I. NATURE, FORMS, and REQUISITES
Where there is merely an offer by one party without the
a. Definition – (Art. 1458)
Art. 1458. By the contract of sale one of the contracting parties obligates himself to
transfer the ownership and to deliver a determinate thing, and the other to pay therefor a
price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (1445a)
b. Stages of Contract of Sale
Briefly, the stages of a contract of sale are:
(1)Negotiation, covering the period from the time the prospective contracting parties
indicate interest in the contract to the time the contract is perfected;
(2)Perfection, which takes place upon the concurrence of the essential elements of the sale,
which is the meeting of the minds of the parties as to the object of the contract and upon
the price; and
(3)consummation, which begins when the parties perform their respective undertakings
under the contract of sale, culminating in the extinguishment thereof.
i. San Miguel Properties v. Spouses Huang, GR No. 137290, 31 July 2000
c. Essential Characteristic of Sale
i. Consensual - it is founded upon and completed by mere consent of the contracting
parties. (See Article 1475)
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds
upon the thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance,
subject to the provisions of the law governing the form of contracts. (1450a)
ii. Nominate - the contract is given a special name or designation in the Civil Code.
iii. Principal - the contract does not depend for its existence and validity upon another
contract.
iv. Bilateral - it is a contract in which both the contracting parties are bound to fulfill
the obligations reciprocally towards each other (i.e. the vendor becomes bound to
deliver the thing sold and the vendee to pay the price for it)
v. Onerous - the thing sold is conveyed in consideration of the price and vice versa.
vi. Commutative - it is a contract in which each of the contracting parties gives a thing
of value and receives an equivalent
d. Requisites
i. Consent – (Art. 1475)
• This refers to the consent on the part of the seller to transfer and deliver and on the
part of the buyer to pay.
• The parties must have legal capacity to give consent and to obligate themselves.
• The essence of consent is the conformity of the parties on the terms of the contract,
the acceptance by one of the offer made by the other. The contract to sell is a
bilateral contract.
acceptance of the other, there is no consent.
• The acceptance of payment by a party is an indication of his consent to a contract of
sale, thereby precluding him from rejecting its binding effect.
• There may, however, be a sale against the will of the owner in case of expropriation
and the three different kinds of sale under the law, namely: an ordinary execution
sale, judicial foreclosure sale, and extra-judicial foreclosure sale. A different set of
law applies to each class of sale mentioned.
• The sale of conjugal property requires the consent of both the husband and the wife.
The absence of the consent of one renders the sale null and void while the vitiation
thereof makes it merely voidable.
1. Auction Sale - (Art. 1476)
Art. 1476. In the case of a sale by auction:
(1) Where goods are put up for sale by auction in lots, each lot is the
subject of a separate contract of sale.
(2) A sale by auction is perfected when the auctioneer announces its
perfection by the fall of the hammer, or in other customary manner. Until such
announcement is made, any bidder may retract his bid; and the auctioneer may
withdraw the goods from the sale unless the auction has been announced to be
without reserve.
(3) A right to bid may be reserved expressly by or on behalf of the seller,
unless otherwise provided by law or by stipulation.
(4) Where notice has not been given that a sale by auction is subject to a
right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or
to employ or induce any person to bid at such sale on his behalf or for the
auctioneer, to employ or induce any person to bid at such sale on behalf of the seller
or knowingly to take any bid from the seller or any person employed by him. Any sale
contravening this rule may be treated as fraudulent by the buyer. (n)
• Contract is perfected when the auctioneer accepts the bid by the fall of the hammer
or gavel or in any other customary manner.
• If auction is announced to be “without reserve,” goods cannot be withdrawn from the
sale after the bid is made.
• By taking part in the auction and offering bidding, the buyer voluntarily submitted to
the terms and conditions of the auction sale announced in the notice.
• Puffing/by-bidding – means employed by owner to increase the price of the bids;
illegal.
2. Reciprocal Obligation - (Art. 1479)
Article 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promisor if the promise is supported by a
1
 consideration distinct from the price. (1451a)
• Under article 1479 it is stated here that there 3 kinds of promises specifically promise
to buy and sell
I. Unilateral promisee to sell - promisee elects to buy
II. Unilateral promisee to buy - promise elects to sell
III. Bilateral promise to buy and sell - either parties choose to exact fulfillment
• The EFFECT OF UNAACEPTED UNILATERAL PROMISE – is it creates no juridical
effect or legal bond and such unaccepted offer is called policitation.
• Policitation - this is an unaccepted unilateral promise to buy or to sell. (The time the
parties indicate interest or negotiate)
• Unilateral – meaning it is on the part of one party (I promise to buy or the other party
party promise to sell)
• I promise to buy or I promise to Sell which is not merely accepted. This also follows
the rules in oblicon on offer and acceptance. As long as that promise is
unaccepted or not yet accepted then it will produce no juridical effect or legal bond.
It is a mere offer which may be withdrawn and it is not yet converted to contract.
3. Option Money v. Earnest Money - (Art. 1479 and 1482)
Article 1479. A promise to buy and sell a determinate thing for a price certain is
reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for
a price certain is binding upon the promisor if the promise is supported by a
consideration distinct from the price. (1451a)
Art. 1482. Whenever earnest money is given in a contract of sale, it shall be
considered as part of the price and as proof of the perfection of the contract.
(1454a)
• Earnest money is something of value given by the buyer to the seller to show that
the buyer is really in earnest, and to bind the bargain. It is actually a partial
payment of the purchase price and is considered as proof of the perfection of the
contract. Since earnest money constitutes an advance payment, it must be
deducted from the total price.
• Note: By agreement of the parties, the amount given may be merely a deposit of what
would eventually become earnest money or down payment should a contract of
sale be made by them, not as a part of the purchase price and as proof of the
perfection of the contract of sale but only as a guarantee that the buyer would not
back out of the sale. Thus, it is not really the giving of earnest money but the proof
of the concurrence of all the essential elements of a contract which establishes the
existence of the perfected contract. There is no sale where the parties still have to
agree on the acceptable terms of payment. The earnest money forms part of the
consideration only if the sale is consummated upon full payment of the purchase
price.
2
Payment of earnest money – considered payment of part of the price; proof of
perfection of the contract; may be given as a guarantee that the vendee would not back
out.
EARNEST MONEY OPTION MONEY
Part of purchase price. Distinct consideration
Given only when there is already a sale. Given when the sale is not yet
perfected.
When given, the buyer is bound to pay When given, the would-be buyer is not
the balance. bound to pay the balance; he may even
forfeit it.
But option money may become earnest
money if the parties so agree.
a. Rizalino v. Paraiso Development Corporation, GR No. 157493, 05 February
2007
b. Elements of Option Contract
• An option contract must be supported by a separate consideration that is either
clearly specified as such in the contract or duly proven by the offeree/promisee.
• An option contract is a contract where one-person (the offeror/promissor) grants
to another person (the offeree/promisee) the right or privilege to buy (or to sell) a
determinate thing at a fixed price, if he or she chooses to do so within an agreed
period.
• As a contract, it must necessarily have the essential elements of subject matter,
consent, and consideration. Although an option contract is deemed a
preparatory contract to the principal contract of sale, it is separate and distinct
therefrom, thus, its essential elements should be distinguished from those of a
sale.
• In an option contract, the subject matter is the right or privilege to buy (or to sell)
a determinate thing for a price certain, while in a sales contract, the subject
matter is the determinate thing itself. The consent in an option contract is the
acceptance by the offeree of the offeror’s promise to sell (or to buy) the
determinate thing, i.e., the offeree agrees to hold the right or privilege to buy (or
to sell) within a specified period. This acceptance is different from the
acceptance of the offer itself whereby the offeree asserts his or her right or
privilege to buy (or to sell), which constitutes as his or her consent to the sales
contract. The consideration in an option contract may be anything of value,
unlike in a sale where the purchase price must be in money or its equivalent.
There is sufficient consideration for a promise if there is any benefit to the
offeree or any detriment to the offeror.
• An option imposes no binding obligation on the person holding the option aside
from the consideration for the offer. Until accepted, it is not treated as a sale.
 i. Philippine National Oil Company v. Keppel Philippines, GR No. 202050,
25 July 2016
4. Sale by Sample v. Sale by Description - (Art. 1481)
Article 1481. In the contract of sale of goods by description or by sample, the
contract may be rescinded if the bulk of the goods delivered do not correspond with
the description or the sample, and if the contract be by sample as well as description,
it is not sufficient that the bulk of goods correspond with the sample if they do not
also correspond with the description.
The buyer shall have a reasonable opportunity of comparing the bulk
with the description or the sample. (n)
• In this article it covers the sale of goods by description, by sample and by sample as
well as description.
• Sale by description. — Sale by description occurs where a seller sells things as being
of a particular kind, the buyer not knowing whether the seller’s representations
are true or false, but relying on them as true; or, as otherwise stated, where the
purchaser has not seen the article sold and relies on the description given him by
the vendor, or has seen the goods but the want of identity is not apparent on
inspection.
The reason for the rule is that a dealer who sells an article describing it as the
kind of an article of commerce the identity of which is not known to the purchaser,
must understand that such purchaser relies upon the description as a representation
by the seller that it is the thing described. (55 C.J. 739.) If the bulk of the goods
delivered do not correspond with the description, the contract may be rescinded. (Art.
1481.) But if the thing delivered is as described, the fact that the buyer cannot use the
thing sold for the purpose for which it was intended without the seller’s fault does not
exempt the buyer from paying the purchase price agreed upon.
• Sale by sample. — To constitute a sale by sample, it must appear that the parties
contracted solely with reference to the sample, with the understanding that the
bulk was like it. But a mere exhibition of a sample by the seller in the absence of
any showing that it was an inducement of the sale or formed the sole basis thereof,
does not amount to a sale by sample as where the quality of the articles to be
furnished is expressly described in the contract without reference to the sample or
the parties agree that the goods ordered shall differ from the sample in some
particular matter. Whether a sale is by sample is determined by the intent of the
parties as shown by the terms of the contract and the circumstances surrounding
the transaction. (77 C.J.S. 925.) In a sale by sample, the vendor warrants that the
thing sold and to be delivered by him shall conform with the sample in kind,
character, and quality.
A sale by sample is really a species of sale by description. The sample I
employed instead of words to communicate to the buyer the characteristics of the
goods being sold. It is itself a tacit assertion of the qualities of the bulk it represents.
• Sale by description and sample. — When a sale is made both by sample and by
description, the goods must satisfy all the warranties (see Art. 1565.) appropriate
to either kind of sale, and it is not sufficient that the bulk of the goods correspond
with the sample if they do not also correspond with the description, and vice versa.
5. Who are capacitated to buy and sell? (Art. 1489)
Article 1489. All persons who are authorized in this Code to obligate themselves,
may enter into a contract of sale, saving the modifications contained in the following
articles.
Where necessaries are those sold and delivered to a minor or other
person without capacity to act, he must pay a reasonable price therefor. Necessaries
are those referred to in article 290. (1457a)
Kinds of Incapacity.
• Such incapacity is absolute in the case of persons who cannot bind themselves; and
relative where it exists only with reference to certain persons or a certain class of
property.
• There are no incapacities except those provided by law and such incapacities cannot
be extended to other cases by implication for the reason that such construction
would be in conflict with the very nature of Article 1489.
• Necessaries are those things which are needed for sustenance, dwelling, clothing,
medical attendance, education and transportation according to the financial
capacity of the family of the incapacitated person.
• Generally, the contracts entered into by a minor and other incapacitated persons, are
voidable. However, where necessaries are sold and delivered to him (without the
intervention of the parent or guardian), he must pay a reasonable price therefor.
(Art. 1489, par. 2.) The contract is, therefore, valid but the minor has the right to
recover any excess above a reasonable value paid by him.
6. Sale by minor and incapacitated persons – (Art. 1327)
ART 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write.
Sale by minors.
• The courts have laid down the rule that the sale of real estate effected by minors who
have already passed the ages of puberty and adolescence and are now in the adult
age, when they pretended to have already reached their majority, while in fact they
3
 have not, is valid, and they cannot be permitted afterwards to excuse themselves
from compliance with the obligations assumed by them or to seek their annulment.
a. Labagala v. Santiago, 371 SCRA 360 2001
7. Sale between spouses – (Art. 1490)
Article 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation of property under article 191. (1458a)
Relative incapacity of husband and wife.
1. The husband and the wife are prohibited by the above article from selling
property to each other. A sale between husband and wife in violation of Article
1490 is inexistent and void from the beginning because such contract is
expressly prohibited by law.
2. They are also prohibited from making donations to each other during the
marriage except moderate gifts on the occasion of any family rejoicing. (Art. 87,
Family Code.) However, if there has been a separation of property agreed upon
in the marriage settlements, or when there has been a judicial separation of
property decreed between them by the court, the sales between husband and
wife are allowed. They have, therefore, in the two cases mentioned, capacity to
buy from or to sell to each other.
Incidentally, a marriage settlement (also called “ante-nuptial contract”)
is an agreement entered into by persons who are about to be united in
marriage, and in consideration thereof, for the purpose of fixing the property
relations that would be followed by them for the duration of the marriage.
Reason for prohibition under Article 1490.
1. Prevent the stronger spouse from exploiting the weaker spouse;
2. Prevent donations disguised as sale;
3. Protect third person specially creditors against fraud through the transfer of the
properties of one spouse to other to evade payment of obligation
Persons permitted to question sale:
1. Only by persons who bear such relation to the parties making the transfer or to
the property itself that such transfer interferes with their rights or interests.
2. The government is always an interested party in all matters involving taxable
transactions.
a. As distinguished from a sale made by a spouse to third persons
4
8. Persons prohibited to contract a sale by reason of their profession/function -
(Art. 1491)
Article 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his
guardianship;
(2) Agents, the property whose administration or sale may have been intrusted to
them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision
thereof, or of any government-owned or controlled corporation, or institution, the
administration of which has been
intrusted to them; this provision shall apply to judges and government experts who,
in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice, the
property and rights in litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective functions; this prohibition
includes the act of acquiring by assignment and shall apply to lawyers, with respect
to the property and rights which may be the object of any litigation in which they may
take part by virtue of their profession;
(6) Any others specially disqualified by law. (1459a)
Incapacity by reason of relation to property.
The above article enumerates the persons who, by reason of the relation of
trust with the persons under their charge or their peculiar control over the property,
are prohibited from acquiring said property either directly or indirectly and whether in
private or public sale. They are the: (1) guardians; (2) agents; (3) executors and
administrators; (4) public officers and employees; (5) judicial officers, employees and
lawyers; and (6) others especially disqualified by law. (Rubias vs. Batiller, 51 SCRA 120
[1973].)
The persons disqualified to buy referred to in Articles 1490 and 1491 are also
disqualified to become lessees of the things mentioned thereon. (Art. 1646.)
Reason for prohibitions under Article 1491.
The disqualifications imposed by Article 1491 on the person enumerated is
grounded on public policy considerations which disallow the transactions entered
into by them, whether directly or indirectly, in view of the fiduciary relationship
involved or the peculiar control exercised by these individuals over the properties or
rights covered.
The prohibitions seek to prevent frauds on the part of such persons and
minimize temptations to the exertion of undue and improper influence. The fear that
greed might get the better of the sentiments of loyalty and disinterestedness is the
reason underlying Article 1491. The law does not trust human nature to resist the
temptations likely to arise out of antagonism between the interest of the seller and
buyer.
Prohibition with respect to guardians.
The relation between guardian and ward is so intimate, the dependence so
complete and the influence so great that any transaction between the two parties
entered while the relationship exists are, in the highest sense, suspicious and
presumptively fraudulent. This influence is presumed to last while the guardian’s
functions are to any extent still unperformed, while the property is still under his
control and until the accounts have been finally settled.
Prohibition with respect to agents.
The agent’s incapacity to buy his principal’s property rests on the fact that the
agent and the principal form one juridical person. Like the guardian, the agent stands
in a fiduciary relation with his principal. A sale made by an agent to himself, directly
or indirectly, without the permission of the principal is ineffectual.
(1) The incapacity of the agent is only against buying the property he is required to
sell during the existence of the relationship. Therefore, an agent can buy for himself
the property after the termination of the agency or other properties different from
those he has been commissioned to sell.
(2) Of course, the agent may buy property placed in his hands for sale or
administration if the principal gives his consent thereto.
(3) The prohibition does not apply where the sale of the property in dispute was made
under a special power inserted in or attached to the real estate mortgage pursuant to
Section 5 of Act No. 3135, as amended, a special law which governs extra-judicial
foreclosure of real estate mortgage. The power to foreclose is not an ordinary agency
that contemplates exclusively the representation of the principal by the agent but is
primarily an authority conferred upon the mortgagee for the latter’s own protection.
By virtue of the exception, the title of the mortgagee-creditor over the property cannot
be impeached or defeated on the ground that the mortgagee cannot be a purchaser at
his own sale.
Prohibition with respect to executors and administrators.
The prohibition refers only to properties under the administration of the
executor or administrator at the time of the acquisition and does not extend,
therefore, to property not falling within this class.
Executors do not administer the hereditary rights of any heir. Such rights do not form
part of the property delivered to the executor for administration. Consequently, the
prohibition in No. (3) of Article 1491 does not apply to a purchase by an executor of
such hereditary rights (e.g., 1/10 interest in the estate), even in those cases in which
the executor administers the property pertaining to the estate.
Prohibition with respect to public officials and employees.
The prohibition refers only to properties: (1) belonging to the State, or of any
subdivision thereof, or of any government-owned or -controlled corporation or
institution, (2) the administration of which has been entrusted to the public officials
or employees. Thus, a provincial governor or treasurer entrusted with the
administration of property belonging to a province cannot buy said property while the
school superintendent who has no charge of the same is not within the scope of the
prohibition.
Note that the prohibition includes judges and government experts who, in any
manner, take part in the sale.
Prohibition with respect to judges, etc., and lawyers.
The prohibition in Article 1491(5) applies only to the sale or assignment of
property which is the subject of litigation to the persons disqualified therein. For the
prohibition to operate, the sale or assignment must take place during the pendency of
the litigation involving the property. The prohibition applies when, for example, a
lawyer has not paid for the property and it was merely assigned to him in
consideration of legal services rendered at a time when the property is still subject of
a pending case. The prohibition on purchase is all embracing to include not only
sales to private individuals but also public or judicial sales.
(1) When property considered “in litigation.” — For property to be considered
“in litigation,” it is not required that some contest or litigation over the property
should have been tried by the judge. Such property is “in litigation” from the moment
it became subject to the judicial action of the judge who afterwards purchased it.
Hence, a purchase made by judge at a public auction of a property pursuant to an
order of execution issued by said judge is within the prohibition whether or not the
property had been the subject of litigation in his court.
There is no violation of the prohibition (although it may be improper under the
Canons of Judicial Ethics) where the judge purchased the property in question after
the decision involving the property had already become final because none of the
parties therein filed an appeal within the reglementary period; hence, the same was
no longer in litigation.
(2) Where property acquired by lawyer in foreclosure sale after termination of
case. — A lawyer cannot purchase, directly or indirectly, the property or rights which
are the subject of litigation in which he takes part by virtue of his profession. The fact
that the property in question was first mortgaged by the client to his lawyer and only
subsequently acquired by the latter in a 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, the very
relation of trust and confidence sought to be protected by the prohibition, when a
lawyer occupies a vantage position to press upon or dictate terms to a harassed client.
To rule otherwise would be to countenance indirectly what cannot be done directly.
(3) Liability of lawyer for violation of prohibition. — A violation of the
prohibition constitutes a breach of professional ethics and malpractice for which the
5
 lawyer may be reprimanded, suspended or disbarred from the practice of the legal
profession. Good faith is not a defense.
(4) Where lawyer member of law firm involved. — Contracts of sale or lease
where the vendee or lessee is a partnership, of which a lawyer is a member, over a
property involved in a litigation in which he takes by virtue of his profession are
covered by the prohibition.
(5) Cases not covered. — The prohibition does not include sale of the property
of the client effected before it became involved in the action; nor does it apply to an
assignment of the amount of a judgment made by a person to his attorney in
payment of professional services in other cases; nor to the sale of a parcel of land,
acquired by a client to satisfy a judgment in his favor, to his attorney as long as the
property was not the subject of the litigation. It has also been held that the law does
not prohibit a lawyer from charging a contingent fee (to be given in a case the suit is
won) based on a certain percentage of the value of the property in litigation, because
the payment of said fee is not made during the pendency of the litigation but only
after judgment has been rendered in the case handled by the lawyer. In fact, under
the 1988 Code of Professional Responsibility (Rule 16.03, Canon 10 thereof.), a lawyer
may have a lien over funds and property of his client and may apply so much thereof
as may be necessary to satisfy his lawful fees and disbursements.
Other persons especially disqualified.
Examples of persons especially disqualified by law are:
1) aliens who are disqualified to purchase private agricultural lands
2) an unpaid seller having a right of lien or having estopped the goods in transitu,
who is prohibited from buying the goods either directly or indirectly in the
resale of the same at a public or private sale which he may make; and
3) The officer conducting the execution sale or his deputies cannot become a
purchaser, or be interested directly or indirectly in any purchase at an
execution sale.
In the case of aliens, the disqualification is founded on express provision of the
Constitution and not by reason of any fiduciary relationship. It has been held,
however, that where a land is sold to an alien who later sold it to a Filipino, the sale
to the latter cannot be impugned. In such case, there would be 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.
Effect of sale in violation of prohibition.
If the sale is made, would the transaction be void or merely voidable?
(1) With respect to Nos. 1 to 3, the sale shall only be voidable because in such cases
only private interests are affected. The defect can be cured by ratification of the seller.
(2) With respect to Nos. 4 to 6, the sale shall be null and void, public interests being
involved therein.
In a case, the Supreme Court affirmed the decision of a lower court declaring invalid
the sale made by the client in favor of his attorney.
6
Nullity of prohibited contracts differentiated.
1. Public officers, etc., justices, etc., and lawyers. — The nullity of such prohibited
contracts, i.e., by public officers and employees of government property
entrusted to them and by justices, judges, fiscals, and lawyers of property and
rights in litigations submitted to or handled by them, under paragraphs (4) and
(5) is definite and permanent and cannot be cured by ratification. The public
interest and public policy remain paramount and do not permit of compromise
or ratification. In this aspect, their disqualification is grounded on public policy.
2. Guardian, agents, and administrators. — The disqualification of public officers
differs from the first three cases of guardians, agents, and administrators, as to
whose transactions, it has been opined that they may be “ratified” by means of
and in the form of a new contract, in which case its validity shall be determined
only by the circumstances at the time of execution of such new contract.
a. The causes of nullity which have ceased to exist cannot impair the validity of the
new contract. Thus, the object which was illegal at the time of the first contract, may
have already become lawful at the time of the ratification or second contract; or the
service which was impossible may have become possible; or the intention which
could not be ascertained may have been clarified by the parties.
b. The ratification or second contract could then be valid from its execution; however
it does not retroact to the date of the first contract.
ii. Object – (Arts. 1459 – 1465)
• This refers to the determinate thing which is the object of the contract.
• The thing must be determinate or at least capable of being made determinate because
if the seller and the buyer differ in regard to the thing sold, there is no meeting of the
minds; therefore, there is no sale. The subject matter may be personal or real
property. The terms used in the law are “thing”, “article”, “goods”, “personal
property”, “property”, “movable property”, “real estate”, “immovable”, “immovable
property”, and “real property.”
• A buyer can only claim right of ownership over the object of the deed of sale and
nothing else. Where the parcel of land described in the transfer certificate of title is
not in its entirety the parcel sold, the court may decree that the certificate of title be
cancelled and a correct one be issued in favor of the buyer, without having to require
the seller to execute in favor of the buyer an instrument to effect the sale and
transfer of the property to the true owner.
Article 1459. The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered. (n)
Article 1460. A thing is determinate when it is particularly designated or physical
segregated from all others of the same class.
Article 1462. The goods which form the subject of a contract of sale may be either
existing goods, owned or possessed by the seller, or goods to be manufactured, raised, Sale of a mere hope or expectancy.
or acquired by the seller after the perfection of the contract of sale, in this Title called The efficacy of the sale of a mere hope or expectancy is deemed subject to the
"future goods." condition that the thing contemplated or expected will come into existence.
There may be a contract of sale of goods, whose acquisition by the seller The sale really refers to an “expected thing” which is not yet in existence, and
depends upon a contingency which may or may not happen. (n) not to the hope or expectancy which already exists, in view of the condition that the
thing will come into existence. But the sale of a mere hope or expectancy is valid even
Article 1464. In the case of fungible goods, there may be a sale of an undivided share if the thing hoped or expected does not come into existence, unless the hope or
of a specific mass, though the seller purports to sell and the buyer to buy a definite expectancy is vain in which case, the sale is void. (par. 3.) A plan whereby prizes can
number, weight or measure of the goods in the mass, and though the number, weight be obtained without any additional consideration (when a product is purchased at the
or measure of the goods in the mass, and though the number, weight or measure of the usual price plus the chance of winning a prize) is not a lottery.
goods in the mass is undetermined. By such a sale the buyer becomes owner in
common of such a share of the mass as the number, weight or measure bought bears to EMPTIO REI SPERATAE EMPTIO SPEI
the number, weight or measure of the mass. If the mass contains less than the number, the future thing is certain as to itself but it is not certain that the thing itself will
weight or measure bought, the buyer becomes the owner of the whole mass and the uncertain as to its quantity and quality. exist, much less its quantity and quality.
seller is bound to make good the deficiency from goods of the same kind and quality, Such sale is subject to the condition that
unless a contrary intent appears. (n) the thing will come into existence,
whatever its quantity or quality.
Article 1465. Things subject to a resolutory condition may be the object of the contract Future thing Things which exists or is present - the
of sale. (n) hope or expectancy.
Subject to condition that the should exist, Produces effect even though the thing
1. Emptio Rei Speratae – (Art. 1461) if not, no contract will be made by reason does not come into existence because the
2. Emptio Spei – (Art. 1461) of the absence of an essential element. object of the contract is the hope itself,
Article 1461. Things having a potential existence may be the object of the contract unless it is a vain hope or expectancy.
of sale.
The efficacy of the sale of a mere hope or expectancy is deemed subject Presumption in case of doubt.
to the condition that the thing will come into existence. In case of doubt, the presumption is in favor of emptio rei speratae which is more in
The sale of a vain hope or expectancy is void. (n) keeping with the commutative character of the contract.

Emptio Rei Speratae 3. Test of Determinability of Object

Sale of things having potential existence. a.
Atilano v. Atilano, 28 SCRA 231 1969
Even a future thing (Arts. 1461, par. 1; 1347, par. 1.) not existing at the time 4. Sale of Undivided Interest – (Art. 1463)
the contract is entered into may be the object of sale provided it has a potential or Article 1463. The sole owner of a thing may sell an undivided interest therein. (n)
possible existence, that is, it is reasonably certain to come into existence as the
natural increment or usual incident of something in existence already belonging to • Covers the sale of an undivided interest by a sole owner. He or she may sell the entire
the seller, and the title will vest in the buyer the moment the thing comes into thing or on a portion of it (aliquot part of a whole).
existence. • It would be considered in a legal sense, a sale of an undivided interest when the sole
Thus, a valid sale may be made of “the wine a vine is expected to produce; or owner makes the buyer a co-owner (for example farmland). The co-owner has now
the grain a field may grow in a given time; or the milk a cow may yield during the the full ownership on his portion(which is now an undivided interest upon
coming year; or the wool that shall thereafter grow upon a sheep; or what may be termination of co-ownership) and can sell it even without the consent of the
taken at the next cast of a fisherman’s net; or the goodwill of a trade, or the like. The vendor/ other co-owner."
thing sold, however, must be specific and identified. They must be also owned by the
vendor at the time.” 5. Sale of Undivided Share in Mass
a. Gaite v. Fonacier, 2 SCRA 831 1961
Emptio Spei

7
 6. Effect when the object of sale is lost - (Art. 1493)
Article 1493. If at the time the contract of sale is perfected, the thing which is the
object of the contract has been entirely lost, the contract shall be without any effect.
But if the thing should have been lost in part only, the vendee may
choose between withdrawing from the contract and demanding the remaining part,
paying its price in proportion to the total sum agreed upon.
• The loss or injury referred to in this article is one which has taken place before or at
the time the contract of sale is perfected. It must be distinguished from the loss or
injury mentioned in Articles 1480 and 1504 which occurs after the contract is
perfected but prior to the time of delivery.
(1) Thing entirely lost. — Where the thing is entirely lost at the time of perfection, the
contract is inexistent and void (Art. 1409[3].) because there is no object. (Art. 1318,
par. 2.) There being no contract, there is no necessity to bring an action for annulment.
(2) Thing only partially lost. — If the subject matter is only partially lost, the vendee
may elect between withdrawing from the contract and demanding the remaining part,
paying its proportionate price.
When a thing considered lost.
The thing is lost when it perishes or goes out of commerce or disappears in
such a way that its existence is unknown or it cannot be recovered. (Art. 1189[2].)
The word “perishes” is sufficiently inclusive as to cover a case where there has been
material deterioration or complete change in the nature of the thing in such a manner
that it loses its former utility taking into consideration the time the contract was
entered into.
7. Effect when the object of sale is deteriorated - (Art. 1494)
Article 1494. Where the parties purport a sale of specific goods, and the goods
without the knowledge of the seller have perished in part or have wholly or in a
material part so deteriorated in quality as to be substantially changed in character,
the buyer may at his option treat the sale:
(1) As avoided; or
(2) As valid in all of the existing goods or in so much thereof as have not deteriorated,
and as binding the buyer to pay the agreed price for the goods in which the ownership
will pass, if the sale was divisible. (n)
• Article 1493 applies to a sale of specific thing. Article 1494, on the other hand,
applies to sales of goods, that is, the object of the sale consists of a mass of
“specific goods” which means “goods identified and agreed upon at the time a
contract of sale is made.”
• Both articles have actually the same essence providing two alternative remedies to
the buyer in case of deterioration or partial loss of the object prior to the sale,
namely: to rescind or withdraw from the contract or to give it legal effect, paying
the proportionate price of the remaining object
8
(1) Sale divisible. — The second option is available only if the sale is divisible. (Art.
1494, par. 2.) A contract is divisible when its consideration is made up of several parts.
(see Art. 1420.) When the consideration is entire and single, the contract is indivisible.
(2) Sale indivisible. — Suppose the sale is not divisible, what price is the buyer to pay
for the remaining goods if he elects to continue with the sale? It is believed that the
buyer should be made to pay only the proportionate price of the remaining goods as
provided for in paragraph 2 of the preceding article. If the sale is indivisible, the object
thereof may be considered as a specific thing.
iii. Consideration – (Art. 1469 - 1474)
• This refers to the “price certain in money or its equivalent” (Art. 1458.) such as a
check or a promissory note, which is the consideration for the thing sold. It does not
include goods or merchandise although they have their own value in money. (see
Arts. 1468, 1638.) However, the words “its equivalent” have been interpreted to
mean that payment need not be in money, so that there can be a sale where the
thing given as token of payment has “been assessed and evaluated and [its] price
equivalent in terms of money [has] been determined.”
1. Requisites for Valid Price
The price must be real, not fictitious; otherwise, the sale is void although the
transaction may be shown to have been in reality a donation or some other contract.
(Art. 1471.) A seller cannot render invalid a perfected contract of sale by merely
contradicting the buyer’s allegation regarding the price and subsequently raising the
lack of agreement as to the price.
The price or consideration of a contract of sale must have the following requisites at
the time of the perfection of the sale, thus:
a. It must be REAL;
b. It must be in MONEY OR ITS EQUIVALENT, (i.e.,it must be VALUABLE
CONSIDERATION);11 and
c. It must be CERTAIN or ASCERTAINABLE
2. Manner of Payment
a. Velasco v. CA, 51 SCRA 439 (1973)
3. Contract of Piece of Work – (Art. 1467)
Article 1467. A contract for the delivery at a certain price of an article which the
vendor in the ordinary course of his business manufactures or procures for the
general market, whether the same is on hand at the time or not, is a contract of sale,
but if the goods are to be manufactured specially for the customer and upon his
special order, and not for the general market, it is a contract for a piece of work.
• Is if the goods and are to be manufactured specially for the customer and upon his
special order and not for the general market
 • CONTRACT OF SALE - A contract for delivery at a certain price of an article which
the vendor in the ordinary course of business manufactures or procures for the
general market whether the same is on hand or not
a. Dino v. CA, 359 SCRA 156, 165 (1996)
4. Barter – (Art. 1468)
Article 1468. If the consideration of the contract consists partly in money, and partly
in another thing, the transaction shall be characterized by the manifest intention of
the parties. If such intention does not clearly appear, it shall be considered a barter if
the value of the thing given as a part of the consideration exceeds the amount of the
money or its equivalent; otherwise, it is a sale. (1446a)
SALE BARTER
The vendor gives a thing in a One of the parties bind himself to give
consideration in consideration for a one thing in consideration of others
price in money promise to give another thing
"Art. 1568 if the thing given in exchange consist partly of money and partly
in another thing determine:
a. The manifest intention of the parties
b. If the intent is not clear, apply the following rules:
1) If the thing is more valuable than money – barter
2) If the money and the thing are of equal value – sale
3) If the thing is less valuable than money – sale"
iv. Delivery – (Art. 1477)
Article 1477. The ownership of the thing sold shall be transferred to the vendee upon
the actual or constructive delivery thereof.
• The delivery of the thing sold is essential in a contract of sale. Without it, the
purchaser may not enjoy the thing sold to him. It is only after the delivery of the
thing sold that the purchaser acquires a real right or ownership over it.
• In the absence of stipulation to the contrary, the ownership of the thing sold passes
on to the vendee upon delivery thereof. This is true even if the purchase has been
made on credit. Payment of the purchase price is not essential to the transfer of
ownership, as long as the property sold has been delivered. Non-payment only
creates a right to demand payment or to rescind the contract, or to criminal
prosecution in the case of bouncing checks.
1. Seller’s ability to transfer ownership, when required?
• All that is required is that provided by Article 1459 of the Civil Code which states that
"the vendor must have a right to transfer the ownership thereof at the time it is
delivered." Thus, while the seller may not own the object of the sale at the time the
contract is perfected, for the sale to be validly consummated, the seller must be
the owner thereof at the time of its delivery or tradition to the buyer.
a. Quijada v. Court of Appeals, 299 SCRA 695, 696 (1998)
2. Types of Delivery
• The delivery may be actual (Art. 1497.) or constructive. (Arts. 1498-1501.) The
contract is consummated by the delivery of the thing sold and of the purchase
money.
• In all forms of delivery, it is necessary that the act of delivery, whether actual or
constructive, should be coupled with the intention of delivering the thing sold. The
act without the intention is insufficient; there is no tradition. It has been held that
the issuance of a sales invoice does not prove transfer of ownership of the thing
sold to the buyer, an invoice being nothing more than a detailed statement of the
nature, quantity, and cost of the thing sold, and considered not a bill of sale.
a. Actual - If the goods are physically given into the possession of the buyer, the
delivery is an actual delivery.
b. Constructive - The transfer of goods can be done even when the transfer is
effected without a change in the possession or custody of the goods. For example,
a case of the delivery by attornment or acknowledgement will be a constructive
delivery. If you pick up a parcel on behalf of your friend and agree to hold ok to
it for him, it is a constructive delivery.
i. Execution of Public Instrument – (Art. 1498)
1. Possession transferred to buyer by notarized deed of conveyance. — The
execution of a public instrument (i.e., an instrument or document attested
and certified by a public officer authorized to administer oath, such as a
notary public) as a manner of delivery applies to movable as well as
immovable property since the law does not make any distinction and it can
be clearly inferred by the use of the word “also” in paragraph 2 of Article
1498. This manner of delivery is symbolic. The buyer may use the document
as proof of his ownership of the property sold, for purposes, for example, of
mortgaging the same. Under Article 1498, possession is transferred to the
vendee (or lessee) by virtue of the notarized deed of conveyance (or lease)
including the incorporeal rights appurtenant thereto. The key word is
“control,’’ not possession, of the property.
2. Delivery presumptive only. — Under Article 1498, the mere execution of the
deed of sale in a public document is equivalent to the delivery of the
property “if from the deed the contrary does not appear or cannot clearly be
inferred.” Therefore, prior physical delivery or possession is not required.
Article 1498, however, lays down the general rule. It confines itself to
providing that “the execution thereof shall be equivalent” to delivery, which
9
 means that there is only a presumptive (not conclusive) delivery which can
be rebutted by evidence to the contrary. Such presumption is destroyed
when the delivery is not effected because of a legal impediment. Nowhere in
the Civil Code is it provided that the execution of a deed of sale is a
conclusive presumption of delivery of the object of the sale.
3. Sale of thing not subject to control of vendor. — Symbolic delivery by the
execution of a public instrument is equivalent to actual delivery only where
the thing is subject to the control of the vendor and there is no impediment
that may prevent the passing of the property from the hands of the vendor
into those of the vendee. Hence, the vendor who executes said public
instrument fails in his obligation to deliver it, if the vendee cannot enjoy its
material possession because of the opposition or resistance of a third person
who is in actual possession. The legal fiction yields to reality. It is not
enough to confer upon the purchaser the ownership and the right of
possession. The thing sold must be placed in his control in order that it can
be said that delivery has been effected.
In other words, a seller cannot deliver constructively if he cannot actually deliver
even if he wants to. Of course, if the sale had been made under the express
agreement of imposing upon the vendee the obligation to take the necessary
steps to obtain the material possession of the thing sold and if it were proven
that he knew that the thing was in the possession of a third person claiming to
have property rights thereon, such agreement would be perfectly valid.
4. Sale of registered land. — The provisions of Article 1498 regarding passing of
title upon delivery by execution of a public instrument must be deemed
modified by the provisions of the Property Registration Decree (Pres. Decree
No. 1529.) insofar as registered land is concerned. Section 51 of the decree
is very clear that no deed purporting to convey or affect registered land,
shall take effect as a conveyance or bind the land (as against third persons)
until its registration. In accordance with this section, no act of the parties
can transfer the ownership of real estate under the Torrens System. That is
done by the act of registration of the conveyance which the parties have
made.
5. Possession of a part as constructive possession of whole. — Where apart from
the delivery de jure of a land sold by symbolic tradition resulting from the
execution of a public instrument of sale, the evidence shows that the
purchaser took actual possession of the considerable portion of the land
sold by the exercise of possessory acts of clearing the area of trees and of
cultivating the same through tenants, such possession and cultivation of a
part is logically and legally constructive possession of the whole.
ii. Symbolic Delivery – (Art. 1498)
• This kind of delivery involves the delivery of a thing in token of a transfer of
some other thing. Example, the key the godown with the goods in it, when
handed over to the buyer will constitute a symbolic delivery.
10
Article 1498. When the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not appear or cannot clearly be
inferred.
With regard to movable property, its delivery may also be made by the delivery of
the keys of the place or depository where it is stored or kept. (1463a)
iii. Constitutum Possessorium – (Art. 1500)
Article 1500. There may also be tradition constitutum possessorium
Speaks of tradition constitutum possessorium
- The basis here is consent
- Where a seller continues to occupy the land as tenant, the possession , by fiction
of law, is deemed to be constituted in the buyer
Continues possession. Here the seller, after the sale, retains possession of the
article acting as agent on behalf of the buyer.
(EXAMPLE: you buy from me a nightgown for you to use in your Christmas party.
you don't take the gown with you, you still leave it with me and I continue to have
possession of the gown so that I can alter or change the measurement of the gown
to fit your vital statistics.)
iv. Traditio Brevi Manu – (Art. 1499)
v. Tradition Longa Manu – (Art. 1499)
Article 1499. The delivery of movable property may likewise be made by the mere
consent or agreement of the contracting parties, if the thing sold cannot be
transferred to the possession of the vendee at the time of the sale, or if the latter
already had it in his possession for any other reason.
Traditio Brevi Manu
• This mode of legal delivery happens when the vendee has already the
possession of the thing sold by virtue of another title as when the lessor sells
the thing leased to the lessee. Instead of turning over the thing to the vendor
so that the latter may, in turn, deliver it, all these are considered done by
action of law.
Treditio Longa Manu
• This mode of delivery takes place by the mere consent or agreement of the
contracting parties as when the vendor merely points to the thing sold which
shall thereafter be at the control and disposal of the vendee.
• It should be noted that delivery “by the mere consent or agreement of the
contracting parties” is qualified by the phrase “if the thing sold cannot be
transferred to the possession of the vendee at the time of the sale.”

3. Contract to sell – (Art. 1478 and 1524)
ART. 1478. The parties may stipulate that ownership in the thing shall not pass to
the purchaser until he has fully paid the price.
• If the thing has been delivered it prevents the transfer of ownership until the price
has been fully paid.
Article 1524. The vendor shall not be bound to deliver the thing sold, if the vendee
has not paid him the price, or if no period for the payment has been fixed in the
contract. (1466)
When vendor is not bound to deliver
• If the buyer does not pay, the seller is not required to deliver.
• Reason: sale is a reciprocal contract giving rise to reciprocal obligations.
Effect if period is fixed for payment
• The seller must deliver the thing sold even if said period has not yet arrived.
• He will have to wait for the end of the period before he can demand the price.
Exception: if the buyer has lost the benefit of the term.
When is the vendor not obliged to make delivery after the perfection of the contract of
sale?
(a) If the vendee has not paid him the price
- Delivery and payment are reciprocal obligations.
(b) If no period for the payment has been fixed in the contract
- Otherwise, the vendor might play a futile “waiting game”
(c) Even if a period for such payment has been fixed in the contract
- If the vendee has lost the right to make use of the period and still refuses to pay
- Article 1536. The vendor is not bound to deliver the thing sold incase the vendee
should lose the right to make use of the terms as provided in article 1198. (1467a)
- Article 1198. The debtor shall lose every right to make use of the period:
1) When after the obligation has been contracted, he becomes insolvent, unless he
gives guarantee or security for the debt;
2) When he does not furnish to the creditor the guaranties or securities which he
has promised;
3) When by his own acts he has impaired said guaranties or securities after their
establishment,and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
4) When the debtor violates any undertaking, in consideration of which the creditor
agreed to the period;
5) When the debtor attempts to abscond.
4. Place and Time of Delivery – (Art. 1521)
Article 1521. Whether it is for the buyer to take possession of the goods or of the seller to
send them to the buyer is a question depending in each case on the contract, express or
implied, between the parties. Apart from any such contract, express or implied, or usage of
trade to the contrary, the place of delivery is the seller's place of business if he has one, and
if not his residence; but in case of a contract of sale of specific goods, which to the knowledge
of the parties when the contract or the sale was made were in some other place, then that
place is the place of delivery.
Where by a contract of sale the seller is bound to send the goods to the buyer,
but no time for sending them is fixed, the seller is bound to send them within a reasonable
time.
Where the goods at the time of sale are in the possession of a third person, the
seller has not fulfilled his obligation to deliver to the buyer unless and until such third
person acknowledges to the buyer that he holds the goods on the buyer's behalf.
Demand or tender of delivery may be treated as ineffectual unless made at a
reasonable hour. What is a reasonable hour is a question of fact.
Unless otherwise agreed, the expenses of and incidental to putting the goods
into a deliverable state must be borne by the seller. (n)
PLACE OF DELIVERY
1) Where there is an agreement, express or implied, the place of delivery is that agreed
upon;
2) Where there is no agreement, the place of delivery is that determined by usage of trade;
3) Where there is no agreement and there is also no prevalent usage, the place of delivery is
the seller’s place of business;
4) In any other case, the place of delivery is the seller’s residence; and
5) In case of specific goods, which to the knowledge of the parties at the time the contract
was made were in some other place, that place is the place of delivery, in the. absence of
any agreement or usage of trade to the contrary
• If no time is fixed by the contract, then the seller is bound to send the goods to the buyer
within a reasonable time.
• If the contract provides a fixed time for performance, the question is whether time is of
the essence, and if so, whether correct performance was offered within that time.
• Where the contract does not specify the time for delivery so that delivery is to be made
within a reasonable time, time is not of the essence.
5. Partial delivery
Partial Delivery means a delivery of only a part of the Deliverables.
Partial Delivery means every individual delivery of Material(s) to Pirelli and/or the
Affiliates by the Supplier
11

EXAMPLE
• If Partial Delivery has taken place the Buyer may terminate the Agreement only with
regard to the Deliverables which are in Delay.
• However, if Partial Delivery results in the inapplicability of already delivered Partial
Deliveries, the Buyer may terminate the Agreement.
• However, if Partial Delivery results in the inapplicability of already delivered
Deliverables, liquidated damages shall be calculated on the basis of the value of all
affected Deliverables.
• If the Supplier is in Delay, the Supplier shall pay liquidated damages to the Buyer
calculated as 1 % (one per cent) of the Price for each commenced 7 (seven) Day
period, however not less than 1.000 (one thousand) DKK per commenced 7 (seven)
Days.If Partial Delivery has taken place the liquidated damages shall be calculated
on the basis of the part of the Price that is related to the missing quantity of the
Deliverables.
• If Partial Delivery has taken place the liquidated damages shall be calculated on the
basis of the part of the Price that is related to the missing quantity of the
Deliverables.
e. Forms of Contract of Sale – (Art. 1483)
Article 1483. Subject to the provisions of the Statute of Frauds and of any other applicable
statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing
and partly by word of mouth, or may be inferred from the conduct of the parties.
(1) General rule. — The form of a contract refers to the manner in which it is executed or
manifested. As a general rule, a contract may be entered into in any form provided all the
essential requisites for its validity are present. (Art. 1356.) It may be in writing; it may be
oral; it may be partly in writing and partly oral. It may even be inferred from the conduct of
the parties. Sale is a consensual contract and is perfected by mere consent. (Art. 1475.)
(2) Where form is required in order that a contract may be enforceable. — In case the
contract of sale should be covered by the Statute of Frauds, the law requires that the
agreement (or some note or memorandum thereof) be in writing subscribed by the party
charged, or by his agent; otherwise, the contract cannot be enforced by action. (see Art.
1403[2].)
Under the Statute of Frauds (Art. 1403[2, a, d, e].) of the Civil Code, the following
contracts must be in writing; otherwise, they shall be unenforceable by action:
a) Sale of personal property at a price not less than P500.00;
b) Sale of real property or an interest therein regardless of the price involved; and
c) Sale of property not to be performed within a year from the date thereof regardless of
the nature of the property and the price involved.
The purpose of the Statute of Frauds is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence upon the unassisted memory of
witnesses by requiring certain enumerated contracts and transactions to be evidenced in
writing. (Claudel vs. Court of Appeals, 199 SCRA 113 [1991], citing 4 Tolentino, Civil Code of
the Phils., p. 580 [1973].) Contracts infringing the Statute of Frauds are ratified when the
12
defense fails to object to the introduction of parol evidence, or asks questions on cross-
examination, which elicits evidence proving the existence of a perfected contract of sale.
(Limketkai Sons Milling, Inc. vs. Court of Appeals, 66 SCAD 136, 250 SCRA 523 [1995].)
The Statute of Frauds refers to specific kinds of transactions and cannot apply to any
other transaction that is not enumerated therein. The application of the Statute presupposes
the existence of a perfected contract. A right of first refusal is not among those listed as
unenforceable under the statute. At best, it is a contractual grant not of the sale of the
property involved, but of the right of first refusal over the property sought to be sold. Hence,
a right of first refusal need not be written to be enforceable and may be proven by oral
evidence. (Rosencor Development Corporation vs. Inquing, 145 SCAD 484, 354 SCRA 119
[2001].)
(3) Where form is required in order that a contract may be valid. — Where the “applicable
statute” requires that the contract of sale be in a certain form for its validity, the required
form must be observed in order that the contract may be both valid and enforceable. (see Art.
1356.)
(4) Where form is required only for the convenience of the parties. — In certain cases, a
certain form (e.g., public instrument) is required for the convenience of the parties in order
that the sale may be registered in the Registry of Deeds to make effective as against third
persons the right acquired under such sale. As between the contracting parties, the form is
not indispensable since they are allowed by law to compel each other to observe that form.
(Arts.1357, 1358[1].) Hence, the fact that the deed of sale of a parcel of land still had to be
signed and notarized does not mean that no contract had already been perfected. A sale of
land is valid regardless of the form it may have been entered into as long as the requisites for
a valid contract of sale are present. On the other hand, the fact that a deed of sale is a
notarized document does not necessarily justify the conclusion that the said sale is a true
conveyance to which the parties thereto are irrevocably bound. Though its notarization vests
in its favor the presumption of regularity and due execution, it is not the function of the
notary public to validate and make binding an instrument never intended by the parties to
have any binding legal effect upon them. The intention of the parties still and always is the
primary consideration in determining the true nature of the contract. Where the vendor did
not personally appear before the notary public, such fact raises doubt regarding the vendor’s
consent to the sale notwithstanding that the deed states the contrary.
An invalidly notarized deed of sale must be considered merely as a private document. Even if
validly notarized, the deed would still be classified as a private document if it is merely
subscribed and sworn to by way of jurat but was not properly acknowledged.
Sale of real property or an interest therein.
1) A sale of a piece of land or interest therein when made through an agent is void unless
the agent’s authority is in writing.
2) For the sale of real property to be effective against third persons, the sale must be
registered in the Registry of Deeds (or Property) of the province or city where the
property is located. The sale must be in a public document (e.g., acknowledged before
a notary public or any public officer authorized by law to administer oath) for
otherwise, the registration will be refused.
 3) The real purpose of registration of a contract of sale being to give notice to third persons
and to protect the buyer against claims of third persons arising from subsequent
alienations by the vendor, it is certainly not necessary to give efficacy to the deed of
sale, as between the parties to the contract and their privies because actual notice is
equivalent to registration. It is settled that registration is not a mode of acquiring
ownership.
4) The sale of land in a private instrument is valid and binding upon the parties, for the
time-honored rule is that even a verbal contract of sale of real estate produces legal
effects between the parties, since sale is a consensual contract and is perfected by
mere consent.
5) The fact that the notarization of a deed of sale of real property is false is of no
consequence, for it need not be notarized; it is enough that it be in writing.
Modes of satisfaction of the Statute of Frauds.
The statute specifies three ways in which contracts of sales of goods within its terms
may be made binding, namely:
1) the giving of a memorandum;
2) acceptance and receipt of part of the goods (or things in action) sold and actual receipt of
the same (see Art. 1585.); and
3) payment or acceptance at the time some part of the purchase price.
The requirement of a memorandum is obviously suitable either for a contract to sell
or a sale. The other two modes of satisfaction seem more naturally to apply to sales than to
executory contracts..)
The Statute of Frauds applies not only to goods but to things in action as well. (see
Art. 1403[2, d].) Thus, an assignment of credit (Art. 1624.) at a price not less than P500.00 is
within the operation of the Statute.
Statute of Frauds applicable only to executory contracts.
The Statute of Frauds is applicable only to executory contracts (where no
performance, i.e., delivery and payment, has as yet been made by both parties) and not to
contracts which are totally (consummated) or partially performed. It does not forbid oral
evidence to prove a consummated sale.
(1) Reason for the rule. — The reason is that partial performance like the writing,
furnishes reliable evidence of the intention of the parties or the existence of the contract. A
contrary rule would result in injustice or unfairness to the party who has performed his
obligation, and would promote fraud or bad faith on the part of the party who has not
performed his obligation, for it would enable him to keep the benefits already derived by him
from the transaction and at the same time, evade the responsibilities or liabilities assumed
or contracted by him.
Thus, where a parol contract of sale is adduced not for the purpose of enforcing it,
but as a basis of the possession of the person claiming to be the owner, the Statute of Frauds
is not applicable, in the same way that it does not apply to contracts which are either totally
or partially performed upon the theory that there is a wide field for the commission of frauds
in executory contracts which can only be prevented by requiring them to be in writing, a fact
which is reduced to a minimum in executed contracts because the intention of the parties
become apparent by their execution.
(2) Circumstances indicating partial performance. — Where there is partial
performance of a parol contract of sale of realty, the principle excluding evidence of such
contract does not apply.
Other circumstances indicating partial performance of an oral contract of sale of
realty are relinquishment of rights, continued possession by a purchaser who is already in
possession, building of improvements, tender of payment, rendition of services, payment of
taxes, surveying of the land at the vendee’s expense and acceptance of initial payment.
The application of the Statute of Frauds presupposes the existence of a perfected
contract and requires only that a note or memorandum subscribed by the party charged or
by his agent be executed in order to compel judicial enforcement. Where there is no perfected
contract, there is no basis for the application of the Statute. Thus, the annotation on the
letter-offer of the phrase “Received original, 9-4-89,’’ beside which appears the signature of
the addressee, can neither be regarded as a contract of sale nor a promise to sell. It is merely
a memorandum of the receipt of the offer. Hence, the alleged transaction is unenforceable as
the requirements under the Statute of Frauds have not been complied with.
Legal recognition of electronic data messages and electronic documents.
The following are the pertinent provisions of the implementing rules and regulations
of R.A. No. 8792, otherwise known as the “Electronic Commerce Act.’’
(1) Validity and enforceability. — Information shall not be denied validity or
enforceability solely on the ground that it is in the form of an electronic data message or
electronic document, purporting to give rise to such legal effect. Electronic data messages or
electronic documents shall have the legal effect, validity or enforceability as any other
document or legal writing. In particular, subject to the provisions of R.A. No. 8792 and the
Rules:
(a) A requirement under law that information is in writing is satisfied if the
information is in the form of an electronic data message or electronic document.
(b) A requirement under law for a person to provide information in writing to another
person is satisfied by the provision of the information in an electronic data message or
electronic document.
(c) A requirement under law for a person to provide information to another person in
a specified non-electronic form is satisfied by the provision of the information in an electronic
data message or electronic document if the information is provided in the same or
substantially the same form.
(d) Nothing limits the operation of any requirement under law for information to be
posted or displayed in specified manner, time or location; or for any information or document
to be communicated by a specified method unless and until a functional equivalent shall
have been developed, installed, and implemented. (Sec. 7, Rules.)
(2) Incorporation by reference. — Information shall not be denied validity or
enforceability solely on the ground that it is not contained in an electronic data message or
electronic document but is merely incorporated by reference therein. (Sec. 8, Ibid.)
13
 (3) Writing. — Where the law requires a document to be in writing, or obliges the
parties to conform to a writing, or provides consequences in the event information is not
presented or retained in its original form, an electronic document or electronic data message
will be sufficient if the latter:
(a) maintains its integrity and reliability; and
(b) can be authenticated so as to be usable for subsequent reference, in that:
1) It 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
2) It is reliable in the light of the purpose for which it was generated and in the light of all
relevant circumstances. (Sec. 10, Ibid.)
(4) Original. — Where the law requires that a document be presented or retained in
its original form, that requirement is met by an electronic document or electronic data
message if:
(a) There exists a reliable assurance as to the integrity of the electronic document or
electronic data message from the time when it was first generated in its final form and
such integrity is shown by evidence aliunde (that is, evidence other than the electronic
data message itself) or otherwise; and
(b) The electronic document or electronic data message is capable of being displayed to
the person to whom it is to be presented.
(c) For the purposes of No. (1) above:
1) The criteria for assessing integrity shall be whether the information has remained
complete and unaltered, apart from the addition of any endorsement and any change
which arises in the normal course of communication, storage and display; and
2) The standard of reliability required shall be assessed in the light of the purpose for
which the information was generated and in the light of all relevant circumstances.
An electronic data message or electronic document meeting and complying with the
requirements of Section 6 or 7 of R.A. No. 8792 shall be the best evidence of the agreement
and transaction contained therein. (Sec. 11, Ibid.)
(5) Solemn contracts. — No provision of the R.A. No. 8792 shall apply to vary any and
all requirements of existing laws and relevant judicial pronouncements respecting formalities
required in the execution of documents for their validity. Hence, when the law requires that a
contract be in some form in order that it may be valid or enforceable, or that a contract is
proved in a certain way, that requirement is absolute and indispensable. (Sec. 12, Ibid.)
Legal recognition of electronic signatures.
The following are the pertinent provisions of the implementing rules and regulations:
An electronic signature relating to an electronic document or electronic data message
shall be equivalent to the signature of a person on a written document if the signature:
(1) is an electronic signature as defined in Section 6(g) of the Rules; and
(2) is proved by showing that a prescribed procedure, not alterable by the parties interested
in the electronic document or electronic data message, existed under which:
14
(a) A method is used to identify the party sought to be bound and to indicate said party’s
access to the electronic document or electronic data message 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
or electronic data message was generated or communicated, in the light of all circumstances,
including any relevant agreement;
(c) It is necessary for the party sought to be bound, I order to proceed further with th
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.
The parties may agree to adopt supplementary or alternative procedures provided
that the requirements of paragraph (b) are complied with. (Sec. 13, Rules.)
Communication of electronic data messages and electronic documents.
The following are the pertinent provisions of the implementing rules and regulations:
(1) Formation and validity of electronic contracts. — Except as otherwise agreed by the
parties, an offer, the acceptance of an offer and such other elements required under existing
laws for the formation and perfection of contracts may be expressed in, demonstrated and
proved by means of electronic data message or electronic documents and no contract shall
be denied validity or enforceability on the sole ground that it is in the form of an electronic
data message or electronic document, or that any or all of the elements required under
existing laws for the formation of the contracts is expressed, demonstrated and proved by
means of electronic documents. (Sec. 21, Rules.)
(2) Consummation of electronic transactions with banks. — Electronic transactions made
through networking among banks, or linkages thereof with other entities or networks, and
vice versa, shall be deemed consummated under rules and regulations issued by the Bangko
Sentral ng Pilipinas, upon the actual dispensing of cash or the debit of one account and the
corresponding credit to another, whether such transaction is initiated by the depositor or by
an authorized collecting party. The obligation of one bank, entity, or person similarly
situated to another arising therefrom shall be considered absolute and shall not be subjected
to the process of preference of credits. The foregoing shall apply only to transactions utilizing
the Automated Teller Machine switching network.
Without prejudice to the foregoing, all electronic transactions involving banks, quasi-
banks, trust entities, and other institutions which under special laws are subject to the
supervision of the Bangko Sentral ng Pilipinas shall be covered by the rules and regulations
issued by the same pursuant to its authority under Section 59 of R.A. No. 8791 (The General
Banking Act), R.A. No. 7653 (the Charter of the Bangko Sentral ng Pilipinas) and Section 20,
Article XII of the Constitution. (Sec. 22, Ibid.)
(3) Recognition by parties of electronic data message. — As between the originator and the
addressee of an electronic data message or electronic document, a declaration of will or other
statement shall not be denied legal effect, validity or enforceability solely on the ground that
it is in the form of an electronic data message or electronic document. (Sec. 23, Ibid.)
II. OBLIGATIONS OF THE VENDOR
a. When is the thing considered delivered? - (Arts. 1495-1497)
ART. 1495. The vendor is bound to transfer the ownership of and deliver, as well as
warrant the thing which is the object of the sale.
Principal obligations of the vendor.
The principal obligations of a vendor are:
(1) to transfer the ownership of the determinate thing sold;
(2) to deliver the thing, with its accessions and accessories, if any, in the condition in
which they were upon the perfection of the contract (Art. 1537.);
(3) to warrant against eviction and against hidden defects (Arts. 1495, 1547.);
(4) to take care of the thing, pending delivery, with proper diligence (see Art. 1163.); and
(5) to pay for the expenses of the deed of sale, unless there is a stipulation to the contrary.
(Art. 1487.)
Obligation to transfer ownership and deliver.
(1) Ownership by vendor at time of perfection of contract not essential. — The vendor need
not be the owner of the thing at the time of perfection of the contract; it is sufficient that he
has “a right to transfer the ownership thereof at the time it is delivered.” (Art. 1459.) The
obligation to transfer ownership and to deliver is really implied in every contract of sale.
(see Arts. 1458, 1459, 1547.)
One who sells something he does not yet own is bound by the sale when he acquires
it later. (Bucton vs. Gabar, 55 SCRA 499 [1974].)
When a property belonging to a person is unlawfully taken by another, the former has
the right of action against the latter for the recovery of the property. Such right may be
transferred by the sale or assignment of the property and the transferee can maintain such
action against the wrongdoer. (Heirs of Q. Seraspi vs. Court of Appeals, 331 SCRA 293 [2000];
Waite vs. Peterson, 8 Phil. 235 [1907].)
ILLUSTRATIVE CASE:
Goods which seller warranted as already on the way did not arrive.
Facts: B, vendee, gave his consent to the purchase and sale of certain goods on the assertion
of S, vendor, stated in the contract, that the goods were already on the way. The goods did
not arrive.
Issue: Has S the right to demand from B the payment of the price?
Held: No. The assertion made by S is a warranty (see Arts. 1545, 1546.), the non-fulfillment
of which constitutes a breach of contract and deprives him the right to demand of B the
payment of the price of the sale. Having elected to bind himself in that way, S, as vendor, is
responsible, even if the prompt transportation of the goods does not depend upon him but
upon the importers, for he who contracts and assumes an obligation is presumed to know
the circumstances under which it can be complied with. (Soler vs. Chesley, 43 Phil. 529
[1922].)
(2) Transfer not essential to perfection of contract. — The transfer of ownership and the
delivery of the thing sold are not essential to the perfection of the contract. But if the seller
does not deliver at the time stipulated, the buyer may ask for the rescission of the contract
or fulfillment with the right to damages in either case. (Art. 1191.)
(3) No obligation to make delivery during period of redemption. — The purchaser in
execution sales (see Rules of Court, Rule 39, Secs. 30, 35.), however, is not entitled to
immediate possession of the property sold. The effective conveyance of the land is
accomplished by the deed which is issued only after the period of redemption has expired.
(Flores vs. Lim, 50 Phil. 738 [1927]; Gonzales vs. Calimbas and Poblete, 51 Phil. 355
[1927].) In other words, the debtor is not obliged to make delivery during the period of
redemption. In all cases of extra-judicial foreclosure sale, the mortgagor may redeem the
real property sold within one year from the date of registration of the sale. (see Act No.
3155, Sec. 6.) In judicial foreclosure of real estate mortgage, the general rule is that the
mortgagor cannot exercise his right of redemption after the sale is confirmed by the court.
(see Rules of Court, Rule 68, Sec. 3.)
(4) Right of vendee to transfer of certificate of title. — In a sale of registered land, the
vendee has a right to receive and the vendor the corresponding obligation to transfer to
him, not only the possession and employment of the land but also the certificate of title.
(Gabila vs. Perez, 169 SCRA 517 [1989].)
(5) Right of buyer to recover the price paid. — The right of a party to recover the amount
given as a consideration has been passed upon in a case where it was held that: “Whenever
money is paid upon the representation of the receiver that he has either a certain title in
property transferred in consideration of the payment or a certain authority to receive the
money paid, when in fact he has no such title or authority, then, although there be no
fraud or intentional misrepresentation on his part, yet there is no consideration for the
payment. The money remains, in equity and good conscience, the property of the payer
and may be recovered by him. (Development Bank of the Phils. vs. Court of Appeals, 65
SCAD 82, 249 SCRA 331 [1995], citing Leather Manufacturers National Bank vs.
Merchants National Bank, 128 U.S. 26; 9 S. C.T. 5; 32 L. ed., 362.) Therefore, the
purchaser is entitled to recover the money paid by him where the contract is set aside by
reason of the mutual material mistake of the parties as to the identity or quantity of the
land sold. And where the purchaser recovers the purchase price from a vendor who fails or
refuses to deliver the title, he is entitled, as a general rule, to interest on the money paid
from the time of payment. (Ibid., citing Wolfinger vs. Thomas, 22 SD 57; 115 NW 100;
Robinson vs. Bresslor, 122 Neb. 461; 240 NW 564.)
ART. 1496. The ownership of the thing sold is acquired by the vendee from the moment it
is delivered to him in any of the ways specified in articles 1497 to 1501, or in any other
manner signifying an agreement that the possession is transferred from the vendor to the
vendee. (n)
15
Ways of effecting delivery.
The ownership of the thing sold shall be transferred to the vendee upon the delivery thereof
(see Art. 1477.) which may be effected in any of the following ways or modes:
(1) by actual or real delivery (Art. 1497.);
(2) by constructive or legal delivery (Arts. 1498-1501.); or
(3) by delivery in any other manner signifying an agreement that the possession is
transferred to the vendee. (Arts. 1496-1499.)
In all the different modes of delivery, the critical factor which gives legal effect to the
act is the actual intention of the vendor to deliver, and its acceptance by the vendee. The act,
without the intention, is insufficient. There is no tradition. Although transfer of ownership is
the primary purpose of sale, delivery remains an indispensable requisite as our law does not
admit the doctrine of transfer of ownership of property by mere consent. The delivery must
be made to the vendee or his authorized representative. Where the vendee did not name any
person to whom the delivery shall be made in his behalf, the vendor is bound to deliver
exclusively to him.
ILLUSTRATIVE CASE:
For rice sold, vendor was not paid by vendee who sold it to another, the second vendee, the
latter refusing to return the rice after he was repaid by first vendee.
Facts: S agreed to sell 170 cavans of rice to B at the price of P37.25 per cavan, delivery to be
made at T’s store. After the goods were unloaded at T’s store, S’s driver tried to collect the
purchase price from T as B was nowhere to be found, but T refused, stating that he had
purchased the goods from B at P33.00 per cavan and the price had already been paid to him.
This is a simple case of swindling perpetrated by B at the expense of S and T. However, three
days after delivery, T was repaid by B.
Issue: Is T duty bound to return the 170 cavans of rice to S or to pay its value?
Held: Yes.
(1) Sale between B and T voluntarily rescinded by the repayment. — There was a perfected
sale. (Art. 1475.) Ownership of the rice, too, was transferred to the vendee, B, upon its
delivery at the place stipulated (Art. 1521.), and pursuant to Articles 1477 and 1496. At
the very least, B had a rescissible title to the goods for non-payment of the purchase price
but which had not been rescinded at the time of the sale to T. Having been repaid the
purchase price by B, the sale, as between B and T, had been voluntarily rescinded, and T
was thereby divested of any claim to the rice. Technically, therefore, he should return the
rice to B.
(2) Rule against unjust enrichment applies. — Since the rice had not been returned to B
who was ready to return the rice to S, it follows that T should return the rice to S. T cannot
be allowed to unjustly enrich himself at the expense of another by holding on to property
no longer belonging to him. (Art. 22.) In law and in equity, therefore, S is entitled to recover
the rice, or the value thereof since he was not paid the price therefor.
Ways of effecting constructive delivery.
(1) Equivalent to actual delivery. — Constructive delivery is a general term comprehending
all those acts which, although not conferring physical possession of the thing, have been
16
held by construction of law equivalent to acts of real delivery. It may be effected in any of
the following ways:
a) by the execution of a public instrument (Art. 1498, par. 1.);
b) by symbolical tradition or traditio symbolica (ibid., par. 2.);
c) by traditio longa manu (Art. 1499.);
d) by traditio brevi manu (Ibid.);
e) by traditio constitutum possessorium (Art. 1500.); or
f) by quasi-delivery or quasi-traditio. (Art. 1501.)
As a specie of constructive delivery, the execution of a public document is also considered a
form of symbolic delivery.
(2) Contrary may be stipulated. — The parties, however, may stipulate that ownership in
the thing shall pass to the purchaser only after he has fully paid the price (Art. 1478.) or
fulfilled certain conditions. In a contract of absolute sale, ownership is transferred
simultaneously with the delivery of the thing sold.
ART. 1497. The thing sold shall be understood as delivered, when it is placed in the control
and possession of the vendee. (1462a)
Concept of tradition or delivery.
Tradition is a derivative mode of acquiring ownership by virtue of which one who has
the right and intention to alienate a corporeal thing, transmits it by virtue of a just title to
one who accepts the same. (10 Manresa 122.)
Importance of tradition.
(1) Transfer of ownership. — Article 1496 emphasizes the necessity of tradition for the
transfer of ownership of the thing sold. Our law does not admit the doctrine of transfer of
property by mere consent.
a) The ownership over it is not transferred by contract merely but by delivery, actual or
constructive. The critical factor in all the different modes of effecting delivery which
gives legal effect to the act, is the actual intention of the creditor to deliver, and its
acceptance by the vendee.
b) Contracts only constitute titles or rights to the transfer or acquisition of ownership,
while delivery or tradition is the method of accomplishing the same, the title and the
method of acquiring it being different in our law. But, there is no delivery as to
transfer ownership where the vendee takes possession of the personal property
subject matter of the contract of sale by stealing the same while in the custody of the
vendor or his agent.
c) It is during the delivery that the law requires the seller to have the right to transfer
ownership of the thing sold. In general, a perfected contract of sale cannot be
challenged on the ground of the seller’s non-ownership of the thing sold at the time
of the perfection of the contract.
(2) Liability in case of loss. — When the thing subject of the sale is placed in the control and
possession of the vendee (Art. 1497.) or his agent, the delivery is complete and the vendee
cannot avoid liability in case the thing is subsequently lost without the fault of the vendor.
(3) Right of vendor to claim payment. — Delivery produces its natural effects in law, the
principal and most important of which being the transfer of ownership without prejudice to
the right of the vendor to claim payment of the price.
Where the buyer has not become the owner for lack of delivery, his action is not accion
reinvidicatoria but one against the vendor for specific performance or rescission, with
damages in either case. (Art. 1191.)
(4) Consummation of contract. — Delivery of the thing together with the payment of the price,
marks the consummation of the contract of sale.
(5) Enjoyment of thing sold. — Delivery is also necessary to enable the vendee to enjoy and
make use of the property purchased.
Actual delivery of the thing sold.
(1) When deemed made. — There is actual delivery when the thing sold is placed in the
control and possession of the vendee (Art. 1497.) or his agent. This involves the physical
delivery of the thing and is usually done by the passing of a movable thing from hand to
hand.
ILLUSTRATIVE CASE:
Bank (pledgee) took possession, as security, of the sugar sold and delivered by unpaid seller
to buyer (pledgor) who subsequently became insolvent.
Facts: S sold sugar to B. The sugar was delivered by S into B’s warehouse, leaving it entirely
subject to his control. B, however, failed to make payment after completion of delivery as per
agreement. C, a bank, took possession of the sugar pursuant to a contract of pledge entered
into between the bank and B to secure the latter’s indebtedness of P20,000. Subsequently, B
became insolvent.
Issue: Is S still the owner of the sugar as to entitle him to recovery of its possession?
Held: No. When S delivered the sugar into B’s warehouse, leaving it entirely subject to his
control, it is difficult to see how S could have divested himself more completely of the
possession of the sugar, or how he could have placed it more completely under the control of
the buyer. The fact that the price has not yet been paid, in the absence of stipulation, was
not, nor could it be an obstacle to the acquisition of ownership by B, without prejudice, of
course, to the right of S to claim payment of the sum due.
(2) Not always essential to passing of title. — Actual or manual delivery of an article sold is
not always essential to the passing of title thereto. (Art. 1475.) The parties to the contract
may agree when and on what conditions the ownership in the subject of the contract shall
pass to the buyer. As for example, the parties may stipulate that ownership in the thing sold
shall pass to the vendee only after he has fully paid the price.
b. Delivery of personal and real properties – (Art. 1498)
ART. 1498. When the sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract, if from
the deed the contrary does not appear or cannot clearly be inferred.
With regard to movable property, its delivery may also be made by the
delivery of the keys of the place or depository where it is stored or kept. (1463)
Execution of a public instrument or document.
(1) Possession transferred to buyer by notarized deed of conveyance. — The execution of a
public instrument (i.e., an instrument or document attested and certified by a public officer
authorized to administer oath, such as a notary public) as a manner of delivery applies to
movable as well as immovable property since the law does not make any distinction and it
can be clearly inferred by the use of the word “also” in paragraph 2 of Article 1498. This
manner of delivery is symbolic. The buyer may use the document as proof of his ownership of
the property sold, for purposes, for example, of mortgaging the same. Under Article 1498,
possession is transferred to the vendee (or lessee) by virtue of the notarized deed of
conveyance including the incorporeal rights appurtenant thereto, e.g., right to eject tenants
or squatters from the property in question. Since the execution of the deed of conveyance is
deemed equivalent to delivery, prior physical delivery or possession is not legally required.
Thus, notwithstanding the presence of illegal occupants on the subject property, transfer of
ownership by symbolic delivery under Article 1498 can still be effected through the execution
of the deed of conveyance. The key word is “control,’’ not possession, of the property.
(2) Delivery presumptive only. — Under Article 1498, the mere execution of the deed of sale
in a public document is equivalent to the delivery of the property “if from the deed the
contrary does not appear or cannot clearly be inferred.” Therefore, prior physical delivery or
possession is not required. Article 1498, however, lays down the general rule. It confines
itself to providing that “the execution thereof shall be equivalent” to delivery, which means
that there is only a presumptive (not conclusive) delivery which can be rebutted by evidence
to the contrary. Such presumption is destroyed when the delivery is not effected because of a
legal impediment. Nowhere in the Civil Code is it provided that the execution of a deed of sale
is a conclusive presumption of delivery of the object of the sale.
(a) If it appears from the document or it can be inferred therefrom that it was not the
intention of the parties to make delivery, no tradition can be deemed to have taken place.
Such would be the case, for instance, where a certain date is fixed when the purchaser
should take possession of the thing, or where the vendor reserves the right to use and
enjoy the property until a certain period, or where it is stipulated that until payment of the
last installment is made, the title to the property should not be deemed to have been
transmitted, or where the vendor has no control over the thing sold at the moment of the
sale, and, therefore, its material delivery could not have been made.
(b) Presumptive delivery by execution of public instrument can also be negated by failure of
the vendee to take material possession of the land subject of the sale in the concept of
17
 purchaser-owner. The continued possession by the vendor of the property sold may make
dubious the contract of sale between the parties.
(3) Sale of thing not subject to control of vendor. — Symbolic delivery by the execution of a
public instrument is equivalent to actual delivery only where the thing is subject to the
control of the vendor and there is no impediment that may prevent the passing of the
property from the hands of the vendor into those of the vendee. Hence, the vendor who
executes said public instrument fails in his obligation to deliver it, if the vendee cannot enjoy
its material possession because of the opposition or resistance of a third person (e.g.,
squatter) who is in actual possession. The legal fiction yields to reality. It is not enough to
confer upon the purchaser the ownership and the right of possession. The thing sold must
be placed in his control in order that it can be said that delivery has been effected.
In other words, a seller cannot deliver constructively if he cannot actually deliver even
if he wants to. Of course, if the sale had been made under the express agreement of imposing
upon the vendee the obligation to take the necessary steps to obtain the material possession
of the thing sold and if it were proven that he knew that the thing was in the possession of a
third person claiming to have property rights thereon, such agreement would be perfectly
valid. (Ibid.)
(4) Sale of registered land. — The provisions of Article 1498 regarding passing of title upon
delivery by execution of a public instrument must be deemed modified by the provisions of
the Property Registration Decree (Pres. Decree No. 1529.) insofar as registered land is
concerned. Section 51 of the decree is very clear that no deed purporting to convey or affect
registered land, shall take effect as a conveyance or bind the land (as against third persons)
until its registration. In accordance with this section, no act of the parties can transfer the
ownership of real estate under the Torrens System. That is done by the act of registration of
the conveyance which the parties have made.
(5) Possession of a part as constructive possession of whole. — Where apart from the delivery
de jure of a land sold by symbolic tradition resulting from the execution of a public
instrument of sale, the evidence shows that the purchaser took actual possession of the
considerable portion of the land sold by the exercise of possessory acts of clearing the area of
trees and of cultivating the same through tenants, such possession and cultivation of a part
is logically and legally constructive possession of the whole.
Symbolic tradition.
Constructive delivery is symbolic when to effect the delivery, the parties make use of a token
symbol to represent the thing delivered.
The delivery of the key where the thing sold is stored or kept is equivalent to the delivery of
the thing (par. 2.) because the key represents the thing. Similarly, there is symbolic delivery
of goods to vendee upon delivery to him of delivery orders (see Art. 1636[1].) which would
authorize him to withdraw the goods from a warehouse. Upon withdrawal, there is actual
delivery (supra.) which consummates the sale.
18
c. Delivery when there is “Sale on Approval” – (Art. 1502)
d. Delivery when there is “Sale or Return” – (Art. 1502)
ART. 1502. When goods are delivered to the buyer “on sale or return” to give the buyer an
option to return the goods instead of paying the price, the ownership passes to the buyer on
delivery, but he may revest the ownership in the seller by returning or tendering the goods
within the time fixed in the contract, or, if no time has been fixed, within a reasonable time.
(n)
When goods are delivered to the buyer on approval or on trial or on satisfaction, or other
similar terms, the ownership therein passes to the buyer.
(1) When he signifies his approval or acceptance to the seller or does any other act adopting
the transaction;
(2) If he does not signify his approval or acceptance to the seller, but retains the goods
without giving notice of rejection, then if a time has been fixed for the return of the goods, on
the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable
time. What is a reasonable time is a question of fact. (n)
(1) In general. — It is evidently possible for the parties to agree that the buyer shall
temporarily take the goods into his possession to see whether they are satisfactory to him
and that if they are not, he may refuse to become owner. It is clear also that the same
object may be attained by an agreement that the property shall pass to the buyer on
delivery but that he may return the goods if they are unsatisfactory. The question is one of
fact in every case whether the parties intend to make approval a condition, without which
the ownership shall not pass, or whether their intent is that the ownership shall pass at
once with the right to return the goods.
The question of what is a reasonable time for the return of the property is one of fact
to be determined upon the particular circumstances of the case. The duty of the buyer with
regard to the return of the goods requires, ordinarily, that they be returned in the same or
substantially the same condition in which they were when the contract was made.
Undoubtedly, if they are injured or damaged substantially through negligence or misuse of
the buyer, his right to return is lost and the sale becomes absolute.
(2) Sale or return. — It is a contract by which 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.
(a) Under this contract, the option to purchase or return the goods rests entirely on the
buyer without reference to the quality of the goods. The buyer may revest the ownership
in the seller by returning or tendering the goods within the time fixed in the contract, or,
if no time has been fixed, within a reasonable time (Art. 1502, par. 1.); otherwise, the
sale becomes absolute and the buyer is liable for the price. The seller cannot, in this type
of sale, prevent the revesting of title by refusing to accept the return of the property.
(b) Since title passes to the buyer on delivery, the loss or destruction of the property prior
to the exercise of the buyer’s option to return falls upon him and renders him
responsible to the seller for the purchase price or such part thereof as remains unpaid.
(Art. 1504; 46 Am. Jur. 647.) The word “return” itself implies a previous transfer of title.

(3) Sale on trial or approval. — It is a contract in the nature of an option to purchase if the
goods prove satisfactory, the approval of the buyer being a condition precedent.
(a) In this kind of contract, the title shall continue in the seller until the sale has become
absolute either by the buyer’s approval of the goods, or by his failing to comply with the
express or implied conditions of the contract as to giving notice of dissatisfaction or as to
returning the goods (Ibid., 655; Art. 1502, Nos. 1 and 2.), or by his doing any other act
adopting the transaction such as mortgaging the property or selling it to a third person.
(b) For the reason that the title to the goods does not pass and the relationship between
the seller and the purchaser is that of bailor and bailee, the risk of loss or injury to the
article pending the exercise by the buyer of his option to purchase or return it, is upon
the seller except as the buyer may be at fault in respect of the care and condition of the
article, or may have agreed to stand the loss.
(c) The buyer cannot accept part and reject the rest of the goods since this falls outside
the normal intent of the parties.
“Sale or return” distinguished from sale on trial.
The distinctions are the following:
(1) “Sale or return” is a sale subject to a resolutory condition, while sale on trial is
subject to a suspensive condition;
(2) “Sale or return” depends entirely on the will of the buyer, while sale on trial depends
on the character or quality of the goods;
(3) In “sale or return,” the ownership of the goods passes to the buyer on delivery and
subsequent return of the goods reverts ownership in the seller, while in sale on trial, the
ownership remains in the seller until the buyer signifies his approval or acceptance to
the seller; and
(4) In “sale or return,” the risk of loss or injury rests upon the buyer, while in sale on
trial, the risk still remains with the seller.
Note: Article 1502 uses the phrase “on sale or return.” If the contract uses instead the
phrase “for sale or return,” the intention may be to enter into a contract of agency.
e. Delivery of specific goods – (Art. 1503)
f. Delivery by bill of lading/agent – (Art. 1503)
g. Delivery with payment of bill of exchange – (Art. 1503)
ART. 1503. Where there is a contract of sale of specific goods, the seller may, by the terms of
the contract, reserve the right of possession or ownership in the goods until certain
conditions have been fulfilled. The right of possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the
purpose of transmission to the buyer.
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 the seller or of his agent, the seller thereby reserves
the ownership in the goods. But if, except for the form of the bill of lading, the ownership
would have passed to the buyer on shipment of the goods, the seller’s property in the goods
shall be
deemed to be only for the purpose of securing performance by the buyer of his obligations
under the contract.
Where goods are shipped, and by the bill of lading the goods are deliverable to the
order of the buyer or of his agent, but possession of the bill of lading is retained by the seller
or his agent, the seller thereby reserves a right to the possession of the goods as against the
buyer.
Where the seller of goods draws on the buyer for the price and transmits the bill
of exchange and bill of lading together to the buyer to secure acceptance or payment of the
bill of exchange, the buyer is bound to return the bill of lading if he does not honor the bill of
exchange, and if he wrongfully retains the bill of lading he acquires no added right thereby.
If, however, the bill of lading provides that the goods are deliverable to the buyer or to the
order of the buyer, or is indorsed in blank, or to the buyer by the consignee named therein,
on who purchases in good faith, for value, the bill of lading, or goods from the buyer will
obtain the ownership in the goods, although the bill of exchange has not been honored,
provided that such purchaser has received delivery of the bill of lading indorsed by the
consignee named therein, or of the goods, without notice of the facts making the transfer
wrongful. (n)
When ownership not transferred upon delivery.
This article relates to a sale of specific goods. As a general rule, the ownership in
the goods sold passes to the buyer upon their delivery to the carrier. There are, however,
certain exceptions and they are:
(1) if a contrary intention appears by the terms of the contract
(2) in the cases provided in the second and third paragraphs of Article 1523; and
(3) in the cases provided in the first, second, and third paragraphs of Article 1503.
Transfer of ownership where goods sold delivered to carrier.
(1) General rule. — As stated above, the general rule is that delivery, be it only constructive,
passes title in the thing sold (see Art. 1496.); and delivery to the carrier is deemed to be a
delivery to the buyer. (Art. 1523, par. 1.) The risk of loss, therefore, as between the buyer
and the seller, falls upon the buyer. The theory upon which the law is based is perfectly
simple. If a seller consigns goods to another specified person it indicates an intention to
deliver to the carrier as bailee for the person named, and, if such shipment was authorized
by that person as a buyer, the ownership vests in him. The same result follows it, after the
goods have been shipped without a named consignee, the carrier at the consignor’s request,
agrees to deliver to a specified person.
(2) Where right of possession or ownership of specific goods sold reserved. — On the other
hand, if the seller directs the carrier to redeliver the goods at their destination to the seller
himself, or to his order, it indicates an intention that the carrier shall be the bailee for the
seller and the ownership will remain in the latter. (see 2 Williston, op. cit., p. 147.) The
seller may, by the terms of the contract, reserve the right of possession or ownership in the
goods until certain conditions are fulfilled.
19
Where seller or his agent is consignee.
(1) Carrier becomes bailee for seller. — Where goods are shipped and by the bill of lading
(see Art. 1507.), the goods are deliverable to the seller or his agent or to the order of the
seller or his agent, the seller thereby reserves the ownership in the goods (par. 2.) and the
carrier is a bailee for him and not the buyer. This principle is applicable even though the
goods are shipped on the buyer’s vessel.
(2) Rights of seller. — The seller may not only retain the goods until the buyer performs his
obligation under the contract, but he may, even in violation of the contract, dispose of
them to third persons. If the seller does this, of course, he is liable for damages to the
buyer but the second purchaser from the seller acquires a better right.
Where seller’s title only for purpose of security.
(1) Form of bill of lading not conclusive. — The form in which the bill of lading is taken is
not always conclusive. The specification in the bill of lading to the effect that the goods are
deliverable to the order of the seller or his agent does not necessarily negate the passing of
title to the goods upon delivery to the carrier.
(2) Where ownership would have passed but for the form of bill of lading. — The
circumstances may be such that were it not for the form of the bill of lading, the ownership
would have passed to the buyer or shipment of the goods. (par. 2, 2nd sentence.) This is
true when the object of the seller in reserving ownership is simply to secure himself in
regard to the performance by the buyer of the latter’s obligation. By shipping the goods, the
seller has definitely lost all use of them to the buyer. If the shipper could be perfectly sure
that the buyer would fulfill his obligation, it can hardly be doubted that he would have
made a straight consignment to the latter.
Significance where title held merely as security.
The importance of distinguishing between a title held merely for the purpose of
security and the ordinary case where the seller retains ownership are two-fold:
(1) Risk of loss on buyer. — In the first place, the beneficial owner (buyer), not the one who
holds for security (seller), will be subject to the risk of loss or deterioration from the time
the goods are delivered to the carrier even though the legal title remains in the seller. That
the risk should be borne by the buyer if the seller retains title merely to secure
performance by the buyer of his obligations under the contract is a consequence of the
theory that such a bargain is, in effect, although not in form, a sale to the buyer and a
mortgage back by him of the goods to secure the price. The title does not pass to the buyer
until he receives the order bill of lading properly indorsed.
(2) Buyer’s right of action based on ownership. — In the second place, the buyer has more
than a mere contract right in regards to the goods. (Ibid., p. 157.) As beneficial owner, he
may, as against any one except an innocent purchaser for value of the bill of lading from
the consignee, bring an action based on ownership on making tender of the price.
Where buyer or his agent is consignee but seller retains order bill of lading.
Where goods are shipped and by the bill of lading the goods are deliverable to the
order of the buyer or of his agent, but possession of the bill of lading is retained by the seller
20
or his agent, the seller thereby retains a right to the possession of the goods as against the
buyer. (par. 3.)
(1) Effect of retention. — Although the property in the goods will ordinarily pass to the
buyer on delivery, the latter is unable to obtain the goods without the bill. The effect of the
retention of the bill of lading, under such circumstances, controlling as it does the
possession of the goods, is, therefore, closely analogous to the retention of a lien by the
seller after the property has passed to the buyer. (Ibid., p. 163.)
(2) Surrender of order bill necessary. — The carrier cannot be compelled to surrender
possession of the goods until the order bill (properly indorsed) has been surrendered. In an
order bill, it cannot with certainty be determined who is the person named to whose order
the goods are deliverable unless the bill of lading itself is presented.
(3) Identification of consignee sufficient in case of straight bill. — On the other hand, the
shipper who issues a straight bill of lading (goods are by its terms deliverable not to the
order of the consignee but to the consignee only) ordinarily does not require the surrender
of the bill by the consignee in order for the latter to get the goods. The consignee need only
to identify himself. Hence, where the buyer is the consignee, the seller must use an order
bill of lading.
Where a third person who retains the bill is consignee.
Two devices have already been considered by which the seller of goods retains a
hold upon them by means of the bill of lading after he has shipped them; first, by
consigning the goods to himself, either by an order bill or a straight bill and second, by
consigning the goods to the order of the buyer and retaining possession of the bill of lading.
A third method also in common use is to consign the goods to a third person
(usually a banker) requesting the latter to retain the bill of lading or goods until payment of
the price. When the price is paid, the consignee of the goods indorses the bill or delivers
the goods to the buyer.
(1) Immaterial whether bill an order or straight bill. — For the success of this third device,
it is immaterial, so far as the protection of the seller is concerned, whether the bill is a
straight bill or an order bill.
(a) If it is an order bill, the carrier will not deliver the goods until the bill is surrendered
and the buyer cannot get it so as to make the necessary surrender except from the
holder, the consignee.
(b) Even if it is not an order bill, the carrier, though it may not require the surrender of
the bill of lading, will deliver only to the consignee. Accordingly, the buyer in either
event, is unable to get them except by obtaining an order from the holder of the bill of
lading.
(2) Legal title vested in third person. — By naming a third person as consignee of the bill
of lading, the seller vests a legal title in the third person. This title is held merely for the
benefit of the seller if the third person is the seller’s agent only and has not advanced
money of his own to the seller. Frequently, however, the third person is a banker and by
discounting a draft drawn on the buyer by the shipper, or under an arrangement with
the buyer by paying or accepting a draft drawn on himself, has acquired a personal
interest in the goods.
 (3) Risk of loss on buyer. — The buyer as is true where the seller consigns the goods to
himself, or his agent, or to a third person, bears the risk of loss.
Where bill of lading sent forward with draft attached.
Where the seller draws on the buyer for the price and transmits the bill of exchange
and the bill of lading together to the buyer to secure acceptance or payment of the bill of
exchange (par. 4.), the title is regarded as retained in the seller until the bill of exchange is
paid. The fact that the bill of lading and a bill of exchange are attached together indicates
that the seller intends to make the delivery of the goods conditional upon the payment or
acceptance of the draft.
(1) Duty of buyer if draft not paid. — The buyer is bound to return the bill of lading if he
does not honor the bill of exchange. If he wrongfully retains the bill of lading, he acquires
no additional right thereby. In carrying out the device in question, it is customary to send
the bill of lading with the draft attached thereto to some person other than the buyer, for if
the bill of lading and the draft are sent directly to the buyer, the latter may obtain the
goods without paying the draft and the seller, even if he has a good right of action against
the buyer on this account, is compelled to enter upon litigation in order to enforce his
rights, whereas if the bill of lading and draft are sent through the third person, ordinarily a
bank, the buyer is unable to obtain the goods without paying the price. (see Ibid., pp. 178-
180.)
(2) Effect of buyer obtaining possession of bill of lading without honoring draft. — As
regard third persons, however, if the bill of lading provides that the goods are deliverable to
the buyer or to the order of the buyer (Art. 1507.), or is indorsed in blank (Art. 1508[2].), or
is indorsed to the buyer by the consignee named therein (Art. 1509.), a purchaser in good
faith for value of the bill of lading or goods from the buyer will obtain the ownership in the
goods although the bill of exchange has not been honored.
Distinctions in regard to the form of the bill of lading.
They must here be observed:
(1) If the seller has named the buyer as consignee, the property has passed to the
consignee or at least it seems to have been so to one who inspects the document;
(2) If the bill of lading, though naming the seller as consignee, is indorsed by him to the
buyer or in blank, the possession of the document by the buyer gives him, if not the actual
title, at least an apparent ownership; and
(3) If the bill of lading names the seller or a third person as consignee and no indorsement
of the document had been made, possession by the buyer would not indicate that the
buyer had title.
Where the document gives the buyer apparent ownership and a third person
purchases the goods relying thereon, it seems clear on broad principles of justice that since
one of two innocent parties must suffer, he should suffer whose act has brought about the
loss. Consequently, the seller ought not to be allowed to recover the goods from the third
person.
h. Delivery of accessions and accessories – (Art. 1537)
ART. 1537. The vendor is bound to deliver the thing sold and its accessions and
accessories in the condition in which they were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the contract
was perfected. (1468a)
Condition of thing to be delivered.
In entering into a contract of sale, the parties take into consideration not only the
particular thing which is the subject matter of the contract, but also its condition at the
time such contract was perfected. The vendor is, therefore, obliged to preserve the thing
pending delivery (see Arts. 1163, 1164.) because the thing sold and its accessions and the
accessories must be in the condition in which they were upon the perfection of the contract.
(Art. 1537, par. 1.)
It is the seller’s duty to deliver the thing sold in a condition suitable for its
enjoyment by the buyer for the purposes contemplated. Thus, a subdivision lot seller
should not shift to the buyer the burden of providing access to and from the subdivision. It
is seller’s duty to construct the necessary roads in the subdivision that could serve as
outlets. Proper access to the residence is essential to its enjoyment.
While a sale of a determinate thing (e.g., land) includes all its accessions (e.g.,
house) and accessories even though they may not have been mentioned (see Art. 1166.), a
sale of the latter is not sufficient to convey title or right to the former.
Note: Accessions are the fruits of a thing; or additions to, or improvements upon, a thing
such as the young of animals, house or trees on a land, etc.
Accessories are anything attached to a principal thing for its completion, ornament,
or better use such as picture frame, key of a house, etc.
Right of vendee to the fruits.
1) When vendee entitled. — The vendee has a right to the fruits of the thing sold from the
time the obligation to deliver it arises. (Art. 1164.) The obligation to deliver arises upon
the perfection of the contract of sale. (see Art. 1475.)
EXAMPLE:
S sold his horse to B for P8,000.00. No date or condition was stipulated for the
delivery of the horse. While still in the possession of S, the horse gave birth to a colt. Who
has a right
to the colt?
(1) B is entitled to the colt which was born after the perfection of the contract. This holds
true even if the delivery is subject to a suspensive period (e.g., next month) or a suspensive
condition (e.g., upon demand) if B has paid the purchase price.
(2) But S has a right to the colt if it was born before his obligation to deliver the horse has
arisen (Art. 1164.) and B has not yet paid the purchase price. In this case, upon the
fulfillment of the condition or the arrival of the period, S does not have to give the colt and
21
 B is not obliged to pay legal interests since the colt and the interests are deemed to have
been mutually compensated. (see Art. 1187.)
2) When vendee not entitled. — In the following cases, the vendee is not entitled to the
fruits:
(a) When the rule provided in Article 1537 (par. 2.) is modified by agreement of the
parties, their agreement shall, of course, govern;
(b) If the vendee rescinds the contract of sale instead of exacting the fulfillment thereof,
he is entitled only to damages like interest, attorney’s fees and costs but he may not also
claim the fruits of the thing sold; and
(c) In a contract of promise to sell, the vendee is not entitled to the fruits. The only right
of the contracting parties is to reciprocally demand the fulfillment of the contract. Prior
to the sale and conveyance of the subject matter of the contract, the promisee or would-
be vendee acquires no right to the fruits thereof.
i. Loss, deterioration, or improvement before delivery – (Art. 1538)
ART. 1538. In case of loss, deterioration or improvement of the thing before its delivery,
the rules in article 1189 shall be observed, the vendor being considered the debtor. (n)
Rules in case of loss, deterioration, or improvement of thing before delivery.
Article 1189 of the Civil Code states:
“When the conditions have been imposed with the intention of suspending the efficacy of
an obligation to give, the following rules shall be observed in case of the improvement, loss
or deterioration of the thing during the pendency of the condition:
1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it
is understood that the thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered;
3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;
4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either
case;
5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;
6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary.”
A reading of the above article shows that it is in consonance with Article 1480 (supra.)
which provides for the rules governing injury to, or benefit from, the thing sold after the
contract has been perfected but before its delivery. Both under Articles 1480 (pars. 1 and
2.) and 1538, the loss shall be at the risk of the vendee pending delivery. As heretofore
pointed out, Article 1504 (supra.), which has been taken from the American law on sales,
provides another rule governing risk of loss which is contrary to Articles 1480 and 1538.
22
EXAMPLE:
S sold to B his car. If before delivery —
(1) the car is lost or destroyed without the fault of S (assuming S is not guilty of delay and
there is no contrary stipulation that he shall be liable), the obligation to deliver is
extinguished and B shall be obliged to pay the price if he has not paid the same;
(2) if the loss is through S’s fault, he shall be liable to pay damages to B;
(3) if the car suffers damages without the fault of S, B shall have to suffer the impairment;
(4) if the damage was due to S’s fault, B may choose, between the rescission (cancellation)
of the contract with damages or the delivery of the car also with damages;
(5) if the market value of the car increased, the increase shall inure to the benefit of B
inasmuch as he suffers the deterioration in case of a fortuitous event;
(6) if S had the car painted and its seat cover changed at his expense, he shall have the
rights of a usufructuary with respect to the improvements.
j. Delivery and acceptance of object as stipulated in the contract – (Art. 1539)
ART. 1539. The obligation to deliver the thing sold includes that of placing in the control
of the vendee all that is mentioned in the contract, in conformity with
the following rules:
If the sale of real estate should be made with a statement of its area, at the
rate of a certain price for a unit of measure or number, the vendor shall be obliged to
deliver to the vendee, if the latter should demand it, all that may have been stated in the
contract; but, should this be not possible, the vendee may choose between a proportional
reduction of the price and the rescission of the contract, provided that, in the latter case,
the lack in the area be not less than one-tenth of that stated.
The same shall be done, even when the area is the same, if any part of the
immovable is not of the quality specified in the contract.
The rescission, in this case, shall only take place at the will of the vendee,
when the inferior value of the thing sold exceeds one-tenth of the price agreed upon.
Nevertheless, if the vendee would not have bought the immovable had he
known of its smaller area or inferior quality, he may rescind the sale. (1469a)
Sale of real property by unit of measure or number.
(1) Entire area stated in contract must be delivered. — If the sale of real estate should be
made with a statement of its area, at the rate of a certain price per unit of measure or
number, the cause of the contract with respect to the vendee is the number of such units
or, if you wish, the thing purchased as determined by the stipulated number of units.
The vendor must deliver the entire property agreed upon. (pars. 1 and 2.) Thus, if the
parcel of land is stated in the contract as having an area of 500 square meters and sold
at P1,000.00 per square meter, the vendor must deliver the entire area as stated.
Furthermore, the immovable must be of the quality specified in the contract. (par. 3.)
(2) Where entire area could not be delivered. — If all that is included within the
stipulated boundaries is not delivered, then the object of the contract, its cause as far as
 the vendee is concerned, is not delivered. Hence, he is entitled to rescind it. He may,
however, enforce the contract with the corresponding decrease in price.
When vendee entitled to rescind sale of real property.
Under the above article, the right of rescission is available to the vendee in the
following cases:
(1) If the lack in area is at least 1/10th than that stated or stipulated. (par. 2.) The
1/10th mentioned must be based on the area stipulated in the contract, and not on the
real area which the thing may actually have;
(2) If the deficiency in the quality specified in the contract exceeds 1/10th of the price
agreed upon (par. 3.); and
(3) If the vendee would not have brought the immovable had he known of its smaller area
or inferior quality irrespective of the extent of the lack in area or quality. (pars. 4 and 5.)
The above remedies are also available under the second paragraph of Article 1542.
Note that in case of fulfillment, the vendee is entitled only to a proportionate
reduction of the price where there is a deficiency in area or number. (par. 2; see Azarraga
vs. Gray, 52 Phil. 599 [1928].) The rule is different where there is a violation of the
warranty against hidden defects. (Art. 1571.) The vendor is also liable for damages. (Art.
1567; see Art. 1191, par. 2.)
k. Delivery and acceptance of immovable objects – (Art. 1540-1542)
ART. 1540. If, in the case of the preceding article, there is a greater area or number in
the immovable than that stated in the contract, the vendee may accept the area included
in the contract and reject the rest. If he accepts the whole area, he must pay for the same
at the contract rate. (1470a)
Where immovable of a greater area or number.
If the area or number in the immovable is greater than that stipulated in the
contract, the vendee may accept the area included in the contract and reject the rest. If he
accepts the whole, he makes himself liable for the price of the same at the contract rate.
(see comments under Article 1522, par. 2.)
The vendee may not withdraw from the contract.
ART. 1541. The provisions of the two preceding articles shall apply to judicial sales. (n)
Application of Articles 1539 and 1540 to judicial sales.
The provisions of Articles 1539 and 1540 are applicable to both private (voluntary)
and judicial sales when the immovable sold is lacking in area or is of inferior quality or is
greater in area than stated in the contract. (see Arts. 1552 and 1570.) The reason is that the
rules they contain are derived from the very nature of the contract of sale.
The rules, however, may be varied or suppressed by agreement between the
contracting parties. (10 Manresa 138.)
ART. 1542. In the sale of real estate, made for a lump sum and not at the rate of a
certain sum for a unit of measure or number, there shall be no increase or decrease of the
price, although there be a greater or less area or number than that stated in the contract.
The same rule shall be applied when two or more immovables are sold for a
single price; but if, besides mentioning the boundaries, which is indispensable in every
conveyance of real estate, its area or number should be designated in the contract, the
vendor shall be bound to deliver all that is included within said boundaries, even when it
exceeds the area or number specified in the contract; and should he not be able to do so,
he shall suffer a reduction in the price, in proportion to what is lacking in the area or
number, unless the contract is rescinded because the vendee does not accede to the
failure to deliver what has been stipulated. (1471)
Sale of real estate made for a lump sum.
(1) Mistake in area stated in contract immaterial. — If the sale is made for a lump sum,
and not so much per unit of measure or number, the cause of the contract is the thing
sold independent and irrespective of its number or measure. (see 10 Manresa 145.) In this
case, the law presumes that the purchaser had in mind a determinate price for the real
estate and that he ascertained its area and quality before the contract was perfected.
In other words, it is presumed that the purchaser intended to buy a determinate
object in its entirety and not just any unit of measure or number, and the price is
determined with relation to it; hence, its greater or lesser area cannot influence the
increase or decrease of the price agreed upon, whether the object be single realty or
whether they are two or more immovables. The boundaries of the land stated in the
contract determine the effects and scope of the sale, not the area thereof. Hence, the
vendor is obligated to deliver all the land included within the boundaries, regardless of
whether the real area should be greater or smaller than that recited in the deed inasmuch
as it is the entirety thereof that distinguishes the determinate object.
The possibility of error is a hazard which the parties must be presumed to have
assumed. This hazard is not one-sided but works both ways. The rule in Article 1542,
however, admits of exceptions. (infra.)
(2) Where area or number stated together with boundaries. — If the vendor cannot deliver
to the vendee all that is included within the boundaries mentioned in the contract, the
latter has the option to reduce the price in proportion to the deficiency or to seaside the
contract. (Art. 1542, par. 2.) The phrase “should he not be able to do so” refers to a
situation when the vendor, either because a part or parcel of the real estate does not
belong to him, cannot deliver all that is included within the boundaries.
EXAMPLE:
S sold to B a parcel of land for the lump sum (or a cuerpo cierto) of P300,000.00. The
contract states that the area is 500 square meters. Subsequently, it was ascertained that the
area included within the boundaries is really 600 square meters.
In this case, S is bound to deliver all the 600 square meters which are included within said
boundaries without increase in price. If S does not deliver also the extra 100 square meters,
23
B has the right to rescind the contract or pay a proportionately reduced price, namely: 5/6 of
the original price or P250,000.00.
(3) Where there is conflict between area stipulated and title to property. — In case of
conflict between the area included within the stipulated boundaries and that which the
title shows, the former shall prevail when the boundaries are certain and no alteration
thereof has been proven. That which really defines a piece of ground is not the area,
calculated with more or less certainty mentioned in its description, but the boundaries
therein laid down as enclosing the land and indicating its limits. It is not of vital
consequence that a contract on sale of land should disclose the area with mathematical
accuracy. It is sufficient if its extent is objectively indicated with sufficient precision to
enable one to identify it. An error as to the superficial area is immaterial.
(4) Where identity of erroneously designated property clearly established. — Where the
identity of the disputed property has been clearly established by both parties’ pleadings,
the mistake in designating the property in the deed of sale “does not vitiate consent of the
parties or affect the validity and binding effect of the contract. The reason is that when one
sells or buys real property — a piece of land, for example — one sells or buys the property
as he sees it in its actual setting and by its physical metes and bounds, and not by the
mere lot number assigned to it in the certificate of title.”
(5) Where words “about,’’ “more or less,” etc. are used. — The words when used in
connection with quantity or distance, are words of safety and caution, intended to cover
some slight or unimportant inaccuracy, and, while enabling an adjustment to the
imperative demands of fixed monuments, they do not weaken or destroy the statements of
distance and quantity when no other guides are furnished. The rule in measuring
distances is that words of qualification (e.g., “50 feet, more or less’’) should be disregarded
and the exact distance adopted. The words “about,’’ “approximately,” and “more or less’’ in
connection with courses and distances may be disregarded if not controlled or explained by
monuments, boundaries and other expressions of intention. In a case, the petitioner
insists that there should have been an allowance of around 300 meters since the technical
description of the land in question states that the boundary line should be for around
16,000 meters more or less; held: The disputed gap of 300 meters is not an insignificant
distance. Thus, the petitioner cannot capitalize on the phrase “around 16,000 meters more
or less’’ for the words “more or less’’ only cover an incidental and insubstantial inaccuracy.
In another case, an area of “644 square meters more’’ was held not a reasonable
excess or deficiency, to be deemed included in the deed of sale relating to a piece of land
with an “approximate area of 240 square meters more or less.’’ A vendee of land when sold
in gross or with the description “more or less’’ with reference to its area, does not thereby
ipso facto take all risk of quantity in the land for such description or similar words in
designating quantity covers only a reasonable excess or deficiency.
24
Conflict between area stated and boundaries.
(1) Where boundaries given are sufficiently certain. — The proposition of law is to the effect
that “where it appears that the land is so described by boundaries as to put its
identification beyond doubt,” an erroneous statement relative to the area of the questioned
parcel may be disregarded because what really defines a piece of ground is not the area
mentioned in its description but the boundaries therein laid down as enclosing the land
and indicating its limits. This proposition, however, holds true only where the boundaries
given are sufficiently certain, and the identity of the land proved by the boundaries clearly
indicates that an erroneous statement concerning the area can be disregarded or ignored.
(2) Where boundaries do not identify land or overlapping of boundaries exists. — The above
rule is not applicable where the boundaries relied upon do not identify the land beyond
doubt. In such case, the area stated in the document should be followed.
In a case, the deed of sale did not even indicate with particularity the area of the land
covered thereby. The parties merely pointed at boundaries which were even beyond what
could have been bought by the vendee. An area delimited by boundaries properly identifies a
parcel of land. However, in controversial cases, where there appeared to be an overlapping of
boundaries, the actual size of the property gains importance. It is well-settled that anyone
who claims that he has a better right to a property must prove both ownership and identity
of the said property.
(3) Where discrepancy in measurement is so great. — In a case where petitioner claimed in
his application to be entitled for registration of a parcel of land whose area after the survey
turned out to be 626 hectares while the grant given to him only mentions 92 hectares, the
court rejected the claim ruling that “when the land sought to be registered is almost seven
times as much as that described in the deed, the evidence as to natural boundaries must
be very clear and convincing before that rule (that natural boundaries will prevail over area)
can be applied.”
In another case, the court properly rejected the contention of the plaintiff that the
property sought to be recovered was originally a portion of a bigger portion of land
belonging to him, it appearing that “it is only on the north and south sides of the property
in question where the natural boundaries are identical because on the east and west sides
there are no natural boundaries. . . The discrepancy in the measurement . . . is so great
that there could hardly be any room to suppose that a 30-hectare land area might have
been wrongly or inaccurately estimated to be only 1,200 square meters.”
l. Rules on Double Sale – (Art. 1544)
ART. 1544. If the same thing should have been sold to different vendees, the ownership
shall be transferred to the person who may have first taken possession thereof in good
faith, if it should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property. Should there be no
inscription, the ownership shall pertain to the person, who in good faith was first in the
possession; and, in the absence thereof, to the person who presents the oldest title,
provided there is good faith. (1473)
Rules as to preference of ownership in case of a double sale.
If the same property is sold by the same vendor to different vendees, the conflicting rights of
said vendees shall be resolved in accordance with the following rules:
(1) If the property sold is movable, the ownership shall be acquired by the vendee who first
takes possession in good faith;
(2) If the property sold is immovable, the ownership shall belong, in the order hereunder
stated, to:
(a) The vendee who first registers the sale in good faith in the Registry of Property
(Registry of Deeds) has a preferred right over another vendee who has not registered his
title even if the latter is in actual possession of the immovable property. More credit is
given to registration than to actual possession.
When a conveyance has been properly recorded, such record is constructive
notice to the whole world of its contents and all interests, legal and equitable, included
therein. Because of this principle of constructive notice, one who deals with registered
property which is the subject of an annotated levy or attachment cannot invoke the
rights of a purchaser in good faith. However, the mere registration is not enough; good
faith must concur with the registration. To be entitled to priority, the second purchaser
must have also acted in good faith, without knowledge of the previous alienation by the
vendor to another. The defense of indefeasibility of torrens title does not extend to a
transferee who takes the certificate of title in bad faith with notice of its flaw.
The requirement of the law then is two-fold: acquisition in good faith and
registration in good faith. The rule applies to the annotation of an adverse claim in
double sales.
The governing principle is prius tempore, patior jure (first in time, stronger in
right). Knowledge by the first buyer of the second sale cannot defeat the first buyer’s
right except when the second first registers in good faith the second sale. Conversely,
knowledge gained by the second buyer of the first sale defeats his rights even if he is first
to register, since such knowledge taints his registration with bad faith.
(b) In the absence of registration, the vendee who first takes possession in good faith;
and
(c) In the absence of both registration and possession, the vendee who presents the
oldest title (who first bought the property) in good faith.
Article 1544 has no application to lands not registered with the Torrens system. If
the sale is not registered, it is binding only as between the seller and the buyer; it does
not affect innocent third persons.
Possession of property sold.
The taking of possession of the property sold may be in any of the ways provided in
Articles 1497 to 1501.
The phrase “who first took possession” is equivalent to tradition, real or symbolic,
such as that which is acquired by the execution of a public instrument. Thus, after the sale
of realty by means of a public instrument, the vendor, who resells it to another does not
transmit anything to the second vendee, and if the later, by virtue of this second sale, takes
material possession of the thing, he does it as mere detainer, and it would be unjust to
protect this detention as against the rights to the thing lawfully acquired by the first vendee.
Registration of immovable sold.
(1) Sale merely presented for registration. — The mere presentation to the office of the
register of deeds of a document on which acknowledgment of receipts is written is not
equivalent to registration. Registration in its juridical aspect must be understood as the
entry made in a book or public registry of deeds.
(2) Sale registered in bad faith. — Article 1544 does not declare void a deed of sale registered
in bad faith. It does not mean, however, that said contract is not void. Article 1544
specifically provides who shall be the owner in case of a double sale of an immovable
property. To give full effect to this provision, the status of the two contracts must be
determined and clarified. One contract 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 rights which may arise from said contract.
Accordingly, where the second purchaser had knowledge of the other sale, prior to or
at the time of the sale to him, his knowledge taints his purchase with bad faith. The
applicable rule in this case would be that the ownership shall pertain to the person who, in
good faith, first entered into possession of the property or in the absence of possession, to
the person who presents the oldest title, provided there is good faith.
(3) Issuance of transfer certificate of title noted/not noted on original certificate of title. — In
a case, it appears that the issuance of a transfer certificate of title to the first buyers was
never noted on the original certificate of title which was not cancelled at all, whereas the
issuance of a transfer certificate of title to the second buyers was noted in the original
certificate of title which was cancelled by virtue of said issuance. It was held that the second
buyers acquired ownership over the disputed lot since they were the first to register in good
faith their sale in the registry of property.
(4) Immovable registered/not registered. — Article 1544 (2nd and 3rd pars.) covers all kinds
of immovables, including land, and makes no distinction as to whether the immovable is
registered or not. But insofar as registered land is concerned, the rule is in perfect accord
with Section 508 of the Land Registration Law (Act No. 496.) which provides that no deed,
mortgage, lease or other voluntary instrument, except a will, purporting to convey or affect
registered land shall take effect as a conveyance or bind the land until its registration. One
who buys from a person who is not the registered owner of property is not a purchaser in
good faith.
The peculiar force of a title under Act No. 496 is exhibited only when the purchaser
has sold to innocent third parties the land described in the conveyance. With respect to
banks, the rule that persons dealing with registered lands can rely solely on the certificate of
title does not apply to banks because their business is one affected with public interest
keeping in trust money belonging to their depositors. They are expected to exercise greater
case and prudence before entering into a contract involving registered lands.
25
 Note: The defense of indefeasibility of torrens title refers to sale of lands, and not to
sale of properties situated therein. Thus, the mere fact that the lot where a factory and
disputed properties stand is in a person’s name does not automatically make such person
the owner of everything found therein.
(5) Property attached while still registered in the name of judgment debtor. — A sale of real
estate, whether made as a result of a private transaction or of a foreclosure or execution sale,
becomes legally effective against third persons only from the date of its registration.
Consequently, where the property was actually attached and levied upon at a time when said
properties stood in the official records of the Registry of Deeds as still owned by and
registered in the name of the judgment debtor, the attachment, levy and subsequent
execution sale made in favor of the judgment creditor transferred to him all the rights of the
judgment debtor in the said property, unaffected by any prior transfer or unencumbrance
not so recorded therein.
While purchasers at execution sales should bear in mind that the rule of caveat
emptor applies to such sales (see Art. 1566.), that the sheriff does not warrant the title to
real property sold by him as sheriff, and that it is not incumbent upon him to place the
purchaser in possession of such property, still the rule applies that a person dealing with
registered land is not required to go behind the register to determine the condition of the
property and he is merely charged with notice of the burdens on the property which are
noted on the face of the register or the certificate of title. Accordingly, in case of a conflict
between a vendee and an attaching creditor who registers the order of attachment and the
sale of the property to him as the highest bidder, the latter acquire a valid title to the
property as against the former who had previously bought the same property from the
registered owner but who failed to register his deed of sale, but where the attaching creditor
has knowledge of a prior existing interest which is unregistered at a time he acquired a right
to the same land, his knowledge of that prior unregistered interest has the effect of
registration as to him.
(6) Unregistered property sold at execution sale was previously sold by judgment debtor. — A
sale of unregistered land which sale has not been registered in the office of the register of
deeds is valid and binding as between the parties themselves. The rule in Article 1544
applies to lands covered by Torrens title, where the prior sale is neither recorded nor known
to the execution purchaser prior to the levy.
But where the land is not registered under the Torrens System, the rule is different.
While under Article 1544, registration in good faith prevails over possession in the event of a
double sale by the vendor of the same piece of land to different vendees, said article is of no
application even if the latter vendee, at a sheriff’s execution sale which was registered, was
ignorant of the prior sale made by his judgment debtor in favor of another vendee. The
reason is that the purchaser of unregistered land at a sheriff’s execution sale only steps into
the shoes of the judgment debtor, and merely acquires the latter’s interest in the property
sold as of the time the property was levied upon. This is specifically provided by Section 35 of
Rule 39 of the Rules of Court.
26
(7) Notice of adverse claim was registered previous to sale to possessor. — Since the owner’s
copy of the certificate of title was not delivered in due time to the first buyer despite the
promise by the seller (attorney-in-fact) to deliver the same in a few days, the buyer registered
with the Register of Deeds on September 6, 1982 his notice of adverse claim as vendee over
the property sold. The second sale was registered only on November 11, 1982 whereby a new
title was issued in favor of the second buyer. The first buyer has a superior right to the
property in question. Article 1544 is clear that a prior right is accorded to the vendee who
first recorded his right in good faith over an immovable property.
(8) Sale was registered before the execution sale but after its levy. — The doctrine is that a
levy on execution duly registered takes preference over a prior unregistered sale, and that
even if the prior unregistered sale is subsequently registered before the sale on execution but
after the levy was duly made, the validity of the execution sale should be maintained because
it retroacted to the date of the levy. This rule applies by analogy as regards encumbrances
made after the registration of the levy on execution. The reason therefor is that if the rule
were otherwise, the preference enjoyed by the levy on execution in a case would be
meaningless and illusory.
In short, the priority enjoyed by the levy on execution extends with full force and
affect to the buyer at the auction sale conducted by virtue of such levy.
Requirement of good faith.
The fundamental premise of the preferential rights established by Article 1544 is good
faith, that is to say, ignorance of the rights of the first vendee. He is deemed a possessor in
good faith who is not aware that there exists in his title or mode of acquisition any flaw
which invalidates it. (Art. 526.)
(1) Mere registration of sale not enough. — Good faith is an essential requisite of
registration to acquire new title because “public records cannot be converted into
instruments of fraud and oppression by one who secures an inscription thereon in bad
faith.” Bad faith renders the registration nothing but an exercise in futility.
It does not vest title to an immovable property, it is merely evidence of such title.
The law will not protect anything done in bad faith.
It is presumed, however, that the registration of sale was made in good faith.
(2) Purchase must be for valuable consideration. — And it is not only required that the
purchaser of real property who has registered the same should have done so in good faith,
but also for a valuable consideration. Thus, a “purchaser in good faith” is defined as one
who buys property of another, without notice that some other person has a right to, or
interest in, such property and 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. One cannot close his eyes to facts that should put a reasonable person on guard
and still claim to have acted in good faith. Thus, a person engaged in business would be
wary of buying from a company that is closing shop because it may be dissipating its
assets to defraud its creditors.
(3) Continuation of good faith. — The mere fact that the second contract of sale was
perfected in good faith is not sufficient if, before title passes, the second vendee acquires
knowledge of the first transaction. The good faith or innocence of the posterior vendee
needs to continue until his contract ripens into ownership by tradition or registration. The
second buyer must show that he acted in good faith throughout (i.e., ignorance of the first
sale and the first buyer’s right) — from the time of acquisition until the title is transferred
to him or registration or, failing registration, by delivery of possession. In other words,
where title to the property is recorded in the Register of Deeds, the requirement of the law,
as mentioned before, is two-fold: acquisition in good faith and recording in good faith.
(4) Burden of proof. — Good faith is always presumed. It is upon those who allege the bad
faith on the part of the possessor rests the burden of proof. But the burden of proving the
status of one as a purchaser in good faith and for value lies upon him who asserts that
status where the seller had none to transmit to the purchaser and the other claimant is
himself a purchaser in good faith from the successor-in-interest of the original title holder.
In discharging that burden, it is not enough to invoke the ordinary or legal presumption of
good faith, i.e., that every one is presumed to act in good faith. The good faith that is
essential here is an integral part with the very status which must be proved. Insinuations
and inferences will not overcome the presumption that a sale was concluded in all good
faith, for value, and without secret reservations.
In a case, the first buyer failed to prove that the second buyer knew of the prior sale
to the former. Since the second buyer was considered to have registered his deed of sale in
good faith, it was held that the ownership of the disputed property should belong to them.
(5) Good faith/bad faith, a question of intention. — “Good faith or the want of it is not a
visible, tangible fact that can be seen or touched but rather a state or condition of mind
which can only be judged by actual or fancied tokens or signs.” It consists in an honest
intention to abstain from taking any unconscientious advantage of another. It is the
opposite of fraud and bad faith and its non-existence may be established by competent
proof. Bad faith does not simply connote bad judgment or negligence; it imputes a
dishonest purpose, some moral obliquity and conscious doing of a wrong. It partakes of the
nature of fraud.
In ascertaining the intention by which one is actuated on a given occasion, the
courts are necessarily controlled by the evidence as to the conduct and outward acts by
which alone, the inward motive may, with safety, be determined. The purchaser is
obligated to make a reasonable investigation as to the identity of the thing sold and the
seller’s title thereto. He cannot close his eyes to facts which should put a reasonable man
upon his guard and then claim that he acted in good faith under the belief that there was
no defect in the title of the vendor.
(6) Property purchased already peaceably possessed by another. — A purchaser cannot
close his eyes to facts which should put a reasonable man upon his guard, and then claim
that he acted in good faith under the belief that there was no defect in the title of the
vendor. Thus, the vendee who purchased property which was already peaceably possessed
by another, without inquiring into the status of the property or the vendor’s title thereto,
takes the risks and losses consequential to such failure. He is required to go beyond the
certificate of title and make inquiries concerning the rights of the actual possessor. The
absence of such inquiry will remove him from the realm of bona fide acquisition.
A cautious and prudent purchaser would usually make an ocular inspection of the
premises, this being standard practice in the real estate industry. Should such prospective
buyer find out that the land he intends to buy is being occupied by anybody other than the
seller, who is not in actual possession, it would then be incumbent upon him to verify the
extent of the occupant’s possessory rights. The failure of a prospective buyer to take such
precautionary steps would mean negligence on his part and would thereby preclude him
from claiming or invoking the rights of a purchaser in good faith.
(7) Purchaser with notice of right of repurchase which has already elapsed. — Similarly,
one who buys property with notice that it is subject to right of repurchase from his vendor
(the vendee a retro in a previous sale of the property), although such right has already
elapsed and there is no annotation of any repurchase by the vendor a retro but the title
has not yet been cleared of the encumbrance, without looking into the right of redemption
inscribed on the title, cannot be said to be a purchaser in good faith for he has notice that
some other person could have a right or interest in the property. Actual notice is equivalent
to, and indeed more binding than, presumed notice by registration.
(8) Adverse claim previously annotated on title of property sold. — A subsequent sale of
land cannot prevail over an annotated adverse claim which was previously annotated in
the certificate of title of the property. A prior judicial determination of the validity of the
adverse claim before it can flaw the title of subsequent transferees is not required. A
contrary rule contradicts the very essence of adverse claims. The annotation of an adverse
claim is a measure designed to protect the interest of a person over a piece of real property,
and serves as a notice and warning to third parties dealing with said property that
someone is claiming an interest in the same or has a better right than the registered owner
thereof.
It has been held, however, that a buyer cannot be considered as being aware of a
flaw which invalidates his acquisition where the alleged flaw, the notice of lis pendens, was
already being ordered cancelled at the time of the purchase.
(9) Purchaser examined only the latest certificate of title. — In order that a purchaser may
be considered as a purchaser in good faith, it is enough that he examines the latest
certificate of title. He is not bound by the original certificate of title but only by the
certificate of title of the person from whom he purchased the property. Good faith is
presumed. (Art. 527.) Under the established principles of land registration law, the
presumption is that the transferee of registered land is not aware of any defect in the title
of the property he purchased. He may rely on the Torrens title of the seller. In the absence
of anything to excite suspicion, the buyer is not obligated to look beyond the certificate to
investigate the title of the seller appearing on the face of the certificate. Where the seller is
not the registered owner himself, the law requires a higher degree of prudence, even if the
land object of the transaction is registered. The principle under the torrens system does
27
 not apply where the vendee has actual knowledge of facts and circumstances that would
impel a reasonably cautious man to make an inquiry with respect to the title in his vendor.
EXAMPLES:
(1) S sold to B a cash register. The register, however, was allowed to remain in the hands of S.
Subsequently, S sold the same register to C who bought it in good faith and took possession
thereof. Under the first paragraph of Article 1544, C should be considered as the owner of
the property sold.
(2) S sold a parcel of land to B. Later, S sold the same land to C who, in good faith, first
registered the deed of sale. In case of double registration, the title should remain in the name
of the person first securing registration in good faith.
The ownership belongs to C even if B is in actual possession of the land. The remedy
of B is to sue S for breach of warranty against eviction. (Art. 1548.)
If C had knowledge of the previous unregistered sale to B, such knowledge is
equivalent to registration. C is not a buyer in good faith. To be considered a purchaser in bad
faith, it is not required that C had actual knowledge of the sale to B. It is sufficient that he
has knowledge of facts which should put him upon inquiry and investigation as to possible
defects of title of S and he fails to make such inquiry and investigation.
If neither sale was registered and C first took possession of the land, in good faith, the
ownership shall also belong to him. In the absence of registration and possession by B and C,
the ownership shall pertain to B, his title being older than that of C.
(3) Suppose in the same example, S sold the parcel of land to B and then to C, who both
acted in good faith. After acquiring knowledge of the second sale to C, B registered the sale.
In this case, B, as the first vendee, has still a better right. His good faith when he purchased
the land subsisted and continued to exist when he registered the sale.
Assume now that it is C who registered the sale to him, but after he has acquired
knowledge of the previous sale to B. As second vendee, good faith at the time of purchase is
not sufficient. He must have also acted in good faith in recording his sale. Here, the rule of
caveat emptor applies. (see Art. 1566.) Hence, the registration by C is considered registration
in bad faith and will not confer upon him any right.
Other rulings on application of rules.
(1) Contract to sell/promise to sell. — Article 1544 is applicable not only to a contract of sale
but also to a contract to sell because in the Civil Law, where tradition is necessary for the
transfer of ownership, there is no real distinction between a contract of sale and a contract to
sell. It has been held, however, that the provision does not apply to a case where there was a
sale to one party of the land itself while the other contract was a mere promise to sell the
land or at most an actual assignment of the right to repurchase the same land. There is no
double sale of the same land in this case.
(2) Donation. — It applies to donations. A deed of donation executed with all the formalities
of the law is on the same footing as a deed of sale in the form of a public instrument.
28
(3) Subsequent mortgage registered under Act No. 3344. — An unrecorded sale of a house of
a prior date is preferred to a recorded mortgage of the same house of a later date for the
reason that, if the original owner had parted with his ownership of the thing sold, then he no
longer had the ownership and full disposal of that thing so as to be able to mortgage it. The
registration of a mortgage under Act No. 3344 is without prejudice to the better right of third
parties.
(4) Subsequent mortgage of land registered under the torrens system, registered by
mortgagee. — In a case, Z, after selling his land to M (under a contract to sell) which sale
was not registered, mortgaged the same property to GSIS which registered the mortgage and
acquired the property as the highest bidder in the extrajudicial foreclosure sale. The
registered right of GSIS as mortgagee of the property was held inferior to the unregistered
right of M, the previous buyer, the unrecorded sale between M as the vendee, and Z, the
original owner, is preferred for the reason that if Z had parted with his ownership of the land
sold, then he no longer had ownership and free disposal of the same so as to be able to
mortgage it.
(5) Sale of unregistered land. — A bona fide purchaser of a registered land at an execution
sale acquires a good title as against a prior transferee, if such transfer was unrecorded.
However, if the land is unregistered, a different rule applies. Under Act No. 3344, registration
of documents affecting unregistered land is “without prejudice to a third party with a better
right.” The quoted phrase has been held to mean that 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. Article 1544 has no application to land not registered under the land
registration law. (Pres. Decree No. 1529, formerly Act No. 496.) Thus, it cannot be invoked to
benefit the purchaser at the execution sale, though the latter was a buyer in good faith and
even if the second sale was registered.
Registration, however, by the first buyer under Act No. 3344 can have the effect of
constructive notice to the second buyer that can defeat his right as such buyer in good faith.
On account of the registration under Act No. 3344 by the first buyer, necessarily there is
absent good faith in the subsequent registration of the second sale by the second buyer for
said registration has the effect of constructive notice to the second buyer that can defeat his
right as such buyer.
If the property in dispute is already registered under the Torrens system, the
registration of the sale under Act No. 3344 is not effective for purposes of Article 1544.
(6) Sale to different vendees. — Clearly, Article 1544 applies to a situation where the same
property is sold to different vendees. There must be at least two (2) deeds of sale over the
same property. It is not applicable where there is only one sale. Thus, in a case, although the
deed of extra-judicial partition which merely mentioned the alleged sale in favor of petitioners
of the subject property was registered while the pacto de retro sale in favor of private
respondents was not, but the alleged deed of sale was never offered in evidence by the
petitioners, it was held that such registration did not operate as a registration of the deed of
sale because insofar as third persons are concerned, what could validly transfer or convey
the vendee’s right to the property to petitioners was the deed of sale and not the deed of
extra-judicial partition which only mentioned the former. There is, of course, no double sale
where after the sale of the property in favor of a person, the vendor did not anymore execute
another sale over the same property in favor of another.
Article 1544 cannot be involved when two different contracts of sale are made to two
different persons, one of them not being the owner of the property sold, and even if the sale
was made by the same person, if the second sale was made when such person was no longer
the owner of the property.
(7) Pacto de retro sale. — It is not applicable to a case which involves an earlier pacto de retro
sale of an unregistered land and the subsequent donation thereof by the vendor a retro to
another who, in turn, sold it to a third party while the property was still in the possession of
the vendee a retro who had already acquired title before the donation because of the failure
of the vendor a retro to repurchase the same. There being no title to the property which the
vendor a retro could convey to the supposed donee, since he was no longer the owner thereof,
no title could be conveyed by the donee by the sale of the property.
(8) Contract of sale fictitious or forged, or seller without right to sell. — It does not apply if
the contract of sale first registered I fictitious or forged or if the vendor is not the owner of the
property sold and had no right to sell the same.
But a forged deed of sale of registered land can legally be the root of a valid title when
an innocent purchaser for value intervenes. A deed of sale executed by an impostor without
authority of the owner of the land sold is a nullity, and registration will not validate what
otherwise is an invalid document. However, the certificate of title was already transferred
from the name of the true owner to the forger, and, while it remains that way, the land is
subsequently sold to an innocent purchaser, the vendee has the right to rely upon what
appears in the certificate and, in the absence of anything to excite suspicion, is under no
obligation to look beyond the certificate and investigate the title of the vendor appearing on
the face of said certificate. The remedy of the true owner is to bring an action for damages
against the one who caused or employed the fraud and if the latter is insolvent, an action
against the Treasurer of the Philippines may be filed for recovery of damages against the
Assurance Fund.
(9) Sale of property to one party and assignment of right to the property to another. — The
provisions of paragraph 3, Article 1544 do not apply to a case where the sale in favor of one
party was the property itself, while the transaction in favor of another was a mere promise to
assign or, at most, an actual assignment of the right to repurchase the same property.
(10) Sale of property subject of contract to sell/conditional sale to a third person. — In a
contract to sell, there being no previous sale of the property, a third person buying such
property despite the fulfillment of the suspensive condition such as the full payment of the
purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective
buyer cannot seek the relief of reconveyance of the property. There is no double sale in such
case. Title to the property will transfer to the buyer after registration because there is no
defect in the owner-seller’s title per se, but the latter, of course, may be sued for damages by
the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive
condition, the sale becomes absolute and this will definitely affect the seller’s title thereto. In
fact, if there had been previous delivery of the subject property, the seller’s ownership or title
to the property is automatically transferred to the buyer such that, the seller will no longer
have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such
second buyer of the property who may have had actual or constructive knowledge of such
defect in the seller’s title, or at least was charged with the obligation to discover such defect,
cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer’s title.
In case a title is issued to the second buyer, the first buyer may seek reconveyance of the
property subject of the sale.
III. OBLIGATIONS OF THE VENDEE
a. Acceptance of the thing sold – (Arts. 1582-1588)
ART. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at
the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment must be made at the
time and place of the delivery of the thing sold. (1500a)
Principal obligations of vendee.
The principal obligations of the vendee are:
(1) to accept delivery; of the thing sold; and
(2) to pay the price1 of the thing sold at the time and place stipulated in the contract;
and
(3) to bear the expenses for the execution and registration of the sale and putting the
goods in a deliverable state, if such is the stipulation. (Arts. 1488, 1521, last par.)
A grace period granted the vendee in case of failure to pay the amount/s due is a
right, not an obligation. When unconditionally conferred, it is effective without further need
of demand either calling for the payment of the obligation or for honoring the right. The
grace period must not be likened to an obligation, the non-payment of which, under Article
1169 of the Civil Code, would generally still require judicial or extrajudicial demand before
“default” can be said to arise.
The general rule is that an agreement to extend the time of payment in order to be
valid, must be for a definite time. Although no precise date is fixed, it is sufficient that the
time can readily be determined. The fact that the seller did not act on the request for what
amounts to an indefinite extension may be construed just as logically as a denial thereof.
Pertinent rules.
In connection with the above obligations, the following rules must be borne in mind:
1) In a contract of sale, 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
29
2) If stipulated, then 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;
4) In the absence also 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. 1251.); and
5) If only the time for delivery of the thing sold has been fixed in the contract, the vendee is
required to pay even before the thing is delivered to him; if only the time for payment of
the price has been fixed, the vendee is entitled to delivery even before the price is paid by
him.
EXAMPLES:
(1) S sold to B a specific refrigerator for P7,000.00. S is not bound to deliver the refrigerator
until payment by B; neither is B required to pay P7,000.00 until delivery by S. From the
moment either party performs his obligation, the other must comply with his part; otherwise,
he will be guilty of delay. (Art. 1169, par. 3.)
(2) If it has been stipulated that B must accept the refrigerator and pay the price at the
house of S on October 10, then B is bound to accept delivery and to pay the price on October
10 at the house of S.
(3) If there is no stipulation, as to the time and place of delivery and S delivers the
refrigerator at the house of B on October 10, then B is bound to accept the refrigerator and
to pay the price at the same time and place.
(4) If there is also no stipulation, S is not required to deliver the refrigerator at the house of B
because in such case the place of delivery shall be where the refrigerator was at the moment
the contract was perfected. So if it was at the house of S at that time, then that is the place
of delivery and also the place of payment. (Art. 1582, par. 2.)
(5) If the obligation of S to deliver is subject to a period which has not yet arrived, B is bound
to pay even before the refrigerator is delivered to him. On the other hand, if the sale is on
credit, B is entitled to its delivery though the price be not first paid.
Liability of vendee for obligations of company bought out.
(1) Obligation not of considerable amount or value. — In some cases, when one company
buys out another and continues the business of the latter company, the buyer may be said
to assume the obligations of the company bought out when said obligations are not of
considerable amount or value, especially when incurred in the ordinary course of trade and
when the business of the latter company is continued.
(2) Obligation of considerable amount or value. — When said obligations are of extraordinary
value and the company was brought out not to continue its business but to stop its
operation in order to eliminate competition, it cannot be said that the vendee assumed all the
obligations of the rival company.
30
ART. 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery
thereof by installments.
Where there is a contract of sale of goods to be delivered by stated installments, which are to
be separately paid for, and the seller makes defective deliveries in respect of one or more
installments, or the buyer neglects or refuses without just cause to take delivery of or pay for
one or more installments, it depends in each case on the terms of the contract and the
circumstances of the case, whether the breach of contract is so material as to justify the
injured party in refusing to proceed further and suing for damages for breach of the entire
contract, or whether the breach is severable, giving rise to a claim for compensation but not
a right to treat the whole contract as broken. (n)
Rules governing delivery in installments.
(1) General rule. — In an ordinary contract for the sale of goods, the buyer is not bound to
receive delivery of the goods in installments. He is entitled to delivery of all the goods at the
same time and, it may be added, is bound to receive delivery of all at the same time.
Similarly, a buyer has no right to pay the price in installments. Neither can he be required
to make partial payments. By agreement, however, the goods may be deliverable by
installments or the price payable in installments. (see Art. 1248.)
(2) Where separate price has been fixed for each installment. — Where the contract
provides for the delivery of goods by installments and a separate price has been agreed
upon for each installment, it depends in each case on the terms of the contract and the
circumstances of the case whether the breach thereof is severable or not.
(a) Where breach affects whole contract. — If the seller makes defective, partial or
incomplete deliveries or the buyer wrongfully neglects or refuses to accept delivery or
fails to pay any installment, the injured party may sue for damages for breach of the
entire contract if the breach is so material (e.g., breach of one installment prevents the
further performance of the contract) as to affect the contract as a whole.
(b) Where breach severable. — Where the breach is severable, it will merely give rise to a
claim for compensation for the particular breach but not a right to treat the whole
contract as broken
ART. 1584. Where goods are delivered to the buyer which he has not previously examined,
he is not deemed to have accepted them unless and until he has had a reasonable
opportunity of examining them for the purpose of ascertaining whether they are in
conformity with the contract, if there is no stipulation to the contrary.
Unless otherwise agreed, when the seller tenders delivery of goods to the buyer,
he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods
for the purpose of ascertaining whether they are in conformity with the contract.
Where goods are delivered to a carrier by the seller, in accordance with an order
from or agreement with the buyer, upon the terms that the goods shall not be delivered by
the carrier to the buyer until he has paid the price, whether such terms are indicated by
marking the goods with the words “collect on delivery,” or otherwise, the buyer is not entitled
to examine the goods before the payment of the price, in the absence of agreement or usage
of trade permitting such examination. (n)
Buyer’s right to examine the goods.
Acceptance, as used in Article 1584, is assent to become owner of the specific goods
when delivery of them is offered to the buyer.
(1) Actual delivery contemplated. — The delivery referred to in said article, as can be
gathered from its context, is actual delivery. In other words, the ownership of the goods
shall be transferred only upon actual delivery subject to a reasonable opportunity of
examining them to determine if they are in conformity with the contract.
The right of examination or inspection under paragraph 1 is thus a condition
precedent to the transfer of ownership unless there is a stipulation to the contrary.
(2) Goods delivered C.O.D./not C.O.D. — Where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods to the buyer, delivery of the goods to a
carrier for the purpose of transmission to the buyer is deemed to be delivery to the buyer.
(a) Although title passes to the buyer by the mere delivery to the carrier, the buyer unless
the goods are sent C.O.D. which is the normal procedure in importations, has the right
to examine the goods before paying. In this case, the right to examine the goods is a
condition precedent to paying the price after ownership has passed.
(b) It should be noted that even in a C.O.D. sale, the buyer is allowed to examine the
goods before payment of the price should it have been so agreed upon or if it is permitted
by usage. (par. 3.)
(3) Right of examination not absolute. — The buyer does not have an absolute right of
examination since the seller is bound to afford the buyer a reasonable opportunity of
examining the goods only “on request.” If the seller refused to allow opportunity for the
inspection, the buyer may rescind the contract and recover the price or any part of it that
he has paid.
(4) Right to be exercised within reasonable time. — While Article 1584 accords the buyer
the right to a reasonable opportunity to examine the goods to ascertain whether they are in
conformity with the contract, such opportunity to examine should be availed of within a
reasonable time in order that the seller may not suffer undue delay or prejudice.
(5) Waiver of right to examine before payment. — The right of inspection may be given up
by the buyer by stipulation. The waiver need not be in express terms. An illustration of a
bargain inconsistent with examination of the goods before payment is a contract by which
goods are to be sent to the buyer COD. But the buyer is still entitled to examine the goods
after their delivery and payment of the price. Here, the right of examination is a condition
subsequent after transfer of ownership and payment of the price.
ART. 1585. The buyer is deemed to have accepted the goods when he intimates to the seller
that he has accepted them, or when the goods have been delivered to him, and he does any
act in relation to them which is inconsistent with the ownership of the seller, or when, after
the lapse of a reasonable time, he retains the goods without intimating to the seller that he
has rejected them. (n)
Modes of manifesting acceptance.
Article 1585 expresses a definition of acceptance. It may be manifested either expressly or
impliedly.
(1) Express acceptance takes place when the buyer, after delivery of the goods, intimates to
the seller, verbally or in writing, that he has accepted them.
(2) Implied acceptance takes place:
(a) when the buyer, after delivery of goods, does any act inconsistent with the seller’s
ownership, as when he sells or attempts to sell the goods, or he uses (see Smith Bell &
Co. or makes alteration in them in a manner proper only for an owner; or
(b) when the buyer, after the lapse of a reasonable time, retains the goods without
intimating his rejection. Thus, the failure of the buyer to interpose any objection to the
invoices issued to it, to evidence delivery of the materials ordered as per agreement with
the seller and which contained the conditions in question, should be deemed as an
implied acceptance by the buyer of the said conditions.
The retention of the goods is a strong evidence that the buyer has accepted
ownership of the goods. While retention may be considered an act inconsistent with the
ownership of the seller, it is stated as a separate mode of manifesting acceptance as it is
merely a negative indication which may be due merely to carelessness.
Delivery and acceptance, separate acts.
Delivery and acceptance are two distinct and separate acts of different parties.
(1) Acceptance, not a condition to complete delivery. — Delivery is an act of the vendor. Thus,
one of the obligations of the vendor is the delivery of the thing sold. (Art. 1495.) The vendee
has nothing to do with the act of delivery by the vendor.
On the other hand, acceptance is an obligation on the part of the vendee. (Art. 1582.)
Consequently, acceptance cannot be regarded as a condition to complete delivery. In other
words, the seller must comply with his obligation to deliver although there is no acceptance
yet by the buyer.
(2) Acceptance and actual receipt do not imply the other. — Acceptance of the buyer may
precede actual delivery. There may be an actual receipt without any acceptance and there
may be acceptance without any receipt.
ART. 1586. In the absence of express or implied agreement of the parties, acceptance of the
goods by the buyer shall not discharge the seller from liability in damages or other legal
remedy for breach of any promise or warranty in the contract of sale. But, if, after acceptance
of the goods, the buyer fails to give notice to the seller of the breach in any promise of
warranty within a reasonable time after the buyer knows, or ought to know of such breach,
the seller shall not be liable therefor. (n)
Acceptance, not a bar to action for damages.
Acceptance, as used in this article, has the meaning explained previously — assent to
receive delivery as transferring possession and ownership in the goods; but it does not carry
31
with it the additional agreement that the property in the goods shall be taken in full
satisfaction of all obligations.
Therefore, unless otherwise agreed, acceptance of the goods by the buyer (Art. 1585.)
does not discharge the seller from liability in damages or other legal remedy (like rescission)
for breach of any promise (Art. 1546.) or warranty in the contract of sale.
Notice to seller of breach of promise or warranty.
(1) Necessity. — Article 1586 requires the buyer, in order to hold the seller liable for breach
of promise or warranty, to give notice to the seller of any such breach within a reasonable
time. (2nd sentence.) Time is counted not simply from the moment the buyer knows of the
defect, but from the time when he ought to have known it. Prompt exercise of opportunity for
discovering defects is, therefore, essential.
(2) Purpose. — The purpose is to protect the seller against belated claims which prevent him
from making prompt investigation to determine the cause and extent of his liability and also
to enable him to take any other immediate steps that his interest may require.
Note: The word “of’’ before “warranty” in Article 1586 should read “or.”
ART. 1587. Unless otherwise agreed, where goods are delivered to the buyer, and he refuses
to accept them, having the right so to do, he is not bound to return them to the seller, but it
is sufficient if he notifies the seller that he refuses to accept them. If he voluntarily
constitutes himself a depositary thereof, he shall be liable as such. (n)
Where buyer’s refusal to accept justified.
(1) Duty of buyer to take care of goods without obligation to return. — If the goods have been
sent to the buyer and he rightfully refuses to accept them, as in the case where the goods are
of not the kind and quality agreed upon, he is in the position of a bailee who has had goods
thrust upon him without his assent. Doubtless, he has the obligation to take reasonable care
of the goods, but nothing more can be demanded of him. Accordingly, he is under no
obligation to return the goods to the seller.
(2) Duty of seller to take delivery of goods. — After notice that the goods have not been and
will not be accepted, the seller must have the burden of taking delivery of said goods.
(3) Seller’s risk of loss of goods. — While the goods remain in the buyer’s possession under
these circumstances, they are, of course, at the seller’s risk. But the buyer is not deemed
and is not liable as a depositary, unless he voluntarily constitutes himself as such.
(4) Right of buyer to resell goods. — Should the seller, when notified to take delivery of the
goods fails to do so, the buyer may resell the goods. The provisions governing resale by the
seller when the buyer is in default, it seems, will generally apply. (see Art. 1533.)
ART. 1588. If there is no stipulation as specified in the first paragraph of article 1523, when
the buyer’s refusal to accept the goods is without just cause, the title thereto passes to him
from the moment they are placed at his disposal. (n)
32
Where buyer’s refusal to accept wrongful.
Under this article, the buyer’s refusal to accept the goods is without just cause while
under Article 1587, the refusal is with a right to do so.
As a general rule, the delivery of the goods to a carrier is deemed to be a delivery of
the goods to the buyer. (Art. 1523, par. 1.) This is true even if the buyer refuses to accept the
goods in case his refusal is without just cause. The title passes to the buyer and, therefore,
the risk of loss is borne by him (Art. 1504.) from the moment they are placed at his disposal.
(Art. 1588.) In those cases where the right of the buyer to inspect goods at the time of
delivery is a condition precedent to transfer of ownership (Art. 1584, par. 1.), the ownership
passes by operation of law after such inspection.
b. Payment of interest – (Art. 1589)
ART. 1589. The vendee shall owe interest for the
period between the delivery of the thing and the payment of the price, in the following
three cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial demand for the
payment of the price. (1501a)
Liability of vendee for interest where payment is made after delivery.
This article presupposes that the delivery of the thing sold and the payment of the
price were not made simultaneously but the thing sold was delivered, first followed by the
payment of the price after the lapse of a certain period of time. The vendee is liable to pay
interest from the delivery of the thing until the payment of the price.
(1) Interest expressly stipulated. — In such case, the rate stipulated governs. The
stipulation of the parties to pay interest may be oral. Article 1956 of the Civil Code which
provides that “no interest shall be due unless it has been expressly stipulated in writing”
should be construed as applicable only to contracts of loan.
If the parties failed to fix the rate, then the legal rate of interest shall be due.
(2) Fruits or income received by vendee from thing sold. — Under No. 2, two conditions
must exist: (a) that the thing sold has been delivered, and (b) that it produces fruits or
income. If the vendee would not be bound to pay interest for the use of the money, which
he should have paid, the principle of bilaterality which characterizes a contract of sale
would no longer exist.
Since the law makes no distinction, the vendee is still bound to pay interest even if a
term has been fixed for the payment of the price.
(3) Vendee guilty of default. — If the vendee incurs delay in the payment of the agreed price
(see Art. 1169.), the interest is due from the time of judicial or extrajudicial demand by the
vendor for the payment of the price. This demand by the vendor is the starting point for the
commencement of default or delay on the part of the vendee. (10 Manresa 278.) Under Nos.
1 and 2 of Article 1589, no demand is necessary.
 c. Suspension of Payment of the Price – (Art. 1590)
ART. 1590. Should the vendee be disturbed in the possession or ownership of the thing
acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory
action or a foreclosure of mortgage, he may suspend the payment of the price until the
vendor has caused the disturbance or danger to cease, unless the latter gives security for
the return of the price in a proper case, or it has been stipulated that, notwithstanding any
such contingency, the vendee shall be bound to make the payment. A mere act of trespass
shall not authorize the suspension of the payment of the price. (1502a)
Right of vendee to suspend payment of price.
(1) When vendee has right. — The vendee, under this article, may suspend the payment of
the price in two cases only:
(a) if he is disturbed in the possession or ownership of the thing bought; or
(b) if he has a well-grounded fear that his possession or ownership would be disturbed by
a vindicatory action or foreclosure of mortgage.
Under the circumstances provided for by Article 1590, the vendee is only entitled
to retain the price that has not been paid to the vendor. He is not entitled to recover
what has already been paid. Under the second case, it is not necessary that an action be
brought against the vendee.
It has been held that a buyer of a condominium unit is justified in suspending
payment of his monthly amortizations where the seller fails to give him a copy of the
contract to sell despite repeated demands therefor. A buyer is entitled to a copy of the
contract to sell; otherwise, he would not be informed of his rights and obligations under
the contract.
(2) When vendee has no right. — In the following cases, the vendee cannot suspend the
payment of the price even if there is disturbance in his possession or ownership of the
thing sold:
a) if the vendor gives security for the return of the price in a proper case;
b) if it has been stipulated that notwithstanding any such contingency, the vendee must
make payment;
c) if the vendor has caused the disturbance or danger to cease;
d) if the disturbance is a mere act of trespass; and
e) if the vendee has fully paid the price.
If the thing sold is in the possession of the vendee and the price is already in the
hands of the vendor, the sale is a consummated contract and Article 1590 is no longer
applicable. Article 1590 presupposes that the price or any part thereof has not yet been
paid and the contract has not yet been consummated.
Right of vendee to demand rescission.
Under the provisions of Article 1590, the vendee has no cause of action for rescission
before final judgment the reason being that otherwise, the vendor might become the victim of
machinations between the vendee and the third person. It must be noted that the
disturbance must be in the possession or ownership of the thing acquired.
The remedy of the buyer is rescission, not suspension of payment where the
disturbance is caused by the existence of a nonapparent servitude.
IV. RIGHTS OF VENDOR
a. Unpaid seller – (Art. 1525)
ART. 1525. The seller of goods is deemed to be an unpaid seller within the meaning of
this Title:
(1) When the whole of the price has not been paid or tendered;
(2) When a bill of exchange or other negotiable instrument has been received as
conditional payment, and the condition on which it was received has been broken by
reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise.
In articles 1525 and 1535 the term “seller” includes an agent of the seller to
whom the bill of lading has been indorsed, or a consignor or agent who has himself paid,
or is directly responsible for the price, or any other person who is in the position of a
seller. (n)
Meaning of unpaid seller.
An unpaid seller is one who has not been paid or tendered the whole price or who has
received a bill of exchange or other negotiable instrument as conditional payment and the
condition on which it was received has been broken by reason of the dishonor of the
instrument.
The term “unpaid seller” within the scope of Articles 1525 up to 1535 includes: (1) an
agent of the seller; (2) a consignor or agent who has himself paid or is directly responsible
for the price; or (3) any other person in the position of the seller. A seller is unpaid within
the definition whether title has or has not passed. (see Art. 1526.)
Where whole of price has not been paid.
(1) Tender of payment by buyer. — Although tender of payment is not the same as
performance, and a seller to whom the price of goods has been tendered is strictly unpaid,
and can, therefore, bring an action subsequently for the price, which he has refused, yet
tender destroys the seller’s lien. Accordingly, so far as concerns his rights against the
goods, he is not an unpaid seller after the tender of the price.
(2) Payment of part of price. — Payment of a part only of the price does not destroy a
seller’s lien. The seller remains an unpaid seller even if title has passed to the buyer.
(3) Payment by negotiable instrument. — According to paragraph 2 of Article 1249 (Civil
Code), “the delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed or when through the fault of the creditor they have been impaired.”
i. Rights of unpaid seller – (Art. 1524)
ART. 1524. The vendor shall not be bound to deliver the thing sold, if the vendee has
not paid him the price, or if no period for the payment has been fixed in the contract.
(1466)
33
 Delivery, simultaneous with payment of price.
As a general rule, the obligation to deliver the thing subject matter of a contract
arises from the moment of its perfection and from that time the obligation may be
enforced. (see Art. 1315.) But the contract of purchase and sale is bilateral and from it
arises not only the obligation to deliver the thing but also that of paying the price. The
obligations are reciprocal.
Consequently, if the vendor is bound to deliver the thing sold, it is no less certain
that the vendee must pay the price. If the vendee does not pay the price, the
consideration for the obligation of the vendor is absent and if the consideration is absent,
the obligation likewise does not exist or at least is suspended. The vendor is not also
obliged to make delivery if no period has been fixed in the contract and the vendee has
not paid the price.
A vendor who continued to effect sales and deliveries to the vendee even without
promptly getting paid is considered for all intents and purposes, to have sold on credit.
When delivery must be made before payment of price.
The provisions of Article 1524 contain a rule and an exception: the rule is that the
thing shall not be delivered unless the price be paid; and the exception is that the thing
must be delivered though the price be not first paid, if time for such payment has been
fixed in the contract.
If this period was fixed, the vendor notwithstanding such period has not terminated,
nor, consequently, that he has not collected the price, is obliged to deliver the thing sold.
The vendor’s obligation to convey the thing arises from the force and validity of the
contract. ( But even if a period has been fixed for the payment of the price, the vendor is
not bound to deliver in case the vendee has lost the right to make use of the period and
still has not paid the price. (Art. 1536.)
EXAMPLE:
S sold to B the former’s horse for P10,000.00. No date is fixed by the parties for
performance of their respective obligations. In this case, S is not bound to deliver the
horse, if B himself does not pay the price. But if a time of payment has been fixed in the
contract, say, within two (2) months, then S is obliged to deliver the horse where the
term of credit has not expired although B has not paid the price.
ii. Remedies of unpaid seller – (Art. 1526)
ART. 1526. Subject to the provisions of this Title, notwithstanding that the ownership in
the goods may have passed to the buyer, the unpaid seller of goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in possession of
them;
(2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after
he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
34
Where the ownership in the goods has not passed to the buyer, the unpaid
seller has, in addition to his other remedies, a right of withholding delivery similar to
and co-extensive with his rights of lien and stoppage in transitu where the ownership
has passed to the buyer. (n)
Special remedies of an unpaid seller of goods.
Article 1526 gives the unpaid seller of goods certain remedies but they do not
cover an action for the purchase price. (see Art. 1595.) Even if the ownership in the
goods has already passed to the buyer, the unpaid seller may exercise the following
rights:
(1) A lien on the goods or right to retain them for the price while in his possession (Arts.
1527-1529.);
(2) A right of stopping the goods in transitu in case of insolvency of the buyer (Art. 1530.);
(3) A right of resale (Art. 1533.); and
(4) A right to rescind the sale. (Art. 1534.)
If the unpaid seller still retains ownership in the goods, he cannot be said to have a
lien (on his goods). But he does have, in addition to his other remedies, right of
withholding delivery. (Art. 1526, par. 2.)
Nature of unpaid seller’s possessory lien on the goods.
The right given by this article though denominated as a lien, is in truth greater
than a lien.
The seller’s position is very nearly that of a pledgee (see Art. 2112.) with power to
sell at private sale in case of default, and the power survives till payment of the price. An
action for the price is not inconsistent with the later enforcement of the lien though the
buyer must be credited with any payment of the price in reduction of the lien.
Unpaid seller’s lien on the price.
The possessory lien referred to in Articles 1527 to 1529 should be distinguished
from the preferred claim or lien as provided for in Article 2241(3) of the Civil Code.
The possessory lien entitles the seller to retain possession of the goods as security
for the purchase price. Where the goods are in the possession of the buyer (see Art.
1529[2].), the seller has no more possessory lien but his claim for the unpaid price is a
preferred claim or lien. Simply stated, upon delivery, the seller’s possessory lien on the
goods is lost, but his lien on the price remains.
Basis of rights of unpaid seller.
The ground upon which an unpaid seller is allowed a lien and kindred remedies
is the inherent injustice of depriving him of goods with which he has not finally parted
where it is evident that he has not been or will not be paid the price for them when it is
due.
The same principle of justice is applicable in every case where a possessor of goods
is entitled to receive a price on the surrender of the goods. Accordingly, the term “unpaid
seller’’ has a wider meaning than the literal language would import.
1. Lien - (Art. 1527)
ART. 1527. Subject to the provisions of this Title, the unpaid seller of goods who is in
possession of them is entitled to retain possession of them until payment or tender of
the price in the following cases, namely:
(1) Where the goods have been sold without any stipulation as to credit;
(2) Where the goods have been sold on credit, but the term of credit has expired;
(3) Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer. (n)
When unpaid seller’s possessory lien may be exercised.
(1) Sale without stipulation as to credit. — In a credit sale, the seller binds himself to
give the goods over to the buyer without receiving at that time payment for them.
Where there is a “stipulation as to credit” (No. 1.), a period for payment of the price has
been fixed in the contract. (see Art. 1193.)
In the absence of any stipulation as to the credit, the seller is entitled to the payment
of the price at the same time that he transfers the possession of the goods. Accordingly,
the seller has always a lien upon the goods which he sells until payment or tender of
the entire price.
(2) Expiration of term of credit. — Even where the parties agree upon a sale on credit,
the seller’s right of lien may be exercised. By the nature of a credit sale, the buyer is
entitled to possession of the goods without paying the price; but if he fails to exercise
his right until the term of credit has expired and the price becomes due, he loses the
right which he theretofore had. (Ibid., p. 104.) In this case, the obligation of the buyer
to pay will also be governed by Article 1524.
(3) Insolvency of the buyer. — The insolvency of the buyer is another situation where
the lien of the seller in possession is revived even though the time for payment of the
price has not yet arrived. This doctrine is only an application of a general principle in
the law of contracts that when one party to a bilateral contract is incapacitated from
performing his part of the agreement, the other party also is excused from performing.
It should be noticed that insolvency does not dissolve the bargain; it merely revives the
seller’s lien. (Ibid., p. 105.)
The insolvency of the debtor is one of the grounds for the loss of the right to
make use of the period fixed in an obligation. (Art. 1198[1].) A person is “insolvent”
who either has ceased to pay his debts in the ordinary course of business or cannot
pay his debts as they become due, whether insolvency proceedings have been
commenced or not. (Art. 1636[2].)
Unpaid seller as bailee for the buyer.
It is immaterial that the seller holds the goods as bailee for the buyer. Indeed, this
always is the situation where the seller’s lien is in question: for the property having
passed, the seller is necessarily holding the buyer’s goods and, therefore, acting as
bailee for him. And though he has charged the buyer storage for the goods, the lien
may still be asserted.
2. Stoppage in transit – (Arts. 1530-1532)
ART. 1530. Subject to the provisions of this Title, when the buyer of goods is or
becomes insolvent, the unpaid seller who has parted with the possession of the goods
has the right of stopping them in transitu, that is to say, he may resume possession
of the goods at any time while they are in transit, and he will then become entitled to
the same rights in regard to the goods as he would have had if he had never parted
with the possession. (n)
Right of seller to stop goods in transitu.
If the unpaid seller has already parted with the possession of the goods, he may
still exercise the second right of stoppage in transitu (Art. 1520[2].), that is, he may
resume possession of the goods while they are in transit, when the buyer is or becomes
insolvent. The right is exercised either by obtaining actual possession of the goods or
by giving notice of his claim to the carrier or other bailee in possession. (Art. 1532.)
The unpaid seller exercising his right of stoppage in transitu becomes entitled to the
same rights to the goods as if he had never parted with the possession thereof.
Take note that the buyer’s insolvency need not be judicially declared. (see Art.
1636[2].) An insolvent debtor forfeits his rights to the period stipulated for payment.
(see Art. 1536.)
Requisites for the exercise of right of stoppage in transitu.
The following are the requisites for the existence of the right:
1) The seller must be unpaid (Art. 1525.);
2) The buyer must be insolvent;
3) The goods must be in transit (Art. 1531.);
4) The seller must either actually take possession of the goods sold or give notice
of his claim to the carrier or other person in possession (Art. 1532, par. 1.);
5) The seller must surrender the negotiable document of title, if any, issued by
the carrier or bailee (Ibid., par. 2.); and
6) The seller must bear the expenses of delivery of the goods after the exercise of
the right. (Ibid.)
Basis and nature of right of stoppage in transitu.
(1) The essential basis of the right of stoppage in transitu is clearly the injustice of
allowing the buyer to acquire ownership and possession of the goods when he has not
paid and, owing to his insolvency, cannot pay the price which was to be given in return
for the goods. In other words, the fundamental basis of the right is the far-reaching
principle allowing rescission and restitution where there is actual or prospective failure
of consideration.
(2) This right does not proceed from any agreement of the parties but is independently
conferred by law. It may be regarded as a legal extension of the unpaid seller’s lien.
35
ART. 1531. Goods are in transit within the meaning of the preceding article:
(1) From the time when they are delivered to a carrier by land, water, or air, or other bailee
for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf,
takes delivery of them from such carrier or other bailee;
(2) If the goods are rejected by the buyer, and the carrier or other bailee continues in
possession of them, even if the seller has refused to receive them back;
Goods are no longer in transit within the meaning of the preceding article:
(1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival
at the appointed destination;
(2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee
acknowledges to the buyer or his agent that he holds the goods on his behalf and continues
in possession of them as bailee for the buyer or his agent; and it is immaterial that further
destination for the goods may have been indicated by the buyer;
(3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his
agent in that behalf.
If the goods are delivered to a ship, freight train, truck, or airplane chartered by
the buyer, it is a question depending on the circumstances of the particular case, whether
they are in the possession of the carrier as such or as agent of the buyer.
If part delivery of the goods has been made to the buyer, or his agent in that
behalf, the remainder of the goods may be stopped in transitu, unless such part delivery has
been under such circumstances as to show an agreement with the buyer to give up
possession of the whole of the goods. (n)
When goods are in transit.
The goods are not yet in transit until they are delivered to a carrier or other bailee for the
purpose of transmission to the buyer. The goods are in transit —
(1) after delivery to a carrier or other bailee and before the buyer or his agent takes delivery
of them; and
(2) if the goods are rejected by the buyer, and the carrier or other bailee continues in
possession of them. (par. 1.)
When goods considered no longer in transit.
The right of stoppage in transitu arises solely when an unpaid seller has shipped goods to an
insolvent buyer. The right to retake continues only while the goods are in transit. The goods
are no longer in transit in the following cases:
(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 bailee acknowledges to hold the goods on behalf of the buyer; and
(4) If the carrier or bailee wrongfully refuses to deliver the goods to the buyer. (par. 2.)
Attornment by the bailee.
The right to stop the goods may be terminated not simply by delivery to the buyer, but by
attornment of the bailee to the buyer. (Art. 1531, par. 2[2].)
36
At the time when a carrier first receives goods consigned to the buyer, the carrier
is agent for the seller for the purpose of carrying out the transit between the seller and
the buyer. In order to terminate the seller’s right to stop, the carrier must enter into a
new relation, distinct from the original contract of carriage, to hold the goods for the
buyer as his agent not for the purpose of expediting them to the place of original
destination, pursuant to that contract, but in a new character for the purpose of
custody on the buyer’s account.
Effect of refusal of carrier to attorn or deliver the goods.
The carrier is not allowed to enlarge the seller’s right by wrongfully refusing to
deliver or attorn as the buyer’s agent. (Art. 1531, par. 2[3].) But a rightful refusal by
the carrier, based for instance, on the refusal of the buyer or his agent to pay the
freight will not terminate the right to stop.
Delivery to a ship, etc., chartered or owned by buyer.
(1) Chartered by the buyer. — The mere fact that the carrier is chartered by the buyer
does not make a delivery to the carrier a delivery to the buyer. Whether delivery to a
carrier chartered by the buyer means possession by the carrier as such or possession
by the carrier as agent of the buyer, in which case, the goods are no longer in transit,
is a question depending on the circumstances of the particular case. (par. 3.)
(2) Owned by the buyer. — As delivery to an agent, other than one whose only duty is
to forward the goods, is a delivery to the principal, delivery to the buyer’s servant who
is under a general duty to obey his master’s order, is necessarily a delivery to the
buyer. Hence, delivery to a vessel belonging to the buyer is delivery to the buyer
Effect of partial delivery.
The mere fact that part of the goods has been delivered does not deprive the seller
of the right to stop with respect to the remainder (par. 4.) just as the seller may still
exercise his right of lien on the remainder after part of the goods had been delivered.
However, it may be shown that the seller has an agreement with the buyer to give up
possession of the whole of the goods.
ART. 1532. The unpaid seller may exercise his right of stoppage in transitu either by
obtaining actual possession of the goods or by giving notice of his claim to the carrier
or other bailee in whose possession the goods are. Such notice may be given either to
the person in actual possession of the goods or to his principal. In the latter case, the
notice, to be effectual, must be given at such time and under such circumstances
that the principal, by the exercise of reasonable diligence, may prevent a delivery to
the buyer.
When notice of stoppage in transitu is given by the seller to the carrier, or other bailee
in possession of the goods, he must redeliver the goods to, or according to the
directions of, the seller. The expenses of such delivery must be borne by the seller. If,
however, a negotiable document of title representing the goods has been issued by the
carrier or other bailee, he shall not be obliged to deliver or justified in delivering the
goods to the seller unless such document
is first surrendered for cancellation. (n)
Ways of exercising the right to stop.
The seller may exercise the right of stoppage in transitu either:
(1) by taking actual possession of the goods. — The seller’s power to stop in transitu
includes not only the power to counter delivery to the buyer but to order redelivery to
himself. (par. 2, 1st and 2nd sentences.) The duty imposed on the carrier by the
exercise of the power is, however, qualified by the existence of a lien of the carrier on
the goods for charges due for their carriage. The seller has the obligation to pay the
freight on them and other necessary expenses of the delivery (3 Williston, op. cit., pp.
156-157.); or
(2) by giving notice of his claim to the carrier or bailee. — To make a notice effective
as a stoppage in transitu, it must be given at such time, and under such
circumstances that the principal, by the exercise of reasonable diligence, may
communicate it to his agent to prevent the delivery to the buyer. There is no form of
notice which is essential; it is only necessary that the goods be sufficiently described
for identification.
Effect of outstanding bill of lading.
If the goods are covered by a negotiable document of title, the carrier or bailee has
no obligation to deliver the goods to the seller unless such document is first
surrendered for cancellation. (par. 2, 3rd sentence; see Art. 1519.)
Should the carrier surrender the goods to the seller and afterwards the bill of
lading be negotiated to an innocent purchaser for value, the latter would be entitled
to demand delivery of the goods. (Art. 1518.) The only way in which the carrier can
be assured that no subsequent purchaser can arise is by requiring a surrender of
the document of title. The right of the purchaser for value in good faith to whom
such document has been negotiated is superior to the seller’s unpaid lien or
stoppage in transitu even when such purchaser acquired the same after notice of
stoppage was given by the seller to the carrier.
3. Resale – (Art. 1533)
ART. 1533. Where the goods are of perishable nature, or where the seller expressly
reserves the right of resale in case the buyer should make default, or where the buyer
has been in default in the payment of the price for an unreasonable time, an unpaid
seller having a right of lien or having stopped the goods in transitu may resell the
goods. He shall not thereafter be liable to the original buyer upon the contract of sale
for any profit made by such resale, but may recover from the buyer damages for any
loss occasioned by the breach of the contract of sale.
Where a resale is made, as authorized in this article, the buyer acquires a
good title as against the original buyer.
It is not essential to the validity of a resale that notice of an intention to
resell the goods be given by the seller to the original buyer. But where the right to
resell is not based on the perishable nature of the goods or upon an express provision
of the contract of sale, the giving or failure to give such notice shall be relevant in any
issue involving the question whether the buyer had been in default for an
unreasonable time before the resale was made.
It is not essential to the validity of a resale that notice of the time and
place of such resale should be given by the seller to the original buyer.
The seller is bound to exercise reasonable care and judgment in making
a resale, and subject to this requirement may make a resale either by public or
private sale. He cannot, however, directly or indirectly buy the goods. (n)
Unpaid seller’s right of resale.
(1) When resale allowable. — The third right of an unpaid seller is the right of resale.
(Art. 1526[3].) An unpaid seller can exercise the right to resell only when he has either
a right of lien (Ibid., [1].) or a right to stop the goods in transitu (Ibid., [2].) and under
any of the three following cases:
(a) where the goods are perishable in nature;
(b) where the right to resell is expressly reserved in case the buyer should make a
default; and
(c) where the buyer delays in the payment of the price for an unreasonable time.
Article 1533 provides that the seller having the right “may resell the goods.” The
language is permissive in nature rather than mandatory.
(2) Effect of resale. — In case of resale, the seller is not liable for any profit made by
such resale; but if he sells for less than the price, he has a right to sue for the balance.
(par. 1.) As against the original buyer, the new buyer acquires a good title to the goods.
(par. 2.)
(3) Notice of resale not essential. — The seller’s right to resell the goods for the buyer’s
account may depend to some extent upon the length of time the buyer has been in
default. A notice by the seller of his intention to resell may operate to fix the time
withinwhich it is reasonable that the buyer should perform his obligations. It is,
37
 therefore, provided in paragraph 3, that except in the case of perishable goods, which
it is obvious may require an expeditious sale, and where the right to resell is reserved,
the failure to give notice shall be relevant upon the question whether the buyer has
been in default for an unreasonable time. What is reasonable time will vary according
to the circumstances of the case.
Though the seller is not bound to give notice of his intention to resell and of the
time and place where the resale will be held (par. 4.), it is however, prudent to give the
buyer such notice, as the giving or failure to give it may be important evidence in
regard to the fairness of the sale.
(4) Manner of resale. — Any absolute rule requiring the formality of an auction sale
might bear harshly on the seller in case where the goods are of small value and the
buyer is financially irresponsible. The law “is satisfied with a fair sale made in good
faith according to the established business methods with no attempt to take advantage
of the vendee.” (Ibid., pp. 168-169.) The seller is only required to exercise reasonable
care and judgment in making a resale. He cannot, however, directly or indirectly, buy
the goods.
4. Rescission – (Art. 1534)
ART. 1534. An unpaid seller having the right of lien or having stopped the goods in
transitu, may rescind the transfer of title and resume the ownership in the goods,
where he expressly reserved the right to do so in case the buyer should make default,
or where the buyer has been in default in the payment of the price for an
unreasonable time. 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 of the contract.
The transfer of title shall not be held to have been rescinded by an unpaid
seller until he has manifested by notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt act should be communicated
to the buyer, but the giving or failure to give notice to the buyer of the intention to
rescind shall be relevant in any issue involving the question whether the buyer had
been in default for an unreasonable time before the right of rescission was asserted.
(n)
Unpaid seller’s right of rescission.
(1) When seller may rescind. — The fourth right of an unpaid seller is the right to
rescind the sale. (Art. 1526[4].) An unpaid seller has a right to rescind only if he has
either a right of lien (Ibid., No. 1.) or a right to stop the goods in transitu (Ibid., No. 2.)
and under either of two situations:
(a) where the right to rescind is expressly reserved in case the buyer should make a
default; or
(b) where the buyer delays in the payment of the price for an unreasonable time.
38
(2) Effect of rescission. — In the case of rescission, the seller resumes ownership in the
goods. While the seller shall not be liable to the buyer upon the contract of sale, the
latter, however, may be made liable to the seller for damages for any loss occasioned
by the breach of contract. (par. 1; see Art. 1533, par. 1.)
(3) Manner of rescission. — An election by the seller to rescind may be manifested by
notice to the buyer or by some other overt act showing an intention to rescind.
Communication of such election to the buyer is not necessary. But, as in regard to
resale (Art. 1533, par. 3.), the giving or failure to give notice is relevant in determining
the reasonableness of the time given the buyer to make good his obligations under the
contract.
V. CONDITIONS AND WARRANTIES
a. Condition – (Art. 1545)
ART. 1545. Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with the contract or
he may waive performance of the condition. If the other party has promised that the
condition should happen or be performed, such first mentioned party may also treat the
non-performance of the condition as a breach of warranty.
Where the ownership in the thing has not passed, the buyer may treat the
fulfillment by the seller of his obligation to deliver the same as described and as warranted
expressly or by implication in the contract of sale as a condition of the obligation of the
buyer to perform his promise to accept and pay for the thing. (n)
Meaning of condition.
A condition, as used in Article 1545, means an uncertain event or contingency on the
happening of which the obligation (or right) of the contract depends. In such a case, the
obligation of the contract does not attach until the condition is performed. (see Art. 1462,
par. 2.)
(1) The term, in the context of a perfected contract of sale, pertains, in reality, to the
compliance by one party of an undertaking, the fulfillment of which would beckon, in
turn, the demandability of the reciprocal prestation of the other party.
(2) The term is not used in the sense of a “promise” with the possible exception of the
buyer’s promise to accept and pay for the thing sold which is conditioned on the seller’s
performance of his promise to deliver the thing as described and warranted.
Effect of non-fulfillment of condition.
A contract of sale may be absolute or conditional. (Art. 1458.)
(1) If the obligation1 of either party is subject to any condition and such condition is not
fulfilled, such party may either:
(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 a breach of warranty.
(see Art. 1546.)
EXAMPLES:
(1) B (buyer) entered into a contract with S for the purchase of certain machinery. The
arrival of the goods to be shipped from Japan is made a condition of the bargain, there
being no promise by S that the goods will arrive. If the machinery does not arrive, S is not
guilty of breach of contract.
But if S promises or warrants that the machinery will be shipped or that it was already on
its way, the non-arrival constitutes a breach of contract. B is entitled to claim damages.
(2) S promised to sell his parcel of land to B, should S win a case pending in the Supreme
Court. S lost the case. S may either refuse to sell the parcel of land or he may waive the
performance of the condition and sell the parcel of land.
(3) S sold to B certain subdivision lots, with S promising to construct the necessary roads
that would serve as outlets for entrance and egress to and from the lots in accordance with
the requirements of existing laws and regulations. B may treat the non-performance of S’s
promise as a breach of warranty. It is the seller’s duty to deliver the thing sold in a
condition suitable for its enjoyment by the buyer for the purposes contemplated. In this
case, proper access to his residence is essential to the enjoyment by B of the lots
purchased.
(4) S agrees to sell to B a parcel of land, subject to the condition that the balance of the
purchase price shall be paid by B 10 days after the removal of all squatters from the
property by S within 45 days after the signing of the contract. If after 45 days from the
signing of the contract, S shall not be able to remove the squatters, the down payment
made by B shall be returned by S.
May S demand the rescission of the contract for the sale of the land for his own
failure to have the squatters evicted within the stipulated period?
No. The ejectment of the squatters is a condition, the operative act which sets into
motion the period of compliance by B of his own obligation. S’s failure to comply with the
condition does not result in the failure of the contract; it only gives B the option either to
refuse to proceed with the agreement or waive that condition. This option clearly belongs to
B and not to S who is not the injured party.
It would be the height of inequity for S to invoke the continued occupation by the
squatters of the property as a justification to ignore his obligation to evict them. The
performance of his obligation should not be made subject to the will and caprices of the
occupants.
b. Warranty – (Art. 1546-1547)
ART. 1546. Any affirmation of fact or any promise by the seller relating to the thing is an
express warranty if the natural tendency of such affirmation or promise is to induce the
buyer to purchase the same, and if the buyer purchases the thing relying thereon. No
affirmation of the value of the thing, nor any statement purporting to be a statement of
the seller’s opinion only, shall be construed as a warranty, unless the seller made such
affirmation or statement as an expert and it was relied upon by the buyer. (n)
Meaning of warranty.
A warranty is a statement or representation made by the seller of goods,
contemporaneously and as a part of the contract of sale, having reference to the character,
quality, or title of the goods, and by which he promises or undertakes to insure that
certain facts are or shall be as he then represents them.
Terminology used by parties not controlling.
It is not necessary that the word “warranty” or “warrant” be used by the seller to
constitute a warranty. Any word is sufficient to show the intention of the parties to
consider the representation or promise as an express warranty; and the fact that a
stipulation in the contract of sale is specially called a “warranty” does not of itself establish
that the agreement thus referred to is a warranty.
Kinds of warranty.
Warranties by the seller may be express, as in the above article, or implied, as in
Article 1547.
The seller is liable for his express warranties (Art. 1546.) and for the implied
warranties of title (Art. 1547.), absence of hidden defects (Ibid.), fitness or merchantability
(Art. 1562.), description (Arts. 1481, 1562.), and sample. (Arts. 1481, 1565.)
Meaning of express warranty.
An express warranty is any affirmation of fact or any promise by the seller relating to the
thing, the natural tendency of which is to induce the buyer to purchase the thing and the
buyer thus induced, does purchase the same.
Effect of express warranty.
Under the definition, statements not only relating to quality or title of the thing but
relating to other incidents to it may be warranties.
A warranty being a part of the contract of sale, it is immaterial whether the seller did not
know that it was true or false. No intent is necessary to make the seller liable for his
warranty. It is the natural consequences of what the seller says and the reliance thereon
by the buyer that alone are important. Accordingly, where the seller (importer-assembler)
expressly intimated to the buyer that the taxes and customs duties on two (2) assembled
trucks were already paid, such representation shall be considered, as a seller’s warranty
under Article 1546 which covers any affirmation of fact or any promise by the seller which
induces the buyer to purchase the object of sale and actually purchases it relying on the
affirmation or promise.
It has been held that where there is no dispute that the defendant (seller), in bad
faith and with gross negligence, infringed the express warranty made by it to the general
public with respect to its products sold to and installed in the house of the plaintiff (buyer),
who relied on the warranty, the identity of the individual who actually dealt with the
defendant and asked the latter to make the delivery and installation by its workers is
pointless
39
 EXAMPLE:
S sells to B an automobile for P90,000.00, telling the latter that it is a 1977 model
and that it is worth about P100,000.00. B sees the automobile and after a test run,
expresses satisfaction over its condition. The automobile is really of 1976 vintage and is
only worth about P80,000.00.
In this case, B has no right of action for breach of warranty because the inducing
cause of the purchase is not the erroneous statement as to its model and value, but B’s
reliance on its appearance and demonstrated condition. But the statement that the
automobile is in excellent running condition constitutes a violation of warranty if such is
not the fact.
Effect of expression of opinion.
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.
Thus, assertions that things are fine or valuable or better than products of rival
manufacturers are in their nature so dependent on individual opinion that no matter how
positive the seller’s assertion may be, they are not held to create a warranty.
The tendency of the courts, however, is in the direction of greater strictness against
the seller’s untruthful puffing of his wares. (see Ibid., pp. 517-518.)
The following provisions of law are pertinent:
“The usual exaggerations in trade, when the other party had an opportunity to know
the facts, are not in themselves fraudulent.” (Art. 1340.)
“A mere expression of an opinion does not signify fraud unless made by an expert
and the other party has relied on the former’s special knowledge.” (Art. 1341.)
“Misrepresentation made in good faith is not fraudulent but may constitute error.”
(Art. 1343.)
EXAMPLES:
(1) Expressions or advertisements like: “the cigarette that will give you utmost smoking
pleasure”, “the most effective pain reliever”; “you like it, it likes you”, etc. are mere “sales
talk” or “seller’s puffing.”
They are not construed as warranties because the buyer knows that they are mere
exaggerations.
(2) S, a farmer, found a ring which he sold to B, honestly believing and representing to B
that it was a diamond ring. It turned out that the ring was ordinary glass.
Here, S merely expressed an opinion. Since the misrepresentation was made in
good faith, it is considered a mere error or mistake. But if S is an expert, and his statement
was relied upon by B, the same shall be construed as a warranty even if expressed in the
form of an opinion.
40
i. Implied Warranty (under RA 7394 - Consumer Act of the Philippines)
ART. 1547. In a contract of a sale, unless a contrary intention appears, there is:
(1) An implied warranty on the part of the seller that he has a right to sell the thing at
the time when the ownership is to pass, and that the buyer shall from that time have
and enjoy the legal and peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden faults or defects, or
any charge or encumbrance not declared or known to the buyer.
This article shall not, however, be held to render liable a sheriff, auctioneer,
mortgagee, pledgee, or other person professing to sell by virtue of authority in fact or
law, for the sale of a thing in which a third person has a legal or equitable interest. (n)
Meaning of implied warranty.
An implied warranty is that which the law derives by implication or inference
from the nature of the transaction or the relative situation or circumstances of the
parties, irrespective of any intention of the seller to create it.
Implied warranties in sale.
The term implied warranty is reserved for cases where the law attaches an obligation to
the seller which is not expressed in any words. (1 Williston, op. cit., p. 498.) Implied
warranties under Articles 1547 and 1562 are:
(1) Implied warranty as to seller’s title. — that the seller guarantees that he has a 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 (Art. 1548.);
(2) Implied warranty against hidden defects or unknown encumbrance. — that the 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 (Art. 1561.); and
(3) Implied warranty as to fitness or merchantability. — that the seller guarantees that
the thing sold is reasonably fit for the known particular purpose for which it was
acquired by the buyer or, where it was bought by description, that it is of merchantable
quality. (Art. 1562.)
The right of the seller to sell the thing need not reside in him at the time the
contract is perfected. It is sufficient that the vendor has a right “at the time when the
ownership is to pass.” (Art. 1547[1].) This complements Article 1459 that “the vendor
must have a right to transfer the ownership thereof at the time it is delivered” and Article
1562 which allows the sale of “future goods” or of goods the acquisition of which depends
upon a contingency
1. Implied Warranty of Merchantability (Art. 68 of RA 7394)
a. Duration
• Any other implied warranty shall endure not less than sixty (60) days nor more
than one (1) year following the sale of new consumer products.
 b. Breach of Warranties
• In case of breach of implied warranty, the consumer may retain in the goods and
recover damages, or reject the goods, cancel and contract and recover from the
seller so much of the purchase price as has been paid, including damages.
2. Warranties in Supply of Services (Art. 69 of RA 7394)
ARTICLE 69. a) In every contract for the supply of services to a consumer made by a
seller in the course of a business, there is an implied warranty that the service will be
rendered with due care and skill and that any material supplied in connection with
such services will be reasonably fit for the purpose for which it is supplied.
b) Where a seller supplies consumer services in the course of a business
and the consumer, expressly or by implication, makes known to the seller the
particular purpose for which the services are required, there is an implied warranty
that the services supplied under the contract and any material supplied in connection
therewith will be reasonably fit for that purpose or are of such a nature or quality that
they might reasonably be expected to achieve that result, unless the circumstances
show that the consumer does not rely or that it is unreasonable for him to rely, on the
seller's skill or judgment.
ii. Warranty Against Eviction (Arts. 1548 – 1560)
ART. 1548. Eviction shall take place whenever by a final judgment based on a right
prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole
or of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing has been said
in the contract on the subject.
The contracting parties, however, may increase, diminish, or suppress this
legal obligation of the vendor. (1475a)
Meaning of eviction.
Eviction may be defined as the judicial process, whereby the vendee is deprived of the
whole or part of the thing purchased by virtue of a final judgment based on a right prior
to the sale or an act imputable to the vendor.
Essential elements of warranty against eviction.
The essential elements are:
1) The vendee is deprived in whole or in part of the thing purchased;
2) He is so deprived by virtue of a final judgment (Art. 1557.);
3) The judgment is based on a right prior to the sale or an act imputable to the vendor;
4) The vendor was summoned in the suit for eviction at the instance of the vendee (Art.
1558.); and
5) There is no waiver on the part of the vendee.
EXAMPLES:
(1) S sells a parcel of land to B. Subsequently, C files an action for the recovery of
possession, claiming that he is the owner of the land. At the instance of B, S was
summoned to defend his title. The court renders final judgment, declaring that C has a
better right. Accordingly, B is evicted. In this case, S is liable to B for failure to comply
with his warranty against eviction. Here, the judgment is based on a right of a third
person prior to the sale.
(2) In the same example, suppose S was really the owner of the parcel of land. However,
B did not have the sale registered. Immediately, S sold the same land to C who, in good
faith, registered the sale.
Here, the right upon which C based his claim is posterior to the sale.
Nevertheless, B can sue S for damages because of the breach of warranty against
eviction, the act giving rise to C’s right being imputable to the vendor.
Trespass contemplated by warranty against eviction.
Mere trespass in fact does not give rise to the application of the doctrine of
eviction. (see Art. 1590.) In such case, the vendee has a direct action against the
trespasser in the same way as the lessee has such right. (Art. 1664.)
The disturbance referred to in the case of eviction is a disturbance in law which
requires that a person go to the courts of justice claiming the thing sold, or part thereof,
and invoking reasons. If final judgment is rendered depriving the vendee of the thing sold
or any part thereof, the doctrine of eviction becomes applicable. (10 Manresa 184.)
Vendor’s liability is waivable.
Warranty is not an essential element of a contract of sale and may, therefore, be
increased, diminished, or suppressed by agreement of the parties. (Art. 1548, par. 3.)
Any stipulation, however, exempting the vendor from the obligation to answer for
eviction shall be void if he acted in bad faith. (Art. 1553.)
ART. 1549. The vendee need not appeal from the decision in order that the vendor may
become liable for eviction
Vendee has no duty to appeal from judgment.
The vendee’s right against the vendor is not lost because he, the vendee, did not
appeal. With a judgment becoming final whatever be the cause of finality, the
requirement of the law is deemed satisfied.
Furthermore, the vendor, having been notified of the action, could have very well
followed up the case and made use of all possible remedies. If he did not do that, he
should suffer for his omission. In reality, he does not have the right to demand of the
vendee such diligence that he himself did not have and which he was more obliged to
observe, especially if the cause of eviction was anterior to the sale.
41
ART. 1550. When adverse possession had been commenced before the sale but the
prescriptive period is completed after the transfer, the vendor shall not be liable for eviction.
ART. 1551. If the property is sold for nonpayment of taxes due and not made known to the
vendee before the sale, the vendor is liable for eviction. (n)
ART. 1552. The judgment debtor is also responsible for eviction in judicial sales, unless it is
otherwise decreed in the judgment. (n)
ART. 1553. Any stipulation exempting the vendor from the obligation to answer for eviction
shall be void, if he acted in bad faith. (1476)
ART. 1554. If the vendee has renounced the right to warranty in case of eviction, and eviction
should take place, the vendor shall only pay the value which the thing sold had at the time of
the eviction. Should the vendee have made the waiver with knowledge of the risks of eviction
and assumed its consequences, the vendor shall not be liable. (1477)
ART. 1555. When the warranty has been agreed upon or nothing has been stipulated on this
point, in case eviction occurs, the vendee shall have the right to demand of the vendor:
(1) The return of the value which the thing sold had at the time of the eviction, be it greater
or less than the price of the sale;
(2) The income or fruits, if he has been ordered to deliver them to the party who won the suit
against him;
(3) The costs of the suit which caused the eviction and, in a proper case, those of the suit
brought against the vendor for the warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests and ornamental expenses, if the sale was made in bad faith.
(1478)
ART. 1556. Should the vendee lose, by reason of the eviction, a part of thing sold of such
importance, in relation to the whole, that he would not have bought it without said part, he
may demand the rescission of the contract; but with the obligation to return the thing
without other encumbrances than those which it had when he acquired it.
He may exercise this right of action, instead of enforcing the vendor’s liability for eviction.
The same rule shall be observed when two or more things have been jointly sold for a lump
sum, or for a separate price for each of them, if it should clearly appear that the vendee
would not have purchased one without the other. (1479a)
ART. 1557. The warranty cannot be enforced until a final judgment has been rendered,
whereby the vendee loses the thing acquired or a part thereof. (1480)
ART. 1558. The vendor shall not be obliged to make good the proper warranty, unless he is
summoned in the suit for eviction at the instance of the vendee. (1481a)
42
ART. 1559. The defendant vendee shall ask, within the time fixed in the Rules of Court for
answering the complaint, that the vendor be made a co-defendant. (1482a)
ART. 1560. If the immovable sold should be encumbered with any non-apparent burden or
servitude, not mentioned in the agreement, of such a nature that it must be presumed that
the vendee would not have acquired it had he been aware thereof, he may ask for the
rescission of the contract, unless he should prefer the appropriate indemnity. Neither right
can be exercised if the non-apparent burden or servitude is recorded in the Registry of
Property, unless there is an express warranty that the thing is free from all burdens and
encumbrances.
Within one year, to be computed from the execution of the deed, the vendee may
bring the action for rescission, or sue for damages.
One year having elapsed, he may only bring an action for damages within an
equal period, to be counted from the date on which he discovered the burden or servitude.
(1483a)
iii. Warranty Against Hidden Defects (Arts. 1561-1581)
ART. 1561. The vendor shall be responsible for warranty against the hidden defects which
the thing sold may have, should they render it unfit for the use for which it is intended, or
should they diminish its fitness for such use to such an extent that, had the vendee been
aware thereof, he would not have acquired it or would have given a lower price for it; but said
vendor shall not be answerable for patent defects or those which may be visible, or for those
which are not visible if the vendee is an expert who, by reason of his trade or profession,
should have known them. (1484a)
ART. 1562. In a sale of goods, there is an implied warranty or condition as to the quality or
fitness of the goods, as follows:
(1) Where the buyer, expressly or by implication, makes known to the seller the particular
purpose for which the goods are acquired, and it appears that the buyer relies on the seller’s
skill of judgment (whether he be the grower or manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit for such purpose.
(2) Where the goods are bought by description from a seller who deals in goods of that
description (whether he be the grower or manufacturer or not), there is an implied warranty
that the goods shall be of merchantable quality. (n)
VI. INSTALLMENT SALES
a. Recto Law – Act. No. 4122
Section 1
The Civil Code is hereby amended by inserting between sections fourteen hundred and fifty-
four and fourteen hundred and fifty-five thereof a new section, to be known as section
fourteen hundred and fifty-four-A, which shall read as follows:
"SEC. 1454-A. In a contract for the sale of personal property payable in installments, failure
to pay two or more installments shall confer upon the vendor the right to cancel the sale or
foreclose the mortgage if one has been given on the property, without reimbursement to the
purchaser of the installments already paid, if there be an agreement to this effect.
"However, if the vendor has chosen to foreclose the mortgage he shall have no further action
against the purchaser for the recovery of any unpaid balance owing by the same, and any
agreement to the contrary shall be null and void.
"The same rule shall apply to leases of personal property with option to purchase, when the
lessor has chosen to deprive the lessee of the enjoyment of such personal property."
Section 2
This Act shall take effect on its approval.
Approved, December 9, 1933.
• Selling of personal property
Sale of movables in installments (Payable in 2/more installments)
Remedies:
1. Exact fulfillment
2. Rescission (if vendee fails to pay 2/more installments)
3. Foreclosure of chattel mortgage
Sale of Immovables
Requisites:
1. There is delivery
2. Unpaid
3. Vendor has reasonable ground to fear the loss of property. (TO SUE FOR RESCISSION)
i. Spouses Alfredo v. PCI Leasing, GR No. 139233, 11 November 2005
b. Maceda Law – R.A. No. 6552
SECTION 1. This Act shall be known as the "Realty Installment Buyer Protection Act".
i. Covered Properties – (Sec. 2)
SEC. 2. It is hereby declared a public policy to protect buyers of real estate on
installment payments against onerous and oppressive conditions.
ii. Rights of buyer in case of default in payments – (Sec. 3)
SEC. 3. In all transactions or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants under Republic Act
Numbered Thirty-eight hundred forty-four as amended by Republic Act Numbered
Sixty-three hundred eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in case he defaults in the
payment of succeeding installments:
a) To pay, without additional interest, the unpaid installments due within the total
grace period earned by him, which is hereby fixed at the rate of one month grace period
for every one year of installment payments made: Provided ,That this right shall be
exercised by the buyer only once in every five years of the life of the contract and its
extensions, if any.
b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty per cent of the payments made
and, after five years of installments an additional five per cent every year but not to
exceed ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from receipt by the buyer
of the notice of cancellation or the demand for rescission of the contract by a notarial
act and upon full payment of the cash surrender value, to the buyer.
Down payments, deposits or options on the contract shall be included in the
computation of the total number of installment payments made.
iii. Grace period – (Sec. 4)
SEC. 4. In case where less than two years of installments were paid, the seller shall give
the buyer a grace period of not less than sixty days from the date the installment
became due. If the buyer fails to pay the installments due at the expiration of the grace
period, the seller may cancel the contract after thirty days from receipt by the buyer of
the notice of cancellation or the demand for rescission of the contract by a notarial act.
iv. Right to assign and sell the buyer’s interest – (Sec. 5)
SEC. 5. Under Sections 3 and 4, 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 or the contract. The deed of sale
or assignment shall be done by notarial act.
43
 v. Advance Payment – (Sec. 6)
SEC. 6. 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.
vi. Void stipulations – (Sec. 7)
SEC. 7. Any stipulation in any contract hereafter entered into contrary to the provisions
of Sections 3. 4, 5 and 6, shall be null and void.
SEC. 8. If any provisions of this Act is held invalid or unconstitutional no other
provision shall be affected thereby.
SEC. 9. This Act shall take effect upon its approval.
Approved, September 14, 1972.
• Selling of residential/real property.
Rights of buyer.
a) If buyer paid at least 2 years of installments:
1. 1 month grace period (pero once every 5 years lang)
2. Right to refund of cash surrender value = 50% paid
3. Given a notice of cancellation (effective 30 days)
b) If buyer paid less than 2 years of installments
1. 60 days grace period
2. Notice of cancellation (effective 30 days)
c) During grace period.
1. To sell/assign rights, evidenced in notarial instruments
2. To update his account
3. Pay advance installments/full unpaid balance WITHOUT ANY INTEREST & to have
purchase price annotated in certificate of title covering the property.
NOTE: Both the maceda law and recto law is against the principle of unjust enrichment .
These laws do not protect the buyers. These laws protect the sellers. In case buyers fail to
pay two installments, seller retains the money of the buyer and also retain the product
supposed to be sold to the buyer. The increase ub the value of the item sold also accrues to
the seller upon cancellation of the contract if the contract is for the sale of realty. Triple
benefit is given to the seller.. The poor buyer looses his money and the chance to own what
he is aiming to own.
44
c. Condominium Law – P.D. 957
i. Requirements for Registration – (Sec. 4)
Section 4. Registration of Projects The registered owner of a parcel of land who wishes to
convert the same into a subdivision project shall submit his subdivision plan to the
Authority which shall act upon and approve the same, upon a finding that the plan complies
with the Subdivision Standards' and Regulations enforceable at the time the plan is
submitted. The same procedure shall be followed in the case of a plan for a condominium
project except that, in addition, said Authority shall act upon and approve the plan with
respect to the building or buildings included in the condominium project in accordance with
the National Building Code (R.A. No. 6541).
The subdivision plan, as so approved, shall then be submitted to the Director of Lands for
approval in accordance with the procedure prescribed in Section 44 of the Land Registration
Act (Act No. 496, as amended by R.A. No. 440): Provided, that it case of complex subdivision
plans, court approval shall no longer be required. The condominium plan as likewise so
approved, shall be submitted to the Register of Deeds of the province or city in which the
property lies and the same shall be acted upon subject to the conditions and in accordance
with the procedure prescribed in Section 4 of the Condominium Act (R.A. No. 4726).
The owner or the real estate dealer interested in the sale of lots or units, respectively, in such
subdivision project or condominium project shall register the project with the Authority by
filing therewith a sworn registration statement containing the following information:
(a) Name of the owner;
(b) The location of the owner's principal business office, and if the owner is a non-resident
Filipino, the name and address of his agent or representative in the Philippines is authorized
to receive notice;
(c) The names and addresses of all the directors and officers of the business firm, if the
owner be a corporation, association, trust, or other entity, and of all the partners, if it be a
partnership;
(d) The general character of the business actually transacted or to be transacted by the
owner; and
(e) A statement of the capitalization of the owner, including the authorized and outstanding
amounts of its capital stock and the proportion thereof which is paid-up.
The following documents shall be attached to the registration statement:
(a) A copy of the subdivision plan or condominium plan as approved in accordance with the
first and second paragraphs of this section.
(b) A copy of any circular, prospectus, brochure, advertisement, letter, or communication to
be used for the public offering of the subdivision lots or condominium units;
(c) In case of a business firm, a balance sheet showing the amount and general character of
its assets and liabilities and a copy of its articles of incorporation or articles of partnership or
association, as the case may be, with all the amendments thereof and existing by-laws or
instruments corresponding thereto.
(d) A title to the property which is free from all liens and encumbrances: Provided, however,
that in case any subdivision lot or condominium unit is mortgaged, it is sufficient if the
instrument of mortgage contains a stipulation that the mortgagee shall release the mortgage
on any subdivision lot or condominium unit as soon as the full purchase price for the same
is paid by the buyer.
The person filing the registration statement shall pay the registration fees prescribed therefor
by the Authority.
Thereupon, the Authority shall immediately cause to be published a notice of the filing of the
registration statement at the expense of the applicant-owner or dealer, in two newspapers
general circulation, one published in English and another in Pilipino, once a week for two
consecutive weeks, reciting that a registration statement for the sale of subdivision lots or
condominium units has been filed in the National Housing Authority; that the aforesaid
registration statement, as well as the papers attached thereto, are open to inspection during
business hours by interested parties, under such regulations as the Authority may impose;
and that copies thereof shall be furnished to any party upon payment of the proper fees.
The subdivision project of the condominium project shall be deemed registered upon
completion of the above publication requirement. The fact of such registration shall be
evidenced by a registration certificate to be issued to the applicant-owner or dealer.
ii. License to sell and performance bond – (Sec. 5-6)
Section 5. License to sell. Such owner or dealer to whom has been issued a registration
certificate shall not, however, be authorized to sell any subdivision lot or condominium unit
in the registered project unless he shall have first obtained a license to sell the project within
two weeks from the registration of such project.
The Authority, upon proper application therefor, shall issue to such owner or dealer of a
registered project a license to sell the project if, after an examination of the registration
statement filed by said owner or dealer and all the pertinent documents attached thereto, he
is convinced that the owner or dealer is of good repute, that his business is financially stable,
and that the proposed sale of the subdivision lots or condominium units to the public would
not be fraudulent.
Section 6. Performance Bond. No license to sell subdivision lots or condominium units shall
be issued by the Authority under Section 5 of this Decree unless the owner or dealer shall
have filed an adequate performance bond approved by said Authority to guarantee the
construction and maintenance of the roads, gutters, drainage, sewerage, water system,
lighting systems, and full development of the subdivision project or the condominium project
and the compliance by the owner or dealer with the applicable laws and rules and
regulations.
The performance bond shall be executed in favor of the Republic of the Philippines and shall
authorize the Authority to use the proceeds thereof for the purposes of its undertaking in
case of forfeiture as provided in this Decree.
1. Exempt transactions – (Sec. 7)
Section 7. Exempt transactions. A license to sell and performance bond shall not be
required in any of the following transactions:
(a) Sale of a subdivision lot resulting from the partition of land among co-owners and co-
heirs.
(b) Sale or transfer of a subdivision lot by the original purchaser thereof and any subsequent
sale of the same lot.
(c) Sale of a subdivision lot or a condominium unit by or for the account of a mortgagee in
the ordinary course of business when necessary to liquidate a bona fide debt.
2. Suspension – (Sec. 8)
Section 8. Suspension of license to sell. Upon verified complaint by a buyer of a subdivision
lot or a condominium unit in any interested party, the Authority may, in its discretion,
immediately suspend the owner's or dealer's license to sell pending investigation and hearing
of the case as provided in Section 13 hereof.
The Authority may motu proprio suspend the license to sell if, in its opinion, any information
in the registration statement filed by the owner or dealer is or has become misleading,
incorrect, inadequate or incomplete or the sale or offering for a sale of the subdivision or
condominium project may work or tend to work a fraud upon prospective buyers.
The suspension order may be lifted if, after notice and hearing, the Authority is convinced
that the registration statement is accurate or that any deficiency therein has been corrected
or supplemented or that the sale to the public of the subdivision or condominium project will
neither be fraudulent not result in fraud. It shall also be lifted upon dismissal of the
complaint for lack of legal basis.
Until the final entry of an order of suspension, the suspension of the right to sell the project,
though binding upon all persons notified thereof, shall be deemed confidential unless it shall
45
appear that the order of suspension has in the meantime been violated.
3. Revocation of License – (Sec. 9)
Section 9. Revocation of registration certificate and license to sell. The Authority may, motu
proprio or upon verified complaint filed by a buyer of a subdivision lot or condominium unit,
revoke the registration of any subdivision project or condominium project and the license to
sell any subdivision lot or condominium unit in said project by issuing an order to this effect,
with his findings in respect thereto, if upon examination into the affairs of the owner or
dealer during a hearing as provided for in Section 14 hereof, if shall appear there is
satisfactory evidence that the said owner or dealer:
(a) Is insolvent; or
(b) has violated any of the provisions of this Decree or any applicable rule or regulation of the
Authority, or any undertaking of his/its performance bond; or
(c) Has been or is engaged or is about to engage in fraudulent transactions; or
(d) Has made any misrepresentation in any prospectus, brochure, circular or other literature
about the subdivision project or condominium project that has been distributed to
prospective buyers; or
(e) Is of bad business repute; or
(f) Does not conduct his business in accordance with law or sound business principles.
Where the owner or dealer is a partnership or corporation or an unincorporated association,
it shall be sufficient cause for cancellation of its registration certificate and its license to sell,
if any member of such partnership or any officer or director of such corporation or
association has been guilty of any act or omission which would be cause for refusing or
revoking the registration of an individual dealer, broker or salesman as provided in Section
11 hereof.
iii. Registration of brokers, dealers, and salesman – (Sec. 11)
Section 11. Registration of dealers, brokers and salesmen. No real estate dealer, broker or
salesman shall engage in the business of selling subdivision lots or condominium units
unless he has registered himself with the Authority in accordance with the provisions of this
section.
If the Authority shall find that the applicant is of good repute and has complied with the
applicable rules of the Authority, including the payment of the prescribed fee, he shall
register such applicant as a dealer, broker or salesman upon filing a bond, or other security
in lieu thereof, in such sum as may be fixed by the Authority conditioned upon his faithful
compliance with the provisions of this Decree: Provided, that the registration of a salesman
46
shall cease upon the termination of his employment with a dealer or broker.
Every registration under this section shall expire on the thirty-first day of December of each
year. Renewal of registration for the succeeding year shall be granted upon written
application therefor made not less than thirty nor more than sixty days before the first day of
the ensuing year and upon payment of the prescribed fee, without the necessity of filing
further statements or information, unless specifically required by the Authority. All
applications filed beyond said period shall be treated as original applications.
The names and addresses of all persons registered as dealers, brokers, or salesmen shall be
recorded in a Register of Brokers, Dealers and Salesmen kept in the Authority which shall be
open to public inspection.
iv. Alteration of Plans – (Sec. 22)
Section 22. Alteration of Plans. No owner or developer shall change or alter the roads, open
spaces, infrastructures, facilities for public use and/or other form of subdivision
development as contained in the approved subdivision plan and/or represented in its
advertisements, without the permission of the Authority and the written conformity or
consent of the duly organized homeowners association, or in the absence of the latter, by the
majority of the lot buyers in the subdivision.
v. v. Non-Forfeiture of Payments –(Sec. 23)
Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a
subdivision or condominium project for the lot or unit he contracted 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. Such buyer may, at his option, be reimbursed the total
amount paid including amortization interests but excluding delinquency interests, with
interest thereon at the legal rate.
vi. Failure to pay installments – (Sec. 24)
Section 24. Failure to pay installments. The rights of the buyer in the event of this failure to
pay the installments due for reasons other than the failure of the owner or developer to
develop the project shall be governed by Republic Act No. 6552.
Where the transaction or contract was entered into prior to the effectivity of Republic Act No.
6552 on August 26, 1972, the defaulting buyer shall be entitled to the corresponding refund
based on the installments paid after the effectivity of the law in the absence of any provision
in the contract to the contrary.
 vii. Issuance of Title – (Sec. 25) • Return of price
Section 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit • Expense of contract
to the buyer upon full payment of the lot or unit. No fee, except those required for the • Legitimate payment
registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of • Necessary and useful expenses
such title. In the event a mortgage over the lot or unit is outstanding at the time of the
issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the i. Equitable Mortgage – (Art. 1602)
corresponding portion thereof within six months from such issuance in order that the title ARTICLE 1602. The contract shall be presumed to be an equitable mortgage, in any of the
over any fully paid lot or unit may be secured and delivered to the buyer in accordance following cases:
herewith. (1) When the price of a sale with right to repurchase is unusually inadequate.
(2) When the vendor/ seller remains in possession as lessee or otherwise;
(3) When upon or after the expiration of the right to repurchase, another instrument
VII. EXTINGUISHMENT OF CONTRACT OF SALE – (Art. 1600) extending the period of redemption or granting a new period is executed;
Art. 1600. Sales are extinguished by the same causes as all other obligations, by those (4) When the purchaser retains for himself a part of the purchase price;
stated in the preceding articles of this Title, and by conventional or legal redemption. (1506) (5) When the vendor/seller binds himself to pay the taxes on the thing sold;
(6) In any other case where it may be fairly inferred that the real intention of the parties is
1. Causes that the transaction shall secure the payment of a debt or the performance of any other
a. Payment/ Performance obligation.
b. Prescription In any of the foregoing cases, any money, fruits, or other benefit to be received by the
c. Loss of thing due vendee as rent or otherwise shall be considered as interest which shall be subject to the
d. Annulment usury laws. (n)
e. Novation (7) Article 1603. In case of doubt, a contract purporting to be a sale with right to repurchase
f. Condonation/Remission shall be construed as an equitable mortgage.(n)
g. Confusion/Merge
h. Compensation 1. Price is unusually inadequate
i. Rescission 2. Vendor remains in possession
j. Resolutory Condition 3. Retains for himself a part of the purchase price
k. Redemption 4. Vendor binds himself to pay taxes on the thing sold
5. When upon or after the expiration, another instrument extending the period of
VIII. REDEMPTION redemption is executed.
a. Conventional (Art. 1601) 6. The real intention of the parties is that the transaction shall secure payment of debt
Article 1601. Conventional redemption shall take place when the vendor reserves the right or performance of any other obligation.
torepurchase the thing sold, with the obligation to comply with the provisions of article 1616
andother stipulations which may have been agreed upon. (1507) 1. Repula v. Estate of Spouses Otillo , GR No. 219638, 07 December 2016

It is the right which the vendor reserved to himself to recover the thing sold, with the
obligation to reimburse to the vendee the price of the sale, the expense of the contract, and
any other legitimate payment made by reason of the sale, and the useful and necessary
expenses incurred for the account of the thing sold. The right can be exercised by the
following:
• Right to repurchase
• No stipulation (4 years)
• Stipulated (not exceed to 10 yrs)
ii. Period of validity – (Art. 1606)
Art. 1606. The right referred to in Article 1601, in the absence of an express agreement, shall
last four years from the date of the contract. Should there be an agreement, the period
cannot exceed ten years. However, the vendor may still exercise the right to repurchase
within thirty days from the time final judgment was rendered in a civil action on the basis
that the contract was a truesale with right to repurchase. (1508a)

- Obligation of seller to repurchase Period of redemption:

47
 1. If there is no period of redemption agreed upon- It shall last four (4) years from the
date of the contract.
Example: S, vendor a retro and B, vendee a retro, entered into a contract of sale
with a right to repurchase. They did not stipulate on the period of redemption. In
this case, the period of redemption shall last 4 years from the date of their contract.
2. If there is an agreement as to period of redemption - the period agreed upon cannot
exceed ten (10) years.
Example: S, vendor a retro and B, vendee a retro, entered into a contract of sale
with a right to repurchase. They agreed that 8 will redeem after 15 years. In this case,
the period of redemption cannot exceed 10 years.
b. Legal Redemption (Art. 1619)
Art. 1619. Legal redemption is the right to be subrogated, upon the same terms and
conditions stipulated in the contract, in the place of one who acquires a thing by purchase
or dation in payment, or by any other transaction whereby ownership is transmitted by
onerous title. (1521a)
What is legal redemption?
It is 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, or
2. Dation in payment; or
3. By any other transaction whereby ownership is transmitted by onerous title.
Dotion in payment dacionenpaga is a special form of payment whereby another thing
is alienated by the debtor to the creditor who accepts it as equivalent of payment of an
existing debt in money.
1. Legal
• Right to be subrogated
• Available to co-owners and owners of adjoining lands
i. Instances of Legal Redemption – (Art. 1620 – 1622)
Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares
of all the other co-owners or of any of them, are sold to a third person. If the price of the
alienation is grossly excessive, the redemptioner shall pay only a reasonable one
Should two or more co-owners desire to exercise the right of redemption, they may only
do so in proportion to the share they may respectively have in the thing owned in
common. (1522a)
Example: S.T. U and V are equal co-owners of a parcel of land. Subsequently, S
sold (absolute sale and not a sale with a right to repurchase) his share to B for P90,000.
In this case, any of T, U and V can exercise their right of redemption by reimbursing B
48
the amount of P90,000. If all of T,U and V want to redeem the share of S, then all of
them must reimburse B the amount of 30,000(1/3 of P90,000. If the P90,000 is grossly
excessive, the redemptioner shall pay only a reasonable price.
Note: if a buyer is a co-owner, there is no legal redemption. In the example above.
If S sold his share to T, then U and V have no right of redemption.
Art. 1621. The owners of adjoining lands shall also have the right of redemption when a
piece of rural land, the area of which does not exceed one hectare, is alienated, unless
the grantee does not own any rural land.
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. If
two or more adjoining owners desire to exercise the right of redemption at the same
time, the owner of the adjoining land of smaller area shall be preferred; and should both
lands have the same area, the one who first requested the redemption. (1523a)
Rationale: To foster the development of agricultural areas by adjacent owners who
may desire the increase for the improvement of their own land.
Note: The right may be exercised only against a stranger who must already have a
rural land.
Example: S, T, U and V are adjoining rural landowners. Subsequently, S sold his
rural land to B. Can the adjoining owners exercise their right of redemption?Answer: It
depends. For T. U and V to exercise their right of redemption, the area of the rural land
should not exceed 1 hectare and B must be an existing owner of another rural
land.Moreover, on the assumption that the area does not exceed. I hectare and 8 owns
another rural land, what if the rural lands of S and T are separated by a road? What is
the legal effect?In this case, T cannot exercise his right of redemption. Furthermore,
what if U and V want to exercise the right of redemption? Then the owner of the
adjoining land of smaller area shall be preferred; and should both lands have the same
area, the one who first requested the redemption.
Art. 1622. Whenever a piece of urban land which is so small and so situated that a
major portionthereof cannot be used for any practical purpose within a reasonable time,
having been boughtmerely for speculation, is about to be re-sold, the owner of any
adjoining land has a right of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the adjoining land
shall have a right of redemption. also, at a reasonable price.
When two or more owners of adjoining lands wish to exercise the right of pre-
emption or redemption, the owner whose intended use of the land in question appears
best justified shall be preferred.
Pre-emption (a right before the sale) means the right to buy before others.
 Right of pre-emption- When the land is about to be resold, the owner of any
adjoining land hasa right of pre-emption.
Redemption (a right after the sale) is an act or an instance of reclaiming or
regaining possessionby paying a specific price.
Right of Redemption-If the resale has been perfected, the owner of adjoining land
has a right ofredemption.
Note: When two or more owners of adjoining lands wish to exercise the right, the
owner whoseintended use of the land in question appears best justified shall be preferred
ii. Period – (Art. 1623)
Art. 1623. The right of legal pre-emption or redemption shall not be exercised except within
thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case
may be. The deed of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written notice
thereof to all possible redemptioners.
The right of redemption of co-owners excludes that of adjoining owners. (1524a)
c. Extrajudicial and Judicial Redemption
i. Extrajudicial – (Act. No. 3135)
SECTION 1. When a sale is made under a special power inserted in or attached to any real-
estate mortgage here after made as security for the payment of money or the n fulfillment of
any other obligation, the provisions of the following sections shall govern as to the manner in
which the sale and redemption shall be effected, whether or not provision for the same is
made in the power.
may participate in the bidding and purchase under the same conditions any other bidder,
unless the contrary has been expressly provided in the mortgage or trust deed under which
the sale is made.
SEC. 6. In all cases in which an extrajudicial sale is made under the special power
hereinbefore referred to, the debtor, his. successors in interest or any judicial creditor or
judgment creditor of said debtor, or any person having a lien on the property subsequent to
the mortgage or deed of trust under which the property is sold, may redeem the same at any
time within the term of one year from and after the date of the sale; and such redemption
shall be governed by the provisions of sections four hundred and sixty-four to four hundred
and sixty-six, inclusive, of the Code of Civil Procedure, in so far as these are not inconsistent
with the provisions of this Act.
SEC. 7. This Act shall take effect on its approval.
Approved, March 6, 1924.
1. GE Money v. Spouses Victorino, GR No. 184301, 23 March 2015
ii. Judicial
1. Spouses Rosales v. Spouses Alfonso, GR No. 137792, 12 August 2003

SEC. 2. Said sale cannot be made legally outside of the province in which the property sold
is situated; and in case the place within said province in which the sale is to be made is the
subject of stipulation, such sale shall be made in said place or in the municipal building of
the municipality in which the property or part thereof is situated.

SEC. 3. Notice shall be given by posting notices of the sale for not less than twenty days in
at least three public: places of the municipality or city where the property is situated, and if
such property is worth more than four 'hundred pesos, such notice shall also be published
once a week for at least three consecutive weeks in a newspaper of general circulation in the
municipality or city.

SEC. 4. The sale shall be made at public auction, between the hours of nine in the morning
and four in the afternoon; and shall be under the direction of the sheriff of the proving, the
justice or auxiliary justice of the peace of the municipality in which such sale has to be
made, or a notary public of said municipality, who shall be entitled to collect a fee of five
pesos for each day of actual work performed,, in addition to his expenses.

SEC. 5. At any sale, the creditor, trustee, or other person authorized to act for the creditor,

49