Professional Documents
Culture Documents
Comments Cases On Sales and Lease EDITED 3.
Comments Cases On Sales and Lease EDITED 3.
Part I
SALES
(Title VI, Arts. 1458-1637)
INTRODUCTION
Governing law.
The provisions of the Code of Commerce relating to sales have
been repealed by the Civil Code. (Art.* 2270[2].) Today, sales are
governed by the provisions of the Civil Code on the subject. (Book
IV, Title VI, Arts. 1458-1637.) The distinction between the so-called
civil sales and commercial sales is eliminated.
The provisions of the Civil Code on Obligations (Title I, Arts.
1156-1304.) and Contracts (Title II, Arts. 1305-1422.) are applica-
ble to the contract of sale, but Articles 1458 to 1637 are special rules
which are peculiar to sales alone.
1
2 SALES
1
The articles mentioned are now Arts. 1462, 1481, 1502, 1507-1520, 1525-1935, re-
spectively, in the new Code.
2
Now, Arts. 1459, 1460, 1461, 1465, 1470, 1471, 1477, 1478, 1492, 1496, 1538, 1541,
1549, 1550, 1551, respectively.
3
Now, Arts. 1466, 1467, respectively.
INTRODUCTION 3
the United States, Arts. 1482 to 1484, 1494, 1496, 1501, 1503, 1514,
1522 to 1526, 1527 to 1540, 1541 to 1543, 1545 to 1555, 1565, 1566,
1567, 1582 to 1585, 1602 to 1608, 1614 to 1617, 1618 to 1619, 16574
x x x.
Many of the original articles were also amended for clarifica-
tion or improvement. (Ibid., p. 141.)
oOo
4
Now, Arts. 1462 to 1464, 1474, 1476, 1481, 1483, 1494, 1502-1506, 1507-1520, 1521-
1523, 1525-1535, 1545, 1546, 1547, 1562-1565, 1582-1586, 1594-1597, 1598-1599, 1637, re-
spectively.
4 SALES
Chapter 1
4
Art. 1458 NATURE AND FORM OF THE CONTRACT 5
ILLUSTRATIVE CASES:
1. Trial Court decided that there was no payment by buyer of
lumber covered by invoices of seller but Court of Appeals held that
1
Obligations are bilateral when both parties are mutually bound to each other. They
are reciprocal when the performance one is designed to be the equivalent and the condi-
tion for the performance of the other. In a contract of sale, in the absence of any stipula-
tion, the obligations of the seller and buyer are reciprocal, the obligation or promise of
each party is the cause or consideration for the obligation or promise by the other. The
reciprocal obligations would normally be, in the case of the buyer, the payment of the
agreed price and in the case of the seller, the fulfillment of certain express warranties.
2
Art. 2010. By an aleatory contract, one of the parties or both reciprocally bind them-
selves to give or to do something in consideration of what the other shall give or do
upon the happening of an event which is uncertain, or which is to occur at an indetermi-
nate time.
6 SALES Art. 1458
rational view that can be taken is that the sale of the ore to B
was a sale on credit, and not an aleatory contract, where the
transferor, S, would assume the risk of not being paid at all by
B. (Gaite vs. Fonacier, 2 SCRA 830 [1961].)
ILLUSTRATIVE CASES:
1. Supposed sale was evidenced by a receipt acknowledging re-
ceipt of P1,000.00.
Facts: B bought on a partial payment of P1,000.00, evidenced
by a receipt, a portion of a subdivision from S, administrator of
the testate estate of his deceased spouse. Subsequently, S was
authorized by the court to sell the subdivision. In the mean-
time, PT Co. became the new administrator. It sold the lot to
another which sale was judicially approved.
B files a complaint which seeks, among other things, for
the quieting of title over the lot in question.
Issue: Was there a valid and enforceable sale to B?
Held: No. An examination of the receipt reveals that the
same can neither be regarded as a contract of sale nor a prom-
3
When a contract of sale is void, the possessor is entitled to keep the fruits during
the period for which he held the property in good faith. Good faith of the possessor
ceases when an action to recover possession of the property is filed against him and he
is served summons therefor. (Development Bank of the Phils. vs. Court of Appeals, 316
SCRA 650 [1999]; see Arts. 526, 528.)
Art. 1458 NATURE AND FORM OF THE CONTRACT 11
has received the purchase price to prove his claim with clear and
convincing evidence. A notarized document is evidence of high
character. (Diaz vs. Court of Appeals, 145 SCRA 346 [1986].)
An action to declare a contract void or inexistent does not
prescribe. (Art. 1410.)
ILLUSTRATIVE CASE:
Spouses exchanged their properties for no par shares of a corpo-
ration as a result of which they gained control of the corporation.
Facts: Spouses H & W, stockholders of DT Corporation, con-
veyed to said DT a parcel of land leased to E, in exchange for
14 SALES Art. 1458
4
Art. 2018. If a contract which purports to be for the delivery of goods, securities or
shares of stock is entered into with the intention that the difference between the price
stipulated and the exchange or market price at the time of the pretended delivery shall
be paid by the loser to the winner, the transaction is null and void. The loser may re-
cover what he has paid.
Art. 1458 NATURE AND FORM OF THE CONTRACT 15
206 [1997]; Luzon Brokerage Co. vs. Maritime Bldg. Co., Inc., 43
SCRA 93 [1972] and 86 SCRA 305 [1978]; Katigbak vs. Court of
Appeals, 4 SCRA 243 [1962]; Lim vs. Court of Appeals, 182 SCRA
564 [1990]; Tuazon vs. Garilao, 152 SCAD 699, 362 SCRA 654
[2001].) There is no actual sale until and unless full payment of
the price is made (see Bowe vs. Court of Appeals, 220 SCRA 158
[1993].) and a contract of sale is entered into to consummate the
sale. If the vendor should eject the vendee for failure to meet the
condition precedent he is enforcing the contract and not rescind-
ing it. Article 11915 is not applicable. A contract to sell is commonly
entered into so as to protect the seller against a buyer who intends
to buy a property in installments by withholding ownership over
the property until the buyer effects full payment therefore. (City
of Cebu vs. Heirs of C. Rubi, 106 SCAD 61, 306 SCRA 408 [1999].)
A stipulation in a contract providing for automatic rescission
upon non-payment of the purchase price within the stipulated
period is valid. (see Art. 1191.) It is in the nature of an agreement
granting a party the right to rescind a contract unilaterally in case
of breach without need of going to court. (Pangilinan vs. Court
of Appeals, 87 SCAD 408, 279 SCRA 590 [1997].)
ILLUSTRATIVE CASES:
1. Vendor sells, transfers, and conveys a land to the vendee
who may sell or assign the land prior to full payment of all
installments.
Facts: The dispositive part of a deed entitled Deed of Sale
of Real Property states: for and in consideration of the sum
of P140,000, payable under the terms and conditions stated in
the foregoing premises, the VENDOR sells, transfers and con-
5
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. 1458 NATURE AND FORM OF THE CONTRACT 19
6
A prior contract to sell made by a decedent during his lifetime prevails over a
subsequent sale made by an administrator without probate court approval. The estate is
bound to convey the property upon full payment of the consideration. (Liu vs. Loy, Jr.,
438 SCRA 244 [2004].)
24 SALES Art. 1458
ILLUSTRATIVE CASE:
Seller of interest in a business claims the profits derived by busi-
ness before the price thereof was fixed by appraisers designated by the
parties in the contract.
Facts: S sold to B his interest in a company, the price to be
ascertained by three (3) appraisers. After six (6) months, the
appraisers rendered their report at which time S signed a docu-
ment whereby he acknowledged receipt of the price arrived at
and relinquished any claim that he had in the business. The
Art. 1459 NATURE AND FORM OF THE CONTRACT 25
guilty; but the innocent one may claim what he has given, and
shall not be bound to comply with his promise.
Art. 1412. If the act in which the unlawful or forbidden
cause consists does not constitute a criminal offense, the fol-
lowing rules shall be observed:
(1) When the fault is on the part of both contracting par-
ties, neither may recover what he has given by virtue of the
contract, or demand the performance of the others undertak-
ing;
(2) When only one of the contracting parties is at fault, he
cannot recover what he has given by reason of the contract, or
ask for the fulfillment of what has been promised him. The
other, who is not at fault, may demand the return of what he
has given without any obligation to comply with his promise.
(2) Rights. All rights which are not intransmissible or per-
sonal may also be the object of sale (Art. 1347.), like the right of
usufruct (Art. 572.), the right of conventional redemption (Art.
1601.), credit (Art. 1624.), etc.
Examples of intransmissible rights are the right to vote, right
to public office, marital and parental rights, etc.
No contract may be entered upon future inheritance except
in cases expressly authorized by law. (Art. 1347, par. 2.) While
services may be the object of a contract (Art. 1347, par. 3.), they
cannot be the object of a contract of sale. (Art. 1458; see Art. 1467.)
7
A sale of land in violation of the constitutional prohibition against the transfer of
lands to aliens (Art. XII, Sec. 7, Constitution.) is void (see Art. 1409[1, 7].) and the seller
or his heirs may recover the property. But where a land is sold to an alien, who later sold
it to a Filipino, the sale to the latter cannot be impugned. (Herrera vs. Tuy Kim Guan, 1
SCRA 406 [1961]; Godinez vs. Fong Pak Luen, 120 SCRA 223 [1983].)
Art. 1459 NATURE AND FORM OF THE CONTRACT 27
House, Inc. vs. Court of Appeals, 69 SCAD 135, 254 SCRA 368
[1996]; Dela Merced vs. GSIS, 154 SCAD 816, 365 SCRA 1 [2001].)
ILLUSTRATIVE CASES:
1. Tobacco factory sold was specifically pointed out. A to-
bacco factory with its contents having been specifically pointed
out by the parties and distinguished from all other tobacco fac-
tories was held sold under a contract which did not provide for
the delivery of the price of the thing until a future time.
(McCullough vs. Aenille Co., 13 Phil. 284 [1909].)
-
2. Payment of price was withheld pending proof by vendor of
his ownership. A sale of a specific house was held perfected
between the vendor and the vendee, although the delivery of
the price was withheld until the necessary documents of own-
ership were prepared by the vendee. (Borromeo vs. Franco, 5 Phil.
49 [1905].)
3. Purchase price agreed upon had not yet been paid. A quan-
tity of hemp delivered by the vendor into the warehouse of the
vendee and thus set apart and distinguished from all other
hemp was held sold, although the purchase price which had
been agreed upon had not yet been paid. (see Tan Leoncio vs. Go
Inqui, 8 Phil. 531 [1907].)
4. Subject matter is sugar of specified quantity and given qual-
ity. A contract whereby a party obligates himself to sell for a
32 SALES Art. 1460
by stating that said lots are the ones needed for the construc-
tion of the City Hall site, avenues and parks according to the
Arellano Plan, the development plan of the city, which was then
in existence.
It was held that the specific mention of some of the lots
plus the statement that the lots object of the sale are the ones
needed, etc., according to the aforementioned plan, sufficiently
provide a basis, as of the time of the execution of the contract,
for rendering determinate said lots without the need of a new
and further agreement of the parties. (Melliza vs. City of Iloilo,
23 SCRA 477 [1968].)
8. Receipt issued stated that the lot being purchased was the
one earlier earmarked for the buyers sister. B presented the fol-
lowing receipt signed by S, seller, as evidence of payment: Re-
ceived from B the sum of P500.00 as additional partial payment
for the lot which is the portion formerly earmarked for T
wherein she already paid the sum of P1,500; hence, by agree-
ment of B and T, who are sisters, the sum of P1,500.00 is ap-
plied as additional payment for and in behalf of B, thereby
making the total payments made by B to said lot in the sum of
P2,000.00. The subject lot is adequately described in the re-
ceipt, or at least can be easily determinable. Any mistake in the
designation of the lot does not vitiate the consent of the parties
or affect the validity and binding effect of the contract of sale.
(David vs. Tiongson, 111 SCAD 242, 313 SCRA 63 [1999].)
9. Sugar quota of certain number of piculs sold without speci-
fication of the land to which it relates. Section 4 of R.A. No. 1825
(An Act to Provide for the Allocation, Reallocation and Admin-
istration of the Absolute Quota of Sugar) reads: The produc-
tion allowance or quota corresponding to each piece of land
under the provisions of this Act shall be deemed to be an im-
provement attaching to the land entitled thereto.
The intangible property that is the sugar quota should be
considered as real property by destination, an improvement
attaching to the land entitled thereto. Sugar quota allocations
do not have existence independently of any particular tract of
land. There can be no sale simply of sugar quota of a certain
number of piculs without specification of the land to which it
34 SALES Art. 1461
thing hoped or expected does not come into existence, unless the
hope or expectancy is vain in which case, the sale is void. (par. 3.)
A plan whereby prizes can be obtained without any additional
consideration (when a product is purchased at the usual price plus
the chance of winning a prize) is not a lottery. (Phil. Refining Co.
vs. Palomar, 148 SCRA 313 [1987].)
EXAMPLES:
(1) S binds himself to sell for a specified price to B a parcel
of land if he wins a case for the recovery of said land pending
in the Supreme Court.
Here, the obligation of S to sell will arise, if the expected
thing, the land, will come into existence, i.e., if he wins the
case.
Before a decision is rendered, there is only the mere hope
or expectancy that the thing will come into existence.
(2) B buys a sweepstakes ticket in the hope of winning a
prize. Here, the object of the contract is the hope itself. The sale
is valid even if B does not win a prize because it is not subject
to the condition that the hope will be fulfilled.
ILLUSTRATIVE CASE:
Buyer executed a surety bond in favor of seller to secure payment
of the balance of purchase price of iron ore, which balance shall be
paid out of amount derived from sale by buyer of the iron ore.
Facts: S embarked upon the exploration and development
of mining claims belonging to B. Later, they executed a docu-
ment wherein S transferred to B all of Ss rights and interest
over the 24,000 tons of iron ore, more or less that S had al-
ready extracted from the mineral claims in consideration of a
down payment of P10,000.00, and the balance of P65,000.00
which will be paid out of the first shipment of iron ore and of
the first amount derived from the local sale of iron ore made
from said claims, which amount was secured by a surety bond
executed by B in favor of S.
No sale of the approximately 24,000 tons of iron ore had
been made nor had the P65,000.00 been paid.
Issue: Is the obligation of B to pay the remaining P65,000.00
subordinated to the sale or shipment of the ore as a condition
precedent?
Held: No. A contract of sale is normally commutative and
onerous (see Art. 1458.): not only does each one of the parties
assume a correlative obligation (the seller to deliver and trans-
fer ownership of the thing sold and the buyer to pay the price),
Art. 1462 NATURE AND FORM OF THE CONTRACT 37
8
Art. 751. Donations cannot comprehend future property. By future property is un-
derstood anything which the donor cannot dispose of at the time of the donation. (635)
Art. 1347. x x x No contract may be entered into upon future inheritance except in
cases expressly authorized by law. x x x.
Arts. 1463-1464 NATURE AND FORM OF THE CONTRACT 39
EXAMPLE:
S is the owner of a parcel of land with an area of 1,000 square
meters. As the sole owner, S can sell to B the entire portion; or
only 500 square meters of the land by metes and bounds in
which case he becomes the sole owner of the remaining 500
meters and B the portion sold; or he may sell an undivided half
of the land without specially designating or identifying the
portion sold, in which case they become co-owners.
As a co-owner, S or B can convey or transfer only the title
pertaining to the undivided half of the land, for vital to the
validity of a contract of sale is that the vendor be the owner of
the thing sold. (Art. 1459.)
9
Art. 493. Each co-owner shall have the full ownership of his part and of the fruits
and benefits pertaining thereto, and he may therefore alienate, assign or mortgage it,
and even substitute another person in its enjoyment, except when personal rights are
involved. But the effect of the alienation or the mortgage, with respect to the co-owners,
shall be limited to the portion which may be allotted to him in the division upon the
termination of the co-ownership. (399)
40 SALES Art. 1464
EXAMPLE:
S owns 1,000 cavans of palay stored in his warehouse. If S
sells to B 250 cavans of such palay which cavans are not segre-
gated from the whole mass, B becomes a co-owner of the said
mass to the extent of 1/4. If the warehouse happens to contain
only 200 cavans, S must deliver the whole 200 cavans and sup-
ply the deficiency of 50 cavans of palay of the same kind and
quality.
In the same example, the number of cavans in the ware-
house may be unknown or undetermined and S may sell only
1/4 share of the contents. The legal effect of such a sale is to
make B a co-owner in that proportion. It is obvious that in such
case, the obligation of the seller to make good the deficiency
will not arise.
EXAMPLES:
(1) S (vendor a retro) sold a parcel of land to B (vendee a
retro) subject to the condition that S can repurchase the prop-
erty within two years from the date of sale. If S exercises the
right to repurchase, then the sale made by B to C before the
lapse of the two (2)-year period falls.
The rule, however, that a vendor cannot transfer to his
vendee a better right than he had himself, suffers an exception
in case of property with Torrens title. (see Hernandez vs.
Katigbak Vda. de Salas, 69 Phil. 748 [1940].)
(2) For failure to pay his debt, the land of S (mortgagor)
was sold to B, the highest bidder and purchaser in an extra-
judicial foreclosure of a real estate mortgage.
Under the law (Act No. 3135, as amended.), the mortgagor
may redeem the property at any time within one year from and
after the date of the registration of the sale. If S redeems the
property, then the sale made to B is extinguished.
10
An agreement that the buyer shall deal exclusively with the products of the seller
a well-known practice in the business world is not inconsistent with the contract
of sale, much less convert it into one of agency; and where the entire control and direc-
tion of the business operation remains with the dealer, the latter cannot be considered a
mere alter ego of the manufacturer. (Asbestos Integrated Manufacturing, Inc. vs. Peralta,
155 SCRA 213 [1987].)
44 SALES Art. 1466
ILLUSTRATIVE CASES:
1. One given exclusive right to sell beds furnished by manu-
facturer, agreed to pay discounted invoice price at a certain period.
Facts: S granted B the exclusive right to sell the formers
beds in Visayas. S was to furnish B with the beds which the
latter might order. The price agreed upon was the invoice price
of the beds in Manila with a discount of from 20% to 25%. Pay-
ment was to be made at the end of sixty days.
Issue: S claimed that the contract was an agency to sell while
B maintained that it was a sale.
Held: The stipulations are precisely the essential features of
a contract of purchase and sale. There was the obligation on
the part of S to supply the beds and on the part of B, to pay
their price.
These features exclude the legal conception of an agency
or order 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, he returns it.
By virtue of the contract between S and B, the latter, on receiv-
ing the beds was necessarily obliged to pay their price within
the terms fixed without any other consideration and regard-
less as to whether he had sold the beds. (Quiroga vs. Parson
Hardware Co., 38 Phil. 501 [1918].)
2. Partial payments were made without mention of goods un-
sold and without stipulation for their return.
Facts: B received from S 350 pairs of shoes, the price of which
is stated as P2,450.00 or P7.00 per pair. B made partial payments
on account thereof.
Issue: On the issue of the nature of the transaction, S claimed
that it was an absolute sale and not a consignment.
Held: The transaction was an absolute sale. In making
said partial payments, B made no mention whatsoever of the
number of shoes sold by him and the number of shoes re-
maining unsold which he should have done had the sale been
on the consignment basis. He merely mentioned the balance
of the purchase price after deducting the several payments
made by him.
Art. 1467 NATURE AND FORM OF THE CONTRACT 45
EXAMPLE:
If B is buying a pair of shoes of a particular style and size
from S which the latter ordinarily manufactures or procures
for the general market but the same is not available, an order
for one would be a contract of sale, since the article would have
existed and been the subject of sale to some other person even
if the order had not been given.
On the other hand, if B places an order for a pair of shoes of
a particular shape because his feet are deformed, the fact that
such kind of shoes is not suitable for sale to others in the ordi-
nary course of the sellers business and is to be manufactured
especially for B and upon his special order, makes the contract
one for a piece of work.
EXAMPLES:
(1) S, a sugar miller, and B, a manufacturer and dealer of
whisky, entered into an agreement whereby S was to deliver
sugar worth P20,000.00 to B who was to give 100 bottles of
whisky worth also P20,000.00. This is a contract of barter.
(2) Suppose at the date of delivery, B had only 25 bottles
of whisky. With the consent of S, S paid the difference of P15,000
in cash. In this case, the contract is still barter. The considera-
tion for the sugar is not cash but the whisky, and the amount of
P15,000.00 paid by B is in consideration for the 75 bottles of
liquor.
(3) Suppose, in the same example, B had no whisky at the
stipulated date of delivery and he paid S P20,000.00 instead of
giving whisky. Did the contract become one of sale? No, be-
cause the payment is in consideration of the value of the whisky,
and not of the sugar. The manifest intention of the parties was
to enter into a contract of barter. But if B had whisky at the date
of delivery and he paid P20,000.00 with the consent of S, the
contract would become one of sale.
(4) Assume now that the contract between S and B was for
S to deliver sugar to B who agreed to give 100 bottles of whisky
or to pay P20,000.00 cash. If B, instead of whisky, paid P20,000.00
cash, it is clear that the resulting contract is that of sale, and not
barter.
(5) If the obligation of B is to deliver 50 bottles of whisky
and pay P10,000.00 cash, or 75 bottles of whisky and P5,000.00
cash, or 25 bottles of whisky and P15,000.00 cash, the transac-
tion shall be considered a barter or sale depending on the mani-
fest intention of the parties. Under Article 1468, if such inten-
tion does not clearly appear, the contract shall be considered a
Art. 1468 NATURE AND FORM OF THE CONTRACT 49
11
What actually takes place in dation in payment is an objective novation of the
obligation where the thing offered as an accepted equivalent of the performance of an
obligation is considered as the purchase price. (see Art. 1291[1], Civil Code.)
50 SALES Art. 1469
EXAMPLE:
S owes B P10,000.00. To pay his debt, S, with the consent of
B, delivers a specific television set. If the value of the television
set, however, is only P8,000.00, S is still liable for P2,000.00 un-
less the parties have considered the conveyance as full pay-
ment.
ILLUSTRATIVE CASES:
1. Price was fixed at 10% below the price in the inventory, at
the invoice price, and in accordance with the price list less 20% dis-
count.
Facts: S sold to B a tobacco and cigarette factory together
with the trademark La Maria Cristina, the stocks of tobacco,
machinery, labels, wrappers, etc. for a sum subject to modifica-
tion, in accordance with the result shown by the inventory to
be drawn up. In this inventory the value of each individual
price of furniture was fixed at 10% below the price in the part-
nership inventory. The value of the tobacco, both in leaf and in
process of manufacture, was fixed at the invoice price.
The value of tobacco made up into cigars was fixed in ac-
cordance with the price list of the company less 20% discount.
Issue: Under the terms of the agreement, may the price of
the property sold be considered certain within the meaning of
the law?
Held: The price may be considered certain. The articles
which were the subject of the sale were definitely and finally
agreed upon. The price for each article was fixed. It is true that
the price of the tobacco, for example, was not stated in pesos
and centavos. But by its terms B agreed to pay therefor the
amount named in the invoices then in existence. The price could
be made certain by a mere reference to these invoices.
(McCullough vs. Aenille & Co., 13 Phil. 258 [1909].)
52 SALES Art. 1469
EXAMPLE:
S sold to B a diamond ring. The determination of the price
was left to C whom the parties thought was a jeweler.
If C acted by mistake, as when he is incompetent to know
the price of the diamond ring, or in bad faith, as when he con-
nived with S, the court may fix the price.
ILLUSTRATIVE CASE:
Price was fixed on the basis of a certain proportion of total net
value of business to be ascertained by appraisers.
54 SALES Art. 1470
ILLUSTRATIVE CASES:
1. Selling price is 1/26 of value of property.
Facts: S sold to B with pacto de retro (right to repurchase) a
land valued at P26,000 for only P1,000.00.
Issue: May the contract be construed as an equitable mort-
gage? (see Arts. 1602, 1603.)
Held: As the price is so grossly inadequate, the contract will
be interpreted to be one of loan with equitable mortgage with
the price paid as principal of said loan and the land given merely
as security. (Aguilar vs. Rubiato, 40 Phil. 570 [1919].)
2. Purchaser of property earned greater profit by its subsequent
resale than that earned by seller by the sale to such purchaser.
Facts: S bought a land for P870.00. One year later, he sold
the same land to B for P1,125.00. Subsequently, B sold 1/20 of
the land for P681.00. S brought action to have the sale annulled,
claiming that the price of the land was so inadequate as to
shock the conscience of men as shown by Bs sale of 1/20 of
the land for more than half of what was paid to S.
Issue: Is the price of P870.00 grossly inadequate?
Held: Having sold the land to B for the sum of P1,125.00
one year after he had purchased it for P870.00 at a profit of
about 28%, S had no ground for complaint. A sale may not be
annulled simply because the purchaser subsequently resold the
property or a part of it at a greater profit than that earned by
his vendor. (Alarcon vs. Kasilag, [C.A.] 40 O.G. [Supp. 11] 203.)
3. Conveyance of property is for P1.00 and other valuable con-
siderations.
Fact: S, for and in consideration of P1.00 and other valu-
able considerations, executed in favor of B then a minor, a
Quitclaim Deed whereby she transferred to B all her rights and
interests in the 1/2 undivided portion of a parcel of land. Later,
S claimed that the deed is null and void as it is equivalent to a
Deed of Donation, acceptance of which by the donee is neces-
sary to give it validity.
lssue: Is the Quitclaim Deed a conveyance of property with
a valid cause or consideration?
Art. 1470 NATURE AND FORM OF THE CONTRACT 57
12
There are three (3) types of sale arising from failure to pay a mortgage debt, namely,
the extra-judicial foreclosure sale, the judicial foreclosure sale, and the ordinary execu-
tion sale. They are governed by three (3) different laws which are, respectively, Act No.
3135, Rule 68, and Rule 39 of the Rules of Court. (Abaca Corporation of the Phils. vs.
Court of Appeals, 81 SCAD 635, 272 SCRA 475 [1997].)
58 SALES Art. 1471
15 Phil. 446 [1910]; Paras vs. Court of Appeals, 91 Phil. 389 [1952];
Cometa vs. Court of Appeals, 143 SCAD 90, 351 SCRA 294 [2001].)
Thus, where a land with an assessed value of more than P60,000.00
was sold for only P867.00, the sale was set aside. (Director of Lands
vs. Abarca, 61 Phil. 70 [1934]; Jalandoni vs. Ledesma, 64 Phil. 1058
[1937].)
Similarly, an execution sale whereby 33 hectares of land were
ceded to the judgment creditor to satisfy a liability for 146 cavans
of palay was held void for inadequacy of price. (Singson vs.
Babida, 79 SCRA 111 [1977].) So, also the price of the sale of prop-
erties at around 10% of their value was held to be grossly inad-
equate. (Provincial Sheriff of Rizal vs. Court of Appeals, 68 SCRA
329 [1975].)
(3) Where seller is given the right to repurchase. The validity
of the sale is not necessarily affected where the law gives to the
owner the right to redeem, as when a sale is made at public auc-
tion, upon the theory that the lesser the price, the easier it is for
the owner to effect the redemption. (De Leon vs. Salvador, 36
SCRA 567 [1970]; Ravanera vs. Imperial, 93 SCRA 589 [1979];
Ramos vs. Pablo, 146 SCRA 24 [1986]; Francia vs. Intermediate
Appellate Court, 162 SCRA 753 [1988]; Abaca Corporation of the
Phils. vs. Garcia, 81 SCAD 635, 272 SCRA 475 [1997].) He may
reacquire the property or also sell his right to redeem and thus
recover the loss he claims he suffered by reason of the price ob-
tained at the execution sale. (Tolentino vs. Agcaoli, [unrep.] 91 Phil.
917 [1952]; Barrozo vs. Macaraeg, 83 Phil. 378 [1949]; Velasquez
vs. Coronel, 5 SCRA 985 [1962]; Dev. Bank of the Phils. vs. Moll,
43 SCRA 82 [1972].)
EXAMPLE:
S sold to B a parcel of land worth P50,000.00 for only
P30,000.00. This contract of sale is valid although the price is
grossly inadequate. However, if it is shown that B induced S to
sell the land through fraud, mistake, or undue influence, the
contract may be annulled on that ground.
If the price is simulated, B may prove another considera-
tion like the liberality of S and if such liberality is proved, then
the contract is valid as a donation; or B may prove that the act
is in reality some other contract, like barter and, therefore, the
transfer of ownership is unaffected.
count together with the many intrinsic defects of the deed of sale,
may, however, show that the price is simulated, making the sale
void. (Lebagela vs. Santiago, 371 SCRA 360 [2001].)
13
If not indicated, the 3rd edition thereof.
Art. 1475 NATURE AND FORM OF THE CONTRACT 63
market there must be both buying and selling; and the market
value is that reasonable sum which property would bring on a
fair sale by a man willing but not obliged to sell to a man willing
but not obliged to buy. (Sedgewick on Damages, Sec. 245, cited
in Compagnie Franco-Indo Chinoise vs. Deutsch-Australiache, 39
Phil. 474 [1919]; Perez vs. Araneta, 6 SCRA 457 [1962].)
14
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.
Art. 1475 NATURE AND FORM OF THE CONTRACT 65
price, the contract became perfected, and when part of the pur-
chase price was paid and the car was delivered, upon the execu-
tion of the promissory note and the mortgage by the mortgagors,
the sale became consummated. The registration of the transfer of
automobiles and of the certificates of license for their use in the
Bureau of Land Transportation merely constitutes an administra-
tive proceeding which does not bear any essential relation to the
contract of sale entered into between the parties. (Montano vs. Lim
Ang, 7 SCRA 250 [1963].)
Registration of motor vehicles is required not because it is the
operative act that transfers ownership in vehicles (as in land reg-
istration cases), but because it is the means to identify the owner
thereof in case of accident so that responsibility for the same can
be fixed. (De Peralta vs. Mangusang, 11 SCRA 598 [1964].)
(8) Non-fulfillment by one party of his obligation. In case one
of the contracting parties should not comply with what is incum-
bent upon him, the injured party may sue for fulfillment or re-
scission with the payment of damages in either case. (Art. 1191,
pars. 1 and 2.) This right is predicated on the violation of the reci-
procity between the parties brought about by a breach of obliga-
tion by one of them.
ILLUSTRATIVE CASES:
1. Purchase order form directed to seller asking delivery of a
piano carries the address of purchaser in Dipolog City while delivery
receipt form directed to purchaser carries address of seller in Cagayan
de Oro City.
Facts: B, an appliance center of Dipolog City, issued a pur-
chase order to S, an appliance center of Cagayan de Oro City,
directing the latter to furnish the former a Weinstein Accousticon
Piano. The order was honored by S, which issued a delivery
receipt for the item. Bs representative received the piano, and
signed the delivery receipt at Cagayan de Oro, and assumed
the responsibility and expenses of bringing it to Dipolog City.
Upon the refusal of B to pay, S filed a complaint for collec-
tion with the City Court of Cagayan de Oro. B filed a motion to
dismiss alleging that there being no written agreement between
the parties specifying where the action arising out of the con-
Art. 1475 NATURE AND FORM OF THE CONTRACT 67
ject of the contract and the price (P100,000), the contract of sale
must be deemed to have been perfected. (Art. 1475.) The terms
and conditions of payment are merely accidental, not essential,
elements of the contract of sale except where the parties them-
selves clearly stipulate that in addition to the subject matter and
the price, they are essential or material to the contract. (see A.
Magsaysay, Inc. vs. Cebu Portland Cement Co., 100 Phil. 351
[1956].) A disagreement on the manner of payment is tantamount
to a failure to agree on the price. (Swedish Match, AB vs. Court of
Appeals, 441 SCRA 1 [2004].)
Article 119715 of our Civil Code authorizes courts to fix the
period or periods of payment where there is lack of agreement
regarding the same.
In Uraca vs. Court of Appeals (86 SCAD 734, 278 SCRA 702
[1997].), S sent a letter to B, offering to sell a lot and commercial
building for P1,050,000. B sent a reply-letter within the 3-day pe-
riod contained in the offer accepting the aforesaid offer. Later, B
was told by S that the price was P1,400,000 in cash or managers
check and not P1,050,000 as erroneously dated in the letter-offer.
B agreed to the price of P1,400,000 but counter-proposed that
payment be paid in installments, with a downpayment of
P1,000,000 and the balance of P400,000 to be paid in 30 days. It
was held that a contract of sale was perfected at the original price
of P1,050,000 but there was no agreement in the sale at the in-
creased price of P1,400,000. The qualified acceptance by B consti-
tutes a counter-offer and, in effect, a rejection of Ss offer. (Art.
1319.) Since there was no definite agreement on the manner of the
payment of the purchase price of P1,400,000, the first sale for
P1,050,000 remained valid and existing.
Although the law does not expressly state that the minds of
the parties must also meet on the terms or manner of payment of
15
Art. 1197. If the obligation does not fix a period, but from its nature and the cir-
cumstances it can be inferred that a period was intended, the courts may fix the dura-
tion thereof.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the circum-
stances have been probably contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them. (1128a)
70 SALES Art. 1475
ILLUSTRATIVE CASE:
The buyer, having failed to open a letter of credit as required by
the seller, claimed that there was no perfected contract of sale between
the parties.
Facts: B (buyer) established contact with S (seller) through
the Philippine Consulate General in Hamburg, West Germany,
because he wanted to purchase MAN bus spare parts from Ger-
many.
On October 16, 1981, B submitted to S a list of the parts he
wanted to purchase, with specific parts number and descrip-
tion. On December 17, 1971, S submitted its formal offer con-
taining the item number, quantity, part number, description,
unit price and total to B. On December 24, 1981, B informed S
of his desire to avail of the prices of the parts at that time and
enclosed its Purchase Order containing the item number, part
number and description. On December 29, 1981, B personally
submitted the quantities he wanted to the General Manager of
S in the Philippines. H, trading partner of S, sent a pro forma
invoice to be used by B in applying for a letter of credit; said
invoice required that said letter be opened in favor of J.
On February 16, 1982, S reminded B to open the letter of
credit to avoid delay in the shipment and payment of interest.
On October 18, 1982, S again reminded B of his order and ad-
vised that the case may be endorsed to its lawyers. B replied that
he did not make any valid Purchase Order and that there was
no definite contract between him and S. Subsequently, S filed a
complaint for recovery of actual or compensatory damages,
unearned profits, interest, attorneys fees and costs against B.
Art. 1475 NATURE AND FORM OF THE CONTRACT 71
ILLUSTRATIVE CASES:
1. Seller is authorized by the contract, in case of buyers de-
fault, to recover interest sold in property which was subsequently
damaged, and buyer defaulted.
Facts: S and B were the co-owners in equal shares of a mo-
tor boat. By written contract, S sold her undivided interest in
the boat to B payable in three (3) equal installments. In case of
default the buyer authorizes the seller to recover her one-half
participation of ownership of the boat without obligation to
reimburse the payments made by the buyer. B defaulted after
P750.00 was paid. Later, the boat was damaged by a typhoon.
S filed action to recover the balance of the purchase price.
B answered that he had notified S to take over her half interest
in the boat, which she refused to do.
Issue: Under the contract, is B relieved of the obligation to
pay the purchase price?
74 SALES Art. 1475
Held: No. The sole fact that the contract of sale between the
parties only provides that in case of default the buyer author-
izes xxx, and is silent on the sellers right to exact payment of
the outstanding balance, there being no other stipulations in-
compatible therewith, does not import that the seller has thereby
lost the alternative right to demand full payment. (see Cui vs.
Sun Chuan, 41 Phil. 523.) This becomes more apparent from the
circumstance that the contract as written confers upon the seller
the right (buyer authorizes the seller) to rescind the sale and
recover her half interest, but does not obligate her to do so.
Since S chose to collect full payment as she is entitled to
do, the loss of the boat without fault of the buyer (B) is irrel-
evant to the case. The generic obligation to pay monthly is not
excused by fortuitous loss of any specific property of the debtor.
(Ramirez vs. Court of Appeals, 98 Phil. 225 [1956].)
2. Subject matter of sale is 24,000 tons of iron ore, more or
less already extracted, for a lump sum, and buyer, refusing to pay,
claims short-delivery and asks for damages.
Facts: S embarked upon the exploration and development
of mining claims belonging to B. Later, they executed a docu-
ment wherein S transferred to B all of Ss rights and interest
over the 24,000 tons of iron ore, more or less that S had al-
ready extracted from the mineral claims in consideration of a
downpayment of P10,000.00 and the balance of P65,000.00
which will be paid out of the first shipment of iron ore and of
the first amount derived from the local sale of iron ore made
from said claims, which amount was secured by a surety bond
executed by B in favor of S.
No sale of the approximately 24,000 tons of iron ore had
been made nor had the P65,000.00 been paid. S brought suit for
the recovery of the balance of the purchase price. B claims a
short delivery, and asks for damages. There is no charge that S
did not deliver to B all the ore found in the stockpiles in the
mining claims in question.
Issue: If there had been short delivery, as claimed by B, is
he entitled to the payment of damages?
Held: No. (1) Contract is sale of specific mass of tangible goods.
The sale between the parties is a sale of specific mass of
fungible goods because no provision was made in their con-
Art. 1476 NATURE AND FORM OF THE CONTRACT 75
is only after the delivery of the thing sold that the purchaser ac-
quires a real right or ownership over it. (Arts. 1164, 1496-1497.)
In the absence of stipulation to the contrary, the ownership of
the thing sold passes on to the vendee upon delivery thereof. (see
Froilan vs. Pan Oriental Shipping Co., 12 SCRA 276 [1964]; Boy vs.
Court of Appeals, 427 SCRA 196 [2004].) This is true even if the
purchase has been made on credit. Payment of the purchase price
is not essential to the transfer of ownership, as long as the prop-
erty sold has been delivered. (Sampaguita Pictures, Inc. vs.
Jalwindor Manufacturers, Inc., 93 SCRA 420 [1979].) Non-payment
only creates a right to demand payment or to rescind the contract,
or to criminal prosecution in the case of bouncing checks. (EDCA
Publishing and Distributing Corp. vs. Santos, 184 SCRA 614
[1990].)
The delivery may be actual (Art. 1497.) or constructive. (Arts.
1498-1501.) The contract is consummated by the delivery of the
thing sold and of the purchase money.
In all forms of delivery, it is necessary that the act of delivery,
whether actual or constructive, should be coupled with the inten-
tion of delivering the thing sold. The act without the intention is
insufficient; there is no tradition. (Union Motor Corporation vs.
Court of Appeals, 151 SCAD 714, 361 SCRA 506 [2001].) It has been
held that the issuance of a sales invoice does not prove transfer
of ownership of the thing sold to the buyer, an invoice being noth-
ing more than a detailed statement of the nature, quantity, and
cost of the thing sold, and considered not a bill of sale. (Ibid., cit-
ing P.T. Cerna Corporation vs. Court of Appeals, 221 SCRA 19
[1993]; Norkis Distributors, Inc. vs. Court of Appeals, 93 SCRA
694 [1991].)
riod may be given to the offeree within which to accept the offer.
(infra.)
EXAMPLE:
S offers or promises to sell to B his car at a stated price and
B just let the promise go by without accepting it. Neither S nor
B is bound by any contract. Obviously, this is not the one con-
templated in Article 1479.
Meaning of option.
An option is a privilege existing in one person for which he
has paid a consideration which gives him the right to buy/sell,
for example, certain merchandise or certain specified property,
from/to another person, if he chooses, at any time within the
agreed period at a fixed price, or under, or in compliance with
certain terms and conditions.
17
In a right of first refusal, while the object might be made determinate, the exercise
of the right would be dependent not only on the grantors eventual intention to enter
into a binding juridical relation with another but also on terms, including the price, that
are yet to be firmed up. (Vasquez vs. Ayala Corporaton, 443 SCRA 218 [2004].)
Art. 1479 NATURE AND FORM OF THE CONTRACT 83
Abalos vs. Macatangay, Jr., 439 SCRA 649 [2004].) The promisee
has the burden of proving such consideration. (see Vasquez vs.
Court of Appeals, 199 SCRA 102 [1991].)
(4) A consideration of an option contract is just as important
as the consideration for any other kind of contract. (see Enriquez
de la Cavada vs. Diaz, 37 Phil. 982 [1918].) An option without
consideration is void; the effect is the same as if there was no
option.
18
An option imposes no binding obligation on the optionee, aside from the consid-
eration for the offer. Until accepted, it is not, properly speaking, treated as a contract.
(Tayag vs. Lacson, 426 SCRA 282 [2004]; Adelfa Properties, Inc. vs. Court of Appeals,
240 SCRA 565 [1995].) When the consideration given, for what otherwise would have
been an option, partakes the nature in reality of a part payment of the purchase price
(termed as earnest money [Art. 1482.] and considered as an initial payment thereof), an
actual contract of sale is deemed entered into and enforceable as such. (Asuncion vs.
Court of Appeals, supra.)
84 SALES Art. 1479
EXAMPLE:
In the preceding example, even if B accepts the promise of
S (this is a case of an accepted unilateral promise to sell), S is
not bound to sell his car to B because there is no promise, in
turn, on the part of B to buy.
However, if the promise is covered by a consideration dis-
tinct from the price of the car, as when B paid or promised to
pay a sum of money to S for giving him the right to buy the car
if he chooses within an agreed period at a fixed price, its accept-
ance produces consent or meeting of the minds. A legally bind-
ing and independent contract of option is deemed perfected.
ILLUSTRATIVE CASE:
Stipulation in mortgage deed gives mortgagees option to pur-
chase mortgaged property within a certain period at an agreed price.
Facts: A provision in a mortgage deed states: That it has
likewise been agreed that if the financial condition of the mort-
gagees will permit, they may purchase said land absolutely on
any date within the two-year term of this mortgage at the agreed
price of P3,900. The mortgagors contend that as such, they
cannot be deprived of the right to redeem the mortgaged prop-
erty because such right is inherent in and inseparable from this
kind of contract.
Issue: Having reasonably advised the mortgagors that they
had decided to buy the land in question pursuant to the
aforequoted provision, are the mortgagees entitled to specific
performance consisting of the execution by the mortgagors of
the corresponding deed of sale?
Held: Yes. The added special provision renders the mortga-
gors right to redeem defeasible at the election of the mortga-
gees. There is nothing illegal or immoral in this. It is simply an
Art. 1479 NATURE AND FORM OF THE CONTRACT 85
19
Consignation is the act of depositing the thing or sum due with the proper court
whenever the creditor cannot accept or refuses to accept payment. It generally requires
a prior tender of payment. Where no debt is due and owing, consignation is not proper.
(see Arts. 1256, 1257, 1258; Legaspi vs. Court of Appeals, 142 SCRA 82 [1986].)
86 SALES Art. 1479
ILLUSTRATIVE CASES:
1. Promissor withdrew an option to sell, which is not supported
by any consideration, after its acceptance by promisee.
Facts: S and B executed an instrument, entitled Option to
Purchase, whereby S agreed, promised, and committed x x x
to sell to B for a certain sum a parcel of land within two (2)
years with the understanding that said option shall be deemed
terminated and elapsed if B shall fail to exercise the right to
buy the property within the stipulated period.
Inasmuch as several tenders of payment made by B were
rejected by S, the former commenced an action for specific per-
formance.
Issue: Can the promissor withdraw an option to sell, after
acceptance, if the option is not supported by any considera-
tion?
20
Article 1324 may be interpreted to refer to a bilateral promise (e.g., to buy and
sell). Hence, the offer (to sell or buy) may not be withdrawn after acceptance of the offer.
The offer may be withdrawn before acceptance since there is no meeting of minds yet,
unless an option supported by a consideration has been granted. A unilateral promise to
sell or buy does not bind the offerer even after acceptance except where the promise is
supported by a consideration distinct from the price.
In Rural Bank of Paraaque vs. Remolado (135 SCRA 409 [1985].), the commitment by
a bank to resell a property within a specified period, although accepted by the party in
whose favor it was made, was considered an option not supported by a consideration
distinct from the price and, therefore, not binding upon the promissor. Lacking such
consideration, the option was held void pursuant to Southwestern Sugar and Molasses Co.
case.
To the same effect is the recent case of Natno vs. Intermediate Appellate Court. (179
SCRA 323 [1991].) Citing Rural Bank of Paraaque, Inc. case, the Supreme Court held that
the promise made by the President of a bank to allow the petitioners to buy (or to re-sell
to them) the foreclosed property (not redeemed since the offer took place after the expi-
ration of the redemption period) at any time they have money is not binding on the
bank because it was a promise unsupported by a consideration distinct from the re-
purchase price.
In Diamante vs. Court of Appeals (206 SCRA 52 [1992].), the Option to Repurchase
executed by the vendee after the sale in favor of the vendor was held merely a promise
to sell governed by Article 1479, sale in the absence of a separate consideration was not
binding upon the promissor (vendee) even if the promise was accepted.
88 SALES Art. 1479
21
In the case of Cronico vs. J.M. Tuazon & Co., Inc. (78 SCRA 331 [1977].), the Supreme
Court said: In order that a unilateral promise may be binding upon a promissor, Article
1479 . . . requires the concurrence of the condition that the promise be supported by a
consideration distinct from the price. To the same effect is Montilla vs. Court of Appeals
(161 SCRA 167 [1988].) and Salame vs. Court of Appeals, 57 SCAD 631, 239 SCRA 356
(1994).
In an earlier case, the Supreme Court, in rejecting the holding of the Court of Ap-
peals, that Isabel Ariolas promise (to sell) does not bind Rowena Teodoro (petitioner)
because it is not supported by a consideration distinct from the price pursuant to Article
1479, held: That consideration is expressed in Exhibit A under which the petitioners
shouldered all rental expenses payable by Ariola for her occupation of the property
(leased and subsequently sold to her by the former owner). This should be distinguished
from a sublease arrangement in which the sublessees responsibility as and for rents
due the lessor is subsidiary. But here, the petitioners bound themselves primarily to
answer for the rents. That is enough consideration to support Ariolas promise. (Teodoro
vs. Court of Appeals, 155 SCRA 547 [1987].)
Art. 1479 NATURE AND FORM OF THE CONTRACT 89
vs. Rigos (45 SCRA 368 [1972].), We held: In other words, since
there may be no valid contract without a cause of considera-
tion, the promissor is not bound by this promise and may ac-
cordingly withdraw it. Pending notice of its withdrawal, his ac-
cepted promise partakes, however, of the nature of an offer to sell which,
if accepted, results in a perfected contract of sale.
(4) Acceptance created a perfected contract of sale. A con-
tract of sale is, under Article 1475 of the Civil Code, 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 mo-
ment, the parties may reciprocally demand performance, sub-
ject to the provisions of the law governing the form of contracts.
Since there was, between the parties, a meeting of minds upon
the object and the price, there was already a perfected contract
of sale. What was, however, left to be done was for either party
to demand from the other their respective undertakings under
the contract. It may be demanded at any time either by the pri-
vate respondents, who may compel the petitioners to pay for
the property or the petitioners, who may compel the private
respondents to deliver the property.
(5) Action to enforce contract had prescribed. However,
the Deed of Option did not provide for the period within which
the parties may demand the performance of their respective
undertakings in the instrument. The parties could not have con-
templated that the delivery of the property and the payment
thereof could be made indefinitely and render uncertain the
status of the land. The failure of either parties to demand per-
formance of the obligation of the other for an unreasonable
length of time renders the contract ineffective.
Under Article 1144(1) of the Civil Code, actions upon a writ-
ten contract must be brought within ten (10) years. The Deed of
Option was executed on November 11, 1971. The acceptance,
as already mentioned, was also accepted in the same instru-
ment. The complaint in this case was filed by the petitioners on
July 13, 1987, seventeen (17) years from the time of the execu-
tion of the contract. Hence, the right of action had prescribed.
(Villamor vs. Court of Appeals, 202 SCRA 607 [1991].)
3. The contract of lease gives the lessee 30-day exclusive option
to purchase the leased premises
Facts: A contract of lease in paragraph 8 provides: x x x
that if the lessor [R] should desire to sell the leased premises,
92 SALES Art. 1479
ter within ten (10) days from 31 July 1978. Respondent spouses
did not sell their property; they did not also agree to sell it; but
they sold something, i.e., the privilege to buy at the election or
option of petitioner. The agreement imposed no binding obli-
gation on petitioner, aside from the consideration for the of-
fer.
(2) Option money. The consideration of P20,000.00 paid
by petitioner to respondent spouses was referred to as earnest
money. However, a careful examination of the words used in-
dicates that the money is not earnest money but option money.
Earnest money and option money are not the same but dis-
tinguished thus: (a) earnest money is part of the purchase price,
while option money is the money given as a distinct considera-
tion for an option contract; (b) earnest money is given only
where there is already a sale, while option money applies to a
sale not yet perfected; and (c) when earnest money is given,
the buyer is bound to pay the balance, while when the would-
be buyer gives option money, he is not required to buy (De Leon,
Comments and Cases on Sales, 1986 Rev. Ed., p. 67.), but may
even forfeit it depending on the terms of the option.
(3) Contents of Receipt. There is nothing in the Receipt
which indicates that the P20,000.00 was part of the purchase
price. Moreover, it was not shown that there was a perfected
sale between the parties where earnest money was given. Fi-
nally, when petitioner gave the earnest money, the Receipt did
not reveal that she was bound to pay the balance of the pur-
chase price. In fact, she could even forfeit the money given if
the terms of the option were not met. Thus, the P20,000.00 could
only be money given as consideration for the option contract.
That the contract between the parties is one of option is but-
tressed by the provision therein that should the transaction of
the property not materialize without fault of petitioner as buyer,
respondent Lorenzo de Vera obligates himself to return the full
amount of P20,000.00 earnest money with option to buy or
forfeit the same on the fault of petitioner. It is further bolstered
by the provision therein that guarantees petitioner that she or
her representative would be notified in case the subject prop-
erty was sold or encumbered to a third person. Finally, the Re-
ceipt provided for a period within which the option to buy was
to be exercised, i.e., within ten (10) days from 31 July 1978.
(4) Absence of acceptance by L. Doubtless, the agreement
between respondent spouses and petitioner was an option con-
Art. 1479 NATURE AND FORM OF THE CONTRACT 101
EXAMPLE:
S promised to sell his car to B and B promised to buy the
said car for P100,000.00. The parties are bound by their con-
tract so that in case one of them should not comply with what
is incumbent upon him, the other has the right to choose be-
tween the fulfillment and the recission of the obligation, with
the payment of damages in either case. (Art. 1191, par. 2.)
ILLUSTRATIVE CASE:
Promissor withdrew an option to sell which is not supported by
any consideration, after its acceptance by promisee.
Facts: S wrote B making a firm offer for the sale at a defi-
nite price of a determinate quantity of sardines. B accepted the
offer unconditionally.
Issue: Is there a perfected contract of sale?
Held: Yes, as the promise is bilateral, i.e., a promise to buy
and sell. Before accepting the promise of S and before exercis-
ing his option, B is not bound to buy. Upon accepting Ss offer,
a bilateral promise to sell and to buy ensues; B assumes ipso
facto the obligations of a purchaser, and not merely the right
subsequently to buy or not to buy. The concurrence of both acts
the offer and the acceptance generates a binding contract
of sale. (see Atkins, Kroll & Co., Inc. vs. Cua Hian Tek, 102 Phil.
948 [1958].)
wholly or partly by fire the loss falls upon the buyer who must
pay the price, even though he has not received the thing. For the
seller is not liable for anything which happens without his fraud
or negligence. But if after the sale any alluvion has accrued to the
land, the benefit goes to the buyer for the benefit ought to belong
to him who has the risk. (Sherman, Inchiridion Romani Juris, Sec.
296.) In other words, the buyer assumes the risk of loss caused by
fortuitous event (Art. 1174.) without the fault of the seller (Art.
1262.), that is, in spite of the exercise of due diligence on his part
(Art. 1163.) and before he has incurred in delay (Arts. 165, 1170,
1262.) after the perfection of the contract to the time of delivery.
(Art. 1480, par. 1.) With respect to the fruits, the buyer has a right
to the same from the time the obligation to deliver the thing arises.
(Art. 1164.) If the risk ought to belong to the buyer before deliv-
ery, the benefit ought to belong to him who has the risk. (see Arts.
1538, 1189[5].)
Article 1480, paragraph 1 is applicable only where the thing
is determinate. (Art. 1460.) It also applies to fungible things sold
for a price not fixed in relation to weight, number, or measure
because in such case the fungible things have been particularly
designated or physically segregated. (Ibid., par. 2.)
Is Article 1480 above in conflict with Article 1504 (infra.)?
(2) The second rule relates to fungible things sold for a price
fixed in relation to weight, number, or measure. Under the third
paragraph, the risk shall not be imputed to the vendee until they
have been weighed, counted, or measured, and delivered. (see U.S.
vs. De Vera, 43 Phil. 1001 [1922].) Paragraph 3 is an exception to
the rule that the vendee bears the loss after the perfection of the
contract and before delivery. However, the vendee assumes the
risk if he has incurred in delay in receiving the goods sold. (North
Negros Sugar Co., Inc. vs. Compania General Tabacos de Filipinas,
100 Phil. 1103 [1957].)
ILLUSTRATIVE CASES:
1. The sugar which the seller intended to deliver was destroyed
by flood.
Facts: B advanced P3,000 to S in payment of 600 piculs of
sugar. The written contract did not specify that the sugar was
106 SALES Art. 1480
ing whether the sellers representations are true or false, but re-
lying on them as true; or, as otherwise stated, where the purchaser
has not seen the article sold and relies on the description given
him by the vendor, or has seen the goods but the want of identity
is not apparent on inspection. (77 C.J.S. 1170.)
The reason for the rule is that a dealer who sells an article
describing it as the kind of an article of commerce the identity of
which is not known to the purchaser, must understand that such
purchaser relies upon the description as a representation by the
seller that it is the thing described. (55 C.J. 739.) If the bulk of the
goods delivered do not correspond with the description, the con-
tract may be rescinded. (Art. 1481.) But if the thing delivered is as
described, the fact that the buyer cannot use the thing sold for the
purpose for which it was intended without the sellers fault does
not exempt the buyer from paying the purchase price agreed
upon. (see Pacific Commercial Co. vs. Ermita Market & Cold
Stores, 55 Phil. 617 [1931].)
(2) Sale by sample. To constitute a sale by sample, it must
appear that the parties contracted solely with reference to the
sample, with the understanding that the bulk was like it. But a
mere exhibition of a sample by the seller in the absence of any
showing that it was an inducement of the sale or formed the sole
basis thereof, does not amount to a sale by sample as where the
quality of the articles to be furnished is expressly described in the
contract without reference to the sample or the parties agree that
the goods ordered shall differ from the sample in some particu-
lar matter. Whether a sale is by sample is determined by the in-
tent of the parties as shown by the terms of the contract and the
circumstances surrounding the transaction. (77 C.J.S. 925.) In a sale
by sample, the vendor warrants that the thing sold and to be de-
livered by him shall conform with the sample in kind, character,
and quality. (77 C.J.S. 1169; see Art. 1565.)
A sale by sample is really a species of sale by description. The
sample is employed instead of words to communicate to the buyer
the characteristics of the goods being sold. It is itself a tacit asser-
tion of the qualities of the bulk it represents.
(3) Sale by description and sample. When a sale is made both
by sample and by description, the goods must satisfy all the
112 SALES Art. 1482
22
Hence, it cannot be forfeited in case the buyer should fail to pay the balance of the
price, especially in the absence of a clear and express agreement thereon. In a case, by
reason of its failure to make payment, petitioner, through its agent, informed private
respondents that it would no longer push through with the sale. In other words, peti-
tioner resorted to extra-judicial rescission of the contract with private respondents who
did not interpose any objection to the rescission. (Golden, Ltd., Inc. vs. Court of Ap-
peals, 299 SCRA 141 [1998].)
Art. 1482 NATURE AND FORM OF THE CONTRACT 113
23
In this article, it is declared that When earnest money or a pledge had been given
to bind a contract of purchase and sale, the contract may be rescinded if the vendee
should be willing to forfeit the earnest money or pledge or the vendor to return double
the amount.
114 SALES Art. 1483
EXAMPLES:
(1) S orally sold to B a parcel of land. The sale is valid (Art.
1356; Lopez vs. Alvarez, 9 Phil. 28 [1907]; Guerrero vs. Raquel,
10 Phil. 52 [1908].) but it is unenforceable because the law re-
quires that it be in writing to be enforceable. (Art. 1403[e].)
(2) If the contract of sale above is in private writing, then
it is valid and binding but only as between the parties and their
privies (Soriano vs. Latoo, 87 Phil. 757 [1950]; Gallar vs.
Husain, supra.) and not as against third persons without notice
until the sale is registered in the Registry of Property. B has the
right to compel S to put the contract in a public instrument so
that it can be registered to affect third persons. (Art. 1357; see
Carbonell vs. Court of Appeals, supra; Mahilum vs. Court of
Appeals, 17 SCRA 482 [1966].)
Remedies alternative.
These remedies are alternative and are not to be exercised
cumulatively or successively and the election of one is a waiver
of the right to resort to the others. (Pacific Commercial Co. vs. De
la Rama, 62 Phil. 380 [1935]; Erlanger & Galinger, Inc. vs. Flor,
[C.A.] 57 O.G. 482; Cruz vs. Filipinas Invest. & Finance Corp., 23
SCRA 791 [1968]; Filipinas Invest. & Finance Corp. vs. Ridad, 30
SCRA 564 [1969]; Industrial Finance Corp. vs. Tobias, 78 SCRA 28
[1977]; Nonato vs. Intermediate Appellate Court, 140 SCRA 255
[1985].)
Thus, where from the prayer of the vendor in its brief, it asks
the appellate court to order the vendee to pay the remaining un-
paid sum under the promissory note, it thereby waives the other
remedies. (Servicewide Specialists, Inc. vs. Intermediate Appel-
late Court, 174 SCRA 80 [1989].) To file an action containing the
three remedies: to collect the purchase price; to seize the prop-
erty purchased by suing for replevin; and to foreclose the mort-
Art. 1484 NATURE AND FORM OF THE CONTRACT 125
Jr. vs. Luneta Motor Company, 117 SCRA 726 [1982]; PAMECA
Wood Treatment Plant, Inc. vs. Court of Appeals, 310 SCRA 281
[1999].)
(a) Recovery by mortgagee of other than unpaid balance of pur-
chase price. Article 1484(3) is inapplicable where the amounts
adjudged in favor of the vendor-mortgagee were not part of
the unpaid balance of the purchase price or in the concept of
a deficiency judgment but were expenses of the suit. (Univer-
sal Motors Corp. vs. Velasco, 98 SCRA 545 [1980], infra.) Where
the mortgagor plainly refuses to deliver the chattel subject of
the mortgage upon his failure to pay two or more installments
or if he conceals the chattel to place it beyond the reach of the
mortgagee it logically follows as a matter of common sense,
that the necessary expenses incurred in the prosecution by the
mortgagee in the prosecution of the action for replevin so that
he can regain possession of the chattel, should be borne by the
mortgagor. Recoverable expenses would include expenses
properly incurred in effecting seizure of the chattel and attor-
neys fees in prosecuting the action for replevin. (Agustin vs.
Court of Appeals, 81 SCAD 827, 271 SCRA 457 [1997].)
(b) Recourse of mortgagee against guarantor of vendee. Nei-
ther can the vendor after the foreclosure of the chattel mort-
gage proceed against any third party who may have guaran-
teed the vendees performance of his obligation, for if the
guarantor should be compelled to pay the balance of the pur-
chase price, the guarantor will, in turn, be entitled to recover
what he has paid from the debtor-vendee (Art. 2066.); so that
ultimately, it will be the vendee who will be made to bear the
payment of the balance of the price, despite the earlier fore-
closure of the chattel mortgage given by him. Thus, the pro-
tection given by Article 1484 (to the unpaid vendor) would be
indirectly subverted, and public policy overturned. (Cruz vs.
Filipinas Invest. & Finance Corp., 23 SCRA 791 [1968]; Pascual
vs. Universal Corporation, 61 SCRA 121 [1974].)
(c) Recourse of assignee against mortgagee. When the ven-
dor assigns his credit to another person, the latter is likewise
bound by the same law. Accordingly, when the assignee fore-
closes on the mortgage, there can be no further recovery of the
128 SALES Art. 1484
ILLUSTRATIVE CASE:
Seller-mortgagee assigned on a recourse basis a promissory note
covering purchase price of motor vehicle executed by buyer-mortga-
gor who defaulted, and assignee seeks to recover from assignor un-
paid balance remaining after foreclosure.
Facts: B delivered to S a promissory note covering the pur-
chase price of a motor vehicle bought by B from S, secured by a
chattel mortgage over such automobile. S negotiated the note
to C, assigning all Ss rights to the same, the assignment in-
cluding the right of recourse against S.
B defaulted. The car was sold at public auction but the pro-
ceeds still left a deficiency.
Issue: After the foreclosure and sale by C, could it hold S
liable for the payment of the outstanding balance, plus attor-
neys fees and costs?
Held: Yes. Article 1483 is not applicable. The transaction be-
tween S and C was purely an ordinary discounting transaction.
The remedy sought by C is not against the buyer (B) of the car
but against the seller (S), independent of whether or not S may
have a right of recovery against B, which in this case, he does
not have. What Article 1484(3) seeks to protect are only the
buyers on installment. Surely, Congress could not have intended
to impair and much less to do away with the right of the seller
to make commercial use of his credit against the buyer, provided
said buyer is not burdened beyond what the law allows.
The contention by S that since what were assigned to C
were only whatever rights it had against B (the buyer), it should
follow that inasmuch as S has no right to recover from B be-
yond the proceeds of the foreclosure sale, C, as assignee, should
Art. 1484 NATURE AND FORM OF THE CONTRACT 129
24
Art. 1245. Dation in payment, whereby property is alienated to the creditor in
satisfaction of debt in money, shall be governed by the law on sales.
132 SALES Art. 1484
ILLUSTRATIVE CASES:
1. Defaulting buyer-mortgagor was given by assignee the op-
tion to pay unpaid balance of truck brought on installments or to
surrender the same, and the assignee, having learned after buyer ex-
ercised the second option that the truck had met an accident, filed suit
for recovery of unpaid balance of price.
Facts: B bought a truck on installments from S. Payment
was secured by a chattel mortgage. The promissory note and
the mortgage was assigned by S to C. B defaulted on the
Art. 1484 NATURE AND FORM OF THE CONTRACT 133
(c) The buyer has the right to sell his right or assign the
same before actual cancellation of the contract (see Sec. 5, R.A.
No. 6552.) and to pay in advance any unpaid installment
anytime without interest and to have such full payment of the
purchase price annotated in the certificate of title covering the
property. (see Sec. 6, ibid.)
(2) Conditions for cancellation of sale by seller. The actual can-
cellation shall take place after 30 days from receipt by the buyer
of the notice of cancellation or the demand for rescission by a
notarial act and upon full payment of the cash surrender value to
the buyer. Down payments, deposits or options on the contract
shall be included in the computation of the total number of
installment payments made. (Sec. 3, Ibid.; see McLaughlin vs.
Court of Appeals, 144 SCRA 693 [1986].)
In case the defaulting buyer has paid less than two (2) years
of installments, the seller shall give him a grace period of not less
than 60 days from the date the installment became due. If he fails
to pay the installments due at the expiration of the grace period,
the seller may cancel the contract after 30 days from receipt by
the buyer of the notice of cancellation or the demand for rescis-
sion of the contract by a notarial act. (Sec. 4, R.A. No. 6552.)
(3) Installment sales not covered. The Act excludes from its
operation sales on installments of industrial lots, commercial
buildings, and sales to tenants under the Code of Agrarian Re-
forms.25 (Ibid.) In other words, in the case of such kind of prop-
erty, the Act recognizes the vendors right unqualifiedly to can-
cel the sale upon the buyers default. (Luzon Brokerage Co., Inc.
vs. Maritime Bldg. Co., Inc., 86 SCRA 305 [1978]; see Art. 1592.)
(4) Purpose of the law. The purpose is to protect buyers of
real estate on installment payments against onerous and oppres-
sive conditions. (Sec. 2, R.A. No. 6552.)
In a case, the petitioner claims that he is entitled to a convey-
ance of at least eight (8) of the 12 lots subject of the conditional
sale, on the theory that since the total price of the 12 lots was
P120,000, each lot then had a value of P10,000 and, therefore, with
25
R.A. No. 3844, as amended; now, R.A. No. 6657, the Comprehensive Agrarian
Reform Law of 1988.
Art. 1485 NATURE AND FORM OF THE CONTRACT 139
his P80,000.00, he had paid in full the price for the 8 lots. In sup-
port of his claim, he invokes earlier rulings in Legarda Hermanos
vs. Saldaa (55 SCRA 324 [1978].) and Calasanz vs. Angeles. (135
SCRA 323 [1985].)
In the first case, the contract of sale provided for payment of
the price of two (2) subdivision lots at P1,500.00 each, exclusive
of interest, in 120 monthly installments and at time of default, the
buyer had already paid P3,582.00, inclusive of interest; and in the
second, the agreement had a price of P3,720.00 with interest at 7%
per annum, and at time of default, the buyer had paid installments
totaling P4,533.38, inclusive of interest. Upon considerations of
justice and equity and in the light of the general provisions of the
civil law, the Supreme Court resolved in the first case to direct
the conveyance of one of the lots to the buyer since he had already
paid more than the value thereof, and in the second, to disallow
cancellation by the seller and direct transfer of title to the buyer
upon payment of the first installments yet unpaid.
In both cases, the Supreme Court equitably allocated the ben-
efits and losses between the parties to preclude undue enrichment
by one at the expense of the other. It was held that the cited prec-
edents are not applicable. The petitioner cannot be permitted to
claim that all his payments should be credited to him in their
entirety, without regard whatever, to the damages his default
might have caused to the seller. In any event, it is no longer pos-
sible to apply the rulings in the said cases to the case at bar, i.e., to
resort to principles of equity and the general provisions of the Civil
Code in the resolution of the present controversy, because at the
time of the execution of the contract in question and the breach
thereof, R.A. No. 6552 was already in force and applicable thereto.
It precludes resort to equity and analogous provisions of the Civil
Code, it being axiomatic that where there is an adequate remedy
at law available to the parties, equity should not come into play.
(Layug vs. Intermediate Appellate Court, 167 SCRA 627 [1988].)
EXAMPLE:
B entered into a contract called contract of lease with S
whereby B leased the car of S. It is stipulated that B, the al-
leged lessee, shall pay P10,000.00, upon signing the contract,
and on or before the 5th day of every month, P2,000.00 by
way of rental.
The contract fixed the value of the vehicle to be
P100,000.00. It also provided that B has the option to pur-
Art. 1486 NATURE AND FORM OF THE CONTRACT 141
chase the car for the said amount and the payment made by
way of rentals shall be deducted from the amount agreed in
the option and upon the full value fixed being paid, the lease
would terminate and title to the leased property would be
transferred to B; and S would have the right to terminate the
contract and repossess the vehicle should B fail to make pay-
ments on the dates specified, and in such event, the payments
theretofore made should remain the property of S and not
be recoverable by B.
There can hardly be any question that the contract in this
case is one of sale on installments and not lease, with the so-
called monthly rentals being in truth monthly amortizations
on the price of the car, and is, therefore, subject to the provision
that when the lessor had deprived the lessee of the enjoyment
or possession of the personal property, he shall have no fur-
ther action against the lessee to recover any unpaid balance
owing by the latter, any agreement to the contrary being void.
In choosing the alternative remedy of depriving the lessee of
the enjoyment of the leased property, the lessor, in such case,
waives the right to bring an action for unpaid rentals on the
said vehicle. (see U.S. Commercial vs. Halili, 93 Phil. 271 [1953];
Manila Gas Corporation vs. Calupitan, 66 Phil. 646 [1938]; see
Elisco Tool Manufacturing Corp. vs. Court of Appeals, 307 SCRA
731 [1999].)
(3) Repossession by lessor need not be through court action.
Even where the lessee voluntarily delivers the property to the
lessor, the case is not taken out of the purview of Article 1485 if
he does so in obedience to the lessors demands. The article
does not require that the deprivation of the enjoyment of the
property be brought about through court action. Specially where
the contract specifically authorizes the lessor to repossess the
property whenever the lessee defaults in the payment of rent,
court action for such purpose is not essential. (U.S. Commer-
cial Co. vs. Halili, supra.)
ILLUSTRATIVE CASES:
(1) Vendee assumed liability for taxes and other expenses.
Facts: In the Deed of Absolute Sale, B, buyer, assumed li-
ability for taxes and other expenses relative to the execution
and/or implementation of the Deed including, among oth-
ers, documentation, documentary and service stamps, expenses
for registration and transfer of titles.
Issue: Is B liable for overdue real estate taxes?
Held: No. The interpretation that B assumed a liability in
overdue real estate taxes for the years prior to the contract of
sale when he was neither the owner nor the beneficial owner of
the property is incongruent to the tax policy that the user of the
property bears the tax, because there was no immediate trans-
fer of possession of the property previous to the full payment
of the purchase price. If he intended to assume liability, the con-
tract should have specifically stated real estate taxes due for
the previous years. The payments made under protest cannot
be construed to be an admission of liability. Hence, the tax as-
sessed and collected should be refunded. (Estate of C.T. Lim vs.
City of Manila, 182 SCRA 482 [1990].)
2. The Decision commands the petitioner (seller) to execute a
Deed of Absolute Sate in favor of private respondents (buyers) and
deliver the corresponding certificate of title to them.
Facts: See above.
Issue: Can it be inferred from these directives that petitioner
should also pay for the expenses in notarizing the deed and
obtaining a new certificate of title?
Held: No. The obligation to pay for such expenses is un-
connected with and distinct from the obligations to execute and
deliver the deed of absolute and the certificate of title. Since
there is no qualification that the duties to execute and to de-
liver shall also compel petitioner to assume the expenses for
transferring the pertinent title in favor of private respondents,
the ordinary and literal meaning of the words execute and
144 SALES Art. 1488
oOo
145
Chapter 2
Kinds of incapacity.
Such incapacity is absolute in the case of persons who cannot
bind themselves; and relative where it exists only with reference
to certain persons or a certain class of property. (Wolfson vs. Es-
tate of Martinez, 20 Phil. 340 [1911].) Persons who are merely rela-
tively incapacitated are mentioned in Articles 1490-1491.
There are no incapacities except those provided by law and
such incapacities cannot be extended to other cases by implica-
tion for the reason that such construction would be in conflict with
the very nature of Article 1489. (Ibid.)
145
146 SALES Art. 1490
Sale by minors.
The courts have laid down the rule that the sale of real estate
effected by minors who have already passed the ages of puberty
and adolescence and are now in the adult age, when they pre-
tended 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 obligations assumed
by them or to seek their annulment. (see Mercado and Mercado
vs. Espiritu, 37 Phil. 265 [1917].)
The doctrine is entirely in accord with the provisions of the
Rules of Court (see Rule 131, Sec. 1.) and the Civil Code (see Art.
1431.) which determine cases of estoppel.
spouse, enters into a contract with either of them only to find out
that the property relied upon was transferred to the other spouse.
(see 10 Manresa 95-96.)
legal prohibition against the disposition of conjugal property by one spouse without the
consent of the other has been established for the benefit, not of third persons, but only of
the other spouse for whom the law desires to save the conjugal partnership from dam-
ages that might be caused. (Villaranda vs. Villaranda, 423 SCRA 571 [2004]; Papa vs.
Montenegro, 54 Phil. 331 [1930].)
Art. 1491 CAPACITY TO BUY OR SELL 149
ILLUSTRATIVE CASE:
Administrator sold certain properties of the estate to his son for a
grossly low price.
152 SALES Art. 1491
ILLUSTRATIVE CASE:
Land foreclosed by GSIS was sold by it at public auction to the
wife of a GSIS official.
Facts: For failure to comply with the conditions of sale, GSIS
cancelled the sale of a parcel of land to MPC and later sold the
154 SALES Art. 1491
2
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 or public policy; x x x.
Art. 1491 CAPACITY TO BUY OR SELL 155
oOo
160 SALES
Chapter 3
160
Art. 1494 EFFECTS OF THE CONTRACT WHEN THE THING 161
SOLD HAS BEEN LOST
EXAMPLES:
(1) S sold his car to B. Unknown to both of them, the car
has been totally destroyed before they agreed on the sale. In
this case, there is no valid contract of sale for lack of object. S,
as owner, bears the loss and B does not have to pay for the
price.
(2) If the car sold is only partially destroyed, there still re-
mains of the object. However, since it is not of the character or
in the condition contemplated by the parties, the buyer may
withdraw from the contract or demand the delivery of the car,
paying its proportionate price.
EXAMPLE:
Suppose the subject matter sold was 100 cavans of rice in
the warehouse of S at P1,000.00 per cavan or for a total price of
P100,000.00. If 60 cavans of rice were lost, B may, at his option,
withdraw from the contract without the obligation to pay for
the rice; or demand the delivery of the 40 cavans, but binding
him to pay the agreed price thereof which is P40,000.00.
If the contract is indivisible, that is, the 100 cavans of rice
were sold for P100,000.00 fixed without consideration of the
number of cavans, B should be made to pay only the propor-
tionate price of 40 cavans which is also P40,000.00.
oOo
163
Chapter 4
163
164 SALES Art. 1495
One who sells something he does not yet own is bound by the
sale when he acquires it later. (Bucton vs. Gabar, 55 SCRA 499
[1974].)
When a property belonging to a person is unlawfully taken
by another, the former has the right of action against the latter for
the recovery of the property. Such right may be transferred by the
sale or assignment of the property and the transferee can main-
tain such action against the wrongdoer. (Heirs of Q. Seraspi vs.
Court of Appeals, 331 SCRA 293 [2000]; Waite vs. Peterson, 8 Phil.
235 [1907].)
ILLUSTRATIVE CASE:
Goods which seller warranted as already on the way did not ar-
rive.
Facts: B, vendee, gave his consent to the purchase and sale
of certain goods on the assertion of S, vendor, stated in the con-
tract, that the goods were already on the way. The goods did
not arrive.
Issue: Has S the right to demand from B the payment of the
price?
Held: No. The assertion made by S is a warranty (see Arts.
1545, 1546.), the non-fulfillment of which constitutes a breach
of contract and deprives him the right to demand of B the pay-
ment of the price of the sale. Having elected to bind himself in
that way, S, as vendor, is responsible, even if the prompt trans-
portation of the goods does not depend upon him but upon the
importers, for he who contracts and assumes an obligation is
presumed to know the circumstances under which it can be
complied with. (Soler vs. Chesley, 43 Phil. 529 [1922].)
ILLUSTRATIVE CASE:
For rice sold, vendor was not paid by vendee who sold it to an-
other, the second vendee, the latter refusing to return the rice after he
was repaid by first vendee.
Facts: S agreed to sell 170 cavans of rice to B at the price of
P37.25 per cavan, delivery to be made at Ts store. After the
Art. 1496 OBLIGATIONS OF THE VENDOR 167
General Provisions
oOo
169
Importance of tradition.
(1) Transfer of ownership. Article 1496 emphasizes the ne-
cessity of tradition for the transfer of ownership of the thing sold.
Our law does not admit the doctrine of transfer of property by
mere consent. (Chua vs. Court of Appeals, 401 SCRA 54 [2003].)
(a) The ownership over it is not transferred by contract
merely but by delivery, actual or constructive. The critical fac-
tor in all the different modes of effecting delivery which gives
legal effect to the act, is the actual intention of the creditor to
deliver, and its acceptance by the vendee. (Norkis Distributors,
Inc. vs. Court of Appeals, 195 SCRA 494 [1991].)
(b) Contracts only constitute titles or rights to the trans-
fer or acquisition of ownership, while delivery or tradition is
the method of accomplishing the same, the title and the
method of acquiring it being different in our law. (Gonzales
vs. Roxas, 16 Phil. 51 [1910].) But, there is no delivery as to
transfer ownership where the vendee takes possession of the
personal property subject matter of the contract of sale by
169
170 SALES Art. 1497
1
In a deed of sale of a parcel of land with a deed of mortgage to secure payment of
the balance of the purchase price, where title has been transferred to the buyer, the rela-
tionship between the parties is no longer one of buyer and seller because the contract of
sale has been perfected and consummated. It is already one of a mortgagor and a mort-
gagee. In consideration of the buyers promise to pay on installment basis the balance of
the purchase price, the seller has accepted the mortgage as security for the obligation,
thereby becoming the mortgagee. The buyers (mortgagors) breach of the obligation
will not be with respect to the perfected contract of sale but the obligations created by
the mortgage contract. (Suria vs. Intermediate Appellate Court, 151 SCRA 661 [1987].)
Art. 1497 OBLIGATIONS OF THE VENDOR 171
Delivery of the Thing Sold
ILLUSTRATIVE CASE:
Bank (pledgee) took possession, as security, of the sugar sold and
delivered by unpaid seller to buyer (pledgor) who subsequently be-
came insolvent.
Facts: S sold sugar to B. The sugar was delivered by S into
Bs warehouse, leaving it entirely subject to his control. B, how-
ever, failed to make payment after completion of delivery as
per agreement. C, a bank, took possession of the sugar pursu-
ant to a contract of pledge entered into between the bank and B
to secure the latters indebtedness of P20,000. Subsequently, B
became insolvent.
Issue: Is S still the owner of the sugar as to entitle him to
recovery of its possession?
Held: No. When S delivered the sugar into Bs warehouse,
leaving it entirely subject to his control, it is difficult to see how
S could have divested himself more completely of the posses-
sion of the sugar, or how he could have placed it more com-
pletely under the control of the buyer. The fact that the price
has not yet been paid, in the absence of stipulation, was not,
nor could it be an obstacle to the acquisition of ownership by B,
without prejudice, of course, to the right of S to claim payment
of the sum due. (Ocejo Perez & Co. vs. International Bank, 37 Phil.
631 [1918].)
172 SALES Art. 1498
ILLUSTRATIVE CASES:
1. After delivery of possession coupled with execution of the
deed of sale of real property embodied in a public instrument but be-
fore its registration and payment of the price, buyer is being made
responsible for the payment of the realty tax.
Facts: S (PSDC) and B (PHHC, a government corporation)
entered into a contract of sale embodied in a public instrument
whereby S conveyed unto B two parcels of land subject to cer-
tain terms and conditions among which that S should register
the deed of absolute sale and secure a new title in the name of
B before the latter can be compelled to pay the purchase price.
Prior to the signing of the deed, B had acquired possession
of the property with the consent of S. The provincial treasurer
requested B to withhold the amount of P30,000.00 from the pur-
chase price to be paid by it to S representing the realty tax due
on the property involved.
Issue: Who is liable to the payment of the real property tax,
S or B?
Held: B. When the sale of real property is made in a public
instrument the execution thereof is equivalent to the delivery
of the thing object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.
(1) Vendee actually placed in possession. In the case at bar,
there is no question that the vendor (S) had actually placed the
vendee (B) in possession and control over the property sold,
even before the date of the sale.
(2) Payment of price not essential to transfer of ownership.
The condition that S should first register the deed of sale and
Art. 1498 OBLIGATIONS OF THE VENDOR 175
Delivery of the Thing Sold
secure a new title in the name of B before the latter shall pay
the purchase price, did not preclude the transmission of own-
ership. In the absence of an express stipulation to the contrary,
the payment of the purchase price of the goods is not a condi-
tion precedent to the transfer of title to the buyer, but title passes
by the delivery of the goods.
(3) Title transferred to vendee. Since the delivery of pos-
session coupled with the execution of the deed of absolute sale,
had consummated the sale and transferred title to B, the pay-
ment of the real estate tax after such transfer is the responsibil-
ity of the purchaser.2 (Phil. Suburban Dev. Corp. vs. The Auditor
General, 63 SCRA 397 [1975].)
2. Lessor sold property leased to a third party in violation of
the exclusive option to purchase the same, given to lessee who filed
a suit for specific performance and annulment of the sale.
Facts: Respondent MT, Inc. leased portions of a commer-
cial building together with the land owned by CB, lessor, which
it used as a movie theater. Under two contracts of lease, inter
alia, MT, Inc. shall be given 30-days exclusive option to pur-
chase the same, if CB should desire to sell the leased premises.
CB sold the building to ERD, petitioner, which received
rents from MT, Inc. for sometime.
Subsequently, MT, Inc., claiming it had been denied its right
to purchase the leased property in accordance with the lease
contracts with CB, filed a suit for specific performance and an-
nulment of sale with prayer to enforce its exclusive option to
purchase the property.
The dispute between MT, Inc., CB and ERD reached the
Supreme Court (referred to as Mother case) which rescinded
the absolute sale to ERD, ordered CB to return to ERD the pur-
chase price, directed ERD to execute the documents necessary
to return ownership of the disputed lots to CB, and ordered CB
to allow MT, Inc. to buy the said lots for P11,300,000. This deci-
sion became final and executory on March 17, 1997.
MT, Inc. filed with the trial court a motion for execution
which was granted. Subsequently, the Clerk of Court of the
2
Under Republic Act No. 1322 (Sec. 7 thereof.), however, the PHHC (now National
Housing Authority) was not subject to real property tax.
176 SALES Art. 1498
the other acquires the right to and the possession of the same.
In its natural sense, delivery means something in addition to
the delivery of property or title; it means transfer of posses-
sion. In the Law on Sales, delivery may be either actual or con-
structive, but both forms of delivery contemplate the absolute
giving up of the control and custody of the property on the
part of the vendor, and the assumption of the same by the
vendee.
(4) ERD never took actual control and possession of the prop-
erty sold to it. From the peculiar facts of this case, it is clear
that petitioner never took actual control and possession of the
property sold, in view of respondents timely objection to the
sale and the continued actual possession of the property. The
objection took the form of a court action impugning the sale
which, as we know, was rescinded by a judgment rendered by
this Court in the mother case. It has been held that the execu-
tion of a contract of sale as a form of constructive delivery is a
legal fiction. It holds true only when there is no impediment
that may prevent the passing of the property from the hands of
the vendor into those of the vendee. When there is such im-
pediment, fiction yields to reality the delivery has not been
effected.
Hence, respondents opposition to the transfer of the prop-
erty by way of sale to ERDs was a legally sufficient impedi-
ment that effectively prevented the passing of the property into
the latters hands.
(5) Presumption of delivery by execution of public instrument
is only prima facie. The execution of a public instrument gives
rise, therefore, only to a prima facie presumption of delivery.
Such presumption is destroyed when the instrument itself ex-
presses or implies that delivery was not intended; or when by
other means it is shown that such delivery was not effected, because a
third person was actually in possession of the thing. In the latter
case, the sale cannot be considered consummated.
(6) ERD did not acquire rights to fruits of property. How-
ever, the point may be raised that under Article 1164 of the Civil
Code, ERD, as buyer, acquired a right to the fruits of the thing
sold from the time the obligation to deliver the property to pe-
titioner arose. That time arose upon the perfection of the Con-
tract of Sale on July 30, 1978, from which moment the laws pro-
vide that the parties to a sale may reciprocally demand per-
178 SALES Art. 1498
Symbolic tradition.
Constructive delivery is symbolic when to effect the delivery,
the parties make use of a token symbol to represent the thing
delivered.
The delivery of the key where the thing sold is stored or kept
is equivalent to the delivery of the thing (par. 2.) because the key
represents the thing. Similarly, there is symbolic delivery of goods
to vendee upon delivery to him of delivery orders (see Art.
1636[1].) which would authorize him to withdraw the goods from
a warehouse. Upon withdrawal, there is actual delivery (supra.)
which consummates the sale. (Lim Yhi Luya vs. Court of Appeals,
99 SCRA 668 [1980].)
Quasi-traditio.
Tradition can only be made with respect to corporeal things.
In the case of incorporeal things, delivery is effected:
(1) by the execution of a public instrument; or
(2) when that mode of delivery is not applicable, by the plac-
ing of the titles of ownership in the possession of the vendee; or
(3) by allowing the vendee to use his rights as new owner with
the consent of the vendor.
This mode of delivery of incorporeal things or rights is known
as quasi-traditio. Thus, the delivery to a person of a negotiable
document of title in which it is stated that the goods referred to
therein will be delivered to the bearer amounts to delivery of the
goods to such person. (Arts. 1507, 1508.)
ILLUSTRATIVE CASES:
1. Property, title papers to which were delivered by debtor to
creditor as security for a debt, was included in the inventory of the
estate of debtor upon his death.
Facts: S owed B money and as security therefor delivered
to B the title papers over four parcels of land. It was orally agreed
that since S had no money, B was to have the land, permitting S
to cultivate upon condition that, after deducting expenses, 1/2
of the products was to go to B.
Then S died and the four parcels were included in the in-
ventory of the estate of S. B brought action to exclude them
from the inventory.
Issue: Is there delivery of the property in contemplation of
law?
Held: Yes. The land should have been excluded in the in-
ventory. The contract made between S and B although not in
writing, was valid and the delivery of the title deeds of the prop-
erty was equivalent in its effect to a delivery of the property
itself. (Marella vs. Reyes & Paterno, 12 Phil. 1 [1908].)
Art. 1501 OBLIGATIONS OF THE VENDOR 183
Delivery of the Thing Sold
2. Before the sale at public auction, the property in question
was sold by the owner who merely delivered the title deeds thereof to
the first purchaser.
Facts: The lot and warehouse standing thereon belonging
to S were sold at public auction by the sheriff to B. D claimed
that the property was sold by S long before the auction sale to
C who, in turn, sold it to D. S merely delivered the title deeds
to C but remained in possession as lessee. C also delivered the
title deeds to D. D brought action for the recovery of the lot
and warehouse.
Issue: Is there delivery of the property in contemplation of
law?
Held: Yes. Although there was no material delivery of the
property, the placing of the titles of ownership in the posses-
sion of the vendee or the use which he may make of his right
with the consent of the vendor shall be considered as deliv-
ery. (Tablante vs. Aquino, 28 Phil. 35 [1914].)
Note: The Supreme Court in both cases cited Article 1464 of
the Spanish Civil Code. (Art. 1501 of our Civil Code.) It is sub-
mitted that Article 1501 refers to delivery merely of incorpo-
real rights. The result arrived at, however, may be sustained in
that the delivery of the title deeds may be considered a sym-
bolical delivery, as the delivery of the key to a house consti-
tutes a delivery of said house.
the thing sold and has been considered not a bill of sale. (Norkis
Distributors, Inc. vs. Court of Appeals, 193 SCRA 694 [1991]; P.T.
Cerna Corp. vs. Court of Appeals, 221 SCRA 19 [1993].)
(2) For the same reason, any act, although not provided for
in the preceding articles, but accompanied by the evident inten-
tion of the vendor to deliver or of the vendee to receive the thing
sold, will be considered as constituting tradition. It is the inten-
tion which is essential. (ibid.) It is a well-established rule that a
mere contract for the sale of goods, where nothing remains to be
made by the vendor, as when the parties agreed that the delivery
of the logs should be made alongside a vessel of the vendee and
that was done by the vendor, transfers the right of property al-
though the price has not been paid, nor the thing sold actually
delivered to the vendee whose employees attempted to load them
in the vessel but failed to do so for want of the proper loading
equipment. (Bean Admir vs. Cadwallader Co., 10 Phil. 606 [1908].)
In other words, in all the different modes of effecting deliv-
ery, it is the real intention of the parties, to deliver on the part of
the vendor, and to accept on the part of the vendee, which gives
legal effect to the act. Without such intention, there is no tradi-
tion. (see Abuan vs. Garcia, 14 SCRA 759 [1965]; Norkis Distribu-
tors, Inc. vs. Court of Appeals, supra.)
3
The provision in the Uniform Sales Act and the Uniform Commercial Code from
which Article 1502 was taken, clearly requires an express written agreement to make a
sales contract either a sale or return or a sale on approval. Parol or extrinsic testi-
mony could not be admitted for the purpose of showing that an invoice or bill of sale
that was complete in every aspect and purporting to embody a sale without a condition
or restriction constituted a contract of sale or return. If the purchaser desired to incorpo-
rate a stipulation securing to him the right of return, he should have done so at the time
the contract was made. (Industrial Textile Manufacturing Co. vs. LPJ Enterprises, Inc.,
217 SCRA 322 [1993], citing 67 Am. Jur. 2d 733.)
186 SALES Art. 1502
(c) The buyer cannot accept part and reject the rest of the
goods since this falls outside the normal intent of the parties.
(Industrial Textile Manufacturing Co. vs. LPJ Enterprises, Inc.,
supra.)
4
Logically, since a bill of lading acknowledges receipt of goods to be transported,
delivery of the goods to the carrier normally precedes the issuance of the bill; or to some
extent, delivery of the goods and issuance of the bill are regarded in commercial prac-
tice as simultaneous acts. However, except as may be prohibited by law, there is nothing
to prevent an inverse order of events, that is, the execution of the bill even prior to actual
possession and control by the carrier of the cargo to be transported. There is no such
law. (Saludo, Jr. vs. Court of Appeals, 207 SCRA 198 [1992].)
190 SALES Art. 1503
able to the seller or his agent or to the order of the seller or his
agent, the seller thereby reserves the ownership in the goods (par.
2.) and the carrier is a bailee for him and not the buyer. This prin-
ciple is applicable even though the goods are shipped on the buy-
ers vessel.
(2) Rights of seller. The seller may not only retain the goods
until the buyer performs his obligation under the contract, but
he may, even in violation of the contract, dispose of them to third
persons. If the seller does this, of course, he is liable for damages
to the buyer but the second purchaser from the seller acquires a
better right. (see 2 Williston, op. cit., pp. 152-153.)
whose order the goods are deliverable unless the bill of lading
itself is presented.
(3) Identification of consignee sufficient in case of straight bill.
On the other hand, the shipper who issues a straight bill of lad-
ing (goods are by its terms deliverable not to the order of the con-
signee but to the consignee only) ordinarily does not require the
surrender of the bill by the consignee in order for the latter to get
the goods. The consignee need only to identify himself. Hence,
where the buyer is the consignee, the seller must use an order bill
of lading. (see Ibid., pp. 162-163.)
It is very clear that the creditor (buyer) may not have a right
of action against third persons unless he suffers a loss which is
the price he has paid or the price the law requires him to pay the
debtor (seller) if he has not paid the same.
(4) Contrary view. On this question, a recognized authority
on Civil Law supports the contrary view as follows:
A contrary view to that expressed above, is held by other
writers on the Spanish Civil Code, like Perez and Alguer, who say:
This solution is not absolutely certain and perhaps the contrary
view is more in harmony with equity and with the nature of re-
ciprocal obligations.
To our mind, the latter view is really more logical: the vendor
in the case given, should bear the loss and the vendee should not
be bound to pay the price. The following arguments may be ad-
vanced to support this view:
(a) It is fundamental in the Civil Code, expressed in Arti-
cles 1477 and 1496, that ownership is transferred by delivery;
hence, before delivery, the vendor owns the thing and should
suffer its loss: res perit domino. If he is allowed to recover the
price, he suffers no loss, which is imposed upon the vendee
who has not yet acquired ownership;
(b) The obligations of vendor and vendee are reciprocal,
and, therefore, one depends upon the other. If the obligation
of the vendor to deliver is extinguished, the correlative obli-
gation of the vendee to pay, which depends upon it, cannot
remain subsisting;
(c) Article 1480, paragraph 3, is not an exception but is an
expression of the general rule that the risk is not imputed to
the vendee until after delivery. That paragraph considers the
delivery completed only when the fungibles have been
weighed, counted, or measured because it is only then that the
thing becomes determinate. Before such completion of deliv-
ery, the vendor bears the risk; and
(d) Purchase and sale is an onerous contract, where the
cause, with respect to the vendee, is the thing. If he cannot have
the thing, it is juridically illogical and unjust to make him pay
its price.
Art. 1505 OBLIGATIONS OF THE VENDOR 199
Delivery of the Thing Sold
In the French code, the risk of loss is upon the buyer from the
perfection of the contract, because ownership in that code is trans-
ferred by mere contract, without need for delivery. Res perit domino.
The vendee suffers the loss and must pay the price of the thing
even if he does not receive it. But where the ownership is trans-
ferred by delivery, as in our Code, the application of the axiom
res perit domino, imposes the risk of loss upon the vendor; hence,
if the thing is lost by fortuitous event before delivery, the vendor
suffers the loss and cannot recover the price from the vendee.
(A.M. Tolentino, op. cit., pp. 23-27.)
(5) Legislation necessary to avoid irreconcilable conflict. The
contrary view is really more in harmony with equity consider-
ing that, while the vendee has a mere contract right to the thing
sold, the vendor has not only the ownership but also the posses-
sion or control of it and even the power to dispose of it to the
prejudice of the vendee; and having in mind also the reciprocal
character of the contract of sale, the vendor should, therefore, be
the one to shoulder the loss and not the vendee. But until the law-
making body adopts the contrary view, the correct rule, it is be-
lieved, is that contained in Article 1480 under which the vendee
bears the risk of loss, and he is bound to pay the price which rule
has already been shown, is sustained and confirmed by other
provisions of the Civil Code.
5
What the law requires is that the seller has the right to transfer ownership at the
time the thing sold is delivered. A perfected contract of sale (which is a consensual con-
tract perfected by mere consent) cannot be challenged on the ground of non-ownership
on the pact of the seller at the time of its perfection, hence the sale is still valid. (Quijada
vs. Court of Appeals, 101 SCAD 463, 299 SCRA 695 [1998].)
Art. 1505 OBLIGATIONS OF THE VENDOR 201
Delivery of the Thing Sold
ILLUSTRATIVE CASE:
Unpaid books were sold by the impostor-buyer to another who
acted in good faith and with proper care.
Facts: X, identifying himself as Professor JC, placed an or-
der by telephone with petitioner EDCA for 406 books payable
on delivery. EDCA, petitioner, prepared the corresponding in-
voice and delivered the books for which X issued a personal
check covering the purchase price, which was dishonored. X
sold the books to Y who, after verifying the sellers ownership
from the invoice X showed her, paid X.
Petitioner argues that the impostor acquired no title to the
books that he could have validly transferred to Y, the private
respondent. Its reason is that as the payment check bounced
for lack of funds, there was a failure of consideration that nul-
lified the contract of sale between it and X.
Issue: Has EDCA been unlawfully deprived of the books
because the check issued by the impostor X in payment therefor
was dishonored?
Held: No. (1) Contract of sale is consensual. The contract
of sale is consensual and is perfected once agreement is reached
204 SALES Art. 1505
EXAMPLES:
(1) S, a minor, sold his television set to B, a person of ma-
jority age. Under the law (see Art. 1390, Civil Code.), the con-
tract is voidable or annullable because a minor is incapable of
giving consent to a contract. B, in turn, sold the television set to
C who acted in good faith.
208 SALES Art. 1507
Definition of terms.
(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 indorsement or by delivery, goods represented by such
document. (Art. 1636[1].)
(2) Goods. Included all chattels personal but not things in
action or money of legal tender in the Philippines. The term in-
cludes growing fruits or crops. (ibid.)
(3) Order. Relating to documents of title means an order
by indorsement on the documents. (ibid.)
(2) Evidence of transfer of title and possession of the goods and con-
tract between the parties. A document of title is symbol of the
goods covered by it, serving as evidence of (a) transfer of title and
(b) transfer of possession. It also serves as an evidence of the (c)
contract between the parties who are bound by its terms. So far
as concerns the transfer of property between the parties, their
intention would be effectual without the document, but where
third parties rights are involved, the form of the document (i.e.,
negotiable or non-negotiable) becomes important.
(1) The title of the person negotiating the document, over the
goods covered by the document;
(2) The title of the person (depositor or owner) to whose or-
der by the terms of the document the goods were to be delivered,
over such goods; and
(3) The direct obligation of the bailee (warehouseman or car-
rier) to hold possession of the goods for him, as if the bailee had
contracted directly with him.
One who purchases, therefore, a negotiable document of title
issued to a thief acquires no right over the goods as the thief has
no right to transfer, notwithstanding that such purchaser is inno-
cent. But the purchaser acquires a good title where the owner, by
his conduct, is estopped from asserting his title.
A provision similar to Article 1513 is found in Section 41 of
the Warehouse Receipts Law.
sion may have been acquired. (see National Bank vs. Producers
Warehouse Association, 42 Phil. 608 [1922]; Hill vs. Veloso, 31 Phil.
160 [1915].) In other words, it may be negotiated even by a thief
or finder and the holder thereof would acquire a good title thereto
if he paid value therefor in good faith without notice of the sell-
ers defect of title. (see Art. 1506.) It will be remembered that un-
der Article 1512, neither a thief nor a finder may negotiate a ne-
gotiable document of title. The two provisions thus appear con-
tradictory to each other.
Under the Warehouse Receipts Law, it is provided:
Sec. 47. When negotiation not impaired by fraud, mistake or
duress. The validity of the negotiation of a receipt is not
impaired by the fact that such 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 induced by fraud, mistake
or duress to entrust the possession or custody thereof to such per-
son, if the person to whom the document was negotiated or a
person to whom the document was subsequently negotiated
paid value therefor, without notice of the breach of duty or
fraud, mistake or duress.
Clearly, under Section 40 (see Art. 1512.) and Section 47 of the
Warehouse Receipts Law, the negotiation is invalidated by the fact
that the owner of the document was deprived of its possession
by loss or theft.
It should be noted that Article 1518 speaks of theft of the docu-
ment and not of the goods covered by such document. In the latter
case, it needs no argument to show that even a bona fide holder of
a document issued over such stolen goods cannot acquire title.
(see Art. 1513.)
him of the goods, if he did not know that the seller is going to be
guilty of a breach of contract. (par. 1.)
Fair value to him should be interpreted to mean the benefit
which the buyer may have received from the goods. It is not nec-
essarily the market value. Since the defaulting seller is the wrong-
doer, the buyer is not required to pay the contract price if such
price for the goods is more than fair value to him of the goods.
EXAMPLE:
S sold to B 200 cavans of rice at P1,000.00 per cavan or for a
total price of P200,000.00, delivery to be made at the place of
business of B.
If S delivers only 120 cavans, B can refuse to accept them. If
he accepts them knowing that B is not going to perform the
contract in full, he is liable to pay at the rate agreed upon for
the 120 cavans or P120,000. But if B was not aware that full
delivery would not be made, he would be liable only for the
fair value to him of the goods at the time of delivery even if it
should be less than the contract price.
Of course, B cannot be liable, in any case, for more than the
contract price of P120,000.00 with respect to the 120 cavans ac-
tually received by him.
ILLUSTRATIVE CASE:
Some of the goods contracted to be sold were missing through
fault of carrier.
Facts: S, a domestic corporation, alleges that B, a general
partnership, refused to pay the price of various automotive
products, with the latter claiming that it had not received the
merchandise. It appears that upon receipt of the Bill of Lading,
B initiated, but did not pursue, steps to take delivery as it was
advised by NN Company, owner of the vessel on which the
spare parts were loaded by Ss forwarding agent, that because
some parts were missing, they would just be informed as soon
as the missing parts were located.
It was only four years later when a warehouseman of NN
found in its bodega, parts of the shipment in question, but al-
ready deteriorated and valueless.
228 SALES Art. 1522
EXAMPLE:
In the preceding example, if S delivered 250 cavans of rice,
B may accept only 200 and reject the rest. If he accepts the en-
tire delivery, he may pay for them at the same contract rate of
P1,000.00 per cavan or P250,000.00 for the 250 cavans.
ILLUSTRATIVE CASE:
See facts.
Facts: The contract calls for the delivery of a quantity of
almaciga (mastic) of less than 500 piculs.
Issue: Is the delivery of 500 piculs sufficient compliance with
the contract?
Art. 1522 OBLIGATIONS OF THE VENDOR 229
Delivery of the Thing Sold
EXAMPLES:
(1) S agreed to sell to B a live carabao with a weight of not
less than 100 kilos but not more than 120 kilos. S delivered a
carabao weighing 130 kilos. B may reject the carabao.
(2) If the agreement is for S to deliver wagwag rice mixed
with corn of a particular variety and the rice or corn delivered
is of a different variety, B may reject the whole of the goods.
6
There is delivery to the carrier when the goods are ready for and have been placed
in the exclusive possession, custody and control of the carrier for the purpose of their
immediate transportation and the carrier has accepted them. Where such delivery has
thus been accepted by the carrier, its liability commences eo instanti. Ordinarily, a receipt
is not essential to a complete delivery of goods to the carrier for transportation but,
when issued is competent and prima facie but not conclusive evidence of delivery to the
carrier. (Saludo, Jr. vs. Court of Appeals, 207 SCRA 498 [1992].)
232 SALES Art. 1523
(3) C.I.F. The initials stand for the words, cost, insurance
and freight. They signify that the price fixed covers not only the
cost of the goods, but the expense of freight and insurance to be
paid by the seller (ibid.) up to the point of destination. Title passes
to the buyer at the moment of delivery to the point especially
named.
EXAMPLE:
S sold to B the formers horse for P10,000.00. No date is
fixed by the parties for performance of their respective obliga-
tions.
In this case, S is not bound to deliver the horse, if B himself
does not pay the price. But if a time of payment has been fixed
in the contract, say, within two (2) months, then S is obliged to
deliver the horse where the term of credit has not expired al-
though B has not paid the price.
Art. 1525 OBLIGATIONS OF THE VENDOR 235
Delivery of the Thing Sold
(1) A lien on the goods or right to retain them for the price
while in his possession (Arts. 1527-1529.);
(2) A right of stopping the goods in transitu in case of insol-
vency of the buyer (Art. 1530.);
(3) A right of resale (Art. 1533.); and
(4) A right to rescind the sale. (Art. 1534.)
If the unpaid seller still retains ownership in the goods, he
cannot be said to have a lien (on his goods). But he does have, in
addition to his other remedies, right of withholding delivery. (Art.
1526, par. 2.)
ful taking, however, of the goods by the buyer without the sell-
ers consent does not destroy the lien. Thus, if the goods are put
into the possession of the buyer merely for the purpose of allow-
ing the latter to examine them, this would not amount to an as-
sent to a surrender of the lien. (3 Williston on Sales, op. cit., p. 111.)
(3) Waiver of the lien. The seller may lose his lien either by
express agreement to surrender it. Thus, it has been held that
where the buyer was allowed to alter the character of the goods
and make them much more valuable, the seller could no longer
assert a lien. (Ibid., p. 115.)
Note that mere judgment by a court obtained by the unpaid
seller for the price of the goods is not a ground for the loss of his
lien. (Art. 1529, par. 2.)
(2) This right does not proceed from any agreement of the
parties but is independently conferred by law. It may be regarded
as a legal extension of the unpaid sellers lien.
rying out the transit between the seller and the buyer. In order to
terminate the sellers right to stop, the carrier must enter into a
new relation, distinct from the original contract of carriage, to hold
the goods for the buyer as his agent not for the purpose of expe-
diting them to the place of original destination, pursuant to that
contract, but in a new character for the purpose of custody on the
buyers account. (see 3 Williston, op. cit., pp. 134-135.)
(Art. 1528.) However, it may be shown that the seller has an agree-
ment with the buyer to give up possession of the whole of the
goods.
ILLUSTRATIVE CASE:
Seller resold tractor for failure of buyer to take delivery and pay
the price.
Facts: S sold to B a tractor, payable at P5,000.00 upon deliv-
ery and the balance of P7,000.00 within 60 days. B failed to take
delivery of the tractor and pay the purchase price. S was forced
to sell the same to a third person for only P10,000.00.
Issue: Is B liable for the difference of P2,000.00?
Held: Yes. In a contract of sale which is executory as to both
parties, the vendor is entitled to resell the goods if the purchaser
fails to take delivery and pay the purchase price. If he is obliged
to sell for less than the contract price, he holds the buyer for the
difference; if he sells for as much as or more than the contract
price, the breach of contract by the original buyer is damnum
absque injuria.
There is no need of an action for rescission to authorize the
vendor, who is still in possession, to dispose of the property
where the buyer fails to pay the price and take delivery. (Katigbak
vs. Court of Appeals, 4 SCRA 243 [1962], citing Hanlon vs.
Hausserman, supra.)
the goods are of small value and the buyer is financially irrespon-
sible. The law is satisfied with a fair sale made in good faith ac-
cording to the established business methods with no attempt to
take advantage of the vendee. (Ibid., pp. 168-169.) The seller is
only required to exercise reasonable care and judgment in mak-
ing a resale. He cannot, however, directly or indirectly, buy the
goods. (see Art. 1491[6].)
(b) where the buyer delays in the payment of the price for
an unreasonable time. (see Ocejo, Perez & Co. vs. International
Bank, 37 Phil. 631 [1918].)
(2) Effect of rescission. In the case of rescission, the seller
resumes ownership in the goods. While the seller shall not be li-
able to the buyer upon the contract of sale, the latter, however,
may be made liable to the seller for damages for any loss occa-
sioned by the breach of contract. (par. 1; see Art. 1533, par. 1.)
(3) Manner of rescission. An election by the seller to rescind
may be manifested by notice to the buyer or by some other overt
act showing an intention to rescind. Communication of such elec-
tion to the buyer is not necessary. But, as in regard to resale (Art.
1533, par. 3.), the giving or failure to give notice is relevant in
determining the reasonableness of the time given the buyer to
make good his obligations under the contract. (par. 2.)
EXAMPLE:
S sold to B a car on credit. S has a right to withhold deliv-
ery in any of the following situations:
(1) B becomes insolvent, unless B gives sufficient guaranty
or security; or
(2) B promised to mortgage his house to secure the pur-
chase price and he failed to furnish said security as promised;
or
(3) If the payment of the purchase price is secured by a
mortgage on the house of B, but the house was partially burned
because of Bs fault; or was totally destroyed without Bs fault,
unless B gives a new security, equally satisfactory; or
(4) Where in consideration of the sale on credit, B obliged
himself, say, to repair the piano of S, and B failed to comply
with such undertaking; or
(5) Where B shows an intent not to pay the price after the
car is delivered to him.
EXAMPLE:
S sold his horse to B for P8,000.00. No date or condition
was stipulated for the delivery of the horse. While still in the
possession of S, the horse gave birth to a colt. Who has a right
to the colt?
(1) B is entitled to the colt which was born after the perfec-
tion of the contract. This holds true even if the delivery is sub-
Art. 1538 OBLIGATIONS OF THE VENDOR 255
Delivery of the Thing Sold
EXAMPLE:
S sold to B his car. If before delivery
(1) the car is lost or destroyed without the fault of S (as-
suming S is not guilty of delay and there is no contrary stipula-
tion that he shall be liable), the obligation to deliver is extin-
guished and B shall be obliged to pay the price if he has not
paid the same;
(2) if the loss is through Ss fault, he shall be liable to pay
damages to B;
Art. 1539 OBLIGATIONS OF THE VENDOR 257
Delivery of the Thing Sold
7
Art. 579. The usufructuary may make on the property held in usufruct such useful
improvements or expenses for mere pleasure as he may deem proper, provided he does
not alter its form or substance; but he shall have no right to be indemnified therefor. He
may, however, remove such improvements, should it be possible to do so without dam-
age to the property.
Art. 580. The usufructuary may set off the improvements he may have made on the
property against any damage to the same.
258 SALES Art. 1539
(3) If the vendee would not have brought the immovable had
he known of its smaller area or inferior quality irrespective of the
extent of the lack in area or quality. (pars. 4 and 5.)
The above remedies are also available under the second para-
graph of Article 1542.
Note that in case of fulfillment, the vendee is entitled only to
a proportionate reduction of the price where there is a deficiency
in area or number. (par. 2; see Azarraga vs. Gray, 52 Phil. 599
[1928].) The rule is different where there is a violation of the war-
ranty against hidden defects. (Art. 1571.) The vendor is also li-
able for damages. (Art. 1567; see Art. 1191, par. 2.)
the rules they contain are derived from the very nature of the
contract of sale.
The rules, however, may be varied or suppressed by agree-
ment between the contracting parties. (10 Manresa 138.)
it; hence, its greater or lesser area cannot influence the increase or
decrease of the price agreed upon, whether the object be single
realty or whether they are two or more immovables. The bounda-
ries of the land stated in the contract determine the effects and
scope of the sale, not the area thereof. (Semira vs. Court of Ap-
peals, 49 SCAD 93, 230 SCRA 577 [1994]; 10 Manresa 156-157.)
Hence, the vendor is obligated to deliver all the land included
within the boundaries, regardless of whether the real area should
be greater or smaller than that recited in the deed (Balantakbo vs.
Court of Appeals, 65 SCAD 74, 249 SCRA 323 [1995].) inasmuch
as it is the entirety thereof that distinguishes the determinate ob-
ject. (Roble vs. Arbasa, 152 SCAD 115, 362 SCRA 69 [2001], citing
Tolentino Civil Code of the Philippines, Vol. V, 1992 ed., p. 94.)
The possibility of error is a hazard which the parties must be
presumed to have assumed. This hazard is not one-sided but
works both ways. (Gonzales-Mondragon vs. Santos, 87 Phil. 471
[1950].) The rule in Article 1542, however, admits of exceptions.
(infra.)
(2) Where area or number stated together with boundaries. If
the vendor cannot deliver to the vendee all that is included within
the boundaries mentioned in the contract, the latter has the op-
tion to reduce the price in proportion to the deficiency or to set
aside the contract. (Art. 1542, par. 2.) The phrase should he not
be able to do so refers to a situation when the vendor, either be-
cause a part or parcel of the real estate does not belong to him,
cannot deliver all that is included within the boundaries. (see 10
Manresa 145-154.)
EXAMPLE:
S sold to B a parcel of land for the lump sum (or a cuerpo
cierto) of P300,000.00. The contract states that the area is 500
square meters. Subsequently, it was ascertained that the area
included within the boundaries is really 600 square meters.
In this case, S is bound to deliver all the 600 square meters
which are included within said boundaries without increase in
price. If S does not deliver also the extra 100 square meters, B
has the right to rescind the contract or pay a proportionately
reduced price, namely: 5/6 of the original price or P250,000.00.
262 SALES Art. 1542
ILLUSTRATIVE CASES:
1. The area of land sold for a lump sum is less than that stated
in the contract.
Facts: S sold to B lot No. 20, Calle San Jose, Ermita, Manila
for the sum of P3,200.00. The document recites that the tract
contains 152.46 square meters. On the date assigned for the
execution of the final deed of sale, B refused to pay the agreed
price claiming that the land was actually less in area than that
stated in the contract.
B claimed a proportional reduction of the price or else he
would not buy. So S brought action for specific performance.
Issue: Is B relieved from the obligation of paying the price?
Held: No. The fact that the specified parcel of land bought
by B at the price of P3,200.00 is not as large as he thought, does
not relieve him from the obligation of paying its price. If he
intended to buy by the meter, he should have so stated in the
contract. (Goyena vs. Tambunting, 1 Phil. 490.) In the matter of
sales of land made for a lump sum and not so much a unit of
measure or number, the boundaries of said land stated in the
contract, not the area thereof, are the determining factor of the
effects, scope, or meaning of said contract. The real and true
area of the land must prevail over that given in the document.
(Pacia vs. Lagman, 68 Phil. 351 [1939]; see Govt. vs. Abaya, 52
Phil. 261 [1928]; Govt. vs. Abad, 47 Phil. 573.)
2. In a sale of land for a lump sum, the deficiency in the stated
area to which the parties paid particular attention when they entered
into that contract was almost 1/3.
Facts: S sold to B the hacienda Maria which, according to S,
contained an area of 25 hectares more or less, the standing crop
thereon capable of yielding not less than 2,000 piculs of sugar.
During the negotiations, B always doubted the correctness of
the area and the amount of crop given by S who always as-
sured B that they were correct.
In short, the parties made the sale with particular attention
to the area.
It turned out that the land contained only 18 hectares and
the crop yielded only 800 piculs of sugar.
Issue: Has B the right to ask for rescission of the sale or the
proportionate reduction of the price?
Art. 1542 OBLIGATIONS OF THE VENDOR 263
Delivery of the Thing Sold
(3) Where there is conflict between area stipulated and title to prop-
erty. In case of conflict between the area included within the
stipulated boundaries and that which the title shows, the former
shall prevail when the boundaries are certain and no alteration
264 SALES Art. 1542
Prescription of actions.
The actions based on Articles 1539 and 1542 for either res-
cission of the contract or proportionate reduction of the price
Art. 1544 OBLIGATIONS OF THE VENDOR 267
Delivery of the Thing Sold
must be brought within six months counted from the day of de-
livery.
vendee who presents the oldest title (who first bought the
property) in good faith.
Article 1544 has no application to lands not registered with
the Torrens system. If the sale is not registered, it is binding only
as between the seller and the buyer; it does not affect innocent
third persons.
8
Now Section 51 of the Property Registration Decree. (Pres. Decree No. 1529.)
Art. 1544 OBLIGATIONS OF THE VENDOR 271
Delivery of the Thing Sold
cate of title does not apply to banks because their business is one
affected with public interest keeping in trust money belonging to
their depositors. They are expected to exercise greater case and
prudence before entering into a contract involving registered
lands. (Navarro vs. Second Laguna Development Bank, 398 SCRA
227 [2003].)
Note: The defense of indefeasibility of torrens title refers to sale
of lands, and not to sale of properties situated therein. Thus, the
mere fact that the lot where a factory and disputed properties
stand is in a persons name does not automatically make such
person the owner of everything found therein. (Tsai vs. Court of
Appeals, 156 SCAD 28, 366 SCRA 324 [2001].)
(5) Property attached while still registered in the name of judgment
debtor. A sale of real estate, whether made as a result of a pri-
vate transaction or of a foreclosure or execution sale, becomes
legally effective against third persons only from the date of its
registration. Consequently, where the property was actually at-
tached and levied upon at a time when said properties stood in
the official records of the Registry of Deeds as still owned by and
registered in the name of the judgment debtor, the attachment,
levy and subsequent execution sale made in favor of the judgment
creditor transferred to him all the rights of the judgment debtor
in the said property, unaffected by any prior transfer or
unencumbrance not so recorded therein.
While purchasers at execution sales should bear in mind that
the rule of caveat emptor applies to such sales (see Art. 1566.), that
the sheriff does not warrant the title to real property sold by him
as sheriff, and that it is not incumbent upon him to place the pur-
chaser in possession of such property, still the rule applies that a
person dealing with registered land is not required to go behind
the register to determine the condition of the property and he is
merely charged with notice of the burdens on the property which
are noted on the face of the register or the certificate of title.
(Campillo vs. Court of Appeals, 129 SCRA 513 [1984].) Accord-
ingly, in case of a conflict between a vendee and an attaching credi-
tor who registers the order of attachment and the sale of the prop-
erty to him as the highest bidder, the latter acquire a valid title to
the property as against the former who had previously bought
272 SALES Art. 1544
the same property from the registered owner but who failed to
register his deed of sale, but where the attaching creditor has
knowledge of a prior existing interest which is unregistered at a
time he acquired a right to the same land, his knowledge of that
prior unregistered interest has the effect of registration as to him.
(Ruiz, Sr. vs. Court of Appeals, 152 SCAD 86, 362 SCRA 40 [2001].)
(6) Unregistered property sold at execution sale was previously sold
by judgment debtor. A sale of unregistered land which sale has
not been registered in the office of the register of deeds is valid
and binding as between the parties themselves. (Galasicao vs.
Austria, 97 Phil. 83 [1955].) The rule in Article 1544 applies to lands
covered by Torrens title, where the prior sale is neither recorded
nor known to the execution purchaser prior to the levy.
But where the land is not registered under the Torrens Sys-
tem, the rule is different. While under Article 1544, registration
in good faith prevails over possession in the event of a double sale
by the vendor of the same piece of land to different vendees, said
article is of no application even if the latter vendee, at a sheriffs
execution sale which was registered, was ignorant of the prior sale
made by his judgment debtor in favor of another vendee. The
reason is that the purchaser of unregistered land at a sheriffs
execution sale only steps into the shoes of the judgment debtor,
and merely acquires the latters interest in the property sold as of
the time the property was levied upon. This is specifically pro-
vided by Section 35 of Rule 39 of the Rules of Court. (Carumba
vs. Court of Appeals, 31 SCRA 558 [1970]; see Hernandez vs.
Katigbak, 69 Phil. 744 [1940]; Executive Commission vs. Abadilla,
74 Phil. 68 [1943].)
(7) Notice of adverse claim was registered previous to sale to pos-
sessor. Since the owners copy of the certificate of title was not
delivered in due time to the first buyer despite the promise by
the seller (attorney-in-fact) to deliver the same in a few days, the
buyer registered with the Register of Deeds on September 6, 1982
his notice of adverse claim as vendee over the property sold. The
second sale was registered only on November 11, 1982 whereby
a new title was issued in favor of the second buyer. The first buyer
has a superior right to the property in question. Article 1544 is
clear that a prior right is accorded to the vendee who first recorded
Art. 1544 OBLIGATIONS OF THE VENDOR 273
Delivery of the Thing Sold
EXAMPLES:
(1) S sold to B a cash register. The register, however, was
allowed to remain in the hands of S. Subsequently, S sold the
same register to C who bought it in good faith and took posses-
sion thereof. Under the first paragraph of Article 1544, C should
be considered as the owner of the property sold. (see Olsen vs.
Yearsly, 11 Phil. 178 [1908].)
(2) S sold a parcel of land to B. Later, S sold the same land to C
who, in good faith, first registered the deed of sale. In case of
double registration, the title should remain in the name of the
person first securing registration in good faith. (see Legarda
and Prieto vs. Laleeby, 31 Phil. 500 [1915]; Reyes & Nadres vs.
Director of Lands, 50 Phil. 791 [1927]; Granados vs. Monton, 86
Phil. 429 [1950].)
Art. 1544 OBLIGATIONS OF THE VENDOR 279
Delivery of the Thing Sold
ILLUSTRATIVE CASES:
1. Sale of land to vendee a retro who never took material pos-
session was executed in a public instrument which was not recorded,
while sale to second buyer who took material possession was made by
means of a private document after lapse of period for repurchase.
280 SALES Art. 1544
her deed of sale four (4) days later, on February 12. (Carbonell
vs. Court of Appeals, supra.)
Teehankee, J., concurring: Both these registrations were in
good faith.9 As the first registrant, B is legally entitled to the
property. The fact that she registered only an adverse claim is
of no moment. B had to register such claim as first buyer other-
wise the subsequent registration of Cs deed of sale would have
obliterated her legal rights and enable S to achieve his fraudu-
lent act of selling the property a second time for a better price
in derogation of her prior right thereto. The fact that S informed
B that the former had sold the property to C did not convert Bs
prior registration of her adverse claim into one of bad faith.
The fraudulent act of S of informing B that he has wrongfully
sold his property for a second time cannot work out to his own
advantage and to the detriment of the first buyer (by being con-
sidered as an automatic registration of the second sale) and
defeat the first buyers right of priority, in time, in right, and in
registration.
Knowledge gained by the first buyer of the second sale can-
not defeat the first buyers rights except only as provided in
Article 1544 and that is where the second buyer first registers
in good faith the second sale ahead of the first. Such knowledge
of the first buyer does not bar her from availing of her rights
under the law, among them, to register first her purchase as
against the second buyer. But in converso knowledge gained by
the second buyer of the first sale defeats his rights even if he is
first to register the second sale since such knowledge taints his
prior registration with bad faith.
This is the price exacted by Article 1544 for the second buyer
being able to displace the first buyer; that before the second
buyer can obtain priority over the first, he must show that he
acted in good faith throughout (i.e., in ignorance of the first sale
and of the first buyers rights) from the time of acquisition
until the title is transferred to him by registration or, failing
registration, by delivery of possession. The second buyer must
show continuing good faith and innocence or lack of knowl-
edge of the first sale until his contract ripens into full owner-
ship through prior registration as provided by law.
9
The majority opinion ruled that C was a buyer in bad faith in view of other cir-
cumstances indicated in the decision.
Art. 1544 OBLIGATIONS OF THE VENDOR 283
Delivery of the Thing Sold
10
Respondents cannot even assert that as mortgagee of land registered under the
Torrens System, GSIS was not required to do more than rely upon the certificate of title.
As a general rule, where there is nothing on the certificate of title to indicate any cloud
or vice in the ownership of the property, or any encumbrance thereon, the purchaser is
not required to explore further than what the Torrens Title upon its face indicates in
quest for any hidden defect or inchoate right that may subsequently defeat his right
thereto. This rule, however, admits of an exception as where the purchaser or mortga-
gee has knowledge of a defect or lack of title in the vendor, or that he was aware of
sufficient facts to induce a reasonably prudent man to inquire into the status of the
property in litigation. (Ibid., citing State Investment House, Inc. vs. Court of Appeals,
254 SCRA 368 [1996].) When the purchaser or mortgagee is a bank or financing institu-
tion, the general rule that a purchaser or mortgagee of land is not required to look fur-
ther than what appears on the face of the title does not apply. (Sunshine Finance and
Investment, Corp. vs. Intermediate Appellate Court, 203 SCRA 210 [1991]; Philippine
National Bank vs. Office of the President, 252 SCRA 52 [1996].)
288 SALES Art. 1544
not apply to a case where the sale in favor of one party was the
property itself, while the transaction in favor of another was a mere
promise to assign or, at most, an actual assignment of the right to
repurchase the same property. (Dichoso vs. Roxas, 5 SCRA 781
[1962].)
(10) Sale of property subject of contract to sell/conditional sale to a
third person. In a contract to sell, there being no previous sale
of the property, a third person buying such property despite the
fulfillment of the suspensive condition such as the full payment
of the purchase price, for instance, cannot be deemed a buyer in
bad faith and the prospective buyer cannot seek the relief of re-
conveyance of the property. There is no double sale in such case.
Title to the property will transfer to the buyer after registration
because there is no defect in the owner-sellers title per se, but the
latter, of course, may be sued for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment
of the suspensive condition, the sale becomes absolute and this
will definitely affect the sellers title thereto. In fact, if there had
been previous delivery of the subject property, the sellers own-
ership or title to the property is automatically transferred to the
buyer such that, the seller will no longer have any title to transfer
to any third person. Applying Article 1544 of the Civil Code, such
second buyer of the property who may have had actual or con-
structive knowledge of such defect in the sellers title, or at least
was charged with the obligation to discover such defect, cannot
be a registrant in good faith. Such second buyer cannot defeat the
first buyers title. In case a title is issued to the second buyer, the
first buyer may seek reconveyance of the property subject of the
sale. (Coronel vs. Court of Appeals, 75 SCAD 141, 263 SCRA 15
[1996].)
oOo
291
Meaning of condition.
A condition, as used in Article 1545, means an uncertain event
or contingency on the happening of which the obligation (or right)
of the contract depends. In such a case, the obligation of the con-
tract does not attach until the condition is performed. (see Art.
1462, par. 2.)
(1) The term, in the context of a perfected contract of sale, per-
tains, in reality, to the compliance by one party of an undertak-
ing, the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party.
(Romero vs. Court of Appeals, 65 SCAD 621, 250 SCRA 223 [1995].)
291
292 SALES Art. 1545
(2) The term is not used in the sense of a promise with the
possible exception of the buyers promise to accept and pay for
the thing sold which is conditioned on the sellers performance
of his promise to deliver the thing as described and warranted.
(Art. 1545, par. 2.)
EXAMPLES:
(1) B (buyer) entered into a contract with S for the pur-
chase of certain machinery. The arrival of the goods to be
shipped from Japan is made a condition of the bargain, there
being no promise by S that the goods will arrive. If the machin-
ery does not arrive, S is not guilty of breach of contract.
But if S promises or warrants that the machinery will be
shipped or that it was already on its way, the non-arrival con-
1
A distinction must be made between a condition imposed on the perfection of a
contract and a condition imposed merely on the performance of an obligation. The fail-
ure to comply with the first condition would prevent the juridical relation itself from
coming into existence, while failure to comply with the second merely gives the option
either to refuse to proceed with the sale or to waive the condition. (Romero vs. Court of
Appeals, 65 SCAD 621, 250 SCRA 223 [1995]; Lim vs. Court of Appeals, 75 SCAD 574,
263 SCRA 560 [1996]; Babasa vs. Court of Appeals, 94 SCAD 679, 290 SCRA 532 [1998];
see Art. 1458.)
It has been held that a subdivision developer can rightly seek to ensure that the
property continues to meet the conditions and requirements, like building specifica-
tions and easement provisions stipulated in, and made part of the individual contracts
which its buyers. As developer of the property, it has its own agreed undertakings in
favor of the buyers which could well survive the transfer of ownerships and provide it
with such genuine stake in the controversy as would sufficiently clothe it with personal-
ity. (Fajardo, Jr. vs. Freedom to Build, Inc., 347 SCRA 474 [2000].)
Art. 1545 OBLIGATIONS OF THE VENDOR 293
Conditions and Warranties
2
The right of a party to rescind an obligation under Article 1191 of the Civil Code is
predicated on the non-compliance by the other party with what is incumbent upon him
that violates the reciprocity between them.
294 SALES Art. 1546
Meaning of warranty.
A warranty is a statement or representation made by the seller
of goods, contemporaneously and as a part of the contract of sale,
having reference to the character, quality, or title of the goods, and
by which he promises or undertakes to insure that certain facts
are or shall be as he then represents them. (see Black L.D. vs. Estes,
122 Ga. 807.)
Kinds of warranty.
Warranties by the seller may be express, as in the above arti-
cle, or implied, as in Article 1547.
The seller is liable for his express warranties (Art. 1546.) and
for the implied warranties of title (Art. 1547.), absence of hidden
defects (Ibid.), fitness or merchantability (Art. 1562.), description
(Arts. 1481, 1562.), and sample. (Arts. 1481, 1565.)
Art. 1546 OBLIGATIONS OF THE VENDOR 295
Conditions and Warranties
EXAMPLE:
S sells to B an automobile for P90,000.00, telling the latter
that it is a 1977 model and that it is worth about P100,000.00. B
sees the automobile and after a test run, expresses satisfaction
296 SALES Art. 1546
EXAMPLES:
(1) Expressions or advertisements like: the cigarette that
will give you utmost smoking pleasure, the most effective
pain reliever; you like it, it likes you, etc. are mere sales
talk or sellers puffing.
They are not construed as warranties because the buyer
knows that they are mere exaggerations.
Art. 1546 OBLIGATIONS OF THE VENDOR 297
Conditions and Warranties
ILLUSTRATIVE CASES:
1. The number of coconut trees is less than that stated in the
contract but it appeared that buyer inspected land and estimated
number of trees thereon.
Facts: B exchanged his property in Pasay City with Ss co-
conut plantation. In the deed of exchange, S stated that there
were no less than 6,000 coconut trees in his plantation.
Issue: Is S liable for breach of warranty?
Held: No. Where it does not appear that defendant (S) de-
liberately violated the truth when he stated his belief that there
were no less than 6,000 coconut trees on the land, and it ap-
pears that the plaintiff (B) inspected said land and estimated
the number of trees thereon before the exchange, no action will
lie for the rescission of the contract or for damages. (Gochingco
vs. Dean, 47 Phil. 687 [1925].)
2. Sugar cane crops sold yielded less than that represented but
seller made no guarantee of yield.
Facts: S sold his sugar cane crop to B for P12,000.00. Previ-
ous to the sale, S represented that the crop would yield 3,000
piculs. It yielded only 2,017 piculs instead. It was shown, how-
ever, that S did not and in fact refused to guarantee the quan-
tity of sugar which would be produced.
S bought action for the balance of the purchase price.
Issue: Is S guilty of misrepresentation?
Held: No. The law allows considerable latitude to sellers
statements, or dealers talk; and experience teaches that it is
exceedingly risky to accept it at its face value. The refusal of
the seller to warrant his estimate indicated that it was put forth
298 SALES Art. 1547
ILLUSTRATIVE CASE:
Seller of agricultural land warranted as free from all liens and
encumbrances was occupied by a tenant.
Facts: G sold a parcel of agricultural land to ID, Inc. war-
ranting that the land was free from all liens and encum-
brances. ID, Inc., in turn, sold the land to AA, Inc. to which
ID, Inc. warranted that the land was free from all liens, ad-
verse claims, encumbrances, claims of any tenant and/or agri-
cultural workers, whether arising as compensation for distur-
bance or from improvements. When G bought the land from
the original owner, it was forced to stop cultivating the land
because of the bulldozing caused by AA, Inc.
G filed a complaint against ID, Inc., AA, Inc. for disturbance
compensation under the land reform law. ID, Inc. in return, filed
a cross-claim against G in case of a judgment adverse to it while
AA, Inc. filed a cross-claim against ID, Inc.
Issue: Did G violate his warranty to ID, Inc.?
Held: No. The term hidden faults or defects in Article 1547
pertains only to those that make the object of the sale unfit for
the use for which it was intended at the time of the sale. Since
300 SALES Art. 1547
ILLUSTRATIVE CASE:
Lessor who, by virtue of stipulation in a contract of lease with
lessee, acquired ownership over jalousies sold on credit and delivered
to buyer (lessee) by seller, seeks nullification of sheriffs sale of said
items levied upon by seller who was the highest bidder.
Facts: P leased to B a building with a stipulation in the lease
contract that all permanent improvements made by B on the
leased premises shall belong to P and as part of the considera-
tion of the monthly rental. Subsequently, B purchased on credit
from S glass and wooden jalousies which were delivered and
installed in the leased premises by S, replacing the existing win-
dows.
For failure of B to pay for the items purchased, the same
was levied upon and sold at public auction with S as the high-
est bidder. P filed an action to nullify the sheriffs sale.
Issue: Will the action prosper?
Held: Yes. When the items in question were delivered and
installed in the leased premises, B became the owner thereof
even if the purchase price has been made on credit (see Arts.
1477, 1496, 1497.), and by virtue of the lease contract when levy
was made, B, the judgment debtor, was no longer the owner
thereof. The power of the court in execution of judgment ex-
tends only to properties unquestionably belonging to the judg-
ment debtor only, and the purchaser acquires only the right as
the debtor has at the time of the auction sale. (Sampaguita Pic-
tures, Inc. vs. Jalwindor Manufactures, Inc., 93 SCRA 419 [1979].)
Meaning of eviction.
Eviction may be defined as the judicial process, whereby the
vendee is deprived of the whole or part of the thing purchased
by virtue of a final judgment based on a right prior to the sale or
an act imputable to the vendor.
EXAMPLES:
(1) S sells a parcel of land to B. Subsequently, C files an
action for the recovery of possession, claiming that he is the
owner of the land. At the instance of B, S was summoned to
defend his title. The court renders final judgment, declaring
that C has a better right. Accordingly, B is evicted.
In this case, S is liable to B for failure to comply with his
warranty against eviction. Here, the judgment is based on a
right of a third person prior to the sale.
(2) In the same example, suppose S was really the owner
of the parcel of land. However, B did not have the sale regis-
tered. Immediately, S sold the same land to C who, in good
faith, registered the sale.
Here, the right upon which C based his claim is posterior
to the sale. Nevertheless, B can sue S for damages because of
the breach of warranty against eviction, the act giving rise to
Cs right being imputable to the vendor.
304 SALES Art. 1549
Effect of prescription.
By prescription, one acquires ownership and other real rights
through the lapse of time in the manner and under the conditions
prescribed by law. In the same way, rights and actions are lost by
prescription. (Art. 1106.)
(1) Completed before sale. The vendee may lose the thing
purchased to a third person who has acquired title thereto by
prescription. When prescription has commenced to run against
the vendor and was already complete before the sale, the vendee
can enforce the warranty against eviction. In this case, the depri-
vation is based on a right prior to the sale and an act imputable to
the vendor.
(2) Completed after sale. Even if prescription has started
before the sale but has reached the limit prescribed by law after
the sale, the vendor is not liable for eviction. The reason is that
the vendee could easily interrupt the running of the prescriptive
period by bringing the necessary action.
If the property sold, however, is land registered under the
Torrens system, Article 1550 will have no application. Under the
Torrens system, ownership of land is not subject to prescription.
EXAMPLES:
(1) S sold to B a parcel of land which is claimed by C, who
has been in possession of the property in the concept of owner
publicly and continuously for 30 years. Under the law, C is
deemed to have acquired ownership over the land by prescrip-
tion without need of title or of good faith. (see Art. 1137.)
In this case, S shall be liable to B in case of eviction.
306 SALES Arts. 1551-1552
the expense of litigation (see Rules of Court, Rule 142, Sec. 1.) re-
sulting in eviction, including the costs of the action brought
against the vendor to enforce his warranty. Costs of the suit
mentioned in No. (3) does not include travelling expenses incurred
by the vendee in defending himself in the action. (see Orense vs.
Jaucian, 18 Phil. 553 [1911].) He is not entitled to recover damages
unless the sale was made by the vendor in bad faith. (No. 5.)
(4) Expenses of the contract. In the absence of any stipula-
tion to the contrary, the expenses in the execution and registra-
tion of the sale are borne by the vendor. However, if the vendee
should have paid for such expenses, he shall have the right to
demand the same from the vendor.
(5) Damages and interests. The right of the vendee to demand
damages and interests and ornamental expenses is qualified by
the condition that the sale was made in bad faith. If good faith is
presumed, the vendee is not entitled to recover damages unless
bad faith on the part of the vendor is shown in making the sale.
(see Pascual vs. Lesaca, 91 Phil. 920 [1952].) The word interests
does not cover interest on the purchase price as in lieu thereof the
vendee is entitled to the fruits of the thing, and in cases he has
been ordered by a court to deliver the fruits to the successful party,
the vendor must indemnify him. (see No. 2.)
ILLUSTRATIVE CASE:
Buyer purchased land after having been informed of prior right
of another to purchase the same based on prior occupancy.
Facts: In 1952, S executed in favor of B a contract to sell a
lot. At the time of the execution of the contract, the parties knew
that a portion of the lot was occupied by T. It was the under-
standing of the parties that T would be ejected by S from the
premises. After the installments were paid, the deed of sale was
executed. In 1958, S filed a complaint for ejectment against T,
but the court ruled against S, owing to a compromise agree-
ment in another case between S and D.
B filed an action against S to enforce the vendors warranty
against eviction or recover the value of the land. It appears that
the compromise agreement with D was sanctioned by the court
and the prior right of T to purchase the lot in question was
based more on his prior occupancy of the same since 1949 about
Art. 1555 OBLIGATIONS OF THE VENDOR 311
Conditions and Warranties
EXAMPLE:
S sells to B a parcel of land, represented by S as containing
500 square meters, at the rate of P200.00 per square meter. B
needs a lot of at least 500 square meters on which to build a fac-
tory. B is evicted from a 20-square-meter portion of the land. B
would not have bought the land had he known of its smaller area.
Under the facts, B can either sue for damages for breach of
warranty or demand rescission of the contract. He can also ex-
Arts. 1557-1558 OBLIGATIONS OF THE VENDOR 313
Conditions and Warranties
ILLUSTRATIVE CASE:
In the eviction suit which was a mere incident in a land registra-
tion proceedings for the cancellation of title, the vendee merely fur-
nished the vendor with a copy of the formers opposition to the peti-
tion for cancellation.
Facts: B, vendee, bought from S, vendor, 24 hectares of land
which S had purchased from R. At the time of the sale, the prop-
erty was still covered by OCT in the name of R. Subsequently,
Art. 1559 OBLIGATIONS OF THE VENDOR 315
Conditions and Warranties
mistake. (Art. 1331; see Arts. 1556, 1566; see Pineda vs. Santos, 56
Phil. 583 [1982].)
Note: A servitude (or easement) is an encumbrance imposed
upon an immovable for the benefit of another immovable belong-
ing to a different owner. (Art. 615.) An example of an apparent
servitude is a right of way establishing a permanent passage (Art.
649, par. 2.), which is continually kept in view by external sign.
An example of a non-apparent easement is a party wall (Art. 659.)
which has no exterior sign. (Art. 660.)
(2) When right cannot be exercised. The alternative rights
granted by Article 1560 cannot be exercised in the following cases:
(a) If the burden or servitude is apparent, that is, made
known and is continually kept in view by external signs that
reveal the use and enjoyment of the same (Art. 615, par. 4.);
(b) If the non-apparent burden or servitude is registered;
and
(c) If the vendee had knowledge of the encumbrance,
whether it is registered or not.
The registration of the non-apparent burden or servitude in
the Registry of Property operates as a constructive notice to the
vendee. Hence, the vendor is relieved from liability unless there
is an express warranty that the immovable is free from any such
burden or encumbrance. If the burden is known to the vendee,
there is no warranty. (par. 1.)
(3) When action must be brought. The action for rescission or
damages must be brought within one year from the execution of
the deed of sale. If the period has already elapsed, the vendee may
only bring an action for damages within one year from the date of
the discovery of the non-apparent burden or servitude. (pars. 2 and
3.)
Definition of terms.
(1) Redhibition is the avoidance of a sale on account of some
vice or defect in the thing sold, which renders its use impossible,
or so inconvenient and imperfect that it must be supposed that
the buyer would not have purchased it had he known of the vice.
(Civil Code La., Art. 2406.)
(2) Redhibitory action is an action instituted to avoid a sale on
account of some vice or defect in the thing sold which renders its
use impossible, or so inconvenient and imperfect that it must be
supposed that the buyer would not have purchased it had he
known of the vice. (Cyc., Law Dictionary, 3rd ed., 945.) The ob-
ject is the rescission of the contract. If the object is to procure the
return of a part of the purchase price paid by the vendee, the rem-
edy is known as accion quanti minoris or estimatoris. (10 Manresa
226-227; see Art. 1567.)
(3) Redhibitory vice or defect is a defect in the article sold against
which defect the seller is bound to warrant. (see Cyc., Law Dic-
tionary, 3rd ed., 1945.) The vice or defect must constitute an im-
perfection, a defect in its nature, of certain importance; and a
minor defect does not give rise to redhibition. The mere absence
of a certain quality in the thing sold which the vendee thought it
to contain is not necessarily a redhibitory defect. One thing is that
the thing lacks certain qualities and another thing is that it posi-
tively suffers from certain defects. (10 Manresa 227-228.)
& Co., 3 Phil. 284 [1904].) It is one which is hidden to the eyes and
cannot be discovered by ordinarily careful inspection or exami-
nation. Hence, there is no warranty if the defect is patent or vis-
ible. For the same reason, the vendors liability for warranty can-
not be enforced although the defect is hidden if the vendee is an
expert who, by reason of his trade or profession, should have
known it.
The same defect, therefore, may be hidden with respect to one
person, but not hidden with respect to another.
EXAMPLE:
S sold to B a house. After the sale, B discovered that the
main posts of the house and other interior parts had been de-
stroyed by anay and bukbok and as a result, many parts of
the house were in danger of collapsing. The defects of the house
were hidden and concealed and were unknown to B until a
closer inspection was made by him.
Under the circumstances, S is liable for the defects even
though he was not aware thereof (Art. 1566.) and B may elect
between the rescission of the contract and a proportionate re-
duction of the price, with damages in either case. (Art. 1567.)
ILLUSTRATIVE CASE:
Buyer refused, three years after acceptance, to pay balance of pur-
chase price of tobacco claiming it was not of good quality.
Facts: S sold to B at a fixed price certain quantity of tobacco
without specification as to quality. After receiving the merchan-
dise, B fully examined the same by opening many of the bun-
dles and examining the contents thereof and admitted the quan-
tity and the price.
Without making any allegation of fraud, B made a partial
payment. After a lapse of three years, B refused to pay the bal-
ance, claiming that the tobacco was not of good quality.
Issue: Is B liable for the balance of the purchase price?
Held: Yes. In the absence of an express warranty, the ven-
dor only impliedly warrants the legal and peaceful possession
of the thing sold and that there are no hidden defects. (see Art.
1547.) B is, therefore, liable for the balance of the purchase price.
Art. 1561 OBLIGATIONS OF THE VENDOR 321
Conditions and Warranties
(Chong Yong Tek vs. Santos, 13 Phil. 52 [1909]; see Phil. Manufac-
turing Co. vs. Go Juco, 48 Phil. 621 [1925].)
ILLUSTRATIVE CASE:
Buyer refused to pay balance of purchase price of a steel door on
ground of hidden defects.
Facts: Under a contract, S manufactured and installed a steel
door on Bs building. B complained of defects on the door and
repairs were made by Ss employees. Subsequently, S made a
new door but B refused to accept the same. B claimed that the
defect of the steel door in question was hidden within the con-
templation of Article 1561, and, therefore, he was not liable to
pay the balance of the purchase price.
322 SALES Art. 1562
ings. They are based on the principle that honesty is the best
policy. (see Bekkevold vs. Potts, 216 N.W. 790.)
(1) Implied warranty of fitness. There is no implied warranty
as to the quality or fitness for any particular purpose of goods
under a contract of sale, except as follows: where: (a) the buyer,
expressly or by implication, manifests to the seller the particular
purpose for which the goods are required, and (b) the buyer re-
lies upon the sellers skill or judgment. Then, whether he be the
grower or manufacturer or not there is an implied warranty
that the goods are reasonably fit for such purpose. (Babb & Mar-
tin, op. cit., p. 94.)
(a) Particular purpose of goods. It is not some purpose
necessarily distinct from a general purpose. For example, the
general purpose for which all food is bought is to be eaten, and
this would also be the particular purpose in a specific instance.
It is, in fact, the purpose expressly or impliedly communicated
to the seller for which the buyer buys the goods; and it may
appear from the very description of the article as, for exam-
ple, coatings or a hot water bottle. But where an article is
capable of being applied to a variety of purpose, the buyer
must particularize the specific purpose he has in view. (1
Williston, op. cit., p. 661.)
(b) Test. It is whether the buyer justifiably relied upon
the sellers judgment that the goods furnished would fulfill
the desired purpose, or whether relying on his own judgment,
the buyer ordered or bought what is frequently called a
known, described, and definite article. (Ibid., p. 607; see Art.
1563; Co Cho Chit vs. Henson, Oath & Stevenson, Inc., 103
Phil. 956 [1958].) The occupation of the seller is important
evidence of the justifiableness of the buyers reliance. And
where the buyer has had no opportunity for previous inspec-
tion, he is entitled to rely, and will naturally be presumed to
have relied, upon the sellers skill and judgment.
(2) Implied warranty of merchantability. Where goods are
bought by description, the seller impliedly warrants that the goods
are of merchantable quality.
(a) Merchantability. It is not a warranty of quality in the
sense of requiring a particular grade, but it does require iden-
324 SALES Art. 1562
ILLUSTRATIVE CASE:
Machine purchased was in accordance with specifications in con-
tract but did not give the result expected by buyer.
Facts: Under a contract of sale, S delivered and installed in
Bs establishment a refrigerating machine. The machine was in
perfect accord with the description made in the contract but it
did not give the result expected by B. S brought action to re-
cover the balance of the purchase price.
Issue: Is Bs action in refusing to pay such balance justifi-
able considering that he could not use the machine satisfacto-
rily in his establishment?
Held: No. The inability of B to use the machine satisfacto-
rily cannot be attributed to any defect in the machine nor to Ss
fault since the machine was strictly in accordance with the speci-
fications in the written contract of sale. (Pacific Commercial Co.
vs. Ermita Market & Cold Stores, 56 Phil. 617 [1932].)
EXAMPLE:
B went to Western Motors, Inc. to buy a car. After he was
shown cars of different models and makes, he chose a Cougar
car model 1982. B intended to enter the car in a race but this
fact was not made known to the seller.
If the car should not run as fast as B had expected, Western
Motors, Inc. is not liable because in buying the Cougar car, B
relied upon his own judgment. But if the seller was informed
of the purpose of B and B was assured that the car had a maxi-
mum speed of, say, 150 kilometers per hour, there is an express
warranty for a particular purpose and Western Motors is liable
if the car should not be fit for such purpose.
3
A basic premise of this doctrine is that there be no misrepresentation by the seller.
This ancient defense of caveat emptor belongs to a by-gone age, and has no place in con-
temporary business ethics. (Erquiaga vs. Court of Appeals, 156 SCAD 810, 367 SCRA
357 [2001].)
Art. 1566 OBLIGATIONS OF THE VENDOR 329
Conditions and Warranties
the hidden defects and the sale was made without the seller re-
vealing them, but in the latter cases, the basis of the sellers liabil-
ity was for fraud. The Roman Law, like the English law, started
with the doctrine of caveat emptor.
(1) The old Civil Code, following the Roman Law, rejected the
maxim caveat emptor. (see Art. 1547.) The doctrine of caveat vendi-
tor (let the seller beware) was adopted in accordance with which
the vendor is liable to the vendee for any hidden faults or de-
fects in the thing sold, even though he was not aware thereof. (Art.
1585, now Art. 1566 of our new Civil Code.) The doctrine is based
on the principle that a sound price warrants a sound article.
A manufacturer or seller of a product cannot be held liable
for any damage allegedly caused by the product in the absence
of any proof that the product in question was defective. The de-
fect must be present upon delivery or manufacture of the prod-
uct, or when the product left the sellers or manufacturers con-
trol; or when the product was sold to the purchaser; or the prod-
uct must have reached the user or consumer without substantial
change in the condition it was sold. Tracing the defect to the seller
or manufacturer requires some evidence that there was no tam-
pering with, or changing of the product. (Nutrimix Feeds Corpo-
ration vs. Court of Appeals, 441 SCRA 357 [2004].)
(2) The maxim caveat emptor is still applicable, however, in
sheriffs sales (Pabico vs. Ong Pauco, 43 Phil. 57 [1922]; Allure
Manufacturing, Inc. vs. Court of Appeals, 199 SCRA 285 [1991].),
sales of animals under Article 1574, and tax sales (see Art. 1547,
last par.) for there is no warranty of title or quality on the part of
the seller in such sales. It also applies in double sales of property
where the issue is who between two vendees has a better right to
the property. (see Art. 1544.)
The rule of caveat emptor requires the purchaser to be aware
of the supposed title of the vendor and one who buys without
checking the vendors title takes all the risks and losses consequent
to such failure. (Salvoso vs. Tanega, 87 SCRA 349 [1978].) But a
person dealing with registered land is merely charged with no-
tice of the burdens on the property which are noted on the face of
the register or the certificate of title. (Campillo vs. Court of Ap-
peals, 129 SCRA 513 [1984].)
330 SALES Arts. 1567-1568
lost, he shall bear the loss because he acted in bad faith. In such
case, the vendee has the right to recover:
(a) the price paid;
(b) the expenses of the contract; and
(c) damages.
(2) Vendor not aware of hidden defects. If the vendor was not
aware of them, he shall be obliged only to return:
(a) the price paid;
(b) interest thereon; and
(c) expenses of the contract if paid by the vendee. He is
not made liable for damages because he is not guilty of bad
faith.
EXAMPLE:
S sold to B a vessel for P5,000,000.00. The defects of the
construction of the vessel were hidden and concealed and were
unknown to B until an official inspection was made. To make
the vessel seaworthy, an investment of P500,000.00 for repairs
was necessary.
If through the fault of B, the vessel was burned, S is never-
theless bound to return the purchase price of P5,000,000.00 paid
by B less P4,500,000.00 the value of the vessel at the time of the
loss.
judgment which is null and void, necessarily is also null and void.
(Ver vs. Quetulio, 163 SCRA 80 [1988].)
(2) As to government. In judicial sales, the principle of ca-
veat emptor applies, according to which the purchaser acquires by
his purchase no higher or better title or right than that of the judg-
ment debtor. If the latter has no right, interest, or lien in and to
the property sold, the purchaser acquires none. (Lanci vs. Yangco,
52 Phil. 563 [1928]; Laxamana vs. Carlos, 57 Phil. 722 [1929];
Parreno vs. Ganancial, 29 SCRA 786 [1969]; Tay Chun Suy vs.
Court of Appeals, 47 SCAD 139, 229 SCRA 151 [1994].) The rule
of caveat emptor which governs sheriffs sales puts the purchaser
upon inquiry as to the debtors title, there being no warranty of
title, such sales being involuntary as distinguished from volun-
tary transactions, and if he buys, he must do so at his own peril
(Enriquez vs. De Delgado, [C.A.] No. 24466 R, Dec. 8, 1961.), and
it is not incumbent on the sheriff to place the purchaser in pos-
session of the property. (Pabico vs. Ong Pauco, 43 Phil. 572 [1923].)
EXAMPLE:
S sold to B two carabaos for P10,000.00. If one carabao is
defective, S is liable for his warranty on the defective animal
only. In other words, B is not entitled to return the sound carabao
unless he can show that he would not have purchased it with-
out the defective one.
Such intention is presumed when the carabaos bought are
a male and a female but S may prove the contrary as, for exam-
ple, B has no present need or use for two carabaos.
In any event, B can accept the defective carabao and de-
mand a proportionate reduction of the price.
Article 1561. This article contemplates a sale that has been per-
fected and consummated.
oOo
340 SALES
Chapter 5
1
The vendor and the vendee are legally free to stipulate for the payment of either
the cash price of the thing sold or its installment price. Should the vendee opt to purchase
via the installment payment system which has been the custom and widely used in our
present-day commercial life with respect to purchase and sale of subdivision lots, he is,
in effect, paying interest on the cash price whether the fact and rate of such interest
payment is disclosed in the contract or not. (Relucio vs. Brillante-Garfin, 187 SCRA 405
[1990].)
340
Art. 1582 OBLIGATIONS OF THE VENDEE 341
Pertinent rules.
In connection with the above obligations, the following rules
must be borne in mind:
(1) In a contract of sale, the vendor is not required to deliver
the thing sold until the price is paid nor the vendee to pay the
price before the thing is delivered in the absence of an agreement
to the contrary (La Font vs. Pascacio, 5 Phil. 591 [1906]; see Art.
1524.);
(2) If stipulated, then the vendee is bound to accept delivery
and to pay the price at the time and place designated;
(3) If there is no stipulation as to the time and place of pay-
ment and delivery, the vendee is bound to pay at the time and
place of delivery;
(4) In the absence also of stipulation, as to the place of deliv-
ery, it shall be made wherever the thing might be at the moment
the contract was perfected (Art. 1251.); and
(5) If only the time for delivery of the thing sold has been fixed
in the contract, the vendee is required to pay even before the thing
is delivered to him; if only the time for payment of the price has
been fixed, the vendee is entitled to delivery even before the price
is paid by him. (see Art. 1524.)
342 SALES Art. 1582
EXAMPLES:
(1) S sold to B a specific refrigerator for P7,000.00. S is not
bound to deliver the refrigerator until payment by B; neither is
B required to pay P7,000.00 until delivery by S. From the mo-
ment either party performs his obligation, the other must com-
ply with his part; otherwise, he will be guilty of delay. (Art.
1169, par. 3.)
(2) If it has been stipulated that B must accept the refrig-
erator and pay the price at the house of S on October 10, then B
is bound to accept delivery and to pay the price on October 10
at the house of S.
(3) If there is no stipulation, as to the time and place of
delivery and S delivers the refrigerator at the house of B on
October 10, then B is bound to accept the refrigerator and to
pay the price at the same time and place.
(4) If there is also no stipulation, S is not required to de-
liver the refrigerator at the house of B because in such case the
place of delivery shall be where the refrigerator was at the
moment the contract was perfected. So if it was at the house of
S at that time, then that is the place of delivery and also the
place of payment. (Art. 1582, par. 2.)
(5) If the obligation of S to deliver is subject to a period
which has not yet arrived, B is bound to pay even before the
refrigerator is delivered to him. On the other hand, if the sale is
on credit, B is entitled to its delivery though the price be not
first paid.
ILLUSTRATIVE CASE:
See No. (2) above.
Facts: PAL purchased and acquired a majority of the shares
of FEATI. These two airlines were, previous to the said pur-
chase, then competing in various air routes throughout the
Philippines with the result that both companies were losing
and it became necessary to maintain only one airline. The pur-
chase gave rise to the problem of what to do with the FEATI
employees. After some negotiations, the parties finally reached
an agreement on May 21, 1947, whereby PAL agreed to absorb
some 70% of the FEATI employees under the same terms and
conditions as they worked for the FEATI until such time as they
come to a definite understanding.
Under the collective agreement on August 1, 1946 between
FEATI and its employees, through their union, the latter were
granted vacation and sick leaves with pay every year. On July
9, 1947, PAL reached a definite understanding with the un-
ion whereby they entered into an agreement cancelling the
agreements of May 21, 1947 and August 1, 1946. It also pro-
vided for the laying off of all the FEATI employees as of June 15,
1947 and the payment of 1-1/2 months separation pay which
amounted roughly to P150,000.00.
The FEATI employees union filed a petition with the (de-
funct) Court of Industrial Relations praying that PAL be ordered
to pay vacation and sick leave with pay from August 1, 1946,
which had already accrued at the time they were laid-off on June
15, 1947. The employees claim that when PAL bought out FEATI,
the former assumed all the obligations and rights of the latter.
Issue: Is PAL legally liable for the payment of the money
equivalent of the vacation and sick leave earned from FEATI?
Held: No. As the obligation of FEATI is of considerable
value, which in this case amounts to P100,000.00, and FEATI
was bought out by PAL not to continue its business but to stop
its operation in order to eliminate competition, as shown by
the fact that all the employees of FEATI were laid-off, it cannot
be said that PAL assumed the obligations of FEATI, its rival
344 SALES Art. 1583
the same time. Similarly, a buyer has no right to pay the price in
installments. Neither can he be required to make partial payments.
By agreement, however, the goods may be deliverable by
installments or the price payable in installments. (see Art. 1248.)
(2) Where separate price has been fixed for each installment.
Where the contract provides for the delivery of goods by
installments and a separate price has been agreed upon for each
installment, it depends in each case on the terms of the contract
and the circumstances of the case whether the breach thereof is
severable or not.
(a) Where breach affects whole contract. If the seller makes
defective, partial or incomplete deliveries or the buyer wrong-
fully neglects or refuses to accept delivery or fails to pay any
installment, the injured party may sue for damages for breach
of the entire contract if the breach is so material (e.g., breach
of one installment prevents the further performance of the
contract) as to affect the contract as a whole.
(b) Where breach severable. Where the breach is severable,
it will merely give rise to a claim for compensation for the par-
ticular breach but not a right to treat the whole contract as
broken.
ILLUSTRATIVE CASE:
Seller, after making partial deliveries, flatly refused to make any
more delivery.
Facts: S agreed to deliver to B monthly for a period of ten
years a specified amount of water gas tar and coal gas tar. S
failed to make delivery up to a certain date and flatly refused
to make any delivery under the contract.
Issue: May B sue for breach of the entire contract?
Held: Yes. As a general rule, a contract to do several things
at several times is divisible in nature, so as to entitle the injured
party to damages from time to time for breaches as they occur.
But an unqualified and positive refusal to perform a contract,
though the performance thereof is not yet due, may be treated
as a complete breach entitling and requiring the injured party
to recover all his damages in one suit. (Blossom & Co. vs. Manila
Gas Corporation, 55 Phil. 226 [1930].)
346 SALES Art. 1584
the goods to the buyer, delivery of the goods to a carrier for the
purpose of transmission to the buyer is deemed to be delivery to
the buyer. (see Art. 1523, par. 1.)
(a) Although title passes to the buyer by the mere deliv-
ery to the carrier, the buyer unless the goods are sent C.O.D.
which is the normal procedure in importations, has the right
to examine the goods before paying. In this case, the right to
examine the goods is a condition precedent to paying the price
after ownership has passed.
(b) It should be noted that even in a C.O.D. sale, the buyer
is allowed to examine the goods before payment of the price
should it have been so agreed upon or if it is permitted by
usage. (par. 3.)
(3) Right of examination not absolute. The buyer does not have
an absolute right of examination since the seller is bound to af-
ford the buyer a reasonable opportunity of examining the goods
only on request. (par. 2.) If the seller refused to allow opportu-
nity for the inspection, the buyer may rescind the contract and
recover the price or any part of it that he has paid.
(4) Right to be exercised within reasonable time. While Article
1584 accords the buyer the right to a reasonable opportunity to
examine the goods to ascertain whether they are in conformity
with the contract, such opportunity to examine should be availed
of within a reasonable time in order that the seller may not suffer
undue delay or prejudice. (Grageda vs. Intermediate Appellate
Court, 155 SCRA 95 [1987].)
(5) Waiver of right to examine before payment. The right of
inspection may, of course, be given up by the buyer by stipula-
tion. (Ibid.) The waiver, however, need not be in express terms.
An illustration of a bargain inconsistent with examination of the
goods before payment is a contract by which goods are to be sent
to the buyer C.O.D. (par. 3.) But the buyer is still entitled to ex-
amine the goods after their delivery and payment of the price. (par.
1.) Here, the right of examination is a condition subsequent after
transfer of ownership and payment of the price.
the seller fails to give him a copy of the contract to sell despite
repeated demands therefor. A buyer is entitled to a copy of the
contract to sell; otherwise, he would not be informed of his rights
and obligations under the contract. (Gold Loop Properties, Inc.
vs. Court of Appeals, 142 SCAD 238, 350 SCRA 371 [2001].)
(2) When vendee has no right. In the following cases, the
vendee cannot suspend the payment of the price even if there is
disturbance in his possession or ownership of the thing sold:
(a) if the vendor gives security for the return of the price
in a proper case;
(b) if it has been stipulated that notwithstanding any such
contingency, the vendee must make payment (see Art. 1548,
par. 3.);
(c) if the vendor has caused the disturbance or danger to
cease (see Bareng vs. Court of Appeals, 107 Phil. 641 [1960].);
(d) if the disturbance is a mere act of trespass; and
(e) if the vendee has fully paid the price.
If the thing sold is in the possession of the vendee and the price
is already in the hands of the vendor, the sale is a consummated
contract and Article 1590 is no longer applicable. Article 1590
presupposes that the price or any part thereof has not yet been
paid and the contract has not yet been consummated. (10 Manresa
286-287.)
2
See note 4 to Article 1458.
3
In the case of Luzon Brokerage Co., Inc. vs. Maritime Bldg. Co., Inc. (see facts, infra.), S
demanded from LBC, to whom B leased the properties sold, the payment of the monthly
rentals and the surrender of the same to S. As a consequence, LBC filed an action for
interpleader. S, in its answer, filed a cross-claim against B praying for the confirmation
of its right to cancel the contract. The Supreme Court held that even if the contract were
considered an unconditional sale so that Article 1592 could be deemed applicable, Ss
answer to the complaint for interpleader in the lower court constituted a judicial de-
mand for the rescission of the contract.
Art. 1592 OBLIGATIONS OF THE VENDEE 357
4
We concede the validity of the automatic forfeiture clause, which deems any pre-
vious payments forfeited and the contract automatically rescinded upon the failure of
the vendee to pay three successive monthly installments or any one year-end lump sum
payment. However, petitioners failed to prove the conditions that would warrant the
implementation of this clause. (Valarao vs. Court of Appeals, 104 SCAD 114, 304 SCRA
155 [1999].)
358 SALES Art. 1592
pia Housing, Inc. vs. Panasiatic Travel Corporation, 395 SCRA 298
[2003].)
In other words, the vendee, in Nos. (1) and (2) above, may no
longer pay the price after the expiration of the time agreed upon
although no demand has yet been made upon him by suit or
notarial act, except that in the case of sale on installment payments
of residential properties, while the vendors right to cancel the
contract to sell upon breach by non-payment of the stipulated
installments is recognized by R.A. No. 6552, a grace period is re-
quired, with the vendee entitled to refund of certain percentages
of payments in the event that the contract is cancelled. But the
rule upholding the validity of automatic rescission clauses con-
tained in contracts to sell industrial and commercial real estates
on installments upon failure to pay stipulated installments, and
allowing the retention or forfeiture as rentals of the installments
previously paid, is not applicable to a contract to sell real estate
on installments which is not essentially such a contract but is more
of a contract for the redemption of mortgaged property foreclosed
by the mortgagee. (Phil. National Bank vs. Court of Appeals, 94
SCRA 357 [1979].)
R.A. No. 6552 makes no distinction between option and
sale which, under Section 2(b) of P.D. No. 957 (Appendix B.),
virtually includes all transactions concerning land and housing
acquisition including reservation agreements. (Realty Exchange
Venture Corp. vs. Sendino, 53 SCAD 57, 233 SCRA 665 [1994].)
This law, which normally applies to all transactions or contracts,
involving the sale or financing of real estate on installments pay-
ments, including residential condominium apartments, excludes
industrial lots, commercial buildings, and sales to tenants under
R.A. No. 3844, the Code of the Agrarian Reforms.5 (Odyssey Park,
Inc. vs. Court of Appeals, supra.) It has been held that a decision
in an ejectment case can operate as notice of cancellation required
by Section 3(b) of R.A. No. 6552. (Leao vs. Court of Appeals, 158
SCAD 34, 369 SCRA 36 [2001].)
5
Superseded by R.A. No. 6657, otherwise known as the Comprehensive Agrarian
Reform Law of 1988.
362 SALES Art. 1593
ILLUSTRATIVE CASE:
Vendor, retaining ownership of immovable property sold, under-
took to convey it provided vendee, who defaulted, paid in full balance
of purchase price payable in monthly installments.
Facts: S, vendor, entered into a contract entitled Deed of
Conditional Sale with B, vendee, involving three parcels of
land with the improvements thereon. The purchase price was
P1,000,000. The amount of P50,000 was paid upon the execu-
tion of the deed and the balance of P950,000 was to be paid in
monthly installments of P10,000 a month with interest. It was
stipulated that in case of failure to pay any of the installments,
the contract would be annulled at the vendors option, all pay-
ments forfeited, and the property repossessed.
S advised B of the cancellation of the deed of conditional
sale and demanded the return of the property, B having failed
to pay three installments. Upon suit, B invoked Article 1592.
Issue: Is Article 1592 applicable?
Held: No. Ss obligation to convey the property was ex-
pressly made subject to a suspensive (precedent) condition of
the punctual and full payment of the balance of the purchase
price. What S sought was a judicial declaration that because
the suspensive condition (full and punctual payment) had not
been fulfilled, his obligation to sell to B never arose or never
became effective, and, therefore, S was entitled to repossess the
property object of the contract, possession being a mere inci-
dent to its right of ownership. In seeking the ouster of B for
failure to pay the price as agreed upon, S was not rescinding
(or more properly, resolving) the contract, but precisely enforc-
ing it according to its express terms.
In short, the contract in question was not the ordinary con-
tract of sale envisaged in Article 1592 transferring ownership
simultaneously with delivery but one in which the vendor re-
tained ownership of the immovable property object of the sale,
merely undertaking to convey it provided B strictly complied
with the terms of the contract. (Luzon Brokerage Co., Inc. vs.
Maritime Building Co., Inc., supra.)
EXAMPLE:
S sold his piano to B for P30,000.00; said piano is to be de-
livered on October 18. If on October 18, B does not accept de-
livery or pay the price without lawful cause, then S may elect
to enforce compliance or to rescind the contract with the right
to damages in either case.
This is not true in the case of real property which has more or
less stable price in the market and the delay that might result from
the requirement imposed on the vendor to demand rescission
before being entitled to rescind the contract will not in any way
prove detrimental to the interest of the vendor. (see 10 Manresa
291.)
oOo
365
Chapter 6
Actions available.
In general, the actions available for breach of the contract of
sale of goods are the following:
(1) action by the seller for payment of the price (Art. 1595.);
(2) action by the seller for damages for non-acceptance of the
goods (Art. 1596.);
365
366 SALES Art. 1595
(3) action by the seller for rescission of the contract for breach
thereof (Art. 1597.);
(4) action by the buyer for specific performance (Art. 1598.);
and
(5) action by the buyer for rescission or damages for breach
of warranty. (Art. 1599.)
(1) when the ownership of the goods has passed to the buyer
and he wrongfully neglects or refuses to pay for the price (par. 1.);
(2) when the price is payable on a certain day and the buyer
wrongfully neglects or refuses to pay such price, irrespective of
delivery or of transfer of the title (par. 2.); and
(3) when the goods cannot readily be resold for a reasonable
price and the buyer wrongfully refuses to accept them even be-
fore the ownership in the goods has passed, if the provisions of
Article 1596, 4th paragraph (infra.) are not applicable. (par. 3.)
EXAMPLE:
S sold to B a specific refrigerator for P8,000.00. S can main-
tain an action for the price in any of the following cases:
(1) He has delivered the refrigerator to B and the latter
wrongfully fails to pay;
(2) He has not yet delivered the refrigerator but the pe-
riod fixed for the payment has already arrived while the pe-
riod fixed for delivery is yet to come; and
(3) B has refused to accept delivery without just cause and
S has notified B that he is holding the goods as bailee for B.
Under No. (1), where the unpaid goods are subsequently
sold or mortgaged to another who acted in good faith, the obli-
gation to pay remains with the buyer mortgagor-seller. The fail-
ure of the buyer to pay the purchase price does not ipso facto
revert ownership of the goods to the (first) seller unless the
sale is first liquidated. The (first) seller has no cause of action
against the purchaser or chattel mortgagee. (see Philippine
National Bank vs. Court of Appeals, 367 SCRA 198 [2001].)
EXAMPLE:
S agreed to sell and deliver to B on a certain date 100 bags
of sugar of a certain quality for P50,000.00. On the date desig-
nated, B wrongfully refused to accept delivery.
If the market value of the sugar at the time is P40,000.00,
the damage which S ought to receive is the amount of
P10,000.00, the profit he failed to realize. However, if the mar-
ket value equals or exceeds the contract price of P50,000.00, S
Art. 1597 ACTIONS FOR BREACH OF CONTRACT 371
OF SALE OF GOODS
1
Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff,
which has been violated or invaded by the defendant, may be vindicated or recognized,
and not for the purpose of indemnifying the plaintiff for any loss suffered by him.
372 SALES Art. 1597
Remedies alternative.
The above remedies are alternative. Once a remedy has been
granted to the buyer, no other remedy can thereafter be exercised
or granted.
The only exception is when after the buyer has chosen
fulfillment, it should become impossible, in which case he may
also sue for rescission. (Art. 1191, par. 2.)
Recoupment in diminution
of the price.
The theory of recoupment is that the sellers damages are cut
Art. 1599 ACTIONS FOR BREACH OF CONTRACT 377
OF SALE OF GOODS
EXAMPLE:
S sold to B 50 boxes of apples for P20,000.00. Upon exami-
nation, it was discovered that apples equivalent to 15 boxes
were rotten.
In an action by S against B for the purchase price, B can set
up the breach by S of his warranty by way of recoupment in
diminution of the price of P20,000.00. In other words, from the
purchase price of P20,000.00 shall be deducted the amount of
P6,000.00, the value of the 15 boxes of apples. So B is liable only
for P14,000.00, the value of the apples received.
to avoid his obligation under the contract but seeks to enforce the
plaintiffs (sellers) obligation and to deduct it from his liability
for the price for breach of the warranty. (see No. 2.)
oOo
379
Chapter 7
EXTINGUISHMENT OF SALE
oOo
379
380 SALES
380
Art. 1601 EXTINGUISHMENT OF SALE 381
Conventional Redemption
ILLUSTRATIVE CASE:
When period for exercise of right of repurchase expired, constitu-
tional prohibition against aliens owning lands was already in force.
Facts: S, vendor a retro, sold to B, a Chinese, vendee a retro,
a parcel of land. The sale was made in 1932, before the adop-
tion of the old Constitution. No repurchase was made by S. At
the expiration of the right of repurchase, the 1935 Constitution
(Art. XIII, Sec. 5 thereof.) contains a prohibition against aliens
owning lands save in cases of hereditary succession.
Issue: Does the prohibition apply to B, an alien who acquired
the land by sale with pacto de retro before the 1935 Constitution
became effective?
Held: No. The nature of a sale with right of repurchase is
such that the ownership over the thing sold is transferred to
the vendee upon the execution of the contract assuming the
requirements as to delivery to be present, subject only to the
resolutory condition that the vendor exercises his right of re-
purchase within the period agreed upon by the parties or pre-
scribed by law. (Heirs of Francisco Parco vs. Haw Pia, 45 SCRA
164 [1972].)
1
Other remedies:
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal
property, but the instrument states that the property is sold absolutely or with a right of
repurchase, reformation of the instrument is proper.
Art. 1450. If the price of a sale of property is loaned or paid by one person for the
benefit of another and the conveyance is made to the lender or payor to secure the pay-
ment of the debt, a trust arises by operation of law in favor of the person to whom the
money is loaned or for whom it is paid. The latter may redeem the property and compel
a conveyance thereof to him.
Art. 1602 EXTINGUISHMENT OF SALE 385
Conventional Redemption
that may be charged on the loan under Central Bank Circular No.
905 approved by the Monetary Board in Resolution No. 224 dated
December 3, 1982. (see Verdejo vs. Court of Appeals, 157 SCRA
743 [1988].)
3
The essence of a pacto de retro sale is that title to the property sold is immediately
vested in the vendee a retro, subject to the resolutory condition of repurchase by the
vendor a retro within the stipulated period. (De Guzman, Jr. vs. Court of Appeals, 156
SCRA [1987].)
Art. 1602 EXTINGUISHMENT OF SALE 387
Conventional Redemption
ILLUSTRATIVE CASES:
1. It is stipulated that upon failure of owner to redeem land by
returning the loan, title thereto shall vest in the lender.
Facts: In the instrument wherein the words mortgage with
conditional sale are used, it is stipulated (1) that S reserves the
right to redeem the parcel of land in question after the period
of five (5) years from the date of the instrument by paying back
and returning the loan of P5,000 to B and (2) that on his failure
to exercise the said right, the title to the property shall pass to,
and become vested, absolutely, in B.
There is no period after the five (5) years within which S
may redeem the property.
Issue: Is the second stipulation a mortgage or a sale with
pacto de retro?
Held: If the stipulation be construed as giving B the right to
own the property upon failure of S to pay the loan on the stipu-
lated time which is not provided that would be pactum
commissorium4 which is unlawful and void. The clause is con-
clusive proof that it is a mortgage and not a sale with pacto de
retro because if it were the latter, title to the parcel of land would
pass unto the vendee upon the execution of the sale and not
later as stipulated. (Guerrero vs. Ynigo and Court of Appeals, 96
Phil. 37 [1954].)
2. Under the contract, if the first party failed to redeem the
land sold as by mortgage, the other party may sell it to another.
Facts: S executed in favor of B a private document which
states that he has sold as by mortgage a parcel of land and
that in case of non-fulfillment of certain conditions, B may eject
S, and further states that if S be unable to redeem the mort-
gage, B may sell the land to another.
As S failed to redeem the land, B sold the land to C who
took possession. S now seeks the recovery of the land claiming
that the contract is a mortgage.
Issue: Is the contract a mortgage or a sale with pacto de retro?
4
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.
388 SALES Art. 1602
5
Art. 2132. By the contract of antichresis the creditor acquires the right to receive
the fruits of an immovable of his debtor, with the obligation to apply them to the pay-
ment of the interest, if owing, and thereafter to the principal of his credit.
6
Art. 1378. When it is absolutely impossible to settle doubts by the rules estab-
lished in the preceding articles, and the doubts refer to incidental circumstances of a
gratuitous contract, the least transmission of rights and interests shall prevail. If the
contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of inter-
ests.
If the doubts are cast upon the principal object of the contract in such a way that it
cannot be known what may have been the intention or will of the parties, the contract
shall be null and void. (1289)
390 SALES Art. 1602
(Art. 1378.)7 (see Santos vs. Duata, 14 SCRA 1041 [1965]; Villarica
vs. Court of Appeals, 26 SCRA 189 [1968]; Quinga vs. Court of
Appeals, 3 SCRA 66 [1961]; Claravall vs. Court of Appeals, 190
SCRA 439 [1990]; Misena vs. Rongavilla, 303 SCRA 749 [1999];
Aguirre vs. Court of Appeals, 119 SCAD 561, 323 SCRA 771 [2000];
Hilado vs. Heirs of R. Medalla, 377 SCRA 257 [2002].) They are
inconsistent with the vendees acquisition of the right of owner-
ship under a true sale subject only to the vendors right to redeem,
and belie the truthfulness of the sale a retro. In case of doubt, a
contract purporting to be a sale with right of repurchase shall be
construed as an equitable mortgage. (Art. 1603.)
These cases are the following:
(1) Price of the sale is unusually inadequate. (see Cabigao vs. Lim,
50 Phil. 844 [1927]; Dapiton vs. Veloso, 93 Phil. 39 [1953]; Quinga
vs. Court of Appeals, supra; Labasan vs. Lacuesta, 86 SCRA 16
[1978]; Serrano vs. Court of Appeals, 139 SCRA 179 [1985].) It is
common knowledge borne out by experience that in nearly all
cases, the zonal valuations of the Bureau of Internal Revenue
hardly approximate the fair market values of real property.
(Zamora vs. Court of Appeals, 72 SCAD 833, 260 SCRA 10 [1996].)
But the mere disproportion of the price to the value of the prop-
erty, in the absence of other circumstances incompatible with the
contract of purchase and sale, cannot alone justify the conclusion
that the transaction is a pure and simple loan. (Bruce vs. Court of
Appeals, 157 SCRA 330 [1988].) Inadequacy is not sufficient to set
aside a sale unless it is grossly inadequate or purely shocking to
the conscience (Cachola vs. Court of Appeals, 208 SCRA 496
[1992]; Adapo vs. Court of Appeals, 327 SCRA 180 [2000].); or is
such that the mind revolts at it and such that a reasonable man
would neither directly or indirectly be likely to consent to it (Vda.
de Alvarez vs. Court of Appeals, 23 SCRA 309 [1968], citing A.
Tolentino, Commentaries and Jurisprudence on the Civil Code of
the Phils., Vol. V, [1992], pp. 156-158.);
7
This provision was applied retroactively to cases arising prior to the effectivity of
the new Civil Code since it is remedial in nature. (Magtira vs. Court of Appeals, 96
SCRA 680 [1980]; Balatero vs. Intermediate Appellate Court, 154 SCRA 530 [1987]; Olea
vs. Court of Appeals, 63 SCAD 579, 247 SCRA 274 [1995].)
Art. 1602 EXTINGUISHMENT OF SALE 391
Conventional Redemption
(4) Purchaser retains part of the price (see Camus vs. Court of
Appeals, 41 SCAD 796, 222 SCRA 612 [1993].)
In the cited case of Oronce vs. Court of Appeals (supra.), para-
graph (f) of the deed of sale with assumption of mortgage states
that the full title and possession of the property shall vest upon
the VENDEES upon the full compliance by them with all the terms
and conditions herein set forth. It also evidences the fact that
the agreed purchase price of fourteen million pesos
(P14,000,000.00) was not handed over by petitioners to private
respondent upon the execution of the agreement. Only
P5,400,000.00 was given by petitioners to private respondent, as
the balance thereof was to be dependent upon the private respond-
ents satisfaction of its mortgage obligation to China Banking
Corporation. Notably, the MTC found that petitioners gave pri-
vate respondent the amount of P8,500,000.00 that should be paid
to the bank to cover the latters obligation, thereby leaving the
amount of P100,000.00 (P5,400,000.00 + P8,500,000.00 =
P13,900,000.00) of the purchase price still unpaid in the hands of
petitioners, the alleged vendees. Held: Hence, two of the circum-
stances enumerated in Article 1602 are manifest in the Deed of
Sale with Assumption of Mortgage, namely: (a) the vendor would
remain in possession of the property (No. 2), and (b) the vendees
retained a part of the purchase price (No. 4). On its face, there-
fore, the document subject of controversy, is actually a contract
of equitable mortgage.
(5) Vendor binds himself to pay taxes on the thing sold (see Aquino
vs. Deala, 63 Phil. 583 [1936]; Dalandan vs. Julio, 10 SCRA 400
[1964].) or the alleged vendee never declared in his name for taxa-
tion purposes the land sold. (Labasan vs. Lacuesta, supra.) But the
sole circumstance that the land sold continued to be registered
and all the tax declarations thereon were made in the name of the
vendor cannot be invoked to support the finding that a deed of
sale with the right of repurchase is an equitable mortgage. At best,
it may demonstrate neglect on the part of the vendee. (Bollozos
vs. Yu Tieng Su, 155 SCRA 506 [1987].)
In a case, although the tax declarations for the property in
question have been transferred to the vendees name and he has
been continuously paying the realty taxes thereon, the fact that
Art. 1602 EXTINGUISHMENT OF SALE 393
Conventional Redemption
he has made no move for 30 years to oust the vendor and his heirs
from their possession of the property was taken as a circumstance
which clearly falls within the ambit of Article 1602 as a badge of
an equitable mortgage. (Dapiton vs. Court of Appeals, 83 SCAD
82, 272 SCRA 95 [1997].)
(6) The parties really intended an equitable mortgage instead of a
sale, i.e., that the transaction shall secure the payment of a debt or
the performance of any other obligations. (see Bautista vs. Ping,
90 Phil. 409 [1952]; Macoy vs. Trinidad, 95 Phil. 192 [1954]; Gloria
Diaz vs. Court of Appeals, 84 SCRA 483 [1978].) The intention of
the parties is the decisive factor in evaluating whether or not the
agreement is a simple loan accommodation secured by a mort-
gage. This intention is shown not necessarily by the terminology
used but by all the surrounding circumstances. (Molina vs. Court
of Appeals, 398 SCRA 97 [2002].)
The terms of the document itself can aid in arriving at the true
nature of the transaction. Thus, where the contract contains a
stipulation that upon payment by the vendor of the purchase price
within a certain period, the document shall become null and void
and have no legal force and effect, the purported sale should be
considered a mortgage contract. In pacto de retro sale, the payment
of the repurchase price does not merely render the document null
and void but there is the obligation on the part of the vendee to
sell back the property. (Olea vs. Court of Appeals, 63 SCAD 579,
247 SCRA 274 [1995], citing A.M. Tolentino, Civil Code of the
Phils., 19th ed., Vol. V, p. 159.) The same presumption applies
when the vendee was given the right to appropriate the fruits
thereof in lieu of receiving interest on the loan. (Adrid vs. Morga,
108 Phil. 927 [1960]; Olea vs. Court of Appeals, supra.)
In the above cases, the repurchase price paid by the apparent
vendor is considered the principal of the loan and any money,
fruits or other benefit received thereafter by the apparent vendee,
are considered as interest on said loan and are subject to the Usury
Law.8 The denomination of the contract as a deed of sale is not
binding as to its nature. The decisive factor in evaluating such an
8
Rates of interest on loans or forebearances of money are no longer subject to any
ceiling prescribed under the Usury Law. (see C.B. Resol. No. 224, Dec. 3, 1982.)
394 SALES Art. 1602
9
Section 7, Rule 130 of the Rules of Court provides: When the terms of an agree-
ment have been reduced to writing, it is to be considered as containing all such terms,
and, therefore, there can be, between the parties and their successors in interest, no evi-
dence of the terms of the agreement other than the contents of the writing, except in the
following cases:
(a) Where a mistake or imperfection of the writing, or its failure to express the
true intent and agreement of the parties, x x x.
Art. 1602 EXTINGUISHMENT OF SALE 395
Conventional Redemption
ILLUSTRATIVE CASES:
1. Circumstances indicate contract was an equitable mortgage.
Facts: S and B entered into a transaction which purported
to be a sale of a lot and building by S with the right to repur-
chase.
398 SALES Art. 1602
10
See Option to buy and right of repurchase distinguished, under Article 1601.
400 SALES Art. 1602
11
In an extra-judicial foreclosure sale, when there is a right to redeem, inadequacy
of the price is also of no moment for the reason that the mortgagor has always the chance
to redeem and reacquire the mortgaged property sold at the foreclosure sale. The prop-
erty may be sold for less than the fair market value precisely because the lesser the price
the easier for the owner to effect a redemption. (Valmonte vs. Court of Appeals, 103
SCAD 509, 303 SCRA 287 [1999].)
404 SALES Arts. 1603-1604
express the true intent and agreement of the parties; and upon
proof of the truth of such allegation, the court will enforce the
agreement in consonance with the true intent of the parties at the
time of the execution of the contract. This principle is applicable
even if the purported pacto de retro sale was registered in the name
of the transferee and a new certificate of title was issued in the
name of the latter. (Olea vs. Court of Appeals, supra; Lustan vs.
Court of Appeals, 78 SCAD 351, 266 SCRA 663 [1997].)
The admission of parol testimony to prove that a deed of sale
absolute in form, was in fact given and accepted to secure the
payment of a debt or the performance of any other obligation, does
not violate the rule against the admission of evidence to vary or
contradict the terms of the contract. (Ignacio vs. Chua Hong, 52
Phil. 940 [1929]; Aguinaldo vs. Esteban, 135 SCRA 645 [1985];
Serrano vs. Court of Appeals, 139 SCRA 179 [1985]; Ramos vs.
Court of Appeals, 180 SCRA 635 [1989]; Reyes vs. Court of Ap-
peals, 339 SCRA 97 [2000].)
(4) Where contract appears to be a genuine sale. If from all in-
dications, the contract appears to be a genuine sale with right of
repurchase (or an absolute sale) and none of the suspicious cir-
cumstances mentioned in Article 1602 is present, the true agree-
ment will be upheld. (see De Luna vs. Valle, 48 SCRA 361 [1972];
Villarica vs. Court of Appeals, 26 SCRA 189 [1968]; De Bayquen
vs. Baleoro, 143 SCRA 412 [1986]; Cachola vs. Court of Appeals,
208 SCRA 496 [1992].)
The contract of sale with right of repurchase must be inter-
preted according to its literal sense and held to be such a contract.
In a case (there was no trace of any circumstances showing
that the transaction was an equitable mortgage), the following
were held evident manifestation of a genuine sale with right of
repurchase: adequate price; immediate delivery of the land to the
vendee who cultivated the same to rice and has since then been
improving the property to the exclusion of the vendor; religious
payment of all the land taxes by the vendee; neglect of the ven-
dor to pay the taxes; and vendors inaction to redeem the prop-
erty for a period of eight (8) years from the date of execution of
the deed of sale. (Bagadiong vs. Vda. de Abundo, 165 SCRA 459
[1988].)
406 SALES Arts. 1603-1604
that the property was sold a retro. The equitable doctrine that
deems a conveyance intended as a security for a debt to be, in
effect, an equitable mortgage, operates regardless of the form of
the agreement chosen by the contracting parties. Equity looks
through the form and considers the substance. No conveyance of
land, even if accompanied by registration in the name of the trans-
feree and the issuance of a new certificate, can be allowed which
will enable a party to escape from the operation of this equitable
doctrine. (ibid.)
EXAMPLES:
(1) As security for a loan, S mortgaged his house to B. Both
parties intended to enter into a mortgage contract but the in-
strument as written states that the house is sold by S to B with
a right to repurchase. In this case, the remedy of reformation is
proper.
(2) If, in the same example, S was borrowing money from
B, with mortgage of his house as security, and B was buying
the house of S with right of S to repurchase, the remedy is an-
nulment. Either way, reformation cannot make the instrument
express the real intention of the parties.
sold. (see Art. 1601.) Thus, the right to redeem must be expressly
stipulated in the contract of sale in order that it may have legal
existence. Accordingly, where the contract provides: In case of
sale by the buyer of the property (sold) to the seller, the Supreme
Court held that the stipulation does not grant the right of repur-
chase. The quoted phrase should be construed to mean should
the buyer wish to sell which is the plain and simple import of
the words, and not the buyer should sell. (Leal vs. Intermedi-
ate Appellate Court, 155 SCRA 394 [1987].)
(1) No agreement granting right. If there is no agreement in
a contract of sale (see Umale vs. Fernandez, 28 Phil. 89 [1914].)
granting the vendor the right to redeem, there is no right of re-
demption since the sale should be considered an absolute sale.
(2) Agreement merely grants right. If the parties agreed only
on the right to redeem on the part of the vendor but there is a total
absence of express stipulation as to the time within which the
repurchase should be made, then the period of redemption shall
be four (4) years from the date of the contract. (par. 1.)
(3) Definite period of redemption agreed upon. If the parties
agreed on a definite period of redemption, then the right to re-
deem must be exercised within the period fixed provided it does
not exceed 10 years. (par. 2.) It has been held that the non-pay-
ment by the vendee a retro of the balance of the purchase price
does not suspend the running of the period of redemption agreed
upon (5 years) in the absence of a stipulation to that effect. A sale
is consummated upon the execution of the document and the
delivery of the subject matter thereof to the vendee. Failure to pay
part of the price does not in any way affect the cause or consid-
eration of the contract. (Catangcatang vs. Legayada, 84 SCRA 51
[1978].)
(4) Period agreed upon exceeds ten years. Where the agreed
period exceeds 10 years, the vendor a retro has 10 years from the
execution of the contract to exercise his right of redemption.
(Anchuelo vs. Intermediate Appellate Court, 147 SCRA 434
[1987].)
(5) Period of redemption not specified. If the parties agreed that
the vendor shall have a right to redeem and they intend a period
which, however, is not specified, then the redemption period is
410 SALES Art. 1606
EXAMPLES:
(1) A and B entered into a contract whereby A shall reap
the fruits of the riceland of B while B shall have a right to build
a house on the residential lot of A. The agreement provides
that neither party shall encumber nor alienate their respective
properties without the consent of the other and that in the event
that any of the children of A shall decide to build his house on
the lot, B shall be obliged to return the same.
Is the right to recover the lot subject to the prescriptive pe-
riod of four (4) years provided in Article 1606 (par. 1.)? No.
Article 1606 is not applicable. The agreement is not one of sale
with right of repurchase but is one of or akin to usufruct (see
Art. 562.), where the parties transferred the use or material pos-
session of each others property. (Baluran vs. Navarro, supra.)
(2) S sold to B a parcel of land. There was no express stipu-
lation reserving to S the right to repurchase. In this case, the
land is not subject to redemption as the sale is an absolute and
unconditional sale.
(3) If there was an express agreement granting S the right
to redeem within three (3) years from the date of the contract, S
must exercise the right within said period; but if no period for
redemption was stipulated, the law supplies it by providing
that it shall be four (4) years from the date of the contract. S
may grant a renewal or extension of the period provided it does
not exceed the balance of 10 years.
(4) Suppose it was agreed that S could redeem the land
only within eight (8) years, then S may redeem the land only
within that period. If the agreement was that A could redeem
within 12 years, the right to repurchase cannot be exercised af-
ter 10 years, the stipulation with respect to the excess (2 years)
412 SALES Art. 1606
over the term of 10 years being null and void. (Montiero vs.
Salgado, 27 Phil. 631 [1914].)
A stipulation not to repurchase within 10 years following
the execution of the sale is contrary to law. This fact, however,
does not in itself convert the contract into a mere evidence of
indebtedness and much less of mortgage, for it would at most
be considered as one where the repurchase is to be made within
the period not exceeding 10 years from the date of the sale.
(Tayao vs. Dulay, 13 SCRA 758 [1965].)
(5) If the right of redemption shall not be exercised within
three (3) years from the date of sale, and nothing is said as to
how long the right to redeem shall continue, its duration is seven
(7) years from the date of the contract. (Rosales vs. Reyes and
Ordovesa, 25 Phil. 495 [1913].) Where the condition as to the
exercise of the right of repurchase is that it shall not be made
until after three (3) years from this date, the duration of the
right, once effective is four (4) years or the balance of the 10
years limit allowed by law. (Lucido vs. Calupitan, 27 Phil. 148
[1914].)
Suppose the stipulation was that S may repurchase the
property at any time he has the money, the right of repur-
chase may be exercised within the period of 10 years from the
date of the execution of the contract a time having been ex-
pressly stipulated, which is any time which, however, is in-
definite or unlimited. (Soriano vs. Abalos, 92 Phil. 18 [1952].)
Similarly, where the instrument says that S may repur-
chase the property in the month of March of any year, S may
make the repurchase within 10 years, there being a period
agreed upon for the exercise of the right which, however, is not
specified. (Bandang vs. Austria, 21 Phil. 479 [1912].) It has been
held, however, that the stipulation that S could repurchase the
land when he has established a certain business does not
stipulate a period for the repurchase, but the suspension of the
right of repurchase until the establishment of the business and,
therefore, the repurchase should be made within 4, not 10, years
from the date of the contract. (Medel vs. Francisco, 51 Phil. 367
[1927]; see example No. 3.)
(6) Suppose the nature of the contract is the subject of con-
troversy in a civil action between S and B. B claims that the con-
tract is a sale with a right to repurchase. (Art. 1601.) On the other
hand, S contends that the contract is an equitable mortgage. (Art.
Art. 1606 EXTINGUISHMENT OF SALE 413
Conventional Redemption
ILLUSTRATIVE CASE:
Lower court held Article 1606, par. 3 as applicable to a vendor a
retro who failed to redeem under a deed of sale which, as expressly
stipulated by the parties, is admittedly one with right of repurchase.
Facts: S executed in favor of B a deed of sale of a parcel of
land with right to repurchase within one (1) year from the date
of the sale. B afterwards sold the property to C who, in turn,
sold the same to D. Since the first sale S, who had not redeemed
the land from B within the stipulated period, never relinquished
414 SALES Art. 1606
paragraph of the Civil Code. It was held that the said provision
was inapplicable, thus: The application of the third paragraph
of Article 1606 is predicated upon the bona fides of the vendor a
retro. It must appear that there was a belief on his part, founded
on facts attendant upon the execution of the sale with pacto de retro,
honestly and sincerely entertained, that the agreement was in
reality a mortgage, one not intended to affect the title to the prop-
erty ostensibly sold, but merely to give it as security for a loan or
other obligation. In that event, if the matter of the real nature of
the contract is submitted for judicial resolution, the application
of the rule is meet and proper; that the vendor a retro be allowed
to repurchase the property sold within 30 days from rendition of
final judgment declaring the contract to be a true sale with right
to repurchase. x x x
In Abilla, the Court of Appeals correctly noted that if respond-
ents really believed that the transaction was indeed an equitable
mortgage, as a sign of good faith, they should have, at the very
least, consigned with the trial court the amount of P896,000.00,
representing their alleged loan, on or before the expiration of the
right to repurchase x x x.
ILLUSTRATIVE CASE:
Penal clause provides that in case of failure of vendor a retro,
who will remain in possession as lessee, to pay the agreed rentals, the
lease shall automatically be terminated and ownership of vendee shall
become absolute.
Facts: S sold to B a parcel of land. It is stipulated in the deed
of sale that S can repurchase the property within a period of 18
months from the date of the sale and that S will remain in pos-
session of the land as lessee for the same period of 18 months.
The lease covenant contained in the deed of sale with pacto de
retro provides also, among others, that in case of failure of the
vendor-lessee (S) to pay the rentals agreed upon, the lease shall
automatically terminate and the right of ownership of the
vendee (B) shall become absolute.
Issue: Is the penal clause valid?
Held: Yes. The lease that S executed on the property may be
considered as a means of delivery or tradition by constitutum
possessorium. (see Art. 1500.) While the lease covenant may be
onerous or may work hardship on S because of its clause pro-
viding for the automatic termination of the period of redemp-
tion, however, the same is not contrary to law, morals, or pub-
lic order which may serve as basis for its nullification. Rather
than being obnoxious or oppressive, it is a clause common in a
sale with pacto de retro and as such it received the sanction of
our courts. (see Amigo vs. Teves, 96 Phil. 252 [1954].)
The consequences of such provision are not worse than such
as follow from many other forms of agreement to which con-
tracting parties may lawfully attach their signatures. Never-
theless, the court should not hesitate to relieve the vendor from
its effects whenever this can be done consistently with estab-
lished principles of law. (Dimatulac vs. Coronel, supra.)
EXAMPLE:
S sold his land (not registered) to B with a right to repur-
chase within 2 years to B. If before 2 years B sold the same land
to C, a purchaser for value and in good faith. S may still repur-
chase the property from C even if in the sale between B and C
no mention was made of the right of S.
Arts. 1609-1610 EXTINGUISHMENT OF SALE 421
Conventional Redemption
12
Art. 2059. This excussion shall not take place:
(1) If the guarantor has expressly renounced it;
(2) If he has bound himself solidarily with the debtor;
(3) In case of insolvency of the debtor;
(4) When he has absconded, or cannot be sued within the Philippines unless he
has left a manager or representative;
(5) If it may be presumed that an execution on the property of the principal debtor
would not result in the satisfaction of the obligation.
Art. 2060. In order that the guarantor may make use of the benefit of excussion, he
must set it up against the creditor upon the latters demand for payment from him, and
point out to the creditor available property of the debtor within Philippine territory,
sufficient to cover the amount of the debt.
Arts. 1612-1613 EXTINGUISHMENT OF SALE 423
Conventional Redemption
EXAMPLE:
A, B, and C are co-owners of an undivided parcel of land.
A sold his undivided portion to D with the right to repurchase.
As a result of a partition, D, who is now one of the co-owners,
acquired the whole land after paying the portions belonging to
B and C.
If A would like to repurchase the portion sold by him, D
may compel him to redeem the entire parcel of land so that the
property will not revert again to a state of co-ownership.
EXAMPLE:
A, B, and C are co-owners of a parcel of land. If they should
sell the property to D with the right to repurchase in the con-
tract, each one of them may exercise that right only as regards
his own share or for one-third portion of the property.
The same rule applies if X were the sole owner of the land
and he sold it with right to repurchase to D and he should die
and leave A, B, and C as heirs. Each one of them can only ex-
ercise the right of redemption for the one-third portion he has
inherited.
But D can demand that they come to an agreement upon
the repurchase of the whole property by all of them or any one
of them. If they do not do so, D cannot be compelled to assent
to a partial redemption. (see Art. 1611.)
not make him the owner of all of it. In other words, it does not
put to end the existing state of co-ownership.
Article 1613 does not provide for a mode of terminating a co-
ownership nor does the fact that the redeeming co-owner has
succeeded in securing title over a parcel of land in his name ter-
minate the existing co-ownership. Registration of property is not
a means of acquiring ownership. It operates as a mere notice of
existing title, that is, if there is one. (Adill vs. Court of Appeals,
157 SCRA 455 [1988]; see Paulmian vs. Court of Appeals, 215 SCRA
866 [1992].)
ILLUSTRATIVE CASE:
The entire property sold by the deceased was redeemed by one of
the heirs.
Facts: Two (2) days before her death, M (mother) sold a
parcel of unregistered land with a right of repurchase within
seven (7) years. D (daughter) and her husband, H, redeemed
the property within the redemption period. The tax declara-
tion on the land in favor of M was cancelled and another one
was issued in the name of H; and since then, the real estate
taxes had been paid by D and H.
The other children of M invoked the right to the disputed
property as co-owners thereof by right of intestate succession.
Issue: Under the deed of repurchase, was the ownership of
the land in dispute vested in D and H or in all of the heirs of M?
Held: In all of the heirs. The repurchase could not have been
made by D and H by themselves alone because the right be-
longed in common to the heirs of M. This was true even if it
were assumed that the vendee a retro had intended to sell back
the land to D and H only as the repurchase was subject to the
limitations under Article 1612 and the stipulations in the origi-
nal contract, to wit, that the repurchase was to be made by the
vendor (M) or her successors. D was not the only successor,
and H was not even an heir of M.
A sale during the period of redemption to any other per-
son other than the heirs of the deceased mother, as co-owners
of the subject land, could not have been made by the vendee a
retro. Any of the co-owners could have successfully invalidated
such a transaction. (De Guzman vs. Court of Appeals, 148 SCRA
75 [1987].)
426 SALES Arts. 1614-1615
EXAMPLE:
In the preceding example, if A, B, and C sold their respec-
tive shares to D with the right of repurchase in separate instru-
ments and at different dates, each one of them may exercise his
right independently of the others and D cannot compel him to
redeem the whole property.
EXAMPLE:
A sold his parcel of land to B with a right to repurchase.
Then B died leaving C, D, and E, his children, as heirs.
In this case, the right of redemption by A is against each of
the heirs only for his respective share or for one-third of the
property.
If the property has been awarded to C by partition, then
the action for redemption may be instituted against him for the
entire property.
Art. 1497.) But they need not be paid at the very time of the exer-
cise of the right since they are unknown amounts. They may be
paid later. The same is true of necessary and useful expenses (De-
cision of Supreme Court of Spain, Dec. 31, 1897; 10 Manresa 338.);
and
(3) Necessary and useful expenses. The first are expenses in-
curred for the preservation of the thing or those which seek to
prevent the waste, deterioration or loss of the thing, while the
second are which increase the value of the thing or create improve-
ments thereon, such as a house.
(a) The necessary expenses which must be repaid to the
vendee are not those which are ordinary and simple expenses
of preservation because these expenses are incident to the en-
joyment of the thing and should be borne by the vendee. (10
Manresa 339-342.)
(b) Useful expenses are refunded to the vendee a retro be-
cause he is considered a possessor in good faith. (Art. 546, par.
2.)
(c) The vendor a retro is given no option to require the
vendee a retro to remove the useful improvements on the land
subject of the sale a retro, unlike that granted the owner of a
land under Articles 546 and 54713 of the Civil Code.
(d) The vendor a retro must pay for the useful improve-
ments introduced by the vendee a retro; otherwise, the latter
may retain possession of the land until reimbursement is
made. (Gargollo vs. Duero, 1 SCRA 1311 [1961].) It has been
held, however, that considering the purpose of the law on
homesteads (Public Land Act, C.A. No. 141, as amended.),
which is to conserve ownership in the hands of the home-
13
Art. 546. Necessary expenses shall be refunded to every possessor; but only the
possessor in good faith may retain the thing until he has been reimbursed therefor.
Useful expenses shall be refunded only to the possessor in good faith with the
same right of retention, the person who has defeated him in the possession having the
option of refunding the amount of the expenses or of paying the increase in value which
the thing may have acquired by reason thereof.
Art. 547. If the useful improvements can be removed without damage to the princi-
pal thing, the possessor in good faith may remove them, unless the person who recovers
the possession exercises the option under paragraph 2 of the preceding article.
Art. 1616 EXTINGUISHMENT OF SALE 429
Conventional Redemption
ILLUSTRATIVE CASE:
Property subject to right of repurchase was embargoed by the
government and vendor a retro redeemed the property from the gov-
ernment and not from vendee a retro who subsequently sold the prop-
erty.
Facts: S sold in December, 1897 to B a property with right to
repurchase within six (6) months. S was not able to effect the
repurchase in May, 1898 by reason of the fact that B was absent
from his place of residence on account of the war. About that
time the revolution broke out and the property was seized by
the revolutionary government from B.
The property was redeemed by S from said government in
November, 1898. Subsequently, B sold the property to C. S
brought action against C to recover the property.
Issue: Was the sale made by the revolutionary government
to S valid, with the result that B had no right to transfer to C the
property in question?
Held: No. What S did was to attempt to reacquire the own-
ership of the property transferred to B from a third person to
whom the property had not been transferred by B in any man-
430 SALES Art. 1616
14
Art. 442. Natural fruits are the spontaneous products of the soil, and the young
and other products of animals.
Industrial fruits are those produced by lands of any kind through cultivation or
labor.
Civil fruits are the rents of buildings, the price of leases of lands and other property
and the amount of perpetual or life annuities or other similar income.
Art. 544. A possessor in good faith is entitled to the fruits received before the pos-
session is legally interrupted.
Natural and industrial fruits are considered received from the time they are gath-
ered or severed.
Civil fruits are deemed to accrue daily and belong to the possessor in good faith in
that proportion.
Art. 1618 EXTINGUISHMENT OF SALE 433
Conventional Redemption
property during the last year counted from the anniversary of the
date of the sale (par. 2.) to compensate the vendee for his expense.
(see Lustado vs. Pinol, [unrep.] 102 Phil. 1164 [1958].)
The same rule, it is believed, is also applicable if there were
fruits at the time of the sale and the vendee paid for them.
EXAMPLE:
S sold to B with the right of repurchase for P500,000.00 a
parcel of land on June 5, 2001 with a three-year redemption
period. At the time of the sale, there were existing crops on the
land for which B paid an additional amount of P50,000.00.
(1) If S should exercise his right of redemption, he must
return to B the amount of P550,000.00 as the price of the sale.
(2) If B did not pay for the crops, he is not entitled to reim-
bursement for crops existing at the time of the redemption.
(3) If there were no crops at the time of the sale and some
exist at the time of redemption on June 5, 2004, B is entitled to
the crops during the last year, that is, from June 5, 2003 to June
5, 2004.
(4) If there were crops at the time of the sale and B paid for
them, B is entitled to reimbursement, or to the fruits for the last
year, because having paid for them, the effect is the same as if
there were no crops on the land when it was sold.
redeem the mortgage. The vendor has the right to receive the
property in the same condition in which it was at the time of the
sale.
The law, however, establishes an exception with respect to
leases which the vendee may have entered into in good faith ac-
cording to the custom of the place where the land is located.15 The
exception is dictated by public convenience in the interest of ag-
riculture.
oOo
15
Art. 1676. The purchaser of a piece of land which is under a lease that is not re-
corded in the Registry of Property may terminate the lease, save when there is a stipula-
tion to the contrary in the contract of sale, or when the purchaser knows of the existence
of the lease.
435
435
436 SALES Art. 1619
1
See distinctions between dation in payment and sale under Article 1486.
2
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.
Art. 1619 EXTINGUISHMENT OF SALE 437
Legal Redemption
(Lazo vs. Republic Surety & Insurance Co., Inc., 31 SCRA 329
[1970].)
(2) The right of legal redemption is not predicated on proprietary
right but on a bare statutory privilege to be exercised only by the
person named in the statute. In other words, the statute does not
make actual ownership at the time of sale or redemption a condi-
tion precedent, the right following the person and not the prop-
erty. (Magno vs. Viola and Sotto, 61 Phil. 80 [1934].) Under the
law (Rules of Court, Rule 39, Sec. 30.), the property sold subject
to redemption may be redeemed by the judgment debtor or his
successor-in-interest in the whole or any part of the property. In
an extra-judicial foreclosure sale, the mortgagor, his successors-
in-interest, judgment creditor or any person having a lien on the
property subsequent to the mortgage, may redeem the same. (Act
No. 3155, Sec. 6.)
(3) Legal redemption is in the nature of a mere privilege cre-
ated partly for reason of public policy and partly for the benefit
and convenience of the redemptioner to afford him a way out of
what might be a disagreeable or inconvenient association into
which he has been thrust. It is intended to minimize co-owner-
ship. (Basa vs. Aguilar, 117 SCRA 128 [1982]; Tan vs. Court of
Appeals, 172 SCRA 660 [1989].) It works only one way in favor of
the redemptioner. Not having parted with anything, he can com-
pel the purchaser to sell, but cannot be compelled by him to buy.
(Villasor vs. Medel, [C.A.] No. 8677, Sept. 29, 1948.)
ILLUSTRATIVE CASE:
Redemption of property sold under execution was effected by
means of a check for the amount due.
Art. 1619 EXTINGUISHMENT OF SALE 439
Legal Redemption
3
Art. 1249. The payment of debts in money shall be made in the currency stipu-
lated, and if it is not possible to deliver such currency, then in the currency which is
legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in
abeyance. (1170)
440 SALES Art. 1619
[1980].), and Philippine Air Lines vs. Court of Appeals (181 SCRA
557 [1990].), all of which, they claim, have overruled Javellana.
It would appear from a study of the jurisprudence invoked
by the parties that the case applicable to the present contro-
versy is Javellana vs. Mirasol.
The cases cited by the petitioners do not involve redemp-
tion by check. The check tendered in Belisario was in the exer-
cise of an option to repurchase; in Villanueva, in connection
with a pacto de retro; in Legarda and New Pacific, as payment of
a mortgage indebtedness; and in the PAL case, in satisfaction of
a judgment.
Tolentino vs. Court of Appeals (106 SCRA 513 [1981].), besides
citing Javellana, stresses the liberality of the courts in redemp-
tion cases. On the issue of the applicability of Article 1249 of
the Civil Code and the validity of the tender of payment through
a crossed check, this Court held:
x x x the aforequoted Article should not be applied in
the instant case x x x
To start with, the Tolentinos are not indebted to BPI,
their mortgage indebtedness having been extinguished with
the foreclosure and sale of the mortgaged properties. After
said foreclosure and sale, what remains is the right vested
by law in favor of the Tolentinos to redeem the properties
within the prescribed period. This right of redemption is
an absolute privilege, the exercise of which is entirely de-
pendent upon the will and discretion of the redemptioners.
There is, thus, no legal obligation to exercise the right of
redemption. Said right, can in no sense, be considered an
obligation, for the Tolentinos are under no compulsion to
exercise the same. Should they choose not to exercise it,
nobody can compel them to do so nor will such choice give
rise to a cause of action in favor of the purchaser at the
auction sale. In fact, the relationship between said purchaser
and the redemptioners is not even that of creditor and
debtor.
On the other hand, if the redemptioners choose to ex-
ercise their right of redemption, it is the policy of the law to
aid, rather than to defeat, the right of redemption. It stands
to reason, therefore, that redemptions should be looked
upon with favor and where no injury is to follow, a liberal
Art. 1619 EXTINGUISHMENT OF SALE 441
Legal Redemption
EXAMPLES:
(1) A, B, and C are co-owners of an undivided property
valued at P500,000.00. A sells his interest to D for P200,000.00.
B or C may exercise the right of redemption by reimburs-
ing D the price of the sale. If both B and C redeem the interest
sold by A, each of them shall pay P100,000.00 to D, which is the
proportion of their respective shares in the co-ownership. If the
price of P200,000.00 is grossly excessive, the same may be equi-
tably reduced by the court.
(2) The property inherited by A, B, and C, heirs, were mort-
gaged by X, decedent, during his lifetime, to D. The redemp-
tion of the whole property by C with his own personal funds
does not vest in him sole ownership over said property but
will inure to the benefit of all co-owners. In other words, it will
not put an end to the lasting state of co-ownership. Redemp-
tion is not a mode of terminating a co-ownership. (Mardeno
vs. Court of Appeals, supra.)
ILLUSTRATIVE CASE:
The sale was made by the father, a co-owner, to the wife of one of
his children, the other co-owners.
Facts: Spouses H and W owned a small lot. After W died
intestate, H sold one-half of the lot to T, wife of S, Hs son. T
refused to allow redemption by X, etc., other children of H and
W. The lower court disallowed redemption because it consid-
ered T, the vendee, a co-heir, being married to S, and held the
conveyance valid since it was in favor of the conjugal partner-
ship of T and S in the absence of any statement that the prop-
erty was paraphernal in character.
Issue: Should X, etc. be allowed to exercise their right to
redeem the property sold to T?
Held: Yes. A co-ownership exists. Within the meaning of Ar-
ticle 1620, the term third person or stranger refers to all
persons who are not heirs in succession, and by heirs are meant
only those who are called either by will or the law to succeed
the deceased and who actually succeeds. In short, a third per-
son is any one who is not a co-owner. (Villanueva vs. Florendo,
139 SCRA 329 [1985]; see dissenting opinion.)
444 SALES Art. 1620
Price of redemption.
(1) Reasonable price. The law requires the redemptioner to
pay only a reasonable price if the price of the alienation is grossly
excessive. This is to prevent collusion between the buyer and the
selling co-owner. The right of the redemptioner to pay a reason-
able price under Article 1620 does not excuse him from the duty
to make proper tender of the price that can be honestly deemed
reasonable under the circumstances, without prejudice to final
arbitration by the courts, nor does it authorize said redemptioner
to demand that the vendee accept payment by installments.
(Torrijos vs. Crisologo, 6 SCRA 186 [1962].) There is no legal re-
446 SALES Art. 1621
ILLUSTRATIVE CASES:
1. Party who has the burden of proving existence of barrier be-
tween land sought to be redeemed and land of one who wants to re-
deem.
Facts: It is not disputed that the land sought to be redeemed
adjoins that of X, who seeks to repurchase the property in the
exercise of his legal right of redemption in accordance with first
paragraph of Article 1621, that it is rural and has an area of not
more than one (1) hectare, and that its purchaser already owns
or is a co-owner of another rural land.
Issue: Is it incumbent upon X to prove that his land and the
one he seeks to redeem are not separated by any of the barriers
mentioned in the second paragraph of Article 1621?
Held: No. Having proved that his land and that which he
seeks to redeem are contiguous, X should not be called upon to
prove the contrary by showing that the two estates are sepa-
rated by a brook, drain, ravine, etc. The one called upon to prove
the existence of a barrier between two estates is he who wants
to defeat the right of redemption on the ground that the two
estates are not contiguous to each other. (Maturan vs. Gullas, 94
Phil. 701 [1954].)
2. Right of redemption by adjacent owner against vendee who
is also an adjacent owner.
Facts: S sold to B, an adjacent owner, a parcel of rural land.
B bought the land for the purpose of having an egress from his
land to a road. C, another adjacent owner, seeks to redeem the
land sold to B.
Issue: Has C the right to exercise the right of redemption
granted to an adjacent owner?
Held: No. The right of redemption of adjacent owners can-
not be exercised by any of them among themselves, but only
by them against a stranger, who acquires from any one of them
by purchase or gift, in payment, or by any other title for value,
a rural estate of the area fixed by law. (Del Pilar vs. Catindig, 35
Phil. 263 [1916].)
Note: The last paragraph of Article 1523 of the old Civil
Code, except for a slight change in wordings, is the same as
that of Article 1621 of the new Civil Code. The Supreme Court
Art. 1621 EXTINGUISHMENT OF SALE 449
Legal Redemption
(c) Such urban land was bought by its owner merely for
speculation.
The above requisites must be alleged by the adjoining owner
in his complaint and proved by him. (Del Rosario vs. Bansil, 149
SCRA 662 [1989].)
(3) Price. The price to be paid is a reasonable price. In a case,
an adjoining owner was held not entitled to redeem a lot (612 sq.
meters) which was much bigger area-wise, than the lot (140 sq.
meters) owned by him. (Taedo vs. Bernad, 165 SCRA 86 [1988].)
(4) Preference as between two or more adjacent owners. In case
two or more adjoining owners desire to exercise the right of legal
redemption, the law prefers him whose intended use of the land
appears best justified. (last par.) The determinative factor is the
intended use that appears best justified, and not whether the land
was acquired for speculative purposes.
ILLUSTRATIVE CASES:
1. The land in question is intended to be used by an educa-
tional institution whose existing site is not enough for its needs.
Facts: The City of Manila and Arellano University entered
into the contract of exchange whereby 5 parcels of land belong-
ing to the city were ceded to the university for 3 parcels be-
longing to the latter.
X brought suit, claiming the right of redemption and for
pre-emption over one of the 5 city parcels with an area of 221.50
square meters, adjoining Xs property and lots of the univer-
sity.
Issue: Does X have the right of legal redemption under Ar-
ticle 1622?
Held: No. The existence of the two conditions (Nos. 2 and
3) mentioned in Article 1622 must be alleged and proved. X not
only failed to allege them but could not have proved them be-
cause, in the first place, the parcel of land in question consists
of 221.50 square meters, an area bigger than the average size of
lots in Manila as found by the trial court, and in the second
place, the City of Manila did not acquire the lot by purchase.
Furthermore, it was alleged by the university that, as an
educational institution whose existing site was not enough for
Art. 1622 EXTINGUISHMENT OF SALE 453
Legal Redemption
its needs, it could devote the said parcel to serve public inter-
est, which intended use entitled the university to preference
under the last paragraph of Article 1622. (De Santos vs. City of
Manila, 45 SCRA 40 [1972]; see De la Cruz vs. Cruz, 32 SCRA
307 [1970]; Soriente vs. Court of Appeals, 8 SCRA 750 [1963];
Ortega vs. Orcine, 38 SCRA 276 [1971].)
2. Part of adjoining owners house occupies without his fault
adjoining lot sold to another adjoining owner.
Facts: Having discovered that part of her ancestral house
was erected on an adjoining lot of 59 square meters, X wanted
to exercise her right of pre-emption but the lot owner asked for
the exorbitant sum of P9,000. Later, the 59 square meter lot was
sold to another adjoining owner for only P1,500.
Issue: Who has a better right to the lot, X or the other ad-
joining owner?
Held: X, because her intended use of the land appears best
justified. Her house was occupying the lot through no fault on
her part. (Legaspi vs. Court of Appeals, 69 SCRA 360 [1976].)
Note: In the above cases, the right of legal redemption was
sought to be exercised by an adjoining owner against the vendee
who is also an adjoining owner. (see ruling in Del Pilar case,
supra, as to rural lands.)
Meaning of to speculate.
According to Websters International Dictionary (2nd edition,
p. 2417.), to speculate means: To enter into a business transac-
tion or venture from which the profits or return are conjectural
because the undertaking is outside the ordinary course of business,
to purchase or sell with the expectation of profiting by anticipated,
but conjectural fluctuations in price. Often in a somewhat depre-
ciative sense, to engage in a hazardous business transaction for the
chance of an unusually large profit; as to speculate in coffee, in
sugar, or in bank stock. (cited in Ortega vs. Orcine, supra.)
ILLUSTRATIVE CASE:
In less than eight (8) months from date of its purchase, vendee
developed land into a subdivision for resale.
Art. 1623 EXTINGUISHMENT OF SALE 455
Legal Redemption
4
Under the Code of Agrarian Reform (R.A. No. 3844, as amended, Sec. 11.), the
right of pre-emption of an agricultural lessee may be exercised within 180 days from
notice in writing which shall be served by the landowner (vendor) on all lessees affected
and the Department of Agrarian Reform. The lessee who agrees with the terms and
conditions of the sale must give notice in writing to the lessor his intention to exercise
his right within the balance of 180 days. The period for the exercise of the right of legal
redemption is also 180 days from notice in writing. (Sec. 12 thereof, supra.) The Code of
Agrarian Reform gives agricultural lessees a substantially longer period than that pro-
vided by the Civil Code in view of the fact that because of their economic status, they
may not be able to avail of the right without securing funds from other sources, and the
longer period is given precisely to enable them to obtain legal and financial support
from the Department of Agrarian Reform and the Land Bank and other sources as pro-
vided by the Code itself. (Lusung vs. Vda. de Santos, 118 SCRA 669 [1982].) There is no
legal provision suspending or interrupting the period for exercising the lessees right of
pre-emption or redemption. The right is not a matter of intent, but of making the proper
payment or tender of the price within the specified period. How the lessee will raise the
money for the purpose is immaterial. Timeliness of the payment or tender is what mat-
ters. (De la Merced vs. De Guzman, 160 SCRA 87 [1988].)
Note: Presidential Decree No. 27 (Tenants Emancipation Decree.) impliedly repealed
the provisions of the Code of Agrarian Reform on pre-emption and redemption insofar
as rice and corn lands above seven (7) hectares are concerned. The excess areas are cov-
ered by Operation Land Transfer the objective of which is to distribute land transfer
certificates to the tenant farmers pursuant to the Decree.
458 SALES Art. 1623
1524 of the former Civil Code which did not specify who must
give the notice.
ILLUSTRATIVE CASE:
Notice of sale of co-owners share in a property was sent by the
vendee and not by the co-owner-vendor.
Facts: A, B, C, D, and E are co-owners of four (4) parcels of
land. E without the knowledge of the other co-owners, sold on
August 8, 1986 her 1/5 share for P10,000.00 to respondent X.
On August 5, 1992, petitioner D received summons, with a copy
of the complaint filed by X demanding her share in the rentals
being collected by D from the tenants of the property. D then
informed X that she was exercising her right of redemption as
co-owner of the subject property.
Issue: Whether the letter of May 30, 1992 sent by X to D on
the same date notifying her of the sale on August 8, 1986 of Fs
1/5 share of the property to X, containing a copy of the deed of
sale, can be considered sufficient compliance with the notice
requirement of Article 1623 for the purpose of legal redemp-
tion, and, therefore, the 30-day period of redemption should
be counted from said date and from August 5, 1992.
Held: (1) Notice must be given by the vendor. The notice sent
by the vendee (X) to a co-owner (D) cannot substitute for that
required to be given by the vendor (E) or prospective vendor.
In Etcuban vs. Court of Appeals (48 SCRA 507 [1987].), no-
tice to the co-owners of the sale of the share of one of them was
given by the vendees through their counterclaim in the action
for legal redemption. Despite the apparent meaning of Art. 1623,
it was held in that case that it was of no moment that the no-
tice of sale was given not by the vendor but by the vendees. So
long as the [co-owner] is informed in writing of the sale and
the particulars thereof, the 30 days for redemption start run-
ning, and the redemptioner has no cause to complain, so it
was held. The contrary doctrine of Butte vs. Manuel Uy and Sons,
Inc. was thus overruled sub silencio.
However, in the later case of Salatandol vs. Retes, decided a
year after the Etcuban case, the Court expressly affirmed the
ruling in Butte that the notice required by Art. 1623 must be
given by the vendor. In Salatandol, the notice given to the
redemptioner by the Register of Deeds of the province where
the subject land was situated was held to be insufficient.
Art. 1623 EXTINGUISHMENT OF SALE 463
Legal Redemption
(2) Return to ruling in Butte vs. Manuel Uy & Sons, Inc., proper.
There was thus a return to the doctrine laid down in Butte.
That ruling is sound. In the first place, reversion to the ruling
in Butte is proper. Art. 1623 of the Civil Code is clear in requir-
ing that the written notification should come from the vendor
or prospective vendor, not from any other person. There is,
therefore, no room for construction. Indeed, the principal dif-
ference between Art. 1524 of the former Civil Code and Art.
1623 of the present one is that the former did not specify who
must give the notice, whereas the present one expressly says
the notice must be given by the vendor. Effect must be given to
this change in statutory language.
In the second place, it makes sense to require that the no-
tice required in Art. 1623 be given by the vendor and by nobody
else. As explained by this Court through Justice J.B.L. Reyes in
Butte, the vendor of an undivided interest is in the best position
to know who are his co-owners who under the law must be
notified of the sale. It is likewise the notification from the seller,
not from anyone else, which can remove all doubts as to the fact
of the sale, its perfection, and its validity, for in a contract of sale,
the seller is in the best position to confirm whether consent to
the essential obligation of selling the property and transferring
ownership thereof to the vendee has been given.
(3) Notice, however, by vendor no longer necessary. Now,
it is clear that by not immediately notifying the co-owner, a
vendor can delay or even effectively prevent the meaningful
exercise of the right of redemption. In the present case, for in-
stance, the sale took place in 1986, but it was kept secret until
1992 when vendee (herein respondent) needed to notify peti-
tioner about the sale to demand 1/5 rentals from the property
sold. Compared to serious prejudice to petitioners right of le-
gal redemption, the only adverse effect to vendor Adela Blas
and respondent-vendee is that the sale could not be registered.
It is non-binding, only insofar as third persons are concerned.
It is, therefore, unjust when the subject sale has already been
established before both lower courts and now, before this Court,
to further delay petitioners exercise of her right of legal re-
demption by requiring that notice be given by the vendor be-
fore petitioner can exercise her right. For this reason, we rule
that the receipt by petitioner of summons in Civil Case No. 15510
on August 5, 1992 constitutes actual knowledge on the basis of
which petitioner may now exercise her right of redemption
within 30 days from finality of this decision.
464 SALES Art. 1623
ILLUSTRATIVE CASES:
1. Co-heirs with actual notice of sales invoked right of redemp-
tion 14 years after the sales.
Facts: A, B, C, D, and E, brothers and sisters, inherited in
equal pro indiviso shares a parcel of land. On March 15, 1963, A
sold his undivided share to E and F by way of absolute sale.
One year later, on April 22, 1964, B sold her own share to the
same vendees who afterwards occupied an area correspond-
ing to the portions sold to them, enclosing the same with a fence.
In 1975, with the consent of E and F, their son H and his wife
built a semi-concrete house on a part of the enclosed area.
On May 22, 1977, C filed her complaint invoking her right
of redemption. C lived on the same lot, which consisted of only
604 square meters, including the portions sold to E and F and
knew that the area occupied by the petitioners had been pur-
chased by them from the other co-heirs, A and B.
Issue: In the absence of a written notice, did the actual
knowledge of the sales satisfy the requirements of Article 1623?
466 SALES Art. 1623
2. Petitioners orally offered to redeem within the period fixed
by law but their lawyer, coursed through a lawyer, offering to redeem
was made several months after notice of the sale.
Facts: The land in question is owned in common by CH
who owns 2/3 and the heirs of EH. There has been no subse-
quent distribution among the co-heirs of their specific shares.
Neither was there a deed of partition among the co-owners.
Two of the heirs (who are brothers) executed a deed of sale
covering their undivided shares in favor of BP, describing them-
selves as co-owners who have agreed to sell, transfer and
convey x x x all our shares, rights and interests over the above-
described parcel of land. The petitioners (co-heirs, their mother
and sister) who are their mother and sister had notice of the
sale in January, 1984 and considering that their letter, offering
to redeem the property was made only in September 1984, the
Court of Appeals was of the view that the action to enforce
redemption had prescribed. As found, however, by the trial
court, the petitioners immediately started negotiations with B.P.
to redeem the alienated shares. At this time, BP had not yet
completed payment for the shares.
Issue: Could the petitioners still exercise the right of redemp-
tion?
Held: Yes. (1) Period of legal redemption not a prescriptive pe-
riod. It was error for the respondent court to rule that the
right of the petitioners to redeem the alienated share had long
prescribed. This finding fails to take into account that the pe-
riod of legal redemption is not a prescriptive period. It is a con-
dition precedent to the exercise of the right of redemption. It is
a period set by law to restrict the right of the person exercising
the right of legal redemption. It is not one of prescription.
(2) Sale was deliberately hidden from petitioners. The writ-
ten notice required by Article 1623 of the Civil Code was en-
acted to remove all doubts and uncertainty that the alienation
may not be definite. The co-owners must know with certainty
the circumstances of the sale by his co-owners and the terms
and the validity of the alienation. Only after said knowledge is
the co-owner required to exercise the right of redemption given
to him by law.
While the law requires that the notice must be in writing, it
does not state any particular form thereof, so long as the rea-
468 SALES Art. 1623
sons for a written notice are present. The records of the case
show that the sale of the brothers share was deliberately hid-
den from the petitioners. For sometime after the sale, the peti-
tioners were ignorant about its execution. When they some-
how heard rumors about it, they had to take one step after an-
other to find out if the information was true. x x x Far from
giving the notice required by law or giving information on the
history and details of the sale, Agustinito and Danilo gave the
petitioners the run-around until the brothers were practically
forced to admit it and the petitioners immediately went to see
Ben Palaganas. In their dialogue with Ben Palaganas, petition-
ers offered to redeem the property, but this time, unlike the
first, the offer was rejected.
(3) Petitioners orally offered to redeem within the period fixed
by law. When the petitioners offered to redeem within the
period fixed by law, they complied with the condition prec-
edent to the exercise of their right. The filing of an action to
enforce the redemption is not the determining point in time. In
Conejero vs. Court of Appeals (16 SCRA 775 [1966].), this Court
ruled that a consignation of the tendered price is not necessary
as long as a valid tender is present. However, the offer to re-
deem is indispensable. Considering the indignation and the
wrath of the petitioners directed at the two brothers for their
acts of alienating an undivided portion of the property, despite
the earlier redemption of the sale sold in 1979, there can be no
question about the willingness and capability of the petition-
ers to buy back the shares sold in 1980.
(4) Interpretation in applying Article 1623. In applying
Article 1623 of the Civil Code on the exercise of legal redemp-
tion to certain facts, the interpretation must be in favor of jus-
tice and equity. This Court explained x x x. We test a law by
its result. A law should not be interpreted so as not to cause an
injustice x x x. There are laws which are generally valid but
may seem arbitrary when applied in a particular case because
of its peculiar circumstances. We are not bound to apply them
in slavish obedience to their language.
Whether it is the vendees who will prevail as in the Alonzo
doctrine, or the redemptioners as in this case, the righting of
justice is the key to the resolution of the issues.
The standards and conditions of legal redemption provided
under Article 1623 of the Civil Code have not been met in this
Art. 1623 EXTINGUISHMENT OF SALE 469
Legal Redemption
oOo
470 SALES
Chapter 8
1
Assignment of receivables is a commonplace commercial transaction today. It is
an activity or operation that permits the assignee to monetize or realize the value of
receivables before the maturity thereof. (Atok Finance Corporation vs. Court of Ap-
peals, 41 SCAD 450, 222 SCRA 232 [1993].)
470
Art. 1624 ASSIGNMENT OF CREDITS AND OTHER 471
INCORPOREAL RIGHTS
upon the credit or right assigned and upon the price even if nei-
ther has been delivered. (see Art. 1475.)
However, the assignee will acquire ownership only upon de-
livery. (see Arts. 1498, par. 2 and 1501.)
It has been held that since the law does not require the regis-
tration of an assignment of a chattel mortgage, its registration does
not ipso facto operate as constructive notice to the mortgagor. (Sison
vs. Yap Tico, supra.)
(2) After notice, or before notice but debtor had knowledge of as-
signment. Payment by the debtor to the original creditor after
the former had received notice of the assignment, whether or not
he consented, is not valid as against the assignee. Even without
notice, the debtor will not also be released from his obligation
should he pay the creditor after having had knowledge of the
assignment of the obligation. He thereby acts in bad faith. He can
be made to pay again by the assignee.
EXAMPLE:
D owes C P1,000.00, with G as guarantor. C assigns his credit
to T with notice given to D.
In case D fails to pay T, the latter may enforce the guaranty
of G unless the credit was transferred with express stipulation
that G shall be released from his obligation.
EXAMPLE:
D owes C P20,000.00, which represents the purchase price
of a car bought by D. C assigns the credit to T.
C is liable to T if at the time of the assignment the credit
has already prescribed, or has been paid, or is annullable and
its nullity is subsequently declared because C warrants the ex-
istence and legality of the credit.
But C is not liable if D cannot fulfill his obligation due to in-
solvency because insolvency has nothing to do with the exist-
ence and legality of the credit unless it has been so expressly
stipulated, or the insolvency of D was existing prior to the as-
signment and of common or public knowledge although it was
not known to C (for C is conclusively presumed to have known
of the same), or known to C although it was not of common
knowledge.
If C lacks sufficient data to determine whether the credit is
still enforceable or not, as for instance, whether the period of
prescription was interrupted and there is a full disclosure of
such fact when the credit was assigned, he cannot be held re-
sponsible even for the existence and legality of the credit.
EXAMPLE:
D owes C P50,000.00 payable on July 1, 2004. C assigns his
credits to T with C making himself responsible for the solvency
of D.
(1) If the agreement is that the duration of Cs liability shall
last for two years from July 1, 2004, then his guaranty shall last
as agreed upon.
(2) If there is no stipulation, and the assignment was made
on August 1, 2004, the liability is limited to one year from the
assignment.
(3) However, if the assignment was made on June 1, 2004,
the responsibility shall cease exactly one year after July 1, 2004
or one year after the maturity of the debt.
EXAMPLE:
H and I are the heirs of the estate left by D, deceased. Be-
fore partition and without specifying his definite share in the
inheritance, H sold his share to B for P100,000.00.
In this case, H only warrants the fact that he is an heir to D.
He is not liable to B should his share after partition be less than
P100,000.00.
Art. 1631 ASSIGNMENT OF CREDITS AND OTHER 479
INCORPOREAL RIGHTS
ART. 1631. One who sells for a lump sum the whole
of a certain rights, rents, or products, shall comply
by answering for the legitimacy of the whole in gen-
eral; but he shall not be obliged to warrant each of
the various parts of which it may be composed, ex-
cept in the case of eviction from the whole or the part
of greater value. (1532a)
EXAMPLE:
P is a partner in a partnership. He sells all his interests to B
for the lump sum of P150,000.00. Upon the dissolution of the
partnership, B received the share of P in its assets consisting of
P50,000.00, some office equipment and a car. Subsequently, the
car was recovered by C, a creditor of the partnership.
P is not liable to B because P does not warrant each of the
various parts of his interest in the partnership but only the le-
gitimacy of his rights as partner taken as a whole. But if the
value of the car exceeds P75,000.00, P will be liable because B is
evicted from the part of greater value.
also just that the vendee be required to reimburse the vendor for
whatever the latter has paid for the debts of and charges on the
estate.
The liability of the vendee for the debts and charges is like-
wise subject to any contrary agreement.
ILLUSTRATIVE CASES:
1. Mortgagee assigned its rights as such and as highest bidder
in foreclosure sale of mortgaged land while there was a pending case
between unpaid seller of the land and mortgagor (buyer).
Facts: S sold several lots to B, who, after securing registra-
tion of said lots in her name, mortgaged them to C (bank). B
failed to complete payment of the purchase price. The sale was
rescinded by the court without prejudice to the right of C, which
was adjudged a mortgagee in good faith. C foreclosed the mort-
gage. At the public auction, C was the highest bidder. Subse-
quently, C assigned its rights as mortgagee and as the highest
bidder to D (NIDC).
S filed a motion to cancel the encumbrance of D from the
certificates of title concerned which was granted by the lower
court on the ground that C should have submitted the deed of
assignment for approval of the court knowing that the subject
matter of said deed is in custodia legis and so that the consent of
S could be taken.
Issue: Upon the facts, has a valid assignment been made by
C to D of its rights over the lots in question?
Held: Yes. There is nothing in our statutes or jurisprudence
which prohibits a creditor without the consent of the debtor
from making an assignment of his credit and the rights acces-
sory thereto; and, certainly, an assignment of credit and its ac-
cessory rights does not at all obliterate the obligation of the
debtor to pay, but merely puts the assignee in the place of his
assignor. Indeed, Article 1634 definitely recognizes the likeli-
Art. 1634 ASSIGNMENT OF CREDITS AND OTHER 483
INCORPOREAL RIGHTS
3
Art. 2097. With the consent of the pledgee, the thing pledged may be alienated by
the pledgor or owner, subject to the pledge. The ownership of the thing pledged is trans-
484 SALES Art. 1635
Although the pledgee or assignee (L) did not ipso facto be-
come the creditor of M, the pledge being valid, the incorporeal
right assigned by T in favor of L can only be alienated by T
with due notice to and consent of L or his duly authorized rep-
resentative. To allow the assignor to dispose or alienate the se-
curity without notice to and consent of the assignee will render
nugatory the very purpose of a pledge or an assignment of
credit.
Moreover, under Article 1634, the debtor (M) has a corre-
sponding obligation to reimburse the assignee (L) for the price
the latter paid or for the value given in consideration for the
deed of assignment. Failing in this, the alienation of the liti-
gated credit made by T in favor of M by way of a compromise
agreement does not bind L.
Furthermore, having knowledge of the assignment, M was
estopped from entering into a compromise agreement without
notice to and consent of L. More so, in the light of the fact that
no reimbursement has even made in favor of L as required un-
der Article 1634. M acted in bad faith and in connivance with T
so as to defraud L in entering into the compromise agreement.
(Estate of G. Litton vs. Mendoza, 163 SCRA 246 [1988].)
mitted to the vendee or transferee as soon as the pledgee consents to the alienation, but
the latter shall continue in possession. (n)
Art. 1635 ASSIGNMENT OF CREDITS AND OTHER 485
INCORPOREAL RIGHTS
EXAMPLE:
D is indebted to B and C in the amount of P10,000.00. For
failure to pay his debt, B sues D.
If B transfers his credit to C during the pendency of the
litigation, D cannot redeem.
EXAMPLE:
A owes B the sum of P10,000.00 and B owes C P8,000.00.
If B assigns his credit against A to C then the subject of
litigation (between A and B), A has also no right of legal re-
demption.
486 SALES Art. 1635
EXAMPLE:
A owes B P10,000.00 which is secured by a mortgage on a
land owned by A.
If A sells the land to C and B assigns his credit in litigation
against A to C, A is not entitled to redeem.
oOo
487
Chapter 9
GENERAL PROVISIONS
487
488 SALES Art. 1636
Definition of terms.
This article defines or explains the various terms used in the
preceding articles governing the sale of goods. They hardly re-
quire comment. The definitions in this article do not apply if the
context or subject matter of any particular portion of the law oth-
erwise requires.
(1) Goods do not include things or choses in action or negoti-
able instruments.
(a) A chose in action is any claim or right which may be
pleaded in a suit at law, such as a claim of reparation for a tort
or quasi-delict, or a right acquired under a contract.
(b) Stock certificates have been held to be goods within the
meaning of the U.S. Uniform Sales Act. (Babb & Martin, op. cit.,
p. 86.)
(c) Real property is not the proper subject of a transaction
involving a sale of goods within the definition of the term.
However, growing crops or fruits which are agreed to be sev-
ered under the contract of sale are treated as goods and not as
interest in realty.
(d) The U.S. Uniform Commercial Code excludes money
from the term goods but only where money is the medium
of payment. Said another way, money in which the price is to
be paid for the goods involved, is not to be considered part of
the goods which are the subject matter of the transaction. Said
Code (Sec. 2-105 thereof.) specifically provides that money,
when treated as a commodity, is a good and the contract
Art. 1637 GENERAL PROVISIONS 489
EXAMPLES:
(1) S sells to B one used X truck, Motor No. 12345. S and B
are on the truck when the bargain is made. The goods are exist-
ing, ascertained, and specific.
(2) B, a retail grocer, orders 6 dozen cans of X brand toma-
toes from S, a wholesale concern. S has the canned goods in
stock, and accepts the order but does not immediately set aside
6 dozen cans. The goods are existing and unascertained. When
6 dozen cans have been set aside and earmarked for B, the goods
have become ascertained or specified not specific. (Ibid.)
oOo
491
BARTER OR EXCHANGE
(Title VII, Arts. 1638-1641)
Barter defined.
The contract of barter is defined by Article 1638. It is similar
to sale with the only difference that instead of paying a price in
money, another thing is given in lieu thereof. (see Art. 1468.) A
contract whereby one person transfers the ownership of non-fun-
gible things to another with the obligation on the part of the lat-
ter to give things of the same kind, quantity, and quality is con-
sidered a barter. (Art. 1954.)
The use of the term barter in describing a contract is not
controlling. (Baluran vs. Navarro, 79 SCRA 309 [1977].)
491
492 SALES Art. 1638
ILLUSTRATIVE CASES:
1. A party to a barter issued a promissory note for the value of
the things he promised to give.
Facts: The agreement between A and B was for A to deliver
sugar to B, who was to give A 50 bottles of whisky for every
picul of sugar. Because at the time B had no whisky, he signed a
promissory note for the value of the whisky.
Issue: Did the contract become one of sale?
Held: The contract was still barter. The consideration for
the sugar was not cash but the whisky, and the note was ex-
ecuted in consideration for the liquor. The Price Control Law
(then in force) contemplated sales payable in cash. Being in
derogation of a natural right, it must be construed strictly, bar-
ring collusions to evade its provisions. It appeared that the trans-
action was bona fide and fair, B being a manufacturer of and
dealer in whisky on a large scale, and as such he needed large
quantities of sugar to carry on his business. (Herrerias vs.
Javellana, 84 Phil. 609 [1949].)
2. In the contract entitled barter, the parties shall enjoy the
material possession, and neither shall alienate the property received,
one party even obliging himself to return the property should any of
the children of the other need it.
Facts: Spouses A and B executed a written document enti-
tled Barter whereby they agreed to barter and exchange
their residential lot with the riceland of spouses C and D. Un-
der the agreement, the parties shall enjoy the material posses-
sion of their respective properties. A and B shall reap the fruits
of the riceland, while C and D shall have the right to build their
house on the lot, subject to the condition that should any of the
children of A and B decide to reside in the municipality where
the lot is located and build his house on the lot, C and D shall
be obliged to return the lot to such children, and that neither
party shall encumber, alienate or dispose of their respective
properties without the consent of the other. E, a son of A and B,
filed a complaint against C and D to recover the lot claiming
that he needed the property for the construction of his house
thereon.
Issue: Did the contract of barter transfer the ownership
of the lot to C and D?
Arts. 1639-1640 BARTER OF EXCHANGE 493
Held: No. Contracts are not what the parties may see fit to
call them but what they really are as determined by the princi-
ples of law. Thus, in the instant case, the use of the term bar-
ter in describing the agreement is not controlling. The stipula-
tions in the document are clear enough to indicate that there was
no intention at all on the part of the signatories thereto to con-
vey the ownership of their respective properties. The agreement
is not barter but one of or akin to usufruct (see Art. 562.) in that
all that was conveyed or transferred from one to the other is only
the use or material possession or enjoyment of each others real
property. (Baluran vs. Navarro, 79 SCRA 309 [1977].)
Effect of eviction.
Each contracting party warrants to the other that he has right
to transfer ownership of the thing exchanged. (see Arts. 1547,
1548.)
494 SALES Art. 1641
oOo
495
495
496 SALES Sec. 2
Meaning of stock.
The common use of the term stock when applied to goods in a
mercantile house refers to that which are kept for sale. (Albrecht
vs. Cudikee, 79 Pac. 628.)
Meaning of merchandise.
Merchandise must be construed to mean such things as are
usually bought and sold in trade by merchants. (Peoples Savings
Bank vs. Ban Allsburg, 131 N.W. 101.) It means something that is
sold everyday, and is constantly going out of the store and being
replaced by other goods. (Boise Credit Mens Assoc. vs. Ellis, 133
Pac. 6.)
It has been held that the sale of an entire foundry shop which
does not sell merchandise, but whose main business is to manu-
498 SALES Sec. 3
Meaning of fixtures.
The term fixtures refers to such articles of merchandise usu-
ally possessed and annexed to the premises occupied by mer-
chants to enable them better to store, handle, and display their
wares and which are commonly known as trade fixtures, although
removable without material injury to the premises at or before
the end of tenancy. (Brown vs. Quigley, 130 N.W. 690.)
The law has reference to trade fixtures connected with the
business and not to the building in which the business is carried
on. (Robbins vs. Fuller, 229 S.W. 8.)
into existence subsequent to the sale are not entitled to the ben-
efits of the statute. (37 C.J.S. 1532, 1535.)
oOo
1
Now, Bureau of Trade Regulation and Consumer Protection (BTRCP), under the
Department of Trade and Industry.
2
Secretary of Trade and Industry.
560 LEASE
Part II
LEASE
(Title VIII, Arts. 1642-1699, 1713-1731)
Chapter 1
GENERAL PROVISIONS
560
Art. 1642 GENERAL PROVISIONS 561
1
Unless otherwise indicated, refers to article in the Civil Code.
2
This topic is more appropriately taken up in Labor Law.
3
This topic is studied in the course on transportation.
4
See comments under Article 1458, Part I.
562 LEASE Art. 1643
Lease of things.
In legal parlance and in ordinary usage, the term landlord
means lessor or owner and the word tenant means lessee.
(Gutierrez vs. Santos, 107 Phil. 419 [1960].)
(1) Essence of lease. The essence or essential purpose of the
lease of things is the transmission of the temporary enjoyment or
use by the lessee of a thing for a certain period in consideration
of the undertaking to pay rent therefor. Hence, the object of the
lease must be within the commerce of man (Art. 1374.); otherwise,
it is void. Thus, a lease of property belonging to the public do-
main such as a road or a public plaza is void ab initio. (Yngson vs.
Secretary of Agriculture and National Resources, 123 SCRA 441
[1983]; Municipality of Cavite vs. Rojas, 30 Phil. 602 [1915].)
The lease of a building naturally includes the lease of the lot
on which it stands, and the rentals of the buildings include those
of the land. (Duellowe vs. Gotoco, 7 SCRA 841 [1963]; Phil. Con-
solidated Freight Lines, Inc. vs. Ajon, 103 Phil. 318 [1958]; City of
Manila vs. Chin Kam, 101 Phil. 1252 [1957].)
(2) Subject-matter of lease. Article 1643 applies to lease of
things, whether movable or immovable. The Civil Code makes
no special-provisions for the lease of movables. Nevertheless, the
provisions of the Code on leases of lands are also applicable to
leases of personal property except those provisions which by their
nature and intent, can only be applied where the object of the lease
is immovable.
Art. 1643 GENERAL PROVISIONS 563
agree with the rent or not consent to the lease. (see Vda. de
Roxas vs. Court of Appeals, 63 SCRA 302 [1975]; Ramon
Magsaysay Award Foundation vs. Court of Appeals, 134
SCRA 134 [1985].)
(d) Of course, during the period fixed in the contract
where there is a stipulated rent, the lessor cannot increase the
rental without the consent of the lessee. Neither can a court
fix a different rental, even where there is an increase in realty
taxes. (Ledesma vs. Javellana, 121 SCRA 794 [1983].)
(5) Period of lease. The period may be definite or indefinite.
In any case, the period is temporary, not perpetual.
(a) When the period is definite or fixed, the longest is 99
years. According to the Code Commission, Article 1643 lim-
its a lease to 99 years because it is an unsound economic policy
to allow ownership and enjoyment to be separated for a very
long time. A similar limitation applies in Philippine law to
sales with a right of redemption, fideicommerssary substitu-
tions, and other cases. (Report, p. 142.)
In fact, the period of 99 years is even too long. Under the
old Civil Code (Art. 1543 thereof.), there was no maximum
period; it only provides that the lease must be for definite
period.
(b) In case the period fixed is more than 99 years, the lease
should be considered as having expired after the end of said
term. Where there is an implied new lease (see Art. 1670.), the
lease will be for an indefinite time.
(d) If a term is fixed but it is indefinite, but from the circum-
stances it can be inferred that a period was intended, the court
may fix the duration thereof. (Art. 1196.) A contract established
to be a lease can only be for a determinate period for a lease,
by its very nature, must be temporary.
(d) If no term is fixed, Article 1682 applies for leases of ru-
ral lands, and Article 1687, for leases of urban lands.
(e) A verbal contract of lease for as long as the lessees are
doing business and as long as they can pay just rents has been
held to be a lease from month to month under Article 1687
Art. 1643 GENERAL PROVISIONS 565
ILLUSTRATIVE CASES:
1. The lease contract expressly gives the lessor the sole option
to renew the lease.
Facts: Private respondents, spouses FT and LT (Tangcuecos),
leased their lot to petitioner ALLIED (bank) for a monthly rental
of P1,000.00 for the first three (3) years, adjustable by 25% every
three (3) years thereafter. The lease contract specifically states
in its Provision No. 1 that the term of this lease shall be four-
teen (14) years commencing from April 1, 1978 and may be re-
newed for a like term at the option of the lessee.
Pursuant to their lease agreement, ALLIED introduced an
improvement on the property consisting of a concrete building
with a floor area of 340-square meters which it used as a branch
office. As stipulated, the ownership of the building would be
transferred to the lessors upon the expiration of the original
term of the lease.
566 LEASE Art. 1643
case of Singson vs. Baldomar (77 Phil. 470 [1946].), rejected the
theory that a lease could continue for an indefinite term so long
as the lessee paid the rent, because then its continuance and
fulfillment would depend solely on the free and uncontrolled
choice of the tenant between continuing to pay rentals or not,
thereby depriving the lessors of all say in the matter as it would
be contrary to the spirit of Article 1256 of the Old Civil Code,
now Article 1308 of the New Civil Code of the Philippines which
provides that validity or compliance of contracts can not be left
to the will of one of the parties.
A review of the Puahay and Singson cases shows that the
factual backgrounds therein are not the same as in the case at
bar. In those cases, the lessees were actually in arrears with their
rental payments. The Court, in the Puahay case, ruled that the
lessor had the right to terminate the lease under par. 3, Art.
1673 of the Civil Code, declaring that the lessor may judicially
eject the lessee for violation of any of the conditions agreed upon
in the contract. In the case of Singson, the lease contract was
expressly on a month-to-month basis.
(3) Stipulation not contrary to Article 1308 of the Civil Code.
The contention of the petitioner that a provision in a con-
tract that the lease period shall subsist for an indefinite period
provided the lessee is up-to-date in the payment of his monthly rentals
is contrary to Art. 1308 of the Civil Code is not plausible. As
expounded by the Court in the case of Philippine Banking Cor-
poration vs. Lui She (21 SCRA 52 [1967].):
We have had occasion to delineate the scope and applica-
tion of article 1308 in the early case of Taylor vs. Uy Tieng Piao
(43 Phil. 873 [1922].) We said in that case:
Article 1256 [now Art. 1308] of the Civil Code in our
opinion creates no impediment of the insertion in a con-
tract for personal service of a resolutory condition permit-
ting the cancellation of the contract by one of the parties.
Such a stipulation, as can be readily seen, does not make
either the validity or the fulfillment of the contract depend-
ent upon the will of the party to whom is conceded the
privilege of cancellation; for where the contracting parties
have agreed that such option shall exist, the exercise of the
option is as much in the fulfillment of the contract as any
other act which may have been the subject of agreement.
xxx
Art. 1643 GENERAL PROVISIONS 573
owner if he were to still pay the lessor. (Tamio vs. Ticson, 443 SCRA
44 [2004].)
Under the Rules of Court, conclusive presumptions include:
(b) The tenant is not permitted to deny the title of his landlord
at the time of the commencement of the relation of landlord and
tenant between them. (Sec. 3-b, Rule 131, Rules of Court.) A judg-
ment rendered in ejectment cases, however, shall not bar an ac-
tion between the same parties respecting title to land and shall
not be conclusive as to the facts found therein in a case between
the same parties upon a different cause of action involving pos-
session of the same property. In ejectment cases, the issue is the
physical or material possession and any pronouncement made by
the trial court on the question of ownership is provisional in na-
ture. (Heirs of R.S. Florencio vs. Heir of T. S. De Leon, 425 SCRA
447 [2004]; Amagan vs. Marayag, 326 SCRA 581 [2000]; Olan vs.
Court of Appeals, 314 SCRA 273 [1999].)
matter thereof. (H.E. Heacock Co. vs. Buntal Mfg. Co., 66 Phil. 245
[1937].)
5
Central Bank Circular No. 905 (Dec. 10, 1982) suspended the effectivity of the Usury
Law. It removed the ceiling on interest rates.
578 LEASE Art. 1643
(2) In the first, the lessor may or may not be the owner, while
in the second, the creator of the right must be the owner or one
duly authorized by him (see Art. 563.);
(3) In the first, the lessor has the active obligation to main-
tain the lessee in the enjoyment or use of the properly, while in
the second, the owner has the passive duty to allow the usufruc-
tuary to enjoy or use the same (see Art. 562.);
(4) In the first, the lessee generally pays no taxes, while in the
second, the usufructuary pays the annual charges and taxes on
the fruits (Art. 596.);
(5) In the first, the lessee generally has no obligation to pay
for repairs, while in the second, the usufructuary is obliged to
make the ordinary repairs needed by the thing given in usufruct
(Art. 592.);
(6) In the first, the lessee cannot constitute a usufruct on the
property, while in the second, the usufructuary may lease the thing
in usufruct to another (Art. 581.);
(7) The first, as a rule, may be created only by contract, while
the second may be created by law, contract, last will and testa-
ment, or prescription (Art. 563.); and
(8) The first generally covers particular uses limited by the
contract, while the second, as a rule, covers all possible uses of
the property. (Arts. 562, 564, 566.)
depositor can demand the return of the subject matter at will (Art.
1972.);
(3) In the first, both movable and immovable property may
be the object, while in the second, if it is extrajudicial, only mov-
able (corporeal) things may be the object (Art. 1966.);
(4) The first is onerous, while the second may be gratuitous
(Art. 1965.); and
(5) The first is consensual, while the second is a real contract
perfected only upon delivery of the object thereof. (Art. 1963.)
the jeepneys when they passed his gasoline station for water, and
checking the route prescribed by the Public Service Commission
(now Land Transportation Franchising and Regulatory Board), the
Supreme Court held:
The only features that would make the relationship of
lessor and lessee between the respondent, owner of the jeeps,
and the drivers, members of the petitioner union, are the fact
that he does not pay them any fixed wage but their compen-
sation is the excess of the total amount of fares earned or col-
lected by them over and above the amount of P7.50 which
they agreed to pay to the respondent, and the fact that the
gasoline burned by the jeeps is for the account of the drivers.
These two features are not, however, sufficient to withdraw
the relationship between them from that of employer-em-
ployee, because the estimate earnings for fares must be over
and above the amount they agreed to pay to the respondent
for a ten-hour shift or ten-hour a day operation of the jeeps.
Not having any interest in the business because they did not
invest anything in the acquisition of the jeeps and did not par-
ticipate in the management thereof, their service as drivers of
the jeeps being their only contribution to the business, the re-
lationship of lessor and lessee cannot be sustained. (National
Labor Union vs. Dinglasan, 98 Phil. 64 [1955].)
ILLUSTRATIVE CASE:
Respondent corporation claims that the management contract it
entered into with petitioner corporation is a contract of agency such
that it has the right to revoke and terminate the said contract, as it did
terminate the same.
Facts: Nielson was hired by Lepanto to manage and oper-
ate the mining properties of the latter.
Under the contract, Nielson had agreed, for a period of
five years, with the right to renew for a like period, to explore,
develop and operate the mining claims of Lepanto, and to mine,
or mine and mill, such pay ore as may be found therein and to
market the metallic products recovered therefrom which may
prove to be marketable, as well as to render for Lepanto other
services specified in the contract.
Nielson was to take complete charge, subject at all times to
the general control of the Board of Directors of Lepanto, of the
exploration and development of the mining claims, of the hir-
ing of a sufficient and competent staff and of sufficient and ca-
pable laborers, of the prospecting and development of the mine,
of the erection and operation of the mill, and of the beneficiation
and marketing of the minerals found on the mining properties;
and in carrying out said obligation, Nielson should proceed
diligently and in accordance with the best mining practice. In
connection with its work, Nielson was to submit reports, maps,
plans and recommendations with respect to the operation and
development of the mining properties, make recommendations
and plans on the erection or enlargement of any existing mill,
dispatch mining engineers and technicians to the mining prop-
erties as from time to time may reasonably be required to in-
vestigate and make recommendations without cost or expense
to Lepanto. Nielson was also to act as purchasing agent of sup-
plies, equipment and other necessary purchases by Lepanto,
provided, however, that no purchase shall be made without
the prior approval of Lepanto; and provided further, that no
commission shall be claimed or retained by Nielson on such
Art. 1644 GENERAL PROVISIONS 583
oOo
6
See comments under Article 1464, Part I.
590 LEASE
Chapter 2
590
Art. 1646 LEASE OF RURAL AND URBAN LANDS 591
General Provisions
1
See comments under said articles in Part I.
592 LEASE Art. 1647
recorded, the lease entered into by said persons is valid even with-
out a special power.
Under Article 1878(8), a special power of attorney is neces-
sary to lease any real property to another person for more than
one year. This requirement is imposed whether or not the lease
will be recorded. In the absence of a special power, a lease for than
one (1) year executed by the persons mentioned in Article 1647 is
valid only for one (1) year but void as to the excess.
The word administrator in the old Civil Code is changed
to manager in Article 1647. Said word has been held to apply
to an administrator of conjugal property (Rodriguez vs. Borromeo,
43 Phil. 479 [1925].), property owned in common (Melencio vs.
Dy Tiao Lay, 55 Phil. 91 [1930].), property of a decedent (Jocson
vs. Nava, 69 Phil. 1 [1939]; Ferraris vs. Rodas, 65 Phil. 732 [1938].),
and patrimonial or private property of the State. (Tipton vs.
Andueza, 5 Phil. 477 [1905].)
tract of lease. There arises the new juridical relation between the
lessor and the assignee who is converted into a new lessee. There
is, in effect, a novation by substituting the person of the debtor
(Art. 1291[2].) and novation cannot take place without the con-
sent of the creditor. (Art. 1293.) Hence, the lessee cannot assign
the lease without the consent of the lessor (creditor), unless there
is a stipulation granting him that right. (Manlapat vs. Salazar, 98
Phil. 356 [1956]; Sy Juco vs. Montemayor, 52 Phil. 73 [1928]; Vda.
De Hijos de Barretto vs. Sevilla, Inc., 62 Phil. 593 [1935]; Tamio
vs. Ticson, 443 SCRA 4 [2004].)
The objective of the prohibition is to protect the lessor or owner
of the leased properly. (Dakudao vs. Consolacion, 122 SCRA 877
[1983].) An assignment of lease without the consent of the lessor
is a ground for rescission of the lease. (Caco vs. Court of Appeals,
80 SCRA 699 [1977].)
What is contemplated by Article 1649 is a transfer whereby
the original lessee is released from his obligations under the con-
tract. In other words, there must be transfer of the contract itself,
not merely of the rights of the lessee. Where the assignee of the
lessee did not assume the liabilities and obligations of the lessee
under an express stipulation that the assignment does not carry
with it any of the liabilities and obligations of the lessee-assignor,
the assignee cannot be held liable for the rentals unpaid by the
lessee-assignor. Here, the lessors consent is not required and he
has no right of action against the assignee. (Rohde Shotwell vs.
Manila Motor Co., Inc., 100 Phil. 655 [1956].)
ILLUSTRATIVE CASE:
The lessee, without the written consent of the lessors, accepted
boarders in their apartment, the latter alleging that the lessee vio-
lated the prohibition against subleasing any portion of the premises
without their written consent.
Facts: Respondents, spouses N and R Gopiao, leased to the
petitioner V. Malasarte an apartment on a month to month ba-
sis for a monthly rental of P300. The lease agreement prohib-
ited the subleasing or assignment of a portion of the leased
premises. The respondents, through their attorney-in-fact, made
an annual inspections of their apartment. They discovered that
two (2) rooms on the second floor and a portion of the living
and dining rooms had been converted into bed spaces for board-
ers. There were eight (8) bed spacers and boarders. One of the
boarders moved out of the apartment and petitioners daugh-
ter moved in on the same day.
Alleging that the petitioner had violated the lease contract,
the Gopiaos demanded that he vacate the premises. When he
did not comply, they filed a complaint for ejectment in the
barangay court. Eventually, the case reached the courts.
Petitioner alleged that the boarders were his nephew, nieces,
grandchildren or other relatives, who are students at the Far
Eastern University, and that the respondents filed the ejectment
suit because they had demanded an increase in his rent from
P300 to P600 per month which he refused to pay.
Issue: Did the petitioner violate the lease agreement by tak-
ing in of boarders?
Held: No. (1) Accepting boarders not equivalent to subleasing.
The taking in of boarders by the petitioner in the leased
premises, without the consent of the lessors, did not violate the
lease agreement, for a prohibition against subleasing may not
embrace the taking in of boarders. Accepting boarders is not
equivalent to subleasing the premises. The lessee, by accepting
boarders and assigning rooms or bed spaces for them in the
leased premises, does not relinquish or surrender his lease to
them. He did not cease to become the actual occupant and pos-
sessor of the demised premises. He did not surrender the pos-
session and control of the leased premises or a part thereof.
The word sublet has a clear and distinct meaning, that is,
it means to make a sublease, accompanied by a surrender of
Art. 1650 LEASE OF RURAL AND URBAN LANDS 599
2
Under Section 7(a) of the Rental Reform Act of 2002 (under Art. 1673.), sublease of
residential units include the acceptance of boarders or bedspacers.
600 LEASE Arts. 1651-1652
unsuitable for the use for which the lessee intended it, is distinct
from his liability for damages, which only attaches when he knew
about such defects and failed to reveal them to the lessee or con-
cealed them, in which case fraud and bad faith may be presumed
on his part. (Yap Kim Chuan vs. Tiaoqui, 31 Phil. 433 [1915].)
In a lease of a cold storage plant for foodstuffs, the lessor is
understood as having warranted that the leased premises would
be free from rats. In this warranty, fraud or bad faith on the part
of the lessor is not a necessary element. A lessor of a cold storage
plant may be held liable for the deterioration of the foodstuffs
stored therein by the lessee because some foodstuffs were gnawed
by rodents. (United States Lines Company vs. San Miguel Brew-
ery, Inc., 10 SCRA 805 [1964].)
oOo
604 LEASE
604
Art. 1654 LEASE OF RURAL AND URBAN LANDS 605
Rights and Obligations of the Lessor and the Lessee
of the lease. (Filoil Refinery Corp. vs. Mendoza, 150 SCRA 632
[1987].)
(e) The fact that the vendor-lessee has a right to repur-
chase the lots sold by him under a pacto de retro sale and leased
to him by the vendee, is no excuse for failure to pay rentals.
The sale and the lease are independent of each other. (Beech
vs. Jimenez, 12 Phil. 212 [1908].)
(f) The disagreement between a lessor and a lessee as to
the amount of rent to be paid cannot be decided in an action
of consignation (see Art. 1256.) but in that of forcible entry
and unlawful detainer that the lessor institutes when the les-
see refuses to pay the rents that the lessor has fixed for the
property. (Lim vs. Lim, supra.)
(g) The place for the payment of rental is governed by the
same rules regarding payment of obligations in general.1
(2) Proper use of the thing leased. The lessee must exercise
the diligence of a good father of a family. He must devote the thing
to the use stipulated, and if none was stipulated, to that which
may be inferred from the nature of the thing leased according to
the custom of the place. The use of the thing for an illegal pur-
pose entitles the lessor to terminate the contract.
When a thing by its nature is susceptible of various uses,
the lessee may use it for any of the purposes for which it may
be suitable. The lessee need limit himself to the use to which
the thing was devoted at the time of the lease. Thus, a lot may
at the time of the contract may have been used as a deposi-
tary for lumber; the lessee may use it as a motor compound
or even for purposes of constructions suitable to the place.
But when the lease is of a commercial establishment dedicated
to a particular business, such as a bakery or grocery, the les-
1
Art. 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a determi-
nate thing, the payment shall be made wherever the thing might be at the moment the
obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay, the
additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court. (1171a)
612 LEASE Art. 1658
2
Art. 1192. In case both parties have committed a breach of the obligation, the li-
ability 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)
3
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.
614 LEASE Art. 1659
for its object the recovery of the possession of the leased prop-
erty. (Yunti vs. Dy-Yco, Phil. 353 [1906].)
(b) As to the amount of damages recoverable by the les-
sor, it is the difference between the rental actually obtained
and that stipulated in the contract of lease. (Maluenda & Co.
vs. Enriquez, 46 Phil. 916 [1924].) The indemnity for damages
does not include rents for the future where the termination of
the lease abrogated liability for future rents. (Rios vs. Jacinto,
Palma y Hermanos, 49 Phil. 1 [1926].)
(c) Where the lessee fails to pay on time the stipulated
rents, the lessor has the right to rescind the contract, recover
the unpaid rents, and eject the lessee. (Hernaez vs.
Montelibano, 34 Phil. 954 [1916]; Avila vs. Veloso, 69 Phil. 357
[1939].)
(b) The lessor may rescind the lease for the lessees fail-
ure to pay the rentals. If the lessor does not accept the rentals,
the lessees remedy is tender of payment and consignation.
Rescission under Article 1659 is different from the automatic
rescission if the lessee failed to make the required deposit of
rentals. In making the deposit, the lessee prevents the auto-
matic cancellation of the lease but does not preclude the les-
sor from suing for rescission of the lease for the lessees fail-
ure to pay the stipulated rentals. (Pamintuan vs. Court of
Appeals, 42 SCRA 344 [1971].)
(c) A judgment rescinding a lease should order the lessee
to vacate and return the premises to the lessor. The court has
no discretion under Article 1659 to grant the lessee a longer
period for performance. The lessee should pay the accrued
rent. (Luna vs. Carandang, 26 SCRA 306 [1968].)
(d) A lessee cannot take advantage of his own wrong to
rescind the lease. He cannot refuse to pay rent and then de-
clare the lease rescinded. A stipulation allowing the lessor to
rescind the lease for nonpayment of rentals does not mean
that the lessee may refuse to pay the rentals and thereby pro-
duce the abrogation of the lease. (Hernaez vs. Montelibano,
34 Phil. 954 [1916].) Rescission is a remedy granted only to
the injured party and cannot be availed of by the wrongdoer.
If a person could rescind an obligation by the simple act of
refusing to fulfill it, then contracts would be a worthless thing
and if one may take advantage of his own wrong then there
is no inducement to do right. (Fernandez Hermanos vs. Pitt,
34 Phil. 549 [1916].)
(e) Where the lessor takes possession of the leased land
for nonpayment of rentals and the lessee voluntarily surren-
ders it, the lessor has no right to recover the rent accruing sub-
sequently. (Rios vs. Jacinto, Paloma y Hermanos, 49 Phil. 7
[1926].)
(f) A lessor may seek rescission of a lease contract and
ejectment of the lessee simultaneously in a single action for
unlawful detainer. (Dayao vs. Shell Company, 97 SCRA 407
[1980].)
616 LEASE Art. 1659
the contract. Thus, it has been held that delay on four (4) oc-
casions in the payment of rentals for a few days did not con-
stitute substantial breaches in a contract of lease because the
law is not concerned with trifles. De minimis non curat lex.
(Filoil Refinery Corp. vs. Mendoza, 150 SCRA 632 [1987].)
(c) In another case, the lessee sent a letter on January 15,
1986 to the lessor manifesting his intent to exercise the option
to purchase the leased property subject of the option within
the lease period ending January 30, 1986 but requesting for a
six-month extension of the lease contract for the alleged pur-
pose of raising funds intended to purchase the property. The
request was denied by the lessor on February 14, 1986. By a
letter dated February 18, 1986, the lessee notified the lessor of
his desire to exercise the option formally. It was held that the
delay of 18 days was neither substantial nor fundamen-
tal and did not amount to breach that would defeat the in-
tention of the parties when they executed the lease contract
with option to purchase. (Carciller vs. Court of Appeals, 103
SCAD 258, 302 SCRA 718 [1999].)
If the object leased were a house, the lessee might effect such
improvements for use, recreation or comfort as would not change
its form or substance as he deemed fit; he could build a bower or
luxurious pavilion more expensive than the house itself, to which,
at the expiration of the lease, the owner of the house would have
no right whatever, unless the lessee could not remove the same
without injury to the house to which it was attached as an im-
provement, excepting, of course, the right to cause the same to be
demolished so that the house might be returned to him in the same
condition that the lessee received it as provided in Article 1665.
(In re Building and Loan Association and Pealoza, 13 Phil. 575
[1909].)
the need for repairs. In both cases, the lessee shall be liable for
the damages which, through his negligent failure to give the re-
quired notice, may be suffered by the lessor.
(1) Usurpation or untoward act by a third person. The purpose
of the notice is to enable the owner to maintain his civil posses-
sion, by suit if necessary. (Simpao vs. Dizon, 1 Phil. 261 [1901].) A
possessor must be respected in his possession. (Art. 539.)
The owner is entitled to defend his property from any aggres-
sion in order to prevent serious injury to his interests which would
happen if this was left to the lessee who has no interest and has
no real right in the property leased. Whatever may be the nature
of the disturbance occurring, so long as it may affect the posses-
sion or the right of the owner over the leased property, he is enti-
tled to institute the proper action. It would be a judicial absurd-
ity to deny him such a right and trust and the defense of his inter-
ests to the lessee whose obligations and rights are entirely differ-
ent. (Roxas vs. Mijares, 9 Phil. 252 [1907].)
(2) Need of repairs. As the lessee is in possession and if re-
pairs are necessary, which it is the duty of the owner to make, the
lessee should call upon the owner to make the necessary repairs.
If the owner then fails to perform his duty, action would lie. It is
not the duty of the lessor to constantly inspect the premises to see
if there is a need to make repairs. (Gregorio Araneta, Inc. vs. Lyric
Film Exchange, Inc., 58 Phil. 736 [1933].)
The last paragraph is new, adopting the principle laid down
in a Court of Appeals case, to wit:
publiciana). It has been held that the act of the Japanese armed
forces in evicting the lessee from the leased premises and occu-
pying the same was a trespass in law under the rules of belliger-
ent occupation. Our Constitution (Sec. 2, Art. II.) adopts the gen-
erally accepted principles of international law as part of the law
of the land. (Vda. De Villaruel vs. Manila Motor Co.,4 104 Phil.
926 [1958].)
A lessor is not responsible for his lessees eviction through
condemnation proceedings and cannot be held liable for damages
therefor. The lessee must look to the expropriating plaintiff for his
compensation. (Sayo vs. Manila Railroad Co., 43 Phil. 551 [1922].)
In connection with Article 1664, Manresa makes this commen-
tary on the reason for the non-liability of the lessor in trespass in
fact only:
A necessary condition of the enjoyment of the lessee, the
chief feature of the lease, is the possession he must have to
the thing; without that, there can be no enjoyment. True it is
that the lessee does not hold such possession in the capacity
of owner and that, therefore, he cannot and should not de-
rive from it the effects which, under other circumstances,
would ensue; but, after all, he is a possessor. If we carefully
examine that relation of possession, we shall see that it is dou-
ble; on the one hand, he possesses the thing as a condition of
enjoying it while, on the other, he possesses his right to the
enjoyment of the thing. In certain respects, he holds posses-
sion of the thing in the name of its owner, in so far as this
latter has not ceased to hold it for the purpose of prescrip-
tion, for example, because he leases the property; but the pos-
session of his right of use pertains to him in his own name, as
acquired by virtue of a just title, that is, the contract of lease.
If then, the trespass in fact only refers to the use of the thing
who but the lessee can have the personality to oppose it?
4
The reverses Reyes vs. Caltex [Phil.], Inc. (94 Phil. 654 [1959].), distinguishing it
from the ruling in Lo Ching vs. Archbishop of Manila (81 Phil. 602 [1948].) where the Japa-
nese army took possession of the leased premises and delivered the same to a German,
who occupied them until liberation in January, 1945. The deprivation went beyond the
limits set by the Hague Conventions.
624 LEASE Art. 1665
ILLUSTRATIVE CASE:
Before the expiration of the lease, the lessor communicated to the
lessee the terms and conditions under which the lease shall be re-
newed but after the lease expired, the lessor accepted a months pay-
ment of rent sent by the lessee, which is less than the amount the
lessor had indicated to the lessee.
Facts: Petitioner-lessor Roxas and respondent-lessee SY on
October, 1967 entered into a contract whereby the latter agreed
to lease a building for P550.00 a month for 10 years or until
September, 1977. On June 1, 1971, Roxas sent a letter-request to
SY for increase of rentals to which the latter declined. On Au-
gust 11, 1977, Roxas wrote another letter reminding SY of the
forth coming termination of their contract with the addendum
that following the expiration of the contract, the rental will be
increased to P4,000.00 a month, with three (3) years to be paid
in advance together with a yearly increase of 15%.
SY posted a reply dated August 4, 1977, indicating mean-
while to study Roxas proposition until the end of September.
In October 6, 1977, with Sys indecision, Roxas sent SY another
letter demanding that SY vacate the premises within five (5)
days from receipt. SY, without signifying willingness or unwill-
ingness, simply sent Roxas on October 14, 1977, a letter con-
taining a check for P550.00 corresponding to the rental for Oc-
tober contrary to the demand to vacate the place.
The Court of First Instance modified the decision of the
municipal trial court by ordering Sy to pay Roxas the amount
of P1,500.00 monthly rental for 10 years effective October, 1977.
632 LEASE Art. 1669
he asked for. Thus, when petitioner did not hear from private
respondent at the end of the aforesaid month of September,
private respondent ceased to have any legal right to possess
and occupy the premises in question commencing the first day
of the following month of October.
That the petitioner did not lease the property to another is
understandable, as he had no idea as to when private respond-
ent intended to vacate the premises. Thus, although petitioner
might have had offers from third persons, circumstances be-
yond his control held him back from finalizing any kind of
agreement involving the property in question.
(2) Effect of acceptance of the P500.00 check. Likewise, pe-
titioners acceptance of the P500.00 check supposedly to an-
swer for the rental for the month of October, 1977, cannot be
taken against him. As in the case of Hautea vs. Magallon and
Soriano (12 SCRA 514 [1964].), such acceptance is irrelevant to
the issue. This is an ejectment case premised on the expiration
of the lease contract between the parties, and not on any al-
leged violation of a lease contract for non-payment of rent.
Moreover, petitioner had no other choice but to keep the check
sent to him. Private respondent, after all, continued to stay in
the premises and use the same for his hardware and construc-
tion materials business. (Roxas vs. Alcantara, 113 SCRA 21
[1982].)
period, the period of the new lease will be according to the char-
acter of the property and mode of payment of the rent, i.e., that
established in Article 1682 (rural lease) whose period extends to
one (1) year or period necessary to gather the fruits or in Article
1687 (urban lease) whose period depends upon the periods of
payment. Thus, where the rent for a 10-year period lease which
has expired was paid monthly, the implied new lease must be
deemed from month to month and may be terminated after each
month.
(2) Terms which are revived. The original terms of the origi-
nal contract which are revived are only those which are germane
to the lessees right of continued enjoyment of the property leased
or related to such possession, such as the amount of rental, the
date when it must be paid, the care of the property, the responsi-
bility for repairs, etc. No such presumption may be indulged in
with respect to special agreements (e.g., preferential right given
to lessee to purchase leased property) which by their nature are
foreign to the right of occupation or enjoyment inherent in a con-
tract of lease. (Dizon vs. Magsaysay, 57 SCRA 250 [1974]; Dizon
vs. Court of Appeals, 302 SCRA 288 [1999]; Guda vs. Leynes, 403
SCRA 318 [2003].)
(3) Requisites. The requisites for an implied renewal of lease
are:
(a) The term of the original contract of lease are:
(b) The lessee continues enjoying the thing leased for at
least 15 days;
(c) The continuation of the occupation by the lessee is with
the acquiescence of the lessor; and
(d) The lessor or lessee has not previously given a notice
to vacate.
The notice required under Article 1670 is the one given after
the expiration of the lease period for the purpose of aborting an
implied renewal of lease. The notice to vacate constitutes an
express act on the part of the lessor that he no longer consents to
the continued occupation by the lessee of the leased property.
(Tagbilaran Integrated Settlers Assoc. vs. Court of Appeals, 444
SCRA 193 [2004].)
Art. 1670 LEASE OF RURAL AND URBAN LANDS 637
Rights and Obligations of the Lessor and the Lessee
A lessor who gives notice after the 15-day period has no cause
of action for unlawful detainer as there is already an implied new
lease.
in Dio vs. Concepcion (296 SCRA 579 [1998].), reiterating the rul-
ing in Vda. De Pamintuan vs. Tiglao (53 Phil. 1 [1929].), it was ex-
plained that the rescission of lease of contracts under Article 1659
is not one that requires an independent action, unlike resolution
of reciprocal obligations under Article 1191 of the Civil Code.
(Chua vs. Victorio, 428 SCRA 447 [2004].)
(2) Section 2, Rule 70 is applicable only where there is a les-
sor-lessee relationship under a contract of lease and only in in-
stances where the grounds relied upon for ejectment is non-pay-
ment of rentals or violation of any of the conditions of the lease.
In such situations, notice to vacate is crucial. A demand is a pre-
requisite to an action for unlawful detainer where the action is
based on either ground but not where the action is to terminate
the lease because of the expiration of its term. (Lanuza vs. Muoz,
429 SCRA 562 [2004]; Co Tiamco vs. Diaz, 75 Phil. 672 [1946].)
6
Following liberation, after the war, when there was an acute shortage of housing,
C.A. No. 689 (Oct. 15, 1945) entitled An Act of penalize speculation of rents of build-
ings destined for dwelling purposes was passed. This was amended by R.A. No. 66
(Oct. 18, 1946) under which a lessee cannot be ejected for non-payment of rents, where
such non-payment is not willful and deliberate. Both acts expired on October 15, 1949.
646 LEASE Art. 1673
for the four-year period from 1998 to 2001 at 15% yearly, which
increases shall be cumulative and compounded.
7
There is a pending bill in Congress to extend the effectivity of the Act.
Art. 1673 LEASE OF RURAL AND URBAN LANDS 647
Rights and Obligations of the Lessor and the Lessee
after said repair, the lessee ejected shall have the first prefer-
ence to lease the same premises: Provided, however, That the
new rental shall be reasonably commensurate with the ex-
penses incurred for the repair of the said residential unit and:
Provided, finally, That if the residential unit is condemned or
completely demolished, the lease of the new building will no
longer be subject to the aforementioned first-preference rule
in this subsection; and
(e) Expiration of the period of the lease contract.
SEC. 8. Prohibition Against Ejectment by Reason of Sale or
Mortgage. No lessor or his successor-in-interest shall be
entitled to eject the lessee upon the ground that the leased
premises have been sold or mortgaged to a third person re-
gardless of whether the lease or mortgage is registered or not.
SEC. 9. Rent-to-Own Scheme. At the option of the lessor,
he or she may engage the lessee in a written rent-to-own agree-
ment that will result in the transfer of ownership of the par-
ticular dwelling in favor of the latter. Such an agreement shall
be exempt from the coverage of Section 3 of this Act.
SEC. 10. Application of the Civil Code and Rules of Court of
the Philippines. Except when the lease is for a definite pe-
riod, the provisions of paragraph (1) of Article 1673 of the Civil
Code of the Philippines, insofar as they refer to residential
units covered by this Act, shall be suspended during the
effectivity of this Act, but other provisions of the Civil Code
and the Rules of Court on lease contracts, insofar as they are
not in conflict with the provisions of this Act shall apply.
SEC. 11. Coverage of this Act. All residential units in the
National Capital Region and other highly urbanized cities the
total monthly rental for each of which does not exceed Seven
thousand five hundred pesos (P7,500.00) and all residential
units in all other areas the total monthly rental for each of
which does not exceed Four thousand pesos (P4,000.00) as of
the effectivity date of this Act shall be covered, without preju-
dice to existing contracts.
SEC. 12. Penalties. A fine of not less than Five thousand
pesos (P5,000.00) nor more than Fifteen thousand pesos
650 LEASE Art. 1674
8
Art. 539. Every possessor has a right to be respected in his possession; and should
he be disturbed therein he shall be protected in or restored to said possession by the
means established by the laws and the Rules of Court.
A possessor deprived of his possession through forcible entry may within ten days
from the filing of the complaint present a motion to secure from the competent court, in
the action for forcible entry, a writ of preliminary mandatory injunction to restore him
in his possession. The court shall decide the motion within thirty (30) days from filing
thereof. (446a)
Art. 1674 LEASE OF RURAL AND URBAN LANDS 651
Rights and Obligations of the Lessor and the Lessee
Unrecorded lease.
The purchaser may terminate the lease unless:
(1) There is a stipulation in the contract of sale he must re-
spect the existing lease;
(2) He knows of the existence of the lease; or
654 LEASE Art. 1677
vided the principal did not suffer injury, and he could set-off his
liability for damages against said improvements. Now, under the
present article, he is given the right to reimbursement of one-half
of their value or to their removal should the lessor refuse to reim-
burse.
The Code Commission justifies the change as follows:
The first paragraph is intended to prevent the unjust en-
richment of the lessor, which is allowed by Article 1573 of the
present Code. Expenses for useful improvements are reim-
bursed to a possessor in good faith, under Articles 453 [now
Art. 456] and 361 [now Art. 448] of the Code now in force.
True, the lessee is not a possessor in good faith in the sense
that he believes himself to be the owner, but neither is he a
possessor in bad faith. He is in possession by virtue of a
contract, so his possession is lawful. The reform requires: (1)
that lessee should make the improvements in good faith; (2)
that the improvements be suitable to the use for which the
lease is intended; and (3) that the form and substance of the
property leased be not altered. These requisites will prevent
the lessee from making such valuable improvements that the
lessor may never recover the property leased.
Moreover, the lessee has a right to make reasonable im-
provements to attain his purpose in entering upon the lease.
The lessor is to pay only one-half of the value of the im-
provements at the time the lease terminates because the les-
see has enjoyed the same. On the other hand, the lessor will
enjoy them indefinitely thereafter. (Report, pp. 144-145.)
(2) Requirements. With respect to useful improvements, to
be entitled to reimbursement, there are three (3) requisites:
(a) The lessee should make useful improvements in good
faith;
(b) The improvements must be suitable to the use for
which the lease is intended; and
(c) The form and substance of the property leased should
not be altered. (Susana Realty, Inc. vs. Hernandez, [C.A.] 54
O.G. 2206.)
Art. 1678 LEASE OF RURAL AND URBAN LANDS 657
Rights and Obligations of the Lessor and the Lessee
9
Art. 548. Expenses for pure luxury or mere pleasure shall not be refunded to the
possessor in good faith; but he may remove the ornaments with which he has embel-
lished the principal thing if it suffers no injury thereby, and if his successor in the pos-
session does not prefer to refund the amount expended. (454)
658 LEASE Art. 1679
oOo
10
See note 1.
659
659
660 LEASE Arts. 1680-1681
position is equal to, or even better than the lessor. (Laguna Tayabas
Bus Co. vs. Manabat, 58 SCRA 650 [1974].)
(2) Requisites. The lessee is entitled to reduction of rent if
the following requisites are present:
(a) The land leased is rural;
(b) More than one-half of the fruits have been lost;
(c) The loss occurred through extraordinary and unfore-
seen fortuitous event; and
(d) There is no specific stipulation that the lessee is nev-
ertheless not entitled to reduction.
(3) Cases that do not justify reduction. The lessee is not enti-
tled to reduction of rent in the following cases:
(a) on account of the sterility of the land leased;
(b) by reason of the loss of the fruits due to ordinary for-
tuitous events, regardless of the extent of the loss;
(c) by reason of the loss of less than one-half of the fruits
even though extraordinary and unforeseen events;
(d) by reason of the loss of the fruits through extraordi-
nary but foreseen1 events, regardless of the extent of the loss;
(e) by reason of the loss of more than one-half of the fruits
through extraordinary and unforeseen events, where there is
a specific stipulation to the contrary; and
(f) where the loss of the fruits occurred after they have
already been gathered, regardless of the extent of the loss.
(3) Other cases:
(a) Where by the terms of the contract of lease the rent is
fixed at an aliquot part of the crops, the tenant cannot demand
a reduction on account of loss of more than half of the crop by
fortuitous events under Article 1680, and the failure to deliver
the stipulated proportion of the crop gathered entitles the
landlord to evict the tenant. That article does not refer to a
1
If the fortuitous event, though foreseen, is inevitable (see Note 2.) and the lessee
can prove absence of fault on his part, the reduction of rent may be justified.
Arts. 1680-1681 LEASE OF RURAL AND URBAN LANDS 661
Special Provisions for Leases of Rural Lands
Fortuitous events.
Under Article 1680, the fortuitous event must not only be ex-
traordinary or uncommon but also one which the contracting
parties could not have reasonably foreseen. One of the essential
characteristics of fortuitous events is that the cause of the un-
foreseen and unexpected occurrence or of the failure of the debtor
to comply with his obligation must be independent of the hu-
man will. The phrase must be given the meaning of independ-
ent of the will of the debtor or his agents.
(1) War, although dependent upon the will of the combatants,
is recognized in the second paragraph of Article 1680 as an ex-
traordinary fortuitous event; and violence of robbers, while not
independent of the human will, is recognized as caso fortuito that
excused non-performance and has been always so recognized in
the ancient law (fuerza de ladrones, in Law II, Tit. 33, Partida
VII). The will of a third person who prevents performance of the
obligation is an inevitable cause, fuerza mayor, which comes un-
der the general description of caso fortuito in Article 11742 of the
Civil Code. (Reyes vs. Crisostomo, [C.A.] 47 O.G. 3625.)
2
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which, could not be foreseen, or
which, though foreseen, were inevitable. (1105a)
662 LEASE Arts. 1680-1681
(2) War, already existing when the contract was entered does
not come under category of fortuitous event contemplated in the
article. Neither are typhoons because in this country it cannot be
said that they are extraordinary or uncommon and cannot be rea-
sonably foreseen by the contracting parties. (Estrada vs.
Hermogeno, [C.A.] 50 O.G. 4919.) When the cause already existed
when the contract was executed, the same cannot be ascribed to
a fortuitous event or circumstance beyond the control of the lessee.
(Cuyugan vs. Dizon, 79 Phil. 80 [1947]; Laguna Tayabas Bus Co.
vs. Manabat, supra.)
(3) Fire is not ordinary a fortuitous event. Floods must be
unusual. Typhoons and floods submerging the land under water
lasting for about a day or two and the water receding immedi-
ately after, are conditions that could be foreseen. But when the
depth of the water was from 6 to 8 feet, the inundation of the
ricefields lasting from two to three weeks, and after the water had
receded the ricefields were infested by rodents causing destruc-
tion on the crops, the occurrence were extraordinary and unfore-
seen fortuitous events, that even granting they could have been
foreseen, they were, however, inevitable. Such condition of the
floods is, unusual as contemplated in Article 1680 which could
justify the reduction of rents. (Panayotti vs. Tan Lim Te, [C.A.] 56
O.G. 4568.)
Percentage of reduction.
Article 1680 does not determine the percentage of reduction
of the rental to which the lessee becomes entitled. It is logical that
the rent stipulated be reduced in the same ratio that the actual
receipts bear to the normal income obtainable from the land
leased. The rent must be reduced proportionately. Manresas for-
mula, which is deemed equitable, is as follows:
Normal fruits are to fruits actually received as rent stipu-
lated is to X.
In a case, it appeared from the record that the appellant ob-
tained during the first year P28,000 for the sale of fish and P7,000
for the sale of nipa leaves, or a total of P35,000, in Japanese cur-
rency which, at the proved exchanged rate of 14 to one, repre-
sented around P2,500 in Philippine currency. But for the second
Art. 1682 LEASE OF RURAL AND URBAN LANDS 663
Special Provisions for Leases of Rural Lands
oOo
668 LEASE
1
Presidential Decree No. 1517 (June 11, 1978) proclaimed urban land reform in the
Philippines. The President shall proclaim specific parcels of urban and urbanizable lands
as Urban Land Reform Zones. Within the urban zones, legitimate tenants who have
resided on the land for 10 years or more and have built-their homes on the land and
residents who have legally occupied the land by contract continuously for the last 10
years, shall not be dispossessed of the land and shall be allowed the right of first refusal
to purchase the same within a reasonable time and for reasonable prices, under terms
and conditions to be determined by the Urban Zone Expropriation and Land Manage-
ment Committee. Proclamation No. 1893 and 1907 specified the urban land reform zones
in metropolitan. (Secs. 4, 6, thereof.)
668
Art. 1687 LEASE OF RURAL AND URBAN LANDS 669
Special Provisions for the Lease of Urban Lands
ART. 1687. If the period for the lease has not been
fixed, it is understood to be from year to year, if the
rent agreed upon is annual; from month to month, if it
is monthly; from week to week, if the rent is weekly;
and from day to day, if the rent is to be paid daily.
However, even though a monthly rent is paid, and no
period for the lease has been set, the courts may fix a
longer term for the lease after the lessee has occu-
pied the premises for over one year. If the rent is
weekly, the courts may likewise determine a longer
period after the lessee has been in possession for over
six months. In case of daily rent, the courts may also
fix a longer period after the lessee has stayed in the
place for over one month. (1581a)
the expiration of a lease for a fixed term, the lessee should con-
tinue to enjoy the thing leased for at least 15 days with the acqui-
escence of the lessor, not for the period of the original contract,
but for the time established in Article 1687. (Art. 1670.)
(4) Discretion of court to fix a longer period. Under the former
provision of the old Civil Code (Art. 1581 thereof.), the lease
ceases, without the necessity of a special notice, upon the expira-
tion of the term. Now, the court is authorized to fix a longer term
if the lessee who is not at fault has been in occupation of the
premises for a certain period and the lessor decided to terminate
the lease. It may, however, legally refuse to do so, if the circum-
stances surrounding the case warrants such action. (Prieto vs.
Santos, 98 Phil. 509 [1956]; Divino vs. De Marcos, 45 SCRA 180
[1972]; Ramirez vs. Sy Chit, 121 SCRA 1364 [1967]; Guiang vs.
Samano, 196 SCRA 114 [1990]; Heirs of M. Suico vs. Court of
Appeals, 266 SCRA 444 [1997].)
(a) The extension of the lease should be commensurate
with the period during which the lessee had been occupying
the premises. Where the lessee had stayed for 50 years, an ex-
tension of three (3) years was held reasonable. (Gregorio
Araneta, Inc. vs. De Mesa, 35 SCRA 137 [1970].)
(b) Article 1687 does not contemplate an unwarrant ex-
tension of the period of the lease as to make the period in-
definite. The court may not grant an extension beyond the
period sought by the lessee himself. Thus, if the lessee asked
for a one-year extension, the court should not grant two (2)
years. (Imperial Insurance, Inc. vs. Simon, 14 SCRA 855 [1965].)
(c) Article 1687 does not apply to a lease whose termina-
tion is expressly left to the lessee. In such a case, a term may
be fixed under the general provisions of Article 1197. 2
(Eleizegui vs. Lawn Tennis Club, 2 Phil. 309 [1903].)
2
Art. 1197. If the obligation does not fix a period, but from its nature and the cir-
cumstances it can be inferred that a period was intended, the courts may fix the dura-
tion thereof.
The courts shall also fix the duration of the period when it depends upon the will
of the debtor.
In every case, the courts shall determine such period as may under the circum-
stances have been probably contemplated by the parties. Once fixed by the courts, the
period cannot be changed by them. (1128a)
672 LEASE Art. 1687
oOo
674 LEASE
Chapter 3
New provisions.
Articles 1689 to 1699 on Household Service, like Articles 1700
to 1712 on Contract of Labor are new provisions. The latter is gov-
erned generally by the special laws on labor.
According to the Code Commission:
There is a section Household Service. The domestic serv-
ants in the Philippines have not, as a general rule, been fairly
treated. Social justice is to be measured by the manner in which
the humblest servant is dealt with, for no social system can
rise above its lowliest class any more than a chain is stronger
than its weakest link. Consequently, under the heading of
Household Service, there are provisions to strengthen the
right of domestic servants. (Report, 15.)
674
Art. 1690 WORK AND LABOR 675
Household Service
The family he serves is that of his master and no one else. The
term includes service performed by a family driver. (Balolong vs.
Uy, [C.A.] 52 O.G. 5561; Basco vs. Coronel, 5 C.A. Rep. 997;
Ancheta vs. Colcol, [C.A.] 55 O.G. 3317.)
A laborer, worker, or employee in a commercial, or industrial
enterprise is not a domestic servant. Thus, a waiter and any per-
son employed in a hotel, club, corporation, or society, to serve its
members, are not domestic servants, in the proper sense of this
term under Article 1689. (Zamora vs. Sy, [C.A.] 52 O.G. 1513;
Rosales vs. Tan Que, supra.)
Medical attendance.
The right of house helpers to medical attendance exclusive
of hospitalization is purely statutory in character, and where
specifically conferred by statute, is deemed subject to the rule of
necessity, in the sense that it is dependent upon the need for said
medical attendance. Hence, the determination of the question
whether expenses of hospitalization are included in medical
attendance must depend upon the circumstances surrounding
each case.
Even assuming that house helpers expenses of hospitaliza-
tion can, in proper cases, be deemed to be within the purview of
medical attendance, it will only be fair that, except in cases of
extreme urgency, the party who may have to defray the cost of
medical attendance and/or hospitalization, be given a say in the
choice of the physician who will treat the patient and/or the hos-
Arts. 1691-1693 WORK AND LABOR 677
Household Service
1
Art. 1418. When the law fixes, or authorizes the fixing of the maximum number of
hours of labor, and a contract is entered into whereby a laborer undertakes to work
longer than the maximum thus fixed, he may demand additional compensation for service
rendered beyond the time limit.
Arts. 1696-1697 WORK AND LABOR 679
Household Service
Vacation leave.
Such vacation leave with pay, if not enjoyed, could not be ac-
cumulated. The house helper is not entitled to payment for such
leave, unless he had asked therefor and his employer refused his
request, for in such case there is an implied agreement on the part
of the employer to pay for such vacation. (Zamora vs. Sy, supra.)
Funeral expenses.
This article applies only if the house helper has no relatives
in the place where the head of the family lives, with sufficient
means therefor. The head of the family must bear the funeral
expenses where the relatives, although with sufficient means, do
not live in the same locality.
months pay. (Balolong vs. Uy, supra; Ancheta vs. Colcol, [C.A.]
55 O.G. 3317.)
oOo
682 LEASE
682
Arts. 1714-1715 WORK AND LABOR 683
Contract for a Piece of Work
ILLUSTRATIVE CASE:
Petitioners accepted only the offer of respondent to make a topo-
graphic survey rejecting the offer to make a subdivision survey, and
discrepancies arose as a result of the absence of the latter survey.
Facts: Respondent S offered to make two (2) surveys for
petitioner Philam: a topographic and a subdivision survey of a
45 hectare housing project for the petitioner. For the proposed
subdivision survey, S stated that he would relocate all the
boundary monuments of the project area. Philam accepted the
offer only in so far as the topographic survey is concerned.
Art. 1715 WORK AND LABOR 685
Contract for a Piece of Work
ILLUSTRATIVE CASES:
1. Architect/contractor who was guilty of delay in the submis-
sion of working drawings and specifications of a proposed condo-
minium building, was ordered by the Court of Appeals to return the
amount paid to him for the building plans which he submitted on
time as per contract, and attorneys fees.
Facts: In a letter-agreement between petitioner J. Gonzales,
architect and contractor, and respondent Endel Corp. for the
construction of a condominium building on the latters lot,
Gonzales agreed to undertake the preparation of plans of said
building as well as the supervision of its construction.
Endel sued for rescission of its contract which Gonzales,
alleging that the latters neglect and delay in completing the
drawings and specifications within three (3) months, or by April
30, 1972, conformably with the practice of architects, to enable
Endel to complete plans for financing and make public an-
nouncements of said project, resulted in great damage and
prejudicial to it.
690 LEASE Art. 1720
ILLUSTRATIVE CASE:
After an earthquake, the building in question sustained major
damage, but after three subsequent earthquakes, the damage caused
resulted in its eventual demolition for which the architect and the
builder-contractor were sought to be held liable.
Facts: The Philippine Bar Association (PBA) decided to con-
struct an office building. For the plans, specifications, and de-
signs, it contracted the services of J.F. Nakpil & Sons (Nakpils)
and for the construction, United Construction Company, Inc.
(United). The building was completed in June 1966.
Art. 1723 WORK AND LABOR 697
Contract for a Piece of Work
Rescission of contract.
The present article provides for two instances:
(1) Death of contractor. When a piece of work has been en-
trusted to a person by reason by his personal qualifications, and
that person dies before the completion of the work, the contract
is rescinded. (see Javier Security Special Agency vs. Shell Craft &
Bulton Corp., 7 SCRA 198 [1963].) The obligation arising out of
such contract is personal in nature; hence, it is not transmissible
to the heirs but is extinguished by death. (Art. 1311.) In this case,
Arts. 1727-1728 WORK AND LABOR 703
Contract for a Piece of Work
Mechanics lien.
The right of a worker to be paid for work done on a movable
is in the nature of a mechanics lien. He has a right to retain it by
way of pledge until he is paid. The laborers wages shall be a lien
on the goods manufactured or the work done. (Art. 1707.)
Art. 1731 WORK AND LABOR 707
Contract for a Piece of Work
oOo
Comments and Cases
on
SALES and LEASE
By
HECTOR S. DE LEON
Ll.B., University of the Philippines
Author: Philippine Constitutional Law:
Principles and Cases (2 vols.); Comments and Cases on
Succession; Comments and Cases on
Credit Transactions; The Corporation Code
of the Philippines Annotated; The Insurance Code of the
Philippines Annotated; etc.
Co-Author: Comments and Cases on Property; Comments
and Cases on Obligations and Contracts; Comments and Cases
on Partnership, Agency and Trusts; Comments and Cases
on Torts and Damages; Administrative Law:
Text and Cases; The Law on Public Officers
and Election Law; The Philippine Negotiable Instruments Law
(and Allied Laws) Annotated; The Fundamentals of Taxation;
The National Internal Revenue Code Annotated
(2 vols.); etc.
SIXTH EDITION
2005
by
HECTOR S. DE LEON
ISBN 971-23-4292-1
No. ____________
Printed by
ii 712-41-01
Tel. Nos. 712-41-08
PREFACE
HECTOR S. DE LEON
July 2005
iii
iv
TABLE OF CONTENTS
Part I
SALES
(Title VI, Arts. 1458-1637)
Introduction .................................................................................................... 1
1. Governing law ..................................................................................... 1
2. Sources of our law on sales ............................................................... 1
v
1. Sale of things having potential existence ....................................... 34
2. Sale of a mere hope or expectancy .................................................. 34
3. Sale of thing expected and sale of hope itself distinguished ..... 35
4. Presumption in case of doubt ........................................................... 36
vi
1. Fixing of price by one of the contracting parties,
not allowed ................................................................................... 60
vii
2. Sale of real property or an interest therein .................................... 116
3. Modes of satisfaction of the Statute of Frauds .............................. 117
4. Statute of Frauds applicable only to executory contracts ........... 118
5. Legal recognition of electronic data messages and
electronic documents .................................................................. 119
6. Legal recognition of electronic signatures ...................................... 121
7. Communication of electronic data messages and
electronic documents .................................................................. 122
viii
Article 1491 ..................................................................................................... 148
1. Incapacity by reason of relation to property ................................. 149
2. Reasons for prohibitions under Article 1491 ................................. 149
3. Prohibition with respect to guardians ............................................. 150
4. Prohibition with respect to agents ................................................... 150
5. Prohibition with respect to executors and administrators .......... 151
6. Prohibition with respect to public officials and employees ....... 153
7. Prohibition with respect to judges, etc., and lawyers .................. 154
8. Other persons especially disqualified ............................................. 157
9. Effect of sale in violation of prohibition ......................................... 157
10. Nullity of prohibited contracts differentiated ............................... 158
ix
2. Symbolic tradition ............................................................................... 180
x
5. Classes of documents of titles .......................................................... 210
xi
1. Place of delivery of goods sold ........................................................ 223
2. Time of delivery of goods sold ......................................................... 224
3. Delivery of goods in possession of a third person ....................... 224
4. Hour of delivery of goods sold ........................................................ 225
5. Duty of seller to put goods in deliverable condition ................... 225
Article 1522 ..................................................................................................... 226
1. Delivery of goods less than quantity contracted .......................... 226
2. Delivery of goods more than quantity contracted ....................... 228
3. Delivery of goods mixed with others ............................................. 229
4. Effect of indivisibility of subject matter ......................................... 229
5. Application of usage of trade, special agreement,
or course of dealing ................................................................. 229
Article 1523 ..................................................................................................... 230
1. Delivery to carrier on behalf of buyer ............................................ 231
2. Sellers duty after delivery to carrier .............................................. 231
3. Definition of shipping terms ............................................................. 232
4. Presumption arising from payment of freight .............................. 233
Article 1524 ..................................................................................................... 233
1. Delivery, simultaneous with payment of price ............................. 233
2. When delivery must be made before payment
of price ........................................................................................ 234
Article 1525 ..................................................................................................... 235
1. Meaning of unpaid seller ................................................................... 235
2. Where whole of price has not been paid ........................................ 235
Article 1526 ..................................................................................................... 236
1. Special remedies of an unpaid seller of goods .............................. 236
2. Nature of unpaid sellers possessory lien on the goods ............. 237
3. Unpaid sellers lien on the price ...................................................... 237
4. Basis of rights of unpaid seller ......................................................... 237
Article 1527 ..................................................................................................... 238
1. When unpaid sellers possessory lien may be exercised ............ 238
2. Unpaid seller as bailee for the buyer .............................................. 239
Article 1528 ..................................................................................................... 239
1. Lien generally not lost by part delivery ......................................... 240
Article 1529 ..................................................................................................... 240
1. When unpaid seller loses possessory lien ...................................... 240
2. Revival of lien after delivery ............................................................ 241
Article 1530 ..................................................................................................... 241
1. Right of seller to stop goods in transitu .......................................... 241
xii
2. Requisites for the exercise of right of stoppage
in transitu ..................................................................................... 242
3. Basis and nature of right of stoppage in transitu .......................... 242
Article 1531 ..................................................................................................... 243
1. When goods are in transit ................................................................. 244
2. When goods considered no longer in transit ................................ 244
3. Attornment by the bailee ................................................................... 244
4. Effect of refusal of carrier to attorn or deliver
the goods ....................................................................................... 245
5. Delivery to a ship, etc. chartered or owned by buyer ................. 245
6. Effect of partial delivery .................................................................... 245
Article 1532 ..................................................................................................... 246
1. Ways of exercising the right to stop ................................................ 246
2. Effect of outstanding bill of lading .................................................. 247
Article 1533 ..................................................................................................... 247
1. Unpaid sellers right of resale .......................................................... 248
Article 1534 ..................................................................................................... 250
1. Unpaid sellers right of rescission ................................................... 250
Article 1535 ..................................................................................................... 251
1. Effect of sale of goods subject to lien or stoppage
in transitu .................................................................................... 251
Article 1536 ..................................................................................................... 252
1. Right of vendor to withhold delivery in sale on credit ............... 252
Article 1537 ..................................................................................................... 253
1. Condition of thing to be delivered .................................................. 253
2. Right of vendee to the fruits ............................................................. 254
Article 1538 ..................................................................................................... 255
1. Rules in case of loss, deterioration, or improvement
of thing before delivery ........................................................... 255
Article 1539 ..................................................................................................... 257
1. Sale of real property by unit of measure or number ................... 258
2. When vendee entitled to rescind sale of real property ............... 258
Article 1540 ..................................................................................................... 259
1. Where immovable of a greater area or number ............................ 259
Article 1541 ..................................................................................................... 259
1. Application of Articles 1539 and 1540 to judicial sales ............... 259
xiii
Article 1542 ..................................................................................................... 260
1. Sale of real estate made for a lump sum ........................................ 260
2. Conflict between area stated and boundaries ............................... 265
Article 1543 ..................................................................................................... 266
1. Prescription of actions ........................................................................ 266
Article 1544 ..................................................................................................... 267
1. Rules as to preference of ownership in case of a double sale ... 267
2. Possession of property sold .............................................................. 269
3. Registration of immovable sold ....................................................... 269
4. Requirement of good faith ................................................................ 273
5. Other rulings on application of rules .............................................. 286
xiv
Article 1551 ..................................................................................................... 306
1. Deprivation for nonpayment of taxes ............................................. 306
Article 1552 ..................................................................................................... 306
1. Liability of judgment debtor ............................................................. 306
Article 1553 ..................................................................................................... 307
1. Stipulation waiving warranty ........................................................... 307
Article 1554 ..................................................................................................... 307
1. Kinds of waiver of eviction ............................................................... 307
2. Effect of waiver by vendee ................................................................ 308
3. Presumption as to kind of waiver ................................................... 308
Article 1555 ..................................................................................................... 308
1. Rights and liabilities in case eviction occurs ................................. 309
2. Right of second purchaser to whom warranty assigned ............. 311
Article 1556 ..................................................................................................... 312
1. Alternative rights of vendee in case of partial eviction .............. 312
2. Remedy of rescission not available in case of total
eviction ....................................................................................... 313
Article 1557 ..................................................................................................... 313
1. Final judgment of eviction essential ................................................ 313
Article 1558 ..................................................................................................... 313
1. Formal summons to vendor essential ............................................. 314
Article 1559 ..................................................................................................... 315
1. Vendor to be made co-defendant ..................................................... 315
Article 1560 ..................................................................................................... 316
1. Where immovable sold encumbered with non-apparent
burden .......................................................................................... 316
xv
1. Implied warranties of quality ........................................................... 322
2. Warranty of merchantability distinguished from
warranty of fitness ...................................................................... 324
3. Fitness for a particular purpose and merchantability ................. 325
Article 1563 ..................................................................................................... 325
1. Sale under a patent or trade name .................................................. 325
Article 1564 ..................................................................................................... 326
1. Effect of usage of trade ...................................................................... 327
Article 1565 ..................................................................................................... 327
1. Merchantability of goods sold by sample ...................................... 327
Article 1566 ..................................................................................................... 328
1. Responsibility of vendor for hidden defects ................................. 328
2. Doctrines of caveat venditor and caveat emptor .................. 328
Article 1567 ..................................................................................................... 330
1. Alternative remedies of the buyer to enforce warranty .............. 330
Article 1568 ..................................................................................................... 330
1. Effect of loss of thing sold on account of hidden defects ........... 330
Article 1569 ..................................................................................................... 331
1. Effect of loss of defective thing sold ............................................... 331
Article 1570 ..................................................................................................... 332
1. Warranty in judicial sales .................................................................. 332
2. Right of purchaser in judicial sales ................................................. 333
Article 1571 ..................................................................................................... 334
1. Prescription of actions in cases of implied/express
warranty ..................................................................................... 334
Article 1572 ..................................................................................................... 334
1. Sale of two or more animals together ............................................. 335
Article 1573 ..................................................................................................... 335
1. Sale of two or more things together ................................................ 336
Article 1574 ..................................................................................................... 336
1. Sale of animals at fairs or at public auctions
or as condemned ....................................................................... 336
Article 1575 ..................................................................................................... 336
1. When sale of animals void ................................................................ 336
xvi
Article 1576 ..................................................................................................... 337
1. What constitutes redhibitory defect of animals? .......................... 337
Article 1577 ..................................................................................................... 337
1. Limitation of action in sale of animals ........................................... 337
Article 1578 ..................................................................................................... 338
1. Responsibility of vendor where animal dies ................................. 338
Article 1579 ..................................................................................................... 338
1. Liability of buyer in case sale of animal is rescinded .................. 338
Article 1580 ..................................................................................................... 339
1. Alternative remedies of vendee in sale of animals ...................... 339
Article 1581 ..................................................................................................... 339
1. Form of sale of large cattle ................................................................ 339
xvii
1. Liability of vendee for interest where payment
is made after delivery .............................................................. 352
xviii
Article 1599 ..................................................................................................... 374
1. Remedies of buyer for breach of warranty by seller .................... 376
2. Remedies alternative .......................................................................... 376
3. Recoupment in diminution of the price ......................................... 376
4. Action or counterclaim for damages ............................................... 377
5. Recoupment and counterclaims, distinguished ............................ 377
6. When rescission by the buyer not allowed .................................... 378
7. Rights and obligations of buyer in case of rescission .................. 378
xix
6. Validity of penal clause providing automatic
termination of redemption period ........................................ 416
Article 1607 ..................................................................................................... 417
1. Judicial order for recording of consolidation of ownership ....... 418
2. Action to consolidate ownership ..................................................... 419
Article 1608 ..................................................................................................... 420
1. Nature of right to redeem .................................................................. 420
Article 1609 ..................................................................................................... 421
1. Rights acquired by vendee a retro ................................................... 421
Article 1610 ..................................................................................................... 421
1. Right of vendors creditors to redeem ............................................ 421
Article 1611 ..................................................................................................... 422
1. Redemption in sale of part of undivided immovable ................. 422
Articles 1612-1613 .......................................................................................... 423
1. Redemption in joint sale by co-owners/co-heirs
of undivided immovable ........................................................... 423
2. Effect of redemption by co-owner of entire property .................. 424
Article 1614 ..................................................................................................... 426
1. Redemption in separate sales by co-owners
of undivided immovable ......................................................... 426
Article 1615 ..................................................................................................... 426
1. Redemption against heirs of vendee ............................................... 426
Article 1616 ..................................................................................................... 427
1. Obligations of vendor a retro in case of redemption ................... 427
2. Offer to redeem and tender of payment generally
required ......................................................................................... 430
3. Consignation of price generally not required ............................... 431
Article 1617 ..................................................................................................... 431
1. Right of parties as to fruits of land ................................................. 432
Article 1618 ..................................................................................................... 433
1. Right of vendor a retro to recover thing
sold free from charges ................................................................ 433
xx
1. Legal redemption defined ................................................................. 435
2. Transfer of ownership by onerous title ........................................... 435
3. Dation in payment defined ............................................................... 435
4. Nature of dation in payment ............................................................ 436
5. Basis and nature of right of legal redemption ............................... 436
6. Instances of legal redemption ........................................................... 437
Article 1620 ..................................................................................................... 442
1. Right of legal redemption of co-owner ........................................... 442
2. By whom and against whom right may be exercised .................. 444
3. When right cannot be invoked ......................................................... 444
4. Price of redeemption .......................................................................... 445
5. Purpose of the grant of right to co-owners .................................... 446
xxi
Article 1625 ..................................................................................................... 472
1. Binding effect of assignment ............................................................. 472
Article 1626 ..................................................................................................... 473
1. Consent of debtor to assignment not required ............................. 473
2. Effect of payment by debtor after assignment of credit .............. 473
Article 1627 ..................................................................................................... 474
1. Extent of assignment of credit .......................................................... 474
Article 1628 ..................................................................................................... 474
1. Warranties of the assignor of credit ................................................ 475
2. Liabilities of the assignor of credit .................................................. 475
Article 1629 ..................................................................................................... 476
1. Duration of assignors liability where debtors
solvency guaranteed ................................................................... 476
2. Reasons for the rule ............................................................................ 477
Article 1630 ..................................................................................................... 478
1. Sale of successional or hereditary rights ........................................ 478
Article 1631 ..................................................................................................... 479
1. Sale of whole of certain rights, rents, or products ....................... 479
Article 1632 ..................................................................................................... 480
1. Liability of vendor of inheritance for fruits received .................. 480
Article 1633 ..................................................................................................... 480
1. Liability of vendee for debts of and charges on estate ................ 480
Article 1634 ..................................................................................................... 481
1. Legal redemption in sale of credit or other
incorporeal right in litigation .................................................... 481
2. Purpose of grant of right to debtor ................................................. 484
Article 1635 ..................................................................................................... 484
1. Exceptions to debtors right to legal redemption ......................... 485
xxii
BARTER OR EXCHANGE
(Title VII, Arts. 1638-1641)
Article 1638 ..................................................................................................... 491
1. Barter defined ...................................................................................... 491
2. Perfection and consummation of the contract ............................... 491
Article 1639 ..................................................................................................... 493
1. Effect where giver not lawful owner of thing delivered ............. 493
Article 1640 ..................................................................................................... 493
1. Effect of eviction .................................................................................. 493
Article 1641 ..................................................................................................... 494
1. Applicability of provisions on sales ................................................ 494
xxiii
APPENDICES
1. The Subdivision and Condominium Buyers Protective
Decree (P.D. No. 957, as amended by
P.D. No. 1216 and No. 1344) ..................................................... 505
2. Realty Installment Buyer Protection Act
(R.A. No. 6552) ............................................................................. 522
3. Anti-Fencing Law (P.D. No. 1612) ...................................................... 523
4. Consumer Act of the Philippines (R.A. No. 7394) .......................... 525
5. Manufacture, Importation, Distribution and Sale
of Laundry and Industrial Detergents Containing
Hard Surfactants (R.A. No. 8970) ............................................. 548
6. Comprehensive Dangerous Drugs Act of 2002
(R.A. No. 9165) ............................................................................. 550
7. Chain Saw Act of 2002 (R.A. No. 9175) ............................................. 555
8 Tobacco Regulation Act of 2003 (R.A. No. 9211) ................. ........... 557
Part II
LEASE
(Title VIII, Arts. 1642-1699, 1713-1731)
xxiv
2. Lease of work or service distinguished from agency .................. 581
3. Lease of work or service distinguished from partnership .......... 586
4. Compensation in lease of work or service ..................................... 586
Article 1645 ..................................................................................................... 589
1. Lease of consumable goods ............................................................... 589
xxv
Article 1655 ..................................................................................................... 608
1. Effect of destruction of thing leased by fortuitous event ............ 608
xxvi
1. Lease made for a determinate time ................................................. 628
2. Extension or renewal of lease ........................................................... 629
xxvii
Section 3. Special Provisions for Leases
of Rural Lands
xxviii
1. Opportunity for at least elementary education ............................. 677
Article 1692 ..................................................................................................... 677
1. Duration of household service ......................................................... 677
Article 1693 ..................................................................................................... 677
1. Clothes of the house helper .............................................................. 677
Article 1694 ..................................................................................................... 678
1. Treatment of house helper ................................................................. 678
Article 1695 ..................................................................................................... 678
1. Ten-hour a day work .......................................................................... 678
2. Vacation leave ...................................................................................... 679
Article 1696 ..................................................................................................... 679
1. Funeral expenses ................................................................................. 679
Article 1697 ..................................................................................................... 679
1. Termination of household service .................................................... 679
Article 1698 ..................................................................................................... 680
1. Notice to terminate service relation where no period fixed ....... 680
Article 1699 ..................................................................................................... 681
1. Written statement from head of the family .................................... 681
xxix
1. Risk of loss where contractor furnished only his work .............. 687
Article 1719 ..................................................................................................... 688
1. Effect of acceptance by the employer .............................................. 688
Article 1720 ..................................................................................................... 689
1. Time and place of payment of price or compensation ................ 689
Article 1721 ..................................................................................................... 693
1. Default of the employer ..................................................................... 694
Article 1722 ..................................................................................................... 694
1. Non-completion attributable to employer ..................................... 694
Article 1723 ..................................................................................................... 694
1. Liability of engineer or architect/contractor for collapse
of building constructed ........................................................... 695
Article 1724 ..................................................................................................... 699
1. Right of contractor to withdraw or ask for increase in price ..... 699
Article 1725 ..................................................................................................... 701
1. Right of owner to withdraw ............................................................. 701
Article 1726 ..................................................................................................... 702
1. Rescission of contract ......................................................................... 702
Article 1727 ..................................................................................................... 703
1. Liability of contractor for work done by his workers ................. 703
Article 1728 ..................................................................................................... 703
1. Liability of contractor for death or physical injuries ................... 703
Article 1729 ..................................................................................................... 704
1. Subsidiary liability of owner to laborers and materialmen ........ 704
2. Special laws regarding contractors bond ...................................... 704
Article 1730 ..................................................................................................... 705
1. Satisfactory completion of work ...................................................... 705
Article 1731 ..................................................................................................... 706
1. Mechanics lien .................................................................................... 706
oOo
xxx
505
APPENDICES
1. THE SUBDIVISION AND CONDOMINIUM
BUYERS PROTECTIVE DECREE*
*Executive Order No. 648 (Feb. 7, 1981) transferred the regulatory functions of the
National Housing Authority under the Decree and other related laws to the Human
Settlements Regulatory Commission, which was renamed Housing and Land Use Regu-
latory Board (HLURB) by Executive Order No. 90 (Dec. 14, 1986).
P.D. No. 957 was promulgated to encompass all questions regarding subdivisions
and condominiums. It is aimed at providing for an appropriate government agency, the
HLURB, to which all parties aggrieved in the implementation of its provisions and the
enforcement of contractual rights with respect to said category or real estate may take
recourse. (Arranza vs. B.F. homes, Inc., 128 SCAD 119, 333 SCRA 799 [2000]; AMA Com-
puter College, Inc. vs. Factora, 378 SCRA 121 [2002].)
505
506 SALES Secs. 1-2
WHEREAS, these acts not only undermine the land and housing
program of the government but also defeat the objectives of the New
Society, particularly the promotion of peace and order and enhancement
of the economic, social and moral condition of the Filipino people;
WHEREAS, this state of affairs had rendered it imperative that the
real estate subdivision and condominium businesses be closely super-
vised and regulated, and that penalties be imposed on fraudulent prac-
tices and manipulations committed in connection therewith.
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of the
Philippines, by virtue of the powers vested in me by the Constitution,
do hereby decree and order:
Title I
TITLE AND DEFINITIONS
1
R.A. No. 4726, the Condominium Act, defines condominium, establishes require-
ments for its creation, and governs its incidents. (see Comments and Cases on Property,
1993 ed., by De Leon & De Leon, Jr.)
Sec. 2 1. THE SUBDIVISION AND CONDOMINIUM 507
BUYERS PROTECTIVE DECREE
Title II
REGISTRATION AND LICENSE TO SELL
2
Now, Housing and Land Use Regulatory Board.
Sec. 4 1. THE SUBDIVISION AND CONDOMINIUM 509
BUYERS PROTECTIVE DECREE
Title III
DEALERS, BROKERS AND SALESMEN
Title IV
PROCEDURE FOR REVOCATION OF
REGISTRATION CERTIFICATE
3
As the law vests upon the buyer the option to demand reimbursement or to wait
for development of the subdivision, the buyer who opted for the latter alternative may
not be ousted from the subdivision. (Relucio vs. Brillante-Garfin, 187 SCRA 405 [1990];
see Casa Filipina Realty Corporation vs. Office of the President, 58 SCAD 773, 241 SCRA
16 [1995]; Eugenio vs. Drilon, 67 SCAD 78, 252 SCRA 106 [1996]; Rancel Realty Corp. vs.
Court of Appeals, 252 SCRA 127 [1996].)
518 SALES Secs. 29-32
4
Now, Philippine National Police (PNP).
520 SALES Secs. 38-43
NOTE: Presidential Decree No. 1344 (dated April 12, 1978) vests in
the National Housing Authority (NHA), exclusive jurisdiction to hear
and decide certain cases. Its provisions are hereunder reproduced:
SECTION 1. In the exercise of its functions to regulate the real es-
tate trade and business and in addition to its powers provided for in
P.D. No. 957, the National Housing Authority shall have exclusive ju-
risdiction to hear and decide cases of the following nature:
Secs. 2-4 1. THE SUBDIVISION AND CONDOMINIUM 521
BUYERS PROTECTIVE DECREE
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 cancellation or the demand for rescission of the contract by a
notarial act.
SEC. 5. Under Sections 3 and 4, the buyer shall have the right to sell
his rights or assign the same to another person or to reinstate the con-
tract by updating the account during the grace period and before ac-
tual cancellation of the contract. The deed of sale or assignment shall
be done by notarial act.
SEC. 6. The buyer shall have the right to pay in advance any
installment or the full unpaid balance of the purchase price any time
without interest and to have such full payment of the purchase price
annotated in the certificate of title covering the property.
SEC. 7. Any stipulation in any contract hereafter entered into con-
trary to the provisions of Sections 3, 4, 5 and 6, shall be null and void.
SEC. 8. If any provision of this Act is held invalid or unconstitu-
tional, no other provision shall be affected thereby.
SEC. 9. This Act shall take effect upon its approval.
APPROVED: August 26, 1972.
3. ANTI-FENCING LAW
(P.D. No. 1612)
or any officer thereof who knows or should have known the commis-
sion of the offense shall be liable.
SEC. 5. Presumption of Fencing. Mere possession of any goods,
article, item, object, or anything of value which has been the subject of
robbery or thievery shall be prima facie evidence of fencing.
SEC. 6. Clearance/Permit to Sell/Used Secondhand Articles. For pur-
poses of this Act, all stores, establishments or entities dealing in the buy
and sell of any good, article, item, object or anything of value obtained
from an unlicensed dealer or supplier thereof, shall before offering the
same for sale to the public, secure the necessary clearance or permit from
the station commander or the Integrated National Police in the town or
city where such store, establishment or entity is located. The Chief of
Constabulary/Director General, Integrated National Police shall prom-
ulgate such rules and regulations to carry out the provisions of this sec-
tion. Any person who fails to secure the clearance or permit required
by this section or who violates any of the provisions of the rules and
regulations promulgated thereunder shall upon conviction be punished
as a fence.
SEC. 7. Repealing Clause. All laws or parts thereof, which are in-
consistent with the provisions of this Decree are hereby repealed or
modified accordingly.
SEC. 8. Effectivity. This Decree shall take effect upon approval.
DONE in the City of Manila this 2nd day of March, in the year of
Our Lord, nineteen hundred and seventy-nine.
fine of not less than Five thousand pesos (P5,000) but not more than Ten
thousand pesos (P10,000), or both such imprisonment and fine, in the
distribution of the Court.
Should the offense be committed by a juridical person, the Chair-
man of the Board of Directors, the President, General Manager, or the
partners and/or the persons directly responsible therefor shall be pe-
nalized.
b) No person shall be subject to the penalties of sub-article (a) of
this Article for: (1) having sold, offered for sale or transferred any prod-
uct and delivered it, if such delivery was made in good faith, unless he
refuses to furnish on request of the Department, the name and address
of the person from whom he purchased or received such product and
copies of all documents, if any there be, pertaining to the delivery of
the product to him; (2) having violated Article 40(a) if he established a
guaranty or undertaking signed by, and containing the name and ad-
dress of, the person residing in the Philippines from whom he received
in good faith the product; or (3) having violated Article 40(a), where the
violation exists because the product is adulterated by reason of contain-
ing a color other than the permissible one under regulations promul-
gated by the Department in this Act, if such person establishes a guar-
anty or undertaking signed by, and containing the name and address,
of the manufacturer of the color, to the effect that such color is permis-
sible, under applicable regulations promulgated by the Department in
this Act.
xxx xxx
ART. 46. Prohibited Acts. It shall be unlawful for any person to:
a) introduce or deliver for introduction into commerce of any
mislabeled hazardous substance or banned hazardous substance;
b) alter, mutilate, destroy, obliterate or remove the whole or
any part of the label of a mislabeled hazardous substance, or banned
hazardous substance, if such act is done while the substance is in
commerce or while the substance is held for sale, whether or not it
is the first sale;
c) receive in commerce any mislabeled hazardous substance
or banned hazardous substance and the delivery or preferred de-
livery thereof of cost or otherwise;
d) give the guaranty or undertaking referred to in paragraph
(b) of Article 93 and paragraph (b) of Article 45 if such guaranty or
undertaking is false, except by a person who relied upon a guaranty
or undertaking which he received in good faith;
Arts. 47, 50 4. CONSUMER ACT OF THE PHILIPPINES 531
ART. 63. Use of Metric System. The system of weights and meas-
ures to be used for all products, commodities, materials, utilities, serv-
ices and commercial transactions, in all contracts, deeds and other offi-
cial and legal instruments and documents shall be the metric system.
In accordance with existing laws and their implementing rules and regu-
lations.
The Department of Trade and Industry shall also adopt standard
measurement for garments, shoes and other similar consumer products.
PROHIBITED ACTS
xxx xxx
ART. 67. Applicable Law on Warranties. The provisions of the Civil
Code on conditions and warranties shall govern all contracts of sale with
conditions and warranties.
ART. 68. Additional Provisions on Warranties. In addition to the
Civil Code provisions on sale with warranties, the following provisions
shall govern the sale of consumer products with warranty:
a) Terms of express warranty Any seller or manufacturer who
given an express warranty shall:
1) set forth the terms of warranty in clear and readily un-
derstandable language and clearly identify himself as the war-
rantor;
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 de-
fect, malfunction or 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 warran-
tor will perform any obligation under the warranty.
b) Express warranty operative from moment of sale. All
written warranties or guarantees issued by a manufacturer, pro-
ducer, or importer shall be operative from the moment of sale.
1) Sales Report. All sales made by distributor of prod-
ucts covered by this Article shall be reported to the manufac-
turer, 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 manu-
facturer, producer, or importer. Such registration is sufficient to
hold the manufacturer, producer, or importer liable, in appro-
priate cases, under its warranty.
2) Failure to make or send report. Failure of the distribu-
tor to make the report or send them the form required by the
manufacturer, producer, or importer shall relieve the latter of
Art. 68 4. CONSUMER ACT OF THE PHILIPPINES 537
its liability under the warranty: Provided, however, That the dis-
tributor who failed to comply with its obligation to send the
sales report 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 dis-
tributor to honor the warranty. In such case, the retailer shall
shoulder the expenses and costs necessary to honor the war-
ranty. Nothing therein shall prevent the retailer from proceed-
ing 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 need only to present to the immediate seller ei-
ther the warranty card or the official receipt along with the prod-
uct to be serviced or returned to the immediate seller. No other
documentary requirement shall be demanded from the pur-
chaser. If the immediate seller is the manufacturers 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 re-
tailer other than the distributor, the former shall take responsi-
bility without cost to the buyer of presenting the warranty claim
to the distributor in the consumers 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 products respective warranties or guar-
antees.
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 mini-
mum requirements set forth in paragraph (d); and
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:
538 SALES Art. 69
period of at least one (1) year but not more than five (5) years, or both,
at the discretion of the Court.
The imposition of any of the penalties herein provided is without
prejudice to any liability incurred under the warranty or guarantee.
xxx xxx
ART. 76. Prohibited Acts on Labelling and Packaging. It shall be
unlawful for any person, either as principal or agent, engaged in the
labeling or packaging of any consumer product, to display or distrib-
ute or to cause to be displayed or distributed in commerce any consumer
product whose package or label does not conform to the provisions of
this Chapter.
The prohibition in this Chapter shall not apply to persons engaged
in the business of wholesale or retail distributors of consumer products
except to the extent that such persons:
a) are engaged in the packaging or labeling of such products;
b) prescribe or specify by any means the manner in which such
products are packaged or labeled; or
c) having knowledge, refuse to disclose the source of the
mislabeled or mispackaged products.
xxx xxx
SEC. 81. Price Tag Requirement. It shall be unlawful to offer any
consumer product for retail sale to the public without an appropriate
price tag, label or marking publicly displayed to indicate the price of
each article and said products shall not be sold at a price higher than
that stated therein and without discrimination to all buyers: Provided,
That lumber sold, displayed or offered for sale to the public shall be
tagged or labeled by indicating thereon the price and the corresponding
official name of the wood: Provided, further, That if consumer products
for sale are too small or the nature of which makes it impractical to place
a price tag thereon price list placed at the nearest point where the prod-
ucts are displayed indicating the retail price of the same may suffice.
ART. 82. Manner of Placing Price Tags. Price tags, labels or mark-
ings must be written clearly, indicating the price of the consumer prod-
uct per unit in pesos and centavos.
ART. 83. Regulations for Price Tag Placement. The concerned de-
partment shall prescribe rules and regulations for the visible placement
of price tags for specific consumer products and services. There shall
be no erasures or alterations of any sort of price tags, labels or mark-
ings.
Arts. 95, 97 4. CONSUMER ACT OF THE PHILIPPINES 541
xxx xxx
ART. 95. Penalties. a) Any person who shall violate the provisions
of Title III, Chapter IV of this Act, or its implementing rules and regula-
tions, except Articles 81 to 83 of the same Chapter, shall be subject to a
fine of not less than Five hundred pesos (P500.00) but not more than
Twenty thousand pesos (P20,000.00) or imprisonment of not less than
three (3) months but not more than two (2) years or both, at the discre-
tion of the Court: Provided, That, if the consumer product is one which
is not a food, cosmetic, drug, device or hazardous substance, the pen-
alty shall be a fine of not less than Two hundred pesos (P200.00) but not
more than Five thousand pesos (P5,000.00) or imprisonment of not less
than one (1) month but not more than one (1) year or both, at the discre-
tion of the Court.
b) Any person who violates the provisions of Articles 81 to 83 for
the first time shall be subject to a fine of not less than Two hundred pesos
(P200.00) but not more than Five thousand pesos (P5,000.00) or by im-
prisonment of not less than one (1) month but not more than six (6)
months or both, at the discretion of the Court. A second conviction un-
der this paragraph shall also carry with it the penalty of revocation of
business permit and license.
xxx xxx
ART. 97. Liability for the Defective Products. Any Filipino or for-
eign manufacturer, producer, and any importer, shall be laible for re-
dress, independently of fault, for damages caused to consumers by de-
fects resulting from design, manufacturer, construction, assembly and
erection formulas and handling and making up, presentation or pack-
ing of their products, as well as for the insufficient or inadequate infor-
mation on the use and hazardous thereof.
A product is defective when it does not offer the safety rightfully
expected of it, taking relevant circumstances into consideration, includ-
ing but not limited to:
a) presentation of product;
b) use and hazardous reasonably expected of it;
c) the time it was put into circulation.
A product is not considered defective because another better qual-
ity product has been placed in the market.
The manufacturer, builder, producer or importer shall not be held
liable when it evidences:
a) that it did not place the product on the market;
542 SALES Arts. 98-100
tisement, with due regard to the variations resulting from their nature,
the consumer being able to demand replacement to the imperfect parts.
If the imperfection is not corrected within thirty (30) days, the con-
sumer may alternatively demand at his option:
a) the replacement of the product by another of the same kind,
in a perfect state of use;
b) the immediate reimbursement of the amount paid, with
monetary updating, without prejudice to any losses and damages;
c) a proportionate price reduction.
The parties may agree to reduce or increase the term specified in
the immediately preceding paragraph; but such shall not be less than
seven (7) nor more than one hundred and eighty (180) days.
The consumer may make immediate use of the alternatives under
the second paragraph of this Article when by virtue of the extent of the
imperfection, the replacement of the imperfect parts may jeopardize the
product quality or characteristics, thus decreasing its value.
If the consumer opts for the alternative under sub-paragraph (a) of
the second paragraph of this Article and replacement of the product is
not possible, it may be replaced by another of a different kind, mark or
model: Provided, That any difference in price may result thereof shall be
supplemental or reimbursed by the party which caused the damage,
without prejudice to the provisions of the second, third and fourth para-
graphs of this Article.
ART. 101. Liability for Product Quantity Imperfection. Suppliers are
jointly liable for imperfections in the quantity of the product when, in
due regard for variations inherent thereto, their net content is less than
that indicated on the container, packaging, labeling or advertisement,
the consumer having powers to demand, alternatively, at his own op-
tion.
a) the proportionate price;
b) the supplementing of weight or measure differential;
c) the replacement of the product by another of the same kind,
mark or model, without said imperfections;
d) the immediate reimbursement of the amount paid, with
monetary updating without prejudice to losses and damages, if any.
The provisions of the fifth paragraph of Article 99 shall apply to this
Article.
The immediate supplier shall be liable if the instrument used for
544 SALES Arts. 102-106
ART. 107. Penalties. Any person who shall violate any provision
of this Chapter or its implementing rules and regulations with respect
to any consumer product which is not food, cosmetic, or hazardous
substance shall upon conviction, be subject to a fine of not less than Five
thousand pesos (P5,000.00) and by imprisonment of not more than one
(1) year or both upon the discretion of the Court.
In case of judicial persons, the penalty shall be imposed upon its
president, manager or head. If the offender is an alien, he shall, after
payment of fine and service of sentence, be deported without further
deportation proceedings.
xxx xxx
ART. 110. False, Deceptive or Misleading Advertisement. It shall be
unlawful for any person to disseminate or to cause the dissemination
of any false, deceptive or misleading advertisement by Philippine mail
or in commerce by print, radio, television, outdoor advertisement or
other medium for the purpose of inducing or which is likely to induce
directly or indirectly the purchase of consumer products or services.
An advertisement shall be false, deceptive or misleading if it is not
in conformity with the provisions of this Act or if it is misleading in a
material respect. In determining whether any advertisement is false,
deceptive or misleading, there shall be taken into account, among other
things, not only representations made or any combination thereof, but
also the extent to which the advertisement fails to reveal material facts
in the light of such representations, or materials with respect to conse-
quences which may result from the use or application of consumer prod-
ucts or services to which the advertisement relates under the conditions
prescribed in said advertisement, or under such conditions as are cus-
tomary or usual.
ART. 111. Price Comparisons. Comparative price advertising by
sellers of consumer products or services shall conform to the following
conditions: a) Where the comparison relates to a former price of the
seller, the item compared shall either have been sold at that price within
the ninety (90) days immediately preceding the date of the advertise-
ment, or it shall have been offered for sale at least four (4) weeks during
such ninety-day period. If the comparison does not relate to an item sold
or offered for sale during the ninety-day period, the date, time or sea-
sonal period of such sale or offer shall be disclosed in the advertisement.
b) Where the comparison relates to a sellers future price, the fu-
ture price shall take effect on the date disclosed in the advertisement or
within ninety (90) days after the price comparison is stated in the ad-
vertisement. The stated future price shall be maintained by the seller
546 SALES Arts. 112-113
for a period of at least four (4) weeks after its effective date: Provided,
That compliance thereof may be dispensed with in case of circumstances
beyond the sellers control.
c) Where the comparison relates to a competitors price, the com-
petitors price shall relate to the consumer products or services adver-
tised or sold in the ninety-day period and shall be representative of the
prices similar consumer products or services are sold or advertised in
the locality where the price comparison was made.
ART. 112. Special Advertising Requirements for Food, Drug, Cosmetic,
Device, or Hazardous Substance. a) No claim in the advertisement may
be made which is not contained in the label or approved by the con-
cerned department.
b) No person shall advertise any food, drug, cosmetic, device or
hazardous substance in a manner that is false, misleading or deceptive
or is likely to create an erroneous impression regarding its character,
value, quantity, composition, merit, or safety.
c) Where a standard has been prescribed for a food, drug, cosmetic,
or device, no person shall advertise any article or substance in such a
manner that it is likely to be mistaken for such product, unless the arti-
cle complies with the prescribed standard or regulation.
d) No person shall, in the advertisement of any food, drug, cos-
metic, device, or hazardous substance, make use of any reference to any
laboratory report of analysis required to be furnished to the concerned
department, unless such laboratory report is duly approved by such
department.
e) Any businessman who is doubtful as to whether his advertise-
ment relative to food, drug, cosmetic, device, or hazardous substance
will violate or does not conform with this Act or the concerned depart-
ments pertinent rules and regulations may apply to the same for con-
sideration and opinion on such matter before such advertisement is
disseminated to the public. In this case, the concerned department shall
give its opinion and notify the applicant of its action within thirty (30)
days from the date of application; otherwise, the application shall be
deemed approved.
f) No person shall advertise any food, drug, cosmetic, device, or
hazardous substance unless such product is duly registered and ap-
proved by the concerned department for use in any advertisement.
ART. 113. Credit Advertising. No advertisement to aid, promote,
or assist, directly or indirectly, any extension of consumer credit
may:
Arts. 114-115, 123, 147, 173 4. CONSUMER ACT OF THE PHILIPPINES 547
the product; and (c) statement of the manufacturer or importer that the
product does not contain hard surfactants.
Sec. 4. Prohibition. The manufacture, importation, distribution
and/or sale of laundry and industrial detergents containing hard
surfactants are hereby declared prohibited. The Bureau of Product Stand-
ards shall review and revise the mandatory Philippine National Stand-
ard for Surface Active Agents-Synthetic Detergents for Laundry Use
in accordance with this Act and monitor compliance therewith.
For this purpose, the Bureau of Product Standards shall inspect laun-
dry and industrial detergents, whether imported or locally-manufac-
tured, to ensure that they are free from hard surfactants.
Sec. 5. Administrative Sanctions. Any violation of this Act shall con-
stitute a violation of a trade and industry law subject to the provisions
of Executive Order No. 913 dated 7 October 1983, as amended. The Bu-
reau of Product Standards shall have the authority recommend, pursu-
ant to Executive Order No. 913, as amended, the imposition of the ad-
ministrative sanctions enumerated therein against the manufacturer,
importer, distributor, and seller of laundry and industrial detergents
containing hard surfactants.
In addition to the administrative sanctions imposable under Execu-
tive Order No. 913, as amended, the Bureau of Product Standards is
hereby authorized to recommend the imposition of the fines in case of
violation of this Act as set forth in the following schedule:
(i) First Offense, a fine of Two hundred thousand pesos
(P200,000.00);
(ii) Second Offense committed within one (1) year from the first
offense, a fine of Three hundred thousand pesos (P300,000.00); and
(iii) Third offense committed within one (1) year from the sec-
ond offense, a fine of Five hundred thousand pesos (P500,000.00).
The imposition of the foregoing administrative sanctions shall be
without prejudice to the cancellation of the manufacturers license to
operate and/or the Product Standards Quality Mark pursuant to Re-
public Act No. 4109, as amended.
Sec. 6. Penalties. Any person who manufactures, imports, distrib-
utes or sells laundry and industrial detergents found containing hard
surfactants shall be penalized by imprisonment of less than one (1) year
nor more than five (5) years and/or fine of not less than Five hundred
thousand pesos (PhP500,000.00) nor more than One million pesos
(PhP1,000,000.00), at the discretion of the court: Provided, That if the
violator is a corporation, firm, partnership or association, the penalty
550 SALES Sec. 4
xxx xxx
Sec. 4. Importation of Dangerous Drugs and/or Controlled Precursors and
Essential Chemicals. The penalty of life imprisonment to death and a
ranging from Five hundred thousand pesos (P500,000.00) to Ten mil-
lion pesos (P10,000,000.00) shall be imposed upon any person, who,
Sec. 5 6. COMPREHENSIVE DANGEROUS DRUGS ACT OF 2002 551
unless authorized by law, shall import or bring into the Philippines any
dangerous drug, regardless of the quantity and purity involved, includ-
ing any and all species of opium poppy or any part thereof or substances
derived therefrom even for floral, decorative and culinary purposes.
The penalty of imprisonment ranging from twelve (12) years and
one (1) day to twenty (20) years and a fine ranging from One hundred
thousand pesos (P100,000.00) to Five hundred thousand pesos
(P500,000.00) shall be imposed upon any person, who, unless author-
ized by law, shall import any controlled precursor and essential chemi-
cal.
The maximum penalty provided for under this Section shall be im-
posed upon any person, who, unless authorized under this Act, shall
import or bring into the Philippines any dangerous drug and/or con-
trolled precursor and essential chemical through the use of a diplomatic
passport, diplomatic facilities or any other means involving his/her
official status intended to facilitate the unlawful entry of the same. In
addition, the diplomatic passport shall be confiscated and canceled.
The maximum penalty provided for under this Section shall be im-
posed upon any person, who organizes, manages or acts as a finan-
cier of any of the illegal activities prescribed in this Section.
The penalty of twelve (12) years and one (1) day to twenty (20) years
of imprisonment and a fine ranging from One hundred thousand pesos
(P100,000.00) to Five hundred thousand pesos (P500,000.00) shall be
imposed upon any person, who acts as a protector/coddler of any
violator of the provisions under this Section.
Sec. 5. Sale, Trading, Administration, Dispensation, Delivery, Distribu-
tion and Transportation of Dangerous Drugs and/or Controlled Precursors and
Essential Chemicals. The penalty of life imprisonment to death and a
fine ranging from Five hundred thousand pesos (P500,000.00) to Ten
million pesos (P10,000,000.00) shall be imposed upon any person, who,
unless authorized by law, shall sell, trade, administer, dispense, deliver,
give away to another, distribute dispatch in transit or transport any
dangerous drug, including any and all species of opium poppy regard-
less of the quantity and purity involved, or shall act as a broker in any
of such transactions.
The penalty of imprisonment ranging from twelve (12) years and
one (1) day to twenty (20) years and a fine ranging from One hundred
thousand pesos (P100,000.00) to Five hundred thousand pesos
(P500,000.00) shall be imposed upon any person, who, unless author-
ized by law, shall sell, trade, administer, dispense, deliver, give away to
552 SALES Sec. 6
xxx xxx
Sec. 2. Declaration of Policy. It is the policy of the State, consistent
with the Constitution, to conserve, develop and protect the forest re-
sources under sustainable management. Toward this end, the State shall
pursue an aggressive forest protection program geared towards elimi-
nating illegal logging and other forms of forest destruction which are
being facilitated with the use of chain saws. The State shall therefore
regulate the ownership, possession, sale, transfer, importation and/or
use of chain saws to prevent them from being used in illegal logging or
unauthorized clearing of forests.
Sec. 3. Definition of Terms. As used in this Act, the term:
(a) Chain saw shall refer to any portable power saw or simi-
lar cutting implement, rendered operative by an electric or internal
combustion engine or similar means, that may be used for, but is not
limited to, the felling trees or the cutting of timber;
556 SALES Sec. 7
xxx xxx
Sec. 2. Policy. It is the policy of the State to protect the populace
from hazardous products and promote the right to health and instill
health consciousness among them. It is also the policy of the State, con-
sistent with the Constitutional ideal to promote the general welfare, to
safeguard the Interests of the workers and other stakeholders in the to-
bacco industry. For these purposes, the government shall institute a
balanced policy whereby the use, sale, and advertisements of tobacco
products shall be regulated in order to promote a healthful environment
and protect the citizens from the hazards of tobacco smoke, and at the
same time ensure that the interest of tobacco farmers, growers, work-
ers and stakeholders are not adversely compromised.
Sec. 3. Purpose. It is the main thrust of this Act to:
a. Promote a healthful environment;
b. Inform the public of the health risks associated with ciga-
rette smoking and tobacco use;
c. Regulate and subsequently ban all tobacco advertisements
and sponsorships;
558 SALES Secs. 9-12
xxx xxx
Sec. 41. Effectivity. This Act shall take effect fifteen (15) days after
its publication in the Official Gazette and at least two (2) newspapers of
national circulation.
Approved: June 23, 2003.
oOo