CHAPTER 6: DOUBLE SALES
(Principle: Nemo dat quod non
I. Rules on Double Sale Must Be Considered
in the Realm of Tradition
1. The rules embodies in Art. 1544 are not the only
existing and prevailing rules on double sales.
2. These rules pertain to the consummation stage in
the life of a sale.
• They cover the effects and consequences of
tradition in a double sale.
NOTE: The various rules on double sales operate
under the same premises that tradition can be made
operative
1. The conflicting sales are valid and demandable
sales, pursuant to which tradition was or could
be affected.
2. The seller who effected multiple sales to
various buyers had ownership to convey.
II. Article 1544 as the Platform for
Discussion
In the event of double sale, the following rules shall be
followed:
a. When the subject matter is movable, to the buyer
• Who may have first taken possession thereof
in good faith
Note: This is consistent with the principle laid down
in Art. 559 of the Civil Code (CC) which provides that
the “possession of movable property acquired in good
faith is equivalent to title,” which may be interposed
even against the owner thereof.
b. When the subject matter is immovable, to the buyer:
(R-P-OT)
• Who in good faith first recorded the sale in the
Registry of Property
• Should there be no inscription, to the person
who in good faith was the first possessor of the
subject matter.
habet)
• In the absence of the foregoing, to the person
who presents the oldest title, provided there is
good faith. (Principle: Prius tempore, potior
jure)
QUALIFIER: Good faith
Note: It is generally governed by the system of
registration (Torrens). The second rule is consistent
with the principle that the sale, even when it is valid
and enforceable, is merely a title or the legal
justification to acquire ownership but it is tradition
that is the mode by which ownership is transferred to
a buyer.
Reason behind the rules
It is reflective of the doctrinal values on what
Philippine society considers the best gauge of
determining who between disputing claimants to an
object would be preferred.
III. Two Divergent Systems When It Comes to
Land
a. Registered Land (Covered by the Torrens
system)
Sec. 51 of P.D. 1529 embodies the “registration is the
operative act” (to convey and affect the land insofar as
third persons are concerned) doctrine.
- “no deeds, mortgage, lease or other voluntary
instrument- except a will purporting to convey
or affect registered land, shall take effect as a
conveyance or bind the land until its
registration.
1. Article 1544 Does Not Overcome the Priority of
Rules under P.D. 1529
Distrinction between ‘registration’ in Art. 1544 and
Sec. 51 of P.D. 1529
Sec. 51 Art. 1544
As to refers to refers to the
process judicial or annotation or
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 administrativ inscription instrument shall have been recorded in the
e process by with the manner herein prescribed… It shall be understood
which a Register of that any recording made under this section shall be
parcel of land Deeds of a without prejudice to a third party with a better
is placed for contract, right.
the first time transaction, or
within the legal process
Therefore, the first to register rule is wholly
coverage of involving real
inapplicable to unregistered land. In other words,
the Torrens estate.
system the rule on double sales under Art. 1544 has no
As to covers not Covers only application to unregistered lands.
contracts only sales sales contract
covered contract but 2. Act No. 3344 Registration of Instruments
all other Affecting Titled Lands
forms of
annotated “Without prejudice to a third party with a better
voluntary right”—mere registration of sale in one’s favor
contracts and doesn’t give him any right over the land if the
transactions vendor wasn’t anymore the owner of the land
like lease, having previously sold the same to somebody else
mortgage,
even if the earlier sale was unrecovered
options,
agency
designation, CLV posits that the better way to construe the
contracts to “without prejudice to the third party with a better
sell, etc. right” is to say that it implements the primary
doctrine of Prius tempore, potior jure and thereby
always favors the first buyer.

In Naawan Community Rural Bank, the Court added
that the formal registration proceedings undertaken
on the property ad the subsequent issuance of a title
over the land under the Torrens system had the legal
effect of cleansing title on the property of all liens and
claims which were not annotated therein.
b. The Case for Unregistered Land
Laws Involved
1. Sec. 113 of P.D. 1529 Recording of instruments
relating to unregistered lands.
No deed, conveyance, mortgage, lease, or other
voluntary instrument affecting land not registered
under the Torrens system shall be valid, except as
between the parties thereto, unless such
Conclusion: the rules on double sales under Art.
1544 are applicable to unregistered land BUT only
insofar as they do not undermine specific rules
and regulations that have a higher hierarchical
enforcement value.
Buyer with a better right- more than just in his favor
an earlier deed of sale but rather a mode by which
ownership is directly affected. (Lichauco v. Berenguer
and Hanopol v. Pilapapil)
Conflicting Rulings
Carumba v. Court of Appeals
Art. 1544 does not apply to unregistered land in an
auction sale because the purchaser of
unregistered land in the auction sale merely steps
into the shoes of the judgment debtor and merely
acquires the latter’s interest in the property.

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Radiowealth Finance Co. v. Palileo
A bona fide purchaser of a registered land at an
execution sale acquires a good title as against the
prior transferee if such transfer was recorded.
Carumba is the prevailing doctrine.
IV. GLOBAL RULES ON DOUBLE SALES
a. Highest Priority: Registration in Good Faith
under P.D. 1529
- Provides for absolute first priority to the buyer
who has it in his favor.
- Cannot apply to unregistered land.
- This applies even to contracts to sell and other
processes within the policitacion stage.
b. Second Priority: Principle Applicable to Buyer at
Auction Sale under the Rules of Court
- Sec. 35, Rule 39 of the RoC
- As to the risk being taken by the highest bidder
- Overcomes the rules provided under Art. 1544
- Only pertains to unregistered land.
- The subsequent registration of the land is a
technicality that could not cancel and render
ineffective the previous unregistered sale and
conveyance of title and ownership of the first
buyer.
- Good faith or bad faith is irrelevant. It applies only
when the land was registered and the seller was
the owner. (Naval and Dagupan)
This is in conflict with the ruling in Naawan and Abrigo
- Legal priority of registration of sale under P.D. 1529
cannot be overcome by an earlier registration under
Act No. 3344
c. Third Priority: Art. 1544 Rules on Double Sale
- strictly applicable only to double sales when they are
valid and demandable and the issues arise only at the
consummation stage.
Conflicting Rulings
1. The first to register in good faith rule in Art. 1544
covers precisely the “absolutely first” rule of
registration being the operative fact under the Torrens
title.
2. The issues to be resolved do not fall within the
priority of rules of the Torrens system under P.D.
1529, nor the specific rules on auction sale under the
Rules of Court.
Main rule (Prius tempore, portio jure) is not the
primary rule in Art. 1544
V. Essential Elements for Applicability of
Article 1544 (V-S-C-S)
(a) the two (or more) sales transactions must
constitute valid sales
(b) the two (or more) sales transactions must pertain
to exactly the same subject matter
(c) the two (or more) buyers at odds over the rightful
ownership of the subject matter must each
represent conflicting interest.
(d) the two (or more) buyers at odds over the rightful
ownership of the subject matter must each have
bought from the very same seller. (Cheng v.
Genato)
A. Nature of the Two Sales Involved
- The two sales involved must be valid OR at least be
voidable, otherwise Art. 1544 is inapplicable.
Doctrine in Caram Jr.- the attempt to deliver the
subject matter pursuant to a second valid sale would
not produce the legal effects of delivery but the second
contract remains valid and can be rescinded for
breach of the obligation.
B. Applicability of Rules on Double Sales to
Contracts to Sell and Adverse Claims
- Rules on double sale do not apply to contracts that
are not yet demandable, i.e. contracts to sell. (This was
abrogated in Andalin v. CA)
Reason:
A conditional sale, before the performance of the
condition, can hardly be said to be a sale of property
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especially if the condition has not been performed or
complied with.
An adverse claim, only protects the interest and rights
of the person who secures it against those who acquire
and interest in the property subsequent thereto. It
cannot affect the rights and interests of persons who
acquired an interest in the property theretofore.
Conflicting Rulings:
Mendoza: Holds the non-effect of an adverse claim.
Carbonell: Holds that an adverse claim by the first
buyer was deemed to be equivalent to the registration
required under Art. 1544.
Andalin
- double sales applies to conditional sales
Coronel
- double sales does not apply to contract to sell
Conclusion: When one of the sales is a contract to sell,
as distinguished from a conditional contract of sale,
the rules of Art. 1544 on double sales do not applu, and
the buyer under the contract of sale, albeit conditional
is always preferred.
C. There Must Be “Sameness” of Subject Matter
- Art. 1544 does not apply where one buyer bought the
parcel of land and the other buyer bought the right to
redeem the same parcel of land.
D. They Must Involve the Same Seller
- must be the immediate seller. Successors and
predecessors-in-interest are not applicable.
(Consolidated Rural Bank v. CA)
- it cannot be invoked when two different contracts of
sale are made by two different persons, one of which
is not the owner.
- Even if the sale is made by the same person, if the
second sale was made when such person was no
longer the owner of the property.
E. Art. 1544 is not a race between two Protagonists
Running the Same Race
Authority is Carbonell v. CA
GR: BUYER 1 ALWAYS HAS PRIORITY RIGHTS OVER
BUYER 2.
REASON:
Buyer 1 is necessarily in good faith compared to the
second or subsequent buyer. The good faith of Buyer
1 remains and subsists throughout despite his
subsequent acquisition of knowledge of the second or
subsequent sale. Whereas Buyer 2, although good
faith at first would become a buyer in bad faith by his
subsequent acquisition of knowledge of the first sale.
XPNs: 1. When buyer 2 registers the sale ahead of
buyer 1 in good faith,
2. When Buyer 2 takes possession of the property in
good faith ahead of buyer 1
(Dari gi-apply ang main rule na ‘prius tempore, portio
jure’)
In other words, the qualification of good faith in Art.
1544 applies only to Buyer 1!
Knowledge of the first unregistered sale by the buyer
ends the race altogether either because:
1. The knowledge of Buyer 2 of the first sale is
equivalent to registration in favor of buyer 1
2. Knowledge of the first sale makes Buyer 2 one in bad
faith.
Remedy of Buyer 1 in case Buyer registers in bad faith:
Reconveyance of the property subject of the sale.
F. Peculiar Developments in the Law on Double
Sales
San Lorenzo Dev. Corp vs CA.
G. Who is a Purchaser in Good Faith?
- Purchaser is good faith is one who buys property
- without notice that some other person has a right to,
or interest in, such property
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- and pays a full and fair price for the same at the time
of such purchase
- or before he has notice of the claim or interest of
some other person in the property.
1. Burden of Proof
He who asserts the status of a purchaser in good faith
ad for value
2. Requisite of Full Payment
Consistent with the operative doctrine under Art.
1544 that the second or subsequent buyer is granted
an opportunity to take the subject matter from the
clutches of the first buyer by positive act and he may
do so only when he acts with equity and also with the
reciprocity characteristic of a sale.
3. Obligation to Investigate Known Facts
Actual lack of knowledge of the flaw in the title by
one’s transferor is not enough to constitute to a buyer
to be in good faith. He must also investigate where
circumstances prompt him to do so.
4. Special Rule for Real Estate Market Players
Businesses engaged in dealing with real estate are
OBLIGED to enter upn an investigation of the actual
condition of the occupants of the subject property.
5. Land in Adverse Possession
When the land is possessed by persons other than the
sellers, buyer must inquire and observe greater
diligence.
6. Annotation of Lis Pendens
Annotation of lis pendens on the title does not place
the buyer thereof in bad faith. (Agricultural and Home
Extension Dev. Group vs. CA)
Reason: These did not have the effect of establishing a
lien or encumbrance on the property affected. Merely
to give notice to the whole world that the interest they
might acquire in the property would be subject to the
result of the suit.
Qualifier: This is only suggested when 3rd parties do it.
CLV thinks it would be absurd to apply the theory if
ang diputed buyer mag-annotate kay di ba notice
naman na to the subsequent buyer? Pudadera v
Magallanes has also held that annotation of lis
pendens places the subsequent buyer in bad faith.
7. Annotation of Adverse Claim
Places any subsequent buyer in bad faith.
8. Existence of Relationship
The sale to one’s daughter and sons will give rise to the
conclusion that the buyers, not being really third
parties, knew of the previous sales and cannot be
considered in good faith.
The buyers ―are deemed to have constructive
knowledge by virtue of their relationship to their sellers
9. Stipulations in the Deed Showing Bad Faith
10. When Dealing With Non-Registered Owner
GR: When one buys from registered owner, he does
not need to look behind the certificate of title.
XPN: When one buys from a non-registered owner. He
must examine all factual circumstances
H. Requisites of Prior Registration
Registration- any entry made in the books of registry,
including both registry in its ordinary and strict sense,
and cancellation, annotation and even marginal notes.
- it is entry made in the registry which records
solemnly and permanently the right of
ownership and other real rights.
Other forms of registration
- Annotation of lis pendens and adverse claim
produces the same effects of registration
- Registration under Act 3344
1. Prior Registraion By the Second Buyer Must Always
Be in Good Faith
For the second buyer being 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 buyer's right) –from the time of acquisition until
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the title is transferred to him by registration or failing
registration, by delivery of possession
2. Need for the Second Buyer to Do Positive Act Under
Art. 1544
- by registration or failing registration, by delivery of
possession
I. First to Possess in Good Faith
Ten Forty Realty set forth the following juridical
parameters: (M-U-W-P)
(a) Possession includes not only material but also
symbolic possession
(b) Possessors in good faith are those who are not
aware of any flaw in their title or mode of
acquisition
(c) Buyer of real property that is in the possession
of person other than the seller must be wary-
they must investigate the rights of the
possessors
(d) Good faith is always presumed, upon those
who allege bad faith on the part of the
possessors rests the burden of proof.
- This rule is subject to criticism by CLV
The juridical parameters are consistent with Act No.
3344 now Sec. 113 of P.D. 1529. (“third party with a
better right” principle)
(1) Registration in Good Faith Always Pre-empts
Possession in Good Faith
- Between two purchasers, the one who
registered the sale in his favor has a preferred
right over the other who has not registered his
title, even if the latter is in actual possession of
the immovable property. (Balatbat v. CA)
- San Lorenzo case is a stray decision holding
that annotation of lis pendens is not equivalent
to registration.
1. It equates ALP to the state of mind of buyers
and not a species of registration
2. It holds prior possession in good faith of 2nd
buyer as superior to a subsequent registration
of 1st buyer.
(2) Possession Refers Both to Material and Symbolic
Possession
- In a case where both sales were not registered,
the deed in a public instrument takes
preference over 2nd buyer who took material
possession thereof.
Reason:
It constituted constructive delivery of the land.
(3) Possession Acquired in Good Faith Is Stable Status
- The registration of a sale after the annotation
of the notice of lis pendens does not obliterate
the effects of delivery and possession in good
faith.
j. When Art. 1544 Does Not Apply, Priority in Time
Rule Applies
(a) Where not all the requisites necessary to make
Art. 1544 applicable are present
(b) Where the requisites to make Art.1544 applicable
are present but that either the first to register or
first to possess rules were not complied with.
In the first one, the rule on Prius tempore, portio jure
governs. (Main rule in double sales)
In the second, ownership should go to “the person who
has the oldest title in good faith”. In other words, first
buyer in good faith.
OBLIGATIONS OF BUYER
1. Pay the Price (Art. 1582)
a. Buyer must pay the price at the time and place
stipulated in the contract.
Payment may be made to:
1. GR: the seller or in whose favor the
obligation has been constituted
2. his successor in interest
3. or any other person authorized to receive
b. Buyer must pay interest for the period between
delivery and payment of price when:
1. the same has been stipulated
2. should the object delivered produce fruits
and income
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 3. in case the buyer is in default, from the
time of judicial or extrajudicial demand.
Payment of price is a resolutory condition the breach
of which renders the contract rescissible.
When seller cannot show title to the subject matter,
then he cannot compel the buyer to pay the price.
xHeirs of Severina San Miguel v. CA, 364 SCRA 523
(2001).
Mere sending of a letter by the buyer expressing the
intention to pay without the accompanying payment
is not considered a valid tender of payment and
consignation of the amount due are essential in order to
extinguish the obligation to pay and oblige the seller to
convey title. xTorcuator v. Bernabe, 459 SCRA 439
(2005).
2. Accept Delivery (Arts. 1582-1585)
GR: at the time and place stipulated in the contract.
XPN: in case of no stipulation, payment must be made
at the time and place of the delivery of the thing sold
Indication of acceptance:
1. When he intimates to the seller that he has accepted
them
2. When the goods have been delivered to him and he
does any act in relation to them which is inconsistent
with the ownership of the seller.
3. When after the lapse of a reasonable time, he retains
the goods without intimating to the seller that he has
rejected them.
a. Opportunity to Inspect Goods
GR: buyer is not deemed to have accepted the good
delivered if he has not previously examined or
inspected them
Qualification: unless and until he has had a reasonable
opportunity of examining them for the purpose of
ascertaining whether or not they are in conformity
with the contract.
XPN:
1. Stipulation to the contrary i.e Cash on delivery (full
payment first ayha dayun inspection)
b. Goods Sold Deliverable by Installment
GR: The buyer of goods is not bound to accept delivery
thereof by installment
XPN: Contrary stipulation
In case of installment agreement, breach of the
agreement differs on a case to case basis (terms of the
contract, circumstance, whether breach is material,
breach is severable)
Remedies in case of breach:
1. sue for damages (when the whole contract is
breached)
2. claim for compensation (partial breach)
c. Effect of Acceptance of Goods on Seller’s
Warranty
GR: Acceptance of the goods does not discharge the
seller from liability in damages or other legal remedy
for breach of promise or warranty
XPN:
1. Stipulation to the contrary
2. Failure of buyer to notify the seller of breach of
promise or warranty within a reasonable time
d. Refusal to Accept Goods
GR: When buyer refuses to accep the goods having the
right to do so (i.e in case of breach), he is not bound to
return to the seller and it is sufficient that he notifies
the seller of his refusal
XPN:
1. Stipulation to the contrary
2. He voluntarily constitutes himself to be a depository
3. Acceptance is without just cause
XPN to the XPN: Stipulation to the contrary
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 CHAPTER 7: DOCUMENTS OF TITLE
A document of title is any document used in the
ordinary course of business in the sale or transfer of
goods as proof of possession or control of the goods,
or authorizing or purporting to authorize the
possessor to transfer or receive, either by
endorsement or by delivery, goods represented by
such document.
Documents of title serve two functions:
1. Evidence of the possession or control of the
goods described therein
2. Medium of transferring title and possession
over the goods described therein without
having to effect actual delivery thereof.
Note: Dealings through documents of title is a
species of constructive delivery.
Public policy involved when document is negotiable in
character
Invalidity of the underlying sale or the actual lack of
ownership of the seller of the goods described therein
would still effectively transfer ownership to the buyer
who takes the document of title in due course in line
with public policy behind the State’s protective mantle
on the effects of negotiation.
a. Warehouse Receipts Act and Bonded
Warehouse Act
The provisions of the special stature constitute the
primary sets of rules governing warehouse receipts,
and Articles 1507 to 1520 of the Civil Code should be
treated as having suppletory effect.
b. Rationale for Documents of Title
Documents of title evolved from the commercial
practices of merchants and gained acceptance in
commercial customs. Merchants should be allowed to
transact with goods and merch without having to
physically carry them around and buyers should be
assured they may deal with the same as if they could
feel the merch themselves.
Types of Documents of Title
1. Negotiable Document of Title
States that the goods referred therein are
deliverable “to bearer” or “to order” of any
person named in such document.
2. Non-Negotiable Document of Title
A document which does not state that the
goods referred to therein are deliverable
either to bearer or to the order of any person
named therein.
3. Effects of Errors on Document of Title
Clerical errors do not destroy the negotiability
of a warehouse receipt.
4. Effects of the Use of “Non-negotiable” Terms on
Negotiable Documents of Title
Document is still negotiable.
Negotiation of Negotiable Documents of Title
1. Who can negotiate?
(a) The owner
(b) The person to whom the possession or
custody of the document has been entrusted
by the owner if:
• By the terms, the bailee undertakes to
deliver the goods to the order of the
person entrusted with the document,
or
• If at the time of such entrusting, the
document is bearer form.
2. How Negotiation Properly Affected
1. By delivery alone in the following cases:
• The issuer of the document
undertakes to deliver the goods “to
bearer”
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 • Even if document was issued “to the
order” of a specified person, such
person or subsequent endorsee
endorsed it in blank or “to the bearer”
Note: In either case, any holder may
endorse the document to HIMSELF or TO
ANY SPECIFIED PERSON. In such case, the
same shall be nefotiated only by the
endorsement of such endorsee.
2. By endorsement AND delivery
If it is by endorsement, it must be coupled with
delivery. It may be in blank, to bearer or to a
specified person. If made to a specified person,
he may endorse it again in blank, to bearer or
to another specified person.
3. Effects of Proper Negotiation
A person to whom a negotiable document of title has
been duly negotiated ACQUIRES thereby: (N-O-OB)
1. Such title to the goods as the person
negotiating the document to him had or had
ability to convey
2. Such title to the goods as the person to
whose order the goods were delivered had or
had ability to convey
3. Direct obligation of the bailee issuing the
document to hold possession of the goods for
him according to the terms of the document as
fully as if such bailee had contracted directly
with him.
Legal effects of proper negotiation
The assurance to the buying or negotiating public of
the protective mantle that the law places upon their
faith in accepting a negotiable document of title as a
medium to transact on the goods covered thereby. The
result is that by dealing with the negotiable document
of title it is as though the parties to the sale were
dealing directly with the goods covered thereby.
4. Effects of Merely Transferring/Delivering of
Order Negotiable Documents of Title
When document of title is not properly negotiated:
1. When not in the proper form
Transferee would thereby own the document
of title
2. When transferred but not properly negotiated
Transferee acquires thereby as against the
transferor, the title to the goods; meaning as
between the transferor and the transferee, the
goods are owned by the transferee, but not as
to the rest of the world, including the bailee
3. Where a negotiable document of title is transferred
for value, and the endorsement of the transferor is
essential for negotiation,
The transferee acquires a right against the
transferor to compel him to endorse the
document unless a contrary intention appears.
In such case, negotiation shall take effect as of
the time when the endorsement is actually
made. (Prospective effect)
5. Effects and Consequences of Unauthorized
Negotiation
GR: Only the owner of the document of title or his
assignee can negotiate the same, otherwise validity
will be impaired
XPNS: (B-I-H)
1. BREACH OF DUTY- That the negotiation
was a breach of the duty on the part of the
person making the negotiation
2. ILLEGAL DEPRIVATION- That the owner of
the document was deprived of the possession
of the same by loss, accident, fraud, mistake,
theft, duress, or conversion.
3. HOLDER IN DUE COURSE- The person to
whom the document was negotiated paid
value therefore in good faith and without
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 notice of the breach, in this case the person is
a assignee and the bailee until the latter is informed by
Notes: The legal consequences as to the effects of
unauthorized negotiation thereof would also pertain
to the goods that it describes
The only real defese that can validly be raised
against the holder in due course of a negotiable
document of title would be FORGERY of the
endorsement of the owner when such endorsement is
necessary to effect proper negotiation.
Case: Siy Long Bieng vs HSBC (1932)
As between the owner of a negotiable document of
title who endorsed it in blank and entrusted it to a
friend, and the holder of such negotiable document of
title to whom it was negotiated and who received it in
good faith and for value, the latter is preferred, under
the principle that as between two innocent persons, he
who made the loss possible should bear the loss.
Assignment of Non-Negotiable Documents of Title
1. How Assignment Made
When it is a non-negotiable document: (A-
NA-D)
• Cannot be negotiated, only assigned
- Must be in a public document
• Endorsement of such gives the transferee
no additional right
• May be transferred by the holder by
delivery to a purchaser or done
2. Effect of Transfer by Assignment: (DO-N-T)
• Title to the goods (subj. to the terms of any
agreement with the transferor)
• Right to notify the bailee who issued the
document of the transfer thereof.
• Acquire the direct obligation of such bailee
to hold possession of the goods for him to
the terms of the document.
Note: There is no legal relationship between the
the former of the assignment.
Warranties on Negotiation and Assignment of
Documents of Title
GR: The person who negotiates a document of title
must warrant that: (M-K-T-N-G)
1. Document is genuine
2. He has legal right to negotiate or transfer it
3. He has no knowledge of any fact which
would impair the validity or worth of the
document
4. He has a right to transfer the title to the
goods
5. The goods are merchantable or fit for a
particular purpose
XPN:
There is a contrary intention.
Note: The warranties are the same whether document
is negotiable or non-negotiable.
Additional warranties to be made by seller who assigns
the document:
1. Existence and legality of the document
XPN: It has been sold as doubtful
2. Solvency of the debtor
GR: There is no need to warrant the solvency
of the debtor (i.e. bailee)
XPN:
1. It has been so expressly stipulated, or
2. The insolvency was prior to the sale
and of common knowledge.
Effects When Owner of the Documents of Title Has
No Legal Title to the Goods
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1. When goods covered by non-negotiable document
Situation 1: Where the owner has neither lost
nor been unlawfully deprived of the goods
Preferred: The assignee-buyer’s title.
Why: Granted directly under Art. 559: doctrine
of irreinvindicability.
Situation 2: Where the owner has been lost or
unlawfully deprived of the goods
Preferred: Owner.
Why: Art. 559 expressly does not give to the
assignee buyer any original title, and in such
cases, the title of the assignee-buyer is derived
from that of the assignor-seller’s. He may
recover from the assignee-buyer the goods
even when the latter was in good faith and
bought for value.
2. When goods covered by negotiable document
By issuing such negotiable document the
bailee has constituted himself as an agent to
possess the goods for the benefit of the holder
of the document as his principal.
Rules on Art. 559 applies.
Situation 1: Where the owner has neither lost
nor been unlawfully deprived of the goods
Preferred: The assignee-buyer’s title.
Why: The holder-buyer ACQUIRES valid
ownership of such goods because of his
possession in good faith and for value, which
by itself would constitute as an original source
or ownership under Art. 559, is clearly
evidenced by his being a holder in due course
of the negotiable document of title
Situation 2: Where the owner has been lost or
unlawfully deprived of the goods
Preferred: Owner.
Why: As a holder in due course, under Article
1513 of the Civil Code, the buyer takes only
such title to the goods as “the person
negotiating the document to him had or had
ability to convey,” as well as “such title to the
goods as the person to whose order the goods
were to be delivered by the terms of the
document,” and since both those
predecessors-in-interest had no title, or had
void titles, to the goods, the holder-buyer also
has no title thereto; Nemo dat quod non habet
Holder-Buyer has action for breach of
warranties. Remedy of buyer-holder is run
after the transferor of the negotiable
document of title.
Rules on Levy/Garnishment of Goods
Covered By Documents of Title
1. When Non-negotiable Document of Title
Prior to notification of the assignee to the
bailee, the title of the transferee to the goods
and the right to acquire the obligation of such
bailee may be defeated by the levy of an
attachment, or by notification of a subsequent
sale of goods by the transferor.
It is the notification of the bailee of the
assignment that is the operative act that will
transfer title and/or possession of the goods in
favor of the transferee-assignee.
2. When Negotiable Document of Title
GR: Such goods CANNOT thereafter be
attached by garnishment or otherwise or be
levied under an execution
XPN:
1. The document be first surrendered
to the bailee, or
2. Its negotiation enjoined
The goods are treated inseparable from the
negotiable document of title covering them,
and vice-versa.
Page 11 of 58
 CHAPTER 8: SALE BY A NON-OWNER OR BY
ONE HAVING VOIDABLE TITLE
THE LIFE OF A CONTRACT OF SALE
PHILOSOPHICAL DISCUSSIONS ON STAGES IN “LIFE
OF SALE”
Two formal stages:
Perfection (point in time): Upon the meeting of the
minds of the parties as to the subject matter to be
delivered and the price to be paid; very essence or
birth
Consummation (period or process): When the
obligations that arise from the legal existence of the
sale are to be performed; performance or manner the
sale leads out its life
Breach: when any party does not comply with what is
incumbent upon him under the contract.
• Party not at fault may ask for rescission or
resolution of the sale.
• Pertains to the consummation stage.
WHEN SELLER IS NOT THE OWNER OF THE SUBJECT
MATTER
1. At Perfection
Ownership of the subject matter by the seller
at the time of perfection is NOT an essential
requirement for the validity of the sale.
Note: This truism is bolstered by the fact that
the law on estoppel provides that “when the
person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or
grantor acquires title thereto, such title passes
by operation of law to the buyer or grantee.”
2. At Consummation
Article 1505
“Where goods are sold by a person who is not
the owner thereof, and who does not sell them
under authority or with the consent of the
owner, the buyer acquires no better title to the
goods than the seller had.”
The article does not say that the sale of goods
by a non-owner renders the contract void; it is
merely rescissible for breach, with
damages.
3. Sale by Co-owners
GENERAL RULE: The rule in co-ownership is that
none of the co-owners may claim any right, title or
interest to a particular portion of the thing owned
in common. A co-owner has no right to sell a divided
part of the real estate; although he is the owner of an
undivided half of a tract of land, he has a right to sell
and convey an undivided half, but he has no right to
divide the lot into two parts, and convey the whole of
one part by metes and bounds.
When a co-owner sells a particular portion of the
property owned in common, the early rule was that
the sale is VOID as it attempts to sell a particular
portion of the property, but is VALID as to the
spiritual share of the co-owner-seller.
EXCEPTIONS to Rule on Effect of Sale of Definite
Portion by Co-owner
GR: The sale of the entire property owned in common
by one of the co-owners, to be VOID as asale of the
whole property or any definite portion thereof (i.e., to
validly effect transfer of ownership), BUT VALID as to
the co-owner-seller’s spiritual share
XPN: (R-I-C-T)
1. SUBJECT-MATTER INDIVISIBLE BY INTENT- where
the subject matter is indivisible in nature or by intent.
2. WITH CONSENT OF THE OTHER CO-OWNERS-
when a sale of a particular portion of the thing owned
in common is with the consent of the other co-owners,
the legal effect is different
Page 12 of 58
3. IPSO JURE TRANSFER WHEN SELLER LATER
ACQUIRES OWNERSHIP (BASED ON ESTOPPEL)- ipso
jure transfer of ownership under Article 1434 of the
Civil Code.
4. BINDING EFFECT OF REGISTRATION UNDER
TORRENS SYSTEM

Exceptions to the Rules on Legal Effects Of Sale By

Non-Owner

GR: Where goods are sold by a person who is not the

owner thereof, and who does not sell them under
authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had

XPN: (E-T-F-M-V-G-R)

1. ESTOPPEL- When the owner is, by his conduct,

precluded from denying the seller’s authority to sell;

2. TORRENS SYSTEM- When the contrary is provided

for in recording laws;

3. FORCED SALES- When the sale is made under

statutory power of sale or under the order of a court
of competent jurisdiction; and

4. MERCHANT STORES- When the sale is made in a

merchant’s store in accordance with the Code of
Commerce and special laws.

5. VOIDABLE TITLE- Under Article 1506, the sale by

a seller who at the time of delivery had voidable title
to the thing delivered;

6. POSSESSOR IN GOOD FAITH- In case of movables,

under Article 559, acquisition of possession in good
faith under a claim of ownership, where the real
owner has not lost or been unlawfully deprived of the
movable, makes the possessor the rightful owner of
the movable; and

7. REMEDY OF UNPAID SELLER TO RESELL- Special

rights of an unpaid seller of goods to resell under
Articles 1526
and 1533 of the Civil Code.

Page 13 of 58
 CHAPTER 9: LOSS AND DETERIORATION, longer in the It is not delivery
FRUITS AND OTHER BENEFITS. same condition. that transfers
ownership but
the perfection of
The discussions only cover sales where the subject
an
matter is determinate or specific
unconditional
The provisions of the title on Sales of the New Civil sale with
Code is patterned from the Uniform Sales Law availability of
of the United States the subject
matter for
delivery.
Roman Law Common Law
At the time of perfection At the time of perfection
The risk of loss, The risk of loss, Note: In amending the provisions relating to the risk
deterioration deterioration of LOSS, it should be the OWNER that should bear the
and benefits of and benefits of risk of LOSS; but ownership may only be transferred
fruits and fruits and by delivery.
improvements improvements
on a on a BEFORE PERFECTION
determinate determinate The rules on loss, deterioaration, fruits and
subject matter subject matter
improvement of the purported subject matter shall
passes to the passes to the
pertain to the seller since he owns the thing.
buyer without buyer without
the need of the need of There is no equitable relationship to the purported
delivery delivery buyer.
provided that provided that
the sale is the sale is Civil law concept of risk of loss was exemplified in the
unconditional. unconditional. case of Roman vs. Grimalt.

After the perfection but After the perfection but AT THE TIME OF PERFECTION
before delivery before delivery Art. 1493:
The It is the owner
consequences of who bears the If at the time the sale is perfected, the subject matter
deterioration of risk of loss, in has been ENTIRELY lost, the contract shall be “without
the subject the absence of any effect” (same effect as if it was void. Tolentino).
matter without ant stipulation
the fault of the to the contrary. If the thing should have been lost IN PART, the buyer
seller shall may choose between:
likewise be Ownership is
1. Withdrawing from the contract and, (the buyer
borne by the transferred to
buyer. the buyer the treats the sale as avoided)
moment the 2. Demanding the remaining part, paying its price in
He must still pay contract is proportion to the total sum agreed upon. (the buyer
the price agreed entered into and
treats the sale as valid in so much thereof as have not
upon even when the goods are
deteriorated, and if the sale is divisible)
eventually the made available
subject matter for delivery. NOTE: Art. 1493 does not hold a sale at “perfection” to
delivered is no be void when the object is lost. It is without effect.
Tolentino decrees that the contract never comes into

Page 14 of 58
existence, therefore it has the same effect as if it was
VOID.
AFTER PERFECTION BUT BEFORE DELIVERY
The rule on loss differs from the rules on fruits,
deterioration, fruits and improvements with respect
to the same object sold.
1. Loss of the subject matter
The NCC has retained the Roman Law rule that
ownership is transferred only by delivery but has
adopted the Common Law principle of res perit
domino (it is the owner of the thing who bears the
consequences of its loss)
• The principle of res perit domino is embodied
in Art. 1504 which is worded to cover only
“goods”
• When the thing that is to be delivered is a
determinate thing, the buyer in addition to the
right to recover damages, may compel the
seller to make the delivery. The obligation to
deliver a determinate thing shall be
extinguished if it should be lost or destroyed
without the fault of the seller (i.e. fortuitous
event), and before he has incurred delay.
• In case of loss, deterioration or improvement
of the thing before its delivery, the rules in
Article 1189 shall be observed, the vendor
being considered the debtor.
(1) If the thing is lost without the fault
of the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault
of the debtor, he shall be obliged to pay
damages; it is understood that the
thing is lost when it perishes, or goes
out of commerce, or disappears in such
a way that its existence is unknown or
it cannot be recovered;
Different interpretations of Art. 1189 and 1262
Paras: The obligation of the seller to deliver is
extinguished, but the obligation of the buyer to pay is
not extinguished. Why? There is lack of reciprocity.
Padilla: Agrees with Paras. The buyer assumes the
risk of loss from the time of perfection up to the time
of delivery.
Tolentino: Believes that in reciprocal obligations, the
extinguishment of the obligation due to loss of the
thing “affects bot debtor and creditor; the entire
juridical relation is extinguished.” Debtor must return
to the creditor whatever the latter may have already
delivered “He who gives nothing has no reason to
demand anything”
Baviera: Agrees with Tolentino. The loss of the thing
would be for the account of the seller, while the
deterioration and improvement would be for the
account of the buyer.
Jurado: Agrees with Tolentino, believing that this is in
line with res perit domino principle.
CLV: obviously sides with Tolentino. Seller will bear
risk of loss from the time of perfection up to before
delivery but he would no longer be liable for damages
if the thing is lost through fortuitous event. If lost
through the fault of seller, the buyer need not pay the
price but can recover damages for breach of contract.
If it were to be understood that way, it will reconcile
with Art. 1504 which states that: THE GOODS REMAIN
AT THE SELLER'S RISK until the ownership therein is
transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or
not, except that:
a. Where delivery of the goods has been
made to the buyer or to a bailee for the
buyer, in pursuance of the contract
and the ownership in the goods has
been retained by the seller merely to
secure performance by the buyer of his
obligations under the contract, the
goods are at the buyer's risk from the
time of such delivery;
b. Where actual delivery has been
delayed through the fault of either the
Page 15 of 58
 buyer or seller the goods are at the risk
of the party in fault. (n)
What are “goods”
• Includes all chattels personal and growing
fruits or crops but not things in action or
money of legal tender.
SUMMARY:
The general rule on the Law of Sales is that from
perfection but before delivery, the risk of loss is borne
by the buyer except when the subject matter is
“goods”, in which case the risk of loss is borne by the
seller.
Art. 1504 is the best evidence that the NCC adheres to
the res perit domino principle.
2. Deterioration, Fruits and Improvements
At the time of perfection, res perit domino
does not apply.
In case of deterioration of the thing before
delivery, Art. 1189 governs:
(a) If the thing is lost without the fault of
the debtor, the obligation shall be
extinguished;
(b) If the thing is lost through the fault of
the debtor, he shall be obliged to pay
damages; it is understood that the
thing is lost when it perishes, or goes
out of commerce, or disappears in such
a way that its existence is unknown or
it cannot be recovered;
(c) When the thing deteriorates without
the fault of the debtor, the impairment
is to be borne by the creditor;
(d) 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;
(e) If the thing is improved by its nature,
or by time, the improvement shall
inure to the benefit of the creditor;
(f) If it is improved at the expense of the
debtor, he shall have no other right
than that granted to the usufructuary.
(1122)
In case deterioration from the moment of
perfection but before of delivery, Art. 1163 to
1165 and 1262 shall govern.
AFTER DELIVERY
Art. 1504:
The goods remain at the seller's risk until the
ownership therein is transferred to the buyer, but
WHEN THE OWNERSHIP THEREIN IS TRANSFERRED
TO THE BUYER THE GOODS ARE AT THE BUYER'S
RISK WHETHER ACTUAL DELIVERY HAS BEEN MADE
OR NOT, except that:
a. Where delivery of the goods has been made to
the buyer or to a bailee for the buyer, in
pursuance of the contract and the ownership
in the goods has been retained by the seller
merely to secure performance by the buyer of
his obligations under the contract, the goods
are at the buyer's risk from the time of such
delivery;
b. Where actual delivery has been delayed
through the fault of either the buyer or seller
the goods are at the risk of the party in fault.
(n)
In Lawyer’s Cooperative vs. Tabora, the ownership of
the books were retained by the seller although they
have already been delivered to the buyer and
ownership will be transferred upon payment of full
price. When the books were lost in a fire, the loss was
held to be borne by the buyer because there was a
stipulation to that effect. Defense of force majeur does
not apply because since he is the buyer, his obligation
does not pertain to the delivery of the goods but to the
Page 16 of 58
payment of the price (i.e. money or legal tender) which
is never lost through fortuitous event.
STRUCTURING A CLEARER DOCTRINE ON
LOSS, DETERIORATION, FRUITS AND
IMPROVEMENTS
Prevailing doctrine will depend on the issue of title
pursuant to res perit domino and beneficial interest
to the property.
Prior to perfection
Both title and beneficial interest pertain to
the seller and therefore he must bear the risk
of loss, deterioration, and benefits from the
fruits and improvements.
After delivery
Delivery effectively transfers title and
beneficial interest to the buyer and buyer
bears both the risk of loss and deterioration,
as well as benefits from the fruits and
improvements
After perfection and before delivery
Title remains with the seller, beneficial
interest pertains to the buyer.
Obligations of the obligor in an obligations to deliver
a determinate thing:
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
Art. 1164. The creditor has a right to the fruits
of the thing from the time the obligation to
deliver it arises.
Art. 1165. When what is to be delivered is a
determinate thing, the obligor incurs fraud,
negligence, or delay, and those who in any
manner contravene the tenor thereof, are
liable for damages.
Art. 1166. The obligation to give a determinate
thing includes that of delivering all its
accessions and accessories, even though they
may not have been mentioned. (1097a)
Note: Seller is the formal owner, buyer is the
beneficial owner. Res perit domino will not
apply.
Q: If title and beneficial interest pertain to
different persons, who shall bear loss,
deterioration, benefit from the fruits and
improvements?
A: Look to the common law system
The person who should bear the risk of
loss should be the party who had
greater stake on the subject matter at
the point of loss, deterioration or
improvement.
Art. 1189
Where there is an existing obligation
to deliver a determinate thing, since
the accompanying obligations of the
obligor shows that he possesses the
goods for the benefit of the buyer,
buyer must bear the risk of
deterioration.
Art. 1504
Title does not determine who bears
risk because such title was merely
nominal.
Page 17 of 58
 CHAPTER 10: REMEDIES OF PARTIES
GR: Caveat emptor (“Let the buyer beware”)
- main rule in sale in the realm of performance
- required the buyer to be aware of the supposed title
of the seller to the subject matter; and that a buyer
who buys without checking the seller’s title takes all
the risks and losses consequent to such failure.
XPN: The principles embodied in our Torrens system
wherein a buyer need only rely upon the title of a
registered land and has no obligation to look beyond
such title.
Erquiaga v. Court of Appeals
- “A basic premise of the doctrine of ‘Let the buyer
beware’ is that there be no false representation by the
seller. The ancient defense of caveat emptor belongs
to a bygone age and has no place in contemporary
business ethics.”
REMEDIES IN CASES OF MOVABLES
A. ORDINARY REMEDIES OF SELLER
1. Movables in General
• in case the buyer should not have
appeared to receive the movable, or,
having appeared, he should not have
tendered the price at the same time,
unless a longer period has been stipulated
for its payment, the seller may maintain
an action to rescind the sale.
2. Sale of Goods
a. Non-Payment of Price by Buyer
• Ownership Transferred to Buyer
- the seller may maintain an action
against the buyer for the price of
the goods, i.e., an action for specific
performance.
• No Transfer of Ownership to Buyer
- if the buyer refuses to receive the
good, the goods are then held by
the seller as bailee for the buyer;
- the seller may treat the goods as
the buyer’s and may maintain an
action for the price
• When Price Payable on Certain Day
- when the buyer wrongfully neglects or
refuses to pay the price, the seller may
maintain an action for the price although
the ownership in the goods has not passed
b. When Buyer Wrongfully Neglects/
Refuses to Accept Goods
- the seller may maintain an action against him
for damages for non-acceptance, in
accordance with the following rules:
(a) Damages shall cover the estimated loss
directly and naturally resulting in the
ordinary course of events from the buyer’s
breach of contract;
(b) Where there is an available market for the
goods in question, the measure of
damages is the difference between the
contract price and market or current price
at the time when the goods ought to have
been accepted, or, if no time, then at the
time of the refusal to accept;
(c) If the buyer repudiates the contract or
notifies the seller to proceed no further,
buyer shall be liable for labor performed
or expenses of material; and
(d) The profits the seller would have made if
the contract or the sale had been fully
performed shall be considered in
awarding damages.
B. SPECIAL REMEDIES OF “UNPAID SELLER”
OF GOODS
Page 18 of 58
 - The provisions of CC empower individuals
with remedies “to take matters into their own
hands” when the circumstances warrant the
same, provided it does not involve physical
intrusion into the person or privacy of the
buyer in default.
- The remedies of an unpaid seller are similar to
the “doctrine of self-help”
- the minimum requirement is that the goods
are in the possession of the seller so as to
prevent an actual physical tussle with the
buyer in the exercise of such remedies.
1. Definition of “Unpaid Seller” (Article 1525)
(a) When the whole of the price has not been paid
or tendered; or
(b) When a bill of exchange or other negotiable
instrument has been received as conditional
payment, and the condition on which it was
received has been broken by reason of the
dishonor of the instrument, the insolvency of
the buyer, or otherwise.
2. Rights of Unpaid Seller
(a) Possessory lien;
(b) Stoppage in transitu;
(c) Special right of resale; and
(d) Special right to rescind.
➢ The four (4) remedies have a hierarchical
application
3. Possessory Lien
GR: when it comes to movables, the seller is not bound
to deliver the thing sold, if the buyer has not paid him
the price, or if no period for the payment has been
fixed in the contract
XPN: in the absence of stipulation to the contrary
➢ the unpaid seller still has a lien on the goods or
right to retain them for the price while he is in
possession of them.
The possessory lien of the unpaid seller is
exerciseable only in the following:
(a) Where the goods have been sold without
any stipulation as to credit;
(b) Where the goods have been sold on credit,
but the term of credit has expired;
(c) Where the buyer becomes insolvent.
a. When Negotiable Document of Title Issued
• no seller’s lien shall defeat the right of any
purchaser for value and in good faith to
whom such document has been negotiated.
b. When Part Delivery Effected
• unpaid seller may exercise his right of lien on
the remainder, unless such circumstances
show an intent to waive the lien or right of
retention.
c. Instances When Possessory Lien Lost
(a) Seller delivers the goods to a carrier or
other bailee for the purpose of transmission to
buyer without reserving the ownership in the
goods or the right to the possession thereof
(b) The buyer or his agent lawfully obtains
possession of the goods;
(c) By waiver.
Note: the unpaid seller losses his possessory lien, when
he parts with physical possession of the goods, as when
he delivers the goods to the carrier.
He still has the remedy of stoppage in transitu, but only
if the buyer has in the meantime become insolvent.
4. Stoppage in Transitu
➢ the unpaid seller of goods has, in case of the
insolvency of the buyer, a right of stopping the
goods in transitu after he has parted with the
possession of them
➢ this right is not affected by any sale or other
disposition of the goods which the buyer may have
made, unless the seller assented thereto
Page 19 of 58
a. When Negotiable Document of Title
Issued
• no seller’s right to stoppage in transitu
shall defeat the right of any purchaser
for value and in good faith to whom
such document has been negotiated
b. When Buyer Is Deemed “Insolvent”
• when he either has ceased to pay his
debts in the ordinary course of business
or cannot pay his debts as they become
due, whether insolvency proceedings
have been commenced or not
c. When Goods Are Deemed “In Transit”
(a) From the time they are delivered to
a carrier by land, water, or air, or other
bailee for the purpose of transmission
to the buyer, until the buyer, or his
agent in that behalf, takes delivery of
them from such carrier or other bailee;
or
(b) If the goods are rejected by the
buyer, and the carrier or other bailee
continues in possession of them, even
if the seller has refused to receive them
back
d. When Goods Are Deemed No Longer In
Transit
(a) The buyer or his agent obtains
delivery of the goods before their
arrival at the appointed destination;
(b) After the arrival of the goods at the
appointed destination, the carrier or
other bailee acknowledges to the
buyer or his agent that he holds the
goods on his behalf and continues in
possession of them as bailee for the
buyer or his agent (and it is immaterial
that further destination for the goods
may have been indicated by the
buyer);
(c) The carrier or other bailee
wrongfully refuses to deliver the
goods to the buyer or his agent
NOTE: If the goods are delivered to a ship,
freight train, truck, or airplane chartered by
the buyer, it depends on the circumstances of
the particular case, whether they are in the
possession of the carrier or as agent of the
buyer
e. When Part Delivery Already Made
• the remainder of the goods may be
stopped in transitu, unless such part
delivery shows an agreement with the
buyer to give up possession of the whole
of the goods
f. How Right of Stoppage in transitu Is
Exercised
(a) Obtaining actual possession of the
goods; or
(b) Giving notice of his claim to the carrier
or other bailee in whose possession the
goods are.
g. When Goods Covered by Negotiable
Document of Title
• the carrier or other bailee shall not be
obliged to deliver or justified in
delivering the goods to the unpaid seller
unless such document is first
surrendered for cancellation.
5. Special Right to Resell Goods
a. When Right Exercisable
• when the unpaid seller has previously
exercised either his right of possessory
lien or stoppage in transitu, and under
any of the following conditions:
(a) goods are of perishable nature;
(b) seller has expressly reserved in
case the buyer should make default; or
Page 20 of 58
 ➢ buyer has been in default in the
payment of the price for an
unreasonable time.
b. Effect of Having Exercised Right of Resale
• the unpaid seller shall not be liable to the
original buyer upon the sale or for any profit
made by such resale, but may recover from the
buyer damages for any loss occasioned by the
breach of the sale
c. Transfer of Ownership
• Where a resale is made by the unpaid seller, the
buyer acquires a good title as against the
original buyer.
Special feature of the right of the unpaid
seller to resell:
- not only is he able to destroy or obliterate the
ownership over the goods in the original
buyer, he is also able to transfer ownership to
the subsequent buyer, even if at the time of
tradition, he no longer had ownership over the
goods.
d. Notice to Defaulting Buyer
GR: not essential that notice of an intention to resell
the goods be given to the original buyer.
XPN: where the right to resell is not based on the
perishable nature of the goods or upon an express
provision of the sale.
e. Standard of Care and Disqualification in Resale
➢ seller is bound to exercise reasonable care and
judgment in making a resale,
➢ seller may make a resale either by public or
private sale but cannot directly or indirectly
buy the goods
6. Special Right to Rescind
a. When Right May Be Exercised
(a) seller has expressly reserved the right in
case the buyer should make default; or
(b) buyer has been in default in the payment
of the price for an unreasonable time.
b. Effect of Exercise of Such Right
➢ seller shall not be liable to the buyer upon the
sale, but may recover from the buyer damages
for any loss
c. Transfer of Title
➢ shall not be rescinded until unpaid seller has
manifested by notice to the buyer or by some
other overt act an intention to rescind.
C. REMEDIES OF BUYER
1. Failure of Seller to Deliver
➢ buyer may seek action for specific
performance.
2. Breach of Seller’s Warranty
➢ the buyer may, at his election, avail of the
following remedies (Article 1599):
(a) Accept or keep the goods and set up against
the seller, the breach of warranty by way of
recoupment in diminution or extinction of the
price;
(b) Accept or keep the goods and maintain an
action against the seller for damages for the
breach of warranty;
(c) Refuse to accept the goods, and maintain an
action against the seller for damages for
breach of warranty;
(d) Rescind the sale and refuse to receive the
goods or if the goods have already been
received, return them or offer to return them
to the seller and recover the price or any part
thereof which has been paid.
NOTE: When the buyer has claimed and been
granted a remedy in any of these ways, no
other remedy can thereafter be granted,
Page 21 of 58
3. Suspension of Payments in Anticipation of
Breach
GR: the buyer may suspend the payment of the price
until the seller has caused the disturbance or danger
to cease
XPN: when seller gives security for the return of the
price in a proper case, or it has been stipulated.
a. Remedy of Buyer for Pending Suit
➢ justifies the buyer in suspending payment of the
balance of the purchase price by reason of the
vindicatory action filed against it.
D. RECTO LAW: SALES OF MOVABLES ON
INSTALLMENTS
1. Coverage of Law
Article 1484 in a sale of personal property
payable in installments, the seller may exercise any of
the following remedies:
(a) Exact fulfillment of the obligation,
should the buyer fail to pay any installment;
(b) Rescind the sale, should the buyer’s
failure to pay cover two or more installments;
(c) Foreclose the chattel mortgage on the
thing sold, if one has been constituted, should
the buyer’s failure to pay cover two or more
installments.
a. Rationale of Recto Law
➢ meant to remedy the abuses committed in
connection with the foreclosure of chattel
mortgages
➢ to prevent mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low
price and then suing the mortgagor for a deficiency
judgment.
➢ “aims to correct a social and economic evil,
b. When Is Sale “on Installments?”
➢ At least two (2) stipulated payments in the
future, whether or not there is a
downpayment. (Levy Hermanos, Inc. v.
Gervacio)
“Straight sale” – a sale where there is an
initial payment, and the balance payable in the
future,
c. Loans and Financing Transactions
➢ provisions of the Recto Law are applicable to
financing transactions derived or arising from
sales of movables on installments, even if the
underlying contract at issue is a loan.
d. Contracts to Sell Movables Not Covered
➢ the rules on rescission and substantial breach
are not applicable
Reason: since when the suspensive condition fails to
materialize, it would extinguish the contract,
and consequently there is no contract to
rescind.
➢ Article 1597 would apply which would grant
the seller the right to “rescind” the contract “by
giving notice of his election so to do to the
buyer.
2. Remedies Provided Under Article 1484
a. Nature of Remedies
➢ Should the buyer of a personal property default
in the payment of two or more of the agreed
installments, the vendor or seller has the option
to avail of any of these three remedies:
(a) Exact fulfillment by the purchaser of the
obligation;
(b) Rescind or cancel the sale; or
(c) Foreclose the mortgage on the purchased
personal property, if one was constituted.
NOTE: the remedies are alternative, not cumulative,
and cannot be pursued simultaneous, in that the
exercise of one would bar the exercise of the others
b. Two Groups of Barring Effects of Remedies
(1) on the choice of remedies (vertical);
(2) on the non-recovery of any unpaid balance
when it comes to the remedies of rescission and
foreclosure (horizontal).
Page 22 of 58
There can be no mixing of the effects of the remedies
provided in Article 1484
Rule that in installment sales
• if the action instituted is for specific performance
and the mortgaged property is subsequently
attached and sold, the sale does not amount to a
foreclosure of the mortgage.
3. Remedy of Specific Performance
GR: when the seller has chosen specific performance,
he can no longer seek for rescission nor foreclosure of
the chattel mortgage constituted on the thing sold.
XPN: when it has has become impossible, the seller
may still choose rescission (Article 1191)
4. Remedy of Rescission
➢ when rescission has been chosen, seller is obliged
to make restitution, the return of any amount of
the purchase price that the buyer may have paid.
➢ However, Article 1486 provides that “a stipulation
that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid
insofar as the same may not be unconscionable
under the circumstances.”
o this is not really contrary to the “mutual
restitution” characteristic
o Reason: since it offers a means of
restitution to the obligee for the loss in
value or deterioration of the thing subject
of the sale, or recompense for the lost
opportunity suffered by the seller due to
the default of the buyer.
a. When Rescission Deemed Chosen
➢ when seller has clearly indicated to end the
contract, such as:
o when he sends a notice of rescission, or
o takes possession of the subject matter of
the sale, or
o when he files an action for rescission.
b. Barring Effect of Rescission
➢ The present version of the Recto Law (Article
1484) only provides for a barring on recovery of
balance only when it comes to the remedy of
foreclosure.
➢ when the unpaid seller shall have chosen the
remedy of rescission, then generally he cannot
seek further action on the purchase price against
the buyer
Rescission Foreclosure
seeks to cancel the seeks to pursue and
contract and to waive realize on the purchase
further claim on the price of the sale.
purchase price
5. Foreclosure of Chattel Mortgage Constituted on
Subject Property
a. When Remedy of Foreclosure Deemed Chosen
➢ only at the time of actual sale of the subject
property at public auction pursuant to the
foreclosure proceedings commenced
➢ an action for foreclosure seeks the same
objective as an action for specific
performance: to recover from the buyer the
price agreed upon in the sale.
b. Barring Effect of Foreclosure
The foreclosure and actual sale at public action of
the mortgaged chattel
• shall bar further recovery by the seller of any
balance on the purchaser’s outstanding
obligation not satisfied by the sale.
c. Barring Effect on Other Securities Given for Payment
of Price
➢ in the event the seller-mortgagee first seeks the
enforcement of the additional mortgages,
guarantees or other security arrangement, he
must then be held to have lost by waiver or non-
choice his lien on the chattel mortgage of the
personal property sold by and mortgaged back to
him, although, he may still levy on it.
Page 23 of 58
➢ Thus, the remedy of foreclosing the chattel
mortgage is no longer available, but the barring
effect as to prevent recovery of deficiency
judgment does not come into play since seller
“may still levy on it.
d. Extent of Barring Effect
• the Court held that the words “any unpaid
balance” should be interpreted as having
reference to the deficiency judgment to which the
mortgagee may be entitled (Macondray & Co., Inc.
v. Eustaquio)
• However, current jurisprudence upholds the full
barring effect on recovery.
e. Perverse Buyer-Mortgagor
Exception to the complete barring effect on the
remedy of foreclosure
• when a defaulting buyer-mortgagor refuses to
surrender the chattel to the seller to allow the
latter to be able to proceed with foreclosure, then
the seller, even after actual foreclosure, should be
allowed to recover expenses and attorney’s fees
incurred in trying to obtain possession of the
chattel
Borbon II v. Servicewide Specialist, Inc
• A mere demand to surrender the object will
not amount to a foreclosure, but the
repossession by the vendor-mortgagee
would have the effect of foreclosure.
E. LEASE WITH OPTION TO PURCHASE
➢ When sellers do not wish to enter into conditional
contracts of sale often resorted to lease with
options to purchase
➢ but this would not prevent the transfer of
ownership of the subject matter to the buyer-
lessee upon fulfillment of the condition of the full
payment of the “rents.
a. What Is the Barring Effect on Such Contracts?
➢ a sale of movables on installment, when
structured as a lease with option to purchase is
equivalent to a security arrangement
➢ Thus, it is treated legally as a foreclosure and the
barring effect applicable to foreclosure remedy, is
given application.
REMEDIES IN CASES OF IMMOVABLES
A. REMEDIES OF SELLER
1. Anticipatory Breach
➢ if seller has reasonable grounds to
fear the loss of the immovable
property sold and its price, he may sue
for rescission of the sale.
➢ seller may also sue for rescission, upon
substantial breach by the buyer for
failure to comply with his obligation to
pay the price when due
2. Failure of Buyer to Pay Price
➢ seller is entitled to receive the unpaid
balance of the purchase price, plus
legal interest.
a. Rescission under Article 1592
➢ On failure of the buyer to pay the price,
the seller has the option to rescind the
sale upon judicial or notarial
demand
➢ the Court has tended to interpret
Article 1592 liberally in favor of the
buyer to give him every opportunity
to comply with his obligation and
proceed to take the subject
immovable.
b. Contracts to Sell Not Covered by Article
1592
➢ said article applies only to ordinary
sale transferring ownership
simultaneously with the delivery of
the real property sold
c. Resort to Equitable Resolutions
Page 24 of 58
 ➢ in case of default on the part of the
buyer, all amounts paid in accordance
with the agreement together with the
improvements shall be considered as
rents and as payment for damages
suffered by reason of such breach.
(Legarda Hermanos v. Saldana)
B. REMEDIES OF BUYER
1. Suspension of Payment
GR: the buyer may suspend the payment of the price
until the seller has caused the disturbance or danger
to cease
XPN: when seller gives security for the return of the
price in a proper case, or it has been stipulated.
2. In Case of Subdivision or Condominium Projects
Pres. Decree 957
• no installment payments made by the buyer
in a subdivision or condominium project for
the lot or unit he contracts to buy shall be
forfeited in favor of the owner or developer
when the buyer, after due notice to the owner
or developer desists from further payment
due to the failure of the owner or developer to
develop the subdivision or condominium
project
• grant to the buyer the option to be
reimbursed the total amount paid.
Reason: designed to stem the tide of ‘fraudulent
manipulations perpetrated by unscrupulous
subdivision and condominium sellers free from liens
and encumbrances.
a. Notice Required under Section 23 of P.D. 957
• notice is not required before a demand for
refund can be made as the notice and demand
can be made in the same letter or
communication
b. Retroactive Application of P.D. 957
• P.D. 957 did not expressly provide for
retroactivity in its entirety, yet the same can be
plainly inferred from the unmistakable intent
of the law to protect innocent lot buyers from
scheming subdivision developers.
3. Right to Grace Period Stipulated
• it should be construed as a right, not an
obligation of the debtor
• when unconditionally conferred, the grace
period is effective without further need of
demand
C. MACEDA LAW: SALES OF REAL ESTATE ON
INSTALLMENTS
RA 6552, “Realty Installment Buyer Protection Act”
(also the “Maceda Law”),
• provides for certain protection to
particular buyers of real estate payable on
installments.
• declares as “public policy to protect buyers
of real estate on installment payments
against onerous and oppressive
conditions
• recognizes in conditional sales of all kinds
of real estate, whether industrial,
commercial, or residential, the right of the
seller to cancel the contract upon non-
payment of an installment by the buyer
a. “Role” of Maceda Law
➢ relied as “a policy statement” of the State in
protecting the interests of buyers of
residential real estate on installments
b. Retroactive Application of Law
• depends on a case to case basis
• the Court applied rescission under the
Maceda Law even to contracts entered prior
to its the effectivity (Siska Dev. Corp. v. Office
of the President)
• In People’s Industrial and Commercial Corp.
v. CA, the Court refused to apply retroactively
the terms of the Maceda Law.
1. Transactions Covered
Page 25 of 58
 ➢ primarily residential real estate
➢ “all transactions or contracts involving the sale
or financing of real estate on installment
payments, including residential condominium
apartments
a. Maceda Law Covers Contracts to Sell
➢ rhe employment of the term “cancellation”
indicates that it covers contracts to sell
residential real estate on installments.
➢ the non-fulfillment of condition under a
contract to sell does not take it out of the
Maceda Law
2. Transactions Excluded from Coverage
(a) Sales covering industrial lots;
(b) Sales covering commercial buildings (and
commercial lots by implication); and
(c) Sales to tenants under agrarian reform
laws.
NOTE: the enumeration is NOT exclusive.
3. Rights Granted
a. At Least Two (2) Years Installments
The buyer is entitled to the following rights in case he
defaults in the payments of succeeding installments:
(a) To pay, without additional interest, the
unpaid installments due within the total grace
period earned by him, fixed at the rate of (1)
month grace period for every (1) year of
installment payments;
(b) If the contract is cancelled, the seller shall
refund to the buyer the cash surrender
value of the payments on the property
equivalent to 50% of the total payments made
and, after (5) years of installments, an
additional 5% every year but not to exceed
90% of the total payments made.
(1) Exercise of Grace Period
• can be exercised by buyer only once in
every (5) years of the life of the
contract and its extensions, if any.
• Down payments, deposits or options
on the contract shall be included in the
computation.
(2) How Cancellation of Contract Can Be
Effected
➢ shall take place after thirty (30) days
from receipt by the buyer of:
(1) notice of cancellation or the
demand for rescission of the
contract by a notarial act and
(2) upon full payment of the cash
surrender value to the buyer.
b. Less Than Two (2) Years Installments
Paid
➢ buyer shall still be entitled to a grace
period of sixty (60) days from the date
the installment became due.
➢ If buyer fails to pay the installments
due at expiration of grace period, the
seller may cancel the contract after
thirty (30) days from receipt by the
buyer of the notice of cancellation.
c. Compensation Rule on Amortization
Payments
➢ When the buyer fails to pay any
monthly amortization, he is under
Article 1169 already in default and
liable for the damages stipulated in the
contract.
➢ the default committed by buyer could
be compensated by the interest and
surcharges imposed upon the buyer
under the contract.
d. Formula to Compute the Installment
Mode
➢ include any payment made as
downpayment or reservation fee as
part of the installments made, and
Page 26 of 58
 then to divide them by the stipulated CANCELLATION OF JUDICIAL SALE
mode of payment, i.e., whether it is
monthly, quarterly, semi-annual or
annual. • Where judicial sale is voided without fault of
the purchaser, he is entitled to reimbursement
4. Interpretation of Grace Period and Mode of the purchase money paid by him.
of Cancellation • can only be set aside upon the return to the
buyer of the purchase price with simple
2 grace periods provided in interest, together with all sums paid out by
McLaughlin v. CA him in improvements introduced on the
First grace period Second grace period property, taxes, and other expenses by him
(Statutory grace
period)
provided for by the Period before
Law, a minimum of rescission or
60 days cancellation actually
takes effect
availment of the the buyer is liable
right to update the for and would have
installment to include in his
payments is payments the
without interest stipulated interests
and penalties, even and penalties
if stipulated in the incurred
contract

5. Other Rights Granted to

(a) To sell his rights or assign it to another

person or to reinstate the contract by
updating the account during the grace period
and before actual cancellation of the contract.
The deed of sale assignment shall be done by
notarial act.

(b) To pay in advance any installment or the

full unpaid balance of the purchase price and
have it annotated in the certificate of title
covering the property
6. Effect of Contrary Stipulations

Section 7 Maceda Law

• any stipulation in any contract entered into

contrary to the provisions of the Law, shall be
null and void.

Page 27 of 58
 CHAPTER 11: REMEDIES IN SALES OF RESCISSION RESOLUTION
IMMOVABLES under Article 1381, was applies only to
taken from Article 1291 reciprocal obligations
of the Old Civil Code, such that a breach on the
REMEDY OF RESCISSION (RESOLUTION) which is a subsidiary part of one party
action, not based on a constitutes an implied
➢ ART. 1191 – remedy is principal in nature and party’s breach of resolutory condition
the legal premise of which is sunstantial obligation. which entitles the other
breach of contract party to rescission.

The power to rescind obligations is implied in reciprocal The four-year grants the injured party
ones, in case one of the obligors should not comply with prescriptive period the option to pursue, as
what is incumbent upon him. provided in Article 1389 principal actions, either
The injured party may choose between the fulfillment applies to rescissions a rescission or specific
and the rescission of the obligation, with the payment of under Article 1381. performance of the
damages in either case. He may also seek rescission, obligation, with
even after he has chosen fulfillment, if the latter should . payment of damages in
become impossible. either case.
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 A. WHEN PRINCIPLES OF RESCISSION FOR
accordance with Articles 1385 and 1388 and the RESCISSIBLE CONTRACTS APPLIED TO
Mortgage Law. RESOLUTION OF SALE

➢ ART. 1592 – specific form of rescission for
sales of immovable on installments
In the sale of immovable property, even though it may
have been stipulated that upon failure to pay the price
at the time agreed upon the rescission of the contract
shall of right take place, the vendee may pay, even after
the expiration of the period, as long as no demand for
rescission of the contract has been made upon him
either judicially or by a notarial act. After the demand,
the court may not grant him a new term.
Suria v. Intermediate Appellate Court
• Involved a contract of sale where a mortgage
in favor of the seller was constituted on the
subject matter to secure the payment of the
purchase price.
• When the buyer defaulted, sellers sought to
rescind the contract of sale, instead of
foreclosing the mortgage.
• The Court ruled that the sellers COULD NOT
avail the remedy of rescission under Art. 1191,
since a CONTRACT OF SALE obligates the
seller to transfer ownership of and deliver a
determinate thing to the buyer and the buyer
inturn is obligated to pay a price certain
money, its equivalent, then by the execution of
deed of mortgage, the buyer was deemed to
have fulfilled his end of bargain.
• PAYMENTS ON INSTALLMENT BASIS
SECURED BY THE EXECUTION OF MORTGAGE
TOOK THE PLACE OF A CASH PAYMENT.

Page 28 of 58
 • Relationship is no longer a buyer-seller but a
MORTGAGOR-MORTGAGEE.
B. WHEN RESCISSION SHOULD HAVE BEEN
APPLIED
Uy v. CA
• The court held that the rescission effected by
the buyer was not appropriate remedy since
the seller had delivered and DID NOT commit
any breach of his obligation, and the buyer-
NGA DID NOT suffer any injury by the
performance thereof.
• Cancellation was not a rescission under Art.
1191. It is based on the negation of the cause
arising from the realization that the lands,
which were the object of the sale, were NOT
SUITABLE for housing.
NATURE OF THE REMEDY OF RESCISSION
(RESOLUTION)
Romero v. CA
• Right of rescission of a party to an obligation
under Art. 1191 is predicated on the BREACH
OF FAITH by the other party that violates the
reciprocity between them.
• Failure to comply with an obligation already
extant, and DOES NOT cover the failure of a
condition to render binding that obligation.
A. RESCISSION GENERALLY JUDICIALLY IN
NATURE
• Based on this principle:
“No man may, even w/ valid and lawful cause
of action, take the law into his own hands and
MUST RESORT to the aid of the courts to
enforce his rights.”
(1) When Extrajudicial Rescission Allowed
A seller cannot unilaterally and extrajudicially
rescind a sale where there is no express
stipulation authorizing it; and that unilateral
rescission will not be judicially favored or
allowed if the breach is not substantial and
fundamental to the fulfillment of the
obligation. (Spouses Benito v. Saquitan-Ruiz)
B. WHO MAY DEMAND RESCISSION?
• Injured party
C. RESCISSION MUST BE BASED ON
SUBSTANTIAL BREACH; BUT COURTS HAVE
POWER TO GRANT REPRIEVE
• Injured party himself cannot resolve the
obligation, and requires confirmation of such
remedy by the courts.
D. RESCISSION REQUIRES A POSITIVE ACT
• Since it is possible that he may waive his
rescission and proceed with specific
performance.
When the buyer failed to pay the purchase
price in accordance with the terms of contract,
but the seller did not give notice of rescission,
and the only notice given to the buyer was a
demand to vacate the premises, the Court held
that such written demand did not amount to a
demand for rescission under Art. 1592.
(City if Cebu v. Heirs of Candido Rubi)
E. RESTITUTION AS CONSEQUENCE OF
RESCISSION
• Mutual restitution
(1) When Forfeiture of Payments allowed in
Rescission
In its double purpose of insuring compliance
with the contract and of otherwise measuring
beforehand the damages which may result
from non-compliance, it is not contrary to law,
morals, public order because it was
Page 29 of 58
 voluntarily and knowingly agreed upon. b) Perfection
(Manila Racing Club v. Manila Jockey Club) c) Consummation

CONTRACT TO SELL CONTRACT OF SALE

An agreement between a An agreement between a
buyer and a seller buyer and a seller RULINGS CHARACTERIZING CONTRACTS TO SELL
whereby the seller whereby the seller ➢ Rationale for Parties entering into contracts to
promises to sell agrees to give or deliver sell
something to the buyer something to the buyer
and the buyer promises for a certain price which
to buy it. But generally, the buyer agrees to pay. • To protect the seller against a buyer who
in this kind of contract, In contracts like this, intends to buy the property in installment by
the ownership of the when the buyer pays withholding ownership over the property
subject “thing” is not and the seller delivers, until the buyer effects full payment thereof.
transferred to the buyer the transfer of (Coronel v. CA)
upon the signing of the ownership is also done
contract. There are at the same time. ➢ “On Where” the Suspensive Condition Is
usually conditions to be Pinned determine nature of SALE
complied with by one or
both of the parties. The • Both a conditional contract of sale and a
transfer of ownership
contract to sell are subject to suspensive
will only happen when
condition, which usually takes the form of the
those conditions are
met. full payment of the purchase price by the
buyer. (Gonzales v. Heirs of Thomas and Paula
Cruz)
IMPORTANCE OF PROPER CHARACTERIZATION
OF CONTRACTS TO SELL REQUISITES STIPULATIONS FOR CONTRACTS TO
SELL
• To determine the set of laws that govern such
contracts ➢ Reservation of the ownership pf the subject
matter with the seller, even if there should be
• To determine proper remedies available to
delivery thereof to the buyer;
the contracting parties
➢ Reservation of the right of the seller to rescind
RECENT RULINGS THAT CONSIDER CONTRACTS the contract extrajudicially in the event the
TO SELL NOT COVERED BY THE GENUS SALE suspensive condition (usually the full payment
of the purchase price) does not happen.
➢ Coronel v. CA
• 1st essential element is lacking which is the A. Reservation of ownership by seller
meeting of the minds
➢ Robern Dev. Corp. v. People’s Landless Assn. Manuel v. Rodriguez
• Following elements must concur for a valid
CONTRACT OF SALE CONTRACT TO SELL
sale:
Delivery will Delivery does not
a) Consent
effectively transfer transfer ownership
b) Determinate subject matter ownership of the to the buyer
c) Price certain in money/equivalent subject matter to the
3 stages: buyer

a) Negotiation Seller cannot Non-payment of the

recover ownership purchase price

Page 30 of 58
 by the fact of non- prevents the
payment of the price obligation to sell
without rescinding from arising
the contract through
judicial action Ownership is ISSUE OF SUBSTANTIAL BREACH ISSUE
retained by the RELEVANT ONLY IN CONTRACTS OF SALE
seller without
further remedies. • Because in a contract to sell, substantial
breach has no application since the non-
(1) Agreement as to Deed of Absolute Sale happening of the condition, extinguishes the
• Equivalent to reservation of title in the name contract.
of the seller until the buyer shall have CRUX OF DISTINCTION
completed payment of the price.
CONTRACT OF SALE CONTRACT TO SELL
• Absence of a formal deed of conveyance is a Mere notarial notice of Mere notice of
STRONG INDICATION that the parties did not rescission under Art. cancellation would be
1592 the contract may sufficient.
intend immediate transfer of ownership but
be rescinded.
only a transfer after full payment of the
purchase price. (Chua v. CA) When performance No court action is
stage is reached, court necessary.
• B. Reservation of right to extrajudicially action is necessary to
rescind in even of non-fulfillment of condition rescind a contract of
sale.
•
CONTRACT OF SALE CONTRACT TO SELL
GOVERNING PROVISIONS AND PRINCIPLES FPR
Non-fulfillment of If the suspensive
the condition would condition has not REMEDIES OF RESCISSION AND CANCELLATION
authorize the seller been fulfilled, no ➢ Pre-Maceda Law Period
to rescind the further remedy is
• Art. 1191
contract or waive necessary since ipso
the condition and jure the contract • Art. 1591
seek enforcement of would have already • Art. 1592
the contract in been extinguished
accordance with Art. by non-happening of (a) Remedy of Rescission under Art. 1191 and
1545. the condition. 1592 has no application to Contracts to Sell

If there has been a RULINGS AFTER THE PASSAGE OF MACEDA LAW

previous delivery, A. Maceda Law does not overcome other
although the seller applicable rules to contracts to ell
has by reservation
retained the
The requirement of notice of rescission under
ownership, seller
would still have to Maceda Law does not change the time or mode
seek court action to of performance or impose new conditions
recover possession. regarding the binding effect of the contract.
Such action is
merely a RECOVERY B. The Issue of “Substantial Breach”
OF POSSESSION.

Page 31 of 58
• When it comes to contract to sell involving
residential real estate and condominium units
C. Equity resolution for contracts to sell
• Though Art. 1191 and 1592 have no
application to contracts to sell, the Supreme
Court applied them under principle of equity
D. Formal notice required to cancel contracts to
sell
When there is a stipulation that the seller shall
execute a deed of absolute sle upon
completion of payment of the purchase price
by the buyer, the agreement is a CONTRACT
TO SELL, because it would be equivalent to a
reservation of title clause.
➢ Stipulation on the payment of the price

Minimum procedural rule for the rescission of a Contract to sell: payment of the price is a
contract to sell that at least notice be given by the suspensive condition, failure of which is not a
seller to the buyer, to be EFFECTIVE. breach.
E. Rescission Principles applied to contracts to
sell B. During Consummation Stage
➢ Legal effect of delivery made
Any stipulation in a contract to sell authorizing the
seller to “rescind” in the event the buyer fails to Contract of Sale Contract to Sell
pay in full the purchase price would be a mere Title to the property Ownership is
surplusage. passes to the buyer reserved in the
upon delivery of the seller, and is not to
Note: Even the right to rescind a contract to sell thing sold pass to the buyer
where the ownership has been retained by the until full payment of
seller, would have to be expressly reserved in the the purchase price.
deed in order to be binding.

RECAP OF THE RULINGS ➢ Legal effect of full payment of price

A. At Perfection (a) Delivery of subject matter has been

➢ Requisite Contractual Stipulations previously made = ownership is
transferred ipso jure to the buyer
In a Contract to Sell, there must be a (b) Delivery of subject matter has not been
stipulation that made, it allows the buyer to demand for
specific performance
(a) Full payment of the purchase price by the
buyer constitutes a suspensive condition ➢ Legal effect of non-payment of price
on the obligation of the seller to sell and
transfer ownership of the subject matter
(b) Accompanied by stipulations that Contract of Sale Contract to Sell
ownership of the subject matter shall Non-payment of Where ownership is
remain with the seller until full payment of purchase price is a retained until full
the purchase price and specific right is breach, and when payment, such is a
granted to the seller to extrajudicially substantial in positive suspensive
rescind the contract in case of default nature, would allow condition. Failure of
the seller to rescind which is not a
➢ Stipulation on execution of deed of absolute the sale. breach.
sale

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 C. Remedies Available Art. 1545 allows the COMPLETELY
seller to choose IRRELEVANT.
Contract of Sale Contract to Sell between
Seller cannot No action is RESCISSION or
recover ownership necessary other than WAIVING THE
unless it is resolved recovery of CONDITION.
or rescinded by possession in case
court action buyer refuses to
Note: Requirement of MACEDA Law on grace period,
voluntarily deliver
cash surrender value, must always apply in both
contracts, involving installment sales of residential real
Conditional Contract of Sale
Contract of Sale estate and residential condominium unit.
Non-happening of Non-happening of
condition may be condition prevents
waived by the oblige contract from
who may still seek coming into
specific existence, neither
performance rescission or specific
performance may be
pursued.

Basis of rescission: Issue of breach is

substantial breach irrelevant

Rescission may be Rescission may be

pursued with pursued with
forfeiture of the forfeiture of the
amounts paid when amounts paid when
that has been that has been
expressly provided expressly provided

Note: In Contract to Sell, it becomes imperative that the

amounts paid must be returned and there would be NO
BASIS upon which to retain them. Since there was NO
BREACH upon which a claim of damage may be
interposed.

➢ Laws Applicable

Contract of Sale Contract to Sell

ART. 1191 ART. 1184
ART. 1592 ART. 1545

If there is a The issue of whether

suspensive the breach was
condition: casual or serious
under Art. 1191 is

Page 33 of 58
CHAPTER 12: CONDITIONS AND WARRANTIES CONDITION WARRANTY
CONDITIONS As to t effect May extinguish Breach of the
of non- obligation but contract
Art. 1545 grants two alternative remedies when a fulfilment does not amount
condition is not performed: to breach
As to what if Goes into the root Goes into the
1. Refuse to proceed with the contract affects of the existence of performance and
2. Waive performance of condition the obligation may constitute an
CONDITION IMPOSED IN PERFECTION (perfection) obligation
As to Must be No need for
Non-happening will result in the failure of the stipulation stipulated in stipulation so that
contract (It never existed) requirement order to form it may form part of
CONDITION IMPOSED IN CONSUMMATION part of an an obligation
obligation
Non-happening entitles other party (injured party) As to where it Attaches to Relates to the
to either refuse to proceed with the contract OR attaches/ obligations of subject matter
waive the condition relates either the seller itself or to the
or buyer obligations of the
NOTE: The doctrines and principles applicable to seller as to the
conditions depend on whether it is a modality attached subject matter of
to the obligation or the contract itself. If it is attached to the sale, whether
the contract itself, it depends on whether the condition express or implied
attaches on the validity (perfection) or effectivity
(performance) of the contract.
EXPRESS WARRANTIES
DISTINCTIONS BETWEEN CONDITIONS AND
WARRANTIES Breach of an express warranty makes the seller liable
for damages.
Legal effect
Requisites: (A-I-R)
GR: The non-happening of the condition does not 1. It must be an affirmation of fact, or any promise
amount to a breach of the contract of sale by the seller relating to the subject matter of the
XPN: If the party promised that a condition would be sale.
performed or would happen, the other party may 2. Natural tendency of such affirmation is to
treat non-performance of such as a breach of induce buyer to purchase the thing; and
warranty because: 3. Buyer purchases relying on such
• Such stipulation elevates the condition to a affirmation/promise.
warranty
• And entitle the other party to damages GR: An affirmation of the value of the thing or any
statement purporting to be a statement of the SELLER’S
OPINION ONLY, SHALL NOT BE CONSTRUED AS A
WARRANTY
When ownership has not passed:
Buyer may treat the fulfilment of the seller’s XPN: The seller made such affirmation of statement as
obligation under the contract as a condition for his an expert and it was relied upon by the buyer.
obligation to accept and pay.
NOTE:
• The decisive test is whether the seller asserts a fact
of which the buyer is ignorant of.

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• Law allows considerable latitude to seller’s
statement therefore, caveat emptor applies because
“a man who relies upon such affirmation made by a
person whose interest might so readily prompt him
to exaggerate the value of his property does so at
his own peril, and must take the consequences of
his own prudence.”
IMPLIED WARRANTIES
Those which by law constitute part of every contract of
sale, whether or not the parties were aware of them,
and whether the parties intended them.
GR: It is the seller eho is bound by the implied
warranties of law
XPN: Agent of the seller may bind himself to such
warranties by express contractual relation.
1. WARRANTY THAT SELLER HAS RIGHT TO SELL
GR: The implied warranty that seller has the right to
sell the thing at the time the ownership is to pass.
XPN: Contrary intention appears
This warranty refers only to the transfer of
ownership at the point of consummation, NOT any
representation as to ownership at the point of
perfection.
It shall not be applicable to render liable a sheriff,
auctioneer, mortgagee, pledgee or any other person
professing to sell by virtue of authority in fact or
law, for the sale of a thing in which a third person
has a legal/equitable interest
GR: The warranty that the seller has the capacity to sell
is the essence of the sale therefore; there can be no legal
waiver of this warranty without changing basic nature
of the relationship.
XPN: Unless it amounts to clear assumption of risk on
the part of the buyer.
2. WARRANTY AGAINST EVICTION
GR: The implied warranty that when ownership will
pass, buyer shall have legal and peaceful possession.
XPN: Contrary intention appears
a. When There is Breach of Warranty Against
Eviction (DE-R-F-S)
1. Purchaser has been deprived of/evicted from the
whole or part of the thing sold;
• The buyer need not resist to the fullest the
eviction taken against him since the warranty is
a covenant on the part of the seller.
• The only condition to be complied with by the
buyer is to give notice of the complaint.
2. Eviction is by final judgment;
• The warranty cannot be enforced until a final
judgment has been rendered whereby the
buyer loses the thing acquired or a part thereof.
• The buyer need not appeal from the decision in
order that the seller may become liable for
eviction.
3. Basis thereof is a right prior to the sale made by the
seller; and
4. Seller has been summoned and made co-defendant
in the suit for eviction at the instance of the buyer.
• In order to constitute notice of eviction to the
seller, the seller must have been made a party to
the case.
b. Eviction in part
Should the vendee lose, by reason of the eviction, a
part of the thing sold of such importance, in relation
to the whole, that he would not have bought it
without said part, he may demand the rescission
of the contract; but with the obligation to return
the thing without other encumbrances that
those which it had when he acquired it.
He may exercise this right of action, instead of
enforcing the vendor's liability for eviction.
The same rule shall be observed when two or more
things have been jointly sold for a lump sum, or for
a separate price for each of them, if it should clearly
appear that the vendee would not have purchased
one without the other.
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c. Particular causes given by law
When the adverse possession had been commenced
before the sale but the prescriptive period is
completed after the transfer, the seller shall not be
liable for breach of warranty against eviction.
Art. 1551
If the property is sold for non-payment of taxes not
made known to the buyer the seller is liable for the
eviction.
d. Applicability to judicial sale
GR: The judgment debtor (the losing defendant in a
lawsuit who owes the amount of the judgment to
the winner) is also responsible for the eviction in
judicial sales.
XPNs:
• It is otherwise decreed in the judgment
• Execution Sale
e. Amounts for which the seller is liable in case of
eviction (V-I-C-E-D)
When the warranty has been agreed upon or nothing
has been stipulated on this point, in case eviction
occurs, the vendee shall have the right to demand of the
vendor:
1) The return of the value which the thing sold had at
the time of the eviction, be it greater or less than the
price of the sale;
2) The income or fruits, if he has been ordered to
deliver them to the party who won the suit against him;
3) The costs of the suit which caused the eviction, and,
in a proper case, those of the suit brought against the
vendor for the warranty;
4) The expenses of the contract, if the vendee has paid
them;
5) The damages and interests, and ornamental
expenses, if the sale was made in bad faith.
f. Waiver of warranty
Effect of waiver depends on:
1. Nature of the waiver (General or Specific)
2. Good faith or bad faith of the seller
If seller acted in bad faith, then waiver is VOID.
If buyer renounced the warranty:
• In general terms,
• without knowledge of a particular risk,
• and eviction takes place,
the seller’s liability is limited to the value which the
thing sold had at the time of the eviction.
If the buyer waived the warranty:
• with knowledge of the risks of eviction,
• assumed consequences of eviction
the seller is not liable.
If the buyer waived the warranty in:
• specific case of expected eviction,
the seller’s liability is limited to that eviction caused by
other reasons not covered by the waiver.
3. WARRANTY AGAINST NON-APPARENT
SERVITUDES
Requisites for warranty against non-apparent
servitude
1. Immovable sold is encumbered by non-apparent
burden/servitude, not mentioned in the
agreement,
2. Nature of such makes it so that the buyer would
not have acquired the immovable had been
aware of it.
A. When warranty not applicable
1. When servitude is mentioned in the agreement;
2. If the non-apparent burden is recorded in the
Registry of Deeds unless there is an express warranty
that the thing is free from all burdens and
encumbrances.
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 2. If the thing has been lost, it depends on cause of the
B. Remedies and prescriptive period loss, knowledge of hidden defect by the seller, and
Buyer may bring action for rescission or sue for whether there has been a waiver of warranty:
damages within one (1) year from execution of the
deed. If this has elapsed, he may only bring an action
for damages within one year from when he discovered THING LOST
the servitude. THING LOST TRROUGH
BUYER
THROUGH FORTUITOUS
WAIVES
4. WARRANTY AGAINST HIDDEN DEFECTS HIDDEN EVENT/FAUL
WARRANTY
Seller shall be responsible for warranty against hidden FAULTS T OF BUYER
defects when...
He is only Buyer may Loss will not
1. Nature of hidden defect is such that it would render obliged only demand the make seller
the subject manner unfit for the use for which it was to return the price he paid, liable
intended. price and less value of
2. Diminish its fitness to such an extent that buyer interest the thing when
would not have bought it or he would have paid a Good thereon, and it was lost.
lower price for it. faith reimburse
the expenses
NOTE: of contract,
• Seller responsible even if he was not aware of these but no
hidden defects. damages.
• Seller not answerable for patent defects, or those
which are visible. He shall bear Seller shall pay Seller still
• Even for those which are invisible, if the buyer the loss, and damages to the liable on the
should know about them by reason of his return the buyer. warranty
trade/profession price and
Bad
• The warranty applies to both movable and expenses of
faith
immovable the contract,
with
A. Requisites for breach of warranty (H-E-C-I-S) damages.
1. Defect must be hidden
2. Must exist at time of the sale
3. Must ordinarily have been excluded from the NOTE: The phrase, “as is where is” basis pertains solely
contract to the physical condition of the thing sold, not to its
4. Must be important (render thing unfit or decrease legal situation, and therefore does not amount to a
fitness considerably) waiver on the egal defects pertaining to the subject
5. Action must be instituted within Statute of matter.
Limitations
A. APPLICABILITY TO JUDICIAL SALES
GR: Warranty against hidden defects also pertain to
B. Remedies of buyer and obligation of seller for judicial sales
breach of warranty XPN: Judgment debtor shall not be liable for damages

1. If the thing has not been lost, buyer may: B. PRESCRIPTIVE PERIOD
i. Withdraw from the contract (accion Six (6) months from the delivery of the thing sold. After
redhibitoria) the lapse of six months, buyer may no longer institute
ii. Demand a proportionate reduction of the price action for breach of warranty against hidden defects.
(accion quanti minoris)

Page 37 of 58
 the buyer being answerable for any injury due to
5. REDHIBITORY DEFECTS ON ANIMALS his negligence and not arising from the redhibitory
defect.
Redhibitory meaning: defect in the article sold of
such nature as to make it totally or virtually unusable E. REMEDIES OF THE BUYER
or as to have prevented the purchase if known to the The buyer may choose between:
buyer. a. Withdrawing from the contract plus
damages OR
GR: If the hidden defect of animals, even in case a b. Demand proportionate reduction of the
professional inspection has been made, should be of price plus damages
such a nature that expert knowledge is not sufficient to
discover it, the defect shall be considered as IMPLIED WARRANTIES IN SALE OF GOODS
redhibitory.
1. Warranty as to Fitness or Quality
(a) Where the buyer, expressly or by implication,
XPN: if the veterinarian, through ignorance or bad faith
makes known to the seller the particular purpose
should fail to
for which the goods are acquired, and it appears
discover or disclose it, he shall be liable for damages
that the buyer relies on the seller's skill or judgment
whether he be the grower or manufacturer or not,
A. Sale of Team
there is an implied warranty that the goods shall be
GR: If two or more animals are sold together, whether
reasonably fit for such purpose;
for a lump sum or for a separate price for each of them,
the redhibitory defect of one shall only give rise to its
(b) Where the goods are brought by description
redhibition, and not that of the others;
from a seller who deals in goods of that description
whether he be the grower or manufacturer or not),
XPN: Unless it should appear that the vendee would
there is an implied warranty that the goods shall be
not have purchased the sound animal or animals
of merchantable quality. (n)
without the defective one.
A. Requisites for Breach of Warranty to Apply (I-
B. Other Rules on Sale of Animals
DU-L)
There is no warranty against hidden defects of animals
1. Buyer sustained injury because of the product.
sold at fairs of at public auctions, or of livestock sold as
2. Injury occurred because product was defective or
condemned.
unreasonably unsafe.
3. Defect existed when product left the hands of the
C. PRESCRIPTIVE PERIOD
seller.
Must be brought within 40 days from the date of their
delivery to the buyer.
NOTE: A manufacturer or seller cannot be held liable if
there is no proof that the product was defective.
If the animal should die withing three days after its purchase
Product must have reached user without substantial
The seller shall be liable if the disease which caused the
change in condition.
death existed at the time of the contract.
B. Measure of Damage in Case of Breach of
When the buyer returns the objects bought and demands
Warranty on Quality
payment of purchase price
GR: The difference between value of goods at the time
The buyer is in effect withdrawing from the contract
of delivery and the value they would have had if
therefore; such action must be brought within six
the warranty was complied with.
months from the delivery of the thing sold.
XPN: Special circumstances showing damage of a
greater amount
D. OBLIGATION OF THE BUYER TO RETURN
If the sale is rescinded, the animal shall be returned
2. Sale of Goods by Sample/Description
in the condition in which it was sold and delivered,

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Contract of sale by sample
If the seller is a dealer in goods of that kind, there is
an implied warranty that they are free from any
defect rendering them unmerchantable which
would not be apparent on reasonable examination
of the sample.
Contract of sale by description
The seller’s description of the goods which is made
part of the basis of the transaction creates a
warranty that the goods will conform to that
descrition.
3. Buyer’s Option in Case of Breach of Warranty
Buyer may avail of the following remedies:
i. Accept or keep the goods and set up against the
seller, the breach of warranty by way of
recoupment in diminution or extinction of the
price;
ii. Accept or keep the goods and maintain an acion
against the seller for damages;
iii. Refuse to accept the goods, and maintain an
action against the seller for damages; or
iv. Rescind the contract of sale and refuse to receive
the goods or if the goods have already been
received, return them or offer to return them to
the seller and recover the price or any part
thereof which has been paid.
NOTE: When the buyer has been granted a remedy in
any of these ways, no other remedy can
thereafter be granted, except for the buyer’s
right to rescind, even if previously he has
chosen specific performance when fulfilment
has become impossible.
4. Waiver of Remedies by the Buyer
GR: There is a waiver of the warranty by the buyer:
a. If he knew of the breach of warranty when he
accepted the goods without protest,
b. If he fails to notify the seller within a reasonable
time of the election to rescind,
c. Or if he fails to return or offer to return the
goods to the seller in substanstially as good
condition as they were in at the time the
ownership was transferred.
XPN: If the deterioration or injury was due to the
breach of warranty
5. Obligation of the Buyer on the Price
Buyer is no longer liable for payment of price when he
exercises option of rescission. If buyer has already paid,
seller shall repay the buyer.
6. Refusal of Seller to Accept Return Of Goods
When buyer exercises his option to rescind, and seller
refuses the return of the goods, the buyer shall be
deemed to hold the goods as bailee for the seller but
subject to a lien to secure payment of price he already
paid.
ADDITIONAL WARRANTIES FOR
CONSUMER GOODS
Consumer goods- those which are primarily for
personal, family, household or agricultural purposes.
Article 68 of the Consumer Act
Terms of express warranty shall be operative from the
moment of sale and seller shall: (S-I-P-D-A-P)
1. Set forth the terms of warranty in clear and
readily understandable language and clearly
identify himself as warrantor;
2. Identify the party to whom the warranty is
extended;
3. State the products or parts covered;
4. State what the warrantor will do in the event of a
defect, malfunction of failure to conform to the
written warranty and at whose expense;
5. State what the consumer must do to avail of the
rights which accrue to the warranty; and
6. Stipulate the period within which, after notice of
defect, malfunction or failure to conform to the
warranty, the warrantor will perform any
obligation under the warranty.
1. SUBSIDIARY LIABILITY OF RETAILER
The retailer shall be subsidiarily liable under the
warranty in case of failure of both the manufacturer
and distributor to honor the warranty. In such case, the
retailer shall shoulder the expenses and costs
necessary to honor the warranty, the retailer may
proceed against the distributor or manufacturer.
2. ENFORCEMENT OF WARRANTY
Page 39 of 58
Warranty rights may be enforced by presentment to the
immediate seller either the warranty card or the official
receipt along with the product to be serviced or
returned to the immediate seller. No other
documentary requirement shall be demanded from the
purchaser.

3. DURATION OF WARRANTY
A period may be stipulated for when the warranty may
be enforced, but if the implied warranty on
merchantability accompanies an express warranty,
both will be of equal duration. Any other implied
warranty shall endure not less than 60 days nor more
than 1 year following the sale of new consumer
products.
4. BREACH OF WARRANTIES

IN CASE OF BREACH OF EXPRESS WARRANTY

The consumer may elect between:
(a) repair of the product in whole or in part
• The warranty work must be made to conform
to the express warranty within 30 days.
• The 30cday period may be extended by
conditions which are beyond the control of
the warrantor.

(b) In case of refund, the amount directly

attributable to the use of the consumer prior to
the discovery of the non-conformity shall be
deducted.

IN CASE OF BREACH OF IMPLIED WARRANTY

The consumer may:
(a) Retain the goods and recover damages OR
(b) Reject the goods, cancel the contract and recover
from the seller so much of the purchase prices as
has been paid, included damages.

5. E. Contrary Stipulations
All contrary stipulations are void.

Page 40 of 58
 CHAPTER 13: EXTINGUISHMENT OF SALE
I. General Modes of Extinguishment
The grounds by which obligations in general are
extinguished also apply to extinguishment of
obligations arising from sale:
• Payment
• Loss
• Remission or Condonation
• Compensation
• Confusion or Merger of rights
• Novation
• Annulment
• Rescission
• Resolutory Condition
• Prescription
• Conventional or Legal Redemption (Article
1600)
Conventional Redemption
A mode of extinguishment that is unique to contracts
of sale.
Dean: When you hear the word ‘conventional’, it
automatically pertains to a contract.
1. Definition
Conventional Redemption exists when the seller
reserved for himself the right to repurchase the
thing sold, with obligation to: (P-E-L-NU)
(a) Return price of the sale
(b) Return expenses of the contract
(c) Any other legitimate payments made by reason
of the sale
(d) Necessary and useful expenses of the thing sold.
NOTE:
• The redemption feature of a sale does not
prevent its full consummation
• It may only be exercised by the seller or any
person to whom the right may have been
transferred, or by the person entitled by law in
the case of legal redemption.
• The right to redeem= right to repurchase=
pacto de retro
2. Proper Reservation of Right to Repurchase
Right to redeem vs Option to Repurchase
Right of repurchase must be reserved by the vendor
through stipulation to that effect in the contract of
sale. Once instrument executed, vendor may no
longer reserve the right to repurchase. Any right
thereafter granted to the vendor, by the vendee
cannot be considered a right to repurchase, but some
other right, like an option to buy.
Essence of Pacto de Retro Sale
That title and ownership of the property sold is
immediately vested in the buyer a retro within the
redemption period.
In Nool v Court of Appeals, the valid existence of a
stipulated right of repurchase is premised upon the
fact that the underlying contract of sale is valid and
there has been performance upon whoch the right
to repurchase can be exercised.
3. Right of Repurchase May Be Proved by Parole
Evidence
Right to repurchase is merely a feature in the
contract of sale. Thus, it is governed by the Statute of
Frauds. However, when the contract of sale itself is
in writing, parole evidence may be adduced to prove
the right to repurchase.
The “best evidence” rule not an obstacle to the
adducement of such parol evidence.
• When parol agreement was the moving cause of
the written contract.
• When written contract was executed on the
faith/representation of the parol contract.
• Right to repurchase proved orally is consistent
with terms of written contract.
4. Period of Redemption
a. Permutations on Agreement or Non-Agreement
on the Period of Redemption
If there is an express agreement as to the period
Cannot exceed 10 years. If it does exceed, the
agreement is valid only for the first 10 years.
Page 41 of 58

If there is no express agreement as to the period
Redemption can only be exercised within 4 years
from the date of the contract.
b. Pendency of Action Tolls Redemption Period
Pendency of an action brought in good faith and
relating to the validity of a sale a retro tolls the running
of the period of redemption, provided that the exercise
of the redemption right and the filing of the suit are
done within the redemption period.
c. Non-payment of Price Does Not Affect the
Running of Redemption Period
Non-payment of purchase price does not serve to
suspend the period of redemption. Nonpayment of
the balance of the price does not suspend the efficacy
of the provisions of the valid contract.
5. Possession of Subject Matter During Period of
Redemption
• In a sale a retro, buyer has the right to immediate
possession of property sold, unless otherwise
agreed upon.
• Title and ownership of property are immediately
vested in the buyer a retro, subject only to the
resolutory condition of the repurchase by the
seller within the period.
• Pending repurchase, the buyer may alienate,
mortgage, or encumber the property.
A. But such alienation, mortgage or encumbrance
is revocable
B. When right exercised, the buyer has to return
the property free from all encumbrances
imposed by him.
6. How Redemption is Effected
The seller can avail himself of the right of repurchase
by formal notice thereof, and by returning to the
buyer: (P-E-NU-L)
(a) Price of the sale.
(b) Expenses of contract, and any other
legitimate payments made by reason of the
sale.
(c) Necessary and useful expenses made on the
thing sold.
A. Proper Exercise of the Right of Redemption
GR: In order to exercise the right to redeem, only
tender of payment is sufficient.
Mere sending of letters expressing desire to
repurchase, without tender, does not comply with
the requirement of law.
XPN: Where tender of payment cannot be validly
made (because buyer cannot be located) seller
must file a suit for consignation of the redemption
price within the redemption period.
There is no prescribed form for an offer to
redeem
Thus, there are two ways of exercising
redemption:
1. Formal offer to pay accompanied by bona fide
tender of payment.
2. Exercise through judicial action accompanied
with simultaneous deposit of the redemption
price.
B. In Multi-Parties Cases
In a sale a retro, the buyer of part of an undivided
immovable who acquires the whole thereof under
Article 498 may compel the seller to redeem the
whole property, if the seller wants to make use of the
right to redemption
When several persons, jointly and in the same
contract, sell an undivided immovable with right to
repurchase.
None of them may exercise this right for more
than his respective share.
If the seller who sold the immovable alone has several
heirs.
• Heirs may only redeem part which he may
have acquired.
• None of them may exercise this right for
more than his respective share.
NOTE: In these cases, the buyer may demand that
the vendors/co-heirs come to an agreement upon the
Page 42 of 58
repurchase of the whole thing sold, buyer cannot be
compelled to consent to a partial redemption.
7. When Redemption Not Made
OLD CC: Buyer a retro automatically acquires full
ownership
NEW CC: abolished automatic consolidation of
ownership upon expiration of period by requiring
the above action
Under the NCC, buyer must institute an action for
consolidation of ownership
• This proceeding for consolidation is an ordinary
civil action, not a motion incident to another
action.
• If such is denied because contract was actually an
equitable mortgage, then another action may be
filed to collect/foreclose.
NOTE: Notwithstanding Article 1607, recording in
the Registry of Deeds of the consolidation of
ownership to the buyer is not a condition sine qua
non to transfer of ownership
▪ Buyer would still be the owner.
▪ Essence of pacto de retro title and ownership
are immediately vested in buyer, subject to
resolutory condition of repurchase.
▪ Failure of seller to perform the said condition
vests absolute title and ownership over the
property sold.
▪ Failure to consolidate title under Article 1607
does not impair buyer’s ownership. The method
prescribed is merely for purposes of registration.
8. Grant of 30-day Redemptio Right in Case of
Litigation and Article 1606
The vendor may still exercise the right to repurchase
within thirty (30) days from the time final judgment
was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase.
GR: Expiration of period ipso jure extinguishes right
to redeem
XPN: when there was a previous suit concerning the
nature of the contract, the seller may still exercise
right to repurchase within 30:days from the time
final judgment was rendered.
A. Feigning Equitable Mortgage Situation to
Avail of Article 1606
Sometimes the seller would pretend that the sale was
an equitable mortgage in order to avail of the 30-day
grace period. Is the seller entitled to the 30-day period?
Abilla v. Gobonseng
When sale is judicially declared pacto de retro,
and after vendors take the position that it was
an equitable mortgage, having no honest belief
to that effect – vendors may not avail of the
additional 30-day period.
Nonetheless, the court reversed the above ruling.
Article 1606 only applies when the nature of the
transaction was put in issue before the court.
It applies in a situation where one party claims
that it was a pacto de retro, and the other
claimed that it was an equitable mortgage, and
the courts decided that it was a pactto de retro
sale.
NOTE:
• Applicability of Art. 1606 still rests on the bona
fide intent of the seller a retro, if he truly believed
that the transaction was an equitable mortgage.
• It doesn’t matter what the buyer intended the
transaction to be.
9. Disposition of Fruits of the Subject Matter of
Sale
No reimbursement or pro-rating of fruits existing at
the time of redemption if:
• At the time of the sale there should be
visible or growing fruits
• If no indemnity was paid by the purchaser
when the sale was executed.
There is pro-rating between redemptioner and
vendee if:
• There have been no fruits at the time of the
sale and some exist at the time of
redemption
• Giving the latter the part corresponding to
Page 43 of 58
 the time he possessed the land in the last Essential requisites of EMs
year, counted from the anniversary of the 1. Parties entered into a contract denominated as a
date of the sale. contract of sale; and
2. The intention was to secure an existing debt by
10. Distinguished from Option to Purchase way of a mortgage.
Right to Redeem Option to Purchase
Not a separate contract NOTE:
Generally a principal • If the above-enumerated req’s are not present, Art.
merely part of a main
contract, created 1602 cannot become the basis to treat the
contract of sale – cannot
independent of another transaction as an equitable mortgage.
exist unless reserved at
contract • In case of doubt, a contract purporting to be a sale
time of perfection
with right of repurchase shall be construed as a
mortgage.
May exist before or after
Must be imbedded into
the perfection of the
the contract of sale B. PACTUM COMMISSORIUM
sale, or be embedded in
upon its perfection A stipulation empowering the creditor to appropriate
another contract
the thing given as guaranty for the fulfillment of the
obligation in the event the obligor fails to live up to his
Must have a
Does not need a separate undertakings, without further formality, such as
consideration separate
consideration in order foreclosure proceedings, and a public sale.
and distinct from the
to be valid and effective
purchase price
NOTE: It is explicitly prohibited under Art. 2088 of the
CC.
Period cannot exceed 10 Period may exceed 10
years year
1. Elements of Pactum Commissorium (P-SA)
Requires notice to be (a) There should be a property mortgaged by way
accompanied by a of security for the payment of the principal
tender of payment, Requires only notice of obligation.
including consignment such exercise be given (b) There should be a stipulation for automatic
when tender of payment to the optioner appropriation by the creditor of the thing
cannot be made mortgaged in case of non-payment of the
effectively on the buyer principal obligation within the stipulated
period.
Results into the 2. Illustrations of Pactum Commissorium (See p,
Extinguishes an existing perfection of a contract
contract of sale 493 to 495)
of sale
3. Proper Remedies in Pactum Commissorium
Situations
When a purported sale a retro is found to be an
11. EQUITABLE MORTGAGES equitable mortgage, the proper remedy if the
A. Definition of “Equitable Mortgages” borrower refuses to pay the “price” is to foreclose on
the mortgage.
One which although lacking in some formality, or
form or words, or other requisites demanded by a C. Rationale Behind the Provisions on Equitable
statute, nevertheless reveals the intention of the Mortgages
parties to charge real property as security for a debt, The provisions of the Civil Code governing
and contains nothing impossible or contrary to law equitable mortgage disguised as sale contracts
are primarily designed to curtail the evils brought

Page 44 of 58
 about by contracts of sale with right to
repurchase, particularly the circumvention of the
usury law and pactum commissorium.
D. When Equitable Mortgage is Presumed
Art. 1602: (P-I-L-T-E-D)
(1) When the price of a sale with right to repurchase
is unusually inadequate;
(2) When the vendor remains in possession as
lessee or otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the
period of redemption or granting a new period
is executed;
(4) When the purchaser retains for himself a part of
the purchase price;
(5) When the vendor binds himself to pay the taxes
on the thing sold;
(6) In any other case where it may be fairly inferred
that the real intention of the parties is that the
transaction shall secure the payment of a debt or
the performance of any other obligation.
In any of the foregoing cases, any money, fruits, or
other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall
be subject to the usury laws.
GR: Existence of any one of these conditions suffices
to give rise to the non-conclusive presumption that
the contract is an equitable mortgage.
XPN: Article 1602 is not conclusive and may be
rebutted by competent and satisfactory proof to the
contrary.
In Lim v. Calaguas in order for presumptions to
apply, the parties must have intended the contract to
be a mortgage and not a pacto de retro. It enumerates
the following circumstances as basis to treat the
contract as equitable mortgage: (T-I-N-I-P T-A-R-B-S)
????? hahaahha
(a) Terms used in power-of-attorney indicate that
conveyance was intended to be a loan secured by
a mortgage
(b) Price paid in relation to value of property is
grossly inadequate
NOTE: Mere allegation of insufficiency of selling
price does not create the presumption if there is
no proof regarding the market values of the area
and property in question
The inadequacy of price contemplated by law is
consideration so far short of the real value as to
startle the mind. Seller at time of alleged sale was
in urgent need of money. Supposed seller
invested money he obtained in making
improvements on the property sold.
(c) Seller remained in possession.
Tolerated possession is not enough to prove
equitable mortgage.
(d) Seller paid land tax
(e) Buyer accepted partial payments, such
acceptance being incompatible with idea of
irrevocability of the title of ownership of the
purchaser at the expiration of the term stipulated
in the original contract for the exercise of the right
to redemption.
(f) Seller remained bound for the repayment of the
money
(g) Transaction had origin in a borrowing of money.
• When true intention was not to convey
ownership, but to secure housing loan of
“buyer” in which “seller” had a direct interest
since proceeds were to be applied to their
outstanding mortgage obligations, it is an
equitable mortgage.
• Alleged loan disbursed on installments – no
proof as to inadequacy of price – continued
receipt of rentals by seller was found to be
a gesture of generosity, it is considered sale
on installments
(h) There was a previous debt between the parties
that was not extinguished by the sale but
remained subsisting.
1. Delay in transferring title does not give rise to
presumption.
Page 45 of 58
 a thing by purchase or dation in payment, or by
e. Applicability to Deeds of Absolute any other transaction whereby ownership is
Requisites for Art. 1604 to apply to Deeds of transmitted by onerous title.
Absolute Sales
1. Parties entered into contract denominated as a In the nature of a privilege created by law for
contract of sale. public policy and benefit and convenience of the
2. Intention was to secure an existing debt by way redemptioner.
of mortgage.
2. Salient Distinctions Between Convention and
f. Proof by Parole Evidence: Best Evidence Rule Legal Rights of Redemption
Parole evidence is competent and admissible to Conventional (“right Legal (“subrogation”)
support claims that the documents purporting to be a retro”)
absolute sale or transfer with a right to repurchase Can only be A legal right of
were really given as security for repayment of a loan, constituted by express redemption does not
provided that nature of agreement is placed in issue reservation at time of have to be expressly
by the pleadings filed with the court. perfection of a contract reserved, covers other
of sale onerous
The best evidence rule is inapplicable to equitable transfers of title
mortgages because to determine whether a deed of In favor of the seller Given to a third:party
absolute sale is a mortgage in reality, requires to the sale.
looking beyond the written memorials of the Exercise extinguishes Constitutes a new sale
transaction. the underlying in substitution of the
• Decisive factor in evaluating intent in such contract of sale, as original sale
agreements is not always the document itself. though there was
• But all the surrounding circumstances. Thus, never any contract at
parole evidence is acceptable. all

g. Effects When Sale Adjudged to Be an Equitable
Mortgage
• When a contract is construed to be an equitable
mortgage, the following may result:
(a) Any money, fruit or benefit to be received by the
buyer as rent shall be considered as interest
subject to usury laws;
(b) The apparent “Seller” may ask for reformation of
the instrument;
(c) Court may decree that “buyer”-debtor must pay
his outstanding loan to “seller”-creditor
(d)Where trial court did not pass upon the
mortgagor’s claim that he paid the mortgage
obligation, a remand of the case to trial court is in
order
LEGAL REDEMPTION
1. Essence of Legal Rights to Redemption
Legal redemption is the right to be subrogated,
upon the same terms and conditions stipulated
in the contract, in the place of one who acquires
3. Legal Redemption under Civil Code
A. Among Co-Heirs
Should any of the heirs sell his hereditary rights to a
stranger before the partition, any or all of the co-
heirs may be subrogated to the rights of the
purchaser by reimbursing him for the price of the
sale, provided they do so within the period of one
month from the time they were notified in writing of
the sale by the vendor.
NOTE:
• No right of legal redemption available to co-heirs
when sale covers a particular property of the
estate.
• Only the heirs who did not participate in the
execution of the extrajudicial settlement, are
given the right to redeem their shares pursuant
to Article 1088.
a. Among Co-owners

Page 46 of 58
A co-owner of a thing may exercise the right of
redemption in case the shares of all the other
coXowners or of any of them, are sold to a third
person. If the price of the alienation is grossly
excessive, the redemptioner shall pay only a
reasonable one.
NOTE: Right of redemption may be exercised by a
co-owner only when part of the community
property is sold to a stranger.
A. Effect of de Facto Partition Among Co-Heirs and Co-
Owners
When the heirs have partitioned the estate among
themselves and each have occupied and treated
definite portions thereof as their own, co-ownership
has ceased even though the property is still under
one title, and the sale by one of the heirs of his
definite portion cannot trigger the right of
redemption in favorof the other heirs.
d. Distinguishing Between the Rights of
Redemption of Co-Heirs and Co- Owners
Art. 1620 Co-owners Art. 1088 Co- heirs
Includes doctrine that a The heir may redeem for
redemption by a cowner of himself the heredity
the property owned in rights sold by a co-heir.
common, even when his
own fund is used, within
period, inures to benefit of
all other co:owners.
e. Among Adjoining Owners of Rural Lands
The owners of adjoining lands shall also have the
right of redemption when a piece of rural land, the
area of which does not exceed one hectare, is
alienated, unless the grantee does not own any rural
land.
Operative Rules:
(a) the burden of proof to provide for the exception lies
with the buyer;
(b) this right is not applicable to adjacent lands
which are separated by brooks, drains, ravines,
roads and other apparent servitudes for the
benefit of other estates.
(c) Both land sought to be redeemed and the adjacent
property belonging to the person excercising the
right of redemption must be rural;
(d) When two or more owners of adjoining lands
wish to exercise the right of pre-emption or
redemption, the owner whose intended use of
the land in question appears best justified shall
be preferred.
f. Among Adjoining Owners of Urban Land
Involves an urban land so small and so situated that a
major portion thereof cannot be used for any practical
purpose within a reasonable time, the owner of the
adjoinin gland has a right of pre-emption at a
reasonable time and a right of redemption if a resale
has been perfected.
g. Sale of Credits in Litigation
When a credit or other incorporeal right in litigation
is sold, the debtor shall have a right to extinguish it
by reimbursing the assignee for the price the latter
paid therefor, the judicial costs incurred by him, and
the interest on the price from the day on which the
same was paid.
h. When Legal Pre-emption or Redemption Period
Begins to Run
The right of legal pre-emption or redemption shall
not be exercised except within thirty days from the
notice in writing by the prospective vendor, or by the
vendor, as the case may be
GR: Written notice is required
XPNs:
1. Situation where co-heirs lived with purchaser in
the same lot, but the action was brought only
after 13 years of knowing about the same.
2. Requirement of written notice was rendered
inutile when no co-owners questioned the sale,
even when buyers immediately took possession.
3. When co-owner himself is middleman to effect
sale to third party, notice is no longer necessary
4. Co-owner learned of the sale through city
treasurer. Her exercise of right of redemption
was timely: no written notice of sale was ever
Page 47 of 58
 given to her, thus the 30: day period had not yet
run.

(4) Other Instances where Right of Legal

Redemption is Granted

5. Redemption of Homesteads
6. Redemption in Tax Auction Sales
7. Redemption by Judgment Debtors
8. Redemption in Extrajudicial Sales
9. Redemption in Judicial Foreclosures
10. Foreclosures by Banking Institutions
11. Foreclosures by Rural Banks
12. Redemption under Agrarian Reform Code

Page 48 of 58
 CHAPTER 14: ASSIGNMENT
NATURE OF ASSIGNMENT IN THE SCHEME OF
THINGS
“Assignment” (Article 1624 CC)
• the sale of credits and other incorporeal
rights.
• a species of the genus sale, all the
characteristics of the genus sale must
necessarily pertain to assignment; and that all
jurisprudential doctrines pertaining to genus
sale pertain to assignment, except to the
extent modified by the chapter dealing
specifically on assignments.
• a nominate, consensual, reciprocal, onerous,
and commutative contract (Like the genus
sale)
Note: Although credits and other intangible things
within human commerce are the proper object of a
contract of “sale”, “assignment” is the proper or
technical term that should be used.
Although a “Deed of Sale of Shares of Stock” is legally
correct, it is technically inaccurate, since the proper
term is “Deed of Assignment of Shares of Stock.”
Definitions of Assignment
Paras: “Assignment” include both the gratuitous and
onerous transfers of credits and other incorporeal
rights; if the assignment is gratuitous, the formalities
of donation are required.
Tolentino: one where the assignor, “by legal cause,
such as sale, dation in payment, exchange or donation,
and without the need of the consent of the debtor,
transfers his credit and its accessory rights to another
(the assignee), who acquires the power to enforce it to
the same extent as the assignor could have enforced it
against the debtor.”
Nyco Sales Corp. v. BA Finance Corp.
• “[A]n assignment of credit is the process of
transferring the right of the assignor to the
assignee, who would then be allowed to
proceed against the debtor. It may be done
either gratuitously or onerously, in which
case, the assignment has an effect similar to
that of a sale.
GR: In all the other instances when the form of
assignment is being used, the transaction is still
covered by the Law on Sales.
Example:
An assignment by dation in payment (Article
1245), and an exchange or barter through an
assignment (Article 1641) are governed by the Law on
Sales.
An assignment of credit as a mere guarantee is
also governed by the Law on Sales on equitable
mortgages but is not a sale contract but a mortgage
contract.
XPN: in the case of donation
WHAT MAKES ASSIGNMENT DIFFERENT?
To know assignment better is to know how different
it is from the species sale
Philippine National Bank v. Court of Appeals
• An assignment is a contract between the
assignor and the assignee. Whether or not a
transfer of a particular right or interest is
an assignment or some other transactions
depends, not on the name by which it calls
itself, but on the legal effect of its provisions.
Assignment Sale
they come from the same root or genus, called
“sale”
a Consideration is not Consideration is one of
always a requisite its requisites
title is transferred but there is transfer of
possession need not ownership and delivery
be delivered of possession
Page 49 of 58
Project Builders, Inc. v. Court of Appeals
• An assignment of credit is an act of
transferring, either onerously or gratuitously,
the right of an assignor to an assignee…
• In an assignment of credit, the consent of the
debtor is not essential for its perfection, his
knowledge thereof or lack of it affecting only
the efficaciousness or inefficaciousness of
any payment he might make.
1. Validity and Binding Effect
The subject matter of an assignment is an intangible
property, whereas the object of species sale would be
tangible property.
An assignment is also a consensual contract, and is
perfected therefore by mere consent in exactly the
same manner as species sale
Note: “Assignment” should no longer be used when
covering a donation involving intangible which must
comply with the solemnities of donation and are not
perfected by mere consent.
2. Binding Effect as to Third Parties
GR: The “binding effect” of an assignment as to third
persons is not present unless:
• it appears in a public instrument, or
• the instrument is recorded in the Registry of
Property in case the assignment involves real
rights
XPN:
• Without the public instrument, the
assignment would still be valid, but it is
enforceable only as between the assignor and
the assignee, and their successors-in-interest.
• When the assignment is still at the executory
stage and not evidenced in writing, and
since assignment is merely a species of the
genus sale, it is covered by the Statute of
Frauds
• when the assignment involves a document of
title, the assignment does not bind the bailee
unless specific notice of the transfer of the
covering document of title is given by the
transferor or transferee to the bailee.
3. Effect of Assignment of Credit on Debtor
In assignment the debtor’s consent is not necessary.
It is sufficient that the assignment be brought to the
debtor’s knowledge in order to be binding upon him.
(C & C Commercial Corp. v. Philippine National Bank)
However, the lack of such knowledge and/or consent
has legal effects.
• When the subject matter of an assignment is a
credit, if the debtor pays his creditor without
knowledge of the assignment, his payment
shall release him from further obligations
• If the assignment of rights in favor of a third
person is made without the knowledge of the
debtor, the debtor may set up against the
assignee the compensation which would
pertain to him of all credits prior to the
assignment and later ones until he had
knowledge of the assignment.
Otherwise, he cannot set up against
the assignee such compensation, unless:
▪ the assignor was notified by the
debtor at the time he gave his
consent, that he reserved his right
to the compensation.
Note: If the creditor communicated the assignment to
him but the debtor did not consent, the debtor may
still set up the compensation of debts previous to the
assignment, but not the subsequent ones.
4. Transfer of Ownership
Project Builders, Inc. v. Court of Appeals
• “[A]n assignment of credit is an act of transferring,
either onerously or gratuitorialy, the right of an
assignor to an assignee who would then be
Page 50 of 58
 capable of proceedings against the debtor for
enforcement on satisfaction of the credit. The
transfer takes place upon perfection of the
contract.”
CLV does not agree with characterization of
assignment in Project Builders
• Assignment is not a mode but merely
constitute title, and does not by its perfection
alone transfer ownership of the subject matter
• The effects of tradition of sale in general also
apply to assignment; except that doctrines as
to actual or physical delivery have no
application, since the object of assignment
does not have physical existence.
Leonido v. Capitol Dev. Corp.,
- the notarization of the Assignment of Credit
converted it into a public document and making it
enforceable even as against third person.
a. Accessories and Accessions
• Like in species sale, the assignment of a credit
includes all the accessory rights, such as a
guaranty, mortgage, pledge or preference
b. Warranties
• The warranty against hidden defects generally
has no application to an intangible because it
has no physical existence.
GR: In assignment the assignor shall be responsible
for the existence and legality of the credit at the time
of sale
XPN: unless it has been expressly sold as a doubtful
account, in which case the assignee takes the credit at
his own risk. The invalidity of the credit assigned
makes the assignor-vendor liable for breach of such
warranty
Assignment does not make the assignor warrant
the solvency of the debtor to the credit, unless:
(a) There is a stipulation to that effect; or
(b) The insolvency of the debtor was prior to
the assignment and of common knowledge.
Note: The warranty should last for one (1) year only,
from the time of the assignment if the credit is already
due; otherwise, the warranty shall cease only one (1)
year after the maturity of the credit.
If the assignor in good faith is liable for a warranty,
- he is liable only for the expenses of the
contract, and any other legitimate payments
made by reason of the assignment.
An assignor in bad faith who breaches such
warranties
• shall in addition be liable to pay for the
necessary and useful expenses, plus damages.
Other specific warranties pertaining to
assignment:
(a) One who assigns an inheritance right without
enumerating the things it is composed of, shall
only be answerable for his character as an heir;
but any fruits received he shall pay to the assignee,
unless the contrary has been stipulated;
The assignee shall reimburse the assignor for all that
the latter has paid unless the contrary has been
stipulated;
(b) One who sells for a lump sum the whole of
certain rights, rents, or products, shall be
answerable for the legitimacy of the whole in
general, but not for each of the various parts of
which it may be composed; except in the case of
eviction from the whole or the part of the greater
value.
ASSIGNMENT OF CREDIT IN LITIGATION
• Specific rule on assignments of credit in litis
pendencia: provided by law
• Rationale of the law
- if the assignor is willing to dispose of the credit
at a low price, then it should be the debtor who should
benefit from the bargain and not a speculator. There
Page 51 of 58
presumption is that one who buys a credit under debtor, and the new
litigation is buying for purposes of speculation. creditor.

➢ A credit or other incorporeal right is deemed

to be in litigation ASSIGNMENT OF COPYRIGHT
- from the time a complaint concerning the same
➢ owner of a copyright may assign it in whole or
is answered.
in part;
➢ the assignee is entitled to all the rights and
➢ When a credit or other incorporeal right in
remedies which the assignor had with respect
litigation is assigned or “sold,”
to the copyright.
➢ The copyright is not deemed assigned inter
- the debtor shall have a right to extinguish it by
vivos in whole or in part unless there is a
reimbursing the assignee for the price the latter
written indication of such intention.
paid, the judicial cost incurred, and the interest on
➢ The submission of a literary, photographic or
the price from the day on which the credit was
artistic work for publication shall constitute
paid.
an assignment but only a license to make a
The right to redeem can be exercised by the debtor single publication, unless a greater right is
within thirty (30) days from the demand by the expressly granted.
assignee for payment. ➢ If two or more persons jointly own a copyright
or any part neither of the owners shall be
The right to redeem shall not exist with respect to entitled to grant licenses without the prior
the following assignments: written consent of the other owner or
(a) Assignment of the credit or incorporeal owners.
right to the co-heir or co-owner of the ➢ The transfer or assignment of the copyright
rights assigned; shall not itself constitute a transfer of the
(b) Assignment to a creditor in payment for material object, and vice versa.
his own credit; and ASSIGNMENT AS AN EQUITABLE MORTGAGE
(c) Assignment to the possessor of a tenement
or piece of land which is subject to the ➢ assignment of intangibles is also resorted to as
right in litigation assigned a means to secure loans, like sales.
➢ the principles pertaining to equitable
1. Differentiating from Subrogration mortgages will apply.
Assignment of credit Subrogration ➢ proper remedy is to proceed to foreclose on
refers to same right extinguishes the the leasehold right assigned as security for the
which passes from one original obligation and loan.
person to another gives rise to a new one
nullity of an obligation May cure nullity of an
is not remedied by the old obligation, such that
assignment of the a new obligation will be
creditor’s right to perfectly valid
another
the consent of the conventional
debtor is not necessary; subrogation requires an
the law requires merely agreement of three
a notice to him. parties concerned —
the original creditor, the

Page 52 of 58
 CHAPTER 15: BULK SALES LAW
It was intended as a species of bankruptcy law to
protect supply creditors/ businessmen against
preferential/fraudulent transfers done by merchants.
Purpose of the law
To prevent a situation where merchants would
sell their businesses then vanish, leaving their
creditors without recourse against the “buyers
in good faith and for value.”
Objectives of the law
• Compel seller in bulk to execute and deliver a
verified list of creditors to the buyer
• Give notice of the intended sale to the creditors
• Use the proceeds to pay outstanding liabilities
Law covers all transactions, good faith or not, that are
within the description of a “bulk sale”
TRANSACTIONS COVERED BY THE LAW
There are three types of transactions the law
considers as “bulk sales”
1. Extraordinary sale of goods
(a) Any sale, transfer, mortgage or assignment of a
stock of goods, wares, merchandise, provisions, or
materials otherwise than in the ordinary course of
trade and the regular prosecution of the business of
the vendor, mortgagor, transferor, or assignor,
2. Extraordinary sale of fixtures and equipment
(b) All, or substantially all, of the fixtures and
equipment used in and about the business of the
vendor, mortgagor, transferor, or assignor,
3. Sale of business enterprise
(c) Any sale, transfer, mortgage or assignment of all, or
substantially all, of the business or trade
theretofore conducted by the vendor, mortgagor,
transferor, or assignor
NOTE:
• As long as the transaction is within the description,
no matter what it’s being done for, it is covered by
the Bulk Sales Law, motive, intention, consequence
of sale is not an element.
• Qualification of “in the normal course of business”
applies only to the first type. Second two types are
by nature not in the normal course of business.
• Bulk sales are of a nature that they do not fall within
the normal course, which thus should warn parties
to such transactions
1. “Bulk Sales” not Covered by Law
XPNs:
(a) Seller produces and delivers a written waiver of
the provisions of the Law from his creditors as
shown by verified statements; and
(b) Transactions effected by executors,
administrators, receivers, assignees in
insolvency, or public officers, acting under legal
process
2. “Business” Covered by the Law
Bulk sales law is penal in nature therefore; should be
construed strictly against the State and in favor of the
accused. In People v. Wong, the Supreme Court held that
the Bulk Sales Law contemplates sale of merchandise,
stock, and goods – not the sale of the whole shop with
the equipment, credits, etc. As such, a foundry shop
which does not sell merchandise is not included.
• Meaning of Merchandise- something sold every
day, and is constantly going in and out of the
store, replaced by other goods – things usually
bought and sold in trade by merchants
• Stock- those goods kept for sale.
However, Wong ruling only applies to the first type
of business. When it comes to the other two types,
law does not limit the coverage to a particular type
of business.
OBLIGATIONS OF SELLER/ENCUMBERANCER
IN A BULK SALE
(a) To Deliver a Sworn Statement of Listing of
Creditors
Before receiving from the vendee, mortgagee, or
his, or its agent or representative any part of the
purchase price thereof, or any promissory note,
Page 53 of 58
 memorandum, or other evidence therefor, to
deliver to such buyer
ii. The names and addresses of all creditors to
whom said vendor or mortgagor may be
indebted,
iii. Description of the amount of indebtedness
due or owing, or to become due or owing
by said vendor or mortgagor to each of said
creditors.
(b) Pro-Rata Application of Proceeds
Applying the proceds of the transaction to the pro-
rata payment of bona fide claims of the creditors as
shown in the verified statement.
(c) Written Advance Disclosure to Creditors — It
shall be the duty of every vendor, transferor,
mortgagor, or assignor:
(i) At least ten days before the sale, transfer or
execution of a mortgage upon any stock of
goods, wares, merchandise, provisions or
materials, in bulk, to make a full detailed
inventory thereof and to preserve the same
showing the quantity and, so far as is
possible with the exercise of reasonable
diligence, the cost price to the vendor,
transferor, mortgagor or assignor of each
article to be included in the sale, transfer or
mortgage, and
(ii) Notify every creditor whose name and
address is set forth in the verified statement
of the vendor, transferor, mortgagor, or
assignor, at least ten days before
transferring possession thereof, personally
or by registered mail, of the price, terms
conditions of the sale, transfer, mortgage, or
assignment.
(d) Bulk Transfers for Nominal Value
It shall be unlawful for any person, firm or
corporation, as owner of any stock of goods, wares,
merchandise, provisions or materials, in bulk, to
transfer title to the same without consideration or
for a nominal consideration only.
CONSEQUENCES OF VIOLATION OF THE LAW
Imprisonment of not less that 6 months, not more than
5 years, w/ fine not exceeding P5,000.
Importance of the Law should be considered from
three important standpoints:
(a) On the transaction itself
(b)On the seller
(c) On the buyer
1. On the Transaction itself
(a) If sworn listing of creditors is not prepared, or
(b) if the proceeds are not applied to them, the
sale shall be fraudulent and void.
EFFECTS:
• No legal effects arise from the transaction
• No right of action accrues
• The subject matter is still owned by the
assignor, and still subject to the satisfaction of
his liabilities
a. Violation of the law does not change the civil
obligations owed to the creditors
People v. Mapoy (73 Phil. 678)
• Portion of the judgment granting indemnity to
the creditors of the amount of the credit is
invalid. WHY? Although the sale is void, the
relationship between seller and creditor is
unchanged.
• Proper remedy of creditor is to collect on the
credit against the defendant, and if he cannot
pay, to attach on the property fraudulently
sold/mortgaged.
b. Legal consequences of a sale in Bulk for
Nominal Value
• Law declares it unlawful, but not fraudulent
and void.
• However, if there was no other valuable
consideration, we have to declare it void for
lack of cause or consideration. (doctrine of
being supported by “valuable
consideration”)
2. On Seller/Mortgagor/Assignor
Failure to comply with his obligations to prepare
and deliver a sworn statement listing his creditors
and apply the proceeds of the sale to these creditors
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 subjects him to criminal liability. If the list does not
include all names of creditors, or with wrong
amounts, it subjects him to criminal liability.
• To sell the stocks/goods/merchandise for no
consideration, or for nominal consideration
only, subject seller to criminal liability.

• Sworn statement should be registered with

Department of Trade and Industry.
• Noncompliance with this does not affect
validity nor does it subject him to
criminal penalty.
• Failure to deliver advance notice does not
subject him to criminal liability.
3. On Buyer/Mortgagee/Transferee
• Has no direct obligation under the Law
therefore, no criminal liability attaches. But
some lawyers argue that they are principals by
indispensable cooperation, if they were aware
of the intent/conspired with the seller.
• Despite not being criminally liable, he will still
get affected civilly. For example, he would find
himself not entitled to the things he paid for. He
may also be sued for recovery of what he has
obtained. He may also be liable for damages for
having helped defraud creditors.

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 CHAPTER 16: RETAIL TRADE
LIBERALIZATION ACT
Republic Act No. 8762 “Retail Trade Liberalization
Act of 2000” – enacted on March 7, 2000.
IMPORTANCE
Under modern conditions and standards of living in
which man’s needs have multiplied and diversified to
unlimited extents and proportions, retailer comes as
essential as the producer because through him the
infinite variety of articles, goods, and commodities
needed for daily life are placed within the EASY
REACH OF CONSUMERS. (Inchong v. Hernandez)
LIBERAL POLICY UNDER RTLA
• To encourage FILIPINO and FOREIGN
investors to forge an efficient and competitive
retail trade sector in the interest of
empowering the Filipino consumer through
lower prices, higher quality goods, better
services and wider choices.
ELEMENTS OF RETAIL TRADE
(a) habitual act or business of selling;
(b) to the “general public”
(c) of “merchandise, commodities, or goods for
consumption”
➢ Habitual act or business of selling - it does not
include operation of a restaurant by a hotel-
owner since there is no act of habitually selling
direct to the general public merchandise
goods for consumption
➢ General public - the target customers must not
only be a particular person.
➢ Consumption
Producer goods – goods that are factors in the
production of other goods and that satisfy
wants only indirectly – called also auxiliary
goods, instrumental goods, intermediate
goods. (Marsman Co. Inc. v. First Coconut
Central Co.)
Consumer products – goods which are
primarily for personal, family, household,
agricultural purpose, which shall include but
not limited to food, drugs, cosmetics, and
devices.
EXEMPTED TRANSACTIONS
(a) Sales by a manufacturer, processor,
laborer, worker, to the general public of
the products manufactured, processed, or
produced by him if his capital DOES NOT
EXCEED P100,000.00;
(b) Sales by a farmer or agriculturist of the
products of his farm, regardless of capital;
(c) Sales in restaurant operations by a hotel
owner irrespective of the amount of the
capital, provided that the restaurant is
incidental to the hotel business;
(d) Sales to the general public, through a
single outlet owned by a manufacturer of
products manufactured, processed, in the
Philippines irrespective of capitalization;
(e) Sales to industrial and commercial users
or consumers who use the products
bought by them to render service to the
general public or produce good which are
in turn sold by them;
(f) Sales to the government, its agencies, and
GOCCs.
SPECIAL EXEMPTION FOR FORMER
NATURAL-BORN FILIPINOS
➢ Shall be granted the same rights as Filipino
citizens for purposes of retail trade under
RTLA.
➢ Deemed residing in the Philippines if he
physically stays in the country for at least 180
days within a given year.
CATEGORIES OF RETAIL TRADE
ENTERPRISES
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 ➢ Category A – Enterprises with paid-up capital
of less than US$2.5 Million;
➢ Category B – paid-up capital of US$2.5 Million,
but less than US$7.5 Million, provided that in
no case shall the investments for establishing
a store be less than US$30,000.00;
➢ Category C – paid-up capital of US$7.5 Million
or more, provided that in no case shall the
investments for establishing a store be less
than US$830,000.00;
➢ Category D – “high-end or luxury products”
with a paid-up capital of US$250,000.00 per
store.
High-end or luxury goods – not necessary for
life maintenance whose demand is generated
in large part by the higher income groups.
WHEN ALIENS MAY INVEST/ENGAGE IN RETAIL
TRADE
➢ Filipino citizens, former natural-born Filipino
citizens who reside in the PH, and domestic
partnership, associations, corporation, which
are wholly-owned by FILIPINO CITIZENS may’
(a) Engage directly in all forms of retail trade
(b) Invest wholly in local enterprises that will
engage on all forms and in all categories of
retail trade
➢ Other than in the Exempted Transactions,
alien individuals, foreign partnerships,
associations, corporations, foreign-owned
domestic partnership, corporations MAY NOT
ENGAGE/INVEST in retail trade enterprises
under Category A.
➢ Other than in the Exempted Transactions,
foreign-owned domestic partnerships,
corporations upon registration with the SEC
and DTI may invest:
(a) Under Category B
aa. Limited to not more than 60% of total
equity
bb. May own 100% two years after
effectivity of RTLA
(b) May own retail enterprises under
Category C provided that the investments
for establishing a store is not less than
US$830,000.00
(c) May own retail enterprises under
Category D
THE GRANDFATHER RULE
Shares belonging to corporations or partnership:
60% of the capital: owned by Filipino Citizens
40% foreign equity
If less than 60%, only the # of shares corresponding to
such percentage shall be counted as of Philippine
nationality.
➢ “Philippine national” – corporate entity shall
mean a corporation organized under PH laws
of which at least 60% of the capital stock
outstanding and entitled to vote is owned and
held by citizens of PH. (Section 3, Foreign
Investment Act)
Requirements of Foreign Investors:
➢ Maintain full amount of prescribed capital
unless it has notified the SEC and DTI of its
intent to repatriate its capital and cease
operations.
➢ Secure certification from the BSP, DTI for
verification and confirmation inward
remittance of the minimum required capital
investment.
Foreign Investors acquiring shares of stock of local
retailers
➢ Net worth in excess of US$2.5M may purchase
only up to a maximum of 60% of quity
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FOREIGN RETAILERS

• Not a Filipino citizen, corporation,

partnership, association, not wholly-owned by
Filipinos, engaged in retail trade.
APPLICATION OF ANTI-DUMMY LAW

• Penalizes Filipinos who permit aliens to use

them as nominees or dummies to enjoy
privileges reserved for Filipinos, or Filipino
corporations.
IMPLEMENTING AGENCY

• DTI
(a) Pre-qualify all foreign retailers
(b) Issue IRR
(c) Keep a record of qualified foreign retailers
(d) Ensure compliance with the qualifications
prescribed on capitalization and track
record

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