BL 3 - Prelim

Regulatory Framework
and Legal Issues in Business
Atty. Jill B. Manangkil-Benitez
LAGUNA UNIVERSITY
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Table of Contents
TITLE Page
Module 1: Introduction to Sales 1

Introduction 1
Learning Objectives 1
Lesson 1. General Concepts on Sales 2
Lesson 2. Two Major Types of Contract of Sale 3
Lesson 3. Contract to Sell 4
Lesson 4. Contract of Sale Distinguished from Other Contracts 7
Assessment Task 1 13
Summary 31
References 32
Module 2: Formation, Elements & Formalities of a Contract of Sale 33

Introduction 33
Lesson 1. Objects of Sale 34
Lesson 2. Price 39
Lesson 3. Formation of Contract of Sale 45
Lesson 4. Formalities of Contract of Sale 55
Lesson 5. Capacity to Buy or Sell 57
Lesson 6. Sale by Non Owner 61
Lesson 7. Negotiable Documents of Title 63
Summary 68
References 69
Module 3: Obligations of the Vendor, Warranties and Maceda Law 71

Introduction 71
Lesson 1. Transfer of Ownership 72
Lesson 2. Delivery of the Thing Sold 73
Lesson 3. Delivery of Fruits and Accessories 88
Lesson 4. Warranties 89
Lesson 5. Other Obligations of Vendor 100
Lesson 6. The Maceda Law 102
Summary 108
References 109
Module 4: Obligations of the Vendee, Remedies and 111

Extinguishment of Sale
Introduction 111
Lesson 1. Obligations of the Vendee 112
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Lesson 2. Remedies for Breach of Contract 118
Lesson 3. Remedies of the Buyer 132
Lesson 4. Risk of Loss and Deterioration and its Effects 136
Lesson 5. Extinguishment of Sale 137
Lesson 6. Assignment of Credit and Other Incorporeal Rights 148
Summary 151
References 152
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Course Code: BL 3
Course Description: This course introduces the student to the legal and
ethical framework of business. Contracts, negotiable instruments, the law of
sales, torts, crimes, constitutional law, the Uniform Commercial Code, and
the court systems are examined. Upon completion the student should be able
to identify legal and ethical issues that arise in business decisions and the
laws that apply to them.
Course Intended Learning Outcomes (CILO):
At the end of the course, students should be able to:
1. Acquire basic knowledge on the general principles of law in relation to

legal and ethical framework of business;
2. Illustrate the application and relationship of laws on negotiable
instruments, sales, torts, crimes, as well as other special laws in the
business context and impact on business; and
3. Develop creative thinking, innovation, inquiry and analysis, evaluation
and syntheses of legal information related to business and business
transactions.
Course Requirements:
*Components of Class Standing are reflected in the OBTLP
▪ Class Standing - 60%
▪ Major Exam s - 40%
Periodic Grade 100%
PRELIM GRADE : 60% (Activity 1-4) + 40% (Prelim exam)

MIDTERM GRADE : 30% (Prelim Grade) + 70 % [60% (Activity 5-7)
+ 40% (Midterm exam)]
FINAL GRADE : 30% (Midterm Grade) + 70 % [60% (Activity 8-10)
+ 40% (Final exam)]
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MODULE 1
INTRODUCTION TO SALES
Introduction
The law of sales based on the Civil Code of the Philippines (R.A. 386, as amended) is a
body of rules which deals with the concept, elements, characteristics, and formalities of contracts
of sale.
In this module, general concepts on sales shall be discussed, as well as the elements and
different characteristics of a contract of sale. The two major types of contract of sale will be
discussed. Contract of sale will further be distinguished from other contracts. This module will
touch basic principles of law on sales including case applications will be discussed and will serve
as a study guide designed to, among other things, primarily to test and further increase the
understanding of the student.
Learning Outcomes
At the end of this module, students should be able to:
1. Appreciate and learn the general concept of sales;

2. Learn the types of elements and characteristics of a contract of sale;
3. Understand and differentiate absolute sale and conditional sale; and
4. Distinguished the contract of sale from other types of contracts.
Lesson 1. General Concepts on Sales

In a contract of sale, one of the contracting parties obligates himself to transfer the ownership
of and to deliver a determinate thing and the other to pay therefor a price certain in money or its
equivalent (Art. 1458).
Delivery and payment in a contract of sale are so interrelated and intertwined with each other
that without delivery of the goods there is no corresponding obligation to pay. The two complement
each other. It is clear that the two elements cannot be dissociated, for the contract of purchase and sale
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is essentially a bilateral contract, as it gives rise to reciprocal obligations. (Pio Barretto Sons, Inc. vs.
Compania Maritima, 62 SCRA 167).
Neither is the delivery of the thing bought nor the payment of the price necessary for the
perfection of the contract of sale. Being consensual, it is perfected by mere consent. (Jurado, 2010)
CLASSIFICATION OF ELEMENTS: (Soriano, 2014)

1. Essential elements – those without which, there can be no valid sale. The elements of an
ordinary contract (consent / meeting of the minds; object / subject; and cause/ consideration).
2. Natural elements – inherent and are deemed to exist even in the absence of a contrary provision,
save those in the contrary provision, save those in the contrary stipulation (warranties against
eviction and hidden (warranties against eviction and hidden defects).
3. Accidental elements – dependent on the parties’ stipulation (e.g. conditions, interest, penalty,
time or place of payment).
CHARACTERISTICS: (Soriano, 2014)

1. Nominate – it has been given a particular name by law
2. Principal – it can stand on its own, and does not depend on another contract for its validity
3. Bilateral – it impose obligation on both parties
a. Obligation of seller – to transfer ownership of and deliver a determinate thing
b. Obligation of buyer – to pay a price certain in money or its equivalent
Consequence of being bilateral: the power to rescind is implied in bilateral contracts (Art.
1191)
4. Onerous – it imposes a valuable consideration
Consequence: all doubts in construing an onerous contract shall be resolved in greater

reciprocity of interests (Art. 1378).
5. Commutative – it is a contract wherein a thing of value is exchanged for equal value, i.e. the
value of the subject matter is equivalent to the price paid.
Test: So long as the party believes in all honesty that he is receiving equal value for what he
gave up for, then it complies with the commutative character of the sale and would not be
deemed a donation or an aleatory contract.
● Gross inadequacy of a price does not affect a contract of sale (Art. 1470 and Art. 1335)
⮚ Sale may be annulled based on vice of consent but not on inadequacy per se
(Art. 1355)
6. Consensual – it is perfected by mere consent.
Consequence: The actual delivery of the subject matter or payment of the price agreed upon
are not necessary components to establish the existence of a valid contract of sale; and their
non-performance do not also invalidate or render void a sale that has began to exist as a valid
contract at perfection. Non-performance merely becomes the legal basis of remedies of either
specific performance merely becomes the legal basis for remedies of either specific
performance or rescission, with damages in either case (Gabelo v. Court of Appeals, G.R. No.
111743, October 8, 1999).
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7. Title; Not a Mode – it is a title and not a mode of transferring ownership. (Jurado, 2010)
● Mode is the legal means by which dominion or ownership is created, transferred or
destroyed; title only constitutes the legal basis by which to affect dominion or
ownership. Therefore, sale by itself does not transfer or affect ownership. The most
that it does is to create the obligation to transfer ownership. It is delivery that transfers
ownership.
Lesson 2. Two Major Types of Contract of Sale

There are two major types of contract of sale (Art. 1458, par. 2):
1. Absolute Sale – no conditions attached; transfer of ownership is vested upon delivery.
2. Conditional sale – subject to certain conditions; delivery does not transfer ownership until the
condition is fulfilled.
Test: If the condition is imposed upon the seller’s obligation to transfer the ownership of and
deliver the thing, there is a conditional sale. Note that the essence of sale is the acquisition of
ownership. However, If the condition is imposed upon the buyer’s obligation to pay the price,
the sale is still absolute. Payment of the purchase price is part of the consummation stage (not
perfection stage) of the contract of sale. Perfection of the contract of sale is not affected by the
fact that payment is subject to conditions, it being the case that a contract of sale is perfected
by mere consent.
Lesson 3. Contract to Sell

Jurado (2010) discussed a contract to sell as follows:
1. Exclusive right and privilege to purchase an object.

2. A bilateral contract where prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer binds himself to sell the said
property exclusively to the prospective buyer upon fulfillment of the positive suspensive
condition - full payment of the purchase price. Failure to do so is not a breach but a situation
preventing the obligation of the vendor to convey title from acquiring obligatory force. Thus,
for its non-fulfillment, there will be no contract to speak of (Zamora realty and Development
Corporation v. Office of the President, G.R. No. 165724, November 2, 2006).
3. Absent a proviso in the contract that the title to the property is reserved in the vendor until full
payment of the purchase price or a stipulation giving the vendor the right to unilaterally rescind
the contract the moment the vendee fails to pay within the fixed period, the transaction is an
absolute contract of sale and not a contract to sell. (Dignos vs. CA, G.R. No. L-59266. February
29,1988).
● The real character of the contract is NOT the file given, but the intention of the parties.
Although a document is dominated as “Deed of Absolute”, and there is no provision
therein of reservation of ownership to the seller, it will be construed as a Contract to
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Sell if the true intent of the parties is to transfer the ownership of the properties only
upon the buyer’s full payment of the purchase price (Sps. Orden, et.al. v. Sps. Aurea,
et. al., G.R. No. 172733, August 20, 2008).
Other Cases of Contract to Sell: (Jurado, 2010)

1. Where subject matter is indeterminate
2. Sale of future goods
3. Stipulation that deed of sale and corresponding certificate of sale would be issued only after
full payment.
Table 1 Contract of Sale and Contract to Sell, Distinguished.

Contract of Sale Contract to Sell
Obligation Created
The perfection of the contract gives rise to The perfection of the contract gives rise to a
reciprocal demandable obligations: on the part reciprocal suspensive conditional obligation
of the seller, obligations to transfer ownership (i.e. non-demandable obligations until the
and deliver possession of the subject matter; on condition happens) on the part of the seller to
the part of the buyer, to pay a price certain in transfer ownership, only upon fulfillment of
money or its equivalent the obligation of the buyer to pay the price in
full.
Transfer of ownership
Title passes to the buyer upon delivery of the Ownership is reserved in the seller and will
thing sold pass only to the buyer upon full payment of
the price.
Effect of non-payment of price
Failure to pay is a negative resolutory Full payment is a positive suspensive
condition which puts end to the transaction; condition, the failure of which is not a
breach but prevents the obligation of the
Remedies: vendor to convey title from having
a. Specific performance binding force
b. Rescission (Art. 1191)
In case there has been delivery of the thing to
the prospective buyer and the buyer refuses to
surrender the thing to seller, no further legal
action m=need be taken other than an action to
recover possession.
Table 2. Conditional Sale and Contract to Sell, Distinguished.

Conditional Sale Contract to Sell
Reservation of title to the subject property
In both cases the seller may reserve the title to the property until fulfillment to the suspensive
condition (e.g. payment)
Effect of fulfillment of suspensive condition
The sale is perfected; if there had been previous Ownership is not automatically transferred to
delivery of the subject property to the buyer, the buyer (even if there has been previous
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ownership automatically transfers to the delivery to him) upon fulfillment of the
buyer by operation of law without any further act suspensive condition (i.e. full payment of
by the seller. purchase price). Seller still has to convey title to
prospective buyer by entering into a contract
of absolute sale.
Effect of sale of the subject property to 3rd persons
● Upon fulfillment of suspensive condition, ● There is no double sale (because there is no
sale becomes absolute which affects seller’s previous sale of property despite fulfillment of
title suspensive condition
● The third person becomes buyer in bad faith ● The third person is not a buyer in bad faith
if he possess constructive or actual ● Prospective buyer cannot seek relief of
knowledge of defect in seller’s title reconveyance of property, but only sue under
● Subsequent buyer cannot defeat the first Art 19 (unjustified disregard of right)
buyer’s title
Lesson 4. Contract of Sale Distinguished from Other Contracts

Table 3 Sale and Agency to Sell, Distinguished. (Art. 1466)
Sale Agency to Sell
Buyer receives the goods as owner Agent receives the goods as goods of the
principal who retains his ownership over
them
Obligation as regards the price
Buyer pays the price Agent delivers the price, which he got from
his buyer, to his principal
Right to return the thing
Buyer, as a general rule, cannot return the Agent can return the goods in case he is
object sold unable to sell the same to a third
person
Warranty as to the object sold

Seller warrants the thing sold Agent makes no warranty for which he
assumes personal liability as long as he acts
within his authority and in the name of the
seller
Right over the thing
Buyer can deal with the thing sold as he Agent in dealing with the thing received,
pleases being the owner must act according to the instructions of the
principal
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Revocability
Contract of sale is not unilaterally revocable Essentially revocable, because it covers an
underlying fiduciary relationship between the
principal and the agent
The transfer of title or agreement to transfer it for a price paid is the essence of sale. If
such transfer puts the transferee in the position of an owner and makes him liable for the agreed
price, the transaction is a sale. On the other hand, the essence of an agency to sell is the delivery
to an agent, not as his property, but as the property of his principal, who remains the owner and
has the right to control sales, fix the price and terms, demand and receive the proceeds less the
agent’s commission upon sales made (Kerr v. Lingad, 38 SCRA 524).
Table 4 Sale and Contract for Piece of Work (Art. 1467)

Sale Agency to Sell
Existence of thing
The thing transferred is one which would The thing transferred is not in existence and
have existed and would have been the would never have existed but for the order of
subject of sale to some other person, even if the party desiring to acquire it
the order had not been given
Object of the contract
The primary objective of the contract is a The services dominate the contract even
sale of the manufactured item; it is a sale of though there is a sale of goods involved
goods even though the item is
manufactured by labor furnished by the
seller and upon
previous order of the customer
Applicability of Statute of Frauds

Governable by the Statute of Frauds Not within the Statute of Frauds
Example: (Soriano, 2014)
Facts: Puregoods Corporation, which maintains a professional basketball team, entered into a
contract with Avenidas Footwear Company for the latter to provide a pair of rubber shoes to
the former’s two imported basketball players, Scottie Duncan and John Bryant. Avenidas
Footwear was instructed to make a pair for any or both of the players in case the company did
not manufacture shoes of their size. No pair was, however, immediately available for both the
players. Scottie Duncan, who is 6’3’ tall and wears size 12 rubber shoes, was given a pair the
following day from the 200 pairs that Avenidas Footwear was in the process of manufacturing
for its customers at the time the orders were received. John Bryant, who stands at 7 feet and
wears size 18 shoes, was provided three days later, with a pair that was specially made for him
since Avenidas Footwear does not make shoes of his size.
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Question: What kinds of contracts were entered into for the shoes provided to the two basketball
players?
Answer: The contract with respect to the shoes provided to Scottie Duncan was one of sale
since the pair given to him was manufactured by Avenidas Footwear in the ordinary course of
business. On the other hand, the contract with respect to the pair provided to John Bryant was
for a piece of work since it was specially made for him and upon Puregoods’ special order.
Rules to determine if the contract is one of sale or a piece of work (Art. 1467);
1. Sale – if ordered or manufactured in the ordinary course of business
2. Piece of work – If manufactures specially for the customer and upon his special order, and
not for the general market
Schools of Thought:
1. Massachusetts Rule: If specially done at the order of another, this is a contract for a piece
of work (Philippine Application).
2. New York Rule: If the thing already exists- SALE, if not – WORK.
3. English Rule: If material is more valuable – WORK.
Table 5 Sale and Barter (Art. 1468)

Sale Barter
Nature
A thing is given in exchange of money or A thing is given in exchange of another
its equivalent thing
Applicable Law
Law on Sales Law on Sales
If the consideration is partly in money and partly in another thing
1. The transaction is characterized by the manifest intention of the parties

2. If there is not manifest intention
a. BARTER if the value of the thing is more valuable than money
b. SALE if the value of the thing is equal of less than the amount of money.
Examples: (Soriano, 2014)
Facts: (A.) S and B entered into a written contract which states that “S, Seller, hereby transfers
his ring worth P20,000.00 to B, Buyer, for B’s cellphone worth P12,000.00 and cash of
P8,000.00.”
Question: What contract was entered by S and B?
Answer: The contract entered into between S and B is one of sale. It is evident that such was
their intention when they referred to themselves as seller and buyer, respectively, even if the
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value of the cell phone, the property consideration, (P12,000.00) is more than the monetary
consideration of P8,000.00.
(B.) Facts: Suppose the written contract merely states that “S hereby transfers his ring worth
P20,000.00 to B, for B’s cellphone worth P12,000.00 and cash of P8,000.00.”
Answer: The contract is one of barter since the intention of the parties does not clearly appear,
and the value of the cell phone, the property consideration (P12,000.00) is more than the
monetary consideration of P8,000.00.
(C.) Facts: Suppose the written contract states that “S hereby transfers his ring worth
P20,000.00 to B, for B’s cellphone worth P10,000.00 and cash of P10,000.00.”
Answer: The contract is one of sale. Under Art. 1468, if the intention of the parties does not
clearly appear, “it shall be considered a barter if the value of the thing given as part of the
consideration exceeds the amount of money or its equivalent; otherwise, it is sale.”
“Otherwise”, meaning the monetary consideration is more than or equal to the value of the
property consideration.
Table 6 Sale and Dation in Payment

Sale Dation in Payment
Existence of Credit
No pre-existing credit Pre-existing credit
Obligation
Obligations are created Obligations are extinguished
Consideration
● On the part of the seller: the price ● On the part of the debtor: the
● On the part of the buyer: the extinguishment of the debt
acquisition of the object ● On the part of the creditor: the
acquisition of the object offered in
lieu of the original credit
Determination of price
Greater freedom in determining the price Less Freedom in determining the price
Payment of price
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Buyer still has to pay the price The payment is received by the debtor before
the contract is perfected
Table 7 Sale and Lease

Sale Lease
Transfer of Ownership
Ownership is transferred upon delivery No transfer of ownership because the rights
of the lessee are limited to the use and
enjoyment of the thing leased
Extent of transfer
Transfer is permanent Transfer is temporary
Who may convey the property

Seller must be the owner at the time the Lessor need not be the owner
property is delivered
Significance of price of object

Usually, the selling price is mentioned The price of the object, distinguished from
the rent, is usually not mentioned
Assessment Task 1
CASE ANALYSIS. Read and analyze the case below.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 120191 October 10, 1997

LORETO ADALIN, CARLOS CALINGASAN, DEMETRIO ADAYA and MAGNO
ADALIN, petitioners,
vs.
THE HON. COURT OF APPEALS, FAUSTINO L. YU, ANTONIO T. LIM, ELENA K.
PALANCA, JOSE PALANCA, EDUARDA K. VARGAS, JOSE VARGAS, MERCEDES K.
CABALLERO, EBERHARDO CABALLERO, ISABEL K. VILLAMOR, FEDERICO
VILLAMOR, JOSE KADO, URSULA KADO, MARIA K. CALONZO, BAYANI L. CALONZO,
TEOFILA KADO, NESTOR KADO and LILIA KADO, respondents.
HERMOSISIMA, JR., J.:
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Before us is a petition for review seeking the reversal of the Decision1 of the Court of Appeals2 and in
lieu thereof, the reinstatement of the Decision3 of the Regional Trial Court4 in an action for specific
performance filed by private respondents Faustino L. Yu and Antonio T. Lim against the Kado siblings,
namely, private respondents Elena K. Palanca, Eduarda K. Vargas, Mercedes K. Caballero, Isabel K.
Villamor, Jose Kado, Maria K. Calonzo, Teofila Kado and Nestor Kado, and their respective spouses.
In essence, the petition poses a challenge against the respondent appellate court's legal conclusion that
the transaction entered into by private respondents Yu and Lim with private respondents Kado siblings,
is one of an absolute sale and not merely a conditional sale as denominated in the document signed by
said parties. As such, there is no dispute as to the following facts:
. . . [F]rom the welter of evidence and the record, it has been established that Elena Kado
Palanca, and her brothers and sisters, namely, Eduarda K. Vargas, Mercedes K. Caballero,
Isabel K. Villamor, Jose Kado, Maria K. Calonzo, Teofila Kado and Nestor Kado, hereinafter
referred to, for brevity's sake, as the Appellees-Vendors, were the owners of a parcel of land,
with an area of 1,343 square meters, with a five-door, one storey commercial building
constructed thereon, fronting the Imperial Hotel, located along Magallanes Street, Cotabato
City, described in and covered by Transfer Certificate of Title No. T-12963 of the Registry of
Deeds of Cotabato City . . . . One of the five (5) doors was leased to Loreto Adalin, hereinafter
referred to as the Appellee Adalin, two (2) doors were leased to Carlos Calingasan and
Demetrio Adaya respectively, and two (2) doors were leased to Magno Adalin, all of whom are
hereinafter referred to, for brevity's sake, as the Appellees-Vendees. The Appellees-Vendees
and Appellee Adalin paid a monthly rental of P1,500.00 for each door. The Appellees-Vendors
commissioned Ester Bautista to look for and negotiate with prospective buyers for the sale of
their property for the price of P3,000,000.00. Sometime in August, 1987, Ester Bautista offered
the property, for sale, to the Appellants and the latter agreed to buy the property. A conference
was held in the office of the Appellant Faustino Yu, at the Imperial Hotel, where he was the
President-Manager, with both Appellants, the Appellee Adalin, the Appellees-Vendors Elena
Palanca and Teofilo Kado, in their behalf and in behalf of the Appellees-Vendors, in
attendance, to discuss the terms and conditions of the sale. The Appellants and Appellee
Adalin, the Appellees-Vendors agreed that the Appellants will each buy two (2) doors while
Appellee Adalin will buy the fifth door which he was leasing from the Appellees-Vendors, all
for the price of P2,600,000.00. During the conference, the Appellants inquired from the
Appellee-Vendor Elena Palanca whether the Appellees-Vendees were interested to buy the
property but the Appellee-Vendor Elena Palanca replied that the property had been offered to
the Appellees-Vendees for sale but that the latter were not interested to buy the same. The
conferees then agreed to meet, on September 2, 1987, in the house of the Appellee-Vendor
Palanca, with Atty. Bayani Calonzo, her brother-in-law, in attendance, to finalize the sale.
However, unknown to the Appellants, the Appellee-Vendor Elena Palanca, in her behalf and
in behalf of the other Appelles-Vendors, sent, on September 2, 1987, separate letters to each of
the Appellees-Vendees informing them that someone was interested to buy the property and
requested them to vacate the property within thirty (30) days "unless all of you could buy the
property at the same price" . . . . During the conference in the house of the Appellee-Vendor
Elena Palanca, on September 2, 1987, the Appellants, the Appellee Adalin and the Appellees-
Vendors Elena Palanca and Teofilo Kado in their behalf and in behalf of the other Appellees-
Vendors, Atty. Bayani Calonzo, the husband of the Appellee Maria Kado, Atty. Eugenio
Soyao, the counsel of the Appellants and the Appellee-Vendee Magno Adalin who attended in
his behalf and in behalf of the Appellees-Vendees, were present. When asked by the Appellants
if the Appellees-Vendees were interested to buy the property, the Appellee-Vendee Magno
Adalin forthrightly replied that the Appellees-Vendees were not interested to buy the property
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because they cannot afford the purchase price thereof. However, he claimed that the Appellees'
Vendees were entitled to P50,000.00 each as disturbance money, in consideration for their
vacating the property, to be borne by the Appellees-Vendors. The Appellants, the Appellee
Adalin and the Appelles-Vendors forthwith agreed that each Appellant will buy two (2) doors
while the fifth door leased by Appellee Adalin will be purchased by him, all for the purchase
price of P2,600,000.00 and that the Appellants and Appellee Adalin will pay, P300,000.00 as
downpayment for the property, the balance to be payable upon the eviction of the Appellees-
Vendees from the property and the execution of a "Deed of Absolute Sale". Atty. Bayani
Calonzo forthwith assured the Appellants that he could secure the eviction of the Appellees-
Vendees from the property within a month because the latter were his close friends and
compadres. Atty. Bayani Calonzo then gave Atty. Eugenio Soyao, the counsel of the
Appellants, the go-signal to prepare the deed for the signatures of the parties. On September 8,
1987, the Appellants and Appellee Adalin, as buyers of the property, and the Appellees-
Vendors, met in the office of the Appellant Faustino Yu at the Imperial Hotel and executed the
"Deed of Conditional Sale" prepared by Atty. Eugenio Soyao
. . . . The Appellants and Appellee Adalin each contributed P100,000.00 and gave the total
amount of P300,000.00 to the Appellee-Vendor Elena Palanca as the downpayment for the
property. The Appellees-Vendors Elena Palanca and Eduarda Vargas signed an
"Acknowledgment Receipt" for the downpayment . . . in their behalf and in behalf of the other
Appellees-Vendors. In the meantime, the Appellants deferred registration of the deed until after
the eviction of the Appellees-Vendees from the property and the payment of the balance of the
purchase price of the property to the Appellees-Vendors as agreed upon under the "Deed of
Conditional Sale".
In the interim, on October 14, 1987, the Appellees-Vendors, through the Appellee-Vendor
Elena Palanca, wrote, conformably with the terms of the "Deed of Conditional Sale" . . . a letter
complaint against the Appellees-Vendees with the Barangay Captain for unlawful detainer . . .
. The case was docketed as Barangay Case No. 7,052-87 . . . . On October 16, 1987, the
Appellee-Vendee Magno Adalin wrote a letter to the Appellees-Vendors, through the Appellee-
Vendor Elena Palanca, informing them that he had decided to purchase the two doors he was
leasing for the purchase price of P600,000.00 per door and was ready to tender the amount by
the end of the month . . . . The Appellee-Vendee Demetrio Adaya and the Appellee-Vendee
Carlos Calingasan likewise wrote separate letters to the Appellees-Vendors informing the latter
of their decision to purchase the premises occupied by them respectively for the amount of
P600,000.00 each . . . . Inspite of the prior sale of the property to the Appellants and Appellee
Adalin, the Appellees-Vendors decided to back out from said sale to the Appellants and to sell
the property to the Appellees-Vendees and to return the downpayments of the Appellants for
the property in the total amount of P200,000.00 with interests thereon. The Appellees-Vendees
procured TCBT Check No. 195031 in the amount of P101,416.66 payable to the Appellant
Faustino Yu and TCBT Check No. 195032 in the amount of P101,416.66 payable to the
Appellant Antonio Lim and transmitted the same to the Appellants with a covering letter . . . .
The Appellants were flabbergasted. Both the Appellants refused to receive the said letter and
checks and insisted, instead, that the Appellees-Vendors comply with the "Deed of Conditional
Sale" . . . . On November 16, 1987, the Appellants, through their counsel, wrote a letter to the
Appellees-Vendors, copies of which were furnished the Appellees-Vendees, inquiring if the
appropriate action has been undertaken towards the eviction of the Appellees-Vendees
. . . . The Appellees-Vendors ignored the said letter. Instead, the Appellees-Vendors signed, in
December, 1987, a "Deed of Sale of Registered Land" under which they sold the said property
to the Appellees-Vendees, including the Appellee Adalin for the price of only P1,000,000.00 .
. . much lower than the price of the Appellant under the "Deed of Conditional Sale"
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. . . . Although it appears that the deed was notarized by Atty. Bayani Calonzo, however, the
deed does not bear any number in the notarial register of the lawyer. In the same month, the
Appellees-Vendors signed another "Deed of Sale of Registered Land" under which they sold
to the Appellees-Vendees including Appellee Adalin the aforesaid property for the
considerably increased price of P3,000,000.00 . . . . The deed was notarized by Atty. Bayani
Calonzo. Interestingly, both deeds were not filed with the Register of Deeds of Cotabato City.
Not content with the two (2) Deeds of Sale of Registered Land . . . the Appellees-Vendors,
signed a third "Deed of Sale of Registered Land" which appears dated February 5, 1988 under
which they purportedly sold to the Appellees-Vendees, including Appellee Adalin, the
aforesaid property for the much reduced price of only P860,000.00 . . . . However, the aforesaid
deed was not immediately filed with the Register of Deeds of Cotabato City. On February 26,
1988, the Appellees-Vendors, through Atty. Bayani Calonzo, filed a Petition against the
Appellants for the consignation of their downpayment of P200,000.00, with the Regional Trial
Court of General Santos City entitled "Maria K. Calonzo, et al. versus Faustino Yu, Special
Civil Case No. 259". . . .
Undaunted, the Appellants filed a complaint with the Barangay Captain for Breach of Contract
against the Appellees-Vendors entitled "Faustino Yu, et al. versus Elena K. Palanca, et al.,
Barangay Case No. 9,014-88". The Barangay Captain issued, on April 7, 1988, summons to
the Appellees-Vendors for them to appear for a conference on April 22, 1988 at 9:00 o'clock
in the morning . . . . Invitations were also sent to the Appellees-Vendees . . . . During the
conference attended by Appellee-Vendees, the Appellants, if only to accommodate the
Appellee-Vendee Magno Adalin and settle the case amicably, agreed to buy only one door each
so that the Appellee-Vendee Magno Adalin could purchase the two doors he was occupying.
However, the Appellee-Vendee Magno Adalin adamantly refused, claiming that he was already
the owner of the two (2) doors. When the Appellant Antonio Lim asked the Appellee Vendee
Magno Adalin to show the "Deed of Sale" for the two doors, the latter insouciantly walked out.
Atty. Bayani Calonzo likewise stated that there was no need to show the deed of sale. No
settlement was forged and, on May 16, 1988, the Barangay Captain issued the Certification to
File Action . . . .
On May 5, 1988, the Appellants filed their complaint for "Specific Performance" against the
Appellees-Vendors and Appellee Adalin in the Court a quo.
On June 14, 1988, the Appellants caused the annotation of a "Notice of Lis Pendens" at the
dorsal portion of Transfer Certificate of Title No. 12963 under the names of the Appellees-
Vendors . . . . On October 25, 1988, the Appellees-Vendees filed a "Motion for Intervention as
Plaintiffs-Intervenors" appending thereto a copy of the "Deed of Sale of Registered Land"
signed by the Appellees-Vendors . . . . On October 27, 1988, the Appellees-Vendees filed the
"Deed of Sale of Registered Land" . . . with the Register of Deeds on the basis of which Transfer
Certificate of Title No. 24791 over the property was issued under their names . . . . On the same
day, the Appellees-Vendees filed in the Court a quo a "Motion To Admit Complaint-In-
Intervention . . . . Attached to the Complaint-In-Intervention was the "Deed of Sale of
Registered Land" signed by the Appellees-Vendees . . . . The Appellants were shocked to learn
that the Appellees-Vendors had signed the said deed. As a counter-move, the Appellants filed
a motion for leave to amend Complaint and, on November 11, 1988, filed their Amended
Complaint impleading the Appellees-Vendees as additional Defendants. . . .
xxx xxx xxx
The Appellees-Vendors suffered a rebuff when, on January 10, 1989, the Regional Trial Court
of General Santos City issued an Order dismissing the Petition of the Appellees-Vendors for
consignation . . . . In the meantime, on November 30, 1989, Appellee Adalin died and was
substituted, per order of the Court a quo, on January 5, 1990, by his heirs, namely, Anita,
12
Anelita, Loreto, Jr., Teresita, Wilfredo, Lilibeth, Nelson, Helen and Jocel, all surnamed Adalin,
as Appellees-Vendees . . . .
After trial, the Court a quo rendered judgment in favor of the Appellees-Vendees . . . .5
In the opinion of the court a quo, petitioners became the owners of the parcel of land in question with
the five-door, one storey commercial building standing thereon, when they purchased the same
following the offer and the 30-day option extended to them by private respondent Elena Palanca, in
behalf of the other Kado siblings, in her letter to them dated September 2, 1987. The trial court
disregarded the fact that the Kado siblings had already finished transacting with private respondents
Faustino Yu and Antonio Lim and had in fact entered into a conditional sale with them respecting the
same property. The trial court brushed aside this fact as it reasoned that:
. . . In conditional deed of sale, ownership is only transferred after the purchase price is fully
paid or the fulfillment of the condition and the execution of a definite or absolute deed of sale
are made. . . .
In this case, it is clear from the provision of the Deed of Conditional Sale . . . that the balance
of the price of P2,300,000.00 shall be paid only after all the defendants-vendees shall have
vacated and surrendered the premises to the defendants-vendors. However, the tenants did not
leave the premises. In fact they opted to buy the property. Moreover, at that time, the property
was legally leased to the defendants-vendees. . . .
xxx xxx xxx
Clearly therefore, the condition set forth in the said Deed of Conditional Sale between the
plaintiffs and the defendants-vendors was not fulfilled. Since the condition was not fulfilled,
there was no transfer of ownership of the property from the defendants-vendors to the plaintiffs.
...
. . . [In] the letters of Elena Palanca to the defendants-vendees dated September 2, 1987 . . .
[t]hey were given the option or preferential right to purchase the property.
xxx xxx xxx
When the defendants-vendors accepted defendants-vendees' option to buy, the former returned
the initial payment of P200,000.00 to the plaintiffs . . . but they refused to accept the same. This
refusal however did not diminish the effect of the acceptance of the option to buy, which in
fact led to the execution of the said Deed of Sale of Registered Land . . . and the subsequent
issuance of the Transfer Certificate of Title No. T-24791 of the Registry of Deeds for the City
of Cotabato in the names of the defendants-vendees . . . . . .
. . . [T]he defendants-vendors acted in bad faith when, while during the effectivity of the period
of the option to buy [that] they gave to the defendants-vendees, they executed a Deed of
Conditional Sale . . . in favor of the plaintiffs. This was only six (6) days from date of the
option. . . .6
The trial court also ruled that the conditional sale of the subject property to private respondents Faustino
Yu and Antonio Lim and the sale of the same property to petitioners, did not involve a double sale as
to warrant the application of Article 1544 of the Civil Code. The court a quo ratiocinated in this manner:
. . . [T]he plaintiffs assert that this case is one of double sale and should be governed by Article
1544 of the Civil Code. The first sale, plaintiffs claim, is that under the Deed of Conditional
Sale . . . in their favor and the second sale is that ultimately covered by the Deed of Sale of
Registered Land for P860,000.00 . . . in favor of the defendants-vendee. As already pointed out
by the court, the execution of the Deed of Conditional Sale did not transfer ownership of the
property to the plaintiff, hence, there can be no double sale. As held in the case of Mendoza
vs. Kalaw, 42 Phil. 236, Article 1544 does not apply to situations where one sale was subject
to a condition which was not complied with. This is because a conditional sale, before the
13
performance of the condition, can hardly be said to be a sale of property, specially where the
condition has not been performed or complied with.7
Pursuant to the above ruminations of the court a quo, it ordered the following in the dispositive portion
of its decision:
WHEREFORE, the court hereby orders the dismissal of plaintiffs' complaint against the
defendants-vendees for lack or merit, and hereby further sustains the validity of Transfer
Certificate of Title No. T-24791 issued in their names (defendants-vendees) by the Registry of
Deeds for the City of Cotabato.
The defendants-vendors are hereby jointly and severally ordered to pay moral damages of
P500,000.00 to each of the plaintiffs, P100,000.00 exemplary damages to each of the plaintiffs
and P50,000.00 as and for attorney's fees.
Defendants-vendors are hereby further ordered to return the P200,000.00 initial payment
received by them with legal interest from date of receipt thereof up to November 3, 1987.
Defendants-vendees' counterclaim is hereby ordered dismissed.
With cost against the defendants-vendors
SO ORDERED.8
Private respondents Faustino Yu and Antonio Lim wasted no time in appealing from the above decision
of the court a quo. They were vindicated when the respondent Court of Appeals rendered its decision
in their favor. The respondent appellate court reversed the trial court as it ruled, thus:
. . . We find, and so declare. that the "Deed of Conditional Sale" . . . executed by the Appellees-
Vendors in favor of the Appellants was an absolute deed of sale and not a conditional sale.
xxx xxx xxx
In ascertaining the nature of a contract and the intention of the parties thereto, it behooves the
trier of facts to look into the context of the contract in its entirety and not merely specific words
or phrases therein, standing alone, as well as the contemporaneous and subsequent acts of the
parties. It bears stressing that the title of the contract is not conclusive of its nature. . . .
Although a contract may be denominated a "Deed of Conditional Sale", or "Agreement to Sell",
the same may be, in reality a deed of absolute sale or a contract of sale . . . .
Under Article 1458 of the New Civil Code, a sale may be absolute or conditional. A contract
may be conditional when the ownership of the thing sold is retained until the fulfillment of a
positive suspensive condition, generally the payment of the purchase price, the breach of which
condition will prevent the onset of the obligation to deliver title . . . . A sale of immovables is
absolute where the contract does not contain any provision that title to the property sold is
reserved to the Vendors or that the Vendor is entitled to unilaterally rescind the same.
xxx xxx xxx
The Court a quo . . . resolutely subscribed to the view that the . . . deed is conditional, its
efficacy dependent upon a suspensive condition — that of the payment by the Appellants of
the balance of the purchase price of the properly, after the Appellees-Vendees shall have been
evicted from the property or shall have voluntarily vacated the same and the Deed of Absolute
Sale shall have been executed in favor of the Appellants; and, since the condition was not
fulfilled, the sale never became effective . . . . . . . Even a cursory reading of the deed will
readily show absence of any stipulation in said deed that the title to the property was reserved
to the Appellees-Vendors until the balance of the purchase price was paid nor giving them the
right to unilaterally rescind the contract if the Appellants failed to pay the said amount upon
the eviction of the Appellees-Vendees. Inscrutably the, the deed is a perfected deed of absolute
sale, not a conditional one. . . .
xxx xxx xxx
14
There may not have been delivery of the properly to the Appellants either symbolically or
physically and more, the Appellees-Vendors may have deferred their obligation of delivering
physical possession of the property to the Appellees only after the Appellees-Vendees shall
have vacated the property, however, the right of retention of the Appellees-Vendors of title to
or ownership over the property cannot thereby be inferred therefrom. . . . .
In fine, the non-payment of the balance of the purchase price of the property and the consequent
eviction of the Appellees-Vendees therefrom were not conditions which suspended the efficacy
of the "Deed of Conditional Sale". Rather, the same, if due to the fault of the Appellants, merely
accorded the Appellees-Vendors the option to rescind the already existing and effective sale.
The Appellants and the Appellees-Vendors, having entered into, under the "Deed of
Conditional Sale" . . . an absolute sale, the Appellants thus had every right to demand that the
Appellees-Vendors performed their prestation under the deed, to wit — the eviction of the
Appellees-Vendees from the property — so that the Appellants may then pay the balance of
the purchase price of the property.
xxx xxx xxx
The Court a quo and the Appellees, however, posit that the "Deed of Conditional Sale" . . . had
not been consummated and title to and ownership over the property had not been transferred to
the Appellants because there had been neither constructive nor actual delivery of the property
to the Appellants . . . .
We do not agree. The evidence in the record shows that the Appellants and the Appellees-
Vendors met in the house of Appellee Elena Palanca on September 2, 1987. The Appellees-
Vendees were represented by the Appellee-Vendee, Retired Col. Magno Adalin. The latter did
not object to the sale of the property to the Appellants but merely insisted that each of the
Appellees-Vendees be give in P50,000.00 as disturbance fee by the Appellees-Vendors to
which the latter acquiesced because Atty. Bayani Calonzo forthwith gave Atty. Eugenio Soyao,
the go-signal to prepare the "Deed of Conditional Sale" for the signatures thereof by the parties
on September 8, 1987. The Appellees-Vendors, on September 2, 1987, wrote letters to the
Appellees-Vendees giving them the option to match the price offered by the Appellants. The
Appellees-Vendees maintained a resounding silence to the letter-offer of the Appellees-
Vendors. It was only, on October 16, 1987, that the Appellees-Vendees, after the execution by
the Appellants and the Appellees-Vendors of the "Deed of Conditional Sale", that the
Appellees-Vendees finally decided to themselves, purchase the property. The Appellees are
estopped from claiming that the property had not been delivered to the Appellants. The
Appellants cannot use their gross bad faith as a shield to frustrate the enforcement, by the
Appellants, of the "Deed of Conditional Sale". . . .
xxx xxx xxx
The Appellees-Vendors cannot invoke the refusal of the Appellees-Vendees to vacate the
property and the latter's decision to themselves purchase the property as a valid justification to
renege on and turn their backs against their obligation to deliver or cause the eviction of the
Appellees-Vendees from and deliver physical possession or the property to the Appellants. For,
if We gave our approbation to the stance of the Appellees, then We would thereby be
sanctioning the performance by the Appellees-Vendors of their obligations under the deed
subject to the will and caprices of the Appellees-Vendees, which we cannot do . . . .
It would be the zenith of inequity for the Appellees-Vendors to invoke the occupation by the
Appellees-Vendees, as of the property, as a justification to ignore their obligation to have the
Appellees-Vendees evicted from the property and for them to give P50,000.00 disturbance fee
for each of the Appellees-Vendees and a justification for the latter to hold on to the possession
of the property.
xxx xxx xxx
15
Assuming, gratia arguendi, for the nonce, that there had been no consummation of the "Deed
of Conditional Sale" . . . by reason of the non-delivery to the Appellants of the property, it does
not thereby mean that the "Deed of Sale of Registered Land" . . . executed by the Appellees
should be given preference. Apropos to this, We give our approbation to the plaint of the
Appellants that the Court a quo erred in not applying the second and third paragraphs of Article
1544 . . . . .
For, the evidence in the record shows that, although the Appellees-Vendees managed to cause
the registration of the Deed of Sale of Registered Land . . . on October 27, 1988 and procure
Transfer Certificate of Title No. 24791 under their names, on said date, and that they were, as
of said date, in physical possession of the property, however, the evidence in the record shows
that the Appellees-Vendees were in gross evident bad faith. At the time the Appellees executed
the "Deed of Sale of Registered Land" in December 1987 . . . they were aware that the
Appellees-Vendors and the Appellants had executed their "Deed of Conditional Sale" as early
as September 8, 1987. . . . In the light of the foregoing, We arrive at the ineluctable conclusion
that preference must be accorded the "Deed of Conditional Sale" executed by the Appellants
and the Appellees-Vendors.9
Accordingly, the respondent Court of Appeals rendered another judgment in the case and ordered the
following:
1. The "Deed of Conditional Sale", Exhibit "A" is hereby declared valid;
2. The "Deeds of Sale of Registered Land", Exhibits "E", "F" and "G" and Transfer Certificate
of Title No. 24791 are hereby declared null and void;
3. The Appellees-Vendees except the heirs of Loreto Adalin are hereby ordered to vacate the
property within thirty (30) days from the finality of this Decision;
4. The Appellees-Vendors are hereby ordered to execute, in favor of the Appellants, a "Deed
of Absolute Sale" covering four (4) doors of the property (which includes the area of the
property on which said four doors are constructed) except the door purchased by the Appellee-
Vendee Loreto Adalin, free of any liens or encumbrances;
5. The Appellants are hereby ordered to remit to the Appellees-Vendors the balance of the
purchase price of the four (4) doors in the amount of P1,880,000.00;
6. The Appellees-Vendors are hereby ordered to refund to the Appellees-Vendees the amount
of P840,000.00 which they paid for the properly under the "Deed of Conditional Sale of
Registered Land", Exhibit "G", without interest considering that they also acted in bad faith;
7. The Appellee-Vendee Magno Adalin is hereby ordered to pay the amount of P3,000.00 a
month, and each of the Appellees-Vendees, except the Appellee Adalin, the amount of
P1,500.00 to the Appellants, from November, 1987, up to the time the property is vacated and
delivered to the Appellants, as reasonable compensation for the occupancy of the property, with
interest thereon at the rate of 6% per annum;
8. The Appellees-Vendors are hereby ordered to pay, jointly and severally, to each of the
Appellants the amount of P100,000.00 by way of moral damages, P20,000.00 by way of
exemplary damages and P20,000.00 by way of attorney's fees;
9. The counterclaims of the Appellees are dismissed.
With costs against the Appellees.
SO ORDERED.10
Unable to agree with the above decision of the respondent appellate court, petitioners seek reversal
thereof on the basis on the following grounds:
1. The Unconsummated Conditional Contract of Sale in favor of the herein respondent
VENDEES is Inferior to and Cannot Prevail Over the Consummated Absolute Contracts of
Sale in favor of the herein petitioners.
16
2. The Deeds of Sale in favor of the herein Petitioners as well as Transfer Certificate of Title
No. 24791 in their names are Perfectly Valid Documents.
3. The herein Petitioners may not be Legally and Rightfully Ordered to Vacate the Litigated
Property or Pay Reasonable Compensation for the Occupancy Thereof .
4. The herein Petitioners may not be Held Liable to Pay the Costs.11
5. The Court of Appeals erred in holding that the Deed of Conditional Sale is in reality an
absolute deed of sale.
6. The Court of Appeals erred in relying totally and exclusively on the evidence presented by
respondents and in disregarding the evidence for petitioners.
7. The Court of Appeals erred in holding that herein petitioners are guilty of bad faith and that
Article 1544 of the Civil Code is
applicable.12
The petition lacks merit.
The grounds relied upon by petitioners are essentially a splitting of the various aspects of the one pivotal
issue that holds the key to the resolution of this controversy: the true nature of the sale transaction
entered into by the Kado siblings with private respondents Faustino Yu and Antonio Lim. Our task put
simply, amounts to a declaration of what kind contract had been entered into by said parties and of what
their respective rights and obligations are thereunder.
It is not disputed that in August, 1987, Elena K. Palanca, in behalf of the Kado siblings, commissioned
Ester Bautista to look for buyers for their property fronting the Imperial Hotel in Cotabato City. Bautista
logically offered said property to the owners of the Imperial Hotel which may be expected to grab the
offer and take advantage of the proximity of the property to the hotel site. True enough, private
respondent Faustino Yu, the President-General Manager of Imperial Hotel, agreed to buy said property.
Thus during that same month of August, 1987, a conference was held in the office of private respondent
Yu at the Imperial Hotel. Present there were private respondent Yu, Loreto Adalin who was one of the
tenants of the five-door, one-storey building standing on the subject property, and Elena Palanca and
Teofilo Kado in their own behalf as sellers and in behalf of the other tenants of said building. During
the conference, private respondents Yu and Lim categorically asked Palanca whether the other tenants
were interested to buy the property, but Palanca also categorically answered that the other tenants were
not interested to buy the same. Consequently, they agreed to meet at the house of Palanca on September
2, 1987 to finalize the sale.
On September 2, 1987, Loreto Adalin; Yu and Lim and their legal counsel; Palanca and Kado and their
legal counsel; and one other tenant, Magno Adalin, met at Palanca's house. Magno Adalin was there in
his own behalf as tenant of two of the five doors of the one-storey building standing on the subject
property and in behalf of the tenants of the two other doors, namely. Carlos Calingasan and Demetrio
Adaya. Again, private respondents Yu and Lim asked Palanca and Magno Adalin whether the other
tenants were interested to buy the subject property, and Magno Adalin unequivocally answered that he
and the other tenants were not so interested mainly because they could not afford it. However, Magno
Adalin asserted that he and the other tenants were each entitled to a disturbance fee of P50,000.00 as
consideration for their vacating the subject property.
During said meeting, Palanca and Kado, as sellers, and Loreto Adalin and private respondents Yu and
Lim, as buyers, agreed that the latter will pay P300,000.00 as downpayment for the property and that
as soon as the former secures the eviction of the tenants, they will be paid the balance of P2,300,000.00.
Pursuant to the above terms and conditions, a Deed of Conditional Sale was drafted by the counsel of
private respondents Yu and Lim. On September 8, 1987, at the Imperial Hotel office of private
respondent Yu, Palanca and Eduarda Vargas, representing the sellers, and Loreto Adalin and private
respondents Yu and Lim signed the Deed of Conditional Sale. They also agreed to defer the registration
of the deed until after the sellers have secured the eviction of the tenants from the subject property.
17
The tenants, however, refused to vacate the subject property. Being under obligation to secure the
eviction of the tenants, in accordance with the terms and conditions of the Deed of Conditional Sale,
Elena Palanca filed with the Barangay Captain a letter complaint for unlawful detainer against the said
tenants.
Undisputedly, Palanca, in behalf of the Kado siblings who had already committed to sell the property
to private respondents Yu and Lim and Loreto Adalin, understood her obligation to eject the tenants on
the subject property. Having gone to the extent of filing an ejectment case before the Barangay Captain,
Palanca clearly showed an intelligent appreciation of the nature of the transaction that she had entered
into: that she, in behalf of the Kado siblings, had already sold the subject property to private respondents
Yu and Lim and Loreto Adalin, and that only the payment of the balance of the purchase price was
subject to the condition that she would successfully secure the eviction of their tenants. In the sense
that the payment of the balance of the purchase price was subject to a condition, the sale transaction
was not yet completed, and both sellers and buyers have their respective obligations yet to be fulfilled:
the former, the ejectment of their tenants; and the latter, the payment of the balance of the purchase
price. In this sense, the Deed of Conditional Sale may be an accurate denomination of the transaction.
But the sale was conditional only inasmuch as there remained yet to be fulfilled, the obligation of the
sellers to eject their tenants and the obligation of the buyers to pay the balance of the purchase price.
The choice of who to sell the property to, however, had already been made by the sellers and is thus no
longer subject to any condition nor open to any change. In that sense, therefore, the sale made by
Palanca to private respondents was definitive and absolute.
Nothing in the acts of the sellers and buyers before, during or after the said transaction justifies the
radical change of posture of Palanca who, in order to provide a legal basis for her later acceptance of
the tenants' offer to buy the same property, in effect claimed that the sale, being conditional, was
dependent on the sellers not changing their minds about selling the property to private respondents Yu
and Lim. The tenants, for their part, defended Palanca's subsequent dealing with them by asserting their
option rights under Palanca's letter of September 2, 1987 and harking on the non-fulfillment of the
condition that their ejectment be secured first.
Two days after Palanca filed an ejectment case before the Barangay Captain against the tenants of the
subject property, Magno Adalin, Demetrio Adaya and Carlos Calingasan wrote letters to Palanca
informing the Kado siblings that they have decided to purchase the doors that they were leasing for the
purchase price of P600,000.00 per door. Almost instantly, Palanca, in behalf of the Kado siblings,
accepted the offer of the said tenants and returned the downpayments of private respondents Yu and
Lim. Of course, the latter refused to accept the reimbursements.
Certainly, we cannot countenance the double dealing perpetrated by Palanca in behalf of the Kado
siblings. No amount of legal rationalizing can sanction the arbitrary breach of contract that Palanca
committed in accepting the offer of Magno Adalin, Adaya and Calingasan to purchase a property
already earlier sold to private respondents Yu and Lim.
Petitioners claim that they were given a 30-day option to purchase the subject property as contained in
the September 2, 1987 letter of Palanca. In the first place, such option is not valid for utter lack of
consideration.13 Secondly, private respondents twice asked Palanca and the tenants concerned as to
whether or not the latter were interested to buy the subject property, and twice, too, the answer given
to private respondents was that the said tenants were not interested to buy the subject property because
they could not afford it. Clearly, said tenants and Palanca, who represented the former in the initial
negotiations with private respondents, are estopped from denying their earlier statement to the effect
that the said tenants Magno Adalin, Adaya and Calingasan had no intention of buying the four doors
that they were leasing from the Kado siblings. More significantly, the subsequent sale of the subject
property by Palanca to the said tenants, smacks of gross bad faith, considering that Palanca and the said
tenants were in full awareness of the August and September negotiations between Bautista and Palanca,
on the one hand, and Loreto Adalin, Faustino Yu and Antonio Lim, on the other, for the sale of the one-
18
storey building. It cannot be denied, thus, that Palanca and the said tenants entered into the subsequent
or second sale notwithstanding their full knowledge of the subsistence of the earlier sale over the same
property to private respondents Yu and Lim. It goes without saying, thus, that though the second sale
to the said tenants was registered, such prior registration cannot erase the gross bad faith that
characterized such second sale, and consequently, there is no legal basis to rule that such second sale
prevails over the first sale of the said property to private respondents Yu and Lim.
We agree, thus, with the ruminations of the respondent Court of Appeals that:
The Appellees-Vendors cannot invoke the refusal of the Appellees-Vendees to vacate the
property and the latter's decision to themselves purchase the property as a valid justification to
renege on and turn their backs against their obligation to deliver or cause the eviction of the
Appellees-Vendees from the deliver physical possession or the property to the Appellants. For,
if We gave our approbation to the stance of the Appellees, then We would thereby be
sanctioning the performance by the Appellees-Vendors of their obligations under the deed
subject to the will and caprices of the Appellees-Vendees, which we cannot do . . . .
It would be the zenith of inequity for the Appellees-Vendors to invoke the occupation by the
Appellees-Vendees, as of the property, as a justification to ignore their obligation to have the
Appellees-Vendees evicted from the property and for them to give P50,000.00 disturbance fee
for each of the Appellees-Vendees and a justification for the latter to hold on to the possession
of the property.
xxx xxx xxx
Assuming, gratia arguendi, for the nonce, that there had been no consummation of the "Deed
of Conditional Sale" . . . by reason of the non-delivery to the Appellants of the property, it does
not thereby mean that the "Deed of Sale of Registered Land" . . . executed by the Appellees
should be given preference. Apropos to this, We give our approbation to the plaint of the
Appellants that the Court a quo erred in not applying the second and third paragraphs of Article
1544 . . . .
For, the evidence in the record shows that, although the Appellees-Vendees managed to cause
the registration of the Deed of Sale of Registered Land . . . on October 27, 1988 and procure
Transfer Certificate of Title No. 24791 under their names, on said date, and that they were, as
of said date, in physical possession of the property, however, the evidence in the record shows
that the Appellees-Vendees were in gross evident bad faith. At the time the Appellees executed
the "Deed of Sale of Registered Land" in December 1987 . . . they were aware that the
Appellees-Vendors and the Appellants had executed their "Deed of Conditional Sale" as early
as September 8, 1987. . . . In the light of the foregoing, We arrive at the ineluctable conclusion
that preference must be accorded the "Deed
of Conditional Sale" executed by the Appellants and the Appellees-Vendors.14
WHEREFORE, the instant petition is HEREBY DISMISSED.
Costs against petitioners.
SO ORDERED.
Davide, Jr., Vitug and Kapunan, JJ., concur.
Bellosillo, J., took no part.
Questions:
1. What kind of sale was entered into by the parties in this case? Defend your answer.
2. Differentiate an absolute sale from a conditional sale applying the case above.
19
Summary
● A contract of sale is where one of the contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing and the other to pay therefor a price certain
in money or its equivalent.
● There are three (3) types of elements of a contract of sale: there are the essential elements, the
natural elements and the accidental elements.
● The characteristics of a contract of sale are nominate, principal, bilateral, onerous,

commutative, consensual and a title.
● The two major types of contract of sale are absolute sale and conditional sale.
● There is also the contract to sell which gives rise to an exclusive right and privilege to purchase
an object. It is a bilateral contract where a prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer binds
himself to sell the said property exclusively to the prospective buyer upon fulfillment of the
positive suspensive condition – which is the full payment of the purchase price.
● A contract of sale can also be distinguished from other contracts such as contract to sell,
conditional sale, agency to sell, contract for piece of work, barter, dation in payment, and
lease.
References
Books and Laws:
Bagayao, I.Y. (2019). The Law on Obligations and Contracts, First Edition. Manila, FCA
Printhouse.
Jurado, R. (2010). Comments and Jurisprudence on Sales. Manila, Philippines, Rex Bookstore.
Republic Act No. 386 or the Civil Code of the Philippines, June 18, 1949.
20
Soriano, F. (2014). Notes in Business Law (For Accountancy Students and CPA Reviewees),
2014 Edition. Manila, Philippines, GIC Enterprises & Co., Inc.
Tolentino, A. (1991). Commentaries and Jurisprudence on the Civil Code of the Philippines.
Central Law Book Publishing Co., Inc.
Jurisprudences:
Dignos vs. CA, G.R. No. L-59266. February 29,1988

Gabelo v. Court of Appeals, G.R. No. 111743, October 8, 1999
Kerr v. Lingad, 38 SCRA 524
Pio Barretto Sons, Inc. vs. Compania Maritima, 62 SCRA 167
Sps. Orden, et.al. v. Sps. Aurea, et. al., G.R. No. 172733, August 20, 2008
Zamora realty and Development Corporation v. Office of the President, G.R. No. 165724,
November 2, 2006
MODULE 2
FORMATION, ELEMENTS AND FORMALITIES
OF A CONTRACT OF SALE
Introduction
This module will deal with the elements of a contract of sale, the object/s of sale, price and
consent or capacity to buy or sell. The formation and formalities of a contract of sale shall also be
discussed here. The rules on sale by non-owner and rules on negotiable documents of title will also be
touched upon.
This module will also discuss what law governs on the formation, elements and formalities of
a contract of sale, as well as the law governing negotiable documents of title. In discussing these, we
will touch on the provisions of law and legal concepts and principles.
Learning Outcomes
At the end of this module, the students should be able to:
21
1. Learn the elements of a contract of sale;
2. Understand the rules on formation of contract of sale and determine the formalities required
in a contract of sale;
3. Reveal the rules on sale by a non-owner; and
4. Recognize the law and rules on negotiable documents of title.
Lesson 1. Objects of Sale
REQUISITES: (Jurado, 2010)

1. Rights – must be transmissible, except:
a. Future inheritance (Art. 1088)
b. Service (Art. 1347)
2. Things
a. Actual or Possible (Arts. 1461 and 1462) e.g. must be within the commerce of man
b. Licit (Art. 1459)
c. Determinate or at least determinable (Arts. 1458 & 1460)
A. Actual or Possible Thing

It must be existing, future, or subject to resolutory condition
Existing goods that are owned or possessed by the seller may be the object of sale (Art. 1462).
● Art. 1459 provides that the seller must have the right to transfer the ownership at the
time the thing is delivered. Hence, it is not required that the seller is the owner of the
thing at the moment of the perfection of the contract of sale.
Future goods cover goods that are to be manufactured, raised or acquired by the seller after
the perfection of the contract of sale (Art. 1462).
● Property or goods, which, at the time of the sale are not owned by the seller but which
thereafter are to be acquired by him, cannot be the subject of an executed sale but may
be the subject of a contract for the future sale and delivery thereof, even though the
acquisition of the goods depends upon a contingency which may or may not happen.
In such case, the vendor assumes the risk of acquiring the title and making the
conveyance, or responding in damages for the vendee’s loss of his bargain (Martin v.
Reyes, 91 Phil. 666).
● The sole owner of a thing may sell an undivided interest therein (Art. 1463)
Example (Soriano, 2014): S is the sole owner of an apartment. He sells ½

undivided interest therein to B. Such sale shall produce the effect of making S and
B co-owners of the property with each party becoming an owner of ½ undivided
interest.
● A sale of future goods is valid only as an executory contract to be fulfilled by the

acquisition and delivery of goods specified.
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● While there can be sale of future property, there can generally be no donation of future
property (Article 751 Civil Code)
● Future inheritance cannot be sold.
Effect: The buyer becomes a co-owner in the thing sold.
● An undivided share of a specific mass may be sold (Art. 1464)
Effect: The buyer becomes a co-owner with the seller of the whole mass in the
proportion in which the definite share bought bears to the mass.
● If later on it be discovered that the mass of fungible goods contains less than what was
sold the buyer becomes the owner of the whole mass, and the seller shall supply
whatever is lacking from goods of the same kind and quality. (Jurado, 2010)
a) If the quantity, i.e. number, weight or measure, of the mass is more than the
quantity sold, the parties shall become co-owners of the mass. (Art. 1464)
Example (Soriano, 2014): S sells to B 200 sacks of corn from a mass stored in the
warehouse of S. The mass, however, actually consists of 300 sacks of corn. Thus,
S and B will become co-owners of the whole mass to the extent of 2/3 for B and
1/3 for S.
b) If the quantity of the mass is less than the quantity sold, the buyer becomes the
owner of the whole mass, with the seller being bound to make good the deficiency
from goods of the same kind and quality, unless a contrary intent appears. (Art.
1464)
Example (Soriano, 2014): S sells to B 300 sacks of yellow corn from a mass stored
in the warehouse of S. The mass, however, actually consists of 280 sacks of yellow
corn. In this case, B becomes the owner of all the 280 sacks of yellow corn and S
is bound to deliver to B an additional 20 sacks of yellow corn to complete.
● Things subject to a resolutory condition (e.g. pacto de retro sale) may be the object of
the contract of sale (Art. 1465).
Example (Soriano, 2014): S sold his lot to B with S being given the right to
repurchase the lot within 5 years from the date of sale. The sale and the right to
repurchase were registered in the Register of Deeds where the lot is located. Two
years after the sale, B sold the lot to X. X became the owner of the lot subject to
the right of S to repurchase it within the 5-year period from the time he sold it to
B.
● A thing is actual when it is existing. (Jurado, 2010)
● A thing is possible when it has potential existence. (Jurado, 2010)
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Emptio Rei Speratae – sale of a thing with potential existence, subject to a suspensive condition that
the thing will come into existence, the contract is deemed extinguished as soon as the time expires or
if it has become indubitable that the event will not take place (Art. 1461).
Emptio Spei- sale of a mere hope or expectancy [e.g. sale of a sweepstakes ticket for P100 where the
buyer purchases the ticket with the hope that upon the draw, the ticket would win him a million pesos.
The object of sale is not the prize, but the ticket or the chance to win] (Art. 1461)
Table 8 Emptio Rei Speratae and Emptio Spei, Distinguished

Emptio Rei Speratae Emptio Spei
Definition
Sale of a thing with potential existence Sale of a mere hope or expectancy that the thing
will come to existence; Sale of the hope itself
Effectivity of the contract
Sale is subject to the condition that the thing will Sale is effective even if the thing does not come
exist; if it does not, there is no contract to existence, UNLESS it is a vain hope
Uncertainty
The uncertainty is with regard to the quantity The uncertainty is with regard to the existence of
and quality of the thing and not the existence of the thing
the thing
Object of sale
Object is a future thing Object is a present thing which is the hope or
expectancy
NOTE: In case of doubt, the presumption is in favor of emptio rei speratae; it is more in keeping with
the commutative character of the contract. (Jurado, 2010)
General Rule: A person cannot sell or convey what he does not have or own.
Exceptions:
1. Sale of a thing having potential existence (Article 1461)
2. Sale of future goods (Article 1462)
3. Contract for the delivery at a certain price of an article which the vendor in the ordinary course
of the business manufactures or procures for the general market, whether the same is on hand
at the time or not (Article 1467).
Note: Although the seller must be the owner of the thing in order to transfer ownership thereof, he
need not be the owner at the time of perfection of the contract. It is sufficient that he is the owner
at the time of delivery. (Art. 1459)
B. Licit
A thing is licit when:
1. It is not outside the commerce of men;
2. It is not intransmissible; and
3. It does not contemplate a future inheritance. Unless expressly authorized by law (Art.
1347).
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● The thing must be licit and the vendor must have a right to transfer the ownership
thereof at the time it is delivered (Art. 1459).
● Where goods are sold by a person who is not the owner thereof (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 (Art. 1505).
● When the subject matter is illicit, the resulting contract is void (Art. 1409[1]).
Kinds of illicit things:

1. Illicit per se (of its nature)
2. Illicit per accidents (because of some provisions of law declaring it illegal)
Examples of void sale due to being illicit:

1. Sale of animals suffering from contagious disease (Art. 1575)
2. Sale of animals if the use or service for which they are acquired has been stated in the
contract, and they are found to be unit therefor (Art. 1575)
3. Sale of future inheritance. (Art. 1347)
4. Sale of land in violation of the constitutional prohibition against the transfer of lands to
aliens (Art. XII, Constitution)
C. Determinate or at least Determinable (Art. 1460)
Determinate thing – that which is:

1. Particularly designated or
2. Physically segregated from all others of the same class.
Determinable thing:
Requisites:
1. At the time the contract is entered into, the thing is capable of being made determinate; and
2. There is no necessity for a new or further agreement between the parties. (Jurado, 2010)
Lesson 2. Price
Price is the sum stipulated as the equivalent of the thing sold and also every incident taken into
consideration for fixing of the price, put to the debit of the vendee and agreed to by him (Inchausti &
Co. vs. Cromweel, 20 Phil. 345, 1911).
REQUISITES FOR VALID PRICE:

1. REAL (not 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.
If the price is simulated:

The sale is VOID; UNLESS it can be shown to be a donation or another contract (Art. 1471)
● When a contract is void due to absence of consideration, no title over the subject matter
can be conveyed. Nemo potest nisi quod de jure potest – no man can do anything except
what he can do lawfully (Traders Royal bank v. Court of Appeals, 269 SCRA 15, 1997)
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Simulated Contract vs. Simulated Price:
Simulated Contract: An absolutely simulated or fictitious contract is void. A relative
simulation, when it does not prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public policy binds the parties to their
real agreement (Art. 1346).
Simulated Price: The contract is not simulated, but the price (cause) is. Hence, the sale is void,
but, the act may be shown to have been in reality a donation, or some other act or contract (Art.
1471).
● When the price in a purported contract of sale is completely simulated, then pari delicto
nonoritur action shall apply, which denies all recovery to the guilty parties inter se.
Such principle applies to cases where the nullity arises from the illegality of the
consideration or the purpose of the contract.
⮚ The exception to this rule is when the principle is invoked with respect to
inexistent contracts (Modina v. Court of Appeals, 317 SCRA 696, 1999).
False Price or Consideration: The price is false when there is a real price not declared, and
what is stated or declared in the sale is not the one intended to be paid.
● The statement of a false cause or consideration shall render a contract void if it should
not be proved that it was founded upon another cause which is true and lawful (Art.
1353).
⮚ If the price indicated in the covering instrument is false (i.e. there is actually
another price upon which the minds of the parties have met), the contract of
sale is valid, but the underlying deed is subject to reformation to indicate the
real price upon which the minds of the parties have met (Art. 1359)
● There is a presumption that the consideration exists and that it is lawful even though it
is not stated in the contract (Art. 1354).
Non-payment of Price: The failure of the buyer to pay the price does not make the sale
null in buyer’s default, for which the seller may exercise his legal remedies (Balatbat v.
Court of Appeals, 261 SCRA 128, 1996).
● Rationale: Contract of sale, being consensual, is perfected by mere consent. Delivery
of the thing bought or payment of the price is not necessary for the perfection of the
contract.
2. CERTAIN OR ASCERTAINABLE
Certain – expressed and agreed in terms of specific pesos and centavos
Ascertainable –
a. Fixed by specific third person

● If the third person is unable or unwilling to fix the price, the contract is inefficacious;
UNLESS the parties subsequently agree upon the price (Art. 1469)
● If the third person is prevented from fixing the price by fault of either the seller or the
buyer, the party not in fault may have such remedies against the party in fault (Art.
1469)
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● Even before the fixing of the price by the designated third person, a contract of sale is
deemed to be perfected and existing albeit conditional.
b. Fixed by the courts – where the third person fixes the price in bad faith or by mistakes
(Art. 1469)
c. Fixed by reference to a definite day, particular exchange or market (Art. 1472)
Example (Soriano, 2014): S sells to B 500 shares of stock of San Miguel –B shares at the
price equivalent to the closing price of the shares on April 23, 2010, at the Philippine Stock
Exchange. This is ofcourse on the condition that there will be trading of the said shares on
the day agreed upon; otherwise, the sale is of no effect. Or the parties may agree that the
price of the shares will be 20% above or 20% below the price of the shares in the exchange
on the said day.
d. Fixed by reference to another thing certain (Art. 1469)

● Although under Art. 1469, the parties give rise to a contract of sale when they appoint
a third party to fix the price, such formula is not allowed for the determination of the
subject matter of the sale.
Example (Soriano, 2014): S sells to B a certain ring the price of which is the price of
20 bags of islang cement being sold at Store X.
Rationale : The obligation to pay the price is essentially a fungible obligation; the price is
essentially generic, and generally, cannot be extinguished by fortuitous event. On the other
hand, the obligation, but rather a species obligation, and therefore its designation cannot
be left to the will of a third party who may choose a subject matter beyond the capacity of
the seller to comply with his obligations to deliver the same.
● The fixing of the price can never be left to discretion of one of the contracting parties.
However, if the price fixed by one of the parties is accepted by the other, the sale is
perfected (Art. 1473).
● The owner of a thing has the right to quote his own price, reasonable or unreasonable.
It is up to the prospective buyer to accept or reject it.
3. IN MONEY OR ITS EQUIVALENT (Art. 1458)

● Article 1468 recognizes that if the consideration consists partly n another thing, the
transaction can still be considered a contract of sale when it is the manifest intention
of the parties.
● What is the meaning of “or its equivalent”?
This means that there is certainty as to the price but what is given as payment is an
object (e.g. P50k worth of Maggie noodles).
4. MANNER OF PAYMENT MUST BE AGREED UPON

● Before a valid and binding contract of sale can exist, the manner of payment of the
purchase price must first be 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 (Sps. Navarra v. Planters Development Bank, G.R.
No. 172674, July 12, 2007).
27
GROSS INADEQUACY OF PRICE (Art. 470 and Art. 1355):
1. Voluntary Sales
General Rule: Mere inadequacy of price does not affect validity of the sale if fixed in good
faith and without fraud (Hulst v. PR Builders Inc., G.R. No. 56364, September 3, 2007).
Exceptions:
a. Where low price indicates a vice of consent, sale may be annulled or the contract is
presumed to be an equitable mortgage.
b. Where the price is so low as to be “shocking to the conscience”, sale may be set aside.
c. Where the price is simulated such as when the parties intended a donation or some other
act or contract
d. Where the parties did not intend to be bound at all, the contract is void and inexistent.
(Jurado, 2010)
2. Involuntary or Forced Sales
General Rule: Mere inadequacy of the price is not a sufficient ground for the cancellation of
the sale of real property.
Exceptions:
a. Where the price is so low as to be shocking to the moral conscience, judicial sale of
personal property will be set aside; or
b. If in the event of a resale, a better price can be obtained.
Note: The validity of the sale is not necessary affected where the law gives to the owner the
right to redeem, upon the theory that the lesser the price, the easier it is for the owner to effect
redemption.
3. Rescissible Contracts of Sale

Inadequacy of price is a ground for rescission of conventional sale in case of rescissible
contracts covered under Article 1381, namely:
a. Those entered into by guardians whenever the ward whom they represent suffer lesion by
more than ¼ of the value of the object of the sale; and
b. Those agreed upon in representation of absentees, if the latter should suffer lesion by more
than ¼ of the value of the object of the sale.
WHEN THERE IS SALE EVEN WHEN NO PRICE IS AGREED UPON (Art. 1474)
General Rule: When the price cannot be determined in accordance with Articles 1469 to 1473, the
contract is inefficacious (“inefficacious” means ‘the inability to produce the effect wanted”)
Exception: The thing or a part thereof has been delivered to and appropriated by the buyer has to pay a
reasonable price therefor)
Requisites for the applicability of the exception:

1. Meeting of the minds as to the subject matter;
28
2. Agreement that a price will be paid; an d
3. Delivery by the seller and appropriation by the buyer of the subject matter.
Reasonable Price is generally the market price at the time and place fixed by the contract or by law for
the delivery of the goods.
Lesson 3. Formation of Contract of Sale

A. PREPARATION
The period of negotiation and bargaining, ending at the moment of agreement of the parties
1. Politician – An unaccepted unilateral promise to buy or sell. This produces no juridical

effect and creates no legal bond. This is a mere offer, and has not yet been converted into
a contract.
2. Option contract (Art. 1479)
● It is a contract granting a privilege in one person, for which he has paid a consideration
giving him the right to buy certain property at any time within the agreed period at a
fixed price (Enriquez de la Cavada v. Diaz, 37 Phil. 982. 1918).
● It is a preparatory contract in which one party grants to the other, for a fixed period and
under specified conditions, the power to decide, whether or not to enter into a principal
contract. It binds the party who has given the option not to enter into the principal
contract with any other person during the period designated and within the period, to
enter into such contract with the one to whom the option was granted, if the latter
should decide to use the option. It is a separate agreement distinct from the contract of
sale which the parties may enter into upon the consumption of the option (Carceller v.
● Elements of A valid Option Contract:

a. Consent;
b. Subject Matter: an option right or accepted unilateral offer to buy or an option right
or accepted unilateral offer to sell:
i. A determinate object;
ii. For a price certain, including the manner of payment thereof
c. Presentation: A consideration separate and distinct from the purchase price for the
option given
● An option to buy is not a contract of purchase and sale (Kilosbayan, Inc. v. Morato, 246
SCRA 607, 1991)
● Meaning of Consideration
⮚ A unilateral promise to sell, in order to be binding upon the promissory, must
be for a price certain and supported by a consideration separate from the price
(Salame v. Court of Appeals, 239 SCRA 356, 1995)
⮚ Consideration in an option contract may be anything of value unlike in sale
where it must be the price certain in money or its equivalent (San Miguel
Properties Philippines, Inc. v. Huang, 336 SCRA 737, 2000)
29
● Without a consideration separate and distinct from the purchase price, an option
contract would be VOID as a contract would still constitute a VALID OFFER, so that
if the option is exercised prior to its withdrawal, the offer is accepted, and a valid and
binding contract of sale is entered into (Sanchez v. Rigos, 45 SCRA 368, 1972).
⮚ This view has the advantage of avoiding a conflict between Article 1324 and
Article 1479, in line with the cardinal rule of statutory construction that, in
construing different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or harmonized said
provisions and avoid a conflict between the same.
⮚ The Sanchez doctrine expressly overturned the ruling in Southwestern Sugar
Molasses Co. v. Atlantic Gulf & Pacific Co. (97 Phil. 249, 19550, which held
that when an option is not supported by a separate consideration, it is avoid
and can be withdrawn notwithstanding the acceptance made previously by the
offeree.
⮚ HOWEVER, in Nation v. IAC (197 SCRA 323, 1991), the Supreme Court made
a contrary ruling. In the said case, it was held that the commitment by a bank
to resell a property within a specified period, although accepted by the party
in whose favor it was made, was considered an option not supported by a
consideration, and therefore void and not binding upon the bank. The Court
relied upon the Southwestern Sugar ruling without even referring to Sanchez
doctrine or at least stating that its doctrine has been set aside.
● Rules when period is given to the offeree within which to accept the offer, i.e.
option (Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602, 1994):
a. If the period itself is not founded upon or supported by a separate consideration,
the offeror is still free and has the right to withdraw the offer before its acceptance
or if an acceptance has been made, before the offeror’s coming to know of such
fact by communicating that withdrawal to the offeree. (This is an accordance with
Sanchez doctrine)
b. The right to withdraw, however, must not be exercised whimsically or arbitrary;
otherwise, it could give rise to a damage claim under Article 19 of the Civil Code.
c. If the period has a separate consideration, a contract of opinion is deemed
perfected, and it would be a breach of that contract to withdraw the offer during
the agreed period.
d. The option, however, is an independent contract by itself, and it is to be
distinguished from the projected main agreement (subject matter of the option)
which is obviously yet to be concluded. If in fact, the optioner-offeror withdraws
the offer before its acceptance (exercise of option) by the optionee-offeree, the
latter may not sue for specific performance on the proposed contract (object of the
option) since it has failed to reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the option.
e. In these cases, care should be taken of the real nature of the consideration given,
for if in fact, it has been intended to be part of the consideration for the main
contract with a right of withdrawal on the part of the optionee, the main contract
could be deemed perfected; a similar instance would be an would be an earnest
money in contract of sale that can evidence its perfection.
30
● Proper Exercise of Option: Notice of the exercise of the option need not be coupled
with actual payment of the price, so long as this is delivered to the owner of the real
property upon performance of his part of the agreement.
● Period within which to Enforce the valid Exercise of an Option: Even when an
option is exercised within the option period by the proper tender of the amount due,
nevertheless the action for specific performance to enforce the option to purchase must
be filed within 10 years after the accrual of the cause of action as provided under Art.
1144 of the Civil Code (Dizon v. Court of Appeals, 302 SCRA 288, 1999).
3. Right of First Refusal – it is a right of first priority, all things and conditions being equal;
identity of the terms and conditions offered to the optionee and all other prospective buyers,
with optionees to enjoy the right of first priority.
● A deed of sale executed in favor of a third party not deemed a purchaser in good
faith, in violation of the right of first refusal granted to the optionee is valid but
rescissible under Articles 1380 to1381 (3) of the New Civil Code (Guzman
Bocaling & Co. v. Bonnevie, G. r. No. 86150, March 2, 1992; Riviera Filipina,
Inc. v. CA et. al. GR No. 117355, April 5, 2002).
● In an option to buy, the basis of the right of first refusal must be the current offer
to sell or offer to purchase of any prospective buyer. Only after the optionee fails
to exercise its right of first priority under the same terms and within the period
contemplated could the owner validly offer to sell the property to a third person,
again, under the same terms as offered to the optionee (Paranaque Kings
Enterprises, Inc. CA. GR No. 111538, February 26, 1997).
Table 9 Option Contract and Right of First Refusal, Compared.

Option Contract Right of First Refusal
Nature
Principal Contract Accessory Contract
(An option contract is a separate and (The right of first refusal is an integral
distinct contract from that which the part of the contract of lease
parties may enter into upon the
consummation of the option).
Consideration
Must be supported by a separate The consideration is built into the
consideration reciprocal obligations of the parties
4. Mutual Promises to Buy and Sell

● Promise to sell a determinate thing coupled with a correlative promise to buy at a
specific price is binding as an executory contract, title to the promise and the
contracting parties are merely given the right to demand fulfillment of the contract
31
in the proper cases or damages for breach thereof where it is not possible to carry
out its terms (Coronel v. Court of Appeals, 263 SCRA 15, 1996).
● Effect of promise under Art. 1479:
a. Accepted unilateral promise to sell or buy (Art. 1479, par. 2)
⮚ Only one makes the promise, which is accepted by the other. E.g., A
promises to sell to B, B accepts the promise, but does not in turn
promise to buy.
⮚ If accepted, it is binding upon the promisor if the promise is supported
by a consideration (option money) distinct from the price. This results
in a perfected contract.
⮚ Pending notice of its withdrawal, the accepted promise partakes the
nature of an offer to sell, which if accepted, results in a perfected
contract of sale although the option is given without consideration
(Sanchez v. Rigos, G.r. No. L-25494, June 14, 1972).
b. Bilateral promise to buy and sell (Art. 1479, par. 1)

⮚ One party accepts the other’s promise to buy, and the latter the
former’s promise to sell, a determinate thing for a price certain
⮚ It is reciprocally demandable – parties have the right to demand
fulfillment or damages but there ios no transfer of title of dominion
yet
⮚ It requires no consideration distinct from the selling price
Example (Soriano, 2014): B promised in writing to buy and S promised in

writing to sell his car for P100,000.00. The promise of each party is
reciprocally demandable.
B. PERFECTION
It is the stage where the validity of the contract of sale is determined; the moment when the
parties come to agree on the terms of the contract.
● A contract of sale is perfected by mere consent. (Art. 1475)

● Consent – meeting of the offer and the acceptance upon the thing and the cause which
are to constitute the contract. (Art. 1319)
General Rule: Sale is perfected at the moment there is a meeting of the minds upon a
determinate thing (object), and a certain price (consideration) (Art. 1475, par. 1).
● A contract of sale is also perfected even when the exact quantity or quality of the
subject matter is not known, so long as the source of the subject is certain and fixed
(National Grains Authority v. Intermediate Appellate Court, 171 SCRA 131, 1989).
Exception: When the sale is subject to a suspensive condition because perfection takes
place from the moment the condition is fulfilled (Gan, Sr. v. Reforma, 11 SCRA 57,
1967).
● According to Villanueva (2004), however, the more appropriate doctrine should be that
when a contract of sale is made subject to suspensive condition, there is already a
contract upon the meeting of the minds, but because the condition has not happened,
32
the contract itself and its underlying obligations are not yet demandable; and in case of
non-happening of the condition, then the contract is extinguished.
● Elements of Consent:
1. Subjects / Contracting parties
2. Concurrence of offer and acceptance (Arts. 1319- 1326)
3. Legal Capacity of the Contracting Parties (Arts. 1327 – 1329)
4. The consent must be intelligent, free and spontaneous (Arts. 1330-1336)
● Form of Offer:
⮚ Offer must be certain definite and intentional (Art. 1319)
⮚ Business advertisement of things for sale are not definite offers, but mere
invitations to make an offer (Art. 1325)
⮚ Advertisements for bidders are merely invitations to make proposals; the
advertiser is not bound to accept the highest or lowest hidden (Art. 1326)
● Form of Acceptance:
⮚ The acceptance must be absolute. A qualified acceptance constitutes a counter-
offer (Art. 1319)
⮚ An acceptance may be express or implied (Art. 1320)
⮚ The person making the offer may fix the time place and manner of acceptance,
all of which must be complied with (Art. 1321)
⮚ An offer made through an agent is accepted from the time acceptance is
communicated to him (Art. 1322).
● When offer becomes ineffective:

⮚ An offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed (Art. 1323)
● Rules Governing Auction Sales (Art. 1476)

1. Sales of separate lots by auction are separate contracts of sale.
2. Sale is perfected when the auction are announces its perfection by the fall of the
hammer or in order customary manner.
⮚ Until such announcement is made:
a. Any bidder may retract his bid; and
b. The auctioneer may withdraw the goods from the sale unless the auction
has been announced to be without reserve.
3. Seller has the right to bid in the auction, provided:

a. Such right was reserved ;
b. Notice was given that the sale was subject to a right to bid on behalf of the
seller; and
c. Right is not prohibited by law or by stipulation
Ratio: To avoid puffing or secret bidding
● The owner of the property sold at auction may provide terms under which the auction
will proceed and the same are binding upon all bidders, whether they knew of such
conditions or not (Leoquinco v. Postal Savings Bank, 47 Phil. 772, 1925).
33
● When the auction sale had already been perfected, a supplemental sale with higher
consideration at the instance of only one party could no longer be validly executed.
(Dizon v. Dizon, G. R. No. 156539, September 5, 2007).
● Earnest money or “arras” (Art. 1482)
● Something of value to show that the buyer was really in earnest, and given to the seller
to bind the bargain. It is considered as:
1. Part of the purchase price – earnest money is deducted from the total price
2. Proof of perfection of the contract
Note: Option money may become earnest money if the parties so agree.
Table 10 Earnest Money and Option Money, Distinguished

Earnest Money Option Money
Title passes to the buyer upon delivery of the Ownership is reserved to the seller and is not to
thing sold pass until full payment
Effect of non-payment
In case of non-payment, an action for specific In case of non-payment, there can be action for
performance or for rescission can be filed by the specific performance
injured party
Consideration
Part of the purchase price Money is given as a distinct consideration for an
option contract
Obligation of the buyer upon payment of consideration
When given, the buyer is bound to pay the The would-be buyer is not required to buy
balance
Perfection of sale
There is already a sale Applies to a sale not yet perfected
Example No. 1 (Soriano, 2014): B is interested in buying the car of S for P100,000.00 payable
within 30 days from the date of sale. To show that he is really in earnest, B gives S P1,000.00
upon the execution of their agreement, which amount S accepts. There is here a perfected
contract of sale between B and S. Accordingly, on the due date for the payment of the price, B
will have to pay S the amount of P99,000.00 only.
Example No. 2 (Soriano, 2014): S promised to sell his car to B for P100,000.00 giving B one
week to decide whether to buy or not, If B does not accept the promise, such non-acceptance
does not create any obligation on the part of the parties. If B accepts the promise, S will be
bound by the promise if B gives consideration, say P500.00 because a contract of option is
perfected. So S cannot dispose the property within the period that he gave to B for the exercise
of his option. B, may or may not buy the car since he is not obliged to buy but is merely given
the option to buy it.
Question: How much will B pay if he eventually decides to buy the car?
34
Answer: P100,000.00 because the amount paid by B as option money is not part of the purchase
price.
C. CONSUMMATION
Delivery of the thing together with the payment of the price, marks the consummation of the
contract of sale (PNB vs. Ling, G.R. No. L-26937, October 5, 1927).
Lesson 4. Formalities of Contract of Sale

General Rule: A contract of sale may be entered into in any form provided all the essential requisites
for its validity are present (Art. 1483).
Exceptions: The following must be in writing to be enforceable:

1. Sale of personal property at a price not less than P500
2. Sale of real property or an interest therein
3. Sale of property not to be performed within a year from the date thereof
4. When an applicable statute required that the contract of sale be in a certain form
Note: Statute of Frauds is applicable only to executory contracts and not to contracts which are totally
performed.
If Sale of a Piece of Land or Interest Therein is made through an Agent – the agent’s authority
must be in writing; otherwise, the sale is void (Art. 1874).
Legal Recognition of Electronic Data Messages and Electronic Documents

(Section 7, R.A. No. 8792, Electronic Commerce Act)
Electronic data messages or electronic documents shall have the legal effect, validity or enforceability
as any other document or legal writing; and –
a. Where the law requires a document to be in writing, that requirement is met by an electronic
document if the said electronic document maintains its integrity and reliability and can be
authenticated so as to be usable for subsequent reference, in that –
i. The electronic document has remained complete and unaltered, apart from the addition
of any endorsement and any authorized change, or any change which arises in the
normal course of communication, storage and display; and
ii. The electronic document is reliable in the light of the purpose for which it was
generated and in the light of all the relevant circumstances.
b. Where the law requires that a document ne presented or retained in its original form, that
requirements is met by an electronic document if –
i. There exists a reliable assurances as to the integrity of the document from the time it
was first generated in its final form; and
ii. That document is capable of being displayed to the person to whom it is to be
presented: Provided, that no provision of the Act shall apply to vary any and all
35
requirements of existing laws on formalities required in the execution of documents
for their validity.
Legal Recognition of Electronic Signatures

(Section 8, Republic Act No. 8792, Electronic Commerce Act)
● An electronic signature on the electronic document shall be equivalent to the signature of a
person on a written document if that signature is provided by showing that a prescribed
procedure, not alterable by the parties interested in the electronic document, existed under
which –
a. A method is used to identify the party sought to be bound and to indicate said party’s access
to the electronic document necessary for his consent or approval through the electronic
signature;
b. Said method is reliable and appropriate for the purpose for which the electronic document
was generated or communicated, in the light of all the circumstances, including any
relevant agreement;
c. It is necessary for the party sought to be bound, in order to proceed further with the
transaction, to have executed or provided the electronic signature; and
d. The other party is authorized and enabled to verify the electronic signature and to make the
decision to proceed with the transaction authenticated by the same.
Lesson 5. Capacity to Buy or Sell
General Rule: All persons, whether natural or juridicial, who can bind themselves, have legal capacity
to buy and sell. (Art. 1489, par.1)
Exceptions:
1. Absolute incapacity (minors, demented pesons, imbeciles, deaf, and dumb, prodigals, civil
interdictees)
Purchase by Minor (Art. 1489, par. 2) – The contract is voidable. However, where necessaries
are sold and delivered to a minor or other person without capacity to act the incapacitated
person must pay a reasonable price therefor.
● Necessaries cover everything indispensable for sustenance dwelling, clothing, medical
attendance, education, and transportation (Art. 194, Family Code)
Sale by Minor
The sale of real property made by minors who have already passed the ages of puberty and
adolescence and are near the adult age when they pretend to have already reached their
majority, while in fact they have not, is valid, and they cannot be permitted afterwards to excuse
themselves from compliance with the obligation assumed by them or to seek their annulment.
This doctrine is entirely in accord with the provisions of the Rules of Court (Rule 131, Sec. 1)
and the principle of estoppels (Mercado and Mercado v. Espiritu, 37 Phil. 215, December 1,
1917)
36
2. Relative incapacity – incapacity exists only with reference to certain persons or a certain class
of property
a. Husband and Wife (Art. 1490)
General Rule: A sale by one spouse to another is void.
Reasons:
● To prevent commission of fraud or prejudice to third persons
● To prevent one from unduly influencing the other
● To avoid indirect donations
Exceptions:
● Regime of separation of property governs them.
● A judicial separation of property under Articles 134 and 135 of the Family Code has
been decreed.
Persons permitted to question the sale between husband and wife:

● Persons who bear such a relationship to the spouses making the transfer or to the
property itself that such transfer interferes with their rights or interest (Cook v.
McMickling, 27 Phil. 10, 1914); and
● The Government (because it is always an interested party in all matters involving
taxable transactions).
● The prohibition applies to common-law spouses
b. Incapacity by reason of relation to property (Art. 1491)

The following cannot acquire property by purchase, even at a public auction, either in
person or through the mediation of another: (GAEP-JO)
i. Guardian , with respect to the property of his ward;

● The sale is only voidable because only private interests are affected. The
defect can be cured by ratification.
ii. Agents, with respect to the property whose administration or sale may have been
entrusted to them, UNLESS the consent of the principal has been given;
iii. Executor or administrator, with respect to the property of the estate under
administration;
● Executors do not administer hereditary rights of any heir; hence there is
no prohibition as to the purchase by an executor of hereditary rights (Naval
v. Enriquez, 3 Phil. 669, 1904).
iv. Public officers and employees, with respect to the properties of the government,
its political subdivisions, or GOCCs, that are entrusted to them;
37
● The sale is void, public interests being involved therein.
● The prohibition includes judges and government experts who, in any
manner take part in the sale.
● Intended not only to remove any occasion for fraud but also to surround
them with the prestige necessary to carry out their functions by freeing
them from all suspicion which although unfounded, tends to discredit the
institution by putting into question the honor of said functionaries.
v. Judges, justices prosecuting attorneys, clerks of courts, etc., which respect to the
property in custodia legis;
● The sale is void, public interests being involved therein.
● A contract for a contingent fee is not covered by Article 1491 because the
transfer or assignment of the property in litigation takes effect only after
the finality of a favorable judgment (Director of Lands v. Ababa, L-26096,
February 27, 1979).
● The fact that the property in question was first mortgaged by the client to
his lawyer and only subsequently acquired by the latter in foreclosure sale
long after the termination of the case will not remove it from the scope of
the prohibition for at the time the mortgage was executed the relationship
of lawyer and client still existed. To rule otherwise would be to
countenance indirectly what cannot be done directly (Fornilda v. RTC,
G.R. No. 72306, October 5, 1988).
● Violation of this prohibition also constitutes a breach of professional
ethics, for which the lawyer may be reprimanded, suspended, or disbarred.
vi. Any other person specially disqualified by law.
Examples of Persons Especially Disqualified by Law:
1. Aliens disqualified to purchase or acquire real property UNLESS by hereditary

succession (intestate succession).
● Where a land is sold to an alien who later sold it to Filipino, the sale to the latter cannot
be impugned. In such case, there would no more public policy to be served in allowing
the Filipino seller or his heirs to recover the land as the same is already owned by a
qualified person (Vicente Godinez v. Fong Pak Luen, G.R. No. L-36731, January 27,
1983).
● While those disqualified under Arts. 1490 and 1491 may not be lessees (Art. 1646);
aliens may still be lessees even if they cannot buy lands.
2. An unpaid seller having a right of lien or having stopped the goods in transit, who is prohibited
from buying the goods either directly or indirectly in the resale of the same, at public or private
sale which he may make
3. The officer holding the execution, or his deputies.
● The prohibitions are applicable to sales in legal redemption (Art. 1619, NCC); compromises
(Art. 2028, NCC); and renunciations (Art. 6 and 1270, NCC).
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Lesson 6. Sale by Non Owner
A. PERFECTION STAGE
● Sale by owner- Valid
● Sale by non-owner – Valid
Reasons why both sales are valid:

● Ownerships necessary only at the time of delivery (Art. 1459)
● When a person who is not the owner of a thing sells or alienates and delivers it, and later
the seller or grantor acquires title thereto, such title passes by operation of law to the buyer
or grantee (Art. 1434)
B. CONSUMMATION STAGE
● Sale by owner – the contract is valid; the transfer of title is also valid
● Sale by non-owner – the contract is valid because it has passed perfection stage; the
transfer of title is VOID
General Rule: In a sale by the non-owner, the buyer acquires no better title to the goods than
the seller had (he merely steps into the shoes of the seller).
⮚Rationale: Nemo dat quod non habet (nobody can dispose of that which does not belong to
him)
Exceptions:
1. Owner is stopped or precluded by his conduct (Art. 1505)
2. Sale made by the registered or apparent owner in accordance with registration laws (Art.
1505)
3. Sales sanctioned by judicial or statutory authority (Art. 1505)
4. Purchases in a merchants store, fairs or markets (Art. 1505; Arts. 85- 86, Code of Commerce)
● To allow recovery would retard commerce.
5. When a person who is not the owner sells and delivers a thing, and subsequently acquires
title thereto (Art. 1434)
6. When the seller has a voidable title which has not been avoidable at the time of the sale
(Art. 1506), provided that the buyer acquires the goods –
a. In good faith;
b. For value; and
c. Without notice of the seller’s defect of title
7. Sale by co-owner of whole property or a definite portion thereof (Art. 493)

● If a co-owner sells the whole property as his, the sale will affect only his spiritual
share, but not those of the other co-owners who did not consent to the sale. Only
the rights of the seller are transferred, thereby making the buyer a co-owner of the
property (Tomas Claudio Memorial College, Inc. v. CA, 316 SCRA 502, 1999).
8. Special rights of unpaid seller (Arts. 1526-1533)
● Difference between Article 1505 and Article 1506:
39
Article 1505 refers to sale with VOID TITLE, while Article 1506 refers to sale with VOIDABLE
TITLE.
● Title as To Movable Properties (Art. 559)
General Rule: Possession of movable property acquired in good faith is equivalent to title.
Exceptions:
a. Owner lost the movable – owner may recover the movable without reimbursement
b. Owner is unlawfully deprived of the movable – owner may recover the movable without
reimbursement
⮚ UNLAWFUL DEPRIVATION – when there is no valid transmission of ownership.
Such is no longer limited to the criminal acts of robbery or theft.
Exceptions to the Exceptions:

a. The person who possesses the movable property has acquired the same in good faith a public
sale
⮚ PUBLIC SALE – one where there has been a public notice of sale in which anyone is allowed
to bid for the object he desires to buy.
b. The buyer bought the movable at a merchant store (by cross-reference to Art . 1505)
Lesson 7. Negotiable Documents of Title

Document of title – is a document
● Used as proof of the possession or control of the goods; or
● Authorizing or purporting to authorize the possessor of the document to transfer or receive,
either by endorsement or by delivery, goods represented by such document (Article 1636).
Document of title includes:

● Bill of Lading – a document the serves as evidence of receipt of goods for shipment issued by
a common carrier
● Dock Warrant – a warrant given by dock-owners to the owner of merchandise imported and
warehouse on the dock upon the faith of the bills of lading, as a recognition of his title to the
goods
● Quedan – a warehouse receipt that covers sugar
● Warehouse Receipt – a document of title which is issued by a warehouseman
A. Negotiable Document of Title

A document of title in which it is stated that the goods referred to therein will be delivered to the
bearer on to the order of any person named in such document (Art. 1507)
How negotiated:
1. By delivery (Art. 1508) –
a. Where by the terms of the document, the one issuing the same undertakes to deliver the
goods to the bearer;
40
b. Where by the terms of the document, the one issuing the same undertakes to deliver the
goods to the order of a specified person, and such person or a subsequent endorsee has
indorsed it in blank or to the bearer.
2. By endorsement and delivery (Art. 1509)

● The endorsement may be in blank, to bearer or to a specified person
● If indorsed to a specified person, it may be again negotiated by the endorsement of
such person in blank, to bearer or to another specified person
Who can negotiate (Art. 1512)

1. The owner of the document
2. Any person to whom the possession or custody of the document has been entrusted by the
owner if –
a. By the terms of the document, the goods are deliverable to the order of the person to whom
the possession or custody of the document has been entrusted; or
b. The document is in such form that it may be negotiated by delivery
Effects of Negotiation (Art. 1513)

A person to whom the document is negotiated acquires:
1. Title to the goods as the person negotiating the document had or had ability to convey to a
purchaser in good faith for value; and
2. Direct obligation of the bailee issuing the document to hold possession of the goods for him
according to the terms of the document.
Unauthorized Negotiation (Art. 1518)

As between the owner of a negotiable document of title who indorsed it in blank and entrusted it to a
friend, and the holder of such negotiable document of title to whom it was negotiated in good faith and
for value, the latter is preferred, under the principle that as between two innocent persons, he who made
the loss possible should bear the loss.
Table 11 Negotiable Instrument and Negotiable Document of Title, Distinguished

Negotiable Instrument Negotiable Document of Title
Function
Operates as a substitute for money ● Operates as proof of the possession or
control of the goods
● Authorizes or purports to authorize the
possessor of the document to transfer or
receive, either by endorsement or by
delivery, goods represented by such
document.
Governing Law
Governed by the Negotiable Instruments law Governed by the Civil Code, and in some cases,
by the Warehouse Receipt Law and Code of
Commerce
Special Endorsement of a Bearer Instrument
41
A bearer instrument is always a bearer The special endorsement of a bearer instrument
instrument even if a special endorsement is made
has the effect of converting the bearer instrument
into an order instrument
Placing of the words “non-negotiable” on the instrument or document
The instrument is no longer negotiable If words “non-negotiable” or the like are placed
on the document, such document mat
nevertheless be negotiated by the holder
B. Non- Negotiable Document of Title

How transferred or assigned
● A non-negotiable document cannot be negotiated and the endorsement of such a document
gives the transferee no additional right (Art. 1511).
● May be transferred by the holder by delivery to a purchaser or done (Art. 1511).
Effects of Transfer (Art. 1514)
A person to whom the document is assigned acquires:
1. The title to the goods subject to the terms of any agreement with the transferor;&
2. The right to notify the bailee who issued the document of the transfer thereof and thereby
acquire the direct obligation of such bailee to hold possession of the goods for him according
to the terms on the document.
(Notification is an operative act to transfer title or possession of goods in favor of transferee)
Warranties on Negotiation or Assignment (Art. 1516)

A person who negotiates on transfers a document of title warrants that:
1. The document is genuine;
2. He has a legal right to negotiate or transfer it;
3. He has knowledge of no fact which would impair the validity or worth of the document;
4. He has a right to transfer he title to the goods; and
5. The goods are merchantable or fit for a particular purpose
● The endorsement of a document of title shall not make the endorser liable for any failure on
the part of the bailee who issued the document or previous endorsers thereof to fulfill their
respective obligations (Art. 1517).
Rules on Levy/ Garnishment of the Goods

1. Negotiable Document of Title. Goods cannot be attached by garnishment or levied,
UNLESS:
a. The document is first surrendered;
b. The negotiation of the document is enjoined; or
c. The document is impounded by the court.
A creditor whose debtor is the owner of a negotiable document of title is entitled to aid
from courts by injunction and otherwise in attaching the document in satisfying the claim
by means thereof as is allowed at law or in equity in regard to property which cannot be
attached or levied upon (Art. 1520).
2. Non- Negotiable Document of Title. Prior to notification of the bailee of transfer of

document of title, the title of the transferee to the goods may be defeated by levy of
attachment of execution.
42
Assessment Task 2
Part I. True or False.

Objects of sale must be licit, determinate or at least determinable
and possible.
Future inheritance may be sold.
An undivided share of a specific mass may be sold.
Things subject to a resolutory condition (e.g. pacto de retro sale) may
not be the object of the contract of sale.
Emptio rei speratae refers to a sale of a thing with potential existence.
Emptio spei refers to a sale of a thing with potential existence.
The general rule is that a person cannot sell or convey what he does
not have or own.
A thing is licit when it is outside the commerce of men;
Price must be real, certain or ascertainable, in money or its equivalent
and in the manner of payment agreed upon.
Mere inadequacy of price generally affects validity of the sale if fixed
in good faith and without fraud.
Negotiable document of title operates as proof of the possession or
control of the goods
Bill of Lading is a document the serves as evidence of receipt of
goods for shipment issued by a common carrier.
Quedan is a warehouse receipt that covers sugar.
Warehouse Receipt is a document of title which is issued by a
warehouseman
A public sale is one where there has been a public notice of sale in
which anyone is allowed to bid for the object he desires to buy.
Relative incapacity exists only with reference to certain persons or a

certain class of property.
All persons, whether natural or juridicial, who can bind themselves,
have legal capacity to buy and sell.
A contract of sale may be entered into in any form provided all the
essential requisites for its validity are present.
Earnest money is also called “arras”.
Perfection is the stage where the validity of the contract of sale43 is
determined; the moment when the parties come to agree on the terms of
the contract.
Part II. Briefly discuss each item below.
Traditio constitutum possessorium

Traditio longa manu
Traditio brevi manu
Constructive delivery
Earnest money vs. option money
Summary
● The elements of a contract of sale are as follows: object, price or consideration and consent or
capacity of the parties.
o Objects of sale must be actual or possible thing, licit and determinate or at least
determinable.
o Price must be real, actual or ascertainable and manner of payment must be agreed upon.
o All persons, whether natural or juridicial, who can bind themselves, have legal capacity
to buy and sell. There is also a list of persons specifically disqualified by law to enter
into contracts.
● The formation of contract of sale involves three (3) stages such as: preparation, perfection and
consummation. Along the formation of a contract of sale, the topics on earnest money and right
of first refusal were covered.
● The general rule on formalities required in a contract of sale is provided under Art. 1483 of the
Civil Code which states that “a contract of sale may be entered into in any form provided all
the essential requisites for its validity are present.” However, there are also provisions stating
that a certain contract of sale must be in writing or in a public document to be enforceable.
● Sale by a non-owner follows the rule depending on what stage a contract of sale is, such that it
is valid if in the perfection stage and title is void if in the consummation stage.
● Negotiable documents of title wherein the goods referred to therein will be delivered to the
bearer on to the order or any person named in such document.
44
References
Books and Laws:
Printhouse.
Republic Act No. 8792 or the Electronic Commerce Act
Jurisprudences:
Ang Yu Asuncion v. Court of Appeals, 238 SCRA 602, 1994

Balatbat v. Court of Appeals, 261 SCRA 128, 1996
Carceller v. Court of Appeals, 302 SCRA 718, 1999
Cook v. McMickling, 27 Phil. 10, 1914
Coronel v. Court of Appeals, 263 SCRA 15, 1996
Director of Lands v. Ababa, L-26096, February 27, 1979
Dizon v. Court of Appeals, 302 SCRA 288, 1999
Dizon v. Dizon, G. R. No. 156539, September 5, 2007
Enriquez de la Cavada v. Diaz, 37 Phil. 982. 1918
Fornilda v. RTC, G.R. No. 72306, October 5, 1988
Gan, Sr. v. Reforma, 11 SCRA 57, 1967
Guzman Bocaling & Co. v. Bonnevie, G. r. No. 86150, March 2, 1992
Hulst v. PR Builders Inc., G.R. No. 56364, September 3, 2007
Inchausti & Co. vs. Cromweel, 20 Phil. 345, 1911
Kilosbayan, Inc. v. Morato, 246 SCRA 607, 1991
Leoquinco v. Postal Savings Bank, 47 Phil. 772, 1925
Martin v. Reyes, 91 Phil. 666
Mercado and Mercado v. Espiritu, 37 Phil. 215, December 1, 1917
Modina v. Court of Appeals, 317 SCRA 696, 1999
Nation v. IAC (197 SCRA 323, 1991)
National Grains Authority v. Intermediate Appellate Court, 171 SCRA 131, 1989
Naval v. Enriquez, 3 Phil. 669, 1904
Paranaque Kings Enterprises, Inc. CA. GR No. 111538, February 26, 1997
PNB vs. Ling, G.R. No. L-26937, October 5, 1927
Riviera Filipina, Inc. v. CA et. al. GR No. 117355, April 5, 2002
Salame v. Court of Appeals, 239 SCRA 356, 1995
San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737, 2000
45
Sanchez v. Rigos, 45 SCRA 368, 1972
Southwestern Sugar Molasses Co. v. Atlantic Gulf &Pacific Co. 97 Phil 249, 1955
Sps. Navarra v. Planters Development Bank, G.R. No. 172674, July 12, 2007
Traders Royal bank v. Court of Appeals, 269 SCRA 15, 1997
Tomas Claudio Memorial College, Inc. v. CA, 316 SCRA 502, 1999
Vicente Godinez v. Fong Pak Luen, G.R. No. L-36731, January 27, 1983
MODULE 3
OBLIGATIONS OF THE VENDOR, WARRANTIES
AND MACEDA LAW
Introduction
This module will cover the various obligations of the vendor in a contract of sale, such as
transfer of ownership, delivery of the thing sold, delivery of fruits and accessories, and warranties
among others.
In discussing the obligations of the vendor in a contract of sake, we will touch on the
provisions of law, legal concepts and principles, as well as some Supreme Court decisions.
Learning Outcomes
At the end of this module, students are expected to:
1. Enumerate the different obligations of the vendor in a contract of sale;

2. Expound on the obligation of the vendor to make warranties; and
3. Discuss Maceda Law and be able to apply its rules.
Lesson 1. Transfer of Ownership

General Rule: Ownership of the thing sold is acquired only upon its delivery, actual or
constructive, to the buyer (Daus v. Sps. De Leon, GR No. 149750, June 16, 2003), even if
purchase was made on credit.
46
● Payment of the purchase price is not essential to the transfer of ownership, as long as the
property sold has been delivered (Sampaguita Pictures, Inc. v. Jalwindor Manufacturers,
Inc. GR No. L-43059, October 11, 1979).
● Nonpayment only creates a right to demand payment or to rescind the contract, or to
criminal prosecution in the case of bouncing checks (EDCA Publishing and Distributing
Corp. v. Santos, G.R. No. 80298, April 26, 1990)
Exceptions (cases where there is reservation of ownership despite delivery):

1. Pactum reservati domii (contractual reservation of title) – Express reservation of
ownership (Art. 1478)
2. Contract to sell
3. Sale on Acceptance/Trial/Approval/Satisfaction (Art. 1502)
Ownership passes to the buyer only when:
a. He signifies his approval or acceptance to the seller or does any act adopting the
transaction; or
b. He does not signify his approval or acceptance 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.
● In “Sale or Return”, ownership passes to the buyer on delivery but he may revest he
ownership in the seller by returning the goods within the time fixed in the contract, or
if there is no time fixed, within a reasonable time.
4. Implied Reservation of Ownership under Article 1503:

a. Where goods are shipped and by the bill of lading the goods are deliverable to the
seller or his agent, or to the order of seller or agent – seller reserves ownership in 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 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 bill of exchange. Here, the seller is the
drawer and the buyer is the drawee. If the buyer, as drawee, does not honor the bill of
exchange, he shall return the bill of lading. If he retains the same, he acquires no added
right thereby. (Jurado, 2010)
Lesson 2. Delivery of the Thing Sold
Delivery is a mode of acquiring ownership, as a consequence of certain contracts such

as sale, by virtue of which, actually or constructively, the object is placed in the control and
possession of the vendee. (Jurado, 2010)
Seller is bound to deliver all goods UNLESS delivery by installment has been agreed
upon. (Art. 1583)
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Seller is bound to deliver the thing sold in its condition at the time the contract was
perfected (Art. 1537).
● Requisites: (3 I’s of Delivery)

1. Identify
The object must be delivered.
2. Integrity
A seller’s duty is to deliver the thing sold in a condition suitable for its enjoyment by
the buyer for the purposes contemplated (Consing v. CA, 177 SCRA 14)
3. Intentional
The act of delivery must be coupled with the intention of delivering the thing and putting
the buyer under control (Norkis Distributor, Inc. v. CA, G.R. No. 91029, February 7,
1991)
The critical factor in all different modes of effecting delivery, which gives legal effect
to the act, is the actual intention of the seller to deliver, and its acceptance by the buyer.
Without that intention, there is no tradition (Santos v. Santos, 366 SCRA 395, 2001)
KINDS OF DELIVERY
1. Actual or Real – placing the thing under the control and possession of the buyer (Art. 1497).
2. Legal or Constructive – delivery is represented by other signs or acts indicative thereof
Requisites of Constructive Delivery:

a. The seller must have control over the thing;
b. The buyer must be put under control;
c. There must be the intention to deliver the thing for purposes of ownership.
Types of Constructive Delivery:

a. Delivery by execution of public instrument (Art. 1498, par. 1) – gives rise to prima facie
presumption of delivery is not effected due to legal impediment (Ten Forty Realty v. Cruz,
G.R. No. 151212, September 10, 2003).
Exceptions (cases where the execution does not produce the effects of delivery):
i. There is a stipulation in the instrument for the contrary.
Instances where contrary stipulation is present (Philippine Suburban Development

Corp. v. Auditor General, et.al., G.R No. L-19545, April 18, 1975):
● A certain date is fixed for the purchaser to take possession of the property
subject of the conveyance;
● In sale by installments, where it is stipulated that until the last installment
is made, the title to the property should remain with the seller;
● When the seller reserves the right to use and enjoy the property until the
gathering of the pending crops; or
● Where the seller has no control over the thing sold at the moment of the
sale, and, therefore, its material delivery could not have been made.
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ii. Where at the time of the execution of the public instrument, the subject matter was
not subject to the control of the seller.
● If, notwithstanding the execution of the instrument, the purchaser cannot
have the enjoyment and material tenancy of the thing and make use of it
himself or through another in his name, because such tenancy of the thing
and make use of it himself or through another in his name, because such
tenancy and enjoyment are opposed by the interposition of another will,
then fiction yields to reality – the delivery has not been effected (Addison
v. Felix, 38 Phil. 404, 1918).
iii. The control or ability to transfer physical possession and enjoyment does not
subsist for a reasonable length of time after execution would create undue burden
on the part of the buyer who would be compelled to literally jump into the
possession of the subject matter soon after signing the instrument, for he would
then obtain no remedy from the seller. (Jurado, 2010)
iv. Since tradition is an obligation on the part of the seller, then the burden must
continue to lie with the seller to grant the buyer reasonable period to take
possession of the subject matter (Alejandra Bugarin Vda. De sarmiento v. Lesaca.
G.R. No. L-15385, June 30, 1960).
b. Traditio Symbolica – to effect delivery, parties use a token or symbol to represent the thing
delivered
c. Traditio Longa Manu (Art. 1499) – Delivery of thing by mere agreement; seller points out
to the buyer the property without need of actually delivering (as when the thing sold cannot
be transferred to the possession to the vendee at the time of sale).
d. Traditio Brevi Manu (Art. 1499) – opposite of constitutum possessorium; Before contract
of sale, the would-be buyer was already in possession of the would –be subject matter of
sale (e.g. as lessee), and pursuant to sale, he would mow hold possession in the concept of
an owner.
e. Traditio Constitutum Possessorium (Art. 1500) – At the time of perfection, the seller held
possession of the subject matter in the concept of owner, and pursuant to the contract, the
seller continues to hold physical possession thereof as lessee or other form of possession
other than the concept of owner.
3. Quasi-tradition (Art. 1501) - delivery of rights, credits or incorporeal property.
4. Tradition by Operation of Law (Art. 1434) – when a non-owner who sells and delivers a thing
subsequently acquires title thereto, the title passes by operation of law to the buyer
5. Delivery through Document of Title (Arts. 1507 – 1520)
6. Delivery through Carrier
General Rule: Where the seller is authorized or required to send the goods to the buyer,
delivery to the carrier is delivery to the buyer (Art. 1523)
49
● Note: This rule applies only if there is an agreement between the seller and the buyer
that the former will ship the goods.
Exceptions:
a. When a contrary intention appears, i.e. the parties did not intend the delivery of the goods
through the carrier
b. Implied reservation of ownership under Art. 1503
Kinds of Delivery to Carrier:

a. F.A.S. (Free Along Side)
The seller pays all charges and is subject to risk until the goods are placed alongside the
vessel.
b. F.O.B. (Free on Board)

Goods are to be delivered free of expense to the buyer to the point where they are F.O.B.
The point of F.O.B. (either at the point of shipment or the point of destination) determines
when the ownership passes.
c. C.I.F. (Cost, Insurance, Freight)

Signifies that the price fixed covers the costs of the goods, the expense of the freight and
the insurance to be paid by the seller.
d. C.O.D. (Collect On Delivery) – carrier acts for the seller in collecting purchase price,
which buyer must pay to obtain possession of the goods.
When vendor not bound to deliver (Art. 1524):

The seller is NOT bound to deliver the thing sold:
a. If vendee has not paid him the price UNLESS a period of payment has been fixed
b. If no period for payment has been fixed in the contract
c. A period for payment has been fixed in the contract but the vendee has lost the right to
make use of the same.
Place of delivery (Art. 1521 and Art. 1251)

a. The place of delivery agreed upon
b. In the absence of agreement, place is determined by usage of trade
c. In the absence of agreement and prevalent usage, the seller’s place
d. In any other case, place of delivery is the seller’s residence
e. In case of specific goods known by the parties at some place at the time of the perfection
of sale, such is the place of delivery, in the absence of agreement or usage of trade to the
contrary
Time of delivery (Art. 1521)

a. Stipulated time
b. In the absence thereof, within a reasonable time
How does an as-is where-is type of sale affect the vendor’s obligation to deliver?
The phrase as-is where-is basis pertains solely to the physical condition of the thing sold, not
to its legal situation (NDC v. Madrigal Wan Hai Lines Corp., G.R. No. 148332, Sep. 30, 2003).
50
It is merely descriptive of the state of the thing sold. Thus, the as-is where-is basis merely
describes the actual state and location of the property sold. The depiction does not alter the
seller’s responsibility to deliver the property to the buyer. (Jurado, 2010)
SALE ON ACCEPTANCE. TRIAL, APPROVAL, OR SATISFACTION

(Art. 1502, par. 2)
A contract in the nature of an option to purchases if the goods prove to be satisfactory, the approval of
the buyer being a condition precedent; the sale is dependent upon the quality of goods.
Rules:
1. The remains in the seller, UNTIL sale becomes absolute by:
a. Buyer’s approval of the goods; or
b. Buyer’s failure to comply with the express or implied conditions of the contract as to giving
notice of dissatisfaction or as to returning the goods
2. Risk of loss remains with seller EXCEPT when the buyer is at fault or has agreed to bear the
loss
3. Buyer must give the goods a trial, EXCEPT where it is evident that it cannot perform the work
intended
4. Period within which buyer must signify acceptance runs only when all parts essential for the
operation of the object have been delivered.
5. If it is stipulated that a third person must signify 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 still
sue.
6. Generally, the sale and delivery to a buyer who is an expert on the object purchased is not a
sale on approval, trial, or satisfaction.
SALE OR RETURN (Art. 1502, par. 1)

Property is sold, but the buyer, who becomes the owner of the property on delivery, has the option to
return the same to the seller instead of paying the price; such sale depends upon the discretion of the
buyer.
Rules:
1. Title passes to the buyer upon delivery.
2. Buyer bears the risk of loss.
3. The option to purchase or return the goods rests entirely on the buyer without reference to the
quality of the goods.
4. The buyer may revert the ownership in the seller by returning or tendering the goods within the
time fixed in the contract or within a reasonable time in not time is fixed.
5. The buyer must comply with the express or implied conditions attached with the express or
implied conditions attached to the return privilege; otherwise, the sale becomes absolute.
Table 11 Sale or Return and sale on Trial, Distinguished

Sale or Return Sale on Trial
Condition imposed
Subject to a resolutory condition Subject to a suspensive condition
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Option of buyer to purchase
Depends entirely on the will of the buyer Depends on the character or quality of the goods
Ownership passes to the buyer on delivery and Ownership remains in the seller until buyer
subsequent return reverts ownership in the seller signifies his approval or acceptance to the seller
Risk of loss
Risk of loss or injury rests upon the buyer Risk of loss remains with the seller
SALE OF GOODS BY DESCRIPTION OR BY SAMPLE
Sale by description (Art. 1481)

A sale where a seller sells a thing as being of certain kind, th buyer merely relying on the seller’s
representations or descriptions.
Warranty: that the thing sold corresponds to the representations or descriptions .
Sale by sample (Art. 1481)

A sale where a small quantity of a commodity is exhibited by the seller as a fair specimen of the bulk,
which is not present and as to which there is no opportunity to inspect or examine.
● Mere exhibition of the sample does not necessarily make it a sale by sample. Th
exhibition must have been the sole basis or inducement of the sale.
● Warranty: That the bulk of the commodity will correspond in kind, quality, and character with
the sample exhibited.
● Rights of buyer in sale by sample:
1. Return the thing and recover the money paid, OR
2. Retain the thing and sue for the breach of warranty (Paras, Civil Code, Book V, 2000).
Two- fold warranty in sale by sample and description: That the thing corresponds both on the sample
and description.
Sale by sample and by description distinguished

In the former, the thing is shown to the buyer, whereas in the latter, the thing is only described.
COMPLETENESS OF DELIVERY
A. MOVABLES (Article 1522)

Where, in relation to what is contracted to sell, the quantity of goods delivered is-
● LESS
Buyer has 2 options:
a. Reject the goods
b. Accept them
When the acceptance is with knowledge that the seller is not going to perform the
contract = buyer shall pay at contract rate;
When knowledge is after the acceptance and consummation or disposal of the goods
= buyer is not liable for more than the fair value to him of the goods delivered.
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● LARGER
a. Accept per contract and reject the rest
b. Accept the whole and pay at contract rate
c. If indivisible reject the whole or accept it entirely
● MIXED WITH GOODS OF DIFFERENT DESCRIPTION

a. Accept the goods which are in accordance with the contract and reject the rest
b. If indivisible, reject the goods entirely
B. IMMOVABLE (Article 1522)
● SOLD PER UNIT OR NUMBER (Art 1539-1540)

With statement of area at the rate of a certain price for a unit or measure or number
If the vendee should demand, the vendor shall deliver ALL that may have been stated
in the contract.
● If what is delivered is:

⮚ LESS IN AREA OR INFERIOR OR DIFFERENT QUALITY
Buyer may seek:

a. Rescission if lack in are is at least 1/10 of area agreed upon;
b. Rescission if the deficiency in quality specified in the contract exceeds
1/10 of the price agreed upon;
c. Rescission if the vendee would not have bought the immovable had he
known of its smaller area or inferior quality;
d. Proportional reduction of price
⮚ GREATER IN AREA
a. Accept per situation and reject the rest
b. Accept the whole and pay at contract rate
Note: Articles 1539 and 1540 shall apply to judicial sales (Art. 1541)
⮚ SOLD FOR LUMP SUM (Art. 1542) –a cuerpo cierto / por presio aizado
Where price per unit is not indicated

⮚ GREATER / LESSER
No rescission or adjustment of price, UNLESS there is gross mistake
Prescription of Action
Action shall prescribe in six months counted from the day of delivery (Article
1543)
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Note: The Civil Code presumes that the purchaser had in mind a particular piece of
land and that he ascertained its area and quality before the contract of sale was
perfected. If he did not do so, or if having done so he made no objection and consented
to the transaction, he can blame no one but himself (Teran v. Villanueva Viuda de
Riosa, 56 Phil 677, No. 34697, March 26, 1932).
● Where the area of the immovable is stated in the contract based on an estimate, the
actual area delivered may not measure up exactly with the area stated in the contract.
According to Article 1542, in the sale of real estate made for a lump sum, there shall
be no increase or decrease of the price, although there be a greater or lesser area
ornumber than that stated in the contract (Feliciano Esguerra, et. al. v. Virginia
Trinidad, G.R No. 169890, March 12, 2007).
DOUBLE SALE (Art. 1544)
Requisites: (VOSC)
1. Two or more transactions must constitute valid sales;
2. They must pertain exactly to the same object or subject matter;
3. They must be bought from the same or immediate seller; AND
4. Two or more buyers who are at odds over the rightful ownership of the subject matter must
represent conflicting interests.
Issue on validity of both sales

● In order to constitute double sale, both sales must be valid. Double sales rules are applications
to consummation issues; hence, when the underlying contract of sale is void, consummation,
particularly tradition, cannot produce its legal consequences.
● However, in Caram, Jr. v. Laureta (102 SCRA 7, 1981), THE Supreme Court held the one of
the contracts of sale must be declared valid so that one vendee may exercise all the rights of an
owner while the other contract must be declared void to cut off all the rights which may arise from
said contract.
Art. 1544 does NOT apply when:

1. Not all the element are present
The principle of prior tempore, potior jure (he who is first in time is preferred in right) should
apply.
2. The two different contracts of sale are made by two different persons, one of them not being
the owner of the property sold (Sps. Salera v. Sps. Rodaje, G.R. No. 135900, August 11, 2007)
3. The land sold is not registered under the Torrens system.
Under Act No. 3344, registration of documents affecting unregistered land is “without
prejudice to a third party with a better right”. The mere registration of a sale in one’s favor
does not give him any right over the land if the vendor was not anymore the owner of the land,
having previously sold the same to somebody else, even if the earlier sale was unrecorded.
4. The first sale occurs when land is not yet registered and the second sale is done when the land
is already registered – the principle of prior tempore, potior jure (he who is first in time is
preferred in right) should apply.
54
Rules on Preference:
1. Personal Property – first possessor in good faith
2. Real Property
a. First registrant in good faith; second buyer must register the document in good faith;
otherwise, he does not have a better right (Fudot v. Cattleya land Inc., GR No. 175942,
September 13, 2007).
b. First possession in good faith.
c. Person with oldest title in good faith (Martinez v. CA, GR No. 123547, May 21, 2001)
Applicability of the Rule of Caveat Emptor

One who purchases real property which is in actual possession of others should make some inquiry
concerning the rights of those in possession.
Purchaser in Good Faith

● Definition: One who – (a) buys the property without notice that some other person has a right
to, or interest in, such property; and (b) pays a full and fair price for the same at the time of
such purchase, or before he has notice of the claim or interest of some other person in the
property (Agricultural and Home Extension Development Group vs. Court of Appeals, 213
SCRA 563, 1992).
● Burden of Proof: He who asserts the status of a purchaser in god faith and for value has the
burden of proving such assertion (Mathay v. Court of Appeals, 295 SCRA 556, 98 SCAD 489,
1998).
● Lis Pendens: A buyer cannot be considered an innocent purchaser for value where he ignored
the notice of lis pendens on the title when he bought the lot (Limketkai Sons Milling, Inc. v.
● First buyer is always in good faith:

Knowledge gained by the first buyer of the second sale cannot defeat the first buyer’s rights
except only as provided by the Civil Code and that is where the second buyer first registers in
good faith the second sale ahead of the first (Carbonell v. Court of Appeals, 69 SCRA 99, 1976).
● Examination of Certificate of Title:
General Rule: A purchaser maybe considered a purchaser in good faith if he has examined the
latest certificate of title.
Exception: When there exist important facts that would create suspicion in an otherwise
reasonable man to go beyond the present title and to investigate those that preceded it (Amancio
et al. v. CA et. al., G.R. No. 152627, September 16, 2005; Mercado vs. Allied Bank, GR No.
171460, July 27, 2007).
Registration
● Definition: Registration means any entry made in the books of registry, including both
registration in its ordinary and strict sense, and cancellation, annotation, and even marginal
notes. (Cheng v. Genato, 300 SCRA 722, 1998)
55
It is the entry made in the registry which records solemnly and permanently the right of
ownership and other real rights.
● Registration requires actual recording: If the property was never really registered as when
the registrar forgot to do so although he has been handed the document there is no registration
(Po Sun Tun v. Price, 54 Phil. 192).
● Bad faith on the part of one buyer amounts to registration in favor of the innocent buyer.
● A buyer of an unregistered land acquires a better title than a subsequent buyer, even if the latter
registered the sale in good faith after the registration of the land by the seller because the second
buyer merely steps into the shoes of the seller who at the time of the sale to him is no longer
the owner of the property.
● Banks: The rule that persons dealing with registered lands can rely solely on the certificate
does not apply to banks because their business is one affected with public interest keeping in
trust the money belonging to their depositors (Amancio v. CA, GR No. 152627, September 16,
2005).
Possession
● Possession is either actual or constructive (Sanchez v. Ramos, No 13442, December 20, 1919).
● Possession in Art. 1544 is either material or symbolic (Ten Forty Realty v. Cruz G. R. No.
151212, September 10, 2003).
Good faith must concur with registration

To be entitled to priority, the second purchaser must not only establish prior recording of his deed, but
must have acted in good faith (Gabriel v. Mabanta, GR No. 142403, March 26, 2003).
Duly Registered Attachment

It is a settled rule that an attachment which is duly registered takes precedence over a prior unregistered
sale.
The preference created by the levy is not diminished even by subsequent registration of the prior sale.
The reason is that an attachment is a proceeding in rem. It is against the particular property and is
enforceable against the whole world (Valdevieso v. Dalamerio, G.R. No. 133303, Feb. 17, 2005).
Lesson 3. Delivery of Fruits and Accessories

ACCESSIONS are the fruits of a thing; or additions to, or improvements upon, a thing. (Jurado,
2010)
ACCESSORIES are anything attached to a principal thing for its completion, ornament, or better
use. (Jurado, 2010)
Rules:
● The seller is bound to deliver the accessions and accessories in the condition in which
they were upon the perfection of the contract (Art. 1537)
56
● The buyer has a right to the fruits of the thing from the time the obligation to deliver it
arises.
HOWEVER, he shall acquire no real right over it until the same has been delivered to
him (Art. 1164).
● The fruits pertain to the buyer from the day on which the contract was perfected (Art.
1537, par. 2)
● The obligation to give a determinate thing includes the delivery of all its accessions and
accessories, even though they may not have been mentioned (Art. 1166).
Lesson 4. Warranties
CONDITION- An uncertain event or contingency on the happening of which the obligation or

the contract depends.
Effect of non-fulfillment of condition (Art. 1545)

1. The other party may:
a. Refuse to proceed with the contract; OR
b. Proceed with the contract, waiving the performance of the condition.
2. If the condition is in the nature of a promise that it should happen, the non-performance of
such condition may be treated by the other party as breach of warranty.
Note: A distinction must be made between a condition imposed on the perfection of a contract
and a condition imposed merely on the performance of an obligation. The failure to comply with
the first condition prevents the juridical relation itself from coming into existence. Failure to
comply with the second merely gives the option either to refuse or proceed with the sale or to
waive the condition.
Table 12 Warranty and Condition, Distinguished

Warranty Condition
As to obligation of parties
Goes into the performance of such obligation Goes into the root of the existence of te
and in fact may constitute an obligation in obligation
itself
As to existence on contract
May from part of the obligation or contract by Must be stipulated by the parties in order to
provision of the law without the parties having form part of an obligation
agreed thereto
In relation to subject matter of contract
Whether express or implied relates to the May attach itself either to the obligation of the
subject matter itself or to the obligations of the seller to deliver possession and transfer
seller as to the subject matter of the sale. ownership over the subject matter of the sale.
WARRANTY (Art. 1546) – A statement or representation made by the seller 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 that certain facts are or shall be as he then
represents.
57
Note: Although the definition pertains only to the seller, the buyer may make warranties as well,
as when he warrants that he will pay or when he makes any affirmation or promise to induce the
seller to enter into the contract of sale.
Kinds:
1. Express (Art. 1546) – any affirmation of fact or promise by the seller relating to the thing,
inducing the buyer to purchase the same and if the buyer purchases the thing relying thereon.
Requisites: (AIR)
a. It must be an affirmation of fact or any promise by the seller relating to the subject matter
of the sale;
b. The natural tendency of such affirmation or promise is to induce the buyer to purchase
the thing; and
c. The buyer purchases the thing relying on such affirmation or promise.
● The breach of an express warranty makes the seller liable for damages.
● 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).
● The usual exaggerations in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent but may constitute error (Art. 1340).
● Misrepresentation made in good faith is not fraudulent but may constitute error (Art.
1343).
2. Implied (Art. 1547) – that which the law derives from the nature of the transaction or the
relative situation or circumstances of the parties, irrespective of any intention of the seller to
create it.
● It is a natural, not an essential element of a contract, deemed incorporated in the
contract of sale. It may be waived or modified by express stipulation.
● There is no implied warranty as to the condition, adaptation, fitness or suitability or
the quality of an article sold as a second-hand article. Such articles might be sold
under such circumstances as to raise an implied warranty. A certification issued by
a vendor that a second-hand machine was in A-1 condition is an express warranty
binding on the vendor (Moles v. IAC. G.R. No. 73913, January 31, 1981).
a. Warranty that seller has a right to sell

b. Warranty against eviction
c. Warranty against non-apparent burden or servitudes
d. Warranty against hidden defects
e. Warranty against redhibitory defects on animals
f. Warranties in sale of goods / Warranties of quality
g. Warranties for consumer goods (Arts. 68, Consumer Act of the Philippines, R.A.
7394)
Warranty that Seller Has a Right to Sell (Art. 1547[1])
58
Although Art. 1547 uses the phrase “unless a contrary intention appears,” there can be no legal
waiver of such warranty without changing the basic nature of the relationship, for the warranty
on the part of the seller that he has the capacity to sell, i.e. to transfer ownership of the thing, is
the essence of sale, unless it amounts to clear assumption of risk on the part of the buyer.
Not applicable to sheriff, auctioneer, mortgagee, pledge (the principle applicable to execution
sales is caveal emptor because the purchase acquires no better title than the judgment debtor has)
Warranty against Eviction (Art 1548)

The seller guarantees that he has the right to sell the thing sold and to transfer ownership to the
buyer, who shall not be disturbed in his legal and peaceful possession thereof.
Elements:
1. Vendee is deprived, in whole or in part, of the thing purchased;
2. Deprivation is by virtues of a final judgment;
3. Judgment is based on a right prior to the sale or an act imputable to the vendor;
4. Vendor was summoned in the suit for eviction at the instance of the vendee – (a) to enable
the seller to prove his claim; (b) to avoid multiplicity of suits; and (c) to satisfy due process.
5. No waiver of warranty by the vendee.
Vendor’s liability shall consist of:

1. Total eviction: (VICED) (Art. 1555)
a. Value of the thing at the time of eviction;
b. Income or fruits if he has been ordered to deliver them to the party who won the suit;
c. Costs of the suit;
d. Expenses of the contract; AND
e. Damages and interests if the sale was in bad faith.
2. Partial eviction – vendee may: (Art. 1556)

a. Enforce vendor’s liability for eviction (VICED); OR
b. Demand rescission of contract.
● Vendee has no duty to appeal: Appeal is not needed, and the buyer need not resist
eviction for the right against the vendor to accrue. It is enough that the requisites are
complied with (Art. 1549)
● Applicability to Judicial Sale: Judgment debtor is responsible for eviction unless

otherwise decreed in judgment (Art. 1552)
● Effect of Prescription: Vendor is not liable for eviction if adverse possession had been
commenced before sale but prescriptive period is completed after transfer (Art. 1550)
● Deprivation for non-payment of taxes: If the property is sold for non-payment of

taxes due and not made known to the vendee before the sale, vendor is liable for
eviction (Art. 1551)
● Inapplicability of Rescission: Rescission is not a remedy in case of eviction because

rescission contemplates that the one demanding it is able to return whatever he has
59
received under the contract. Since the vendee can no longer restore the subject-matter
of the sale to the vendor, rescission cannot be carried out.
● Exception: The buyer may demand rescission in case of partial eviction, when he
would not have bought the whole property without the lost part.
● The suit for the breach can be directed only against the immediate seller, unless the
sellers of the seller had promised to warrant in favor of later buyers or the immediate
seller has expressly assigned to the buyer his own right sue his own seller.
● The disturbance referred to in the case of eviction is a disturbance in law which

requires that person got to courts of justice claiming the thing sold, or part thereof and
invoking reasons.
● Mere trespass in fact does not give rise to the application of the doctrine of eviction.
● Waiver of liability: Vendor’s liability is waivable but any stipulation exempting the
vendor from the obligation to answer for eviction shall be void if he acted in bad faith.
(Art. 1553)
Kinds of waiver (Art. 1554):

1. Consciente – voluntarily made by the vendee without assumption of the risks of eviction.
Vendor shall pay only the value which the thing sold had at the time of eviction.
2. Intencionada – made by the vendee with knowledge of the risks of eviction and
assumption of its consequences, in which case vendor is not liable provided he did not act
in bad faith.
Note: Every waiver is presumed to be consciente. To consider it intencionada, it must be

accompanied by some circumstance which reveals the vendor’s knowledge of the risks of
eviction and his intention to submit to such consequences.
Warranty against Non-Apparent Burden or Servitudes (Art. 1560)
Requisites:
a. immovable sold is encumbered with non-apparent burden or servitude not mentioned in
the agreement; and
b. nature of non-apparent servitude or burden is such that it must be presumed that the buyer
would not have acquired it had he aware thereof
Remedy of buyer in case of breach:

a. rescission; or
b. indemnity
When warranty not applicable: (ARAK)

a. Servitude is apparent
b. Non-apparent burden or servitude is recorded in the Registry of Property (EXCEPT when
there is free from all burdens & encumbrances)
c. The servitude is mentioned in the agreement
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d. Vendee had knowledge of servitude
Prescriptive Period (Rescission) : 1 year

After 1 year, only action for damages may be brought (to be counted from the date on which
the burden or servitude was discovered).
Warranty Against Hidden Defects (Art. 1561)

● Seller guarantees that the thing sold is free from any hidden faults or defects or any
charge or encumbrance not declared or known to the buyer.
● This warranty in Sales is applicable in Lease (Yap Kim Chuan v. Tiaoqui, GR No.
1006, September 18, 1915).
● 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 the sale.
Elements: (SHENPW)
1. Defect is serious or important such that:
a. the hidden defect should render the subject matter UNFIT for the use for which it is
intended; or
b. the hidden defect should DIMINISH the thing’s FITNESS such that the buyer would
not have acquired it or would have given a lower price for it had he been aware of it.
2. Defect is hidden
HIDDEN – not known or could not have been known to the vendee; hidden to the eyes and
cannot be discovered by ordinary careful inspection.
3. Exists at the time of the sale
4. Vendee must give notice of the defect to the vendor within a reasonable time;
5. Remedies must be brought within the period of 6 mos. From delivery of the thing or 40
days from date of delivery in case of animals (Arts. 1571 and 1577); and
6. No waiver of the warranty.
Vendor is not liable for (Art. 1561)

a. Patent defects; or
b. Those that are not visible but the buyer is an expert who, by reason of his profession, should
have known them.
Knowledge of vendor, not important (Applicability of Doctrine of Caveat Venditor)
General Rule: Seller is liable even though he is not aware of the hidden defect (Art. 1566, par.
1).
Exception: there is a stipulation to the contrary and the seller is not aware of it (Art. 1566, par.
2)
Rationale behind Caveat Venditor (let the seller beware): a sound price warrants a sound article
Obligation of seller in case of breach
A. If there was no waiver of warranty and the thing was lost due to hidden defects (Art. 1568):
1. When seller is aware of the hidden defects: [L-PED]
a. Bear the loss
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b. Return the price
c. Return the interest
d. Pay damages
2. When seller is not aware of the hidden defects: [L-PIE]
a. Bear the loss
b. Return the price
c. Return the interest
d. Reimburse expenses of the contract
B. If there was a waiver of warranty (Art. 1566, par. 2):

1. When seller is aware of the hidden defects – waiver is in bad faith; as a corollary seller
is still liable.
2. When seller is not aware of the hidden defects:
● Seller is not liable
C. If the defective thing is lost through fortuitous event or fault of buyer (Art. 1569)
● Buyer may deemed of the seller the price paid less the value of the thing at the
time of loss
● The difference between the price paid and the value of the thing at the time of its
loss represents the damage suffered which the vendor enriched himself at the
vendee’s expense
● The thing sold must be defective at time of sale
Remedy of Buyer (Art. 1567):

Buyer may choose between the following:
Accion Redhibitoria (Redhibitoria Action) Buyer may choose between the following:
a. Accion Redhibitoria (Redhibitoria Action)
- Withdarwing from the contract
- Avouidance of the sale due to vice in the thing sold
b. Accion Quanti Minoris
- Proportionate reduction of price
Applicability to Judicial Sale:

The warranty is applicable to judicial sales; HOWEVER, the judgment debtor is not liable for
damages for the reason the he is merely compelled to sell his property (Art. 1570).
Prescriptive Period (Art. 1571):

6 months from the delivery of the thing sold
Warranty against Redhibitory Defects on Animals
Instances where there is redhibitory defect (Arts. 1576 and 1578) :[EVA]
1. Expert knowledge is not sufficient to discover it (1576, par. 1); or
2. The veterinarian failed to discover or disclose it through ignorance or bad faith (1576, par.2);
or
3. The animal dies within three days after its purchase and the disease which caused the death
existed at the time of the contract: (Art. 1578)
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Animals Sold at Fairs of Public Auction (Art. 1574):
There is no warranty against hidden defect of animals sold at fairs or at public auctions, or of
livestock sold as condemned.
Sale of Team (Art. 1572)

General Rule the defect of one will only give rise to its redhibition
Exception: when the buyer would not buy them id one is defective (or would not buy one without
the other)
● The exception is PRESUMED when what is bought is a TEAM, YOKE, PAIR or SET
(even if separate price has been fixed for each one of the animals composing the same).
Remedy (Arts.1580)
1. Accion Redhibitoria; or
2. Accion Quanti Minoris
Void Sales (Art. 575):

1. Sale of animals with CONTAGIOUS DISEASES
2. Sale of UNFIT animals, i.e. the use or service for which the animals are acquired has been
stated and they are found to be unfit therefor.
Obligation of Buyer to Return (Art. 1579):

In case of rescission, the animal shall be returned in the condition in which it was sold and
delivered, the vendee being answerable for any injury due to hiss negligence, and not arising
from the redhibitory fault or defect.
Prescriptive Period
-forty (40) days from the date of delivery to buyer (Art. 1577)
Warranties in Sale of Goods / Warranties of Quality

Quality- state or condition (as to promote high standard in business)
1. Warranty of Fitness (Art. 1562, par. 2)

The seller guarantees that the thing sold is reasonably fit for the known particular purpose
for which it was acquired by the buyer. It exists in the following instances:
a. Where the buyer, expressly or by implication manifests to the seller the particular
purpose for which the goods are acquired
b. Where the buyer relies upon the seller’s skill or judgment
2. Warranty of Merchantability (Art. 1562, par. 3)

The seller guarantees, where the goods were bought by description, that they are reasonably
fit for the general purpose for which they are sold.
It requires identity between what is described in the contract and what is tendered in the sense
that the latter is of such quality and value.
Instances where implied warranties are inapplicable:

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1. As-is and where-is sale – vendor makes no warranty as to the quality of workable condition
of the goods; the vendee takes them in the condition in which they are found and from the
place where they are located.
2. Sale of second-hand articles
3. Sale by virtue of authority in fact or law
Lesson 5. Other Obligations of the Vendor

A. PRESERVATION OF THE THING PENDING DELIVERY (Art. 1163)
Pending delivery, the seller is bound to take care of the thing with the diligence of a good father
of a family.
B. EXPENSES FOR THE EXECUTION AND REGSITRATION OF SALE (Art. 1487)

In the absence of agreement to the contrary, the seller has the duty to pay for:
1. Execution of the sale
2. Registration of the sale
● Expenses incurred subsequent to the transfer of title are to the transfer of title are to be
borne by the buyer, unless caused by the fault of the seller.
C. BUYER’S RIGHT TO EXAMINE THE GOODS (Art. 1584)
General Rule: The buyer has a right to examine the goods before accepting delivery to determine
whether they conform to the contract
● A denial of the buyer’s right to examine is a ground for the recovery by the buyer of
money advanced or to rescind the contract
Exceptions:
1. There is a stipulation to the contrary; OR
2. In case of C.O.D (collect on delivery) – buyer is not entitled to examine until payment is
made; EXCEPT:
a. There is an agreement permitting examination; or
b. The usage of trade permits the examination
Note: The mere delivery of the goods by the seller to the carrier does not preclude the buyer from
rejecting the goods if they are not in fact as ordered, even though the buyer authorized the
shipment of the goods to the carrier. (Paras, Civil Code, Book V, 2000)
D. CONTRACT WITH THE CARRIER ON BEHALF OF THE BUYER (Art. 1523)

● This is a duty of the seller after delivery to carrier.
● The fact that the ownership in the goods may have passed to the buyer does not mean
that the seller has already fulfilled his duty to the buyer.
● The seller must make such contract with the carrier on behalf of the buyer as may be
reasonable under the circumstances.
● If the seller omits to do so, the buyer may:
a. Decline to treat the delivery to the carrier as a delivery to himself in case the goods
are lost or damaged in course of transit; or
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b. Hold the seller responsible in damages.
E. NOTICE TO BUYER REGARDING NECESSITY TO INSURE GOODS (Art. 1523)

● This is a duty of the seller after delivery to carrier.
● The seller must give notice to the buyer as may enable him to ensure the goods during their
transit if under the circumstances it is usual to insure them.
● If the seller fails to do so, the risk will be borne by him.
● The seller who had all the information necessary to insure.
Lesson 6. Maceda Law

Republic Act No. 6522 or the Maceda Law governs the sale of financing of real estate on
installment payment.
Note: Section 3 of the Maceda Law is comprehensive enough to include both contracts of sale and
contract to sell, provided that the terms of the payment of the price require at least two installments.
Purpose of Maceda Law: It is an expression of public policy to protect buyers of real estate on
installments against onerous and oppressive conditions (Sec. 2., R.A. 6652)
Does not apply to:

1. Sale covering industrial lots;
2. Sale covering commercial buildings and commercial lots by implication;
3. Sale to tenants under agrarian reform laws;
4. Sale of lands payable in straight terms.
Requisites:
1. Transactions or contracts involving the sale OR financing of real estate on installment
payments, including residential condominium apartments; and
2. Buyer defaults in payment of succeeding installments.
Note: While under Sec. 3, down payment is included in computing the total number of
installment payments made, the proper divisor is the monthly installment on the down payment.
(Jestra Development and Management Corp. v. Pacifico, G.R No. 167452, January 30, 2007)
Maceda Law Cannot be Availed of by Developer. Maceda law has no application to protect the
developer or one who succeeds the developer (Lagandaon v. CA, 290 SCRA 330, 1998).
Rights of the buyer:
1. If the buyer has paid at LEAST TWO (2) YEARS of installments:
a. The buyer must pay, without additional interest, the unpaid installments due within the
total grace period earned by him. There shall be one (1) month grace period for every one
(1) year of installment payments made.
Note: This right shall be exercised by the buyer only once in every 5 years of the life of the
contract AND its extensions.
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b. Actual cancellation can only take place after 30 days from receipt by the buyer of the notice
of cancellation or demand for rescission by a notarial act and upon full payment of the cash
surrender value to the buyer (Olympia Housing v. Panasiatic, G. R. No. 140468, January
16, 2003)
Note: The seller shall refund to the buyer the cash surrender value of the payments on the
property equivalent to 50% of the total payments made. After five (5) years of installments,
there shall be an additional 5% every year but not exceed 90% of the total payments made.
c. The buyer shall have the right to sell his rights or assign the same to another person OR to
reinstate the contract by updating the account during the grace period and before actual
cancellation on the contract.
d. The buyer shall have the right to pay in advance any installment or the full unpaid balance
of the purchase price any time without interest and to have such full payment of the
purchase price annotated in the certificate of title covering the property.
2. If the buyer has paid LESS THAN TWO (2) years of installments:
a. The seller shall give the buyer a grace period of NOT less than 602 days from the date the
installment became due. If the buyer fails to pay the installments due at the expiration of
grace period, the seller may cancel the contract after 30 days from receipt by the buyer of
the notice of cancellation or the demand for rescission of contract by a notarial act.
b. Same (b) and (d) of paragraph (1) above
Note:
Down payments, deposits or options on the contract shall be included in the computation
of the total number of installment payments made.
Assessment Task 3
Part I. Multiple Choice Questions.
S sold to A in a deed of sale his parcel of land. Afterwards, S sold the same land to B in another
deed of sale who was aware of the sale to A. B, thereafter, took possession thereof and registered the
sale in his name. The parcel of land shall belong to:
A, because he has the oldest title
B, because the sale to him was in deed of sale
B, because he was the first possessor of the land
B, because he first registered the sale in his favor
S sold his only car with plate number XYZ123 to B. There was no fixed date for the performance
of their respective obligations. The obligation of S as vendor is:
To wait for the buyer to pay the price before he delivers 66
To deliver the car within a reasonable time
To deliver the car after one month
To pay for damages if the car was not delivered within one month
Objects The following are the obligations of the vendor except:
To transfer ownership of the thing sold at the time of meeting of the minds
To deliver the thing
To warrant the object sold against eviction and hidden defects
To take care of the object sold pending delivery
The following are the obligations of the vendor except:
To deliver the thing
To warrant the object sold against eviction and hidden defects
To take care of the object sold pending delivery
To pay the expenses for the execution and registration of the contract of sale
only if stipulated
It is an act by which one party parts with the title to and the possession of the property, and the
other acquires the right to and the possession of the same.
Delivery
Contract of sale
Eviction
Contract to Sell
S sold a parcel of land to B. S subsequently, S sold the same land to C who immediately took
possession of the land. In this case, the proper remedy of B is:
Ask for the rescission of the sale because it is in fraud of creditors
Institute an action for damages against S for breach of contract
File an action for rescission of the sale to C due to damage suffered by him
File an action in court against C to recover the land
It occurs when it is placed under the control and possession of the vendee.
Actual delivery
Constructive delivery
Delivery by operation of law
Other kinds of delivery as intended by the parties
The following are the exceptions to the general rule that ownership of the thing sold is acquired
only upon its delivery to the buyer, except:
When the seller and the buyer agree that the ownership shall remain with the
seller until the full payment of the purchase price
Contract to sell
Sale or return
Implied reservation of ownership
A seller sold to a buyer a specific parcel of land at a price of P1,000,000. The contract provides
that when buyer will pay the seller cash 400,000 and deliver the buyer’s car worth 600,000. The
contract is:
Barter b. Sale c. Contract to sell d. Mutuum
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It is a delivery by operation of law.
Real delivery
Actual delivery
Legal delivery
Quasi-tradition
Quasi-delivery is the delivery of rights, credits, or incorporeal property which is made by:
Execution of public instrument
Placing of titles of ownership in the hands of the buyer
Allowing buyer to make use of rights
Issuance of delivery receipt
When the sale is made through a public instrument.

Legal formalities
Symbolic tradition
Traditio simbolica
Traditio longa manu
A delivers B his parcel of land worth P1,000,000 in exchange for the car of B worth P500,000
and cash in the amount of 500,000. The contract is:
Barter
Sale
Partly barter partly sale
Innominate contract
The parties use a symbol to represent the thing delivered.

Legal formalities
Symbolica tradition
Traditio brevi manu
Traditio longa manu
The delivery is by mere consent or agreement of the contracting parties, where the seller points
out to the buyer the object of sale without the need of actually delivering it.
Legal formalities
Symbolica tradition
Traditio brevi man u
Traditio longa manu
This occurs when the would be buyer had already the possession of the object even before the
contract of sale by virtue of another title which is not ownership (like a lessee in a Contract of lease),
and pursuant to contract of sale, he would now hold possession in the concept of an owner (like a
buyer of a house where he was a former of the same house).
Legal formalities
Symbolica tradition
Traditio brevi manu
On January 2, 2018 S sold to B his only car with the payment to be made on January 10, 2018.
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However, on January 6, 2018, S sold the same car to C who immediately took possession thereof.
Decide:
B can file an action to rescind the sale.
B may recover the car from C because the former was the first buyer.
B may claim damages from S for breach of contract of sale.
B can file an action to annul the sale.
B This is opposite of tradition brevi manu.
Legal formalities
Symbolica tradition
Traditio brevi manu
Legal or constructive delivery may be had through any of the following ways, except:
The execution of public instrument evidencing the sale
Symbolica tradition such as the delivery of the keys of the place wher the
movable sold is being kept.
Traditio longa manu or by mere consent or agreement if the movable sold cannot
yet be transferred to the possession of the buyer at the time of the sale
Traditio possessorium if the buyer already had possession of the object even
before the sale.
The following are modes of delivery of incorporeal property, except:

Execution of public instrument
The placing of the titles of ownership in the possession of the vendee
The use by the vendee of his rights, with the vendor’s consent
Execution of official receipt
Also called “Sale on acceptance”.

Sale on approval
Sale on return
Sale by sample
Sale by description
There is no transfer of ownership notwithstanding delivery of the goods.

Sale or return
Sale on trial
Sale by sample
Sale by description
II. Discuss the different modes of delivery.
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Summary
● The different obligations of the vendor in a contract of sale are:
1. Transfer ownership (Arts. 1458 and 1495) cannot be waived
3. Deliver the thing sold (Arts. 1458 and 1495) cannot be waived
4. Deliver the fruits and accessories (Arts. 1164 and 1166, and 1537)
5. Make warranties (Arts. 1545 – 1581) – can be waived or modified; warranty
is not an essential element of the contract of sale
6. Take care of the thing, pending delivery, with proper diligence (Art. 1163)
7. Pay for the expenses for the execution and registration of the sale, unless there
is stipulation to the contrary (Art. 1487)
8. Accord the buyer the right to examine the goods (Art. 1584)
9. Enter into contract with the carrier on behalf of the buyer as may be reasonable
under the circumstances (Art. 1523)
10. Notify the buyer regarding necessity to insure goods, if it is usual to insure
them (Art. 1523)
● The first and foremost obligation of the vendor is to transfer ownership. The
general rule is that ownership of the thing sold is acquired only upon its delivery,
actual or constructive, to the buyer even if purchase was made on credit. There
exceptions or cases where there is reservation of ownership despite delivery such
as: (1) pactum reservati domii (contractual reservation of title) – Express
reservation of ownership (Art. 1478); (2) contract to sell; (3) sale on
acceptance/trial/approval/satisfaction (Art. 1502); (4) implied reservation of
ownership under Article 1503
● Another obligation of the vendor is the delivery of the thing sold. Delivery is a
mode of acquiring ownership, as a consequence of certain contracts such as sale,
by virtue of which, actually or constructively, the object is placed in the control
and possession of the vendee. There is actual or real delivery, and the other
is constructive delivery which has various types.
● Another obligation of the vendor elaborated in this module is the duty to delivery
of fruits and accessories wherein the seller is bound to deliver the accessions and
accessories in the condition in which they were upon the perfection of the contract.
● There is also the obligation of the vendor on warranty/ies which refers to the
statement or representation made by the seller 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 that certain facts are or shall be
as he then represents.
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● Other obligations of the vendor are enumerated above.
● Republic Act No. 6522 or the Maceda Law governs the sale of financing of real
estate on installment payment. Section 3 of the Maceda Law is comprehensive
enough to include both contracts of sale and contract to sell, provided that the terms
of the payment of the price require at least two installments.
References
Books and Laws:
Printhouse.
Paras, E. (2000). Civil Code of the Philippines Annotated Book V 14th Edition. Manila,
Philippines: Rex Printing Company, Inc.
Republic Act No. 6522 or the Maceda Law
Republic Act No. 7394 or the Consumer Act of the Philippines
Jurisprudences:
Addison v. Felix, 38 Phil. 404, 1918

Agricultural and Home Extension Development Group vs. Court of Appeals, 213 SCRA 563,
1992
Alejandra Bugarin Vda. De sarmiento v. Lesaca. G.R. No. L-15385, June 30, 1960
Amancio et al. v. CA et. al., G.R. No. 152627, September 16, 2005
Carbonell v. Court of Appeals, 69 SCRA 99, 1976
Caram, Jr. v. Laureta (102 SCRA 7, 1981)
Cheng v. Genato, 300 SCRA 722, 1998
Consing v. CA, 177 SCRA 14
Daus v. Sps. De Leon, GR No. 149750, June 16, 2003
EDCA Publishing and Distributing Corp. v. Santos, G.R. No. 80298, April 26, 1990
Feliciano Esguerra, et. al. v. Virginia Trinidad, G.R No. 169890, March 12, 2007
Fudot v. Cattleya land Inc., GR No. 175942, September 13, 2007
Gabriel v. Mabanta, GR No. 142403, March 26, 2003
Jestra Development and Management Corp. v. Pacifico, G.R No. 167452, January 30, 2007
Lagandaon v. CA, 290 SCRA 330, 1998
Limketkai Sons Milling, Inc. v. Court of Appeals, 250 SCRA 523, 1995
Martinez v. CA, GR No. 123547, May 21, 2001
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Mathay v. Court of Appeals, 295 SCRA 556, 98 SCAD 489, 1998
Mercado vs. Allied Bank, GR No. 171460, July 27, 2007
NDC v. Madrigal Wan Hai Lines Corp., G.R. No. 148332, Sep. 30, 2003
Norkis Distributor, Inc. v. CA, G.R. No. 91029, February 7, 1991
Olympia Housing v. Panasiatic, G. R. No. 140468, January 16, 2003
Philippine Suburban Development Corp. v. Auditor General, et.al., G.R No. L-19545, April
18, 1975
Po Sun Tun v. Price, 54 Phil. 192
Sampaguita Pictures, Inc. v. Jalwindor Manufacturers, Inc. GR No. L-43059, October 11,
1979
Sanchez v. Ramos, No 13442, December 20, 1919
Santos v. Santos, 366 SCRA 395, 2001
Sps. Salera v. Sps. Rodaje, G.R. No. 135900, August 11, 2007
Ten Forty Realty v. Cruz, G.R. No. 151212, September 10, 2003
Teran v. Villanueva Viuda de Riosa, 56 Phil 677, No. 34697, March 26, 1932
Valdevieso v. Dalamerio, G.R. No. 133303, Feb. 17, 2005
Yap Kim Chuan v. Tiaoqui, GR No. 1006, September 18, 1915
MODULE 8
OBLIGATIONS OF THE VENDEE, REMEDIES
AND EXTINGUISMENT OF SALE
Introduction
This module will discuss the different obligations of the vendee in a contract of
sale. The remedies for breach of contract will also be touched upon, as well as remedies
of the buyer in a contract of sale. This module will also cover risk of loss and
deterioration and its effects, and the various ways where there is extinguishment of sale.
This module will also discuss assignment of credits and other incorporeal rights.
In discussing these different lessons, the basic principles of law of sales

applicable including case applications will be discussed and will serve as a study guide
designed to, among other things, primarily to test and further increase the understanding
of the student.
Learning Outcomes
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At the end of this module, students should be able to:
1. Identify the different obligations of the vendee in a contract of sale;

2. Determine the remedies available for breach of contract, as well as the remedies
granted to a vendee in a contract of sale;
3. Enumerate the modes to extinguish a contract of sale; and
4. Discuss assignment of credits and other incorporeal rights.
Lesson 1. Obligations of the Vendee

A. Principal Obligations (Art. 1582, Civil Code)
1. To accept delivery
2. To pay the price of the thing sold in legal tender UNLESS another mode has
been agreed upon
Grace Period to Vendee
A grace period granted the vendee in case of failure to pay the amount/s due is a
right not an obligation. The grace period must not be likened to an obligation, the
nonpayment of which, under Article 1169 of the Civil Code would still generally require
judicial or extra judicial demand before default can be said to arise (Bricktown Dev’t.
Corp. v. Amor Tierra Dev’t. Corp., G.R. No. 112182; December 12, 1994).
B. Other Obligations
1. To take care of the goods without the obligation to return, where the goods are
delivered to the buyer and rightfully refuses to accept (Art. 1587)
● The buyer in such a case is in the position of a bailee who has had goods thrust
upon him without his assent. He has the obligation to take reasonable care of
the goods but nothing more can be demanded of him.
● The goods in the buyer’s possession are at the seller’s risk.
2. To be liable as a depositary if the voluntarily constituted himself as such (Art. 1587)
3. To pay interest for the period between delivery of the thing and the payment of the price
in the following cases (Art. 1589):
[IFV]
a. Interest is stipulated
- may be oral
- interest which must be in writing refers only to loan (Art. 1956)
b. Fruits or income are received by vendee from the thing is sold
● Even if a term has been fixed for the payment of price
c. Vendee is guilty of Default
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● Under Art. 1169, the debtor incurs in delay from the time of judicial or extra-
judicial demand. However, demand is not necessary to constitute delay in the
following cases: [LTD]
i. The law or obligation expressly so provides;
ii. Time is of the essence; or
iii. Demand would be useless as when the obligor has rendered it beyond his
power to perform.
PERTINENT RULES:
1. The vendor is not required to deliver the thing sold until the price is paid nor the vendee
to pay the price before the thing is delivered in the absence of an agreement to the
contrary (Art.1524);
2. If stipulated, the vendee is bound to accept delivery and to pay the price at the time and
place designated;
3. If there is no stipulation as to the time and place of payment and delivery, the vendee
is bound to pay at the time and place of delivery (Art. 1582, par. 2);
4. In the absence of stipulation as to the place of delivery, it shall be made wherever the
thing might be at the moment the contract was perfected (Art. 12510;
5. If only the time of delivery has been fixed in the contract, the vendee is required to pay
even before the thing is delivered to him; if only the time of payment has been fixed,
the vendee is entitled to delivery even before he price is paid by him.
ACCEPTANCE
● Acceptance and delivery are separate acts; acceptance is the buyer’s obligation while
delivery is the vendor’s.
● Acceptance is not a condition to complete delivery. Vendee has nothing to do with the
vendor’s delivery. The seller must comply with his obligation to deliver although there is
no acceptance yet b the buyer.
● Unless otherwise agreed upon, acceptance by the buyer does not discharge the seller from
liability for damages or other legal remedy like for breach of any promise or warranty.

1. Not bound to accept delivery of goods by installments (Art. 1583)
2. Reasonable opportunity to examine the goods upon delivery to ascertain whether they are
in conformity with the contract before accepting the same (Art. 1584)
Exceptions:
a. There is a stipulation to the contrary; OR
b. In case of C.O. D. (collect on delivery) – buyer is not entitled to examine until payment
is made; EXCEPT:
i. There is an agreement permitting examination; or
ii. The usage of trade permits the examination
3. Acceptance of the goods shall not discharge the seller form liability for breach of any
promise or warranty BUT the buyer must give the seller notice of the breach of promise
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or warranty within a reasonable time after the buyer knows or ought to know of such
breach, otherwise the seller shall not be liable therefor. (Art. 1586)
4. Reject delivery of a wrong quantity of goods or of goods of different descrption not
included in the contract which are mixed with the goods sold. (Art. 1522)
5. If the refuses to accept the goods having the right to do so, he is not bound to return them
to the seller; it being sufficient that he notifies the seller of his refusal to accept.
● If he voluntarily constitutes himself as depositary of the goods, he shall be liable
as such. (Art. 1587)
● Effect of refusal to accept goods without just cause: title to the goods passes to the
buyer from the moment they are placed at his disposal, except if ownership has
been reserved by the seller (Art. 1588)
Acceptance and Actual Receipt

● Acceptance and actual receipt do not imply each other; acceptance implies approval
while receipt is only the physical act of taking or receiving the goods sold
● Acceptance by the buyer may precede actual delivery; there may be actual receipt
without acceptance and there may be acceptance without receipt
Ways of accepting goods (Art. 1585):

1. Express acceptance – when the buyer, after delivery of the goods, intimates to the seller,
verbally or in writing, that he has accepted them
2. Implied acceptance
a. When buyer performs acts of ownership
b. Failure to return goods after reasonable lapse of time
Note: The buyer must notify the seller within a reasonable time after the buyer knows or
ought to know of the breach; otherwise, the seller will be released from such liability (Art.
1586, last par.)
● Notice is still required even if the seller has knowledge of the facts constituting the
breach because whether or not the defect constitute a breach must be taken from the
point of view of the buyer (Paras, Civil Code, Book V, 2000).
PAYMENT
● Non-payment does not prove simulation; at most, it gives the seller the right to sue
for collection. Payment of the price is a resolutory condition and the remedy of the
seller is to exact fulfillment or, in case of substantial breach, to rescind the contract
under Art. 1911.

1. Suspension of payment (Art. 1590):
● Contemplates a situation where the contract is not yet consummated
● Applicable in the following cases:
1. Where the vendee is disturbed in possession or ownership of the thing bought; or
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2. Vendee has reasonable ground to fear that his possession or ownership would be
disturbed (by a vindicatory action or a foreclose of a mortgage)
● In both instances, the vendee may retain only the price that has not been paid to the
vendor. He is not entitled to recover what has already been paid.
● Exceptions to Suspension of Payment (where vendee has no right to suspend

payment): [SSCTP]
a. Vendor gives security for the return of the price
b. Stipulation that vendee must make payment notwithstanding such contingency
c. Cessation of disturbance or danger
d. Disturbance is a mere act of trespass
e. Vendee has paid the price in full
● When the disturbance is caused by non-apparent servitude, the remedy is rescission,

not suspension of payment.
2. In the sale of immovable property, to pay even after the expiration of the period agreed
upon, as long as no demand for rescission of the contract has been made upon him
either judicially or by a notarial act, even though it may have been stipulated that
rescission shall of right take place upon failure to pay the price at the time agreed upon
(Art. 1952).
Lesson 2. Remedies for Breach of Contract

A. REMEDIES OF THE SELLER
1. In case of Immovables
a. When there is Anticipatory Breach (Art. 1591):
Seller may sue for RESCISSION if the following concur

i. There is delivery of immovable property
ii. Vendee has not reasonable ground to fear the:
⮚ LOSS of PROPERTY; AND
⮚ LOSS of PRICE
● When there is no such reasonable ground, Art. 1191 shall be observed (when the
vendee does not comply with what is incumbent upon him).
● This is applicable to both cash sales and to sales in installments as Art. 1591 does
not distinguish between one and the other.
● In all cases of rescission, there must be substantial breach as to defeat the very
object of the parties and not merely a slight or casual breach.
b. When there is failure on the part of buyer to pay the price (Art. 1592):
● AUTOMATIC RESCISSION of sale immovable property is stipulated.
● Meaning of “even though” : According to Paras and Villanueva, the phrase
“even though” signifies that Article 592 is applicable to all sales of immovables
even when there is no stipulation on automatic rescission. According to De
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Leon, however, the phrase “even though” emphasizes that when no stipulation
is found on automatic rescission, the judicial or notarial requirement still
applies. According to him, therefore, the buyer may still pay the price even
after the expiration of the period and notwithstanding a stipulation on automatic
rescission, as long as there is no demand by judicial or notraial act.
● Article 1191 is subordinated to the provisions of Article 1592 when applied to
sales of immovable property.
● In Articles 1191 and 1592, the rescission is a principal action which seeks
resolution or cancellation of the contract, while in Article 1381, the action is a
subsidiary one limited to cases of rescission for lesion.
● Prescriptive period (rescission under Articles 1191 and 1592): 10 years from
the time the right of action accrues (Article 1144)
● Seller is given an option to RESCIND upon JUDICIAL OR NOTARIAL
DEMAND
● However, when there is no judicial or notarial demand, buyer may still pay.
Offer to pay is sufficient to defeat seller’s prerogative.
● Seller’s right to rescind is not absolute.
⮚ Art. 1191, par. 3 provides that the country may grant vendee a new term
⮚ However, if there is already a demand, the court may nolonger fix a
term.
⮚ NOT APPLICABLE TO:
i. Sale on installment of real estate (Caridad Estates v. Santero,
G.R. No. L-47231, December 19, 1940)
ii. Contract to Sell (Felipe Roques v. NIcanor Lapuz and CA, G.R.
No. L-32811, March 31, 1980)
iii. Cases covered by RA 6552
2. In case of Movables
a. Movables in General (Art. 1593)
● AUTOMATIC RESCISSION in the interest of the seller if the buyer, upon
the expiration of the period for delivery of thing:
i. Should not have appeared to receive it; OR
ii. Having appeared, should not have tendered the price at the time
● Rationale behind Art 1593: Personal properties are not capable of

maintining stable price in the market. Hence, any delay is prejudicial to
the vendor.
● Applies only when thing sold has not been delivered to the buyer
⮚ Reason: the buyer cannot take the la in his hands
⮚ If there has already been delivery, other provisions are applicable.
b. Sale of Goods
i. Action for the price / Specific performance (Art. 1595)
(1) When 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
(2) When price is payable on certain day, irrespective of delivery or
transfer of title and the buyer wrongfully neglects or refuses to pay
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[BUT: it is a defense to such action that seller has manifested an
inability or lack of interest to perform his obligation before judgment]
(3) If goods cannot readily be resold for a reasonable price, although
transfer of ownership has not passed – seller may offer to deliver the
goods to the buyer; if buyer refuses to receive seller, seller may notify
the buyer that he holds the goods as bailee for the buyer. Thereafter,
the seller may treat the goods as buyer’s and may maintain an action
for the price.
ii. Action for Damages

(1) When buyer wrongfully neglects or refuses to accept and pay for the
goods (Art. 1596)
(2) Where the ownership in in the goods has not passed, and the seller
cannot maintain an action to recover the price
(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
● Measure of Damages: estimated loss directly and naturally resulting in the

buyer’s breach
● Measure of Damages (when there is available market): difference between
the contract price and the market or current price at the time the goods
ought to have been accepted, or at the time of refusal to accept when there
is no time to fixed
iii. Technical Rescission (Art. 1597)

● There is no delivery of goods yet.
● In the following instances, the seller may totally rescind by giving
notice of his election to do so to the buyer:
(1) Buyer has repudiated the contract of sale;
(2) Buyer has manifested his inability to perform obligations;
(3) Buyer committed a breach
B. REMEDIES OF AN UNPAID SELLER
Unpaid Seller (Art. 1526):

1. The seller who has not been paid or to whom the price has not been tendered
2. The seller of the goods, in case a bill of exchange or other negotiable instrument has been received
as conditional payment, AND the condition on which it was received has been broken by reason of
the dishonor of the instrument, insolvency of the buyer or otherwise.
Remedies of unpaid seller (PaSaS SA ARMS):

1. Possessory lien
2. Stoppage of goods in transitu
3. Special right of resale
4. Special right of rescission
5. Action for the price
6. Action for damages]
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7. Recto Law
8. Maceda Law
9. Specific performance
I. Posessory lien
When it may be exercised (Art. 1527): [WEI]

a. The goods have been sold without any stipulation as to credit
b. The goods have been sold on credit, but the term of credit has expired
c. The buyer becomes insolent
Note: Notwithstanding transfer of ownership possessory lien may still be exercised as long as
the goods are in the possession of the seller.
When unpaid seller loses his lien (Art. 1529): [COW]

a. Delivery of the goods to a carrier or bailee
- For the purpose of transmission to the buyer
- Without reserving ownership or right of possession
b. When the buyer lawfully obtains possession of the goods
c. By waiver of the lien
Note: Possessory lien is lost after the seller remains. His preference can only be defeated by
the government’s claim to the specific tax on the goods themselves (Arts. 247 and 2241). The
bringing of an action to recover the purchase price is not one of the ways of losing the
possessory lien. An unpaid seller does not lose his lien by reason that he has obtained a money
judgment or decree for the price of goods (Art. 1529, last paragraph).
II. Stoppage of goods in transit (Art. 1530)
Requisites: (UI-TE)
o Seller must be unpaid
o Buyer must be insolvent
o Goods must be in transit
o Seller must either:
a. Notice may be given either to the person in actual possession of the goods or to his
principal.
b. When notice is given to the carrier or other bailee in possession of the goods
according to te directions of the seller [NOTE: Expenses must be borne by the
seller]
c. EXCEPTION: a negotiable document of title representing the goods has been
issued (in which case the carrier or bailee is not obliged to redeliver the goods
unless the seller surrendered the document for cancellation)
When the goods are considered “in transit” (Art. 1531, par.1):
▪ After delivery to a carrier or other bailee and before the buyer or his agent takes
delivery of them; and
▪ If the goods are rejected by the buyer , and the carrier or other bailee continues in
possession of them (even if the seller refused to receive them back)
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Note: Taking of the goods in transit by an authorized agent of the buyer does not extinguish
the right of stoppage in transitu. (Civil Code of the Philippines, Paras)
In case of misdelivery, the goods are still considered in transit, hence the seller may still
exercise said right pursuant to Art. 1523, which provides that an unpaid seller may exercise his
right of stoppage in transit by giving notice of his claim to the carrier “or other bailee in whose
possession the goods are.”
When the goods are no longer in transit (Art. 1531, par. 2): (APAR)
1. After delivery to the buyer or his agent in that behalf;
2. If the buyer or his agent obtains possession of the goods at a point before the destination
originally fixed;
3. If the carrier or the bailee acknowledges to hold the goods in behalf of the buyer;
4. If the carrier or bailee wrongfully refuses to deliver the goods to the buyer.
Effects of the exercise of the right:

1. The goods are no longer in transit.
2. The contract of carriage ends; the carrier now becomes a mere bailee, and will be liable
as such.
3. The carrier should no longer deliver to the buyer or the latter’s agent; otherwise he will
be liable for damages.
Ways of exercising the right (Art. 1532):
1. By taking actual possession
2. By giving notice of his claim to the carrier or bailee
Effect if the buyer has already sold the goods (Art. 1532):
General Rule: The unpaid seller’s right to lien or stoppage in transit remains even if buyer
has sold the goods.
Exceptions:
1. When the seller has given consent thereto; OR
2. When a negotiable document of title has been issued for goods
III. Special right of resale (Art. 1533)
May be exercised only when the unpaid seller has either a right of lien or has stopped
the goods in transit and under any of the following conditions:
1. Goods are perishable in nature
2. The right to resell is expressly reserved in case the buyer should make a default
3. The buyer delays in the payment of the price for an unreasonable time
IV. Rescission (Art. 1534)
Special Right to Rescind – If the seller has either the right of lien or a right to stop the
goods in transit and under either of 2 situations:
1. Where the right to rescind on default has been expressly reserved
2. Where the buyer has been in default for an unreasonable time
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Effect of Exercise of Right : The seller shall not thereafter be liable to the buyer upon
the contract of sale, but may recover from the buyer damages for any loss occasioned
by the breach.
Note: There must be NOTICE or some other OVER ACT of intention to rescind. Over
act need not be communicated BUT the giving of notice ie relevant in case of default
for an unreasonable time.
V. Action for the price (Art. 1595)

When may be exercised:
1. Where the ownership has passed to the buyer AND he wrongfully neglects or refuses
to pay for the price
2. Where price is payable on a day certain AND he wrongfully neglects or refuses to
pay for the price, irrespective of the delivery or transfer of title
3. Where the goods cannot readily be resold for a reasonable price AND the buyer
wrongfully refuses to accept them even before the ownership of the goods has passed,
if Art. 1596 is inapplicable.
VI. Action for damages

When may be exercised:
1. In case of wrongful neglect or refusal by the buyer to accept or pay for the thing sold
(Art. 1596, par.1)
2. In an executor contract, where the ownership in the goods has not passed, and the
seller cannot maintain an action to recover the price (Art. 1595)
3. If the goods are not yet identified at the time of the contract of subsequently
VII. Article 1484 or Recto Law- provides for remedies of vendor in sale of personal
property by installments.
Sale on Installment:
When there is only one payment to be paid in the future, there is no basis to apply to
the Recto law, since under the language of then Article 1454-A, the buyer needs to have
defaulted in the payment of two or more installments to allow the seller to rescind or
foreclose on the chattel mortgage (Levy Hermanos, Inc. v. Gervacio, 69 Phil. 52, 1939).
Purpose of Recto Law: To remedy the abuses committed in connection with the
foreclose of chattel mortgagees from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing suit against the mortgagor for a
deficiency judgment.
Requisites:
a. Contract of sale
b. Personal Property
c. Payable in installments
d. In the case of the second and third remedies, that there has been a failure to pay
two or more installments
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Note: Rules and limits apply to contracts purporting to be leases of personal property
with option to buy, when the lessor has deprived the lessee of the possession or
enjoyment of the thing (Art. 1485).
Art. 1484 does not apply to:

1. Sale of personal property payable on straight terms (partly in cash and partly in one
term)
2. Sale or mortgage of real estate
3. Action for replevin
Alternative and Exclusive Remedies:

● The remedies under Art. 1484 have been recognized as alternative, not
cumulative, in that the exercise of the others (Delta Motors Sales Corp. v. Niu
Kim Duan, 213 SCRA259, 1992).
● The remedies cannot also be pursued simultaneously (Luneta Motor Co. v.
Dimagiba, 3 SCRA 884, 1961)
1. Specific performance upon vendee’s failure to pay

In sales on installments, where the action instituted is for specific performance and
the mortgaged property is subsequently attached and sold, the sale thereof does not
amount to a foreclosure of the mortgage , hence, the seller-creditor is entitled to
deficiency judgment (Southern Motors Inc. v. Moscoso, G.R. No. L-14475, May 30,
1961).
When deemed chosen: The seller is deemed to have chosen specific performance
when he files an action in court to recovery.
Resort to Rescission after choosing specific performance
General Rule: When the seller has chosen specific performance, he can no longer
seek for rescission or foreclosure of the chattel mortgage constituted on the thing
sold.
Exception: Even if the seller had chosen specific performance, if the same has
become impossible, the seller may still choose rescission (Art. 1191).
2. Rescission of the sale if vendee shall have failed to pay two or more installments
When rescission is deemed chosen:

When the seller has clearly indicated to end the contract such as when – (NPA)
a. He sends a notice of rescission, or
b. He takes possession of the subject matter of the sale, or
c. He files an action for rescission.
Forfeiture of Installment or rentals paid:
General Rule: Rescission creates the obligation to return the things which were the object
of the contract, together with the fruits, and the price with interests. It can be carried out
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only when he who demands rescission can return whatever he may be obliged to restore
(Art. 1385).
Exception: A stipulation that the installments or rents paid shall not be returned to the
vendee or lessee shall be valid insofar as the same may not be unconscionable under the
circumstances (Art. 1486).
3. Foreclosure of the chattel mortgage on the thing sold if vendee shall have failed to
pay two or more installments.
In this case, there shall be no deficiency judgment.
When deemed chosen: At the time of actual sale of the subject property at public auction
pursuant to the foreclosure proceedings commenced (Manila Motor Co., Inc. v.
Fernandez, 99 Phil. 782, 1956)
Barring effect of Foreclosure: It is the foreclosure and actual sale at public auction of
the mortgaged chattel that shall bar further recovery by the seller of any balance on the
purchaser’s outstanding obligation not satisfied by the sale.
● Any agreement allowing for further action to recover unpaid balance is void.
● Prior to foreclosure and actual sale at public auction , the seller has every right
to receive payments on the unpaid balance of the price from the buyer (Manila
Motor Co v. Millian, 61 Phil. 409, 1935).
● Barring effect on other securities given for payment of price: After the
foreclosure, the vendor cannot proceed against any third party who may have
guaranteed the vendee’s performance of his obligation, for it the guarantor should
be compelled to pay the balance, the guarantor will be entitled to recover what he
has paid from the debtor-vendee, so that ultimately, it will be bear the payment of
the balance of the price (Cruz v. Filipinas Investment & Finance Corp., 23 SCRA
791, 1968)
● Seller’s assignment of credit: When the seller assigns his credit to another
person, the latter is likewise bound by the same law. Accordingly, when the
assignee forecloses on the mortgage, there can be no further recovery of the
deficiency and the seller mortgagee is deemed to have renounced any right thereto
(Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634, 1996).
● Art 1484(3) does not bar one to whom the vendor has assigned on a with-recourse
basis his credit against the vendee from recovering from the vendor the assigned
credit in full although the vendor may have no right of recovery against the vendee
for deficiency (Filipina Invest. & Finance Corp. v. Vitug, Jr., Jr., G.R. No. L-
25951, June 30, 1969)
● Extent of barring effect: Despite the limiting language of Art. 1484, which uses
the phrase “any unpaid balance,” the Supreme Court, in Macondray & Co., Inc.
v. Eustaquio (64 Phil. 446, 1937), ruled that the barring effect also applies to all
83
other claims (e.g. the interest on the principal, attorney’s fees, expenses of
collection, and the costs).
● Perverse Buyer-Mortgagor: When a defaulting buyer-mortgagor refuses to

surrender the chattel to the seller to allow the latter to be able to proceed with
foreclosure, then the seller, even after foreclosure, should be allowed to recover
expenses and attorney’s fees incurred in trying to obtain possession of the chattel
(Filipinas Investment & Finance Corp, v. Ridad, G.R. No. L-27645, November
28, 1969). In effect, the Ridad ruling provides an exception to the complete
barring effect espoused in Eustaquio ruling.
VIII. R.A. 6552 or Maceda Law
Governs the sale of financing of real estate on installment payment.
Note: Section 3 of the Maceda Law is comprehensive enough to include both contracts of sale and
contract to sell, provided that the terms of the payment of the price require at least two installments.
Purpose of Maceda Law: It is an expression of public policy to protect buyers of real estate on
installments against onerous and oppressive conditions (Sec. 2., R.A. 6652)
Does not apply to:

5. Sale covering industrial lots;
6. Sale covering commercial buildings and commercial lots by implication;
7. Sale to tenants under agrarian reform laws;
8. Sale of lands payable in straight terms.
Requisites:
3. Transactions or contracts involving the sale OR financing of real estate on installment
payments, including residential condominium apartments; and
4. Buyer defaults in payment of succeeding installments.
Note: While under Sec. 3, down payment is included in computing the total number of
installment payments made, the proper divisor is the monthly installment on the down
payment. (Jestra Development and Management Corp. v. Pacifico, G.R No. 167452, January
30, 2007)
Maceda Law Cannot be Availed of by Developer. Maceda law has no application to protect the
developer or one who succeeds the developer (Lagandaon v. CA, 290 SCRA 330, 1998).

11. If the buyer has paid at LEAST TWO (2) YEARS of installments :
e. The buyer must pay, without additional interest, the unpaid installments due within the
total grace period earned by him. There shall be one (1) month grace period for every one
(1) year of installment payments made.
Note: This right shall be exercised by the buyer only once in every 5 years of the life of
the contract AND its extensions.
f. Actual cancellation can only take place after 30 days from receipt by the buyer of the
notice of cancellation or demand for rescission by a notarial act and upon full payment of
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the cash surrender value to the buyer (Olympia Housing v. Panasiatic, G. R. No. 140468,
January 16, 2003)
Note: The seller shall refund to the buyer the cash surrender value of the payments on the
property equivalent to 50% of the total payments made. After five (5) years of
installments, there shall be an additional 5% every year but not exceed 90% of the total
payments made.
g. The buyer shall have the right to sell his rights or assign the same to another person OR
to reinstate the contract by updating the account during the grace period and before
actual cancellation on the contract.
h. The buyer shall have the right to pay in advance any installment or the full unpaid
balance of the purchase price any time without interest and to have such full payment of
the purchase price annotated in the certificate of title covering the property.
12. If the buyer has paid LESS THAN TWO (2) years of installments
c. The seller shall give the buyer a grace period of NOT less than 602 days from the date the
installment became due. If the buyer fails to pay the installments due at the expiration of
grace period, the seller may cancel the contract after 30 days from receipt by the buyer of
the notice of cancellation or the demand for rescission of contract by a notarial act.
d. Same (b) and (d) of paragraph (1) above
Note: Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made.
IX. Specific Performance
Remedy of specific performance has been discussed already.
Lesson 3. Remedies of the Buyer

1. In case of Immovables
a. Suspension of Payment (Art. 1590)
● Contemplates a situation where the contract is not yet consummated
● Under Article 1590, the vendee has no cause of action for rescission before final
judgment; otherwise the vendor might become a victim of machinations between the
vendee and the third person.
Applicable in the following cases:
i. Where the vendee is disturbed in possession or ownership of the thing bought;
or
ii. Vendee has reasonable ground to fear that his possession or ownership would
be disturbed (by a vindicatory action or a foreclosure of a mortgage)
● In both instances, the vendee may retain only the price that has not been paid to the
vendor. He is not entitled to recover what has already been paid.
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● Exceptions to Suspension of Payment (where vendee has no right to suspend
payment): [SSCTP]
a. Vendor gives security for the return of the price
b. Stipulation that vendee must make payment notwithstanding such contingency
c. Cessation of disturbance or danger
d. Disturbance is a mere act of trespass
e. Vendee has paid the price in full
● When the disturbance is caused by non-apparent servitude, the remedy is rescission,

not suspension of payment.
e. In case of Subdivision or Condominium Projects (P.D. 957)

No installment payments made by the buyer in a subdivision or condominium project for
the lot or unit he contracts to buy shall be forfeited in favor of the owner or developer when
the buyer, after due notice to the owner or developer desists from further payment due to
the failure of the owner or developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for complying with the same
(Section 23 and 24, P. D. 957).
Right to Grace Period Stipulated

● When a grace period is provided for in the contract of sale, it should be construed as a
right, not an obligation of the debtor, and when unconditionally conferred, the grace
period is effective without further need of demand either calling for the payment of the
obligation or for honoring the right (Bricktown Development Corp. v. Amor Tierra
Development Corp., 239 SCRA 126, 1995).
● In the sale of immovable property, the buyer has the right to pay even after the
expiration of the period agreed upon, as long as no demand from rescission of the
contract has been made upon him either judicially or by a notarial act (Art. 1592)
2. In case of Movables
a. In case of Failure of Seller to Deliver
The buyer may seek ACTION FOR SPECIFFIC PERFORMANCE, without giving the
seller the option of retaining the goods on payment of damages. The judgment may be
unconditional, or upon such terms and conditions as to damages, payment of the price and
otherwise, as the court may deem just (Art. 1598).
b. In case of Breach of Seller’s Warranty

The buyer may, at his election, avail of the following remedies:
i. Recoupment – accept the goods and set up the seller’s breach to reduce or extinguish
the price
ii. Accept the goods and maintain an action for damages for breach of warranty
iii. Refuse to accept the goods and maintain an action for damages for breach of warranty
iv. Rescission - rescind the contract and refuse to receive the goods; or if goods have
already been received, return them and recover what was paid or any part of it
concurrently with return or immediately after it.
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● These are ALTERNATIVE remedies, without prejudice to paragraph 2 of Art. 1191
(a party may still seek rescission after choosing specific performance if the latter is
impossible)
When rescission by buyer not allowed:

1. If the buyer accepted the goods knowing of the breach of warranty without protest.
2. If he fails to notify the seller within a reasonable time of his election to rescind
3. If he fails to return or offer to return the goods in substantially as good condition as they
were in at the time of the transfer of ownership to him
Rights and obligations of buyer in case of rescission:

1. Buyer shall cease to be liable for the price, his only obligation being to return the goods;
2. If he has paid the price or any part thereof, he may recover it from the seller;
3. He has the right to hold the goods as bailee for the seller should the latter refuse the return
of the goods; and
4. He has a right to have a lien on the goods for any portion of the price already paid which lien
he may enforce as if he were an unpaid seller.
c. Suspension of Payments in Anticipation of Breach (Art. 1590)

Applicable in the following cases:
i. Where the vendee is disturbed in possession or ownership of the thing bought; or
ii. Vendee has reasonable ground to fear that his possession or ownership would be
disturbed (by a vindicatory action or a foreclosure of a mortgage)
d. In case of Sale of Goods by Sample or By Description (Art. 1481)

Buyer may demand RESCISSION:
i. In a contract of sample or description, if the bulk of the goods do not correspond to the
sample or description.
ii. In sale by description and sample, if the bulk of the goods do not correspond with the
sample and description.
Lesson 4. Risk of Loss and Deterioration and its Effects
A. Before perfection
● Res perit domino applies
● Seller still owns the thing because there is no delivery or transfer of ownership yet
hence, seller bears the risk of loss
B. At Perfection (Art. 1493)

● Pursuant to Art. 1493:
1. If the thing is entirely lost, contract is without effect
2. If the thing should have been lost in part only: Buyer may choose between-
a. Withdrawing from the contract; and
b. Demanding the remaining part, paying its proportionate price
C. After Perfection but Before Delivery

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1. LOSS
General Rule: Who bears the risk of loss is governed by the stipulations in the contract.
In the absence of stipulation: there are two conflicting views
FIRST VIEW: Res perit creditori or BUYER bears the risk of losa (according to authors Paras,
Vitug, Padilla, and De Leon)
Justification:
● Art. 1504, which embodies res perit domino, only covers goods.
● The obligation of the obligor (seller, in a contract of sale) is extinguished in applying
Art. 1262.
⮚ Art. 1262: An obligation which consists in the delivery of a determinate thing
shall be extinguished if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
SECOND VIEW: Res perit domino or SELLER bears the risk of loss (according to authors
Tolentino, Jurado, Baviera, and Villanueva )
Justification:
● Tolentino opines that in reciprocal obligations, the extinguishment of the obligation
due to loss of the thing affects both debtor and creditor; the entire juridical relation is
extinguished. Under this view, the rule on loss under Art. 1189 would be different from
the rule on deterioration – the loss would be for the account of the seller while the
deterioration would be for the account of the buyer (this view is affirmed by Baviera)
● According to Jurado, this view is more just and equitable and more n conformity with
the principle of res perit domino.
● According to Villanueva, this view would make Articles 180 and 1538 consistent with
the provisions of Article 1504; whereas the other view would make Article 1504
inconsistent with Articles 1480 and 1538.
13. DETERIORATION –impairment is bone by the buyer if the thing deteriorates without the
fault of the seller (Art. 1189, [3])
D. After Delivery
● The buyer is the owner; hence, the buyer bears risk of loss.
Lesson 5. Extinguishment of Sale

CAUSE OF EXTINGUISHMENT
1. Same causes as in all other obligations
2. Conventional Redemption
3. Legal Redemption
88
A. CAUSES OF EXTINGUISHMENT, IN GENERAL (Arts. 1231 and 1600)
1. Payment of performance of obligation
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or merger of rights
5. Compensation
6. Novation
7. Rescission
8. Annulment
9. Fulfillment of a resolutory condition
10. Prescription
B. CONVENTIONAL REDEMPTION (Art. 1601)

The right which the vendor reserves to himself, to reacquire the property sold provided he returns to
the vendee: (PEONU)
1. Price of the sale;
2. Expenses of the contract;
3. Any other legitimate payments made therefore;
4. Necessary expenses made on the thing sold and;
5. Useful expenses made on the thing sold.
● Nature of Conventional Redemption (CARP-RPM-OR)

1. Purely contractual
2. Accidental
3. Real right
4. Potestative
5. Resolutory condition
6. Power or privilege
7. Reserved at the moment of the perfection of contract
8. Person entitled to exercise is necessarily the owner
9. Gives reciprocal obligation
Proper Reservation of Right to Repurchase:

● The right to redeem must be reserved by the seller by stipulation to that effect in the contract
of sale (Villarica v. CA, 26 SCRA189, 1968).
● For a sale to be one of a retro, it is necessary that the right be reserved in the same sale
contract (Torres v. CA, 216 SCRA 287, 1992)
Parol Evidence: The right of repurchase may be proved by parol evidence (Mactan Cebu International
Airport Authority v. CA, 263 SCRA 736, 1996)
Table 12. Right to Redeem Distinguished from Option to Purchase.

Right to Redeem Option to Purchase
Nature
Not a separate contract but merely part of a main Generally, it is a principal contract
contract of sale
Consideration
89
Does not need its separate consideration in order To be valid, it must have a consideration separate
to be valid and effective and distinct from purchase price
Maximum Period for Exercise of Right
Cannot exceed 10 years May be beyond 10 years
How Exercised
There must be a tender of payment of the amount May be exercised by notice of its exercise to the
required by law, including consignment thereof if offeror
tender of payment cannot be made effectively on
the buyer
Period of Redemption
● When No Period Agreed Upon: It shall last 4 years from the date of the contract (Art. 1606).
● When Period Agreed Upon: The period cannot exceed 10 years (Art. 1606). If it exceeds 10
years, the agreement is valid only for the first 10 years.
⮚ When a period of redemption is agreed upon by the parties in a sale a retro, although the
stipulation as to period may be unclear or void, it is the 10-year period and not the 4-year
period that shall apply (Tayao v. Dulay, 13 SCRA 758, 1965)
Pendency of Action Tolls Redemption Period: The pendency of an action brought in good faith and
relating to the validity of a sale a retro tolls the running of the period of redemption (Ong Chua v. 53
Phil. 975, 1929)
Non-payment of Price Does Not Affect Running of Redemption Period

(Catangcatang v. Legayada, 84 SCRA 51, 1978)
Possession of Subject Matter During Period of Redemption:

In a pacto de retro sale, the buyer has a right to the immediate possession of the property sold, unless
otherwise agreed upon.
How Redemption Effected
How Redemption Exercised

● Tender of payment is sufficient to compel redemption, but is not in itself a payment that
relieves the vendor from his liability to pay the redemption price (Paez v. Magno, GR No. L-
793, April 27, 1949).
● It is enough for the vendor a retro to tender the repurchase price at the time of redemption. The
other amounts provided under Art. 1616, NCC may be paid afterwards. (Tolntino, Civil Code
of the Philippines)
● Tender of payment is needed in order to show that the repurchase was made within the
redemption period.
● Consignation is only required if the vendee a retro refuses to accept the redemption price or
when a judicial action has already been filled to enforce compliance with the contract of sale
with right of repurchase.
In Case of Multi-Parties:
● The buyer of a part of an undivided immovable who acquires the whole thereof in the case of
Art. 498, may compel the seller to redeem the whole property, if the latter wishes to make use
of the right of redemption (Art. 1611)
90
● If several persons, jointly and in the same contract, should sell an undivided immovable with a
right of repurchase, none of them may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has left several heirs (Art.
1612).
● The buyer may demand of all the vendors of co-heirs that they come to an agreement upon the
purchase of the whole thing sold; and should they fail to do so, the buyer cannot be compelled
to the consent to a partial redemption (Art. 1613).
● Each one of the co-owners of an undivided immovable who may have sold his share separately,
may independently exercise the right of repurchase as regards his own share, and the buyer
cannot compel him to redeem the whole property (Art. 1614)
When Redemption Not Made:

● By operation of law, the lapse of the period of redemption without the seller a retro having
exercised his right would consolidate such title in the buyer.
● In case of real property, the consolidation of ownership in the buyer shall not be recorded in
the Registry of Property without a judicial order, after the seller has been duly heard (Art.
1607).
● Notwithstanding Article 1607, the recording of the consolidation of ownership is not a
condition sine qua non to transfer the ownership.
Grant of 30-day Redemption Right in Case of Litigation:

● When the period of redemption has expired, then ipso jure the right to redeem has been
extinguished. HOWEVER, even when right to redeem has expired, and there has been a
previous suit on the nature of the contract, the seller may still exercise the right to repurchase
within 30 days from the time final judgment was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase (art. 1606).
● This is not applicable to absolute sale. This is applicable only where the nature or character of
the transaction, as to whether it is a pacto de retro sale or equitable mortgage, was put in issue
before the court.
● Fruits:
⮚ If at the time of the execution of the sale there should not be on the land, visible or
growing fruits, there shall be no reimbursement for or prorating of those existing at
the time of redemption, if no indemnity was paid by the purchaser when the sale was
executed (Art. 1617).
⮚ Should there have been no fruits at the time of the sale and some exist at the time of
redemption, they shall be pro-rated between the redemptioner and the buyer, giving
the latter the part corresponding to the time he possessed the land in the last year,
counted from the anniversary of the date of the sale (Art. 1617).
Equitable Mortgage:
Definition: One which lacks the proper formalities, form of words, or other requisites prescribed by
law for a mortgage, but shows the intention of the parties to make the property subject of the contract
as security for a debt and contains nothing impossible or contrary to law (Cachola vs. CA G.R. No.
97822, may 7, 1992)
91
Requisites for Presumption of Equitable Mortgage
1. Parties entered into a contract denominated as sale, and
2. Their intention was to secure an existing debt by way of mortgage. (Romulo v. Spouses Layug, G. R.
No. 151217, September 8, 2006)
When Presumed (Art. 1602): (IPERTOD)

1. Unusually inadequate purchase price;
2. Possession by the vendor remains, as lessee or otherwise;
3. Extension of redemption period after expiration;
4. Retention by the vendee of part of the purchase price;
5. Vendor binds himself to pay the taxes of the thing sold;
6. Any other case where the parties really intended that the transaction should secure the
payment of a debt or the performance of any obligation; or
7. When there is doubt as to whether contract is contract of sale with right of repurchase or an
equitable mortgage (Art. 1603).
Note: In the cases referred to in Arts. 1602 and 1604, the apparent vendor may ask for the reformation
of the instrument.
Remedy of Reformation (Art. 1605)

To correct the instrument so as to make it express the true intent of the parties
Rationale Behind Provisions on Equitable Mortgage

To curtail circumvention of the usury law and pactum commissorium
Applicability to Deeds of Absolute Sale

The provisions of Article 1602 on equitable mortgage shall also apply to a contract purporting to be an
absolute sale (Art. 1604).
Proof by Parol Evidence:

Parol evidence is competent and admissible in support of the allegations that an instrument in writing,
purporting on its face to transfer the absolute title to property, or to transfer title with a right to
repurchase under specified conditions reserved to the seller, was in truth given merely as security for
the repayment of a loan.
Effects When Sale Adjudged an Equitable Mortgage

● The apparent seller may ask for the reformation of the instrument.
● The aggrieved party may also pursue other remedies to effectively protect his interest and
recover his property, such as an action for declaration of nullity of sale and specific
performance.
Pactum Commissorium
A stipulation for automatic vesting of title over the security in the creditor in case of debtor’s default.
● If the contract is an equitable mortgage, the action for consolidation of ownership is not the
proper remedy. The creditor cannot appropriate the things given by way of pledge or mortgage
or dispose of them, otherwise that would result in pactum commissorium. The proper remedy
is foreclosure, the debtor retains the ownership (Vasquez v. CA, G.R. No. 144882, Feb. 4, 2005)
92
C. LEGAL REDEMPTION (Art. 1619)
The right to be subrogated, upon the same terms and conditions stipulated in the contract, in the
place of one who acquires a thing by:
(1) Purchase;
(2) Dation in payment, or
(3) Any other transaction whereby ownership is transferred by onerous title.
● It must be exercised within thirty (30) days from the notice in writing by the vendor
● May be effected against movables and immovables.
● It is not available in cases of donation, succession and barter.
Reason: Under Art. 1619, legal redemption may take place in purchase, dation in payment, and in
“any other transaction whereby ownership is transferred by onerous title.”
Example: B, owner of a land adjoining the land of A. A donated it to X. In this case, B cannot
exercise legal redemption to acquire the property from X since the latter acquired the adjoining lot
gratuitously through donation and not by onerous title.
● Art. 1623 does not prescribe any distinctive method for notifying the redemptioner (Etcuban v.
CA, G.R. No. L-45164, March 16, 1987).
● Tender of payment is not necessary; offer to redeem is enough
● There is no prescribed for an offer to redeem to properly effected. Hence, it can either be
through a formal tender with consignation of the redemption price within the prescribed period.
What is paramount is the availment of the fixed and definite period within which to exercise
the right of legal redemption.
Table 13 Pre-emption and Redemption, Distinguished.

Pre-emption Redemption
As to time of exercise of right
Arises before sale Arises after sale
Remedy of rescission
No rescission because the sale does not yet exist There can be rescission of the original sale
Against whom the action is directed
The action is directed against the prospective Action is directed against the buyer
seller
Requirements for the exercise of the right of pre-emption or redemption (Art. 1622)
1. The one exercising the right must be an adjacent owner
2. The piece of land sold must be so small and so situated that a major portion thereof cannot be used
for any practical purpose within reasonable time
3. Such urban land was bought by its owner merely for speculation
Instances of legal redemption

1. Under the Civil Code:
a. Sale of a co-owner of his share to a stranger
● A co-owner may exercise the right of redemption in case the shares of all the other co-
owners or of any of them are sold to a third period (Art. 1620)
93
● If the price is GROSSLY EXCESSIVE, the redemptioner shall pay only a reasonable
one (Art. 1620).
● The co-owners may only exercise redemption in proportion to the share they may
respectively have (Art. 1620)
● The right of redemption of co-owners EXCLUDES that of adjoining owners (Art.
1623)
● When the portion is sold to another co-owner; the right of redemption does not arise.
● If a property of co-ownership is partly sold by a co-owner in order to remove all
uncertainties about the sale, terms and conditions, as well as its efficacy and status
(Verdad v. CA, G.R. No. 109972, April 29, 1996).
b. When a credit or other incorporeal right in litigation is sold (Article 1634)

● The debtor may exercise the right by reimbursing the assignee for the:
⮚ Price paid;
⮚ Judicial costs; and
⮚ Interest on the price
● This may exercised within 30 days from the date the assignee demands payment.
c. Sale of an heir of his hereditary rights to a stranger (Article 1088)

● Should any of the heirs sell his hereditary rights to a stranger BEFORE PARTITION,
any or all of the co-heirs may be subrogated to the rights of the purchaser by
reimbursing him for the price of the sale within 1 month from the time they were 1
month from the time they were notified in writing of the sale by selling co-heir (Art.
1088)
● There is no right of a legal redemption when the sale covers a particular property of
the estate since the right of legal redemption applies only to the sale by an heir of his
hereditary right (Plan v. Intermediate Appellate Court, 135 SCRA 270, 1985)
● When the subject matter was a particular property and not hereditary right, the
redemption by co-owner redounded to the benefit of all other co-owners; while
redemption by a co-heir is only for his own account.
f. Sale of adjacent rural lands not exceeding one hectare (Article 1621)
This right is not applicable to adjacent lands which are separated by brooks, drains ravines,
roads and other apparent servitudes for the benefit of other estates.
e. Sale of adjacent small urban lands bought merely for speculation (Article 1622)
● When the land is about to be resold, the owner of any adjoining land has a right of pre-
emption.
● If the resale has been perfected, the owner of adjoining land has a right of redemption.
● When 2 OR MORE OWNERS of adjoining lands wish to exercise the right: the owner
whose intended use of the owner whose intended use of the land in question appears
best justified shall be preferred.
● URBAN: does not necessarily refer to the nature of the land itself sought to be
redeemed or to the purpose to which it is devoted, but to the character of the community
or vicinity in which it is found.
2. Under special laws:

a. An Equity of Redemption in cases of judicial foreclosures
94
The right must be exercised within 90 DAYS from finality of judgment until confirmation of
sale.
b. A Right of Redemption in cases of extra-judicial foreclosures

The right must be exercised within YEAR from the date of registration of certificate of sale.
c. Redemption of homesteads
Conveyance of land acquired under free patent homestead provisions shall be subject to
repurchase within 5 YEARS from the date of conveyance.
d. Redemption in tax sales

The delinquent tax payer may exercise the right within 1 YEAR from the date of sale.
e. Redemption by an agricultural tenant of land sold by the landowner

The agricultural lessee has the right to redeem within 180 DAYS from notice in writing.
Lesson 6. Assignment of Credit and Other Incorporeal Rights

The owner of a credit transfers to another his rights and actions against a third person in
consideration of a price certain in money or its equivalent
● May be onerous or gratuitous
● One selling an inheritance without enumerating the things of which it is composed shall only
be answerable for his character as an heir
● Transfer of rights takes place by the perfection of the contract of assignment without the
necessity of delivering the document evidencing the credit
● Contract of assignment of credits may be entered orally since it is consensual
Note: The last two paragraphs above do not apply to negotiable documents and documents of title
which are governed by special laws.
EFFECTS OF ASSIGNMENT:
1. Transfers the right to collect the full value of the credit, even if he paid a price less than such value
2. Transfers all the accessory rights (e.g. guaranty, mortgage, pledge, preference) (Art. 1627)
Note: If the period for payment has been extended without the consent of the guarantor, the assignee
cannot go after the former because, as to him his guaranty is only up to the original period
3. Debtor can set up against the assignee all the defenses he could have set up against the assignor
4. Assignee cannot go after the assignor to enforce the credit if through his own negligence he allowed
the credit o prescribe provided the assignee was given enough time to enforce the said credit.
Example: A lends money to B on March 30, 2009. A then assigned the credit to C on April 30, 2009.
C demanded payment from B only on May 30, 2019. C cannot collect from B since the loan has already
prescribed; neither can he collect from A (the assignor) – he cannot through his own negligence, (and
considering he was given enough time to enforce the credit) go after the assignor if he cannot anymore
collect from the debtor.
95
EFFECTIVITY AGAINST THIRD PERSONS (Art. 1625)
1. If personal property is involved, a public instrument is needed to make the assignment effective
against third persons;
2. If real property is involved, registration in the Registry of Property would be needed (Paras, Civil
Code, Book V, 2000)
EFFECT OF PAYMENT BY THE DEBTOR AFTER ASSIGNMENT OF CREDIT (Art. 1626)

1. Before Notice of the assignment
Payment to the original creditor is valid and debtor shall be released from his obligation
2. After Notice
Payment to the original creditor is not valid as against the assignee. He can be made to pay again by
the assignee
WARRANTIES OF THE ASSIGNOR OF CREDIT (Art. 1628)

1. He warrants the existence of the credit
2. He warrants the legality of the credit at the perfection of the contract
NOTE: There is no warranty as to the solvency of the debtor UNLESS:

1. It is expressly stipulated; OR
2. Insolvency is prior to assignment and is of common knowledge
Liabilities of the Assignor of Credit for Violation of His Warranties

1. Assignor in good faith (Art. 1628, par. 2)- Liability is limited only to the price received and to the
expenses of the contract, and any other legitimate payments by reason of the assignment
2. Assignor in bad faith (Art. 1628, par. 3) - Liable not only for the payment of the price and all the
expenses but also for damages
Legal Redemption in Sale or Credit or Other Incorporeal Right in Litigation (Art. 1634)
Requisites:
1. There must be a sale or assignment of credit;
2. There must be a pending litigation at the time of the assignment;
3. The debtor must pay the assignee:
a. Price paid by him
b. Judicial cost incurred by him; and
c. Interest on the price from the date of payment; and
4. The right must be exercised by the debtor within 30 days from the date the assignee demands
(judicially or extra-judicially) payment from him.
Sale of Credit or Other Incorporeal Rights in Litigation (Art. 1635)
General Rule: Debtor has the right of legal redemption in sale of credit or incorporeal rights in litigation
Exceptions:
1. Sale to a co-heir or co-owner
Reason: the law does not favor co-ownership
96
2. Sale to a co-owner
Presumption: the assignment is above suspicion and is in the form of dacion en pago, thus perfectly
legal
3. Sale to the possessor of property in question

Purpose: to presumably preserve the tenement
Assessment Task No. 4
Instructions: Answer each item carefully and objectively.
What are the different obligations of a

vendee?
What are the remedies available in case of

breach of contract in a sale?
What are the remedies of an unpaid seller?
What are the rights of a vendee?
What are the different causes of

extinguishment of a contract of sale? Discuss two (2)
causes.
Summary:
● Vendee, in a contract of sale, has obligations. The principal obligations of the vendee
includes to accept delivery; and to pay the price of the thing sold in legal tender.
● Other obligations of the vendee are to take care of the goods without the obligation
to return, where the goods are delivered to the buyer and rightfully refuses to accept;
to be liable as a depositary if the voluntarily constituted himself as such; and to pay
interest for the period between delivery of the thing and the payment of the price in
cases required by law.
● In case of breach of contract, seller has a remedy of rescission in case of immovable

like when there is reasonable ground to fear the loss of property and/or loss of the
price. Seller is given an option to rescind upon judicial or notarial demand. However,
in case of movables, there is automatic rescission if the buyer, upon the expiration of
the period for delivery of thing should not have appeared to receive it; or, having
appeared, should not have tendered the price at the time.
97
● An unpaid seller also has remedies under the law, such as: (1.) possessory lien; (2.)
stoppage of goods in transit; (3.) sSpecial right of resale; (4.) special right of
rescission; (5.) action for the price; (6.) action for damages; (7.) Recto Law; (8.)
Maceda Law; and (9.) specific performance.
● For the risk of loss and deterioration, the rules on res perit domino and res perit
creditori apply depending on the stage of the contract of sale.
● Causes of extinguishment of sale are the same for all other obligations with the
addition of conventional redemption and legal redemption.
● There is assignment of credit when the owner of a credit transfers to another his rights
and actions against a third person in consideration of a price certain in money or its
equivalent.
References
Books and Laws:
Bagayao, I.Y. (2019). The Law on Obligations and Contracts, First Edition. Manila,
FCA Printhouse.
Jurado, R. (2010). Comments and Jurisprudence on Sales. Manila, Philippines, Rex
Bookstore.
Paras, E. (2000). Civil Code of the Philippines Annotated Book V 14th Edition.
Manila, Philippines: Rex Printing Company, Inc.
Republic Act No. 6522 or the Maceda Law
Republic Act No. 7394 or the Consumer Act of the Philippines
Soriano, F. (2014). Notes in Business Law (For Accountancy Students and CPA
Reviewees), 2014 Edition. Manila, Philippines, GIC Enterprises & Co., Inc.
Tolentino, A. (1991). Commentaries and Jurisprudence on the Civil Code of the
Philippines. Central Law Book Publishing Co., Inc.
98

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Regulatory Framework

and Legal Issues in Business

Atty. Jill B. Manangkil-Benitez

Module 1: Introduction to Sales 1

Module 2: Formation, Elements & Formalities of a Contract of Sale 33

Module 3: Obligations of the Vendor, Warranties and Maceda Law 71

Module 4: Obligations of the Vendee, Remedies and 111

Course Intended Learning Outcomes (CILO):

At the end of the course, students should be able to:

1. Acquire basic knowledge on the general principles of law in relation to

PRELIM GRADE : 60% (Activity 1-4) + 40% (Prelim exam)

At the end of this module, students should be able to:

1. Appreciate and learn the general concept of sales;

Lesson 1. General Concepts on Sales

CLASSIFICATION OF ELEMENTS: (Soriano, 2014)

CHARACTERISTICS: (Soriano, 2014)

Consequence: all doubts in construing an onerous contract shall be resolved in greater

6. Consensual – it is perfected by mere consent.

Lesson 2. Two Major Types of Contract of Sale

1. Absolute Sale – no conditions attached; transfer of ownership is vested upon delivery.

Lesson 3. Contract to Sell

1. Exclusive right and privilege to purchase an object.

Other Cases of Contract to Sell: (Jurado, 2010)

Table 1 Contract of Sale and Contract to Sell, Distinguished.

Table 2. Conditional Sale and Contract to Sell, Distinguished.

Lesson 4. Contract of Sale Distinguished from Other Contracts

Warranty as to the object sold

Table 4 Sale and Contract for Piece of Work (Art. 1467)

Applicability of Statute of Frauds

Example: (Soriano, 2014)

Table 5 Sale and Barter (Art. 1468)

If the consideration is partly in money and partly in another thing

1. The transaction is characterized by the manifest intention of the parties

Examples: (Soriano, 2014)

Question: What contract was entered by S and B?

Question: What contract was entered by S and B?

Question: What contract was entered by S and B?

Table 6 Sale and Dation in Payment

Table 7 Sale and Lease

Who may convey the property

Significance of price of object

CASE ANALYSIS. Read and analyze the case below.

G.R. No. 120191 October 10, 1997

● The characteristics of a contract of sale are nominate, principal, bilateral, onerous,

Dignos vs. CA, G.R. No. L-59266. February 29,1988

Lesson 1. Objects of Sale

REQUISITES: (Jurado, 2010)

A. Actual or Possible Thing

Example (Soriano, 2014): S is the sole owner of an apartment. He sells ½

● A sale of future goods is valid only as an executory contract to be fulfilled by the

● Future inheritance cannot be sold.

Effect: The buyer becomes a co-owner in the thing sold.

● An undivided share of a specific mass may be sold (Art. 1464)

● A thing is actual when it is existing. (Jurado, 2010)

● A thing is possible when it has potential existence. (Jurado, 2010)

Table 8 Emptio Rei Speratae and Emptio Spei, Distinguished

Kinds of illicit things:

Examples of void sale due to being illicit:

C. Determinate or at least Determinable (Art. 1460)

Determinate thing – that which is:

REQUISITES FOR VALID PRICE:

If the price is simulated:

Certain – expressed and agreed in terms of specific pesos and centavos