2- SPECIAL CONTRACTS

Integrated RFBT
3rd Term AY 2021-2022

TRUSTS
Classifications
Express trust – Created by the parties, or by the Implied trust – Created by operation of law
intention of the trustor ( Article 1443 ) (Article 1447-1456 )

There are two kinds of Implied Trust:

1. Resulting trust – There is an intent to
create a trust but it is not effective as an
express trust.
2. Constructive Trust – No intention to
create a trust is present but a trust is
nevertheless created by alw to prevent
unjust enrichment or oppression.

SALES and BARTER

Obligations Created by a Contract of Sale ( Article 1458 )
Seller Buyer
To transfer ownership, To pay the price.
To deliver possession of the subject matter
The implication of the two obligations of the seller is that he may reserve title to the thing sold despite
delivery thereof to the buyer. ( Article 1478 )
Form of Contract of Sale
In general, any form is sufficient.
Contract of Sale Contract to Sell
Title to the thing passes to the buyer upon Title remains with the seller until the buyer fully
delivery pays the price

OR, upon full payment of the price, the seller

executes a deed of sale in favor of the buyer

OR, a specific right is granted to the seller to extra-

Non-payment is substantial breach – if it is a
resolutory condition.
Seller needs to rescind the sale in order to
recover ownership.
There can be forfeiture of payments already
made by the buyer to the seller, as long as it is
provided for in the contract and it is not
unconscionable.
Contract to Sell
judicially rescind the contract in case of buyer’s
default.
Payment of the full purchase price is a positive
suspensive condition.
Ownership is retained by seller, so the contract is
automatically extinguished by a breach thereof.
Generally, the seller’s only action is for the
recovery of possession.
Option Contract
Promise to buy and sell a determinate thing for a Contracted offer; secures the privilege of the
price certain. offeree to accept the offer by protecting the offer
period; the offeror is prohibited from entering into
a contract with another during the protected offer
period; in sum, it locks in the offer period.
Parties to a Contract of Sale
Anyone with capacity to enter into an ordinary
contract
Minors ( Article 1489 ) If perfected and delivered, it is a valid contract. If
just perfected, it is voidable. ( Article 1390 )
Void or Prohibited Sales
Between Spouses ( Article 1490 ) Absolute incapacity; prohibition applies to
common-law spouses
Special Disqualifications ( Article 1491 ) Relative Incapacity
Requisites of a Valid Price ( Article 1469)
The buyer has the intention to pay the price, and
seller to deliver the thing. ( Article 1475 )
If the price is simulated or fictitious, the contract is
void as a sale; ( Article 1471 and 1409(3), the
contract is valid. ( Article 1471 )
If the price indicated is only nominal, the
transaction is valid, but it may be construed as a
Price must be real
donation, or it may be indicative of vitiation of
consent.
If a sale with right to repurchase has a deficient
price, it is presumed to be an equitable mortgage.
The seller’s remedy is to reform the contract while
the buyer can foreclose the equitable mortgage. (
Article 1602, 1603)
There can be post-perfection agreements like
Must be in money or its equivalent Dacion en Pago to give something else other than
money.
If there is no price agreed upon, the contract is
Certain or ascertainable at the time of
inefficacious. ( Velasco vs CA, GR L-31018 29 June
perfection
1973
It is essential, being part of the prestation of the
Manner of Payment
contract. ( Article 1477 )
Performance of a Contract of Sale ( Articles 1602 – 1604 )
Ownership is not transferred by perfection of This is true even if the sale has been made on
contract; delivery is required. credit; payment of the purchase price is not
essential to the transfer of ownership, as long as
the property sold has been delivered.
Delivery or Tradition When the thing sold is placed in the control and
possession of the vendee, with intent to deliver
Equitable Mortgage (Articles 1603 & 1604 )
A contract lacking in some formality, form or words, or other requisite demanded by statute, but
nevertheless, reveals the intention of the parties to charge a real property as security for a debt, and
contains nothing against the law.

If there is doubt, an equitable mortgage is presumed because there is the least transmission of rights.
Option to Buy/Sell (Articles 1324 & 1479 )
It is a privilege as to acceptance. “Acceptance” here means acceptance of the offer to sell, i.e., the
offeree signifies his intention to buy.
Requisites of Option to Buy/Sell ( Sanchez vs Rigos, GR L-25494 )
Agreed Time If no period has been stipulated, the court will fix
the term.
Determined Price Refers to the option fee, not the price of the sale.
Separate Consideration Need not be cash
If the requisites for an option contract are not complete, the offer is valid, the option contract is void,
and the offeror may withdraw the offer.
Right of First Refusal (Ang Yu Asuncion vs CA GR 109125, 1994)
An owner’s promise to sell the thing first to the promise, should he decide to sell the thing. The only
thing certain is the object of the contract; not the price nor the manner of payment. It must be in
writing, otherwise it is unenforceable. If the right of first refusal is not honored, the aggrieved party has
no right to specific performance, but to damages only.
Earnest Money ( Article 1482 )
Earnest money is considered part of the purchase price and as proof of the perfection of the contract.
Applies only to a contract of sale.
Double Sales ( Article 1544 )
1. Two valid sales
2. Same subject matter
3. From sale seller
4. To different buyers with conflicting interest:
4.1 Movable property – Given to buyer who first took possession in good faith.
4.2 Immovable Property – Given to buyer who first recorded the sale in the Registry of
Property in good faith; in default, to the buyer who first took possession in good faith; in
default, to the buyer who in good faith presents the oldest title.
5. Second buyer must show continuing good faith until full ownership vests. (Alfaro et.al vs
Spouses Dumalagan GR 186622, 22 Jan 2014 (
The Unpaid Seller
1. Price has not been paid or tendered in full;
or
2. The negotiable instrument received as
Definition of Unpaid Seller
conditional payment and the condition was
broken due to dishonor, insolvency. etc. (
Article 1525 )
1. Possessory lien ( in the nature of a pledge )
2. Right of stoppage in transitu (available if
Ordinary Remedies of an Unpaid Seller seller has parted with the possession);
3. Right of resale;
4. Right to rescind the sale. ( Article 1526 )
Other remedies for unpaid seller 1. Special right of resale
 2. Special right to rescind (Article 1533-1534)
Warranties
Express Warranties Those provided in the contract
Implied Warranties Warranty against eviction
Warranty against hidden defects
Recto Law (Articles 1484-1485) Sale on Installment Only)
1. Exact fulfillment of the obligation, if buyer
fails to pay an installment, the deficiency
may be recovered;
Three options for the seller: remedies are
2. Cancel the sale, if buyer fails to pay two or
mutually exclusive ( Tajanglangit vs Southern
more installments; no return of price.
Motor GR.L-10789, 28 May 1957)
3. Foreclose chattel mortgage on the thing, if
buyer fails to pay 2 or more installments.
No action to recover unpaid balance.
Sale of Immovables
Applicable to a contract of sale of real property, not
to a contract to sell real property, or to a promise
to sell real property, where title remains with the
If not covered by Maceda Law vendor until fulfillment of a positive suspensive
condition, such as the full payment of the price.

Demand is for rescission – not purchase price.

Applicable to installment sale of residential land (
not commercial, industrial, or agricultural land) or
Maceda Law ( RA-6552; GR.147912, 26 April condominium unit; requires either a notice of
2006) cancellation (in case of a contract to sell) or demand
for rescission (in case of a contract of sale) applies
to financing transactions.
Conventional Redemption (ie., Pacto de retro sale) Article 1601
Applies both to perfected and consummated contracts of sale
Consummated Perfected
Legal title passes to buyer (David vs David, GR Must be expressly stipulated
162365)
The seller expressly reserves the right to Must be reserved by the seller in the same
repurchase the thing sold. instrument of sale
Can enforce the right from third persons or possessors deriving right from the buyer, even if the
subsequent sale contract did not mention the conventional redemption.
1. If none was agreed upon, four years
2. If there is a period agreed upon, it cannot
exceed 10 years (GR. 179025 17 June 2015)
3. 30 days from judgment of the court, if
Period for Redemption
there is judgement declaring that the
contract is subject to conventional right to
redeem and not something else (e.g.,
equitable mortgage)
Price
What seller must return to buyer
Expenses
 Necessary and useful improvements/expenses.
Legal Redemption ( Article 1619 )
Can be exercised against a transferee who acquired the property because of purchase, or dation in
payment, or any other transaction whereby ownership is transmitted by onerous title.
When does legal redemption start to run. Within 30 days of receipt of notice in writing by the
prospective seller or buyer.
Assignment of Credits (Article 1624-35)
The process of transferring gratuitously or onerously the right of the assignor to the assignee, who
would then be allowed to proceed against the debtor.
Comparison
Assignment of Credits Conventional Subrogation (Articles 1301 & 1303)
No need for debtor’s consent A form of novation: substitution of a third person
in the rights of the creditor.
Original agreement remains in force Old obligation extinguished and a new contract
takes its place.
Creditor merely assigns his rights and interests in Consent of debtor is required
the agreement to a third persons (Article 1178)
Defects and vices in the old obligation are not Defects and vices in the old obligation are cured.
cured.
LEASE
CONCEPT
1. General Provisions
1.1 Definition – A contract where one binds himself to temporarily give to another the
enjoyment or use of a thing or render some service for a price certain (i.e., rent or
compensation)
1.2 Essential Requisites:
1.2.1 Lease of Thing – a) The object must not be consumable goods, unless they are
leased for mere exhibition or display, or when they are accessory to an industrial
establishment; b) price certain, and c) duration is temporary, and cannot be more
than 99 years, otherwise it is void. (Article 1643)

Generally, it may be made orally. However, if the lease of real property is for more
than one year, it must be in writing under the Statute of Frauds. (Article 1403(2)(e))
1.2.2 Rendering of service or execution of piece of work; b) price certain; and c) no
principal-agent relationship between the parties.
1.3 Rights and Obligations of the Parties
Lessor Lessee
Primary Obligation
Deliver the thing which is the object of the
contract in such a condition as to render it fit for
the use intended. ( Article 1654(1))
The lessor may judicially eject the lessee for lack Pay the price of the lease according to the terms
of payment of the price stipulated. (Article stipulated. (Article 1657 & 1679)
1673(2)
Pay the expenses for the deed of lease.
Use
The lessor may judicially eject the lessee when Use the thing leased as a diligent father of family.
the lessee devotes the thing leased to any use or Devoting it to use stipulated or as may be inferred
service not stipulated, which causes the from the nature of the thing leased, (Article
deterioration thereof. (Article 1673(4)) 1657(2)) or be liable for damages.
Maintain the lessee in the peaceful and adequate The lessee is obliged to bring to the knowledge of
enjoyment of the lease for the entire duration of the proprietor, within the shortest possible time,
the contract. (Article 1654(3) and 1664) every usurpation or untoward act which any third
person may have committed or may be openly
preparing to carry out upon the thing leased or be
liable for damages. (Article 1663)
Necessary Repairs
During the lease, make the necessary repairs to The lessee is obliged to advice the owner of the
keep the thing leased suitable for the use to need for all necessary repairs or be liable for
which it has been devoted. (Article 1654(2)) damages. (Article 1663)
If the lessor fails to make urgent repairs. The lessee may suspend the payment of the rent
and may order repairs at the lessor’s costs. (Article
1653 & 1658)
Urgent Repairs
Tolerate the work on urgent repairs. (Article 1662)
Deterioration or Loss
The lessee is responsible for the deterioration or
loss of the thing leased, unless he proves that it
took place without his fault. (Article 1667)

The lessee is liable for any deterioration caused by

members of his household and by guests and
visitors. (Article 1668)

If the thing leased is totally destroyed by a

fortuitous event, the lease is extinguished. (Article
1665)
Upon Termination
Right to eject. (Article 1673) Duty to return. (Article 1665 & 1666)

Duty to reimburse. (Article 1678)

Useful improvements: By paying the lessee ½ of

the value of the improvements at that time:

Ornamental improvements: If he chooses to

retain them by paying their value at the time the
lease is extinguished.
 1.4 Implied New Lease: A new contract of lease is impliedly established or created, if at the end of
the lease contract the lessee continues enjoying the lease for 15 days, with the acquiescence of
the lessor, and no notice to the contrary is provided by lessor. (Article 1670-1672)

B- LEASE OF SERVICE OR CONTRACT OF LABOR

1. Household service – Please refer to RA No.10361, otherwise known as the “Batas Kasambahay.”
2. Contract of Labor – Please refer to PD No.442, otherwise known A THE Labor Code of the Philippines,
as amended and renumbered by RA 10151.

END OF TOPIC