7434 Yakal St. Brgy.

San Antonio, Makati City

School of Business

LAW ON SALES in RELATION TO REAL ESTATE

ATTY. ROLANDO B. PAGTOLON-AN, REB, REA

What is a Contract of Sale?

Art. 1458. By the contract of sale one of the contracting parties obligates
himself to transfer the ownership and to deliver a determinate thing, and
the other to pay therefor a price certain in money or its equivalent.

Characteristics of a contract of Sale

1) Nominate- it has given a particular name under the law

2) Principal- it can stand on its own

3) Bilateral- it imposes obligations on both parties to the relationship

4) Onerous- it imposes a valuable consideration as a prestation
5) Commutative- a thing of value is exchanged for equal value

6) Consensual- since it is perfected by mere consent, at the moment there

is a meeting of the minds upon the thing which is the object of the
contract and upon the price

Essential Requisites of a Contract of Sale?

1) Consent or meeting of the minds to transfer ownership in exchange for

the price

2) Object/ Subject Matter

3) Cause or Consideration (Price), certain in money or its equivalent

What are the stages of a contract of sale?

1) Preparation stage (Policitacion);
2) Perfection, conception or birth; and

3) Consummation or death.

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
SALE IS TITLE NOT MODE

A contract of sale only constitutes a TITLE or right to the transfer of ownership, but
is NOT the MODE of transferring ownership (Aznar vs. Yapdiangco)

Mode Title
-is the legal means by which dominion -only constitutes the legal basis by
or ownership is created, transferred or which to affect dominion or ownership
destroyed

How is a contract of sale distinguished from a contract to sell?

Contract of Sale Contract to Sell

An absolute sale i.e. Deed of Absolute A conditional sale
Sale
There is full payment of the There is no full payment of the
consideration consideration
Title passes to buyer upon delivery Ownership is retained and will be
transferred upon payment
Failure to pay is a resolutory condition Failure to pay is a positive suspensive
which puts an end to the transaction condition, failure of which is not a
breach, but prevents the obligation of
Remedies: the vendor to convey title to arise
1) Specific Performance
2) Rescission
Seller loses ownership upon delivery Title remains in the vendor even after
delivery

PARTIES TO A CONTRACT OF SALE

1) Buyer/Vendee
2) Seller/Vendor

Capacity of Parties
Who may enter into a contract of Sale?

All persons who are authorized in the Code to obligate themselves may
enter into a contract of sale.

Disqualifications:
1) Absolute Incapacity
- minors, demented persons, imbeciles, deaf-mute who do not know
how to read and write, those subjected to civil interdiction.
Note: They can still purchase and enter into a sale through their
representatives

- Those disqualified by law to own lands in the Philippines

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
 2) Relative Incapacity: Married Persons
The husband and the wife cannot sell property to each other,
except:
a) When a separation of property was agreed upon in the marriage
settlement; or
b) When there has been a judicial separation of property.

When is marital consent necessary in a Contract of Sale?

1. When the property relation is absolute community;
2. When the property relation is conjugal partnership; and

3. When the property was acquired during the marriage and from
common fund.
3) Special Disqualifications
Example:
a) Agents, with respect to the property entrusted to them for its
administration or sale, unless the consent of the Principal has been
given

Note: Kindly check Art, 1491 for more special disqualifications.

SUBJECT MATTER/OBJECT

What are the Requisites of a valid Subject Matter?

1) It must be existing, future or subject to resolutory condition.

2) It must be licit:
a) Not outside the commerce of man
b) It is transmissible

c) It does not contemplate a future inheritance, unless expressly

authorized by law
3) It must be determinate or at least determinable.

Sale by A Person not the Owner at Time of Delivery

Q: Must the Vendor be the owner at the time of delivery?

Art. 1459. The thing must be licit and the vendor must have a right to transfer
the ownership thereof at the time it is delivered.

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
What right does a buyer acquire in case of sale made by a non-owner?
In a sale by the non-owner, the buyer acquires no better title to the goods
than the seller had.
What are the exceptions (not exclusive)?

1) Sales sanctioned by judicial or statutory authority.

2) When a person who is not the owner sells and delivers a thing, and
subsequently acquires title thereto, the title passes by operation of law to
the buyer.
3) When the seller has voidable title which has not been avoided at the
time of the sale.

4) Sale by co-owner of whole property or a definite portion thereof.

Sale by a Person Having a Voidable Title

What is the effect if the seller of goods has a voidable title thereto, but his title has
not been avoided at the time of the sale?

Art. 1506. Where the seller of goods has a voidable title thereto, but his title
has not been avoided at the time of the sale, the buyer acquires a good
title to the goods, provided he buys them in good faith, for value, and
without notice of the seller's defect of title.
PRICE

-is 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 vendee and agreed to by him (Inchausti and Co. vs. Cromwell)

What is the effect if the price is simulated?

The sale is void but the act may be shown to have been in reality a
donation or some other act or contract (Art. 1471).

INADEQUACY OF PRICE
a) Voluntary Sales

What is the effect of inadequacy of price in a contract of Sale?

Mere inadequacy of price does not affect the validity of the sale if fixed in
good faith and without fraud (Hulst vs. PR Builders Inc.)

When does inadequacy of price affect the validity of a contract of sale?

1) Where low price indicates a vice of consent, sale may be annulled or the
contract presumed to be an equitable mortgage.
2) Where the price is so low as to be “shocking to the conscience”.

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
 3) Where the price is simulated such as when the parties intended a
donation or some other act or contract.

4) Where the parties did not intend to be bound at all, the contract is void
and inexistent.

b) Involuntary or Forced Sales

Mere inadequacy of price is not a sufficient ground for the cancellation of
the sale of real property.
When does inadequacy of price affect the validity in a contract of sale?
1) Where the price is so low as to be “shocking to the conscience”, judicial
sale of personal property will be set aside
2) If in the event of a resale, a better price can be obtained.

c) When no price Agreed

What is the effect if there is no price agreed upon?

The contract is inefficacious (Art. 1474).

Earnest Money Option Money

Title passes to the buyer upon delivery Ownership is reserved to the seller and
of the thing sold is not to pass until full payment
An action for specific performance or There can be action for specific
for rescission can be filed by the injured performance
party
Part of the purchase price Money is given as a specific
performance
When given, the buyer is bound to pay The would-be-buyer is not required to
the balance buy
There is already a sale Applies to a sale not yet perfected

FORMATION OF A CONTRACT OF SALE

A. Preparatory
Offer

What is Policitacion?
- is an unaccepted unilateral promise to buy or sell. This produces no legal
bond. This is a mere offer, and has not yet been converted into a contract.

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
Option Contract
-is a unilateral promise to buy or to sell a determinate thing for a price
certain is binding upon the promissor if the promise is supported by a
consideration distinct from the price (Art. 1479)

What does the option refer to?

The option is not the contract of sale itself. The optionee has the right, but
not the obligation, to buy. Once the option is exercised timely, ie.e, the offer
is accepted before a breach of the option, a bilateral promise to sell and
to buy ensues and both parties are then reciprocally bound to comply with
their respective undertakings (Ang Yu Asuncion vs. Court of Appeals)
What if the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw the offer
before its acceptance, or if an acceptance has been made, before the
offeror’s coming to know of such fact, by communicating that withdrawal
to the offeree (Atkins, Kroll and Co., Inc. vs. Cua)

Right of First Refusal

- It is a right of first priority, all things and conditions being equal
- Violation of the right of first refusal would make the contract rescissible

B. Perfection

When is the contract of sale perfected?

Art. 1475. The contract of sale is perfected at the moment there is a
meeting of minds upon the thing which is the object of the contract
and upon the price.

From that moment, the parties may reciprocally demand

performance, subject to the provisions of the law governing the form
of contracts.

C. Formalities
As a rule, sale is consensual contract. No form is required for its validity.

A contract of sale may be made in writing, or by word of mouth, or partly

in writing and partly by word of mouth, or may be inferred from the conduct
of the parties (Art. 1483).

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
What actions must be in writing in order to be enforceable?
The following (in relation to real estate so this list is not exclusive) must be in
writing to be enforceable- so meaning, if it is not in writing, it is still valid but
not enforceable in court:

1) Sale of real property or an interest therein.

2) Sale of property not to be performed within a year from the date
thereof.

3) When an applicable statute requires that the contract of sale be

in a certain form.
Note: A sale of real property must be notarized in order to bind third parties.
Otherwise, the sale is binding only between the Seller and Buyer. In the
event that the Seller entered into a Sales Contract with a third party, the
latter is not bound to respect the first sale between the Seller and the Buyer.

TRANSFER OF OWNERSHIP

When is ownership of the thing sold?

RES PERIT DOMINO

Art. 1477. The ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof.

Kinds of Delivery
a) Actual or Real- placing the thing under the control and possession of the
buyer
b) Legal or Constructive- delivery is represented by other signs or acts
indicative thereof, i.e. Execution of a Public Instrument, Traditio Symbolica,
Traditio Longa Manu, Traditio Brevi Manu, Constitutum Possessurium

DOUBLE SALES

When is there a double sale?

1) Two or more transactions must constitute valid sales;

2) They must pertain exactly to the same object or subject matter;

3) They must be bought from the same or immediate seller;
4) Two or more buyers who are at odds over the rightful ownership of the
subject matter must represent conflicting interests

Note: The rule on double sales is not applicable to a Contract to Sell

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
What are the rules of preference in double sales?

Real Property
1) First registrant in good faith: second buyer must register the
document in good faith; otherwise, he does not have a better
right
2) First possessor in good faith; if none then
3) Person with oldest title in good faith

Note: This rule is only applicable only if the land is covered by torrens title

PERFORMANCE OF CONTRACT

Delivery of the Thing Sold

In what condition is the vendor bound to deliver the thing sold?
Art. 1537. The vendor is bound to deliver the thing sold and its accessions
and accessories in the condition in which they were upon the perfection of
the contract.

What are the rules on the sale of real estate?

The vendor shall be obliged to deliver to the vendee, if the latter should
demand it, all that may have been stated in the contract; but, should this
be not possible, the vendee may choose between a proportional
reduction of the price and the rescission of the contract, provided that, in
the latter case, the lack in the area be not less than one-tenth of that
stated.

The same shall be done, even when the area is the same, if any part of the
immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee,
when the inferior value of the thing sold exceeds one-tenth of the price
agreed upon.

Nevertheless, if the vendee would not have bought the immovable had he
known of its smaller area of inferior quality, he may rescind the sale (Art.
1539).

WARRANTIES

1. Implied Warranty- that the object delivered is free from hidden defects,
liens and encumbrances not disclosed to the buyer.
2. Implied Warranty Against Eviction- if the vendee is deprived of the whole
or part of the object purchased as an act imputable to the vendor, the
latter shall answer for the evicition although nothing has been said in the
contract.

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
 Deed of Warranty
Art. 1545. A deed used to convey real property which contains warranties
of the title and quiet possession. In a warranty deed, the grantor agrees to
defend the premises against the lawful claims of third parties.

BREACH OF CONTRACT
What are the remedies of the seller in case of breach of contract?

1) Action for Price

2) Action for Damages
3) Action for Rescission

What are the rules on sale of real estate in instalment set by the Maceda Law?

MACEDA LAW (real property)

1) Where the buyer has paid AT LEAST TWO YEARS OF INSTALLMENTS, the buyer
is entitled to the following rights in case he defaults in the payment of
succeeding installments:

(a) TO PAY, WITHOUT ADDITIONAL INTEREST, the unpaid installments due within
the total grace period earned by him which is hereby fixed at the rate of one
month grace period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer only once in every
five years of the life of the contract and its extensions, if any.

Note: If the contract is cancelled, the seller shall refund to the buyer the cash
surrender value of the payments on the property equivalent to fifty per cent
of the total payments made, and, after five years of installments, an
additional five per cent every year but not to exceed ninety per cent of the
total payments made: Provided, That the actual cancellation of the contract
shall take place after thirty days from receipt by the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act
and upon full payment of the cash surrender value to the buyer.

2) In case where LESS THAN TWO YEARS OF INSTALLMENTS were paid, the seller
shall give the buyer a grace period of not less than sixty days from the date
the installment became due.

If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by
the buyer of the notice of cancellation or the demand for rescission of the
contract by a notarial act.

EXTINGUISHMENT OF THE SALE

What are the causes for the extinguishment of the contract of sale?

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
 The causes are:
1) Novation;

2) Compensation;
3) Confusion or merger of rights;

4) Rescission;
5) Payment or performance of obligation;
6) Loss of the thing due;

7) Condonation or remission of debt;

8) Fulfillment of a resolutory condition;
9) Prescription; and

10) Annulment (Art. 1231).

DATION IN PAYMENT/DACION EN PAGO

- Payment in kind has the effects of a sale because is such case the thing
delivered as payment by the debtor is deemed paid for by the debt which
the debtor owes the creditor. In effect, the debtor is the seller and the
creditor is the buyer.
Dacion en Pago Contract of Sale
Extinguishes the original obligation Contract of sale has no payment of
which is debt debt obligation
The cause of the contract is the The cause of the contract is the
payment of debt price
The price is predetermined The price is yet to be determined

PAYMENT BY CESSION/ASSIGNMENT
- By cession or assignment the debtor abandons all his properties (all his
leviable or non-exempt properties) for the benefit of his creditors in order
that the latter may sell said properties and from the proceeds thereof the
creditors may obtain payment and in case of deficiency, the debtor is still
liable for the same unless there is stipulation to the contrary.
Cession Dacion en Pago
There are two or more creditos There is only one creditor
The debtor is insolvent whether The debtor is insolvent
partially or totally
It covers all debtors’ non-exempt It only applies to some part of
properties debtor’s property
The creditors sell the property and The creditor becomes the owner of
divide the proceeds among the property
themselves

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
EQUITABLE MORTGAGE
-One in which, although lacking in some formality, or form or words, or other
requisites demanded by a statute, nevertheless reveals the intention of the
parties to charge real property as security for a debt and contains nothing
impossible or contrary to law (Matanguihan vs. Court of Appeals)

When is a contract deemed as an equitable mortgage?

1) When the price of a sale with right to repurchase is unusually inadequate;

2) When the vendor remains in possession as lessee or otherwise;
3) When upon or after the expiration of the right to repurchase another
instrument extending the period of redemption or granting a new period is
executed;
4) When the purchaser retains for himself a part of the purchase price; and
5) When the vendor binds himself to pay the taxes on the thing sold.

Note: In case of doubt in determining whether it is equitable mortgage or pacto

de retro sale (sale with right to repurchase), it shall be construed as an equitable
mortgage.

What if the intention of the parties is really to sell the property not just to serve it as
collateral, what is their remedy?
The remedy of the parties is REFORMATION of the contract.

CONVENTIONAL REDEMPTION
- The right which the vendor reserves to himself, to reacquire the property
sold provided he returns to the vendee, the following:
1) Price of the sale;
2) Expenses of the contract;
3) Any other legitimate payments made therefore;
4) Necessary expenses made on the things sold; and
5) Useful expenses made on the thing sold.

What is the period of redemption when no period is agreed upon?

- It shall last four (4) years from the date of the contract (Art. 1606)

What is the period of redemption when there is a period agreed upon?

- The period cannot exceed ten (10) years.

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
LEGAL REDEMPTION

- The right to be subrogated upon the same terms and conditions stipulated
in the contract, in the place of one who acquires a thing by:

1) Purchase;
2) Dation in payment; or
3) Any other transaction whereby ownership is transferred by onerous title
(Art. 1619).

What are the rules on legal redemption?

1) As among CO-HEIRS, should any of the heirs sell his hereditary rights to a
stranger before the partition, any or all of the co-heirs may be subrogated
to the rights of the purchaser by reimbursing him for the price of the sale,
provided they do so within the period of one month from the time they were
notified in writing of the sale by the vendor (Art. 1088).

2) As among CO-OWNERS, a co-owner of a thing may exercise the right of

redemption in case the undivided shares of all the other co-owners or any
of them, are sold to a third person.
Should two or more co-owners desire to exercise the right of redemption,
they may only do so in proportion to the share they may respectively have
in the thing owned in common (Art. 1620)
Note: However, a co-owner may exercise the right of redemption only
when a part of the community property is sold to a stranger. When the
portion is sold to another co-owner, the right does not arise because a new
participant is not added to the co-ownership (Fernandez vs. Tarun).

MORTGAGE REDEMPTION
When must the equity of redemption be exercised in case of judicial foreclosure?

- The right must be exercised within ninety (90) days from finality of judgment
until confirmation of sale (Sec. 47, RA 8791).

When must the right of redemption be exercised in case of extrajudicial

foreclosure?

- The right must be exercised within one (1) year from the date of
registration of the certificate of sale (Sec. 6, Act 3135).

xxx Nothing follows xxx

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA