyer must comply with the express or implied
conditions attached to the return privilege; otherwise, the
sale becomes absolute.
b) sale on approval, trial, or satisfaction
Art. 1502 (2). When goods are delivered to the buyer on
approval or on trial or on satisfaction, or other similar
terms, the ownership therein passes to the buyer:
(1) When he signifies his approval or acceptance to the
seller or does any other act adopting the transaction;
(2) If he does not signify his approval or acceptance to
the seller, but retains the goods without giving notice of
rejection, then if a time as been fixed for the return of the
goods, on the expiration of such time, and, if no time has
been fixed, on the expiration of a reasonable time. What
is a reasonable time is a question of fact.

34

sale on approval goods sent to the buyer on the hope


that the latter would find them satisfactory and order that
type of goods

refuse conveyance, and retain sums already received,


where such rights are expressly provided for in the
contract.
c) express reservation

Contract in the nature of an option to purchase if the


goods prove to be satisfactory, the approval of the buyer
being a condition precedent; the sale is dependent upon
the quality of goods.
Title passes only when the goods are used or when they
were retained beyond a reasonable time.

Rules:
1. Title remains in the seller, UNTIL sale becomes
absolute by:
Buyers approval of the goods; or
Buyers failure to comply with the express or implied
conditions of the contract as to giving notice of
dissatisfaction or as to returning the goods
2. Risk of loss remains with the seller except when the
buyer is at fault or has agreed to bear the loss
3. Buyer must give the goods a trial, except where it is
evident that it cannot perform the work intended
4. Period within buyer must signify acceptance runs only
when all parts essential for the operation of the object
have been delivered.
5. If it is stipulated that a third person must signify
approval or satisfaction, the provision is valid, but the
third person must be in good faith. If refusal to accept is
not justified, seller may still sue.
6. Generally, the sale and delivery to a buyer who is an
expert on the object purchased is not a sale on approval,
trial, or satisfaction.
Sale on Return
Sale on Trial
Condition Imposed
Subject to a resolutory Subject to a suspensive
condition
condition
Option of Buyer to Purchase
Depends entirely on the Depends on the character
will of the buyer
or quality of the goods
Transfer of Ownership
Ownership passes to the Ownership remains in the
buyer on delivery and seller until buyer signifies
subsequent return reverts his approval or acceptance
ownership in the seller
to the seller
Risk of Loss
Risk of loss or injury rests Risk of less remains with
upon the buyer
the seller

executory sales
Ownership of the thing shall not pass until the price is
fully paid
Seller may reserve the right of possession or ownership
in the goods until certain conditions have been fulfilled
Where the buyer failed to comply with the condition
precedent to the transfer of ownership or possession of
the thing sold, the seller may recover possession or
extrajudicially terminate the operation of the contract,

Art. 1478. The parties may stipulate that ownership in


the thing shall not pass to the purchaser until he has fully
paid the price. (n)
Luzon Brokerage v. Maritime Building
Facts: supra
Issue: Was there express reservation? YES.
Held: The distinction between contracts of sale and
contract to sell with reserved title has been recognized
upholding the power of promisors under contracts to sell,
in case of failure of the other party to complete payment,
to extrajudicially terminate the operation of the contract,
refuse conveyance and retain the sums or installments
already received, where such rights are expressly
provided for, as in this case.
d) implied reservation
Art. 1503. When there is a contract of sale of specific
goods, the seller may, by the terms of the contract,
reserve the right of possession or ownership in the
goods until certain conditions have been fulfilled. The
right of possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or
to a carrier or other bailee for the purpose of
transmission to the buyer.
Parties may stipulate that:
(1) ownership in the thing shall not pass to the purchaser
until he has fully paid the price
(2) seller reserves the right of possession or ownership
in the goods until certain conditions have been fulfilled,
notwithstanding the delivery of the goods to the buyer or
to carrier or other bailee for transmission to the buyer
Where goods are shipped and by the bill of lading
the goods are deliverable to the seller/sellers
agent/to the order of seller/sellers agent SELLER
RESERVES OWNERSHIP
Where goods are shipped and by the bill of lading
the goods are deliverable to the order of the
buyer/his agent but the possession of the bill of
lading is retained by the seller/his agent SELLER
RESERVES A RIGHT TO THE POSSESSION OF
THE GOODS
e) when sale not valid
f) when seller is not the owner

DELIVERY
Mode of acquiring ownership, as a consequence of
certain contracts such as sale, by virtue of which,
actually or constructively, the object is placed in the
control and possession of the vendee.

35

Seller is bound to deliver all goods unless delivery


by installment has been agreed upon (Art. 1583)
Seller is bound to deliver the thing sold in its
condition at the time the contract was perfected (Art.
1537)
When there is no express provision that title shall
not pass until payment of the price, and the thing
sold has been delivered, title passes from the
moment the thing sold is placed in the possession
and control of the buyer.
Delivery produces the effect of conveyance of
ownership, without prejudice to the right of the
vendor to claim payment of the price

Requisites for delivery:


1. Identity the object must be delivered
2. Integrity the sellers duty is to deliver the thing sold
in a condition suitable for its enjoyment by the buyer
of the purposes contemplated
3. Intentional the act of delivery must be coupled with
the intention of delivering the thing and putting the
buyer under control
The critical factor in all different modes of effecting
delivery, which gives legal effect to the act, is the actual
intention of the seller to deliver, and its acceptance by
the buyer. Without that intention, there is no tradition.
Kinds of Delivery
a) real delivery actual and physical control and
possession
Art. 1497. The thing sold shall be understood as
delivered, when it is placed in the control and
possession of the vendee.
Bean v. Cadwallader
Facts: Case and Cadwallader entered into 2 separate
contracts, wherein Case would sell and deliver a cargo
of timber to Cadwallader. In BOTH instances, the anchor
chain of the vessel broke, so the timber couldnt be
loaded. Case had received partial advance payments.
Bean sued for the balance + damages
Issue: Was there delivery when Case delivered the logs
alongside Cadwalladers vessel? YES, Cadwallader
received/accepted the logs.
Held: In an action for goods sold and delivered, if the
plaintiff proves delivery at the place agreed and that
there remained nothing further for him to do, he need not
show actual acceptance by the defendant. The mere fact
that Cadwallader, by reason of improper equipment of
the vessel, was unable to take the said logs aboard such
vessel cannot relieve him from the responsibility under
the contract.
Actual manual delivery of an article sold is not essential
to the passing of the title thereto (Art. 1450, Civil Code)
unless made so by the terms of the contract or by an
understanding of the parties. The parties to the contract
may agree when and on what conditions the property in
the subject of the contract was passed to the prospective
owner. It is a settled rule that a mere contract for the

sale of goods, where nothing remains to be done by the


seller before making the delivery, transfers the right of
property, although the price has not been paid, nor the
thing sold actually delivered to the purchaser.
Ocejo v. International Banking Corp
Facts: Subject sugar was delivered to two different
warehouses. There are different claimants: Seller
(Ocejo), buyer (Chua), and creditor (IBC)
Issue: Who has better right over the sugar? BUYER
CHUA.
Held: Tradition is a true mode of acquiring ownership
which effects the passage of title and birth of the right in
rem. Therefore, delivery of the thing signifies that the title
has passed from the seller to the buyer. Delivery
produces its natural effects in law, the principal and most
important of which being the conveyance of ownership,
without prejudice to the right of the seller to claim
payment of the price. The fact that the price of the
property has not been paid in full yet is not an obstacle
to the acquisition of ownership. This is without prejudice
to the right of the seller to claim payment of any sum still
due. The effect of the delivery is to transmit the title of
the goods to the buyer, notwithstanding incomplete
payment (presumption: creditor granted a term of credit
to buyer).
Cebu Winland Dev. Corp. v. Ong Siao Hua
Facts: Hua bought two condo units from Cebu. There
were no documents executed. After the purchase price
was fully paid, Hua requested for the condominium
certificates of title evidencing ownership of the units.
Cebu sent Deeds of Absolute Sale for the 2 condo units
which stated that floor area is only 127 square meters
contrary to the area indicated in the price list. Hua
demanded a refund, which Cebu refused.
Issue: Was the transfer of possession considered as
delivery? NO.
Held: The transfer of possession of the subject
properties cannot be considered as delivery within the
purview of Art 1543. Under the CC, the vendor is bound
to transfer the ownership of and deliver the thing which
is the object of the sale. There has been no transfer of
ownership since the deeds of absolute sale have not yet
been executed by the parties. Therefore, the action filed
by respondent has not prescribed.
b) constructive delivery legal delivery
Types:
i. Delivery by public instrument gives rise to prima facie
presumption of delivery, which is destroyed when actual
delivery is not effected due to legal impediment
When sale is made through a public instrument, the
EXECUTION thereof shall be equivalent to delivery
IF from the deed the contrary does not appear
operates as formal/symbolic delivery
authorizes buyer to use such document as proof
of ownership
Symbolic delivery may produce the effect of tradition
if vendor have had such control over the thing sold

36

that at the moment of the sale, its material delivery


could have been made
GENERAL RULE: he who purchases through a public
instrument should be deemed a possessor in fact and
this presumption should give way before proof to the
contrary
A person must be in ACTUAL POSSESSION to be
able to transfer CONSTRUCTIVE POSSESSION
through public instrument
EXCEPTIONS (When not equivalent to delivery)
1.
When
the
intention
of
the
parties
is
otherwise/stipulation to the contrary:
When a certain date is fixed for the purchaser to
take possession of the object of the conveyance
In a case of sale by installment, it is stipulated that
until the last installment is paid, title to the property
remains with the vendor
When the vendor reserves the right to use and
enjoy the property until the gathering of the
pending crops
Where the vendor has no control over the thing
sold, at the moment of the sale, and therefore, its
material delivery could not have been made
2. When at the time of the execution of the public
instrument, the subject matter was not subject to the
control of the seller
If, notwithstanding the execution of the instrument,
the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it
himself or through another in his name, because
such tenancy and enjoyment are opposed by the
interposition of another will, then fiction yields to
realitythe delivery has not been effected.
3. The control or ability to transfer physical possession
and enjoyment does not subsist for a reasonable length
of time after the execution of the instrument
The absence of control for reasonable length of time
after execution would create undue burden on the
buyer who would be compelled to literally jump into
the possession of the subject matter soon after
signing the instrument, for he would then obtain no
remedy from the seller.
Since tradition is an obligation on the part of the
seller, then the burden must continue to lie with the
seller to grant the buyer reasonable period to take
possession of the subject matter.
ii) symbolic to effect delivery, parties use a token or
symbol to represent the thing delivered
Art. 1498. When the sale is made through a public
instrument, the execution thereof shall be equivalent to
the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear
or cannot clearly be inferred.

With regard to movable property, its delivery may also


be made by the delivery of the keys of the place or
depository where it is stored or kept. (1463a)
Aviles v. Arcega
Facts: Case of double sales when there was no physical
delivery to the first buyer.
Issue: Was there symbolic delivery by execution of
public document of sale? NO.
Held: There was NO SYMBOLIC DELIVERY by the
execution of the public document of sale, inasmuch as
there was no, nor could there have been, such delivery,
the same being prevented by the express stipulation
contained in the deed of sale to the effect that the
vendors did not part with the possession of the house
but would continue therein for 4 months. The first
purchaser never took possession of the house, there
was no symbolic delivery because there was an express
stipulation to the contrary.
Phil. Suburban v. Auditor General
Facts: Petitioner Phil Suburban argues it must be
refunded realty tax because it ceased to be the owner of
the land in question upon the execution of the Deed of
Sale, as there is a presumptive delivery of the property
by the execution of the Deed of Sale and that the
possession of the property was actually delivered to the
vendee prior to the sale. Auditor argues that the
presumptive delivery of the property does not apply
because of the requirement in the contract that the sale
shall first be approved by the Auditor General, pursuant
to EO 290.
Issue: Was there a valid transfer of ownership? YES!
Since yes, tax refunded.
Held: Delivery as a mode of transmission of ownership
may be actual (real tradition) or constructive
(constructive tradition). There is symbolic delivery of the
property subject of the sale by the execution of the
public instrument, unless from the express terms of the
instrument, or by clear inference therefrom, this was not
the intention of the parties. The vendor actually placed
the vendee in possession and control over the thing
sold, even before the date of sale. Title passes by
delivery of goods.
Sarmiento v. Lesaca
Facts: Plaintiff bought from defendant two parcels of
land. Deed of sale was executed. After the sale, plaintiff
tried to take actual physical possession of the lands but
was prevented by Deloso who claims to be the owner.
Plaintiff wrote defendant wanting to rescind, asking to
either change the land sold with another or return the
purchase price together with the expenses she incurred
in the execution of the sale. Defendant did not agree. TC
rendered judgment ruling the deed of sale rescinded.
Issue: WON the execution of the deed of sale in a public
document is equivalent to delivery of possession of
lands sold. YES, therefore rescission is proper.
Held: It was clear that the vendor intended to place the
vendee in actual possession of the lands immediately as
can be inferred from the stipulation. The possession

37

referred to in the contract refers to actual possession


and not merely symbolical inferable from mere execution
of the document. The vendor did not comply with the
express commitment. The vendee was not able to take
possession of the lands due to Delosos refusal to
surrender ownership. Although in the article the
execution of a public document is equivalent to delivery,
this only holds true when there is no impediment which
may prevent the passing of the property from vendor to
vendee. It is not enough to confer upon the purchaser
the ownership and right of possession. The thing sold
must be placed in his control. Sarmiento entitled to
rescission.
Florendo v. Foz
Facts: Foz executed a contract, retified by the notary,
sellings his property to Florendo. Florendo already
made partial payment, the remaining balance was
agreed to be paid when they see each other in Vigan
during the month or next month. When Florendo
tendered payment of remaining balance, Foz refused to
receive and repudiated the contact.
Issue: Can Foz be compelled to deliver property? YES.
Held: A thing shall not be delivered unless the price is
paid. The exception is that the thing must be delivered,
though the price is not first paid, if a time for such
payment has been fixed in the contract. The period for
payment was fixed in this case. It is the material delivery
of the property sold which Foz must make in compliance
with the contract, inasmuch as the formal delivery de
jure was made. When the sale should be made by
means of a public instrument, the execution thereof shall
be equivalent to the delivery of the thing which is the
object of the contract, if in said instrument the contrary
does not appear or may be clearly inferred. As the
contrary does not appear nor is to be inferred from the
public instrument executed by the defendant, its
execution was really a formal or symbolical delivery of
the property sold and authorized the plaintiff to use the
tile of ownership as proof that he was thenceforth the
owner of the property.
Masallo v. Cesar
Facts: After buying the land from Crispino, Masallo went
to the land to plow it. However, Cesar, an 80 YEAR OLD
WOMAN, forced him off his land by cutting the ropes
attaching his carabao to the plow with a bolo. He filed a
case for ejection with the Court of First Instance of
Capiz. However, the Supreme Court held that his action
could not succeed because in fact Masallo was the one
who usurped possession, Cesar having possession over
the land in question long before Masallo arrived to plow
the land.
Issue: Did the execution and delivery of the deed
constitute delivery of possession? NO. In this case, the
vendor was not the lawful owner.
Held: The defendant Cesar is shown to have had the
prior peaceful possession of the land for an indefinite
period of time in the past. The plaintiff, after acquiring a
deed to the land from a third person, entered upon the
premises with his laborers and began plowing the land. It

was he who was guilty of the wrongful seizure of the


property. Where a dispute over possession arises
between two persons, the person first having actual
possession is the one entitled to maintain the action.
Matea, the one who sold the land to Masallo, admitted
that she didnt have possession of the land when she
executed and delivered her deed to the plaintiff. The
mere execution and delivery of the deed did not
constitute a delivery of possession.
Asset Privatization Trust v. T.J. Enterprises
Facts: Asset was a government entity created for
managing assets of government institutions. They had
come into possession of various machinery and
refrigeration equipment from DBP which were then put in
storage, which was then leased to and in the physical
possession of Creative Lines. Asset entered into an
absolute deed of sale over certain machinery and
refrigeration equipment with TJ Enterprises. TJE
demanded delivery of the machinery, and APT issued a
gate pass to them so that it could enter Creative Lines
premises and haul the items it bought. TJE was only
able to haul 9 out of 16 items they bought because
Creative Lines employees prevented respondent from
hauling the others.
Issue: WON there was constructive delivery by Asset of
the properties sold. NO, there was none. Asset did not
have actual possession, Creative Lines did. Thus, the
presumption of constructive delivery is not applicable.
Held: There was no actual or constructive delivery. The
ownership of a thing sold shall be transferred to the
vendee upon the actual or constructive delivery. It is
understood as delivered when it is placed in the control
and possession of the vendee.
As a general rule, when the sale is made through a
public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object
of the contract, if from the deed the contrary does not
appear or cannot clearly be inferred. However, the
execution of a public instrument only gives rise to a
prima facie presumption of delivery, such presumption is
destroyed when the delivery is not effected because of a
legal impediment.
It is necessary that the vendor shall have control over
the thing sold so that, at the moment of sale, its material
delivery could have been made. Thus, a person who
does not have actual possession of the thing sold cannot
transfer constructive possession by execution and
delivery of a public instrument.
iii) Traditio Longa Manu long hand
Art. 1499. The delivery of movable property may
likewise be made by the mere consent or agreement of
the contracting parties, if the thing sold cannot be
transferred to the possession of the vendee at the time
of the sale, or if the latter already had it in his possession
for any other reason. (1463a)
Traditio Longa Manu delivery by mere agreement;
seller points out to the buyer the property without need

38

of actually delivering (as when the thing sold cannot be


transferred to the possession of the vendee at the time
of sale)
Delivery takes place when the thing is placed in the
sight of the purchaser so that he can take
possession of it at pleasure.
With regard to movable property, its delivery may
also be made by the delivery of the keys of the place
or depository where it is stored or kept.
Board of Liquidators v. Floro
Facts: There was a contract for the salvage of surplus
property wherein the employer assigned all its rights and
title to all surplus property salvaged by the contractor at
a price of P90 per long ton, payment to be made
monthly, on the basis of recovery reports of sunken
surplus property salvages during the preceding month.
Issue: Was there traditio longa manu? YES.
Held: This is a case of traditio longa manu and
ownership passed as soon as the property was
salvaged. Pertinent provisions in the contract have the
effect of vesting Malabanan with title to, or ownership of,
the steel mattings as soon as they were brought up from
the bottom of the sea and not after the payment of the
stipulated price. While there is no physical tradition,
there was one by agreement (tradition longa manu). Art.
1499 states that delivery of movable property may
likewise be made by the mere consent or agreement of
the contracting parties, if the thing sold cannot be
transferred to the possession of the vendee at the time
of sale.
iv) Traditio brevi manu short hand, opposite of traditio
constitutum possessorium
Before the contract of sale, the would-be buyer was
already in possession of the would-be subject matter of
sale (e.g. as lessee), and pursuant to sale, he would
now hold possession in the concept of an owner.
Delivery of movable property takes place when the
vendee had the thing already in his possession before
the sale took place, not as owner but as lessee,
borrower or depositary.
Abuan v. Garcia
Facts: An action was previously brought to recover a
homestead on the ground that the sale was without
consideration, but a compromise agreement was
reached, allowing the defendant to pay the price within
30 days.
Issue: WON compromise was tradition brevi manu.
YES.
Held: COMPROMISE AGREEMENT HAD THE EFFECT
OF TRADITION BREVI MANU. In a subsequent action
to redeem the land under the Public Land Act, the
compromise agreement had the effect of leaving the
possession of the land in the hands of the defendants as
owner, a tradition brevi manu. The agreement was
entered into in consideration of plaintiffs desistance in
prosecuting their reinvindicatory action, thereby leaving

the property in the hands of the defendants as owners


thereof.
Note: Art. 1499 speaks of delivery of movable property,
but the Court applied the provision for a homestead
case.
v) Traditio Constitutum Possessorium
Art. 1500. There may also be tradition constitutum
possessorium. (n)
At the time of perfection, the seller held possession
of the subject matter in the concept of owner, and
pursuant to the contract, the seller continues to hold
physical possession thereof as lessee or other form
of possession other than the concept of owner.
EX: Vendor remains in possession of the property
sold, by virtue of a lease agreement with the
vendee, at the time of the perfection of the contract
of sale
Vendee became, as lessor, the legal possessor
while the vendor is in material possession of the
property in the name and representation of the
vendee.
Vendee acquired ownership through constitutum
possessorium and became, as lessor, the legal
possessor while the vendor is in material possession
of the property in the name and representation of the
vendee
o Vendee: lessor, legal possessor
o Vendor: lessee, with material possession
Bautista v Sioson
Held: The execution of this instrument of lease shows
that the camarin owner would be continued to be
occupied by its previous owner and vendor after it had
been delivered, symbolically, by means of the instrument
executed for the purpose in favor of the purchaser, in
order that he might hold it in the capacity of lessee, it
being supposed, by legal fiction, that the purchaser by
virtue of the clause known in law as constitutum
possessorium stipulated between the contracting parties.
Even if the vendor sells the property again to another,
the second purchaser cannot acquire ownership as he
bought the property from a mere tenant.
vi) delivery to common carrier
Art. 1503. When there is a contract of sale of specific
goods, the seller may, by the terms of the contract,
reserve the right of possession or ownership in the
goods until certain conditions have been fulfilled. The
right of possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or
to a carrier or other bailee for the purpose of
transmission to the buyer.
Where goods are shipped, and by the bill of lading the
goods are deliverable to the seller or his agent, or to the
order of the seller or of his agent, the seller thereby

39

reserves the ownership in the goods. But, if except for


the form of the bill of lading, the ownership would have
passed to the buyer on shipment of the goods, the
seller's property in the goods shall be deemed to be only
for the purpose of securing performance by the buyer of
his obligations under the contract.
Where goods are shipped, and by the bill of lading the
goods are deliverable to order of the buyer or of his
agent, but possession of the bill of lading is retained by
the seller or his agent, the seller thereby reserves a right
to the possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the
price and transmits the bill of exchange and bill of lading
together to the buyer to secure acceptance or payment
of the bill of exchange, the buyer is bound to return the
bill of lading if he does not honor the bill of exchange,
and if he wrongfully retains the bill of lading he acquires
no added right thereby. If, however, the bill of lading
provides that the goods are deliverable to the buyer or to
the order of the buyer, or is indorsed in blank, or to the
buyer by the consignee named therein, one who
purchases in good faith, for value, the bill of lading, or
goods from the buyer will obtain the ownership in the
goods, although the bill of exchange has not been
honored, provided that such purchaser has received
delivery of the bill of lading indorsed by the consignee
named therein, or of the goods, without notice of the
facts making the transfer wrongful. (n)
Art. 1523. Where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods to the
buyer, delivery of the goods to a carrier, whether named
by the buyer or not, for the purpose of
Unless otherwise agreed, where goods are sent by the
seller to the buyer under circumstances in which the
seller knows or ought to know that it is usual to insure,
the seller must give such notice to the buyer as may
enable him to insure them during their transit, and, if the
seller fails to do so, the goods shall be deemed to be at
his risk during such transit. (n)
GENERAL RULE: Where the seller is authorized or
required to send the goods to the buyer, delivery to the
carrier is delivery to the buyer (Art. 1523)
Delivery of goods to carrier is considered delivery to
the buyer, and hence, title passed to the buyer at the
point of shipment
Rule applies only if there is an agreement between
the seller and the buyer that the former will ship the
goods
EXCEPTIONS:
o Seller may reserve title by the form of the bill of
lading with intent to remain the owner for all
purposes and not merely for the sole purpose of
securing payment, (implied reservation) or
o Contrary intent appears in the contract of sale (e.g.
where the seller is required to deliver the goods to

the buyer at the point of destination or parties did not


intend the delivery of the goods though the carrier)
KINDS OF DELIVERY TO CARRIER
i. f.o.b. - free on board means that the seller bears
expenses of transportation up to the f.o.b. point.
Goods are to be delivered free of expense to the
buyer to the point where they are F.O.B. The
point of F.O.B. (either at the point of shipment or
the point of destination) determines when the
ownership passes.
Generally, seller pays transportation expenses.

If the contract is silent as to the person or mode by


which the goods are to be sent, delivery by the seller
to the common carrier in the usual and ordinary
course of business, transfers title to the buyer
A specification in the contract relative to payment of
freight can be taken to indicate the intention of the
parties as to the place of delivery

Behn Meyer v. Yangco


Facts: The goods were shipped from New York c.i.f.
Manila, payable on delivery of the documents, and the
bill of lading with draft for the price was sent back to
Manila, with instructions to deliver the same and transfer
the property to the buyer, if and when the latter pays the
draft. Issue: Where is the place of delivery? Manila
Held: Court held that the place of delivery of the goods
agreed upon was in Manila. The word Manila in
conjunction with the letters c.i.f. must mean that the
contract price, covering costs, insurance, and freight
signifies that delivery was to be made at Manila. Both
c.i.f. and f.o.b. merely make rules of presumption which
yield to proof of contrary intention. The question is one of
intent, to be ascertained by a consideration of all the
circumstances.
ii. c.i.f. - cost, insurance, freight signifies that the
price quoted includes the costs of the goods,
insurance, and freight charges on the goods up to
the place of destination (paid by the seller)
General Food v. Nacoco
Facts: Copra was shipped from the Philippines to New
York at a price c.i.f., New York and the seller (Nacoco)
withdrew 95% of the invoice value from the letter of
credit opened with a local bank, upon representation of
the bill of lading and other documents.
Issue: Is Nacoco (seller) liable to pay the balance to
buyer? YES.
Held: Court held that the stipulation of the parties
modified a c.i.f. contract and threw the risk upon the
seller until arrival in the port of destination. However, the
place of delivery is at the point of shipment although the
balance of the price was payable upon ascertainment of
the net landed weight of the copra at the point of
discharge.

40

iii. f.a.s. free alongside means that the seller bears


the expenses of transportation until he delivers the
goods alongside a vessel at a named port.
Subject to the risk until the goods are placed
alongside the vessel
These terms may be used only in connection with
fixing the price and will not be construed as fixing
the place of delivery to the buyer
Best indication of the intention of parties as to the
place of delivery is the manner and place of
payment agreed upon by the parties
o Where price is payable upon proof of shipment,
then the buyer agrees to accept delivery at the
point of shipment
o Where the price is payable only upon arrival of
the goods at the point of destination, then that is
the place of delivery to the buyer
Effect of form of bill of lading:
Ownership is retained: The seller may consign the
goods to himself or to his agent and thus prevent
title from passing to the buyer until the latter pays
the price
Mere possession is retained: The seller may consign
the goods to the order of the buyer on the latters
agent but by retaining the bill of lading, he thereby
prevents the buyer from obtaining the goods from
the carrier until price is paid (seller is presumed to
have retained merely the possession over the goods
and title passed to the buyer at the point of
shipment)
o When the seler forwards the bill of lading
together with the draft drawn on the buyer for
the price, the presumed intention of the seller is
not to part with the ownership over the goods
until the draft is honored by the buyer
o The form in which the bill of lading is taken as
indicative of title to the goods is not conclusive
and is rebuttable
Double Sales
Art. 1544. If the same thing should have been sold to
different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof
in good faith, if it should be movable property.
Should it be immovable property, the ownership shall
belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in the
possession; and, in the absence thereof, to the person
who presents the oldest title, provided there is good
faith. (1473)
If the same thing should have been sold by the owner to
different buyers, the question as to who of the latter
acquired ownership depends on the nature of the thing
sold.

Requisites:
1. Two or more transactions must constitute valid sales
2. They must pertain exactly to the same object or
subject matter
3. They must be bought from the same or immediate
seller; and
4. Two or more buyers who are at odds over the rightful
ownership of the subject matter must represent
conflicting interests
There is no double sale when:
1. Not all the elements are present
The principle of prior tempore, prior jure (he who is first
in time is preferred in right) should apply
2. The two different contracts of sale are made by two
different persons, one of them not being the owner of the
property sold.
3. The land sold is not yet registered under the Torrens
system
4. The first sale occurred when land was not yet
registered, and the second sale was done when the land
was already registered prior tempore, prior jure should
apply
Rules on preference:
1. Personal property first possessor in good faith
2. Real property
First registrant in good faith: second buyer must
register the document in good faithl oitherwise, he
does not have a better right
First possessor in good faith
Person with oldest title in good faith
Caveat emptor: One who purchases real property which
is in actual possession of others should make some
inquiry concerning the rights of those in possession.
a) General Rule Prior tempore, prior jure
Carbonell v CA
Facts: Jose Poncio sold his lot to Carbonell on 27 Jan
1955 and 4 days later sold the same property to Infante.
A formal deed of sale was executed in favor of Infante.
Carbonell, upon seeing Infante building a wall around
the lot, registered an adverse claim on the property. The
deed of sale in favor of Infante was later registered and
the latter was thereafter in possession of the lot.
Issue: Was the second sale valid? No.
Held: The second sale was not valid. In case of double
sale, ownership should be recognized in favor of the one
who in good faith first recorded his right. It is essential
that the buyer must act in good faith in registering his
deed of sale. Carbonells prior purchase of the land is
made in good faith. Her good faith subsisted and
continued to exist when she recorded her adverse claim
4 days prior to the registration of Infantes deed of sale.
As there in inscription, prior registration in good faith is
pre-condition to a superior title.
b) Requisites for double sale

41

Cheng v. Genato
Facts: Genato sold lot to Jose sps and later on, to
Cheng, when he expressed interest in buying the
property.
Issue: WON rules on double sale are applicable. NO,
contract was a contract to sell. Rules on double sale
inapplicable. But prior tempore prior jure must apply.
Held: The rules on double sales under Art 1544 are not
applicable to a contract to sell, as in this case. The
provision connotes that the following circumstances
must concur:
1. The 2 or more sales transactions in the issue must
pertain to exactly the same subject matter, and
must be valid sales transactions.
2. The 2 or more buyers at odds over the rightful
ownership of the subject matter must each
represent conflicting interests; and
3. The 2 or more buyers at odds over the rightful
ownership of the subject matter must each have
brought from the very same seller.
These situations are lacking in a contract to sell for
neither a transfer of ownership nor a sales transaction
has been consummated. The contract to be binding
upon the obligee or the vendor depends upon the
fulfillment or non-fulfillment of an event.
NOTWITHSTANDING that is a Contract to Sell, the
Court is in the view that the governing principle of Art
1544, CC should apply in this casePRIMUS
TEMPORE, PORTIOR JURE (first in time, stronger in
right). For not only was the contract between Da Jose
sps and Genato first in time; it was also registered long
before Chengs intrusion as second buyer.
Villanueva: The Cheng ruling can only be interpreted to
mean that the contract to sell whereby the suspensive
conditions are first fulfilled, would be considered as first
in time.
If the requisites are not complied with, the main rule
must apply: FIRST IN TIME, STRONGER IN RIGHT
(prius tempore, potior jure)
Art. 1544 contemplates BOTH actual and constructive
delivery.
c) Who is purchaser in good faith
Purchaser in good faith one who:
(a) buys the property of another without notice that some
other person has a right to, interest in, such property and
(b) pays a full and fair price for the sale, at the time of
the purchase or before he as notice of the claim of
interest of some other person in the property.
Good faith consists in an honest intention to abstain from
taking any unconscious advantage of another.
A purchaser may be considered a purchaser in good
faith if he has examined the latest certificate of title.
Exception: When there exist important facts that would
create suspiction in an otherwise reasonable man to go

beyond the present title and to investigate those that


preceded it.
Agricultural and Home Extension v. CA
Facts: Sps Diaz sold land to Gundran, but latter did not
register sale because he was advised of existence of
notice of lis pendens. Sps Diaz subsequently sold the
same land to Cabautan who registered land in his favor.
Issue: WON Cabautan is innocent purchaser for value
and is entitled to priority granted under Art. 1544, CC.
YES
Held: Court held that he was innocent purchaser for
value and is entitled to priority granted under Art. 1544,
therefore he is the owner.
Cabautan registered the sale; therefore, he has the
better right
In this case, not disputed that first sale to Gundran
was not registered while sale to Cabautan was
registered.
Because of this, lower courts justified in according
preferential rights to Cabautan who registered sale
in his favor
Cabautan was a purchaser in good faith.
Purchaser in good faith one who buys property of
another without notice that some other person has a
right to or interest in such property and pays a full
and fair price for the same at the time of such purchase or before he has notice of the claim or interest
of some other person in the property
d) Priority of registration over possession
e) sale of movables
Art. 1544 (1). If the same thing should have been sold to
different vendees, the ownership shall be transferred to
the person who may have first taken possession thereof
in good faith, if it should be movable property.
Rivera v Ong
Facts: The Lichauco Brothers had offered for sale
certain old machinery and boilers which were deposited
and exposed for sale in a yard. Rivera alleges that he
purchased some of the materials and was given receipt.
However, he did not take possession of the property.
Ong Che bought from the Lichauco Brothers a lot of old
iron and immediately took possession of the materials he
bought including some part of the boilers. Plaintiff
instituted a case to recover the articles, alleging that he
was the true owner thereof.
Issue: Who has a better title? Ong Che.
Held: Ong Che has a better title to the property (over
which he and Rivera had overlapping claims). He was a
purchaser of the articles in good faith, acquired
possession by virtue of his purchase, and therefore has
a better title than the first purchaser.

42

If the same movable should have been sold to different


buyers, the ownership shall be confirmed to the person
who may have taken possession thereof in good faith.
Delivery may be made in different forms as provided in
Art. 1497 1501.
nd
Possession of 2 buyer must be in good faith good
faith must continue until the buyer acquires full
ownership and possession
nd
2 buyer must pay the full and fair price before he had
knowledge of the defect.

purchaser, before bidding, to ascertain the rights of the


judgment debtor over the property.]

f) sale of immovables

The above rules do not apply to lands registered under


Act 496 which provides that registration of instruments
shall be the operative act to convey and affect the land;
hence, prior unrecorded sale cannot prejudice execution
sales if no third-party claim was presented before the
execution sale took place. [Third persons are not
required to go beyond the register and determine the
condition of the property.]

Art. 1544 (2). Should it be immovable property, the


ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.

If the same immovable should have been sold to


different buyers, ownership shall belong to the
person who:
In good faith first recorded in the Registry;
Should there be no inscription, the ownership shall
pertain to the person who in good faith was first in
possession; and
In the absence thereof, to the person who preseents
the oldest title, provided there is good faith.
The two transactions must both be sales and
must involve the same subject matter.
The above rules do not apply when one of
thransactions is a contract to sell, or a sale of a
right of redemption
To be entitled to priority, the second buyer must
not only show prior recording of his deed but
must have acted in good faith, without
knowledge of the existence of another alienation
by the vendor to another
Possessor in good faith: one who is not aware
that there exists in his title or mode of acquisition
any flaw which invalidates it
o good faith is always presumed; burden of
proof is on person alleging bad faith
o good faith of second buyer must continue
until his contract ripens into ownership by
tradition or recording
o as to Torrens title: it is enough that
purchaser examines the latest certificate of
title issued in the name of his vendor and he
need not trace its origin to prior certificates
of title

Carbonell v. CA (supra)
g) Sale by virtue of execution or attachment
GENERAL RULE: Article 1544 not applicable to
execution sales
PURPOSE: Because the purchaser at such sales is
substituted to or acquires whatever rights, title or
interests the judgment debtor may have over the
property as of the time of levy. [It is the duty of the

Attachment or execution cannot prejudice prior


unrecorded sales made by the judgment debtor, and is
preferred only over claims contracted subsequent to its
recording
Above rule is also applicable to unregistered lands, as
registration of instruments under Act 3344 is without
rd
prejudice to a 3 party with a better right.

A bona fide purchaser of a registered land at an


execution sale acquires good title as against a prior
transferee, if such transfer was unrecorded.
Carumba v. CA (exception to the application)
Facts: Ibasco is the owner of the land. He sold it to
Carumba who never registered the deed of sale but
nevertheless took possession of the land, planted trees
and crops. Ibasco was declared a judgment debtor and
the sheriff issue a definite deed of sale in favor of the
judgment creditor.
Issue: Who has a better right? CARUMBA
Held: Carumba has a better right. Although under Art.
1544, registration prevails over possession in the event
of a double sale, said article is of no application in the
case at bar even if the creditor-vendee is in good faith.
The reason is that the purchaser of unregistered land at
a sheriffs auction sale only steps into the shoes of the
judgment debtor, and merely acquire the latters interest
in the property sold as of the time the property was
levied upon. When the levy was made, the judgment
debtor (Ibasco) no longer had any dominical interest or
real right over the land that could pass to the purchaser
at the execution sale.
h) Meaning of better right
A person having a better right would be one who
had previously acquired ownership thereof through
the modes of acquiring ownership under the Civil
Code: tradition as a result of sale, donation,
succession and prescription
Hanopol v Pilapil
Facts: Hanopol purchased land from Siapo under a
private instrument but the former did not take possession
of the land. After 7 years, Siapo sold again the land to
Pilapil by virtue of a notarized deed of sale which was
registered in the Registry of Deeds.
Issue: Who has a better right? PILAPIL

43

Held: Pilapil has a better right. There appears to be no


clear evidence of Hanopols possession of the land.
Consequently, since Siapo was in actual occupancy of
the property under claim of ownership when they sold
the land to Pilapil, such possession was transmitted to
the latter at least constructively with the execution of the
notarial deed of sale. Pilapil was in good faith. A better
right which is unrecorded and which would prevail over a
recorded sale is one which was gained independently of
the sale, as title by prescription.
i) Unregistered land
P.D. 1529, Sec. 113. Recording of instruments relating
to unregistered lands. - No deed, conveyance,
mortgage, lease, or other voluntary instrument affecting
land not registered under the Torrens system shall be
valid, except as between the parties thereto, unless such
instrument shall have been recorded in the manner
herein prescribed in the office of the Register of Deeds
for the province or city where the land lies.
(a) The Register of Deeds for each province or city shall
keep a Primary Entry Book and a Registration Book. The
Primary Entry Book shall contain, among other
particulars, the entry number, the names of the parties,
the nature of the document, the date, hour and minute it
was presented and received. The recording of the deed
and other instruments relating to unregistered lands shall
be effected by any of annotation on the space provided
therefor in the Registration Book, after the same shall
have been entered in the Primary Entry Book.
(b) If, on the face of the instrument, it appears that it is
sufficient in law, the Register of Deeds shall forthwith
record the instrument in the manner provided herein. In
case the Register of Deeds refuses its administration to
record, said official shall advise the party in interest in
writing of the ground or grounds for his refusal, and the
latter may appeal the matter to the Commissioner of
Land Registration in accordance with the provisions of
Section 117 of this Decree. It shall be understood that
any recording made under this section shall be without
prejudice to a third party with a better right.
(c) After recording on the Record Book, the Register of
Deeds shall endorse among other things, upon the
original of the recorded instruments, the file number and
the date as well as the hour and minute when the
document was received for recording as shown in the
Primary Entry Book, returning to the registrant or person
in interest the duplicate of the instrument, with
appropriate annotation, certifying that he has recorded
the instrument after reserving one copy thereof to be
furnished the provincial or city assessor as required by
existing law.
(d) Tax sale, attachment and levy, notice of lis pendens,
adverse claim and other instruments in the nature of
involuntary dealings with respect to unregistered lands, if

made in the form sufficient in law, shall likewise be


admissible to record under this section.
(e) For the services to be rendered by the Register of
Deeds under this section, he shall collect the same
amount of fees prescribed for similar services for the
registration of deeds or instruments concerning
registered lands.
Registration intended to cover the annotation or
inscription of a contract, transaction, or legal process
in the Register of Deeds covering a property, which
may or may not be registered land.
Registration does not mean the registration of the
land but the registration of the contract
Registration requirement is understood to be without
prejudice to third party with a better right
Mere registration does not give the buyer any right
over the land:
o if the vendor was not the owner of the land
o if the vendor has already parted with his
ownership before such sale in favor of third
party who had previously taken possession of
the land, even though the prior sale was
unrecorded
The rules on double sale have no application to land
not registered under the Torrens system
No deed, mortgage, lease, or other voluntary
instrument, except a will purporting to convey or
affect registered land shall take effect as a
conveyance or bind the land until its registration.
Thus, if the sale is not registered, it is binding only
between the seller and the buyer but it does not
affect innocent third persons.
Instruments 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 to
rd
prejudice 3 persons, although such registration is
understood to be without prejudice to a third party with a
better right.
Art. 1544 applies to unregistered land subject to a
conventional sale, but does not apply to unregistered
land subject to judicial sale.
Dagupan v. Macam
Facts: Sammy Maron and his 7 brothers and sisters
were pro-indiviso owners of a parcel of unregistered
land. While their application for said land was pending,
they executed two deeds of sale conveying 1/8 of the
property to Rustico Macam. Macam took possession and
introduced substantial improvements therein. OCT was
issued in the name of the Marons, free from all liens and
encumbrances. However, by virtue of a final judgment
against Maron in favor of the Manila Trading and Supply
Company, levy was made upon whatever interest he had

44

in the property. Said interest was sold at public auction


and was bought by Dagupan. It commenced an action
against Macam, praying that it be declared the owner of
1/8 of the property. Macam alleged that at the time the
levy in execution was made on Sammy Marons share,
the latter had no longer any right or interest in Macams
part of the property.
Issue: Who has the better right between Dagupan
Trading Company and Rustico Macam, to the 1/8 share
of Sammy Maron in the property? Macam!
Held: Macam has a better right over the 1/8 share of
Sammy Maron in the property. The sale in favor of
Macam was executed before the land was registered,
while the conflicting sale in favor of Dagupan was
executed after the land has been registered. Upon the
execution and delivery of the final certificate of sale,
such purchaser shall be substituted to and acquire all
the rights, title, interest, and claim of the judgment debtor
to the property as of the time of the levy.
Sammy Maron has no interest in the property because
for a considerable time prior to the levy, his interest has
already been convened to Macam fully and
irretrievably. Consequently, subsequent levy made on
the property for the purpose of satisfying the judgment
rendered against Maron in favor of Manila Trading was
void and of no effect.
j) When one sale is forgery
Espiritu v. Valerio
Held: Deed of sale is false and fictitious, thus nullifying
their claim on the land. The private document is null and
void, being without the necessary formal requisites,
aside to its being fictitious and the fact that the alleged
vendor acquired no rights whatsoever in the land. An
examination of Deed of Sale Exhibit 1 reveals the fact
that it cannot be determined whose thumbmark is the
one appearing on the said document, for the reason that
it immediately precedes the name Anselmo Vegilia but
under the name Pelagia Vegilia. The thumbmark
appearing in the Deed of Sale Exhibit 1 is different from
the thumbmark appearing in Exhibit "X." It was also clear
that the one who wrote the name Anselmo Vegilia is the
very one who wrote the name Pelagia Vegilia; and it is
apparent also that Anselmo Vegilia could not have
written the name Anselmo Vegilia in the DOS Exhibit 1
for the simple reason that it has been certified by the
Notary Public that said Anselmo Vegilia is physically
incapable (inutil physicamente). It was also noted that
the ink used writing the names of Pelagia and Anselmo
is different from the ink used by the other persons who
signed the Deed of Sale., and that those names must
have been written in a much later date than the other
names appearing in the document. The names Mariano
Vegilia and Jose B. Aviles appearing in the said
document must have been written by only one man.
k) First in possession in good faith
First buyer always in good faith because there is no sale
prior to his transaction. Second buyer must continue to

be in good faith until his contract ripens into ownership


by tradition or recording.
Annotation of adverse claim: The registration of an
adverse clai places any subsequent buyer of the
registered parcel of land in bad faith, for she could have
known that there was a pending case and an annotation
of adverse claim was made in the title of the property
before the Register of Deeds and she could have
discovered that the subject property was already sold.
Annotation of lis pendens: A buyer cannot be considered
an innocent purchaser for value where it ignored the
notice of lis pendens on the title when it bought the lot.
If neither vendee registered the sale in his favor or
registration was done in bad faith, the vendee who was
first in possession in good faith acquired ownership of
the land.
Tradition as the mode of transferring ownership to the
buyer
Actual or constructive delivery
Quimson v. Rosete
Held: Where both deeds of sale over the same
registered parcel of land were not registered with the
Registry of Deeds, the buyer of the first deed of sale
executed in a public instrument had a better right,
although the subsequent buyer took material possession
thereof. It was ruled that since the sale to the first buyer
was in a public instrument, it was clearly tantamount to a
delivery of the land resulting in the material and symbolic
possession thereof being transferred to the latter. When
the second buyer took material possession of the same
land, he did so merely as detainer. The possession
mentioned in Art. 1544 for determining who had better
right when the same piece of land has been sold several
times by the same seller include not only the material but
also the symbolic possession thereof.
Sanchez v Ramos
Facts: Fernandez sold the land to Sanchez who did not
immediately take possession of the land. The land was
again sold to Ramos by means of a private instrument.
Ramos immediately took possession of the land.
Issue: Who has a better right? Sanchez.
Held: SANCHEZ HAS A BETTER RIGHT. The
execution of a public instrument is equivalent to the
delivery of the realty sold and its possession by the
vendee. The possession under Art. 1544 includes not
only the material but also the symbolic possession,
which is acquired by the execution of the public
instrument. Delivery may be actual or constructive. Thus,
if the first sale is evidenced in a public instrument, there
is delivery of the thing sold, if the contrary does not
appear in the deed.
Dissent: The possession referred to in Art. 1544 is the
actual, material, and physical possession of the thing
sold and no account should ever be taken of symbolic
possession acquired by the purchaser. To protect the
second purchaser, the lawmakers saw fit to state

45

conditions which, when fulfilled, gives the purchaser a


better right.
Art. 526. He is deemed a possessor in good faith who is
not aware that there exists in his title or mode of
acquisition any flaw which invalidates it.
He is deemed a possessor in bad faith who possesses in
any case contrary to the foregoing.
Mustake upon a doubtful or difficult question of law may
be the basis of good faith.
Art. 527. Good faith is always presumed, and upon him
who alleges bad faith on the part of a possessor rests
the burden of proof.
Art. 528. Possession acquired in good faith does not
lose this character except in the case and from the
moment facts exist which show that the possessor is not
unaware that he possesses the thing improperly or
wrongfully.
l) Oldest title
If neither of the vendees registered their deeds of sale
nor acquired possession of the land sold, the one who
can present the oldest title provided there is good faith,
has the better right.
Older title means any document showing acquisition of
the land in good faith, like a deed of sale or a receipt for
the price;
Examples: Deed of sale, receipt for the price
Does not include public document, unless the contrary
can be clearly inferred therefrom that delivery was not
effected by its execution.

VIII. RISK OF LOSS


GENERAL RULE: Always determine who is the owner at the
time of the loss? General rule is that owner bears the
loss.
Art. 1263. In an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind does not
extinguish the obligation. (n)
Art. 1189. When the conditions have been imposed with
the intention of suspending the efficacy of an obligation
to give, the following rules shall be observed in case of
the improvement, loss or deterioration of the thing during
the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he
shall be obliged to pay damages; it is understood that
the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the


debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for damages
in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall
have no other right than that granted to the usufructuary.
(1122)

1. WHEN LOSS OCCURRED BEFORE PERFECTION


- Since there has been no perfection of the contract
yet, the seller is still the owner of the thing and shall
ear the risk of loss or deterioration.
Roman v. Grimalt
Facts: Grimalt verbally agreed to purchase a schooner
from Roman. However, the ship carrying the schooner
sunk and was totally lost because of a storm. Roman
demanded payment of the purchase price but Grimalt
refused.
Issue: WON the parties perfected the contract of sale
(No)
Ratio: The sale was not perfected because the title of
the vessel was in the name of Paulina Giron, and not in
the name of Roman, the alleged owner. Roman
promised to perfect his title to the vessel, but failed to do
so. Because there was no contract of sale, the loss of
the vessel must be borne by its owner at the time and
not by a party who only intended to purchase it and who
was unable to do so on account of failure on the part of
the owner to show proper title to the vessel and enable
them to draw up a valid contract of sale.
2. WHEN LOSS OCCURRED AT TIME OF
PERFECTION
- If at the time the sale is perfected, the thing had
been lost entirely, the contract shall be ineffective.
This is because there can be no contract without an
object.
- The loss must have occurred before the contract
was entered into, without the knowledge of both
parties.
- Options of buyer when there is partial loss and a
loss which results in substantial change in character
Art. 1493. If at the time the contract of sale is perfected,
the thing which is the object of the contract has been
entirely lost, the contract shall be without any effect.
But if the thing should have been lost in part only, the
vendee may choose between withdrawing from the
contract and demanding the remaining part, paying its
price in proportion to the total sum agreed upon. (1460a)
Art. 1494. Where the parties purport a sale of specific
goods, and the goods without the knowledge of the

46

seller have perished in part or have wholly or in a


material part so deteriorated in quality as to be
substantially changed in character, the buyer may at his
option treat the sale:

Art. 1480. Any injury to or benefit from the thing sold,


after the contract has been perfected, from the moment
of the perfection of the contract to the time of delivery,
shall be governed by Articles 1163 to 1165, and 1262.

(1) As avoided; or

This rule shall apply to the sale of fungible things, made


independently and for a single price, or without
consideration of their weight, number, or measure.

(2) As valid in all of the existing goods or in so much


thereof as have not deteriorated, and as binding the
buyer to pay the agreed price for the goods in which the
ownership will pass, if the sale was divisible. (n)
Norkis v. CA
Facts: Napales bought a Yamaha motorcycle from
Norkis. Norkis branch manager issued a sales invoice.
The motorcycle was registered with the Land
Transportation Commission in Napales name and he
paid the corresponding registration fees, but the
motorcycle remained in Norkis possession. After Norkis
allegedly delivered the motorcycle to Napales agent, the
motorcycle was totally wrecked in an accident and
returned to Norkis.
Issue: WON there had been a transfer of ownership of
the motorcycle to Napales at the time it was destroyed
(No)
Ratio: There was no constructive delivery of the
motorcycle. During the registration in Napaless name,
Norkis did not intend yet to transfer the title or
ownership, but only to facilitate the execution of a chattel
mortgage for the release of the buyers motorcycle loan.
Because there was neither constructive or actual
delivery, the loss should be borne by the seller, which
was still the owner and possessor of the motorcycle
when it was wrecked. This is in accordance with res perit
domino.
3. WHEN LOSS OCCURRED AFTER PERFECTION
BUT BEFORE DELIVERY
General Rule: Res perit domino
1. The risk of loss shall be borne by the owner.
2. Ownership is transferred upon delivery.
Art. 1164. The creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the
same has been delivered to him. (1095)
Art. 1262. An obligation which consists in the delivery of
a determinate thing shall be extinguished if it should be
lost or destroyed without the fault of the debtor, and
before he has incurred in delay.
When by law or stipulation, the obligor is liable even for
fortuitous events, the loss of the thing does not
extinguish the obligation, and he shall be responsible for
damages. The same rule applies when the nature of the
obligation requires the assumption of risk. (1182a)
3.1 Loss by fault of a party

Should fungible things be sold for a price fixed according


to weight, number, or measure, the risk shall not be
imputed to the vendee until they have been weighed,
counted, or measured and delivered, unless the latter
has incurred in delay. (1452a)
Art. 1504. Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred
to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except
that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the goods
are at the buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed through the
fault of either the buyer or seller the goods are at the risk
of the party in fault. (n)
Art. 1538. In case of loss, deterioration or improvement
of the thing before its delivery, the rules in Article 1189
shall be observed, the vendor being considered the
debtor. (n)
Art. 1636. In the preceding articles in this Title governing
the sale of goods, unless the context or subject matter
otherwise requires:
(1) "Document of title to goods" includes any bill of
lading, dock warrant, "quedan," or warehouse receipt or
order for the delivery of goods, or any other document
used in the ordinary course of business in the sale or
transfer of goods, as proof of the possession or control
of the goods, or authorizing or purporting to authorize
the possessor of the document to transfer or receive,
either by endorsement or by delivery, goods represented
by such document.
"Goods" includes all chattels personal but not things in
action or money of legal tender in the Philippines. The
term includes growing fruits or crops.
"Order" relating to documents of title means an order by
endorsement on the documents.
"Quality of goods" includes their state or condition.
"Specific goods" means goods identified and agreed
upon at the time a contract of sale is made.

47

An antecedent or pre-existing claim, whether for money


or not, constitutes "value" where goods or documents of
title are taken either in satisfaction thereof or as security
therefor.
(2) A person is insolvent within the meaning of this Title
who either has ceased to pay his debts in the ordinary
course of business or cannot pay his debts as they
become due, whether insolvency proceedings have
been commenced or not.

(1) Where delivery of the goods has been made to the


buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the goods
are at the buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed through the
fault of either the buyer or seller the goods are at the risk
of the party in fault. (n)

(3) Goods are in a "deliverable state" within the meaning


of this Title when they are in such a state that the buyer
would, under the contract, be bound to take delivery of
them. (n)

Art. 1538. In case of loss, deterioration or improvement


of the thing before its delivery, the rules in Article 1189
shall be observed, the vendor being considered the
debtor. (n)

3.2 Loss by fortuitous events

Art. 1189. When the conditions have been imposed with


the intention of suspending the efficacy of an obligation
to give, the following rules shall be observed in case of
the improvement, loss or deterioration of the thing during
the pendency of the condition:

Art. 1480. Any injury to or benefit from the thing sold,


after the contract has been perfected, from the moment
of the perfection of the contract to the time of delivery,
shall be governed by Articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made
independently and for a single price, or without
consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according
to weight, number, or measure, the risk shall not be
imputed to the vendee until they have been weighed,
counted, or measured and delivered, unless the latter
has incurred in delay. (1452a)
Art. 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence of
a good father of a family, unless the law or the
stipulation of the parties requires another standard of
care. (1094a)

(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he
shall be obliged to pay damages; it is understood that
the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the
debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for damages
in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;

Art. 1165. When what is to be delivered is a determinate


thing, the creditor, in addition to the right granted him by
Article 1170, may compel the debtor to make the
delivery.

(6) If it is improved at the expense of the debtor, he shall


have no other right than that granted to the usufructuary.
(1122)

If the thing is indeterminate or generic, he may ask that


the obligation be complied with at the expense of the
debtor.

3.3 Fruits or improvements

If the obligor delays, or has promised to deliver the same


thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)
Art. 1504. Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred
to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except
that:

Art. 1537. The vendor is bound to deliver the thing sold


and its accessions and accessories in the condition in
which they were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on
which the contract was perfected. (1468a)

4. WHEN OWNERSHIP IS TRANSFERRED


General Rule: Risk of loss of the goods shall be borne
by the owner. Take note of rules on delivery.

48

EXCEPTION:
- Contrary stipulation (Sun Bros. v Perez)
o Notwithstanding that title remained with the
seller, it can be validly agreed that the risk of
loss shall be borne by the buyer.
Stipulations govern the agreement.
- Security title (Lawyers Coop v Tabora)
o Where the goods have been delivered to the
buyer or to a bailee for the buyer in
pursuance of the contract, and title was
retained by the seller only to secure
payment of the price, the risk of loss is on
the buyer from the time of such delivery, as
the beneficial owner.
- Delay through the fault of the buyer or the seller
o Where actual delivery has been delayed
through the fault of the buyer or the seller,
the goods are at the risk of the party in fault.
Art. 1504. Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred
to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except
that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the goods
are at the buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed through the
fault of either the buyer or seller the goods are at the risk
of the party in fault. (n)
Sun Bros. V. Perez
Facts: Perez entered into a conditional sale agreement
with Sun Bros. Perez made a downpayment on the
same day, and the aircon was installed by Sun Bros.
The aircon was burned subsequently, causing Perez to
stop paying the monthly installments.
Issue: WON the loss of the aircon extinguish Perezs
obligation to pay (No)
Ratio: Agreement contained stipulation that buyer shall
suffer the loss or repairs of the aircon after its delivery to
the buyer. An agreement making the buyer responsible
for any loss whatsoever, fortuitous or otherwise, even if
the title to the property remained in the vendor is neither
contrary to law, morals or public policy.
Lawyers Coop v. Tabora
Facts: Tabora bought one complete set of American
Jurisprudence from Lawyers Cooperative Publishing
Company. Tabora made a partial payment and the
books were delivered to him. A fire broke out burning the
law office and the library, including the newly purchased
books. Tabora failed to pay monthly installments
claiming for majure.

Issue: WON Tabora should bear the loss and pay the
unpaid balance (Yes)
Ratio: It was agreed that title to and ownership of the
books remained with the seller until the purchase price
was fully paid. However, Tabora is still liable because
such stipulation was agreed on merely to secure the
performance by the buyer of his obligation to pay. Using
Art 1504 (1), where delivery of goods have been made
and the ownership of the goods are retained by the
seller to secure performance by the buyer of his
obligation, the buyer a bears the loss of the goods from
the time of delivery.
Song Fo v. Oria
Facts: Song Fo sold a launch to Oria. The launch was
delivered to Oria in Manila, but was shipwrecked and
lost while en route to Orias place of business in Samar.
No payment had been made, so Song Fo was
demanding such payment. Oria however argued that
Song Fo was obligated to insure the launch which they
failed to do, thus they were to suffer the loss of the
launch.
Issue: WON Song Fo is responsible for the loss of the
launch (No)
Ratio: Song Fo was able to deliver the launch to Oria in
Manila, and it was after this that the launch was lost in
sea. As the owner at the time, Oria was to bear the loss.
In addition, Song Fo did make a bona fide attempt to
insure the launch, but was not granted because of the
dangerous nature of the coast where Oria desired to
operate the launch, and the lack of confidence in the
character and reputation of Oria.

IX. DOCUMENTS OF TITLE


DEFINITION
Document of title a document used in the ordinary
course of business in the sale or transfer of goods, as
proof of the possession or control of the goods, or
authorizing or purporting to authorize the possessor of
the document to transfer or receive, either by
endorsement or by delivery, goods represented by such
document. (Art. 1636)
- includes any bill of lading, dock warrant,
quedan, warehouse receipt or order, any other
document used as proof of possession or as authority to
transfer the goods represented by the document.
PURPOSE OF DOCUMENTS OF TITLE
The functions of documents of title are (1) Evidence of
the possession or control of the goods described therein
(2) Medium of transferring title and possession over the
goods described therein without having to effect actual
delivery thereof
Siy Cong Bieng v. HSBC
Facts: Ranft purchased hemp from Siy Cong Bien. The
hemp were deposited in bonded warehouses evidenced
by quedans. Siy Cong Bien sent quedans (warehouse

49

receipts) in blank to Raft. Raft delivered said quedans to


HSBC as a pledge for a preexisting debt. Later Raft
died. Siy Cong Bien demanded the return of the
quedans since payment was not made but HSBC
refused.
Issue: WON quedans are documents of title (Yes)
Ratio: The intention is plain to facilitate the use of
warehouse receipts as documents of title. If the owner of
the goods permit another to have the possession or
custody of negotiable warehouse receipts running to the
order of the latter, or to bearer, it 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.
NEGOTIABLE DOCUMENTS OF TITLE
Negotiable document of title a document of title in
which it is stated that the goods referred to therein will
be delivered to the bearer, or to the order of any person
named in such document.

Mere delivery,
If deliverable to bearer
If deliverable to the order of a
certain person and that person has
indorsed it in blank merely (put his
name at the back) or indorsed it to
bearer (at the back, he placed
delivery to bearer and then he
signed his name). The document
can now be negotiated by mere
delivery
Indorsement PLUS delivery
Indorsment of the person to whose
order the goods deliverable.
May be in blank, to bearer or to a
specific person.
Subsequent negotiations may be
made after indorsment.

2. Who can negotiate


1. How negotiated
Art. 1508. A negotiable document of title may be
negotiated by delivery:
(1) Where by the terms of the document the carrier,
warehouseman or other bailee issuing the same
undertakes to deliver the goods to the bearer; or
(2) Where by the terms of the document the carrier,
warehouseman or other bailee issuing the same
undertakes to deliver the goods to the order of a
specified person, and such person or a subsequent
endorsee of the document has indorsed it in blank or to
the bearer.
Where by the terms of a negotiable document of title the
goods are deliverable to bearer or where a negotiable
document of title has been indorsed in blank or to
bearer, any holder may indorse the same to himself or to
any specified person, and in such case the document
shall thereafter be negotiated only by the endorsement
of such endorsee. (n)
Art. 1509. A negotiable document of title may be
negotiated by the endorsement of the person to whose
order the goods are by the terms of the document
deliverable. Such endorsement may be in blank, to
bearer or to a specified person. If indorsed to a specified
person, it may be again negotiated by the endorsement
of such person in blank, to bearer or to another specified
person. Subsequent negotiations may be made in like
manner. (n)
-

Two forms of negotiating a negotiable document of


title:
TERMS OF THE DOCUMENT
HOW NEGOTIATED
Goods are deliverable to bearer
By delivery of the
Endorsed in blank by the person to document to another
whose order the goods were
deliverable
Goods are deliverable to the order of a By indorsement of
specified person
such person

Art. 1512. A negotiable document of title may be


negotiated:
(1) By the owner therefor; or
(2) By any person to whom the possession or custody of
the document has been entrusted by the owner, if, by
the terms of the document the bailee issuing the
document undertakes to deliver the goods to the order of
the person to whom the possession or custody of the
document has been entrusted, or if at the time of such
entrusting the document is in such form that it may be
negotiated by delivery. (n)
3. Rights acquired by negotiation
Art. 1505. Subject to the provisions of this Title, where
goods are sold by a person who is not the owner thereof,
and who does not sell them under authority or with the
consent of the owner, the buyer acquires no better title
to the goods than the seller had, unless the owner of the
goods is by his conduct precluded from denying the
seller's authority to sell.
Nothing in this Title, however, shall affect:
(1) The provisions of any factors' act, recording laws, or
any other provision of law enabling the apparent owner
of goods to dispose of them as if he were the true owner
thereof;
(2) The validity of any contract of sale under statutory
power of sale or under the order of a court of competent
jurisdiction;
(3) Purchases made in a merchant's store, or in fairs, or
markets, in accordance with the Code of Commerce and
special laws. (n)
Generally, buyer acquires merely the sellers rights.
EXCEPTION:

50

o
o
o
o

When the owner of the goods by his conduct


precluded from denying the sellers authority
Acts, Recording Laws, or other laws
enabling the apparent owner to dispose of
the goods. (1505 (1))
Statutory power of sale or order of the court
(1505 (2))
Purchase made in a merchants store, fairs
or markets. (1505 (3))

4. Effects of Negotiation
Art. 1513. A person to whom a negotiable document of
title has been duly negotiated acquires thereby:
(1) Such title to the goods as the person negotiating the
document to him had or had ability to convey to a
purchaser in good faith for value and also such title to
the goods as the person to whose order the goods were
to be delivered by the terms of the document had or had
ability to convey to a purchaser in good faith for value;
and
(2) The direct obligation of the bailee issuing the
document to hold possession of the goods for him
according to the terms of the document as fully as if
such bailee had contracted directly with him. (n)

5. Unauthorized Negotiation
Art. 1518. The validity of the negotiation of a negotiable
document of title is not impaired by the fact that the
negotiation was a breach of duty on the part of the
person making the negotiation, or by the fact that the
owner of the document was deprived of the possession
of the same by loss, theft, fraud, accident, mistake,
duress, or conversion, if the person to whom the
document was negotiated or a person to whom the
document was subsequently negotiated paid value
therefor in good faith without notice of the breach of
duty, or loss, theft, fraud, accident, mistake, duress or
conversion. (n)

Prior to the notification to such bailee by the transferor or


transferee of a non-negotiable document of title, the title
of the transferee to the goods and the right to acquire
the obligation of such bailee may be defeated by the levy
of an attachment of execution upon the goods by a
creditor of the transferor, or by a notification to such
bailee by the transferor or a subsequent purchaser from
the transfer of a subsequent sale of the goods by the
transferor. (n)
2. Effects of Transfer
Art. 1514. Supra
WARRANTIES OF SELLER OF DOCUMENTS OF
TITLE
Art. 1516. A person who for value negotiates or
transfers a document of title by endorsement or delivery,
including one who assigns for value a claim secured by
a document of title unless a contrary intention appears,
warrants:
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer it;
(3) That he has knowledge of no fact which would impair
the validity or worth of the document; and
(4) That he has a right to transfer the title to the goods
and that the goods are merchantable or fit for a
particular purpose, whenever such warranties would
have been implied if the contract of the parties had been
to transfer without a document of title the goods
represented thereby. (n)
- These refer to warranties by a person who
negotiated or person who assigns or transfers for
value. These warranties are about the document,
the right to the document, or about the goods
represented by the documents.
RULES ON LEVY/GARNISHMENT OF GOODS
Art. 1514 supra

NON-NEGOTIABLE DOCUMENTS OF TITLE


1. How transferred or assigned
Art. 1514. A person to whom a document of title has
been transferred, but not negotiated, acquires thereby,
as against the transferor, the title to the goods, subject to
the terms of any agreement with the transferor.
If the document is non-negotiable, such person also
acquires the right to notify the bailee who issued the
document of the transfer thereof, and thereby to acquire
the direct obligation of such bailee to hold possession of
the goods for him according to the terms of the
document.

Art. 1519. If goods are delivered to a bailee by the


owner or by a person whose act in conveying the title to
them to a purchaser in good faith for value would bind
the owner and a negotiable document of title is issued
for them they cannot thereafter, while in possession of
such bailee, be attached by garnishment or otherwise or
be levied under an execution unless the document be
first surrendered to the bailee or its negotiation enjoined.
The bailee shall in no case be compelled to deliver up
the actual possession of the goods until the document is
surrendered to him or impounded by the court. (n)
Art. 1520. A creditor whose debtor is the owner of a
negotiable document of title shall be entitled to such aid
from courts of appropriate jurisdiction by injunction and
otherwise in attaching such document or in satisfying the

51

claim by means thereof as is allowed at law or in equity


in regard to property which cannot readily be attached or
levied upon by ordinary legal process. (n)
- Generally no attachment or surrender.
- No attachment or levy, except:
o If the document is surrendered to bailee
o Or the negotiation of the document is
enjoined.
- The bailee cannot be compelled to surrender the
goods except:
o If the document is surrendered to him
o Or the document is impounded by the court.

X. REMEDIES OF AN UNPAID
SELLER
DEFINITION OF UNPAID SELLER
Unpaid seller if the whole price has not been paid or
tendered, or when the check received as conditional
payment was dishonored by non-payment or insolvency
of the buyer.
Seller includes the agent of the seller to whom the bill
of lading was endorsed, or the consignor or agent who
had paid the price or is responsible for the price, or any
other person who is in the position of a seller.
Art 1525. The seller of goods is deemed to be an
unpaid seller within the meaning of this Title:
(1) When the whole of the price has not been paid or
tendered;
(2) When a bill of exchange or other negotiable
instrument has been received as conditional payment,
and the condition on which it was received has been
broken by reason of the dishonor of the instrument, the
insolvency of the buyer, or otherwise.
In Articles 1525 to 1535 the term "seller" includes an
agent of the seller to whom the bill of lading has been
indorsed, or a consignor or agent who has himself paid,
or is directly responsible for the price, or any other
person who is in the position of a seller. (n)

REMEDIES OF UNPAID SELLER


- If ownership over the goods had not yet passed to
the buyer: the seller, as owner, could retain the
goods or resell them to another, without prejudice to
his liability for damages for any breach of contract
committed by him.
-

If ownership had passed to the buyer but the goods


are still in the possession of the seller or are in
transit to the buyer: the unpaid seller could withhold
delivery or stop the goods in transit should the buyer
become insolvent. As a consequence of his lien

over the goods, the unpaid seller could resell the


goods to another or resume ownership over them,
without court order, and may still used the buyer for
damages
1. Possessory Lien
Art 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods may
have passed to the buyer, the unpaid seller of goods, as
such, has:
(1) A lien on the goods or right to retain them for the
price while he is in possession of them;
(2) In case of the insolvency of the buyer, a right of
stopping the goods in transitu after he has parted with
the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this
Title.
Where the ownership in the goods has not passed to the
buyer, the unpaid seller has, in addition to his other
remedies a right of withholding delivery similar to and
coextensive with his rights of lien and stoppage in
transitu where the ownership has passed to the buyer.
(n)
Art 1527. Subject to the provisions of this Title, the
unpaid seller of goods who is in possession of them is
entitled to retain possession of them until payment or
tender of the price in the following cases, namely:
(1) Where the goods have been sold without any
stipulation as to credit;
(2) Where the goods have been sold on credit, but the
term of credit has expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding
that he is in possession of the goods as agent or bailee
for the buyer. (n)
Art 1528. Where an unpaid seller has made part delivery
of the goods, he may exercise his right of lien on the
remainder, unless such part delivery has been made
under such circumstances as to show an intent to waive
the lien or right of retention. (n)
Art 1529. The unpaid seller of goods loses his lien
thereon:
(1) When he delivers the goods to a carrier or other
bailee for the purpose of transmission to the buyer
without reserving the ownership in the goods or the right
to the possession thereof;

52

(2) When the buyer or his agent lawfully obtains


possession of the goods;
(3) By waiver thereof.
The unpaid seller of goods, having a lien thereon, does
not lose his lien by reason only that he has obtained
judgment or decree for the price of the goods. (n)
Art. 1503. When there is a contract of sale of specific
goods, the seller may, by the terms of the contract,
reserve the right of possession or ownership in the
goods until certain conditions have been fulfilled. The
right of possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or
to a carrier or other bailee for the purpose of
transmission to the buyer.
Where goods are shipped, and by the bill of lading the
goods are deliverable to the seller or his agent, or to the
order of the seller or of his agent, the seller thereby
reserves the ownership in the goods. But, if except for
the form of the bill of lading, the ownership would have
passed to the buyer on shipment of the goods, the
seller's property in the goods shall be deemed to be only
for the purpose of securing performance by the buyer of
his obligations under the contract.
Where goods are shipped, and by the bill of lading the
goods are deliverable to order of the buyer or of his
agent, but possession of the bill of lading is retained by
the seller or his agent, the seller thereby reserves a right
to the possession of the goods as against the buyer.
Where the seller of goods draws on the buyer for the
price and transmits the bill of exchange and bill of lading
together to the buyer to secure acceptance or payment
of the bill of exchange, the buyer is bound to return the
bill of lading if he does not honor the bill of exchange,
and if he wrongfully retains the bill of lading he acquires
no added right thereby. If, however, the bill of lading
provides that the goods are deliverable to the buyer or to
the order of the buyer, or is indorsed in blank, or to the
buyer by the consignee named therein, one who
purchases in good faith, for value, the bill of lading, or
goods from the buyer will obtain the ownership in the
goods, although the bill of exchange has not been
honored, provided that such purchaser has received
delivery of the bill of lading indorsed by the consignee
named therein, or of the goods, without notice of the
facts making the transfer wrongful. (n)
Art 1535. Subject to the provisions of this Title, the
unpaid seller's right of lien or stoppage in transitu is not
affected by any sale, or other disposition of the goods
which the buyer may have made, unless the seller has
assented thereto.

transitu shall defeat the right of any purchaser for value


in good faith to whom such document has been
negotiated, whether such negotiation be prior or
subsequent to the notification to the carrier, or other
bailee who issued such document, of the seller's claim to
a lien or right of stoppage in transitu. (n)
-

The unpaid sellers lien implies that he has a right to


retain possession of the goods until payment or
tender of the whole price, unless he agreed to sell
on credit.
If the unpaid seller agrees to sell on credit, he may
refuse to deliver them if the buyer becomes
insolvent, or if the term of the credit had expired and
the price has not been paid.
Partial lien: Where an unpaid seller has made part
delivery of the goods, he may exercise his right of
lien on the remainder, unless such part delivery has
been made under such circumstances as to show an
intent to waive the lien or right of retention
Loss of lien: the unpaid seller losses his lien when:
o he delivers the goods to the carrier or other
bailee, consigning them to the buyer under a
straight or non-negotiable bill of lading, or
o when the goods were delivered to the buyer, or
o when he waived his lien.
It is not lost on the remainder of the goods when
only partial delivery was made, unless such was
intended to operate as symbolical delivery of the
whole. The lien is not lost by the mere fact that the
seller had already obtained judgment for the price.
Revival of lien: the unpaid sellers lien is revived if
the goods are returned by the buyer in wrongful
repudiation of the contract.

2. Stoppage in transitu
Art 1530. Subject to the provisions of this Title, when the
buyer of goods is or becomes insolvent, the unpaid
seller who has parted with the possession of the goods
has the right of stopping them in transitu, that is to say,
he may resume possession of the goods at any time
while they are in transit, and he will then become entitled
to the same rights in regard to the goods as he would
have had if he had never parted with the possession. (n)
Art 1531. Goods are in transit within the meaning of the
preceding article:
(1) From the time when they are delivered to a carrier by
land, water, or air, or other bailee for the purpose of
transmission to the buyer, until the buyer, or his agent in
that behalf, takes delivery of them from such carrier or
other bailee;
(2) If the goods are rejected by the buyer, and the carrier
or other bailee continues in possession of them, even if
the seller has refused to receive them back.

If, however, a negotiable document of title has been


issued for goods, no seller's lien or right of stoppage in

53

Goods are no longer in transit within the meaning of the


preceding article:
(1) If the buyer, or his agent in that behalf, obtains
delivery of the goods before their arrival at the appointed
destination;
(2) If, after the arrival of the goods at the appointed
destination, the carrier or other bailee acknowledges to
the buyer or his agent that he holds the goods on his
behalf and continues in possession of them as bailee for
the buyer or his agent; and it is immaterial that further
destination for the goods may have been indicated by
the buyer;
(3) If the carrier or other bailee wrongfully refuses to
deliver the goods to the buyer or his agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or
airplane chartered by the buyer, it is a question
depending on the circumstances of the particular case,
whether they are in the possession of the carrier as such
or as agent of the buyer.
If part delivery of the goods has been made to the buyer,
or his agent in that behalf, the remainder of the goods
may be stopped in transitu, unless such part delivery has
been under such circumstances as to show an
agreement with the buyer to give up possession of the
whole of the goods. (n)
Art 1532. The unpaid seller may exercise his right of
stoppage in transitu either by obtaining actual
possession of the goods or by giving notice of his claim
to the carrier or other bailee in whose possession the
goods are. Such notice may be given either to the
person in actual possession of the goods or to his
principal. In the latter case the notice, to be effectual,
must be given at such time and under such
circumstances that the principal, by the exercise of
reasonable diligence, may prevent a delivery to the
buyer.
When notice of stoppage in transitu is given by the seller
to the carrier, or other bailee in possession of the goods,
he must redeliver the goods to, or according to the
directions of, the seller. The expenses of such delivery
must be borne by the seller. If, however, a negotiable
document of title representing the goods has been
issued by the carrier or other bailee, he shall not obliged
to deliver or justified in delivering the goods to the seller
unless such document is first surrendered for
cancellation. (n)
Art 1533. Where the goods are of perishable nature, or
where the seller expressly reserves the right of resale in
case the buyer should make default, or where the buyer
has been in default in the payment of the price for an
unreasonable time, an unpaid seller having a right of lien
or having stopped the goods in transitu may resell the
goods. He shall not thereafter be liable to the original

buyer upon the contract of sale or for any profit made by


such resale, but may recover from the buyer damages
for any loss occasioned by the breach of the contract of
sale.
Where a resale is made, as authorized in this article, the
buyer acquires a good title as against the original buyer.
It is not essential to the validity of resale that notice of an
intention to resell the goods be given by the seller to the
original buyer. But where the right to resell is not based
on the perishable nature of the goods or upon an
express provision of the contract of sale, the giving or
failure to give such notice shall be relevant in any issue
involving the question whether the buyer had been in
default for an unreasonable time before the resale was
made.
It is not essential to the validity of a resale that notice of
the time and place of such resale should be given by the
seller to the original buyer.
The seller is bound to exercise reasonable care and
judgment in making a resale, and subject to this
requirement may make a resale either by public or
private sale. He cannot, however, directly or indirectly
buy the goods. (n)
Art 1534. An unpaid seller having the right of lien or
having stopped the goods in transitu, may rescind the
transfer of title and resume the ownership in the goods,
where he expressly reserved the right to do so in case
the buyer should make default, or where the buyer has
been in default in the payment of the price for an
unreasonable time. The seller shall not thereafter be
liable to the buyer upon the contract of sale, but may
recover from the buyer damages for any loss occasioned
by the breach of the contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has manifested by
notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giving
or failure to give notice to the buyer of the intention to
rescind shall be relevant in any issue involving the
question whether the buyer had been in default for an
unreasonable time before the right of rescission was
asserted. (n)
Art 1535. Subject to the provisions of this Title, the
unpaid seller's right of lien or stoppage in transitu is not
affected by any sale, or other disposition of the goods
which the buyer may have made, unless the seller has
assented thereto.
If, however, a negotiable document of title has been
issued for goods, no seller's lien or right of stoppage in
transitu shall defeat the right of any purchaser for value
in good faith to whom such document has been
negotiated, whether such negotiation be prior or

54

subsequent to the notification to the carrier, or other


bailee who issued such document, of the seller's claim to
a lien or right of stoppage in transitu. (n)
-

Requisites: Old common law remedy which is an


extension of the lien for the price and entitles the
unpaid seller to resume possession of the goods
while they are in transit before the goods come in
possession of the vendee if the later is or becomes
insolvent.

When considered in transit: Goods are considered to


be in transit from the time they are delivered to a
carrier or other bailee by the seller for the purpose of
transmission to the buyer, until the buyer or his
agent takes delivery of them from the carrier. To
terminate the transit by delivery to a middleman, it
must be delivery to keep, not to transport.
Goods are still considered to be in transit even if
they reached their ultimate destination when the
buyer rejects them and they remain in the
possession of the carrier.
Goods are no longer in transit if the buyer or his
agent obtained delivery of the goods even before
they reached their ultimate destination, or when the
goods arrived at the ultimate destination but the
carrier or other bailee wrongfully refuses to deliver
the goods to the buyer or his agent, or when the
carrier, upon arrival of the goods at the ultimate
destination, enters into a new contract with the buyer
or his agent.
If there was partial delivery of the goods to the
buyer, the remainder of the goods may be stopped
in transitu, unless such part delivery has been made
under such circumstances as to show an agreement
with the buyer to give up possession of the whole.
Where the buyer has taken some portion of the
whole mass which was then susceptible of
possession, there is constructive possession of the
whole.

Sale of goods in transit: the unpaid sellers right of


lien or stoppage in transitu is not affected by any
sale or other disposition of the goods which the
buyer may have made unless the seller has
assented thereto.
o Where a negotiable document of title has
been issued for the goods, no sellers lien or
right of stoppage in transitu cannot defeat
the rights of any purchaser for value in good
faith to whom such document has been
negotiated.
Where the document of title is a straight bill of
lading, the sellers right of stoppage will not be cut
off as the transferee acquires no greater or added
rights than his transferor.
o Right of Stoppage; How Exercised-The
unpaid seller may exercise his right by
obtaining actual possession of the
goods or

by giving notice of his claim to the


carrier or other bailee in whose
possession the goods are.
When notice of stoppage in transit is given to the
carrier, the latte must redeliver the goods to, or
according to the directions of, the seller. If however,
a negotiable document of title representing the
goods has been issued by the carrier, the latter shall
not be obliged to deliver the goods unless such
document is first surrendered for cancellation.

3. Right of Resale
Art 1533. Where the goods are of perishable nature, or
where the seller expressly reserves the right of resale in
case the buyer should make default, or where the buyer
has been in default in the payment of the price for an
unreasonable time, an unpaid seller having a right of lien
or having stopped the goods in transitu may resell the
goods. He shall not thereafter be liable to the original
buyer upon the contract of sale or for any profit made by
such resale, but may recover from the buyer damages
for any loss occasioned by the breach of the contract of
sale.
Where a resale is made, as authorized in this article, the
buyer acquires a good title as against the original buyer.
It is not essential to the validity of resale that notice of an
intention to resell the goods be given by the seller to the
original buyer. But where the right to resell is not based
on the perishable nature of the goods or upon an
express provision of the contract of sale, the giving or
failure to give such notice shall be relevant in any issue
involving the question whether the buyer had been in
default for an unreasonable time before the resale was
made.
It is not essential to the validity of a resale that notice of
the time and place of such resale should be given by the
seller to the original buyer.
The seller is bound to exercise reasonable care and
judgment in making a resale, and subject to this
requirement may make a resale either by public or
private sale. He cannot, however, directly or indirectly
buy the goods. (n)
-

Time to resell: When the goods are of perishable


nature, or where the seller expressly reserves the
right of resale in case the buyer should default in
payment, or where the buyer has been in default for
an unreasonable length of time, the unpaid seller,
having a right of lien or having stopped the goods in
transitu, may resell the goods and recover from the
buyer damages for breach of contract.
The resale may be in a public or private sale, but the
seller cannot buy them directly or indirectly. The
seller is entitled to any profit he may make out of the
resale.

55

In case he sells them at a loss, he is entitled to


recover the difference from the original buyer. It is
not essential to the validity of a resale that previous
notice of an intention to resell or notice of the time
and place or resale be given to the original buyer.

Damages recoverable: Whether the action is for


damages or to recover loss from a resale, the
purpose is to compensate the seller for loss for
breach of contract. Thus, if the purchaser fails to
take delivery and pay the price, the vendor, without
need of first rescinding the contract judicially, is
entitled to resell, and if obliged to sell for less than
the contract price, the buyer is liable for the
difference.
Due diligence must be exercised to secure the
highest price obtainable in the best available market.
The burden of showing it was exercised is on the
vendor.

4. Right to Rescind
Art 1534. An unpaid seller having the right of lien or
having stopped the goods in transitu, may rescind the
transfer of title and resume the ownership in the goods,
where he expressly reserved the right to do so in case
the buyer should make default, or where the buyer has
been in default in the payment of the price for an
unreasonable time. The seller shall not thereafter be
liable to the buyer upon the contract of sale, but may
recover from the buyer damages for any loss occasioned
by the breach of the contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has manifested by
notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giving
or failure to give notice to the buyer of the intention to
rescind shall be relevant in any issue involving the
question whether the buyer had been in default for an
unreasonable time before the right of rescission was
asserted. (n)
-

An unpaid seller having the right of lien or having


stopped the goods in transitu may rescind the
transfer of title and resume ownership in the goods
where he expressly reserved the right to do so in
case the buyer defaults, or where the buyer has
been in default in payment of the price for an
unreasonable time. The transfer of title shall not be
held to have been rescinded by the unpaid seller
until he manifests by notice to the buyer or by some
overt act an intention to rescind. After rescinding the
transfer of title, the seller may still recover damages
from the buyer for breach of contract.
As used in Art. 1534, the term rescind is equivalent
to return of the title over the undelivered goods to

the seller and the right to recover damages for loss


due to breach of contract.

XI. PERFORMANCE OF THE


CONTRACT
A. DELIVERY OF THE THING SOLD
1. Place, time, and manner of delivery
Art. 1521. Whether it is for the buyer to take possession
of the goods or of the seller to send them to the buyer is
a question depending in each case on the contract,
express or implied, between the parties. Apart from any
such contract, express or implied, or usage of trade to
the contrary, the place of delivery is the seller's place of
business if he has one, and if not his residence; but in
case of a contract of sale of specific goods, which to the
knowledge of the parties when the contract or the sale
was made were in some other place, then that place is
the place of delivery.
Where by a contract of sale the seller is bound to send
the goods to the buyer, but no time for sending them is
fixed, the seller is bound to send them within a
reasonable time.
Where the goods at the time of sale are in the
possession of a third person, the seller has not fulfilled
his obligation to deliver to the buyer unless and until
such third person acknowledges to the buyer that he
holds the goods on the buyer's behalf.
Demand or tender of delivery may be treated as
ineffectual unless made at a reasonable hour. What is a
reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental
to putting the goods into a deliverable state must be
borne by the seller. (n)
Art. 1169. xxx In reciprocal obligations, neither party
incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.
(1100a)
Art. 1524. The vendor shall not be bound to deliver the
thing sold, if the vendee has not paid him the price, or if
no period for the payment has been fixed in the contract.
(1466)
Generally, payment and delivery of the thing sold are
concurrent acts, in consonance with the rule in reciprocal
obligations. Agreement of the parties determines
whether it is for the buyer to take possession of the

56

goods or for the seller to send them to the buyer. Absent


stipulation to the contrary, the ff. rules shall be observed:
1. The buyer should take delivery of the goods from the
sellers place of business if he has one, and if none,
his residence.
2. In case of sale of specific goods which, at the time of
the sale, are known to the parties to be in
ANOTHER PLACE, the buyer should take delivery
from such place.
3. DEMAND or TENDER of PAYMENT shall be made
at a reasonable hour. Where by agreement, the
seller is bound to send the goods to the buyer, he is
bound to send them within the time agreed upon, or
if no time was fixed, within a reasonable time.
REASONABLE TIME for delivery is determined by
the
circumstances
attending
the
particular
transaction
4. Where the goods at the time of the sale are in the
possession of a THIRD PERSON, there is NO
delivery UNLESS and UNTIL such their person
ACKNOWLEDGES to the buyer that the holds the
goods on the latters behalf.
5. EXPENSES of placing the goods in a
DELIVERABLE STATE shall be borne by the
SELLER unless otherwise stipulated.
6. If the sale involves a specific thing, the vendor is
bound to deliver the thing sold and its accessions
and accessories in the condition in which they were
upon the perfection of the contract.
7. All of the fruits of the thing shall pertain to the
vendee from the time of the perfection of the
contract but he does not acquire a real right over it
until they are delivered to him.
8. The vendee has the obligation to pay the expenses
incurred by the vendor in the production, gathering
and preservation of the fruits.
Smith Bell v. Matti
Facts: Smith Bell and Sotelo entered into contracts
whereby Smith, Bell & Co. obligated itself to sell, and
Sotelo to purchase: 2 steel tanks for Php. 21,000, to be
shipped from New York and delivered at Manila within 4
months; 2 expellers at Php. 25,000 each, to be shipped
from San Francisco in the month of September, 1918 or
asap; and 2 electric motors Php. 2,000 each. Stipulaiton
as to delivery is as follows--Approximate delivery within
90 days. This is not guaranteed. All the equipment
arrived later than the date specified
Issue: WON the obligation is complied with in time
thereby entitling the seller to payment. (YES)
Ratio: The obligation was conditional, subject to
contingencies - the rigid measures imposed after World
War 1. The seller had done all that could be expected

when he placed the machinery at the disposal of the


buyer on Apr 1919. When the time of delivery is not fixed
in the contract, time is not of the essence; delivery could
hence be made within a reasonable time. Reasonable
time does not mean immediately or that the seller must
stop all his other work and devote himself to that particular
order. But the seller must nevertheless act with all
reasonable diligence or without unreasonable delay.
2. When time is of essence
Time is of the essence of the contract whenever the
intention of the parties is clear that performance of its
terms shall be accomplished exactly at the stipulated
day or implied from the nature of the contract itself, the
subject matter or the circumstances under which the
contract is made
Soler v. Chesley
Facts: Soler entered into a contract of sale with Wm. H.
Anderson and Co. for the purchase of certain oil
machinery subject to contingencies. Soler sold to
Chelsey all his rights without any condition and even
guaranteed that the equipment was on its way. The
shipment was delayed so Chelsey wanted the contract
rescinded.
Issue: WON the contract has been rescinded (YES)
Ratio: Chesley cannot be compelled to accept delivery
and pay as he gave his consent to the contract, on the
assurance of the plaintiff that the goods were on the
way when as a matter of fact, they were not yet shipped
at the time. This assertion was an essential element of
the contract. He who contracts and assumes an
obligation is presumed to know the circumstances under
which said obligation can be complied with. Although
there was no specific time specified for the arrival of the
machinery, the guaranty was tantamount to saying that
under normal condition they would arrive in a short
period of time (like 3 mos in the case of the expellers).
Republic v. Litton
Facts: RP Govt enters into contracts of sale w/ Litton for
padlocks and other goods to be used for the April 23,
1946 elections. The agreements stipulated that delivery
was to be made on or before March 1, 1946. Goods
were to be shipped from US to RP. Only a
small part of the goods arrived before or on schedule. The
rest were either delivered after.
Issue: WON Litton unconditionally bound himself to
supply and deliver to the plaintiff 96,000 padlocks and a
quantity of stationery and office supplies on or before
March 1, 1946 (YES)
Ratio: Facts show that contract was not conditioned on
any RP Govt obligation to procure export license and
shipping priority from US Govt. It was expressly made
clear that delivery was to be made on or before March
1, as it was also made clear that the goods were to be
used for the April 23 elections. It is preposterous to
suppose that delivery after the elections would ever be
contemplated. If a party assumes liability in all
eventuality, it cannot invoke force majeure as a defense.

57

3. Effects of delivery
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive
delivery thereof. (n)
Art. 1478. The parties may stipulate that ownership in
the thing shall not pass to the purchaser until he has fully
paid the price. (n)

4. When not bound to deliver


Art. 1524, supra.
Art. 1536. The vendor is not bound to deliver the thing
sold in case the vendee should lose the right to make
use of the terms as provided in Article 1198. (1467a)
Art. 1198. The debtor shall lose every right to make use
of the period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised;
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, and
when through a fortuitous event they disappear, unless
he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond. (1129a)
The vendor is not bound to deliver the thing sold in case
the vendee should lose the right to make use of the
stipulated term in the following cases:
1. When the vendee becomes insolvent
2. When the vendee does not furnish the guaranties
or securities he has promised
3. When the guaranties or securities given were
impaired through the vendees acts or were lost or
destroyed through a fortuitous event, unless he
gives new equally satisfactory guaranties or
securities
4. When the vendee violates any condition for which
he was granted the term
5. When the vendee attempts to abscond
NOTE: Art. 1467 has been replaced by Art. 1198 which
provides that the vendee shall lose the benefit of the
term when, after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security. Insolvency under this article cannot be

understood in the sense of a judicially declared


insolvency or suspension of payments, because the
debtor cannot give a security or guaranty in such
case. The doctrine therefore in Visayan Distributors v
Flores interpreting insolvency in Art 1467 old CC as
something which must be judicially declared or
something which involves suspension of payments, no
longer holds.
5. Sale of Movables
Art. 1522. Where the seller delivers to the buyer a
quantity of goods less than he contracted to sell, the
buyer may reject them, but if the buyer accepts or
retains the goods so delivered, knowing that the seller is
not going to perform the contract in full, he must pay for
them at the contract rate. If, however, the buyer has
used or disposed of the goods delivered before he
knows that the seller is not going to perform his contract
in full, the buyer shall not be liable for more than the fair
value to him of the goods so received.
Art. 1537. The vendor is bound to deliver the thing sold
and its accessions and accessories in the condition in
which they were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on
which the contract was perfected. (1468a)
Art. 1480. Any injury to or benefit from the thing sold,
after the contract has been perfected, from the moment
of the perfection of the contract to the time of delivery,
shall be governed by Articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made
independently and for a single price, or without
consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according
to weight, number, or measure, the risk shall not be
imputed to the vendee until they have been weighed,
counted, or measured and delivered, unless the latter
has incurred in delay. (1452a)

a. Delivery by installment
Art. 1583. Unless otherwise agreed, the buyer of goods
is not bound to accept delivery thereof by installments.
Where there is a contract of sale of goods to be
delivered by stated installments, which are to be
separately paid for, and the seller makes defective
deliveries in respect of one or more installments, or the
buyer neglects or refuses without just cause to take
delivery of or pay for one more installments, it depends
in each case on the terms of the contract and the
circumstances of the case, whether the breach of
contract is so material as to justify the injured party in
refusing to proceed further and suing for damages for

58

breach of the entire contract, or whether the breach is


severable, giving rise to a claim for compensation but
not to a right to treat the whole contract as broken. (n)

contract, absent any statement to the contrary. (The law


applies peculiarly to installment and divisible contracts.)
6. Sale of Immovables

a) GENERAL RULE: the buyer is not bound to accept


delivery of goods by installments. EXCEPTION: When
otherwise stipulated
b) In case of a contract that calls for the delivery of the
goods at stated intervals which are to be paid for
separately, the terms of the contract and the
circumstances surrounding the case would determine
whether prompt payment or delivery is of the essence
such that a delay or breach would entitle the aggrieved
to treat the entire contract as broken OR to regard each
breach as severable. SEVERABILITY depends on
whether the breach is so material as to justify the
aggrieved party in refusing to proceed further with the
entire contract or so immaterial that the breach is
severable, giving rise merely to a claim for damages
b. Delivery of wrong quantity

Art. 1539. The obligation to deliver the thing sold


includes that of placing in the control of the vendee all
that is mentioned in the contract, in conformity with the
following rules:
If the sale of real estate should be made with a
statement of its area, at the rate of a certain price for a
unit of measure or number, the vendor shall be obliged
to deliver to the vendee, if the latter should demand it, all
that may have been stated in the contract; but, should
this be not possible, the vendee may choose between a
proportional reduction of the price and the rescission of
the contract, provided that, in the latter case, the lack in
the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the
same, if any part of the immovable is not of the quality
specified in the contract.

Article 1522, supra.


a) GENERAL RULE: The buyer is not bound to accept
delivery of a quantity of goods more or less than that
agreed upon or to accept goods which are of a
description
different
from
that
agreed
upon.
EXCEPTION: There is usage of trade, special stipulation
or course of dealing to the contrary.
REMEDIES:
1. Where the seller delivers a quantity less than
that agreed upon, the buyer may reject them. If
the buyer accepts or retains that goods
delivered, knowing the inability of the seller to
deliver the rest, the buyer is bound to pay for
them at the contract rate. If the buyer has used
or disposed of the goods before knowing the
inability of the seller to deliver the rest, the buyer
shall pay not more than the fair value of the
goods. (NOTE: fair value means the price of
the goods in the open market.)
2. If the quantity delivered is more than that agreed
upon, the buyer may reject the excess, unless
the subject matter is indivisible, in which case,
the buyer may reject the whole.
3. Where the seller delivers the goods mixed with
goods of a different description not included in
the contract, the buyer may accept the goods
which are in accordance with the contract, and
reject the rest, unless the subject matter is
indivisible, in which case, the buyer may reject
the whole.
b) Delivery by the seller of only a part of an entire
contract would itself be an indication that he might not
intend to fully perform. PRESUMPTION: Buyer knows
that the seller might intend to not fully perform, if said
purchaser accepts a partial delivery on an entire

The rescission, in this case, shall only take place at the


will of the vendee, when the inferior value of the thing
sold exceeds one-tenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the
immovable had he known of its smaller area of inferior
quality, he may rescind the sale. (1469a)
Art. 1540. If, in the case of the preceding article, there is
a greater area or number in the immovable than that
stated in the contract, the vendee may accept the area
included in the contract and reject the rest. If he accepts
the whole area, he must pay for the same at the contract
rate. (1470a)
Azarraga v. Gay
Facts: Azarraga sold two parcels of land to Gay for the
lump sum of P47,000 to be paid as provided in the
contract. They agreed upon the sale of 2 parcels of land,
the first containing 102 hectares, 67 ares, and 32
centares, and the second, 98 hectares, more or less, for
the lump sum of P47,000 payable, partly in cash and
partly in installments. Said 2 parcels are defined by
means of the boundaries given in the contract. Gay
nd
refused to pay the full price, alleging that the 2 parcel
with an area of 98 hectares according to the deed of sale,
had only 70 hectares, and therefore asked for a reduction
of the price. Azarraga refused to grant the request, and
brought suit against the Buyer to recover the whole price
agreed upon.
Issue: WON there was error in the price. (NO)
Ratio: Where the price was for a lump sum and the area
which was stated in the contract to be 98 hectares,
turned out to be only 70 hectares, but the purchaser had
previously investigated and inspected the condition of
the land, and had ample opportunity to do so, the
purchaser cannot later on allege that the vendor made

59

false representation. Moreover, price cannot be reduced


because all land contained within boundaries were
delivered to Gay. There is no division of the land enclosed within the boundaries of the properties sold; the
determinate object which is the subject matter of the
contract has been delivered by the vendor in its entirety
as he obligate himself to do.
Interpretation of Art.1471:
st
1 par - deals with the situation wherein everything
included within the boundaries has been delivered. Rule:
WON the object of sale be 1 realty for a lump sum, or 2+
for a single price also a lump sum, and, consequently, not
for X price per unit of measure or number, there shall be
no increase or decrease in the price even if the area be
found to be more or less than that stated in the contract.
Why? Because the consideration in the contract is the
determinate object & not the number of units that it
contains. It is determinate because it is dealt w/ as a
single realty so long as they are sold for a single price
constituting a lump
sum and not for X price per unit.
nd
2 par - WON the object of the sale be 1 realty for a lump
sum, or 2+ for a single price also a lump sum, and,
consequently not at X price per each unit of measuring or
number, the seller shall be bound to deliver everything
that is included within the boundaries stated, although it
may exceed the area or number expressed in the
contract. In case he cannot deliver it, the buyer shall have
the right either to reduce the price proportionately to what
is lacking of the area or number, or to rescind the contract
at his option. If everything within the stipulated boundaries
isnt delivered, the determinate object which was the
consideration is not delivered, thus the power to nullify it.
But it may be said that although he hasnt received the
object accdg to the stipulated terms, it is in his power to
carry the contract into effect with the just decrease in
price.
a. Where price is at certain rate per unit of measure
The seller is bound to deliver the entire land sold in
accordance with the terms of the contract.
GENERAL RULE: The vendee has to option to
demand a proportionate reduction of the price or
rescission of the contract: if price is fixed at a certain
rate per unit of measure and the area is delivered is less
than that stated in the contract, or even if the area is
correct but part of the land is not of the quality stated in
the contract
EXCEPTION: Where the entire land is not of the quality
stated in the contract, as in such a case, the consent
must have been obtained by mistake or fraud (contract
may then be voidable.)
Art. 1539. Supra.
Cebu Winland Devt. Corp v. Ong Siao Hua
Facts: Ong Siao Hua bought a condo unit from Cebu

Winland. No written document was executed for the


sale.When construction finished, Winland turned
possession of the properties over to Ong. Ong noticed
that in the Deeds, the stated floor area of his units were
smaller that what he bought. He conducted a verification
survey and it was found that the total area of the units was
actually much smaller. He demanded a refund of the total
value corresponding to the lacking floor area.
Issue: WON Ong Siao Hua is entitled to a refund (YES)
Ratio: Refund because the sale not lump sum but made
at the rate of a certain price for a square area. In Article
1539, if the area actually delivered is less than the
stipulated, the buyer can either choose to oblige the seller
to deliver the remaining area or demand for the
proportionate reduction of the purchase price if delivery is
not possible. He (and he alone) may also rescind the
contract if the inferior value exceeds one-tenth. If the
buyer would not have bought the property had he known
of its smaller or inferior quality however, he may rescind
(regardless of the one-tenth rule).
b. Sale for a lump sum
Art. 1542. In the sale of real estate, made for a lump
sum and not at the rate of a certain sum for a unit of
measure or number, there shall be no increase or
decrease of the price, although there be a greater or less
area or number than that stated in the contract.
The same rule shall be applied when two or more
immovables as sold for a single price; but if, besides
mentioning the boundaries, which is indispensable in
every conveyance of real estate, its area or number
should be designated in the contract, the vendor shall be
bound to deliver all that is included within said
boundaries, even when it exceeds the area or number
specified in the contract; and, should he not be able to
do so, he shall suffer a reduction in the price, in
proportion to what is lacking in the area or number,
unless the contract is rescinded because the vendee
does not accede to the failure to deliver what has been
stipulated. (1471)

Art. 1542. Supra.


a) If the sale of real property is for a lump sum, there
shall be no increase or decrease in the price, whether
the actual area delivered turned out to be greater or less
than that stated in the contract.
b) If besides mentioning the boundaries, the area should
also be stated in the contract, the vendor shall be bound
to deliver all that is included within said boundaries and
there shall be no increase or decrease in the price
whether the area so delivered be greater or less than
that stated in the contract.
c) If the vendor fails to deliver all the land included within
said boundaries, as where part of the land belongs to a
third person, the vendee shall have the option to

60

demand a reduction in the price in proportion to the


deficiency in the area stated in the contract or a
rescission of the contract (Actions prescribe in six
months from date of delivery.)
7. Inspections and Acceptance
a. Right of inspection
Art. 1584. Where goods are delivered to the buyer,
which he has not previously examined, he is not deemed
to have accepted them unless and until he has had a
reasonable opportunity of examining them for the
purpose of ascertaining whether they are in conformity
with the contract if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders
delivery of goods to the buyer, he is bound, on request,
to afford the buyer a reasonable opportunity of
examining the goods for the purpose of ascertaining
whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in
accordance with an order from or agreement with the
buyer, upon the terms that the goods shall not be
delivered by the carrier to the buyer until he has paid the
price, whether such terms are indicated by marking the
goods with the words "collect on delivery," or otherwise,
the buyer is not entitled to examine the goods before the
payment of the price, in the absence of agreement or
usage of trade permitting such examination. (n)
The buyer is entitled to examine the goods to decide
whether he will become the owner, and until the
examination is completed or waived, he is under NO
obligation to accept them. He may however waive this
right by simply refusing to inspect the goods, taking
them as they are or by any other similar act.
b. Manifestation of acceptance
Art. 1585. The buyer is deemed to have accepted the
goods when he intimates to the seller that he has
accepted them, or when the goods have been delivered
to him, and he does any act in relation to them which is
inconsistent with the ownership of the seller, or when,
after the lapse of a reasonable time, he retains the
goods without intimating to the seller that he has
rejected them. (n)
a) The buyer is deemed to have accepted the goods
when:
1. he intimates to the seller that the has accepted
them
2. the goods have been delivered to him and he
does any act in relation to them which is inconsistent
with the ownership of the seller
3. after the lapse of a reasonable time, he retains
the goods without intimating to the seller that he has
rejected them.

Exercise of acts of ownership over the goods is a


manifestation of acceptance, such as making use of
them as owner, making alterations in the goods or
subjecting it to the process of manufacture.
EXCEPTION: Buyers right to make a test of goods, but
only if necessary, to enable him to determine whether
to accept or reject the goods.
c.

Breach of warranty

Art. 1586. In the absence of express or implied


agreement of the parties, acceptance of the goods by
the buyer shall not discharge the seller from liability in
damages or other legal remedy for breach of any
promise or warranty in the contract of sale. But, if, after
acceptance of the goods, the buyer fails to give notice to
the seller of the breach in any promise of warranty within
a reasonable time after the buyer knows, or ought to
know of such breach, the seller shall not be liable
therefor. (n)
a) The purpose of the notice of breach of warranty is to
PROTECT the seller against belated damage claims
which would prevent the seller from making an adequate
and proper investigation of his alleged liability.
b) Acceptance of delivery means an ASSENT to become
OWNER of the goods on the part of the buyer, but not
an assent that the goods fulfill the description and terms
of the contract.
d. Refusal to accept
Art. 1587. Unless otherwise agreed, where goods are
delivered to the buyer, and he refuses to accept them,
having the right so to do, he is not bound to return them
to the seller, but it is sufficient if he notifies the seller that
he refuses to accept them. If he voluntarily constitutes
himself a depositary thereof, he shall be liable as such.
(n)
Art. 1588. If there is no stipulation as specified in the
first paragraph of article 1523, when the buyer's refusal
to accept the goods is without just cause, the title thereto
passes to him from the moment they are placed at his
disposal. (n)
Art. 1589. The vendee shall owe interest for the period
between the delivery of the thing and the payment of the
price, in the following three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or
income;
(3) Should he be in default, from the time of judicial or
extrajudicial demand for the payment of the price.
(1501a)

61

a) Unless otherwise agreed, when the goods are


delivered to the buyer and he has a right to refuse to
accept them, he need not return them. It is sufficient
that the buyer notifies the seller that he refuses to accept
the goods, and thereafter, the former becomes the
depository of the rejected goods.
b) However, where title already passed to the buyer and
there was a breach of warranty, the buyer may
RESCIND the contract by returning or offering to return
the goods to the seller and recover the price which had
been paid.

Art. 1560. If the immovable sold should be encumbered


with any non-apparent burden or servitude, not
mentioned in the agreement, of such a nature that it
must be presumed that the vendee would not have
acquired it had he been aware thereof, he may ask for
the rescission of the contract, unless he should prefer
the appropriate indemnity. Neither right can be exercised
if the non-apparent burden or servitude is recorded in
the Registry of Property, unless there is an express
warranty that the thing is free from all burdens and
encumbrances.

La Fuerza v. CA
Facts: Associated constructed a conveyor system for
La Fuerzas wine factory. When the construction was
finished, to La Fuerzas dismay, the conveyor system did
not met its expectation because: several bottles collided
with each other, some bottles jumped off the conveyor
belt and were broken, causing considerable damage
and the flow of the system was so sluggish. La Fuerza
refused to pay the balance of the conveyor systems
purchase price.
Issue: WON the delivery of the conveyors was subject
to the acceptance of La Fuerza. (NO)
Ratio: Art. 1571 (rescission prescribes 6 months from
delivery) applies because of Art. 1714 (pertinent
provisions on warranty of title against hidden defect in a
contract of sale applies to a contract for a piece of work).
Delivery must be construed in light of Art. 1497: the thing
sold shall be understood as delivered when it is placed
in the control and possession of the vendee. When the
thing subject of the sale is placed in the control and
possession of the vendee, delivery is complete. Delivery
and acceptance are two distinct and separate acts of
different parties, and therefore, acceptance cannot be a
condition to complete delivery. Delivery is an act of the
vendor, the vendee has nothing to do with the act of
delivery. Acceptance is an obligation on the part of the
vendee (Art. 1582).

Within one year, to be computed from the execution of


the deed, the vendee may bring the action for rescission,
or sue for damages.

B. PAYMENT OF PRICE
1. Liability for interest
Art. 1582. The vendee is bound to accept delivery and
to pay the price of the thing sold at the time and place
stipulated in the contract.
If the time and place should not have been stipulated,
the payment must be made at the time and place of the
delivery of the thing sold. (1500a)
The buyer shall owe interest on the price from the time
the thing is delivered up to the time of payment if there is
stipulation requiring interests, or even if there is none, if
the thing delivered produces fruits or income, or if the
buyer incurs in default from the time of judicial or extrajudicial demand for payment
2. Suspension of Payment

One year having elapsed, he may only bring an action


for damages within an equal period, to be counted from
the date on which he discovered the burden or servitude.
(1483a)
Art. 1590. Should the vendee be disturbed in the
possession or ownership of the thing acquired, or should
he have reasonable grounds to fear such disturbance,
by a vindicatory action or a foreclosure of mortgage, he
may suspend the payment of the price until the vendor
has caused the disturbance or danger to cease, unless
the latter gives security for the return of the price in a
proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall
be bound to make the payment. A mere act of trespass
shall not authorize the suspension of the payment of the
price. (1502a)
Art. 1664. The lessor is not obliged to answer for a mere
act of trespass which a third person may cause on the
use of the thing leased; but the lessee shall have a direct
action against the intruder.
There is a mere act of trespass when the third person
claims no right whatever. (1560a)
a) disturbance or threat of disturbance must come
through a vindicatory action or foreclosure of mortgage,
and not through a mere threat or claim of a third person.
b) If the third person claims a servitude on the thing sold,
the remedy of the buyer is to demand rescission of the
contract or payment of the proper indemnity.
c) In order that the buyer may have a right to suspend
payment, it is absolutely necessary that the cause of
disturbance or danger be based on a fact arising before
the sale or if it arose after the sale, the cause is
imputable to the vendor or his successor in interest.
De la Cruz v. Legaspi
Facts: De la Cruz purchased from Legaspi a parcel of
land. However, de la Cruz was not able to pay the
purchase price of P450.

62

Issue: WON the contract was void for lack of


consideration (NO)
Ratio: Contract was valid because there was
consideration -P450. Non-payment does not avoid the
contract. Subsequent non-payment of the price at the
time agreed upon did not convert the contract into one
without cause or consideration: a nudum pactum. In the
sale of real property, even though it may have been
stipulated that in default of the price within the time
agreed upon, the resolution of the contract shall take
place ipso facto, the vendee may pay even after the
expiration of the period, at any time before demand has
been made upon him either by suit or by notarial act. After
such demand has been made the judge cannot grant him
further time. (Art. 1504 Civil Code.).
Bareng v. CA
Facts: Bareng purchased from Alegria cinematographic
equipment installed at the Pioneer Theater. Ruiz informed
Bareng that he was a co-owner of the equipment and told
him to suspend payments because he was not agreeable
to the sale. Alegria and Ruiz subsequently reached a
compromise in the case. Alegria then sued Bareng for the
unpaid balance.
Issue: WON Bareng liable to pay legal interests (YES)
Ratio: The vendee had a right to suspend payment from
the time he was informed of the co-owners claim. But
such right ceased from the time a compromise was
reached between the co-owners whereby the vendor
agreed to give to the co-owner two-thirds of whatever he
could collect from the buyer. After the compromise,
when the vendor brought an action against the buyer to
collect the balance, said buyer owed interests on the
amount from the time of the filing of the complaint.
3. Sale of Real Property
Art. 1592. In the sale of immovable property, even
though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee may
pay, even after the expiration of the period, as long as
no demand for rescission of the contract has been made
upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term.
(1504a)
Article 1560, supra.

a. Effect of Non-payment
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.

The court shall decree the rescission claimed, unless


there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
In absolute sales of real property, even if there is a
stipulation providing for ipso jure rescission, in case of
default in payment, the law requires the seller to demand
the resolution of the contract from the buyer judicially or
by a notarial act, before such stipulation could be given
effect. Otherwise, the buyer could still pay the price
EVEN after the expiration of the period to pay.
Laforteza v. Machuca
Facts: Laforteza sold to Machuca a parcel of land. The
Memorandum of Agreement stated that Machuca would
pay the price within 30 days from the reconstruction of
the title. Machuca asked for an extension but was
denied by Laforteza. Machuca informed the Lafortezas
that he already has the balance but Laforteza refused to
accept it.
Issue: Was the so-called Memorandum of Agreement
(Contract to Sell) an Option Contract, Contract to Sell,
or Contract of Sale? (Contract of Sale)
Ratio: Failure to pay the balance within the period
allowed does not void the MOA. The contract had
already been perfected. Subsequent non-payment will
not void it. Failure to comply with a condition imposed
upon the perfection of the contract results in the failure
of a contract. Failure to comply with a condition imposed
on the performance of the obligation only gives the other
party the option either to refuse to proceed with the
sale or to waive the condition. In addition, the heirs
were not ready with the reconstituted title within the
specified period. In reciprocal obligations, neither
party incurs delays both are not ready to comply.
Luzon Brokerage v. Maritime Bldg, supra.
b. Maceda Law: R.A. 6552
a) Approved on 26 Aug 1972, the Realty Installment
Buyer Protection Act declared that it is a public policy
to protect buyers of real-estate on installments, including
residential condominiums, apartments, excluding
industrial lots, commercial buildings and lands sold
under R.A. 3844 as amended, against onerous and
oppressive conditions
b) R.A. 6552, sec 2, in sale or financing of real estate on
installment payments where the buyer has paid at least
two years of installments, provides that in case such
buyer defaults in the payment of the succeeding
installments, he has a right to pay, without additional
interests, the arrears within a grace period of one
month for every year of installment payments made;

63

c) In the same case, if the contract is cancelled, the


seller shall refund to the buyer the case surrender value
of payments made, equivalent to 50% of total payments
and an additional 5% for every year after five years of
the life of the contract and its extensions, if any.
d) Actual cancellation shall not take place until after 30
days from receipt by the buyer of the notice of
cancellation or demand for rescission by a notarial act,
and only upon full payment of the cash surrender value
to the buyer.
e) Down-payments, deposits or options in the contract
shall be included in the computation of the total number
of installments made. The right to pay the arrears within
the grace period could only be availed of by the buyer
once in every five years of the life of the contract and its
extensions, if any.
f) In case of less than two years of installments were
paid, the grace period shall be not less than 60 days
from the date the installment became due. If the buyer
fails to pay within the grace period, the seller may cancel
the contract within 30 days from receipt by the buyer of
the notice of cancellation or demand for rescission of the
contract by a notarial act.
g) During the grace period or before the actual
cancellation of the contract, the buyer shall have the
right to:
1. sell or assign his rights, to be evidenced in a
notarial instrument, to a third person
2. update his account
3. pay in advance any installment or the full unpaid
balance of the price without interest
Valarao v. CA
Facts: Under a deed of conditional sale, between Valarao
and Arellano, Valarao may automatically rescind the
contract if Seller pays to pay 3 successive monthly
installments or 1 year lump sum payment. Arellano wasnt
able to pay for 2 months so she tendered payment of the
rd
2 months together w/ the payment for the 3 month.
Valarao refused to accept the payment per order of the
Sellers. Buyer filed a consignation case but Seller made a
rescission letter.
Issue: WON the automatic forfeiture clause is valid and
binding between the parties (valid but not binding)
Ratio: The contract cannot be rescinded. Valarao was
not justified in refusing Arellanos tender of payment.
Article 1592 applies only to contracts of sale, and not to
contracts to sell or conditional sales where title passes to
the vendee only upon full payment of the purchase price.
Furthermore, in order to enforce the automatic forfeiture
clause in a deed of conditional sale, the vendors have the
burden of proving a contractual breach on the part of the
vendee. In any case, rescission and forfeiture of
payments cant be effected because under the Maceda
Law, a Buyer has a 1-month grace period for every year
of installments paid. (In this case, Arellano had 3 months
from Dec 31, 1990)

Active Realty v. Daroya


Facts: In a contract to sell, Daroya, a contract
worker in the Middle East, agreed to buy from Active
Realty a lot in its subdivision. Daroya for 3 months
amortizations prompting the Corp to sent a notice of
cancellation of their contract to take effect 30 days
from receipt of the letter. Active cancelled the contract
and forfeited all previous payments. Daroya filed a
complaint for specific performances and damages.
Issue: WON Active Realty could be compelled to refund
to Daroya the value of the lot or deliver a substitute lot at
her option (YES)
Ratio: Daroya had already paid in four years a total of
P314860.75, or P90835.76 more than the P224035
contract price, before Active Realty decided to cancel
the contract when she missed three monthly
amortizations. Active Realty failed to comply with two
requirements for a valid and effective cancellation under
the law: 1) failed to send a notarized notice of
cancellation, and 2) refund the cash surrender value.
For failure to cancel the contract in accordance with the
procedure provided by law, the contract to sell remained
valid and subsisting but the lot was already sold to
another buyer. Hence, Active Realty should either
refund the actual value of the lot resold (P875000) with
interest or deliver a substitute lot.

XII. WARRANTIES
A. EXPRESS WARRANTIES
a) Warranty where one party promised that the
contingency or some act fixed by the contract shall be
performed, like a promise that the goods are of a certain
kind and character or that certain state of facts would
exist, the promise constitutes a warranty, and failure of
which gives rise to an action for its breach.
Breach: the buyer may
1. accept goods + maintain an action for damages
2. accept goods + set up breach of warranty as a
recoupment in diminution/ extinction of price
3. refuse to accept goods and maintain action for
damages
4. rescind + refuse to accept goods; or return (or
offer to return) goods + recover price paid
1.

Distinguished from condition

Art 1545. Where the obligation of either party to a


contract of sale is subject to any condition which is not
performed, such party may refuse to proceed with the
contract or he may waive performance of the condition. If
the other party has promised that the condition should
happen or be performed, such first mentioned party may
also treat the nonperformance of the condition as a
breach of warranty.

64

Where the ownership in the thing has not passed, the


buyer may treat the fulfillment by the seller of his
obligation to deliver the same as described and as
warranted expressly or by implication in the contract of
sale as a condition of the obligation of the buyer to
perform his promise to accept and pay for the thing. (n)
Condition an uncertain event or contingency fixed by
parties, the existence or happening of which was
necessary to the efficacy of the contract, and failure of
which permits the injured party to treat the contract as at
an end, but creates no right of action. Where a condition
is not performed, the buyer may refuse to proceed with
the contract, or accept the goods and waive
performance of the condition.
Distinctions according to Villanueva (Law on Sales ,
2004)
Condition
Generally goes into the
root of the existence of the
obligation
Must be stipulated by the
parties in order to form
part of an obligation
May attach itself either to
obligation of seller to
deliver
possession
or
transfer ownership over
subject matter of sale

2.

Warranty
Goes into the performance
of such obligation, and in
fact may constitute an
obligation in itself
May form part of obligation
by contract or provision of
law, without parties having
agreed thereto
Whether
express
or
implied, relates to subject
matter itself or to the
obligations of the seller as
to the subject matter of the
sale

Distinguished from opinion, dealers talk

Art 1546. Any affirmation of fact or any promise by the


seller relating to the thing is an express warranty if the
natural tendency of such affirmation or promise is to
induce the buyer to purchase the same, and if the buyer
purchase the thing relying thereon. No affirmation of the
value of the thing, nor any statement purporting to be a
statement of the seller's opinion only, shall be construed
as a warranty, unless the seller made such affirmation or
statement as an expert and it was relied upon by the
buyer. (n)
Art. 1340. The usual exaggerations in trade, when the
other party had an opportunity to know the facts, are not
in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not
signify fraud, unless made by an expert and the other
party has relied on the former's special knowledge. (n)
a) Warranty an affirmation of fact or any promise by
seller relating to the thing which has a natural tendency
to induce the buyer to purchase the same, relying on
such promise of affirmation

b) Opinion/dealers talk an affirmation of the value of


the thing or any statement of the sellers opinion shall
not be construed as a warranty, unless the seller made
such an affirmation as an expert and it was relied upon
by the buyer
Test: whether the vendor assumes to assert a fact of
which the buyer is ignorant, in which case it is a
warranty, or whether it is merely an expression of an
opinion or judgment on the part of the seller on a matter
of which the seller has no special knowledge and on
which the buyer may be expected also to have an
opinion or exercise his judgment.
In good condition v. Excellent quality the first
relates to the quantity, kind or condition of the goods
sold, it is an affirmation of fact or promise, and not a
mere expression of an opinion; the second is not an
express warranty and the purchaser must rely on the
implied warranty that the goods are merchantable;
mere expression of an opinion.
Songco v. Sellner
Facts: Sellner bought Songcos sugar cane as so he
can use the right of way. Songco estimated to him that
the field would produce 3,000 piculs of the sugar. Sellner
requested Songco to guarantee the quantity but Songco
did not. The crop turned out to be only 2,017 piculs.
Issue: WON Songco is guilty of false representation in
selling his sugar cane to Sellner (NO)
Ratio: Songcos representation can only be considered
matter of opinion as the cane was still standing in the
field, and the quantity of the sugar it would produce
could not be known with certainty until it should be
harvested and milled. Sellner could judge with his own
eyes as to the character of the cane, and it is shown that
he measured the fields and ascertained that they
contained 96 1/2 hectares.
Opinion or dealers talk is not warranty. Opinion or
dealers talk is the usual or ordinary means used by
sellers to get a high price and is understood as affording
to buyers no ground for omitting to make inquiries.
Caveat emptor. A man who relies on such an affirmation
does so at his own peril and must take the
consequences of his imprudence.
What would make a misrepresentation void: (a) false
representation is as to matters of fact substantially
affecting buyers interest, and not as to matters of
opinion, judgment, probability or expectation; (b) the
party to the contract who has special/expert knowledge
takes advantage of the ignorance of another to impose
upon him the false representation.
3. Distinguished from false representation
Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has
created substantial mistake and the same is mutual. (n)
Gochangco v. Dean

65

Facts: Gochangco and Dean agreed to exchange their


properties, Gochangco exchanging his Pasay Estate land
w/ Dean exchanging his Masbate land. Dean declared
that the Masbate land had more than 6K coconut trees
growing on it but it turned out the trees were less than 6k.
Issue: WON Dean is guilty of false misrepresentation
(NO)
Ratio: The allegation of false & fraudulent
representations as to the existence of the 6K coconut
trees wasnt proven. It doesnt appear that Dean
deliberately violated the truth in stating his belief that
there were such a number of coconut trees on said lands.
It was shown that Gochangco viewed the lands and
himself estimated that there were more than 6,000
coconut trees thereon. If seller does not appear to have
violated the truth when he stated a belief, then there is no
fraud. Also, if he is given a chance to inspect the property,
then there is no false representation.
PMC v. Go Jocco
Facts: Go Jocco sold 500 tons of coconut oil PMMC
. Go Jocco guaranteed that the oil was 5& f.f.a. PMC
was able to examine the oilds quality. They then sold
the oil to Portsmouth. The contract had an express
warranty, not only regarding 5% ffa but also against
impurities. When Portsmouth received it, the oil had
impurities.
Issue: WON Go Jocco is guilty of false
misrepresentation (NO)
Ratio: Go Jocco is not liable to PMC because their
contract did not contain an express warranty against
impurities aside from the stipulation that not more than 5
per cent of free fatty acid would be allowed. There was
also no implied warranty since PMC was able to fully
examine the oils. An intention to deceive or mislead the
purchaser of merchandise to his prejudice is an essential
element of fraud.
B. IMPLIED WARRANTIES
Art 1547. In a contract of sale, unless a contrary
intention appears, there is:
(1) An implied warranty on the part of the seller that he
has a right to sell the thing at the time when the
ownership is to pass, and that the buyer shall from that
time have and enjoy the legal and peaceful possession
of the thing;
(2) An implied warranty that the thing shall be free from
any hidden faults or defects, or any charge or
encumbrance not declared or known to the buyer.
This Article shall not, however, be held to render liable a
sheriff, auctioneer, mortgagee, pledgee, or other person
professing to sell by virtue of authority in fact or law, for
the sale of a thing in which a third person has a legal or
equitable interest. (n)

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)
2. Warranty against eviction
Art 1548. Eviction shall take place whenever by a final
judgment based on a right prior to the sale or an act
imputable to the vendor, the vendee is deprived of the
whole or of a part of the thing purchased.
The vendor shall answer for the eviction even though
nothing has been said in the contract on the subject.
The contracting parties, however, may increase,
diminish, or suppress this legal obligation of the vendor.
(1475a)
Art 1549. The vendee need not appeal from the decision
in order that the vendor may become liable for eviction.
(n)
Art 1550. When adverse possession had been
commenced before the sale but the prescriptive period is
completed after the transfer, the vendor shall not be
liable for eviction. (n)
Art 1551. If the property is sold for nonpayment of taxes
due and not made known to the vendee before the sale,
the vendor is liable for eviction. (n)
Art 1552. The judgment debtor is also responsible for
eviction in judicial sales, unless it is otherwise decreed in
the judgment. (n)
Art 1553. Any stipulation exempting the vendor from the
obligation to answer for eviction shall be void, if he acted
in bad faith. (1476)
Art 1554. If the vendee has renounced the right to
warranty in case of eviction, and eviction should take
place, the vendor shall only pay the value which the
thing sold had at the time of the eviction. Should the
vendee have made the waiver with knowledge of the
risks of eviction and assumed its consequences, the
vendor shall not be liable. (1477)
Art 1555. When the warranty has been agreed upon or
nothing has been stipulated on this point, in case
eviction occurs, the vendee shall have the right to
demand of the vendor:
(1) The return of the value which the thing sold had at
the time of the eviction, be it greater or less than the
price of the sale;
(2) The income or fruits, if he has been ordered to
deliver them to the party who won the suit against him;

1. Seller has right to sell

66

(3) The costs of the suit which caused the eviction, and,
in a proper case, those of the suit brought against the
vendor for the warranty;

3. Warranty against non-apparent servitudes

(4) The expenses of the contract, if the vendee has paid


them;

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)

(5) The damages and interests, and ornamental


expenses, if the sale was made in bad faith. (1478)
Art 1556. Should the vendee lose, by reason of the
eviction, a part of the thing sold of such importance, in
relation to the whole, that he would not have bought it
without said part, he may demand the rescission of the
contract; but with the obligation to return the thing
without other encumbrances that those which it had
when he acquired it.

Art. 1560, supra.

He may exercise this right of action, instead of enforcing


the vendor's liability for eviction.

4. Warranty
defects

The same rule shall be observed when two or more


things have been jointly sold for a lump sum, or for a
separate price for each of them, if it should clearly
appear that the vendee would not have purchased one
without the other. (1479a)

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

Art 1557. The warranty cannot be enforced until a final


judgment has been rendered, whereby the vendee loses
the thing acquired or a part thereof. (1480)
Art 1558. The vendor shall not be obliged to make good
the proper warranty, unless he is summoned in the suit
for eviction at the instance of the vendee. (1481a)
Art 1559. The defendant vendee shall ask, within the
time fixed in the Rules of Court for answering the
complaint, that the vendor be made a co-defendant.
(1482a)
Art. 1560. If the immovable sold should be encumbered
with any non-apparent burden or servitude, not
mentioned in the agreement, of such a nature that it
must be presumed that the vendee would not have
acquired it had he been aware thereof, he may ask for
the rescission of the contract, unless he should prefer
the appropriate indemnity. Neither right can be exercised
if the non-apparent burden or servitude is recorded in
the Registry of Property, unless there is an express
warranty that the thing is free from all burdens and
encumbrances.
Within one year, to be computed from the execution of
the deed, the vendee may bring the action for rescission,
or sue for damages.
One year having elapsed, he may only bring an action
for damages within an equal period, to be counted from
the date on which he discovered the burden or servitude.
(1483a).

against

hidden

encumbrances

or

Art 1561. The vendor shall be responsible for warranty


against the hidden defects which the thing sold may
have, should they render it unfit for the use for which it is
intended, or should they diminish its fitness for such use
to such an extent that, had the vendee been aware
thereof, he would not have acquired it or would have
given a lower price for it; but said vendor shall not be
answerable for patent defects or those which may be
visible, or for those which are not visible if the vendee is
an expert who, by reason of his trade or profession,
should have known them. (1484a)
Art 1562. In a sale of goods, there is an implied warranty
or condition as to the quality or fitness of the goods, as
follows:
(1) Where the buyer, expressly or by implication, makes
known to the seller the particular purpose for which the
goods are acquired, and it appears that the buyer relies
on the seller's skill or judgment (whether he be the
grower or manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit for such
purpose;
(2) Where the goods are brought by description from a
seller who deals in goods of that description (whether he
be the grower or manufacturer or not), there is an

67

implied warranty that the goods shall be of merchantable


quality. (n)
Art 1563. In the case of contract of sale of a specified
article under its patent or other trade name, there is no
warranty as to its fitness for any particular purpose,
unless there is a stipulation to the contrary. (n)
Art 1564. An implied warranty or condition as to the
quality or fitness for a particular purpose may be
annexed by the usage of trade. (n)
Art 1565. In the case of a contract of sale by sample, if
the seller is a dealer in goods of that kind, there is an
implied warranty that the goods shall be free from any
defect rendering them unmerchantable which would not
be apparent on reasonable examination of the sample.
(n)
Art 1566. The vendor is responsible to the vendee for
any hidden faults or defects in the thing sold, even
though he was not aware thereof.
This provision shall not apply if the contrary has been
stipulated, and the vendor was not aware of the hidden
faults or defects in the thing sold. (1485)
Art 1567. In the cases of Articles 1561, 1562, 1564,
1565 and 1566, the vendee may elect between
withdrawing from the contract and demanding a
proportionate reduction of the price, with damages in
either case. (1486a)
Art 1568. If the thing sold should be lost in consequence
of the hidden faults, and the vendor was aware of them,
he shall bear the loss, and shall be obliged to return the
price and refund the expenses of the contract, with
damages. If he was not aware of them, he shall only
return the price and interest thereon, and reimburse the
expenses of the contract which the vendee might have
paid. (1487a)
Art 1569. If the thing sold had any hidden fault at the
time of the sale, and should thereafter be lost by a
fortuitous event or through the fault of the vendee, the
latter may demand of the vendor the price which he paid,
less the value which the thing had when it was lost.
If the vendor acted in bad faith, he shall pay damages to
the vendee. (1488a)
Art 1570. The preceding articles of this Subsection shall
be applicable to judicial sales, except that the judgment
debtor shall not be liable for damages. (1489a)
Art 1571. Actions arising from the provisions of the
preceding ten articles shall be barred after six months,
from the delivery of the thing sold. (1490)
Art. 1572. If two or more animals are sold together,
whether for a lump sum or for a separate price for each

of them, the redhibitory defect of one shall only give rise


to its redhibition, and not that of the others; unless it
should appear that the vendee would not have
purchased the sound animal or animals without the
defective one.
The latter case shall be presumed when a team, yoke
pair, or set is bought, even if a separate price has been
fixed for each one of the animals composing the same.
(1491)
Art. 1573. The provisions of the preceding article with
respect to the sale of animals shall in like manner be
applicable to the sale of other things. (1492)
Art. 1574. There is no warranty against hidden defects
of animals sold at fairs or at public auctions, or of live
stock sold as condemned. (1493a)
Art. 1575. The sale of animals suffering from contagious
diseases shall be void.
A contract of sale of animals shall also be void if the use
or service for which they are acquired has been stated in
the contract, and they are found to be unfit therefor.
(1494a)
Art. 1576. If the hidden defect of animals, even in case a
professional inspection has been made, should be of
such a nature that expert knowledge is not sufficient to
discover it, the defect shall be considered as redhibitory.
But if the veterinarian, through ignorance or bad faith
should fail to discover or disclose it, he shall be liable for
damages. (1495)
Art 1577. The redhibitory action, based on the faults or
defects of animals, must be brought within forty days
from the date of their delivery to the vendee.
This action can only be exercised with respect to faults
and defects which are determined by law or by local
customs. (1496a)
Art. 1578. If the animal should die within three days after
its purchase, the vendor shall be liable if the disease
which cause the death existed at the time of the
contract. (1497a)
Art 1579. If the sale be rescinded, the animal shall be
returned in the condition in which it was sold and
delivered, the vendee being answerable for any injury
due to his negligence, and not arising from the
redhibitory fault or defect. (1498)
Art 1580. In the sale of animals with redhibitory defects,
the vendee shall also enjoy the right mentioned in article
1567; but he must make use thereof within the same
period which has been fixed for the exercise of the
redhibitory action. (1499)

68

5. Additional warranties for consumer products


Art. 68, RA 7394. Additional Provisions on Warranties. In addition to the Civil Code provisions on sale with
warranties, the following provisions shall govern the sale
of consumer products with warranty:
(a) Terms of express warranty. - Any seller or
manufacturer who gives an express warranty shall:
(1) set forth the terms of warranty in clear and
readily understandable language and clearly identify
himself as the warrantor;
(2) identify the party to whom the warranty is
extended;
(3) state the products or parts covered;
(4) state what the warrantor will do in the event of a
defect, malfunction of failure to conform to the written
warranty and at whose expense;
(5) state what the consumer must do to avail of the
rights which accrue to the warranty; and
(6) stipulate the period within which, after notice of
defect, malfunction or failure to conform to the warranty,
the warrantor will perform any obligation under the
warranty.
(b) Express warranty - operative from moment of sale. All written warranties or guarantees issued by a
manufacturer, producer, or importer shall be operative
from the moment of sale.
(1) Sales Report. - All sales made by distributors of
products covered by this Article shall be reported to the
manufacturer, producer, or importer of the product sold
within thirty (30) days from date of purchase, unless
otherwise agreed upon. The report shall contain, among
others, the date of purchase, model of the product
bought, its serial number, name and address of the
buyer. The report made in accordance with this provision
shall be equivalent to a warranty registration with the
manufacturer, producer, or importer. Such registration is
sufficient to hold the manufacturer, producer, or importer
liable, in appropriate cases, under its warranty.
(2) Failure to make or send report. - Failure of the
distributor to make the report or send them the form
required by the manufacturer, producer, or importer shall
relieve the latter of its liability under the warranty:
Provided, however, That the distributor who failed to
comply with its obligation to send the sales reports shall
be personally liable under the warranty. For this
purpose, the manufacturer shall be obligated to make
good the warranty at the expense of the distributor.
(3) Retail. - The retailer shall be subsidiarily liable
under the warranty in case of failure of both the
manufacturer and distributor to honor the warranty. In
such case, the retailer shall shoulder the expenses and
costs necessary to honor the warranty. Nothing therein
shall prevent the retailer from proceeding against the
distributor or manufacturer.
(4) Enforcement of warranty or guarantee. - The
warranty rights can be enforced by presentment of a
claim. To this end, the purchaser needs only to present
to the immediate seller either the warranty card of the

official receipt along with the product to be serviced or


returned to the immediate seller. No other documentary
requirement shall be demanded from the purchaser. If
the immediate seller is the manufacturer's factory or
showroom, the warranty shall immediately be honored. If
the product was purchased from a distributor, the
distributor shall likewise immediately honor the warranty.
In the case of a retailer other than the distributor, the
former shall take responsibility without cost to the buyer
of presenting the warranty claim to the distributor in the
consumer's behalf.
(5) Record of purchases. - Distributors and retailers
covered by this Article shall keep a record of all
purchases covered by a warranty or guarantee for such
period of time corresponding to the lifetime of the
product's respective warranties or guarantees.
(6) Contrary stipulations: null and void. - All
covenants, stipulations or agreements contrary to the
provisions of this Article shall be without legal effect.
(c) Designation of warranties. - A written warranty shall
clearly and conspicuously designate such warranty as:
(1) "Full warranty" if the written warranty meets the
minimum requirements set forth in paragraph (d); or
(2) "Limited warranty" if the written warranty does
not meet such minimum requirements.
(d) Minimum standards for warranties. - For the
warrantor of a consumer product to meet the minimum
standards for warranty, he shall:
(1) remedy such consumer product within a
reasonable time and without charge in case of a defect,
malfunction or failure to conform to such written
warranty;
(2) permit the consumer to elect whether to ask for a
refund or replacement without charge of such product or
part, as the case may be, where after reasonable
number of attempts to remedy the defect or malfunction,
the product continues to have the defect or to
malfunction.
The warrantor will not be required to perform the
above duties if he can show that the defect, malfunction
or failure to conform to a written warranty was caused by
damage due to unreasonable use thereof.
(e) Duration of warranty. - The seller and the consumer
may stipulate the period within which the express
warranty shall be enforceable. If the implied warranty on
merchantability accompanies an express warranty, both
will be of equal duration.
Any other implied warranty shall endure not less
than sixty (60) days nor more than one (1) year following
the sale of new consumer products.
(f) Breach of warranties.
(1) In case of breach of express warranty, the
consumer may elect to have the goods repaired or its
purchase price refunded by the warrantor. In case the
repair of the product in whole or in part is elected, the
warranty work must be made to conform to the express
warranty within thirty (30) days by either the warrantor or

69

his representative. The thirty-day period, however, may


be extended by conditions which are beyond the control
of the warrantor or his representative. In case the refund
of the purchase price is elected, the amount directly
attributable to the use of the consumer prior to the
discovery of the non-conformity shall be deducted.
(2) In case of breach of implied warranty, the
consumer may retain in the goods and recover
damages, or reject the goods, cancel and contract and
recover from the seller so much of the purchase price as
has been paid, including damages.

Art. 1562. In a sale of goods, there is an implied


warranty or condition as to the quality or fitness of the
goods, as follows:
(2) Where the goods are brought by description from a
seller who deals in goods of that description (whether he
be the grower or manufacturer or not), there is an
implied warranty that the goods shall be of merchantable
quality. (n)

6. Warranty in sale of animals

Art. 1574. There is no warranty against hidden defects


of animals sold at fairs or at public auctions, or of live
stock sold as condemned. (1493a)

Art. 1568. If the thing sold should be lost in


consequence of the hidden faults, and the vendor was
aware of them, he shall bear the loss, and shall be
obliged to return the price and refund the expenses of
the contract, with damages. If he was not aware of them,
he shall only return the price and interest thereon, and
reimburse the expenses of the contract which the
vendee might have paid. (1487a)

C. 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

7. Implied warranty of quality


Art 1562. In a sale of goods, there is an implied warranty
or condition as to the quality or fitness of the goods, as
follows:
(1) Where the buyer, expressly or by implication, makes
known to the seller the particular purpose for which the
goods are acquired, and it appears that the buyer relies
on the seller's skill or judgment (whether he be the
grower or manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit for such
purpose;
Art 1564. An implied warranty or condition as to the
quality or fitness for a particular purpose may be
annexed by the usage of trade. (n)
8. Sale by sample or description
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 1481. In the contract of sale of goods by description
or by sample, the contract may be rescinded if the bulk
of the goods delivered do not correspond with the
description or the sample, and if the contract be by
sample as well as description, it is not sufficient that the
bulk of goods correspond with the sample if they do not
also correspond with the description.
The buyer shall have a reasonable opportunity of
comparing the bulk with the description or the sample.
(n)

D. 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
E. BUYERS OPTIONS IN CASE OF BREACH OF
WARRANTY
Art. 1599. xxx Where the goods have been delivered to
the buyer, he cannot rescind the sale if he knew of the
breach of warranty when he accepted the goods without
protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he fails to
return or to offer to return the goods to the seller in
substantially as good condition as they were in at the
time the ownership was transferred to the buyer. But if
deterioration or injury of the goods is due to the breach
or warranty, such deterioration or injury shall not prevent
the buyer from returning or offering to return the goods
to the seller and rescinding the sale. xxx
Ang v. CA
Facts: Soledad and Ang entered a car-swapping
scheme. Ang, being engaged in buy and sell of cars, sold

70

the Mitsubishi GSR to Bugash and before it was


registered under his name a writ of replevin was
issued on the Mitsubishi GSR. Ang paid the
mortgagee the balance amount and sought to recover
from Soledad but failed. MTCC dismissed the case on
prescription. RTC affirmed but granted Ang recovery
based on equity. CA reversed.
Issue: WON the complaint had prescribed [based on
what kind of warranty is provided in the deed of absolute
sale] (YES; IMPLIED WARRANTY)
Ratio: Action has already prescribed. In declaring that he
owned and had clean title to the vehicle, Soledad gave
an implied warranty of title. In pledging that he "will
defend the same from all claims or any claim
whatsoever [and] will save the vendee from any suit
by the government of the Republic of the Philippines,"
Soledad gave a warranty against eviction. Action
prescribed. The prescriptive period to file a breach
thereof is six months after the delivery of the vehicle,
following Art. 1571.

In case of breach of reciprocal obligations, general


provisions on Obligations provide a choice between
specific performance and rescission of the contract, with
damages in either case.
But in sales, specific performance is available only in
three cases:
1. Where ownership of goods has passed to the
buyer
2. Where the price is payable before the deliveyr of
the goods (buyers defense: seller could not or
did not intend to deliver the goods)
3. Where the seller was notified by the buyer of the
latters repudiation of the contract after the seller
has completed the manufacture of the goods or
had procured the goods to be delivered, and the
goods could not be readily resold for a
reasonable price.
Reason for limiting application: action for damages could
be an adequate remedy in all other cases.
2.

XIII. BREACH OF CONTRACTS


Remedies of the Seller
1. Action for the price
Where ownership has passed
Art 1595 (1). Where, under a contract of sale, the
ownership of the goods has passed to the buyer and he
wrongfully neglects or refuses to pay for the goods
according to the terms of the contract of sale, the seller
may maintain an action against him for the price of the
goods.
Where ownership has not passed
Art 1595 (2). Where, under a contract of sale, the price
is payable on a certain day, irrespective of delivery or of
transfer of title and the buyer wrongfully neglects or
refuses to pay such price, the seller may maintain an
action for the price although the ownership in the goods
has not passed. But it shall be a defense to such an
action that the seller at any time before the judgment in
such action has manifested an inability to perform the
contract of sale on his part or an intention not to perform
it.
Art 1595 (3). Although the ownership in the goods has
not passed, if they cannot readily be resold for a
reasonable price, and if the provisions of article 1596,
fourth paragraph, are not applicable, the seller may offer
to deliver the goods to the buyer, and, if the buyer
refuses to receive them, may notify the buyer that the
goods are thereafter held by the seller as bailee for the
buyer. Thereafter the seller may treat the goods as the
buyer's and may maintain an action for the price. (n)

Action for damages

Art 1596. Where the buyer wrongfully neglects or


refuses to accept and pay for the goods, the seller may
maintain an action against him for damages for
nonacceptance.
The measure of damages is the estimated loss directly
and naturally resulting in the ordinary course of events
from the buyer's breach of contract.
Where there is an available market for the goods in
question, the measure of damages is, in the absence of
special circumstances showing proximate damage of a
different amount, the difference between the contract
price and the market or current price at the time or times
when the goods ought to have been accepted, or, if no
time was fixed for acceptance, then at the time of the
refusal to accept.
If, while labor or expense of material amount is
necessary on the part of the seller to enable him to fulfill
his obligations under the contract of sale, the buyer
repudiates the contract or notifies the seller to proceed
no further therewith, the buyer shall be liable to the seller
for labor performed or expenses made before receiving
notice of the buyer's repudiation or countermand. The
profit the seller would have made if the contract or the
sale had been fully performed shall be considered in
awarding the damages. (n)
When the buyer neglects or refuses to accept the goods
Measure of damages:
The estimated loss directly and naturally resulting in
the ordinary cause of events from the buyers breach
of contract.
When goods are already manufactured: if there is an
availabke market, difference between contract price
and the market or current price at the time when the

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goods ought to have been accepted or at the time of


refusal to accept
When labor or expense is borne by the seller and
the buyer notified the seller not to proceed:
expenses incurred before receiving the repudiation
and the profit seller would have made if contract was
performed.

The law forbids seller to increase the buyers damages


by continuing work on the goods after notice of
cancellation (rule does not apply when completing the
work was to give greater value to the finished product)
3.

Rescission

Rescission means cancellation of all contractual


relations and would bar any action on the contract

RECTO LAW: Sale of Movables on Installment


Art 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee
fail to pay;
(2) Cancel the sale, should the vendee's failure to pay
cover two or more installments;

Art 1597. Where the goods have not been delivered to


the buyer, and the buyer has repudiated the contract of
sale, or has manifested his inability to perform his
obligations thereunder, or has committed a breach
thereof, the seller may totally rescind the contract of sale
by giving notice of his election so to do to the buyer. (n)

(3) Foreclose the chattel mortgage on the thing sold, if


one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the
contrary shall be void. (1454-A-a)

Art. 1534. An unpaid seller having the right of lien or


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

Art 1485. The preceding article shall be applied to


contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the
lessee of the possession or enjoyment of the thing.
(1454-A-a)

The transfer of title shall not be held to have been


rescinded by an unpaid seller until he has manifested by
notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giving
or failure to give notice to the buyer of the intention to
rescind shall be relevant in any issue involving the
question whether the buyer had been in default for an
unreasonable time before the right of rescission was
asserted. (n)
Art. 1593. With respect to movable property, the
rescission of the sale shall of right take place in the
interest of the vendor, if the vendee, upon the expiration
of the period fixed for the delivery of the thing, should not
have appeared to receive it, or, having appeared, he
should not have tendered the price at the same time,
unless a longer period has been stipulated for its
payment. (1505)

Goods have not been delivered to the buyer, buyer


repudiated the sale, seller may totally rescind the
contract by giving notice to the buyer.
Different from rescission in Art. 1534 (remedies of
the unpaid seller). In 1534, seller may still recover
damages.

Art 1486. In the case referred to in two preceding


articles, a stipulation that the installments or rents paid
shall not be returned to the vendee or lessee shall be
valid insofar as the same may not be unconscionable
under the circumstances. (n)
Recto Law (December 9, 1933): Three options of the
mortgagee:
1. Exact performance of the contract
2. Foreclose the chattel mortgage
3. Cancel the sale
Requisites:
1. Object of sale is a personal property
2. Sale is on installment basis
3. Failure of the buyer to pay at least two installments
The remedies are alternatives such that exercise of one
remedy would bar the exercise of the others
Reason for prohibition: Practice of vendors under the old
law to bid for the foreclosure at a lpow price, being the
only bidder, and later sue the vendee for the deficiency.
The remedy does not apply to sale on straight term
where the price is payable in full after making a
downpayment.
REASON: to protect improvident buyers who may be
tempted to buy beyond their means.
TAJANLANGIT: Where the seller sued for the payment
of the price and was able to obtain judgment, whether by
virtue of a writ of execution or attachment, on the thing

72

sold to the buyer, and if the judgment is still unsatisfied,


on the latters properties.
FILIPINAS: Where foreclosure of the mortgage on the
thing sold was done judicially because the vendee
refused to surrender the thing sold, the vendee must pay
the necessary expenses in effecting the seizure and
reasonable attorney;s fees.
1. Meaning of Installment Sale
Levy Hermanos v. Gervacio: Gervacio bought a
Packard care from Hermanos Inc. After making an initial
payment, he executed a promissory note for the
balance. To secure patment, he also executed a chattel
mortgage over the said car. Gervacio failed to make any
other payment. Hermanoes foreclosed the mortgaged
and wanted to collect the unpaid balance.
Recto Law not applicable to sale on straight term,
wherein the balance after the payment of the initial sum,
should be paid in its totality at the time specified in the
promissory note, which is the situation in this case. CC
Art 1454 is aimed at sales where the price is payable in
several installments. A cash payment (in sales with two
installments) cannot be considered as a payment in
installments, and even if it can be so considered, still the
law does not apply, for it requires nonpayment of two or
more installments in order that its provisions may be
invoked. In this case, only one installment was unpaid.
3. Remedies available to the unpaid seller
Delta Motor Sales v. Niu Kim Duan: Defendants
purchased from plaintiff Delta 3 Daikin air conditioners.
The parties executed a Deed of Conditional Sale. After
paying the down payment, the air conditioners were
delivered. But after 7 months, they failed to pay at least
2 monthly installments, so Delta repossessed the air
conditioners via writ of replevin. Pursuant to the Deed of
Conditional Sale, Delta treated the paid installments as
rentals. SC ruled that while Delta can treat the paid
installments as rentals, it cant collect the unpaid balance
of the purchase price since it already availed of
rescission as a remedy under Art. 1484 (remedies are
alternative, not cumulative).
If the remedy chosen is rescission, a stipulation in the
contract that the installments paid shall not be returned
to the vendee is valid insofar as the same may not be
unconscionable under the circumstances.
3. Remedy of specific performance
Tajanlangit v. Southern Motors: The Tajanlangits
bought some machineries from Southern Motors. They
executed a promissory note and a mortgage in favor of
Southern Motors. The Tajanlangits were not able to pay;
they were sued, and judgment was rendered against
them. At the execution sale, the machineries were sold

to Southern Motors at a price lower than what the


Tajanlangits owed. Since the debt was not yet fully paid,
another execution sale was to be made against the
Tajanlangits. They allege that their obligations have
been extinguished under Art 1484 (3). Tajanlangits not
relieved of their obligations. They would like to invoke Art
1484 (3) which states that when a chattel mortgage has
been executed on the thing sold and is subsequently
foreclosed, the vendor shall have no further action
against the purchaser to recover any unpaid balance. Art
1484 (3) does not apply; there has been no foreclosure
of the mortgage. While it is true that there was a chattel
mortgage on the goods sold, Southern Motors elected to
sue on the note exclusively. It had the right to select
among the three remedies established in 1484. In
choosing to sure on the note, it was not limited to the
proceeds of the sale, on execution, of the mortgaged
good.
4. Nature of the remedy of rescission
Nonato v. IAC: Spouses bought a car on instalment but
failed to pay so it was repossessed. Payment of the
balance of the purchase price was still demanded. No
more payment if there has already been repossession!
RULE: Should the vendee or purchaser of a personal
property default in the payment of two or more of the
agreed installments, the vendor or seller has the option
to avail of any of these three remedies-either to exact
fulfillment by the purchaser of the obligation, or to cancel
the sale, or to foreclose the mortgage on the purchased
personal property, if one was constituted. These
remedies have been recognized as alternative, not
cumulative, that the exercise of one would bar the
exercise of the others. Indeed, the acts performed by the
corporation are wholly consistent with the conclusion
that it had opted to cancel the contract of sale of the
vehicle. It is thus barred from exacting payment from
petitioners of the balance of the price of the vehicle
which it had already repossessed. It cannot have its
cake and eat it too.
5. Meaning of action
Cruz v. Filipinas Investment and Finance Corp.: Cruz
purchased a bus from Far East Motor (payable in
installments, secured by a chattel mortgage over the bus
and an additional security of a mortgage of a parcel of
land made by a third person). Far East assigned its
rights to Filipinas Investment. Reyes failed to pay
therefore Filipinas took steps to foreclose the chattel
mortgage which proceeds were not sufficient. Filipinas
then sought to foreclose the real estate mortgage. Court
held that Filipinas can no longer seek recovery of the
deficiency.
Art 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may
exercise any of the following remedies:

73

(3) Foreclose the chattel mortgage on the thing sold, if


one has been constituted, should the vendee's failure to
pay cover two or more installments. In this case, he shall
have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the
contrary shall be void.
Filipinas alleges that, since the law speaks of action,
the restriction should be confined only to the bringing of
judicial suits or proceedings in court. Court says that:
action is without a definite or exclusive meaning. It is
defined as the legal demand of ones right, or rights;
lawful demand of ones right in a court of justice
Considering the purpose for which the prohibition in Art.
1484 was intended, action may be construed as
referring to any judicial or extrajudicial proceeding by
virtue of which the vendor may be lawfully enabled to
exact recovery for the supposed unsatisfied balance or
the purchase price. Certainly, extrajudicial foreclosure of
real estate mortgage is one such proceeding, therefore,
it is prohibited by Art. 1484.
6. What constitutes foreclosure
Third party mortgage
Ridad v. Filipinas Investment: Ridaad bought a car
from Supreme Sales (later assigned rights to Filipinas).
To secure payment of installments, executed a deed of
chattel mortgage over the vehicles purchased plus
another car which was not subject matter of the sale.
Buyer failed to pay, seller foreclosed mortgage over the
2 cats and also sought to foreclose the additional
security. Chattel mortgage and its subsequent sale NOT
VALID. Article 1484 is applicable. Under this article, the
vendor of personal property the purchase price of which
is payable in installments, has the right, should the
vendee default in the payment of two or more of the
agreed installments, to exact fulfillment by the purchaser
of the obligation, or to cancel the sale, or to foreclose the
mortgage on the purchased personal property, if one
was constituted. The vendor can only choose one
option. If the vendor avails himself of the right to
foreclose the mortgage, the law prohibits him from
further bringing an action against the vendee for the
purpose of recovering whatever balance of the debt
secured is not satisfied by the foreclosure sale. Purpose
of the law is to prevent mortgagees from seizing the
mortgaged property, buying it at foreclosure sale for a
low price and the bringing suit against the mortgagor for
a deficiency judgment. Without the law, the mortgagorbuyer would find himself without the property and still
owing practically the full amount of his original debt. In
this case, defendant Filipinas chose to foreclose the
mortgage upon default of plaintiffs, and bought the
vehicles at the public auction as the highest bidder. The
vendors right to foreclose is limited only on the thing
sold. The vendor of personal property sold on installment
is precluded, after foreclosing the chattel mortgage on
the thing sold, from having a recourse against the
additional security put up by a third party to guarantee
the purchasers performance of his obligation. (Cruz v

Filipinos Investment & Finance Corporation). Otherwise,


if the vendee could still be compelled to pay the balance
of the purchase price, the vendee will be made to bear
the payment of the balance despite the earlier
foreclosure.
The barring effect of foreclosure
Northern Motors v. Sapinoso: Sapinoso bought a car
from Northern Motors in installments secured by a
chattel mortgage on the same care. Buyer failed to pay.
Seller pursued an extrajudicial foreclosure by first
praying for a writ of replevin. Pending the action, buyer
made two payments. SELLER CAN ACCEPT
PAYMENTS. Although the seller had already filed an
action for foreclosure, if prior to the actual sale of the
subject property at public auction, the seller had
received further payments from the buyer, the seller is
not obliged to refund said payments after foreclosure to
the buyer. The Court held that if the mortgage creditor,
before the actual foreclosure sale, is not precluded from
recovering the unpaid balance of the price although he
has filed an action for replevin for the purpose of
extrajudicial foreclosure, or if a mortgage creditor who
has elected to foreclose but who subsequently desist
from proceeding with the auction sale, without gaining an
advantage or benefit, and without causing any harm to
the vendee-mortgagor, is not barred from suing on the
unpaid account There is no reason why a mortgage
creditor should be barred from accepting, before a
foreclosure sale, payments made by the buyer.
Sale of Immovables
1. Anticipatory Breach
Art 1591. Should the vendor have reasonable grounds
to fear the loss of immovable property sold and its price,
he may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of Article
1191 shall be observed. (1503)
Legarda v. Saldana: Where the buyer defaulted in
completing the payments after having religiously paid the
stipulated monthly installments for almost 8 years, and
despite the seller having notified the buyer of the
rescission of the contract to sell, the Court denied the
rescission, and instead granted the buyer an additional
grace period of 60 days from notice of judgment, to pay
all the installment payments in arrears, together with the
interest.
2. PD 957 sec 23 24
PD 957, Sec 23. Non-Forfeiture of Payments. No
installment payment made by a buyer in a subdivision or
condominium project for a lot or unit he contracted to
buy shall be forfeited in favor of the owner or developer
when the buyer, after due notice to the owner or
developer, desists from further payment due to the
failure of the owner or developer to develop the

74

subdivision or condominium project according to the


approved plans and within the time limit for complying
with the same. Such buyer may, at his option, be
reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with
interest thereon at the legal rate.
PD 957, Sec 24. Failure to pay installments. The
rights of the buyer in the event of his failure to pay the
installments due for reasons other than failure of the
owner or developer to develop the project shall be
governed by Republic Act No. 6552
Casa Filipina v. OP: Casa Filipina and the Sevillas
entered into a contract to sell land in a subdivision lot
owned by the former. The Sevillas failed to pay their
amortizations on time but later discovered that Casa still
had not developed the subdivision and that the
subdivisions mother title was encumbered, thus
demanding a refund of payments already made. The
court held that the Sevillas had complied with the
notification requirement stated in Sec. 23 of P.D.957.
They were not considered in default when they asked for
the refund because, at the time, Casa had yet to make a
demand from them to pay their amortizations in
accordance with Art. 1169 of the Civil Code. However,
the 3% delinquency interest previously charged them is
excluded from the amount to be reimbursed them as
mandated by Sec.23 of P.D. 957. PD 957 to stem the
tide of fraudulent manipulations perpetrated by
unscrupulous subdivision and condominium sellers and
operators, such as failure to deliver titles to buyers or
titles free from liens and encumbrances. Should the
notice requirement in Sec 23 be construed as required to
be given before a buyer desists from further paying, the
intent of the law to protect subdivision lot buyers will tend
to be defeated.
Relucio v. Brilalnte Garfin: Garfin filed a complaint
against Relucio to compel the latter to execute a final
deed of sale in her favor (over two lots in Naga) and to
construct paved roads on the northern and southern
sides of the lots. According to Garfin, she had already
paid the required number of installments for the lots.
Relucio sought to rescind the contract. Supreme Court
found that the contract to buy and sell included 6%
interest per annum in the required monthly installments.
Thus, Garfin had NOT completed the installment
payments required for the lots. SC also ruled that
Relucio could not rescind the contract because she was
not allowed by law to do so. Despite respondents failure
to fully pay the stipulated price of the two lots in
question, petitioner could not validly rescind the contract,
not being lawfully entitled to do so. Petitioner failed to
rebut respondents allegation that the former had failed
to introduce required improvements to the subdivision.
Section 23. Non-forfeiture of Payments. No installment payment made by the buyer in a subdivision or
condominium project for the lot or unit he contracted to
buy shall be forfeited in favor of the owner or developer

when the buyer, after due notice to the owner or developer desists front further payment due to the failure of
the owner or developer to develop the subdivision or
condominium project according to the approved plans
and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total
amount paid.
3. Maceda Law: RA 6552 Sale of Immovables on
Installment
Mclaughlin v. CA: Sec 4 of RA 6552 provides: In case
where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than
sixty days from the date the installment became due. If
the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the
notice of the cancellation or the demand for rescission of
the contract by a notarial act. Flores tendered the
managers check after 17 days, which is well within the
30-day period. However, Flores did not follow tender of
payment with consignation. Since McLaughlin refused
to accept the tender of payment, it was incumbent upon
Flores to deposit the amount in court.
Luzon Brokerage v. Maritime: Luzon Brokerage sought
nd
a 2 MR for the Adverse decision against it, which was
discussed supra four times. The Court rejected it with
finality because the motion raised the same grounds,
which were dissected again, and also because the
enactment of the Maceda Law elevated the relevant
doctrines into legislative law, which no court decision
could repeal.
The governing law and precedents govern. There was
no case where the SC denied the vendor on installment
of his right to rescind for contracts to sell industrial or
commercial real estate. Such right is now enshrined in
the Maceda law. The original decision has already
become doctrinal, and Maritimes counsel Sen.
Ambrosio Padilla even cited it in his book on Civil Law.
The enactment of RA 6552, an act to provide Protection
to Buyers of Real Estate on Installment Payments, aka
the Maceda has now placed the 39 year-old
jurisprudence of the court into a category of law which is
beyond overturning even by the SC. The court cannot
now deny or refuse Myers contractual right of
cancellation, which is no longer a matter of precedents
or doctrinal jurisprudence.
REMEDIES OF THE BUYER
1. In case of movables
Specific performance
Art 1598. Where the seller has broken a contract to
deliver specific or ascertained goods, a court may, on
the application of the buyer, direct that the contract shall
be performed specifically, without giving the seller the

75

option of retaining the goods on payment of damages.


The judgment or decree may be unconditional, or upon
such terms and conditions as to damages, payment of
the price and otherwise, as the court may deem just. (n)
Forced sale
Filed only when goods are special, certain, specific
General rule (common law): Courts will refuse to decree
specific perfomance with respect to chattels because
damages is a sufficient remedy
Exception: Buyer is entitled to a specific thing which to
him has some special value and which he cannot readily
obtain in the market (or when compensation of damages
would not give complete remedy_
Car not in the category of unique chattel
Breach of warranty
Art. 1599. Where there is a breach of warranty by the
seller, the buyer may, at his election:
(1) Accept or keep the goods and set up against the
seller, the breach of warranty by way of recoupment in
diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action
against the seller for damages for the breach of
warranty;
(3) Refuse to accept the goods, and maintain an action
against the seller for damages for the breach of
warranty;
(4) Rescind the contract of sale and refuse to receive the
goods or if the goods have already been received, return
them or offer to return them to the seller and recover the
price or any part thereof which has been paid.
When the buyer has claimed and been granted a
remedy in anyone of these ways, no other remedy can
thereafter be granted, without prejudice to the provisions
of the second paragraph of Article 1191.
Where the goods have been delivered to the buyer, he
cannot rescind the sale if he knew of the breach of
warranty when he accepted the goods without protest, or
if he fails to notify the seller within a reasonable time of
the election to rescind, or if he fails to return or to offer to
return the goods to the seller in substantially as good
condition as they were in at the time the ownership was
transferred to the buyer. But if deterioration or injury of
the goods is due to the breach or warranty, such
deterioration or injury shall not prevent the buyer from
returning or offering to return the goods to the seller and
rescinding the sale.

Where the buyer is entitled to rescind the sale and elects


to do so, he shall cease to be liable for the price upon
returning or offering to return the goods. If the price or
any part thereof has already been paid, the seller shall
be liable to repay so much thereof as has been paid,
concurrently with the return of the goods, or immediately
after an offer to return the goods in exchange for
repayment of the price.
Where the buyer is entitled to rescind the sale and elects
to do so, if the seller refuses to accept an offer of the
buyer to return the goods, the buyer shall thereafter be
deemed to hold the goods as bailee for the seller, but
subject to a lien to secure payment of any portion of the
price which has been paid, and with the remedies for the
enforcement of such lien allowed to an unpaid seller by
Article 1526.
(5) In the case of breach of warranty of quality, such
loss, in the absence of special circumstances showing
proximate damage of a greater amount, is the difference
between the value of the goods at the time of delivery to
the buyer and the value they would have had if they had
answered to the warranty. (n)
Breach of warranty: buyer may rescind but must return
all the goods
When large portion of goods is retained by the buyer, he
cannot rescind but may only claim damages.
If the seller refuses to accept the return of the goods,
buyer should resell (after giving notice to the seller) the
goods on sellers account at the best price obtainable.
Seller is bound to return the price paid by the buyer
minus the resale price of the goods.
In case of breach of warranty, buyer may refuse to
accept the goods and maintain an action for damages.
If the buyer accepts: may wait until the seller sues him
for the price, and set up breach of warrnty by way of
recoupment, to diminish or abate the price
Buyer may also rescind the contract by returning or
offering to return the goods within reasonable time upon
knowing such breach. (especially when perishable
goods)
Choice of place and time belongs to the buyer in good
faith
Buyer as bailee for the seller: buyer can recover storage
fees and insurance premiums paid to insure the goods
against theft and fire
Recoupment: remedy whereby the buyer when sued for
the price may prove damages equal to the sellers claim
and have it deducted therefrom but the buyer could not
recover any affirmative relief in the same action.

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Action for damages or rescission for breach of warranty


must be brought within 6 months from delivery of the
thing sold
Damages recoverable: the difference between the value
of the goods at the time of delivery to the buyer and the
value that would have had if they had answered to the
warranty (except: special circumstance showing a
proximate damage of a greater amount)
Rescission
When buyer rescinds the sale, he shall cease to be
liable for the price upon returning or offering to return the
goods.
If the price has (or any part thereof) already been paid,
seller shall be liable to repay such amount.
If the seller refuses offer of the buyer to return, buyer
shall be deemed to hold the goods as bailee for the
seller, subject to a lien to secure the payment of any
portion of the price paid
2. In case of immovables

With right to recover damages in either case


Options are mutually exclusive, but after choosing
fulfillment, may still resort to rescission if fulfillment
becomes impossible
The court is given the discretion, for a just cause, to give
the defendant more time to perform his obligation, even
if the plaintiff seeks rescission
When both at fault: LLiability of the first infractor shall be
equitable tempered by the court. If first infractor cant be
determined, contract is deemed extinguished and each
shall bear his own damages.
Rescission for non-performance shall not be permitted
for a slight or casual breach but for breaches which are
substantial and fundamental as to defeat the object of
the parties in making the agreement.
Foreclosure of the mortgage to secure payment of the
price is considered fulfillment of the contract and vendor
cannot rescind the sale.

Rescission or specific performance


Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law. (1124)
Art. 1192. In case both parties have committed a breach
of the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be
determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
each shall bear his own damages. (n)
Art. 1591. Should the vendor have reasonable grounds
to fear the loss of immovable property sold and its price,
he may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of Article
1191 shall be observed. (1503)

Rescission creates obligation to return the things which


were the object of the contract (including fruits from the
time of filing of the action)
Consequently, one who demands rescission must be
able to return whatever he may be obliged to restore.
Rescission is not a remedy when the object of the
contract is legally in the possession of a third person.
Only indeminity for the damages may be demanded from
the person who caused the loss.
PD 957, Sec 23. Non-Forfeiture of Payments. No
installment payment made by a buyer in a subdivision or
condominium project for a lot or unit he contracted to
buy shall be forfeited in favor of the owner or developer
when the buyer, after due notice to the owner or
developer, desists from further payment due to the
failure of the owner or developer to develop the
subdivision or condominium project according to the
approved plans and within the time limit for complying
with the same. Such buyer may, at his option, be
reimbursed the total amount paid including amortization
interests but excluding delinquency interests, with
interest thereon at the legal rate.
PD 957, Sec 24. Failure to pay installments. The
rights of the buyer in the event of his failure to pay the
installments due for reasons other than failure of the
owner or developer to develop the project shall be
governed by Republic Act No. 6552
3. Suspension of Payment

When one of the obligors fail to comply, the other party


may choose between:
Exacting fulfillment of the obligation; or
Rescission of the contract

Art. 1590. Should the vendee be disturbed in the


possession or ownership of the thing acquired, or should

77

he have reasonable grounds to fear such disturbance,


by a vindicatory action or a foreclosure of mortgage, he
may suspend the payment of the price until the vendor
has caused the disturbance or danger to cease, unless
the latter gives security for the return of the price in a
proper case, or it has been stipulated that,
notwithstanding any such contingency, the vendee shall
be bound to make the payment. A mere act of trespass
shall not authorize the suspension of the payment of the
price. (1502a)

XIV. EXTINGUISHMENT OF THE


SALE
CAUSES
Art. 1600. Sales are extinguished by the same causes
as all other obligations, by those stated in the preceding
articles of this Title, and by conventional or legal
redemption. (1506)
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor
and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory
condition, and prescription, are governed elsewhere in
this Code. (1156a)
CONVENTIONAL REDEMPTION
Art. 1601. Conventional redemption shall take place
when the 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. (1507)
-

The vendor reserves the right to repurchase the


thing sold, with the obligation of returning the price
of the sale the expenses of the contract, the
necessary and useful expenses made on the thing,
and other payments made by reason of the sale.

Villarica v. CA
Facts: The Villaricas sold their land to the Consunjis for
P35,000, who granted the former an option to buy.
However, the latter later sold it to Francisco. The
Villaricas contend that the real nature of their transaction
with the Consunjis is not a contract of sale but an
equitable mortgage to their P28,000-loan.
Issue: WON the transaction was a sale or equitable
mortgage (Sale)

Ratio: 1.) The price was not inadequate since it was the
market price of the lot at that time. 2.) The Villaricas did
not remain in possession, as they were merely allowed
to collect the monthly rent for 5 months with the amount
collected charged against them. 3.) The option to buy
was in a separate public instrument from the contact of
sale, thus not being as a right to repurchase which must
be reserved in the same contract of sale. Thus it does
not fall under Art. 1602. 4.) The taxes paid by Villarica
was the back taxes up to the date of the sale.
Bautista v. Unangst
Facts: Salak rented a car from Bautista but failed to
return the car and was charged with BP 22 and
carnapping. In order to pay the rent and other fees,
Salak proposed to sell house titled in the name of his
wife, Unangst. They executed a written agreement with
right to repurchase, where if they failed to repurchase,
must vacate the premises. Unangst failed to repurchase
causing Bautista to file for specific performance.
Issue: WON the transaction was a sale with right to
repurchase or an equitable mortgage (Equitable
mortgage)
Ratio: The deed of sale with right to repurchase qualifies
as an equitable mortgage under 1602 since Unangst
merely secured the payment of the rentals and were
allowed to remain in possession. Under 1602, a contract
is presumed to be an equitable mortgage where (2) the
vendor remains in possession as lessee or otherwise (6)
it may be inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt
or the performance of an obligation.
EQUITABLE MORTGAGE
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on
the thing sold;
(6) In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of
any other obligation.
In any of the foregoing case, any money, fruits, or other
benefit to be received by the vendees as rent or
otherwise shall be considered as interest which shall be
subject to the usury laws.

78

Art. 1603. In case of doubt, a contract purporting to be a


sale with right to repurchase shall be construed as an
equitable mortgage. (n)

Art. 2088. The creditor cannot appropriate the things


given by way of pledge or mortgage, or dispose of them.
Any stipulation to the contrary is null and void. (1859a)

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


to a contract purporting to be an absolute sale. (n)

DISTINGUISH FROM OPTION TO BUY

1. Definition of Equitable Mortgage


one which, although lacking in some formality or
other requisites demanded by a statute,
nevertheless reveals the intention of the parties to
charge real property as a security for debt, and
contains nothing impossible or contrary to law
-

A contract shall be construed as an equitable


mortgage when any of the circumstance in Art. 1602
is present.

Tan v. Valdehueza
Facts: Valdehueza executed 2 documents of deed of
pact de retro sale in favor of Tan, but Valdehueza
st
remained in possession. 1 document was registered
nd
while the 2 was not. Tan was claiming ownership over
the land described in the contract.
Issue: WON the sale was an equitable mortgage (Yes)
Ratio: When the vendor remains in possession and
pays taxes of the property under a pacto de retro, the
contract is presumed to be an equitable mortgage,
whether registered or not.
2. Rationale of Equitable Mortgage
To curtail the practice of creditors in making their
agreement of mortgage appear in the form of a sale
with pacto de retro, in order to circumvent the
prohibition of pactum commissorium in pledge and
mortgage (Art. 2208. The creditor cannot
appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the
contrary is null and void) [because in making it
appear a pacto de retro sale, the creditors can do
away with foreclosure proceedings]
3. Remedy
Reformation of the instrument [must be brought
within 10 years]
1) If the agreement is construed to be an equitable
mortgage, any money or other benefit received as
rents, shall be considered as interest.
2) Where the agreement is upheld as a pacto de
retro sale, the vendor may still exercise the right
within 30 days from the time the judgment becomes
final.
4. Pactum Commissorium

Right of redemption
Principal
contract
(preparatory to sale)
Not a separate contract,
but merely part of a main
contract of sale; cannot
exist unless reserved at
the time of the perfection
of the main contract of sale
Need not have separate
consideration in order to
be valid and effective
May not be beyond the 10
year period
Requires
tender
of
payment
of
amount
required by law, including
consignment thereof if
tender cannot be made
effectively
If right is exercised,
contract is extinguished
and becomes a deed of
absolute sale

Option to buy
Merely
an
accidental
contract
Principal contract and may
be created independent of
another contract

Must have a consideration


separate and distinct from
purchase price
May be beyond the 10
year period
May be exercised by
notice

If right is exercised, the


contract of sale is finally
perfeted.

Art. 1602. Supra


Adiarte v. Tumaneng
Facts: Adiarte sold 2 parcels of land to Sps Agudong,
with a right to repurchase within 10 years. 10 years had
lapsed but there was no repurchase made. But years
after that, Adiarte offered to repurchase the lands.
Agudong executed a document saying that he is
allowing the repurchase of the land provided he is
given possession for the next couple of years. Agudong
died. Adiarte now presents payment to the wife of
Agudong for the repurchase, but the widow refuses to
receive the payment.
Issue: WON the promise to sell by Agudong in his
lifetime is lawful and valid (Yes)
Ratio: An agreement to repurchase becomes an option
to buy when entered into after the time to redeem
stipulated in a pacto de retro sale has aslready expired,
because then the vendee a retro became the absolute
owner of the thing sold, and the subsequent grant of the
right to repurchase is a new agreement. There is no
question as to the lapse of the 10 yr period for right to
repurchase by Aduarte. The document cannot be regarded as a promise to resell the parcels of land by
virtue of the right to repurchase reserved by the vendor,
but it was a new agreement between the two parties, a
promise to sell, which is lawful and binding.
PERIOD OF REDEMPTION

79

1. When no period agree upon


4 years from the date of the contract
Art. 1606. The right referred to in Article 1601, in the
absence of an express agreement, shall last four years
from the date of the contract.
Should there be an agreement, the period cannot
exceed ten years.
However, the vendor may still exercise the right to
repurchase within thirty days from the time final
judgment was rendered in a civil action on the basis that
the contract was a true sale with right to repurchase.
(1508a)
2. When period agreed upon
the period is binding and it may also be extended, as
long as it does not exceed 10 years.
Reason of limitation: A pacto de retro is a
suspension of title of ownership and it is against
public interest to permit such uncertainty to continue
for a long time.
Anchuel v. IAC
Facts: Achuelo ownede 7 parcels of land which had
several mortgages on it. Anchuelo sold the lots to
Gavino through a deed of absolute sale and with an
agreement to resell the properties to Anchuelos within
19 years. 11 years after Gavino refused the offer to
repurchase the property.
Issue: WON Anchuel established their right to
repurchase the subject parcel of land (No)
Ratio: The stipulated 19 years in the agreement to resell
violates Art 1601, which limits the period of conventional
redemption to a maximum of 10 years from the date of
the contract even if the agreement exceeds 10 years.
Upon expiration, the right is lost and the same can no
longer be revived by the filing of an action to compel
redemption after the lapse of the period. Therefore,
Anchuel lost his right to redeem for the failure to
exercise it within the 10 year prescriptive period.
3. When there is a period of non-redemption
- If stipulation is unclear, but exists, the period is still
10 years, not 4 years.
Tayao v. Dulay
Facts: Tayao entered into a pacto de retro sale with
Dulay, with the condition that the option to repurchase
shall not be exercised within 10 years after the sale.
Tayao claimed that because it was contrary to law to
suspend the exercise of the right to repurchase for more
than 10 years, the clause should be considered nonexistent, with the result that the contract has become
merely evidence of indebtedness, thus Tayo only
mortgaged the land to Dulay.
Issue: WON the contract was converted into a mere
contract of mortgage because of the stipulation being
contrary to law (No)

Ratio: The document is still considered a sale, and its


character did not change by the fact that the stipulation
as to the time when repurchase may be effected
contrives the provisions of the civil code (Art. 1606
right to repurchase may be exercised only within 10
years form the sale). In lieu of the illicit provision, the
contract is still considered a sale and because the right
to redemption was not exercised, Tayaos claim to the
property has been forfeited.
EXERCISE OF THE RIGHT TO REDEEM
A vendor must manifest his right to redeem in
writing. This must be accompanied with an actual or
simultaneous tender of payment of the redemption
price.
Redemption price includes the amount of the sale,
the expenses of the contract and other legitimate
payments made by the vendee by reason of such
sale, and the necessary and useful expenses made
on the thing by the vendee.
It is only when the vendee flatly refused that tender
of payment is not necessary. Consignation of the
redemption price in court is not necessary to
preserve the right. In the absence of the vendee a
retro, the right may be exercised by filing a suit
against him and consigning the amount in court.
The exercise of redemption is not limited only to the
total redemption price enumerated in Art 1616 of the
CC, since said legal provision is not restrictive nor
exclusive. It includes other stipulations which may
have been agreed upon
Art. 1616. The vendor cannot avail himself of the right of
repurchase without returning to the vendee the price of
the sale, and in addition:
(1) The expenses of the contract, and any other
legitimate payments made by reason of the sale;
(2) The necessary and useful expenses made on the
thing sold. (1518)
Gargollo v. Duero
Facts: Gargollo sold land to Duero for P750, with a
stipulation that she may redeem said lot. Exercising the
right to redeem, she deposited P750 with the clerk of
court when the defendants refused to accept the
amount. Defendants countered that it was because of
the plaintiffs promise to sell the land that they planted
trees and other useful improvements on it and paid
realty taxes. Lower court declared that the plaintiff can
redeem the land and demand removal of the
improvements; and therefore, ordered defendants to
surrender the land.
Issue: WON Gargollo may require Duero to remove
improvements made (No)
Ratio: Gargollo (vendor a retro) is not given the option to
require Duero (vendees a retro) to remove the useful
improvements, but must pay for the useful improvements
introduced by the vendee a retro; otherwise, the latter
may retain possession of the thing until reimbursement
is made. A vendor, upon exercising right of redemption,

80

must reimburse the vendee not only the price of the sale,
but also expenses of the contract, and necessary and
useful expenses made on the thing sold.
1. By whom exercised
Art. 1610. The creditors of the vendor cannot make use
of the right of redemption against the vendee, until after
they have exhausted the property of the vendor. (1512)

But if the inheritance has been divided, and the thing


sold has been awarded to one of the heirs, the action for
redemption may be instituted against him for the whole.
(1517)
From whom to redeem
o Vendee a retro
o His heirs or assigns
o His agent
3. Effect of redemption

Art. 1611. In a sale with a right to repurchase, the


vendee of a part of an undivided immovable who
acquires the whole thereof in the case of article 498,
may compel the vendor to redeem the whole property, if
the latter wishes to make use of the right of redemption.
(1513)
Art. 1612. If several persons, jointly and in the same
contract, should sell an undivided immovable with a right
of repurchase, none of them may exercise this right for
more than his respective share.
The same rule shall apply if the person who sold an
immovable alone has left several heirs, in which case
each of the latter may only redeem the part which he
may have acquired. (1514)
Art. 1613. In the case of the preceding article, the
vendee may demand of all the vendors or co-heirs that
they come to an agreement upon the purchase of the
whole thing sold; and should they fail to do so, the
vendee cannot be compelled to consent to a partial
redemption. (1515)
Who may redeem:
o Vendor
o His heirs or assigns
o His agent
The creditors of the vendor cannot make use of the
right of redemption against the vendee, until after
they have exhausted the property of the vendor.
If several persons, jointly and in the same contract,
should sell an undivided immovable with a right of
repurchase, none of them may exercise this right for
more than his respective share. The same rule shall
apply if the person who sold an immovable alone
has left several heirs.
When the co-owners of an indivisible immovable, in
order to end the co-ownership, sold their interests
absolutely to the same person who previously
bought the share of a co-owner subject to a right of
redemption, the latter can be compelled to redeem
the whole property.
2. From whom to redeem
Art. 1615. If the vendee should leave several heirs, the
action for redemption cannot be brought against each of
them except for his own share, whether the thing be
undivided, or it has been partitioned among them.

Art. 1617. If at the time of the execution of the sale there


should be on the land, visible or growing fruits, there
shall be no reimbursement for or prorating of those
existing at the time of redemption, if no indemnity was
paid by the purchaser when the sale was executed.
Should there have been no fruits at the time of the sale
and some exist at the time of redemption, they shall be
prorated between the redemptioner and the vendee,
giving the latter the part corresponding to the time he
possessed the land in the last year, counted from the
anniversary of the date of the sale. (1519a)
Art. 1618. The vendor who recovers the thing sold shall
receive it free from all charges or mortgages constituted
by the vendee, but he shall respect the leases which the
latter may have executed in good faith, and in
accordance with the custom of the place where the land
is situated. (1520)
The vendor can eject a lessee only after the
expiration of the period of lease or of the period for
redemption.
The vendor a retro is entitled to the return of the
thing with damages for the use and occupation if the
same.
4. Effect of non-redemption
Art. 1607. In case of real property, the consolidation of
ownership in the vendee by virtue of the failure of the
vendor to comply with the provisions of article 1616 shall
not be recorded in the Registry of Property without a
judicial order, after the vendor has been duly heard. (n)
The ownership of the vendee becomes absolute and
irrevocable by operation of law.
The vendee is not entitled to recover damages by
virtue of non-redemption, notwithstanding a
stipulation in the contract for payment of damages.
Procedure: buyer files with court an action to
consolidate ownership. Court grants the action and
executes deed of absolute sale in a public
document, and is registered in registrar.
LEGAL REDEMPTION
The right to be subrogated, upon the same terms
and conditions stipulated in the contract, in the place
of one who acquires a thing by purchase or dation in

81

payment, or by any other transaction whereby


ownership is transmitted by onerous title.
Art. 1619. Legal redemption is the right to be
subrogated, upon the same terms and conditions
stipulated in the contract, in the place of one who
acquires a thing by purchase or dation in payment, or by
any other transaction whereby ownership is transmitted
by onerous title. (1521a)
1. Period to redeem
Art. 1623. The right of legal pre-emption or redemption
shall not be exercised except within thirty days from the
notice in writing by the prospective vendor, or by the
vendor, as the case may be. The deed of sale shall not
be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has
given written notice thereof to all possible
redemptioners.
The right of redemption of co-owners excludes that of
adjoining owners. (1524a)
Conejero v. CA
Facts: Enrique and Paz Conejeros inherited a lot and
building from their parents. Enrique sold his half interest
to Raffinan with right to repurchase within a year. 6
months after expiration of period, Enrique executed deed
of absolute sale to Raffinan. However, Paz tried to
redeem Enriques share from Raffinan but was to no
avail.
Issue: WON the Conejeros can still redeem the half
share sold to Enrique. (No)
Ratio: The requirement of notice was fulfilled by the fact
that Paz Conejero saw the copy of the deed of sale. The
law also grants the co-owner the right of redemption but
it must be valid and effective, accompanied by an actual
tender of an acceptable redemption price. Under Art.
1620, the redemptioner is allowed to pay only a
reasonable price if the price of alienation is excessive
and that the reasonableness of the price to be paid can
only be determined by the courts. But the court held that
the right of redemptioner to pay a reasonable price does
not excuse them from the duty to make proper tender of
the price that can be honestly deemed reasonable under
the circumstances without prejudice to final arbitration of
the courts, nor does it authorize the redemptioner to
demand the vendee to accept payment by installments.
Butte v. Manuel Uy
Facts: Jose Ramirez, co-owned 1/6 undivided share of
property in Manila. He died and left 1/3 of the share to
his descendants and the other 1/3 to Mrs. Butte.
Estatem proceeding are still pending with BPI as judicial
administrator. Garnier Vda de Ramirez (one of the coowners) sold her 1/6 undivided share to Manuel Uy.
Notice was sent to judicial administrator of Joses estate

and to Mrs. Butte. Butte sent offer to redeem the 1/6


share sold to Manuel Uy but was denied.
Issue: WON Butte can exercise legal redemption,
despite presence of judicial administrator and pending
final distribution of shares in testate proceeding. (Yes)
WON she exercised right of legal redemption within
period prescribed by law. (Yes)
Ratio: As testamentary heir, she and her co-heirs
acquired an interest in the undivided shares and this
situation is not changed by the existence of a judicial
administrator. Even though actual shares are yet to be
determined, she is a co-owner vested with the right of
legal redemption. All the law requires is that the legal
redemptioner should be a co-owner at the time the
undivided shares of another co-owner is sold to a
stranger.
Under Art 1623, the 30 days for making the legal
redemption are counted from notice in writing by the
seller, not the notice given by the buyer. The purpose is
that the seller of an undivided interest is in the best
position to know who his co-owners are. Also, notice by
the seller removes all doubts as to the fact of the sale, its
perfection, and validity.
Castillo v. Samonte
Facts: Upon death of Romualda Meneses, her heirs,
Valentin, Gregorio, Amando, Jose and Melencia Castillo,
inherited a parcel of unregistered land. Gregorio, without
notice to his co-heirs sold his undivided interest to
Samonte. Valentin later found out about the sale and
offered to redeem the property from Samonte, who
refused.
Issue: WON Valentin had right to redeem the property.
(Yes)
Ratio: Because Valentin offered to repurchase the
property within 30 days of learning of the sale, the right
could still be exercised even if the action was brought 3
months after the offer to redeem. The right of legal
redemption and the right to commence actions are of an
entirely different nature. The first creates a substantive
right, while the second restricts the period in which a
cause of action may be asserted.
Doromal v. CA
Facts: Lot had 7 co-owners who are siblings.
Respondent Javellana is the daughter of one of the coowners. 6 other co-owners wanted to sell the lot. Letters
were sent to Javellana conveying that more or less there
was already a consensus on the sale of the land to the
Doromals, BUT no written notice was sent to Javellana
regarding the execution and registration of the deed of
sale. After the transaction was consummated, Javellana
sent a letter to the Doromals offering 30K (amount stated
in the deed of sale) to redeem the lot which the
Doromals paid P115,250 for. Doromals refused.
Issue: WON Javellana has right to redeem the land
(Yes)
Ratio: Court held that Javellana still has the right to
redeem the land for the price stated in the contract. The
time that the 30-day period in Art. 1619 starts to run is

82

the receipt of the written notice of the actual execution


and the delivery of the deed of sale, not the mere
intention to sell. Since Javellana did NOT receive the
notice, she still has the right to redeem. The law also
says that redemption shall be made upon the same
terms and conditions stipulated in the contract; therefore,
Javellana may validly redeem the land for 30k.

one hectare, is alienated, unless the grantee


does not own any rural land.

2. Instances of legal redemption

If two or more adjoining owners desire to


exercise the right of redemption at the same
time, the owner of the adjoining land of smaller
area shall be preferred; and should both lands
have the same area, the one who first requested
the redemption. (1523a)

This right is not applicable to adjacent lands


which are separated by brooks, drains, ravines,
roads and other apparent servitudes for the
benefit of other estates.

a. New Civil Code


1. Co-owners
Art. 1620. A co-owner of a thing may exercise the right
of redemption in case the shares of all the other coowners or of any of them, are sold to a third person. If
the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.

3.2 Urban land


Art. 1622. Whenever a piece of urban land
which is so small and so situated that a major
portion thereof cannot be used for any practical
purpose within a reasonable time, having been
bought merely for speculation, is about to be resold, the owner of any adjoining land has a right
of pre-emption at a reasonable price.

Should two or more co-owners desire to exercise the


right of redemption, they may only do so in proportion to
the share they may respectively have in the thing owned
in common. (1522a)
When the right may be exercised: when a share of a coowner is sold to a third person, who is a stranger.

If the re-sale has been perfected, the owner of


the adjoining land shall have a right of
redemption, also at a reasonable price.

Thrust of the law: to reduce the number of co-owners


until the community is done away with.
When the right is not available
a. Where the share of the co-owner is sold to
another co-owner
b. Where the share of a co-owner was merely
mortgaged
Should two or more co-owners desire to exercise the
right, they may only do so in proportion to the share they
may respectively have in the thing owned in common.
2. Co-heirs
Art. 1088. Should any of the heirs sell his hereditary
rights to a stranger before the partition, any or all of the
co-heirs may be subrogated to the rights of the
purchaser by reimbursing him for the price of the sale,
provided they do so within the period of one month from
the time they were notified in writing of the sale by the
vendor. (1067a)

3. Adjoining landowners
The law distinguishes between rural and urban
lands. The distinction is based on the character of
the community or vicinity in which it is found. This is
to encourage the maximum development and
utilization of lands.
3.1 Rural land
Art. 1621. The owners of adjoining lands shall
also have the right of redemption when a piece
of rural land, the area of which does not exceed

When two or more owners of adjoining lands


wish to exercise the right of pre-emption or
redemption, the owner whose intended use of
the land in question appears best justified shall
be preferred. (n)
Ortega v. Orcine
Facts: Ortega wanted to exercise his right of legal
redemption under Art. 1622 with regard to urban land
adjacent to his own land which was, at that time, being
occupied and used as a school. Subject land belonged
to Esplana, after the latter purchased it from Orcine.
Issue: WON Ortega can exercise his right to legal
redemption under Art. 1622 (No)
Ratio: He could not redeem the land because the case
did not satisfy the requirements of Art. 1622. Court
already emphasized in previous cases that an owner of
urban land may not redeem an adjoining urban property
where he does not allege in his complaint, much less
prove at the trial, that the latter is so small and so
situated that a major portion thereof cannot be used for
any practical purpose within a reasonable time.
b. Under Public Land Act
CA 141 sec. 118: Every conveyance of land
acquired under a free patent or homestead,
when proper, shall be subject to repurchase by
the applicant, his widow or legal heirs within 5
years from the date of conveyance.
c.

Special Laws
a. Under Extrajudicial Foreclosure Act 3175
sec. 6

83

In extrajudicial foreclosure of mortgage,


the debtor, his successors-in-interest,
any judicial or judgment creditor of said
debtor, or any junior encumbrancer may
redeem the property within 1 year from
the date of the sale.

b. Under Agrarian Land Reform Code RA


6389 sec. 12
o In case the landholding is sold to a third
person without the knowledge of the
agricultural lessee, the latter shall have
the right to redeem the same at a
reasonable price and consideration;
Provided, That the entire landholding
sold must be redeemed: Provided,
further, That where there are two or
more agricultural lessees, each shall be
entitled to said right of redemption only
to the extent of the area actually
cultivated by him. The right of
redemption under this Section may be
exercised within two years from the
registration of the sale, and shall have
priority over any other right of legal
redemption.

XV. BULK SALES LAW


ACT NO. 3952. An act to regulate the sale, transfer,
mortgage or assignment of goods, wares,
merchandise, provisions or materials, in bulk, and
prescribing penalties for the violation of the
provisions thereof.
Sec 1. This Act shall be known as "The Bulk Sales
Law."
Sec. 2. Sale and transfer in bulk. Any sale, transfer,
mortgage or assignment of a stock of goods, wares,
merchandise, provisions, or materials otherwise than in
the ordinary course of trade and the regular prosecution
of the business of the vendor, mortgagor, transferor, or
assignor, or sale, transfer, mortgage or assignment of
all, or substantially all, of the business or trade
theretofore conducted by the vendor, mortgagor,
transferor, or assignor, or of all, or substantially all, of the
fixtures and equipment used in and about the business
of the vendor, mortgagor, transferor, or assignor, shall
be deemed to be a sale and transfer in bulk, in
contemplation of this Act: Provided, however, That if
such vendor, mortgagor, transferor or assignor,
produces and delivers a written waiver of the provisions
of this Act from his creditors as shown by verified
statements, then, and in that case, the provisions of this
section shall not apply.
Sec. 3. Statement of creditors. It shall be the duty of
every person who shall sell, mortgage, transfer, or

assign any stock of goods, wares, merchandise,


provisions or materials in bulk, for cash or on credit,
before receiving from the vendee, mortgagee, or his, or
its agent or representative any part of the purchase price
thereof, or any promissory note, memorandum, or other
evidence therefor, to deliver to such vendee, mortgagee,
or agent, or if the vendee, mortgagee, or agent be a
corporation, then to the president, vice-president,
treasurer, secretary or manager of said corporation, or, if
such vendee or mortgagee be a partnership firm, then to
a member thereof, a written statement, sworn to
substantially as hereinafter provided, of the names and
addresses of all creditors to whom said vendor or
mortgagor may be indebted, together with the amount of
indebtedness due or owing, or to become due or owing
by said vendor or mortgagor to each of said creditors,
which statement shall be verified by an oath to the
following effect:
PHILIPPINE ISLANDS
PROVINCE OR CITY OF
_________________}
Before me, the undersigned authority, personally
appeared __________________ (vendor, mortgagor,
agent or representative, as the case may be), bearing
cedula No. ____________ issued at ___________ on
the day of _____________ who, by me being first duly
sworn, upon his oath, deposes and states that the
foregoing statement contains the names of all of the
creditors of ________________ (vendor, or mortgagor)
together with their addresses, and that the amount set
opposite each of said respective names, is the amount
now due and owing, and which shall become due and
owing by _____________ (vendor or mortgagor) to such
creditors, and that there are no creditors holding claims
due or which shall become due, for or on account of
goods, wares, merchandise, provisions or materials
purchased upon credit or on account of money
borrowed, to carry on the business of which said goods,
wares, merchandise, provisions or materials are a part,
other than as set forth in said statement.
______________________
Subscribed and sworn to before me this __________
day of _________, 19____, at _____________.
Sec. 4. Fraudulent and void sale, transfer or mortgage.
Whenever any person shall sell, mortgage, transfer,
or assign any stock of goods, wares, merchandise,
provisions or materials, in bulk, for cash or on credit, and
shall receive any part of the purchase price, or any
promissory note, or other evidence of indebtedness for
said purchase price or advance upon mortgage, without
having first delivered to the vendee or mortgagee or to
his or its agent or representative, the sworn statement
provided for in section three hereof, and without applying
the purchase or mortgage money of the said property to
the pro rata payment of the bona fide claim or claims of
the creditors of the vendor or mortgagor, as shown upon
such sworn statement, he shall be deemed to have
violated this Act, and any such sale, transfer or
mortgage shall be fraudulent and void.

84

Sec. 5. Inventory. It shall be the duty of every


vendor, transferor, mortgagor, or assignor, at least ten
days before the sale, transfer or execution of a mortgage
upon any stock of goods, wares, merchandise,
provisions or materials, in bulk, to make a full detailed
inventory thereof and to preserve the same showing the
quantity and, so far as is possible with the exercise of
reasonable diligence, the cost price to the vendor,
transferor, mortgagor or assignor of each article to be
included in the sale, transfer or mortgage, and notify
every creditor whose name and address is set forth in
the verified statement of the vendor, transferor,
mortgagor, or assignor, at least ten days before
transferring possession thereof, personally or by
registered mail, of the price, terms conditions of the sale,
transfer, mortgage, or assignment.
Sec. 6. Any vendor, transferor, mortgagor or assignor of
any stock of goods, wares, merchandise, provisions or
materials, in bulk, or any person acting for, or on behalf
of any such vendor, transferor, mortgagor, or assignor,
who shall knowingly or willfully make, or deliver or cause
to be made or delivered, a statement, as provided for in
section three hereof, which shall not include the names
of all such creditors, with the correct amount due and to
become due to each of them, or shall contain any false
or untrue statement, shall be deemed to have violated
the provisions of this Act.
Sec. 7. It shall be unlawful for any person, firm or
corporation, as owner of any stock of goods, wares,
merchandise, provisions or materials, in bulk, to transfer
title to the same without consideration or for a nominal
consideration only.
Sec. 8. Nothing in this Act contained shall apply to
executors, administrators, receivers, assignees in
insolvency, or public officers, acting under judicial
process.
Sec. 9. The sworn statement containing the names and
addresses of all creditors of the vendor or mortgagor
provided for in section three of this Act, shall be
registered in the Bureau of Commerce. For the
registration of each such sworn statement a fee of five
pesos shall be charged to the vendor or mortgagor of the
stock of goods, wares, merchandise, provisions or
materials, in bulk.
Sec. 10. The provisions of this Act shall be administered
by the Director of the Bureau of Commerce and Industry,
who is hereby empowered, with the approval of the
Department Head, to prescribe and adopt from time to
time such rules and regulations as may be deemed
necessary for the proper and efficient enforcement of the
provisions of this Act.
Sec. 11. Any person violating any provision of this Act
shall, upon conviction thereof, be punished by
imprisonment not less than six months, nor more than
five years, or fined in sum not exceeding five thousand

pesos, or both such imprisonment and fine, in the


discretion of the court.
Sec. 12. This Act shall take effect on its approval.

RA 3952

Sec. 2. Any sale, transfer, mortgage or assignment of a


stock of goods, wares, merchandise, provisions, or
materials otherwise than in the ordinary course of trade
and the regular prosecution of the business of the
vendor, mortgagor, transferor, or assignor, or any sale,
transfer, mortgage or assignment of all, or substantially
all, of the business or trade theretofore conducted by the
vendor, mortgagor, transferor, or assignor, or of all, or
substantially all, of the fixtures and equipment used in
and about the business of the vendor, mortgagor,
transferor or assignor, shall be deemed to be a sale and
transfer in bulk, in contemplation of this Act: Provided,
however, that if such vendor, mortgagor, transferor or
assignor produces and delivers a written waiver of the
provisions of this Act from his creditors as shown by
verified statements, then, and in that case, the
provisions of this section shall not apply.
Thrust of the law: to protect persons who extended credit
to merchants, relying on the fact that their stock of
merchandise was not to be sold in bulk, but kept up and
replenished from time to time (with the extension of
credit comes the presupposition of continuance in the
business of merchandising)
A. SCOPE
The Law covers all transactions, whether done in
good faith or not, that fall within the description
of what is bulk sale
People v. Wong
Facts: Wong owed Ocampo over P2000 for rental of
the lands, which he failed to pay, despite demands. Lim
Guan offered to buy Wongs shop, Ocampo had his
lawyer prepare the deed of sale, which Wong signed.
Ocampo received the P2500 from the sale and applied it
as payment for the rentals in arrears. Wong was also
indebted to Shurdut Mills Supply Co., Inc.. A complaint
was filed to recover that amount, and judgment was
obtained against Wong. When a representative of the
Company went to the shop to demand payment, the
shop had already been sold to Lim Guan.
Issue: WON Wong violated Section 3 of the Bulk Sales
Law (NO)
Ratio: Wong was pressed to sign the deed of sale by his
creditor Ocampo. With threats of closing the shop and
court action for eviction, the accused was practically
forced into signing the deed of sale. However, if he
hadnt been forced to sign the deed, he still would not be
criminally liable. Act No. 3925 is penal in nature and
should be construed strictly against the State. The object
of sale was not covered by the provision. What was sold
was the shop itself, together with the goodwill, credits,
equipment, tools, machineries, which are not the stock of

85

merchandise, goods, wares, provisions or materials in


bulk contemplated in the provision.
Based on some American cases:
o Merchandise: Something that is sold everyday, and
is constantly going out of the store and being
replaced by other goods; must be construed to
mean such things as are usually bought and sold in
trade by merchants
o Stock: The common use of the term stock when
applied to goods in a mercantile house refers to
those which are kept for sale.
o Foundry shop, which does not sell merchandise, is
not included in said law.
B. COVERAGE OF BULK SALES
Types of transactions covered
1. any sale, transfer, mortgage or assignment of a
stock of goods, wares, merchandise, provisions
or materials otherwise than in the ordinary
course of trade and the regular prosecution of
the business
2. any sale, transfer, mortgage or assignment of
all, or substantially all, of the business or trade
theretofore conducted by the vendor, etc.
3. any sale, transfer, mortgage or assignment of
all, or substantially all, of the fixtures and
equipment used in and about the business of the
vendor, etc.
Stock common use when applied to goods in a
mercantile house refers to those which are kept for sale
C. COMPLIANCE REQUIREMENTS
a) delivery of the list of creditors to the vendee or
mortgagee before receiving the consideration
b) application of the consideration to the pro-rata
payment of the claims of creditors appearing in the list
c) preparation of a full, detailed inventory of the goods
sold or mortgaged
d) notification to creditors at least 10 days before
delivery
D. EFFECTS OF NON-COMPLIANCE
a) If the purchase or mortgage money is not applied prorata to the payment of the bona fide claims of the
creditors of the vendor/mortgagor, the sale, transfer, or
mortgage shall be fraudulent and void.
b) The law penalizes any intentional omission of the
names of the creditors in the required list, with the
correct amount due or to become due, or any false or
untrue statement therein. The law also penalizes any

transfer of title in bulk, without consideration or for a


nominal consideration only
PENALTY: 6 months 5 years imprisonment; fine of <
P5,000; or both; penalty imposable to the debtor
People v. Mapoy
Facts: Mapoy and Maipid mortgaged all of their stock of
goods, without giving notice to one of their creditors,
Daido Boeki Kaisha, Ltd. They were subsequently
charged with violation of the Bulk Sales Law. They
pleaded guilty.
Issue: WON Mapoy and Maipids indebtedness is a
liability arising from the crime charged, thus making
them liable to pay indemnity to Daido Boeki Kaisha, with
subsidiary imprisonment in case of insolvency (NO)
Ratio: Mapoy and Maipids obligation to pay Daido
Boeki Kaisha Php2,568.85, which was already existing
when the mortgage was signed, was NOT the result of
the violation of the Bulk Sales Law, nor was it affected
by said violation. But even if the mortgage was
fraudulent and void, and theres no proof that the
mortgaged goods have disappeared, the same are still
subject to attachment for the satisfaction of creditors
lawful claims against Mapoy and Maipid. Daido Boeki
Kaisha may still bring a separate civil action against
Mapoy and Maipid for the collection of any indebtedness
that may be due from them, and if the latter will not pay
the judgment in such civil case, the goods involved in the
instant case may be seized and sold.

XVI. RETAIL TRADE


LIBERALIZATION ACT
RA 8762.
An act liberalizing the retail trade
business, repealing for the purpose RA 1180, as
amended, and for other purposes.
Sec. 1. Title. - This Act shall be known as the "Retail
Trade
Liberalization
Act
of
2000."
Sec. 2. Declaration of Policy. - It is the policy of the State
to promote consumer welfare in attracting, promoting
and welcoming productive investments that will bring
down prices for the Filipino consumer, create more jobs,
promote tourism, assist small manufacturers, stimulate
economic growth and enable Philippine goods and
services to become globally competitive through the
liberalization of the retail trade sector.
Pursuant to this policy, the Philippine retail industry is
hereby liberalized to encourage Filipino and foreign
investors to forge an efficient and competitive retail trade
sector in the interest of empowering the Filipino
consumer through lower prices, higher quality if goods,
better
services
and
wider
choices.

86

Sec. 3. Definition. - As used in this Act:


(1) "Retail Trade" shall mean any act, occupation or
calling of habitually selling direct to the general public
merchandise, commodities or goods for consumption,
but the restriction of this law shall not apply to the
following:
(a) Sales by a manufacturer, processor, laborer, or
worker, to the general public the products manufactured,
processed or produced by him if his capital does not
exceed One Hundred Thousand Pesos (P100,000.00);
(b) Sales by a farmer or agriculturist selling the products
of his farm;
(c) Sales in restaurant operations by a hotel owner or
inn-keeper irrespective of the amount of capital:
Provided, that the restaurant is incidental to the hotel
business; and
(d) Sales which are limited only to products
manufactured, processed or assembled by a
manufacturer through a single outlet, irrespective of
capitalization.
(2) "High-end or luxury goods" shall refer to goods which
are not necessary for life maintenance and whose
demand is generated in large part by the highest income
groups. Luxury goods shall include, but are not limited
to, products such as: jewelry, branded or designer
clothing and footwear, wearing apparel, leisure and
sporting goods, electronics and other personal effects.
Sec. 4. Treatment of Natural-Born Citizen Who Has Lost
His Philippine Citizenship. - A natural-born citizen of the
Philippines who has lost his Philippine citizenship but
who resides in the Philippines shall be granted the same
rights as Filipino citizens for purposes of this Act.
Sec. 5. Foreign Equity Participation. - Foreign-owned
partnerships, associations and corporations formed and
organized under the laws of the Philippines may, upon
registration with the Securities and Exchange
Commission (SEC) and the Department of Trade and
Industry (DTI) or in case of foreign-owned single
proprietorships, with the DTI, engage or invest in the
retail trade business, subject to the following categories:
Category A - Enterprises with paid-up capital of the
equivalent in Philippine Pesos of less than Two Million
Five Hundred Thousand US Dollars (US$2,500,000.00)
shall be reserved exclusively for Filipino citizens and
corporations wholly-owned by Filipino citizens.
Category B - Enterprises with a minimum paid-up capital
of the equivalent in Philippine Pesos of Two Million Five
Hundred Thousand US Dollars (US$2,500,000.00) may
be wholly owned by foreigners except for the first two (2)
years after the effectivity of this Act wherein foreign
participation shall be limited to not more than (60%) of

total

equity.

Category C - Enterprises with a paid-up capital of the


equivalent in Philippine Pesos of Seven Million Five
Hundred Thousand US Dollars (US$7,500,000.00) or
more maybe wholly owned by foreigners: Provided,
however, that in no case shall the investments for
establishing a store in Categories B and C be less than
the equivalent in Philippine Pesos of Eight Hundred
Thirty Thousand US Dollars (US$830,000.00).
Category D - Enterprises specializing in high-end or
luxury products with a paid up capital of the equivalent in
Philippine Pesos of Two Hundred Fifty Thousand US
Dollars (US$250,000.00) per store may be wholly-owned
by foreigners.
The foreign investor shall be required to maintain in the
Philippines, the full amount of the prescribed minimum
capital. Unless the foreign investor has notified the SEC
and the DTI of its intention to repatriate its capital and
cease operations in the Philippines. The actual use in
Philippine operations of the inwardly remitted minimum
capital requirements shall be monitored by the SEC.
Failure retail stores shall secure a certification from the
Bangko Sentral ng Pilipinas (BSP) and the DTI, which
will verify or confirm inward remittance of the minimum
required
capital
investment.
Sec. 6. Foreign Investors Acquiring Shares of Stock of
Local Retailers. - Foreign Investors acquiring shares
from existing retail stores whether or not publicly listed
whose net worth is in excess of the peso equivalent of
Two Million Five Hundred Thousand US Dollars
(US$2,500,000.00) may purchase only up to a minimum
of sixty percent (60%) of the equity thereof within the first
two (2) years from the effectivity of this Act and
thereafter, they may acquire the remaining percentage
consistent with the allowable foreign participation as
herein provided.
Sec. 7. Public Offering of Shares of Stock. - All retail
trade enterprises under Categories B and C in which
foreign ownership exceeds eighty percent (80%) of
equity shall offer a minimum of thirty percent (30%) of
their equity to the public through any stock exchange in
the Philippines within eight (8) years from their start of
operations.
Sec. 8. Qualifications of Foreign Retailers. - No foreign
retailer shall be allowed to engage in retail trade in the
Philippines unless all the following qualifications are met:
(a) A minimum of Two Hundred Million US Dollars
(US$200,000,000.00) net worth in its parent corporation
for Categories B and C, and Fifty Million US Dollars
(US$50,000,000.00) net worth in its parent corporation
for
Category
D;
(b) Five (5) retailing branches or franchises in operation
anywhere around the world unless such retailers has at

87

least one (1) store capitalized at a minimum of TwentyFive


Million
US
Dollars
(US$25,000,000.00);

(P1,000,000.00) but not more than Twenty Million Pesos


(P20,000,000.00).

(c)

In the case of associations, partnerships or corporations,


the penalty shall be imposed upon its partners,
president, directors, managers and other officers
responsible for the violation. If the offender is not a
citizen of the Philippines, he shall be deported
immediately after service of sentence. If the Filipino
offender is a public officer or employee, he shall, in
addition to the penalty prescribed herein, suffer
dismissal and permanent disqualification from public
office.

Five

(5)-year

track

record

in

retailing;

and

(d) Only nationals from, or judicial entities formed or


incorporated in, countries which allow the entry of
Filipino retailers, shall be allowed to engage in retail
trade in the Philippines.
The DTI is hereby authorized to pre-qualify all foreign
retailers, subject to the provisions of this Act, before they
are allowed to conduct business in the Philippines.
The DTI shall keep a record of qualified foreign retailers
who may, upon compliance with law, establish retail
stores in the Philippines. It shall ensure that the parent
retail trading company of the foreign investor complies
with the qualifications on capitalization and track record
prescribed
in
this
section.
The Inter-Agency Committee on Tariff and Related
Matters of the National Economic Development Authority
(NEDA) Board shall formulate and regularly update a list
of foreign retailers of high-end or luxury goods and
render an annual report on the same to Congress.
Sec. 9. Promotional of Locally Manufactured Products. For ten (10) years after the effectivity of this Act, at least
thirty percent (30%) of the aggregate cost of the stock
inventory of foreign retailers falling under Categories B
and C and ten percent (10%) for Category D, shall be
made in the Philippines.
Sec. 10. Prohibited Activities of Qualified Foreign
Retailers. - Qualified foreign retailers shall not be
allowed to engage in certain retailing activities outside
their accredited stores through the use of mobile or
rolling stores or carts, the use of sales representatives,
door-to-door selling, restaurants and sari-sari stores and
such other similar retailing activities: Provided, that a
detailed list of prohibited activities shall hereafter be
formulated
by
the
DTI.
Sec. 11. Implementing Agency; Rules and Regulations. The monitoring and regulation of foreign sole
proprietorships,
partnerships,
associations
or
corporations allowed to engage in retail trade shall be
the responsibility of the DTI. This shall include resolution
of
conflicts.
The DTI, in coordination with the SEC, the NEDA and
the BSP, shall formulate and issue the implementing
rules and regulations necessary to implement this Act
within
ninety
(90)
days
after
its
approval.
Sec. 12. Penalty Clause. - Any person who shall be
found guilty of violation of any provision of this Act shall
be punished by imprisonment of not less than six (6)
years and one (1) day but not more than eight (8) years,
and a fine of not less than One Million Pesos

Sec. 13. Repealing Clause. - Republic Act No. 1180, as


amended, is hereby repealed. Republic Act No. 3018,
as amended, and all other laws, executive orders, rules
and regulations or parts thereof inconsistent with this Act
are
repealed
or
modified
accordingly.
Sec. 14. Separability Clause. - If any provision of this Act
shall be held unconstitutional, the other provisions not
otherwise affected thereby shall remain in force and
effect.
Sec. 15. Effectivity. - This Act shall take effect fifteen
(15) days after its approval and publication in at least
two (2) newspapers of general circulation in the
Philippines.
A. CONSTITUTIONALITY
Inchong v. Hernandez
Facts: Congress passed RA 1180 which contains a
prohibition against non Filipinos, and associations,
partnerships, or corporations which are not wholly
owned by Filipinos from engaging in retail trade
business.
Issue: Whether or Not Republic Act 1180 is a valid
exercise of police power (YES)
Ratio: RA 1180 was enacted to remedyan actual threat
tro national economy. Between the constitutional
convention year (1935), when the fear of alien
domination and control of the retail trade were present,
and the year of the enactment of the nationalization of
the retail trade act (1954), official statistics unmistakably
point out to the ever-increasing dominance and control
by the alien of the retail trade. As observed by
respondents, the native investment is thinly spread, and
the Filipino retailer is practically helpless in matters of
capital, credit, price and supply.
B. SCOPE AND DEFINITION OF RETAIL TRADE
Retail Trade any act, occupation or calling of habitually
selling direct to the general public merchandise,
commodities or goods for consumption
EXCEPT:

88

c.

1. sales by a manufacturer, processor, laborer or


worker of products made by him if his capital is
less than or equal to 100,000 pesos
2. sales by a farmer or agriculturist of the products
of his farm
3. sales limited only to products manufactured,
processed or assembled by the manufacturer in
a single outlet irrespective of capitalization
a) General public : activities of seller must be such that
the target clientele are not only a particular person or
group of persons.
b) SEC Opinion No. 11, series of 2003: Engaging in the
selling of merchandise as an incident to the primary
purpose of a corporation does not constitute retail trade
(e.g., operation of pharmacy by a hospital) within the
purview of the Act (Villanueva)
King v. Hernandez
Facts: King bought a business and retained three
Chinese employees who were hired by the previous
owner. He asked for permission from the President, as
required by law, to continue employing them. This was
denied because the Secretary of Commerce considered
this banned by the Anti-Dummy Law and the Retail
Trade Law.
Issue: WON the employment of aliens in non-control
positions in a retail establishment or trade prohibited by
the Anti-Dummy Law (YES)
Ratio: the positions the three occupied [salesmen and a
purchaser] fell under the prohibitions of the two laws.
The SC ruled that the two laws work to prevent the
deadly stranglehold that aliens have over our economic
life and the prohibitions cover ownership and the range
of employment, both control or non-control positions.
There is no distinction between control and non-control
positions with respect to employment of aliens. The
Retail Trade Law read in connection with the AntiDummy Act seeks a complete ban on aliens.
C. ELEMENTS

a. The seller habitually engages in selling;


b. The sale is direct to the general public; and
c. The object of the sale is limited to merchandise,
commodities or goods for consumption.
D. APPLICATION OF THE GRANDFATHER RULE ON
100% FILIPINO OWNERSHIP OF CORPORATE
ENTITY
General Rule: After 1964, only Filipinos or corporations
whose capital is 100% Filipino may engage in retail
trade.
Exceptions, that is, instances when aliens may engage
in retail trade in the Philippines:
a. manufacturer or processor if capital does not
exceed P5,000.00;
b. farmer or agriculturist when selling his products;

d.
e.

manufacturer or processor selling to industrial or


commercial users or consumers who use the
produce to render service to the general public
or to produce or manufacture goods which are
sold by them to the public;
hotel owners or keepers of restaurants included
or incidental to the hotel business;
sale by a manufacturer or processor to the
Government
or
its
agencies,
including
government owned and controlled corporations

Rights Of Former Natural-Born Filipinos


Natural-born Filipinos who have lost their citizenship but
who reside in the Philippines shall be given the same
rights as Filipino citizens with respect to this law.
E. ANTI-DUMMY ACT

Penalizes Filipinos who permit aliens to use them as


nominees or dummies to enjoy privileges reserved
only for Filipinos
Management, operation as officers, employees or
laborers
Control or non-control position

CA 108 (Anti-Dummy Act). An act to punish acts of


evasion of the laws on the nationalization of certain
rights, franchises or privileges.
Sec. 1. Penalty In all cases in which any
constitutional or legal provisions requires Philippine or
any other specific citizenship as a requisite for the
exercise or enjoyment of a right, franchise or privilege,
any citizen of the Philippines or of any other specific
country who allows his name or citizenship to be used
for the purpose of evading such provision, and any alien
or foreigner profiting thereby, shall be punished by
imprisonment for not less than five nor more than fifteen
years, and by a fine of not less than the value of the right
franchise or privilege, which is enjoyed or acquired in
violation of the provisions hereof but in no case less than
P5000.
The fact that the citizen of the Philippines or of any
specific country charged with a violation of this Act had,
at the time of the acquisition of his holdings in the
corporations or associations referred to in section two of
this Act, no real or personal property, credit or other
assets the value of which shall at least be equivalent to
said holdings, shall be evidence of a violation of this
1
Act.
Sec. 2. Simulation of minimum capital stock In all
cases in which a constitutional or legal provision requires
that, in order that a corporation or association may
exercise or enjoy a right, franchise or privilege, not less
than a certain per centum of its capital must be owned
by citizens of the Philippines or of any other specific
country, it shall be unlawful to falsely simulate the
existence of such minimum stock or capital as owned by
such citizens, for the purpose of evading said provision.
The president or managers and directors or trustees of

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corporations or associations convicted of a violation of


this section shall be punished by imprisonment of not
less than five nor more than fifteen years, and by a fine
not less than the value of the right, franchise or privilege,
enjoyed or acquired in violation of the provisions hereof
2
but in no case less than P5000.
Sec. 2-A. Unlawful use, Exploitation or enjoyment
Any person, corporation, or association which, having in
its name or under its control, a right, franchise, privilege,
property or business, the exercise or enjoyment of which
is expressly reserved by the Constitution or the laws to
citizens of the Philippines or of any other specific
country, or to corporations or associations at least sixty
per centum of the capital of which is owned by such
citizens, permits or allows the use, exploitation or
enjoyment thereof by a person, corporation or
association not possessing the requisites prescribed by
a the Constitution or the laws of the Philippines; or
leases, or in any other way, transfers or conveys said
right, franchise, privilege, property or business to a
person, corporation or association not otherwise
qualified under the Constitution, or the provisions of the
existing laws; or in any manner permits or allows any
person, not possessing the qualifications required by the
Constitution, or existing laws to acquire, use, exploit or
enjoy a right, franchise, privilege, property or business,
the exercise and enjoyment of which are expressly
reserved by the Constitution or existing laws to citizens
of the Philippines or of any other specific country, to
intervene in the management, operation, administration
or control thereof, whether as an officer, employee or
laborer therein with or without remuneration except
technical personnel whose employment may be
specifically authorized by the Secretary of Justice, and
any person who knowingly aids, assists or abets in the
planning consummation or perpetration of any of the
acts herein above enumerated shall be punished by
imprisonment for not less than five nor more than fifteen
years and by a fine of not less than the value of the right,
franchise or privilege enjoyed or acquired in violation of
the provisions hereof but in no case less than five
thousand pesos: Provided, however, That the president,
managers or persons in charge of corporations,
associations or partnerships violating the provisions of
this section shall be criminally liable in lieu thereof:
Provided, further, That any person, corporation or
association shall, in addition to the penalty imposed
herein, forfeit such right, franchise, privilege, and the
property or business enjoyed or acquired in violation of
the provisions of this Act: And provided, finally, That the
election of aliens as members of the board of directors
or governing body of corporations or associations
engaging in partially nationalized activities shall be
allowed in proportion to their allowable participation or
3
share in the capital of such entities.
Sec. 2-B. Any violation of the provisions of this Act by
the spouse of any public official, if both live together,
4
shall be cause for the dismissal of such public official.
Sec. 2-C. The exercise, possession or control by a
Filipino citizen having a common-law relationship with an
alien of a right, privilege, property or business, the

exercise or enjoyment of which is expressly reserved by


the Constitution or the laws to citizens of the Philippines,
shall constitute a prima facie evidence of violation of the
5
provisions of Section 2-A hereof.
Sec. 3. Any corporation or association violating any of
the provisions of this Act shall, upon proper court
proceedings, be dissolved.
Sec. 3-A. Reward to informer. In case of conviction
under the provisions of this Act, twenty-five per centum
of any fine imposed shall accrue to the benefit of the
informer who furnishes to the Government original
information leading to said conviction and who shall be
ascertained and named in the judgment of the court. If
the informer is a dummy, who shall voluntarily take the
initiative of reporting to the proper authorities any
violation of the provisions of this Act and assist in the
prosecution, resulting in the conviction of any person or
corporation profiting thereby or involved therein, he shall
be entitled to the reward hereof in the sum equivalent to
twenty-five per centum of the fine actually paid to or
received by the Government, and shall be exempted
from the penal liabilities provided for in this Act. 6
Sec. 4. This Act shall take effect upon its approval.
Approved, October 30, 1936.

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