2015 Sales Review

SALES REVIEW [TAKEN FROM LAW ON SALES, OUTLINE, AND LECTURES OF

DEAN CESAR L. VILLANUEVA]

By A9y. Alexander C. Dy

NATURE OF SALE

DefiniCon/Elements: (Art. 1458) ParCes ObligaCons Object

1. Seller To Transfer Ownership Subject Ma9er To Deliver Possession [Consent]

2. Buyer To Pay Price Thus, Sale creates real obligaCons to give (Art. 1165)

NATURE OF SALE

EssenCal CharacterisCcs of Sales: 1. Nominate vs. Innominate 2. Principal vs. Accessory 3. Consensual (Art. 1475) vs. Solemn vs. Real 4. Bilateral/Reciprocal vs. Unilateral (Arts. 1169 and 1191)

5. Onerous vs. Gratuitous 6. CommutaCve vs. Aleatory 7. Title vs. Mode

NATURE OF SALE

Sales vs. DonaCons: (Arts. 725 and 1471) 1. Both involve the transfer of ownership/possession of subject ma9er

2. Sale is Consensual, while DonaCon is Solemn 3. Sale is Onerous, while DonaCon is Gratuitous

NATURE OF SALE

Sales vs. Barter: (Arts. 1468, 1638-‐1641) 1. Barter is Sale, since it involves the transfer of ownership/possession of subject ma9er Therefore, Barter governed by Law on Sales

2. Price is replaced with obligaCon to transfer ownership/possession of another subject ma9er

NATURE OF SALE

Sales vs. Dacion en Pago: (Arts. 1245 and 1934) 1. Dacion is process of exCnguishment of contracts 2. Dacion novates original contractual relaCons into a fully executed Sale, therefore, delivery is required

3. The results of Dacion governed by Law on Sales

NATURE OF SALE

Sales vs. Contracts for Piece-‐of-‐Work: (Arts. 1467, 1713-‐1715)

1. Both involve transfer of ownership/possession of object for valuable consideraCon

2. In Contract for Piece-‐of-‐Work, main moCvaCon is the reputaCon, skill, mastery, of contractor (Commissioner of Internal Revenue v. Engineering Equipment & Supply Co., 64 SCRA 590 [1975])

Therefore, Contract for Piece-‐of-‐Work involves a personal obligaCon to do (not for past service)

NATURE OF SALE

Sales vs. Agency to Sell/Buy: (Art. 1466) 1. Agency: RepresentaCve (essenCally revocable) and Fiduciary (fruits/income for benefit of principal)

2. Therefore, Agent: a. Not personally liable b. Not obliged to pay price (since no transfer of

ownership (Quiroga v. Parsons, 38 Phil. 501 [1918]) c. Does not assume risks of ownership (Puyat v. Arco

Amusement Co., 72 Phil. 402 [1941])

NATURE OF SALE

Sales vs. Leases: (Arts. 1484 and 1485) 1. Sales involves transfer of ownership/possession; Lease involves temporary enjoyment of possession

2. Otherwise, contract treated as Sale on Installments

PARTIES TO CONTRACT OF SALE

General Rule: (Art. 1489) All parCes having capacity to contract can be valid parCes

ExcepCons: 1. Minors, Demented, Deaf-‐Mutes (To Sell To/To Buy)

(Arts. 1327, 1397 and 1399) – Merely Voidable a. But Sale of Necessaries to Minors Valid (Art.

1489; Art. 194, Family Code)


2. Spouses (To Sell) a. Sale of community/conjugal property to third

parCes without consent of both spouses Void (Arts. 73, 96, and 124, Family Code)

b. Sale to one another, Void unless governed by compete separaCon of property regime

(Arts. 133, 1490, 1492; Sec. 87, Family Code)

Note: prohibiCon applies to common-‐law wife (Calimlim-‐Canullas v. Fortun, 129 SCRA 675 [1984])


3. RelaCve DisqualificaCons (To Buy) (Arts. 1491 and 1492)

a. Guardians – property of their Wards (Philippine Trust Co. v. Roldan, 99 Phil. 392 [1956])

b. Agents – property of their Principal (Except: if agent granted express power to buy) c. Administrators/Executors – property of Estate

under their administraCon


3. RelaCve DisqualificaCons (To Buy) [Cont’d] d. Public Officers vis-‐a-‐vis property of Government

under their jurisdicCon e. Judges/JusCces/Court Officers – property

within their judicial jurisdicCon f. Lawyers – Client’s property in liCgaCon, only

while liCgaCon is pending, even on appeal, even if non-‐adversarial, but only if counsel of record (Rubias v. BaTller, 51 SCRA 120 [1973]); ExcepCon: conCngency fee (Fabillo v. IAC, 195 SCRA 28 [1991])

SUBJECT MATTER

Requisites of Subject Ma9er: 1. Possible Thing vs. Impossible (Arts. 1347, 1348, 1461, 1462 and 1465)

2. Licit vs. Illicit (Arts. 1347, 1459 and 1575)

3. Determinate/ vs. Indeterminable Determinable Generics (Arts. 1460, 1246, 1409[6] and 1463)

4. QuanCty?

PRICE AND OTHER CONSIDERATION

Requisites of Price: (Arts. 1469-‐1474) 1. Real/True vs. Simulated/False (Arts. 1471; 1353 and 1354)

2. Valuable ConsideraCon vs. Liberality/Nominal/ Money or its equivalent Inadequacy (Arts. 1458; 1468; 1355 and 1470; 1381; 1602)

3. Certain/Ascertainable vs. Cannot be Ascertained (Arts. 1469, 1472 to 1474)

4. Manner of Payment (Art. 1179)


When Price Ascertainable: (Art. 1469) 1. Third party designated to fix Price (Art. 1469)

Price can never be lej to discreCon of one party, unless accepted by the other (Arts. 1473, 1182)

2. In reference to another thing certain (Art. 1469) 3. In reference to an exchange or market (Art. 1472) Otherwise: Sale is inefficacious (Art. 1474)


When Court Can Fix Price: (Art. 1469) 1. When designated party fixes Price by: a. mistake; or b. fraud or bad faith But NOT if third party fails/refuses to fix Price

2. When Subject Ma9er has been: a. delivered to; and b. appropriated by the Buyer (Art. 1474)

STAGES OF CONTRACT OF SALE

1. NegoCaCon/Policitacion (Art. 1479) Covers period from Cme prospecCve contracCng parCes indicate interest to Cme of perfecCon

2. PerfecCon (Arts. 1475, 1319, 1325 and 1326) Takes place when essenCal elements concur, i.e., meeCng of minds of parCes as to object and price

3. ConsummaCon (Arts. 1493-‐1506, 1536-‐1544, 1582-‐1590) Begins when parCes perform their obligaCons and culminates in the exCnguishment of contract

POLICITACION STAGE

1. Proposals (InvitaCons to make Offers) 2. Offers 3. Acceptances 4. OpCon Contracts 5. Rights of First Refusal 6. Agreements to Enter into Sales 7. Mutual Promises to Buy and Sell

POLICITACION STAGE: OFFERS

Rules on Offers: 1. Offer is at the complete will of the Offeror, who may destroy it at will prior to acceptance (i.e., when Offeror has knowledge of acceptance)

2. Offer will lapse upon: a. happening of condiCon/period placed upon it b. passage of reasonable period, if no condiCon

3. Offer cannot be accepted parCally or substanCally, as counter-‐offer legally exCnguishes original offer

POLICITACION STAGE: OFFERS

When Offer is Certain: a. Contains a Clear Promise to Sell/to Buy b. Covers a Subject Ma9er which is: (1) Possible; (2) Licit; and (3) Determinate/

Determinable c. Covers a Price or ConsideraCon which is: (4) Real; (5) Valuable; (6) Certain/Ascertainable;

and (7) With Manner of Payment/Performance

POLICITACION STAGE: ACCEPTANCE

When Acceptance is Absolute: a. No CondiCon on, or Amendment to, the Terms

of the Offer b. May clarify on terms and language c. But Never Touch on: (1) the Subject Ma9er; or

(2) the ConsideraCon [any of the seven items]

POLICITACION STAGE: OPTION CONTRACT

Elements of OpCon Contract: (Art. 1479) 1. Acceptance of Offer: Offer of OpCon to Buy/Sell 2. Subject Ma9er: OpCon/Privilege to Buy/Sell:

an Object (Possible; Licit; and Determinate/Determinable) at a Price (Real; Valuable; Certain/Ascertainable)

3. ConsideraCon: Anything Separate and DisCnct from Purchase Price


Rules on OpCon Contracts: (Ang Yu Asuncion v. CA, 238 SCRA 602 [1994])

1. If there is NO separate consideraCon: a. OpCon Contract void, but consCtutes an offer

which can be withdrawn by Offeror, but if accepted before withdrawal, would give rise to a valid sale (Sanchez v. Rigos, 45 SCRA 368 [1972])

b. If withdrawal of offer is whimsical/arbitrary, could give rise to damage claim under Art. 19 of Civil Code


Rules on OpCon Contracts: (Ang Yu Asuncion) [Cont’d] 2. If there is separate consideraCon: a. OpCon Contract perfected, if opCon exercised

within opCon period, would give rise to a sale which can be enforced by specific performance

b. If offer is withdrawn within opCon period, withdrawal is breach of OpCon Contract


Rules on OpCon Contracts: (Ang Yu Asuncion) [Cont’d] 2. If there is separate consideraCon: [Cont’d] c. But if offer is withdrawn before acceptance, (i) OpConee-‐Offeree may not sue for

specific performance on the Sale since it failed to reach its own stage of perfecCon

(ii) OpConer-‐Offeror renders himself liable for damages for breach of opCon

POLICITACION STAGE: ROFR

Elements of Rights of First Refusal: 1. Offeror binds himself to first offer Subject Ma9er to Offeree for Sale

2. In the event Offeror ever decides to sell it 3. Subject Ma9er: a. Possible Thing; b. Licit; and c. Determinate/Determinable

4. For Price that will then be agreed upon


Doctrines on Right of First Refusal: 1. Ang Yu Asuncion v. CA, 238 SCRA 602 (1994) a. Generally, ROFR Contracts would be void for

lack of cause or consideraCon, or failure to carry the valid price for the expectant contract

b. Cannot be enforced by specific performance c. Breach allows recovery of damages based on

Art. 19 of Civil Code for “abuse of right”


2. Equatorial Realty Dev., Inc. v. Mayfair Theater, Inc. 264 SCRA 483 (1996) a. If a9ached to principal contract (e.g., lease),

ROFR is valid, its enforcement takes its vitality from obligatory force of main contract

b. Such ROFR, if breached, may be enforced at Price at which Subject Ma9er sold to third party

c. Third party’s purchase may be rescinded under accion pauliana (entered into in breach and in fraud of OpConee’s contract)


3. Paranaque Kings Enterprises, Inc. v. CA, 268 SCRA 727 (1997) a. ROFR is complied with by first offering Subject

Ma9er to OpConee and negoCaCng for a sale b. Only when negoCaCon does not ripen to a sale

can Subject Ma9er be offered to third-‐party buyer, but at the same Price asked of OpConee

POLICITACION STAGE: AGREEMENTS

Agreements to Enter Into Future Sale or Series of Sale: 1. Quotas (NaTonal Grains Authority v. IAC, 171 SCRA 131

[1989])

2. Supply Agreements (Johannes Schuback & Sons Phil. Trading Corp. v. CA, 227 SCRA 719 [1993])

3. DistribuCon/Licensing Agreements

POLICITACION STAGE: MUTUAL PROMISE

Mutual Promises to Buy and Sell (Art. 1479) (“True Contract to Sell”) 1. CondiConal Contract of Sale where bilateral obligaCons to buy and sell have been agreed upon, but subject to condiCons

2. Agreement to enter into Contract of Sale upon happening of the condiCons

PERFECTION STAGE

PerfecCon of Contract of Sale: (Art. 1475) 1. Comes about when a Certain Offer has been met by an Unqualified Acceptance

2. Is the only point in Cme to determine the validity or invalidity of a Contract of Sale

3. Establishes the contractual principles of: a. Consensuality b. RelaCvity c. Mutuality or Obligatory Force

FORM OF SALE

Generally: None, because consensual contract For Enforceability: (Art. 1403) Statute of Frauds covers 1. Sale which by its terms is not to be performed within one (1) year

2. Sale of movables, at least P500 3. Sale of immovables, at any price In which cases, contract of sale must be in wriCng, signed by the party sought to be charged

FORM OF SALE

Even if sale not in wriCng, enforceable if: (Art. 1405) 1. Memorandum (Art. 1403) signed by party sought to be charged and containing descripCon of Subject Ma9er (Possible; Licit; Determinate/Determinable) and Price (Real; Valuable; Certain/Ascertainable; Manner of Payment Provided)

2. ParCally Executed by party sought to be charged and must touch upon Subject Ma9er or Price

3. Waiver of adducement of oral evidence at trial

FORM OF SALE

For Validity: Sale of Realty Through Agent (Art. 1874) 1. Agent’s authority must be in wriCng 2. Otherwise, Sale is Void, even if: a. Deed of Sale in wriCng/notarized b. There has been parCal payment of Price c. There has been delivery of Subject Ma9er d. Sale is registered

FORM OF SALE

Sales of Immovables: 1. Private Document: (Arts. 1403 and 1405) Enforceability between parCes, except parCal execuCon/waiver

2. Public Instrument: (Art. 1358) a. mode of transferring ownership b. authenCcity and due execuCon c. registrability with Register of Deeds

3. RegistraCon: (P.D. No. 1529) to bind the whole world

CONSUMMATION STAGE

1. Performance – Delivery of Subject Ma9er; Payment of Price; Double Sales Rule

2. Risk of Loss 3. Remedies – Specific Performance; Rescission; Subdivision Lots & Condo Units Rules; Recto Law; Maceda Law; Contract of Sale vs. Contract to Sell

4. CondiCons and WarranCes – Effects of CondiCons; Express WarranCes; Implied WarranCes

5. ExCnguishment – ConvenConal RedempCon (Sale A Retro); Equitable Mortgage; Legal RedempCon

CONSUMMATION STAGE: PERFORMANCE

ObligaCons of Seller 1. To preserve the thing with diligence of a good father of the family (Art. 1163)

2. To deliver fruits, accessories and accessions (Arts. 1164, 1166, 1495 and 1537)

3. To deliver the Subject Ma9er (Art. 1477) ObligaCons of Buyer 1. To pay the Price (Art. 1582) 2. To accept delivery of Subject Ma9er (Arts. 1582-‐1585)


Delivery of Subject Ma9er: TradiCon as Mode to Transfer Ownership 1. Actual or Physical Delivery (Art. 1497) 2. ConstrucCve Delivery (Arts. 1498-‐1499, 1513-‐1514) a. ExecuCon of Public Instrument, unless contrary

sCpulaCon/intenCon appears Except when Buyer assumes risk, Seller must

have control which should remain within a reasonable Cme (Addison v. Felix, 38 Phil 404 [1918]; Danguilan v. IAC, 168 SCRA 22[1988])


2. ConstrucCve Delivery [Cont’d] b. ConsMtutum Possessorium (Art. 1500)

c. TradiMo Brevi Manu d. TradiMo Longa Manu or Symbolic Delivery e. Delivery for Intangibles (Arts. 1498 and 1501) f. Delivery to Carrier (FAS/FOB/CIF) (Art. 1523) g. Documents of Title (Arts. 1507-‐1520)


Special Rules on CompleCon of Delivery: 1. In case of movables (Art. 1522 and 1537, 1480) a. Sale on approval, trial, or saCsfacCon vs. Sale or

return (Art. 1502) b. Sale by descripCon and/or sample (Art. 1481)

2. In case of immovables a. When sold per unit or number (Arts. 1539 and

1540)

b. When sold for a lump sum (Art. 1542)


Special Rules on Double Sales Under Art. 1544: 1. For Movables a. First to possess, in good faith b. Oldest Ctle, in good faith

2. For Immovables a. First to register, in good faith b. First to possess, in good faith c. Oldest Ctle, in good faith

In either case, if none, “first in Cme, priority in right”


Requisites for Art. 1544 to Apply: (Cheng v. Genato, 300 SCRA 722 [1998])

1. Two (or more) sales transacCons must be valid sales 2. Two (or more) sales transacCons must pertain to exactly the same Subject Ma9er

3. Two (or more) Buyers at odds over righrul ownership of Subject Ma9er must each represent conflicCng interests

4. Two (or more) Buyers at odds over righrul ownership of Subject Ma9er must each have bought from the very same Seller


Effects of Art. 1544 Requisites: 1. Not applicable where one of the Sales is Void 2. Not applicable to Contracts to Sell 3. Not applicable if first sale is the property and the second sale is the redempCon right to the same property


Doctrines on Art. 1544 Double Sales Rules: 1. Carbonell v. Court of Appeals, 69 SCRA 99 (1976) Rules under Art. 1544 are addressed to (directed at) Second Buyer, which asks of him to do a posiCve thing if he hopes to win at all.


2. Tanedo v. Court of Appeals, 252 SCRA 80 (1996) a. First Buyer wins by virtue of greater doctrine of

“first in Cme, priority in rights” b. Second Buyer must register his purchase while

in good faith if he hopes to win c. First Buyer, who is always in good faith, when

he registers ahead, wins d. Even if Second Buyer is first to possess in good

faith, subsequent registraCon by First Buyer prevails


3. Cruz v. Cabana, 129 SCRA 656 (1984) a. Knowledge of First Buyer of second sale does

not adversely affect First Buyer nor does it consCtute registraCon in favor of Second Buyer

b. However, knowledge of Second Buyer of first sale would place him not only in bad faith but would consCtute registraCon in favor of First Buyer


4. Agricultural and Home Extension Dev. v. CA, 213 SCRA 536 (1992) It seems that Second Buyer must have paid full purchase price to gain benefit under Art. 1544 as Supreme Court has defined meaning of “good faith” to include having paid full value


Global Rules on Double Sale for Real Estate: 1. For Registered Land under Torrens System, registraCon is the operaCve act, so first to register in good faith and for value, wins

2. For Unregistered Land, as between a convenConal prior purchase, and a second purchase at public aucCon, first convenConal buyer wins, since buyer at public sale is bound by provisions of Rules of Court that says he only takes whatever is the remaining Ctle of the judgment debtor


3. If requisites under Cheng v. Genato are present, Rules on Double Sale under Art. 1544 shall apply: a. First to Register in good faith, or b. First to Possess in good faith, or c. Oldest Title in good faith

4. “First in Cme, priority in rights” apply


Sale and Delivery by Non-‐Owner General Rule: Nemo Dat Quod Non Habet Special Rules: 1. Sale and delivery, with subsequent acquisiCon of Ctle by owner (Art. 1434)

2. Sale by co-‐owner (Art. 493) a. ParCcular porCon b. Whole property


Special Rules: [Cont’d] 3. “Chain of Title Theory” under Torrens System (P.D.

No. 1529)

4. Sales by court authority 5. Sales in merchant stores (Arts. 85 and 86, Code of

Commerce; City of Manila v. Bugsuk, 101 Phil 859 [1957])

6. Sales by one having voidable Ctle prior to annulment (Art. 1506, as an excepMon to Art. 559)

7. Sale under documents of Ctle (Arts. 1507-‐1520)

CONSUMMATION STAGE: RISK OF LOSS

Rules for DeterioraCon, Fruits and Improvements: 1. Rules have no applicaCon if Subject Ma9er is merely determinable (Art. 1263)

2. Roman Law Doctrine: Buyer bears consequences of deterioraCon, but benefits from improvements and fruits (Arts. 1480, 1163-‐1165, 1262, 1189, 1537 and 1538)


Rules when Subject Ma9er is Lost: 1. Before PerfecCon: Res Perit Domino (Roman v.

Grimalt, 6 Phil. 96 [1906])

2. At Time of PerfecCon: Seller (Arts. 1493 and 1494) 3. Ajer PerfecCon But Before Delivery (Arts. 1164, 1189

and 1262)

a. General Rule: Res Perit Domino b. By Fault of a Party (Arts. 1480, 1504, 1538) c. By Fortuitous Event: Two schools of thought

(Arts. 1480, 1163-‐1165, 1504, 1538, 1189)


Rules when Subject Ma9er is Lost: [Cont’d] 4. Ajer Delivery: Buyer bears risk, under Res Perit Domino Rule (Art. 1504) Except: When retenCon of possession by Seller is for purpose of securing payment of Purchase Price

CONSUMMATION STAGE: REMEDIES

Remedies of Seller 1. Specific Performance or Rescission plus Damages

(Art. 1191)

2. Remedies of “Unpaid Seller” of Goods (Art. 1525) a. Possessory Lien (Arts. 1526-‐1529. 1503, 1535) b. Stoppage in Transitu (Arts. 1530-‐1532, 1535,

1636[2])

c. Special Right of Resale (Art. 1533) d. Special Right to Rescind (Art. 1534)


3. Recto Law: For Sale of Movables on Installments (Arts. 1484-‐1486)

a. Meaning of “Installment Sale” (Levy v. Gervacio, 69 Phil. 52 [1939])

b. Contracts to Sell Movables Not Covered (Visayan Sawmill Company, Inc. v. CA, 219 SCRA 378 [1993])

c. Remedies Available i. Specific Performance (one unpaid) ii. Rescission (two unpaid) iii. Foreclosure (two unpaid)


3. Recto Law: [Cont’d] d. Nature of Remedies of Unpaid Seller i. Remedies under Art. 1484 are not

cumulaCve but alternaCve and exclusive (Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 [1996])

ii. Seeking a writ of replevin consistent with all three remedies (Universal Motors Corp. v. Dy Hian Tat, 28 SCRA 161 [1969])


3. Recto Law: [Cont’d] e. Specific Performance: No bar to full recovery

(Tajanglangit v. Southern Motors, 101 Phil. 606 [1957])

i. Even if it is mortgaged property that is sold on execuCon (Southern Motors v. Moscoso, 2 SCRA 168 [1961])

ii. Even with replevin and recovery of subject property , acCon may sCll be for specific performance (Industrial Finance Corp. v. Ramirez, 77 SCRA 152 [1977])


3. Recto Law: [Cont’d] f. Rescission: Has inherent “barring” effect i. Surrender of mortgaged property not

equivalent to rescission (Vda. de Quiambao v. Manila Motors Co., Inc., 3 SCRA 444 [1961])

ii. SCpulaCon on non-‐return of payments is valid provided not unconscionable (Delta Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992)


3. Recto Law: [Cont’d] g. Rescission: Has H-‐V “barring” effect i. Third Party Mortgage covered (Ridad v.

Filipinas Investment, 120 SCRA 246 [1983])

ii. Assignee (Financing TransacCon) covered (Zayas v. Luneta Motors, 117 SCRA 726 [1982])

iii. Foreclosure on Cha9el Mortgage bars acCon on REM and vice-‐versa (Cruz v. Filipinas Investment & Finance Corp., 23 SCRA 791 [1968]; Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 [1996])


3. Recto Law: [Cont’d] g. Rescission: [Cont’d] iv. Amounts barred from recovery (Macondray

& Co. v. Eustaquio, 64 Phil. 446 [1937])

v. Perverse buyer (Filipinas Investment & Finance Corp. v. Ridad, 30 SCRA 564 [1969])

h. Purported Lease with OpCon to Buy (Art. 1485) If lessor takes possession of subject movable,

treated as foreclosure


4. Maceda Law: Sales of ResidenCal Realty on Installments (R.A. No. 6552) a. “Role” of Maceda Law: Not applicable to

protect developer or one who succeeds him (Lagandaon v. CA, 290 SCRA 463 (1998)

b. TransacCons Covered: Covers both “opCon” and “sale” under P.D. No. 957 (Realty Exchange Venture Corp. v. Sendino, 233 SCRA 665 [1994]), But curiously, no applicaCon to a Contract to Sell (?) (Mortel v. KASSCO, Inc., 348 SCRA 391, 398 [2000])


4. Maceda Law: [Cont’d] c. How CancellaCon of Contract Effected i. Seller to give Buyer a 60-‐day grace period ii. At end of grace period, Seller to give

Buyer a notarial noCce of cancellaCon/ demand for rescission effecCve 30 days from noCce

iii. For contracts with two years of payments Seller to give Buyer cash surrender value


4. Maceda Law: [Cont’d] d. Other Rights Granted to Buyer i. To sell/assign his rights to another person ii. To reinstate contract by updaCng account

during grace period, before cancellaCon iii. To pay in advance installments or in full

unpaid balance of Price any Cme without interest and have the same annotated

e. Any sCpulaCon contrary to Maceda Law is Void.


4. AnCcipatory Breach (Arts. 1591) 5. Rescission Sale of Non-‐ResidenCal Realty on Installments (Arts. 1191 and 1592)

Remedies of Buyer 1. Specific Performance or Rescission with Damages

(Arts. 1191)

2. In case of movables (Art. 1598-‐1599) 3. In case of immovables (Secs. 23 and 24 of P.D. No. 957) 4. Suspension of Payment (Art. 1590)

CONSUMMATION STAGE: K TO SELL

Contracts to Sell vs. CondiConal Contracts of Sale: SimilariCes 1. Art. 1458 defines a Sale to cover both “absolute” and “condiConal”

2. Both contracts are usually bound by same condiCon: Full payment of Price

3. Both contracts are consensual, onerous, commutaCve and cover bilateral obligaCons

CONSUMMATION STAGE: K TO SELL

Contracts to Sell vs. Contracts of Sale: Differences 1. In Contract to Sell, ownership is reserved by Seller, while in Contract of Sale, ownership transfers to Buyer upon delivery; hence, Contracts to Sell must have express reservaCon of ownership

2. “Rescission” (CancellaCon) of Contract to Sell is a ma9er of right upon non-‐happening of condiCon, although wri9en noCce of “cancellaCon” required (UP v. Delos Angeles, 35 SCRA 103 [1970]), while in Contract of Sale, non-‐payment is substanCal breach, so remedy is rescission (inherently judicial)

CONSUMMATION STAGE: CONDITIONS

CondiCons vs. WarranCes: (Power Commercial and Industrial Corp. v. CA, 274 SCRA 597 [1997)

1. CondiCon goes into root of existence of obligaCon, while warranty goes into performance of obligaCon

2. CondiCon must be expressly sCpulated by parCes, while warranty may form part of obligaCon or contract by provision of law, without prior contract

3. CondiCon may a9ach itself either to obligaCons of Seller or Buyer, while warranty, express or implied, relates to the Subject Ma9er itself or to obligaCons of Seller as to the Subject Ma9er of the Sale

CONSUMMATION STAGE: CONDITIONS

CondiCons: (Art. 1545) 1. Failure to comply with condiCon imposed on perfecCon of contract results in a failure of contract, while failure to comply with condiCon imposed on performance of an obligaCon only gives other party the opCon to either refuse to proceed or waive it (Laforteza v. Machuca, 333 SCRA 643 [2000])

2. In “Sale with AssumpCon of Mortgage”, assumpCon of mortgage is condiCon to Seller’s consent, so without approval by mortgagee, no sale is perfected (Ramos v. CA, 279 SCRA 118 [1997])

CONSUMMATION STAGE: WARRANTIES

Express WarranCes: (Art. 1546) 1. Must be an affirmaCon of fact or any promise by Seller relaCng to Subject Ma9er of Sale;

2. Natural tendency of such affirmaCon or promise is to induce Buyer to purchase the thing; and

3. Buyer purchases the thing relying on such affirmaCon or promise thereon

Note: Law allows considerable laCtude to Seller’s statements or dealer’s talk (Songco v. Sellner, 37 Phil. 254 [1917])


Implied WarranCes: (Art. 1547) 1. Seller has Right to Sell 2. Warranty Against EvicCon: Ajer final judgment

(Arts. 1548-‐1559) a. Buyer is deprived of whole or part of thing sold b. EvicCon is by a final judgment c. Basis thereof is by virtue of right prior to Sale d. Seller summoned and made co-‐defendant in

suit for evicCon at instance of Buyer (Ang v. Court of Appeals, 567 SCRA 53 [2008])


Implied WarranCes: [Cont’d] 3. Warranty Against Hidden Defects: 6 months (Arts.

1561-‐1580; Nutrimix Feeds Corp. v. CA, 441 SCRA 357 [2004])

a. Defect must be hidden b. Defect exists at Cme Sale was made c. Defect is ordinarily excluded from the contract d. Defect is important (renders the thing unfit or

considerably decreases fitness) e. AcCon insCtuted within 6 months from delivery


Implied WarranCes: [Cont’d] 4. Warranty Against Non-‐Apparent Servitudes: 1 year from execuCon of Deed of Sale (Art. 1560)

5. Redhibitory Defects of Animals: 40 days from delivery (Arts. 1572-‐1581) a. Sale of a team, treated individually b. NOT Animals Sold at Fairs or Public AucCons c. Sale of Animals with Contagious Diseases Void d. Sale of Unfit Animals


Implied WarranCes: [Cont’d] 6. Implied WarranCes in the Sale of Goods: 6 months from delivery (Arts. 1564, 1565, 1568 and 1571) a. Warranty as to Fitness or Quality b. Sale of Goods by Sample

7. AddiConal WarranCes for Consumer Products (Arts. 68, Consumer Act, R.A. No. 7394)


Rules on WarranCes: 1. Effects of Breach of WarranCes/Buyer’s OpCons a. Buyer may sue for rescission plus damages b. If violaCon of warranCes against hidden

defects, redhibitory defects of animals, and implied warranCes in sale of goods, Buyer may elect between withdrawing from the contract (accion rehibitoria) or demanding proporConate reducCon of price (accion quanM minoris), with damages in either case (Art. 1567)

2. Waivers: Allowed; “As is, where is” basis

CONSUMMATION STAGE: EXTINGUISH

ExCnguishment of Sale 1. Sale exCnguished by same modes applicable to all contracts (Arts. 1231 and 1600)

2. RedempCon is mode of exCnguishment unique to Sales: a. ConvenConal RedempCon: Sale with Right to

Repurchase (Sale A Retro) b. Legal RedempCon


ConvenConal RedempCon (Sale A Retro): 1. Reserved by Seller at point of perfecCon (Art. 1601) 2. Even though found in a separate instrument (Torres

v. CA, 216 SCRA 287 [1992])

3. Its validity is Ced to validity of Contract of Sale to which appended (Nool v. CA, 276 SCRA 149 [1997])

4. When Sale covered by Deed, Right A Retro may be proved by parol evidence (Mactan Cebu Int’l Airport Authority v. CA, 263 SCRA 736 [1996])


Right A Retro vs. OpCon Contract: 1. Right A Retro not a separate K, but part of K of Sale while OpMon K generally a principal K, but may be appended to another valid K

2. Right A Retro does not need separate consideraCon while OpMon K requires consideraCon separate and disCnct from Price in order to be valid

3. Right A Retro max period cannot exceed 10 years while OpMon K period may be beyond 10 years


Right A Retro vs. OpCon Contract: [Cont’d] 4. Right A Retro requires tender of agreed amount, including consignaCon when tender not possible, while OpMon may be exercised by mere noCce to Offeror


Salient Ma9ers on Right of RedempCon: 1. Period of RedempCon (Art. 1606) a. When no period agreed upon: 4 years b. When period agreed upon: maximum 10 years c. Pendency of acCon tolls redempCon period

(Ong Chua v. Carr, 53 Phil. 975 [1929])

d. Non-‐payment of price does not affect running of redempCon period (Catangcatang v. Legayada, 84 SCRA 51 [1978])


Salient Ma9ers on Right of RedempCon: [Cont’d] 2. How RedempCon Effected a. Only tender of payment is sufficient (Legaspi v.

CA, 142 SCRA 82 [1986]) b. ConsignaCon is not required ajer tender is

refused (Mariano v. CA, 222 SCRA 736 [1993]) c. But when tender not possible, consignaCon

should be made (Catangcatang v. Legayada, 84 SCRA 51 [1978])

d. Simply by judicial acCon (Lee Chuy Realty Corp. v. CA, 250 SCRA 596 [1995])


Equitable Mortgage: (Art. 1602-‐1604) 1. DefiniCon/Elements: (Molina v. CA, 398 SCRA 97 [2003]) a. The contract entered into is denominated as a

sale (absolute or a retro) b. The real intenCon was to secure an exisCng

debt by way of mortgage 2. RaConale of Equitable Mortgage Principle: (Spouses Miseña v. Rongavilla, 303 SCRA 749 [1999]) To prevent circumvenCon of law against usury and rule against pactum commisorium


Equitable Mortgage: [Cont’d] 3. Badges of Equitable Mortgage: (Art. 1602) a. Price is unusually inadequate b. Seller remains in possession as lessee, etc. c. Extension or granCng of new redempCon period d. Buyer retains part of Price e. Seller binds himself to pay taxes on property f. Other cases showing real intent is that

transacCon is security for debt/obligaCon


Equitable Mortgage: [Cont’d] 4. Equitable Mortgage: Parol evidence competent and admissible (Molina v. CA, 398 SCRA 97 [2003])

5. Pactum Commissorium sale is void, registraCon and obtaining new Ctle by apparent buyer is also void (Art. 2088; A. Francisco Realty v. CA, 298 SCRA 349 [1998])

6. Pactum Commissorium Principle Does Not Apply: a. When security for a debt is also money in form

of Cme deposit (Consing v. CA, 177 SCRA 14 [1989])


Equitable Mortgage: [Cont’d] 6. Pactum Commissorium Principle Does Not Apply: b. To arrangement that provides that if Borrower

fails to comply with new terms of payment, agreement shall operate as dacion en pago (Solid Homes, Inc. v. CA, 275 SCRA 267 [1997])

Contra: P/N sCpulaCon that upon makers’ default, ownership of property is automaCcally transferred and covering deed of sale registered is pactum commissorium (A. Francisco Realty v. CA, 298 SCRA 349 [1998])


Remedies under Equitable Mortgage SituaCons: 1. Apparent Seller can seek reformaCon of instrument

(Art. 1605) 2. AcCon for consolidaCon of ownership (of purported sale a retro) would be void; proper remedy is foreclosure (Briones-‐Vasquez v. CA, 450 SCRA 644 [2005])

3. In case court finds sale was not equitable mortgage, redempCon within 30 days, provided there is honest belief that it was equitable mortgage supported by convincing evidence (Art. 1606; Abilla v. Gobonseng, 374 SCRA 51 [2002])


Legal RedempCon – DefiniCon and RaConale: 1. Privilege created by law for reasons of public policy 2. For benefit and convenience of redempConer, to afford him a way out of what might be a disagreeable or inconvenient associaCon into which he has been thrust

3. Intended to minimize co-‐ownership (Fernandez v. Tarun, 391 SCRA 653 [2002])


Period of Legal RedempCon: Begins 30 days from Wri9en NoCce (unless otherwise provided by law)

Rules on NoCce: 1. Wri9en noCce must cover perfected sale (Art. 1623) 2. NoCce must be given by Seller; noCce by Buyer or even Register of Deeds insufficient (Francisco v. Boiser, 332 SCRA 305 [2000])

3. Seller furnishing copies of deeds of sale to co-‐owner sufficient (Distrito v. CA, 197 SCRA 606 [1991])


Rules on NoCce: [Cont’d] 4. NoCce to minors may be served on parents even without judicial appointment because beneficial to minors (Badillo v. Ferrer, 152 SCRA 407 [1987])

5. Deemed complied with when co-‐owners signed Deed of Extrajudicial ParCCon embodying disposiCon of part of property owned in common (Fernandez v. Tarun, 391 SCRA 653 [2002])

6. Filing of ejectment suit or collecCon of rentals against a co-‐owner dispenses with need for wri9en noCce (Alonzo v. IAC, 150 SCRA 259 [1987])


Instances of Legal RedempCon: 1. Among Co-‐heirs (Art. 1088) a. A co-‐heir cannot exercise right of redempCon

alone (De Guzman v. CA, 148 SCRA 75 [1987]) b. No legal redempCon for sale of property of

estate (Plan v. IAC, 135 SCRA 270 [1985]) c. Wri9en noCce inuCle because buyer took

possession of property in full view of others (Pilapil v. CA, 250 SCRA 560 [1995])

d. NoCce by city treasurer will not suffice (Verdad v. CA, 256 SCRA 593 [1996])


Instances of Legal RedempCon: [Cont’d] 2. Among Co-‐owners (Art. 1620) a. Right of legal redempCon arises only when

shares of other co-‐owners sold to “third person”, not to another co-‐owner (Fernandez v. Taun, 391 SCRA 653 [2002])

b. RegistraCon of sale does not estop a co-‐owner (Cabrera v. Villanueva, 160 SCRA 627 [1988])

c. NoCce must be in wriCng, and redempCon by co-‐owner redounds to benefit of others (Mariano v. CA, 222 SCRA 736 [1993])


Instances of Legal RedempCon: [Cont’d] 2. Among Co-‐owners (Art. 1620) d. No wri9en noCce required to co-‐owner who

acted as acCve intermediary in consummaCon of sale (Distrito v. CA, 197 ASCRA 606 [1991])

e. RedempCon by-‐co-‐owner, even if he uses own funds, inures to benefit of all others (Annie Tan v. CA, 172 SCRA 660 [1989])


Instances of Legal RedempCon: [Cont’d] 3. Among Adjoining Owners (Arts. 1621-‐1622) a. RedempCon covers only “resale” and does not

cover exchanges or barter of properCes (De Santos v. City of Manila, 45 SCRA 409 [1972])

b. Requisite of “speculaCon” dropped” (Legaspi v. CA, 69 SCRA 360 [1976])

c. Does not apply if one adjacent lot is not also rural land (Primary Structures Corp. v. Valencia, 409 SCRA 371 [2003])


Instances of Legal RedempCon: [Cont’d] 4. Sale of Credit in LiCgaCon (Art. 1634) within 30 days from noCce of demand to pay

5. RedempCon of Homesteads (Sec. 119, C.A. No. 141) a. Right to repurchase granted by law, need not

be provided in deed of sale (Berin v. CA, 194 SCRA 508 [1991])

b. RedempCon period is 5 years from date of sale (execuCon of deed), not from registraCon (Lee Chuy Realty Corp. v. CA, 250 SCRA 596 [1995]; Mata v. CA, 318 SCRA 416 [1999])


Instances of Legal RedempCon: [Cont’d] 6. RedempCon in Tax Sales (Sec. 215, NIRC of 1997) 7. RedempCon of Judgment Debtor (Sec. 27, Rule 39,

1997 Rules of Civil Procedure)

At any Cme within 1 year from date of registraCon of cerCficate of sale (Ysmael v. CA, 318 SCRA 215 [1999])

8. RedempCon in Extrajudicial Foreclosure (Sec. 6, Act 3135) Within 1 year from registraCon in Registry of Deeds


Instances of Legal RedempCon: [Cont’d] 9. RedempCon in Judicial and Extrajudicial Foreclosure of Mortgage By Banks (Sec. 47, General Banking Law of 2000, R. A. No. 8791) a. General rule: 1 year from registraCon of

cerCficate of sale b. Except: in cases of extrajudicial foreclosure of

property mortgaged by a juridical enCty, in which case upon registraCon of cerCficate of sale but in no case to exceed 3 months from foreclosure sale


Instances of Legal RedempCon: [Cont’d] 10. Legal Right to Redeem under Agrarian Reform Code (Sec. 12, R.A. 3844, as amended)

a. Within 180 days from noCce in wriCng and at a reasonable price and consideraCon (Quino v. CA, 291 SCRA 249 [1998])

THE END