Ust Golden Notes 2011 Sales

SALES
SALES b. Illicit object
6. Presence or absence of conditions:
Q: What is a sale? a. Absolute
b. Conditional
A: Sale is a contract where one party (seller) 7. Wholesale or retail:
obligates himself to transfer the ownership of and a. Wholesale
to deliver a determinate thing, while the other b. Retail
party (buyer) obligates himself to pay for said 8. Proximate inducement for the sale:
thing a price certain in money or its equivalent. a. Sale by description
(Tolentino, p.1, 2000 ed.) b. Sale by sample
c. Sale by description and sample
I. INTRODUCTION 9. When the price is tendered:
a. Cash sale
A. DEFINITION OF THE CONTRACT OF SALE b. Sale on installment plan

Q: What is a contract of sale? AS TO PRESENCEOR ABSENCE OF CONDITION

A: By the contract of sale, one of the contracting ABSOLUTE SALE
parties obligates himself to transfer the
ownership of and to deliver a determinate thing, Q: When is a sale absolute?
and the other to pay therefor a price certain in
money or its equivalent. (Art. 1458, NCC) A: The sale is absolute where the sale is not
subject to any condition whatsoever and where
KINDS OF SALES the title passes to the buyer upon delivery of the
thing sold. (De Leon, p. 15)
Q: What are the different kinds of sales?
Q: When is a deed of sale considered absolute in
A: As to: nature?
1. Nature of the subject matter:
a. Sale of real property; A: A deed of sale is considered absolute in nature
b. Sale of personal property where there is neither a stipulation in the deed
2. Value of the things exchanged: that title to the property sold is reserved in the
a. Commutative sale; seller until the full payment of the price, nor one
b. Aleatory sale giving the vendor the right to unilaterally resolve
3. Whether the object is tangible or the contract the moment the buyer fails to pay
intangible: within a fixed period.
a. Sale of property (tangible or
corporeal); CONDITIONAL SALE

Note: A tangible object is also called Q: When is a sale conditional?
chose in possession

A: It is conditional where the sale contemplates a
b. Sale of a right (assignment of a
contingency, and in general, where the contract is
right, or a credit or other
subject to certain conditions, usually in the case
intangibles such as copyright,
of the vendee, the full payment of the agreed
trademark, or good will);
purchase price and in the case of the vendor, the

fulfillment of certain warranties. (De Leon, p. 15)
Note: An intangible object is a

chose in action.

4. Validity or defect of the transaction:

a. Valid

b. Rescissible

c. Voidable

d. Unenforceable

e. Void

5. Legality of the object:

a. Licit object
229
ACADEMICS CHAIR: LESTER JAY ALAN E. FLORES II U N I V E R S I T Y O F S A N T O T O M A S
VICE CHAIRS FOR ACADEMICS: KAREN JOY G. SABUGO & JOHN HENRY C. MENDOZA
VICE C HAIR FOR A DMINISTRATION AND F INANCE : JEANELLE C. LEE Facultad de Derecho Civil
VICE CHAIRS FOR LAY‐OUT AND DESIGN: EARL LOUIE M. MASACAYAN & THEENA C. MARTINEZ
UST GOLDEN NOTES 2011

Q: Distinguish a conditional sale from an B. ESSENTIAL REQUISITES
absolute sale OF A CONTRACT OF SALE

A: Q: What are the elements of a contract of sale?
CONDITIONAL SALE ABSOLUTE SALE
One where the title to A: ANE
One where the seller is the property is not 1. Accidental elements – dependent on
granted the right to reserved to the seller or parties’ stipulations; Examples:
unilaterally rescind the if the seller is not a. Conditions
contract predicated on granted the right to b. Interest
the fulfillment or non‐ rescind the contract c. time & place of payment
fulfillment, as the case based on the fulfillment d. penalty
may be, of the or non‐fulfillment, as the

prescribed condition. case may be, of the
2. Natural elements – those that are
prescribed condition.
inherent even in absence of contrary
Contracts, first the
provision.
contract to sell (which is
conditional or E.g. warranties
preparatory sale) and
Contract executed 3. Essential elements – for validity:
second, the final deed of
between the seller and a. Consent
sale or the principal
the buyer b. Determinate subject matter
contract which is
executed after full c. Consideration
payment of the purchase
price Q: What is the effect and/or consequence of the
absence of consent of the owner in a contract of
Q: What is the effect of the non‐performance of sale of said property?
the condition or if the condition did not take
place? A: The contract of sale is void. One of the
essential requirements of a valid contract of sale
A: Where the obligation of either party to a is the consent of the owner of the property.
contract of sale is subject to any condition which
is not performed, such party may refuse to FORMALITIES REQUIRED
proceed with the contract or he may waive
performance of the condition. Unlike in a non‐ Q: Is there a formal requirement for the validity
fulfillment of a warranty which would constitute a of a contract of sale?
breach of the contract, the non‐happening of the
condition, although it may extinguish the A:
obligation upon which it is based, generally does GR: No form is required. It is a consensual
not amount to a breach of a contract of sale. contract. (Pineda, p. 78)

Q: In a sale with assumption of mortgage, is the XPN: Under Statute of Frauds, the following
assumption of mortgage a condition without contracts must be in writing; otherwise, they
which there will be no perfected contract of shall be unenforceable:
sale? 1. Sale of personal property at a price not
less than P500;
A: Yes. In sales with assumption of mortgage, the 2. Sale of a real property or an interest
assumption of mortgage is a condition to the therein;
seller’s consent so that without approval by the 3. Sale of property not to be performed
mortgagee, no sale is perfected (Ramos v. Court within a year from the date thereof;
of Appeals, G.R. No. 108294 Sept. 15, 1997) 4. When an applicable statute requires
that the contract of sale be in a certain
form. (Art. 1403, par.2)

Note: Statute of Frauds applies only to executory
contracts but not to partially executed contracts.
(Pineda, p.81)

230 CIVIL LAW TEAM:
ADVISER: ATTY. ELMER T. RABUYA; SUBJECT HEAD: ALFREDO B. DIMAFELIX II;
ASST. SUBJECT HEADS: KAREN FELIZ G. SUPNAD, LAMBERTO L. SANTOS III; MEMBERS: PAUL ELBERT E. AMON, ALSTON ANARNA, OZAN J.
FULLEROS, CECILIO M. JIMENO, JR., ISMAEL SARANGAYA, JR.; CONTRIBUTORS: LOISE RAE G. NAVAL, MONICA JUCOM

SALES
Q: Are there instances where the Statute of B. OPTION CONTRACT

Frauds is not essential for the validity of a
contract of sale? Q: What is an option contract?

A: Yes. A: A contract granting a privilege in one person,
1. When there is a note or memorandum for which he has paid a consideration, which gives
in writing and subscribed to by the party him the right to buy certain merchandise or
or his agent (contains essential terms of specified property, from another person, at
the contract); anytime within the agreed period, at a fixed price.
2. When there has been partial Note: Consideration in an option contract may be
performance/execution (seller delivers anything or undertaking of value, unlike in sale
with the intent to transfer title/receives where it must be a price certain in money.
price);
3. When there has been failure to object Q: What is the nature of an option contract?
to presentation of evidence aliunde as
to the existence of a contract without A: It is a preparatory contract in which one party
being in writing and which is covered by grants to another, for a fixed period and at a
the Statute of Frauds; determined price, the privilege to buy or sell, or
4. When sales are effected through to decide whether or not to enter into a principal
electronic commerce. (Villanueva, p. 92) contract. It binds the party who has given the
option not to enter into the principal contract
C. STAGES OF A CONTRACT OF SALE with any other person during the period
designated, and within that period, to enter into
Q: What are the 3 stages involved in the such contract with the one whom the option was
formation of a contract of sale? granted, if the latter should decide to use the
option. It is a separate and distinct contract.
A:
1. Negotiation/ Policitation Note: If the option is perfected, it does not result in
2. Perfection the perfection or consummation of the sale. (Diaz,
3. Consummation p.7)

1. NEGOTIATION/PREPARATORY Q: What is the period within which to exercise
the option?
A. OFFER
A:
Q: What are the rules in the conception stage
1. Within the term stipulated
about the offer?
2. If there is no stipulation, the court may

fix the term
A:

OFFER IS
RULE Notes: An action for specific performance to enforce
FLOATED
the option to purchase must be filed within 10 years
AND IT IS: from the time the cause of action accrues.
Prior to acceptance, may be
Offer is withdrawn at will by offeror but no The implied renewal of the lease on a month‐to‐
floated authority to modify it month basis did not have the effect of extending the
life of the option to purchase which expired at the
Must be accepted within the period, end of the original lease period. The lessor is correct
otherwise, extinguished at the end of in refusing to sell on the ground that the option had
With a period and may be withdrawn at will expired. (2001 Bar Question)
period by offeror but must not be arbitrary,
otherwise, liable for damages Q: How is an option exercised?
Extinguished by happening/ non‐
With a
happening of condition A: A notice of acceptance must be communicated
condition
to offeror even without actual payment as long as
without Continues to be valid depending upon payment is delivered in the consummation stage.
period/ circumstances of time, place and
condition person
With a
counter‐ Original offer is extinguished
offer
231

Q: What is the effect of a separate consideration Q: NDC and Firestone entered into a contract of
in an option contract? lease wherein it is stipulated that Firestone has
the right of first refusal to purchase the leased
A: property "should lessor NDC decide to sell the
1. With separate consideration: same”. After the rumor that NDC will transfer
a. Contract is valid the lot to PUP, Firestone instituted an action for
b. Offeror cannot withdraw offer specific performance to compel NDC to sell the
until after expiration of the option property in its favor. PUP moved to intervene
c. Is subject to rescission & damages arguing that the Memorandum issued by then
but not specific performance President Aquino ordered the transfer of the
whole NDC compound to the Government,
2. Without separate consideration: which in turn would convey it in favor of PUP.
a. the option contract is not deemed Can Firestone exercise its right of first refusal?
perfected
b. offer may be withdrawn at any A: Yes. It is a settled principle in civil law that
time prior to acceptance when a lease contract contains a right of first
refusal, the lessor is under a legal duty to the
Note: However, even though the option was not lessee not to sell to anybody at any price until
supported by a consideration, the moment it was after he has made an offer to sell to the latter at a
accepted, contract of sale is perfected. (Art. 1324) certain price and the lessee has failed to accept it.
The lessee has a right that the lessor's first offer
Q: What is the effect of acceptance and shall be in his favor. (PUP v. CA, G.R. No. 143513,
withdrawal of the offer? Nov. 14, 2001)

A: If the offer had already been accepted and Q: In a 20‐year lease contract over a building,
such acceptance has been communicated to the lessee is expressly granted a right of first
before the withdrawal is communicated, the refusal should the lessor decide to sell both the
acceptance creates a perfected contract, even if land and building. However, the lessor sold the
no consideration was as yet paid for the option. property to a third person who knew about the
lease and in fact agreed to respect it.
In which case, if the offeror does not perform his Consequently, the lessee brings an action against
obligations under the perfected contract, he shall both the lessor‐seller and the buyer (a) to
be liable for all consequences arising from the rescind the sale and (b) to compel specific
breach thereof based on any of the available performance of his right of first refusal in the
remedies such as specific performance, or sense that the lessor should be ordered to
rescission with damages in both cases. execute a deed of absolute sale in favor of the
lessee at the same price. The defendants
C. RIGHT OF FIRST REFUSAL contend that the plaintiff can neither seek
rescission of the sale nor compel specific
Q: What is the right of first refusal? performance of a "mere" right of first refusal.
Decide the case.
A: It is a right of first priority, all things and
conditions being equal; identity of the terms and A:
conditions offered to the optionee and all other a. The action filed by the lessee, for both
prospective buyers, with optionee to enjoy the rescission of the offending sale and
right of first priority. It creates a promise to enter specific performance of the right of first
into a contract of sale and it has no separate refusal which was violated, should
consideration. prosper. The ruling in (Equatorial Realty
Development, Inc. v. Mayfair Theater,
Note: A deed of sale executed in favor of a 3rd party Inc., G.R. No. 106063, Nov. 21, 1996), a
who cannot be deemed a purchaser in good faith, case with similar facts, sustains both
and which is in violation of the right of first refusal rights of action because the buyer in the
granted to the optionee is valid but rescissible. (Arts. subsequent sale knew the existence of
1380, 1381 [1])
right of first refusal, hence, in bad faith.

b. The action to rescind the sale and to
compel the right of first refusal will not
prosper. (Ang Yu Asuncion v. CA, G.R.
232 CIVIL LAW TEAM:

SALES
No. 109125, Dec. 2, 1994). The court Note: It is applicable only to executory contracts and

ruled that the right of first refusal is not not to contracts which are totally or partially
founded upon a contract but on a quasi‐ performed.
delictual relationship covered by the
principles of human relations and unjust If a particular form is required under the Statute of
enrichment (Art 19, et seq. Civil Code). Frauds: sale is valid & binding between the parties
Hence, the only action that will prosper but not to 3rd persons.
according to the Supreme Court is an
action for damages in a proper forum Q: May the right of first refusal be waived?
for the purpose. (1998 Bar Question)

A: Yes. Like other rights, the right of first refusal
Note: The offer of the person in whose favor the right
of first refusal was given must conform with the same may be waived or when a party entered into a
terms and conditions as those given to the offeree. compromise agreement. (Diaz, p. 55)
Q: Andres leased his house to Iris for a period of Q: Differentiate an option contract from a right

2 years, at the rate of P25, 000 monthly, payable of first refusal.
annually in advance. The contract stipulated that
it may be renewed for another 2‐year period A: An option contract is a preparatory contract in
upon mutual agreement of the parties. The which one party grants to another, for a fixed
contract also granted Iris the right of first refusal period and at a determined price, the privilege to
to purchase the property at any time during the buy or sell, or to decide whether or not to enter
lease, if Andres decides to sell the property at into a principal contract. It binds the party who
the same price that the property is offered for has given the option not to enter into the
sale to a third party. Twenty‐three months after principal contract with any other person during
execution of the lease contract, Andres sold the the period designated, and within that period, to
house to his mother who is not a third party. Iris enter into such contract with the one whom the
filed an action to rescind the sale and to compel option was granted, if the latter should decide to
Andres to sell the property to her at the same use the option. It is a separate and distinct
price. Alternatively, she asked the court to contract.
extend the lease for another two years on the
same terms. In a right of first refusal, while the object may be
determinate, the exercise of the right would be
Q: Can Iris seek rescission of the sale of the dependent not only on the grantor’s eventual
property to Andres’ mother? intention to enter into a binding juridical relation
with another but also on terms, including the
A: Iris can seek rescission because pursuant to price, that are yet to be firmed up. (Diaz, p. 54)
Equatorial Realty Co. v. Mayfair Theater rescission
is a relief allowed for the protection of one of the
contracting parties and even third persons from OPTION RIGHT OF FIRST
all injury and damage the contract of sale may CONTRACT REFUSAL
cause or the protection of some incompatible and Principal contract; Accessory; cannot stand
stands on its own on its own
preferred right.
Needs separate Does not need separate
consideration consideration
Q: Will the alternative prayer for extension of
There must be subject
the lease prosper? Subject matter & price
matter but price not
must be valid
important
A: No, the extension of the lease should be upon
Not conditional Conditional
the mutual agreement of the parties. (2008 Bar
Not subject to specific Subject to specific
Question)
performance performance
Q: Is it necessary that the right of first refusal be
embodied in a written contract?

A: Yes, the grant of such right must be clear and
express.

233

D. POLICITATION/MUTUAL PROMISE TO BUY interest on the contract to the time the contract
AND SELL/ comes into existence the perfection stage upon
the concurrence of the essential elements
Q: What is policitation? thereof. (Sps. Raet & Sps. Mitra v. CA, G.R. No.
128016, Sept. 17, 1998)
A: Policitation is defined as an unaccepted
unilateral promise to buy or sell. This produces no Q: Severino executed two deeds when he sold
judicial effect and creates no legal bond. This is a his property to Henry so that Henry can obtain a
mere offer, and has not yet been converted into a loan with Philam Life. He also authorized Henry
contract. It covers the period from the time the to file an ejectment suit against the lessees and
prospective contracting parties indicate interest when the prayer for ejectment was granted,
in the contract to the time the contract is Henry took possession of the property. Severino
perfected. (Villanueva, p. 6). now claims ownership over the property
claiming that the sale is fictitious therefore there
Q: Is there a legal bond already created in the was no sale to speak of. Is Severino’s contention
negotiation stage? correct?

A: None. In negotiation (policitation) stage, the A: No. There is a perfected contract of sale due to
offer is floated as well as the acceptance. the second deed of sale in this case. The basic
characteristic of an absolutely simulated or
2. PERFECTION
fictitious contract is that the apparent contract is
Q: When is a contract of sale deemed perfected? not really desired or intended to produce legal
effects or alter the juridical situation of the parties
A: in any way. However, in this case, the parties
GR: It is deemed perfected at the moment already undertook certain acts which were
there is meeting of minds upon the thing directed towards fulfillment of their respective
which is the object of the contract and upon covenants under the second deed, indicating that
the price. (Art.1475, par.1) they intended to give effect to their agreement.
Further, the fact that Severino executed the two
XPN: When the sale is subject to a suspensive deeds, primarily so that Henry could eject the
condition by virtue of law or stipulation. tenant and enter into a loan/mortgage contract
with Philam Life, is a strong indication that he
Q: Spouses Raet and Mitra negotiated with intended to transfer ownership of the property to
Gatus about the possibility of buying his rights to Henry. For why (Hernando R. Penalosa v. Severino
certain units at a subdivision developed by Phil‐ Santos, G.R. No. 133749, Aug. 23, 2001)
Ville for them to be qualified to obtain loans
from GSIS. They paid an amount for which Gatus Q: What is the effect of Severino’s and Henry’s
issued them receipts in her own name. GSIS failure to appear before the notary public who
disapproved their loan application. Phil‐Ville notarized the deed?
advised them to seek other sources of financing.
In the meantime, they were allowed to remain A: None. The non‐appearance of the parties
in the subject premises. Is there a perfected and before the notary public who notarized the deed
enforceable contract of sale or at least an does not necessarily nullify nor render the
agreement to sell over the disputed housing parties' transaction void ab initio. Article 1358,
units? NCC on the necessity of a public document is only
for convenience, not for validity or enforceability.
A: None. There was no contract of sale perfected Where a contract is not in the form prescribed by
between the private parties over the said law, the parties can merely compel each other to
property, there being no meeting of the minds as observe that form, once the contract has been
to terms, especially on the price thereof. At best, perfected.
only a proposed contract to sell obtained which
did not even ripen into a perfected contract due Note: Contracts are obligatory in whatever form
they may have been entered into, provided all
at the first instance to private respondents'
essential requisites are present. (Penalosa v. Santos,
inability to secure approval of their GSIS housing
G.R. No. 133749, Aug. 23, 2001)
loans. As it were, petitioners and private

respondents have not hurdled the negotiation
phase of a contract, which is the period from the
time the prospective contracting parties indicate
234 CIVIL LAW TEAM:

SALES
Q: When is an auction sale perfected? D. OBLIGATIONS CREATED

A: A sale by auction is perfected when the OBLIGATIONS OF THE BUYER
auctioneer announces its perfection by the fall of
the hammer, or in other customary manner. (Art. Q: What are the obligations of the buyer?
1476, par.2)
A:
Q: Does the seller have the right to bid in an 1. Payment of the price
auction sale? GR: Seller is not bound to deliver unless
the purchase price is paid
A: Yes. The seller has the right to bid provided XPN: A period of payment has been
that such right was reserved and notice was given fixed
to that effect. (Pineda, p. 53) 2. Accept delivery of thing sold
3. Pay for expenses of delivery
Q: When is a sale of foreign exchange considered
perfected? Note: A grace period granted the buyer in case of
failure to pay is a right not an obligation. Non‐
A: A sale of foreign exchange is considered payment would still generally require judicial or
perfected from the moment the Bangko Sentral extrajudicial demand before default can arise.
ng Pilipinas authorizes the purchase, even if the
foreign bank has not yet honored the letter of Q: What are the other obligations of the buyer?
credit. (Pacific Oxygen and Acetylene Co. v.
Central Bank, G.R. No. L‐21881, Mar. 1, 1968) A:
1. To take care of the goods without the
3. CONSUMMATION obligation to return, where the goods
are delivered to the buyer and he
Q: How does the consummation stage in a rightfully refuses to accept;
contract of sale take place?
Note: The goods in the buyer’s possession
A: It takes place by the delivery of the thing are at the seller’s risk.
together with the payment of the price.
2. To be liable as a depositary if he
Q: A and PDS Development Corp. executed a voluntarily constituted himself as such;
contract to sell a parcel of land. A died without 3. To pay interest for the period between
having completed the installment on the delivery of the thing and the payment
property. His heirs then took over the contract of the price in the following cases:
to sell and assumed his obligations by paying the a. should it have been stipulated;
selling price of the lot from their own funds, and b. should the thing sold and delivered
completed the payment. To whom should the produces fruits or income; or
final Deed of Absolute Sale be executed by PDS? c. should he be in default, from the
time of judicial or extra‐judicial
A: Having stepped into the shoes of the deceased demand for the payment of the
with respect to the said contract, and being the price.
ones who continued to pay the installments from
their own funds, A’s heirs became the lawful OBLIGATIONS OF THE SELLER
owners of the said lot in whose favor the deed of
absolute sale should have been executed by Q: What are the obligations of the seller?
vendor PDS. (Dawson v. Register of Deeds of
Quezon City, G.R. No. 120600 Sept. 22, 1998) A: DDTWTP
1. Deliver the thing sold;
2. Deliver fruits & accessions/accessories
accruing from perfection of sale;
3. Transfer the ownership;
4. Warranties;
5. Take care of the thing, pending delivery,
with proper diligence;
6. Pay for the expenses of the deed of sale
unless there is a stipulation to the
contrary
235

E. CHARACTERISTICS OF A CONTRACT OF SALE 2. Barter
SALE BARTER

Consideration is giving Consideration is
Q: What are the characteristics of a contract of
of money as payment giving of a thing
sale?
If consideration consists party in money & partly by

thing–look at manifest intention;
A: If intention is not clear – Art. 1468
1. Consensual Value of thing is equal Value of thing is more
2. Bilateral or less than amount of than amount of money =
3. GR: Commutative money = Sale Barter
Both are governed by law on sales
XPN: Aleatory – In some contracts of
sale, what one receives may in time be
greater or smaller than what he has 3. Agency to Sell
given. (Tolentino, p. 2, 2000 ed) SALE AGENCY TO SELL
4. Principal
Agent not obliged to pay
5. Title and not a mode of acquiring Buyer pays for price for price; must
ownership of object account for the
6. Onerous proceeds of the sale.
7. Reciprocal Principal remains the
8. Nominate Buyer becomes owner even if the
owner of thing object delivered to
Q: Is a contract of sale identified as such based agent
on the nomenclature given to the contract by Agent assumes no personal
the parties? Seller warrants liability as long as
within authority given
A: No. Contracts are not defined by the parties May be revoked
Not unilaterally
but by principles of law. To determine the nature unilaterally even w/o
revocable
of the contract, the courts are not bound by the ground
name or title given to it by the contracting Seller receives profit Agent not allowed to profit
parties. It is the intention of the parties which Real contract Personal contract
controls. (Diaz, Law on Sales as expounded by
Jurisprudence, 2006 ed., p.1) 4. Dacion en Pago
SALE DACION EN PAGO
Q: What are the factors to be considered in
determining the nature of the contract? No pre‐existing Contract where property is
A: credit alienated to extinguish pre‐
1. Language of the contract existing credit/debt
2. Conduct of parties Buyer‐seller Novates creditor‐debtor
relationship relationship into seller‐buyer

F. DISTINCTIONS OF THE CONTRACT OF SALE
WITH OTHER CONTRACTS 5. Lease

Q: Distinguish Sale from the following: SALE LEASE
Use of thing is for
1. Donation. Obligation to absolutely
specified period only
transfer ownership of
with obligation to
thing
SALE DONATION return
Onerous Gratuitous/onerous Consideration is the
Consideration is the price
Consensual Formal contract rental
Seller needs to be owner of
Law on Sales Law on Donation thing to transfer
ownership.
Lessor need not be
Note: Lease with option to owner
buy – really a contract of
sale but designated as
lease in name.

236 CIVIL LAW TEAM:

SALES
G. CONTRACT TO SELL document entitled "Receipt of Down Payment"

in favor of Alcaraz for the purchase of their
Q: What is a contract to sell? house and lot, with the condition that Ramona
will make a down payment upon execution of
A: It is one form of conditional sale where the document. The Coronels would then cause
ownership or title is retained by the seller until the transfer of the property in the name of
the fulfillment of a positive suspensive condition, Ramona and will execute a deed of absolute sale
normally the payment of the purchase price by in favor of Ramona. Ramona paid the
the buyer in the manner agreed upon. (Gomez v. downpayment as agreed. Is there a perfected
CA, et. al., G.R. 120747, Sept. 21, 2000) contract of sale or a mere contract to sell?

Q: Distinguish a contract to sell from a contract A: The agreement could not have been a contract
of sale. to sell because the sellers herein made no express
reservation of ownership or title to the subject
A:
parcel of land. The Coronels had already agreed
CONTRACT OF SALE CONTRACT TO SELL
to sell the house and lot they inherited from their
As regards transfer of ownership
father, completely willing to transfer full
Ownership is transferred
ownership of the subject house and lot to the
to the buyer upon Ownership is
buyer if the documents were then in order.
delivery of the object to transferred upon full
him. payment of the However, the TCT was then still in the name of
Note: Vendor has lost purchase price. their father, that is why they caused the issuance
and cannot recover Note: Prior to full of a new TCT in their names upon receipt of the
ownership until and payment, ownership is down payment. As soon as the new TCT is issued
unless the contract is retained by the seller. in their names, they were committed to
resolved or rescinded immediately execute the deed of absolute sale.
As to numbers of contracts involved Only then will the obligation of the buyer to pay
There are two contracts: the remainder of the purchase price arise. This
1. The contract to sell suspensive condition was fulfilled. Thus, the
conditional contract of sale became obligatory,
Note: Conditional or the only act required for the consummation
preparatory sale thereof being the delivery of the property by
There is only one
means of the execution of the deed of absolute
contract executed
2. The deed of absolute sale in a public instrument, which they
between the seller and
sale unequivocally committed themselves to do as
the buyer.

evidenced by the "Receipt of Down Payment."
Note: The principal
(Coronel, et al. v. CA, G.R. No. 103577, Oct. 7,
contract is executed
1996)
after full payment of the
purchase price.
Q: Instead of executing a deed of Absolute Sale
Payment as a condition
in favor of Ramona, the Coronels sold the
Full payment of the
Non‐payment of the price is a positive
property to Catalina and unilaterally and
price is a resolutory suspensive condition. extrajudicially rescinded the contract with
condition. Vendor loses Note: Failure to fully Ramona. Ramona then filed a complaint for
ownership over the pay the price is not a specific performance. Will Ramona’s action
property and cannot breach but an event prosper?
recover it until and that prevents the
unless the contract is obligation of the vendor A: Yes. Under Article 1187, the rights and
resolved or rescinded. to convey title from obligations of the parties with respect to the
becoming effective. perfected contract of sale became mutually due
Remedies available and demandable as of the time of fulfillment or
1. Specific occurrence of the suspensive condition. Hence,
2. Performance 1. Resolution petitioner‐sellers' act of unilaterally and
3. Rescission 2. Damages extrajudicially rescinding the contract of sale
4. Damages cannot be justified, there being no express
stipulation authorizing the sellers to
extrajudicially rescind the contract of sale.
Q: Having agreed to sell property which they
(Coronel, et al. v. CA, G.R. No. 103577, Oct. 7,
inherited from their father, which was then still
1996)
in their father’s name, the Coronels executed a
237

Q: What are the instances when what is involved a. when a separation of property was
is a contract to sell? agreed upon in the marriage
settlements; or
A: b. when there has been a judicial
1. Where subject matter is indeterminate separation of property agreed
2. Sale of future goods upon between them
3. Stipulation that deed of sale &
corresponding certificate of sale would B. ABSOLUTE INCAPACITY
be issued only after full payment
Q: Who are those absolutely incapacitated to
II. PARTIES TO A CONTRACT OF SALE enter into a contract of sale?

Q: Who are the parties to a contract of sale? A:
1. Unemancipated minors(Art. 1327, NCC);
A: 2. Insane or demented persons, and deaf‐
1. Seller – one who sells and transfers the mutes who do not know how to write
thing and ownership to the buyer (Art. 1327, NCC)
2. Buyer – one who buys the thing upon
payment of the consideration agreed Q: May a capacitated person file an action for
upon annulment using as basis the incapacity of the
incapacitated party?
A. CAPACITY OF THE PARTIES
A: No. He is disqualified from alleging the
Q: Who may enter into a contract of sale? incapacity of the person whom he contracts (Art.
1397, NCC);
A:
GR: Any person who has capacity to contract Q: In a defective contract, where such defect
or enter into obligations, may enter into a consists in the incapacity of a party, does the
contract of sale, whether as party‐seller or as incapacitated party have an obligation to make
party‐buyer. restitution?

XPN: A:
1. Minors, insane and demented persons GR: he incapacitated person is not obliged to
and deaf‐mutes who do not know how make any restitution.
to write XPN: insofar as he has been benefited by the
2. Persons under a state of drunkenness thing or price received by him. (Art. 1399,
or during hypnotic spell NCC)
3. Husband and wife ‐ sale by and
between spouses C. RELATIVE INCAPACITY

Note: Contracts of sale entered by such legally
Q: Who are those relatively incapacitated to
incapacitated persons are merely voidable,
enter into a contract of sale?
subject to annulment or ratification. However,
the action for annulment cannot be instituted
by the person who is capacitated since he is A:
disqualified from alleging the incapacity of the 1. Spouses (Art. 1490, NCC)
person with whom he contracts. 2. Agents, Guardians, Executors and
Administrators, Public Officers and
However, status of prohibited sales between Employees, Court Officers and
spouses is not merely voidable, but null and Employees, and others specially
void. disqualified by law. (Art. 1491, NCC)

XPN to XPN: Note: Under Art. 1490 of the NCC, spouses cannot
sell property to each other, except:
1. Where necessaries are sold and
delivered to a minor or other person a. When a separation of property was
without capacity to act, he must pay a agreed in the marriage settlements; or
reasonable price therefor. b. When there has been a judicial separation
2. In case of sale between spouses: of property agreed upon between them.

238 CIVIL LAW TEAM:

SALES
Q : What is the status of the following contracts XPN: Even when the property

of sale? regime prevailing was the conjugal
partnership of gains, the Supreme
A: Court held the sale by the husband
1. That entered into by minors: of a conjugal property without the
a. Merely voidable, subject to consent of the wife is void, not
annulment or ratification merely voidable under Art. 124 of
b. Action for annulment cannot be the Family Code since the resulting
instituted by the person who is contract lack one of the essential
capacitated since he is disqualified elements of full consent. (Guiang
from alleging the incapacity of the v. CA, G.R. No. 125172, June 26,
person with whom he contracts 1998)
(with partial restitution in so far as
the minor is benefited) where 3. Between Common Law Spouses ‐ also
necessaries are sold and delivered null and void.
to a minor or other person without
capacity to act, he must pay a In Calimlim‐Canullas v. Fortun, the
reasonable price (Art. 1489) Court decided that sale between
common law spouses is null and void
2. Sale by & between spouses (Art. 1490): because Art. 1490 prohibits sales
a. Status of prohibited sales between between spouses to prevent the
spouses: exercise of undue influence by one
GR: Null and void spouse over the other, as well as to
protect the institution of marriage. The
XPN: In case of sale between prohibition applies to a couple living as
spouses: husband and wife without the benefit
of marriage, otherwise, the condition of
i. When a separation of those incurred guilt would turn out to
property was agreed upon in be better than those in legal union.
the marriage settlements; or (Calimlim‐Canullas v. Fortun, et. al., G.R.
ii. When there has been a No. L‐57499, June 22, 1984)
judicial separation of property
agreed upon between them But when the registered property has
been conveyed subsequently to a third‐
Reasons: party buyer in good faith and for value,
i. Prevent defrauding creditors then reconveyance is no longer
ii. Avoid situation where available to common‐law spouse‐seller,
dominant spouse takes since under the Torrens system every
advantage over the weaker buyer has a right to rely upon the title
spouse of his immediate seller. (Cruz v. CA, G.R.
iii. Avoid circumvention on No. 120122, Nov. 6, 1997)
prohibition of donation
between spouses Q: Who has the right to assail the validity of the
transaction between spouses?
rd
b. Contract of sale with 3 parties:
GR: Under the law on sales, it A: The following are the only persons who can
would seem that a spouse may, question the sale between spouses:
without the consent of the other 1. The heirs of either of the spouses who
spouse, enter into sales have been prejudiced;
transactions in the regular or 2. Prior creditors; and
normal pursuit of their profession, 3. The State when it comes to the
vocation or trade. (in relation with payment of the proper taxes due on the
Art. 73, Family Code) transactions

239

Q: Who are the persons with relative incapacity to be the vendee in a contract of sale?

A: AGE‐COP
RELATIVELY RATIFICATION
PROPERTIES INVOLVED STATUS OF SALE
INCAPACITATED TO BUY
Property entrusted to them for
administration or sale
Agents
XPN: When principal gave his
Can be ratified after the
consent
inhibition has ceased
Property of the ward during

period of guardianship
Reason: the only wrong that
subsists is the private wrong
Note: Contracts entered by Voidable to the ward, principal or
Guardian guardian in behalf of ward are estate; and can be condoned
rescissible if ward suffers lesion by the private parties
by more than ¼ of the value of themselves
property.
Executors and Property of the estate under
administrators administration
Property and rights in litigation or
Court officers and Cannot be ratified
levied upon on execution before
employees
the court under their jurisdiction
Void Reason: It is a private wrong.
Others specially
(Villanueva, Law on Sales, p.
disqualified by law
Pubic officers and Property of the State entrusted to 30‐31)
employees them for administration

Note: Prohibitions are applicable to sales in legal redemption, compromises and renunciations.

In the case of Rubias v. Batiller (51 SCRA 120), it sought to declare the difference in the nullity between contracts
entered into by guardians, agents, administrators and executors, from the contracts entered into by judges, judicial
officers, fiscals and lawyers.
240 CIVIL LAW TEAM:

SALES
D. SPECIAL DISQUALIFICATIONS
Q: Who are those persons specially disqualified
by law to enter into contracts of sale?

A: ALIEN‐UnOS
1. ALIENs who are disqualified to purchase
private agricultural lands (Art. XII Secs. 3
& 7)
2. Unpaid seller having a right of lien or
having stopped the goods in transitu, is
prohibited from buying the goods either
directly or indirectly in the resale of the
same at public/private sale which he
may make (Art. 1533 [5]; Art. 1476 [4])
3. The Officer holding the execution or
deputy cannot become a purchaser or
be interested directly or indirectly on
any purchase at an execution. (Sec. 21
Rule 39, Rules of Court)
4. In Sale by auction, seller cannot bid
unless notice has been given that such
sale is subject to a right to bid in behalf
of the seller. (Art. 1476)

Q: Atty. Leon G. Maquera acquired his client’s
property as payment for his legal services, then
sold it and as a consequence obtained an
unreasonable high fee for handling his client’s
case. Did he validly acquire his client’s property?

A: No. Article 1491 (5) of the New Civil Code
prohibits lawyer’s acquisition by assignment of
the client’s property which is the subject of the
litigation handled by the lawyer. Also, under
Article 1492, the prohibition extends to sales in
legal redemption. (In Re: Suspension from the
Practice of Law in the territory of Guam of Atty.
Leon G. Maquera, B.M. No. 793, July 30, 2004)

241

III. SUBJECT MATTER OF SALE Note: Where land is sold for a lump sum and not so
much per unit of measure or number, the
A. REQUISITES OF A VALID SUBJECT MATTER boundaries of the land stated in the contract
determine the effects and scope of the sale, not the
area thereof. The vendors are obligated to deliver all
Q: What are the requisites of a proper object of the land included within the boundaries, regardless
sale? of whether the real area should be greater or
smaller than that recited in the deed. This is
A: particularly true where the area is described as
1. Things "humigit kumulang," that is, more or less. (Semira v.
a. Determinate or determinable CA, G.R. No. 76031, Mar. 2, 1994)
b. Lawful (licit), otherwise contract is
void Q: Can rights be the objects of sale?
c. Should not be impossible (within
the commerce of men) A: Yes, if they are transmissible. (Art. 1347)

2. Rights
B. PARTICULAR KINDS
GR: Must be transmissible.
XPN: Q: What may be objects of sale?
a. Future inheritance
b. Service – cannot be the object of A:
sale. They are not determinate 1. Existing Goods – owned/ possessed by
things and no transfer of seller at the time of perfection
ownership is available but it can be
the object of certain contracts such 2. Future Goods – goods to be
uas contract for a piece of work. manufactured, raised, acquired by seller
(Pineda, Sales, 2002 ed., p. 13) after perfection of the contract or
whose acquisition by seller depends
Q: Rodriguez first purchased a portion of a Lot A upon a contingency (Art. 1462)
consisting of 345 square meters located in the
middle of Lot B, which has a total area of 854 Note: Sale of future goods is valid only as an
executory contract to be fulfilled by the acquisition
square meters, from Juan. He then purchased
& delivery of goods specified.
another portion of said lot. As shown in the
3. Sale of Undivided Interest or Share
receipt, the late Juan received P500.00 from
a. Sole owner may sell an
Rodriguez as "advance payment for the
undivided interest. (Art. 1463)
residential lot adjoining his previously paid lot
Ex. A fraction or percentage of
on three sides excepting on the frontage. Juan’s
such property
heirs now contests the validity of the
b. Sale of an undivided share in a
subsequent sale, alleging that the object is not
specific mass of fungible
determinate or determinable. Decide.
goods makes the buyer a co‐

owner of the entire mass in
A: Their contention is without merit. There is no
proportion to the amount he
dispute that Rodriguez purchased a portion of Lot
bought. (Art. 1464)
A consisting of 345 square meters. This portion is
c. A co‐owner cannot sell more
located in the middle of B, which has a total area
than his share (Yturralde v.
of 854 square meters, and is clearly what was
CA)
referred to in the receipt as the "previously paid

lot." Since the lot subsequently sold to Rodriguez
4. Sale of Things in Litigation
is said to adjoin the "previously paid lot" on three
a. Sale of things under litigation
sides thereof, the subject lot is capable of being
is rescissible if entered into by
determined without the need of any new
the defendant , without the
contract. The fact that the exact area of these
approval of the litigants or the
adjoining residential lots is subject to the result of
court (Art. 1381)
a survey does not detract from the fact that they
b. No rescission is allowed where
are determinate or determinable. Concomitantly,
the thing is legally in the
the object of the sale is certain and determinate. rd
possession of a 3 person
(Heirs of San Andres v. Rodriguez, G.R. No.
135634, May 31, 2000)
242 CIVIL LAW TEAM:

SALES
who did not acted in bad A. SALE BY A PERSON WHO DOES NOT OWN THE

faith. THING SOLD

5. Things subject to Resolutory Condition. Q: What is the status of a sale by a person who
Ex. Things acquired under legal or does not own the thing subject of the sale?
conventional right of redemption, or
subject to reserva troncal. (Art. 1465) A: It depends upon the stage of the sale.
1. When seller is not owner at perfection
6. Indeterminate Quantity of Subject stage – the sale is valid.
Matter Ownership of the subject matter by the
a. The fact that the quantity is seller at this stage is not an essential
not determinate shall not be requirement for the validity of sale. It is
an obstacle to the existence necessary at the time of delivery.
of the contract provided it is Hence, a valid contract of sale can cover
possible to determine the subject matter that is not yet existing or
same, without need of a new even a thing having only a potential
contract. (Art. 1349) existence at the time of perfection; or
even a thing subject to a resolutory
condition.
IV. OBLIGATION OF THE SELLER
TO TRANSFER OWNERSHIP Note: If the seller later acquires title thereto
and delivers it, title passes by operation of
Q: Should the seller be the owner at the time of law.
perfection of the contract?
2. When seller is not owner at
A: consummation stage
GR: No. Seller must have the right to transfer a. Old view – the contract of sale is
ownership at the time of delivery or valid, but the transfer of title is
consummation stage. He need not be the void. (Mindanao‐Academy, Inc. v.
owner at the time of perfection of the Yap, G.R. No. L‐17681, Feb. 26,
contract. 1965)
b. New view – the sale by a non‐
XPN: Foreclosure sale wherein the mortgagor owner of the subject property is
should be the absolute owner. void instead of treating the
tradition/delivery aspect as having
Q: EJ was subjected to a buy‐bust operation no effect on transferring
where police officers posed to buy 500 pesos ownership to the buyer. (DBP v.
worth of “S”. She was then charged with a CA, G.R. No. 110053, Oct. 16, 1995)
violation of the Dangerous Drugs Act for
trafficking drugs. EJ uses as defense her lack of Note: Nemo dat quod non habet – you
possession of the object of the sale. Would her cannot give what you do not have, properly
contention free her from liability? applicable to the consummation of a sale.

A: No. Though she was not in possession of the Q: What is the legal effect of sale by a non‐
object of sale, Article 1459 merely requires that owner?
the vendor must have the right to transfer
ownership of the object sold at the time of A:
delivery. In the case at bar, though Beth is not GR: The buyer requires no better title to the
the owner, she had the right to dispose of the goods than the seller had; caveat emptor
prohibited drug. Ownership was thereafter (buyer beware).
acquired upon her delivery to the men in the alley
after her payment of the price. (People v. XPN:
Ganguso, G.R. No. 115430, Nov. 23, 1995) 1. Estoppel – when the owner of the
goods is by his conduct precluded from
denying the seller’s authority to sell
2. When the contrary is provided for in
recording laws

243

3. When the sale is made under statutory existence as long as
power of sale or under the order of a the hope itself validly
court of competent jurisdiction existed. (eg. lotto)
4. When the sale is made in a merchant’s Note: The presumption is Emptio Rei Speratae
store in accordance with the Code of
Commerce and special laws Q: Jose, as co‐owner, sold the entire land in
5. When a person who is not the owner favor of his minor daughter, Ida. Alleging that
sells and delivers a thing, and Jose had fraudulently registered it in his name
subsequently acquired title thereto alone, his sisters, sued him for recovery of 2/3
6. When the seller has a voidable title share of the property. Ida did not pay for the
which has not been avoided at the time land. Is the sale valid?
of the sale
7. Sale by co‐owner of the whole property A: No. Jose did not have the right to transfer
or a definite portion thereof ownership of the entire property to petitioner
8. Special rights of unpaid seller since 2/3 thereof belonged to his sisters. Also, Ida
could not have given her consent to the contract,
Q: What are the instances when the Civil Code being a minor at the time. Consent of the
recognizes sale of things not actually or already contracting parties is among the essential
owned by the seller at the time of sale? requisites of a contract, including one of sale,
absent which there can be no valid contract.
A: Moreover, Ida admittedly did not pay any centavo
1. Sale of a thing having potential for the property, which makes the sale void.
existence (Art.1461, NCC) Article 1471 of the Civil Code provides: If the price
2. Sale of future goods (Art. 1462, NCC) is simulated, the sale is void, but the act may be
3. Contract for the delivery at a certain shown to have been in reality a donation, or
price of an article, which the seller in some other act or contract. (Labagala v. Santiago,
the ordinary course of business G.R. No. 132305, Dec. 4, 2001)
manufactures/ procures for the general
market, whether the same is on hand at
the time or not (Art. 1467, NCC) V. PRICE

B. SALE BY A PERON HAVING A VOIDABLE TITLE A. MEANING OF PRICE

Q: What is the effect of a sale made by the seller Q: What is a price?
with voidable title over the object?
A: Price signifies the sum stipulated as the
A: equivalent of the thing sold and also every
1. Perfection stage: valid – buyer acquires incident taken into consideration for the fixing of
title of goods the price put to the debit of the buyer and agreed
2. Consummation stage: valid – If the title to by him. (Villanueva, p. 52)
has not yet been avoided at the time of
sale and the buyer must buy the goods B. REQUISITES FOR A VALID PRICE
under the following conditions:
a. In good faith Q: What are the requisites of price?
b. For value
c. Without notice of seller’s defect of A: Must be:
title 1. Real
2. In money or its equivalent
EMPTIO REI SPERATAE EMPTIO SPEI 3. Certain or ascertainable at the time of
Sale of thing having Sale of mere hope or the perfection of the contract
potential existence expectancy
Uncertainty is w/ regard Uncertainty is w/ regard C. HOW PRICE IS DETERMINED
to quantity & quality to existence of thing
Contract deals w/ Q: When is price certain?
Contract deals w/ future
present thing – hope
thing
or expectancy A:
Sale is valid only if the Sale is valid even though 1. If there is a stipulation
expected thing will expected thing does 2. If it be with reference to another thing
exist. not come into certain
244 CIVIL LAW TEAM:

SALES
3. If the determination of the price is left Q: What is the effect on the contract of sale in
to the judgment of specified person(s) case of a breach in the agreed manner of
4. By reference to certain fact(s) as payment?
referred to in Art. 1472 (Art. 1469)
A: None. It is not the act of payment of price that
Note: If the price is based on estimates, it is determines the validity of a contract of sale.
uncertain. Payment of the price has nothing to do with the
perfection of the contract, as it goes into the
D. GROSS INADEQUACY OF THE PRICE performance of the contract. Failure to pay the
consideration is different from lack of
Q: What is the effect of gross inadequacy of consideration. Failure to pay such results in a
price? right to demand the fulfillment or cancellation of
the obligation under an existing valid contract. On
A: the other hand, lack of consideration prevents the
GR: It does not affect the validity of the sale if existence of a valid contract. (Sps. Bernardo
it is fixed in good faith and without fraud Buenaventura and Consolacion Joaqui v. CA, GR
No. 126376, Nov. 20, 2003)
XPN: CoRDS
1. If Consent is vitiated (may be annulled Q: Is payment of the purchase price essential to
or presumed to be equitable mortgage) transfer ownership?
2. If the parties intended a Donation or
some other act/ contract A: Unless the contract contains a stipulation that
3. If the price is so low as to be “Shocking ownership of the thing sold shall not pass to the
to the conscience” purchaser until he has fully paid the price,
4. If in the event of Resale, a better price ownership of the thing sold shall be transferred to
can be obtained the vendee upon the actual or constructive
delivery thereof. (Diaz, p. 48)
Note:
GR: The validity of the sale is not necessarily affected E. WHEN NO PRICE IS AGREED UPON BY THE
where the law gives the owner the right to redeem PARTIES
because the lesser the price, the easier it is for the

owner to effect redemption.
Q: What is the effect of failure to determine the

XPN: While there is no dispute that mere inadequacy
price?
of the price per se will not set aside a judicial sale of
real property, nevertheless, where the inadequacy of A:
the price is purely shocking to the conscience, such 1. Where contract is executory –
that the mind revolts at it and such that a reasonable ineffective
man would neither directly or indirectly be likely to 2. Where the thing has been delivered to
consent to it, the same will be set aside. (Cometa v. and appropriated by the buyer – the
CA 351 SCRA 294) buyer must pay a reasonable price
therefore
Q: What is the effect if the price is simulated?
Note: The fixing of the price cannot be left to the
A: discretion of one of the parties. However, if the price
GR: Contract of sale is void. fixed by one of the parties is accepted by the other,
the sale is perfected.
XPN: The act may be shown to have been in
reality a donation or some other act or
contract.

Q: What is considered reasonable price?

A: Generally the market price at the time and
place fixed by the contract or by law for the
delivery of the goods.

245

F. MANNER OF PAYMENT Q: Distinguish the failure to pay the
consideration from lack of consideration.
Q: What is the effect of a breach of the agreed
manner of payment to the contract of sale? A:
FAILURE TO PAY LACK OF
A: None. A contract of sale being a consensual CONSIDERATION CONSIDERATION
contract, it becomes binding and valid upon the As to validity of contract of sale
meeting of the minds as to price. It is not the act of payment
1. If there is such meeting of the minds as of price that determines
to price, the contract of sale is valid, the validity of a contract of
despite the manner of payment, or sale.
Lack of consideration
even the breach of that manner of
prevents the
payment. Note: Payment of the price
existence of a valid
has nothing to do with the
2. If the real price is not stated in the contract.
perfection of the contract.
contract, then the contract of sale is
Instead, it goes into the
valid but subject to reformation.
performance of the
3. If there is no meeting of the minds as to contract.
the price because the price stipulated in As to resultant right
the contract is simulated, then the Failure to pay the
contract is void, in accordance with consideration results in a The contract of sale is
Article 1471 of the Civil Code. (Sps. right to demand the null and void and
Buenaventura v. CA, G.R. No. 126376, fulfillment or cancellation produces no effect
Nov. 20, 2003) of the obligation under an whatsoever
existing valid contract.
Note: A definite agreement on the manner of
payment of the price is an essential element in the G. EARNEST MONEY VIS‐A‐VIS OPTION MONEYY
formation of a binding and enforceable contract of
sale. (Co v. CA, G.R. No. 123908, Feb. 9, 1998) OPTION MONEY

Q: In an action for specific performance with Q: What is the effect of failure to determine the
damages, X alleged that there was an agreement price?
to purchase the lot of Y. As regards the manner
of payment, however, Y’s receipts contradicted A:
the testimony of X. The receipts failed to state 1. Where contract is executory –
the total purchase price or prove that full ineffective
payment was made. For this reason, it was 2. Where the thing has been delivered to
contended that there was no meeting of their and appropriated by the buyer – the
minds and there was no perfected contract of buyer must pay a reasonable price
sale. Decide. therefore

A: The question to be determined should not be Note: The fixing of the price cannot be left to the
whether there was an agreed price, but what that discretion of one of the parties. However, if the price
agreed price was. The sellers could not render fixed by one of the parties is accepted by the other,
invalid a perfected contract of sale by merely the sale is perfected.
contradicting the buyer’s obligation regarding the
price, and subsequently raising the lack of Q: What is an option money?
agreement as to the price. (David v. Tiongson,
G.R. No. 108169, Aug. 25, 1999) A: The distinct consideration in case of an option
contract. It does not form part of the purchase
price hence, it cannot be recovered if the buyer
did not continue with the sale.

Q: When is payment considered option money?

A: Payment is considered option money when it is
given as a separate and distinct consideration
from the purchase price. Consideration in an
option contract may be anything or undertaking
of value.
246 CIVIL LAW TEAM:

SALES
EARNEST MONEY Simeon suddenly has a change of heart, claiming
that the deal is disadvantageous to him as he
Q: What is an earnest money or “arras”? has found out that the property can fetch three
times the agreed purchase price. Bert seeks
A: This is the money given to the seller by the specific performance but Simeon contends that
prospective buyer to show that the latter is truly he has merely given Bert an option to buy and
interested in buying the property, and its aim is to nothing more and offers to return the option
bind the bargain. (Pineda, p. 75) money which Bert refuses to accept.

Q: What is the effect of giving an earnest 1. Will Bert's action for specific
money? performance prosper? Explain.
2. May Simeon justify his refusal to
A: It forms part of the purchase price which may proceed with the sale by the fact that
be deducted from the total price. It also serves as the deal is financially disadvantageous
a proof of the perfection of the contract of sale. to him? Explain.
The rule is no more than a disputable
presumption and prevails only in the absence of A:
contrary or rebuttable evidence. (PNB v CA, 262 1. Bert's action for specific performance
SCRA 464, 1996) will prosper because there was a
binding agreement of sale, not just an
Note: Option money may become earnest money if option contract. The sale was perfected
the parties so agree. upon acceptance by Simeon of 10% of
the agreed price. This amount is in
Q: When is payment considered an earnest reality an earnest money which, under
money? Art. 1482, "shall be considered as part
of the price and as proof of the
A: When the payment constitutes as part of the perfection of the contract." (Topacio v.
purchase price. Hence, in case when the sale did CA, G.R. No. 102606, July 3, 1992;
not happen, it must be returned to the Villongco Realty v. Bormaheco, G.R. No.
prospective buyer. L‐26872, July 25, 1975).

Q: Distinguish option money from earnest 2. Simeon cannot justify his refusal to
money. proceed with the sale by the fact that
the deal is financially disadvantageous
A: to him. Having made a bad bargain is
OPTION MONEY EARNEST MONEY not a legal ground for pulling out of a
Money given as binding contract of sale, in the absence
distinct Forms part of the of some actionable wrong by the other
consideration for purchase price party (Vales v. Villa, G.R. No. 10028,
an option contract Dec. 16, 1916), and no such wrong has
Applies to a sale Given only when there is been committed by Bert. (2002 Bar
not yet perfected already a sale Question)
Prospective buyer is When given, the buyer is
not required to bound to pay the
VI. FORMATION OF CONTRACT OF SALE
buy. balance.

If buyer does not If sale did not materialize,
Note: see Introduction, Stages of Contract of Sale
decide to buy, it it must be returned. pp. 230‐234
cannot be (Villanueva, p. 87,
recovered. Pineda, p.77)

Q: Bert offers to buy Simeon's property under
the following terms and conditions: P1 million
purchase price, 10% option money, the balance
payable in cash upon the clearance of the
property of all illegal occupants. The option
money is promptly paid and Simeon clears the
property of all illegal occupants in no time at all.
However, when Bert tenders payment of the
balance and asks for the deed of absolute sale,
247

VII. TRANSFER OF OWNERSHIP this case, the subject motor vehicle) the thing
sold remained at the seller’s risk. The Union
A. MANNER OF TRANSFER Motor should therefore bear the loss of the
subject motor vehicle after its agent allegedly
Q: What is the effect of delivery? stole the same. (Union Motor Corp. v. CA, G.R. No.
117187, July 20, 2001)
A:
GR: Title /ownership is transferred Q: How may the buyer accept the delivery of the
thing sold?
XPN: Contrary is stipulated as in the case of:
1. Pactum reservatii in domini – A:
agreement that ownership will remain 1. Express – he intimates to seller that he
with seller until full payment of price has accepted
(Contract to sell); 2. Implied
2. Sale on acceptance/approval; a. Buyer does not act inconsistent
3. Sale on return; with ownership of seller after
4. There is implied reservation of delivery
ownership; b. Retains without intimating to seller
that he has rejected
Note: Seller bears expenses of delivery.
Q: What is the effect if the buyer refuses to
Q: Spouses Bernal purchased a jeepney from accept despite delivery of the object of the sale?
Union Motor to be paid in installments. They
then executed a promissory note and a deed of A: Delivery is completed. Since delivery of the
chattel mortgage in favor of Union Motor which subject matter of the sale is an obligation on the
in turn assigned the same with Jardine Finance. part of the seller, the acceptance thereof by the
To effectuate the sale as well as the assignment buyer is not a condition for the completeness of
of the promissory note and chattel mortgage, the delivery. (Villanueva, p. 117)
the spouses were required to sign documents,
one of which was a sales invoice. Although the Note: Thus, even with such refusal of acceptance,
Spouses have not yet physically possessed the delivery (actual/constructive), will produce its legal
vehicle, Union Motor’s agent required them to effects. (e.g. transferring the risk of loss of the
sign the receipt as a condition for the delivery of subject matter to the buyer who has become the
the vehicle. It was discovered that the said agent owner thereof) (Villanueva, p. 117)
stole the vehicle even prior to its delivery to the
spouses. Was there a transfer of ownership of Under Art. 1588, when the buyer’s refusal to accept
the subject vehicle? the goods is without just cause, the title thereto
passes to him from the moment they are placed at

his disposal. (Villanueva, p. 117)
A: No. The issuance of a sales invoice does not

prove transfer of ownership of the thing sold to
Q: Is payment of the purchase price essential to
the buyer; an invoice is nothing more than a
transfer ownership?
detailed statement of the nature, quantity and

cost of the thing sold and has been considered
A: Unless the contract contains a stipulation that
not a bill of sale.
ownership of the thing sold shall not pass to the

purchaser until he has fully paid the price,
The registration certificate signed by the spouses
ownership of the thing sold shall be transferred to
does not conclusively prove that constructive
the vendee upon the actual or constructive
delivery was made nor that ownership has been
delivery thereof. (Diaz, p. 48)
transferred to the respondent spouses. Like the

receipt and the invoice, the signing of the said
Q: What are the effects of a sale of goods on
documents was qualified by the fact that it was a
installment?
requirement of Union Motor for the sale and

financing contract to be approved. In all forms of
A:
delivery, it is necessary that the act of delivery,
1. Goods must be delivered in full except
whether constructive or actual, should be
when stipulated
coupled with the intention of delivering the thing.

The act, without the intention, is insufficient.
Inasmuch as there was neither physical nor
constructive delivery of a determinate thing, (in
248 CIVIL LAW TEAM:

SALES
2. When not examined by the buyer – it is c.
c. when the seller of the
not accepted until examined or at least goods draws on the buyer for
had reasonable time to examine the price and transmits the
bill of exchange and the bill of
Q: When may the buyer suspend payment of the lading to the buyer , and the
price? latter does not honor the bill
of exchange by returning the
A: bill of lading to the seller
GR: 4. When sale is not VALID
1. If he is disturbed in the possession or 5. When the seller is not the owner of the
ownership of the thing bought goods
2. If he has well‐grounded fear that his XPNs:
possession or ownership would be a. Estoppel: when the owner is
disturbed by a vindicatory action or precluded from denying the
foreclosure of mortgage. sellers authority to sell
b. Registered land bought in
Note: These grounds are not exclusive. It can good faith: Ratio: Buyer need
only be exercised if the price or any part not go beyond the Torrens
thereof has not yet been paid and the contract title
is not yet consummated. (Art. 1590) If the c. Order of Courts in a Statutory
disturbance is caused by the existence of non‐ Sale
apparent servitude, the remedy is rescission. d. When the goods are
purchased in a Merchant’s
XPN: store, Fair or Market (Art.
1. Seller gives security for the return of the 1505)
price in a proper case;
2. A stipulation that notwithstanding any SALE ON TRIAL, APPROVAL OR SATISFACTION
such contingency, the buyer must make
payment; Q: What is sale on trial, approval or satisfaction?
3. Disturbance or danger is caused by the
seller; A: It is a contract in the nature of an option to
4. If the disturbance is a mere act of purchase if the goods prove to be satisfactory, the
trespass; approval of the buyer being a condition
5. Upon full payment of the price. precedent.

Q: What are the rules in case of sale on trial,
B. WHEN DELIVERY DOES NOT TRANSFER TITLE approval or satisfaction?

Q: When does delivery does not transfer title? A:

A: Title Remains with seller
1. Sale on Trial, Approval, or Satisfaction
GR: Borne by seller
2. When there is an EXPRESS XPN:
RESERVATION Risk of Loss 1. Buyer is at fault
a. If it was stipulated that 2. Buyer agreed to
ownership shall not pass to bear the loss
the purchaser until he has
GR: Buyer must give goods a
fully paid the price (Art. 1478) trial
3. When there is an IMPLIED As to trial XPN: Buyer need not do so if
RESERVATION it is evident that it cannot
a. a. When goods are shipped, perform the work.
but the bill of lading states
When period
that goods are deliverable to It runs only when all the parts
within which buyer
the seller or his agent, or to essential for the operation of
must signify his
the order of the seller or his the object has been delivered
acceptance runs
agent
b. b. When the bill of lading is
retained by the seller or his
agent
249

Validity of b. Allowing buyer to make use of
stipulation that a rd rights
Valid, provided the 3 person
3rd person must 4. Tradition by operation of law –
is in good fath
satisfy approval or Execution of a public instrument is
satisfaction equivalent to delivery. But to be
If the sale is made effective, it is necessary that the seller
to a buyer who is Generally, it cannot be have such control over the thing sold
an expert on the considered a sale on approval that, at the moment of sale, its material
object purchased delivery could have been made.

C. KINDS OF DELIVERY GR: There is presumption of delivery

Q: What are the different kinds of delivery? XPN:
a. Contrary stipulation;
A: b. When at the time of execution,
1. Actual – thing sold is placed under the subject matter was not subject to
control and possession of buyer/agent; the control of seller;
2. Constructive – does not confer physical c. Seller has no capacity to deliver at
possession of the thing, but by time of execution;
construction of law, is equivalent to acts d. Such capacity should subsist for a
of real delivery. reasonable time after execution of
instrument.
Requisites:
a. The seller must have control over Note: Delivery should be coupled with intention of
the thing delivering the thing, and acceptance on the part of
b. The buyer must be put under the buyer to give legal effect of the act. Without
control such intention, there is no such tradition.
c. There must be intention to deliver
the thing for purposes of Q: Susan invested in commodity futures
ownership trading in OCP, which involves the buying or
selling of a specified quantity and grade of a
i. Tradicion Symbolica – delivery commodity at a future date at a price
of certain symbols established at the floor of the exchange. As per
representing the thing terms of the trading contract, customer's orders
ii. Tradicion Instrumental – shall be directly transmitted by OCP as broker to
delivery of the instrument of its principal, Frankwell Enterprises, which in turn
conveyance. must place the customer's orders with the Tokyo
iii. Traditio Longa Manu – Exchange. In this case, however, there is no
Delivery of thing by mere evidence of such transmission. When Susan
agreement; when seller points withdrew her investment, she was not able to
to the property without need recover the entire amount. She thus filed a
of actually delivering complaint and the trial court ruled in her favor,
iv. Tradicion Brevi Manu – Before saying that the contract is a species of gambling
contract of sale, the would‐be and therefore void. Is the court’s ruling correct?
buyer was already in
possession of the would‐be A: Yes. A trading contract is a contract for the sale
subject matter of sale of products for future delivery, in which either
v. Constitutum Possessorium – at seller or buyer may elect to make or demand
the time of perfection of delivery of goods agreed to be bought and sold,
contract, seller continues to but where no such delivery is actually made. In
have possession merely as a this case, no actual delivery of goods and
holder commodity was intended and ever made by the
parties. In the realities of the transaction, the
3. Quasi‐tradition – delivery of rights, parties merely speculated on the rise and fall in
credits or incorporeal property, made the price of the goods/commodity subject matter
by: of the transaction. If Susan’s speculation was
a. Placing titles of ownership in the correct, she would be the winner and OCP, the
hands of the buyer; loser, so OCP would have to pay her the "margin".
250 CIVIL LAW TEAM:

SALES
But if she was wrong in her speculation then she 2. FOB (Free On Board) – when goods are

would emerge as the loser and OCP, the winner. delivered at the point of shipment,
OCP would then keep the money or collect the delivery to carrier by placing the goods
difference from her. This is clearly a form of on vessel is delivery to buyer
gambling provided for with unmistakable 3. CIF (Cost, Insurance, Freight) –
certainty under Article 2018. (Onapal Phils. a. When buyer pays for services of
Commodities, Inc. vs. CA and Susan Chua, G.R. No. carrier, delivery to carrier is
90707, Feb. 1, 1993) delivery to buyer, carrier as agent
of buyer;
Note: Futures Commission Merchant/Broker refers b. When buyer pays seller the price –
to a corporation or partnership, which must be from the moment the vessel is at
registered and licensed as a Futures Commission the port of destination, there is
Merchant/Broker and is engaged in soliciting or in already delivery to buyer
accepting orders for the purchase or sale of any 4. COD (Collect On Delivery) – the carrier
commodity for future delivery on or subject to the acts for the seller in collecting the
rules of the contract market and that, in connection purchase price, which the buyer must
with such solicitation or acceptance of orders,
pay to obtain possession of the goods.
accepts any money, securities or property (or

extends credit in lieu thereof) to margin, guarantee
or secure any trade or contract that results or may
Q: What are the seller’s duties after delivery to
result therefrom. the carrier?

Q: Given that actual possession, control and A:
enjoyment is a main attribute of ownership, is 1. To enter on behalf of the buyer into
symbolic delivery by mere execution of the deed such contract reasonable under the
of conveyance sufficient to convey ownership circumstances;
over property? 2. To give notice to the buyer regarding
necessity of insuring the goods.
A: Yes, possession is also transferred along with
ownership thereof by virtue of the deed of Q: Where is the place of delivery?
conveyance. The mere execution of the deed of
conveyance in a public document is equivalent to A:
the delivery of the property, prior physical 1. That agreed upon
delivery or possession is not legally required. The 2. Place determined by usage of trade
deed operates as a formal or symbolic delivery of 3. Seller’s place of business
the property sold and authorizes the buyer or 4. Seller’s residence
transferee to use the document as proof of 5. In case of specific goods, where they
ownership. Nothing more is required. (Sps. Sabio can be found
v. International Corporate Bank, Inc. et. at. G.R.
No. 132709, Sept. 4, 2001) Q: When should the object be delivered?

Q: Can delivery be effected through a carrier? A:
1. Stipulated time
A: 2. If there is none, at a reasonable hour.
GR: Yes, if the seller is authorized. Delivery to
carrier is delivery to the buyer. Q: What are the effects of a sale of goods on
installment?
XPN:
1. A contrary intention appears A:
2. Implied reservation of ownership under 1. Goods must be delivered in full except
Art. 1503, pars 1, 2, 3. when stipulated
2. When not examined by the buyer – it is
Q: What are the kinds of delivery to carrier? not accepted until examined or at least
had reasonable time to examine
A:
1. FAS (Free Along Side) – when goods are
delivered alongside the ship, there is
already delivery to the buyer
251

Q: When is the seller not bound to deliver the property had not been delivered to Ten Forty;
thing sold? hence, it did not acquire possession either
materially or symbolically. As between the two
A: buyers, therefore, respondent was first in actual
1. If the buyer has not paid the price; possession of the property. (Ten Forty Realty &
2. No period for payment has been fixed in Dev’t. Corp. v. Cruz, G.R. No. 151212, Sept. 10,
the contract; 2003)
3. A period for payment has been fixed in
the contract but the buyer has lost the Q: Explain the principle of prius tempore, potior
right to make use of the time. jure.

D. DOUBLE SALE A: Knowledge by the first buyer of the second sale
cannot defeat the first buyer’s rights except when
Q: When is there a double sale? the second buyer first registers in good faith the
second sale. Conversely, knowledge gained by the
A: There is double sale when the same object of second buyer of the first sale defeats his rights
the sale is sold to different vendees. even if he is first to register, since such knowledge
taints his registration with bad faith to merit the
nd
Note: Requisites: protection of Art. 1544 (2 par.), the second
1. Same subject matter realty buyer must act in good faith in registering
2. Same immediate seller his deed of sale. (Diaz, p. 125)
3. Two or more different buyers
4. Both sales are valid Note: Where one sale is absolute and the other is a
pacto de retro transaction where the period to
Q: What is the rule on double sale? redeem has not yet expired, Art. 1544 will not apply.
(Pineda, p. 223)
A: First in time, priority in right
Q: Juliet offered to sell her house and lot,
Note: Rule on Double Sale regarding immovables: together with all the furniture and appliances
GR: Apply Art.1544 therein, to Dehlma. Before agreeing to purchase
XPN: Sale of registered lands – apply Torrens the property, Dehlma went to the Register of
System Deeds to verify Juliet’s title. She discovered that
while the property was registered in Juliet’s
Q: What are the rules according to Article 1544 name under the Land Registration Act, as
of the Civil Code? amended by the Property Registration Decree, it
was mortgaged to Elaine to secure a debt of P80,
A: 000. Wanting to buy the property, Dehlma told
c. Movable – Owner who is first to possess Juliet to redeem the property from Elaine, and
in good faith gave her an advance payment to be used for
d. Immovable – purposes of releasing the mortgage on the
d. First to register in good faith property. When the mortgage was released,
e. No inscription, first to possess in Juliet executed a Deed of Absolute Sale over the
good faith property which was duly registered with the
f. No inscription & no possession in Registry of Deeds, and a new TCT was issued in
good faith – Person who presents Dehlma’s name. Dehlma immediately took
oldest title in good faith possession over the house and lot and the
movables therein. Thereafter, Dehlma went to
E. PROPERTY REGISTRATION DECREE the Assessor’s Office to get a new tax
declaration under her name. She was surprised
Q: Ten Forty Realty purchased from Galino a to find out that the property was already
parcel of land. However, the Deed of Sale was declared for tax purposes in the name of XYZ
not recorded in the Registry of Deeds. Bank which had foreclosed the mortgage on the
Subsequently, Galino sold the same property to property before it was sold to her. XYZ Bank was
Cruz who immediately took possession of the also the purchaser in the foreclosure sale of the
said property. Who has a better right between property. At that time, the property was still
Ten Forty and Cruz? unregistered but XYZ Bank registered the
A: In the absence of the required registration, the Sheriff’s Deed of Conveyance in the day book of
law gives preferential right to the buyer who in the Register of Deeds under Act 3344 and
good faith is first in possession. The subject obtained a tax declaration in its name.
252 CIVIL LAW TEAM:

SALES
Was Dehlma a purchaser in good faith? Knowledge gained by the second buyer of the

first sale defeats his rights even if he is first to
A: Yes, Dehlma is a purchaser in good faith. She register the second sale, since such knowledge
learned about the XYZ tax declaration and taints his prior registration with bad faith (Art.
foreclosure sale only after the sale to her was 1544) (Uraca, et. al v. CA, G.R. No. 115158, Sept.
registered. She relied on the certificate of title of 5, 1997)
her predecessor‐in‐interest. Under the Torrens
System, a buyer of registered lands is not VIII. RISK OF LOSS
required by law to inquire further than what the
Torrens certificate indicates on its face. If a Q: When is a thing considered lost?
person proceeds to but it relying on the title, that
person is considered a buyer in good faith. A: It is understood that the thing is lost when it:
1. perishes, or
The “priority in time” rule could not be invoked 2. goes out of commerce, or
by XYZ Bank because the foreclosure sale of the 3. disappears in such a way that its
land in favour of the bank was recorded under Act existence is unknown or cannot be
nd
3344, the law governing transactions affecting recovered. (Art. 1189, 2 par.)
unregistered land, and thus, does not bind the
land. Q: What is deterioration?

Q: Who as between Dehlma and XYZ Bank has a A: Deterioration is the lowering of the value or
better right to the house and lot? character of a thing. It normally occurs by reason
of ordinary wear and tear. (Pineda, Credit, p. 20)
A: Between Dehlma and the bank, the former has
a better right to the house and lot. Q: Who bears the risk of loss or deterioration?

Q: Who owns the movables inside the house? A:

A: Unless there is a contrary stipulation in the Res perit domino – Seller is the
BEFORE
absolute deed of sale, Dehlma owns the movables owner so seller bears risk of loss
PERFECTION
covered by the Deed of Sale and her ownership is
perfected by the execution and delivery of public
document of sale. The delivery of the absolute Res perit domino
deed of sale is a symbolical delivery of the house
and lot, including the contents of the house. This AT Contract shall be without any
PERFECTION effect – the seller bears the loss
is an obligation to deliver a specific thing, which
since the buyer is relieved of his
includes the delivery of the specific thing itself
obligation under the contract
and all of its accessions and accessories even
Two Views:
though they may not have been mentioned (Art.
Paras: Buyer, except:
1166, CC). (2008 Bar Question) 1. when object sold consists of
fungible goods for a price fixed
Q: Does prior registration by the second buyer of AFTER 2. when seller is guilty of fraud,
a property subject of a double sale confer PERFECTION negligence, default, or
ownership or preferred right in his favor over BUT violation of contractual terms;
that of the first buyer? BEFORE or
DELIVERY 3. when object sold is generic.
A: Prior registration of the disputed property by
the second buyer does not by itself confer Tolentino: Seller;
ownership or a better right over the property. Deterioration & fruits – Buyer
Article 1544 requires that such registration must bears loss
be coupled with good faith. Res perit domino

Knowledge gained by the first buyer of the Buyer becomes the owner so
second sale cannot defeat the first buyer's rights AFTER buyer bears risk of loss
DELIVERY
except where the second buyer registers in good
Delivery extinguish ownership vis‐
faith the second sale ahead of the first, as
a‐vis the seller & creates a new
provided by the Civil Code. one in favor of the buyer

253

Q: What is the effect of the loss of the thing
subject of the contract at the time of sale? Q: Who may negotiate a Negotiable Document
of Title?
A:
1. Total loss – contract is void & inexistent A:
2. Partial loss – buyer may elect between 1. Owner
withdrawing from the contract or 2. Person to whom the possession pr
demanding the remaining part, paying custody of the document has been
its proportionate price entrusted by the owner
a. If bailee undertakes to
E. When Ownership is Transferred deliver the goods to such
person
See Transfer of Ownership. p. 247 b. If document is in such
form that it may be
negotiated by delivery.
IX. DOCUMENTS OF TITLE
Non‐Negotiable Documents of Title
Q: What is a Document of Title?
Q: What are Non‐negotiable documents of title?
A: A document used in the ordinary course of
business in the sale or transfer of goods , as proof A:
of the possession or control of the goods , or 1. They are delivered only to a
authorizing or purporting to authorize the specified person
possessor of the document to transfer or receive , 2. Carrier will not deliver the goods to
either by endorsement or by delivery , goods any holder of the document or to
represented by such document (Art. 1636). whom such document may have
been endorsed by the consignee
Q: What is the purpose of the Documents of 3. Must present the deed of sale or
Title? donation in his favour

A: Q: What are the warranties of seller of
1. Evidence of possession or control of documents of title?
goods described therein
2. Medium of transferring title and A:
possession over the goods described 1. Genuiness of the Document
therein without having to effect actual 2. Legal right to negotiate or transfer
delivery (Villanueva, 2009 ed.) 3. No knowledge of fact which would
3. The custody of a negotiable warehouse impair the validity or worth of the
receipts issued to the order of the document
owner, or to bearer, is a representation 4. Right to transfer Title to the goods and
of title upon which bona fide merchantability or fitness for a
purchasers for value are entitled to rely particular purpose, whenever such
, despite breaches of t rust or violations warranties would have been implied
of agreement on the part of the had the contract transfer the goods
apparent owner (Siy Cong Bieng v. without a document.
HSBC, 56 Phil 598)
Rules Regarding Levy and Garnishment of Goods
Negotiable Documents of Title
Q: What does a person to whom a non‐
Q: What is a Negotiable Document of Title? negotiable instrument has been transferred but
not negotiated, acquire as against the
A: A document of title which states that the transferor?
goods referred therein will be delivered to the
bearer, or to the order of any person named in A: He acquires:
such document (Art. 1509, NCC). 1. Title to the goods, subject to the terms
of any agreement with the transferor;
2. Right to notify the bailee who issued
the document of the transfer thereof,
254 CIVIL LAW TEAM:

SALES
and thereby to acquire the direct X. REMEDIES OF AN UNPAID SELLER

obligation of such bailee to hold
possession of the goods for him A. DEFINITION OF UNPAID SELLER
according to the terms of the
document. Q: Who is an unpaid seller?

Q: How may the transferor’s creditor defeat the A: The seller of goods is deemed to be an unpaid
aforementioned rights of the transferee? seller either:
1. when the whole of the price has not
A: Prior to the notification to such bailee by the been paid or tendered; or
transferor or transferee of a non‐negotiable 2. when a bill of exchange or other
document of title, the title of the transferee to negotiable instrument has been
the goods and the right to acquire the obligation received as conditional payment, and
of such bailee may be defeated by the the condition on which it was received
transferor’s creditor by the levy of an attachment has been broken by reason of the
or execution upon the goods. (Art. 1514, NCC) dishonor of the instrument, the
insolvency of the buyer, or otherwise.
Q: If the goods are delivered to a bailee by the
owner or by a person whose act in conveying the Note: It includes an agent of the seller to whom the
title to them to a purchaser in good faith for bill of lading has been indorsed, or consignor or
value and a negotiable instrument was issued agent who has himself paid, or is directly responsible
for them, can the said goods be attached, for the price, or any other person who is in the
garnished or levied upon? position of a seller.

A: B. REMEDIES OF UNPAID SELLER
GR: No, the goods cannot be attached,
garnished or levied upon while they are in Q: What are the remedies of an Unpaid Seller?
the bailee’s possession.
A:
XPN: I. Ordinary
1. When the document is first
surrendered; or 1. Action for Price
2. When its negotiation is enjoined. Exercised when:
a. ownership has passed to buyer;
Note: The bailee shall in no case be compelled b. price is payable on a day certain
to deliver the actual possession of the goods c. goods cannot readily be resold for
until the document is: reasonable price and Art. 1596 is
1. Surrendered to him; or inapplicable
2. Impounded by the court.
(Art. 1519, NCC) 2. Action for Damages – In case of
wrongful neglect or refusal by the buyer
Q: What are the rights of a creditor whose to accept or pay for the thing sold
debtor is the owner of a negotiable document of
title? II. Special

A: He is entitled to such aid from courts of 1. Possessory Lien – Seller not bound to
appropriate jurisdiction by: deliver if buyer has not paid him the
1. injunction; price. It is exercisable only in following
2. attaching such document; circumstances:
3. as regards property which cannot be readily a. goods sold without stipulation as
attached or levied upon by ordinary legal process to credit
‐ satisfying the claim by means allowed by law or b. goods sold on credit but term of
equity. (Art. 1520, NCC) credit has expired
c. buyer becomes insolvent

Note: When part of goods delivered, may
still exercise right on goods undelivered

255

2. Stoppage in Transitu Q: When are goods considered to be in transit?
Requisites: I‐SENT‐U
a. Insolvent buyer A:
b. Seller must Surrender the 1. After delivery to a carrier or other
negotiable document of title, if any bailee and before the buyer or his agent
c. Seller must bear the Expenses of takes delivery of them; and
delivery of the goods after the 2. If the goods are rejected by the buyer,
exercise of the right. and the carrier or other bailee
d. Seller must either actually take continues in possession of them. (Art.
possession of the goods sold or 1531, par. 1)
give Notice of his claim to the
carrier or other person in Q: When are goods deemed to be no longer in
possession transit?
e. Goods must be in Transit
f. Unpaid seller A:
1. After delivery to the buyer or his agent
2. If the buyer/agent obtains possession of
3. Special Right to Resell the Goods the goods at a point before the
Exercised when: destination originally fixed;
a. Goods are perishable, 3. If the carrier or the bailee acknowledges
b. Stipulated the right of resale in that he holds the goods in behalf of the
case of default, or buyer/ his agent;
c. Buyer in default for unreasonable 4. If the carrier or bailee wrongfully
time refuses to deliver the goods to the
buyer or his agent. (Villanueva, p. 181)
4. Special Right to Rescind
Requisites: XI. PERFORMANCE OF CONTRACT
a. Expressly stipulated OR buyer is in
default for unreasonable time A. SALE OF PERSONAL PROPERTY.
b. Notice needed to be given by seller
to buyer RULES ON SALE OF PERSONAL PROPERTY.

Note: Ownership of goods already with buyer but INSTALLMENT SALES LAW
seller may still rescind; ownership is destroyed even
without court intervention but in ordinary sale, need Q: What is the Installment Sales Law?
to go to court.
A: Commonly known as the Recto Law. It is
Q: What are the instances when possessory lien embodied in Art. 1484 of the NCC which provides
is lost? for the remedies of a seller in the contracts of
sale of personal property by installments.
A:
1. Seller delivers without reserving Note: Art. 1484 of the NCC incorporates the
ownership in goods or right to possess provisions of Act No. 4122 passed by the Philippine
them Legislature on Dec. 9, 1939, known as the
2. Buyer or agent lawfully obtains "Installment Sales Law" or the "Recto Law," which
possession of goods then amended Art. 1454 of the Civil Code of 1889.
3. Waiver
Q: To what does the Recto Law apply?
Note: Seller loses lien when he parts with goods (but
still, stoppage in transitu can be exercised) A: This law covers contracts of sale of personal
property by installments (Act No. 4122). It is also
Q: What is the right of stoppage in transitu? applied to contracts purporting to be leases of
personal property with option to buy, when the
A: The seller may resume possession of the goods lessor has deprived the lessee of the possession
at any time while they are in transit, and he will or enjoyment of the thing. (PCI Leasing and
then become entitled to the same rights in regard Finance Inc. v. Giraffe‐ X Creative Imaging, Inc.,
to the goods as he would have had if he had G.R. No. 142618, July 12, 2007)
never parted with the possession. (Art. 1530,
NCC)
256 CIVIL LAW TEAM:

SALES
Q: What are the alternative remedies in case of payable on installments. The law declares as

sale of personal property in installments? "public policy to protect buyers of real estate on
installment payments against onerous and
A: oppressive conditions.
1. Specific Performance: Exact fulfillment
should the buyer fail to pay Note: The purpose of the law is to protect buyers in
installment against oppressive conditions.
GR: If availed of, the unpaid seller
cannot anymore choose other Q: What are the transactions/sale covered by
remedies; the Maceda Law?

XPN: if after choosing, it has become A: The law involves the sale of immovables on
impossible, rescission may be pursued installment (Maceda Law, R.A. 6552).
1. Coverage: Residential Real Estate
2. Rescission: Cancel the sale if buyer fails (Villanueva, p. 431)
to pay 2 or more installments 2. Exclude:
a. Industrial lots
Deemed chosen when: b. Commercial buildings (and
a. Notice of rescission is sent commercial lots by implication)
b. Takes possession of subject matter c. Sale to tenants under agrarian laws
of sale
c. Files action for rescission Q: What are the rights granted to buyers?

3. Foreclosure: Foreclose on chattel A:
mortgage if buyer fails to pay 2 or more 1. Buyer paid at least 2 years installment
installments a. Pay w/o interest the balance
within grace period of 1 month for
GR: Actual foreclosure is necessary to every year of installment payment.
bar recovery of balance Grace period to be exercised once
- Extent of barring effect: every 5 years.
purchase price b. When no payment – cancelled;
buyer entitled to 50% of what he
XPN: Mortgagor refuses to deliver has paid + 5% for every year but
property to effect foreclosure; expenses not exceeding 90% of payments
incurred in attorneys fees, etc. made

Q: When the lessor of the property chose to Note: Cancellation to be effected 30
deprive the lessee of the subject personal days from notice & upon payment of
property, can the former recover any unpaid cash surrender value.
rentals from the latter?
2. Buyer paid less than 2 years installment
A: In choosing, through replevin, to deprive the a. Grace period is not less than 60
respondent of possession of the leased days from due date
equipment, the petitioner waived its right to b. Cancellation if failure to pay w/in
bring an action to recover unpaid rentals on the 60 days grace
said leased items. c. 30 days notice before final
cancellation
B. SALE OF REAL PROPERTY.
Note: buyer can still pay w/in the 30
RULES ON SALE OF REAL PROPERTY days period with interest.

REALTY INSTALLMENT BUYER ACT Q: What are the other rights granted to a buyer?

Q: What is the Realty Installment Buyer Act? A:
1. Sell or assign rights to another
A: Commonly known as the “Maceda Law.” It is 2. Reinstate contract by updating within
embodied in R.A. 6552 which provides for certain 30 days before and cancellation
protection to particular buyers of real estate 3. Deed of Sale to be done by notarial act
257

4. Pay full installment in advance the Bernie discovered that DEVLAND had failed to
balance of price anytime w/o interest develop the subdivision in accordance with the
5. Have full payment annotated in approved plans and specifications within the
certificate of title time frame in the plan. He thus wrote a letter to
DEVLAND informing it that he was stopping
Note: Applies to contracts even before the law was payment. Consequently, DEVLAND cancelled the
enacted. Stipulation to the contrary is void sale and wrote Bernie, informing him that his
payments are forfeited in its favor.
Q: What are the so‐called “Maceda” and “Recto” 1. Was the action of DEVLAND proper?
laws in connection with sales on installments? Explain.
Give the most important features on each law. 2. Discuss the rights of Bernie under the
circumstances.
A: The Maceda Law (R.A. 6552) is applicable to 3. Supposing DEVLAND had fully
sales of immovable property on installments. The developed the subdivision but Bernie
most important features are: failed to pay further installments after
4 years due to business reverses.
1. After having paid installments for at least Discuss the rights and obligations of
two years, the buyer is entitled to a the parties.
mandatory grace period of one month for
every year of installment payments made, A:
to pay the unpaid installments without 1. Assuming that the land is a
interest. residential subdivision project under
P.D. No. 957 (The Subdivision and
If the contract is cancelled, the seller shall Condominium Buyers Protective
refund to the buyer the cash surrender Decree), DEVLAND's action is not
value equivalent to fifty percent (50%) of proper because under Section 23 of said
the total payments made, and after five Decree, no installment payment shall be
years of installments, an additional five forfeited to the owner or developer
percent (5%) every year but not to exceed when the buyer, after due notice,
ninety percent (90%) of the total desists from further payment due to the
payments made. failure of the owner‐developer to
develop the subdivision according to
2. In case the installments paid were less the approved plans and within the time
than 2 years, the seller shall give the buyer limit for complying with the same.
a grace period of not less than 60 days. If
the buyer fails to pay the installments due 2. Under the same Section of the Decree,
at the expiration of the grace period, the Bernie may, at his option, be
seller may cancel the contract after 30 reimbursed the total amount paid
days from receipt by the buyer of the including amortization interests but
notice of cancellation or demand for excluding delinquency interests at the
rescission by notarial act. (Rillo v. CA, G.R. legal rate. He may also ask the Housing
No. 125347 June 19, 1997) and Land Use Regulatory Board to apply
penal sanctions against DEVLAND
The Recto Law (Art.1484) refers to sale of consisting of payment of administrative
movables payable in installments and limiting the fine of not more than P20.000.00
right of seller, in case of default by the buyer, to and/or imprisonment for not more than
one of three remedies: 20 years.
1. Exact fulfillment;
2. Cancel the sale of two or more 3. Under R.A. No. 6552 (Maceda Law),
installments have not been paid; DEVLAND has the right to cancel the
3. Foreclose the chattel mortgage on the contract but it has to refund Bernie the
things sold, also in case of default of two cash surrender value of the payments
or more installments, with no further on the property equivalent to 50% of
action against the purchaser. (1999 Bar the total payments made. (2005 Bar
Question) Question)

Q: Bernie bought on installment a residential
subdivision lot from DEVLAND. After having
faithfully paid the installments for 48 months,
258 CIVIL LAW TEAM:

SALES
XII. WARRANTIES B. IMPLIED WARRANTIES

Q: What is a warranty? Q: What are implied warranties?

A: A statement or representation made by the A: Warranties deemed included in all contracts of
seller of goods, as part of the contract of sale, sale by operation of law. (Art. 1547)
having reference to the character, quality, or title,
of the goods, and by which he promises or 1. Warranty that seller has right to sell –
undertakes to insure that certain facts are or shall refers to consummation stage. Not
be as he then represents. applicable to sheriff, auctioneer,
mortgagee, pledge
Note: May either be express or implied.
2. Warranty against eviction
Q: What is the effect of a breach of warranty?
Requisites: JPENS
A: Buyer may: a. Buyer is Evicted in whole or in part
1. Refuse to proceed with the contract; or from the subject matter of sale
2. Proceed with the contract; waive the b. Final Judgment
condition. c. Basis of eviction is a right Prior to
sale or act imputable to seller
Note: If the condition is in the nature that it should d. Seller has been Summoned in the
happen, the non‐performance may be treated as a suit for eviction at the instance of
breach of warranty. buyer; or made 3rd party
defendant through 3rd party
Q: What are the kinds of warranties? complaint brought by buyer
Distinguish. e. No waiver on the part of the buyer

A: Note: For eviction – disturbance in law is
i. Express required and not just trespass in fact.
ii. Implied
3. Warranty against encumbrances (non‐
A. EXPRESS WARRANTIES apparent)

Q: What are express warranties? Requisites:
a. immovable sold is encumbered
A: Any affirmation of fact or any promise by the with non‐apparent burden or
seller relating to the thing if the natural tendency servitude not mentioned in the
of such affirmation or promise is to induce the agreement
buyer to purchase the same, and if the buyer b. nature of non‐apparent servitude
purchases the thing relying thereon. (Art. 1546) or burden is such that it must be
presumed that the buyer would
Q: What are the requisites of express not have acquired it had he been
warranties? aware thereof

A: AIR XPN: warranty not applicable when
1. It must be an Affirmation of fact non‐apparent burden or servitude is
relating to the subject matter of sale recorded in the Registry of Property –
2. Natural tendency is to Induce buyer to unless there is expressed warranty that
purchase subject matter the thing is free from all burdens &
3. Buyer purchases the subject matter encumbrances
Relying thereon
4. Warranty against Hidden Defects
Q: What is the liability of the seller for breach of
express warranties? Requisites: HENNAS
a. Defect is important or Serious
A: The seller is liable for damages. (Villanueva, p. i. The thing sold is unfit for the
249) use which it is intended
ii. Diminishes its fitness for such
use or to such an extent that
259

the buyer would not have Q: What is covered by a warranty against
acquired it had he been aware eviction?
thereof
b. Defect is Hidden A: It covers eviction by a final judgment based on
c. Defect Exists at the time of the sale a right prior to the sale or an act imputable to the
d. Buyer gives Notice of the defect to vendor, the vendee is deprived of the whole or of
the seller within reasonable time a part of the thing purchased.
e. Action for rescission or reduction of
the price is brought within the The vendor shall answer for the eviction even
proper period though nothing has been said in the contract on
i. 6 months – from delivery of the subject. (Art. 1548, NCC)
the thing sold
ii. Within 40 days – from the Q: What is the effect of a breach of warranty
delivery in case of animals against eviction?
f. There must be No waiver of
warranty on the part of the buyer. A: The buyer shall have the right to demand the
seller:
Q: When is implied warranty not applicable?
1. The return of the value which the thing
A: ASAP sold had at the time of the eviction, be
1. “As is and where is” sale it greater or lesser than the price of the
2. Sale of second hand articles sale
3. Sale by virtue of authority in fact or law 2. The income or fruits, if he has been
4. Sale at public auction for tax ordered to deliver them to the party
delinquency who won the suit against him
3. The costs of suit which caused the
C. EFFECTS OF WAIVER OF IMPLIED WARRANTIES eviction, and, in a proper case, those of
suit brought against the vendor for the
Q: What are the effects of waiver of an implied waranty
warranty? 4. The expenses of contract if buyer has
paid them
A: 5. The damages and interests and
1. Seller in bad faith & there is waiver ornamental expenses if sale was made
against eviction –void in bad faith.
2. When buyer w/o knowledge of a
particular risk, made general Note: Vendor is liable for any hidden defect even if
renunciation of warranty – is not a he is not aware. (Caveat Venditor)
waiver but merely limits liability of seller
in case of eviction Purchaser must be aware of the title of the vendor.
3. When buyer with knowledge of risk of (Caveat Emptor)
eviction assumed its consequences &
made a waiver – seller not liable Q: What are the rights of buyer in case of partial
(applicable only to waiver of warranty eviction?
against eviction)
A:
WARRANTY AGAINST EVICTION 1. Restitution (with obligation to return
the thing w/o other encumbrances than
Q: What is a warranty against eviction? those which it had when he acquired it)
2. Enforcement of warranty against
A: In a contract of sale, unless a contrary eviction (Paras, p. 153 and Art. 1556)
intention appears, there is an implied warranty
on the part of the seller that when the ownership WARRANTY AGAINST HIDDEN DEFECT
is to pass, and that the buyer shall from that time
have and enjoy the legal and peaceful possession Q: What is a hidden defect?
st
of the thing. (Art. 1547, 1 paragraph)
A: A hidden defect is one which is unknown or
could not have been known to the buyer. (Diaz, p.
145)

260 CIVIL LAW TEAM:

SALES
Note: Seller does not warrant patent defect; Caveat 3. If the contrary has been stipulated, and
emptor (buyer beware) the vendor was not aware of the hidden
faults or defects in the thing sold. (Art.
Q: What is a redhibitory defect? 1566)

A: It is a defect in the article sold against which Q: What is the effect of a breach of warranty
defect the seller is bound to warrant. The vice against hidden defects?
must constitute an imperfection, a defect in its
nature, of certain importance; and a minor defect A: It would depend on whether the seller had
does not give rise to redhibition. (De Leon, knowledge of such defect and whether there has
Comments and Cases on Sales and Lease, 2005 been a waiver of the warranty.
ed, p. 318)
1. If the thing should be lost in
Q: What is a redhibitory defect on animals? consequence of the hidden faults, and
seller was aware of them – he shall:
A: If the hidden defect of animals, even in case a a. bear the loss,
professional inspection has been made, should be b. return the price and
of such a nature that expert knowledge is not c. refund the expenses of the contract
sufficient to discover it, the defect shall be with damages
considered as redhibitory.
2. If the thing is lost and seller was not
Q: When is the sale of animal void? aware of the hidden faults – he shall:
a. return the price and interest
A: The sale is void if animal is: b. reimburse the expenses of the
1. Suffering from contagious diseases; contract which the buyer might
2. Unfit for the use or service for which have paid, but not for damages.
they were purchased as indicated in the (Villanueva, Law on Sales,2004 ed,
contract pp. 548‐549)

Q: When is a vendor responsible for hidden Q: What are the remedies of the buyer in case of
defects? sale of things with hidden defects?

A: If the hidden defects which the thing sold may A: The vendee may elect between:
have: 1. Withdrawing from the contract, or
1. Render it unfit for the use for which it is 2. Demanding a proportionate reduction
intended, or of the price, with damages in either
2. Diminish its fitness for such use to such case.
an extent that, had the vendee been
aware thereof, he would not have Q: Is there a waiver of warranty against hidden
acquired it or would have given a lower defects when the lessee inspected the premises
price for it. (Art. 1561) and pushed through with the contract?

Q: Up to what extent does the seller warrant A: Yes. Under Arts. 1561 and 1653 of the Civil
against hidden defects? Code, the lessor is responsible for warranty
against hidden defects, but he is not answerable
A: The seller is responsible to the vendee for any for patent defects or those, which are visible. Jon
hidden faults or defects in the thing sold, even de Ysasi admitted on cross‐examination that he
though he was not aware thereof. inspected the premises three or four times before
signing the lease contract. During his inspection,
Q: When is the seller not answerable for the he noticed the rotten plywood on the ceiling,
defects of the thing sold? which in his opinion was caused by leaking water
or termites. Yet, he decided to go through with
A:
the lease agreement. Hence, respondents cannot
1. For patent defects or those which are be held liable for the alleged warranty against
visible, or hidden defects. (Jon and Marissa De Ysasi v.
2. Even for those which are not visible if Arturo and Estela Arceo, G.R. No. 136586, Nov.
the buyer is an expert who, by reason of 22, 2001)
his trade or profession, should have
known them (Art. 1561), or
261

IMPLIED WARRANTIES IN CASE OF SALE OF are inscribed on the face of certificate of title.
GOODS (Pineda sales, p. 275)

Q: What are the specific implied warranties in Q: Does caveat emptor apply in judicial sales?
sale of goods?
A: Yes. The purchaser in a judicial sale acquires no
A: higher or better title or right than that of the
1. Warranty of fitness judgment debtor. If it happens that the judgment
debtor has no right, interest, or lien on and to the
GR: No implied warranty property sold, the purchaser acquires none.
(Pineda sales, p. 280)
XPN:
a. Buyer manifests to the seller the D. REMEDIES IN CASE OF BREACH OF WARRANTY
particular purpose for which the
goods are required; and Q: What are the remedies of the buyer in case of
b. Buyer relies upon the seller’s skill breach of warranty?
or judgment
A:
2. Warranty of merchantability – That 1. Accept goods & set up breach of
goods are reasonably fit for the general warranty by way of recoupment in
purpose for which they are sold. diminution or extinction or the price.
2. Accept goods & maintain action against
CAVEAT EMPTOR seller for damages
3. Refuse to accept goods & maintain
Q: What does the principle of caveat emptor action against seller for damages
mean? 4. Rescind contract of sale & refuse to
receive goods/return them when
A: It literally means, ‘Let the buyer beware’. The already received.
rule requires the purchaser to be aware of the
supposed title of the vendor and one who buys Q: Are the remedies of the buyer in case of
without checking the vendor’s title takes all the breach of warranty absolute?
risks and losses consequent to such failure.
(Agcaoili, p. 184) A: No. The vendee's remedies against a vendor
with respect to the warranties against hidden
Q: In what particular sale transactions does defects of or encumbrances upon the thing sold
caveat emptor apply? are not limited to those prescribed in Article 1567
where the vendee, in the case of Arts. 1561,
A: 1562, 1564, 1565 and 1566, may elect either to
1. Sales of animals (Art. 1574) withdraw from the contract or demand a
2. Double sales (Art. 1544) proportionate reduction of the price, with
3. In sheriff’s sales (Art. 1570) damages in either case.
4. Tax sales (Art. 1547, last paragraph)
The vendee may also ask for the annulment of the
Note: In the above sales, there is no warranty of title contract upon proof of error or fraud, in which
or quality on the part of the seller. The purchaser case the ordinary rule on obligations shall be
who buys without checking the title of the vendor is applicable. Under the law on obligations,
assuming all risks of eviction.
responsibility arising from fraud is demandable in

all obligations and any waiver of an action for
In sheriff’s sales, the sheriff does not guarantee the
title to real property and it is not incumbent upon
future fraud is void. Responsibility arising from
him to place the buyer in possession of such negligence is also demandable in any obligation,
property. (Pineda sales, p. 275) but such liability may be regulated by the courts,
according to the circumstances.
Q: Is caveat emptor applicable in sales of
registered land? The vendor could likewise be liable for quasi‐
delict under Article 2176 of the Civil Code, and an
A: No. The purchaser of a registered land under action based thereon may be brought by the
the Torrens system is merely charged with notice vendee. While it may be true that the pre‐existing
of the burdens and claims on the property which contract between the parties may, as a general
262 CIVIL LAW TEAM:

SALES
rule, bar the applicability of the law on quasi‐ XIII. BREACH OF CONTRACT
delict, the liability may itself be deemed to arise
from quasi‐delict, i.e., the acts which breaks the A. REMEDIES OF THE SELLER
contract may also be a quasi‐delict. (Coca‐Cola Note: see Recto and Maceda Law (XI. Performance of
Bottlers Philippines, Inc. v. CA, G.R. No. 110295, Contract) p. 258
Oct. 18, 1993)
B. REMEDIES OF THE BUYER
Q: What are the instances when the buyer
cannot rescind the sale in case there is a breach Q: What are the remedies of the buyer?
of warranty?
A: A:
1. If he knew of the breach of warranty I. Immovables in general
2. If he fails to return or offer to return 1. Disturbed in possession or with
goods to seller in substantially as good reasonable grounds to fear disturbance
condition as they were at time – Suspend payment
ownership was transferred 2. In case of subdivision or condo projects
3. If he fails to notify the seller within a – If real estate developer fails to comply
reasonable time of his election to with obligation according to approved
rescind plan:
a. Rescind
E. CONDITION VIS‐À‐VIS WARRANTY b. Suspend payment until seller
complies
Q: What is the effect of non‐fulfillment of a II. Movables
condition? 1. Failure of seller to deliver – Action for
specific performance without giving the
A: If imposed on the perfection of contract – seller the option of retaining the goods
prevents the juridical relation itself from coming on payments of damages
into existence 2. Breach of seller’s warranty – The buyer
may, at his election, avail of the
The other party may: following remedies:
1. Refuse to proceed with the contract a. Accept goods & set up breach of
2. Proceed w/ contract, waiving the warranty by way of recoupment in
performance of the condition diminution or extinction or the
price.
Q: What is the difference between a condition b. Accept goods & maintain action
and a warranty? against seller for damages
c. Refuse to Accept goods & maintain
A: action against seller for damages
CONDITION WARRANTY d. Rescind contract of sale & refuse
Purports to the to receive goods/return them
Purports to the when already received.
performance of
existence of obligation
obligation
Need not be stipulated; Note: When the buyer has claimed and been
Must be stipulated to granted a remedy in any of these ways, no other
may form part of
form part of the remedy can thereafter be granted, without
obligation by provision
obligation prejudice to the buyer’s right to rescind, even if
of law
Relates to the subject previously he has chosen specific performance
May attach itself to when fulfillment has become impossible.
matter itself or to
obligation of seller to (Villanueva, p. 389 in relation with Art. 1191,
obligation of the seller
deliver possession & NCC)
as to the subject matter
transfer
of the sale
3. Disturbed in possession or with
reasonable grounds to fear disturbance
– Suspend payment

263

XIV. EXTINGUISHMENT OF SALE Q: What is the difference between pre‐emption
and redemption?
A. CAUSES OF EXTINGUISHMENT
A:
Q: What are the causes for extinguishment of PRE‐EMPTION REDEMPTION
sale? Arises before sale Arises after sale
There can be rescission
Rescission inapplicable
A: A contract of sale is extinguished by: of original sale
Action is directed against Action is directed
1. Same causes as all other obligations, prospective seller against buyer
namely:
a. Payment or performance B. PERIOD OF REDEMPTION
b. Loss of the thing due
c. Condonation or remission of the Q: What is the period of redemption?
debt
d. Confusion or merger of the rights A:
of creditor and debtor 1. No period agreed upon – 4 years from
e. Compensation date of contract
f. Novation 2. When there is agreement – should not
g. Annulment exceed 10 years; but if it exceeded,
h. Rescission valid only for the first 10 years.
i. Fulfillment of resolutory condition 3. When period to redeem has expired &
j. prescription there has been a previous suit on the
2. Causes stated in the preceding articles; nature of the contract – seller still has
3. Conventional Redemption; or 30 days from final judgment on the
4. Legal redemption basis that contract was a sale with
pacto de retro:
B. REDEMPTION
Rationale: no redemption due to
Q: What is redemption? erroneous belief that it is equitable
mortgage which can be extinguished by
A: It is a mode of extinguishment wherein the paying the loan.
seller has the right to redeem or repurchase the
thing sold upon return of the price paid. 4. When period has expired & seller
allowed the period of redemption to
Q: What are the kinds of redemption? expire – seller is at fault for not having
exercised his rights so should not be
A: granted a new period
1. Legal
2. Conventional Note: Tender of payment is sufficient but it is not in
itself a payment that relieves the seller from his
Q: Should the right to redeem be incorporated in liability to pay the redemption price.
every contract of sale?
Q: When does period of redemption begin to
A: The right of the vendor to redeem/ repurchase run?
must appear in the same instrument. However,
parties may stipulate on the right of repurchase in A:
a separate document but in this case, it is valid 1. Right of legal pre‐emption or
only between the parties and not against third redemption shall be exercised within 30
persons. (Pineda, p. 333) days from written notice by the buyer –
deed of sale not to be recorded in
Registry of Property unless
accompanied by affidavit that buyer has
given notice to redemptioners

2. When there is actual knowledge, no
need to give written notice; period of
redemption begins to run from actual
knowledge
264 CIVIL LAW TEAM:

SALES
D. EXERCISE OF THE RIGHT TO REDEEM property which he ought not, in equity and good
conscience, hold and enjoy. It has been broadly
Q: Is written notice mandatory for the right of ruled that a breach of confidence, although in
redemption to commence? business or social relations, rendering an
acquisition or retention of property by one
A: Yes, the notice must be in writing stating the person unconscionable against another, raises a
execution of the sale and its particulars. It may be constructive trust. It is raised by equity in respect
made in a private or public document. (Pineda, p. of property, which has been acquired by fraud, or
400) where, although acquired originally without
fraud, it is against equity that it should be
Q: Is there a prescribed form for an offer to retained by the person holding it. (Arlegui v. CA
redeem? G.R. No. 126437, Mar. 6, 2002)

A: There is no prescribed form for an offer to Note: "A constructive trust is substantially an
redeem to be properly effected. Hence, it can appropriate remedy against unjust enrichment. It is
either be through a formal tender with raised by equity in respect of property, which has
consignation of the redemption price within the been acquired by fraud, or where, although acquired
prescribed period. What is paramount is the originally without fraud, it is against equity that it
availment of the fixed and definite period within should be retained by the person holding it." (76 Am.
which to exercise the right of legal redemption. Jur. 2d, Sec. 222, p. 447 cited in Arlegui v. CA G.R. No.
126437, Mar. 6, 2002)

Note: Art. 1623 does not prescribe any distinctive

method for notifying the redemptioner. D. CONVENTIONAL REDEMPTION

Q: Is tender of payment necessary for Q: What is conventional redemption?
redemption to take effect?
A: Seller reserved the right to repurchase thing
A: Tender of payment is not necessary; offer to sold coupled with obligation to return price of the
redeem is enough. sale, expenses of contract & other legitimate
payments and the necessary & useful expenses
Q: What is the effect of failure to redeem? made on the thing sold

A: There must be judicial order before ownership Note: Right to repurchase must be reserved at the
time of perfection of sale. (Pineda, p. 333)
of real property is consolidated to the buyer a

retro.
E. LEGAL REDEMPTION

TRUST DE SON TORT
Q: What is legal redemption?

Q: What is a trust de son tort?
A: Also referred to as “retracto legal”, it is the

right to be subrogated upon the same terms and
A: It is a trust created by the purchase or
conditions stipulated in the contract, in the place
redemption of property by one other than the
of one who acquires the thing by purchase or by
person lawfully entitled to do so and in fraud of
dation in payment or by other transaction
the other.
whereby ownership is transmitted by onerous

title.
Q: Do constructive trusts arise only out of fraud

or duress?
Q: What are the instances of legal redemption?

A: No. A constructive trust, otherwise known as a
A:
trust ex maleficio, a trust ex delicto, a trust de son
1. Sale of a co‐owner of his share to a
tort, an involuntary trust, or an implied trust, is a
stranger (Art. 1620)
trust by operation of law which arises contrary to
2. When a credit or other incorporeal right
intention and in invitum, against one who, by
in litigation is sold (Art. 1634)
fraud, actual or constructive, by duress or abuse
3. Sale of an heir of his hereditary rights to
of confidence, by commission of wrong, or by any
a stranger (Art. 1088)
form of unconscionable conduct, artifice,
4. Sale of adjacent rural lands not
concealment, or questionable means, or who in
exceeding 1 hectare (Art. 1621)
any way against equity and good conscience,
either has obtained or holds the legal right to
265

5. Sale of adjacent small urban lands extending the period of redemption or
bought merely for speculation (Art. granting a new period is executed
1622) 4. Purchaser Retains for himself a part of
the purchase price
Q: Are there other instances when the right of 5. Seller binds himself to pay the Taxes on
legal redemption is also granted? the thing sold
6. In any other case where the real
A: intention of the parties is that the
1. Redemption of homesteads transaction shall Secure the payment of
2. Redemption in tax sales a debt or the performance of any other
3. Redemption by judgment debtor obligation.
4. Redemption in extrajudicial foreclosure 7. Art. 1602 shall also apply to a contract
5. Redemption in judicial foreclosure of purporting to be an Absolute sale. (Art.
mortgage 1604)

Q: When does legal redemption period begin to Note: In case of doubt in determining whether it is
run? equitable mortgage or sale a retro (with right of
repurchase); it shall be construed as equitable
A: The right of legal redemption shall not be mortgage.
exercised except within 30 days from the notice
in writing by the prospective seller, or seller, as Remedy is reformation.
the case may be. The deed of sale shall not be An equitable mortgage is one which although lacking
in some formality, or form or words, or other
recorded in the Registry of Property unless
requisites demanded by a statute, nevertheless
accompanied by an affidavit of the seller that he
reveals the intention of the parties to charge real
has given written notice thereof to all possible property as security for a debt, and contains nothing
redemptioners. (Art. 1623, NCC) impossible or contrary to law.

C. EQUITABLE MORTGAGE Q: Does inadequacy of price constitute proof
sufficient to declare a contract as one of
Q: What is an equitable mortgage? equitable mortgage?

A: One which lacks the proper formalities, form or A: Mere inadequacy of the price is not sufficient.
words or other requisites prescribed by law for a The price must be grossly inadequate, or purely
mortgage, but shows the intention of the parties shocking to the conscience. (Diaz, p. 186)
to make the property subject of the contract as
security for a debt and contains nothing Q: X transferred three parcels of land in favor of
impossible or contrary to law Y. The transaction was embodied in two Deeds
of Absolute Sale for the price of P240, 000. The
Q: What are the essential requisites of equitable titles of said lots were transferred to Y.
mortgage? However, X failed to vacate and turn over the
purchased lots. This prompted Y to file an
A: ejectment suit against X. X claimed that the
1. Parties entered into a contract of sale transactions entered between them were not
2. Their intention was to secure an actually sales, but an equitable mortgage. Does
existing debt by way of a mortgage. the transaction involve an absolute sale or an
equitable mortgage of real property?
Q: What is the rule on the presumption of an
equitable mortgage? A: It is an absolute sale. Decisive for the proper
determination of the true nature of the
A: A sale with conventional redemption is transaction between the parties is the intent of
deemed to be an equitable mortgage in any of the parties. There is no conclusive test to
the following cases: (Art. 1602) AIR‐STAR determine whether a deed absolute on its face is
1. Price of the sale with right to really a simple loan accommodation secured by a
repurchase is unusually Inadequate mortgage. To determine whether a deed absolute
2. Seller Remains in possession as lessee in form is a mortgage in reality, the court is not
or otherwise limited to the written memorials of the
3. Upon or after the expiration of the right transaction. This is so because the decisive factor
to repurchase Another instrument in evaluating such agreement is the intention of
266 CIVIL LAW TEAM:

SALES
the parties, as shown not necessarily by the operation, he was required to execute a deed of

terminology used in the contract but by all the sale over a parcel of land in favor of Eulalia. She
surrounding circumstances, such as the relative sold the property to her grandniece Jocelyn who
situations of the parties at that time; the thereafter instituted an action for ejectment
attitudes, acts, conduct, and declarations of the against the Spouses Bandong. To assert their
parties; the negotiations between them leading right, Spouses Bandong filed an action for
to the deed; and generally, all pertinent facts annulment of sale against Eulalia and Jocelyn
having a tendency to fix and determine the real alleging that there was no sale intended but only
nature of their design and understanding. As equitable mortgage for the purpose of securing
such, documentary and parol evidence may be the shortage incurred by Domeng in the amount
submitted and admitted to prove the intention of of P70, 000.00 while employed as “biyahero” by
the parties. (Sps Austria v. Sps Gonzales, G.R. No. Eulalia. Was the deed of sale between Domeng
147321, Jan. 21, 2004) and Eulalia a contract of sale or an equitable
mortgage?
Q: Ceballos was able to borrow from Mercado
certain sum of money and as security, she A: It is an equitable mortgage. In executing the
executed a Deed of Real Estate Mortgage over said deed of sale, Domeng and Eulalia never
the subject property. The said mortgage was not intended the transfer of ownership of the subject
registered. Ceballos defaulted. Thereafter, a property but to burden the same with an
Deed of Absolute Sale was executed by Ceballos encumbrance to secure the indebtedness
and her husband whereby the mortgaged incurred by Domeng on the occasion of his
property was sold to Mercado for the price of employment with Eulalia. The agreement
P16, 500.00. Ceballos offered to redeem the between Dominador and Eulalia was not avoided
property from Mercado for the price of P30, in its entirety so as to prevent it from producing
000.00 but the latter's wife refused since the any legal effect at all. Instead, the said transaction
same was already transferred in their names by is an equitable mortgage, thereby merely altering
virtue of the Deed of Absolute Sale. As a the relationship of the parties from seller and
consequence, Ceballos filed the case contending buyer, to mortgagor and mortgagee, while the
that the Contract should be declared as an subject property is not transferred but subjected
equitable mortgage. Is the contention of to a lien in favor of the latter. (Sps. Raymundo, et
Ceballos correct? al. v. Sps. Bandong, G.R. No. 171250, Jul. 4, 2007)

A: No. The instances when a contract, regardless G. DISTINGUISHED FROM
of its nomenclature, may be presumed to be an OPTION TO BUY
equitable mortgage are enumerated in Art. 1602
of the Civil Code. Here, none of those Q: On May 19, 1951, the spouses‐sellers
circumstances were present. The original executed a public instrument of absolute sale in
transaction was a loan. Ceballos failed to pay the favor of the buyer for a consideration which is
loan; consequently, the parties entered into sufficiently adequate. A few days thereafter, the
another agreement — the assailed, duly notarized buyers executed in favor of the sellers an option
Deed of Absolute Sale, which superseded the loan to buy within one year, the property subject of
document. Ceballos had the burden of proving the absolute sale, which option was extended
that she did not intend to sell the property and for a month. Prior to the expiration of said one‐
that Mercado did not intend to buy it; and that year period, the buyer sold said property to a
the new agreement did not embody the true third person.
intention of the parties. (Ceballos v. Intestate
Estate of the Late Emigdio Mercado, G.R. No. If the spouses‐sellers would file an action for
155856, May 28, 2004) reformation of instrument where they seek
reformation of the absolute sale into one of
Q: Eulalia was engaged in the business of buying equitable mortgage, will said action prosper?
and selling large cattle. In order to secure the
financial capital she advanced for her employees A: No, it will not prosper. If a seller has been
(biyaheros) she required them to surrender TCT granted merely an option to buy (not a right to
of their properties and to execute the repurchase) within a certain period, and the price
corresponding Deeds of Sale in her favor. paid by the buyer is adequate, the sale is absolute
Domeng Bandong was not required to post any and cannot be construed nor presumed to be one
security but when Eulalia discovered that he of equitable mortgage, even if the period within
incurred shortage in cattle procurement which to exercise the option has been extended.
267

(Villarica, et. al. v. CA, G.R. L‐19196, Nov. 29, 7. solicitation of a sale;
1968) 8. offer to sell, directly or by an agent, or
by a circular, letter, advertisement or
Note: SC held that in this case, there was no sale otherwise; and
a retro and that the right of repurchase is not a 9. a. privilege given to a member of a
right granted the seller by the buyer in a separate cooperative, corporation, partnership,
instrument. Such right is reserved by the vendor or any association and/or
in the same instrument of the sale as one of the b. the issuance of a certificate or receipt
stipulations in the contract. evidencing or giving the right of
participation in, or right to, any land in
Also, once the instrument of absolute sale is consideration of payment of the
executed, the seller can no longer reserve the membership fee or dues. (Deemed sale)
right of repurchase and any right thereafter
granted the seller by the buyer cannot be a right Q: How are the terms “buy” and “purchase”
of repurchase but some other rights, like that of defined under the Decree?
an option to buy.
A: Shall include any contract to buy, purchase, or
XV. LAW ON SALE OF SUBDIVISION AND otherwise acquire for a valuable consideration a
CONDOMINIUM (PD 957) subdivision lot, including the building and other
improvements, if any, in a subdivision project or a
SCOPE OF APPLICATION condominium unit in a condominium project.
Q: Are sales or dispositions of subdivision lots or Q: What is a subdivision project?
condominium units prior to the effectivity of the
decree exempt from compliance with the A: A tract or a parcel of land registered under Act
requirements stated therein? No. 496 which is partitioned primarily for
residential purposes into individual lots with or
A: No. It shall be incumbent upon the owner or without improvements thereon, and offered to
developer of the subdivision or condominium the public for sale, in cash or in installment terms.
project to complete compliance with his or its
obligations as provided in the decree within two Note: It shall include all residential, commercial,
years from the date of effectivity of the Decree, industrial and recreational areas as well as open
spaces and other community and public areas in the
unless otherwise extended by the Authority or
project.
unless an adequate performance bond is filed.
Q: What is a subdivision lot?
Note: Failure of the owner or developer to comply
with the obligations under this and the preceding
A: Any of the lots, whether residential,
provisions shall constitute a violation punishable
under Sections 38 and 39 of the Decree. commercial, industrial, or recreational, in a
subdivision project.
DEFINITION OF TERMS
Q: What is a complex subdivision plan?
Q: How is “sale” or “sell” defined under the
Decree? A: A subdivision plan of a registered land wherein
a street, passageway or open space is delineated
A: Shall include: on the plan.
1. Every disposition, or attempt to Q: What is a condominium project?

dispose, for a valuable consideration, of
a subdivision lot, including the building A: The entire parcel of real property divided or to
and other improvements thereof, if any, be divided primarily for residential purposes into
in a subdivision project or a condominium units, including all structures
condominium unit in a condominium thereon.
project;
Q: What is a condominium unit?
2. contract to sell;
3. contract of purchase and sale;
A: A part of the condominium project intended
4. exchange;
for any type of independent use or ownership,
5. attempt to sell;
including one or more rooms or spaces located in
6. option of sale or purchase;
one or more floors (or part of parts of floors) in a
268 CIVIL LAW TEAM:

SALES
building or buildings and such accessories as may the building or buildings included in the
be appended thereto. condominium project in accordance
with the National Building Code (R.A.
Q: Define the following terms: No. 6541).
3. The subdivision plan, as so approved,
1. Owner. shall then be submitted to the Director
A: Registered owner of the land subject of Lands for approval.
of a subdivision or a condominium 4. In case of complex subdivision plans,
project. court approval shall no longer be
required.
2. Developer. 5. The condominium plan as likewise so
A: person who develops or improves approved, shall be submitted to the
the subdivision project or condominium Register of Deeds of the province or city
project for and in behalf of the owner in which the property lies and the same
thereof. shall be acted upon subject to the
conditions and in accordance with the
3. Dealer. procedure prescribed in Section 4 of the
A: any person directly engaged as Condominium Act (R.A. No. 4726).
principal in the business of buying,
selling or exchanging real estate Q: Part of the required documentary
whether on a full‐time or part‐time attachments to the application is a certificate of
basis. title to the property which is free from all liens
and encumbrances. Does this bar an owner of
4. Broker. mortgaged property from engaging in
A: any person who, for commission or subdivision or condominium project while the
other compensation, undertakes to sell mortgage is in force?
or negotiate the sale of a real estate
belonging to another. A: No. In case any subdivision lot or condominium
unit is mortgaged, it is sufficient if the instrument
5. Salesman. of mortgage contains a stipulation that the
A: person regularly employed by a mortgagee shall release the mortgage on any
broker to perform, for and in his behalf, subdivision lot or condominium unit as soon as
any or all functions of a real estate the full purchase price for the same is paid by the
broker. buyer.
REGISTRATION AND LICENSE TO SELL Q: When is a subdivision or condominium

project deemed to be registered?
Q: Upon what agency is exclusive jurisdiction to
regulate real estate trade and business vested? A: Upon completion of the publication
requirement
A: National Housing Authority
Note: The fact of such registration shall be
Q: What must a registered owner of a parcel of evidenced by a registration certificate to be issued to
land do if he wishes to convert said property into the applicant‐owner or dealer.
a subdivision or condominium project?
Re: Publication requirement: This is complied with
A: He shall: when the NHA has caused to be published a notice
of the filing of the registration statement, at the
1. Submit his subdivision plan to the expense of the applicant‐owner or dealer, in two
Authority which shall act upon and newspapers general circulation, one published in
approve the same, upon a finding that English and another in Pilipino, once a week for two
the plan complies with the Subdivision consecutive weeks, reciting that a registration
statement for the sale of subdivision lots or
Standards' and Regulations enforceable
condominium units has been filed in the National
at the time the plan is submitted.
Housing Authority;
2. If the conversion desired involves a
condominium project, the same
procedure shall be followed except
that, in addition, the NHA shall act upon
and approve the plan with respect to
269

Q: After issuance of the registration certificate, to work a fraud upon prospective
may the owner or dealer already sell subdivision buyers.
lots or condominium units?
Q: When may a license to sell or registration of a
A: No. He must first obtain a license to sell the subdivision or condominium project be revoked?
project within two weeks from the registration of
such project. A: The Authority may, motu proprio or upon
verified complaint filed by a buyer of a
Q: What is the purpose of the requirement of subdivision lot or condominium unit, revoke the
posting of a performance bonds before a license registration of any subdivision project or
to sell may be issued? condominium project and the license to sell any
subdivision lot or condominium unit in said
A: It is to guarantee the construction and project by issuing an order to this effect, with his
maintenance of the roads, gutters, drainage, findings in respect thereto, if upon examination
sewerage, water system, lighting systems, and full into the affairs of the owner or dealer during a
development of the subdivision project or the hearing, it shall appear there is satisfactory
condominium project and the compliance by the evidence that the said owner or dealer:
owner or dealer with the applicable laws and
rules and regulations. 1. is insolvent; or
2. has violated any of the provisions of this
Q: Is a license to sell and performance bond Decree or any applicable rule or
required in all subdivision and condominium regulation of the Authority, or any
projects? undertaking of his/its performance
bond; or
A: No. The following transactions are exempt 3. has been or is engaged or is about to
from said requirements: engage in fraudulent transactions; or
4. has made any misrepresentation in any
1. Sale of a subdivision lot resulting from prospectus, brochure, circular or other
the partition of land among co‐owners literature about the subdivision project
and co‐heirs. or condominium project that has been
2. Sale or transfer of a subdivision lot by distributed to prospective buyers; or
the original purchaser thereof and any 5. is of bad business repute; or
subsequent sale of the same lot. 6. does not conduct his business in
3. Sale of a subdivision lot or a accordance with law or sound business
condominium unit by or for the account principles.
of a mortgagee in the ordinary course
of business when necessary to liquidate Note: Where the owner or dealer is a partnership
a bona fide debt. or corporation or an unincorporated association,
it shall be sufficient cause for cancellation of its
Q: When may a license to sell be suspended? registration certificate and its license to sell, if any
member of such partnership or any officer or
A: director of such corporation or association has
been guilty of any act or omission which would be
1. Upon verified complaint by a buyer of a
cause for refusing or revoking the registration of
subdivision lot or a condominium unit in
an individual dealer, broker or salesman.
any interested party, the Authority may,
in its discretion, immediately suspend DEALERS, BROKERS AMD SALESMEN
the owner's or dealer's license to sell
pending investigation and hearing of Q: What is the duration of the registration of
the case. dealers, brokers and salesmen?
2. The NHA may motu proprio suspend the
license to sell if, in its opinion, any A: On the thirty‐first day of December of each
information in the registration year.
statement filed by the owner or dealer
is or has become misleading, incorrect, However, in the case of salesmen, their
inadequate or incomplete or the sale or registration shall also cease upon termination of
offering for a sale of the subdivision or their employment with a dealer or broker.
condominium project may work or tend
270 CIVIL LAW TEAM:

SALES
Note: Renewal of registration for the succeeding must be presented in such manner that

year shall be granted upon written application will not tend to mislead or deceive the
therefore made not less than thirty nor more than public.
sixty days before the first day of the ensuing year 2. The owner or developer shall
and upon payment of the prescribed fee, without answerable and liable for the facilities,
the necessity of filing further statements or improvements, infrastructures or other
information, unless specifically required by the forms of development represented or
Authority.
promised in brochures, advertisements
and other sales propaganda
All applications filed beyond said period shall be
treated as original applications. disseminated by the owner or
developer or his agents and the same
Q: When can there be refusal or revocation of shall form part of the sales warranties
registration as dealers, brokers or salesmen? enforceable against said owner or
developer, jointly and severally.
A: Such registration may be refused or revoked by
the NHA if, after reasonable notice and hearing, it Note: Failure to comply with these warranties
shall determine that such applicant or registrant shall also be punishable in accordance with the
has: penalties provided for in this Decree.
1. violated any provision of this Decree or Q: Within what period must the owner or

any rule or regulation made hereunder; developer construct and provide the facilities,
or improvements, infrastructures and other forms
2. made a material false statement in his of development, including water supply and
application for registration; or lighting facilities, which are offered and
3. been guilty of a fraudulent act in indicated in the approved subdivision or
connection with any sale of a condominium plans, brochures, prospectus,
subdivision lot or condominium unit; or printed matters, letters or in any form of
4. demonstrated his unworthiness to advertisement?
transact the business of dealer, broker,
or salesman, as the case may be. A:
Note: In case of charges against a salesman, GR: Within one year from the date of the
notice thereof shall also be given the broker or issuance of the license for the subdivision or
dealer employing such salesman. condominium project
Pending hearing of the case, the Authority shall XPN: Such other period of time as may be
have the power to order the suspension of the fixed by the Authority.
dealer's, broker's, of salesman's registration;
ALTERATION IN APPROVED SUBDIVISION PLAN
provided, that such order shall state the cause for
the suspension.
Q: What is the rule if the owner desires to make
alterations in the approved subdivision plan?
The suspension or revocation of the registration
of a dealer or broker shall carry with it all the
A:
suspension or revocation of the registration of all
his salesmen. GR: No owner or developer shall change or
alter the roads, open spaces, infrastructures,
WARRANTIES OF THE OWNER OR DEVELOPER
facilities for public use and/or other form of
subdivision development as contained in the
Q: In making advertisements, does the owner or
approved subdivision plan and/or
developer make warranties relative to such?
represented in its advertisements
A: Yes.
XPN: If he has obtained the permission of
1. Advertisements that may be made the Authority and the written conformity or
through newspaper, radio, television, consent of the duly organized homeowners
leaflets, circulars or any other form association, or in the absence of the latter,
about the subdivision or the by the majority of the lot buyers in the
condominium or its operations or subdivision.
activities must reflect the real facts and
271

RIGHTS AND REMEDIES OF A BUYER TAKE OVER DEVELOPMENT
Q: May payment made by a buyer be forfeited in Q: When can there be a Take‐Over

favor of the owner or developer in case the Development?
buyer desists from further payment due to the
failure of the owner or developer to develop the A: The NHA may take over or cause the
subdivision or condominium project according to development and completion of the subdivision
the approved plan within the time limit provided or condominium project at the expenses of the
for such? What is the buyer’s remedy in this owner or developer, jointly and severally, in cases
case? where the owner or developer has refused or
failed to develop or complete the development of
A: No, such forfeiture is not allowed. Such buyer the project as provided for in the Decree.
may, at his option, be reimbursed the total
amount paid including amortization interests but Note: The Authority may, after such take‐over,
excluding delinquency interests, with interest demand, collect and receive from the buyers the
thereon at the legal rate. installment payments due on the lots, which shall be
utilized for the development of the subdivision.
Q: Does a defaulting buyer have any right under
the Decree?
XVI. THE CONDOMINIUM ACT (RA 4726)
A: Yes. The rights of the buyer in the event of this
failure to pay the installments due for reasons PRELIMINARIES
other than the failure of the owner or developer
to develop the project shall be governed by Q: What is a condominium?
Republic Act No. 6552.
A: It is an interest in real property consisting of
Where the transaction or contract was entered separate interest in a unit in a residential,
into prior to the effectivity of Republic Act No. industrial or commercial building and an
6552 on August 26, 1972, the defaulting buyer undivided interest in common, directly or
shall be entitled to the corresponding refund indirectly, in the land on which it is located and in
based on the installments paid after the other common areas of the building.
effectivity of the law in the absence of any
provision in the contract to the contrary. Note: It may include, in addition, a separate interest
in other portions of such real property.
Q: What is the owner or developer’s obligation
in case the lot bought and fully‐paid by the Q: What comprises a real right in condominium?
buyer is mortgaged?
A: The real right in condominium may be
A: In the event a mortgage over the lot or unit is ownership or any other interest in real property
outstanding at the time of the issuance of the recognized by law, on property in the Civil Code
title to the buyer, the owner or developer shall and other pertinent laws.
redeem the mortgage or the corresponding
portion thereof within six months from such Q: What is a condominium unit?
issuance in order that the title over any fully paid
lot or unit may be secured and delivered to the A: It is a part of the condominium project
buyer in accordance herewith. intended for any type of independent use or
ownership, including one or more rooms or
Q: May the parties waive compliance with the spaces located in one or more floors (or part or
decree? parts of floors) in a building or buildings and such
accessories as may be appended thereto.
A: No. Any condition, stipulation, or provision in
contract of sale whereby any person waives Q: What is a condominium project?
compliance with any provision of the Decree or of
any rule or regulation issued thereunder shall be A: It is the entire parcel of real property divided
void. or to be divided in condominiums, including all
structures thereon,

272 CIVIL LAW TEAM:

SALES
Q: What are common areas? corporation shall constitute the

management body of the project.
A: The entire project excepting all units
separately granted or held or reserved. Q: What are the incidents of a condominium
grant?
Q: What is meant by “to divide” real property?
A: Unless otherwise expressly provided in the
A: To divide the ownership thereof or other enabling or master deed or the declaration of
interest therein by conveying one or more restrictions, the incidents of a condominium grant
condominiums therein but less than the whole are as follows:
thereof.
1. The boundary of the unit granted are
Q: What is the rule as regards acquisition of the interior surfaces of the perimeter
ownership over common areas? walls, floors, ceilings, windows and
doors thereof.
A: Transfer or conveyance of a unit or apartment,
office or store or other space therein shall include Note: The following are not part of
the transfer or conveyance of the undivided the unit bearing walls, columns,
interests in the common areas or, in a proper floors, roofs, foundations and
case, the membership or shareholdings in the other common structural
condominium corporation elements of the building:

a. lobbies, stairways, hallways,
Q: Are there any restrictions as regards
and other areas of common
ownership of condominium units provided under use,
the Condominium Act? b. elevator equipment and shafts,
central heating,
A: c. central refrigeration and central
1. As regards individuals: air‐conditioning equipment,
GR: None. d. reservoirs, tanks, pumps and
other central services and
XPN: where the common areas in the facilities,
condominium project are owned by the e. pipes, ducts, flues, chutes,
owners of separate units as co‐owners conduits, wires and other utility
thereof, no condominium unit therein installations, wherever located,
shall be conveyed or transferred to except the outlets thereof when
persons other than: located within the unit.
1. Filipino citizens, or
2. Corporations at least sixty 2. There shall pass with the unit, as an
percent of the capital stock of appurtenance thereof, an exclusive
which belong to Filipino citizens easement for the use of the air space
encompassed by the boundaries of the
XPN to the XPN: in cases of hereditary unit as it exists at any particular time
succession. and as the unit may lawfully be altered
or reconstructed from time to time.
2. As regards corporations:
Where the common areas in a Note: Such easement shall be
automatically terminated in any air
condominium project are held by a
space upon destruction of the unit as
corporation, no transfer or conveyance
to render it untenantable.
of a unit shall be valid if the
concomitant transfer of the 3. Common areas are held in common by
appurtenant membership or the holders of units, in equal shares,
stockholding in the corporation will one for each unit, unless otherwise
cause the alien interest in such provided.
corporation to exceed the limits
imposed by existing laws. 4. A non‐exclusive easement for ingress,
egress and support through the
Note: Whenever the common areas in a
common areas is appurtenant to each
condominium project are held by a
condominium corporation, such
273

unit and the common areas are subject
to such easements. 2. damage or destruction to the
project has rendered one‐half or
5. Each condominium owner shall have more of the units therein
the exclusive right to paint, repaint, tile, untenantable and that
wax, paper or otherwise refinish and condominium owners holding in
decorate the inner surfaces of the walls, aggregate more than thirty percent
ceilings, floors, windows and doors interest in the common areas are
bounding his own unit. opposed to repair or restoration of
the project; or
6. Each condominium owner shall have
the exclusive right to mortgage, pledge 3. the project has been in existence in
or encumber his condominium and to excess of fifty years, that it is
have the same appraised independently obsolete and uneconomic, and
of the other condominiums but any that condominium owners holding
obligation incurred by such in aggregate more than fifty
condominium owner is personal to him. percent interest in the common
areas are opposed to repair or
7. GR: Each condominium owner has also restoration or remodeling or
the absolute right to sell or dispose of modernizing of the project; or
his condominium.
XPN: If the master deed contains a 4. the project or a material part
requirement that the property be first thereof has been condemned or
offered to the condominium owners expropriated and that the project
within a reasonable period of time is no longer viable, or that the
before the same is offered to outside condominium owners holding in
parties; aggregate more than seventy
percent interest in the common
Q: May common areas be divided through areas are opposed to continuation
judicial partition? of the condominium regime after
expropriation or condemnation of
A: a material portion thereof; or
GR: Common areas shall remain
undivided, and there shall be no judicial 5. the conditions for such partition by
partition thereof. sale set forth in the declaration of
restrictions, duly registered in
XPN: Where several persons own accordance with the terms of the
condominiums in a condominium Act, have been met.
project, an action may be brought by
one or more such persons for partition Q: What is the rule regarding issuance of
thereof by sale of the entire project, as certificate of title where the enabling or master
if the owners of all of the deed provides that the land included within a
condominiums in such project were co‐ condominium project are to be owned in
owners of the entire project in the same common by the condominium owners therein?
proportion as their interests in the
common areas: A: The Register of Deeds may, at the request of all
the condominium owners and upon surrender of
Note: However, a partition shall be all their "condominium owner's" copies, cancel
made only upon a showing that: the certificates of title of the property and issue a
new one in the name of said condominium
1. three years after damage or owners as pro‐indiviso co‐owners thereof.
destruction to the project which
renders material part thereof unit Q: How are deeds, declarations or plans for a
for its use prior thereto, the condominium project construed?
project has not been rebuilt or
repaired substantially to its state A:
prior to its damage or destruction, 1. Liberally, to facilitate the operation of
or the project
274 CIVIL LAW TEAM:

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2. Provisions shall be presumed to be risks, and for bonding of the
independent and severable. members of any management
body;
DECLARATION OF RESTRICTIONS c. Provisions for maintenance, utility,
gardening and other services
Q: When should a declaration of restrictions be benefiting the common areas, for
registered and what is the effect of such? the employment of personnel
necessary for the operation of the
A: The owner of a project shall, prior to the building, and legal, accounting and
conveyance of any condominium therein, register other professional and technical
a declaration of restrictions relating to such services;
project. d. For purchase of materials, supplies
and the like needed by the
Such restrictions shall constitute a lien upon each common areas;
condominium in the project, and shall insure to e. For payment of taxes and special
and bind all condominium owners in the project. assessments which would be a lien
upon the entire project or common
Note: Such liens, unless otherwise provided, areas, and for discharge of any lien
may be enforced by any condominium or encumbrance levied against the
owner in the project or by the management entire project or the common
body of such project. areas;
f. For reconstruction of any portion
Q: What should a declaration of restrictions or portions of any damage to or
provide? destruction of the project;
g. The manner for delegation of its
A: The declaration of restrictions shall provide for powers;
the management of the project by anyone of the h. For entry by its officers and agents
following management bodies: into any unit when necessary in
1. a condominium corporation, connection with the maintenance
2. an association of the condominium or construction for which such
owners, body is responsible;
3. a board of governors elected by i. For a power of attorney to the
condominium owners, or management body to sell the
4. a management agent elected by the entire project for the benefit of all
owners or by the board named in the of the owners thereof when
declaration. partition of the project may be
5. voting majorities, authorized under Section 8 of the
6. quorums, Condominium Act, which said
7. notices, power shall be binding upon all of
8. meeting date, and the condominium owners
9. other rules governing such body or regardless of whether they assume
bodies. the obligations of the restrictions
or not.
Q: What may a declaration of restrictions
provide? 2. The manner and procedure for
amending such restrictions: Provided,
A: Such declaration of restrictions, among other That the vote of not less than a majority
things, may also provide: in interest of the owners is obtained.
3. For independent audit of the accounts
1. As to any such management body; of the management body;
a. For the powers thereof, including 4. For reasonable assessments to meet
power to enforce the provisions of authorized expenditures, each
the declarations of restrictions; condominium unit to be assessed
b. For maintenance of insurance separately for its share of such
policies, insuring condominium expenses in proportion (unless
owners against loss by fire, otherwise provided) to its owners
casualty, liability, workmen's fractional interest in any common
compensation and other insurable areas;
275

5. For the subordination of the liens Q: May the management body may acquire and
securing such assessments to other hold, for the benefit of the condominium
liens either generally or specifically owners, tangible and intangible personal
described; property and dispose of the same by sale or
6. For conditions, other than those otherwise?
provided for in Sections 8 and 13 of the
Act, upon which partition of the project A: Yes, unless otherwise provided for by the
and dissolution of the condominium declaration of restrictions.
corporation may be made. Note: The beneficial interest in such personal
property shall be owned by the condominium
Note: Such right to partition or dissolution owners in the same proportion as their respective
may be conditioned upon: interests in the common areas.
a. failure of the condominium owners
to rebuild within a certain period; A transfer of a condominium shall transfer to the
b. specified inadequacy of insurance transferee ownership of the transferor's beneficial
proceeds; interest in such personal property.
c. specified percentage of damage to
the building; CONDOMINIUM CORPORATIONS
d. a decision of an arbitrator; or
e. upon any other reasonable Q: What is a condominium corporation?
condition.
A: A corporation specially formed for the
Q: What is the duty of the Register of Deeds as purpose, in which the holders of separate interest
regards this declaration of restrictions? shall automatically be members or shareholders,
to the exclusion of others, in proportion to the
A: The Register of Deeds shall enter and annotate appurtenant interest of their respective units in
the declaration of restrictions upon the certificate the common areas.
of title covering the land included within the
project, if the land is patented or registered under Note: As regards title to the common areas,
the Land Registration or Cadastral Acts. including the land, or the appurtenant interests in
such areas, these may be held by a condominium
POWERS OF AND RESTRICTIONS UPON corporation.
MANAGEMENT BODY
Q: What is the term of a condominium
Q: What are the restrictions imposed by the law corporation?
upon corporations which is also the
management body of the condominium project? A: Co‐terminus with the duration of the
condominium project, the provisions of the
A: The restrictions are as follows: Corporation Law to the contrary notwithstanding.

1. The corporate purposes of such a
corporation shall be limited to the: Membership
a. holding of the common areas,
either in ownership or any other Q: What are the rules regarding membership in a
interest in real property recognized condominium corporation?
by law,
b. management of the project, and A: Membership in a condominium corporation,
c. to such other purposes as may be regardless of whether it is a stock or non‐stock
necessary, incidental or convenient corporation, shall not be transferable separately
to the accomplishment of said from the condominium unit of which it is an
purposes. appurtenance.
2. The articles of incorporation or by‐laws
of the corporation shall not contain any Note: When a member or stockholder ceases to own
provision contrary to or inconsistent a unit in the project in which the condominium
with the: corporation owns or holds the common areas, he
a. provisions of the Act; shall automatically cease to be a member or
b. enabling or master deed; or stockholder of the condominium corporation.
c. declaration of restrictions of the
project.
276 CIVIL LAW TEAM:

SALES
Q: May a condominium corporation sell, superior rights of the corporation
exchange, lease or otherwise dispose of the creditors.
common areas owned or held by it in the
condominium project? Note: Such transfer or conveyance shall
be deemed to be a full liquidation of the
A: interest of such members or stockholders
GR: During its existence, it cannot do so. in the corporation.

XPN: If authorized by the affirmative vote of 2. After such transfer or conveyance, the
all the stockholders or members. provisions of this Act governing
undivided co‐ownership of, or
Q: Is the so called appraisal right under the undivided interest in, the common
Corporation Code available to stockholders or areas in condominium projects shall
members of a condominium corporation? fully apply.

A: Q: When may voluntary dissolution of a
GR: Not available. The law provides that “the condominium corporation be allowed?
by‐laws of a condominium corporation shall
provide that a stockholder or member shall A: A condominium corporation may be voluntarily
not be entitled to demand payment of his dissolved only:
shares or interest in those cases where such 1. when the enabling or the master deed
right is granted under the Corporation Law of the project in which the
xxx” condominium corporation owns or
holds the common area is revoked; and
XPN: If said stockholder or member consents 2. upon a showing that:
to sell his separate interest in the project to a. three years after damage or
the corporation or to any purchaser of the destruction to the project in which
corporation's choice who shall also buy from the corporation owns or holds the
the corporation the dissenting member or common areas, which damage or
stockholder's interest. destruction renders a material part
thereof unfit for its use prior
Note: In case of disagreement as to price, the thereto, the project has not been
procedure set forth in the appropriate rebuilt or repaired substantially to
provision of the Corporation Law for valuation its state prior to its damage or
of shares shall be followed. destruction; or

The corporation shall have two years within b. damage or destruction to the
which to pay for the shares or furnish a project has rendered one‐half or
purchaser of its choice from the time of award. more of the units therein
untenantable and that more than
All expenses incurred in the liquidation of the thirty percent of the members of
interest of the dissenting member or the corporation, if non‐stock, or
stockholder shall be borne by him.
the shareholders representing

more than thirty percent of the

capital stock entitled to vote, if a
Dissolution and Liquidation
stock corporation, are opposed to

the repair or reconstruction of the
Q: What is the effect of involuntary dissolution
project, or
of a condominium corporation for any of the

causes provided by law?
c. the project has been in existence in

excess of fifty years, that it is
A:
obsolete and uneconomical, and
1. The common areas owned or held by
that more than fifty percent of the
the corporation shall, by way of
members of the corporation, if
liquidation, be transferred pro‐indiviso
non‐stock, or the stockholders
and in proportion to their interest in the
representing more than fifty
corporation to the members or
percent of the capital stock
stockholders thereof, subject to the
entitled to vote, if a stock
corporation, are opposed to the
277

repair or restoration or remodeling the corporate and of individual condominium
or modernizing of the project; or creditors.

d. the project or a material part Q: What should the Court do if, in an action for
thereof has been condemned or partition of a condominium project or for the
expropriated and that the project dissolution of condominium corporation on the
is no longer viable, or that the ground that the project or a material part
members holding in aggregate thereof has been condemned or expropriated,
more than seventy percent the Court finds that the conditions provided for
interest in the corporation, if non‐ in the Condominium Act or in the declaration of
stock, or the stockholders restrictions have not been met?
representing more than seventy
percent of the capital stock A: The Court may decree a reorganization of the
entitled to vote, if a stock project, declaring which portion or portions of the
corporation, are opposed to the project shall continue as a condominium project,
continuation of the condominium the owners thereof, and the respective rights of
regime after expropriation or said remaining owners and the just
condemnation of a material compensation, if any, that a condominium owner
portion thereof; or may be entitled to due to deprivation of his
property.
e. the conditions for such a
dissolution set forth in the Note: Upon receipt of a copy of the decree, the
declaration of restrictions of the Register of Deeds shall enter and annotate the same
project in which the corporation on the pertinent certificate of title.
owns or holds the common areas,
have been met. Assessment, Notice thereof and Lien Created

Note: action for voluntary dissolution is that under Q: If real property has been divided into
Rule 104 of the Rules of Court. condominiums, how will it be assessed for
taxation purposes?
Q: May the members or stockholders of a
condominium corporation dissolve such A: Each condominium separately owned shall be
corporation? separately assessed, for purposes of real property
taxation and other tax purposes to the owners
A: Yes, by the affirmative vote of all the thereof and the tax on each such condominium
stockholders or members thereof at a general or shall constitute a lien solely thereon.
special meeting duly called for the
purpose: Provided, that all the requirements of Q: Who should pay for an assessment upon any
Section 62 of the Corporation Law are complied condominium made in accordance with a duly
with. registered declaration of restrictions?

Q: What is the consequence of voluntary A: It is an obligation of the owner thereof at the
dissolution of a condominium corporation? time the assessment is made.

A: Q: What are the rules as regards the notice of
GR: The corporation shall be deemed to hold assessment?
a power of attorney from all the members or
stockholders to sell and dispose of their A: The notice:
separate interests in the project. 1. is to be registered with the Register of
XPN: Unless otherwise provided for in the Deeds of the city or province where
declaration of restrictions such condominium project is located.
2. shall state the following:
Q: How is a condominium corporation a. amount of such assessment and
liquidated? such other charges thereon as may
be authorized by the declaration of
A: Liquidation of the corporation shall be effected restrictions,
by a sale of the entire project as if the corporation b. a description of the condominium
owned the whole thereof, subject to the rights of unit against which same has been
assessed, and
278 CIVIL LAW TEAM:

SALES
c. the name of the registered owner Q: What are the rules as regards labor
thereof. performed or services or materials furnished?
3. Such notice shall be signed by an
authorized representative of the A:
management body or as otherwise 1. If with the consent of or at the request
provided in the declaration of of a condominium owner or his agent or
restrictions. his contractor or subcontractor:
GR: it shall not be the basis of a lien
Q: What is the effect if the management body against the condominium of any other
causes a notice of assessment to be registered condominium owner
with the register of deeds? XPN: such other owners have expressly
consented to or requested the
A: The amount of any such assessment plus any performance of such labor or furnishing
other charges thereon, such as interest, costs of such materials or services.
(including attorney's fees) and penalties, as such
may be provided for in the declaration of Note: Such express consent shall be
restrictions, shall be and become a lien upon the deemed to have been given by the
condominium assessed. owner of any condominium in the
case of emergency repairs of his
Note: Effect of payment: Upon payment of said condominium unit.
assessment and charges or other satisfaction
thereof, the management body shall cause to be 2. If performed or furnished for the
registered a release of the lien. common areas and if duly authorized by
the management body provided for in a
Q: What are the rules as regards the lien created declaration of restrictions governing the
in case of unpaid assessments, etc? property: shall be deemed to be
performed or furnished with the
A: express consent of each condominium
GR: Such lien shall be superior to all other owner.
liens registered subsequent to the
registration of said notice of assessment Q: How may an owner of any condominium
XPNs: remove his condominium from a lien against two
1. real property tax liens are superior; or more condominiums or any part thereof?
2. when declaration of restrictions provide
for the subordination thereof to any A: By payment to the holder of the lien of the
other liens and encumbrances. fraction of the total sum secured by such lien
which is attributable to his condominium unit.
Q: What is the rule as regards enforcement of
the lien?

A: Such liens may be enforced in the same
manner provided for by law for the judicial or
extra‐judicial foreclosure of mortgages of real
property.

Q: Can the management body bid in the
foreclosure sale based on the lien for unpaid
assessments?

A:
GR: No, the management body shall have
power to bid at foreclosure sale.

XPN: Unless otherwise provided for in the
declaration of restrictions,

Note: The condominium owner shall have the
same right of redemption as in cases of judicial or
extra‐judicial foreclosure of mortgages.
279

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