CA51025: Regulatory Framework and Legal Issues in Business

MODULE 1: LAW ON SALES

Contract of Sales — contract whereby one of the contracting parties (seller or vendor) obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other party (buyer or vendee)
obligates himself to pay therefore a price certain in money or its equivalent.

Contracting Parties in a Contract of Sale

a. Seller or Vendor — person who obligates himself to transfer the ownership of and to deliver a
determinate thing
b. Buyer or Vendee — person who obligates himself to pay therefore a price certain in money or its
equivalent

Obligations of Vendor and Vendee

I. Obligation of Vendor
a. To transfer the ownership of the thing sold at the time the subject matter should be delivered.
b. To deliver the determinate thing sold including the fruits, accessions, and accessories in the
condition in which they were upon the perfection of the contract.
c. To warrant the thing sold against eviction, hidden defects, and non-apparent and unregistered
encumbrances.
d. To preserve subject matter (to take care of the thing sold with the diligence of a good father of a
family unless the law or the stipulation of the parties requires another standard of care.)
II. Obligation of Vendee
a. To accept delivery of the thing bought at the time and place stipulated in contract
b. To pay the price certain in money or its equivalent on the date agreed upon
NOTE: Payment shall be made to the person to whose favor the obligation has been
constituted or his successors in interest or any authorized person to receive payment.

Kinds of Contract of Sales

a. Absolute — When the agreement is devoid of any condition imposed on the passing of title of the
thing to be conveyed or on the obligation of a party thereto.
➔ Thus, a contract of sale is absolute when the title to the property passes to the vendee upon
delivery of the thing sold.
b. Conditional — When the agreement is subject to any condition imposed on the passing of title of
the thing to be conveyed or on the obligation of a party thereto. When ownership is retained until
the fulfillment of a positive condition the breach of the condition will simply prevent the duty to
convey from acquiring obligatory force.
I. Imposed upon the obligation — if not complied, the other party may either refuse to proceed
or waive the condition
II. Imposed upon the perfection of the contract itself — the failure of such condition will prevent
the juridical relation itself from coming into existence
NOTE: A contract (obligation to fulfill a promise until the happening of an event) to sell may not be
considered a contract of sale because the first element (consent to transfer ownership) is lacking.

Requisites to constitute a valid subject matter

a. Licit
b. Existence — The thing may be existing or not at the time of the perfection of the contract, so long
as it has the possibility of existence at some future time. The law even says that things having
potential existence may be the object of the contract of sale.
c. Determinate or at least Determinable — The thing is determinate when it is particularly designated
or physically segregated from all others of the same class.
 ➔ The test in determining whether the thing is determinate is satisfied if at the time the contract is
entered into, the thing is capable of being made determinate without the necessity of a new or
further agreement between the parties. It is enough that it be determinable at the time of the
perfection of the contract.
➔ Tests of determinateness: (1) capacity to segregate test and (2) no further agreement test.
d. Right of vendor to transfer ownership — Ownership of the seller of the thing sold at the time of
perfection of the contract of sale is not an element for its perfection. The law only requires that the
seller has the right to transfer ownership at the time the thing sold is delivered.
e. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of
the seller at the time of perfection. Instead, there would only be a breach of the contract upon the
basis of which the vendee may exercise the remedies granted to him (warranty against eviction and
ownership).

Essential elements of the contract of sale — Necessary for validity and perfection of contract of sale
➔ Consent (meeting of the minds/ offer = acceptance)
➔ Object of the contract or the subject matter
➔ Price in money or its equivalent (cause or consideration)

a. Subject matter which should be a determinate thing

I. Requisites of subject matter of a contract of sale
1. It must be within the commerce of men.
2. It must not be contrary to law, morals, good customs, public order or public policy.
3. It must be determinate.
4. It must be owned by the vendor at the time of delivery.

II. Things that may become the subject matter of a contract of sale
1. Existing goods owned or possessed by the seller.
2. Goods to be manufactured, raised or acquired by the seller after the perfection of the
contract of sale or “future goods” subject to the condition that it must materialize. If the
future things do not materialize, the contract of sale will become inefficacious or void for
absence of subject matter which is an essential element of contract of sale.
3. Goods whose acquisition by the seller depends upon the contingency which may or may
not happen.
4. Things subject to resolutory conditions which if happens, the contract of sale will be
extinguished.
5. Hereditary rights
6. Undivided interest in co-owned property which will result in co-ownership on the part of
buyer and seller.

III. Things not allowed to become the subject matter of a contract of sale making the contract null
and void
1. Those contrary to law, morals, or public policy.
2. Those outside the commerce of men.
3. Future inheritance
4. Vain hope

IV. Distinctions between emptio rei speratae and emptio spei

1. Emptio rei speratae - sale of future thing
➔ The thing expected will definitely come into existence, but its quality or quantity
unknown; while in emptio spei it is not certain that the thing will exist much less its quantity
or quality.
 ➔ EXAMPLE: Sale of future harvest

2. Emptio spei - sale of hope or expectancy

➔ Subject to the condition that the thing should exist, so that if it does not, there will be no
contract of sale by reason of the absence of an essential element of subject matter while
emptio spei produces effects even though the thing does not come into existence because
the subject matter is the hope itself.
➔ EXAMPLE: Sale of lottery ticket no. 113

b. Price certain in money or its equivalent

I. Requisites as to price
1. Real or True — Failure to pay consideration is different from lack of consideration. The former
results in a right to demand the fulfillment or cancellation of the obligation under an existing
valid contract while the latter prevents the existence of a valid contract.
2. It must be in money or its equivalent
3. Certain

II. Requisites of price in a contract of sale

1. It must be certain.
2. It must be real.
3. It must not be fictitious.

III. Instances when the price is certain

1. If the parties have agreed upon a definite amount for the sale.
2. If the price is fixed by one of the contracting parties and accepted by the other.
3. If it is certain with reference to another thing certain.
4. If the price fixed is that which the thing sold would have on a definite day, or in a particular
exchange or market, or when an amount is fixed above or below the price on such day, or
in such exchange or market, provided said amount is certain.
5. If the determination of the price is left to the judgment of a specified person or persons.
Remedies of the injured party if:
i. The third person is unable or unwilling to fix the price.
➔ The contract is inefficacious or null and void requiring declaration of nullity
unless the parties subsequently agree upon a price certain in money or its
equivalent.
ii. The third person is prevented from fixing the price or terms by fault of the seller
or the buyer.
➔ The injured party may ask for damages.
iii. The third person acted in bad faith or by mistake
➔ The injured party may ask the court to fix the reasonable price.
6. If the price is fixed by the court which price may no longer be changed by the contracting
parties.

IV. Effects of inadequacy of price in a contract of sale

1. It does not affect a contract of sale, except as it may indicate a defect in the consent which
makes the contract voidable requiring annulment of contract.
2. It may indicate that the true intention of the parties is actually a contract of donation or loan
with equitable mortgage. Thus, it will require reformation of the instrument.

V. Effects of simulated price in a contract of sale

1. Price is absolutely simulated — contract of sale is void requiring declaration of nullity.
 2. Price is relatively simulated — intent of the parties is hidden requiring reformation of the
instrument. The stated contract of sale is void but the intended contract of either donation
or loan with mortgage will be valid.

c. Consent of the contracting parties on the determinate thing and the price certain in money
I. Moment of perfection of contract of sale
1. At the moment there is a meeting of minds upon the thing which is the object of the contract
and upon the price.

II. Moment of perfection of contract of sale by auction

1. When the auctioneer announces its perfection by the fall of the hammer or in any other
manner.
a. Rights of auctioneer and highest bidder before the perfection of contract of sale by auction
➔ Before perfection: Any bidder may retract his bid. The auctioneer may generally
withdraw the goods from the sale unless the auction has been announced without
reservation by auctioneer.
b. Obligations of auctioneer and highest bidder after the perfection of contract of sale by
auction
➔ After perfection: The winning bidder cannot retract his bid. The auctioneer cannot
withdraw the goods.
c. Requisites before auctioneer may participate in bidding or auction
➔ The right to bid must have been reserved expressly by or on behalf of the seller.
➔ The right to bid must not be prohibited by law or stipulation.
➔ Notice must be given that the sale is subject to a right to bid by or on behalf of the seller.
d. By bidders or puffers — persons employed by the seller to bid on his behalf, the purpose of
which is to raise the price, but the said persons are not in themselves bound by their bids.
The employment by the seller of by-bidders or puffers without notice to the other bidders
may make the perfected contract of sale voidable because the consent of the highest
bidder is vitiated by causal fraud.

Capacity of Parties
a. All persons who are authorized to obligate themselves may enter in a contract of sale.
b. Exceptions: Absolute incapacity, Relative incapacity

Capacity to Buy and Sell

a. Voidable — If one of the parties is incapable of giving consent
b. Unenforceable — If both parties are incapable of giving consent
c. The husband and the wife cannot sell property to each other, except:
1. When a separation of property was agreed upon in the marriage settlements
2. When there has been a judicial separation of property under article 191
d. Persons who are prohibited from acquiring by purchase, even at public or judicial auction, sales in
legal redemption, compromises or renunciation:
1. The guardian, the property of the person or persons under his guardianship.
2. Agents, the property whose administration or sale may have been entrusted to them, unless
the consent of the principal has been given.
3. Executors and administrators, the property of the estate under administration.
4. Public officers and employees, the property of the State or GOCC under their administration.
5. Justices, judges, prosecuting attorneys, clerks of court and other officers and employees
connected with the administration of justice, the property and rights in litigation.
Stages
a. Negotiation (Policitation) — It covers the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is perfected. Unilateral promise not
accepted by the promise(e) therefore it does not produce any effect.
b. Perfection (Birth) — It takes place upon the concurrence of the essential elements of the sale, which
is the meeting of the minds of the parties as to the object of the contract and upon the price.
c. Consummation (Death) — It begins when the parties perform their respective undertakings under
the contract of sale culminating in its extinguishment.

Natural elements of the contract of sale — presumed to exist in a contract of sale unless validly waived by
the contracting parties
a. Warranty against eviction
b. Warranty against hidden defects
c. Warranty against non-apparent and unregistered servitude or encumbrance in sale of immovable
property
d. Warranty for merchantability

Warranties in relation to consumer laws

a. Warranty — a statement or representation made by the seller of goods, contemporaneously and as
part of the contract of sale, having reference to the character, quality or title of the goods, and by
which he promises or undertakes to insure that certain facts are or shall be as represented.

b. Express Warranty — An affirmation of fact or any promise by the seller relating to the thing if the
natural tendency is to induce the buyer to purchase the same.
➔ No affirmation of the value of the thing nor any statement purporting to be the seller's opinion
only shall be construed as warranty unless made by an expert and relied upon by the buyer.
➔ As to seller’s opinion, mere opinion or exaggerations of trade is not tantamount to fraud unless
made by an expert and the other party has relied on the special knowledge of the expert (this is
consistent with the rule in your law on contracts)
Remedies in case of breach of express warranty:
Consumer may elect to:
1. To have the goods repaired; or
2. To refund the purchase price by the warrantor (provided that the amount directly
attributable to the use of the consumer prior to the discovery of the non-conformity shall
be deducted)

c. Implied Warranty — That which the law derives by application or inference from the nature of the
transaction or the relative situation or circumstances of the parties, irrespective of any intention of
the seller to create it.
➔ Implied Warranty in the sale of goods: Warranty as to fitness or quality, Warranty of dealer of
goods for merchantable quality in sale by description or by sample
Remedies in case of breach of implied warranty:
Consumer may elect to:
1. To retain the goods and recover damages; or
2. To reject goods, cancel the contract and recover from the seller purchase price paid
plus damages

d. Additional warranties for consumer goods (Consumer act of the Philippines) — Consumer product
is defined to cover goods which are primarily for personal, family, household or agricultural
purposes, which shall include but not limited to food, drugs, cosmetics, and devices. (Article 4 [q]
of the Consumer Act of the Philippines)
Subsidiary liability of retailer
a. The retailer shall be subsidiarily liable under the warranty in case of failure of both the manufacturer
and distributor to honor the warranty.
b. The retailer shall shoulder the expenses and costs necessary to honor the warranty.
c. The remedy of the retailer is to proceed against the distributor or manufacturer.

Enforcement of warranty
a. The warranty rights of consumers can be enforced by presentment to the immediate seller (retailer)
either the warranty card or the official receipt along with the product to be serviced or returned to
the immediate seller.
b. No other documentary requirement shall be demanded from the purchaser (Section 68b of the
Consumer Act of the Philippines)

Duration of Warranty
a. The seller and the consumer may stipulate the period within which the express warranty shall be
enforceable. If the implied warranty of merchantability accompanies an express warranty, both will
be of equal duration
b. Any other implied warranty shall endure not less than sixty (60) days nor more than one (1) year
following the sale of new consumer products. (Section 68e of the Consumer Act of the Philippines)

Accidental elements in the contract of sale — do not exist in a contract of sale unless provided by the
contracting parties
a. Place of delivery and payment
b. Time of delivery and payment
c. Terms or conditions of payment
d. Interest of the price

Characteristics of a contract of sale

a. Principal — It can exist by itself without being dependent upon another contract.
b. Consensual — It is perfected by mere consent upon the price certain and determinate thing except
in case of sale of a piece of land by the agent in the name of the principal which is a formal or
solemn contract which requires that the authority of the agent to sell the land must be in writing for
the contract to be valid.
c. Bilateral — Both parties are required to perform an obligation.
d. Reciprocal — The object or prestation on one party is the cause or consideration of the other party.
e. Onerous — Valuable considerations are given by both parties to acquire rights.
f. Commutative — The parties exchange almost equivalent values.
g. Nominate — It has a special name given to it by law.

Contract of Sale vs. Dacion en Pago

SALE DACION EN PAGO
No pre-existing credit Pre-existing credit
Creates obligations Extinguishes obligations
Greater freedom in fixing the price Less freedom in fixing the price because of
the amount of the pre-existing credit which
the parties seek to extinguish
Cause or consideration: Price from the Cause or consideration: Extinguishment of
seller’s POV the obligation from the debtor’s POV
 Delivery of the object: From the buyer’s POV Delivery of the object: Given in place of the
credit, from the creditor’s POV

Contract of Sale vs. Contract for a piece of work

a. Contract of sale — If it is for the delivery at a certain price of an article which the vendor in the
ordinary course of business, manufactures or procures for the general market, whether the same is
on hand or not.
➔ Movable property with a price of at least P500 or sale of immovable regardless of price: Covered
by Statute of Fraud
b. Contract for a piece of work — if the goods are to be manufactured especially for the customer
upon his special order and not for the general market.
➔ At a price of P500: NOT covered by Statute of Fraud.

Contract of Sale vs. Contract of Barter

a. Contract of sale — The cause is cash
➔ Movable property with a price of at least P500 or sale of immovable regardless of price: covered
by Statute of Fraud
b. Contract of barter — The cause if a non-cash asset
Movable with a price of at least P500 or barter of immovable regardless of price: NOT covered by
Statute of Fraud.

Rules for determining whether a contract is one of sale or barter if the cause is a combination of cash and
noncash asset
a. Determine the manifest or evident intention of the parties.
b. If the evident intention of the parties is not present, apply the following rules:
➔Contract of barter — the value of the noncash asset given as part of the consideration exceeds
the cash consideration.
➔ Contract of sale — the cash consideration is more than the value of the noncash asset given as
part of the consideration.
★ If the cash consideration is equal to the value of the noncash asset given as part of the
consideration.

Contract of Sale vs. Contract to Sell

CONTRACT OF SALE
Ownership passes to the buyer upon deliver
The risk of loss or damage to the goods upon
delivery is on the buyer, under the rule “res
perit domino”, or the thing perished with the
owner
Non-payment of the price is a resolutory
condition
CONTRACT TO SELL
The title to the goods does not pass to the
buyer until some future time and oftentimes
upon payment of the price
The risk is borne by the seller after delivery
based on the same principle that the thing
perishes with the owner
Payment in full of the price is a suspensive
condition

NOTE: The rule on double sale applies only if both contracts are of sale but such rule does not apply if one
contract is a contract of sale while the other contract is a contract to sell.

Contract of Sale vs. Agency to Sell (Consignment Sale)

CONTRACT OF SALE AGENCY TO SELL
Ownership passes to the buyer upon deliver Ownership is retained by the
principal-consignor
 Buyer pays the seller Buyer pays the agent-consignee and the
seller transmits the money to the
principal-consignor
Goods are delivered by the seller to the buyer Delivered by the agent-consignee to the final
consumer
Governed by law on sales Governed by law on agency

Principles on sale of an undivided share of a specific mass of fungible goods though the seller purports to
sell and the buyer purports to buy a definite number, weight or measure of the goods in the mass, and
though the number, weight or measure of the goods in the mass is
undetermined.
➔ If the quantity, number, weight or measure, of the mass is more than the quantity sold, the parties
shall become co-owners of the mass.
➔ If the quantity of the mass is less than the quantity sold, the buyer becomes the owner of the
whole mass, with the seller being bound to make good the deficiency from goods of the same kind
and quality, unless a contrary intent appears.

Bilateral promise to buy and sell vs. Unilateral promise to buy or sell
a. Bilateral promise — as good as perfected contract of sale
b. Unilateral promise — accepted by the promisee is binding only if supported by option money
➔ Policitation — refers to unilateral promise not accepted by the promisee, therefore, it does not
produce any effect.

Option Money and Earnest Money (Arras)

a. Option Money — intended to reserve the property within the promised period
➔ Proof of perfection of contract of option
➔ Not part of the purchase price
b. Earnest Money or Arras — intended as down payment on the contract of sale
➔ Proof of perfection of contract of sale
➔ Part of the purchase price

Importance of Earnest Money

➔ Considered as part of the price and as proof of perfection of the contract of sale
➔ Constitutes as an advance payment and must be deducted from the total price
➔ The law merely provides no more than disputable presumption
➔ There must be a perfected contract of sale before we can speak of earnest money
➔ It is not the giving of earnest money but the proof of concurrence of all essential elements which
will establish a perfected contract of sale

From the moment of perfection of contract of sale — moment of obtaining personal rights by
the buyer over the fruits of the determine thing sold in a contract of sale

Loss of specific at the time of perfection

a. If entirely loss — Without any effect/Void
b. If partially loss — The buyer may:
➔ Withdraw
➔ Demand remaining part and pay its proportionate part
Alternative remedies of the buyer in case of the partial loss of the object of the contract of sale at the
time of the perfection of the contract of sale
a. Withdrawal from the contract or rescission; or
b. Demanding the remaining part and paying its proportionate price

Party who shall bear the risk of the complete loss of the object of the contract of sale after perfection of
contract of sale but before delivery of the subject matter
a. Seller: based on the concept of Res perit domino which means that the thing perishes with the
owner
b. Buyer: On the basis of Provision of the Civil Code.

Who bears the risk of loss?

a. Before perfection — seller
b. At the time of perfection — seller
c. After perfection but before delivery — buyer
d. After perfection but after delivery — buyer

Recto Law (Remedies of the Seller)

a. Exact fulfillment of the obligation, should the vendee fail to pay
b. Cancel the sale, should the vendee'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 vendee's
failure to pay cover two or more installments. In this case, he shall have no further action against
the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be
void.

Maceda Law (Rights of the Buyer)

a. Right to a grace period from the date the installment became due with no interest which can be
exercised only once every five (5) years.
1. For buyers who have paid less than two years of installments (less than 24 months), the
minimum grace period is 60 days. (Not less than 60 days)
2. After two years worth of installment, the grace period is one month for every year of installment
paid. (One month per year of installment paid)

b. Cash Surrender Value — if seller will exercise the right to rescind the contract after expiration of
grace period – Twin mandatory requirements
1. (after 30 days from receipt) NOTICE to be given to the buyer as to intention to rescind or by
demand for rescission by notarial act; and
2. Payment of the CASH SURRENDER VALUE.
➔ Minimum of 50% of all payments (including down payment) for buyers who paid two (2) to
(5) years of installments
➔ Plus additional 5% per year after five years of installment (55% on the 6 th year of payment,
60% on the 7th and so on upto maximum of 90%.)

Negotiation and other preparatory contracts to a contract of sale

a. Advertisements and invitations — As a rule, advertisements of things for sale are not definite offers
but mere invitation to make an offer.
➔ Advertisements for bidders are simply invitations to make proposals and advertiser is not bound
to accept the highest or lowest bidder subject to the allowable exceptions (see our primary
handout)
 b. Offers — May be withdrawn prior to acceptance and it is not even necessary that the offeree learns
of the withdrawal.
➔ The offeree can make counter offers which is considered in law rejection of the original offer and
has the effect of extinguishing the original offer.

c. Option Contracts — Not a contract of sale but merely secures the privilege to buy.
➔ Not a sale of property but a sale of the right to purchase.
➔ Simply a contract by which the owner of property agrees with another person that he shall have
the right to buy his property at a fixed price within a certain time.
➔ Merely an accepted unilateral promise (a promise to sell or buy) which will bind the promissor if
supported by a consideration distinct from the price.

d. Right of Refusal — Not a perfected contract of sale nor an option contract.

➔ A contractual grant where a promise on the part of the owner of a property that if he decides to
sell the property in the future, he would first negotiate its sale to the other party.
➔ The statute of fraud does not contemplate cases involving a right of first refusal.

e. Agency to sell a piece of land — The authority shall be in writing otherwise the sale is void.

Perfection of Contract of Sale — Subject to the provisions of the Statute of Frauds (SOF) and any applicable
statute, a contract of sale may be 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 parties.
a. For validity
➔ Consensual contract which means that it is perfected by mere consent.
➔ No particular form is required for its validity save in the case of a sale of large cattle which
requires that the same be recorded in the city/municipal treasurer in a public document and
certificate of transfer is required.
b. For enforceability
➔ Sale of goods, chattels, or things in action at a price of not less than P500 and sale of real
property or any interest therein are governed by the SOF (Article 1403 of NCC).
➔ If the contract is not in writing, note or memorandum; then, the sale may not be enforced.
c. For convenience
➔ If the law requires a document or other special form, as in the acts and contracts enumerated in
the following article, the contracting parties may compel each other to observe that form, once the
contract has been perfected. This right may be exercised simultaneously with the action upon the
contract (Article 1357 of NCC).

Effect of Loss of Thing After Perfection but Prior to Delivery

a. Sale of things other than “goods”
I. Thing sold in non-fungible (specific/determinate)
➔ Vendor is freed from the obligation to deliver the thing because the obligation is
extinguished if the loss occurs without his fault and before he incurs delay.
➔ Vendee’s obligation to pay the price is extinguished at the same time. Thus, risk of loss is
imputed to the vendor/seller since he loses the right to claim the price following the principle
of res perit domino (essence of reciprocal character of the obligations – he who gives nothing
has no reason to demand anything – Tolentino)
➔ The obligation of the vendee subsists and hence the vendee remains obliged to pay the
price and cannot recover it if he has paid. Here, the buyer assumes the risk of loss.
 II. Thing sold is fungible (being of a class or genus)
➔ Sale is made independently/single price — same rule will apply as in the case above.
➔ Sale is made for a price fixed according to weight, number, or measure (determinable
generic) — risk shall not be imputed to vendee/buyer until they have been weighed, counted,
measured unless the vendee incurred delay.

Article 1504. The goods remain at the seller’s risk until ownership is transferred to the
buyer (Res Perit Domino — the thing perishes with the owner) subject to certain
exceptions under the law.

1) Where delivery of the goods has been made to the buyer or to a bailee for the
buyer, in pursuance of the contract and the ownership in the goods has been
retained by the seller merely to secure performance by the buyer of his
obligations under the contract, the goods are at the buyer's risk from the time
of such delivery; (mere security interest)
2) Where actual delivery has been delayed through the fault of either the buyer or
seller the goods are at the risk of the party in fault.

What constitutes on sale on installments?

a. If the purchase price is payable on a straight term, in which the balance, after payment of initial
sum, should be paid in its totality at the time specified in the contract, the transaction is not a sale
on installments (sale on credit).
b. Where the price is payable in several installments that are relatively small amounts (partial
payments) which may trigger temptation for the improvident (impulsive) buyers to purchase
beyond their means.

Rights of Buyer of Subdivision or condominium unit under PD 957 also known as Subdivision and
Condominium Buyers Protective Decree
a. In case of noncompliance by the developer with the plan, the buyer may suspend payment of the
price or ask for the cancellation of contract with corresponding demand for the return of the total
amount he has paid including amortization of interest but exclusive of delinquency interest.
b. The developer shall pay the real property tax before transfer of ownership to buyer without right
of recourse for reimbursement against the buyer.
c. The developer can only collect fees for registration of sale from the buyer.

Effect of failure to pay within period stipulated (Article 1592 of NCC)

➔ “In the sale of immovable property, even though it may have been stipulated that upon failure
to pay the price at the time agreed upon the rescission of the contract shall of right take place, the
vendee may pay, even after the expiration of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a notarial act. After the demand, the court
may not grant him a new term.”

Extinguishment of a contract of sale

1. By the same causes as all other obligations
2. Cancellation of sale of personal property payable in installments
3. Rescission of sale of residential property in installments after compliance with the requirements of
the Maceda Law
4. Rescission of sale of immovable property (not in installments) for failure to pay within period
stipulated
5. Resale of the goods by the unpaid seller
6. Rescission of the sale by the unpaid seller
 7. Rescission by the buyer in case of partial eviction
8. Rescission by the buyer in case of breach of warranty against hidden defects
9. Rescission by the buyer of sale of animals with redhibitory defects
10. Rescission by the buyer of sale of land with non-apparent servitude or encumbrance
11. Rescission by the buyer of sale of land with lacking area or area with poor quality
12. Rescission of the lump sum sale of immovable when the seller delivered an area less than the actual
are
13. Rescission of sale of immovable property with a price per unit of measure in case of delinquent
area of at least 1/10 or when the buyer would not have entered the contract knowing of the
deficiency, or of deficient quality of more than 1/10
14. By redemption, whether conventional redemption or legal redemption

Conventional Redemption — occurs when the vendor reserves the right to repurchase the thing sold with
the obligation to return to the vendee the price of the sale, expenses of the contract, and necessary and
useful expenses made on the thing sold and to comply with other stipulations which may have been
agreed upon.

Rules in case of exercising conventional redemption in Pacto de retro sale (Multiple parties)
a. A co-owner of an undivided immovable which is essentially indivisible who sells his share with a
right to repurchase to a third person who subsequently acquires the whole thereof, may be
compelled by the latter (third person – vendee) to redeem the whole property, if the former (co-
owner) wishes to make use of the right of redemption.
b. If several persons, jointly and in the same contract, should sell an undivided immovable with a right
of repurchase, none of them may exercise this right for more than his respective share.
1. Sellers — can only redeem their share
2. Buyers — can compel redemption of the entire property; he cannot be compelled to agree to a
partial redemption
➔ Same rule applies to co-heirs
➔ If Vendee/Buyer has multiple heirs – action for redemption should be to each his own share
but still total redemption will apply
3. If co-owners sold separately — each can exercise his own right of redemption and cannot be
compelled to redeem the whole property
➔ Each co-owner cannot be compelled to redeem jointly

Pacto De Retro Sale (sale with right of repurchase) and Equitable Mortgage
➔ It has been held that in a true pacto de retro sale, title to and ownership of the property are
immediately vested in the vendee subject only to the resolutory condition that the vendor
repurchases it within the stipulated period (ownership of vendee is subject to a resolutory
condition).
➔ The failure of the vendor to repurchase the property vests upon the vendee by operation of law
the absolute title and ownership over the property sold.
➔ Conventional redemption
➔ The grant of right of repurchase must be made simultaneously with the sale although not
necessarily in the same instrument (not long after the sale was already perfected)

Legal Redemption — available only in exceptional cases provided by law.

➔ Refers to the right of a third person to repurchase a real property sold by another person in
exceptional cases provided by law.
➔ Defined as the right to be subrogated upon the same terms and conditions stipulated in the
contract, in the place of one who acquires a thing by purchase, or dation in payment, or by any
other transaction whereby the ownership is transmitted by onerous title.
➔ By a co-owner. A co-owner of a thing may exercise the right of redemption in case the shares of
all the other co-owners or of any of them, are sold to a third person. All co-owners (if multiple) may
exercise on the basis of their proportionate share.
➔ By an adjoining rural lot owner.
1. Subject is rural land;
2. Land does not exceed 1 hectare;
3. Redemptioner is an owner of a land adjoining the subject rural land;
4. Adjacent lands are not separated by brooks, river, drains, roads;
5. The grantee/buyer owns rural land
Order of Preference (in case of multiple redemptioners)
a. Adjoining rural owner with smallest area
b. Adjoining rural owner who first exercised the right if both lands have same area
➔ By an adjoining urban lot owner.
1. Subject is urban land
2. The area of the land is so small and so situated that a major portion thereof cannot be used for
any practical purpose within reasonable time having been bought merely for speculation
3. The one exercising the right (Redemption — if sale is perfected/Pre-emption is sale not yet
perfected) is an adjoining urban landowner
• Preference (if multiple redemptioner): the one whose intention is best justified
• Period to exercise — 30 days from NOTICE in writing (affidavit of vendor given to all
possible redemptioners) by the seller (vendor) to give ample time to redemptioner