LAW ON SALES Contract of Sale

I. Nature and form of the

contract of sale;
II. Capacity to buy and sell;
III. Effects of the contract

TOPICS when thing sold has been

lost;
FOR IV. Documents of Title;

DISCUSSION V.
VI.
Obligations of the vendor;
Obligations of the vendee;
VII. Actions for breach of sale;
LAW ON SALES
VIII. Extinguishment of sale;
and
Art. 1458 – Art. 1637
IX. Assignment of rights.
of the Civil Code of the Philippines
 NATURE AND FORM
OF THE CONTRACT OF SALE Part I
ART.1458 - ART.1488
 “ CONTRACT OF SALE ”
Art. 1458
Seller/Vendor Buyer/Vendee
By the contract of sale
obligates himself
one of the contracting obligates himself
Ø to transfer the
parties obligates himself Ø to pay for said thing
ownership of
to transfer the ownership a price certain in
and;
and to deliver a money or its
Ø to deliver a
determinate thing, and equivalent.
determinate
the other to pay therefor a
thing,
price certain in money or
its equivalent.

A contract of sale may be

absolute or conditional.
(1445a)
 CHARACTERISTICS OF A CONTRACT OF SALE
v CONSENSUAL - Perfected by mere
consent of both parties.
v BILATERAL / RECIPROCAL - Both parties
are bound by their respective obligations,
which are dependent upon each other;
Buyer: Obligated to pay the price,
certain in money or its
equivalent.
Seller: Obligated 1) to deliver; and 2)
to transfer the ownership of
a determinate thing.
v ONEROUS - To acquire rights, valuable
considerations must be given. Price, certain in
money or its equivalent, is paid by the
buyer/purchaser.
v COMMUTATIVE - The values exchanged are
almost equivalent to each other. Meaning, the
value of the item sold is equivalent to the
money paid for it.
v PRINCIPAL - It can stand on its own and does
not depend on another contract for its validity.
Recall the Principle in law: “Accessory follows
the Principal”
v NOMINATE - The Civil Code refers to it by a
special designation or name, that is the
“Contract of Sale.”
 STAGES OF A CONTRACT OF SALE
v PREPARATION / NEGOTIATION
Ø Parties indicate their interest to enter in a contract of sale.
Ø Partied negotiate and bargain with each other as to the price, quantity, quality, etc..

v PERFECTION
Ø “Birth of the contract” - it is where the essential elements of a sale concur.
Ø Recall that a contract of sale is a consensual contract, and it is perfected by mere
consent of the parties. Thus, it is when there is a meeting of the minds as to the
object of the contract and the price.
Ø Here, the parties may reciprocally demand performance from each other.

v CONSUMATION
Ø Parties perform their respective undertaking/obligations under the contract of sale.
Ø It culminates the extinguishment or death of the contract.
Ø It happens when there is already delivery and/or transfer of ownership, and payment
of the price.
 Answer: No, Sam in not correct.
QUESTION:
Recall:
Sam offered her
apple watch to Coby. Ø A “contract” does not always mean the
Coby accepted written contract. As defined in Art. 1305, a
Sam’s offer and contract is a meeting of the minds between
agreed to buy the two persons. Meaning it is the “agreement”
same. Sam told Coby entered into by the parties.
that they need to
execute a written Ø The “written document” (Deed of Absolute
document entitled Sale) merely evidences the contract
contract of sale or agreed upon by the parties.
Deed of Absolute
sale. Is Sam correct?

Ø A contract of Sale is not a Solemn
contract which requires compliance
with certain formalities prescribed by
law to be valid, such as a Donation
of real properties which must be in a
public instrument.
Ø A Contract of Sale is consensual, it is
perfected by the mere meeting of
the minds and does not, generally
need or require a formality or written
document to be valid.
Exception:
Contract of Sale of Real Property
- here, the contract of sale is not a formal
contract but merely a consensual one.
Thus, the contract can be orally made.
However, since sale of land also carries
with it the registration of the sale with the
Register of Deeds so that the new owner
can register this title – a Deed of
Absolute Sale needs to be executed.
Note, A DOAS is not required because a
contract of sale is consensual in nature.
However, since a DOAS is required by
the ROD, under Art. 1357, the parties can
compel each other to observe the form
required.
 Answer: No, not yet. Not until Sam is able to deliver to Coby
QUESTION: the apple watch can Coby be considered the owner
thereof.
Sam offered her
apple watch to Coby. While a contract is perfected at the moment the parties
agree (Meeting of the Minds), ownership transfers and
Coby accepted passes to the buyer only when payment or delivery is
Sam’s offer and made – this is considered the consummation of
agreed to buy the the contract of sale.
same. Sam and Coby
executed a contract Thus, a contract of sale merely gives the buyer the
TITLE to the apple watch, as well as the RIGHT to
of sale on January 1, demand for the fulfillment of the reciprocal
2022. On January 1, obligation, BUT the ownership transfers only from
2022, is Coby now the moment of payment and/or delivery.
the owner of the
watch? The contract of sale is consummated upon delivery
and payment. (Art. 1475)
 HOW IS OWNERSHIP TRANSFERRED IN A
CONTRACT OF SALE?
Art. 1475.
The contract of sale is
perfected at the moment
there is a meeting of minds Art. 1477.
upon the thing which is the The ownership of
object of the contract and the thing sold shall
upon the price. be transferred to
the vendee upon
From that moment, the the actual or
parties may reciprocally constructive
DEMAND performance, delivery thereof. (n)
subject to the provisions of
the law governing the form
of contracts. (1450a)

QUESTION:
Sam and Coby entered a
contract of sale of an Ipad.
The next day, Sam
delivered to Coby the
Ipad. However, because
Coby’s allowance has not
yet arrived, he will be able
to pay Sam the following
week.
By reason of the delivery
made by Sam, is Coby
now the owner of the
Ipad?
Art. 1478.
Unless the contract contains a stipulation, or The parties may
stipulate that
unless the parties have agreed, that the
ownership of the thing sold shall not pass to
ownership in the
thing shall not
the purchaser until it as fully paid the price,
pass to the
the ownership of the thing sold shall be
transferred to the buyer/vendee upon the purchaser until he
has fully paid the
actual/constructive delivery thereof.
price. (n)
Why? Because PAYMENT of the purchase
price is NOT an essential element of a
contract of sale.
Remember that delivery/tradition transfers the ownership in a
contract of sale. The perfection of a contract of sale merely
creates a right to the parties to demand from the other party the
fulfillment of their obligation.
 KINDS OF CONTRACT OF SALE
1. ABSOLUTE CONTRACT OF SALE

2. CONDITIONAL CONTRACT OF SALE

One where there is/are condition/s attached to the contract

(Recall lesson on ObliCon.)

Example: In a purchase of a house and lot – the conditions could be:

q That the property is reserved in the seller until the full payment by the
buyer of the purchase price; or

q The vendor is given the right to unilaterally terminate the contract the
moment the buyer fails to pay within a period.
 ELEMENTS OF A CONTRACT OF SALE
ESSENTIAL ELEMENTS ACCIDENTAL
NATURAL ELEMENTS ELEMENTS
those elements, without which, there can be no valid
those elements which are those elements which may
sale:
deemed to exist in certain be present or absent,
a. Consent / Meeting of the Minds; contracts, in the absence of depending on the
any stipulation. stipulations of the parties.
seller consents to transfer the ownership
and to deliver to the buyer; and buyer
Example: Example:
consents to pay.
a. Warranty against a. Condition;
a. Object/Subject Matter eviction (Art. 1548); and b. Interest;
must be a determinate thing. c. Penalty;
b. Warranty against hidden d. Time or place of
defects (Art. 1561) payment
a. Cause / Consideration (Price)
the price, which is certain in money or its e. Period
equivalent. It includes the manner of
payment, which could either be straight
(full) or by installment
CONSENT

Consent is manifested
by the meeting of the
Offer and of the
Acceptance.
 Art. 1327: PERSONS WHO CANNOT GIVE
CONSENT
CONSENT The following cannot give consent to a contract:
1. Unemancipated minors;
2. Insane or demented persons, and deaf-
ELEMENTS OF CONSENT: mutes who do not know how to write.
(1263a)
1. Contracting parties;

1. Concurrence of the Offer and

Acceptance; Art. 1330: VICES of consent – one, which vitiates
and renders it defective (voidable):
1. Legal Capacity of the contracting Ø Error or mistake
parties; and Ø Violence or force
Ø Intimidation, threat or duress;
1. Consent must have been freely, Ø Undue influence; and
voluntarily, intelligently, conscious, and Ø Fraud or deceit
spontaneously given.
“Consent” is the conformity or
acceptance. It is the agreement of the
parties upon the object and the terms of
the contract.
It is the meeting of the minds or mutual
assent between the parties on the subject
matter and the cause which are to
constitute the contract.
There is consent when the offer was
accepted.
“Offer” – is the proposal made by one (1)
party to the other. An offer must be a real
promise. It must be certain and seriously
intended.
If an offer was made in a jest or in anger,
the offer is not valid.
Must be certain, definite, and intentional.
“Acceptance” – is the manifestation by the
offeree of his assent to all the terms of the
offeror. Without acceptance, there can be
no meeting of the minds between the
parties.
Acceptance must be clear, absolute,
unconditional, and unqualified and must
manifest the intention to accept the offer.
If the acceptance in qualified, as when it is
subject to a condition, it merely constitutes
as a counter-offer which, in law, is
considered a rejection of the original offer.
Note: if the counter-offer was accepted
without further qualification, then a
contract arise.
Things to remember: “Acceptance” Communication
informal.
may formal or

Cognition Theory: Acceptance by

Acceptance may be letter/telegram does not bind the
Must be offer unless and until the same was
ABSOLUTE. Express or Implied (Art.
received or has come to the
1320). knowledge of the offeror/seller.
It must clearly
manifest the It is evidenced by some Even if the acceptance was mailed,
intention of the acts or conducted, the seller/offeror can still withdraw
party to accept the which the buyer his offer at anytime before he has
offer to buy. communicates to the knowledge of the acceptance.
seller.
Important to note: the offeree must
Recall that a
Thus, an acceptance not only accept, but he must
qualified communicate his acceptance. And
acceptance can be sent through
such acceptance only counts as an
constitutes a text message, email, acceptance, which will perfect the
counter-offer phone call, letter, or the contract when it is ACTUALLY
like. RECEIVED by the offeror.
 EXAMPLE: CLEAR AND UNQUALIFIED ACCEPTANCE
EXAMPLE: Sam offered to Coby her car for sale in the amount pf P500,000.00. Coby
agrees to purchase the car of Sam at P500,000.00.

Here, the acceptance of Coby to the offer of Sam is clear and unqualified.

Thus, there was already a meeting of the minds (perfection).

Upon the delivery by Sam of the car to Coby (Traditio Longa Manu Art. 1164)
or of the keys of the car (Tradition simbolica Art. 1164) the contract is
consummated.
 EXAMPLE: QUALIFIED ACCEPTANCE OR COUNTER-OFFER

EXAMPLE: Sam offered to Coby her car for sale in the amount pf P500,000.00.
Coby, proposed the amount of P450,000.00 instead, as a purchase price.

Here, Coby’s proposal that the purchase be at P450,000.00 instead is a

qualified acceptance, which by law is considered as a “counter-offer”.

If Sam agrees and accepts, then as between them, there is already a

meeting of the minds – the contract is perfected.
OBJECT

Also known as the

subject matter of a
Contract of sale.

The object must be a

determinate thing!
 OBJECT
Requisites: THINGS as object of contract
1. The thing must be within the commerce of men (it can legally be the subject of commercial
transaction)

Example: Sidewalks, rivers, streets, air, sunlight and rain are outside of
commerce of men.

2. It must not be impossible, legally or physically;

Example: prohibited drugs. Soil from planet Jupiter.

3. It must be in existence or capable of coming into existence; and

4. It must be determinate or determinable without need of a new contract between the parties.
 RULES:
Ø The THING must be determinate as to its kind

Ø Limitations: For the Contract of Sale to be valid, the object must be LAWFUL.

Ø The contract must not be contrary to law, morals, goods, customs, public order, and
public policy.
 Rules pertaining to Right to Transfer Ownership:
Art. 1459

The thing must be Ø The object must be licit

It must be lawful or within the commerce of man)
licit and the vendor
must have the right
to transfer the Ø The vendor must have the right to transfer ownership of
ownership thereof at the thing at the time the object is delivered.
the time it is
The seller need not be the owner of the thing at the
delivered. time of perfection (stage) of the contract. It is
sufficient that he is the owner at the time the
object is delivered (consummation stage)
 Sam owns a parcel of land. She left for the US for a grand
vacation and left Coby to tend to the parcel of land.

EXAMPLE: Duke knew that Sam left her land to Coby so he went to Coby
and informed him that Jilyn is interested in buyer the land.
Duke convinced Coby to pretend that he is the owner of the
land. The contract of sale was executed.

The contract of sale entered into by Coby and Jilyn is defective because Coby
had no authority to sell the land of Jilyn.

Jilyn did not acquire absolute ownership over the land since Coby did not have
the right to transfer ownership thereof.

A person cannot transfer ownership by way of sale, of something over which

he has no right to transfer.
 Art. 1460.

A thing is determinate
when it is particularly
designated or physical
segregated from all other
of the same class.

The requisite that a thing

be 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. (n)

Art. 1461
Things having a potential
existence may be the
object of the contract of
sale.
The efficacy of the sale of
a mere hope or
expectancy is deemed
subject to the condition
that the thing will come
into existence.
The sale of a vain hope
or expectancy is void. (n)
General Rule: A person cannot sell or convey what he
does not have or own.
Except:
1. Things having potential existence (Future Things)
Example: Still growing flowers, young of an animal still not in
existence; wine of a vineyard still to produce
2. Sale of an expected things (emptio rei sperati)
Example: Sale of all my harvest next year
3. Sale of a mere hope (emptio spei)
Example: Sale of lotto/sweepstakes ticket
4. Sale of future goods;
5. Sale of articles which the vendor in the ordinary course of his/her
business manufactures/procures for the general market, whether the
same is on hand at the time of perfection of contract, or not.
 EMPTIO REI EMPTIO SPEI
SPERATAE/SPERATI
There is a sale of a thing having potential There is a sale of a hope;
existence; FUTURE THING

The sale is subject to the condition that the The sale produces effect even if the thing
thing will exist, if it does not, there is no does not come into existence, unless it is a
contract. (The contract shall be deemed vain hope;
extinguished.
The uncertainty is with regard the quality and The uncertainty is with regard the existence of
quantity of the thing; the thing;

The object is a future thing. The object is a present thing.

Example: Sale of all my harvest next year Example: Sale of a valid sweeptstakes ticket.
Whether the ticket wins or not, the sale itself is
valid.
 SALE VAIN HOPE OR EXPECTANCY - Void
Aleatory Contracts:
If the hope or expectancy itself is vain, the sale is itself
VOID. Contracts that depends
upon an uncertain
Example: Sale of a losing ticket for a sweepstakes/lotto event or contingency,
which was already run. both as to the benefit or
the loss.

Example:
Unlike Aleatory Contracts, which are valid because there is Insurance Contract; and
still a chance, in Sale of Vain Hope/Expectancy there is Contract of Sale of
clearly NO CHANCE at all – because it is in vain. Hope
QUESTION:
Sam was selling one of Yes, it can be valid.
the two Lotto tickets for
the 6/58 draw, which ran
last October 14, 2018 with If the buyer knows said Lotto ticket has already
a jackpot price of 1.18 been run; and if the seller is selling the said Lotto
Billion Pesos. Said draw ticket because it is a special ticket or a collector’s
was specially marked item.
because of how big the
jackpot price was.
Here, when the buyer bought the ticket he was
Sam sold the said lotto
expecting that he will win. He bought the said
ticket to Coby on Lotto ticket because of the special event
February 14, 2022. associated with it – that the jackpot price reached
1.18 Billion pesos.
Is the sale valid?
 Art. 1462.
GOODS that may be subject of a Contract of Sale
The goods which form the
subject of a contract of sale
may be either existing
goods, owned or possessed 1. Existing Goods (On hand)
by the seller, or goods to be
manufactured, raised, or Note: The seller must have the right to transfer
acquired by the seller after ownership of the said goods at the time it is
the perfection of the contract delivered. It is not required, however that the
of sale, in this Title called seller is the owner of the thing at the time of
"future goods.”
the perfection of the contract.
There may be a contract of
sale of goods, whose 2. Future Goods
acquisition by the seller
depends upon a
contingency which may or
may not happen. (n)
 FUTURE GOODS WHICH MAY BE THE SUBJECT OF A
CONTRACT OF SALE:
EXCEPT: FUTURE
Ø Goods which are still to be manufactured; INHERITANCE
(one where the source of
Ø Goods still to be raised or future agricultural products; property is still alive)
Ø Goods Still to be Acquired by seller after the perfection of the This CANNOT be the
contract; subject of a contract

Example: Land which the seller expects to buy except: (Art. 1347 par. 2)
Goods that the seller expects to buy 1) In the case of marriage
settlements; or
Ø Things whose acquisition depends upon contingency which 2) In the case of partitions
may or may not happen. of property inter vivos by the
deceased.
Example: Selling of a car which the seller expected
to receive
Can there be a sale of an
undivided interest or an
undivided share of a
specific mass?

Yes, so long as the object/subject matter of the sale is a

determinate thing.

See Art. 1463 and 1464

 Art. 1463.

The sole owner of a

thing may sell an Illustration:

undivided interest Sam owns a vast track of undivided land, measuring 10

hectares. Sam may sell her 1-hectare interest in the said
therein. (n) land to Coby.

Since the land is not yet divided, Sam and Coby becomes
co-owners thereof. However, note that Coby’s share shall
only pertain to the 1-hectare he bought.
 Illustration:
Art. 1464.
Sam owns a bodega of rice with undetermined number of sacks
In the case of fungible goods, there
may be a sale of an undivided share of rice. Coby bought 100 sacks of rice from Sam.
of a specific mass, though the seller
purports to sell and the buyer to buy • If it turns out that Sam has 500 sacks of rice stocked inside
a definite number, weight or
the bodega, applying 1464, Sam and Coby are co-owners –
measure of the goods in the mass,
and though the number, weight or where, Sam owns 400 sacks, while Coby owns 100 sacks of
measure of the goods in the mass is rice.
undetermined. By such a sale the
buyer becomes owner in common of
such a share of the mass as the
• If there are only 90 sacks of rice, applying 1464, Sam is
number, weight or measure bought liable to Coby for the 10 sacks of rice since the contract of
bears to the number, weight or sale is valid.
measure of the mass. If the mass
contains less than the number,
weight or measure bought, the buyer • Sam needs to give Coby 10 sacks pf rice of the same
becomes the owner of the whole kind and quality as the 90.
mass and the seller is bound to • Recall lesson on the rules on substitution of generic
make good the deficiency from
goods of the same kind and quality, things in ObliCon.
unless a contrary intent appears. (n)
PRICE / CAUSE /
CONSIDARTION

The price, which is

certain in money or its
equivalent.

It includes the manner of

payment, which could
either be straight (full) or
by installment
 PRICE/CAUSE/CONSIDERATION
It is the essential reason or purpose which the
contracting parties have in view at the time of
entering into the contract. It is something
bargained for or given by a party in exchange for
a legally enforceable promise of the other.
It is the subject matter of the contract.
The Price, certain in money or its equivalent.
Cause is also known as “Consideration:
Inchausti & Co. vs. Cremwell,
G.R. 6584m Oct. 16, 1911
Price is the sum stipulated as
the equivalent of the thing sold
and also every incident taken
into consideration for the fixing
of the price out to the debit of
the vendee and agreed to by
him.
REQUISITES OF A VALID PRICE/CAUSE/CONSIDERATION

1.Price must be real

2.Price must be certain or ascertainable;
3.In money or its equivalent; and
4.Manner of payment must be agreed upon
I. The price must be real.

Price agreed upon must not be fictitious or simulated.

Price is real when at the perfection of the contract, there is

every intention on the part of the buyer to pay the price, and
every intention on the part of the seller to receive such price.
 Art. 1471.

If the price is General Rule: The sale is void if the price is simulated.

simulated, the sale is The price is simulated when neither party

void, but the act had any intention that the amount will be
paid. (Yu Bun Guan vs. Ong, G.R. No.
may be shown to 144735, Oct. 28, 2001)
have been in reality
a donation, or some Exception: If it can be shown to be a donation or
another contract.
other act or
contract. (n)
 SIMULATED CONTRACTS : SIMULATED PRICE
SIMULATED CONTRACTS
Recall:
- An Absolutely Simulated or Fictitious
Contract is void – because the essential
element of a contract is absent.
- While, a Relatively Simulated Contract,
when it does not prejudice third persons, or and if it is simulated - it is deemed absent.
the same is not contrary to law, morals,
good customs, public order, and public
policy, can bind the parties to their real
agreement.
SIMULATED PRICE
Here, the contract itself is not the one
simulated – it is the price that is.
A simulated price will result to a void contract
because Price/Consideration is considered
as an essential element of a contract of sale -
However, Art. 1471 says that the same can be
construed as a donation, or any other
contract dependent on the tenor of the
agreement.
QUESTION: Yes, there is still a valid contract of sale. Except that the
buyer/vendee shall be held liable for paying fake money.

REMEMBER:
If what was paid was Ø The third element of a contract of sale is
FAKE/Counterfeit Cause/Consideration or also known as the price. BUT “Price”
does not automatically mean ”money”.
MONEY – was there
a contract of sale? Ø Note that the price shall be in money, or its equivalent
Decide
Ø So long as there was an agreement on the price (amount)
that needs to be paid (as well as the existence of consent
and object), a contract of sale is perfected.

Ø Note that the real cause/consideration is still the

VALUE/amount agreed upon. (Paras)
II. The price must be certain or ascertainable

It is certain if it is expressed and agreed in terms of specific

amount of money or its equivalent.

It is ascertainable if it is sufficient that it be so with reference to

another thing certain, or that the determination thereof be left to
the judgement of a special person/persons.
 Art. 1469.

In order that the price may be WHO CAN FIX THE PRICE?
considered certain, it shall be
sufficient that it be so with reference
to another thing certain, or that the
determination thereof be left to the
ü BOTH Parties;
judgment of a special person or
persons. ü One of the parties, provided the other party agrees &
Should such person or persons be accepted;
unable or unwilling to fix it, the
contract shall be inefficacious, unless
the parties subsequently agree upon ü Special Person/s
the price.

If the third person or persons acted in

ü Courts – when there’s bad faith/mistake by the
bad faith or by mistake, the courts special person/s
may fix the price.

Where such third person or persons
are prevented from fixing the price or
terms by fault of the seller or the
buyer, the party not in fault may have
such remedies against the party in
fault as are allowed the seller or the
buyer, as the case may be. (1447a)
RULE: Fixing of the Price (Art. 1473)
• Fixing of the price cannot be left to the decision of only one parties;
• BOTH Parties must agree on the price; and
• However, if one party has fixed the price, and the other party (buyer) has agreed or
accepted it, the same perfects the contract of sale.
QUESTION:
Gen. Rule: No sale is perfected because of the absence of
the essential element of sale, which is
What happens if price/cause/consideration. Thus, the sale is inefficacious.
the Seller and the (Art. 1474)
Buyer forgot to
agree on the price?
Except: When there is already delivery and the buyer
already appropriated, accepted, or used the thing/s
Can sale exist when sold.
no price was
agreed upon? Here, while there was no price agreed upon, by
reason that the buyer already appropriated, accepted,
or used the thing/s sold – the buyer shall pay a
reasonable price thereof.
 “Reasonable Price”

Reasonable price is generally the

market price at the time and
place fixed by the contract or by
law for the deliver if goods.
QUESTION:
Source of Obligation: Quasi-contracts –
In the said example,
what principle of Obligations that arise from lawful, voluntary
law, which you and unilateral acts which are enforceable to
have learned in the end that no one shall be unjustly
ObliCon applies? enriched or benefited at the expense of
another.

What kind of source Example: Obligation to return money paid

of Obligations is by mistake or which is not due.
this?
 HOW PRICE MAY BE CONSIDERED CERTAIN?
Ø it shall be sufficient that it be so with reference to another thing certain,

Ø Example: The price of the lot shall be the same value as the other lots
surrounding it.

Ø Or that the determination thereof be left to the judgment of a special person or persons,
such as

Ø Assessors
Ø Appraisers
Ø Experts
III. In money or its equivalent

Art. 1468 of the Civil Code recognized that if the consideration

consists partly of money and partly of another thing, the
transaction can still be considered a contract of sale when it is
the manifest intention of the parties.

This means that there is certainty as to the price but what is

given as payment is an object.

Example: Coby bought the Ipad of Sam. He paid Sam

P50,000.00 worth of LuckyMe Pancit canton
in a mixture of original, sweet & spicy, and
kalamansi flavors.
 WHAT IS INCLUDED IN FIXING THE PRICE?
Cause/Consideration/Price does not
only mean agreement as to the
value/amount. It also INCLUDES the
agreement on:
ü Manner of payment
• Full/straight payment
• Installment payment
ü Date and place of payment
Sps. Navarra vs. Planters Development
Bank, G.R. No. 172674, July 12, 2007
Before a valid and binding contract of sale
can exist, the manner of payment of the
purchase price must be first established
since the agreement on the manner of
payment goes into the price, such that a
disagreement on the manner of payment is
tantamount to a failure to agree on the
price.
 “GROSS INADEQUACY
OF PRICE”

(Tio vs. Abayata Gr. No. 160898, June 27,

2008)

The price must be grossly inadequate or

One where the price is so high shocking to the conscience such that the
(unconscionable), or too low (simulated), mind revolts against it and such that a
which is considered shocking to the reasonable man would neither directly nor
conscience. indirectly be likely to consent to it.
 Art. 1470. Mere inadequacy of price does not affect the validity of
sale if fixed in good faith and without fraud. (Hults v. PR
Builders, Inc. G.R. No. 156364, Sept. 3, 2007)
Gross inadequacy of
price does not affect
a contract of sale,
except as it may Art. 1330: VICES of consent – one, which vitiates
indicate a defect in and renders it defective (voidable):
the consent, or that Ø Error or mistake
Ø Violence or force
the parties really Ø Intimidation, threat or duress;
intended a donation Ø Undue influence; and
or some other act or Ø Fraud or deceit
contract. (n)
 Ordinary Sale A transaction of sale may
be invalidated by reason of Gross
SITUATIONS Inadequacy of Price for equity reasons,
such as when there is fraud and bad faith.
And the Courts can step in and fix the
price for the parties.

However, in absolutely simulated

sale, where there is really no price
paid (simulated price) or the parties
Contract of Sale with Right of
did not intend at all to be bound – the
Redemption Where the redemption
absence of cause/consideration,
price is lower, it cannot be considered as
which is an essential element of a
“Gross Inadequacy of Price” which
Contract of Sale shall nullify it.
will nullify a contract because here the
owner is really given the
opportunity/chance to redeem his
property. That is why, the price
(cause/consideration) is usually low.
 RESCISSIBLE CONTRACT OF SALE WHEN THERE IS
GROSS INADEQUACY OF PRICE
RECALL LESSON IN OBLICON: ARTICLE 1381 RESCISSIBLE CONTRACTS

The following contracts are rescissible:

• Those which are entered into by guardians whenever the wards whom they represent suffer lesion by
more than one-fourth of the value of the things which are the object thereof;
• Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
• Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims
due them;
• Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigants or of competent judicial authority;
• All other contracts specially declared by law to be subject to rescission. (1291a)
 LET’S COMPARE
CONTRACT OF SALE
AGAINST
OTHER CONTRACTS
 Art. 1479.
CONCEPTS TO LEARN:
A promise to buy and
sell a determinate thing Ø Contract TO Sell
for a price certain is Ø Conditional Contract OF Sale
reciprocally demandable.
Ø Option Contract
An accepted unilateral Ø Option Money
promise to buy or to sell Ø Earnest Money
a determinate thing for a Ø Right of First Refusal
price certain is binding
upon the promisor if the
promise is supported by
a consideration distinct
from the price. (1451a)
 CONTRACT OF SALE : CONTRACT TO SELL
Contract OF Sale
An agreement of sale.
The perfection of the contract gives rise to reciprocal
demandable obligation.
Title/ownership transfers to the buyer upon delivery of
the thing sold.
Effect of non-payment: It is a negative resolutory
condition which terminates the transaction.
Remedies: Specific Performance &/or Rescission
Parties: Buyer and Seller (Vendor and Vendee)
Contract TO SELL
A mere agreement where the seller promises to sell,
and the buyer promises to buy.
The perfection of the contract only gives rise to a
reciprocal suspensive conditional obligation.
Title/Ownership is reserved in the seller and will pass
only to the buyer upon fill payment of the price.
Effect of non-payment: There is no breach. The non-
payment is considered as an event which prevents an
obligation for the seller to convey title to the buyer.
If there is payment: Parties will execute an instrument
conveying title. (e.g. “Deed of Absolute Sale”)
Parties: Would-be Seller (Vendor) and Would-be Buyer
(Vendee)
 SUSPENSIVE CONDITION RESOLUTORY CONDITION
Condition precedent / antecedent Condition subsequent

The fulfillment of which will give rise to the The fulfillment of which will EXTINGUISH an
obligation. obligation.

The demandability of the obligation is Note: here, the obligation is

suspended until the happening already existing.

Until the happening of the suspensive The effect of the obligation flows, but the
condition – the existence of the obligation is same hovers the possibility of termination by
a mere hope or expectancy. the happening of the resolutory condition.

Ex: I will give you this pen if I pass the Ex: Coby, in payment of his debt to Sam,
midterms exam. binds himself to give Sam monthly allowance
of P200.00 until she graduates.
My obligation to give the pen does not
arise, until I am able to pass the midterms Coby’s obligation is demandable now and it
exam. will terminate when Sam graduates, which is
the resolutory condition.
 CONTRACT TO SELL : CONDITIONAL CONTRACT OF SALE
Contract TO Sell Conditional Contract of Sale
In both cases the seller may reserve the title to property until the fulfillment of the
suspensive condition, such as payment of the full purchase price. (Serrano vs. Caguit, G.R.
No. 139173, February 28, 2007)
If the suspensive condition is fulfilled, the If the suspensive condition is fulfilled, the
ownership does NOT automatically transfer ownership AUTOMATICALLY transfers to the
to the prospective buyer. buyer by operation of law and without any
further act from the seller.
A NEW contract (Deed of Absolute Sale /
Contract OF SALE) must be executed in
order for the seller to convey title to the
buyer.
 Art. 1324. When the offeror
has allowed the offeree a
certain period to accept,
CONTRACT OF SALE : OPTION CONTRACT the offer may
withdrawn at any time
be

before acceptance by
communicating such
withdrawal

“Option Contract” – is one giving a person, for a consideration, a certain period within which
to accept the offer of the offeror. It is a separate contract from the contract which the parties
intend to create.

It is a preparatory contract which gives the optioner the option to enter into a principal
contract like a contract of sale.

“Option Period” – is the period given within which the offeree must accept the offer.

“Option Money” – is the money paid or promised to be paid in consideration for the
option. It is not the same as “Earnest Money”. It is simply a consideration for the period
given to the offeree.
 Sam offers to construct the house of Coby for 1 Million Pesos.
EXAMPLE: Sam gave Coby 10-days within which to decide to accept the
offer of Sam.

Applying Art. 1324, Sam may withdraw the offer even before the lapse of the 10-day option period,
unless if Coby has already communicated his acceptance.

Note, if Coby already communicated his acceptance, Sam can no longer withdraw her offer.

BUT, if the option period is coupled by an option money, which was actually paid, Sam cannot
withdraw her offer even prior the lapse of the option period.

With the option money in place, there is now an option contract between Sam and Coby.

In the said option contract, the object is the option period.

IF Coby communicates his acceptance, the Option Contract is consummated , AND the main
contract, which is the Contract of Service (Construction), is perfected.
 OPTION MONEY EARNEST MONEY “arras”
Money given as distinct consideration for Money given which forms part of the
an option contract. purchase price.
It is not deducted from the total purchase It is deducted from the total purchase price.
price since it is separate.
Applies only to sale which is not yet It is evidence that the contract of sale has
perfected. been perfected.
Even if the would-be buyer has given option Payment of earnest money binds the buyer
money, he is not required to buy. to pay the balance.
It is simply a consideration for the period given It constitutes as an advance payment,
to the offeree. which binds the seller to the sale.

Art. 1482.
Whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and as proof of the perfection of the contract. (1454a)
 OPTION CONTRACT : RIGHT OF FIRST REFUSAL
“Option Contract” – is one giving
a person, for a consideration, a
certain period within which to
accept the offer of the offeror. It is
a separate contract from the
contract which the parties intend
to create.
It is a preparatory contract which
gives the optioner the option to
enter a principal contract like a
contract of sale.
// Tanay Recreation Center & Dev’t Corp
vs. Catalina M. Fausto, et al, G.R. No.
140182. April 12, 2005
When a lease contract contains a right of
first refusal, the lessor is under a legal
duty to the lessee not to sell to anybody
at any price until after he has made an
offer to sell to the latter at a certain price
and the lessee has failed to accept it.
The lessee has a right that the lessor's first
offer shall be in his favor.
 CONTRACT OF SALE : CONTRACT OF BARTER
Sale Barter
A thing is given in exchange of a price, A thing is given in exchange of another
certain in money or its equivalent. thing.

This is because a contract of sale is

Commutative in character.
 Art. 1468.
RULES: When Consideration is party in money & partly in
If the consideration of the another thing:
contract consists partly in
money, and partly in 1. Follow the manifest intention of the parties.
another thing, the
transaction shall be 1. If intention is not clear:
characterized by the
manifest intention of the
parties. If such intention
does not clearly appear, it SALE
shall be considered a barter
if the value of the thing
given as a part of the
consideration exceeds the
amount of the money or its BARTER
equivalent; otherwise, it is a
sale. (1446a)
QUESTION: RULES ON MONEY EXCHANGE

Sam, will travel to the

Unites States of
America on February
14, 2022. She went to A local currency
the Bank to have her exchanged to a foreign
Philippine Peso currency is SALE
exchanged to U.S.
Dollars.

What transaction, did

Sam have? Was it a A local currency exchanged with other
Sale or a Barter? denomination of the same local currency is
BARTER
 CONTRACT OF SALE : CONTRACT OF PIECE OF WORK
Contract Sale
OBJECT: the thing subject of the
contract of sale is already existing at
the perfection of the contract.
It is one, which the vendor/seller in his
ordinary course of business
manufactures or procures for the
general market.
It could wither be on hand or not yet.
Contract of Piece of Work
OBJECT: the things subject of the
contract is not yet existing at the
perfection of the contract, but the
same is yet to exist at the order of the
person desiring it.
The good shall be manufactured only
by the seller/vendor upon the special
order of the buyer/vendee.
 Art. 1467.
CIR vs. Arnoldus Carpentry Shop, Inc. and CTA, G.R.
A contract for the delivery at No. 71122, March 25, 1988
a certain price of an article
which the vendor in the
ordinary course of his
business manufactures or
The Court said: “the distinction between a contract
procures for the general of sale and one for work , labor and materials is
market, whether the same is tested by the inquiry whether the thing transferred is
on hand at the time or not, one not in existence and which never would have
is a contract of sale, but if existed but for the order of the party desiring to
the goods are to be acquire it, or a thing which would have existed and
manufactured specially for has been the subject of sale to some other person
the customer and upon his even if the order had not be given.
special order, and not for the
general market, it is a
contract for a piece of work.
(n)
EXAMPLE: PIECE
OF WORK
Coby owns a carpentry
shop. Sam engaged the
service of Coby to
manufacture a customized
cabinet for her walk-in
closet in her new mansion.

Coby does not usually

produce such design but
will manufacture the same
as ordered and specified by
Sam and upon the price
they have agreed on.
QUESTION:
Jil and Duke were so happy
because they are now going
to move into their new
Condo. Apply the test!
Jil was bff’s with the
manager of MandaueFoam Was the thing OR was a
who told her that there was transferred not in thing already
a huge sale. existence and which in existence
never would have even if the
Jil and Duke bought tables, existed but for the order had not
chairs, couch, cabinets, etc. order of the party be given?
desiring to acquire it?
Is this a contract of sale or
contract for a piece of work?
Decide.
 CONTRACT OF SALE : DACION EN PAGO

Dacion en pago (Dation in payment) is a special mode of payment, where the

debtor offers another thing to the creditor as payment of his/her debt, and where
the creditor accepts such other thing as equivalent of payment of an outstanding
debt.

It a conveyance of ownership of a thing as an accepted equivalent of

performance.

It is a special form of payment because it is not the ordinary way of

extinguishment of an obligation/debt.
 Contract of Sale Dacion en Pago
(Dation in payment)
There is no pre-existing debt. There is a pre-existing debt.
Obligation is created: Obligation is extinguished

Seller – to deliver and transfer

ownership of the things, which is the
Object of the contract

Buyer – to pay the price, certain in

money or its equivalent
 Sam owed Coby 1 Million Pesos.
EXAMPLE: Instead of paying Coby in cold cash, Sam gave Coby a 2nd
hand Camaro.

If the 2nd hand Camaro is worth P800,000.00 only, then the debt of
Sam is extinguished only up to the said amount.

But, if Sam and Coby agreed that the Camaro shall be the full
payment, then it shall be considered as such.
 CONTRACT OF SALE : AGENCY TO SELL
Contract of Sale Agency to Sell
Transfer of Buyer received the goods as an Agent receives good as goods of the principal who
Ownership owner retains ownership over them
Obligation as Buyer pays the price Agent merely delivers the price he got from the buyer
to Price to his principal
Right to return Buyer cannot return, generally Agent can return the goods incase he cannot sell it
the things
Warranties on Seller warrants the things sold Agent makes no warranty, as long as he acts within
the object (against defect, and/or eviction his authority & in the name of the seller
Right over the Buyer can deal with the thing as Agent merely acts according to the instruction/s of
thing he/she pleases his/her principal
Revocability Contract of sale is not be Contract of Agency to sell is generally revocable as
unilaterally revocable the relationship is fiduciary in nature.
 Recall ObliCon lesson on:
Art. 1466 INTERPRETATION OF CONTRACTS (ART. 1170 – 1179)

In construing a contract
containing provisions
characteristics of both
the contract of sale and
of the contract of agency
to sell, the essential
clauses of the whole
instrument shall be
considered.
Art. 1370: Literal meaning controls when the language is clear
Art. 1371: Contemporaneous and subsequent acts relevant in
the determination of intention
Art. 1372: Special intent prevails over a general intent
Art. 1373: Rules where agreement is susceptible to several
meanings, one of which would render it effectual,
that which shall be given the interpretation.
Art. 1374: Interpret contracts as a whole, and in its
entirety. All provisions must be harmonized
Art. 1375: Rules when words have different signification
Art. 1376: Usage and Customs may be used in interpreting
contracts
Art. 1377: Contracts of Adhesion
Etc.
 SALE BY AUCTION
RULES:

Ø If goods are put up for sale by auction in lots, each lot is the subject of a separate contract
of sale.

Ø Perfection of a sale by auction is by a FALL OF THE HAMMER (or in other customary

manner). Before the hammer falls, the bidder may retract his bid, and the auctioneer may
withdraw the goods from the sale unless the auction has been announced to be without
reserve.

Ø Seller may reserve expressly his right to bid, unless otherwise provided by law or by
stipulation.
Ø If no notice on the seller’s right to bid is give, the seller cannot bid, nor can he ask
someone to bid for him/her. Violation of this shall be treated as fraudulent by the buyer.
Seller shows the buyer a small quantity as a fair
specimen or sample of the bulk of what he/she
is selling, which is not available for inspection of
the buyer.

Here, the parties treated the said sample as the

standard of quality of the object.

There is an implied warranty that the product to

be delivered would correspond to the sample
shown and free from defects.

SALE BY SAMPLE
(ART. 1481)
The seller describes the object being sold
because she/he has no sample available to
show the buyer.

The buyer merely relies on the description given

by the seller as basis of the transaction.

There is an implied warranty that the quality of

the goods will confirm to the description given by
the seller.

SALE BY DESCRIPTION
(ART. 1481)
 WHO BEARS THE LOSS/BENEFIT IN A CONTRACT
OF SALE? (ART. 1480)
Principle: “Res perit domino”
General rule: Before delivery,
the risk of loss is borne by the
seller who is still the owner of
the goods.
Chrysler Philippines Corp. vs.
Hon. Court of Appeals, G.R.
55684, Dec. 19, 1984.
Ø Object is lost before perfection of contract:
The seller bears the loss.
Ø Object is lost after delivery to the buyer:
Buyer bears the loss.
Ø Object is lost after perfection but before
deliver:
Buyer bears the loss. (Exception to the
gen. rule of Res Perit Domino)
QUESTION: Answer: Neither!

Coby owns a Note that Sam wanted it customized according

furniture shop. Sam to how she liked or preferred it.
liked the dining set
and cabinetry from While sure, there were samples of Coby’s
Coby’s showroom woodwork, the same was not the object of the
however, she contract of sale – rather, it was the custom
wanted it preference of Sam.
customized.
Further, there cannot be any warranty because
Is the contract one of the samples in the showroom were not object of
sample, or one of the contract of sale.
description?
 FORMS OF A CONTRACT OF SALE
Art. 1483.
Gen. Rule: A contract of sale, being a consensual
Subject to the provisions contract, no form is required for its
of the Statute of Frauds validity.
and of any other
It may be made:
applicable statute, a
ü in writing;
contract of sale MAY be ü by word of mouth;
made in writing, or by ü partly in writing and partly by word of mouth;
word of mouth, or partly or
in writing and partly by ü it may be inferred from the conduct of the
parties
word of mouth, or may
be inferred from the Except: Sale of piece of land, or any interest
conduct of the parties. therein, which is through an agent. The
(n) authority of the agent must be in writing,
or else, the sale if void.

REACALL: paragraph 1 of
Art. 1358 which provides
that acts and contracts
which have for their
object the creation,
transmission, modification
or extinguishment of real
rights over immovable
property; sales of real
property or of an interest
therein are governed by
articles 1403, No. 2, and
1405, and is required to
be in a public document.
Note, despite the seemingly mandatory provisions of Art.
1358, a public document is for purposes of
CONVENIENCE and NOT for the validity or enforceability
of the transaction.
Failure to comply with the provisions of Art. 1358 does
not invalidate the obligation/contract – it merely grants a
cause of action to sue in order to compel the other party
to have the document acknowledged before a notary
public.
STATUE OF FRAUDS – the following must be in writing
to be enforceable:
1. Sale if real property
2. Sale of personal property at a price not less than
P500.00
3. Sale of property not to ne performed within a year
from the date thereof
 REMEDIES: CONTRACT OF SALE OF PERSONAL
PROPERTY PAID BY INSTALLMENTS (ART. 1484)
(1) Exact fulfillment of the obligation, should
the vendee fail to pay (Specific Performance);
(2) Cancel the sale, should the vendee's
failure to pay cover two or more installments
(Rescission);
(3) 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.
Note:
Ø Any agreement to the contrary
shall be void.
Ø These are ALTENATIVE Remedies.
The exercise of one bars the
exercise of the others.
Ø This can be applied to contracts
purporting to be leases of personal
property with option to buy when
the lessor has deprived the lessee
of possession or enjoyment. (Art.
1485)
 Art. 1486.

In the case referred

to in two preceding Art. 1487.
articles, a
Art. 1488.
stipulation that the The expenses for
installments or the execution and
The expropriation
rents paid shall not registration of the
of property for
be returned to the sale shall be borne
public use is
vendee or lessee by the vendor,
governed by
shall be valid unless there is a
special laws.
insofar as the same stipulation to the
(1456)
may not be contrary. (1455a)
unconscionable
under the
circumstances. (n)
CAPACITY TO BUY AND SELL Part II
ART. 1489 – ART. 1492
 WHO ARE CAPACITATED TO ENTER A CONTRACT
OF SALE? (ART. 1489) Gen. Rule: ALL persons.

Except: Persons who are

incapacitated to
Who are incapacitated to enter a contract? give their consent.

1. Those Absolutely Incapacitated – Persons who

Art. 1327: PERSONS WHO
cannot, in all circumstances, enter a contract. Otherwise, CANNOT GIVE CONSENT - The
the contract shall be defective, either voidable or following cannot give consent to
a contract:
unenforceable. (Recall lesson on defective contract.) 1. Unemancipated
minors;
2. Insane or demented
persons; and
2. Those Relatively Incapacitated – Certain persons, 3. deaf-mutes who do
not know how to write
under certain circumstances, who cannot but from each
other.
 Deaf-mutes - In the old times, deaf-mutes
Unemancipated Minors are considered dumb. That is why they are
- those who have not yet considered as incapacitated. However,
reached the age of in the current times, with the advancement
majority and who are still of technology and science, it cannot be
under parental authority. gainsaid that deaf-mutes are now learned Note: Art. 1327 is set in place
Simply put, those below 18 and intelligent. Thus, they can also give to protect the persons listed
years of age (17 years old intelligent consent. therein because they are
and below). Once a minor easily victimized by fraud, and
Therefore, for a deaf-mute to be considered
becomes 18 years old,
as incapacitated to give consent, said deaf-
they do not usually
he/she is now understand the nature and
emancipated. mute must know not know how to read
and write. In short, a deaf-mute who can effects of their actions.
read can enter into a contract.
Contracts entered into by
persons identified in Art. 1327
Insane or Demented person - For insanity to cause the incapacity of are considered VOIDABLE.
the party to consent to a contract, his/her insanity must be proved to be They are valid until annulled.
existing at the time he/she gives her consent.

“Lucid Interval” is a period, short or lengthy, where an insane person is If BOTH parties are
momentarily and temporarily sane. incapacitated, the contract is
unenforceable, unless ratified.
Note: Insanity is not presumed, thus, it must be clearly established. In the
absence of proof of insanity, the party is deemed and presumed to be
sane.

QUESTION: Coby, being a minor, suffers from
absolute incapacity. Thus, the sale is
defected. It is VOIDABLE – valid until
Art. 1489. All persons who
are authorized in this Code
to obligate themselves, may
enter into a contract of sale,
saving the modifications
contained in the following
articles.

Last Christmas Coby, annulled. Where necessaries are

those sold and delivered to
who is a minor, received
Candies, chips, and toys are not a minor or other person
lots of money as gifts. considered as “necessaries”. without capacity to act, he
must pay a reasonable price
therefor. Necessaries are
On his birthday, he those referred to in Article
excitedly went to a store 290. (1457a)
owned by Sam. There, he
bought candies, chips
and a toy car that he had
been eyeing for months. Necessaries cover anything indispensable for
sustenance, medical attention, clothing, education
Is the sale valid? Decide. and transportation, dwelling, in keeping with the
financial capacity of the family.
 WHO SUFFERS FROM RELATIVE INCAPACITY? (ART. 1490 - 1491)
• The husband and the wife cannot sell property
to each other
• The guardian cannot buy the property of the
person who may be under his guardianship
• Agents cannot buy the property whose
administration or sale may have been
entrusted to them, unless the consent of the
principal has been given
• Public officers and employees cannot buy the
property of the State or of any subdivision
thereof, or of any government-owned or
controlled corporation, or institution, the
administration of which has been entrusted to
them; this provision shall apply to judges and
government experts who, in any manner
whatsoever, take part in the sale
• Executors and administrators cannot buy the
property of the estate under administration
• Justices, judges, prosecuting attorneys, clerks
of superior and inferior courts, and other
officers and employees connected with the
administration of justice cannot buy the
property and rights in litigation or levied upon
an execution before the court within whose
jurisdiction or territory they exercise their
respective functions; this prohibition includes
the act of acquiring by assignment and shall
apply to lawyers, with respect to the property
and rights which may be the object of any
litigation in which they may take part by virtue
of their profession.
• Any others specially disqualified by law
 Art. 1490. The husband and the wife
cannot sell property to each other,

HUSBAND AND WIFE (ART 1490) except:

(1) When a separation of property was

agreed upon in the marriage
settlements; or
REASON:
1. To prevent commission of fraud or prejudice to third (2) When there has been a judicial
persons; separation or property under
Article 191. (1458a)
2. To prevent one from unduly influencing the other;
and

3. To avoid indirect donations (Medina vs Collector of

Internal Revenue, G.R. No L15113, Jan. 28, 1961)

This applies similarly to common-law relationships.

GUARDIANS WITH RESPECT TO THE PROPERTY/IES
OF THE WARD

REASON:

The relationship is so intimate, the dependence so complete

and the influence so great that any transaction between the
two parties entered while the relationship exists are
suspicious, and presumptively fraudulent.
 AGENT WITH RESPECT TO THE PROPERTY WHOSE
ADMINISTRATION WAS ENTRUSTED TO HIM
REASON:
By virtue of a contract of agency,
the Agent acts for and on behalf of
the principal. Thus, technically, they
are one juridical person.
HOWEVER, this proscription is not absolute: INSTANCES
WHEN THE AGENT CAN BUY FROM THE PRINCIPAL
THE PROPERTY:
Ø After the termination of the relationship, the agent is
not prohibited to purchase a property belonging to the
erstwhile principal. (Valera vs. Velasco, GR No. L-
28050, March 13,1928)
Ø An agent can but properties of the principal which
was not entrusted to him (Moreno vs. Villonea, 40 O.G
2322); and
Ø An agent can but the property entrusted to him by his
principal when the principal gives consent thereto
(Cui vs. Cui, GR no. L-7041, Feb. 21, 1957)
 PUBLIC OFFICERS AND EMPLOYEES WITH RESPECT TO THE
PROPERTIES OF THE GOVERNMENT THAT ARE ENTRUSTED

REASON:

To remove any occasion for fraud and to eliminate

suspicion, which although unfounded, tends to
discredit the institution by putting into question the
honor of said functionaries.
ANY OTHERS SPECIALLY DISQUALIFIED BY LAW

An alien (foreigner) are disqualified from

buying private agricultural lands in the
Philippines as provided and mandated under
the Philippine Constitution.
EFFECTS OF THE CONTRACT WHEN
THING SOLD HAS BEEN LOST Part III
ART. 1493 - 1494
HOW DO YOU CONSIDER
A THING TO HAVE BEEN
LOST?

A thing is lost when it

perishes, or goes out of
commerce, or
disappears in such a way
that its existence is
unknown, or it cannot be
recovered. (Art, 1189, par
2)
EFFECT OF LOSS OF THING AT THE TIME OF SALE

THING WAS PARTIALLY LOST.

THING WAS LOST ENTIRELY

BUYER has two options, he could

either:
The contract shall be without any
effect. 1. Withdraw from the contract; OR

This is because the element of 2. Demand the remaining part,

“Object” is absent. paying its price in proportion to
the total sum agreed upon
LOSS OF SPECIFIC GOODS WHEN SELLER IS NOT
AWARE
Options of the BUYER:

1. Buyer can treat the same as avoided; or

2. Buyer can treat the same as valid in all of the

existing goods or in so much thereof as have not
deteriorated, and as binding the buyer to pay the
agreed price for the goods in which the ownership
will pass, if the sale was divisible.
DOCUMENTS OF TITLE Part IV
 DOCUMENTS OF TITLE (ART. 1507)
Document of title – A
document in which it is
stated that the goods
referred to therein will be
delivered to the bearer,
or to the order of any
person named in such
document is a
negotiable document of
title.
Examples:
Ø Bill of Lading - a document that serves as evidence of
receipt of goods for shipment issued by a common carrier;
Ø Dock warrant - a warrant given by dock owners to the owner
of merchandise imported and warehoused on the dock, as a
recognition of his title to the goods;
Ø Quedan - a warehouse receipt that covers sugar;
Ø Warehouse receipt or order – where it proves that the object
is deposited at the warehouse.
Ø Any other document used as proof of possession or as
authority to transfer the goods represented by the document.
FUNCTIONS OF DOCUMENT OF TITLE

(1) It is a contract
- the underlying contract may be contract of carriage (bill of
lading) or deposit (warehouse receipt)

(2) Evidence of receipt of goods;

(3) Represents the goods and therefore operates as transferable

document that carries possession of and title to the goods.
NEGOTIABILITY OF DOCUMENT OF TITLE

A Document of Title is Negotiable when it is either a BEARER document of title

or an ORDER of document of title.

BEARER
The document of title states that the goods referred to therein will be
delivered to the bearer.

ORDER
The document of title states that the goods referred to therein will be
delivered to the order of any person named in such document.
FORMS OF NEGOTIATING A NEGOTIABLE DOCUMENT
OF TITLE (ART. 1509)
(a) Mere delivery; (BEARER)

(b) Indorsement plus delivery. (ORDER)

A negotiable document of title may be negotiated by the indorsement of the

person to whose order the goods are by the terms of the document
deliverable.

Such indorsement may be in blank, or to bearer or to a specified person.

If indorsed to a specific person, it may be again negotiated by the

indorsement of such person in blank , to bearer or to another specified
person. Subsequent negotiations may be made in like manner
 WHO MAY NEGOTIATE?
A negotiable document of title may be negotiated:

(1) By the owner thereof; or

(2) By any person to whom the possession or custody of the document

has been entrusted by the owner, if, by the terms of the document the
bailee issuing the document undertakes to deliver the goods to the order
of the person to whom the possession or custody of the document has
been entrusted, or if at the time of such entrusting the document is in
such form that it may be negotiated by delivery.
WHAT IS THE EFFECT OF NEGOTIATION?

Negotiation of the document has the effect of manual

delivery so as to constitute the transferee the owner of the
goods.

Negotiation carries with it both title to and possession of

the property.
OBLIGATIONS OF THE VENDOR Part V
 WHAT ARE THE OBLIGATIONS OF A VENDOR?
1. Transfer the ownership (Art. 1458 and Art. 1495)
2. Delivery the object/thing sold (Art. 1458 & Art.1495)
3. Deliver the fruits and accessories (Art. 1164, 1166, and 1537)
4. Warrant the object of the sale against hidden defects/eviction
(Art. 1495, Art. 1545-1581)
5. Accord the buyer the right to examine the goods (Art. 1584)
6. Take care of the object, upon perfection and prior to delivery, with
the Diligence of a Good Father of the Family (Art. 1163)
7. Enter into a contract with a carrier on behalf of the buyer (Art. Art. 1495. The vendor
is bound to transfer
1523) the ownership of and
8. Pay for the expenses for the execution and registration of sale, deliver, as well as
unless a contrary stipulation is agreed upon (Art. 1487) warrant the thing
9. Notify buyer regarding necessity to insure goods if it is usual to which is the object of
the sale. (1461a)
insure them (Art. 1523); and
 HOW IS OWNERSHIP TRANSFERRED? Art. 1496. The ownership
of the thing sold is
acquired by the vendee
GENERAL RULE: Ownership of a thing sold is acquired only from the moment it is
upon its delivery (Actual/Constructive) to delivered to him in any of
the buyer, even if purchase was made on the ways specified in
credit (Alcantara Daus vs. Sps. De Leon, Articles 1497 to 1501, or in
Gr. 149750, June 16, 2003) any other manner
signifying an agreement
Remember that “payment” of the purchase price is NOT essential that the possession is
transferred from the
to the transfer of ownership, as long as the property sold is
vendor to the vendee. (n)
delivered (Sampaguita Pictures vs. Jalwindor Manufacturers, Inc.
Gr No. L-43059, Oct. 11, 1979)

Thus, non-payment only creates a right to demand payment or to

rescind the contract, or to criminal prosecution in case of
bouncing checks (EDCA Publishing vs. Santos, GR No. 80298, Apr.
16, 1990)
 WHAT IS DELIVERY?

Delivery is an act by which one party parts with the tittle to and the possession of the
property, and the other acquires the rights to and the possession of the same.

In its natural sense, it also means transfer of possession.

In the Saw on Sales, delivery could either be actual or constructive, but the forms of
delivery contemplate the ABSOLUTE giving up of the control and custody of the property
on the part of the seller, and the absolute assumption of control and custody of the buyer.
 Thus, the presumptive delivery via
execution of a public instrument is
negated by the reality that the buyer
actually failed to obtain material
There is Delivery
possession of the land subject of sale.
when, the (Cebu Winland Dev. Corp. vs. Ong Siau
following Hua, Gr. No. 173215, May 21, 2019.
CONCURS in the
hands of the
buyer:

1. Possession;
In the same vein, if the buyer is placed in
2. Control (Art.
actual possession of the property, but by
1497); and agreement of the parties, ownership of the
3. Ownership same is retained by the seller until the
buyer has fully paid the price, the mere
transfer of the possession of the property
subject of sale is NOT the ‘delivery”
contemplated in the Law on Sales.
 KINDS OF DELIVERY

1. Actual Delivery
3. Delivery through documents of
title
2. Constructive Delivery
a. Tradition simbolica (symbolical
4. Delivery through Carrier
delivery)
b. Traditio longa manu
5. Quasi-Tradition (Delivery)
c. Tradition brevi manu
d. Tradition constitutum possessorium
6. Tradition (Delivery) by operation
e. Tradition by the execution of legal
of Law
forms and solemnities
KINDS OF CONSTRUCTIVE DELIVERY:
Ø Tradition simbolica (symbolical delivery)

Example: Giving of keys

Ø Traditio longa manu

- Delivery by mere consent or the pointing

out of the object
Ø Tradition brevi manu
- Delivery by the shorthand, whereby the possessor
of a thing now becomes the possessor as owner

Example: A tenant who already possesses the

land and buys the house he is renting

Ø Tradition constitutum possessorium

- The owner of a property retains the possession of
the said property no longer as an owner but in
some other capacity.

Example: The owner sold the house – but still

stays in the house as a tenant.
Ø Tradition by the execution of legal forms and
solemnities

- execution of a public instrument such as a

deed of sale

- It operates as a formal or symbolical delivery

of the property sold, and at the same time it
authorizes the buyer to use the document as
proof of ownership.

- It merely serves as a prima facie presumption

of delivery – it can be negated when actual
deliver is not materialized or when buyer was
unable to take possession or control over the
thing sold.
QUASI-TRADITIO (DELIVERY)

Delivery of rights, credits, or incorporeal properties which is made either by:

a. Execution of a public instruments; or

b. Placing titles of ownership in the possession of the vendee / buyer; or

c. The use and enjoyment by the uyer of the rights pertaining t the incorporeal
property with the seller’s consent (Art. 1501)
 TRADITION (DELIVERY) BY OPERATION OF LAW
Example:

1. When a non-owner who sells and delivers a thing subsequently acquires title thereto, the Title
passes by operation of law to the buyer (Art. 1434)

ILLUSTRATION: Sam sold to Coby a 1-hectare land located in Pavia. At the time of perfection, Sam
was not yet the owner of said property. On the day Sam delivered the land to Coby, she was also
not the owner yet. While the sale is technically void because Sam is not the owner, and she cannot
sell what she does not own therefore the ownership of the property does not pass to Coby.

However, if after the delivery, Sam eventually became the owner of the said land – then, by
operation of law, ownership now passes to Coby.

2. Delivery through Documents of Title (Art. 1507-1520)

 DELIVERY THROUGH CARRIER

General Rule: Where the seller is authorized or required to send

the goods to the buyer, delivery to the carrier
constitutes delivery to the buyer (Art. 1523)

Exception: 1. When a contrary intention appears

2. Implied reservation of ownership (Art. 1503 paragraphs 1, 2 & 3)
 C.I.F. (Cost, Insurance, Freight)

It signifies that the price fixed covers

KINDS OF DELIVERY TO CARRIER:
F.O.B. (Free on Board)
Goods are delivered free
of expense to the buyer.
This could be FOB from
point of shipment or until
point of destination.
the cost of the goods, the expenses
of the freight, and the insurance. All of
which are to be paid by the seller up
FOB shipping point to the point of destination.
Delivery of the goods
to the carrier is
equivalent to delivery F.A.S. (Free Alongside Vessel)
to the buyer and at
that point the risk of The seller pays all charges and bears the risk
loss pertains to the until the goods are placed alongside the vessel
buyer.

FOB destination C.O.D (Cash on Delivery)

Only when the vessel has arrived at the point of The carrier acts for the seller in collecting the
destination would there be delivery to the buyer, and purchase price, which the buyer must pay in
prior to that point of arrival the risk of loss is borne by order to obtain possession of the goods.
the seller
QUESTION:
Sam who is in Manila Sam bears the lost because ownership (title) does not
agreed to ship goods to pass till the goods reach Vigan.
Coby who was in Vigan.
The agreement was “FOB- Hence, the seller bears the loss.
Vigan”.
If the price has been given her, she must return the same.
However, before the goods
reached Vigan, they were If no payment has yet been made, she cannot successfully
destroyed by a fortuitous demand the price from the buyer.
event. Who bears the lost?
 WHAT SHOULD BE DELIVERED?

Ø The good/s which is the object of the Contract of Sale;

Ø Seller is bound to deliver ALL of the goods, unless delivery by

installment was agreed upon (Art. 1583);

Ø The accessions and accessories in the condition in which there

were upon the perfection of the contract of sale (Art. 1537)
Accessions – the fruits of a thing or additions to or
improvement upon the thing to be delivered.

Example: House / trees on the land ART. 1166

Rents of the Building/House
Air conditioner in a car
The obligation to give
a determinate thing
includes that of
delivering all its
Accessories – things joined to or included with the accessions and
principal thing for the latter’s embellishment, better, or accessories, even
completion. though they may not
have been
Example: Key of the house mentioned. (1097a)
Frame of the picture/painting
Machinery in the factory
 Principle of Law: “Accessory follow the principal”.

General Rule: All accessories and accessions are considered included in

the obligtaion to deliver a determinate thing although they
may not have been mentioned.

Except: When there is a stipulation explicitly and expressly says there

are excluded.
EXAMPLE
 v A Contract of Sale was
entered into by Sam (the
seller) and Coby (the buyer).
The subject of the sale was
a parcel of land located at
Arguelles St. Jaro, Iloilo City.
In the said parcel of land, a
huge mansion stands. What
is included in the Contract
of Sale?

Ø Absent a stipulation
that the mansion
(accession) is
excluded, then the
sale includes the

QUESTION mansion.
 QUESTION
q What is the principal?
v What if the object of the contract q What is/are the
of sale is the mansion. What is accessory/accession?
included in the contract of sale? q If the accessory follows the
principal - can the principal
follow the accessory?
Ø The sale of an
improvement/accession What do you think?
(the mansion) on the land
(principal) is not sufficient
to convey title to the land.

Ø Thus, unless there is an

agreement, expressly, that
the land is included, only
the mansion was sold.
 WHERE & WHEN TO DELIVER? (ART. 1521)
PLACE OF DELIVERY
1. The placed agreed upon
2. In the absence of an agreement, place shall be
determined by usage of trade
3. Where there is no agreement or prevalent
usage of trade, the place shall be the seller’s
place of business
4. In any other case, the place of delivery is at the
residence of the seller.
5. In case of specific goods knon by the parties at
some place at the time of the perfection of
sale, such is the place of delivery, in the
absence of an agreement or usage of trade to
the contrary. (Art. 1521)
TIME OF DELIVERY
1. Time agreed upon;
2. If there was no time agreed upon,
delivery should be within a reasonable
time.
San Fernando Regala Trading vs. Cargill Phils. Inc.
Gr. No. 178008, Oct. 9, 2013
A stipulation designating the place and manner of
delivery is controlling on the parties. The thing sold
can only be understood as delivered to the buyer
when it is placed in the buyer’s control and
possession at the agreed place of delivery.
QUESTION:
Dory and Nemo entered a
contract of sale where
Sullivan vs. Gird 22 Arizona 332
Dory will sell to Nemo a
size 8 Nike shoes. It was
agreed upon by the parties
”Where, however, the delivery was not effected at the place
that Dory will deliver the
specified in the contract but the buyer accepted the goods
said shoes to P. Sherman
without complaint, the buyer would be deemed to have
42 Wallbyway, Sidney.
waived the seller’s failure to deliver according to the terms
However, because Dory
of the contract, and the buyer shall be liable to pay the
suffers from short term
price agreed upon.”
memory loss, she forgot
the address and delivered
it to the Philippines instead.

What is the effect?

Decided.
 IN WHAT CONDITION SHOULD THE THING (OBJECT) BE
WHEN IT IS DELIVERED?
“As-is-where-is”
Unless otherwise agreed upon, the
seller bears the expenses to place the This phrase solely pertains to the physical
thing to be delivered in a deliverable condition of the thing sold and therefore does not
state. (Art. 1521, Paragraph 5) amount to a waiver on the legal defects pertaining
to the object. (NDC vs. Madrigal Wan Hai Lines
Corp. G.R. No. 148332, Sept. 30, 2003)

It is merely descriptive of the state of the thing sold.

It merely describes the actual state and location of
the object and it does not alter, in anyway, the
seller’s responsibility to deliver the property to the
buyer.
QUESTION:
Can the seller be
still the owner of
the good when the
seller was already
able to deliver the
good?!
Yes!

General Rule: Delivery transfer’s ownership.

BUT Let’s discuss CASES WHERE THERE IS

RESERVATION OF OWNERSHIP DESPITE
DELIVERY
 EXCEPTIONS: CASES WHERE THERE IS RESERVATION OF
OWNERSHIP DESPITE DELIVERY
1. Contractual Reservation
of Title (Pactum
Reservati Dominii)
In Law on Sales, the gen. rule
is that delivery of the thing
transfers ownership to the
buyer (Art. 1477). However,
the parties may agree that
the ownership shall be
retained by the seller until the
full payment of the
purchase price (Art. 1478)
3. Sale on Acceptance/
Trial/Approval/Satisfaction
2. Contract TO Sell
Ownership passes ONLY
An agreement, separate when:
and distinct from a a) buyer signifies his
Contract of Sale, where approval/acceptance
parties merely promise to to the seller, does any
buy and sell to each act adopting the
other. transaction; and
Ownership does not b) retains the goods
pass, and is retained by without giving any
the Seller. notice or rejection at the
expiration of the time
fixed
 A bill of exchange is a A bill of lading is a legal document issued by a
written order used carrier to a shipper that details the type,
primarily in international quantity, and destination of the goods being
trade that binds one party carried. A bill of lading also serves as

CONTINUATION… to pay a fixed sum of

money to another party on
demand or at a
a shipment receipt when the carrier delivers
the goods at a predetermined destination. This
document must accompany the shipped
predetermined date. products, no matter the form of transportation,
and must be signed by an authorized
representative from the carrier, shipper, and
receiver.

4. Implied Reservation of Ownership (Art. 1503)

a) Where good are shipped and by the Bill of Lading, the goods are deliverable to the seller or his
agent, or to the order of the seller or his agent.
- Seller reserves ownership of the goods.

b) Where goods are shipped and by the bill of lading the goods are deliverable to the order of the
buyer or his agent, but the possession of the bill of lading is retained by the seller or his agent.
- Seller reserves a right to the possession of the goods.

c) Where the seller of the goods draws on the buyer for the price and transmits the bill of lading and bill of
exchange to the buyer to secure acceptance or payment of the bill of exchange and the buyer does not honor
the of exchange.
- Here, the seller is the drawer, and the buyer is the drawee. If the buyer does not honor the bill of
exchange, he shall return the bill of lading. If he retains the same, the buyer no added right thereby.
Art. 1503 put simply:
Instances when the seller is still the owner despite delivery;

ØExpress stipulation or agreement by the parties.

ØIf under the bill of lading the goods are deliverable to seller or agent or their order (Reason – the
buyer cannot get the goods);

ØIf bill of lading , although stating that the goods are to be delivered to buyer or his agent, is KEPT
by the seller or his agent. (Reason – the buyer also cannot get the goods);

ØWhen the buyer does not honor the bill of exchange sent along with the goods, although the
goods are deliverable to order of buyer, and although the bill of lading is given to him.
But of course, innocent third parties (innocent holders and purchasers for value) should
not be adversely affected.
 WHO BEARS THE RISK OF LOSS IN DELIVERY?
Art. 1504. Unless otherwise agreed, the goods Gen. Rule: Seller bears risk of loss until the goods
remain at the seller's risk until the ownership
therein is transferred to the buyer, but when the are delivered to the buyer, and
ownership therein is transferred to the buyer the consequently until the ownership
goods are at the buyer's risk whether actual
thereof is transferred to the buyer.
delivery has been made or not, except that:

(1) Where delivery of the goods has been made to Exception:

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;
(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. (n)
1. Contrary agreement between parties;
2. Upon delivery & transfer of ownership – the buyer
now bears the risk of loss;
3. Delivery was made but seller reserved right to
retain ownership to make sure buyer pays – the
buyer bears risk from time of delivery; and
4. Where delivery was delayed – the risk is borne by
the one who caused the delay
 WHAT IF SELLER HAS VOID OR VOIDABLE TITLE?
Article 1505
Seller has VOID Title over the object he/she sells
Subject to the provisions of this Title, where goods
are sold by a person who is not the owner thereof,
and who does not sell them under authority or with
the consent of the owner, the buyer acquires no
better title to the goods than the seller had, unless
the owner of the goods is by his conduct precluded
from denying the seller's authority to sell.
Effect: the buyer acquires no better title to the
goods than the seller had, unless the owner of the
goods is by his conduct precluded from denying
the seller's authority to sell.
Article 1506
Seller has VOIDABLE Title over the object he/she
sells
Where the seller of goods has a voidable title
thereto, but his title has not been avoided at the
time of the sale, the buyer acquires a good title to
the goods, provided he buys them in good faith, for
value, and without notice of the seller's defect of
title. (n)
Effect: the buyer acquires a good title to the goods,
provided he buys them in good faith, for value, and
without notice of the seller's defect of title. (n)
QUESTION: Yes, because Kris was unlawfully deprived of
Kris is the owner of a diamond
necklace which was stolen the diamond necklace after it was stolen
from her by her former from her.
personal assistant. She
attended a party / social
gathering organized by her Under the law, one who has lost any
best friend Ai-Ai. During the movable or has been unlawfully deprived
party / social gathering, she
saw Ai-Ai wearing the same thereof may recover it from the person in
diamond necklace which was possession of the same.
stolen from her. She
demanded from Ai-Ai to return
the diamond necklace which This is true even if the possessor bought it
the latter refused as she had from a thief.
paid P1M to the seller of the
said jewelry. Can Kris demand
for the return of the diamond
necklace? Why?
QUESTION:
In the previous question: Yes, provided that she would reimburse Ai-
What if Ai-Ai purchase the Ai the amount she may have paid to the
diamond necklace from a public sale.
public sale, will your
answer still be the same?
Under the law, if the possessor of the
movable lost or which the owner has
unlawfully deprived, has acquired it in
good faith at a public sale, the owner
cannot obtain its return without
reimbursing the price paid therefor.
GENERAL RULE: The vendee or buyer does not acquire
any better right / title to the object sold if the object was
bought from somebody who is not the owner thereof and
who is not authorized to sell.

Exceptions:
Ø Where the true owner is estopped or precluded by his
The general rule is no one can
conduct from denying the vendor’s authority to sell;
give what he does not have –
nemo dat quod non habet.
Ø Where the sale is made by the registered or apparent
owner in accordance with recording or registration
Therefore, even if a person be a
laws;
bona fide purchaser, he
succeeds only to the rights of
Ø Where the sale is made pursuant to a statutory power
the vendor. If the seller is not
of sale or under the order of a court of competent
the owner, the sale is null and
jurisdiction; and
void.
Ex. Sale thru public auction.

Ø Where the purchase is made in a merchant’s store, or in

fairs, or markets, in accordance with the Code of
Commerce and special laws.
QUESTION: Sam must return without any right of
Sam in good faith, reimbursement.
purchased a diamond ring
from his friend Coby. Coby
gave Sam a bill of sale.
The law says that one who has lost any
Later on, Jil identified the
ring as one she had lost
movable or has been unlawfully deprived
about a year ago. thereof may recover it from the person in
possession of the same, without such
What advice would you
give to Sam in reference to
possessor being entitled to reimbursement,
Jil’s demand that the ring except if the acquisition in good faith has been
be returned or surrendered at a public sale or auction, or at a merchant’s
to him?
store, fair or market.
REMEMBER:

The possession of movable property acquired in good faith is

equivalent to a title.

Nevertheless, one who has lost any movable or has been

unlawfully deprived thereof, may recover it from the person in
possession of the same.
QUESTION:
No, because the owner has been unlawfully
deprived of it. Hence, the true owner can get it
back without reimbursement.
Can a buyer acquire
title from a thief who
sold the goods to If the buyer had acquired the stolen
him? automobile at a public auction, even if he be
in good faith, the true owner can still get it
from him, but this time he would be entitled to
reimbursement.
 INSTANCES WHERE THE VENDOR IS NOT BOUND
TO DELIVER
1. If the vendee has not paid the price
(Art. 1524)
2. If no period for payment has been fixed
in the contract or was agreed upon;
and
3. While there was a period agreed upon,
the vendee however, has lost the right
to make use of the term as provided in
Art. 1198. (Art. 1536)
ART. 1198
The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) When he does not furnish to the creditor the guaranties
or securities which he has promised;
(3) When by his own acts he has impaired said guaranties
or securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond. (1129a)
UNPAID SELLER

Ø Who is an unpaid seller (Art.

1525)

Ø What are the rights and

remedies of an unpaid seller
(Art. 1526-1535)
 Art. 1524. The vendor shall not be
bound to deliver the thing sold, if the
WHO IS AN UNPAID SELLER?! vendee has not paid him the price, or
if no period for the payment has been
(ART. 1525) fixed in the contract.

The seller of goods is deemed to be an unpaid seller if:

1. He/she was not paid the whole of the price;

2. When the bill of exchange or other negotiable instrument which he/she
received as conditional payment was dishonored;
3. When the buyer is insolvent

In Articles 1525 to 1535 the term "seller" includes:

ü an agent of the seller to whom the bill of lading has been indorsed,
ü a consignor or agent who has himself paid, or is directly responsible for
the price,
ü or any other person who is in the position of a seller.
Bill of Exchange:

An unconditional written
order by one person to Negotiable Instrument
another, signed by the
maker, requiring the For an instrument to be negotiable it
person addressed to pay t must:
a third party a specified 1. be in writing and signed by the
sum on demand or at a maker or drawer;
fixed or ascertainable Let’s Learn 2. contain an unconditional
future time.
Some Terms promise or order to pay a sum
certain in money;

3. be payable on demand, or at a
“Dishonor” – to refuse fixed or determinable future time;
to accept or pay a
4. be payable to order or to bearer;
negotiable instrument “Insolvency” – The and
when presented.
condition of being
(Otherwise known as 5. Where the instrument is
unable to pay debts as
when the check addressed to a drawee, he must
they fall due.
bounced. be named or otherwise indicated
therein with reasonable certainty.
QUESTION:
Sam and Coby entered a
Mere delivery of a negotiable instrument
contract of sale of Nike does not extinguish the obligation of the
shoes, where Sam will buy
buyer to pay because it may be dishonored.
90 pairs of the newest style in
the market.
Remember that payment must be in legal
Sam gave Coby as payment
Post Dated Check for tender, and check is not a legal tender.
December 31, 2022.

Is the payment of Coby

A check can only be considered as payment
through a Check be when encashed.
considered to have
extinguished his obligation?
Decide.
 REMEDIES OF AN UNPAID SELLER
(ART. 1526)
1. Possessory Lien (Right to retain the goods)
- while the seller is still in possession of
the goods.

2, Right of Stopping the goods in transit

- when the seller has parted with the
goods and the same are still in transit.
- When the buyer is insolvent
- Right of stoppage in transit (Art. 1530)

3, Right of resale (Art. 1533)

4. Right to rescind (Art. 1534)

 I. POSSESSORY LIEN OF UNPAID SELLER (ART. 1527-1529)
Art. 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)
“Possessory Lien” – A legal right
or interest that a creditor has in
another’s property, lasting usually
until the debt/duty/obligation that
it secures is paid.
It is a lien allowing the
creditor/seller to keep possession
of the encumbered property until
the debt is satisfied.
In case seller already made
part delivery – he/she can
still exercise his right of lien
on the remainder which
was not yet delivered (Art.
1528)
How is right of lien lost by an
unpaid seller (Art. 1529)
(1) When he delivers the goods
to a carrier or other bailee for
the purpose of transmission to
the buyer without reserving the
ownership in the goods or the
right to the possession thereof;
(2) When the buyer or his
agent lawfully obtains
possession of the goods; or
(3) By waiver thereof.
QUESTION:
Coby, an unpaid seller
has exercised his right to
retain good sold.
No, for bringing of the action is not
The following week, he one of the ways of losing the
decided to brig and file
an action to get the possessory lien.
purchase price or
payment from Sam, the
buyer.

By filing said action, did

Coby lose his lien?
QUESTION:
Coby, an unpaid seller
has exercised his right to
retain good sold. He
exercised his right to
retained through a No more, for the negotiable
warehouseman. warehouse receipt automatically
transferred both title and right of
A month after, Coby
delivered to Sam, the possession to the goods in the
buyer, a negotiable Sam.
warehouse receipt.

Does the Coby still have

a possessory lien?
 II. RIGHT OF STOPPAGE IN TRANSITU
(ART. 1530 – 1532)
Goods are ”in transit”:
(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:
(1) If the buyer, or his agent in that
behalf, obtains delivery of the goods
before their arrival at the appointed
How to exercise Right of Stoppage
destination;
in Transitu? (Art. 1532)
(2) If, after the arrival of the goods at the
appointed destination, the carrier or 1. By obtaining actual possession
other bailee acknowledges to the buyer of the goods; or
or his agent that he holds the goods on
his behalf and continues in possession
2. By giving notice of his claim to
of them as bailee for the buyer or his
the carrier or other bailee. Notice
agent; and it is immaterial that further
destination for the goods may have may be given to:
been indicated by the buyer; a) person in actual possession
of the goods; or
(3) If the carrier or other bailee
wrongfully refuses to deliver the goods b) to his principal
to the buyer or his agent in that behalf.
EFFECTS OF THE EXERCISE OF THE RIGHT OF STOPPAGE
IN TRANSITU
vThe goods are no longer in transitu;

vThe contract of carriage ends; instead the carrier now becomes

a mere bailee, and will be liable as such;

vThe carrier should not deliver anymore to the buyer or the

latter’s agent, otherwise he will clearly be liable for damages;

vThe carrier must redeliver to, or according to the directions of

the seller.
 Effect of Resale:
1. The buyer (buyer in the resale)
acquires a good title against the
III. RIGHT TO RESALE original buyers.
2. The unpaid seller, on the other
hand , shall not be held liable to
the original buyer upon the
An unpaid seller having a right of lien and right of stoppage in contract of sale or for any profit
transit and who have stopped the goods in transit may resell made by reason of the resale.
the goods in the following cases: 3. As a matter of fact, under the law
he may recover from the latter
1. When the goods are perishable in nature; damages for any loss occasioned
by the breach of contract of sale.
2. When the seller has expressly reserved the right of resale in
case the buyer should make default; and
Resale is effected thru:
3. When the buyer has been in default in the payment of the
Resale may be made either by
price for an unreasonable time
public or private sale. However,
the unpaid seller , who is bound
to exercise reasonable care and
Note: the right to re-sell applies only when the ownership has
judgment in making the resale,
actually transferred to the buyer.
cannot directly or indirectly buy
the goods.
QUESTION: It is not essential to the validity of a resale
that notice of an intention to resell the goods
be given by the seller to the original buyer.
Is it essential that
notice of such But where the right to resell is not based on
resale be given to the perishable nature of the goods or upon
the original express provision of the contract of sale, the
giving or failure to give such notice shall be
buyer?
relevant in any issue involving the question
whether the buyer had been in default for an
unreasonable time before the resale was
made. (Art. 1533)
NOTE: IN RESALE
The deficiency in the price may be obtained as damages.

This happens when the resale price is lower than the original selling price.

Indeed the resale is similar to a foreclosure of a lien held to secure the payment
of the purchase price.
One the other hand, any excess in the price goes to the seller.
 RIGHT TO RESCIND
An unpaid seller having a right of lien and right of stoppage in transit and who have
stopped the goods in transit may rescind the transfer of title and resume ownership in the
good under the following:

1. When the seller expressly reserved the right to do so; or

2. When the buyer has been in default in the payment of the price for an unreasonable
time.

EFFECT: (Art. 1534). NOTE: Intention to Rescind by the seller must

1. The seller shall not be liable to be manifested to the buyer through either;
the buyer;
2. The seller may recover from the 1. NOTICE;
buyer DAMAGES for any loss 2. Or some overt act
occasioned by the breach
RULES ON COMPLETENESS
OF DELIVERY
(Arts. 1522)

I. OBJECT IS MOVABLES
II. OBJECT IS IMMOVABLES

RULES ON COMPLETENESS OF DELIVERY
I. OBJECT IS MOVABLES
What was delivered
Quantity is LESS than what was
agreed upon
Quantity is MORE than what
was agreed upon
Is a mixture of goods of different
description
'Fair value to him” – is
the befit which the buyer
may have received from
the goods. Does not
always mean fair market
value.
OPTIONS of the BUYER
1. Reject the goods; or
2. Accept and pay:
a) Contract Price – if buyer knows seller will not complete the
contract; or
b) Fair Value to him of the goods delivered – if the buyer has used
the good before he/she knew that seller will not complete the
contract
1. Accept per contract and reject the rest;
2. Accept the whole and pay at the contract rate; or
3. If divisible, reject the while or accept it entirely
1. Accept the goods which are in accordance with the contract and reject the rest;
or
2. If indivisible, reject the goods entirely or accept then entirely
 RULES ON COMPLETENESS OF DELIVERY
II. OBJECT IS IMMOVABLES
(ARTS. 1539 – 1540)

SOLD PER UNIT OR NUMBER (ART. 1539 – 1540) – where a contract contains a statement of the area at
the rate of a certain price or a unit or measure or number.

Rules:
1. If the vendee should demand, the vendor shall deliver all that may have been stated in the contract.

2. If what was delivered is LESS in area or of inferior or different quality:

Ø The buyer may RESCIND if:

• Lack in area is at least 1/10 of the area agreed upon;
• The deficiency in quality specified in the contract exceeds 1/10 of the price agreed upon;
• The vendee would not have bought the immovable had he known of its smaller area or inferior
quality; AND

Ø The buyer may ask for proportional reduction of price

EXAMPLE:
Sam buys from Coby a piece of land supposed to contain 1000
sq. m. at the rate of P1,000 per sq. m., but the land was actually
800 sq. m. only.

The additional 200 sq. m. must be given to Sam should she

demand them.

BUT, If this cannot be done, Sam may pay only P800,000.00 (for
the 800 sq. m.) or rescind the contract.
QUESTION:
As a rule no.
What if in the
previous example Because only 50 sq. m. is lacking.
there are only 950
sq. m. Remember that the lack must at least be 1/10
of the area stated.
Can Sam ask for
rescission? However, if Sam would not have bought the
land had she known of its smaller area, she
may rescind the sale.
 CONT. RULES ON COMPLETENESS OF DELIVERY
II. OBJECT IS IMMOVABLES
(ARTS. 1539 – 1540)

Continuation of Rules:

3. If what was delivered is GREATER in area (Art. 1530) :

Ø Accept per stipulation and reject the rest;

Ø Accept the whole and pay at the contract ratel
NOTE: Rescission is not an option
when what was delivered is greater
in area than what was agreed upon
because there is no prejudiced
caused to the buyer. Thus, he is free
to accept or not the excess.
EXAMPLE:
Sam buys from Coby a piece of land supposed to contain 1000 sq. m.
at the rate of P1,000 a sq. m. But the land really contains 1500 sq. m.
What can Sam do?

Sam may accept 1000 sq. m. and reject the extra 500, in which case
she will pay only P1 million.

However, SAM is also allowed to accept all of the 1500 sq. m., but
She must pay P1.5 million.

Under Art. 1540, Sam is not allowed to rescind the contract, for
such a remedy is not allowed because she was not really
prejudiced.
RULE ON SALE BY LUMP SUM (ART. 1542)

SOLD BY LUMP SUM - when two or more real estates are sold for a single price.

Rule:
Ø There shall be no increase/decrease in the area actually delivered and the area stated in
the contract (Azarraga s. Gay, G.R. No. 29449, Dec. 29, 1929)

Ø BUT: if the deficiency is so material or gross as to go to the essence of the contract then
rescission / adjustment of the price may be had.

Ø Besides mentioning the boundaries , which is indispensable in every conveyance of real

estate, its area or number should be designated in the contract, the vendor shall be bound
to deliver all that is included within said boundaries, even when it exceeds the area or
number specified in the contract.
REMEDIES OF THE VENDEE / BUYER:

(a) Reduction in the price, in proportion to what is

lacking in the area or number;

(b) Rescission because the vendee does not accede to

the failure to deliver what has been stipulated.
QUESTION:
Sam buys a piece of land
from Coby at the lump
sum of P1 million.
In the contract, the area is
stated to be 1000 sq. m.
The boundaries are of
course mentioned in the
contract. Now then it was
discovered that the land
within the boundaries
really contains 1500 sq. m.
Is Coby bound to deliver
the extra 500 sq. m.?
Yes.
Furthermore, the price should not be increased. This is so
because Coby should deliver all which are included in the
boundaries.
If Coby does not deliver the remaining 500, Sam has
the right either to:
1. rescind the contract for the seller’s failure to deliver
what has been stipulated, or;
2. To pay a reduced proportional price, namely 2/3 of
the original price. This is so because he really gets
only 2/3 of the land included within the boundaries
(1000 sq. m. out of 1500 sq. m.)
 Article 1539
Sale per Unit or Number
If the sale was made for a price per unit of
measure or number, the consideration of the
contract with respect to the vendee(seller), is the
number of such units,
Article 1542
Sale by Lump Sum
But if, the sale was made for a lump sum, the
consideration of the contract is the object sold,
independently of its number or measure. The thing
as determined by the stipulated boundaries.

What is controlling is the entire land included

within the boundaries, regardless of whether the
real area should be greater or smaller than that
recited in the deed.
Ex: Sam is selling 120 square meters of land to Ex: Sam is selling three of her parcels of land
Coby. located in Mandurriao which is bounded
according to the title.

Note:
1. The rules under Art. 1539 and Art. 1542 are also applicable to Judicial Sales. (Art. 1541)
2. Actions arising from Art. 1539 and Art. 1542 prescribes in 6 months, counted from date of delivery.
(Art. 1543)
 Art. 1502. When goods are delivered to the buyer "on sale or return" to
give the buyer an option to return the goods instead of paying
the price, the ownership passes to the buyer of delivery, but he
may revest the ownership in the seller by returning or
”ON SALE OR tendering the goods within the time fixed in the contract, or, if
no time has been fixed, within a reasonable time. (n)
RETURN”
When goods are delivered to the buyer on approval or on trial
or on satisfaction, or other similar terms, the ownership
therein passes to the buyer:
SALE ON TRIAL/
APPROVAL/ (1) When he signifies his approval or acceptance to the seller
SATISFACTION or does any other act adopting the transaction;

(2) If he does not signify his approval or acceptance to the

seller, but retains the goods without giving notice of rejection,
then if a time has been fixed for the return of the goods, on the
expiration of such time, and, if no time has been fixed, on the
expiration of a reasonable time. What is a reasonable time is a
question of fact. (n)
 RULES ON SALE OR RETURN
Buyer CANNOT Return:
Buyer CAN Return:
Ø Ownership PASSES immediately
to the buyer on delivery -- When through his fault
- when buyer returns
the object deteriorated;
the object - the
Ø Risk of Loss is borne by the
ownership reverts
buyer. - When the period agreed
back/ returns/revests to
upon lasped already; and
the seller.
Ø This is subject to Resolutory
Condition. - When buyer has
- Even if the object
deteriorates – provided materially abused the
Ø Depends entirely on the will of
buyer is not at fault, and condition of the thing.
the buyer.
he/she does prior the The sale in this case
time agreed upon/or becomes absolute.
within reasonable time
 RULES ON SALE ON TRIAL / APPROVAL / SATISFACTION)
Ø Ownership REMAINS with the seller even if there is delivery – until the sale becomes absolute
Ø Ownership passes to the buyer when:

Ø When he signifies his approval or acceptance to the seller or does any other act
adopting the transaction;

Ø If he does not signify his approval or acceptance to the seller, but retains the goods
without giving notice of rejection, then if a time has been fixed for the return of the
goods, on the expiration of such time, and, if no time has been fixed, on the
expiration of a reasonable time. What is a reasonable time is a question of fact.

Ø This is subject to a suspensive condition.

Ø Depends on the QUALITY of the goods.

 RULES ON SALE ON TRIAL / APPROVAL / SATISFACTION)
Ø Risk of loss remains with the seller, although there has been delivery, if the sale has not yet become
absolute.

Exceptions:
• If the buyer is at fault;
• If the buyer has expressly agreed to bear loss.

Ø Buyer must give goods a trial except when it is evident that it cannot perform the work intended;

Ø Period within which buyer must signify his acceptance commences to run only when all the parts
essential for the operation of the object have been delivered.

Ø If it is stipulated that a third person must satisfy approval or satisfaction, the provision is valid, but the
third person must be in good faith. If refusal to accept is not justified, seller may sue;

Ø Generally, the sale and delivery to a buyer who is an expert on the object purchased is not
obviously a sale on approval trial or satisfaction.
 RULES ON
DOUBLE SALE
(ART. 1544)
 If the same thing should have been sold to
different vendees, the ownership shall be transferred
to the person who may have first taken possession thereof
in good faith, if it should be movable property.

Art. 1544. Should it be immovable property, the ownership shall

belong to the person acquiring it who in good faith first
recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain

to the person who in good faith was first in the possession;
and, in the absence thereof, to the person who presents the
oldest title, provided there is good faith.
REQUISITES: DOUBLE SALE

1. Two or more transactions must constitute separate valid sales;

2. Two or more buyers who are at odds over the rightful ownership of the subject
matter must each represent conflicting interest;

3. They must pertain exactly to the same object or subject matter; and

4. They must be bought from the same or immediate seller (Vda. De Viray vs. Sps. Usi,
GR No. 192486, Nov.21, 2012)
 RULES ON PREFERENCE IN DOUBLE SALE

REAL PROPERTY:
Governing
principle: PERSONAL
1. The 1st Registrant in
Good Faith;
PROPERTY:
“Prius tempore, 2. The 1st Possessor in
The 1st
possessor in
potior jure” Good Faith
Good Faith; or

3. Person with Oldest Title

“First in time, in Good Faith
stronger in right. ”
 CONT. RULES ON PREFERENCE IN DOUBLE SALE
NOTE: The rules under Art. 1544 on double sale applies only to purchasers in
GOOD FAITH and disqualifies any purchaser/s who was in bad faith.

“Purchaser in Good Faith” – one who: Mathay vs CA Gr. No.

115788, Sept. 17, 1998
ü Buys the property without notice/knowledge that some other
person has a right to, or interest in, such property; and The one who asserts the
status of a purchase in
ü PAYS a full and fair price for the same at the time of purchase, or
before he has notice of the claim of another person. (Agricultural good faith and for value has
and Home Extension Devt. Group vs. CA, G.R> No 92310, Sept. 3, the BURDEN of PROVING
1992) that he is such.
QUESTION:
Sam is the owner of a parcel of
While the rule is that the first buyer is always in Good
land located in Maasin, Iloilo
Province. Same sold the said faith – the preference shall be given to the second
parcel of land to Duke. Soon buyer who was able to first register in good faith
after, Sam also sold the same ahead of the first buyer. (Carbonell vs. CA, G.R. No.
parcel of land to Jil. L29972, Jan. 26,1976
Duke learned about the
second sale, but he did
nothing because he was Knowledge of the 1st buyer of the second sale will not
confident that he is the 1st defeat his/her right EXCEPT when the second buyer, in
buyer. good faith, registers ahead of the first buyer.
Jil did not know about the 1st
sale and was able to register
the sale with the ROD.

Who is the preferred buyer?

QUESTION:
Sam is the owner of a parcel
of land located in Maasin, Iloilo
Province. Same sold the said
parcel of land to Duke. Soon
after, Sam also sold the same
parcel of land to Jil.
Jil knew that Sam first sold the
parcel of land to Duke, and
wanting to get ahead of him Jil
went to the ROD to register the
sale under her name.
Decide.
While it it true that knowledge of the 1st buyer of the
second sale will not defeat his/her right EXCEPT when
the second buyer, in good faith, registers ahead of the
first buyer – HERE, Jil knew of the 1st Sale, thus, she is
no longer in good faith.
Note: Knowledge of the 2nd buyer of the 1st sale
DEFEATS his/her rights even if she/he is the first to
register because her knowledge taints her/his
registration with BAD FAITH.
REMEMBER: The rules under Art. 1544 on double sale
applies only to purchasers in GOOD FAITH and
disqualifies any purchaser/s who was in bad faith.
 ILLUSTRATON / CASE ASSESSMENT:
(CARBONELL VS. CA, SUPRA)
Sam sold her land to Coby for
P500,000.00. However, before Sam
could pay the full price, Sam sold
the land to Jil. Jil immediately took
possession of the land.
When Coby learned of the sale of
Sam to Jil, and the fact that Jil has
not processed the registration yet,
Coby immediately went to the
Registry of Deeds and registered an
ADVERSE CLAIM over the lot.
Who has better title? Decide.
Coby has the better right. Why?
• Coby was the 1st buyer, and he is in Good Faith.
• Coby’s knowledge of the second sale did not affect/defeat
his right.
• Jil has not registered the sale in good faith ahead of Coby.
• The recording/registration of an Adverse Claim at the back
of the Title was done by Coby to protect his right. Since he
has not yet paid the full price – the Title (ownership) is
retained by the Sam.
• The fact that Jil took possession of the land ahead of Coby
is of no moment. Recall the rule on preference for Reap
Property: 1st Registration is preferred over 1st possessor.
QUESTION:
In the previous case
assessment:
What if Jil was in good faith
when she bought the land
from Sam and she paid the
full price when she took
possession of the land.
NO, Jil does not have a better right over Coby.
Why?
v Because, while Jil was in good faith when she bought the
land from Sam, her good faith CEASED when Coby first
registered an Adverse Claim on the land through the
annotation thereof at the back of the Certificate of Title.

Without knowledge of what v NOTE: REGISTRATION is tantamount to NOTICE TO THE

Coby did, Jil also WHOLE WORLD. Thus, regardless if Jil knew or not that Coby
subsequently registered the registered an adverse claim – the mere act of registration
sale in her favor. done by Coby is notice to the whole world and Jil is bound
thereby.
Will she now have the
better right?
 CONT. OTHER RULES ON DOUBLE SALE

Examination of Certificate of Title

(Torrens Title)

Gen. Rule: A buyer may rely on the Torrens Title of the Registration in GOOD
Seller. In fact, the buyer is not obligated to look beyond FAITH of an immovable
the Certificate of Title to investigate the title of the seller property is satisfied if
as appearing on the face of the certificate. (AFP Mutual there is registration of an
benefit Association Inc. vs. CA, Gr. 104759, Mar. 3, 2000) adverse claim or a
notice of lis pendens;
Except: When there exist important facts that would
create suspicion in a reasonable man to go beyond the
present title and to investigate those that preceded it.
(Sps. Sarmiento vs. CA, Gr. 152627, Sept. 16, 2005)
OTHER RULES ON DOUBLE SALE
Rule Governing Banks
Caveat Emptor
Sps. Sarmiento vs. CA GR No. (Buyer Beware)
152627, Sept. 16, 2005
Rosario vs Soria, Gr. No. 194846, June 19, 2013
The rule that persons dealing
with registered lands can rely
solely on the certificates DOES One who purchases real property, which is in
NOT APPLY TO BANKS actual possession of others, should make
because their business is one some inquiry concerning the rights of those in
affected with public interest possess.
keeping in trust the money
belonging to the depositors.
 WARRANTY CONDITION
Goes into the performance of such obligation Goes into the root of the existence of the
and in fact may constitute an obligation in itself. obligation

May form part of the obligation or contract by Must be expressly stipulated or agreed upon by
provision of law without the parties having the parties in order to form part of the obligation.
expressly agreed hereto (recall Natural Elements
of contract of sale)

Non-fulfilment of warranty would constitute a Non-fulfilment of condition will not amount to a

breach of the contract breach of the contract, although it would/could
cause the extinguishment of the obligation upon
which it is based.

Kinds: Express Warranty or Implied Warranty Kinds: Resolutory Condition and Suspensive
Condition

Ø Conditions may be waived;

Ø Conditions may be considered as warranties.

 Naturally, it is the SELLER who gives
warranties.
WARRANTY But the BUYER can also warrant that
he will pay or when he makes an any
affirmation or promise to induce the
seller to enter into a contract of sale
A statement or representation made by the with him,
seller of goods, contemporaneously and as a
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 Warranties may
that certain facts are or shall be as he then be express or
represents (DE LEON) implied. Implied
warranties are
Warranties are not essential elements of a natural elements
contract of sale (they are considered Natural of a contract of
Elements), but there can be no warranty if there sale.
is no sale.
QUESTION:
Coby is a snatcher who’s
normal place of operation
is in Inzart St. which is one
of the busiest street in No, Sam cannot.
Iloilo.

One fine day, Coby was As a rule, when the sale is illegal, the buyer
able to sell to Sam a rolex cannot maintain an action on a warranty
watch where he promised which would naturally accompany the
that the watch is
authentic and that it is contract of sale.
good as new.

After one week of using

the watch, it broke down.
Can Sam sue Coby for the
warranty?
 Requisites:

1. It must be an affirmation of
EXPRESS WARRANTIES fact or any promise by the
seller relating to the subject
matter of the sale;

Express warranties is any affirmation of fact, or any 2. The natural tendency of such
promise by the seller relating to the thing if the affirmation or promise is to
induce the buyer to purchase
natural tendency of such affirmation or promise is the thing; and
to induce the buyer to purchase the same and if
the buyer purchases the thing relying thereon. 3. The buyer purchases the
thing relying on such
affirmation or promise
It includes all warranties derived from the language
of the contract, so long as the language is express.
The breach of an express
Thus, the warranty may take the form of an warranty makes the seller
affirmation, a promise or a representation. liable for damages.
 SOME RULES TO REMEMBER AND KEEP IN MIND
The usual EXAGGERATION IN TRADE,
when the other party had an opportunity
to know the facts, are not in themselves MISREPRESENTATION
fraudulent (Art. 1340) made in good faith is
not fraudulent, but it
may constitute mistake
or error (Art. 1343)

A mere EXPRESSION OF OPINION, no

matter how positively asserted, does not
import a warranty unless the seller is an
expert, and his opinion was relied upon by
the buyer (Art. 1341)
Action based on Express
Warranties prescribed in4 years.
 IMPLIED WARRANTIES EXAMPLES:

1. Warranty that the seller has

right to sell;
2. Warranty against eviction;
It is that which the law drives by implication or 3. Warranty against non-
inference from the nature of the transaction or the apparent burden or servitudes;
relative situation or circumstances of the parties, 4. Warranty against hidden
irrespective of any intention of the seller to create it. defects or unknown
encumbrance (Art. 1561);
The principle of implied warranties is an exception 5. Warranty against redhibitory
to the rule of caveat emptor (buyer be ware) defects on animals;
6. Warranty as to fitness or
merchantable quality (Art.
1562); and
7. Warranty for consumer goods
It may be WAIVED or (R.A. 7394, Art. 68)
Modified by express
stipulation of the parties.
 IMPLIED WARRANTIES IS NOT APPLICABLE IN…
SECOND HAND SALE
AUCTION SALE BY SHERIFF,
AUCTIONEER, MORTGAGEE,
There is no implied
PLEDGEE who sells under
AS IS WHERE IS SALE warranty as to the
authority in fact and in law.
condition, adaptation,
Vendor does not make fitness, or quality of an
warranty as to the article sold as second
quality or workable hand.
Allure Manufacturing Inc. vs. CA
condition of the goods G.R. No. 94452, July 16, 1991
and the vendee takes
them in the condition in However, if the seller issues
The principle applicable in
which they are found, a certificate that a second
execution sales is caveat emptor
and from the place they hand machine was in A-1
(buyer be ware) because the
are located. condition is an express
purchaser acquires o better title
warranty – which binds the
than the judgement debtor has.
seller. (Moles vs. IAC, Gr.
No. 73913, Jan. 31, 1989)
 KINDS OF IMPLIED WARRANTIES (ART. 1547)
Warranty Against
Eviction
An implied warranty on
the part of the seller that
he has a right to sell the
thing at the time when
the ownership is to pass,
and that the buyer shall
from that time have and
enjoy the legal, peaceful
possession of the thing;
TAKE NOTE: Warranty Against
Hidden Defects
These warranties , however,
do not mean that a sheriff,
auctioneer, mortgagee,
pledge, or other person An implied warranty
professing to sell by virtue of that the thing shall be
authority in fact or in law, can free from any hidden
be held liable for the sale of a defects, or any charge
thing in which a third person or encumbrance not
has a legal or equitable declared or known
interest. to the buyer.
 I. WARRANTY AGAINST EVICTION
Is an implied warranty in contracts of sale, by
virtue of which if the vendee is deprived of the
whole or a part of thing purchased by a final
judgment based on a right prior to the sale or
an act imputable to the vendor, such vendor
shall answer for the eviction even though
nothing has been said in the contract on the
subject.
The contracting parties, however, may
increase, diminish, or suppress this legal
obligation of the vendor.
The warranty in case of eviction is a natural
element in the contract of sale, hence, the
vendor answers for eviction even if the
contract be silent on this point.
REQUISITES:
(a) Buyer is deprived of the thing
purchased either in whole or part;
(b) The deprivation must be by
virtue of a final judgment;
(c) The deprivation must be
based on a right prior to the sale
or an act imputable to the vendor;
(d) T h e v e n d o r m u s t b e
summoned in the suit for
eviction at the instance of the
vendee;
(e) No waiver of warranty by he
vendee
 THINGS TO NOTE Reason why the Seller
must be summoned in a
suit for eviction at the
instance of the buyer:

De la Riva vs. Escobar, G.R.

no. L27300, Dec. 17, 1927
“EVICTION SUIT”
“FINAL JUDGMENT” In order to give the seller an
It refers to a case opportunity to intervene
filed in court where Means that the decision of the Court in and defend the title that he
the buyer is the an eviction suit has become Final and
defendant/respond has transferred, for, after all,
Executory (Perez vs. Zulueta GR no. L-
ent in a suit he alone would know the
10374, Sept. 30, 1959)
instituted to derive circumstances or reasons
him of the thing Warranty against eviction cannot be behind the claim of the
purchased. enforced by the buyer against the plaintiff and would be in a
seller not until the decision of the position to defend the
Court in an eviction case becomes validity of his title.
final and executor.
QUESTION: NO.

Sam sold a parcel of land Why?

to Coby. The sale was 1. The elements are not complied with. For one, there was no
consummated and Coby Eviction Suit filed against Coby by Duke.
was able to take
possession and control 2. This case is a mere TRESPASS. Duke as a trespasser.
over the said land that he
purchased.

One year later, Duke

entered the parcel of land Mere trespass in fact does not give rise to the application of the
and put up a small nipa doctrine of eviction (Art. 1590).
hut.
In such a case, the buyer (Coby) has the direct action against
Can Coby enforce his right the trespasser (Duke) because as the new owner, Coby can
against Warranty from defend his property.
Eviction against Sam, the
seller? Decide.
 EFFECT OF STIPULATION WAIVING
LIABILITY FOR EVICTION:
Waiver by the Buyer:(Art. 1554)
Waiver by SELLER:
Ø Buyer was without knowledge of risk of
Ø If seller was in good faith – the eviction (waiver consciente);
waiver and exception from liability
is valid. Effect: The value at time of eviction should
be r eturned.
but without prejudice to Art.
1554; 2) Buyer had knowledge of risk or eviction
(waiver intencionado)

Effect: Nothing need be returned because

Ø If seller was in bad faith – the this is aleatory in nature and buyer
stipulation is VOID. assumes the risk.
EXAMPLE:
Sam has land, the taxes on which she has not paid. Sam sells it to Coby. Later the land is
sold at a public auction for non-payment of real property taxes and Coby was evicted.

Here, Sam is considered to be responsible for Coby’s eviction if Coby did not know at the
time of the sale that Sam had not paid the taxes thereon.

In general, it is only the buyer in good faith who may sue for the breach
of warranty against eviction.

BUT, If the buyer knew of possible dangers, chances are that he

assumed the risk of eviction.
 VENDOR’S LIABILITY IN CASE OF EVICTION:
TOTAL EVICTION (ART. 1555)
1. Return of the value which the thing sold had at the time of the eviction be it greater or less than the price of
the sale;

Note that all kinds of improvements are taken into account in determining the value of the
property.

2. The income or fruits, if he has been ordered to deliver them to the party who won the suit against them;

3. The cost of the suit which caused the eviction and in a proper case, those of the suit brought against the
vendor for the warranty;

4. The expenses of the contract, if the vendee has paid them;

5. The damages and interests and ornamental expenses, if the sale was made in bad faith.

Note: if Seller acted in good faith, he/she is not liable for damages.
QUESTION:
In an eviction suit against
the buyer, the Seller was
notified and summoned
but he did not appear. No because there was really no breach
of warranty.
Luckily, the buyer won in
the suit filed by a third
person.

Can the buyer recover

expenses?
QUESTION: The remedy of rescission is inapplicable in Total Eviction
because it contemplates that one demanding it is able to return
whatever he has received under the contract; and when this
cannot be done, rescission cannot be carried out.

Thus, unless party asking and demanding rescission can

Is rescission a remedy return what he has given/paid – then recission cannot be
in case of total had.
eviction?
Put simply: if a buyer is Totally Evicted, he cannot
return the property to the seller.

However, rescission may be had in Partial Eviction because

there still remains a portion of the thing sold, which can be
returned to the seller.
VENDOR’S LIABILITY IN CASE OF EVICTION:
PARTIAL EVICTION (ART. 1556)
1. Demand rescission of contract;

2. Enforcement of Warranty;

3. Demand damages.
 II. EVICTION AGAINST HIDDEN DEFECTS
Seller guarantees that the thing sold is free from any
hidden faults/defects or any charge or encumbrance not
detected or known to the buyer. (Art. 1561)

Investment & Dev’t Inc. vs CA, Gr. No. L-51377, June 27,
1988)

Hidden faults or defects pertain only to those that

make the object unfit for the use for which it was
intended at the time of sale.
REQUISITES TO RECOVER BECAUSE OF HIDDEN
DEFECTS
a) The defect must be hidden (not known or could not have been
known);

b) The defect must exist at the time the sale was made;

c) The defect must ordinarily have been excluded from the contract;

d) The defect must be important (renders the thing UNFIT or

considerably decreased FITNESS);

e) The action must be instituted within the statute of limitations

 IN A SALE OF GOODS, THERE IS AN IMPLIED WARRANTY OR
CONDITION AS TO THE QUALITY OR FITNESS OF THE GOODS, AS
FOLLOWS: ( ART. 1562 )
Ø Where the buyer, expressly or by implication, makes
known to the seller the particular purpose for
which the goods are acquired, and it appears that the
buyer relies on the seller's skill or judgment (whether Merchantable Quality:
he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably fit Fit for the general purpose of
for such purpose; a thing, and not necessarily
the particular purpose for
which it has been acquired.
Ø Where the goods are bought by description from a
seller who deals in goods of that description (whether
he be the grower or manufacturer or not), there is
an implied warranty that the goods shall be of
merchantable quality.
QUESTION: Art. 1566. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even though he
was not aware thereof.
IS THE KNOWLEDGE
OF THE VENDOR WITH The seller is responsible for hidden defects even
RESPECT TO THE if he is in good faith bbecause he has to repair the
HIDDEN DEFECT(S) damage done.
MATERIAL OR
ESSENTIAL IN THE Note that the purpose of the law making the seller
ENFORCEMENT OF responsible for hidden defects is reparation not
THE WARRANTY? punishment. To obligate the seller to repair the
defects.

This provision shall not apply if the contrary has been

stipulated and the vendor was not aware of the hidden
faults or defects in the thing sold.
 Redhibitory Action
3. The defect existed at the
REDHIBITION An action in court instituted to
avoid a sale on account of
time of the sale

some vice/defect on the thing 4. The buyer must give

sold. NOTICE of the defect to
The avoidance of a sale
the seller within
on account of some vice
reasonable time (Art.
or defect on the thing ELEMENTS: 1586)
sold, which renders its 1. The defect is so serious or
use impossible, or so important – that the it 5. Remedies must be
inconvenient and renders the object unfit for brought within the period
imperfect that it must be the use which it was of 6 months from delivery
intended; or that it or 40 days from date of
supposed that the buyer
diminishes the fitness delivery in case of
would not have thereof that the buyer
purchased it had he animals.
would not have bought it if
known of the vice. (De he know of the defect; 6. There must be no waiver
Leon) on the part of the seller
2. The said defect is hidden;
 VENDOR/SELLER IS NOT LIABLE FOR
1. PATENT DEFECTS

v which the buyer could have easily seen or observed at the time of sale.

v Those defects which may not be obvious but the seller informed the
buyer about (disclosed by the seller)

2. Those defects which may not be visible but the BUYER IS AN EXPERT who, by
reason of his profession, should have known them,
 OBLIGATION OF THE SELLER IF THE DEFECTIVE
THING WAS LOST (ART. 1568)

If seller is AWARE of the hidden If seller is NOT aware of the hidden

defects: defects:

1. Seller bears the loss 1. Seller bears the loss

2. Seller must return the price 2. Seller must return the price
3. Seller refunds the expenses of the 3. Seller will return the interest; and
contract 4. Seller refunds the expenses of the
4. Seller will pay damages contract (if buyer paid for it
QUESTION:
Sam sold to Coby a
If the loss was due to a FORTUITOUS EVENT, or through the
television for P250,000.00.
fault of the buyer:
Said TV was actually
defective and the amount of
The buyer may demand from the seller the price that he
repair would be P50,000.00.
paid LESS the value of the thing at the time of the loss.
After two weeks, the said
Here, the price at the time of purchase which is P250,000.00
defective TV was destroyed
shall be deducted the value of the TV at the time of its loss.
by a typhoon. At the time of
the loss, the TV was worth
Thus, Coby can recover from Sam P50,000.00.
P200,000.00 only.

Can Coby recover from

Sam? If yes, how? Decide.
REMEDIES IN CASE OF HIDDEN DEFECTS:
1. Accion Redhibitoria (Redhibitory Action)

Ø Withdrawing / Rescission
These remedies
Ø plus damages; or may be availed of
in the
ALTERNATIVE.
2. Accion Quanti Minores o Estimatoria
(Proportionate Reduction)
Ø Reduction in the price
Ø plus damages.
 REDHIBITORY DEFECTS ON ANIMALS
Instances:
1. Expert knowledge is it sufficient to discover it (Art. 1576)

2. The veterinarian failed to discover or disclose it through ignorance or

bad faith;

3. The animal dies within 3 days from purchase and the disease existed
at the time of sale

REMEDIES:
1. Accion Redhibitoria; OR
2. Accion Quanti-Minoris
BUT – there is NO warranty
when the animal was bought
in Fairs / Public Auction or as
PRESCRIPTION: 40 days
Condemned.
from delivery
OBLIGATIONS OF THE VENDEE Part VI
PRINCIPAL OBLIGATION OF A BUYER/VENDEE
(ART. 1582)
1. To accept delivery of the thing sold;

2. To pay the price of the things sold in legal tender, unless

another mode was agreed upon;

3. To pay the interest, interest for the period between delivery and
the payment of the price (Art. 1589)

4. To bear the expenses for the execution and registration of the

sale and putting the goods in a deliverable state (if agreed
upon)
 I. BUYER IS OBLIGATED TO ACCEPT

Acceptance is the assent, by the buyer, to

become the owner of the thing delivered to him Gen. Rule: Unless otherwise agreed
by the seller. upon acceptance of the goods by
the buyer does not discharge the
There is acceptance when: seller from liability for damages or
other legal remedies in breach of
Ø Express acceptance; any promise.

Except: if the buyer, after

Ø When buyer does an act which only an owner
acceptance f the goods, failed o give
can do; or notice to the seller of the breach in
promise / warranty within
Ø Buyer failed to return the object after reasonable time.
reasonable lapse of time.
Purpose: to protect the seller from
belated claims.
QUESTION:
Buyer accepted
the goods
despite delay. ANSWER: Buyer is estopped because
Buyer also of the acceptance without reservation
promised later at the time of acceptance.
on to pay.

Subsequently,
buyer asked for
damages on
account of delay.
Decide.
EFFECT IF BUYER JUSTIFIABLY REFUSES TO
ACCEPT THE DELIVERY:

1) Buyer has no duty to return the goods to the seller;

2) Mere notification to seller of refusal will suffice;

3) But buyer may make himself a voluntary depository – in which

case he must safely take care of them in the meantime.
EFFECT IF BUYER UNJUSTIFIABLY REFUSES TO
ACCEPT THE DELIVERY:

GENERAL RULE: Buyer becomes the owner:

EXCEPTION: When there is a contrary stipulation or

when the seller reserves the ownership as
a sort of security for the payment of the
price.
 II. BUYER IS OBLIGATED TO PAY THE PRICE
Kinds of payment:
1. Full payment; or
2. Installment
3. With interest or
principal amount only
4. Must be in legal tender,
or that agreed upon by
the parties.
REASONS FOR SUSPENDING PAYMENT OF PRICE (ART. 1590):
1. Should he be disturbed in the possession or ownership of the
thing sold; or
2. Should he have reasonable grounds to fear such disturbance
by a vindicatory action (action to recover) or by a
foreclosure of mortgage.
The right however does not exist in the following cases:
Ø Should there be a stipulation to that effect;
Ø Should the vendor give a security for the return of the price;
Ø Should the vendor have caused the disturbance or danger to
cease; or
Ø Should the disturbance consist only of a mere act of trespass.
 FAILURE TO PAY VS. RESCISSION OF CONTRACT
Art. 1592. In the sale of immovable
property, even though it may have been This is only applicable to a sale of
stipulated that upon failure to pay the real property, not to a contract to sell
price at the time agreed upon the real property or to promise to sell
rescission of the contract shall of right real property, where title remains
take place, the vendee may pay, even with the vendor until fulfillment of a
after the expiration of the period, as long positive suspensive condition, such
as no demand for rescission of the as the full payment of the price.
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.
QUESTION:
Last February 1, 2016,
Sam sold to Coby a piece
of land, payment and Yes, as long as there has been no judicial or notarial
delivery to be made on demand for the rescission of the contract.
February 15, 2016.
But if, for example on February 18, 2016, Sam made a
It was stipulated that notarial demand for such rescission then Coby will not
should payment not be allowed to pay anymore, and the court may not grant him
made on February 15, a new term.
2016, the contract would
automatically be recall ObliCon concepts:
rescinded. - ordinary delay
- Mora / default
On February 20, 2016,
can Coby still pay?
RIGHTS OF A BUYER
1. To examine the goods prior to delivery.

Exceptions:
Ø When there is a stipulation to the contrary;
Ø When the goods are delivered C.O.D. (Collect on Delivery) –
unless there is an agreement or a usage of trade permitting
such examination.

2. Suspend payment when buyer is disturbed in his possession ;

3. To pay even beyond the expiration date when no demand for

rescission was yet given by the seller
ACTIONS FOR BREACH OF
SALE OF GOODS Part VII
(ART. 1594 – 1599)
 MEANING OF “GOODS”
”Goods include all chattels personal
but not things in action or money of
legal tender in the Philippines.

It includes growing crops and fruits.

(Art. 1636 Par. (1)(1))
 IN GENERAL, THESE ARE THE POSSIBLE
ACTIONS AVAILABLE WHEN THERE IS
BREACH IN SALE OF GOODS.

1. Action for the payment of price (Art. 1595)

2. Liability for Damages for non-acceptance of the goods

(Art. 1596)

3. Rescission of the contract for breach thereof (Art. 1597)

4. Filing of a case for Specific Performance (Art. 1598); and

5. Rescission or damages for breach of warranty. (Art. 1599)

 SELLER’S ACTION FOR PAYMENT OF THE PRICE IS
AVAILABLE WHEN… (ART. 1595)
• The ownership of the goods has
passed to the buyer, and he wrongfully
neglects or refuses to pay for the
goods according to the terms of the
contract of sale;
• the price is payable on a certain day,
irrespective of delivery or of transfer of
title and the buyer wrongfully neglects
or refuses to pay such price.
• If the goods cannot readily be resold for
a reasonable price, and if the provisions
of article 1596, fourth paragraph, are not
applicable, the seller may offer to deliver
the goods to the buyer;
• If the buyer refuses to receive the goods,
the seller may notify the buyer that the
goods are thereafter held by the seller as
bailee for the buyer. Thereafter the seller
may treat the goods as the buyer's and
may maintain an action for the price. (n)
SELLER’S RIGHT OF ACTION FOR DAMAGES
1. When buyer wrongfully neglects or refuses to accept and pay for the
goods (Art. 1596 Par. 1)

2. In an executory contract, where the ownership in the goods has not

passed and the seller cannot maintain an action to recover the price
(Art. 1595 par. 1) or

3. If the goods are not yet identified at the time of the contract or
subsequently, the seller’s right is necessarily confined to an action for
damages
 RESCISSION (ART. 1597)
AUTOMATIC RECSSSION applies only in
situation where the goods have not yet been
delivered to the buyer, WHERE:

1. The buyer has repudiated the contract of

sale;
2. The buyer has manifested his inability to
perform his obligations; or
3. The buyer has committed a breach.

Automatic Rescission requires thereof

notice to the buyer, and the same applies
only in situation where the goods have not
yet been delivered to the buyer.
 Ø Maintain an action for damages

“Damages” are equivalent to

estimated loss directly and naturally
resulting in the ordinary course of
events from the buyer’s breach of
contract.

Ø Hold the goods as bailee for the buyer

and bring an action for the price;

WHAT CAN THE SELLER DO WHEN Ø Ask for the rescission of the contract for
failure of the buyer to fulfill his
THE BUYER WRONGFULLY REFUSES obligations.
TO ACCEPT THE GOODS SOLD?
 REMEDIES OF THE BUYER IN CASE OF BREACH OF
WARRANTY BY THE SELLER (ART. 1599) Ifofthethebuyer has selected any
Ø 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;
Ø Accept or keep the goods and maintain an
action against the seller for damages for the
breach of warranty;
Ø Refuse to accept the goods, and maintain
an action against the seller for damages for
the breach of warranty;
Ø 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.
remedies and has
been granted the same, no
other remedy can be given.
Except for 2nd par. of Art,
1191.
2nd Paragraph of Art. 1191:
“The injured party may
choose between fulfillment
and the rescission of the
obligation, with the payment
of damages in either case.
He may also seek rescission
even after he has chosen
fulfillment if the latter should
become impossible.”
 REMEDIES OF AN UNPAID SELLER
(ART. 1526)

Ø Possessory Lien (Right to retain the goods)

Ø Right of Stopping the goods in transit
Ø Right of resale (Art. 1533)
Ø Right to Rescind (Art. 1534)

Ø Specific performance
Ø Action for the price
Ø Action for Damages
Ø Those found under Recto Law (Art. 1484)
Ø Those found under Maceda Law (R.A. 6652)
 RECTO LAW (ART. 1484)
ALTERNATIVE and EXCLUSIVE REMEDIES
under the Recto Law:
1. Specific Performance upon Vendee’s
Failure to pay;
2. Rescission of the sale if vendee shall have
failed to pay two (2) or more installments;
3. Foreclosure of the Chattel Mortgage
Constituted on the Thing Sold if vendee
shall have failed to pay two (2) or more
installments
Recto law provides for remedies of a Seller
in the sale of PERSONAL Properties paid
by INSTALLMENTS.
The purpose of the Recto Law is to remedy
abuses committed in connection with the
foreclosure of chattel mortgage and was
meant to prevent mortgagees from seizing
the mortgaged property and buying it at
foreclosure sale at a low price then
bringing suit against the mortgagor for
deficiency judgement. (Universal Motors
Corp. vs. Sy Hian Tat, Gr. L-23788, May 16,
1969)
 MACEDA LAW (R.A. 6652)
RIGHTS of buyer who has paid
at least two (2) years of
installments:
1. Buyer is given a grace
period within which to pay
the unpaid installments
without additional interest;
1. Cancellation of contract of
sale can only be allowed
within 30days from receipt
of buyer of a Notice of
Cancellation AND the
refund of the Cash
Surender Value (Gatchalian
realty inc. vs. Angeles, Gr
202358, Nov. 27, 2013)
RIGHTS of buyer who has paid
less than two (2) years of
installments:
1. Buyer shall be given 60days
grace period to pay;
2. The buyer shall have the
right to sell/assign the
subject real property during
the grace period;
3. The buyer can pay in
advance any installment of
in full the unpaid balance
without interest.
Purpose: It is an expression of
public policy to protect buyers of
REAL ESTATE on
INSTALLMENTS against onerous
and oppressive Conditions.
Applies to: transactions/contracts
involving sale or financing of real
estate on installment payments
including residential
condominium apartments.
It does NOT apply to:
1. Sale of industrial lots
2. Sale of commercial
buildings/lots
3. Sale to tenants under agrarian
reform law; and
4. Sale of land payable in
straight terms (full payment)
EXTINGUISHMENT OF SALE Part VIII
HOW IS A CONTRACT OF SALE EXTINGUISHED?
1. by the same causes as all other obligations;
Ø Payment or Performance of obligation;
Ø Loss of the thing due;
Ø Condonation or Remission of debt;
Ø Confusion or Merger of rights
Ø Compensation;
Ø Novation
Ø Prescription
Ø Fulfillment of Resolutory Condition

1. by those stated in the preceding articles of the Civil code;

2. by Conventional Redemption; and

3. By Legal Redemption
 Wait a minute!
To avoid confusion, and to help us better
understand the next topics we have to take note
that in the next topics…….

There was already a

“sale”
– but the said sale will be extinguished by
reason of:

1. Conventional Redemption

Ø Pacto de retro sale / Sale with right of

repurchase

Ø Equitable Mortgage

2. Legal Redemption
 CONVENTIONAL REDEMPTION (ART. 1601)
“PACTO DE RETRO SALE” / REDEMPTION
PERIOD:

“SALE WITH RIGHT OF REPURCHASE” • Parties may agree;

• BUT it should not
exceed 10 years.
It takes place when the • If parties have not
RESTRICTIVE CONDITIONS: agreed – it shall be 4
SELLER/vendor RESERVES the right to
The seller/vendor a retro, in the years from (Art.
REPURCHASE the thing he/sold.
exercise of his/her right of 1606)
redemption, MUST RETURN to
the buyer-a-retro the following:
Essence of Conventional
Redemption: the title and ownership
1. Price of the sale;
of the property sold is immediately
2. Expenses of the contract; How exercised?
vested from the seller-a-retro to the
3. Any other legitimate 1. Tender of payment
buyer-a-retro, subject to the restrictive
payments made by the (offer to pay); AND
condition of repurchase, and within
buyer-a-retro; 2. Consignation of
the redemption period.
4. Necessary expenses made payment (actual
on the thing sold; and giving of payment)
NOTE: The right of redemption must
5. Useful expenses made on
be reserved by the seller through a
the things sold.
stipulation in the contract of sale.
 RULES: SALE WITH RIGHT OF REPURCHASE
Art. 1612:
1. If several co-owners,
jointly and in the same
contract, should sell an
undivided immovable with
a right of repurchase –
each co-owner can only
exercise his/her right of
redemption in accordance
to his/her respective share
(and not more than)
2. Same thing applies to Co-
heirs. Each heir can only
exercise his/her right of
redemption in accordance
to his/her respective share
in the inheritance.
Art. 1613: provides for the right of
the vendee/buyer in relation to
Art. 1612.
Is several co-owners/co-heirs
sold to the vendee a parcel of
land, and only one or some of
them wants to repurchase - the
vendee may demand all of the
vendors or co-heirs/co-owners
that agree to repurchase the
entire property instead.
If they fail to agree, the vendee
cannot be compelled to consent
to a partial redemption.
If 1613 tells us that the
vendee/buyer cannot be
compelled to agree to a
partial redemption;
Art. 1614: also tells us that
in case several co-owners
sold with right of
repurchase their undivided
property – the
vendee/buyer cannot also
compel any of the co-
owners to redeem the
whole property.
QUESTION:
Sam sold a parcel of land
to Coby with right of Art. 1618: The vendor who recovers the
redemption for a period of
3 years. thing sold shall receive it free from all
charges or mortgages constituted by
On the second year, Coby the vendee, BUT the vendor-a-retro
decided to lease the said
land to Jil. The term of the shall RESPECT the leases which the
lease if 4 years. vendee may have executed in good
faith.
What happens on the 3rd
year, when Sam decides to
exercise her right of
redemption considering Jil
is leasing the subject land?
 CONTRACT OF SALE VS. ”EQUITABLE MORTGAGE”
(ART.1602- 1605)
EQUITABLE MORTGAGE – is one
which although lacking in some
formality, form or words, or other Art. 1603 and the case of
(Romulo vs. Sps. Layug,
requisites demanded by a statute, Salonga vs. Concepcion, GR.
G.R. 151217, Sept. 8, 2006)
nevertheless, reveals the intention No. 151333, Sept. 20, 2005,
of the parties to charge a real provides that:
REQUISITES:
property as security for a debt, and
contains nothing impossible or When in doubt, courts are
1. Parties entered into a
contrary to law. generally inclined to construe a
contract determined as
transaction purporting it to be a
Simply put, the contract appears to sale; and sale as an equitable mortgage,
be one for sale, however the which involves a lesser
2. Their intention was to transmission of right and
provisions of the contract reveal the
secure an existing debt
intention of the parties to make the interest over property in
by way of mortgage.
properties subject of the contract as controversy.
security for a debt. (Roberts vs.
Papio, GR. No. 166714,Feb. 9, 2007)
 PRESUMPTION THAT A CONTRACT OF SALE IS ACTUALLY
AN EQUITABLE MORTGAGE (ART. 1602)
Ø When the price of a sale with right to EFFECTS When a COS is
repurchase is unusually inadequate; adjudged as EM:
Ø When the vendor remains in possession
as lessee or otherwise; Ø Vendor binds 1. The apparent vendor may
Ø When upon or after the expiration of the himself to pay the ask for the reformation of
right to repurchase, another instrument taxes of the thing the instrument to correct
extending the period of redemption or sold (Lumayag vs. the contract and properly
granting a new period is executed; heirs of Nemeno express the real intention
Ø When the purchaser retains for himself a GR 162112, July. of the parties. . (Art. 1605)
part of the purchase price; 3, 2007)
Ø When the vendor binds himself to pay 2. Any money, fruits, or other
the taxes on the thing sold; benefit received by the
Ø In any other case where it may be fairly
vendee as rent or
inferred that the real intention of the
otherwise shall be
parties is that the transaction shall
secure the payment of a debt or the considered as interest
performance of any other obligations. (Art. 1602)
LEGAL REDEMPTION (ART.1619)
Legal Redemption DOES NOT
apply:
It is the right to be subrogated, upon the
same terms and conditions stipulated in
the contract, in the place of one who 1. Donation;
acquires a thing by:
2. Succession;

1. Purchase; 3. Barter;

2. Dation in payment; or 4. Mortgage; or

5. Lease
3. Any other transaction whereby
ownership is transmitted by onerous
title. **Here, the transmission is
gratuitous.
 WHO CAN EXERCISE THE RIGHT OF LEGAL REDEMPTION?

Redemption by the other co-

owners, or by any or some
of them, should a co-owner
sell his undivided share to a
Redemption by a debtor
third person.
Redemption by the other co-heir, should the credit or other
or by any or some of them should incorporeal right in litigation
If two or more co-owners
a co-heir sell his hereditary right be sold by the creditor to a
desire to exercise the right ,
to a stranger; (Art. 1088) 3rd person. (Art. 1634);
they may only do so in
proportion to the share they
may respectively have in the
thing owned in common;
(Art. 1620)
QUESTION:
Sam, Coby, Jil are co-
owners of a parcel of land No. Coby cannot exercise the Legal
located in Balesin Island. Redemption because for Art. 1620 to apply, the
share must have been sold to a 3rd person /
Sam is migrating to Greece stranger.
and wants nothing to do
with the property in Balesin
Island so she sold her share Hence, if the purchaser is also a co-owner,
to Coby.
legal redemption cannot be done.
Since Jil is a co-owner of
the said property, can she
exercise Legal Redemption?
 WHO CAN EXERCISE THE RIGHT OF LEGAL REDEMPTION?
RURAL lands – for
agriculture purposes.

Redemption by an owner of adjoining land should the owner of a piece of RURAL LAND, the area of
which does not exceed one hectare , alienate it to a 3rd person. If two or more adjoining owners desire
to exercise the right at the same time, the owner of smaller area shall be preferred; and should both
lands have the same area, the one who first requested the redemption. (Art. 1621);

NOTE: For the right however to be exercised against the stranger, the stranger must
already have RURAL land. This is because the stranger who has no rural land at all,
the right to redeem cannot be exercised against him. Evidently, the law grants
everyone an opportunity to have rural land.

The legal right of redemption of rural land refers to land that will be used for
agricultural, not residential purposes.
CONT. WHO CAN EXERCISE THE RIGHT OF LEGAL
REDEMPTION? URBAN lands – for
dwelling, commerce,
industry.

Redemption by an owner of adjoining land should the owner of a piece of URBAND LAND,
which is so small and so situated that a major portion thereof cannot be used for any
practical purpose within a reasonable time, and which said owner had bought merely for
speculation, resell it to a 3rd person.

If the resale has not yet been perfected, an owner of adjoining land shall have a right of pre-
emption; in other words, his right to buy the property is preferred to that of 3rd persons. If two
or more adjoining owners desire to exercise the right of pre-emption or redemption, as the
case may be, the owner whose intended use of the land appears best justified shall be
preferred; (Art. 1622)
 PRE-EMPTION VS. REDEMPTION
Right of Pre-emption Right of Redemption
Arises BEFORE the sale Arises AFTER the sale

May be brought against the prospective May be brought against the buyer
SELLER
Applied in Urban Lands Applies in both Urban and Rural Lands

BOTH must be exercised within 30 days from receipt of a NOTICE in writing by the prospective
seller/vendor.

The written notice is important and mandatory, that the Registry of Property will not register the deed of
sale if there is no Affidavit that the seller has given such notice. (Primary Structures Corp. vs. Valencia
GR. No. 150060, Aug. 19, 2003)
ASSIGNMENT OF RIGHTS Part IX
 WHAT IS ASSIGNMENT OF CREDITS AND RIGHTS?
It is 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.
It is a contract by which the owner
(assignor/creditor) of a credit and
other incorporeal rights transfers,
either gratuitously or onerously, to
another (assignee) his rights and
actions against a third person
(debtor.
PERFECTION OF CONTRACT NOTE: the consent
OF ASSIGNMENT OF CREDIT: of the debtor is not
necessary.
The contract is perfected from
the moment the parties agree
upon the credit or right But, the
assigned and upon the price creditor/assignor
must give the debtor
even if neither has been
delivered (Art. 1475). a NOTICE OF
ASSIGNMENT .
However, the assignee will
acquire ownership only upon
delivery. (Art. 1498 par. 2 and
Art. 1501).
 EFFECTS OF ASSIGNMENT:
1. It transfers the right to collect the full value of the credit, even if the assignee has paid a price less
than such value;

2. It transfers all of the accessory rights, such as:

• Mortgage, guaranty, pledge, or preference (Art. 1627)

3. Debtor can set up against the assignee all the defenses he could have set up against the
assignor (Koa vs CA Gr. No. 84347, Mar. 5, 1998)

4. Assignee cannot go after the assignor to enforce the credit if through his own negligence he
allowed the credit to prescribe provided the assignee was given enough time yo enforce the
said credit.
EFFECTIVITY OF ASSIGNMENT AGAINST THIRD
PERSONS:
Ø If PERSONAL PROPERTY is involved - a public instrument is needed to make the
assignment effective against 3rd persons.

Ø If REAL PROPERTY is involved – registration in the Registry of Property would be

needed.

Note: A mortgage that is assigned is valid between the parties even if the
assignment is not registered, because registration is only essential to
prejudice 3rd parties
THINGS TO NOTE:

A gratuitous assignment is a
DONATION and must therefore
comply with the formalities of a Assignment is effective as to
donation. the debtor only from the
time he has knowledge of it.
Which requires a Deed of Donation
in writing, and the acceptance of the
Donee also in writing.
 EFFECT OF PAYMENT BY THE DEBTOR AFTER
ASSIGNMENT OF CREDIT
BEFORE Notice of Assignment – payment to the original creditor is valid and the debtor shall
be released from his obligations (Art. 1626)

AFTER Notice of Assignment – payment to the original creditor is not valid as against the
assignee.

- the debtor can be made to pay by the assignee

- BUT, under the Principle of Unjust Enrichment, the debtor, after having paid again,
may run after the original creditor.
 WARRANTIES IN THE ASSIGNMENT OF CREDITS:
1. The legality of the credit;
2. The existence of the credit
at the time of the
assignment; and
3. The solvency of the debtor,
if expressly stipulated, or if
the insolvency of the debtor
was prior to the sale and of
common knowledge (Art.
1628, Par. 1)
ILLUSTRATION:
LIABILITIES of the Assignor of
Example. Sam owes
Coby P5,000.00. Coby Credit for violation of his
warranties:
assigns the credit to Jil.
Coby assigned the said
• Assignor in Good Faith -
credit to Jil in good faith.
Limited Liability to:
However, as it turns out,
Sam is insolvent. Is Coby 1. price received;
2. Expenses in the ontract;
liable to Jil?
3. Other legitimate
payments
ANSWER: No. Unless it
was so expressly
stipulated; Or unless the • Assignor in Bad Faith – ALL
insolvency was prior to liability to the price, expenses
the sale and of common AND DAMAGES.
knowledge.
ASSIGNMENT (OR SALE) OF HEREDITARY RIGHTS
(ART. 1630)
Assignment/Sale of hereditary rights
prior partition is allowed, because
WARRANTY:
here the heir already has inherited
from the decedent.
The seller of hereditary rights
warrants only the fact of heirship,
but does not warrant the objects
This is not the same with Future
which make up of his inheritance.
Inheritance, where sale thereof is
prohibited.
 PREPARED BY:
END OF CONTRACT OF SALE ATTY. SHERYL MAY S. LEDESMA-
ALABANZA