SALES - MIDTERMS 3.

4.
CHAPTER 3
Effect of the Contract When the Thing Sold Has Been Lost
Art.1493-1494
1. Thing entirely lost – Where the thing is entirely lost at the time of perfection, the
contract is inexistent and void because there is no object.
2. Thing partially lost – If the subject matter is only partially lost, the vendee may elect
between (1) withdrawing from the contract and (2) demanding the remaining part,
paying its proportionate price.
When a thing is considered LOST
-A thing is lost when it perishes or goes out of commerce or disappears in such a way that its
existence is unknown or it cannot be recovered. (Art.1189)
I. Distinction
A. Between 1493 and 1494
-Article 1493 applies to a sale of specific thing.
-Article 1494, on the other hand, applies only to sales of goods, that is, the object of the
sale consists of a mass of “specific goods” which means “goods identified and agreed
upon at the time a contract of sale is made.”(Art. 1636)
-Both articles have actually the same essence providing two alternative remedies to the
buyer in case of deterioration or partial loss of the object prior to the sale.
-The second option or alternative to Art.1494 is applicable only if the objects of the sale
are divisible. If they are indivisible like cars, the only available option is avoidance of
the sale.
B. Between 1480 and 1504
To warrant against eviction and hidden defects (Arts. 1495, 1547);
To take care of the thing, pending delivery, with proper diligence (Art. 1163); and
5. To pay for the expenses for the execution and registration of the deed of sale,
unless there is a stipulation to the contrary.(Art. 1487)
A. To preserve the thing (pending delivery with proper diligence)
Art. 1163. Every person obliged to give something is also obliged to TAKE CARE OF
IT with the PROPER DILIGENCE of a good father of a family, unless the law or
stipulation of the parties requires another standard of care.
a. Deterioration, loss or improvement (im not sure if this applies)
Art. 1189. If the obligation is subject to suspensive condition, the object is determinate,
there is loss, deterioration or improvement, and the obligation is real
1. If the thing is lost without the fault of the debtor, the obligation shall be
extinguished
2. If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages
3. When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor
4. If it deteriorates through the fault of the debtor, the creditor may choose between
the rescission of the obligation and its fulfillment, with indemnity for damages in
either case
5. If the thing is improved by its nature, or by time, the improvement shall inure to
the benefit of the creditor
6. If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary
Principle of Res Perit Domino; Risk of Loss – The general rule in case of loss of the
thing is that the risk is borne by the owner of the thing at the time of the loss. The goods
remain at the seller’s risk until the ownership is transferred to the buyer.

-The loss or injury referred to in Articles 1493 and 1494 is one which has taken place
before or at the time the contract of sale is perfected.
-The loss or injury mentioned in Articles 1480 and 1504 occurs after the contract is
perfected but prior to the time of delivery.
CHAPTER 4
B. To deliver the thing sold (Art. 1537)
The vendor is bound to deliver the thing sold and its accessions and accessories in the
condition in which they were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the contract was
perfected.

Obligations of the Vendor I. Form (Manner) of Delivery

Arts. 1495-1506 a. Physical or Real or Actual (Art. 1497) –

I. General Obligations The thing sold shall be understood as delivered, when it is placed in the
control and possession of the vendee. This involves the physical delivery of the
Principal obligations of the vendor are: thing and is usually done by the passing of a movable thing from hand to hand
1. To transfer ownership of the determinate thing sold; Note: Delivery without the intention to transfer ownership on the part of the seller
will not transfer ownership. i.e. The parties may stipulate that ownership in the
2. To deliver the thing;
thing shall not pass to the purchase until he has fully paid the price (Art. 1478)
b. Constructive or Legal Delivery –
a. By traditio symbolica (Art. 1498)
- Symbolic delivery by the execution of a public instrument is
equivalent to actual delivery only when the thing is subject to the
control of the vendor. Hence, the vendor who executes said public
instrument fails in his obligation to deliver it if the vendee cannot
enjoy its possession because of the opposition or resistance of a
third person (eg, squatter) who is in actual possession (Addison vs
Felix Tioco 38 Phil 404)
- the parties make use of a token symbol to represent the thing
delivered, i.e. with regard to movable property the delivery of the
key where the thing sold is stored or kept is equivalent to the
delivery of the thing.
b. By traditio longa manu or traditio brevi manu (Art. 1499)
- traditio longa manu takes place by the mere consent or agreement
of the contracting parties as when the vendor merely points to the
thing sold which shall thereafter be at the control and disposal of the
vendee. It should be noted that delivery “by mere consent or
agreement of the contracting parties” is qualified by the phrase “if
the thing sold cannot be transferred to the possession of the vendee
at the time of the sale.”
- traditio brevi manu happens when the vendor has already the
possession of the thing sold by virtue of another title (which is not
ownership) and continues to hold the possession thereof under a
title of ownership, i.e. as when the lessor sells the thing leased to the
lessee. Instead of the vendee turning over the thing to the vendor so
that the latter may, in turn, deliver it back to him, all these are
considered done by fiction of law.
c. By quasi-traditio or quasi-delivery (Art. 1501) (delivery of incorporeal
things or rights)
- tradition/delivery 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
2. when that mode of delivery is not applicable, by placing of the
titles of ownership in the possession of the vendee
3. by allowing the vendee to use his rights as new owner with the
consent of the vendor
d. De constituto (constitutum possessorium) (Art. 1500)
- This mode of delivery is the opposite of traditio brevi manu. It
takes place when the vendor continues in possession of the property
sold not as owner but in some other capacity, as for example, when
the vendor stays as a tenant on the vendee. In this case, instead of
the vendor delivering the thing to the vendee so that the latter may,
in turn, deliver it back to the vendor, the law considers that all these
have taken place through the constitutum possessorium agreement.
II.Cases
1. Kinds of Delivery –
San Lorenzo Development Corp vs CA, January 21, 2005, GR 140228
Facts: Spouses Lu had purportedly sold two parcels of land in 1986 to Babasanta
totaling to P460k. After down payment of P50k evidenced by a memorandum receipt,
and several other payments totaling P200k, Babasanta demanded an execution of a
deed of sale so that he could effect full payment of the purchase price. But Spouses Lu
did not execute a deed of sale because they would only do so, after payment of the
balance of P260k. Meanwhile, the land was purchased by SLDC on 1989 as evidenced by
a deed of absolute sale with mortgage. RTC ruled in favor of SLDC, applying Art. 1544
of Civil Code, equating the execution of public instrument in favor of SLDC as
sufficient delivery of the property. CA set aside the judgment of RTC, and deemed the
sale between spouses Lu and Babasanta valid and subsisting, because the deed of
absolute sale was null and void on the ground that SLDC was a purchaser in bad faith.
Issue: Who between SLDC and Babasanta has a better right over the two parcels of
land.
Ruling:
The contract between Spouses Lu and Babasanta was deemed by the Supreme Court as
a contract to sell and not a contract of sale. The receipt signed by Pacita Lu merely
states that she accepted the sum of P50k from Babasanta as partial payment of the
two parcels of land. While there is no stipulation that the seller reserves the ownership
of the property until full payment of the price which is a distinguishing feature of a
contract to sell, the subsequent acts of the parties convince us that the Spouses Lu
never intended to transfer ownership to Babasanta except upon full payment of the
purchase price. In a contract to sell, title is retained by the vendor until the full
payment of the price, such payment being a positive suspensive condition and failure
of which is not a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective.
The claim of ownership by Babasanta to the land will still fail even if the contract is
assumed to be a contract of sale. A sale is not a mode of acquiring ownership, but only
a title. A mode is the legal means by which dominion or ownership is created,
transferred or destroyed, but title is only the legal basis by which to affect dominion
or ownership. Under Article 712 of the Civil Code, "ownership and other real rights over
property are acquired and transmitted by law, by donation, by testate and intestate
succession, and in consequence of certain contracts, by tradition." Contracts only
constitute titles or rights to the transfer or acquisition of ownership, while delivery or
tradition is the mode of accomplishing the same. Therefore, sale by itself does not
transfer or affect ownership; the most that sale does is to create the obligation to
transfer ownership. It is tradition or delivery, as a consequence of sale, that actually
transfers ownership.
The law recognizes two principal modes of delivery, to wit: (1) actual delivery; and (2)
legal or constructive delivery. Actual delivery consists in placing the thing sold in the
control and possession of the vendee. Legal or constructive delivery, on the other
hand, may be had through any of the following ways: the execution of a public
instrument evidencing the sale; symbolical tradition such as the delivery of the keys of
the place where the movable sold is being kept; traditio longa manu or by mere
consent or agreement if the movable sold cannot yet be transferred to the possession
of the buyer at the time of the sale; traditio brevi manu if the buyer already had
possession of the object even before the sale; and traditio constitutum possessorium,
where the seller remains in possession of the property in a different capacity.
Following the above disquisition, respondent Babasanta did not acquire ownership by
the mere execution of the receipt by Pacita Lu acknowledging receipt of partial
payment for the property. For one, the agreement between Babasanta and the Spouses
Lu, though valid, was not embodied in a public instrument. Hence, no constructive
delivery of the lands could have been effected. For another, Babasanta had not taken
possession of the property at any time after the perfection of the sale in his favor or
exercised acts of dominion over it despite his assertions that he was the rightful owner
of the lands. Simply stated, there was no delivery to Babasanta, whether actual or
constructive, which is essential to transfer ownership of the property. Thus, even on
the assumption that the perfected contract between the parties was a sale, ownership
could not have passed to Babasanta in the absence of delivery, since in a contract of
sale ownership is transferred to the vendee only upon the delivery of the thing sold.
We would not hesitate to rule in favor of SLDC on the basis of its prior possession of
the property in good faith. Be it noted that delivery of the property to SLDC was
immediately effected after the execution of the deed in its favor, at which time SLDC
had no knowledge at all of the prior transaction by the Spouses Lu in favor of
Babasanta. The notice of lis pendens was only entered into after the consummation of
the sale between SLDC and spouses Lu, therefore it has no effect on the same. Since
SLDC acquired possession of the property in good faith in contrast to Babasanta, who
neither registered nor possessed the property at any time, SLDC’s right is definitely
superior to that of Babasanta’s.
2. Possession vs Ownership –
Medina vs Greenfield Development Corporation, November 19, 2004, GR 124242
Facts: Medina sold two parcels of land to Greenfield Development Corporation in 1962
& 1964. Both were entered into with a notarized Deed of Sale, which was basis why
the respondent was able to register in its name the title to the two parcels of land.
These properties were consolidated with other lots and were eventually registered on
1995 in the name of respondent. On 1998 heirs of petitioners instituted an action for
annulment of titles and deeds, reconveyance, damages with preliminary injunction and
restraining order against respondent and register of deeds of Makati. They claim that
the deeds of sale were simulated and fictitious and the signatures of the vendors were
fake. Despite the transfer of title to respondents’ name, they remained in possession
thereof and in fact, their caretaker Arevalo and his family still reside on a portion of
the property. On 1998 petitioners caused an adverse claim to be annotated on the
titles. After discovery of the annotation, GDC constructed a fence on the property and
posted security personnel. Thus petitioners sought for the issuance of a temporary
restraining order and a writ of preliminary injunction enjoining respondent and its
agents from preventing petitioners to exercise their rights over the properties. In
January 1999, RTC granted petitioners’ prayer for relief because there was doubt as to
the title of Greenfield and there would be irreparable injury to the rights of the
Medinas. In July 1999 CA nullified trial court’s resolution stating among others that the
trial court relied mainly on petitioners’ allegations in the complaint which were not
supported by substantial evidence, and respondent is in constructive possession of the
properties in dispute considering that it is already the registered owner thereof.
Issue: Whether or not the trial court erred in granting petitioners’ prayer for injunctive
relief.
Ruling: The trial court committed grave abuse of discretion in issuing the writ or
preliminary injunction and the CA was correct in nullifying the same. Petitioners’
entitlement to the injunctive writ hinges on their prima facie legal right to the
properties subject of the present dispute. The petitioners’ allegations are based
merely on bare assertions and claims, while the respondent’s claim of ownership is
based on notarized deeds of conveyances and torrens titles in their favor, which have a
strong presumption of regularity. The petitioner has the burden to establish his right to
be entitled to a preliminary injunction. It is clear that petitioners failed to discharge
the burden of clearly showing a clear and unmistakable right to be protected.
Where the complainant's right or title is doubtful or disputed, injunction is not proper.
The possibility of irreparable damage without proof of actual existing right is not a
ground for an injunction
On the issue of possession, petitioners claim that they are in actual possession and
Arevalo is their caretaker and they still reside on the property, while respondent belies
their claim, and declares that Arevalo is employed by them as caretaker and his stay
on the property was a mere privilege granted.
Possession and ownership are two different legal concepts. Just as possession is not a
definite proof of ownership, neither is non-possession inconsistent with ownership.
Even assuming that petitioners' allegations are true, it bears no legal consequence in
the case at hand because the execution of the deeds of conveyances is already
deemed equivalent to delivery of the property to respondent, and prior physical
delivery or possession is not legally required. Under Article 1498 of the Civil Code,
"when the sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the object of the contract, if from the deed the contrary
does not appear or cannot be inferred." Possession is also transferred, along with
ownership thereof, to respondent by virtue of the notarized deeds of conveyances.
When execution of public document not equivalent to delivery –
Vive Eagle Land Inc. vs CA & Genuine Ice Co., Inc., November 26, 2004, GR 140228
Facts: Spouses Flores owned two parcels of land and they executed a deed of absolute
sale in favor of TATIC company with an agreement to pay taxes and remove squatters
from the same. TATIC then executed a deed of absolute sale in favor of VELI with the
agreement to remove squatters or else VELI withholds payment for both parcels of
land. VELI then executes a third deed of absolute sale in favor of Genuine Ice Company
for one of the parcels of land it acquired from TATIC. VELI had an agreement with
Genuine Ice Co. that the latter will withhold P300k of the purchase price until after
the former cleared the property of the squatters. There was a demand by Genuine Ice
to VELI to pay the capital gains tax, documentary stamp tax and other registration
fees, but VELI rejected the demand, hence the filing of and action by Genuine Ice with
the RTC for specific performance and damages. Genuine Ice alleged, among others,
that VELI failed to transfer title to and in the name of the respondent over the
property, it failed to cause the eviction of the squatters, and it failed to pay the
capital gains tax and other assessments due to effectuate the transfer of the titles of
the property to and in its name.. The trial court rendered a decision favoring Genuine
Ice, and it was affirmed by the CA, with modification.
Issue: Whether or not there was already delivery by the execution of the deed of sale.
Ruling: Under Article 1495 of the New Civil Code, petitioner VELI, as the vendor, is
obliged to transfer title over the property and deliver the same to the vendee. While
Article 1498 of the New Civil Code provides that the execution of a notarized deed of
absolute sale shall be equivalent to the delivery of the property subject of the
contract, the same shall not apply if, from the deed, the contrary does not appear or
cannot clearly be inferred. In the present case, the respondent and petitioner VELI
agreed that the latter would cause the eviction of the tenants/occupants and deliver
possession of the property. It is clear that at the time the petitioner executed the deed
of sale in favor of the respondent, there were tenants/occupants in the property. It
cannot, thus, be concluded that, through the execution of the third deed of sale, the
property was thereby delivered to the respondent.
Petitioner VELI is obliged to cause the eviction of the tenants/occupants unless there is
a contrary agreement of the parties. Indeed, under the addendum executed by
petitioner VELI and the respondent, the latter was given the right to withhold P300k of
the purchase price until after petitioner VELI cleared the property of squatters.
Asset Privatization Trust vs TJ Enterprises, May 8, 2009, GR 167195
Facts: Asset Privatization Trust acquired from Development Bank of the Philippines
certain machinery and equipment. These machinery and equipment were stored at a
compound which was in the physical possession of Creative Lines Inc. APT then sold to
TJ Enterprises these machinery and equipments. They entered into a Deed of Absolute
Sale, and there was full payment for the items. After acquiring most of the items from
the compound, they failed to haul 7 items of machinery and equipment because they
were prevented to by the employees of Creative Lines. TJE then filed a complaint for
specific performance against CLI and APT. During the pendency of the case, TJE was
able to pull out the remaining items, but upon inspection, it was discovered that these
were damaged and had missing parts.
Issue: Whether or not there was constructive delivery on the part of Asset Privatization
Trust.
Ruling: The ownership of a thing sold shall be transferred to the vendee upon the
actual or constructive delivery thereof. The thing sold shall be understood as delivered
when it is placed in the control and possession of the vendee.
As a general rule, when the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be inferred.
And with regard to movable property, its delivery may also be made by the delivery of
the keys of the place or depository where it is stored or kept. In order for the
execution of a public instrument to effect tradition, the purchaser must be placed in
control of the thing sold.
However, the execution of a public instrument only gives rise to a prima facie
presumption of delivery. Such presumption is destroyed when the delivery is not
effected because of a legal impediment. It is necessary that the vendor shall have
control over the thing sold that, at the moment of sale, its material delivery could
have been made. Thus, a person who does not have actual possession of the thing sold
cannot transfer constructive possession by the execution and delivery of a public
instrument.
In this case, there was no constructive delivery of the machinery and equipment upon
the execution of the deed of absolute sale or upon the issuance of the gate pass since
it was not petitioner but Creative Lines which had actual possession of the property.
The presumption of constructive delivery is not applicable as it has to yield to the
reality that the purchaser was not placed in possession and control of the property.
Transfer of ownership by placing titles of ownership in the possession of the
vendee –
Tablante vs Aquino, September 18, 1914, GR 8675
Facts: Mendiola owned a piece of land and on it a warehouse which he subsequently
sold to Bautista. This was recorded in the property registry. Notwithstanding the sale
made to Bautista, Mendiola continued in possession of the lot and warehouse pursuant
to a contract of lease executed between them. Because of Mendiola’s failure to pay,
Bautista sold the same lot and warehouse to Tablante and the title deed was delivered
to him. Meanwhile, a judgment was rendered against Mendiola by the CFI, which was
basis for the sheriff to sell the lot and warehouse at an auction sale because it was
deemed to be property of Mendiola. Vergara was the highest bidder, but it was
eventually sold to Jose Aquino, the present possessor. CFI ordered Aquino to deliver
property to Tablante and also to pay damages. Aquino appealed the decision
Issue: Whether or not there was transfer of ownership to Tablante.
Ruling: The ownership of things is not transferred from one person to another by mere
consent in the contract, but through the delivery of the thing that is the subject of the
contract. In the present case, it is admitted by the appellee that there was no
material delivery of the lot and warehouse by Ciriaco Bautista to Bartolome Tablante,
as up to now no proof has been presented of a contract of sale made between Bautista
and Tablante.
Nevertheless, the law prescribes that the "the placing of the titles of ownership in the
possession of the vendee or the use which he may make of his right with the consent of
the vendor shall be considered as a delivery." (Civil Code, art. 1464.) The title deeds
given to Tablante and the use of his right by the the same who in his complaint lays
claim to the lot and the warehouse, appear to have been consented to by the vendor
Bautista, by means of the aforementioned evidence. It is the same as though Ciriaco
Bautista were the intervener, and if he had been, there would have been no cause for
discussion.
Therefore, after first declaring the sale made by the sheriff, together with the
subsequent ones, to be null and void, we declare Bartolome Tablante to be the owner
of the lot and warehouse described in the complaint, and the defendant, Jose Aquino,
is sentenced to restore them to the Tablante, but no payment for damages.
Rule in sale of registered land –
Valdevieso vs Damalerio, February 17, 2005, GR 133303
Facts: On December 1995, Valdevieso bought from spouses Uy a parcel of land, but the
Deed of Sale was not registered, nor was the title of land transferred. On April 1996,
Damalerio filed a complaint for sum of money with application for the issuance of a
Writ of Preliminary Attachment against spouses Uy. On the same month, the trial court
issued the writ, by virtue of which the property was levied, even though the property
was still in the name of Uy but which had been already sold to Valdevieso. The levy
was duly recorded in the Register of Deeds and annotated upon the TCT of spouses Uy.
On June 1996 the TCT in the name of Uy was cancelled and in lieu thereof a new TCT
was issued in the name of Valdevieso but it carried with it the attachment in favor of
Damalerio. Because of that Valdevieso filed a third party claim to discharge or annul
the attachment on the ground that said property belongs to him and no longer to
spouses Uy, which was subsequently granted by the RTC. The CA reversed the decision
on the ground that the writ of attachment takes precedence over the sale because it
was recorded ahead of the sale.
Issue: Whether or not a registered writ of attachment on the land is a superior lien
over that of an unregistered deed of sale.
Ruling: The Supreme Court affirms the decision of the Court of Appeals. The law
applicable to the facts of this case is Section 51 of P.D. No. 1529. Said Section
provides:
Sec. 51. Conveyance and other dealings by registered owner. - An owner of registered
land may convey, mortgage, lease, charge, or otherwise deal with the same in
accordance with existing laws. He may use such forms of deeds, mortgages, leases or
other voluntary instruments as are sufficient in law. But no deed, mortgage, lease, or
other voluntary instrument, except a will purporting to convey or affect registered
land, shall take effect as a conveyance or bind the land, but shall operate only as a
contract between the parties and as evidence of authority to the Register of Deeds to
make registration.
The act of registration shall be the operative act to convey or affect the land insofar
as third persons are concerned, and in all cases under this Decree, the registration
shall be made in the office of the Register of Deeds for the province or city where the
land lies.
It is to be noted that though the subject land was deeded to petitioner as early as 05
December 1995, it was not until 06 June 1996 that the conveyance was registered,
and, during that interregnum, the land was subjected to a levy on attachment. It
should also be observed that, at the time of the attachment of the property on 23 April
1996, the spouses Uy were still the registered owners of said property. Under the cited
law, the execution of the deed of sale in favor of petitioner was not enough as a
succeeding step had to be taken, which was the registration of the sale from the
spouses Uy to him. Insofar as third persons are concerned, what validly transfers or
conveys a person’s interest in real property is the registration of the deed. Thus, when
petitioner bought the property on 05 December 1995, it was, at that point, no more
than a private transaction between him and the spouses Uy. It needed to be registered
before it could bind third parties, including respondents. When the registration finally
took place on 06 June 1996, it was already too late because, by then, the levy in favor
of respondents, pursuant to the preliminary attachment ordered by the General Santos
City RTC, had already been annotated on the title.
The settled rule is that levy on attachment, duly registered, takes preference over a
prior unregistered sale. This result is a necessary consequence of the fact that the
property involved was duly covered by the Torrens system which works under the
fundamental principle that registration is the operative act which gives validity to the
transfer or creates a lien upon the land.
The preference created by the levy on attachment is not diminished even by the
subsequent registration of the prior sale. This is so because an attachment is a
proceeding in rem. It is against the particular property, enforceable against the whole
world. The attaching creditor acquires a specific lien on the attached property which
nothing can subsequently destroy except the very dissolution of the attachment or levy
itself. Such a proceeding, in effect, means that the property attached is an indebted
thing and a virtual condemnation of it to pay the owner’s debt. The lien continues until
the debt is paid, or sale is had under execution issued on the judgment, or until the
judgment is satisfied, or the attachment discharged or vacated in some manner
provided by law.
Thus, in the registry, the attachment in favor of respondents appeared in the nature of
a real lien when petitioner had his purchase recorded. The effect of the notation of
said lien was to subject and subordinate the right of petitioner, as purchaser, to the
lien. Petitioner acquired ownership of the land only from the date of the recording of
his title in the register, and the right of ownership which he inscribed was not absolute
but a limited right, subject to a prior registered lien of respondents, a right which is
preferred and superior to that of petitioner.
3. Effect of affidavit of adverse claim in lieu of registration –
Navotas Industrial vs Cruz, September 12, 2005, GR 159212
Facts: Carmen Cruz entered into a lease agreement with Navotas Industrial
Corporation in 1966, wherein the latter would lease her property from October 1966 to
October 1990. Carmen then sold the property to her children on December of 1974,
executing a Deed of Absolute Sale of Realty with Assumption of Mortgage. This deed
was not registered. On June 1977 Carmen’s children paid the loan, and then the bank
subsequently executed a cancellation of Real Estate Mortgage, but this was not
presented to the Register of Deeds for Registration. Carmen’s children then executed
an Affidavit of Adverse Claim, stating that they were the vendees of the property as
evidenced by a Deed of Sale with Assumption of Mortgage appended thereto, and that
to protect their rights and interests, the said affidavit of adverse claim was being
executed as a cautionary notice to third persons and the world that the property had
been sold to them. The affidavit of adverse claim was inscripted at the dorsal portion
of the title on June 1977. On July 1977 Carmen entered into an agreement with NIC for
a supplementary lease agreement with an option to buy the property. However this
was not presented for registration to the Register of Deeds. It was only on September
1977 that NIC presented the supplementary lease agreement to the Register of Deeds
for annotation at the dorsal portion of the title. In 1991 Carmen’s children demanded
that NIC vacate the property because they no longer had the intention to renew the
contract, but NIC refused to do so, and it posited that it would exercise it’s option to
buy the property. In 1995 the Cruz heirs filed for nullification of the supplementary
lease agreement, but the RTC upheld the validity of the agreement in its judgment on
March 2000. Cruz heirs appealed the decision of the RTC and the CA on July 2003
reversed the decision of RTC, stating among others that NIC had constructive notice of
the adverse claim, and that the supplementary lease agreement had no effect because
it was no longer owned by Carmen Cruz, and the option to buy was not effected
because there was no consideration therefore.
Issue: Whether or not the supplementary lease agreement is valid and binding.
Ruling: The Supreme Court held that it was not because NIC had constructive notice of
the adverse claim, and that at the time the supplementary lease agreement was
entered into the land was no longer owned by Carmen Cruz, and the option to buy was
not effective because there was no separate consideration for it.
Basic is the rule that the annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property and serves as a notice
and warning to third parties dealing with said property that someone is claiming an
interest on the same or a better right than the registered owner thereof. A subsequent
transaction involving the property cannot prevail over the adverse claim which was
previously annotated in the certificate of title of the property.
The general rule is that a person dealing with registered land is not required to go
behind the register to determine the condition of the property. However, such person
is charged with notice of the burden on the property which is noted on the face of the
register or certificate of title. A person who deals with registered land is bound by the
liens and encumbrances including adverse claim annotated therein.
In the present action, the petitioner caused the annotation of the July 30, 1977
Supplementary Lease Agreement and Contract of Sale only on September 14, 1977,
long after the annotation of the respondents’ adverse claim at the dorsal portion of
TCT No. 81574 on June 30, 1977. Thus, as of that date, the petitioner had
constructive knowledge of the Deed of Sale with Assumption of Mortgage Carmen Cruz
executed on December 31, 1974 in favor of her children. Even before July 30, 1977,
the petitioner had knowledge that Carmen Cruz was no longer the owner of the
property, and had no more right to execute the July 30, 1977 Supplementary Lease
Agreement and Contract of Lease. The registration of the said lease contracts was of
no moment, since it is understood to be without prejudice to the better rights of third
parties.
C. Transfer of Ownership to the Buyer
a. General Rule
Generally, the ownership in the goods passes to the buyer upon their delivery
to the carrier. Delivery may be actual/real, constructive/legal, or in any manner
signifying an agreement that the possession is transferred to the buyer.
Case: Determination of place of consummation of contract for purposes of imposing
sales tax
Butuan Sawmill vs CTA, February 28, 1966, GR L-20601
Facts: Butuan Sawmill sells logs to Japanese firms at prices FOB vessel. Freight is paid
by Japanese buyers, and the payments were effected by means of irrevocable letters
of credit in favor of Butuan Sawmill. Upon investigation by the BIR it was ascertained
that no sales tax return was filed by Butuan Sawmill and neither did t pay the
corresponding tax on the sales. Thereafter, BIR assessed against Butuan Sawmill sales
tax and surcharges. Butuan challenged the assessment on the ground that the disputed
sales were consummated in Japan and therefore not subject to the taxing jurisdiction
of the Philippines.
Issue: The main issue is the place of consummation of sale to determine whether or
not petitioner is liable to pay the sales tax
Ruling: In a decided case with practically identical set of facts obtaining in the case at
bar, this Court declared:
. . . it is admitted that the agreed price was "F.O.B. Agusan", thus indicating, although
prima facie, that the parties intended the title to pass to the buyer upon delivery of
the logs in Agusan; on board the vessels that took the goods to Japan. Moreover, said
prima facie proof was bolstered up by the following circumstances, namely:
1. Irrevocable letters of credit were opened by the Japanese buyers in favor of the
petitioners.
2. Payment of freight charges of every shipment by the Japanese buyers.
3. The Japanese buyers chartered the ships that carried the logs they purchased from
the Philippines to Japan.
4. The Japanese buyers insured the shipment of logs and collected the insurance
coverage in case of loss in transit.
5. The petitioner collected the purchase price of every shipment of logs by
surrendering the covering letter of credit, bill of lading, which was indorsed in blank,
tally sheet, invoice and export entry, to the corresponding bank in Manila of the
Japanese agent bank with whom the Japanese buyers opened letters of credit.
6. In case of natural defects in logs shipped to the buyers discovered in Japan, instead
of returning such defective logs, accepted them, but were granted a corresponding
credit based on the contract price.
7. The logs purchased by the Japanese buyers were measured by a representative of
the Director of Forestry and such measurement was final, thereby making the
Government of the Philippines a sort of agent of the Japanese buyers.
It is clear that said export sales had been consummated in the Philippines and were,
accordingly, subject to sales tax therein.
b. When delivery does not transfer title
1. In “delivery on approval, trial, or satisfaction”
Paragraph 2 of Article 1502 provides:
When goods are delivered to the buyer on approval or on trial or on
satisfaction, or other similar terms, the ownership therein passes to the buyer:
i. When he signifies his approval or acceptance to the seller or
does any other act adopting the transaction;
ii. If he does not signify his approval or acceptance to the seller,
but retains the goods without giving notice of rejection, then if
a time has been fixed for the return of the goods, on the
expiration of such time, and if no time has been fixed, on the
expiration of a reasonable time. What is a reasonable time is a
question of fact.
2. In case of express reservation of title in the seller
Paragraph 1 of Article 1503 provides:
Where there is a contract of sale of specific goods, the seller may,
by the terms of the contract, reserve the right of possession or ownership in
the goods until certain conditions have been fulfilled. The right of possession
or ownership may be thus reserved notwithstanding the delivery of the goods
to the buyer or to a carrier or other bailee for the purpose of transmission to
the buyer.
Case:
Reyes vs Salvador, September 11, 2008, GR 139047
Facts: Domingo owns a parcel of unregistered land. On June 1965 his son Nicomedes executed a
deed of conditional sale in favor of Emma. On June 1968 Nicomedes entered into an Agreement
of purchase and sale with Rosario. On August 1969 Nicomedes sold part of the land to Maria and
executed a Deed of Absolute Sale of Unregistered Land. On July 1980, the heirs of Nicomedes
sold the remaining land in favor of Dulos Corp and also executed a Deed of Absolute Sale of
Unregistered Land.
Issue: Which party acquired valid and registrable title to the land.
Ruling: After a conscientious review of the arguments and evidence presented by the parties, the
Court finds that the Deed of Conditional Sale between Nicomedes and Emma and the Agreement
of Purchase and Sale between Nicomedes and Rosario were both mere contracts to sell and did
not transfer ownership or title to either of the buyers in light of their failure to fully pay for the
purchase price of the subject property.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.
A simple reading of the terms of the June 1965 Deed of Conditional Sale readily discloses that it
contains stipulations characteristic of a contract to sell. It provides for the automatic cancellation
of the contract should Emma fail to pay the purchase price as required therein; and, in such an
event, it grants Nicomedes the exclusive right to thereafter sell the subject property to a third
person. As in Adelfa Properties, the contract between Nicomedes and Emma does not provide for
reversion or reconveyance of the subject property to Nicomedes in the event of nonpayment by
Emma of the purchase price. More importantly, the Deed in question clearly states that
Nicomedes will issue a final deed of absolute sale only upon the full payment of the purchase
price for the subject property. Taken together, the terms of the Deeds reveal the evident intention
of the parties to reserve ownership over the subject property to Nicomedes pending payment by
Emma of the full purchase price for the same.
While the Deed of Conditional Sale dated June 1965 was indeed contained in a public
instrument, it did not constitute constructive delivery of the subject property to Emma in view of
the contrary inference in the Deed itself that the ownership over the subject property was
reserved by NicomedesMoreover, other than her claim that she paid the realty taxes on the
subject property, Emma did not present any evidence that she took actual and physical
possession of the subject property at any given time.
This Court also finds that, contrary to the ruling of the Court of Appeals, the Agreement of
Purchase and Sale executed by Nicomedes in favor of Rosario on June 1968 is likewise a mere
contract to sell. The Agreement itself categorically states that Nicomedes only undertakes to sell
the subject property to Rosario upon the payment of the stipulated purchase price and that an
absolute deed of sale is yet to be executed between the parties.
agent. (the buyer also cannot get the goods)
iii.When the buyer, although the goods are deliverable to order of
buyer, and although the bill of lading is given to him, does not
honor the bill of exchange sent along with it. But of course
innocent third parties (innocent holders and purchasers for
value) should not be adversely affected.
Example: S sold B a laptop. The laptop was shipped on board a
carrier. The bill of lading stated that the laptop is deliverable to
the order of B. The bill of lading was sent to B, accompanied
by a bill of exchange which B was supposed to honor. If B
does not honor the bill of exchange, but wrongfully retains the
bill of lading, ownership remains with the seller. If B sells the
bill of lading to X, X can obtain ownership of the goods if he is
an innocent purchaser.
Note: Bill of lading – A document evidencing a contract for the carriage and delivery of the
listed goods.
Bill of exchange – A written instrument providing proof of an obligation to pay money.
4. Sale to two different persons by the same seller (Art. 1544)
i. Personal/movable property – possessor in good faith
ii. Real/immovable property –
1. Registrant if good faith
2. Possessor in good faith
3. Person with the oldest title in good faith
5. When the seller is not the owner (Art. 1505)
The general principle as regards personal property that a seller without
title cannot transfer a better title than what he actually has. He cannot
give what he does not have, nemo dat quod non habet. Even a buyer in
good faith succeeds only to the rights of the vendor, sale ex vi termini.
He cannot acquire anything more. A stream cannot rise higher than its
source.

Thus, the Deeds of Absolute Sale in favor of Maria and Dulos Realty were the only conveyances
of the subject property in this case that can be the source of a valid and registrable title. Both
contracts were designated as absolute sales and the provisions thereof leave no doubt that the
same were true contracts of sale. The total considerations for the respective portions of the subject
property were fully paid by the buyers and no conditions whatsoever were stipulated upon by the
parties as regards the transmission of the ownership of the said property to the said buyers.
3. Implied reservation of title
The full text is found in Article 1503.
i. If under the bill of lading the goods are deliverable to the seller
or agent or their order. (Reason, the buyer cannot get the
goods.)
c.
ii. If bill of lading, although stating that the goods are to be
delivered to buyer or his agent, is KEPT by the seller or his
Exception:
i. When the true owner of the goods by his conduct is precluded
from denying the authority of the seller.
ii. When the sale by the non-owner is effected by, factors’ acts,
recording laws, or any other provisions of law enabling the
apparent owner of goods to dispose of them as if he were the
true owner thereof.
iii.When the sale is sanctioned by statutory or judicial authority
iv.Purchases made in a merchant’s store, or in fair, or markets, in
accordance with the Code of Commerce and special laws.
Revesting of title that has passed to the buyer
1. Stoppage in transitu (Article 1534)
 This article refers to the right to rescind the transfer of title and to
resume the ownership in the goods. Before an unpaid seller may be allowed to
rescind the sale, it must be shown that (a) he has the right of lien over the
goods or (b) he has stopped the goods in transitu. In addition, the parties have
reserved for the seller the right to rescind in case of default on the part of the
buyer, or in the absence of such reservation, the buyer has been in default in
his payment for an unreasonable length of time.
However, rescission when it is not reserved, shall not be effective unless
the seller has notified the buyer of the former’s intention to rescind or has
manifested by an overt act or acts his intention to so rescind.
2. Delivery to the buyer “on sale or return”
Sale or return – it is a contract by which property is sold but the buyer,
who becomes the owner of the property on delivery, has the option to
revest the ownership in the seller by returning or tendering the goods
within the time fixed in the contract or if no time has been fixed, within a
reasonable time. (Article 1502) Under this contract, the option to
purchase or return the goods rests entirely on the buyer without reference
to the quality of the goods.
3. In case of danger of loss of thing and the price
The risk of loss or deterioration is on the buyer prior to the exercise of
his option to revest the ownership of the goods in the seller. The reason
for this is that the seller is the owner of the goods from the time of their
delivery until the revestment of the ownership thereof into the seller.