RABUYA 
PRE-BAR
OBLIGATIONS OF BUYER:  A.
1. The obligation of the buyer is to pay a price certain in
money or its equivalent
a. Contract of Sale v. Agency to Sell  1. Sale of industrial lots
i. Contract of sale - obligation to pay the
purchase price
ii. Agency to sell - agent receives the thing to
sell it, and does not pay its price, but
delivers to the principal the price he obtains
from the sale of the thing to a third person,
and if he does not succeed in selling it, he
returns it.
iii. Test in determining one from another: the
degree of control exercised over the thing
delivered by the one who delivered it.
2. Rights Granted to Buyer in relation to Payment of Price:
a. Right to Suspend Payment
b. Right to Grace Period
c. Right to Pay Price Even After Expiration of
Period.
Right to Suspend (Art 1590 NCC)
GR: If the vendee be disturbed in possession or ownership of the
thing acquired, he may suspend the payment of the price until the
vendor has caused the disturbance or danger to cease.
XPN:
1. when the vendor gives security for the return of the price
in a proper case
2. when it has been stipulated that, notwithstanding any
such contingency, the vendee shall be bound to make the
payment
3. a mere act of trespass shall not authorize the suspension
of the payment of the price, because in the latter case the
vendee can easily resort to an action for ejectment.
Rules Applicable in Sale of Subdivision Lots or Condominium
Units
In case the owner or developer failed to comply, the buyer may
exercise the following remedies:
1. he may suspend payment and wait for further
development.
- the owner/developer may not forfeit the installment
payments made by the buyer
2. he may demand reimbursement of the total amount paid.
- the notice informing the developer of the intention not to
remit further payments on account of non-development of
the subdivision, and the-demand for refund, can be made at
the same time.
Right to Grace Period
1. If granted by contract: the same is a right, not an
obligation of the debtor, and when unconditionally
conferred, the grace period is effective without further
need of demand either calling for the payment of the
obligation or for honoring the right
2. MACEDA LAW (In Sale of Realty by Installments)
MACEDA LAW (RA No. 6552)
Applicability:
Sale of real property by installment
XPN:
2. Sale of commercial buildings
3. Sale of tenants
B. Right of Buyer Who Paid Less Than 2 Years of
Installments
1. He is entitled to a grace period of 60 days from the date
the installments became due.
2. The seller may cancel the contract only after the
expiration of the grace period but the notice of
cancellation must be by way of a notarial act.
The cancellation becomes effective 30 days from receipt of
such notice of cancellation
C. Right of Buyer Who Paid At Least Two Years
Installments
1. He is entitled to a grace period of 1 month for every 1
year of installment payments paid.
- This right shall be exercised by the buyer only once in every
five years of the life of the contract and its extensions
2. The seller may cancel the contract only after the grace
period but must comply with two mandatory
requirements:
(1) to send a notarized notice of cancellation to the
buyer
(2) to refund the cash surrender value
- “cash surrender value” is at least 50% of the total
payments, but after five years of installments, an additional
5% every year but not to exceed 90% of the total payments
made.
Right to Pay Price Even After Expiration of Period (Art. 1592)
In the sale of immovable property. Article 1592 of the Civil Code
allows the buyer to still pay, even after the expiration of the period
allowed for payment, as long as no demand for rescission has been
made. whether judicially or by notarial act.
Even an offer to pay prior to the demand for rescission is sufficient
to defeat the seller’s right to rescind under article 1592
of the Civil Code
Two Types of Pricing Agreements in Sale Involving Real Estate
1. Unit Price Contract
- purchase price is determined by way of reference to a stated
rate per unit area (e.g., Pl ,000 per square meter)
- If the vendor delivers less than the area agreed upon, the
vendee may:
a. oblige the vendor to deliver all that may be
stated in the contract.
b. proportionate reduction of the purchase price or
rescission of the contract, if the lack in the area
is not less than 1/10 of the stated area.
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 - If it is not the quality specified in the contract:
a. Same rules with ^
b. Apply rescission when the inferior value of the
thing sold exceeds 1/10 of the price agreed
upon.
- If vendor delivers more than the area stated, the vendee has
the option to:
a. accept only the amount agreed upon
b. accept the whole area, provided he pays for
additional area at the contract rate.
2. Lump Sum Contract
- Which states a full purchase price for an immovable the area
of which may be declared based on the estimate or where
both the area and boundaries are stated.
Remedies of Seller if Price not Paid in Sale of Personal
Property on Installments:
3 Alternative Remedies (Art. 1484):
1. Exact fulfillment of the obligation (action for the
collection of the price), available even if failure to pay
covers only a single installment.
2. Rescission or cancellation of the sale, if the failure to pay
covers two or more installments.
3. Foreclose the chattel mortgage, if the failure to pay
covers two or more installments.
If the vendor has elected to avail himself of any of the remedies, he
is deemed to have renounced the others
If Seller Chooses to Foreclose Chattel Mortgage:
1. The seller is prohibited from recovering any “unpaid
balance of price”
- seller is barred from recovering not only the balance of the
price, but also the interest on the principal, attorney’s fees,
expenses of collection, and the costs.
2. In order for Article 1484(3) to apply, there must be
vendor-vendee relationship between the parties and the
contract between them must be a contract of sale of
personal property in installments.
- It is not applicabl86e if the subject matter of the chattel
mortgage was bought from a third party and the contract
between the parties is a contract of loan with accessory
chattel mortgage contracts.
PACTO DE RETRO SALE and EQUITABLE MORTGAGE
Pacto De Retro Sale
- A sale with a right of repurchase, also known as conventional
redemption, takes place when the vendor reserves the right to
repurchase the thing sold, with the obligation of returning to
the vendee the price of the sale, the expenses of the contract
and any other legitimate payments made by reason of the sale,
the necessary and useful expenses made on the thing sold, and
the obligation of complying with such other stipulations which
may have been agreed upon
- Must be simultaneous with the sale, not necessarily in the
same instrument.
LEASE
Kinds of Lease:
- Title and ownership of property are immediately vested in the
vendee a retro, subject only to he resolutory condition that the
vendor repurchases it within the stipulate period.
Period of Redemption (Art. 1606)
1. Expressly agreed upon but shall not exceed 10 yrs
2. Absence of stipulation, 4 years from the date of the
contract/
3. If the court ruled that it is a real pacto de retro sale, the
vendor may still exercise the right to repurchase within
30 days from finality of judgment.
Equitable Mortgage:
- one which, although lacking in some formality, or form or
words, or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to charge real
property as security for a debt, and contains nothing
impossible or contrary to law
Requisites:
1) the parties enter into what appears to be a contract of sale
2) but their intention is to secure an existing debt by way of
mortgage
Presumption of Equitable Mortgage (Art 1602)
(1) when the price of a sale with right to repurchase is
unusually inadequate;
(2) when the vendor remains in possession as lessee or
otherwise;
(3) when upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) when the purchaser retains for himself a part of the
purchase price;
(5) when the vendor binds himself to pay the taxes on the
thing sold; and
(6) (6) in any other case where it may be fairly inferred that
the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of
any other obligation
Effect If Pacto De Retro Sale is Actually Equitable Mortgage:
(1) any money, fruits, or other benefit to be received by the
vendee as rent or otherwise shall be considered as interest
which shall be subject to the usury law;188
(2) the apparent vendor who, in reality is a mortgagor, may ask
for the reformation of the instrument,18’ since the true
intention of the parties is not expressed in the instrument;
(3) if there is a stipulation in the sale with pacto de retro
providing that complete and absolute title shall be vested on
the vendee should the vendors fail to redeem the property on
the specified date, the same is void for being a pactum
commissorium and
(4) the proper remedy in case the borrower refuses to pay the
“price” is to foreclose on the mortgage, and there can be no
loss of the purported seller’s right to redeem since this would
constitute the process known as a pactum commissorium.
1. Contact of Lease (proper)
- it is a lease of things, or when the subject matter is a thing;
and
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 2. Contract for Piece of Work
- it is a lease of service, or when the subject matter is a
service.
It is a contract involving the grant of temporary use or enjoyment
of a property to another in consideration of the payment of a price
certain in money or its equivalent (called “rent”) (Art. 1643)
Commodatum – if the grant of temporary use is gratuitous. (Art.
1935)
Innominate - if the consideration is not payment of a price but the
delivery of another thing or rendition of service.
Consensual - it is perfected at the moment there is a meeting of the
minds on the thing and the cause and consideration which are to
constitute the contract
Lessor Need Not be the Owner
Because lease does not involve any transfer of ownership.
However, the lessor must have:
1. right (eg. Usufructuary or lessee)
2. authority (eg. Agent of the owner)
otherwise, the contract is VOID because the object of which did
not exist at the time of the transaction.
Subject matter of lease:
1. Personal Property
- Consumable goods cannot be a subject matter. XPN: when
they are merely to be exhibited or when they are accessory to
an industrial establishment. (Art. 1645)
2. Real Property
a. Lease of Rural and Urban Lands
- Those persons disqualified to buy under Articles 1490 and
1491, are also disqualified to become lessees of the things
mentioned.
- Foreigners are allowed to lease lands in the Philippines
o if the foreigner is investing in the Philippines,
the lease shall be for a period not exceeding 50
years, renewable once for a period of not more
than 25 years and the lease are shall be used
solely for the purpose of the investment upon
the mutual agreement of the parties.
o if the foreigner is not investing in the
Philippines, he is allowed to lease private lands
in the Philippines but for a maximum period
only of 25 years, renewable for another period
of 25 years upon mutual agreement of both
parties.
Statute of Frauds govern:
If the lease of real property, including lands, is for a period of more
than one year, it must be in writing; otherwise, the contract is
unenforceable.
If the lease is to be recorded in the Registry of Property, the
following cannot constitute the same without special power:
(i) the husband with respect to the wife’s paraphernal
real estate;
(ii) the father or guardian as to the property of the minor
or ward; and
(iii) the manager.20’ However, even if the lease is not to
be recorded, a special power is also necessary when
the lease is for a period of more than one year. In
the foregoing, if the lease is without a special
power, the same is void.
Recording in Registry – it becomes binding upon 3rd person.
Term of Lease:
(i) the period agreed upon; however, no lease for more
than 99 years shall be valid (1643)
(ii) When the duration of the lease has not been fixed
and it is a lease of rural lands, it is understood to
have been made for all the time necessary for the
gathering of the fruits which the whole estate leased
may yield in one year, or which it may yield once,
although two or more years may have to elapse for
the purpose (1682)
(iii) when the period for the lease has not been fixed and
it is a lease of urban land, it is understood to be from
year to year, if the rent agreed upon is annual; from
month to month, if it is monthly; from week to
week, if the rent is weekly; and from day to day, if
the rent is to be paid daily (1687)
However, the court may fix a longer period when:
- the rent is paid daily and the lessee has stayed in the place for
over one month; the rent is paid weekly and the lessee has
been in possession for over six months; or the rent is paid
monthly and the lessee has occupied the premises for over one
year.
- when the lease contract provides that it "shall continue for an
indefinite period provided the lessee is up-to-date in the
payment of his monthly rentals,"
o Article 1687 does not apply because the lease
is not one with a period but instead subject to a
resolutory condition
Rights and Obligations of the Parties
1. Right to Assign Contract
a. GR: lessee cannot assign the lease.
b. XPN:
(i) if the assignment is with the consent of the lessor; or
(ii) even without the lessor’s consent, if there is a
stipulation in the contract allowing the assignment of the
lease.
2. Right to Sublease
a. GR: The lessee may sublet the thing leased
b. XPN: He cannot do so if expressly prohibited in the
contract.
c. Duty of Sublessee:
i. he is bound to the lessor for all acts which refer to the
use and preservation of the thing leased in the manner
stipulated between the lessor and the lessee
ii. he is subsidiarily liable to the lessor for any rent due
from the lessee but he cannot be responsible beyond the
amount of rent due from him
3. Principal Obligation of the Lessor
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 a. To deliver the thing which is the object of the contract in
such a condition as to render it fit for the use intended.
i. since the delivery of the object of the contract is merely
an obligation created by the contract upon perfection,
the lessor can be compelled to make the delivery.
b. to make on the leased premises during the lease all the
necessary repairs in order to keep it suitable for the use to
which it has been devoted, unless there is a stipulation to
the contrary
c. to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the
contract
i. merely a warranty that the lessee shall not be disturbed
in having legal and not physical possession of the
property.
4. Principal Obligation of the Lessee:
a. to pay the price of the lease according to the terms
stipulated;
b. to use the thing leased as a diligent father of a family,
devoting it to the use stipulated, and in the absence of
stipulation, to that which may be inferred from the nature
of the thing leased, according to the customs of the place;
and
c. to pay the expenses for the deed of lease
The lessee may suspend the payment of the rent in case the lessor
fails to make the necessary repairs or to maintain the lessee in
peaceful and adequate enjoyment of the property leased.
Tacita reconduccion or Implied New Lease
- refers to the right of the lessee to continue enjoying the
material or de facto possession of the thing leased within a
period of time fixed by law.
Requisites:
1. the term of the original contract of lease has expired;
2. the lessor has not given the lessee a notice to vacate; and
3. the lessee continued enjoying the thing leased for 15 days
with the acquiescence of the lessor.
Effect: Except for the period, the other terms of the original
contract are deemed revived.
Term of Implied New Lease:
(1) In case of urban lands, it is understood to be from year
to year, if the rent agreed upon is annual; from month to
month, if it is monthly; from week to week, if the rent is
weekly; and from day to day, if the rent is to be paid
daily.
(2) In case of rural lands, it is understood to have been
made for all the time necessary for the gathering of the
fruits which the whole estate leased may yield in one
year, or which it may yield once, although two or more
years may have to elapse for the purpose
Effect When No Implied New Lease
- Lessee shall be subject to the responsibilities of a possessor in
bad faith.
Contract for Piece of Work
- By the 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 or compensation.
- The obligation created on the part of the contractor is an
obligation to do
2 Kinds:
1. where contractor employs only his labor or skill
2. where contractor employs labor and also furnishes the
material.
Principal Obligations of Contractor:
(1) to deliver the thing produced;
(2) to transfer dominion over the thing;
(3) to warrant that he has the right to transfer ownership of
the thing (warranty of title) and that the thing shall be
free from hidden defects or faults (warranty against
hidden defect)
Effect of Loss Prior to Delivery: contractor shall suffer the loss,
unless there has been delay in receiving the thing produced
Effect of Acceptance of Work
GR: Acceptance of the work by the employer relieves the
contractor of liability for any defect in the work.
XPN:
(1) if the defect is hidden and the employer is not, by his
special knowledge, expected to recognize the same.
(2) the employer expressly reserves his rights against the
contractor by reason of the defect and
(3) if a building or edifice falls within 15 years on account of
defects in the construction or the use of materials of
inferior quality furnished by him, or due to any violation
of the terms of the contract.
Extent of Liability of Contractor
1. The contractor is responsible for the work done by
persons employed by him
2. The contractor is liable for all the claims of laborers and
others employed by him, and of third persons for death or
physical injuries during the construction
3. Unpaid Wages of Employees:
a. The contractor is liable for the unpaid wages of
his employees.
b. However, the owner is also liable to pay such
unpaid wages "up to the amount owing from
(him) to the contractor at the time the claim is
made”
To this extent, the owner’s liability is solidary
with the contractor, if both are sued together
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Article 1522. Where the seller delivers to the buyer a quantity of goods
less than he contracted to sell, the buyer may reject them, but if the
buyer accepts or retains the goods so delivered, knowing that the seller
is not going to perform the contract in full, he must pay for them at the
contract rate. If, however, the buyer has used or disposed of the goods
delivered before he knows that the seller is not going to perform his
contract in full, the buyer shall not be liable for more than the fair value
to him of the goods so received.
Where the seller delivers to the buyer a quantity of goods larger than he
contracted to sell, the buyer may accept the goods included in the
contract and reject the rest. If the buyer accepts the whole of the goods
so delivered he must pay for them at the contract rate.
Where the seller delivers to the buyer the goods he contracted to sell
mixed with goods of a different description not included in the contract,
the buyer may accept the goods which are in accordance with the
contract and reject the rest.
In the preceding two paragraphs, if the subject matter is indivisible, the
buyer may reject the whole of the goods.
The provisions of this article are subject to any usage of trade, special
agreement, or course of dealing between the parties.
Article 1525. The seller of goods is deemed to be an unpaid seller
within the meaning of this Title:
(1) When the whole of the price has not been paid or tendered;
(2) When a bill of exchange or other negotiable instrument has been
received as conditional payment, and the condition on which it was
received has been broken by reason of the dishonor of the instrument,
the insolvency of the buyer, or otherwise.
In articles 1525 to 1535 the term "seller" includes an agent of the seller
to whom the bill of lading has been indorsed, or a consignor or agent
who has himself paid, or is directly responsible for the price, or any
other person who is in the position of a seller. (n)
Article 1526. Subject to the provisions of this Title, notwithstanding that
the ownership in the goods may have passed to the buyer, the unpaid
seller of goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in
possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods
in transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the
unpaid seller has, in addition to his other remedies a right of
withholding delivery similar to and coextensive with his rights of lien
and stoppage in transitu where the ownership has passed to the buyer.
(n)
Article 1527. Subject to the provisions of this Title, the unpaid seller of
goods who is in possession of them is entitled to retain possession of
them until payment or tender of the price in the following cases,
namely:
(1) Where the goods have been sold without any stipulation as to credit;
(2) Where the goods have been sold on credit, but the term of credit has
expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer. (n)
Article 1530. Subject to the provisions of this Title, when the buyer of
goods is or becomes insolvent, the unpaid seller who has parted with the
possession of the goods has the right of stopping them in transitu, that is
to say, he may resume possession of the goods at any time while they
are in transit, and he will then become entitled to the same rights in
regard to the goods as he would have had if he had never parted with the
possession. (n)
Article 1531. Goods are in transit within the meaning of the preceding
article:
(1) From the time when they are delivered to a carrier by land, water, or
air, or other bailee for the purpose of transmission to the buyer, until the
buyer, or his agent in that behalf, takes delivery of them from such
carrier or other bailee;
(2) If the goods are rejected by the buyer, and the carrier or other bailee
continues in possession of them, even if the seller has refused to receive
them back.
Goods are no longer in transit within the meaning of the preceding
article:
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods
before their arrival at the appointed destination;
(2) If, after the arrival of the goods at the appointed destination, the
carrier or other bailee acknowledges to the buyer or his agent that he
holds the goods on his behalf and continues in possession of them as
bailee for the buyer or his agent; and it is immaterial that further
destination for the goods may have been indicated by the buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver the goods
to the buyer or his agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or airplane
chartered by the buyer, it is a question depending on the circumstances
of the particular case, whether they are in the possession of the carrier as
such or as agent of the buyer.
If part delivery of the goods has been made to the buyer, or his agent in
that behalf, the remainder of the goods may be stopped in transitu,
unless such part delivery has been under such circumstances as to show
an agreement with the buyer to give up possession of the whole of the
goods. (n)
Obligation of the Vendee
Article 1582. The vendee is bound to accept delivery and to pay the
price of the thing sold at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment must
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be made at the time and place of the delivery of the thing sold. (1500a)

Article 1599. Where there is a breach of warranty by the seller, the

buyer may, at his election:

(1) Accept or keep the goods and set up against the seller, the breach of
warranty by way of recoupment in diminution or extinction of the price;

(2) Accept or keep the goods and maintain an action against the seller
for damages for the breach of warranty;

(3) Refuse to accept the goods, and maintain an action against the seller
for damages for the breach of warranty;

(4) Rescind the contract of sale and refuse to receive the goods or if the
goods have already been received, return them or offer to return them to
the seller and recover the price or any part thereof which has been paid.

When the buyer has claimed and been granted a remedy in anyone of
these ways, no other remedy can thereafter be granted, without
prejudice to the provisions of the second paragraph of article 1191.

Where the goods have been delivered to the buyer, he cannot rescind the
sale if he knew of the breach of warranty when he accepted the goods
without protest, or if he fails to notify the seller within a reasonable time
of the election to rescind, or if he fails to return or to offer to return the
goods to the seller in substantially as good condition as they were in at
the time the ownership was transferred to the buyer. But if deterioration
or injury of the goods is due to the breach or warranty, such
deterioration or injury shall not prevent the buyer from returning or
offering to return the goods to the seller and rescinding the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he
shall cease to be liable for the price upon returning or offering to return
the goods. If the price or any part thereof has already been paid, the
seller shall be liable to repay so much thereof as has been paid,
concurrently with the return of the goods, or immediately after an offer
to return the goods in exchange for repayment of the price.

Where the buyer is entitled to rescind the sale and elects to do so, if the
seller refuses to accept an offer of the buyer to return the goods, the
buyer shall thereafter be deemed to hold the goods as bailee for the
seller, but subject to a lien to secure the payment of any portion of the
price which has been paid, and with the remedies for the enforcement of
such lien allowed to an unpaid seller by article 1526.

(5) In `12the case of breach of warranty of quality, such loss, in the

absence of special circumstances showing proximate damage of a
greater amount, is the difference between the value of the goods at the
time of delivery to the buyer and the value they would have had if they
had answered to the warranty. (n)

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Obligation of the Vendee
1. To accept delivery
2. To pay the price of the thing sold.
Delivery by installments
GR: The buyer of goods is not bound to accept delivery by
installments, unless otherwise agreed
When seller makes defective deliveries in respect of some
installments or buyer refuses to accept,
1. If breach is material - the injured party may refuse to
proceed further and sue for damages for breach of the
entire contract
2. If breach is severable - the injured party may claim for
compensation but he does not have the right to treat the
whole contract as broken.
What constitutes acceptance of goods
1. He intimates to the seller that he has accepted them; or
2. He does any act in relation to the goods which is
inconsistent with the ownership of the seller when the
goods have been delivered to him; or
3. After the lapse of a reasonable time, he retains the goods
without intimating to the seller that he has rejected them.
If seller has committed breach of any promise or warranty in the
contract of sale and the buyer accepted the goods the following
rules shall be observed
1. the buyer's acceptance shall not discharge the seller from
any liability in damages or other legal remedy for breach
of any such promise or warranty
2. subject to any express or implied agreement of the parties
3. if after acceptance of the goods, the buyer fails to give
notice to the seller of the breach in any promise of
warranty within a reasonable time, the seller shall not be
liable.
Responsibility of the buyer if he refuses to accept
1. If refusal is justified: the buyer is not bound to return the
goods to the seller, it being sufficient that he notifies the
seller that he refuses to accept them.
2. If refusal is without just cause: The title to the goods
passes to the buyer from the moment they are placed at
his disposal.
Right to pay the price
1. Time and place – fixed by the contract
2. Time and place of the delivery of the thing – if absence
of stipulation
Right of the vendee to suspend payment:
1. If disturbed in possession, the vendee may suspend the
payment until the vendor has caused the disturbance or
danger to cease.
a. Unless the latter gives security for the return of
the price in a proper case.
b. Mere act of trespass shall not authorize the
suspension because the vendee can easily resort
to an action for ejectment.
c. It is necessary that the disturbance or the
danger be attributable to a fact prior to the sale.
2. Rule in sale of subdivision lots or condominium units.
a. If developer failed to develop the property
according to the terms and conditions, the
buyer may exercise the ff ALTERNATIVE
REMEDIES:
i. Suspend the payment and wait for further
development
 the owner/ developer may not forfeit
the installment payments made by the
buyer and the buyer may not be ousted
from the subdivision.
ii. He may demand reimbursement of the total
amount.
 the notice informing the developer of
the intention not to remit further
payments on account of non-
development of the subdivision, and the
demand for refund, can be made at the
same time.
3. Right of buyer to a grace period.
a. If it is provided in the contract of sale, the same
is a right, not an obligation of the debtor.
b. If it is conferred, the grace period is effective
without further need of demand either calling
for the payment of the payment.
c. MACEDA LAW – Rule in case of sale of
real property on installment:
i. If the buyer has paid at least two years of
installments and he defaulted in the payment
of succeeding installments, he may pay,
without additional interests, the unpaid
installments due within the total grace period
earned by him, which is fixed at the rate of 1
month grace period for every 1 year of
installment payments.
 This right shall be exercised by the
buyer only once in every 5 of the life of
the contract and its extensions, if any.
ii. If the buyer has paid less than two years
installments, the buyer shall still be entitled
to a grace period of 60 days.
Effect of failure to pay within the period stipulated:
1. In sale of Immovable Property – vendee may pay even after
the expiration of the period, as long as no demand for
rescission of the contract has been made, either judicial or
notarial act, under Art 1952.
a. The requirement for judicial and notarial act does not
apply in contract to sell
b. In contracts to sell over immovable property, the
Maceda Law applies: The Maceda Law recognizes the
right of the seller to cancel the contract upon nonpayment
of an installment by the buyer, which is simply an event
that prevents the obligation of the vendor to convey title
from acquiring binding force, hence, it is applicable to a
contract to sell.
c. Prescriptive period: 10 years from the time the right of
action accrues.
2. In sale of Movable Property – The rescission of sale shall take
place in the interest of the vendor, if the vendee did not appear
to receive it, he should not have tendered the price at the same
7
 time, unless a longer period has been stipulated for its
payment
a. The vendee shall owe interest for the period between the
delivery of the thing and the payment of the price, in the
ff cases:
1. It has been so stipulated.
2. The thing sold and delivered produce fruits or
income
3. If vendee is in default, from the time of judicial or
extrajudicial demand for the payment of the price.
CONDITIONS AND WARRANTIES:
CONDITION - in the context of a perfected contract of sale
pertains to the compliance by one party of an undertaking the
fulfillment of which would beckon, in turn, the demandability of
the reciprocal prestation of the other party.
Failure to comply with the conditions imposed on the
obligation:
Remedy:
1. Such party may refuse to proceed with the contract or he
may waive performance of the condition
2. If the other party has promised that the condition should
happen or be performed, such first mentioned may also
treat the non-performance of the condition as a breach of
warranty.
3. Where the ownership in the thing has not passed, the
buyer may treat the fulfillment by the seller of his
obligation to deliver the same as described and as
warranted expressly or by implication in the contract of
sale as a condition of the obligation of the buyer to
perform his promise to accept and pay for the thing.
WARRANTIES - A warranty is 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 he then represents them.
2 Kinds:
1. Express Warranty
2. Implied Warranty
A. Express Warranty - Any affirmation of fact or any promise by
the seller relating to the thing is an express warranty if the natural
tendency of such affirmation or promise is to induce the buyer to
purchase the same, and if the buyer purchases the thing relying
thereon.
Requisites:
1. It consists of an affirmation of fact or any promise by the
seller relating to the thing;
2. The natural tendency of such affirmation or promise is to
induce the buyer to purchase the thing; and
3. The buyer purchases the thing relying upon such
affirmation or promise.
No affirmation of value of the thing shall be construed as warranty.
Unless, the seller made such affirmation or statement as an expert
and it was relied upon by the buyer.
Prescriptive period in instituting action:
- may be specified in the contract.
- Absence of stipulation, 4 years.
B. Implied Warranty - An implied warranty is 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.
Unless a contrary intention appears, the warranties impliedly made
by the seller in entering into the contract are three, namely:
1) His right to sell the thing at the time when the ownership
is to pass (warranty of ownership);
2) The peaceful enjoyment by the buyer from the time of
the legal and peaceful possession· of the thing (warranty
against eviction); and
3) Freedom of the thing from any hidden faults or defects or
any charge or encumbrance not declared or known to the
buyer (warranty against hidden defects)
Kinds of Implied Warranties (EHNF)
1) Warranty against eviction
2) Warranty against hidden defects
3) Warranty against non-apparent servitude
4) Warranty of fitness and merchantability
1. Warranty Against Eviction
Requisites:
1. Purchaser has been deprived of the whole or
part of the thing sold;
2. Eviction is by final judgement;
3. Basis is a right prior to the sale; and
4. Seller has been summoned and made a co-
defendant in the suit for eviction at the instance
of the buyer
Applicability
1. If the property is sold for nonpayment of taxes dues and
not made known to the vendee before the sale - the
vendor is liable for eviction.
2. Judgment debtor is also responsible for eviction in
judicial sales
3. Adverse possession commenced before the sale but
prescriptive period take place – the vendor shall not be
liable for eviction.
GR: The contracting parties, however, may increase, diminish, or
suppress the legal obligation of the vendor for his implied warranty
against eviction
XPN: Considered void if the vendor acted in bad faith.
Right to Warranty Renounced:
1. Intended renunciation - When vendee renounced the
right to warranty in case of eviction and the waiver is
made with knowledge of the risks of eviction and
assumed its consequences and the eviction takes place,
the vendor is not liable
2. Conscious renunciation - When the vendee has simply
renounced the right to warranty in case of eviction
8
 ( without adding any circumstance which reveals his
knowledge of the risks of eviction and his intent to
assume its consequences) and the eviction takes place,
the vendor shall only pay the value which the thing sold
had at the time of the eviction.
in quality of the thing sold, or an action for the
proportionate reduction of the purchase price.
Prescriptive period: 6 months from the date of delivery of the
thing sold.

Rights and liabilities of parties in case of eviction:

MACEDA LAW (REPUBLIC ACT NO. 6552)
Vendee shall have the right to demand to the vendor (Art
1555): This law applies to contracts of sale of real estate on installment
1. Return of the value which the thing sold had at the time payments, including residential condominium apartments but
of the eviction excluding industrial lots, commercial buildings and sales to tenants.
2. The income or fruits
3. The costs of the suit which cause the eviction Rights of parties under Maceda Law:
4. The expenses of the contract The rights of the buyer and seller under this law
5. The damages and interest and ornamental expenses. depend on the length of installment payments that the buyer has
made, as follows
In case of PARTIAL EVICTION: a. If buyer has paid less than two years installments:
Vendee may i. The buyer is entitled to a grace period of 60 days from
1. Enforce the vendor’s liability for eviction the date the installments became due.
2. Demand the rescission of the contract with obligation to ii. If the buyer fails to pay the installments due at the
return the thing expiration of the grace period, the seller may cancel the
2. Warranty Against Hidden Defects contract after 30 days from receipt by the buyer of the
notice of cancellation or the demand for rescission of
Requisites: the contract by a notarial act
1. Defect must be hidden. b. If buyer has paid at least two-year installments:
2. Defect must exist at the time the sale was made. i. The buyer is entitled to a grace period equivalent to one
3. Defect must ordinarily have been excluded from the month for every year of installment payments. But this
contract. right may be exercised by the buyer only once in every
4. Defect, must be important (render the thing unfit for the five years of the life of the contract and its extensions, if
use for which it was intended or considerably decreases any.
fitness) ii. After the lapse of the grace period, the seller may cancel
the contract provided that
What if the thing suffering from hidden defects is lost? (see 1. he pays to the buyer the cash surrender value of the
Arts. 1568 and 1569) payments on the property equivalent to 50% of the
total payments and, after five years of installments,
If the loss is by reason of the hidden defect: an additional 5% every year but not to exceed 90%
vendor was aware (Art. 1568) the vendor bears the loss and of the total payments made; and
shall return the price and 2. he furnishes the buyer a notice of cancellation or
refund the expenses of the demand for rescission of the contract by notarial
contract. act. The cancellation of the contract takes effect 30
vendor was not aware (Art. the vendor must return the days after receipt by the buyer of such notice and
1569) price with interest and upon full payment of the cash surrender value to
reimburse the expenses. the buyer.
Loss of thing with hidden Seller is in good faith: Price
defects in case of fortuitous paid less the value of the thing Requisites for valid cancellation or rescission
event when lost. of the contract:
1. If buyer has paid less than two years installments - After
the lapse of the grace period, the seller may cancel the
Seller is in bad faith: Same +
contract provided that there be a notice of cancellation or
damages
demand for rescission by a notarial act.
2. If buyer has paid at least two years installments –
Remedies of the vendor in case of breach of warranty against
Cancellation requires a notarial act of rescission and the
hidden defects:
refund to the buyer of the full payment of the cash
surrender value of the payments on the property.
Alternative remedies: The vendee may purse
a. Actual cancellation of the contract takes place
either)
after 30 days from receipt by the buyer of the
1. actio redhibitoria - this is an action for the recovery of
notice of cancellation or demand for rescission
the purchase price, with interest, accompanied with a
of the contract by notarial act and upon full
return of the thing sold.
payment of the cash surrender to the buyer.
2. actio aestimatoria or quanti minoris - an action for the
b. Failure to comply with the mandatory twin
recovery of a part of the price in proportion to the defects
requirements for a valid and effective

9
 cancellation under the law, i.e., failure to
send a notarized notice of cancellation and to
refund the cash surrender value, shall result
into the contract remaining to be valid and
subsisting.
The foregoing requirements of the Maceda law are mandatory and
any stipulation in the contract contrary to the provisions of said law
shall be null and void.
EXTINGUISHMENT OF SALE
Sales are extinguished:
1. By the same causes as all other obligations
2. By the various causes of extinguishment
a. Cancellation of sale of personal property
payable in installments
b. Resale of the goods by the unpaid seller
c. Rescission of the sale by the unpaid seller
d. Rescission by the buyer in case of partial
eviction
e. Rescission by the buyer in case of breach of
warranty against hidden defects.
3. By redemption
a. Conventional Redemption
b. Legal Redemption
CONVENTIONAL REDEMPTION (Pacto de Retro)
Seller reserved the right to repurchase thing sold coupled with
obligation to return price of the sale, expenses of contract & other
legitimate payments and the necessary & useful expenses made on
the thing sold.
can be allowed since the requirement of the Statute of Frauds has
already been satisfied.
Equitable Mortgage
An equitable mortgage has been defined as one which although
lacking in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the
parties to charge real property as security for a debt, and contains
nothing impossible or contrary to law.
Essential elements are:
a. The parties enter into what appears to be a contract of sale
b. Their intention is to secure an existing debt by way of
mortgage
ARTICLE 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on the
thing sold;
(6) In any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any
other obligation.

Note: Right to repurchase must be reserved at the time of In any of the foregoing cases, any money, fruits, or other benefit
perfection of sale. (Pineda, p. 333) to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws.
RIGHT TO REDEEM OPTION TO PURCHASE
As to Nature Reason for Art 1602: it particularly envisions contracts of sale
Not a separate contract but Generally, it is a principal with right to repurchase where
merely part of the main contract and may be created the real intention of the parties is that the pretended purchase price
contract of sale independent of another is money loaned, and in order to secure the payment of the loan a
contract contract purporting to be a sale with pacto de retro is drawn up.
As to Consideration
Does not need its separate To be valid, it must have a Such presumption of equitable mortgage is not conclusive. It may
consideration in order to be consideration separate and be rebutted by competent and satisfactory proof to the contrary
valid and effective distinct from the purchase
price Period of Redemption of Pacto De Retro Sale:
As to Maximum Period for Exercise of the Right 1. Expressly agreed upon, but such cannot exceed 10 years.
Cannot exceed 10 years May be beyond 10 years 2. Absence of stipulation, 4 years from the date of the
contract.
Right of repurchase must be granted in same
Instrument Legal Redemption
Once the instrument of absolute sale is executed, - Legal redemption is the right to be subrogated, upon the
the vendor can no longer reserve the right to repurchase, and any same terms and conditions stipulated in the contract, in the
right thereafter granted the vendor by the vendee in a separate place of one who acquires a thing by purchase or dation in
instrument cannot be a right of repurchase but some other right like payment, or by any other transaction whereby ownership is
an option to buy. transmitted by onerous title.
- It is also defined as a privilege created by
Existence of right of repurchase may be proven by parol - law, partly by reason of public policy and partly for the
evidence: benefit of the redemptioner to afford him a way out of a
If there is a written contract of sale over a real property, parol disagreeable or inconvenient association into which he has
evidence of the existence of a verbal grant of right of repurchase been thrust.

10
Legal redemption takes place in purchase or dation in payment or other stipulations which may have been agreed upon.
in any other transaction whereby ownership is transmitted by
onerous title.

Redemption v. Pre-emption
- Redemption arises after the sale, since it precisely tends to
subrogate one who exercises it in the place of the vendee.
- Right of pre-emption arises before the sale is effected, since
it is when this is sought or proposed that the legal notice has
to be given

Legal redemption exists in the following cases:

a) Among co-owners;
b) Among co-heirs;
c) Among adjoining owners.

PACTO DE RETRO SALE

The essence of a pacto de retro sale is that title and ownership of

the property sold is immediately vested in the vendee a retro,
subject to the restrictive condition of repurchase by the vendor a
retro within the period provided in Article 1606 of the New Civil
Code, to wit:

The failure of the vendee a retro to repurchase the property vests

upon the latter by operation of law the absolute title and ownership
over the property sold. (Cruz vs. Leis, G.R. No. 125233, March 9,
2000; 327 SCRA 570).

PACTO DE RETRO SALE MORTGAGE

AS TO NATURE
Ownership is transferred, Ownership is not transferred
subject to the resolutory but the property is
condition of repurchase by the merely subject to a charge or
vendee lien as a security
Failure of the seller to Mortgagor does not lose his
repurchase loses all his interest if he pails to pay
interest his debt at maturity but
in the property, title to which subjects the property to
vests upon the buyer by foreclosure and public sale
operation of law
AS TO FORECLOSURE AND REDEMPTION
No obligation upon the Duty of the mortgagee to
purchaser to foreclose nor the foreclose if he wishes to
vendor to redeem after the secure a perfect title thereto,
maturity of the debt and mortgagor has right
to redeem after maturity of the
debt and before
foreclosure

Q: What is Conventional Redemption

A: Conventional redemption shall take place when the vendor
reserves the right to repurchase the thing sold, with the obligation
to comply with the provisions of article 1616 and other stipulations
which may have been agreed upon. It is also called a pacto de retro
sale.
- In case of exercise of a right of repurchase, mere tender
is sufficient. There is no need to effect consignation.

Article 1601. Conventional redemption shall take place when

the vendor reserves the right to repurchase the thing sold, with
the obligation to comply with the provisions of article 1616 and
11