Professional Documents
Culture Documents
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The Outline presents the manner by which the Law on Sales will be taken-up in class. The x's and those footnoted in the
Outline represent cases or topics which need no extended discussions, either because the essence of the rulings are
already summarized in the Outline or they contain similar rulings or doctrines as other cases to be discussed. Unless
otherwise indicated, the numbered articles refer to articles of the Civil Code.
2
Ownership is the independent and general power of a person over a thing for purposes recognized by law and within the limits
established thereby, which includes the right to enjoy and dispose of a thing, without other limitations than those established by law.
. . . Aside from the jus utendi and the jus abutendi inherent in the right to enjoy the thing, the right to dispose, or the jus disponendi,
is the power of the owner to alienate, encumber, transform and even destroy the thing owned. Flancia v. CA, 457 SCRA 224 (2005).
3
Alfredo v. Borras, 404 SCRA 145 (2003); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts v. Papio, 515
SCRA 346 (2007); Hyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010);
Dantis v. Maghinang, Jr., 695 SCRA 599 (2013).
4
Jovan Land, Inc. v. CA , 268 SCRA 160 (1997); Quijada v. CA, 299 SCRA 695 (1998); Co v. CA, 312 SCRA 528 (1999); San
Andres v. Rodriguez , 332 SCRA 769 (2000); Roble v. Arbasa, 362 SCRA 69 (2001); Polytechnic University v. CA, 368 SCRA 691
(2001); Katipunan v. Katipunan, 375 SCRA 199 (2002); Londres v. CA, 394 SCRA 133 (2002); Manongsong v. Estimo, 404 SCRA
683 (2003); Jimenez, Jr. v. Jordana, 444 SCRA 250 (2004); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga,
449 SCRA 458 (2005); Roberts v. Papio, 515 SCRA 346 (2007); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Republic v.
Florendo, 549 SCRA 527 (2008); GSIS v. Lopez , 592 SCRA 456 (2009); Baladad v. Rublico, 595 SCRA 125 (2009); Del Prado v.
Caballero, 614 SCRA 102 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); Hyatt Elevators and
Escalators Corp. v. Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010); David v. Misamis Occidental II Electric
2
essential elements of a contract of sale, namely, (1) consent or the meeting of the minds of the parties;
(2) object or subject matter of the contract; and (3) price or consideration of the sale. xGSIS v. Lopez,
592 SCRA 456 (2009).
Equally important are the three stages of a contract of sale: (1) preparation or negotiation, (2)
perfection, and (3) consummation. Negotiation begins from the time the prospective contracting parties
manifest their interest in the contract and ends at the moment of agreement of the parties. The
perfection or birth of the contract takes place when the parties agree upon the essential elements of
the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform
the terms agreed upon in the contract, culminating in the extinguishment thereof. xXYST Corp. v.
DMC Urban Properties Dev., Inc., 594 SCRA 598 (2009).
• Failure of subdivision developer to obtain a license to sell does not render the sales void especially that the
parties have admitted that there was already a meeting of the minds as to the subject of the sale and price.
xCantemprate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009)
• When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties. xHeirs of Fausto C. Ignacio v. Home Bankers Savings, 689 SCRA 173
(2013)
Binding effect of sale is based on the principle that the obligations arising therefrom have the force
of law between the parties. xVeterans Federation of the Philippines v. CA, 345 SCRA 348 (2000).
Perfection Distinguished from Demandability – Not all contracts of sale become automatically
and immediately effective. In sales with assumption of mortgage, there is a condition precedent to the
seller’s consent and without the approval of the mortgagee, the sale is not perfected. xBiñan Steel
Corp. v. CA, 391 SCRA 90 (2002).
“No Contract Situation” versus “Void Contract” – Absence of consent (i.e., complete meeting
of minds) negates the existence of a perfected sale. xFirme v. Bukal Enterprises and Dev. Corp., 414
SCRA 190 (2003) . The contract then is null and void ab initio, absolutely wanting in civil effects;
hence, it does not create, modify, or extinguish the juridical relation to which it refers. xCabotaje v.
Pudunan, 436 SCRA 423 (2004).
When there is no meeting of the minds on price, the sale “is not perfected” and is not “a binding
juridical relation between the parties. xManila Metal Container Corp. v. PNB , 511 SCRA 444 (2006),11
and should be accurately denominated as “inexistent”, as it did not pass the stage of generation to the
point of perfection. xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).
c. Bilateral and Reciprocal (Arts. 1169 and 1191)
A contract of sale gives rise to “reciprocal obligations”, which arise from the same cause with each
party being a debtor and creditor of the other, such that the obligation of one is dependent upon the
7
Bowe v. CA, 220 SCRA 158 (1993); Romero v. CA, 250 SCRA 223 (1995); Lao v. CA, 275 SCRA 237 (1997); Cavite Dev’t Bank
v. Lim, 324 SCRA 346 (2000).
8
Romero v. CA, 250 SCRA 223 (1995); Balatbat v. CA, 261 SCRA 128 (1996); Coronel v. CA, 263 SCRA 15 (1996); City of Cebu
v. Heirs of Candido Rubi, 306 SCRA 408 (1999); Agasen v. CA , 325 SCRA 504 (2000); Laforteza v. Machuca, 333 SCRA 643
(2000); Londres v. CA, 394 SCRA 133 (2002); Alcantara-Daus v. de Leon , 404 SCRA 74 (2003); Buenaventura v. CA , 416 SCRA
263 (2003); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Ainza v. Padua, 462
SCRA 614 (2005); Roberts v. Papio, 515 SCRA 346 (2007); MCC Industrial Sales Corp. v. Ssangyong Corp., 536 SCRA 408
3
obligation of the other; and they are to be performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other. xCortes v. CA, 494 SCRA 570 (2006).12
A perfected contract of sale is bilateral because it carries the correlative duty of the seller to deliver
the property and the obligation of the buyer to pay the agreed price. xCongregation of the Religious of
the Virgin Mary v. Orola, 553 SCRA 578 (2008).
The power to rescind without need of prior demand is implied in reciprocal ones when one of the
obligors does not comply with his obligation. Almocera v. Ong, 546 SCRA 164 (2008).13
d. Onerous and Commutative (√Gaite v. Fonacier, 2 SCRA 830 [1961]; BUT SEE: Arts. 1355 and
1470)
In a contract of sale, there is no requirement that the price be equal to the exact value of the
subject matter of sale; all that is required is that the parties believed that they will receive good value in
exchange for what they will give. √Buenaventura v. CA, 416 SCRA 263 (2003).
e. Sale Is Title and Not Mode
Sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership
is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or
ownership. Sale by itself does not transfer or affect ownership; the most that sale does is to create the
obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually
transfers ownership. xSan Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005),14 citing VILLANUEVA,
PHILIPPINE LAW ON SALES, 1995 ed., at p. 5.
Ownership by the seller of the thing sold is not an element of perfection; what the law requires is
that seller has the right to transfer ownership at the time of delivery. xQuijada v. CA, 299 SCRA 695
(1998).15 BUT SEE: xTitong v. CA, 287 SCRA 102 (1998), which defined a “sale” as “a contract
transferring dominion and other real rights in the thing sold.”
12
Ong v. CA, 310 SCRA 1 (1999); Mortel v. KASSCO, 348 SCRA 391 (2000); Agro Conglomerates, Inc. v. CA, 348 SCRA 450
(2000); Velarde v. CA, 361 SCRA 56 (2001); Carrascoso, Jr. v. CA, 477 SCRA 666 (2005); Heirs of Antonio F. Bernabe v. CA, 559
SCRA 53 (2008); Antonino v. Register of Deeds of Makati, 674 SCRA 227 (2012).
13
Vda. De Quirino v. Palarca, 29 SCRA 1 (1969)
14
Acap v. CA, 251 SCRA 30 (1995).
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deliver, the contract is one of sale; but if one of the parties accepts the undertaking on the basis of
some plan, taking into account the work he will employ personally or through another, the contract is
for a piece of work. xEngineering & Machinery Corp. v. CA, 252 SCRA 156 (1996).
4. Agency to Sell (Art. 1466)
Assumption by “agent” of the risk pertaining to the cost or price of the subject matter makes the
relationship that of buyer-seller, for the agent does not assume risk with respect to the price or the
property subject of the relationship. xKer & Co., Ltd. v. Lingad, 38 SCRA 524 (1971). Consequently:
(a) contractual relationship is not inherently revocable. √Quiroga v. Parsons, 38 Phil. 501 (1918);
(b) purported agent does not have to account for the profit margin earned from acquiring the
property for the purported principal. √Puyat v. Arco Amusement Co., 72 Phil. 402 (1941).
One factor that most clearly distinguishes agency from other legal concepts, including sale, is
control; one person – the agent – agrees to act under the control or direction of another – the principal.
xVictorias Milling Co., Inc. v. CA, 333 SCRA 663 (2000).
Commercial broker, commission merchant or indentor is a middleman acting in his own name, and
acts as agent for both seller and buyer to effect a sale between them. Although he is neither seller nor
buyer to the contract effected he may voluntarily assume warranties of seller. xSchmid and Oberly,
Inc. v. RJL Martinez, 166 SCRA 493 (1988).
5. Dacion En Pago (Arts. 1245 and 1934)
Governed by the law on sales, dation in payment is a transaction that takes place when property is
alienated to the creditor in full satisfaction of a debt in money – it involves the delivery and
transmission of ownership of a thing as an accepted equivalent of the performance of the obligation.
Yuson v. Vitan, 496 SCRA 540 (2007).
In its modern concept, what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered as the purchase price.
xAquintey v. Tibong 511 SCRA 414 (2006).18
Elements of dation in payment: (a) performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the
third person; (b) some difference between the prestation due and that which is given in substitution
(aliud pro alio); and (c) agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a presentation different from that due. √Lo v. KJS Eco-
Formwork System Phil., Inc., 413 SCRA 182 (2003).19
There is no dation in payment where there is no transfer of ownership in the creditor’s favor, as
when the possession of the thing is merely given to the creditor by way of security, Fort Bonifacio Dev.
Corp. v. Yllas Lending Corp., 567 SCRA 454 (2008); as when the possession is only by way of
security, xPNB v. Pineda, 197 SCRA 1 (1991); there must be actual delivery of the property to the
creditor by way of extinguishment of the pre-existing debt, Philippine Lawin Bus Co. v. CA, 374 SCRA
332 (2002).20 BUT SEE OBITER: √SSS v. AG& P Company of Manila, Inc. 553 SCRA 677 (2008).
In a true dacion en pago, the assignment of the property extinguishes the monetary debt, Ong v.
Roban Lending Corp., 557 SCRA 516 (2008); xEstanislao v. East West Banking Corp., 544 SCRA 369
(2008).
Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either
as agreed upon by the parties or as may be proved, unless the parties by agreement—express or
implied, or by their silence—consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished, Tan Shuy v. Maulawin, 665 SCRA 604 (2012).
A creditor, especially a bank, which enters into dacion en pago , should know and must accept the
legal consequence thereof, that the pre-existing obligation is totally extinguished.
A property subject to a real estate mortgage, which has not been foreclosed, may validly be the
subject of dacion en pago , for a mortgage does not take away the property rights of the mortgagor;
however, the creditor who becomes the buyer of the property is subject to the real estate mortgage
lien. xTypingco v. Lim, 604 SCRA 396 (2009).
A dacion en pago is governed by the law of sales, and contracts of sale come with warranties,
either express (if explicitly stipulated by the parties) or implied. The implied warranty in case of eviction
is waivable and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its
consequences. Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
1. Subject Must at Perfection Be Existing, Future or Contingent (Arts. 1347, 1348, and 1462)
a. Emptio Rei Speratae (Arts. 1461 and 1347)
Pending crops which have potential existence may be valid object of sale. xSibal v. Valdez , 50
Phil. 512 (1927); and such transaction cannot be considered to effectively be sale of the land or any
part thereof. xPichel v. Alonzo, 111 SCRA 341 (1981).
b. Emptio Spei (Art. 1461)
c. Subject to Resolutory Condition (Art. 1465)
X6. Illegality of Subject Matter (Arts. 1409, 1458, 1461, 1462, and 1575)
a. Special Laws: narcotics (R.A. 6425); wild bird or mammal (Act 2590, Sec. 7); rare wild plants (Act
3983); poisonous plants or fruits (R.A. 1288); dynamited fish (R.A 428); gunpowder and explosives
(Act 2255); firearms and ammunitions (P.D. 9); sale of realty by non-Christians (Sec. 145, Revised
Adm. Code, R.A. 4252)
b. Following Sales of Land Void:
• By Non-Christian if not approved by Provincial Governor per Sec. 145 of Revised Administrative Code.
xTac-an v. CA, 129 SCRA 319 (1984).
• Friar land without consent of Secretary of Agriculture required under Act No. 1120. xAlonso v. Cebu
Country Club, Inc., 375 SCRA 390 (2002); Liao v. CA, 323 SCRA 430 (2000).
• Made in violation of land reform laws declaring tenant-tillers as the full owners of the lands they tilled.
xSiacor v. Gigantana, 380 SCRA 306 (2002).
• Reclaimed lands are of the public domain and cannot, without congressional fiat, be sold, public or
private. Fisheries Dev. Authority v. CA, 534 SCRA 490 (2007).
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IV. PRICE AND OTHER CONSIDERATION (Arts. 1469-1474)
“Price” signifies the sum stipulated as the equivalent of the thing sold and also every incident taken
into consideration for the fixing of the price put to the debit of the buyer and agreed to by him. Inchausti &
Co. v. Cromwell, 20 Phil. 345 (1911).
Seller cannot unilaterally increase the price previously agreed upon with the buyer, even when due
to increased construction costs. GSIS v. CA, 228 SCRA 183 (1993).
Buyer who opted to purchase the land on installment basis with imposed interest, cannot unilaterally
disavow the obligation created by the stipulation in the contract which sets the interest at 24% p.a. “The
rationale behind having to pay a higher sum on the installment is to compensate the vendor for waiting a
number of years before receiving the total amount due. The amount of the stated contract price paid in full
today is worth much more than a series of small payments totaling the same amount. x x x To assert that
mere prompt payment of the monthly installments should obviate imposition of the stipulated interest is to
ignore an economic fact and negate one of the most important principles on which commerce operates.”
Bortikey v. AFP RSBS, 477 SCRA 511 (2005).
29
Yu Bun Guan v. Ong, , 367 SCRA 559 (2001); Gonzales v. Trinidad, 67 Phil. 682 (1939)
30
Peñalosa v. Santos, 363 SCRA 545 (2001); Soliva v. The Intestate Estate of Marcelo M. Villalba, 417 SCRA 277 (2003);
9
Consideration for sale can take different forms, such as the prestation or promise of a thing or
service by another, thus:
• When deed provides that the consideration was the expected profits from the subdivision project. xTorres
v. CA, 320 SCRA 428 (1999).
• Cancellation of liabilities on the property in favor of the seller. xPolytechnic University v. CA, 368 SCRA
691 (2001).
33
• Assumption of mortgage constituted on the property sold. xDoles v. Angeles, 492 SCRA 607 (2006).
33
The deed of sale with assumption of mortgage is a registrable instrument and must be registered with the Register of Deeds in
order to bind third parties. Rodriguez v. CA, 495 SCRA 490 (2006).
10
influence indicative of a defect in consent is present. The contract may be annulled for vitiated consent
and not due to the inadequacy of price. xBautista v. CA, 436 SCRA 141 (2004).36
Absent any evidence of the fair market value of a land as of the time of sale, it cannot be
concluded that the price was inadequate. xAcabal v. Acabal, 454 SCRA 897 (2005).37
a. Gross Inadequacy of Price May Avoid Judicial Sale:
(i) Only when it is shocking to the conscience of man. xPascua v. Simeon, 161 SCRA 1 (1988);
and
(ii) There is showing that, in the event of a resale, a better price can be obtained. xCu Bie v. CA,
15 SCRA 307 (1965).38
UNLESS: There is right of redemption, in which case the proper remedy is to redeem . xDe Leon v.
Salvador, 36 SCRA 567 (1970).39
BUT: By way of extraordinary circumstances perceived, when in a judicial sale the right of
redemption has been lost, where the inadequacy of the price is purely shocking to the
conscience, such that the mind revolts at it and such that a reasonable man would neither
directly or indirectly be likely to consent to it, the same will be se aside. xCometa v. CA, 351
SCRA 294 (2001).
Gross inadequacy of price by itself will not result in a void contract; it does not even affect the
validity of a contract of sale; unless it signifies a defect in the consent (i.e., there has been fraud,
mistake or undue influence) or that the parties actually intended a donation or some other contract.
Bacungan v. CA, 574 SCRA 642 (2008).
There is “gross inadequacy in price” if it is such that a reasonable man will not agree to dispose of
his property. xDorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).
When judicial sale is voided without fault of purchaser, the latter is entitled return of price with
simple interest, together with all sums paid out by him in improvements introduced on the property,
taxes, and other expenses. xSeven Brothers Shipping Corp. v. CA, 246 SCRA 33 (1995).
b. more than 1/4 of value of thing makes sale rescissible unless approved by court (Art. 1381 in
rel to Art. 1386)
c. Gross inadequacy of price may raise the presumption of equitable mortgage (Art. 1602)
41
Laforteza v. Machuca, 333 SCRA 643 (2000); Buot v. CA, 357 SCRA 846 (2001); Abalos v. Macatangay, Jr., 439 SCRA 649
(2004); Vasquez v. Ayala Corp., 443 SCRA 231 (2004); Eulogio v. Apeles, 576 SCRA 561 (2009); Polytechnic University of the
Philippines v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).
42
Adelfa Properties, Inc. v. CA, 240 SCRA 565 (1995); Kilosbayan, Inc. v. Morato, 246 SCRA 540 (1995); San Miguel Properties
Philippines, Inc. v. Huang, 336 SCRA 737 (2000); Limson v. CA, 357 SCRA 209 (2001).
43
JMA House, Inc. v. Sta. Monica Industrial and Dev. Corp., 500 SCRA 526 (2006).
44
De la Cavada v. Diaz, 37 Phil. 982 (1918); San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000)
45
Affirming Atkins, Kroll & Co., Inc. v. Cua, 102 Phil. 948 (1958); Overturning Southwestern Sugar Molasses Co. v. Atlantic Gulf
12
another but also on terms, including the price, that are yet to be firmed up. . . the “offer” may be
withdrawn anytime by communicating the withdrawal to the other party. √Vasquez v. Ayala Corp.,
443 SCRA 231 (2004).
A right of first refusal clause simply means that should the lessor decide to sell the leased property
during the term of the lease, such sale should first be offered to the lessee; and the series of
negotiations that transpire between the lessor and the lessee on the basis of such preference is
deemed a compliance of such clause even when no final purchase agreement is perfected between
the parties . The lessor was then at liberty to offer the sale to a third party who paid a higher price, and
there is no violation of the right of the lessee. √Riviera Filipina, Inv. v. CA, 380 SCRA 245 (2002).48
When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not
to sell the leased property to anyone at any price until after the lessor made an offer to sell the
property to the lessee and the lessee has failed to accept it. Only after the lessee has failed to
exercise his right of first priority could the lessor sell the property to other buyers under the same terms
and conditions offered to the lessee, or under terms and conditions more favorable to the lessor.
Polytechnic University of the Philippines v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).
A right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to
buy the property in the event the owner sells the same. As distinguished from an option contract, in a
right of first refusal, whole the object might be made determinate, the exercise of the right of first
refusal would be dependent not only on the owner’s eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that are yet to be firmed up. Polytechnic
University of the Philippines v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).
The right of first refusal applies only to a case where the owner of the property intends to sell it to a
third party. If the owner of the leased premises do not intend to sell the property in question but seeks
to eject the tenant on the ground that the former needs the premises for residential purposes, the
tenant cannot invoke the land reform law. Estanislao v. Gudito, 693 SCRA 330 (2013).
A right of first refusal in a lease in favor of the lessee cannot be availed of by the sublessee.
xSadhwani v. CA, 281 SCRA 75 (1997).
3. MUTUAL PROMISES TO BUY AND SELL (Art. 1479): “TRUE CONTRACT TO SELL”
Mutual promises to buy and sell a certain thing for a certain price gives each of the contracting
parties a right to demand from the other the fulfillment of the obligation. xBorromeo v. Franco, 5 Phil.
49 (1905).
Even in this case the certainty of the price must also exist, otherwise, there is no valid and
enforceable contract to sell. xTan Tiah v. Yu Jose, 67 Phil. 739 (1939).
An accepted bilateral promise to buy and sell is in a sense similar to, but not exactly the same, as a
perfected contract of sale because there is already a meeting of minds upon the thing which is the
object of the contract and upon the price. 49 But a contract of sale is consummated only upon delivery
and payment, whereas in a bilateral promise to buy and sell gives the contracting parties rights in
personam, such that each has the right to demand from the other the fulfillment of their respective
undertakings. √Macion v. Guiani, 225 SCRA 102 (1993).50
The cause of action under a mutual promise to buy and sell is 10 years. xVillamor v. CA, 202 SCRA
607 (1991).
53
Beaumont v. Prieto, 41 Phil. 670 (1916); Zayco v. Serra, 44 Phil. 326 (1923); Tuazon v. Del Rosario-Suarez, 637 SCRA 728
(2010).
14
5. Difference Between Earnest Money and Option Money. √Oesmer v. Paraiso Dev. Corp., 514
SCRA 228 (2007).
6. Sale Deemed Perfected Where Offer Was Made. (Art. 1319)
C. FORMAL REQUIREMENTS FOR CONTRACT SALES (Arts. 1357, 1358 (1), 1406 and 1483)
1. Form Not Important for Validity of Sale
Sale of land under private instrument is valid and enforceable. xGallar v. Husain, 20 SCRA 186
(1967).58
Articles 1357 and 1358, in relation to Art. 1403(2), do not require that the conveyance of land to be
in a public instrument in order to validate the act or contract, but only to insure its efficacy. The Estate
of Pedro C. Gonzales v. Heirs of Marcos Perez, 605 SCRA 47 (2009).59
The legal consequence of the sale not being in a public instrument is that both its due execution
and its authenticity must be proven, pursuant to Sec. 20, Rule 132 of the Rules of Court. xTigno v.
Aquino, 444 SCRA 61 (2003).
a. Other Rulings on Deeds of Sale:
§ Seller may validly agree to a deed of absolute sale before full payment of the purchase price. xPan Pacific
Industrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006).
§ Failure of the buyers failed to pay the full price stated in the Deed of Sale would not render the sale void.
Bravo-Guerrero v. Bravo, 465 SCRA 244 (2005).
§ That marital consent executed prior to the Deed of Absolute Sale does not indicate that it is a phoney. Pan
Pacific Industrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006).
§ A notarized Deed of Sale enjoys the presumption of regularity and due execution; to overthrow that
presumption, sufficient, clear and convincing evidence is required, otherwise the document should be
60
upheld. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).
§ Notarization of Deeds of Sale by one who was not a notary public does not affect the validity thereof; the
documents merely remained private documents. xR.F. Navarro & Co. Inc. v. Vailoces, 361 SCRA 139
(2001).
§ Notarization does not guarantee a Deed of Sales’ validity nor the veracity of its contents, for it is not the
function of the notary public to validate an instrument that was never intended by the parties to have any
61
binding legal effect. xSalonga v. Concepcion, 470 SCRA 291 (2005).
§ Buyer’s immediate taking of possession of subject property corroborates the truthfulness and authenticity
of the deed of sale. xAlcos v. IAC, 162 SCRA 823 (1988); conversely, the seller’s continued possession of
the property makes dubious the contract of sale between them. xSantos v. Santos, 366 SCRA 395
62
(2001).
§ Any substantial difference between the terms of the Contract to Sell and the concomitant Deed of Absolute
Sale (such as difference in subject matter, and difference in price and/or the terms thereof), does not make
the transaction between the seller and the buyer void, for it is truism that the execution of the Deed of
Absolute Sale effectively rendered the previous Contract to Sell ineffective and cancelled [through the
process of novation]. xLumbres v. Talbrad, Jr., 516 SCRA 575 (2007).
b. Value of Business Forms to Prove Sale
Business forms, e.g., order slip, delivery charge invoice and the like, which are issued in the
ordinary course of the business are not always fully accomplished to contain all the necessary
information describing in detail the whole business transaction . . . despite their being often
incomplete, they are commonly recognized in ordinary commercial transactions as valid between the
parties and serve as an acknowledgment that a business transaction has in fact transpired. xDonato
C. Cruz Trading Corp. v. CA, 347 SCRA 13 (2000).63
2. WHEN FORM IMPORTANT IN SALE
a. To Bind Third Parties
Article 1358 which requires the embodiment of certain contracts in a public instrument is only for
convenience, and registration of the instrument only adversely affects third parties. Formal
requirements are, therefore, for the benefit of third parties; and non-compliance therewith does not
adversely affect the validity of the contract nor the contractual rights and obligations of the parties
thereunder. √Dalion v. CA, 182 SCRA 872 (1990).64
58
F. Irureta Goyena v. Tambunting, 1 Phil. 490 (1902).
59
Martinez v. CA, 358 SCRA 38 (2001); Heirs of Biona v. CA, 362 SCRA 29 (2001); The Estate of Pedro C. Gonzales v. The Heirs
of Marcos Perez, 605 SCRA 47 (2009).
60
Yason v. Arciaga, 449 SCRA 458 (2005); Union Bank v. Ong , 491 SCRA 581 (2006); Tapuroc v. Loquellano Vda. De Mende,
512 SCRA 97 (2007); Alfaro v. CA, 519 SCRA 270 (2007); Santos v. Lumbao, 519 SCRA 408 (2007); Pedrano v. Heirs of
Benedicto Pedrano, 539 SCRA 401 (2007); Olivares v. Sarmiento, 554 SCRA 384 (2008).
15
While sale of land appearing in a private deed is binding between the parties, it cannot be
considered binding on third persons, if it is not embodied in a public instrument and recorded in the
Registry of Deeds. √Secuya v. Vda. De Selma, 326 SCRA 244 (2000).65
b. For Enforceability Between the Parties: STATUTE OF FRAUDS (Arts. 1403 and 1405)
The term “Statute of Frauds” is descriptive of the statutes which require certain enumerated
contracts and transactions, such as agreements for the sale of real property, to be in writing and
signed by the party to be charged, the purpose being to prevent fraud and perjury in the enforcement
of obligations depending for their evidence on the unassisted memory of witnesses. xShoemaker v. La
Tondeña, 68 Phil. 24 (1939).
Presupposes Valid Contract of Sale: The application of the Statute of Frauds presupposes the
existence of a perfected contract; otherwise, there is no basis for the application of the Statute. xFirme
v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).66
(1) Coverage:
(i) Sale of Real Property – A sale of realty cannot be proven by means of witnesses, but must necessarily
be evidenced by a written instrument, duly subscribed by the party charged, or by secondary evidence of the contents
67
of such document. xGorospe v. Ilayat, 29 Phil. 21 (1914).
(ii) Agency to Sell or to Buy – As contrasted from sale, an agency to sell does not belong to any of the
three categories of contracts covered by Arts. 1357 and 1358 and not one enumerated under the Statutes of Frauds
68
in Art. 1403. xLim v. CA, 254 SCRA 170 (1996).
(iii) Rights of First Refusal – A “right of first refusal” is not covered; besides, Art. 1403(2)(e) presupposes
the existence of a perfected, albeit unwritten, contract of sale; a right of first refusal, is not by any means a perfected
sale. xRosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001).
(iv) Right to Repurchase – The deed and the verbal agreement allowing the right of repurchase should
be considered as an integral whole; the deed of sale is itself the note or memorandum evidencing the contract.
xMactan Cebu Int’ll Airport Authority v. CA, 263 SCRA 736 (1996).
(v) Equitable Mortgage – Statute does not stand in the way of treating an absolute deed as a mortgage,
when such was the parties’ intention, although the agreement for redemption or defeasance is proved by parol
69
evidence. xCuyugan v. Santos, 34 Phil. 100 (1916).
(2) Memorandum
For the memorandum to take the sale out of the coverage of the Statute of Frauds, it must
contain “all the essential terms of the contract” of sale. √Yuviengco v. Dacuycuy, 104 SCRA 668
(1981);70 even when scattered into various correspondences which can be brought together xCity
of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999).71
EXCEPTION: Electronic Documents under the E-COMMERCE ACT (R.A. 8792)
(3) Waiver – (Art. 1405)
Cross-examination on the contract is deemed a waiver of the defense of the Statute. xAbrenica
v. Gonda, 34 Phil. 739 (1916).72
(4) Partial Execution (Art. 1405; √Ortega v. Leonardo, 103 Phil. 870 [1958]; √Claudel v. CA,
199 SCRA 113 [1991]).
Delivery of the deed to buyer’s agent, with no intention to part with the title until the purchase
price is paid, does not take the case out of the Statute of Frauds. xBaretto v. Manila Railroad Co.,
46 Phil. 964 (1924).
The Statute of Frauds does not apply to contracts either partially or totally performed. In
addition, a contract that violates the Statute of Frauds is ratified by the acceptance of benefits
under the contract, such as the acceptance of the purchase price and using the proceeds to pay
outstanding loans. √Alfredo v. Borras, 404 SCRA 145 (2003).73
Since a contract of sale is perfected by mere consent, then when the dealer of motor vehicles
accepts a deposit of P50,0000 and pulls out a unit from the assembler for that purpose, it was in
breach of contract when it sold the car subsequently to another buyer. Xentrex Automotive, Inc. v.
CA, 291 SCRA 66 (1998).
A sales invoice is a commercial document (i.e., those used by merchants or businessmen to
promote or facilitate trade or credit transactions) which is not a mere scrap of paper bereft of
probative value, but vital piece of evidence of commercial transactions, written memorials of the
65
Limketkai Sons Milling, Inc. v. CA, 255 SCRA 6 (1996); 261 SCRA 464 (1996); Talusan v. Tayag, 356 SCRA 263 (2001);
Santos v. Manalili, 476 SCRA 679 (2005).
66
Rosencor Dev’t Corp. v. Inquing, 354 SCRA 119 (2001).
67
Alba Vda. De Ray v. CA, 314 SCRA 36 (1999).
68
Torcuator v. Bernabe, 459 SCRA 439 (2005).
69
Rosales v. Suba, 408 SCRA 664 (2003); Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).
70
Paredes v. Espino, 22 SCRA 1000 (1968); Torcuator v. Bernabe, 459 SCRA 439 (2005).
71
Berg v. Magdalena Estate, Inc., 92 Phil. 110 (1952); Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995); First Philippine
16
details of the consummation of contracts. xSeaoil Petroleum Corp. v. Autocorp Group, 569 SCRA
387 (2008); it constitutes evidence of the receipt of the goods; since the best evidence to prove
payment is the official receipt. xEl Oro Engravers Corp. v. CA, 546 SCRA 42 (2008).
In itself, the absence of receipts, or any proof of consideration, would not be conclusive of the
inexistence of a sale since consideration is always presumed. x Tigno v. Aquino, 444 SCRA 61
(2003) ; but a receipt proves payment which takes the sale out of the Statute of Frauds. √Toyota
Shaw, Inc. v. CA, 244 SCRA 320 (1995).
CONTRA: A receipt which is merely an acknowledgment of the sum received, without any
indication therein of the total purchase price of the land or of the monthly installments to be paid,
cannot be the basis of valid sale. xLeabres v. CA, 146 SCRA 158 (1986).74
c. For Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874)
When sale of a piece of land or any interest therein is through an agent, the authority of the latter
shall be in writing; otherwise, the sale shall be void,75 even when:
• Agent is the son of the owner. xDelos Reyes v. CA, 313 SCRA 632 (1999).
• There is partial payment of the price received by the supposed agent. xDizon v. CA, 396 SCRA 154
76
(2003).
77
• In the case of a corporate owner of realty. xCity-Lite Realty Corp. v. CA, 325 SCRA 385 (2000).
When Contract to Sell was signed by the co-owners themselves as witnesses, the written authority
for their agent mandated under Article 1874 of the Civil Code is no longer required. xOesmer v.
Paraiso Dev. Corp., 514 SCRA 228, 237 (2007).
Art. 1874 should be interpreted to mean that the sale is unenforceable to the principal, who may
otherwise ratify it. Pahud v. Court of Appeals, 597 SCRA13 (2009).78
d. Sale of Large Cattle (Art. 1581; Sec. 529, Revised Adm. Code)
A. OBLIGATIONS OF SELLER
1. Preserve Subject Matter (Art. 1163)
2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537)
(1) Registration of Title Is Separate Mode from Execution of Public Instrument – The
recording of the sale with the proper Registry of Deeds and the transfer of the certificate of title in the
name of the buyer are necessary only to bind third parties to the transfer of ownership. As between the
seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument
conveying the real estate. √Chua v. CA, 401 SCRA 54 (2003).
BUT SEE: Under Art. 1495, seller is obliged to transfer title over the property and deliver the
same to the vendee. √Vive Eagle Land, Inc. v. CA, 444 SCRA 445 (2004).
(2) Customary Steps in Selling Immovables – “Customarily, in the absence of a contrary
agreement, the submission by an individual seller to the buyer of the following papers would complete a
sale of real estate: (1) owner’s duplicate copy of the Torrens title; (2) signed deed of absolute sale; (3)
tax declaration; and (4) latest realty tax receipt. They buyer can retain the amount for the capital gains
tax and pay it upon authority of the seller, or the seller can pay the tax, depending on the agreement of
the parties.” √Chua v. CA, 401 SCRA 54 (2003).
The execution of the notarized deed of sale and the delivery of the owner’s duplicate copy
of the original certificate of title to the buyer is tantamount to constructive delivery of the object
of the sale. Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
(iii) As to Incorporeal Property (Arts. 1498 and 1501).
In the sale of shares of stock, delivery of a stock certificate is one of the essential requisites for
the transfer of ownership of the stocks purchased. Seller’s failure to delivery the stock certificates
representing the shares of stock amounted to a substantial breach which gave rise to a right to
rescind the sale. Raquel-Santos v. CA, 592 SCRA 169 (2009).
e. Constitutum Possessorium (Art. 1500) – A provision in the deed of sale granting to seller a right
to lease the subject matter of the sale is valid: the possession is deemed to be constituted in the
vendee by virtue of this mode of tradition.” xAmigo v. Teves, 96 Phil. 252 (1954).
f. Traditio Brevi Manu – Prior to the sale, petitioners were in possession of the subject property as
lessees. Upon sale to them of the rights, interests and participation as to the ½ portion pro indiviso,
they remained in possession, not in the concept of lessees anymore but as owners now through
87
Norkis Distributors v. CA, 193 SCRA 694 (1991).
20
symbolic delivery known as traditio brevi manu. xHeirs of Pedro Escanlar v. CA, 281 SCRA 176
(1997).
4. Transfer Ownership to Vendee Upon Delivery (Arts. 1477, 1478, and 1496)
In the absence of such stipulation to the contrary, tradition produces its natural effects in law, most
important of which being conveyance of ownership, without prejudice to right of the seller to claim
payment of the price. xFroilan v. Pan Oriental Shipping Co., 12 SCRA 276 (1964).92
a. When Buyer Refuses to Accept (Art. 1588)
Since delivery of subject matter is an obligation on the part of the seller, the acceptance thereof by
the buyer is not a condition for the completeness of delivery. xLa Fuerza v. CA, 23 SCRA 1217 (1968).
7. Expenses of Execution and Registration (Art. 1487), and of Putting Goods in Deliverable State
(Art. 1521)
Unless otherwise stipulated: (a) under Art. 1487 the expenses for the registration of the sale should
be shouldered by the seller. xVive Eagle Land, Inc. v. CA, 444 SCRA 445 (2004); and (b) duty to
withhold taxes due on the sale is imposed on seller. xEquitable Realty Dev’t Inc. v. Mayfair Theater,
Inc., 332 SCRA 139 (2000).
Although it is the buyer has more interest in having the capital gains tax paid immediately since this
is a pre-requisite to the issuance of a new Torrens title in his name, nonetheless, as far as the
government is concerned the capital gains tax remains a liability of the seller since it is a tax on the
seller’s gain from the sale of the real estate. Payment of the capital gains tax, however, is not a pre-
requisite to the transfer of ownership to the buyer since the transfer of ownership takes effect upon the
signing and notarization of the deed of absolute sale. xChua v. CA, 401 SCRA 54 (2003).
A judgment that decrees seller’s obligations to execute and deliver the deed of absolute sale and
the certificate of title does not necessarily include within its terms the obligation to pay for the
expenses in notarizing a deed of sale and in obtaining new certificate of title. xJose Clavano, Inc. v.
HLRB, 378 SCRA 172 (2002).
1. Primacy of Torrens System of Registration – The rules on double sales under Art. 1544 do not
overcome the rules provided under the Property Registration Decree (P.D. 1459), such as:
(a) When two different titles are issued over the same registered land, the buyer who claims under a
title that was first issued shall be preferred. xLiao v. CA, 323 SCRA 430 (2000);
(b) Invoking the rules on double sales and “priority in time” under Art. 1544 would be misplaced by a
first buyer who bought the land not within the Torrens system but under Act No. 3344, as against the
second buyer who bought the same property when it was already registered under the Torrens system,
because:
• of the “well-known rule in this jurisdiction that persons dealing with registered land have the legal right to
rely on the fact of the Torrens Certificate of Title and to dispense with the need to inquire further, except when the
party concerned has actual knowledge of facts and circumstances that would impel a reasonably cautious man to
make such inquiry;” and
• the Torrens system rule that formal registration proceedings undertaken on the property and the
subsequent issuance of a title over the land had under the Torrens system had the legal effect of cleansing title on the
property of all liens and claims which were not annotated therein.
√Naawan Community Rural Bank, Inc. v. CA, 395 SCRA 43
96
Pudadera v. Magallanes, 633 SCRA 332 (2010).
97
Reiterated in Abrigo v. De Vera, 432 SCRA 544 (2005); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008).
23
When the seller sold the same properties to two buyers, first to the respondent and then to
Viloria on two separate occasions, the second sale was not void for the sole reason that petitioner
had previously sold the same properties to respondent. This case involves a double sale as the
disputed properties were sold validly on two separate occasions by the same seller to the two
different buyers in good faith. xDe Leon v. Ong, 611 SCRA 381, 388 (2010).
When the seller sold the same properties to two buyers, first to the respondent and then to
Viloria on two separate occasions, the second sale was not void for the sole reason that petitioner
had previously sold the same properties to respondent. This case involves a double sale as the
disputed properties were sold validly on two separate occasions by the same seller to the two
different buyers in good faith. De Leon v. Ong, 611 SCRA 381, 388 (2010).
(1) Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims: √Adalin v. CA, 280
SCRA 536 (1997).103
The rules on double sales under Art. 1544 are not applicable to contract to sell, because of the
circumstances that must concur in order for the provisions to Art. 1544 on double sales to apply,
namely that there must be a valid sales transactions, and buyers must be at odds over the rightful
ownership of the subject matter who must have bought from the very same seller, are lacking in a
contract to sell for neither a transfer of ownership nor a sales transaction has been consummated,
and such contract is binding only upon the fulfillment or non-fulfillment of an event. Nevertheless,
the governing principle of Art. 1544 should apply, mainly the governing principle of primus
tempore, portior jure (first in time, stronger in right). √Cheng v. Genato, 300 SCRA 722 (1998).
b. Exact Same Subject Matter
Article 1544 applies where the same thing is sold to different buyers by the same seller. xOng v.
Oalsiman, 485 SCRA 464 (2006); and does not apply where there was a sale to one party of the land
itself while the other contract was a mere promise to sell the land or at most an actual assignment of
the rights to repurchase the same land. xDischoso v. Roxas, 5 SCRA 781 (1962).
c. Exact Same Seller for Both Sales
Article 1544 applies where the same thing is sold to different vendees by the same vendor. It does
not apply where the same thing is sold to different vendees by different vendors, or even to the same
buyer but by different sellers. xSalera v. Rodaje, 530 SCRA 432, 438 (2007);104 or by several
successive vendors. xMactan-Cebu International Airport Authority v. Tirol, 588 SCRA 635 (2009);
Roque v. Aguado, 720 SCRA 780 (2014); Skunac Corp. v. Sylianteng, 723 SCRA 625 (2014).
For Article 1544 to apply, it is necessary that the conveyance must have been made by a party who
has an existing right in the thing and the power to dispose of it. It cannot be invoked where the two
different contracts of sale are made by two different persons, one of them not being the owner of the
property sold. And even if the sale was made by the same person, if the second sale was made when
such person was no longer the owner of the property, because it had been acquired by the first
purchaser in full dominion, the second purchaser cannot acquire any right. √Consolidated Rural
Bank (Cagayan Valley), Inc. v. CA, 448 SCRA 347 (2005),105 citing VILLANUEVA, PHILIPPINE LAW ON
SALES 100 (1995).
107
Blanco v. Rivera, 488 SCRA 148 (2006); Gabriel v. Mabanta, 399 SCRA 573 (2003); De la Cena v. Briones, 508 SCRA 62
(2006); Tanglao v. Parungao, 535 SCRA 123 (2007); Bernardez v. CA, 533 SCRA 451 (2007); Orduña v. Fuentebella, 622 SCRA
146 (2010); Estate of Margarita D. Cabacungan v. Laigo, 655 SCRA 366 (2011).
108
Cruz v. Cabana, 129 SCRA 656 (1984); Gatmaitan v. CA, 200 SCRA 37 (1991); Vda. de Jomoc v. CA , 200 SCRA 74 (1991);
Bucad v. CA, 216 SCRA 423 (1992); Berico v. CA, 225 SCRA 469 (1993); Bautista v. CA, 322 SCRA 294 (2000); Bautista v. CA,
322 SCRA 294 (2000); Ulep v. CA, 472 SCRA 241 (2005); Escueta v. Lim, 512 SCRA 411 (2007); Lumbres v. Tablada, Jr., 516
SCRA 575 (2007); Fudot v. Cattleya Land, Inc., 533 SCRA 350 (2007); Tanglao v. Parungao, 535 SCRA 123 (2007).
109
Liao v. CA, 323 SCRA 430 (2000); Talusan v. Tayag, 356 SCRA 263 (2001); Dauz v. Exchavez, 533 SCRA 637 (2007).
110
The Roman Catholic Church v. Pante, 669 SCRA 234 (2012).
25
Under Article 1544, mere registration is not enough to acquire a new title. Good faith must concur.
Clearly, when the buyer has not yet fully paid the purchase price, and as long as seller remains
unpaid, the buyer cannot feign good faith. xPortic v. Cristobal, 546 SCRA 577 (2005).113
BUT SEE: In the determination of whether or not the buyer is in good faith, the point in time to be
considered is the moment when the parties actually entered into the contract of sale.
Estate of Lino Olaquer v. Ongjoco, 563 SCRA 373 (2008).
b. Burden of Proof – The burden of proving the status of a purchaser in good faith lies upon him who
asserts that status. It is not sufficient to invoke the ordinary presumption of good faith, that is, that
everyone is presumed to have acted in good faith, since the good faith that is here essential is
integral with the very status that must be established. xTanglao v. Parungao, 535 SCRA 123
(2007).114
As a general rule, the question of whether or not a person is a purchaser in good faith is a factual
matter that will not be delved into by this Court, since only questions of law may be raised in petitions
for review. Tio v. Abayata, 556 SCRA 175 (2008).
BUT SEE: It is anxiomatic that good faith is always presumed in the absence of any direct evidence
of bad faith. xSantiago v. CA, 247 SCRA 336 (1995).
c. Instances When No Good Faith:
One who buys from one who is not the registered owner is expected to examine not only the
certificate of title but all factual circumstances necessary for one to determine if there are any
flaws in the title of the transferor, or in the capacity to transfer the land. It is a well -settled rule that
a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard,
and then claim that he acted in good faith under the belief that there was no defect in the title of
the vendor. Heirs of Nicolas S. Cabigas v. Limbaco, 654 SCRA 643 (2011).
(1) Being In Business on Realty – A mortgagee who eventually ended buying the property at the
public auction, cannot claim to be a buyer in good faith when his business in the constructing and selling
townhouses and extending credit to the public, including real estate loans; for he is charged with greater
diligence that ordinary buyers or encumbrances for value, because it would be standard in his business,
as a matter of due diligence required of banks and financing companies, to ascertain whether the property
being offered as security for the debt has already been sold to another to prevent injury to prior innocent
buyers. xExpresscredit Financing Corp. v. Velasco, 473 SCRA 570 (2005).115
A banking institution is expected to exercise due diligence before entering into a mortgage
contract, and the ascertainment of the statute or condition of a proper offered to it as security for
a loan must be a standard and indispensable part of its operations; and it cannot simply rely
upon reviewing the title to the property offered for mortgage. Tio v. Abayata, 556 SCRA 175
(2008).116
(2) Close 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. xPilapil v. CA, 250 SCRA 566 (1995).
(3) Gross Inadequacy of Price – Mere inadequacy of price is not ipso facto a badge of lack of
good faith—to be so, the price must be grossly inadequate or shocking to the conscience such that the
mind revolts against it and such that a reasonable man would neither directly or indirectly be likely to
consent to it. xTio v. Abayata, 556 SCRA 175 (2008).
(4) Obligation to Investigate or To Follow Leads – A purchaser who is aware of facts which
should put a reasonable man upon his guard cannot turn a blind eye and later claim that he acted in good
faith,117 such as —
§ A buyer of a registered land would be in bad faith when he purchases without asking to see the
owner’s copy of the title and/or without visiting the land where he would then have seen first buyer
118
occupying the same. xSantiago v. CA, 247 SCRA 336 (1995).
§ When there are occupants to the land being bought, since it is the common practice in the real estate
industry, an ocular inspection of the premises involved is a safeguard a cautious and prudent
119
purchaser usually takes. xMartinez v. CA, 358 SCRA 38 (2001).
Raymundo v. Bandong, 526 SCRA 514 (2007); De Leon v. Ong, 611 SCRA 381 (2010); Kings Properties Corp. v. Galido, 606
SCRA 137 (2009); The Heirs of Romana Saves v. The Heirs of Escolastico Saves, 632 SCRA 236 (2010); De Leon v. Ong, 611
SCRA 381 (2010); Yared v. Tiongco, 660 SCRA545 (2011); PCSO v. New Dagupan Metro Gas Corp., 676 SCRA 156 (2012);
Santiago v. Villamor, 686 SCRA 313 (2012); Angeles v. Domingo, 692 SCRA 277 (2013).
113 Uy v. Fule, 727 SCRA 456 (2014); Peralta v. Heirs of Bernardina Abalon, 727 SCRA 477 (2014); Locsin v. Hizon, 735 SCRA
547 (2014).
114
Tsai v. CA, 366 SCRA 324 (2001); Aguirre v. CA, 421 SCRA 310 (2004); Raymundo v. Bandong, 526 SCRA 514 (2007); Eagle
Realty Corp. V. Republic, 557 SCRA 77 (2008); Pudadera v. Magallanes, 633 SCRA 332 (2010).
26
§ Any person engaged in business would be wary of buying from a company that is closing shop,
because it may be dissipating its assets to defraud creditors. Such buyer is bound to inquire whether
the owners had unsettled obligations encumbrance that could burden the property. xSamson v. CA,
120
238 SCRA 397 (1994).
§ The property was titled and transferred with undue haste within a short period of time, “plus the fact
that the subject property is a vast tract of land in a prime location, should have, at the very least,
triggered petitioner’s curiosity.” Eagle Realty Corp v. Republic, 557 SCRA 77, 94 (2008).
(5) Land in Adverse Possession – Buyer who could not have failed to know or discover that the
land sold to him was in the adverse possession of another is a buyer in bad faith. xHeirs of Ramon
Durano, Sr. v. Uy, 344 SCRA 238 (2000).121
Knowledge of the unregistered sale by the attaching creditor is deemed equivalent to
registration. Unlike in the sale of real property, an attaching creditor is not expected to inspect the
property being attached, as it is the sheriff who does the actual act of attaching the property. Rural
Bank of Sta. Barbara [Pangasinan], Inc. v. The Manila Mission of the Church of Jesus Christ of
Latter Day Saints, Inc., 596 SCRA 415 (2009).
(6) Existence of Lis Pendens or Adverse Claim – Registration of an adverse claim places any
subsequent buyer of the registered land in bad faith. xKings Properties Corp. v. Galido, 606 SCRA 137
(2009).122
Settled is the rule that one who deals with property with a notice of lis pendens, even when at
the time of sale the annotation was cancelled but there was a pending appeal, cannot invoke the
right of a purchaser in good faith. A purchaser cannot close his eyes to facts which should put a
reasonable man on guard and claim that he acted in the belief that there was no defect in the title of
the seller. xPo Lam v. CA, 316 SCRA 721 (1999).
EXCEPT: When knowledge of lis pendens was acquired at the time there was order to have it
cancelled. xPo Lam v. CA, 347 SCRA 86 (2000).123
A buyer cannot be considered to be in bad faith when it was shown that at the time of the
purchase the notice of lis pendens was already being ordered cancelled and the cancellation of the
notice terminated the effects of such notice. Pudadera v. Magallanes, 633 SCRA 332 (2010).
(7) Annotation of Lien in Settlement of Estate – An annotation placed on new certificates of title
issued pursuant to the distribution and partition of a decedent’s real properties is a warning to third
persons on the possible interest of excluded heirs or unpaid creditors in these properties— where a buyer
purchases the real property despite the annotation, he must be ready for the possibility that the title be
subject to the rights of excluded parties. Tan v. Benolirao, 604 SCRA 36 (2009).
(8) Banks Are Vested with Public Interest and Obligation to Exercise Extraordinary Diligence
– One of the protections afforded by P.D. 957 to buyers is the right to have her contract to sell
registered with the Register of Deeds in order to make it binding on third parties. Nonetheless,
despite the non-registration of the contract to sell, the mortgagee bank cannot be considered,
under the circumstances, an innocent purchaser for value of the lot when it accepted the latter
(together with other assigned properties) as payment for the mortgagor developer’s obligation—
the bank was well aware that the assigned properties were subdivision lots and therefore within
the purview of P.D. 957. Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
When financial institutions exercise extraordinary diligence in determining the validity of the
certificates of title to property being sold or mortgaged to them and still fail to find any defect or
encumbrance upon the subject properties after said inquiry, such financial institutions should be
protected like any other innocent purchaser for value if they paid a full and fair price at the time of
the purchase or before having notice of some other person’s claim on or interest in the property. Ty
v. Queen’s Row Subdivision, Inc., 607 SCRA 324 (2009).
7. When Subject of Sale Is Unregistered Land:
The rules in double sale under Article 1544, whereby the buyer who is able to first register the
purchase in good faith “is in full accord with Section 51 of PD 1529 which provides that no deed,
mortgage, lease, or other voluntary instrument – except a will purporting to convey or affect registered
land shall take effect as a conveyance or bind the land until its registration. Thus, if the sale is not
registered, it is binding only between the seller and the buyer but it does not affect innocent third
persons. √Abrigo v. De Vera, 432 SCRA 544 (2004); Sabitsana, Jr. v. Muertegui, 703 SCRA 145
(2013)
119
Mathay v. CA, 295 SCRA 556 (1998); Republic v. De Guzman, 326 SCRA 267 (2000); Heirs of Ramon Durano, Sr. v. Uy, 344
SCRA 238 (2000); Heirs of Celestial v. Heirs of Celestial, 408 SCRA 291 (2003); Erasusta, Jr. v. CA, 495 SCRA 319 (2006); De la
Cena v. Briones, 508 SCRA 62 (2006); Tanglao v. Parungao, 535 SCRA 123, 132 (2007).
120 Eagle Realty Corp v. Republic, 557 SCRA 77 (2008).
121
Modina v. CA, 317 SCRA 696, 706 (1999); Republic v. De Guzman, 326 SCRA 267 (2000); Martinez v. CA, 358 SCRA 38
(2001); Heirs of Trinidad de Leon Vda. De Roxas v. CA, 422 SCRA 101 (2004); Occeñna v. Esponilla, 431 SCRA 116 (2004); PNB
27
When first sale is over unregistered land and the second sale is when it is registered, the rules on
double sale do not apply. √Dagupan Trading Co. v. Macam, 14 SCRA 179 (1965).
Article 1544 is inapplicable to unregistered land because “the purchaser of unregistered land at a
sheriff’s execution sale only steps into the shoes of the judgment debtor, and merely acquires the
latter’s interest in the property sold as of the time the property was levied upon,” as expressly provided
for in then Sec. 35, Rule 39 of the Revised Rules of Court on execution sale [now Sec. 33, Rule 39,
1997 Rules of Civil Procedure)]. √Carumba v. CA, 31 SCRA 558 (1970).
Under Act 3344, registration of instruments affecting unregistered lands is “without prejudice to a
third party with a better right,” which means that mere registration does not give the buyer any right
over the land if the seller was not anymore the owner of the land having previously sold the same to
somebody else even if the earlier sale was unrecorded. The rules on double sale under Art. 1544 has
no application to land no registered under the Torrens system.√Acabal v. Acabal, 454 SCRA 555
(2005).124
D. OBLIGATIONS OF BUYER
1. Pay the Price (Art. 1582)
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. x Torcuator v. Bernabe,
459 SCRA 439 (2005).
Unless the parties to a sale have agreed to the payment of the purchase price to any other party,
then its payment to be effective must be made to the seller in accordance with Article 1240 which
provides that “Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.” xMontecillo v. Reynes,
385 SCRA 244 (2002).
125
Azcona v. Reyes, 59 Phil. 446 (1934); Coronel v. Ona, 33 Phil. 456 (1916); Francisco v. Chemical Bulk Carriers, Inc., 657
29
A person who deals with registered land through someone who is not the registered owner is
expected to look beyond the certificate of title and examine all the factual circumstances thereof in
order to determine if the vendor has the capacity to transfer any interest in the land. Sy v. Capistrano,
Jr., 560 SCRA 103 (2008).
Where innocent third persons, relying on the correctness of the certificate of title thus issued,
acquire rights over the property, the court cannot disregard such rights and order the cancellation of
the certificate, since the effect of such outright cancellation will be to impair public confidence in the
certificate of title. Every person dealing with the registered land may safely rely on the correctness of
the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to
determine the condition of the property. xHeirs of Spouses Benito Gavino. v. CA, 291 SCRA 495
(1998).
An innocent purchaser for value is one who buys the property of another without notice that some
other person has a right to or interest in it, and who pays a full and fair price at the time of the
purchase or before receiving any notice of another person’s claim. The burden of proving the status of
a purchaser in good faith and for value lies upon one who asserts that status. This onus probandi
cannot be discharged by mere invocation of the ordinary presumption of good faith. Rufloe v. Burgos,
577 SCRA 264, 272-273 (2009).
3. Sale by One Having Voidable Title (Art. 1506, as an exception to Art. 559)
Whenever there is an underlying sale which grants to the culprit -buyer a voidable title, even when
this is accompanied by the criminal act of estafa or swindling, Art. 1506 would grant to the buyer in
good faith a better title as against the original owner even though the latter may be classified to have
been “unlawfully deprived” of the subject matter under Art. 559. √Tagatac v. Jimenez, 53 O.G. 3792
(1957); √EDCA Publishing v. Santos, 184 SCRA 614 (1990).
When owner did not voluntarily deliver possession of the car, and in effect it was stolen from him,
then one who buys the car even in good faith from the thief will lose the car to the owner who is
deemed to have been unlawfully deprived. √Aznar v. Yapdiangco, 13 SCRA 486 (1965).
In all other cases of unlawful deprivation done through estafa, the original owner recovers even
from the buyer in good faith. √Cruz v. Pahati, 98 Phil. 788 (1956). [CLV: Decision showed that
second buyer, or current possessor could not claim good faith because of erasures in the
covering documents presented by his seller]
Owner of diamond ring may recover possession of the same from pawnshop where the owner’s
agent had pledged it without authority to do so; Article 559 applies and the defense that the pawnshop
acquired possession without notice of any defect of the pledgor-agent is unavailing. √Dizon v. Suntay,
47 SCRA 160 (1972).130 [In those cases possessor is a merchant and only has a pledge in his
favor].
d. After Delivery (Art. 1504) √Lawyer's Coop v. Tabora, 13 SCRA 762 (1965).131
A. ON PART OF SELLER
1. In Case of Movables (Arts. 1593, 1595 to 1597)
Under Article 1597, when the buyer of scrap iron fails to put up the letter of credit in favor of the
seller as the condition of the sale, the seller had a right to terminate the contract, and non-compliance
with the condition meant that the seller’s obligation to sell never did arise. xVisayan Sawmill Co. v. CA,
219 SCRA 378 (1993).
2. Unpaid Seller of Goods (Arts. 1524-1535) a. Definition of “Unpaid Seller” (Art. 1525) b. Rights of
Unpaid Seller:
f. Remedy of Foreclosure
Barring effect would cover a third-party mortgage, when it was the chattel mortgage that was first
foreclosed. √Ridad v. Filipinas Investment, 120 SCRA 246 (1983).
When the seller assigns his credit to another person, the latter is likewise bound by the same law.
√Zayas v. Luneta Motors, 117 SCRA 726 (1982).134
(i) “Barring” Effects of Foreclosure – Filing of the action of replevin in order to foreclose on the
chattel mortgage does not produce the barring effect under the Recto Law; for it is the fact of foreclosure
and actual sale of the mortgaged chattel that bar further recovery by the seller of any balance on the
buyer’s outstanding obligation not satisfied by the sale. The voluntary payment of the installment by the
buyer-mortgagor is valid and not recoverable in spite the restrictive provisions of Art. 1484(3). √Northern
Motors v. Sapinoso, 33 SCRA 356 (1970). 135
Foreclosure on the chattel mortgage prevents further action on the supporting real estate
mortgage, whether the chattel mortgage is first foreclosed √Cruz v. Filipinas Investment &
Finance Corp., 23 SCRA 791 (1968) ;136 and vice versa when the real estate mortgage is first
foreclosed. √Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996).
All amounts barred from recovery. √Macondray & Co. v. Eustaquio, 64 Phil. 446 (1937).
(ii) Rule on “Perverse Buyer”. √Filipinas Investment & Finance Corp. v. Ridad, 30 SCRA 564
(1969).
g. Purported Lease with Option to Buy
The Court took judicial notice of the practice of vendors of personal property of denominating a
contract of sale on installment as one of lease to prevent the ownership of the object of the sale from
passing to the vendee until and unless the price is fully paid. xElisco Tool Manufacturing Corp. v. CA,
307 SCRA 731 (1999).137
Where a lease agreement over equipment is without an express option to purchase, but
nevertheless when a final demand is given prior to suit, the demand letter indicates clearly it was within
the option of the lessee to fully pay the balance of the unpaid rentals and would be able to keep the
equipment, then the real contract between the parties was a sale of movable on installment disguised
as a lease agreement. √PCI Leasing and Finance, Inc. v. Giraffe-X Creative Imaging,
Inc., 527 SCRA 405 (2007).
4. IN CASE OF IMMOVABLES:
a . Anticipatory Breach (Art. 1591) √Legarda v. Saldaña, 55 SCRA 324 (1974).
b. Sales of Subdivision Lots and Condominium Units (Secs. 23 and 24, P.D. 957)
P.D.957 “was issued in the wake of numerous reports that many real estate subdivision owners,
developers, operators and/or sellers have reneged on their representations and obligations to provide
and maintain properly subdivision roads, drainage, sewerage, water systems, lighting systems and
other basic requirements or the health and safety of home and lot buyers. It was designed to stem the
tide of fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers free
from liens and encumbrances.” xCasa Filipinas Realty Corp. v. Office of the President, 241 SCRA 165
(1995).
Section 20 of P.D. 957 directs every owner and developer of real property to provide the necessary
facilities, improvements, infrastructure and other forms of development, failure to carry out which is
sufficient cause for the buyer to suspend payment, and any sums of money already paid shall not be
forfeited. xTamayo v. Huang, 480 SCRA 156 (2006).
In case the developer of a subdivision or condominium fails in its obligation under Section 20,
Section 23 gives the buyer:
• the option to demand reimbursement of the total amount paid, or to wait for further development of the
subdivision, and when the buyer opts for the latter alternative, he may suspend payment of the installments until such
time that the owner or developer has fulfilled its obligations. xTamayo v. Huang, 480 SCRA 156 (2006);
• buyer required only to give due notice to the owner or developer of the buyer’s intention to suspend
payment. xZamora Realty and Dev. Corp. v. Office of the President, 506 SCRA 591 (2006);
• Sec. 23 does not require that a notice be given first by the buyer to the seller before a demand for refund
can be made as the notice and demand can be made in the same letter or communication. xCasa Filipinas Realty
Corp v. Office of the President, 241 SCRA 165 (1995);
32
• Option granted by law is with buyer and not the developer/seller. xRelucio v. Brillante-Garfin, 187 SCRA
405 (1990).
• Even with a valid mortgage over the lot, the seller is still bound to redeem said mortgage without any cost
to the buyer apart from the balance of the purchase price and registration fees—subdivision developers and owners
have the obligation to deliver the corresponding clean certificates of title of the subdivision lots where the purchase
price of which have been paid in full by the buyers. Cantemprate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009).
It is apt to mention that it is the intent of P.D. 957 to protect the buyer against unscrupulous
developers, operators and/or sellers who reneged on their obligations. Thus, in order to achieve this
purpose, equity and justice dictate that the injured party should be afforded full recompensed and as
such, be allowed to recover the prevailing market value of the undelivered lot which had ben fully paid
for. Gotesco Properties, Inc. v. Fajardo, 692 SCRA 319 (2013).
“Buyer” under P.D. 957 would include one who acquires for a valuable consideration a
condominium unit by way of assignment by the condominium project owner in payment of its
indebtedness for contractor’s fee. xAMA Computer College, Inc. v. Factora, 378 SCRA 121 (2002).
Buyers of condominium units would be justified in suspending payments, when the developer-seller
fails to give them a copy of the Contract to Sell despite repeated demands. xGold Loop Properties, Inc.
v. CA, 350 SCRA 371 (2001); or when they failed to provide for the amenities mandated under their
development plan. Fedman Dev. Corp. v. Agcaoili, 656 SCRA 354 (2011). However, when the
Reservation Agreement provides that the buyer shall be entitled to a Contract to Sell only upon its
payment of at least 30% of the total contract price, the non-happening yet of that condition does not
render the seller in default as to warrant the buyer the right to rescind the sale and demand a refund.
G.G. Sportwear Mfg. Corp. v. World Class Properties, Inc., 614 SCRA 75 (2010).
Nothing in P.D. 957 provides for the nullification of a contract to sell in the event the seller, at the
time the contract was entered into, did not possess a certificate of registration or a license to sell, sale
being a consensual contract. Co Chien v. Sta. Lucia Realty, 513 SCRA 570 (2007).138
The dissatisfaction of the buyer under a Contract of Sale as to the completion date of the project
does not itself constitute substantial breach as to authorize the buyer to rescind the contract and ask
for refund of the amounts paid to the seller. G.G. Sportwear Mfg. Corp. v. World Class Properties, Inc.,
614 SCRA 75 (2010).
Under P.D. No. 957, a buyer cause of action against the developer for failure to develop ripens only
when the developer fails to complete the project on the lapse of the completion period stated on the
sale contract or the developer’s Licenses to Sell. Any premature demand prior to the indicated
completion date would be premature. G.G. Sportwear Mfg. Corp. v. World Class Properties, Inc., 614
SCRA 75 (2010).
The lack of Certificate of Registration or the License to Sell of the developer-seller merely subjects
the developer to administrative sanctions, but do not render the contracts to sell entered into on the
project null and void. G.G. Sportwear Mfg. Corp. v. World Class Properties, Inc., 614 SCRA 75 (2010).
Since the lots are involved in litigation and there is a notice of lis pendens at the back of the titles
involved, the subdivision developer have to be given a reasonable period of time to work on the
adverse claims and deliver clean titles to the buyer, and should the former fail to deliver clean titles at
the end of the period, it ought to reimburse the buyers not only for the purchase price of the
subdivision lots sold to them but also the incremental value arising from the appreciation of the lots.
Cantemprate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009).
One of the protections afforded by P.D. 957 to buyers is the right to have her contract to sell
registered with the Register of Deeds in order to make it binding on third parties. Nonetheless, despite
the non-registration of the contract to sell, the mortgagee bank cannot be considered, under the
circumstances, an innocent purchaser for value of the lot when it accepted the latter (together with
other assigned properties) as payment for the mortgagor developer’s obligation—the bank was well
aware that the assigned properties were subdivision lots and therefore within the purview of P.D. 957.
Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
B. ON PART OF BUYER
1. In case of Movables (Arts. 1598-1599)
1. Distinguishing from Other Remedy of Rescission (Universal Food Corp. v. CA, 33 SCRA 22
[1970]147. But see contra Suria v. IAC, 151 SCRA 661 [1987]).
While Art. 1191 uses the term “rescission,” the original term which was used in the old Civil Code
was “resolution.” Resolution is a principal action which is based on breach of a party, while rescission
under Art. 1383 is a subsidiary action limited to cases of rescission for lesion under Art. 1381. xOng v.
CA, 310 SCRA 1 (1999).148
2. Basis of Remedy of Rescission (Resolution)
Rescission under Art. 1191 is predicated on a breach of faith by the other party who violates the
reciprocity between them, and the breach contemplated is the obligor’s failure to comply with an
existing obligation. When the obligee may seek rescission and, in the absence of any just cause for the
court to determine the period of compliance, the court shall decree the rescission. xVelarde v. CA, 361
SCRA 56 (2001).149
To rescind is to declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative positions as if no contract has
been made. xVelarde v. CA, 361 SCRA 56 (2001).150
When a party asks for the resolution or cancellation of a contract it is implied that he recognizes it
existence – a non-existent contract cannot be cancelled. xPan Pacific Industrial Sales Co., Inc. v. CA,
482 SCRA 164 (2006).
Non-payment of the purchase price is a resolutory condition for which the remedy is either
rescission or specific performance under Article 1191. This is true for reciprocal obligations where the
145
Caridad Estates, Inc. v. Santero , 71 Phil. 114 (1940); Albea v. Inquimboy, 86 Phil. 477 (1950); Manuel v. Rodriguez , 109 Phil.
1 (1960); Joseph & Sons Enterprises, Inc. v. CA, 143 SCRA 663 (1986) Gimenez v. CA , 195 SCRA 205 (1991); Jacinto v. Kaparaz,
209 SCRA 246 (1992); Odyssey Park, Inc. v. CA, 280 SCRA 253 (1997); Rillo v. CA, 274 SCRA 461 (1997); Platinum Plans Phil.,
Inc. v. Cucueco, 488 SCRA 156 (2006); Tan v. Benolirao, 604 SCRA 36 (2009); Garcia v. CA, 619 SCRA 280 (2010).
35
obligation is a resolutory condition of the other. On the other hand, the buyer is entitled to retain the
purchase price or a part thereof if the seller fails to perform any essential obligation of the contract.
Such right is premised on the general principles of reciprocal obligation. xGil v. CA, 411 SCRA 18
(2003).151
Consignation by the buyer of the purchase price of the property, there having been no previous
receipt of a notarial demand for rescission, is sufficient to defeat the right of the seller to demand for a
rescission of the deed of absolute sale. xGil v. CA, 411 SCRA 18 (2003).
Creditors do not have such material interest as to allow them to sue for rescission of a sale – theirs
is only a personal right to receive payment for the loan, not a real right over the property subject of the
deed of sale. xAdorable v. CA, 319 SCRA 200 (1999).
Action for Rescission Not Similar to An Action for Reconveyance – In the sale of real property,
the seller is not precluded from going to the court to demand judicial rescission in lieu of a notarial act
of rescission. But such action is different from an action for reconveyance of possession on the thesis
of a prior rescission of the contract covering the property. The effects that flow from an affirmative
judgment in either case would be materially dissimilar in various respects: judicial resolution of a
contract gives rise to mutual restitution which is not necessarily the situation that arise in an action for
reconveyance. In an action for rescission, unlike in an action for reconveyance predicated on an
extrajudicial rescission (rescission by notarial act), the court, instead of decreeing rescission, may
authorize for a just cause the fixing of a period. xOlympia Housing v. Panasiatic Travel Corp., 395
SCRA 298 (2003).
1. CONTRACT OF SALE versus CONTRACT TO SELL (Art. 1458) √Adelfa Properties, Inc. v. CA, 240 SCRA
575 (1995).156
In a contract of sale, title to the property passes to buyer upon the delivery of the thing sold; in a
contract to sell, ownership is, by agreement, reserved in the seller and is not to pass to buyer until full
payment of purchase price. Otherwise stated, in a contract of sale, seller loses ownership over the
property and cannot recover it until and unless the contract is resolved or rescinded, whereas in a
contract to sell, title is retained by the seller until full payment of the price. In the latter contract,
payment of the price is a positive suspensive condition, failure of which is not a breach but an event
that prevents the obligation of the vendor to convey title from becoming effective. xCastillo v. Reyes,
539 SCRA 193 (2007).157
151
Central Philippine University v. CA, 246 SCRA 511 (1995); Romeo v. CA, 250 SCRA 223 (1995); Cheng v. Genato, 300 SCRA
722 (1998); Uy v. CA, 314 SCRA 63 (1999).
152
Ocejo, Perez & Co. v. International Banking Corp. 37 Phil. 631 (1918); Republic v. Hospital de San Juan de Dios, 84 Phil. 820
(1949); De la Rama Steamship Co. v. Tan, G.R. No. 8784, May 21, 1956; 99 Phil. 1034 (unrep.) (1956); Heirs of Jesus M.
Mascuñana v. CA, 461 SCRA 186 (2005).
153
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 95 (1972); Luzon Brokerage v. Maritime Bldg., 86 SCRA 305
(1978); Pangilinan v. Court of Appeals, 279 SCRA 590 (1997); Calilap-Asmeron v. DBP, 661 SCRA 54 (2011).
154
Velarde v. CA, 361 SCRA 56 (2001); Orden v. Aurea, 562 SCRA 660 (2008).
155
The Manila Racing Club v. The Manila Jockey Club, 69 Phil. 55 (1939).
36
a. Is a Contract to Sell a “Sale” under Article 1458?
A “contract to sell” as “a bilateral contract whereby the prospective seller, while expressly reserving
the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to
sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed
upon, that is, full payment of the purchase price.” √Coronel v. CA, 263 SCRA 15, 27 (1996).158 BUT
SEE: √PNB v. CA, 262 SCRA 464 (1996).
To be sure, a contract of sale may either be absolute or conditional. One form of conditional sales is
what is now popularly termed as a “Contract to Sell,” where ownership or title is retained until the
fulfillment of a positive suspensive condition normally the payment of the purchase price in the manner
agreed upon. For a contract, like a contract to sell, involves a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some service.
xGomez v. CA, 340 SCRA 720, 728 (2000).159
A contract to sell is akin to a conditional sale, in which the efficacy or obligatory force of the
vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event, so
that if the suspensive condition does not take place, the parties would stand as if the conditional
obligation never existed. Orden v. Aurea, 562 SCRA 660 (2008).160
A contract to sale is perfect at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. Thus, for a contract to sale to be valid, all of the following
essential elements must concur: “a) consent or meeting of the minds; b) determinate subject matter;
and c) price certain in money or its equivalent. The contract to sell undergoes also the three stages of
a contract: negotiation, perfection and consummation. Robern Dev. Corp. v. People’s Landless Assn.,
693 SCRA 24 (2013).
While the quality of contingency inheres in a contract to sell, the same should not be confused with
a conditional contract of sale. In a contract to sell, the fulfillment of the suspensive condition will not
automatically transfer ownership to the buyer although the property may have been previously
delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into
a contract of absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of the
suspensive condition renders the sale absolute and the previous delivery of the property has the effect
of automatically transferring the seller’s owenrshi9p or title to the property to the buyer. Ventura v.
Heirs of Spouses Endaya, 706 SCRA 631 (2013).
In a contract of sale, the seller loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; in a contract to sell, title is retained by the seller until full
payment of the price. Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010).
A contract of sale is defined under Article 1458 of the Civil Code: By the contract of sale, one of the
contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefore a price certain in money or its equivalent. A contract to sell, on the other
hand, is defined by Article 1479 of the Civil Code: [A] bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective seller, while expressly reserving the ownership of the subject property despite delivery
thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price. In a
contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold,
whereas in a contract to sell, the ownership is, by agreement, retained by the seller and is not to pass
to the vendee until full payment of the purchase price. Akang v. Municipality of Isulan, Sultan Kudarat
Province, 699 SCRA 745 (2013).
b. The Essence of Contract to Sell
A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the latter upon his
fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or
compliance with the other obligations stated in the contract to sell. Given its contingent nature, the
failure of the prospective buyer to make full payment and/or abide by his commitments stated in
the contract to sell prevents the obligation of the prospective seller to execute the corresponding
deed of sale to effect the transfer of ownership to the buyer form arising. Ventura v. Heirs of
Spouses Endaya, 706 SCRA 631 (2013).161
A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the property despite delivery thereof to the prospective
buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the
condition agreed, i.e., full payment of the purchase price. In a contract to sell, the prospective
seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective
Inc., 609 SCRA 134 (2009); De Leon v. Ong, 611 SCRA 381 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575
(2010).
37
seller does not as yet agree or consent to transfer ownership of the property subject of the
contract to sell until the happening of an event, which for present purposes we shall take as the
full payment of the purchase price. Republic v. Marawi-Marantao General Hospital, Inc., 686
SCRA 546 (2012).
In a contract to sell, payment of the price is a positive suspensive condition, failure of which is
not a breach of contract warranting rescission under Article 1191 of the Civil Code but rather just
an event that prevents the supposes seller from being bound to convey title to the supposed
buyer. Bonrostro v. Luna, 702 SCRA 1 (2013).
The remedy of rescission is not available in contracts to sell. Diego v. Diego, 691 SCRA 361
(2013).
In a contract to sell, the seller’s obligation to deliver the corresponding certificates of title is
simultaneous and reciprocal to the buyer’s full payment of the purchase price. Gotesco
Properties, Inc. v. Fajardo, 692 SCRA 319 (2013).
Rationale of Contracts to Sell: A contract to sell is commonly entered into so as to protect the
seller against a buyer who intends to buy the property in installments by withholding ownership over
the property until the buyer effects full payment therefor. It cannot be inferred in a situation where both
parties understood the price to be paid in cash. xCity of Cebu v. Heirs of Candido Rubi, 306 SCRA 408
(1999).162
c. Importance of “Locating” the Condition to Pay Price in Full
In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the
transaction that, for a time existed, and discharges the obligations created thereunder. xBlas v.
Angeles-Hutalla, 439 SCRA 273 (2004). 163 Whereas, in a contract to sell, the payment of the purchase
price is a positive suspensive condition. The vendor’s obligation to convey the title does not become
effective in case of failure to pay. xBuot v. CA, 357 SCRA 846 (2001).164
When the obligation of buyer to pay the full amount of the purchase price was made subject to the
condition that the seller first delivery the clean title over the parcel bough within twenty (20) months
from the signing of the contract, such condition is imposed merely on the performance of the
obligation, as distinguished from a condition imposed on the perfection of the contract. The non-
happening of the condition merely granted the buyer the right to rescind the contract or even to waive it
and enforce performance on the part of the seller, all in consonance with Art. 1545 of Civil Code which
provides that “Where the obligation of either party to a contract of sale is subject to any condition which
is not performed, such party may refuse to proceed with the contract or he may waive performance of
the condition.” √Babasa v. CA, 290 SCRA 532 (1998).
The remedy of rescission under Article 1191 of the Civil Code cannot apply to mere contracts to sell
—in a contract to sell, the payment of the purchase price is a positive suspensive condition, and failure
to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an obligatory force. Tan v. Benolirao, 604 SCRA
36 (2009).165
d. Necessary Stipulations in a Contract to Sell:
A contract is one of sale, absent any stipulation therein (a) reserving title over the property to the
vendee until full payment of the purchase price, 166 and (b) giving the vendor the right to unilaterally
rescind the contract in case of non-payment. 167 √ Valdez v. CA, 439 SCRA 55 (2004); De Leon v.
Ong, 611 SCRA 381 (2010);168 BUT SEE: √Dignos v. CA, 158 SCRA 375 (1988).
It was enough for the Court to characterize the Deed of Condition Sale as a “contract to sell” alone
by the reservation of ownership. Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008).
The reservation of title may not be found in express provision of the contract, but may also be
determined from proven acts of the parties. xSalazar v. CA, 258 SCRA 325 (1996).
The absence of a formal deed of conveyance [or a stipulation to execute the deed of sale only full
payment of the purchase price] is a strong indication that the parties did not intend immediate transfer
of ownership, but only a transfer after full payment of the purchase price, 169 and the seller retained
possession of the certificate of tile and all other documents relative to the sale until there was full
payment of the purchase price. xChua v. CA, 401 SCRA 54 (2003).
An agreement in which ownership is reserved in the vendor and is not to pass to the vendee until
full payment of the purchase price is known as a contract to sell. The absence of full payment
162
Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); Tumibay v. Lopez, 697 SCRA 21 (2013).
163
Valenzuela v. Kalayaan Dev’t and Industrial Corp., 590 SCRA 380 (2009); Traders Royal Bank v. Cuison Lumber Co., Inc., 588
SCRA 690 (2009).
164
Heirs of Spouses Sandejas v. Lina, 351 SCRA 183 (2001); Zamora Realty and Dev. Corp v. Office of the President, 506 SCRA
591 (2006); Nabus v. Pacson, 605 SCRA 334 (2009); Union Bank v. Maunlad Homes, Inc., 678 SCRA 539 (2012).
165
Traders Royal Bank v. Cuison Lumber Co., Inc., 588 SCRA 690 (2009); Nabus v. Pacson, 605 SCRA 334 (2009).
166
Topacio v. CA, 211 SCRA 219 (1992); Laforteza v. Machuca, 333 SCRA 643 (2000); Almira v. CA, 399 SCRA351 (2003);
Manuel Uy & Sons, Inc. V. Valbueco, Inc., 705 SCRA 537 (2013); Reyes v. Tuparan, 650 SCRA 238 (2011).
38
suspends the vendors’ obligation to convey title, even if the sale has already been registered.
Registration does not vest, but merely serves as evidence of, title to a particular property. Our land
registration laws do not give title holders any better ownership than what they actually had prior to
registration. xPortic v. Cristobal, 456 SCRA 577 (2005).170
It is not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties. . . Where the vendor promises to execute a deed of absolute sale
upon the completion by the vendee of the payment of the price, the contract is only a contract to sell.
The aforecited stipulation shows that the vendors reserved title to the subject property until full
payment of the purchase price. Nabus v. Pacson, 605 SCRA 334 (2009).
The need to execute a deed of absolute sale upon completion of payment of the price generally
indicates that it is a contract to sell, as it implies the reservation of title in the vendor until the vendee
has completed the payment of the price. Diego v. Diego, 691 SCRA 361 (2013).171
e. Issue of Substantial Breach (Arts. 1191 and 1234)
The concept of substantial breach is irrelevant to a contract of sale. xLuzon Brokerage Co., Inc. v.
Maritime Building Co., Inc., 43 SCRA 93 (1972).172
In a contract to sell real property on installments, the full payment of the purchase price is a positive
condition, the failure of which is not considered a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring any obligatory force. The transfer
of ownership and title would occur after full payment of the price. xLeaño v. CA, 369 SCRA 36
(2001).173
2. Minimum Requirement for Cancellation of Contract to Sell
The act of a party in treating a contract as cancelled should be made known to the other party
because this act is subject to scrutiny and review of the courts in case the alleged defaulter bring the
matter for judicial determination. √University of the Philippines v. De los Angeles, 35 SCRA 103
(1970); √Palay Inc. v. Clave, 124 SCRA 638 (1983).174
The act of the seller in notifying the buyer of his intention to sell the properties to other interested
persons if the latter failed to pay the balance of the purchase price is sufficient notice for the
cancellation or resolution of their contract to sell. Orden v. Aurea, 562 SCRA 660 (2008).
A contract to sell imposes reciprocal obligations and so cannot be terminated unilaterally by either
party. Judicial rescission is required under Article 1191. However, this rule is not absolute. We have
held that in proper cases, a party may take it upon itself to consider the contract rescinded and act
accordingly albeit subject to judicial confirmation, which may or may not be given. √Lim v. CA, 182
SCRA 564 (1990). BUT SEE: In a contract to sell, upon failure of buyer to comply with its obligation,
there was no need to judicially rescind the contract to sell. Failure by one of the parties to abide by the
conditions in a contract to sell resulted in the rescission of the contract. √AFP Mutual Benefit Assn.,
Inc. v. CA, 364 SCRA 768 (2001).175
A grace period is a right, not an obligation of the debtor, and when unconditionally conferred, the
grace period is effective without further need of demand either calling for the payment of the obligation
or for honoring the right. xBricktown Dev. Corp. v. Amor Tierra Dev.., 239 SCRA 126 (1995).
The act of the seller in notifying the buyer of his intention to sell the properties to other interest
persons if the latter failed to pay the balance of the purchase price is sufficient notice for the
cancellation or resolution of their contract to sell. Orden v. Aurea, 562 SCRA 660 (2008).
170
Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Bank of P.I. v. SMP, Inc., 609 SCRA 134 (2009).
171
Heirs of Antonio F. Bernabe v. Court of Appeals , 559 SCRA 53 (2008); Solidstate Multi-Products Corp. v. Catienza-Villaverde,
559 SCRA 197 (2008)Tan v. Benolirao, 604 SCRA 36 (2009); Nabus v. Pacson, 605 SCRA 334 (2009)Union Bank v. Maunlad
Homes, Inc., 678 SCRA 539 (2012).
39
XII. CONDITIONS AND WARRANTIES
1. Conditions (Art. 1545)
Failure to comply with condition imposed upon perfection of the contract results in failure of a
contract, while the failure to comply with a condition imposed on the performance of an obligation only
gives the other party the option either to refuse to proceed with sale or waive the condition. √Laforteza
v. Machuca, 333 SCRA 643 (2000).176
In a “Sale with Assumption of Mortgage,” the assumption of mortgage is a condition to the seller’s
consent so that without approval by the mortgagee, no sale is perfected. In such case, the seller
remains the owner and mortgagor of the property and retains the right to redeem the foreclosed
property. xRamos v. CA, 279 SCRA 118 (1997).177 But such condition is deemed fulfilled when the
seller takes any action to prevent its happening. De Leon v. Ong, 611 SCRA 381 (2010).
There has arisen here a confusion in the concepts of validity and the efficacy of a contract. Under
Art. 1318 of Civil Code, the essential requisites of a contract are: consent of the contracting parties;
object certain which is the subject matter of the contract and cause of the obligation which is
established. Absent one of the above, no contract can arise. Conversely, where all are present, the
result is a valid contract. However, some parties introduce various kinds of restrictions or modalities,
the lack of which will not, however, affect the validity of the contract. Thus, a provision “this Contract of
Sale of rights, interests and participations shall become effective only upon the approval by the
Honorable Court,” in the event of non-approval by the courts, affect only the effectivity and not the
validity of the contract of sale. √Heirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997).
The phrase “as is, where is” in sale pertains solely to the physical condition of the thing sold, not to
its legal situation. Assets Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).
The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is
the object of the sale. Assets Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).
The condition in the contract of sale of buyer’s assumption of the mortgage constituted on the
subject matter is deemed fulfilled when the seller prevented its fulfillment by paying his outstanding
obligation to the bank and taking back the certificates of title without even notifying the buyer. De Leon
v. Ong, 611 SCRA 381 (2010).
2. Conditions versus Warranties. √Power Commercial and Industrial Corp. v. CA, 274 SCRA 597
(1997).
3. Express Warranties (Art. 1546)
A warranty is a statement or representation made by the seller of goods, contemporaneously and
as part of the contract of sale, having reference to the character, quality or title of the goods, and by
which he promises or undertakes to insure that certain facts are or shall be as he then represents them
Ang v. CA, 567 SCRA 53 (2008).
A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing sold.
The decisive test is whether the vendor assumes to assert a fact of which the vendee is ignorant.
xGoodyear Philippines, Inc. v. Sy, 474 SCRA 427 (2005).
The principle of caveat emptor only requires the purchaser to exercise care and attention ordinarily
exercised by prudent men in like business affairs, and only applies to defects which are open and
patent to the service of one exercising such care. It can only be applied where it is shown or conceded
that the parties to the contract stand on equal footing and have equal knowledge or equal means of
knowledge and there is no relation of trust or confidence between them. It does not apply to a
representation that amounts to a warranty by the seller and the situation requires the buyer to rely
upon such promise or affirmation. √Guinhawa v. People, 468 SCRA 278 (2005).178
“The law allows considerable latitude to seller’s statements, or dealer’s talk; and experience
teaches that it is exceedingly risky to accept it at its face value. Assertions concerning the property
which is the subject of a contract of sale, or in regard to its qualities and characteristics, are the usual
and ordinary means used by sellers to obtain a high price and are always understood as affording to
buyers no ground for omitting to make inquiries. A man who relies upon such an affirmation made by a
person whose interest might so readily prompt him to exaggerate the value of his property does so as
his peril, and must take the consequences of his own imprudence.” xSongco v. Sellner, 37 Phil. 254
(1917).
Breach of an express warranty makes the seller liable for damages. The following requisites must
be established in order that there be an express warranty in sale: (1) the express warranty must be an
affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural
tendency of such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer
purchases the thing relying on such affirmation or promise thereon. xCarrascoso, Jr. v. CA, 477 SCRA
666 (2005).
6. Effects of Waivers
The phrase “as is, where is” basis pertains solely to the physical condition of the thing sold, not to
its legal situation. In the case at bar, the US tax liabilities constitute a potential lien which applies to the
subject’s matter’s legal situation, not to its physical aspect. Thus, the buyer has no obligation to
shoulder the same. xNDC v. Madrigal Wan Hui Lines Corp., 412 SCRA 375 (2003).
B. CONVENTIONAL REDEMPTION
181
Claravall v. CA, 190 SCRA 439 (1990); Torres v. CA, 216 SCRA 287 (1992); Roberts v. Papio, 515 SCRA 346 (2007).
42
the period of redemption, is equivalent to a formal offer to redeem. xVillegas v. CA, 499 SCRA 276
(2006).
A formal offer to redeem, accompanied by a bona fide tender of redemption price, is not essential
where the right to redeem is exercised through a judicial action within the redemption period and
simultaneously depositing the redemption price. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995).
186
Salonga v. Concepcion, 470 SCRA 291 (2005).
187
Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); Alvaro v. Ternida, 479 SCRA 288 (2006);
Cirelos v. Hernandez, 490 SCRA 624 (2006); Lumayag v. Heirs of Jacinto Nemeño , 526 SCRA 51 (2007); Olivares v. Sarmiento,
554 SCRA 384 (2008); Tio v. Abayata, 556 SCRA 175 (2008); Deheza-Inamarga v. Alano, 574 SCRA 651 (2008); Rockville Excel
International Exim Corp. v. Culla, 602 SCRA 124 (2009); Kings Properties Corp. v. Galido, 606 SCRA 137 (2009); Martires v. Chua,
694 SCRA 38 (2013).
188
Matanguihan v. CA, 275 SCRA 380 (1997); Martinez v. CA, 358 SCRA 38 (2001); Hilado v. Heirs of Rafael Medlla, 37 SCRA
257 (2002); Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); San Pedro v. Lee, 430 SCRA 338
(2005); Go v. Bacaron, 472 SCRA 229 (2005), citing VILLANUEVA, CESAR L. PHILIPPINE LAW ON SALES, (1998 ed.), p. 271; Romulo v.
Layug, Jr., 501 SCRA262 (2006); Roberts v. Papio, 515 SCRA 346 (2007); Raymundo v. Bandong, 526 SCRA 514 (2007); Dorado
Vda. De Delfin v. Dellota, 542 SCRA 397 (2008); Muñoz, Jr. V. Ramirez, 629 SCRA 38 (2010).
189
Austria v. Gonzales, Jr., 420 SCRA 414 (2004); Raymundo v. Bandong, 526 SCRA 514 (2007).
190
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Cuyugan v. Santos, 34 Phil. 100 (1916); Matanguihan v. CA, 275 SCRA 380
(1997); Hilado v. Heirs of Rafael Medlla, 37 SCRA 257 (2002); Madrigal v. CA, 456 SCRA 659 (2005); Legaspi v. Ong, 459 SCRA
122 (2005); Banga v. Bello, 471 SCRA 653 (2005); Diño v. Jardines, 481 SCRA 226 (2006); Ayson, Jr. V. Paragas, 557 SCRA 50
(2008).
191
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Balatero v. IAC, 154 SCRA 530 (1987); Mariano v. CA, 220 SCRA 716 (1993);
Lobres v. CA, 351 SCRA 716 (2001).
192
Ayson, Jr. V. Paragas, 557 SCRA 50 (2008); Bautista v. Unangst, 557 SCRA 256 (2008).
193
Claravall v. CA, 190 SCRA 439, 448 (1990); Uy v. CA, 230 SCRA 664 (1994); Lobres v. CA, 351 SCRA 716 (2001); Alvaro v.
Ternida, 479 SCRA 288 (2006); Diño v. Jardines, 481 SCRA 226 (2006); Raymundo v. Bandong, 526 SCRA 514 (2007); Aleligay v.
Laserna, 537 SCRA 699 (2007); Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008); Bautista v. Unangst, 557 SCRA 256
(2008); Rockville Excell International Exim Corp. V. Culla, 602 SCRA 124 (2009); Heirs of Jose Reyes, Jr. v. Reyes, 626 SCRA 758
44
v. Unangst , 557 SCRA 256 (2008); or under threat of being sued criminally. Ayson, Jr. V. Paragas,
557 SCRA 50 (2008).
“Inadequacy of purchase price” is considered so far short of the real value of the property as to
startle a correct mind. xSantiago v. Dizon, 543 SCRA 402 (2008); or that the mind revolts at it as such
that a reasonable man would neither directly or indirectly be likely to consent to it. xVda de Alvarez v.
CA, 231 SCRA 309 (1994); it must be grossly inadequate or shocking to the conscience. Tio v.
Abayata, 556 SCRA 175 (2008).
To presume a contract is an equitable mortgaged based on gross inadequacy of price, it must be
clearly shown from the evidence presented that the consideration was in fact grossly inadequate at the
time the sale was executed. Mere inadequacy of price is not sufficient to create the presumption.
xOlivares v. Sarmiento, 554 SCRA 384 (2008).198
Mere tolerated possession is not enough to prove that the transaction was an equitable mortgage.
xRedondo v. Jimenez, 536 SCRA 639 (2007).
Payment of real estate taxes is a usual burden attached to ownership, and when such payment is
coupled with continuous possession of the property, it constitutes evidence of great weight that a
person under whose name the realty taxes were declared has a valid and right claim over the land.
xGo v. Bacaron, 472 SCRA 229 (2005).199
However mere allegations without proof to support inadequacy of price, or when continued
possession by the seller is supported by a valid arrangement consistent with the sale, would not
support the allegation of equitable mortgage. xCirelos v. Hernandez, 490 SCRA 624 (2006).200
Although under the agreement the seller shall remain in possession of the property for only one
year, such stipulation does not detract from the fact that possession of the property, an indicium of
ownership, was retained by the alleged vendor to qualify the arrangement as an equitable mortgage,
especially when it was shown that the vendor retained part of the purchase price. xLegaspi v. Ong,
459 SCRA 122 (2005).201
Under Article 1602, delay in transferring title is not one of the instances enumerated by law—
instances in which an equitable mortgage can be presumed. Nor does the fact that the original
transaction on the land was to support a loan, which when it was not paid on due date was negotiated
into a sale, without evidence that the subsequent deed of sale does not express the true intentions of
the parties, give rise to a presumption of equitable mortgage. xCeballos v. Intestate Estate of the Late
Emigdio Mercado, 430 SCRA 323 (2004).
The fact that the price in a pacto de retro sale is not the true value of the property does not justify
the conclusion that the contract is one of equitable mortgage; in fact a pacto de retro sale, the practice
is to fix a relatively reduced price to afford the seller a retro every facility to redeem the property.
xIgnacio v. CA, 246 SCRA 242 (1995).202
Article 1602 being remedial in nature, may be applied retroactively in cases prior to the effectivity of
the Civil Code. xOlea v. CA, 247 SCRA 274 (1995).
This kind of arrangement, where the ownership of the land is supposedly transferred to the buyer
who provides for the funds to redeem the property from the bank but nonetheless allows the seller to
later on buy back the properties, is in the nature of an equitable mortgage governed by Articles 1602
and 1604 of the Civil Code. (at p. 648) Bacungan v. Court of Appeals, 574 SCRA 642 (2008).
b. Remedies Allowed for Equitable Mortgage (Arts. 1454, 1602, 1605)
In the case of an equitable mortgage, although Art. 1605 which allows for the remedy of
reformation, nothing therein precludes an aggrieved party from pursuing other remedies to effectively
protect his interest and recover his property, such as an action for declaration of nullity of the deed of
sale and specific performance. xTolentino v. CA, 386 SCRA 36 (2002).
In an equitable mortgage situation, the consolidation of ownership in the person of the mortgagee in
equity upon failure of the mortgagor in equity to pay the obligation, would amount to a pactum
commissorium. The only proper remedy is to cause the foreclosure of the mortgage in equity.
xBriones-Vasquez v. CA, 450 SCRA 644 (2005); or to determine if the principal obligation secured by
the equitable mortgage has been paid or settled. xBanga v. Bello, 471 SCRA 653 (2005).
c. Pactum Commissorium (Art. 2088)
A stipulation which is a pactum commisorium enables the mortgagee to acquire ownership of the
mortgaged properties without need of any foreclosure proceedings—it is a nullity being contrary to the
provisions of Article 2088 of the Civil Code. xLumayag v. Heirs of Jacinto Nemeño, 526 SCRA 315
(2007).203
The elements of pactum commissorium, which enable the mortgagee to acquire ownership of the
mortgaged property without the need of any foreclosure proceedings, are: (1) there should be a
property mortgaged by way of security for the payment of the principal obligation, and (2) there should
198
Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
199
Lumayag v. Heirs of Jacinto Nemeño, 526 SCRA 51 (2007).
45
be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-
payment of the principal obligation within the stipulated period. Ong v. Roban Lending Corp., 557
SCRA 516 (2008); Philnico Industrial Corp. v. Privatization and Management Office, 733 SCRA 703
(2014)
It does not apply when the security for a debt is also money in the form of time deposit. xConsing v.
CA, 177 SCRA 14 (1989).
The provision in a MOA/Dacion en Pago with a Right to Repurchase that in the event the borrower
fails to comply with the new terms of restructuring the loan, the agreement shall automatically operate
to be an instrument of dacion en pago without need of executing any new document does not
constitute pactum commissorium. √Solid Homes, Inc. v. CA, 275 SCRA 267 (1997); the questioned
contracts were freely and voluntarily executed by petitioners and respondent is of no moment, pactum
commissorium being void for being prohibited by law. Ong v. Roban Lending Corp., 557 SCRA 516
(2008).
BUT S EE: The stipulation in the promissory note providing that upon failure of the makers to pay
interests, ownership of the property would automatically be transferred to the payee, and the covering
deed of sale would be registered is in substance a pactum commissorium in violation of Art. 2088, and
consequently, the resultant sale is void and the registration and obtaining of new title in the name of
the buyer would have be declared void also. √A. Francisco Realty v. CA, 298 SCRA 349 (1998).204
e. Final Chance to Redeem in “Mistaken Equitable Mortgage” (Art. 1606)
The 30 day period under Art. 1606 does not apply if the courts should find the sale to be absolute.
Pangilinan v. Ramos, 181 SCRA 359 (1990).205
Sellers in a sale judicially declared as pacto de retro may not exercise the right to repurchase within
the 30-day period provided under Art. 1606, although they have taken the position that the same was
an equitable mortgage, if it is shown that there was no honest belief thereof since: (a) none of the
circumstances under Art. 1602 were shown to exist to warrant a conclusion that the transaction was an
equitable mortgage; and (b) that if they truly believed the sale to be an equitable mortgage, as a sign
of good faith, they should have consigned with the trial court the amount representing their alleged
loan, on or before the expiration of the right to repurchase. √Abilla v. Gobonseng, 374 SCRA 51
(2002).206
An equitable mortgage is a voidable contract. It may be annulled within four (4) years from the time
the cause of action accrues. Ayson, Jr. v. Paragas, 557 SCRA 50 (2008). [CLV: Thereafter, it may be
enforced against the provision on pactum commissorium?]
C. LEGAL REDEMPTION
b. Rare Exceptions:
When the sale to the buyer was effected through the co-owner who acted as the broker, and never
indicated that he would exercise his right to redeem. xDistrito v. CA, 197 SCRA 606 (1991).
When the buyers took possession of the property immediately after the execution of the deed of
sale in their favor and lived in the midst of the other co-owners who never questioned the same.
xPilapil v. CA, 250 SCRA 560 (1995).
4. Effects of Assignment
a. Assignment of Credit
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the assignee, who
acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor.
xAquintey v. Tibong, 511 SCRA 414 (2006).216
As a consequence, the third party steps into the shoes of the original creditor as subrogee of the
latter. Although constituting a novation, such assignment does not extinguish the obligation under the
credit assigned, even when the assignment is effected without his consent. xSouth City Homes, Inc. V.
BA Finance Corp., 371 SCRA 603 (2001).
b. Issues re Debtor (Art. 1626)
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. xProject Builders, Inc. v. CA, 358 SCRA 626 (2001).
Consent of debtor is not necessary in order that assignment may fully produce legal effects, and the
duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented
from assigning their credits because of the possibility of the debtors’ refusal to given consent. What the
law requires in an assignment of credit is mere notice to debtor, and the purpose of the notice is only
49
to inform the debtor that from the date of the assignment, payment should be made to the assignee
and not to the original creditor. xNIDC v. De los Angeles, 40 SCRA 489 (1971).217
c. Accessories and Accessions (Art. 1627)
Assignment of a credit includes all the accessory rights, such as guaranty, mortgage, pledge or
preference. xUnited Planters Sugar Milling Co., Inc. (UPSUMCO) v. CA, 527 SCRA 336 (2007).
d. Tradition in Assignment
Notarization converts a private document Assignment of Credit into a public document, thus
complying with the mandate of Article 1625 of the Civil Code and making it enforceable even as
against third persons. xLedonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
5. Warranties of Assignor (Art. 1628)
Assignor warrants only the existence or legality of the credit but not the solvency of the debtor.
√Nyco Sales Corp. v. BA Finance, 200 SCRA 637 (1991).
EXCEPTIONS: (a) If this is expressly warranted.
(b) If insolvency is known by the assignor prior to assignment.
(c) If insolvency is prior to assignment is common knowledge.
When dacion en pago takes the form of an assignment of credit, it produces the effects of a dation
in payment, which may extinguishes the obligation; however, by virtue of the warranty in Art. 1628,
which makes the vendor liable for the existence and legality of the credit at the time of sale, when it is
shown that the assigned credit no longer existed at the time of dation, then it behooves the assignor to
make good its warranty and pay the obligation. xLo v. KJS Eco-Formwork System Phil., Inc., 413
SCRA 182 (2003).
4. Effects of Non-Compliance
a. If purchase money or mortgage proceeds are not applied pro-rata to payment of the bona fide
claims of the creditors, the sale is deemed fraudulent and void. (Sec. 4)
b. Non-giving of the list of creditors or intentional omission of the names of some of the creditors, and
placing of wrong data required by law, would subject the seller or mortgagor to penal sanctions. (Sec. 4)
c. Bulk transfer without consideration or for nominal consideration punishable. (Sec. 7)
d. Failure to comply with other provisions of the law the non-application of the consideration
proportionately to the creditors, the preparation of the inventory, and the notification to creditors, are also
made punishable. (Sec. 11)
A bulk sale done without complying with the Law, makes the transaction fraudulent and void, but
does not change the basic relationship between the seller, assignor/encumbrancer and his creditor.
The judgment portion providing for subsidiary liability is invalid—the proper remedy is to collect on the
credit against the defendant, and if they cannot pay, to attach on the property fraudulently mortgage
since the same still pertain to the debtors-defendants. xPeople v. Mapoy, 73 Phil. 678 (1942).
d. Meaning of “Consumption” (DOJ Opinion No. 325, series of 1945; IRR of Law).
The Law limits its application to the sale of items sold for domestic or household, or properly called
consumer goods; whereas, when the same items are sold to commercial users, they would constitute
non-consumer goods and not covered by the Law. √Balmaceda v. Union Carbide Philippines, Inc.
124 SCRA 893 (1983).219
51
Even when consumer goods is limited only to the officers of the company, the same would still
constitute retail trade covered by the Law. √Goodyear Tire v. Reyes, Sr., 123 SCRA 273 (1983).
Where the glass company manufactures glass products only on specific orders, it does not sell
directly to consumers but manufacturers its products only for the particular clients, it cannot be said
that it is a merchandiser. √DBP v. Judge of RTC of Manila, 86 O.G. No. 6 1137 (05 February 1990).
3. Categories of Retail Trade Enterprises
a. Category A – Exclusive to Filipino citizens and 100% Filipino entities
b. Categories B and C
c. Category D – Luxury Items
d. Exempted Areas
e. Rights Granted to Former Natural-Born Filipinos
6. Penalty Provision
7. Applicability of the Anti-Dummy Act (Comm. Act. 108, as amended by P.D. 715)
a. Law penalizes Filipinos who permit aliens to use them as nominees/dummies to enjoy privileges
reserved for Filipinos. Criminal sanctions are imposed on the president, manager, board member or
persons in charge of the violating entity and causing the latter to forfeit its privileges, rights and
franchises.
b. Section 2-A of the Law prohibits aliens from intervening in the management, operation,
administration or control of nationalized business, whether as officers, employees or laborers, with or
without remuneration. Aliens may not take part in technical aspects, provided no Filipino can do such
technical work, and with express authority from the Philippine President.
c. Later, Pres. Decree 715 amended the Law by adding of a proviso expressly allowing the election of
aliens as members of the boards of directors of corporations or associations engaged in partially
nationalized activities in proportion to their allowable participation or share in the capital of such entities.
The amendment was meant to settle the uncertainty created in the obiter opinion in Luzon
Stevedoring Corp. v. Anti-Dummy Board, 46 SCRA 474 (1972), which rejected the argument that
the Anti -Dummy Law covered only employment in wholly nationalized businesses and not in those
that are only partly nationalized.
The Filipino common-law wife of a Chinese national is not barred from engaging in the retail
business provided she uses capital exclusively derived from her paraphernal properties; allowing
her common-law Chinese husband to take part in management of the retail business would be a
violation of the law. xTalan v. People, 169 SCRA 586 (1989).
—oOo—