THE LAW ON SALES

CHAPTER 1

NATURE OF A CONTRACT OF SALE

Definition

Article 1458, CC

 Contract whereby the seller obligates himself to transfer the

ownership, and to deliver the possession, of a determinate
thing, to the buyer, who binds himself to pay therefor a price
certain.

Nature of Obligations Arising from a Sale

Seller’s Obligations:

 Transfer the Ownership, and

 Deliver the Possession, of the Subject Matter or Determinate
Thing;

Buyer’s Obligation:

 Pay the Price.

- The above-stated obligations are real obligations or

obligations “to give,” which can serve as bases for a
complaint for specific performance, if not complied with.

- Articles 1480 & 1165, CC, allow recovery of damages,

plus delivery of determinate thing, by the buyer, if the
seller refuses to comply with his obligations.

Subject Matter of Sale

 Determinate Thing (Art. 1458) or Determinable Thing (Art.

1460)
 2

Elements of Contract of Sale

 Consent;
 Subject Matter; and
 Price.

- Concurrence of the three (3) elements results in the

perfection or birth of a contract of sale.

- Absence of any of the elements prevents the birth of a

contract of sale.

- A defect or illegality involving any of the elements

makes the contract of sale either voidable or void.

Stages in the Life of Sale

 Policitacion, negotiation or preparation;

 Perfection; and
 Consummation.

Essential Characteristics of Sale

 Nominate/Principal

- designated name;
- independent;
- intent of the parties is given weight

 Consensual

- Perfected by mere consent

- Factors Affecting Consensual Nature

* Suspensive term/condition
 3

In sales with assumption of mortgage, the

assumption of mortgage is a condition precedent
for perfection.

* Absence of agreement on final price prevents the

perfection of sale notwithstanding delivery by
seller, and possession by buyer, of the determinate
thing.

 Bilateral and Reciprocal

- imposes obligations on both parties;

- obligation of one is cause for obligation of the other;
- each party is debtor and creditor of the other;
- as a bilateral contract with reciprocal obligations, it is
implied that (1) the power to rescind is present, (2) no
delay is incurred if the other party does not comply, and
(3) the default by one starts from the moment the other
party performs his obligation, without further demand.

 Onerous

- requires the payment of a price certain

 Commutative

- it is presumed that the value of the subject matter is

equivalent to the price paid;
- honest belief of the seller that he receives good value for
the thing he sold is a sufficient standard;
- inadequacy of price does not affect the nature of contract
as a sale;
- however, as an exception, a great discrepancy between
the value of the thing and the amount received may
negate the existence of sale and indicate another contract
such as donation in which liberality is the consideration.

Sale is Title and Not Mode

 4

 sale is title that creates the obligation to transfer ownership,

including possession, of a determinate thing; Roman, not
common law, concept;
 sale is not a mode of conferring ownership upon the buyer;
 in sale, which is consensual in nature, ownership of the
determinate thing is transferred to the buyer through delivery or
tradition;

 title or sale is the juridical justification; mode or delivery is the

actual process of acquiring or transferring ownership over a
thing;
 “Declaration of Heirship and Waiver of Rights” is neither a
sale of nor a mode of transferring ownership over a thing (Acap
v. CA, 251 SCRA 30, 38 (1995);
 transfer of ownership for a price paid or promised is the essence
of sale.

Sale Distinguished from Other Contracts

 From Donation

- sale is onerous while donation is gratuitous;

- sale is perfected by mere consent while donation, being a
solemn contract, requires compliance with formalities
mandated by law for its validity.

 From Barter

- in barter, one party binds himself to give a thing in

consideration of the other party’s promise to give another
thing; in sale, one party binds himself to deliver a thing
consideration of the other’s undertaking to pay a price
certain.

- Rules to Determine Whether Contract is Sale or Barter:

a. Manifest intention of the parties;

b. If intention is unclear and consideration is partly in
money and partly in another thing:
 5

- it is barter, where the value of the

thing exceeds the amount given;

- it is sale, where the value of the thing

given equals or is less than the
amount given.

 From Contract for Piece-of-Work

- in contract for a piece-of-work, the contractor binds

himself to execute a piece of work for the employer in
consideration of a certain price;

- the main distinguishing factor between sale and contract

for a piece-of-work is the basic reason why the parties
enter into a contract: a) if the essence is the object, the
contract is sale; if the essence is the service, knowledge,
or reputation of the maker or manufacturer, it is contract
for a piece-of-work.

 From Agency to Sell/Buy

- sale is not unilaterally revocable while agency to sell is

essentially revocable, being based on fiduciary
relationship, notwithstanding the presence of a
irrevocability clause;
- in sale, the buyer becomes the owner after delivery while
in agency to buy, the agent does not become the owner
even after delivery of the thing to him;
- in agency to sell, the agent is barred from earning a profit
from the transaction, which pertains to his principal;
- in sale, the seller warrants; in agency, the agent assumes
no personal liability as long as he acts within his
authority and in the name of the principal;

- Factors to be considered in distinguishing a sale from

agency to sell/buy:
 6

a. essential clause that “payment was to be made at

the end of sixty days xxx” shows the features of a
sale;
b. contractual provision that stipulated the “fixed
prices for the equipment;”
c. contractual stipulation on insurance against loss
or damage shows that ownership over the thing
was not transferred;
d. control, which one party exercises over the other;
if one acts independently, it is sale; if one takes
orders from another, it is agency.

- Distinction is important because a sale must

conform to the Statute of Frauds for enforceability
while an agency to sell is valid and enforceable in
any form.

 From Dacion En Pago

- dation in payment is one whereby property is alienated to

the creditor in full satisfaction of a debt in money;
- it constitutes the delivery and transmission of a thing by
the debtor to the creditor as an accepted equivalent of the
performance of the obligation;
- in its modern concept, dacion en pago is an objective
novation of the obligation where the thing offered as an
accepted equivalent of the performance of an obligation
is considered as the object of the contract, while the debt
is considered as the purchase price;

- dacion en pago only involves the consummation of the

contract, being a special mode of payment; before the
delivery of the subject matter, there is no separate
contract entered; what exists is only an arrangement by
which an obligation will be satisfied or extinguished.
- SC implicitly ruled that in dacion en pago involving the
delivery of a particular parcel of land as the accepted
prestation, a new contract of sale was deemed constituted
subject to specific performance. (SSS v. Atlantic Gulf,
553 SCRA 677 (2008).
 7

 From Lease
- in lease, the lessor binds himself to give to the lessee the
use of the thing for a price certain, for a definite or
indefinite period;

CHAPTER 2

PARTIES TO A CONTRACT OF SALE

General Rule on Capacity of Parties

 General Rule: Any person who has “capacity to act” or “the

power to do acts with legal effects,” or one who has the power
to obligate himself, may enter into a contract of sale, either as
seller or buyer;
 a natural person has capacity to act once he attains the age of
majority (18 years of age (Art. 234, Family Code, as amended
by R. A. No. 6809);
 a artificial being or a juridical person (corporations and entities
with legal personality) exists in contemplation of law; as such,
it is given the power to enter into contracts;

 Special Rule: Minors, insane and demented persons, and deaf-

mutes who do not know how to write, have no legal capacity to
enter into a contract; however, if these incapacitated persons
enter into contracts, the contract is not void but merely voidable
(valid until annulled);
 Exception: insane and demented persons can enter into
contracts during their lucid intervals – the contract is valid;
 when a party to the contract is drunk or under hypnosis, the
contract is voidable;
 an incapacitated person is obliged to make a restitution to the
extent of the benefit or price he received;

Necessaries

- general rule: a minor has no legal capacity to enter into a

contract; if he does, the contract is voidable (valid until
 8

annulled) because the consent given is defective under

the law;
- exception: the contract which a minor enters into is valid
when necessaries are sold and delivered to him;
- necessaries, under the Family Code, cover “everything
indispensable for sustenance, dwelling, clothing, medical
attendance, education and transportation;
- considering that sale involves the delivery of a
determinate thing, necessaries in a sale only involve
things for sustenance, dwelling, and clothing, medicines,
books and other educational materials;
- sale of necessaries to a minor is valid when sale is
perfected and necessaries are delivered to the minor.

Emancipation

- previously, this takes place when a minor enters into a

contract of marriage;
- this is no longer possible under the Family Code, which
declares null and void a marriage entered into by persons
below 18 years of age;

Senility and Serious Illness

- incapacity to give consent (senility, advanced age, and
serious illness) or gross and shocking inadequacy of the
price or consideration only render the contract of sale
merely voidable;
- however, in at least two (2) decisions, the Supreme Court
considered the sales “void ab initio” on the grounds of
physical and mental incapacity and gross inadequacy of
the price;

Sales By and Between Spouses

 Sales With Third Parties

- generally, under the Civil Code and the Family Code, a

spouse may, without the consent of the other, enter into a
contract of sale in the regular or normal pursuit of his/her
profession, vocation or trade;
 9

- but, under the Family Code (Articles 96 & 124),

administration and enjoyment of the community property
or conjugal property belong to both spouses jointly;
- in case of disagreement, the husband’s decision prevails;
but the wife can question the sale before the proper court
within 5 years from contract date;
- general rule: any disposition or encumbrance of
community property or conjugal property shall be void
without a court order or written consent of the other
spouse; at best, the sale is considered a continuing offer
subject to the other spouse’s acceptance or the court’s
approval before the offer is withdrawn;
- SC declared null and void a sale which a husband entered
into with a third party involving conjugal property
because it lacked the consent of the other spouse; under
Art. 124, FC, consent of both spouses is necessary. The
sale cannot be ratified by compromise. (Guiang v. CA,
26 June 1998). If consent is merely vitiated, ratification
can cure the defect. (Ibid.)
- exception: sale of conjugal property without the wife’s
consent is valid if the sale is made to answer for conjugal
liabilities under Articles 161 & 162, CC;

 Sales Between Spouses

- Art. 1490, CC – spouses cannot sell property to each

other, except: a) when a separation of property was
agreed upon in a marriage settlement; or b) when there is
a judicial decree for the separation of property;
- prohibition under Art. 1490 applies also to sales in legal
redemption, compromises and renunciations;

 Sales Between Spouses are Void

- SC declared sale between spouses null and void ab initio;

proper parties who can assail the validity are limited to
the following: a) heirs of the spouses who are prejudiced;
b) prior creditors; and c) the State insofar as taxes due on
the sale transactions are concerned;
- rationale for prohibition:
 10

- prevent dispositions in fraud of creditors;

- prevent a dominant spouse from taking advantage
of the weaker spouse;
- avoid a circumvention of prohibition against
donations between spouses under Art. 133, CC;
- spouses governed by a complete separation of
property regime are not prohibited from selling to
each other because no fraud can be committed
against one spouse or third parties, and the value of
the estates of each spouse remains unaltered;
- spouses under an absolute community property
regime cannot enter into a contract of sale with
each other because a party-owner cannot buy what
he/she already owns by virtue of the property
regime;

Specific Incapacity Mandated By Law

 Persons prohibited from entering into contracts of sale (Art.

1491, CC):

- Agent;
- Guardian;
- Executor or administrator;
- Public officers and employees;
- Justices, judges, prosecuting attorney, clerks of court and
other officers and employees;
- Lawyers;
- Prohibition applies to sales in legal redemption,
compromises and renunciations; what cannot be done
directly, cannot be done indirectly.

 Contracts in violation of Arts. 1491 & 1942, CC, are void and
could produce no legal effect;

- but, sales contracted by guardians, agents, administrators

and executors, though void under Art. 1491, CC, can be
“ratified” by means of and in the form of a new contract;
 11

- this is allowed because only a private wrong is involved,

which can be disregarded or condoned by the private
party concerned;
- however, sales contracted by judges, judicial officers,
prosecutors and lawyers are beyond ratification because
private parties cannot validate an act that is contrary to
public policy;

 Proper Party to Raise Issue of Nullity:

- any person may invoke the inexistence of the contract

whenever juridical effects xxx are asserted against him
(Tolentino, Vol. IV, pp. 578 – 579)

 Fraud or Lesion Irrelevant in Nullity of Sale

 Agents

– not covered by prohibition under Art. 1491, CC, as their

authority is limited to looking for or bringing parties together
to consummate a transaction;

 Guardians, Administrators and Executors

- these persons who occupy fiduciary positions are

absolutely prohibited from entering into contracts of sale
with respect to the properties under their administration;
- a court-approved sale cannot prevail over the absolute
prohibition under Art. 1491, CC;
- Benefit or advantage which may accrue in favor of the
ward, estate or principal is totally irrelevant in upholding
the prohibited sale;

 Hereditary Rights Not Included in the Prohibition

- hereditary rights pertain to the heirs upon the death of the

owner and do not form part of the estate under
administration;
 12

 Judges, Justices and Those Involved in Administration of

Justice

- prohibition applies once the property comes under the

judicial action of the judge, as in the case of levy or
execution; action involving property need not be tried by
the judge;
- prohibition applies during the period of litigation;

 Attorneys

- due to the fiduciary relationship between attorney and

client, sale between them involving a property under
litigation is prohibited to completely curtail any undue
influence of the lawyer upon his client;
- nullity of sale is permanent and cannot be cured by
ratification;
- does not apply to a sale involving a property under
litigation to attorneys who did not in any manner act as
counsel for any of the litigants;
- does not apply to a sale or acquisition that occurred
before the litigation involving the property;
- does not apply to a sale by client to attorney involving a
property not subject to litigation;

 Contingent Fee Arrangements

- a lawyer is not barred from acquiring a certain percentage

of the value of the property in litigation that may be
awarded to his client;
- reason: payment is not made during the pendency of the
litigation but only after judgment is rendered in favor of
the client;;
- does the prohibition involving a contract of sale apply to
a contingent fee contract, which is a contract for service?
- the Law of Sale is a “catch-all” provision that applies to
any transaction involving the transfer of ownership over
the property under litigation
 13

CHAPTER 3

SUBJECT MATTER

Requisites of Valid Subject Matter

 The validity of a sale depends inter alia on a valid subject

matter, which can either be:

- existing;
- having potential existence;
- a future thing; or
- something contingent or subject to resolutory condition
or a possible thing;

- subject matter must be licit; and

- subject matter must be determinate or determinable.

 No contract is formed or the contract may be considered

void under Art. 1409, CC, if subject matter lacks any of the
requirements;

 Determining whether a sale is perfected or void is important

because of the remedies available to the parties involved; if no
contract is formed, the parties are left to themselves and cannot
seek redress from the courts; however, if the contract is void,
the party who made payment can recover his money on the
ground of unjust enrichment by the other party;

 Art. 1411, CC

- When the cause or object is illegal, and the act amounts

to a criminal offense, the parties are considered in pari
delicto, making them without a cause of action against
each other;
- however, if a party is innocent or without fault, he can
recover what he has given, without complying with his
promise;
 14

 Art. 1412, CC

- When the cause or object is illegal but the act does not
amount to a crime, both parties have no recourse if both
are at fault;
- If one is at fault, he has no remedy whatsoever; but, the
innocent party can recover what he has given, without
complying with his promise;

 Art. 1416, CC

- If the contract is prohibited to protect the plaintiff, he can

recover what he has given or paid, if public policy is
enhanced;
- SC ruling: even if a contract is declared void, a party can
recover what he has paid or given because the parties are
bound by good faith and fair dealing;
- when a sale is perfected, what is constituted is the
obligation of the seller to deliver the thing, coupled with
the right of the buyer to demand the performance of the
obligation;

 Subject Matter Must Be “Possible Thing”

- it is sufficient if the thing in a contract of sale is a

“possible thing” or something that can exist at the time of
delivery, not perfection, of the sale;

 Legal Bases Why Thing Need Not Exist at the Time Sale is
Perfected

- Art. 1347, CC – all things which are not outside the

commerce of men, including future things, may be the
object of a contract;
- Art. 1461, CC – things having a potential existence may
be the object of a contract of sale (emptio rei speretae);
- Art. 1409 (3) –
 15

- Art. 1459, CC – it only requires that the seller must have

a right to transfer ownership of the subject matter at the
time it is delivered;
- Thus, when Art. 1409 (3) states that contracts are
inexistent and void from the beginning when “the cause
or object did not exist at the time of the transaction,” it
only refers to “impossible things,” (things which
cannot come into existence), not to things that did not
exist at the time of perfection, but which are capable of
coming into existence;

 Emptio Rei Speretae (Art. 1461, CC)

- contract covering future things, subject to a suspensive

condition: that the subject matter will come into
existence;
- if it does not arise or exist, the contract is extinguished
upon expiration of the time or period or upon
ascertainment that the event will not take place;
- this covers only determinate things;
- pending crops can be the subject of matter of sale, apart
from the land on which they grow (Sibal v. Valdez);
- prohibition under the Public Land Act from selling land
acquired thereunder does not extend to sale of coconut
trees (or fruits, for that matter) planted thereof;
- prohibition extends only to the land, not to the fruits or
crops planted thereon (Pichel v. Alonzo);
- sale subject to condition that seller will acquire property
is valid;

 Emption Spei

- sale of a sweepstakes ticket; object of the sale is the

ticket or the chance to win (not the prize);

 Sale of Things Subject to Resolutory Condition

- Article 1465, CC
- things subject to a resolutory condition may be the
object of sale;
 16

 Subject Matter is Nexus of Sale

- in sale, the subject matter must be existing or must come

into existence; otherwise, sale is void or the sale is
extinguished, with the obligation to return the price, if
already given;
- similar contracts such as barter and dacion en pago are
governed by the Law on Sales;
- Civil Code provisions of sale are “catch-all” provisions
that cover transactions involving transfers of ownership
for a consideration (Polytechnic University v. Court of
Appeals);

2. Subject Matter Must Be Licit

- a thing is licit when:

- it is not outside the commerce of man; or
- the right is transmissible;
- if thing is illicit, contract of sale is void;
- illicit things (animals suffering from contagious disease,
unfit for use or service, future inheritance);
- a mere waiver of acquired hereditary rights cannot
transfer ownership rights in favor of a non-heir; reason:
elements of sale, donation or other derivate mode of
acquiring ownersjip are not present;

a. Sales Declared Illegal by Law

- where subject matter is prohibited (narcotics, wild

birds or mammals, rare wild plants, poisonous plants or
fruits, dynamited fish, gunpowder and explosives,
firearms and ammunitions, sale of realty by non-
Christians);
- sale of friar land without the consent of the Secretary of
Agriculture is null and void;
- objects outside the commerce of men refer to objects that
cannot be appropriated such as the open seas and the
heavenly bodies (Quijada v. Court of Appeals);
 17

- sale in favor of an alien using a “dummy” is null and

void, being in violation of the constitutional provision
prohibiting aliens from owning private lands in the
Philippines;
- sales in violation of land reform laws is null and void;

3. Subject Matter Must Be Determinate

or at Least Determinable

a. Determinate Subject Matter

- particularly designated or physically segregated from all

others of the same class;
- when the thing is determinate, the seller is not liable if
the thing is lost due to a caso fortuito or force majeure;

b. Determinable Subject Matter

- at the time the sale is perfected, the thing is capable of

being determined; and
- it can be determined without the necessity of a new or
further agreement;
- in short, it is a generic object;
- stipulation that the sale includes lands “needed for the
construction of the city hall site, avenues and parks
according to the Arellano plain” is valid, covering as it
does a determinable thing (Melliza v. City of Iloilo);
- the requisite of determinability is met if the courts will
not consult parties to the contract to establish the identity
of the thing; contractual terms must be sufficient to
enable the court to find the property subject of sale;

c. Test of Determinability is the Meeting of Minds of the

Parties

- general rule: the public can deal with registered land

exclusively on the basis of the title thereto;
- exception: “one sells or buys real property as he sees it,
in its actual setting and by its physical metes and bounds,
 18

and not by the mere lot number assigned to it in the

certificate of title;”
- hence, what matters is the true intention of the parties,
not a mere error in the deed of sale;

d. When Quantity of Subject Matter Not

Essential for Perfection

- the meeting of the minds on the identity, the nature and

quality of the subject matter results in the perfection of
the contract of sale;
- general rule: the actual quantity of goods is essential in
the meeting of the minds of the parties;
- exception: where the seller was allowed to deliver a
specified quota of 2,640 cavans of rice, although no exact
quantity was agreed upon, the sale was deemed perfected
(National Grains Authority v. Intermediate Appellate
Court);
- controlling doctrine: the specific quantity of the subject
matter is not important when the quantity thereof can be
determined without resorting to a new agreement by the
parties;
- certain generic objects may be the object of a contract of
sale provided these objects are determinable at the
time of perfection;
- actually, this contract may be denominated as
preparatory contract to enter into a contract of sale or a
supply agreement, in commercial parlance;
- the preparatory contract involves an agreement to enter
into a sale involving a personal obligation “to do,” not
the real obligation to deliver and to pay;
- in a preparatory contract, a complaint for specific
performance will not prosper because of the
constitutional guarantee against involuntary servitude;
instead, a complaint for damages may be filed against the
party in default;

e. Generic Non-Determinable Objects(Rule in loss specifc v

generic)
 19

- a generic object that is determinable can be the subject

matter of a sale; however, the obligation to deliver can
only be complied with once the thing becomes
determinate;
- thus, before delivery, the risk of loss does not arise
because a generic thing is never lost;
- when a party binds himself to deliver “600 piculs of first
class of sugar,” the party in default is liable for breach of
contract, which implies that a valid sale was entered into;
however, he cannot invoke force majeure (storm) to
defeat liability for breach because the buyer does not
assume the risk of loss of a generic, but determinable,
subject matter, until the thing is made determinate, either
through physical segregation or physical designation (Yu
Tek & Co. v. Gonzales);
- Article 1246, CC, does not allow that any generic subject
matter can be the object of a sale; in fact, under Article
1409 (6), CC, “where the intention of the parties relative
to the principal object of the contract cannot be
ascertained,” the contract is deemed inexistent or void;
- thus, Article 1246, CC, covers only the quality of a
generic subject matter; consequently, the contract is void
if the quality of the subject matter is not ascertainable
without resorting to a new agreement;

f. Status of Sale Not Complying with Third Requisite

- if there is no agreement or meeting of the minds with

respect to the subject matter, which is neither determinate
or determinable, the contract is void;
- basis: the “enforceability” or “demandability” of the
obligation to deliver is in peril;

g. Sale of Undivided Interest

- sale of an undivided interest results in co-ownership

(Article 1463, CC);

h. Sale of Undivided Share in Mass

 20

- when the parties agree on a definite number, weight or

measure of the goods in the mass, although the same are
undetermined, the buyer becomes a co-owner to the
extent of the number, weight or measure of the goods that
he buys;
- however, if the mass is less than what he buys, he
becomes the owner of the whole mass, but the seller
remains liable to make good the deficiency, unless there
is a contrary intent or stipulation;
- when there is no stipulation for the measuring or
weighing of the subject matter, but the parties agree on a
price which is not based on a particular measurement or
weight, the subject matter of the sale is the mass, not the
actual number of units or tons contained in the
agreement; hence, it is incumbent upon the seller to
deliver all the ore found in the mass, although the
quantity delivered is less than the amount estimated
(Gaite v. Fonacier);

i. Sale of Mortgaged Property

- a prior mortgage of the property does not prevent the

mortgagor from selling the property, since a mortgage is
merely an encumbrance on the property and does not
extinguish the debtor’s title over his property;
- a stipulation prohibiting the mortgagor-debtor from
selling the mortgage property is void;

4. Seller’s Obligation to Transfer Ownership

Required at the Time of Delivery of the Thing

- generally, a sale cannot be annulled on the ground that

the seller at the time of perfection was not the owner of
the thing sold;
- it is sufficient that the seller is the owner at the time of
the delivery; in fact, acquisition of the subject matter may
even depend on a contingency; this circumstance,
however, does not render the sale null and void;
- sale of copra for future delivery does not make the seller
liable for estafa for failure to deliver the object of the
 21

sale; the obligation to deliver is civil, not criminal, in

nature (Esguerra v. People);
- sale of a lot to be acquired from a government agency is
valid, being a sale of a future thing (Mananzala v. Court
of Appeals)

a. Conflicting Rulings

- SC held that sale by non-owner of property is void; thus,

the right to repurchase attached to the sale is also void
(Nool v. Court of Appeals);
- comment: SC equated real obligation to personal
obligation; SC should have made the sellers liable for
breach of contract; if specific performance is impossible,
SC can decree rescission of sale, with damages;
- a seller cannot “dispose of that which does not belong to
him;”
- Art. 1459, CC – “vendor must have a right to transfer the
ownership thereof at the time it is delivered.”
- summary of principles: ownership by the seller of the
thing sold at the time of perfection of the contract of sale
is not an element of its perfection; the law only requires
that the seller has the right to transfer ownership at the
time the thing sold is delivered; perfection per se does
not transfer ownership which occurs upon actual or
constructive delivery of the thing sold; a sale cannot be
validly challenged on the ground that the seller was not
the owner at the time of perfection (Quijada v. Court of
Appeals);

b. Exception: When Seller Must Be Owner at the Time

of Sale

- judicial sale: in mortgage, it is essential that the

mortgagor is the absolute owner of the thing mortgaged,
in anticipation of a foreclosure sale;

CHAPTER 4
 22

(PRICE AND OTHER CONSIDERATION)

Meaning of “Price”

– sum stipulated as equivalent of the thing sold;

– seller cannot unilaterally increase the price due to increased
construction cost;
– buyer cannot unilaterally withdraw from contract in case
interest rate is increased;

Requisites for Valid Price

– it must be real;
– it must be money or its equivalent;
– it must be certain or ascertainable;

Price Must Be Real

- legal intention to pay and to receive;

A. When Price is Simulated

– parties had no intention that the amount will be paid;

– in simulation, a colorable contract exists; it is devoid of
substance;

When Price is False

– what is stated is not the one intended to be paid;

– sale is valid and enforceable, subject to reformation;
– parties may be estopped from reflecting the real price, if third
parties are concerned;(give situation)

Meeting of Minds as to Price

- parties must agree on the price;

Effect of Non-Payment of Price

 23

– failure to pay price, if condoned, does not cancel the sale; non-
payment relates to consummation, not perfection;
– non-payment does not render sale invalid; gives rise to demand
for specific performance or rescission

Simulation of Price Affects

Delivery of Subject Matter

- delivery of subject matter by virtue of a void sale for lack of

consideration does not transfer ownership to the buyer;

Price Must Be in Money or its Equivalent

(Valuable Consideration)

– Art. 1458, CC, requires payment of price certain in money or its

equivalent;
– does “equivalent” mean something representative of money
such as a check or draft?
– consideration for valid sale can be the price and other
consideration;

(Valuable Consideration)

– expectation of profits from the subdivision project is valid

cause or consideration (Torres v. Court of Appeals);
– cancellation of the liabilities of the seller is valid consideration
for sale (PUP v. CA);
– price is subject to variations; other forms of cause or
consideration which are valuable can support a valid sale;

Concept of “Valuable Consideration”

– in Philippine jurisprudence, for consideration to support a

contract of sale, it must be a “valuable consideration;”
– hence, a nominal price renders the sale void;

Price Must Be Certain or Ascertainable at Perfection

 24

– certain when expressed and agreed upon in terms of specific

pesos and/or centavos;
– money is the best model of valuable consideration;
– price is ascertainable if it can be determined with reference to a
particular thing or its determination is left to the judgment of a
specified person/s (Art. 1469, CC);

Price Fixed by Third Party

– designation of a third party to fix the price is valid; it makes the

price ascertainable;
– parties can ask the court to fix the price if designated party fixes
the price in bad faith or by mistake (Art. 1469, CC);

Fixing of Subject Matter

by Third Party

– designation of a third party to fix the subject matter is not

provided by law;
– a “species” obligation cannot be performed by a third party who
may choose a thing beyond the capacity of the seller to deliver;
Effect of Unascertainability

- when price is unascertainable, contract of sale is inefficacious;

Manner of Payment of Price Must Be Agreed Upon

– manner of payment goes into the essence of what makes price

certain or ascertainable;
– manner and terms of payment are intertwined with the concept
of price; they constitute an integral part of the price;

When Sale Exists Even When No Price is Agreed Upon (illustrate)

– Art. 1471, CC, provides the only exception that a valid sale
exists even if no agreement upon the price is made;
– “xxx However, if the thing or any part thereof has been
delivered to and appropriated by the buyer, he must pay a
reasonable price therefor. What is reasonable price is a
 25

question of fact dependent on the circumstances of each

particular case.”

Meaning of “Inefficacious” Under Art. 1474, CC

- devoid of legal effect; does not exclude void sale

contracts due to uncertain/unascertainable contracts;

CHAPTER 5

FORMATION OF SALE

Stages in the Life of Sale

- policitacion – negotiation;
- perfection – birth of contract; when parties come to
agree;
- consummation – death of contract; when parties perform
obligation;

Negotiation Stage

- deals with matters arising prior to perfection such as

invitation to make offer, offer, acceptance, right of first
refusal, option contract, supply agreement, mutual
promises to buy and sell or contracts to sell, agency to
sell or agency to buy;
- there is freedom to contract;

1. Advertisements and Invitations

- business advertisements are not definite offers;

 26

- general rule: advertisements are mere invitations to make

an offer;
- do not giver rise to a valid/binding sale;
- exception: when advertisements appear otherwise;
meaning, when advertisement specifies a determinate
subject matter, the price and terms of payment, and is
addressed to a particular person, which amount to a
definite offer;

2. Offers

- an offer, before acceptance, is subject to the will of the

offeror;
- offer with a period amount to nothing upon expiration
thereof;
- offeree may accept or reject offer in its entirety;
- counter-offer replaces the original offer;
- conditional acceptance amounts to a counter-offer;
- offer becomes ineffective by reason of death, civil
interdiction, insanity, or insolvency of either offeror or
offeree;

3. Option Contracts

a. Determining the “Location” of Options

- Art. 1479, CC
- “An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promisor if the promise is supported by a consideration
distinct from the price.”
- When the option is founded upon a proper consideration,
then the offer may not be withdrawn at any time during
the option period;

b. Definition and Essence of Option Contract

- option contract – privilege existing in one person, for

which he had paid a consideration and which gives him a
right to buy a certain property, from another person, if he
 27

chooses, at any time within the agreed period at a fixed

price (Cavada v. Diaz);
- option – continuing offer or contract by which the owner
shall have the right to buy the property at a fixed price
within a certain time; it merely secures the privilege to
buy (Adelfa Properties, Inc. v. Court of Appeals);

c. Characteristics/Obligations in an Option
Contract; Compared with Sale

- option contract is onerous like sale;

- consideration in an option contract is anything of value
while that of sale is price certain in money or its
equivalent;
- option contract and sale are consensual contracts;
- option contract is essentially a unilateral contract as the
optioner is the one obliged; sale is bilateral;
- subject matter of option contract is the option to
purchase, not the subject matter of the sale to be entered
into;
- option is an unaccepted offer; states the terms and
conditions on which the owner is willing to sell his land,
if the holder elects to accept them within the time agreed
upon; if the holder does so elect, notice must be given to
the other party;
- acceptance within the period results in a valid or binding
contract;
- contract of sale defines the rights and obligations of the
parties at the time of execution, preventing either party
from exercising the option to withdraw or proceed; offer
and acceptance are concurrent;

d. Elements of Valid Option Contract

- consent;
- subject matter; option right (offer to sell/promise to sell;
offer to buy/promise to buy);
- prestation; consideration separate and distinct from the
purchase price for the option given;
 28

e. Meaning of “Separate Consideration”

- anything or undertaking of value, which must be separate

and distinct from the purchase price agreed upon;

e. When Option is Without Separate

Consideration

- general rule: without a consideration separate from the

purchase price, an option contract is void; however, it can
be treated as a valid offer;
- exception: if the option is exercised prior to its
withdrawal, this becomes an accepted offer, giving rise to
a valid and binding sale;

f. Period of Exercise of Option

- when the option contract does not provide the period

within which the option will be exercised, the period is
not indefinite; the right of option prescribes in ten (10)
years as actions based on a written contract expire after
ten (10) years;
- renewal of the lease does not include the extension of an
option to purchase attached to the contract of lease;

g. Effects of Exercise of Option

- when there is an option contract, the timely acceptance of

the offer converts the option contract into a bilateral
promise to sell and to buy;
h. Rules When Period is Given to Offeree Within
Which to Accept

- if the period is not supported by a separate consideration,

offeror can withdraw before acceptance;
- right to withdraw must not be exercised whimsically or
arbitrarily;
- if the period has a separate consideration, the option
contract is deemed perfected; withdrawal of the offer
amounts to a breach;
 29

- the option is an independent contract, distinct from the

projected main agreement;

i. Right of First Refusal

- promise on the part of the owner that in case he decides

to sell the property, he would first negotiate its sale to the
promise;
- a right of first refusal clause is not a sufficient basis for
specific performance because there is no agreement on
the price;

4. Mutual Promise to Buy and Sell

- promise to sell a determinate thing with a promise to buy

at a specified price is binding as an executory agreement;

5. Earnest Money Defined

- money given as part of the purchase price and as proof of

the perfection of the contract (Dizon v. Lustre)

a. Function of Earnest Money

- Art. 1482, CC, provides that earnest money given in a

sale is considered as part of the purchase price; prevails
only in the absence of contrary or rebuttal evidence;
hence, it is a disputable presumption;

b. Distinctions Between Earnest Money (EM) and

Option Money (OM)

- EM is part of the purchase price while OM is given as a

distinct consideration for an option contract;
- EM is given only where a sale has been perfected while
OM is given before a sale is perfected;
 30

- When EM is given, buyer is bound to pay the balance,

while OM, if given by the prospective buyer, does not
require him to buy;

c. Effect of Rescission on Earnest Money Received

- without any stipulation, the seller of a real property does

not have the right to keep the earnest money received to
answer for damages sustained in case sale does not
prosper due the prospective buyer’s fault;
- amounts received as part of downpayment could not be
forfeited whey the buyer fails to pay the balance of the
purchase price;
- however, in case of rescission under Art. 1385, CC, there
is an obligation to return the object of the contract,
including fruits and interest;

d. Non-Performance Does Not Affect Perfection

- non-performance of the parties’ obligations does not

affect the perfection of the contract;

Form of Sales

1. Generally, Form is Irrelevant to the Validity of Sale

- subject to the provisions of the Statute of Frauds, “a

contract of sale may be made in writing, or by word of
mouth, or partly in writing and partly by word of mouth,
or may be inferred from the conduct of the parties.” (Art.
1483, CC)
- sale of land under a private instrument is valid; title is
transferred once delivery of land is made in favor of the
buyer (Gallar v. Husain)
- necessity of public document involving sales of real
property or an interest therein is for the purpose of
convenience; not a requirement for validity or
enforceability (Dalion v. Court of Appeals)
- however, sale contained in a private document does not
bind third parties (Talusan v. Tayag);
 31

- sale of land in a public document and recording of the

document in the Registry of Deeds makes the sale
binding on third parties (Secuya v. Vda. De Selma);

a. Function of Deed of Sale

- deed of sale – formal or symbolic delivery of the

property sold;
- a deed of sale, to become a public document, must be
subscribed and acknowledged before a notary public;
- notarization of the document is neither a guarantee of its
validity nor of the veracity of its contents; notary public
does not validate the document;
- the execution and notarization of a deed of sale, though a
form of constructive delivery, is not conclusive
presumption of delivery of possession (Santos v. Santos,
366 SCRA 395;

2. When Form of Sale Affects Its Validity

- general rule: form of sale is not important for the validity

of a sale;
- exceptions:
a. the power to sell a piece of land or interest therein must
be in writing; otherwise, the sale by the agent is void;
b. sale of large cattle must be in writing; otherwise, it is
void; sale thereof must also be registered with the
municipal treasurer;
c. sale of land by “non-muslim hill tribe cultural minorities
all throughout the Philippines” is void if not approved the
National Commission on Indigenous Peoples;

3. Statute of Frauds: When Form is Important for

Enforceability

a. Nature and Purpose of Statue of Frauds

- purpose: prevent fraud and perjury in the enforcement of

obligations;
 32

- application of the Statute of Frauds presupposes the

existence of a perfected contract;

b. Sales Covered in Statute by Frauds

- the following agreements are unenforceable, unless there

is a note or memorandum in writing, and subscribed by
the party or his agent:

a. a sale agreement which is not to be performed

within a year from the making thereof;
b. an agreement for the sale of goods, chattels or
things in action, at a price not less than P 500;
and
c. a sale of real property or of an interest therein

c. Sales Not Covered by Statute of Frauds

a. when there is a note/memorandum in writing,

subscribed by the party and his agent;
b. when the is partial consummation of the sale;
c. failure to object to evidence aliunde regarding
the existence of contract;
d. when sales are effected through electronic
commerce;

d. Nature of Memorandum

- in writing and subscribed by the party charged;

- various letters taken collectively can constitute a
memorandum; these documents contain names of parties,
terms and conditions, price, description of property;
- in short, the memorandum must contain all the elements
of a contract of sale;
- Statute of Frauds applies only to executory contracts; it
does not apply to completed, executed or partially
executed contracts;

e. Partial Performance
 33

- partial performance of the sale takes the transaction

outside the coverage of the Statute of Frauds;

f. Effect of Partial Execution on Third Parties

- third parties cannot invoke partial performance as basis

to take the transaction outside of the coverage of the
Statute of Frauds;
- reason: third parties have legal remedies against the
contract;

g. Nature and Coverage of Partial Performance

- partial performance, which takes the contract out of the

coverage of the Statute of Frauds, includes:

 partial payment of purchase price;

 possession;
 making of improvements;
 rendition of services;
 payment of taxes;
 relinquishment of rights;
 tender of payment plus building of improvements;

h. Waiver of Provisions of Statute of Frauds

- an oral contract of sale becomes enforceable by waiver of

the provisions of the Statute of Frauds; example: failure
to object to oral testimony or cross-examination on the
contract;

i. Sales Effected as Electronic Commerce

a. Legal Recognition of Electronic Data Message

- an electronic data message or information shall not be

denied validity or enforceability (Sec. 6, Electronic
Commerce Act);
- electronic document includes information, data, figures,
symbols or other modes of written expression which is
 34

received, recorded, transmitted, stored, processed,

retrieved or produced electronically (Sec. 5 (f), E-
Commerce Act);
- electronic signature refers to any distinctive mark,
characteristic and/or sound in electronic form,
representing the identity of a person and attached to or
logically associated with the electronic data message or
electronic document (Sec. 5 (e), E-Commerce Act);

b. Legal Recognition of Electronic Documents

- electronic documents have the legal effect, validity or

enforceability as any other document (Sec. 7, E-
Commerce Act);

c. Legal Recognition of Electronic Signatures

- an electronic signature on the electronic document is
equivalent to the signature of a person on a written
document (Sec. 8, E-Commerce Act);

d. Presumption Relating to Electronic Signatures

- in any proceedings involving an electronic signature, it

shall be presumed that:
a. the electronic signature is the signature of the
person to whom it correlates; and
b. the electronic signature was affixed by that person
with the intention of signing or approving the
electronic document;

- exception: unless the person relying thereon knows the

defects in or unreliability of the signature, or reliance
thereon is unreasonable;

e. Consummation of Electronic Transactions

- electronic transactions made through networking among

banks, or linkages thereof with other entities or networks,
and vice versa, shall be deemed consummated upon
 35

actual dispensing of cash or the debit of one account and

the corresponding credit to another;
- the obligation of a bank, entity or person similarly
situated to another arising therefrom shall be deemed
absolute and shall not be subjected to the process of
preference of credits;

CHAPTER 6

PERFORMANCE OR CONSUMMATION OF SALE

Obligations of Seller

1. To Preserve Subject Matter

- every person obliged to give a determinate thing is also

obliged to take care of it with the proper diligence of a
good father of a family, unless the law or the stipulation
of the parties requires another standard of care (Art.
1163, CC);
- ancillary obligation “to do;”
- a necessary legal assurance to the buyer that the seller
can fully comply with the main obligation to deliver the
object of sale;

2. To Deliver Subject Matter

- seller is bound:
a. to transfer the ownership of the thing, which is the object
of the sale;
b. to deliver the thing;

- title passes from the moment the thing sold is placed in

the possession and control of the buyer;
- except when there is a provision that title shall not pass
until full payment of the price;
 36

- delivery of the thing produces conveyance of ownership,

without prejudice to the right of the seller to claim
payment of the price; delivery ipso jure transfers it
ownership to the buyer (Ocejo, et al v. International
Banking Corp.);

3. To Deliver Fruits and Accessories

- the transferee has a right to the fruits of the thing from

the time the obligation to deliver it arises; however, he
shall acquire no real right over them until the same has
been delivered to him (Art. 1164,CC);
- this provision applies only to an obligation to deliver a
determinate thing;
- the obligation to deliver a determinate thing includes the
obligation to deliver its accessions and accessories, and
all the fruits thereof from the time of perfection;

4. To Warrant the Subject Matter

- seller is obliged to “warrant the thing which is the object

of the sale;”

Tradition as a Consequence of Valid Sale

- ownership of the thing sold is a real right, which the

buyer acquires only upon delivery of the thing to him in
any of the ways authorized under the Civil Code; this
right is transferred, not merely by contract, but also by
tradition or delivery (Equatorial Realty Dev., Inc. v.
Mayfair Theater, Inc.);
- there is delivery when the thing sold is placed in the
control and possession of the vendee;

Types of Delivery

1. Actual Delivery

- when the thing sold is placed in the control and

possession of the buyer;
 37

- however, control can take other forms other than actual

physical possession;
- the key word is control, not possession in determining the
legal effect of tradition;

2. Constructive Delivery

- manner signifying an agreement that the possession is

transferred from the vendor to the vendee;
- execution of a public instrument is a form of constructive
delivery;

a. Execution of Public Instrument

- regarding the sale of movables and immovables through

a public instrument, the execution thereof is equivalent to
delivery, in the absence of a contrary intention;
- deed of sale has two functions:
1. formal/symbolic delivery;
2. authority for buyer to use the document as proof
of ownership;
- general rule: execution of a public instrument has the
legal effect of actual or physical delivery;
- this general rule applies only to a public instrument
evidencing a valid sale;

i. Constructive Delivery Has Same Legal Effect as

Actual Delivery

- the mere execution of the deed of conveyance in a public

instrument is equivalent to the delivery of the property
(Art. 1498, CC);

ii. When Execution of Public Instrument Does Not

Produce Effects of Delivery

- when there is a stipulation to the contrary; examples:

certain date for purchase to take possession, where title is
not transferred until full payment; seller reserves right to
 38

use and enjoy the property; seller has no control over the
thing sold at the moment of the sale;
- when at the time of the execution of the public
instrument, the subject matter was not subject to the
control of the seller;
- when control over the property or the ability to transfer
physical possession does not subsist for a reasonable
length of time from the execution of the public
instrument;
- thus, mere execution of a public instrument does not
create a conclusive presumption of delivery;

b. Symbolic Delivery

- as to movables, constructive delivery is made by delivery

of the keys of the place where the movable is stored;
- an acknowledgment receipt of partial payment does not
amount to symbolic delivery;

c. Constitutum Possessorium

- takes effect when seller, at the time of perfection,

possesses subject matter in the concept of an owner, and
the seller only possesses the property as a lessee;

d. Traditio Brevi Manu

- opposite of constitutum possesorium; would-be buyer

earlier possessed the property as a lessee but now
possesses the same in the concept of an owner by virtue
of the sale;

e. Traditio Longa Manu

- delivery of a thing by agreement; under Art. 1499, CC,

delivery of movable property is made by mere consent,
as possession thereof cannot be effected in favor of the
buyer at the time of sale;

f. Delivery of Incorporeal Property

 39

- involves property having no physical existence; delivery

thereof is effected by constructive delivery (public
instrument, title is placed in the possession of the buyer,
use and enjoyment by the buyer);

g. Delivery by Negotiable Document of Title

- person to whom a negotiable document of title is

negotiated acquires title to the goods as transferor;
- invoice, which is not a negotiable document of title, does
not give the effect of constructive delivery;

h. Delivery through Carrier

- a form of constructive delivery; pertains only to sale of

goods;
- general rule: delivery to carrier is deemed delivery to
buyer; carrier acts as an agent of the buyer;
- exception: stipulation/circumstances to the contrary;
- the seller has the duty to enter into a contract with the
carrier on behalf of the buyer under reasonable terms and
conditions;
- if the seller fails to do so, and the goods are lost or
damaged, buyer may hold the seller liable for damages;
- where goods sent to buyer are normally insured, but
seller fails to notify buyer of the same, the risk of loss or
damage pertains to seller;
- F.A.S. Sales – seller pays all charges and is subject to risk
until goods are placed alongside vessel; meaning:
delivery of goods alongside vessel completes the effect
of tradition;
- F.O.B Sales – “free on board;” seller shall bear all
expenses until the goods are delivered;
- “f.o.b.” at the point of shipment – delivery of the goods
to the carrier is equivalent to delivery to the buyer; at that
point, the risk of loss pertains to the buyer;
- “f.o.b.” , destination – delivery to the buyer is completed
when the vessel has arrived at the point of destination;
prior thereto, the risk of loss is shouldered by the seller;
 40

- C.I.F. Sales – “costs, insurance, and freight;” the price

fixed covers not only the costs of the goods, freight and
insurance are paid by the seller;
- effects of delivery under c.i.f. sales:
a. first school of thought: delivery to carrier is delivery to
buyer; carrier acts as an agent of the buyer; buyer must
have insurable interest in the thing insured;
b. second school of thought: delivery to carrier is not
delivery to buyer; both parties agree that seller is
responsible for insuring and shipping the goods, for
which he gets a package price; thus, seller bears the risk
of loss during the shipment period;

Effects and Completeness of Delivery

- to transfer ownership to the buyer, delivery must be made

pursuant to a valid sale; and delivery must be effected when
seller has ownership over the subject matter of sale;

When Buyer Refuses to Accept

- delivery is complete even if buyer unjustly refuses to accept the

goods, once the goods are placed at his disposal; title therefore
passes to buyer;

Rules on Double Sales

- when subject matter is movable, ownership shall pertain to the

buyer who may have first taken possession thereof in good faith
(Art. 1544, CC);
- when subject matter is immovable, ownership shall pertain to
the buyer who in good faith first recorded the sale in the
Registry of Property; if there is no inscription, to the person
who in good faith first acquired possession thereof; or in the
absence thereof, to the person who in good faith presents the
oldest title;
- registration in good faith under the Torrens System is of the
highest order; this does not apply to unregistered land;

Other Principles
 41

- purchaser in good faith – one who buys the property of

another without any notice that some other person has a right to
or interest in the property and pays a full and fair price for the
property;
- obligation to investigate known facts – a purchaser cannot close
his eyes to facts which should put a reasonable man upon his
guard;
- land in adverse possession requires buyer to inquire as to the
occupant’s right over the property; purchaser must go beyond
the certificate of title;
- annotation of lis pendens on the title renders the buyer in bad
faith;
- annotation of adverse claim places subsequent buyers in bad
faith;

Obligations of Buyer

Pay for the price

- pay for the price at the time and place stipulated in the
contract;
- letter expressing intent to pay is not a valid tender of
payment;
- to be effective, payment shall be made to the person in
whose favor the obligation has been constituted or his
successor in interest, or any person authorized to receive
(Art. 1240, CC);
- buyer is obliged to pay interest for the period between
delivery and payment of the price when it is so stipulated,
if object delivered produces fruits/income, or buyer
defaults from demand;

Accept Delivery of Thing Bought

- buyer is bound to accept delivery of the thing bought at

the time and place stipulated in the contract; if not
stipulated, at the time and place of the delivery of the
thing sold;
Opportunity to Inspect Goods
 42

- general rule: buyer is given a reasonable opportunity to

examine the goods to determine if the same are consistent
with the specifications in the contract;
- exception: C.O.D. Sales or “collect on delivery” sales –
buyer is not entitled to examine the goods before the
payment of the price, in the absence of agreement or
usage of trade permitting such examination;

Goods Sold on Installments

- unless otherwise agreed, buyer of goods is not bound to

accept delivery thereof by installments;

Effect of Acceptance of Goods on Seller’s Warranty

- acceptance of the goods does not discharge the seller

from liability for damages or for breach of warranty,
unless there is a stipulation to the contrary;
- however, acceptance of the goods without notice of any
defect thereof or breach of warranty excuses the seller
from liability;

Refusal to Accept Goods

- buyer is not bound to return the goods, if he refuses to

accept the same for a valid reason; he is only required to
notify the seller of his refusal to accept;
- buyer can voluntarily constitute himself as a depository,
and becomes liable as such;
- in case of refusal to accept goods without a valid reason,
title thereto passes to him from the moment the goods are
placed at his disposal;

CHAPTER 6

SALE BY A NON-OWNER OR
BY ONE HAVING VOIDABLE TITLE
 43

When Seller is not Owner of the Subject Matter

At Perfection

- perfection of sale merely creates the obligation on the

part of the seller to transfer ownership, but by itself
perfection does not transfer ownership;
- it is not critical for perfection of sale to take place that
the seller is the owner of subject matter at the time of
perfection;
- law on estoppel provides: when the person who is the
owner of a thing sells or alienates and delivers it, and
later the seller or grantor acquires title thereto, such title
passes by operation of law to the buyer or grantee (Art.
1434, CC);
- word “sells” in Art. 1434, CC, refers to the perfection
stage of a sale;

At Consummation

- where goods are sold by a person who is not the owner

thereof, and who does not sell then under authority or
with the consent of the owner, the buyer acquires no
better title to the goods that the seller had (Art. 1505,
CC);
- Art. 1505 does not provide that the sale of good by a non-
owner is void; it only states the nature of the title of the
buyer;
- One can sell only what one owns or is authorized to sell;
thus, the buyer can acquire no more than what the seller
can transfer legally;

Sale by Co-Owner of the Whole Property or Definite Portion Thereof

- in co-ownership, none of the co-owners may claim any

right, title or interest to a particular portion of the thing
owned in common;
- a co-owner has no right to sell a divided part of the real
estate, although he is the owner of an undivided half of a
tract of land;
 44

- a co-owner has a right to sell and convey an undivided

half, but he has no right to divide the lot into two parts,
and convey the whole of one part by metes and bounds;

Exceptions to Rule on Effect of Sale of Definite Portion by Co-Owner

- general rule: sale by co-owner of the entire property

owned in common or any definite portion thereof is void,
but the sale is valid with respect the co-owner’s ideal
share;
- exceptions:
- a. when the subject matter is indivisible by nature or
by intent;
- b. when the sale of a particular portion of the thing
owned in common is with the consent of the other co-
owners; partial partition results;

CHAPTER 7

LOSS AND DETERIORATION, FRUITS AND OTHER BENEFITS

Before Perfection

- the rules on loss, deterioration, fruits and improvement of

the purported subject matter are the same: such loss,
deterioration, fruits and improvements pertain to the
purported seller, since ownership remains in the seller;

At the Time of Perfection

- if at the time the sale is perfected, the subject matter has

been entirely lost, the contract shall be “without any
effect” (Article 1493, CC);
- however, if the thing is lost in part only, the buyer may
choose between withdrawing from the contact and
demanding the remaining part, paying its price in
proportion to the total sum agreed upon;
 45

- Art. 1493, CC, does not hold a sale at “perfection” to be

void when the object thereof is lost; it uses the phrase
“without any effect;”
- strictly speaking, the physical existence or non-existence
of the subject matter is not important for perfection of the
sale;
- however, if subject matter is lost, there is no point in
entering into a contract as the seller cannot comply with
obligation to deliver the subject matter;
- Tolentino’s view: “the contract never comes into
existence. There can be no sale without a thing to be
sold. xxx there is no need of an action to annul the
contract, because there can be no annulment of
something that does not exist.”

How to Treat Loss, Deterioration and Benefits After Perfection

- if the subject matter is lost at the point of perfection, and

the seller bears the loss and the buyer is relieved of his
obligation under the contract, then the implication is that
after the perfection, they buyer bears the risk of loss and
deterioration even without prior delivery to him;

After Perfection But Before Delivery

Loss of Subject Matter

- CC has retained the Roman law rule that ownership is

transferred only by delivery, whether actual or
constructive;
- however, CC also adopted the common law principle of
res perit domino, i.e., it is the owner of the thing (the
seller before delivery) who bears the consequences of its
loss;

Tolentino’s view:

- in reciprocal obligations, the extinguishment of the

obligation duet to loss of the thing ‘affects both debtor
and creditor; the entire juridical relation is extinguished,
 46

so that if the creditor has himself an obligation, this is

likewise extinguished.
- the debtor must return to the creditor whatever the latter
may have already delivered by reason of the obligation; a
logical consequence of the principle of res perit domino
recognized in the code.
- the risk pertains to the debtor, which means that if an
obligation is extinguished by the loss of the thing or
impossibility of performance through fortuitous events,
the counter-prestation is also extinguished;
- the debtor is released from liability but he cannot demand
the prestation which has been stipulated for his benefit;
- examples: a. if the thing leased is destroyed by fortuitous
event, the lessee is not obliged to pay the stipulated
rental; b. in a contract of a piece of work where the
contractor furnished both labor and material, if the thing
is lost before delivery, the contractor cannot recover the
agreed compensation.
- these are the results of the reciprocal character of the
obligations; he who gives nothing has no reason to
demand anything;

Summary of Rules According to Tolentino

- risk of loss is borne by the seller from time of perfection

up to period before delivery;
- however, the seller is not liable for damages if the thing
is lost through a fortuitous event;
- before delivery, if the determinate subject of the sale is
lost through the fault of the seller, the buyer does not
need to pay the price but he can recover damages for
breach of contract;
- if the determinate subject matter is lost through a
fortuitous event, the seller is excused from his obligation
to deliver the thing; he is not liable for damages because
he committed no breach;
- buyer is therefore not obliged to pay the price because
seller failed to comply;
- the net effect is the diminution of the value of the seller’s
estate; risk of loss is borne by the seller;
 47

Proper Doctrine on Loss, Deterioration, Fruits and Improvements

Prior to Perfection

- both title and beneficial interests pertain to the seller;

therefore, the seller bears the risk of loss, deterioration,
and benefits from the fruits and improvements;
- the buyer is without any risk because neither title nor
beneficial interest over the subject matter pertains to him;

After Delivery

- as delivery effectively transfers title and beneficial

interest to the buyer, the buyer bears both the risk of loss
and deterioration, as well as benefits from the fruits and
improvements of the subject matter of sale;
- at this juncture, neither title nor beneficial interests
pertain to the seller; as such, whatever happens to the
subject matter without his fault will not affect him;

After Perfection But Before Delivery

- in this situation, title and beneficial interests do not

pertain to the same person;
- according to jurisprudence, the party who had greater
stake on the subject matter at the point of loss,
deterioration or improvement should bear the risk of loss;
- thus, under this situation, the party who is understood to
have the beneficial interest over the subject matter bears
the risk of loss or deterioration, or obtains benefits from
the improvement of the thing;
- examples:
- a. when the obligor possesses the goods for the
benefit of the buyer, benefits and improvements pertain
to the buyer; hence, the buyer bears the risk of
deterioration;
- b. when goods are retained by the seller to secure the
performance of the buyer’s obligations, buyer bears the
risk of loss or deterioration;
 48

- c. when seller retains control over the goods until buyer

complies with his obligations, or where buyer does not
intend to have dominion, use or control over the goods,
the owner-seller bears the risk of loss or deterioration;

CHAPTER 8

REMEDIES OF PARTIES

Remedies in Cases of Movables

Ordinary Remedies of Seller

Movables in General

- in sales of movables, seller can rescind the sale in case

the buyer does not show up to receive the subject matter
of the sale, or if he appears, the buyer does not offer to
pay the price;

Sale of Goods
Non-Payment of Price by Buyer

- when ownership has passed to the buyer, but the buyer

does not pay, seller can maintain an action against the
buyer for the price of the goods or an action for specific
performance;
- when the ownership of the goods has not passed, seller
may offer to deliver the goods to the buyer; if buyer
refuses to accept the goods, seller may act as bailee for
the buyer, with notice to the buyer; thereafter, seller may
treat the goods as his own and maintain an action for the
price of the goods against the buyer;
- when price payable on certain day, and the buyer refuses
to pay the price, seller may maintain action for the price;

Special Remedies of “Unpaid Seller” of Goods

 49

- seller of goods is deemed to be an “unpaid seller” either:

a. when the whole of the price has not been paid or
tendered; or b. when a bill of exchange or other
negotiable instrument has been received as conditional
payment, and the condition is violated due to the
dishonor of the instrument, insolvency of the buyer, or
otherwise;
- term includes an agent of the seller to whom the bill of
lading is indorsed, or consignor or agent who paid or is
directly responsible for the price, or any person in the
position of a seller;
- unpaid seller has the following remedies (whether or not
ownership over the goods has been transferred to the
buyer):
- a. possessory lien;
- b. stoppage in transitu;
- c. special right of resale;
- d. special right to rescind;
- these remedies have hierarchical application; meaning,
the rights to resell and rescind can only be availed after
possessory lien and stoppage in transitu have been
exercised;

Possessory Lien

- lien is a legal claim or charge on property as security for

the payment of some debt or obligation; its meaning is
more extensive than the right to retain; it is enforceable
against the property in the hands of any person, except
against a bona fide purchaser for value without notice
(Hongkong & Shanghai Banking Corp. v. Rafferty);

Stoppage in transitu

- stoppage in transitu – seller’s right of stopping the goods

in transitu after he has parted with the possession thereof,
in case buyer is insolvent;
seller may resume possession of the goods at any time
while goods are in transit;
 50

- this can be exercised even if ownership over the goods

has passed to the buyer; this right is not affected by any
sale, or other disposition of the goods made by the buyer,
unless the seller consents thereto;

When Goods are Deemed “In Transit”

- from time goods are delivered to a carrier or other bailee

for transmission to buyer, until buyer or agent obtains
goods from carrier/bailee;
- if buyer rejects the goods, and the carrier/bailee continues
in possession thereof, even if seller refuses to take back
the goods;

How Right is Exercised

- obtain actual possession of the goods; or

- notify carrier/bailee in possession thereof of his claim
over the goods;

Special Right to Resell Goods

- even if ownership in the goods has passed to the buyer,

unpaid seller has a special right of resale, under
conditions provided by law;

When Right Can Be Exercised

- to avail of this right, unpaid seller must have previously

exercised right of possessory lien or stoppage in transitu;
- goods must be sold under the following conditions:
- a. goods are of perishable nature;
- b. seller is expressly reserved in case buyer defaults;
- c. buyer is in default in the payment of the price for an
unreasonable time;

Buyer’s Liability for the Difference

- if the buyer fails to take delivery and pay the purchase

price of the subject matter of the contract, the seller,
 51

notwithstanding the absence of judicial rescission, can

resell the goods; and if the seller is obliged to resell the
goods for less than the contract price, the buyer is liable
for the difference (Katigbak v. Court of Appeals);

Standard of Care/Disqualification in Resale

- seller is bound to exercise reasonable care and judgment

in making a resale, and subject to this requirement may
make a resale either by public or private sale;
- seller cannot directly or indirectly buy the goods;

Special Right to Rescind

- despite the transfer of ownership over the goods to the

buyer, the unpaid seller has a special right to rescind the
sale;

When Right May Be Exercised

- an unpaid seller who has a right of lien or has stopped the

goods in transitu, may rescind the transfer of title and
resume ownership in the goods in any of the following
instances:
- a. where the seller expressly reserved the right to
rescind in case the buyer defaults; or
- b. where the buyer has been in default in the payment
of the price for an unreasonable time;

Effect of Exercise of Right to Rescind

- seller is not liable to the buyer upon the sale; seller may
even recover from buyer damages for loss arising from
the contractual breach;

Transfer of Title
- transfer of title is rescinded upon manifestation of
intention to rescind to the buyer, either through a notice
or some other overt act;
 52

Remedies of Buyer

- 1. action for specific performance (in case seller

has breached obligation to deliver specific or ascertained
goods);
- 2. remedies under Art. 1599, CC:
- a. accept or keep the goods and set up against the
seller the breach of warranty by way of recoupment;
- b. accept or keep the goods and maintain an action
against the seller for damages for the breach of warranty;
- c. refused to accept the goods and maintain an action
against the seller for damages for breach of warranty;
- d. rescind the sale and refuse to receive the goods, or if
good have been received, return them or offer to return
them to the seller and recover the price or any part
thereof which has been paid;
- if fulfillment becomes impossible, buyer can exercise
right to rescind, even if previously he availed of specific
performance;
- 3. suspension of payments in anticipation of
breach - buyer may suspend the payment of
the price in case of:
a. disturbance in the possession or ownership of the
thing acquired; or
b. existence of reasonable grounds that such
disturbance will occur; or
c. any vindicatory action; or
d. foreclosure of mortgage;
unless the seller gives security for the return of the price;
- in case of a pending suit involving the subject matter of
the sale, buyer can suspend payment of the balance of the
purchase price (Adelfa Properties v. CA);

Sales of Movables on Installments (Recto Law, now incorporated

in Art. 1484, CC)

- in a sale of personal property the price of which is

payable in installments, the seller may exercise any of the
following remedies:
 53

a. exact fulfillment of the obligation, should the

buyer fail to pay any installment;
b. cancel the sale, should the buyer’s failure to pay
cover two or more installments;
c. foreclose the chattel mortgage on the thing sold, if
one has been constituted, should the buyer’s failure
to pay cover two or more installments;
- the above-stated remedies are alternative, not cumulative;
exercise of one bars the exercise of the others; remedies cannot
also be pursued simultaneously;

When is Sale on Installments?

- where the price is payable in several installments; where

partial payments consist in relatively small amounts;
- Recto Law/Art. 1484 applies to financing transactions
derived from sales of movables on installments; the
execution of a contract of loan is immaterial because the
promissory note had been assigned or negotiated by the
original seller;
- Recto Law/Art. 1484 does not apply if an initial payment
is made, and the balance is payable in the future; this is a
straight sale, not a sale on installments (Levy Hermanos
v. Gervacio); in this case, the seller can recover the
unpaid balance from the buyer, even if the buyer has
been deprived thereof through foreclosure;

Contracts to Sell Movables Not Covered

- when the contract governing the sale of movables is a

contract to sell, the rules on rescission and substantial
breach do not apply;
- reason: if the suspensive condition does not occur, the
contract to sell is extinguished; thus, there is no contract
to rescind;

Remedies in Cases of Immovables

Remedies of Seller
 54

Rescission of Sale (Anticipatory Breach)

- under Art. 1591, CC, if the seller has reasonable grounds

to fear the loss of the immovable property sold and its
price, he may sue for the rescission of the sale;
- in case Art. 1591 does not apply, the seller may sue for
rescission of the sale under Art. 1191, CC, based on
substantial breach by the buyer for his failure to comply
with his obligation to pay the price when due;

Rescission under Art. 1592 (Failure of Buyer to Pay Price)

- in case the buyer fails to pay the price, the seller has the
option under Art. 1592, CC, to rescind the sale upon
judicial or notarial demand;

Contracts to Sell Not Covered by Article 1592, CC

- Art. 1592 applies to ordinary sale transferring ownership

simultaneously with the delivery of the real property
sold;

Remedies of Buyer

Suspension of Payment

- Art. 1590, CC< allows the buyer to suspend payment of

the price incase of:
- a. disturbance in the possession or ownership of the
thing acquired; or
- b. the presence of reasonable grounds causing fear
that disturbance in his possession or ownership thereof
will occur;
- a mere act of trespass will not allow suspension of
payment;

In Case of Subdivision or Condominium Projects

- buyer can invoke Sections 23 and 24 of P. D. No. 957

that his installment payments in a subdivision or
 55

condominium project cannot be forfeited in favor of the

owner or developer;
- under P. D. No. 957, buyer has the option to demand
reimbursement of the total amount paid, or to wait for
further development of the subdivision or condominium
project (Relucio v. Brillante-Garfin);
- buyer in a subdivision land can compel the seller to
complete the roads and other facilities of the subdivision,
despite the absence of such or similar stipulation (Lim v.
De los Santos);
- buyer can suspend payment of his monthly amortization
where the seller fails to give a copy of the Contract to
Sell despite repeated demands (Gold Loop Properties v.
CA);
- P. D. No. 957 does not allow the nullification of a
contract to sell in case the seller, at the time of the
contract was entered into, did not possess a Certificate of
Registration and License to Sell (Cho Chien v. Sta.
Ljucia Realty & Dev., Inc.);

P. D. No. 957 Given Retroactive Effect

- P. D. No. 957 was applied to a land purchase agreement

entered into prior to the issuance of P. D. No. 957; as an
instrument of social justice, the law favors the weak and
the disadvantaged (Eugenio v. Drilon);

Right to Grace Period Stipulated

- when a grace period is stipulated in a contract of sale, it

is construed as a right; when it is unconditionally
conferred, the grace period is effective without further
need of demand for payment;

Maceda Law (Sales of Real Estate on Installments)

- the law (Realty Installment Buyer Protection Act)

declares as “public policy to protect buyers of real estate
on installment payments against onerous and oppressive
conditions;”
 56

- it recognizes the seller’s right of cancellation of sale on

installments of industrial and commercial properties with
full retention of previous payments (Luzon Brokerage v.
Maritime Bldg.);

Transactions Covered

- the Maceda Law does not cover all sales of realty on

installments, but primarily residential real estate;
- it also covers “financing” of such acquisitions; expressly
covers “all transactions or contracts involving the sale or
financing of real estate on installment payments,
including residential condominium apartments;”

Maceda Law Covers Contracts to Sell

- use of the term “cancellation” under the Maceda Law

clearly indicates that it covers contracts to sell residential
real estate on installments;

Transactions Excluded from Coverage

- sales covering industrial lots;

- sales covering commercial buildings (and commercial
lots by implication); and
- sales to tenants under agrarian reform laws;

Contrary Stipulations are Void

- contractual stipulations that are contrary to the provisions

of the Maceda Law are null and void; (Section 7, Maceda
Law);

Maceda Law Cannot be Availed of by Developer

- it does not apply to protect the developer or one who

succeeds the developer (Lagandaon v. CA);

Cancellation of Judicial Sale

 57

- where a judicial sale is voided without fault of the

purchaser, the purchaser is entitled to reimbursement of
the purchase money;
- a judicial sale can only be set aside upon the return to the
buyer of the purchase price with simple interest,
including sums paid in improvements, taxes, and other
expenses;

CHAPTER 9

CONDITIONS AND WARRANTIES

Conditions and Warranties

- a contract of sale may be subject to conditions, as well as

warranties, express or implied; otherwise, the caveat
emptor (“buyer beware”) rule may also find application
(Filinvest Credit Corp. v. Court of Appeals);
- where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such
party may refuse to proceed with the contract or he may
waive performance of the condition (Delta Motors v.
Geronimo);
- if one party promised that the condition should happen or
be performed, the party concerned may treat the non-
performance of the condition as a breach of warranty
(Delta Motors v. Geronimo);
Express Warranty

- any affirmation of fact or any promise, by the seller

relating to the thing is an express warranty if it is
intended to induce the buyer to purchase the same, and if
the buyer purchases the thing relying thereon (Art. 1546,
CC);
- a statement of the seller’s opinion on the thing does not
amount to a warranty (Art. 1546, CC);

Implied Warranties
 58

- that the seller has a right to sell the thing at the time when
ownership is to pass, and from then on, the buyer shall
have and enjoy legal and peaceful possession of the
thing;
- that the thing shall be free from any hidden faults or
defects, or any charge or encumbrance not declared or
known to the buyer;
- these warranties shall not make liable a sheriff,
auctioneer, pledge, or other person selling the things, for
the sale of a thing in which a third person has a legal or
equitable interest (Art. 1547, CC; Sta. Romana v.
Imperio);

Implied Warranty Against Eviction

- eviction shall take place whenever by a final judgment

based on a right prior to the sale or any act imputable to
the vendor, the vendee is deprived of the whole or of a
part of the thing purchased ( Arts. 1548 – 1549; 1557 –
1559, CC; Bautista v. Lasam);

Requisites for Vendor’s Liability

- final judgment;
- buyer is deprived of the whole or part of the thing sold;
- deprivation is caused by a right prior to the sale in
question; and
- vendor is summoned and made a co-defendant in the suit
for eviction at the instance of the vendee (De Leon
Escaler v. CA);

Waiver

- if the vendee has renounced the right to warranty in case

of eviction (consciente), and eviction should take place,
the vendor shall only pay the value of the thing sold at
the time of eviction;
- in case the waiver is made with knowledge of the risks of
eviction and assumed its consequences (intencionada),
 59

the vendor shall not be liable (Art. 1554, CC, PNB v.

Silo);
- any waiver or stipulation exempting the vendor from the
obligation to answer for eviction shall be void, if he acted
in bad faith (Art. 1553, CC; Angelo v. Pacheco);

Effects of Eviction

- the vendee shall have the right to demand of the vendor:

- a. the return of the value of the thing sold a the time
of the eviction, be it greater or less than the price of the
sale;
- b. the income or fruits, if he has been ordered to
deliver them to the party who won the suit against him;
- c. the costs of the suit;
- d. the expenses of the contract, if the vendee has paid
them;
- e. the damages and interest, and ornamental
expenses, if the sale was made in bad faith (Art. 1555,
CC);

Implied Warranty Against Hidden Defects of Or Encumbrances

Upon the Thing Sold

- vendor shall be responsible for warranty against the

hidden defects which the thing sold may have, should
they render it unfit for the use for which it is intended or
should they diminish its fitness for such an extent that,
had the vendee been aware thereof, he would not have
acquired it or would have given a lower price for it; the
vendor is responsible for any such hidden faults or
defects even though he was not aware thereof;
- this warranty shall not apply if the contrary has been
stipulated and the vendor was not aware of the hidden
faults or defects in the thing sold;
- the vendor shall not be answerable for patent defects or
those which may be visible, or for those which are not
visible if the vendee is an expert who, by reason of his
trade or profession, should have known them;
 60

- in a sale of goods, there is an implied warranty or

condition as to the quality or fitness of the goods, as
follows:
- 1. where the buyer makes known to the seller the
purpose for which the goods are acquired, and the buyer
relies on the seller’s skill or judgment, there is an implied
warranty that the goods shall be reasonably fit for such
purpose;
- 2. where the goods are bought by description from a
seller who deals in such goods, there is an implied
warranty that the goods shall be of merchantable quality
(Art. 1562, CC);
- in a contract of sale by sample, if the seller is a dealer in
goods of that kind, there is an implied warranty that the
goods are free from any defect that will render the goods
unmerchantable which is not apparent on reasonable
examination of the sample (Art. 1565, CC);

Effects of Hidden Defects or Encumbrances

- vendee may elect between withdrawing from the contract

and demanding a proportionate reduction of the price,
with damages in either case (Consolidated Plywood
Industries v. IFC Leasing);
- actions arising from the responsibilities of the vendor for
hidden defects or encumbrances shall be barred after six
months, from the delivery of the thing sold (Art. 1571,
CC);
- there is no implied warranty as to the condition,
adaptation, fitness, suitability or quality of a thing sold as
and for “second-hand article;”
- an identor is one who, for compensation, acts as a
middleman in bringing about a purchase and a sale goods
between a foreign supplier and a local purchaser;
- an indentor is not liable for the implied warranty for
hidden defects;
- a mere expression of opinion that the equipment is “very
good” cannot be construed as an express warranty;

Redhibitory Defects of Animals

 61

- the redhibitory defect of one shall only give rise to its

redhibition (Art. 1572, CC);
- the defect is redhibitory in nature if expert knowledge is
not sufficient to discover the hidden defect of animals;
- there is no warranty against hidden defects of animals
sold at fairs or at public auction, or of livestock sold as
condemned (Art. 1574, CC);
- the redhibitory action must be brought within forty days
from the date of the delivery to the vendee;

Extinguishment of Sale

- sales are extinguished by the same causes as all other

obligations and by conventional or legal redemption,
regardless of whether the contract is a perfected sale or a
consummated sale (Ocejo v. International Bank);

Conventional Redemption

- takes place when the vendor reserves the right to

repurchase the thing sold, with the obligation to return to
the vendee the purchase price and the expenses of the
contract, other legitimate expenses in connection with the
sale, as well as the necessary and useful expenses on the
thing sold (Art. 1601, CC);
- the right to repurchase under Art. 1601 shall last for four
years from the date of the contract; the period cannot
exceed ten years counted from the execution of the
contract;
- in the following instances, the contract is presumed to be
an equitable mortgage:
- 1. when the price of a sale with right to repurchase is
unusually inadequate;
- 2. when the vendor remains in possession as lessee or
otherwise;
- 3. when upon or after the expiration of the right to
repurchase, another instrument extending the period of
redemption or granting a new period is executed ;
 62

- 4. when the purchaser retains for himself a part of the

purchase price;
- 5. when the vendor binds himself to pay the taxes on
the thing sold;
- 6. where the parties intend that the transaction shall
secure the payment of a debt or the performance of any
other obligation;

Persons Entitled to Exercise Redemption

- the vendor-a-retro normally exercises the right of

redemption;
- a co-owner of an undivided immovable may
independently exercise the right of repurchase as regards
his own share (Art. 1614, CC);

Proper Exercise of Conventional Redemption

- the proper exercise of the conventional right of

redemption requires a tender of payment; a mere letter
expressing that desire is not sufficient;
- the right of redemption is correctly availed of by
returning the price of the sale;

Failure of Redemption

- if the vendor fails to redeem the property within the

prescribed period, the right is lost and all rights
pertaining to the property and all those incidental thereto
are irrevocably consolidated in the buyer;

Legal Redemption

- it is the right to be subrogated in the place of one who

acquires a thing by purchase or dation in payment. Or by
any other transaction whereby ownership is transmitted
by onerous title (Art. 1619, CC);

Period of and Exercise of Redemption

 63

- the right of legal pre-emption or redemption shall not be

exercised within thirty days from the notice in writing by
the prospective vendor;
- notice is indispensable; actual knowledge by the
redemptioner is not legally sufficient;
- to exercise the right, tender of payment, unlike in
conventional redemption, is not required;
- other instances of legal redemption include the right of
redemption in the foreclosure of mortgages, execution
sales, levy of real property for unpaid taxes and other
cases under special laws;
- the use of a check is not improper in the exercise of the
right of redemption by judicial action;

CHAPTER 10

AGENCY

Concept

- by the contract of agency, a person (the agent) binds himself to

render some service or to do something in representation or on
behalf of another, with the consent or authority of the principal;

Effects of the Agency

The Agent

- the agent must act within the scope of his authority;

- he may do such act as may be conducive to the
accomplishment of the purpose of the agency;
- the agent has a fiduciary relation to his principal; he is
liable for the damages which, through his non-
performance, the principal may suffer;
- the agent shall be liable for damages, if, there being a
conflict between his interests and those of his principal,
he should prefer his own;
 64

- every agent is bound to render an account of his

transactions and to deliver to the principal whatever he
may have received by virtue of the agency;

The Principal

- the principal must advance to the agent, should the latter

request, the sums necessary for the execution of the
agency;
- the principal must also indemnify the agent for all the
damages which the execution of the agency may have
caused the latter, without fault or negligence on his part;
Extinguishment of the Agency

Agency is extinguished:

- by its revocation;
- by the withdrawal of the agent;
- by the death, civil interdiction, insanity or insolvency of
the principal or of the agent;
- by the dissolution of the firm or association which
entrusted or accepted the agency;
- by the accomplishment of the object or purpose of the
agency;
- by the expiration of the period for which the agency was
constituted (Art. 1919, CC);

Revocation

- agency is premised on confidence;

- the principal may revoke the agency at will and compel
the agent to return the documents evidencing the agency
regardless of the term of the agreement (Barretto v. Sta.
Marina); but revocation does not preclude possibility of
damages accruing against the principal ( Valenzuela v.
CA);
- revocation may be express or implied (Art. 1920, CC);
- appointment of a new agent revokes the previous agency;
a general power of attorney is revoked by a special one;
 65

direct management by the principal of the business

entrusted to agent revokes the agency;
- agency cannot be revoked if it is coupled with an interest
such as:
- a. when a bilateral contract depends upon it;
- b. when it is the means of fulfilling an obligation
already contracted; or
- c. when a partner is appointed manager of a
partnership and his removal from the management is
unjustifiable;

Withdrawal of Agent

- agent may withdraw from the agency by giving due

notice to the principal;
- agent must indemnify the principal if principal sustains
any damage by reason of the agent’s withdrawal;
- health reasons will excuse agent from liability;

Death of Principal or Agent

- agency remains in full force and effect even after the

death of the principal, if it was constituted in the common
interest of both principal and agent, or that of a third
person (Art. 1390, CC);
- any act of the agent, without knowledge of the death of
the principal or of any cause that extinguishes the
agency, is valid (Art. 1931, CC);
- if the agent dies, the agency is extinguished, except when
it is coupled with an interest (Paso v. Ravina);

PLEDGE, REAL ESTATE MORTGAGE AND CHATTEL

MORTGAGE

Pledge

- it is a contract which requires:

- a. that it be constituted to secure the fulfillment of a
principal obligation;
 66

- b. that the pledgor be the absolute owner of the thing

pledged;
- c. that the person constituting the pledge has the free
disposal of the property, and in the absence thereof, that
he be legally authorized for the purpose; and
- d. that the thing pledged be placed in the possession
of the creditor, or of a third person by common
agreement (Lopez v. CA);
- its essence is that when the principal obligation becomes
due, the thing pledged may be alienated for the payment
of the creditor (Lopez v. CA);

Real Estate Mortgage

- it is a lien on specific or identified immovable property;

it directly and immediately subjects the property upon
which it is imposed, whoever is the possessor may be, to
the fulfillment of the principal obligation;
- it creates a real right enforceable against the whole
world;
- a mortgage, whether registered or not, is binding between
the parties; registration is necessary only to make the
same valid as against other parties (Samanilla v.
Cajucom);

Chattel Mortgage

- security for the performance of obligation effected by

recording of the personal property mortgaged in the
chattel mortgage register;
- the recording or registration is equivalent to a symbolic
delivery of the chattel to the mortgagee and the mortgage
lien follows the chattel wherever it goes;
- recording serves as constructive notice to all who may
deal with the chattel (Northern Motors v. Coquia);

Pactum Commissorium

- the creditor cannot appropriate without foreclosure the

things given by way of pledge or mortgage, or dispose of
 67

them; any stipulation to the contrary is null and void (Art.

2088, CC);

Object

- all movables which are within commerce may be pledged

provided they are susceptible of possession (Art. 2094;
CC);
- only immovables and alienable real rights may be the
object of real estate mortgage;
- personal property may be the object of a chattel
mortgage; for purposes of the Chattel Mortgage Law,
growing fruits are considered as personalty);

Effects

- pledge gives a right to the creditor to retain the thing in

his possession until the debt is paid;
- the mortgagor in chattel and real estate mortgages
continues in the possession of the property;

Extinguishment/Foreclosures

- a contract of real security is extinguished at the same

time as that of the principal contract or obligation; it is
extinguished upon the foreclosure of the property by the
creditor;
- foreclosure can be effected judicially or extrajudicially;
- in pledge, the creditor may proceed before a Notary
Public to the sale of the thing pledged;

Deficiency Judgment

- in pledge, the sale of the thing pledged shall extinguish

the principal obligation; if the price of the sale is more
than said amount, the debtor shall not be entitled to the
excess, unless it is otherwise agreed;
- if the price of the sale is less, neither shall the creditor be
entitled to recover the deficiency;
 68

- in mortgage, the deficiency or excess is for the account or

credit, as the case may be, of the debtor, except in the
foreclosure of chattel mortgage of property on
installment where the foreclosure disentitles the
installment seller from recovering the deficiency;
- the loss of the property mortgaged does not free the
debtor-mortgagor from the principal obligation;

Equity and Rights of Redemption

- in judicial foreclosure, equity of redemption may be

exercised within 90 days from the order of foreclosure;
after foreclosure, there is no right of redemption except
in foreclosures of real property by banking institutions
and in the extrajudicial foreclosures of real property by a
mortgagee by an actual tender of payment;
- right of redemption can be exercised within one year
from registration of the certificate of foreclosure;
- during the redemption period, the purchaser is entitled to
the possession provided that:
- a proper motion has been filed;
- a bond is approved;
- no third person is involved;
-