c2017 Sales Finals Reviewer Version 3 Regular

8/18/2019 c2017 Sales Finals Reviewer Version 3 Regular

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C2017 | SALES FINALS REVIEWER | PROF. AGUIRRE 1

C 2 0 1 7 S A L E S F I N A L S R E V I E W E R

D E M E S A , A . | J O S E | S O L L A N O

I N T R O D U C T I O N

I. INTRODUCTION

A. Essential Requirements of Contracts

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself,

with respect to the other, to give something or to render some service.

Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions

as they may deem convenient, provided they are not contrary to law, morals, good customs,

public order, or public policy.

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into,

provided all the essential requisites for their validity are present. However, when the law requires

that a contract be in some form in order that it may be valid or enforceable, or that a contract be

proved in a certain way, that requirement is absolute and indispensable. In such cases, the rightof the parties stated in the following article cannot be exercised.

B. Definitions

1. Contract of Sale

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.

Characteristics of a Contract of Sale (CBCP NO)

1. Consensual perfected by mere consent

2. Principal it can exist by itself without being dependent upon another contract

3. Bilateral the parties are bound by reciprocal obligations

4. Onerous valuable considerations are given by both parties to acquire rights

5. Commutative the parties exchange almost equivalent value

6. Nominate it has a special name given to it by law

Elements of a Contract of Sale

1.

Essential – must be present in all Contracts of Sale

a. Consent of the contracting parties

b. Subject matter which should be a determinate thing

c.

Price certain in money or its equivalent

2. Natural – assumed embodied in a contract of sale, parties may stipulate that they be

excluded

a.

Warranty against eviction

b.

Warranty against hidden defects and encumbrances

3. Accidental – must be stipulated by the parties e.g., interest

2. Contract to Sell

Art. 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser

until he has fully paid the price.

Art. 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.

3. Conditional Contract of Sale

Art. 1461. Things having a potential existence may be the object of the contract of sale.

The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the

thing will come into existence.

The sale of a vain hope or expectancy is void.

Art. 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, or acquired by the seller

after the perfection of the contract of sale, in this Title called "future goods."

There may be a contract of sale of goods, whose acquisition by the seller depends upon a

contingency which may or may not happen.

Art. 1465. Things subject to a resolutory condition may be the object of the contract of sale.

Art. 1503. When there is a contract of sale of specific goods, the seller may, by the terms of thecontract, 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 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, one who purchases in goodfaith, 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.

Sps. Herrera v Caguiat (2007)

FACTS: Caguiat offered to buy the house and lot of Herrera subject to the execution of the final

deed of sale. Caguiat paid P100,000. A receipt for partial payment was signed by Herrera

acknowledging the receipt of the partial payment and that the final deed of sale will be executed

upon full payment. Herrera didn't push through with the sale and returned the 100K. Caguiat

filed an action for specific performance.

HELD: There was no perfected contract of sale since this is a contract to sell as evidenced by the

receipt. This conclusion is evidenced by the following: the ownership is retained by the seller, the

agreement was not embodied in a contract of sale, and the seller kept the title to the land. There

can be no other interpretation than that they agreed to a contract to sell, consummation of which

is subject only to the full payment of the purchase price.

CONTRACT OF SALE CONTRACT TO SELL

Title passes to the buyer upon delivery of the

thing sold

Ownership is reserved in the seller and is not

to pass until the full payment, of the purchase

price is made

Non-payment of the price is a negative

resolutory condition

Full payment is a positive suspensive condition

The vendor has lost and cannot recover the

ownership of the land sold until and unless thecontract of sale is itself resolved and set aside

The title remains in the vendor if the vendee

does not comply with the condition precedentof making payment at the time specified in the

contract

Risk of loss is on the buyer (not part of the ratio

of the case, just included for exhaustive

comparison)

Risk of loss is on the seller (not part of the ratio

of the case, just included for exhaustive

comparison)

The stages of contract of s ale (as cited in San Miguel Prop. V. Huang ):

a. Negotiation/Preparation- covering the period from the time the prospective contracting

parties indicate interest in the contract to the time the contract is perfected

b. Perfection- 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

c. Consummation- begins when the parties perform their respective undertakings under the

contract of sale, culminating in the extinguishment thereof.

Also in this case, the earnest money was given in a contract to sell (Art 1482 contemplates

earnest money given in a contract of sale). The earnest money forms part of the consideration

only if the sale is consummated upon full payment of the purchase price.

Reyes v Tuparan (2011)

FACTS: Reyes owned properties and she leased one of them to Tuparan. Later on, Reyes

decided to sell her properties and Tuparan verbally promised to conditionally buy the said

properties on installment. They executed a deed of conditional sale. However, Tuparan defaulted

on the payment whilst taking possession of the properties. Reyes wanted to rescind the contract

between them. HELD: The contract could not be rescinded because it is not a consummated sale. One of the

elements of sale i.e., consent, is missing in this case. In a contract to sell, the prospective seller

explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective seller

does not as yet agree or consent to transfer ownership of the property subject of the contract to

sell until full payment of the price.

Elements of a Contract of Sale

a. Consent

b. Determinate subject matter

c. Price certain in money or its equivalent

Sps Reyes v Salvador (2008)

FACTS: Nicomedes executed a Deed of Conditional Sale in favor of Emma Reyes, conveying the

ownership of the property upon the payment of the installments specified. Reyes defaulted in the

payment of installments. Nicomedes entered into another contract with Rosario Bondoc,

stipulating the same with that of Emma’s. Nicomedes and Rosario executed a joint affidavit

confirming the sale of the property, but only the first installment was paid. Nicomedes then sold a

portion of the said property to Maria Cristobal. After Nicomedes died, his heirs settled his estate

extra-judicially and sold the remaining portions to Dulor Realty.

HELD: Emma and Rosario have no right over the property. Subsequent sale to Maria and Dulor

are valid. Contract between Nicomedes and Emma is a contract to sell. Even if ‘deed of

conditional sale’ was contained in a public instrument, it did not constitute constructive delivery

of property to Emma, since ownership was reserved by Nicomedes. No evidence of actual and

physical possession of property (despite paying realty taxes).

Contract between Nicomedes and Rosario is a contract to sell. Agreement only stipulates to sellupon payment of purchase price and Deed of Absolute Sale has yet to be executed by the

parties.

Since both transfers were contracts to sell, Nicomedes may still sell the said property. Deed of

Absolute Sale in favor of Maria and Dulos are valid. But Emma & Rosario can seek relief through

damages against estate and heirs of N to the extent that the latter were benefitted by the sale to

succeeding buyers.

CONTRACT TO SELL CONDITIONAL CONTRACT OF SALE

Seller still has to convey title by entering a

contract of absolute sale.

If suspensive condition is fulfilled, contract is

perfected and ownership automatically transfers

to buyer by operation of law.

Third person buying such property despite

fulfillment of the purchase price cannot be

Sale becomes absolute, and seller will no

longer have any title to transfer to any third




deemed a buyer in bad faith. Title to property

will transfer to buyer after registration.

person.

Lim v CA (1990)

FACTS: The Orlinos owned a parcel of land which they mortgaged to Progressive bank for a

P100,000 loan. The mortgage was foreclosed and the property was acquired by progressive bank

which subsequently assigned its rights to Pacific Banking Corp. The Orlinos offered to repurchase

the property. PBC gave the following conditions: P160k to be paid in full upon signing the deed

of sale and the lot in Caloocan will be sold to them. PBC gave numerous notices to the Orlinos re:

the repurchase of the land but the Orlinos did not respond. The property was sold to spouses Liminstead. The Orlinos claim that this was a case of double sale.

HELD: The contract between the Orlinos and PBC is not a contract of sale but a contract to sell.

A) There was no immediate transfer of title and the sale was not registered. B) Consideration

agreed upon was never paid by the Orlinos. C) Their default in payment was not a “slight delay”

(3 years is not slight). As payment is a positive suspensive condition, title was never passed to the

Orlinos. Hence, the Orlinos cannot say that there was a double sale because their agreement with

PBC was not a contract of sale.

Pingol v CA (1993)

FACTS: Pingol executed a deed of absolute sale in favor of Donasco for the price of P20,530. A

down payment of P2,000 was paid. Donasco took possession of the land and built a house

thereon. When Donasco died, the lot remained unpaid in the amount of P10,161 but the lot

remained in possession of his heirs. The heirs tried to pay spouses Pingol but they refused to

accept the money and asked for a higher amount.

HELD: It was a contract of sale, not a contract to sell. The contract does not have a stipulation

that the title remains with the seller until full payment of the purchase price. Besides, there was

constructive (execution of the deed of sale) and actual delivery to the buyer. Moreover, the

intention of the parties can be inferred from their contemporaneous acts –immediate possession

of the land, construction of the house, and the continuous possession of the land.

C. Sale Distinguished from Other Contracts

1. Donation

Art. 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or

right in favor of another, who accepts it.

Art. 1471. If the price is simulated, the sale is void, but the act may be shown to have been in

reality a donation, or some other act or contract.

2. Barter and Exchange

Art. 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.

Art. 1638. By the contract of barter or exchange one of the parties binds himself to give one

thing in consideration of the other's promise to give another thing.

Art. 1641. As to all matters not specifically provided for in this Title, barter shall be governed by

the provisions of the preceding Title relating to sales.

Fun fact : Barter is also called do ut des (I give that you may give)

Rules in case consideration is partly in money and partly in another thing:

1. Manifest intention of the party

2.

If intention cannot be inferred

a.

SALE ifi. Property = money

ii. Property < money

b.

BARTER if

i.

Property > money

Fule v CA (1998)

FACTS: Gregorio Fule, a banker, exchanged his Tanay property with the emerald-cut diamond

of Dr. Ninevetch Cruz. In the end of the negotiations, they agree to value the jewelry at P160,000

and that an additional P40,000 will be paid by Dr. Ninevetch in cash in exchange of the property.

The parties signed a deed of absolute sale. Fule alleged that the jewelries given by Ninevetch

were counterfeit. He wanted to rescind the contract of sale he signed on the ground of fraud and

deceit.

HELD: Note that the parties seemed to have intended a barter although what they eventually

executed was a deed of absolute sale. See in this connection Article 1468 of the Civil Code which

provides that: “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”. No evidence that Dr. Ninevetch employed insidious words or machinations to entice Fule

to enter into a contract of barter, since it was actually Fule who was insistent on entering into the

contract. He was given ample time to examine the jewelry. Contract of Sale (this is how the

parties deemed it) was upheld.

3. Contract for a Piece of Work

Art. 1467. A contract for the delivery at a certain price of an article which the vendor in theordinary 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.

Art. 1713. By the contract for a piece of work the contractor binds himself to execute a piece of

work for the employer, in consideration of a certain price or compensation. The contractor may

either employ only his labor or skill, or also furnish the material.

Art. 1714. If the contractor agrees to produce the work from material furnished by him, he shall

deliver the thing produced to the employer and transfer dominion over the thing. This contract

shall be governed by the following articles as well as by the pertinent provisions on warranty of

title and against hidden defects and the payment of price in a contract of sale.




Art. 1715. The contract shall execute the work in such a manner that it has the qualities agreed

upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated

use. Should the work be not of such quality, the employer may require that the contractor remove

the defect or execute another work. If the contract fails or refuses to comply with this obligation,

the employer may have the defect removed or another work executed, at the contractor's cost.

Engineering Machinery v CA (1996)

FACTS: EMC undertook to install aircon system in Almeda’s building. It was completed in 1963

and was accepted by Almeda. In 1971, there were defects on the aircon system. Almeda filed anaction for damages alleging that the aircon system did not comply with the agreed specifications.

EMC claimed that the 6-month prescriptive period has already elapsed (for the contract of sale).

HELD: The contract is one for a piece of work. It is not EMC’s line of business to manufacture air-

conditioning systems to be sold “off-the-shelf.” The prescriptive period applicable is 10 years (to

file an action for breach of contract for a piece of work) and not six months since this is not a

warranty against hidden defects as provided by contracts of sale.

CONTRACT OF SALE CONTRACT FOR A PIECE OF WORK

The thing subject of the contract would have

existed and been the subject of a sale to some

other person even if the order had not been

given

One not in existence and which would never

have existed but for the order of the person

desiring it.

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.

One of the parties accepts the undertaking

on the basis of some plan, taking into

account the work he will employ personally or

through another, there is a contract for a

piece of work

4. Agency to Buy and Sell

Art. 1466. In construing a contract containing provisions characteristic of both the contract of

sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be

considered.

Art. 1868. By the contract of agency a person binds himself to render some service or to dosomething in representation or on behalf of another, with the consent or authority of the latter.

CONTRACT OF SALE AGENCY TO SELL

Title of the goods is transferred to the buyer

upon delivery of the thing sold

Title to the goods is not transferred to the

agent upon delivery

Buyer is required to pay the price Agent is required to turn over to the principal

the price of the goods received from the buyer

Quiroga V. Parsons Hardware (1918)

FACTS: Don Quiroga granted exclusive rights to J. Parsons to sell the ‘Quiroga’ beds in the

Visayas region evidenced in an agreement containing 4 Articles. Quiroga argues that Parsons is

his agent for the sale of beds in Iloilo (possibly so his suit for Parson’s non-compliance with the

terms will prosper).

HELD: Parsons is a mere purchaser, not an agent. There was an obligation on the part of

Quiroga to supply the bed and on the part of Parsons to pay the price within 60 days. By virtue of

the contract between the two, Parsons, on receiving the beds, was necessarily obliged to pay

their price within the term fixed, without any other consideration and regardless as to whether he

had or had not sold the beds.

In agency, the agent received the thing to sell it, and does not pay its price, but delivers to the

principal the price he obtains from the sale of the thing to a third person, and if he does not

succeed in selling it, he returns it.

5. Dacion En Pago

Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a

debt in money, shall be governed by the law of sales.

CONTRACT OF SALE DACION EN PAGO

No pre-existing debt There is a pre-existing debt

Creates an obligation Extinguishes an obligation

Cause or consideration

Seller’s POV: price

Buyer’s POV: delivery of the object

Cause or consideration

Debtor’s POV: extinguishment of obligation

Creditor’s POV: delivery of the object given in

place of the previous credit

More freedom in fixing the price Less freedom in fixing the price

Dao Heng Bank v Sps. Laigo (2008)

FACTS: Spouses Laigo obtained a loan from Dao Heng Bank and secured 3 real estate

mortgages covering 2 parcels of land. They were unable to pay the loan so the properties were

foreclosed by Dao Heng where Banco De Oro became the highest bidder. Spouses Laigo

negotiated a redemption to Dao Heng Bank. In line with the said negotiation, Dao Heng offered

a proposal to redeem the land but the spouses never replied to the said proposal. Before the

expiration of the period of redemption, the spouses filed a case, claiming that they have partially

paid for the redemption on the land via dacion en pago, exchanging one of the mortgaged

properties as full payment of their mortgaged obligation. According to the spouses Laigo, Dao

Heng bank verbally agreed to a dacion en pago.

HELD: There is no concrete showing that the bank approved the proposal of the Spouses Laigoto settle their obligation via dacion en pago. Consent is an essential element of dacion en pago

that must be clearly established.

Dacion en pago as a mode of extinguishing an existing obligation partakes of the nature of

sale whereby property is alienated to the creditor in satisfaction of a debt in money. In its modern

concept, what actually takes place in dacion en pago is an objective novation of the obligation

where the thing offered as an accepted equivalent of the performance of an obligation is

considered as the object of the contract of sale, while the debt is considered the purchase price.

Being likened to that of a contract of sale, dacion en pago is governed by the law on sales. The

partial execution of a contract of sale takes the transaction out of the provisions of the Statute of

Frauds so long as the essential requisites of consent of the contracting parties, object and cause

of the obligation concur and are clearly established to be present.

6. Lease




Art. 1484. In a contract of sale of personal property the price of which is payable in installments,

the vendor may exercise any of the following remedies:

(1) Exact fulfillment of the obligation, should the vendee fail to pay;

(2) Cancel the sale, should the vendee's failure to pay cover two or more installments;

(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the

vendee's failure to pay cover two or more installments. In this case, he shall have no further action

against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary

shall be void.

Art. 1485. The preceding article shall be applied to contracts purporting to be leases ofpersonal property with option to buy, when the lessor has deprived the lessee of the possession

or enjoyment of the thing.

Fil invest Credit v CA (1989)

FACTS: Spouses Bang bought a rock crusher worth P 550,000 through Filinvest. The crusher was

purchased in Filinvest’s name to be leased to Bang, with a real estate mortgage over two parcels

of land as security. A contract of lease of machinery, with option (for Bang) to purchase, was

entered into by the parties, stipulating that the machine would be owned by Bang at the end of

the 2-year period of the contract. Later, Bang complained that the machine could only process 5

tons of rock per hour, contrary to the 20-40 tons per hour that was stated in the contract. Filinvest

did not act on these complaints, and Bang stopped paying rent. Filinvest then foreclosed the

mortgage. Bang filed for rescission of lease contract, annulment of the mortgage, and damages.

HELD: Filinvest cannot be held liable for the defect of the rock crusher since they were merely

the ones who financed the sale. The action of Filinvest to foreclose the mortgage was proper as

this is one of the remedies available in case the vendee failed to pay two or more installments.

The agreement between the parties purporting to be a lease may opt to exercise the remedies in

Art 1484 as expressly provided for by Art 1485. The true intention is a sale on installments, as

evidenced by the ownership being vested to Bang upon completion of payment. Even if the

nomenclature is a Contract of Lease, the true intention should prevail. The “rent” should be

regarded as payment of the price in installments. Article 1484 of the Civil Code provides for

remedies a vendor may exercise any of the following in case of non-payment of installments, one

of which being the “[foreclosure of] the chattel mortgage or the thing sold, if one has been

constituted, should the vendee’s failure to pay cover two or more installments.” Contracts of

lease with option to buy circumvents this option, as foreclosure is no longer required for the

vendor to repossess the property. This is why Art 1485 expressly provides that such contracts arecovered by Art 1484.

PCI Leasing v. Giraffe-X Creative (2007)

FACTS: PCI leased office equipment to Giraffe-X where the latter undertook to pay P298,240

per month for 36 months, plus a guaranty deposit of P3.12M. The lease agreement also included

an acceleration clause. One year into the lease, Giraffe-X defaulted. PCI sent a pay-or-surrender-

equipment demand letter through its counsel. The demand went unheeded, so PCI filed a

complaint for collection against Giraffe-X, praying for the issuance of a writ of replevin. Replevin

was issued. Giraffe-X then filed a Motion to Dismiss the collection suit, arguing that the lease was

actually a lease with option to buy. PCI argues that the lease was a straight lease without option

to buy.

HELD: The agreement is a lease with option to buy . The Civil Code governs, hence PCI has

no further recourse. R.A. 5980 merely provides a framework for the operations of financing

companies; it does not define the rights and obligations of parties involved in lease agreements.

Aside from having the equipment returned to its possession, PCI stands to make a net profit of

P13,679,029 if the contract is interpreted as a straight lease, which is absurd. The use of "or" in

its demand letter means that the transaction is a lease in name only. Giraffe-X may either pay the

remaining rentals, or surrender the equipment. If this were a straight lease, Giraffe-X would have

to pay rent AND surrender the equipment. The monthly rentals are in truth monthly amortizations

for the equipment. Since the remedies in Civil Code Arts. 1484-1485 govern, by choosing to

deprive Giraffe-X of possession of the equipment, PCI has waived its right to bring action to

recover unpaid rent.

7. Chattel Mortgage

Art. 2140. By a chattel mortgage, personal property is recorded in the Chattel Mortgage

Register as a security for the performance of an obligation. If the movable, instead of being

recorded, is delivered to the creditor or a third person, the contract is a pledge and not a chattel

mortgage.

Act 1508 (Chattel Mortgage Law), Sec. 3. Chattel mortgage defined . — A chattel

mortgage is a conditional sale of personal property as security for the payment of a debt, or the

performance of some other obligation specified therein, the condition being that the sale shall be

void upon the seller paying to the purchaser a sum of money or doing some other act named. If

the condition is performed according to its terms the mortgage and sale immediately become

void, and the mortgagee is thereby divested of his title.

I I . PARTIES TO A CONTRACT OF SALE

A. Capacity of Parties

Art 37. Juridical capacity, which is the fitness to be the subject of legal relations, is inherent in

every natural person and is lost only through death. Capacity to act, which is power to do acts

with legal effect, is acquired and may be lost.

Art 44. The following are juridical persons:

1. The State and its political subdivisions;

2. Other corporations, institutions and entities for public interest or purpose, created by law; their

personality begins as soon as they have been constituted according to law;3. Corporations, partnerships and associations for private interest or purpose to which the law

grants a juridical personality, separate and distinct from that of each shareholder, partner, or

member.

Art. 46. Juridical persons may acquire and possess property of all kinds, as well as incur

obligations and bring civil or criminal actions, in conformity with the laws and regulations of their

organization.

Art. 1489. All persons who are authorized in this Code to obligate themselves, may enter into a

contract of sale, saving the modifications contained in the following articles.

Where necessaries are 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 Art. 290.




GENERAL RULE All who may oblige themselves may enter into a contract of sale

ABSOLUTE

INCAPACITY

(MIDD)

Minors Voidable. But, if the

object of the sale is a

necessary—valid

Insane Voidable

Demented Person Voidable

Deaf-mutes who do not know how to read or

write Voidable

RELATIVE

INCAPACITY

(HwJ-PAGE)

Husband and wife on selling property to each

other unless they are under a regime of

separation of property or there is a judicial

separation of property

Void

Guardians * Voidable

Agents * Voidable

Executors and Administrators * Voidable

Public Officers and Employees * Void

Justices, Judges, Prosecutors, etc. * Void

*check the codal for the complete provision and to know with respect to what property is the

prohibition for

B. Absolute Incapacity

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.

Art. 1390. The following contracts are voidable or annullable, even though there may have

been no damage to the contracting parties:

1. Those where one of the parties is incapable of giving consent to a contract;

2. Those where the consent is vitiated by mistake, violence, intimidation, undue influence, or

fraud.

These contracts are binding, unless they are annulled by a proper action in court. They are

susceptible of ratification.

Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit

ratification if, with knowledge of the reason which renders the contract voidable and such reason

having ceased, the person who has a right to invoke it should execute an act which necessarily

implies an intention to waive his right.

Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby

obliged principally or subsidiarily. However, persons who are capable cannot allege the

incapacity of those with whom they contracted; nor can those who exerted intimidation, violence,

or undue influence, or employed fraud, or caused mistake base their action upon these flaws of

the contract.

Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the

incapacitated person is not obliged to make any restitution except insofar as he has benefited by

the thing or price received by him.

Art. 1489. supra

FC Art. 194. Support comprises everything indispensable for sustenance, dwelling, clothing,

medical attendance, education and transportation, in keeping with the financial capacity of the

family.

The education of the person entitled to be supported referred to in the preceding paragraph

shall include his schooling or training for some profession, trade or vocation, even beyond the

age of majority. Transportation shall include expenses in going to and from school, or to and

from place of work.

C. Relative Incapacity: Married Persons

1. Contract with Third Parties

FC Art. 73. Either spouse may exercise any legitimate profession, occupation, business, or

activity without the consent of the other. The latter may object only on valid, serious and moral

grounds.

In case of disagreement, the court shall decide whether or not:

1. The objection is proper, and

2. Benefit has accrued to the family prior to the objection or thereafter. If the benefit accrued

prior to the objection, the resulting obligation shall be enforced against the separate property of

the spouse who has not obtained consent.

The foregoing provisions shall not prejudice the rights of creditors who acted in good faith.

FC Art. 96. The administration and enjoyment of the community property shall belong to both

spouses jointly. In case of disagreement, the husband’s decision shall prevail, subject to recourse

to the court by the wife for a proper remedy, which must be availed of within five years from the

date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the

administration of the common properties, the other spouse may assume sole powers of

administration. These powers do not include the powers of disposition or encumbrance without

the authority of the court or the written consent of the other spouse. In the absence of such

authority or consent, the disposition or encumbrance shall be void. However, the transaction shall

be construed as a continuing offer on the part of the consenting spouse and the third person, and

may be perfected as a binding contract upon the acceptance by the other spouse or

authorization by the court before the offer is withdrawn by either or both offerors.

FC Art. 124. The administration and enjoyment of the conjugal partnership property shall

belong to both spouses jointly. In case of disagreement, the husband’s decision shall prevail,




subject to recourse to the court by the wife for proper remedy, which must be availed of within

five years from the date of the contract implementing such decision.

In the event that one spouse is incapacitated or otherwise unable to participate in the

administration of the conjugal properties, the other spouse may assume sole powers of

administration. These powers do not include disposition or encumbrance without the authority of

the court or the written consent of the other spouse. In the absence of such authority or consent,

the disposition or encumbrance shall be void. However, the transaction shall be construed as a

continuing offer on the part of the consenting spouse and the third person, and may be perfected

as a binding contract upon the acceptance by the other spouse or authorization by the courtbefore the offer is withdrawn by either or both offerors.

2. Between Spouses

Art. 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 Art. 191.

Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal

redemption, compromises and renunciations.

Medina v. CIR (1961)

FACTS: Antonio Medina, husband of Antonia Medina is in the business of logging in Isabela and

sells the logs through Osorio, the spouses’ agent. Later on, Antonio sold to Antonia all the logsobtained from the business which later on were sold in Manila by the same agent. The proceeds

of the said sale were received by Osorio or deposited by Osorio in behalf of Antonio to PNB. The

CIR imposed a tax assessment on Antonio in the amount of P4,553.54 as deficiency taxes from

1949-1952 believing that the sale made by Antonio to Antonia is void and is therefore an original

sale by Antonio. Additional P643.94 was also collected for deficiency tax for 1946-1952 quarterly

returns. The spouses said that there was a) premarital agreement of complete separation of

property and b) assessment for 1946-1952 had prescribed.

HELD: Art. 1490 (OCC) prohibits sale between husband and wife. Even if they allege that they

agreed to a separation of property in their prenuptial agreement (an exception to the prohibition

of sale between spouses), such was not proven by competent evidence.

Contracts violative of the provisions of the Art 1490 of the Civil Code are null and void. The sales

between husband and wife were correctly disregarded as taxable sales and the sales of Antonia

to Manila were proper to be deemed as original sale of Antonio.

3. Applicabil ity to Common Law Spouses

FC Art. 147. When a man and a woman who are capacitated to marry each other, live

exclusively with each other as husband and wife without the benefit of marriage or under a void

marriage, their wage and salaries shall be owned by them in equal shares and the property

acquired by both of them through their work or industry shall be governed by the rules on co-

ownership.

In the absence of proof to the contrary, properties acquired while they lived together shall be

presumed to have been obtained by their joint efforts, work or industry, and shall be owned by

them in equal shares. For purposes of this Article, a party who did not participate in the

acquisition by the other party of a property shall be deemed to have contributed jointly in the

acquisition thereof if the former’s efforts consisted in the care and maintenance of the family and

of the household.

Neither party can encumber or dispose by acts inter vivos of his or her share in the property

acquired during cohabitation and owned in common, without consent of the other, until after the

termination of their cohabitation.

When only one of the parties to a void marriage is in good faith, the share of the party in bad

faith in the co-ownership shall be forfeited in favor of their common children. In case of default of

or waiver by any or all of the common children or their descendants, each vacant share shallbelong to the respective surviving descendants. In the absence of descendants, such share shall

belong to the innocent party. In all cases, the forfeiture shall take place upon termination of the

cohabitation.

FC Art. 148. In cases of cohabitation not falling under the preceding Article, only the properties

acquired by both of the parties through their actual joint contribution of money, property, or

industry shall be owned by them in common in proportion to their respective contributions. In the

absence of proof to the contrary, their contributions and corresponding shares are presumed to

be equal. The same rule and presumption shall apply to joint deposits of money and evidences of

credit.

If one of the parties is validly married to another, his or her share in the co-ownership

shall accrue to the absolute community or conjugal partnership existing in such valid marriage. If

the party who acted in bad faith is not validly married to another, his or her share shall beforfeited in the manner provided in the last paragraph of the preceding Art.

The foregoing rules on forfeiture shall likewise apply even if both parties are in bad

faith.

C. Special Disqualifications

Art. 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 the guardianship;

2. Agents, the property whose administration or sale may have been entrusted 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

entrusted 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.




Art. 1492. supra

1. Guardians, Agents, and Administrators

2. Judges and Lawyers

Rubias v Bati l ler (1973)

FACTS: Militante acquired a parcel of land from a public auction and he sought to register the

said parcel of land. His application for registration was denied by the court but he appealed.

Pending the appeal, he sold the said parcel of land in litigation to his lawyer and son-in-lawDomingo Rubias. The CA dismissed the application for registration but Rubias still declared the

land as his under various tax declarations.

HELD: The sale between Militante and Rubias is void and not voidable. The Philippine Civil

Code which does recognize the absolute nullity of contracts "whose cause, object, or purpose is

contrary to law, morals, good customs, public order or public policy" or which are "expressly

prohibited or declared void by law" and declares such contracts "inexistent and void from the

beginning."

Indeed, the nullity of such prohibited contracts 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, the permanent disqualification of public and judicial

officers and lawyers grounded on public policy differs from the first three cases of guardians,

agents and administrators (Article 1491, Civil Code), as to whose transactions it had been opined

that they may be "ratified" by means of and in "the form of a new contact, in which cases itsvalidity shall be determined only by the circumstances at the time the execution of such new

contract. The ratification or second contract would then be valid from its execution; however, it

does not retroact to the date of the first contract.

Art. 1491 (1), (2), (3) ---merely voidable

Art 1491 (4) (5) ---void.

3. Public Officers

Maharl ika Publishing v. Tagle (1986)

FACTS: Maharlika purchased from GSIS land, building, machinery, and equipment through a

conditional contract to sell. Maharlika failed to pay installment payments for several months which

lead to the cancellation of the contract. An agreement for the repurchase of the property was

entered into by Maharlika and GSIS which lead to the issuance of a hold bidding memo.

However, the bidding took place on the scheduled date. The property was acquired by Luz

Tagle, the wife of GSIS Officer Edilberto Tagle.

HELD: The sale to Tagle is void. It is the policy of the law that public officers who hold positions

of trust may not bid directly or indirectly to acquire properties foreclosed by their offices and sold

at public auction. The reasons are grounded on public order and public policy. The indirect

participation of Edilberto Tagle (GSIS division chief) created a conflict of interest which invalidates

the sale pursuant to Art. 1409 (1). Article XIII, Section 1 of our Constitution states that: "Public

office is a public trust. Public officers and employees shall serve with the highest degree of

responsibility, integrity, loyalty and efficiency, and shall remain accountable to the people."

Assuming the transaction to be fair and not tainted with irregularity, it is still looked upon with

disfavor because it places the officer in a position which might become antagonistic to his public

duty.

4. Other Disqualifications

I I I . SUBJECT MATTER OF THE SALE

A. Requisites of a Valid Subject Matter

Art 1459. The thing must be licit and the vendor must have a right to transfer the ownership

thereof at the time it is delivered.

Art 1347. All things which are not outside the commerce of men, including future things, may

be the object of a contract. All rights which are not intransmissible may also be the object of

contracts.

No contract may be entered into upon future inheritance except in cases expressly authorized by

law

Art 1306. supra

Art 1409. The following contracts are inexistent and void from the beginning:

1. Those whose cause, object or purpose is contrary to law, morals, good customs, public order,

or public policy;

2. Those which are absolutely simulated or fictitious;

3. Those whose cause or object did not exist at the time of the transaction;4. Those whose object is outside the commerce of men;

5. Those which contemplate an impossible service;

6. Those where the intention of the parties relative to the principal object of the contract cannot

be ascertained;

7. Those expressly prohibited or declared void by law.

Those contracts cannot be ratified. Neither can the right to set up the defense of illegality be

waived

Art 1411. When the nullity proceeds from the illegality of the cause or object of the contract,

and the act constitutes a criminal offense, both parties being in pari delicto, they shall have no

action against each other, and both shall be prosecuted. Moreover, the provisions of the Penal

Code relative to the disposal of effects or instruments of a crime shall be applicable to the thingsor the price of the contract.

This rule shall be applicable when only one of the parties is guilty; but the innocent one may

claim what he has given, and shall not be bound to comply with his promise.

Art 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition

by the law is designed for the protection of the plaintiff, he may, if public policy is thereby

enhanced, recover what he has paid or delivered.

In summary, the object must be (WiLD)

1. Within the commerce of man

2.

Licit—not contrary to law, morals, good customs, public order and public policy




3. Determinate or capable of being determinate without need of a separate contract

If not, the sale is VOID. Note that ALL requisites must be complied with.

1. Must be Existing, Future, or Contingent

Art 1347 1462 supra

Art 1349. Impossible things or services cannot be the object of a contract.

a. Emptio Rei Speratae / Emptio Spei

Art 1461 Art 1347 supra

EMPTIO REI SPERATAE EMPTIO SPEI

Sale of a future thing Sale of hope / expectancy

Thing sold must come into existence,

otherwise, invalid

Not required to come into existence

Pichel v Alonzo (1982)

FACTS: The Alonzos sold to Pichel all the fruits of the coconut trees from 1968-1976 which may

be harvested in a land currently being leased by Ramon Sua, in consideration of a certain amount

(P4, 200). The land containing the coconuts was obtained as a grant from the government. It was

agreed that part of the consideration of the sale, money will be given to the lessee to release

such land. Pending any payment will entail the inability to harvest any fruits.

HELD: The contract was clearly a "sale of the coconut fruits" and not a lease of the land and

trees. Under Article 1461 of the New Civil Code, things having a potential existence may

be the object of the contract of sale. Pending crop which may have potential existence

may be the subject matter of sale. A valid sale may be made of a thing, which though not yet

actually in existence, is reasonably certain to come into existence as the natural increment or

usual incident of something already in existence, and then belonging to the vendor, and the title

will vest in the buyer the moment the thing comes into existence. Things of this nature are said to

have a potential existence. A man may sell property of which he is potentially and not actually

possessed. The thing sold, however, must be specific and identified. They must be also owned at

the time by the vendor. This is an example of Emptio Rei Speratae.

b. Subject to a Resolutory Condition

Art 1465. supra

Art 1608. The vendor may bring his action against every possessor whose right is derived from

the vendee, even if in the second contract no mention should have been made of the right to

repurchase, without prejudice to the provisions of the Mortgage Law and the Land Registration

Law with respect to third persons.

2. Must be Licit

Art 1347 1459 supra

Art 1575. The sale of animals suffering from contagious diseases shall be void.

A contract of sale of animals shall also be void if the use or service for which they are acquired has

been stated in the contract, and they are found to be unfit therefor.

Martinez v CA (1974)

FACTS: Montemayor owned a parcel of land, which passed on to his heirs, which was then sold

to Garcia. Garcia tried to repair the dike of the said property but he was barred by the Mayor. He

then registered the property and sold the same to De Dios and eventually the property found its

way to the hands of the spouses Martinez. The Martinezes wanted to repair the dike of the creek

of the property but they were stopped by municipal officials. The case was referred to thecommittee on rivers and streams which decided that the creek forms part of the spouses’

registrable property.

HELD: The properties are parts of the public domain intended for public use and are outside

the commerce of men not subject to private appropriation and, therefore, not subject to

private appropriation. The Land Registration Court has no jurisdiction over non-registrable

properties such as public navigable rivers which are part of public domain. Ergo, it cannot validly

adjudge a favorable registration in favor of the Martinezes.

3. Must be Determinate or Determinable

Art 1460. A thing is determinate when it particularly designated or physically segregated from

all others of the same class.

The requisite that a thing be determinate is satisfied if at the time the contract is entered into, thething is capable of being made determinate without the necessity of a new or further agreement

between the parties.

Art 1349. supra

Mell iza v City of I loi lo (1968)

FACTS: Juliana Melizza owned a parcel of lot. She donated parcels 1214-C, 1214-D, and “those

lots needed by Iloilo for the construction of Iloilo City Government...according to the Arellano

plan” to the Municipality of Iloilo for the construction of a city hall. After a few years, the said

donated lot supposedly for the city hall was donated to UP Iloilo. The remaining divisions of lot

1214 were sold to Villanueva who then sold it to Pio Melizza. Pio claims the recovery of parcel

1214-B which was possessed by UP.

HELD: The donation to Iloilo includes parcel 1214-B. The exact area of the land needed which

was the subject matter of the sale could be determined by simply referring to the Arellano plan,

without the parties needing to draw-up a new contract, nor even to clarify matters or explain their

intentions. The requirement of the law that a sale must have for its object a determinate thing, is

fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of

being made determinate without the necessity of a new or further agreement

between the parties.

Ati lano v Ati lano (1969)

FACTS: Atilano I bought land which he subdivided into five parcels. He retained parcel A, sold

parcel E to Atilano II, and sold the rest to third parties. However, later, the heirs of Atilano II

found out that the land they were occupying which they thought was parcel E was actually parcel

A. The heirs of Atilano II wanted to exchange parcels with the heirs of Atilano I because the real




parcel E has a bigger area. The heirs of Atilano I refused because they already built

improvements on the land.

HELD: They may only reform the instruments to reflect the correct parcel of land. No exchange

of land will be made. 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. The mistake did not

vit iate the consent of the parties , or affect the validity and binding effect of the contract

between them.

B. Particular Kinds

1. Generic Things

Yu Tek Co v Gonzales (1915)

FACTS: Gonzales promised to deliver to Yu Tek & Co 600 piculs of sugar in exchange of P3,000.

Gonzales failed to deliver, and he was obliged to return the P3,000 and pay P1,200 as indemnity

for damages as provided for by their contract. Gonzales argued that the sugar he is supposed to

deliver will be coming from his own hacienda which was destroyed by the dry weather.

HELD: Gonzales is still obliged to deliver the sugar. The contract did not provide that he will

obtain the sugar from his own hacienda. Ergo, he may get the sugar from the market or raise it

himself. There was no "appropriation" of any particular lot of sugar. Neither party could point to

any specific quantity of sugar and say: "This is the article which was the subject of our contract."

Therefore, what they agreed upon was a generic thing. Genus nunquam perit.

2. Future Goods

Art 1461 1462 supra

3. Undivided Interest/share

Art 1463. The sole owner of a thing may sell an undivided interest therein.

Art 1464. In case of fungible goods, there may be a sale of an undivided share of a specific

mass, though the seller purports to sell and the buyer to buy a definite number, weight or

measure of the goods in the mass, and though the number, weight, or measure of the 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 the number, weight or measure of

the mass. If the mass contains less than the number, weight, or measure bought, the buyer

becomes the owner of the whole mass and the seller is bound to make good the deficiency from

goods of the same kind and quality, unless a contrary intent happens.

Art 493. Each co-owner shall have the full ownership of his part and of the fruits and benefits

pertaining thereto, and he may therefore alienate, assign or mortgage it, and even substitute

another person in its enjoyment, except when personal rights are involved. But the effect of the

alienation or the mortgage, with respect to the co-owners, shall be limited to the portion which

may be allotted to him in the division upon the termination of the co-ownership.

Gaite v Fonacier (1961)

FACTS: Gaite used to be the Attorney-in-fact of Fonacier, previously authorized to enter into

agreements for the mining business of Fonacier. For unknown reasons, Fonacier sold his mining

business to Gaite. Certain surety bonds were obtained to secure the sale. Thereafter, Fonacier

wanted get P65, 000 in exchange of the more or less 24,000 tons of iron ore he sold to Gaite.

The sureties failed to pay. Fonacier filed a collection case. Gaite counterclaimed that Gaite did

not deliver the 24,000 tons of ore and should be liable for the short delivery.

HELD: There is no short delivery in this case. This is a sale of a specific mass of fungible goods

for a lump sum or single price. 24,000 metric tons is an estimate. Neither of the parties actually

measured the iron ore so they estimated by taking the volume in cubic meters and multiplying by

estimated weight per ton of each per cubic meter. There was no provision in the contract for the

measurement or weighing of ore so the subject matter of sale is a determinate object.

4. Things in Lit igation

Art 1381. The following contracts are rescissible:

xxx

4. Those which refer to things under litigation if they have been entered into by the

defendant without knowledge and approval of the litigants or of competent judicial authority

Art 1385. Neither shall rescission take place when the things which are the object of the

contract are legally in the possession of third persons who did not act in bad faith.

Rule 13, Section 14. Notice of l is pendens . — In an action affecting the title or the right of

possession of real property, the plaintiff and the defendant, when affirmative relief is claimed in

his answer, may record in the office of the registry of deeds of the province in which the property

is situated notice of the pendency of the action. Said notice shall contain the names of the parties

and the object of the action or defense, and a description of the property in that provinceaffected thereby. Only from the time of filing such notice for record shall a purchaser, or

encumbrancer of the property affected thereby, be deemed to have constructive notice of the

pendency of the action, and only of its pendency against the parties designated by their real

names.

The notice of lis pendens hereinabove mentioned may be cancelled only upon order of the court,

after proper showing that the notice is for the purpose of molesting the adverse party, or that it is

not necessary to protect the rights of the rights of the party who caused it to be recorded.

Laroza v Guia (1985)

FACTS: Laroza and Uti acquired property from Francisco Guia. Long before Laroza and Uti had

acquired subject property, a notice of lis pendens had already been registered with the Office of

the Register of Deeds affecting the property. Thereafter, Donald Guia surveyed the land, claiming

that the said land was the subject matter of a case which was decided in his favor, final and

executory. Laroza and Uti filed an action to quiet title.

HELD: The land is bound by res judicata. Lis pendens is a notice of pending litigation; a warning

to the whole world that one who buys the property so annotated does so at his own risk.

Notwithstanding, appellants bought the land from Francisco. Having purchased the property with

notice of lis pendens, Laroza and Uti took the risk of losing it in case the decision in the said civil

case, as what actually happened, is adverse to their predecessor-in-interest, Francisco Guia.

The filing of a notice of lis pendens charges all strangers with a notice of the particular litigation

referred to therein and, therefore, any right they may thereafter acquire on the property is subject

to the eventuality of the suit. The doctrine of lis pendens is founded upon reason of public policy

and necessity, the purpose of which is to keep the subject matter of the litigation within the

power of the Court until the judgment or decree shall have been entered; otherwise, by




successive alienations pending the litigation, its judgment or decree shall be rendered abortive

and impossible of execution.

IV. PRICE OR CONSIDERATION

Art 1469. In order that the price may be considered certain, it shall be sufficient that it be so

with reference to another thing certain, or that the determination thereof be left to the judgment

of a specified person or persons.

Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious,unless the parties subsequently agree upon the price.

If the third person or persons acted in bad faith or by mistake, the courts may fix the price.

Where such third person or persons are prevented from fixing the price or terms by fault of the

seller or the buyer, the party not in fault may have such remedies against the party in fault as are

allowed the seller or the buyer, as the case may be.

Art 1470. Gross inadequacy of price does not affect a contract of sale, except as it may indicate

a defect in the consent, or that the parties really intended a donation or some other act or

contract.

Art 1471. supra

Art 1472. The price of securities, grain, liquids, and other things shall also be considered

certain, when the price fixed is that which the thing sold would have on a definite day, or a

particular exchange or market, or when an amount is fixed above or below the price on such day,

or in exchange or market, provided said amount be certain.

Art 1473. The fixing of the price can never be left to the discretion of one of the contracting

parties. However, if the price fixed by one of the parties is accepted by the other, the sale is

perfected.

Art 1474. Where the price cannot be determined in accordance with the preceding articles, or

in any other manner, the contract is inefficacious. However, if the thing or any part thereof has

been delivered to and appropriated by the buyer, he must pay a reasonable price therefor. Whatis a reasonable price is a question of fact dependent on the circumstances of each particular case.

Art 1350. In onerous contracts, the cause is understood to be, for each party, the prestation or

promise of a thing or service by the other; in remuneratory ones, the service or benefit which is

remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.

Art 1351. The particular motives of the parties in entering into a contract are different from the

cause thereof.

Art 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The case

is unlawful if it is contrary to law, morals, good customs, public order or public policy.

Art 1353. The statement of a false cause in contracts shall render them void, if it should not be

proved that they were founded upon another cause which is true and lawful.

Art 1354. Although the cause is not stated in the contract, it is presumed that it exists and is

lawful, unless the debtor proves the contrary.

Art 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a

contract, unless there has been fraud, mistake, or undue influence.

A. Must Be Real

Art 1471. supra

Summary of rules on price:

1. Must be certain, otherwise, VOID. It is certain if:

a.

Parties agreed upon a definite amount

b.

With reference to another thing certain

c. Determination thereof be left to the judgment of a specified person or

persons

i.

Person is unable or unwilling to fix the price—sale is inefficacious,

unless the parties subsequently agree to the price

ii.

Person acted in bad faith or by mistake—courts will fix the price

iii.

Person prevented from fixing the price by a seller/buyer—party notat fault may have some remedy against party at fault

d. When the price fixed is that which the thing sold would have on a definite

day, or a particular exchange or market, or when an amount is fixed above or

below the price on such day, or in exchange or market, provided said amount

be certain.

2.

Gross inadequacy of price

a.

Does not affect the contract of sale

b. May indicate a defect in the consent

c. Parties may have intended a donation or some other act/contract

3.

Simulated price

a.

Sale is VOID

b. Parties may have intended a donation or some other act/contract

1. Adequacy of Price

Art 1355 1470 supra

Bagnas v CA (1989)

FACTS: Mateum died without ascendants and descendants so his estate was left to his collateral

relatives. The more remote relatives who are the respondents in this case registered two deeds of

sale covering ten parcels of land allegedly executed by Mateum in exchange for the “good things

they have done to him”. The said lands were sold in exchange of P1 and services rendered, being

rendered, and to be rendered for my benefit. The petitioners (immediate collateral relatives) filed

this case.

HELD: The sale of property to the remote relatives is void. The burden of proof rests on the

remote relatives to prove that the consideration of the sale exists, which they failed to do.




Furthermore, this cannot be deemed a donation since a donation requires that it be accepted in a

public instrument, which is not the case here.

The apparent gross, not to say enormous, disproportion between the stipulated price (in each

deed) of P1.00 plus unspecified and unquantified services and the undisputably valuable real

estate allegedly sold worth at least P10,500.00 going only by assessments for tax purposes which,

it is well-known, are notoriously low indicators of actual value – plainly and unquestionably

demonstrates that they state a false and fictitious consideration, and no other true and lawful

cause having been shown, the Court finds both said deeds, insofar as they purport to be sales,

not merely voidable, but void ab initio.

Vda de Gordon v CA (1981)

FACTS: The taxes on two parcels of land owned by Restituta vda. de Gordon remained unpaid

which lead to the public sale of the said parcels of land. Duazo acquired the parcels of land at a

price of P10, 500 representing the tax, penalty and costs. The combined assessed value of the

two parcels of land is P16,800 while the house was assessed at P45,580 in 1961. Gordon now

assails the validity of the public sale made in favor of Duazo.

HELD: The sale to Duazo is valid and the price is valid. Mere inadequacy of the price alone is not

sufficient ground to annul the public sale. While in ordinary sales for reasons of equity a

transaction may be invalidated on the ground of inadequacy of price, or when such inadequacy

shocks one's conscience as to justify the courts to interfere, such does not follow when the law

gives to the owner the right to redeem, as when a sale is made at public auction upon the theory

that the lesser the price the easier it is for the owner to effect the redemption. And so it was aptlysaid: When there is the right to redeem, inadequacy of price should not be material because the

judgment debtor may reacquire the property or also sell his right to redeem and thus recover the

loss he claims to have suffered by reason of the price obtained at the auction sale.

2. False Consideration

Art 1353, 1354 1471 supra

Ong v Ong (1985)

FACTS: Imelda Ong conveyed a Makati property through a quitclaim deed in favor of Sandra

Maruzzo, a minor, in exchange of P1.00 and other valuable considerations . Subsequently, she

revoked the said quitclaim and donated the same property to her son Rex. Maruzzo, through her

guardian Afredo Ong, wanted to recover her property. Imelda argues that the quitclaim was void

because Sandra was a minor then and she can’t accept donations. The RTC said the quitclaim is

equivalent to a sale. In the CA, Imelda argues that the consideration is not a valid consideration.

The CA ruled in favor of Sandra.

HELD: The consideration is valid. The execution of a deed purporting to convey ownership of

realty is in itself prima facie evidence of the existence of a valuable consideration, the party

alleging lack of consideration has the burden of proving such allegation. Inadequacy is of no

moment since it is common practice to place nominal amount but actually there is more

consideration given. Cause is presumed in a contract. The party alleging lack of consideration has

the burden of proving such allegation.

Bad faith and inadequacy of the monetary consideration do not render a conveyance inexistent,

for the assignor's liberality may be sufficient cause for a valid contract (Article 1350, Civil Code),

whereas fraud or bad faith may render either rescissible or voidable, although valid until annulled,

a contract concerning an object certain entered into with a cause and with the consent of the

contracting parties." (Morales Dev’t. v. CA)

3. Must be in Money or its Equivalent

Art 1458 1468 supra

4. Must be Certain or Ascertainable at the Time of Perfection

Art 1469. supra

Toyota Shaw v CA (1995)

FACTS: Sosa entered into an agreement with Bernardo, an agent of Toyota Shaw, to purchase a

Toyota Lite Ace. The agreement states that the car would be paid in installments through BA

Finance and a down payment of 100,000 will be paid by Sosa. Sosa paid the down payment. The

car was not delivered on the specified date because BA finance did not approve the financing

application. Sosa instituted an action against Toyota for a claim of damages because the whole

barangay was expecting him to bring a new car which did not materialize.

HELD: There was no contract of sale entered into by Toyota and Sosa. Bernardo is not

authorized to enter into such and it was signed in his personal capacity, thus, not binding on

Toyota. There was no obligation to transfer ownership of a determinate thing and no correlative

obligation on the part of Sosa to pay therefore a price certain appears therein. It did not indicate

any manner of payment and the full purchase price.

In a sale on instal lment , down payment and the full price of the object is not enough to

perfect the sale. The terms of payment (interest, payment per month, duration of payment, etc.) isneeded to perfect the sale because the terms of payment, coupled with the down payment,

would reveal the true price of the object. Definiteness as to the price is an essential element of a

binding agreement to sell personal property. Accordingly, in a sale on installment basis which is

financed by a financing company, three parties are thus involved: the buyer who executes a note

or notes for the unpaid balance of the price of the thing purchased on installment, the seller who

assigns the notes or discounts them with a financing company, and the financing company which

is subrogated in the place of the seller, as the creditor of the installment buyer. Since B.A.

Finance did not approve Sosa's application, there was then no meeting of minds on the sale on

installment basis.

V. FORMATION OF THE CONTRACT OF SALE

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.

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 to 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.

Art 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or

constructive delivery thereof.

Art 1478 1479 supra

Art 1480. Any injury to or benefit from the thing sold, after the contract has been perfected,

from the moment of the perfection of the contract to the time of delivery, shall be governed by

Articles 1163 to 1165, and 1262.

This rule shall apply to the sale of fungible things, made independently and for a single price, or

without consideration of their weight, number, or measure.

Should fungible things be sold for a price fixed according to weight, number, or measure, the risk

shall not be imputed to the vendee until they have been weighed, counted, or measured, anddelivered, unless the latter has incurred in delay.

Art 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 by description, it is not sufficient that the bulk

of goods correspond with the sample if they do not correspond with the description.

The buyer shall have a reasonable opportunity of comparing the bulk with the description or the

sample.

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.

Art 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.

Art 1484 1485 supra

Art 1486. In the cases referred to in the two preceding articles, a stipulation that the

installments or rents paid shall not be returned to the vendee or lessee shall be valid insofar as

the same may not be unconscionable under the circumstances.

Art 1487. The expenses for the execution and registration of the sale shall be borne by the

vendor, unless there is a stipulation to the contrary.

Art 1488. The expropriation of property for public use is governed by special laws.

A. Preparatory

Art 1479. supra

Art 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be

withdrawn at any time before acceptance by communicating such withdrawal, except when the

option is founded upon a consideration, as something paid or promised.

1. Offer

Art 1475. supra

Vil lonco v Bormaheco (1975)

FACTS: Cervantes, the president of Bormaheco, offered to sell to Villonco 3 lots in Buendia. The

offer further states that Villonco should pay P100k as earnest money and the sale will push

through only if Bormaheco will be awarded the purchase of a property in Sta. Ana (the Nassco

sale), the final negotiations of which will be known after 45 days. Villonco sent a letter to

Cervantes, together with the 100k earnest money, indicating that the payment of the balance

(650K) will be in staggered installments, and that should the Nassco sale not push through, the

P100K should be returned to him with interest of 10% p.a. The Nassco sale was approved.However, Cervantes returned the 100k to Villonco, saying that the 45-day period has already

expired. Therefore the sale had not been consummated. Villonco filed for specific performance.

HELD: There was a perfected contract. There was meeting of the minds since there was

acceptance of the offer. Villoncos’ reply-letter did not constitute a counter offer as it only clarified

the modes of how the price of the property was to be paid (in installments). There were no

material changes to the original contract in this reply-letter. The latter merely amplified

Bormaheco’s original offer. A change which does not essentially change the terms of the offer,

does not amount to a rejection of the offer and the tender of a counter-offer.

a. Forms of Offer

Art 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing

and the cause which are to constitute the contract. The offer must be certain and the acceptance

absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer except from the time it came to

his knowledge. The contract, in such case, is presumed to have been entered into in the place

where the offer was made.

Art 1325. Unless it appears otherwise, business advertisement of things for sale are not definite

offers, but mere invitations to make an offer.

Art 1326. Advertisements for bidders are simply invitations to make proposals, and the

advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears.

b. Forms of Acceptance




Art 1319. supra

2. Vices of Consent

Art 1330. A contract where consent is given through mistake, violence, intimidation, undue

influence, or fraud, is voidable.

Art 1338. There is fraud when, through insidious words or machinations of one of the

contracting parties, the other is induced to enter into a contract which, without them, he would

not have agreed to.

Art 1331. In order that mistake may invalidate consent, it should refer to the substance of the

thing which is the object of the contract, or to those conditions which have principally moved one

or both parties to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such

identity or qualifications have been the principal cause of the contract.

A simple mistake of account shall give rise to its correction.

Asiain v Jalandoni (1923)

FACTS: Asiain sold to Jalandoni a lot containing 25 hectares more or less (a sale in gross) for

P30k. Afterwards, Jalandoni had the land surveyed and the land’s area was only 18.5 ha. Asiainfiled a recovery claim against Jalandoni for the remaining unpaid balance on the purchase price

of the land. Jalandoni filed a counter-claim, asking for the annulment of the contract of sale

because of the gross difference in lot’s area. (Note: this is an old case. Back then,

rescission=annulment.)

HELD: Rescission may be had in this case. It was a sale in gross in which there was a mutual

mistake as to the quantity of land sold and as to the amount of the standing crop. The phrase

"more or less" in the memorandum-agreement covers only a reasonable excess or deficiency.

This was a case of gross deficiency. The mistake with reference to the subject matter of the

contract is such that, at the option of the purchaser, it is rescindable. Without such mistake the

agreement would not have been made. A vendee of land, when it is sold in gross or with the

description "more or less" does not thereby ipso facto take all risk of quantity in the land. The

use of "more or less" or similar words in designating quantity covers only a reasonable excess or

deficiency.

3. Option Contract

Art 1479 1324 supra

Adelfa Properties v CA (1995)

FACTS: Rosario and Salud Jimenez (R&S) entered into an “Exclusive Option to Purchase”

agreement with Adelfa properties with the following terms and conditions:

a) Selling price of said 8,655 m2 of land is P2,856,150.00

b)

P50,000 which was received from ADELFA PROPERTIES, INC, as an option money shall

be credited as partial payment upon the consummation of the sale and the balance in

the sum of P2,806,150.00 to be paid on or before November 30, 1989;

c) In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in

accordance with paragraph 2 hereof, this option shall be cancelled and 50% of the

option money to be forfeited in our favor and we will refund the remaining 50% of said

option money upon the sale of said property to a third party

d) All expenses are for the account of Adelfa Prop.

Adelfa suspended payment of the purchase price because of complications brought about by a

case involving the relatives of R&S. R&S interpreted this as lack of word of honor so they sought

to cancel the transaction. Meanwhile, Adelfa caused to be annotated on the title the option

contract with R&S. On the other hand, R&S executed a deed of conditional sale in favor or

Emylene Chua. R&S demanded the return of the title but Adelfa won’t return it.HELD: The intention of the parties was to enter into a contract to sell, not an option contract.

Alleged option money of P50,000 was actually earnest money which was intended to form part of

the purchase price. Furthermore, by agreement the ownership is reserved in the vendor and is

not to pass until the full payment of the price. The amount of P50,000 was not distinct from the

cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory

rule that 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.

An option, as used in the law on sales, is a continuing offer or contract by which the owner

stipulates with another that the latter shall have the right to buy the property at a fixed price

within a certain time, or under, or in compliance with, certain terms and conditions, or which gives

to the owner of the property the right to sell or demand a sale. It is also sometimes called an

"unaccepted offer." An option is not of itself a purchase, but merely secures the privilege to buy.

It is not a sale of property but a sale of the right to purchase. It does not sell his land; he does notthen agree to sell it; but he does sell something, that is, the right or privilege to buy at the

election or option of the other party.

EARNEST MONEY “ARRAS” OPTION MONEY

Part of purchase price Money given as a distinct consideration for the

period agreed upon

Perfected sale No perfected sale

Buyer is bound to pay the balance Would be buyer is not bound to pay the

balance

Carceller v CA (1999)

FACTS: SIHI leased its land to Carceller with option to purchase. The lease is for a period of 18months with monthly rental of 10,000. SIHI notified Carceller of the time left to exercise his

option. Carceller requested for a six month extension of the lease contract, SIHI disapproved.

SIHI signified intent to exercise option, SIHI said option period lapsed and asked him to vacate

the land.

HELD: Carceller must be given a chance to exercise option contract. In contractual relations, the

law allows the parties reasonable leeway on the terms of their agreement, which is the law

between them.Carceller already signified intent to exercise option contract. SIHI is determined to

sell the property as evidenced by its acts. Also, Carceller is also interested in buying the property

since he already introduced improvements thereto.

“An option is a preparatory contract in which one party grants to the other, for a fixed period

and under specified conditions, the power to decide, whether or not to enter into a principal

contract. It binds the party who has given the option, not to enter into the principal contract with

any other person during the period designated, and, within that period, to enter into such




contract with the one to whom the option was granted, if the latter should decide to use the

option.”

a. Meaning of Consideration

Sanchez v Rigos (1972)

FACTS: Rigos executed an “Option to Purchase” where she promised to sell a parcel of land to

Sanchez for the sum of P1,510. (Note that the P1,510 is the purchase price of the land and is NOT

an option money.) The option allows Sanchez to exercise his right to buy the property within two

years from April 3, 1961 and provides for the termination of the option contract should Sanchezfail to exercise his right within the stipulated period. Sanchez tendered payment to Rigos several

times within the period but Rigos rejected them.

HELD: Rigos may no longer withdraw her offer even if it was not supported by a separate

consideration. If acceptance of the offer was made before the withdrawal, even if it is not

founded on a separate consideration, a bilateral reciprocal contract to buy and sell is generated.

An obligation to keep the offer within the time specified could be withdrawn before acceptance if

there was NO consideration. But the offer may no longer be withdrawn once the offer was

accepted, EVEN if it was NOT supported by a consideration.

4. Right of First Refusal

Ang Yu Asuncion v CA (1994)

FACTS: Petitioners are the lessees of the commercial spaces of the Cu Unjiengs. The Cu

Unjiengs are selling the said property and are giving them the priority to buy it for the price ofP6M. Petitioners made a counter-offer of P5M. Petitioners asked the Cu Unjiengs to put the offer

to sell into writing. Upon receiving the letter, petitioners asked to specify the terms and

conditions of the sale. Because the Cu Unjiengs did not reply to the letter and some news that

they were about to sell the property, the petitioners filed a case to compel them to sell the

property to them. The Court held that there was no perfected contract to sell because there was

no meeting of the minds. However, the petitioners have the right of first refusal. Then, The Cu

Unjiengs sold the land to Buen Realty for P15 M.

HELD: Petitioners are aggrieved by the failure of private respondents to honor the right of first

refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but

an action for damages in a proper forum for the purpose. In a r ight of first refusal , while the

object may be made determinate, the exercise of the right, however, would be dependent not

only on the grantor’s eventual intention to enter into a binding juridical relation with another but

also on terms, including the price, that obviously are yet later to be firmed up. It is one of those

preparatory judicial relations governed not by contracts but by other laws of general application.

Its breach cannot justify an issuance of a writ of execution under a judgment that merely

recognizes its existence, nor would it sanction an action for specific performance without

negating the indispensable element of consensuality. BUT an unjustified disregard can warrant a

recovery for damages.

Equatorial Realty v Mayfair Theater (1996)

FACTS: Carmelo and Bauermann Inc. leased its parcel of land with 2-storey building to

respondent Mayfair Theater Inc. They entered a contract which provides that if the lessor should

desire to sell the leased premises, the lessee shall be given a 30-day exclusive option to purchase

the same. Carmelo informed Mayfair that it will sell the propert y to Equatorial. Mayfair made

known its interest to buy the property but only to the extent of the leased premises.

Notwithstanding Mayfair’s intention to buy a portion of the property, Carmelo sold the property

to Equatorial.

HELD: The sale of the property should be rescinded because Mayfair has the right of first refusal.

Both Equatorial and Carmelo are in bad faith because they knew of the stipulation in the contract

regarding the right of first refusal. The stipulation is a not an option contract but a right of first

refusal and as such the requirement of a separate consideration for the option, has no

applicability in the instant case. The consideration is built in the reciprocal obligation of the

parties. In reciprocal contract, the obligation or promise of each party is the consideration for that

of the other. Since Equatorial is a buyer in bad faith, this finding renders the sale to it of the

property in question rescissible. Deed of Sale between Carmelo and Equatorial is deemedrescinded; Carmelo is ordered to return to Equatorial the purchase price; Equatorial is directed to

execute the deeds and documents necessary to return ownership to Carmelo; Carmelo is ordered

to allow Mayfair to buy the lots for P11.3M.

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.

Note: This case is different from Ang Yu because in this case, the right of first refusal is embodied

in the contract of lease.

Tanay Recreation v Fausto (2005)

FACTS: Tanay is the lessee of the land (operates a cockpit) owned by Catalina Fausto. The

contract of lease was valid for 20 years, with right of first refusal granted in favor of Tanay in case

Fausto decides to sell the land. Pacunayen, the daughter of Fausto asked Tanay to vacate the

property claiming that she is now the owner of the land as evidenced by a Kasulatan in exchangeof P10K. The lower court held that the right of first refusal is applicable only to strangers and not

to relatives.

HELD: The right of first refusal is also applicable to relatives. It was essential that Fausto should

have first offered the property to petitioner before she sold it to respondent. It was only after

petitioner failed to exercise its right of first priority could Fausto then lawfully sell the property to

Pacunayen. The rule is that a sale made in violation of a right of first refusal is valid. However, it

may be rescinded, or, as in this case, may be the subject of an action for specific performance.

The case was remanded to the lower court for the determination of the terms of the sale to Tanay

by Pacunayen. Normally, it should be sold to Tanay at the same price it was sold to Pacunayen.

But Pacunayen was the daughter of Fausto (obviously sold at a lower price) so it should be sold at

FMV.

When a lease contract contains a r ight of first refusal , the lessor is under a legal duty to the

lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a

certain price and the lessee has failed to accept it. The lessee has a right that the lessor's first

offer shall be in his favor. Petitioner's right of first refusal is an integral and indivisible part of the

contract of lease and is inseparable from the whole contract. The consideration for the lease

includes the consideration for the right of first refusal and is built into the reciprocal obligations of

the parties.

5. Mutual Promise to Buy and Sell

Art. 1479. supra

B. Perfection




Coronel v CA (1996)

FACTS: Romulo Coronel executed “Receipt of Down Payment” in favor of Ramona Alcaraz with

the following conditions: a) Ramona will make P50K down payment upon execution of document;

b) Coronels will transfer the title (the property is still registered under their deceased father’s

name) in their names upon receipt of P50K; c) Upon transfer of title, Coronels will execute a deed

of absolute sale in favor or Ramona and she will pay the whole balance of P1.19M. Ramona,

through her mother, paid the P50K down payment. However, the Coronels sold the land to

Mabanag. The RTC & CA ordered the Coronels to execute a deed of sale in favor of Ramona.

HELD: Receipt of down payment suggests a conditional contract of sale. The agreement could

not have been a contract to sell because the sellers herein made no express reservation ofownership or title to the subject parcel of land. Looking at it in its entirety, there was a clear intent

on the part of the Coronels to transfer the title to the buyer but since the TCT was still in

another’s name, they could not fully effect the transfer though the buyer was willing and able to

pay.

In a contract to sel l , upon the fulfillment of the suspensive condition which is the full payment

of the purchase price, ownership will not automatically transfer to the buyer although the

property may have been previously delivered to him. The prospective seller still has to convey

title to the prospective buyer by entering into a contract of absolute sale could not fully effect the

transfer though the buyer was willing and able to pay. On the other hand, in a conditional

contract of sale, once the suspensive condition is fulfilled, the ownership will automatically

transfer to the buyer.

San Lorenzo Development v CA (2005)

FACTS: Spouses Lu sold two parcels of land to Babasanta for P50k. Babasanta asked for the

execution of a final deed of sale, and demanded that the rumored second sale of the same

property be cancelled. Spouses Lu refused, saying that Babasanta already backed out of the sale

when the requested reduction of price was refused. San Lorenzo purchased the property through

a deed of absolute sale. Babasanta filed an action for specific performance.

HELD: San Lorenzo has a better right to the land as execution of a public instrument in his favor

is equivalent to sufficient delivery. When the thing sold twice is an immovable, the one who

acquires it and first records it in the Registry of Property, both made in good faith, shall be

deemed the owner.

The agreement between Babasanta and the Spouses Lu is a contract to sel l and not a contract

of sale. The perfection of a contract of sale should not, however, be confused with its

consummation. In relation to the acquisition and transfer of ownership, it should be noted that

sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership

is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or

ownership. Contracts only constitute titles or rights to the transfer or acquisition of ownership,

while delivery or tradition is the mode of accomplishing the same. Therefore, sale by itself does

not transfer or affect ownership; the most that sale does is to create the obligation to transfer

ownership. It is tradition or delivery, as a consequence of sale, that actually transfers ownership.

Actual Delivery Placing the thing sold in the control and possession of the

vendee.

Legal/

Constructive

Public

Instrument

Usually done for immovable properties

Delivery Symbolical Such as the delivery of the keys of the place where the

movable sold is being kept

Traditio longa

manu

(long hand)

By mere consent or agreement if the movable sold cannot

yet be transferred to the possession of the buyer at the

time of the sale

Traditio brevi

manu

(short hand)

The buyer already had possession of the object even

before the sale (lessee becomes the owner)

Traditio

constitutum

possessorium

The seller remains in possession of the property in a

different capacity (ex. owner becomes the lessee as in a

sale leaseback agreement)

Manila Metal v PNB (2006)

FACTS: Manila Metal loaned P900K from PNB in exchange for a mortgage of its land to the

same bank. Manila Metal defaulted. PNB foreclosed the mortgage, PNB being the highest

bidder. PNB informed Manila Metal of its intention to repurchase, but they couldn’t agree to the

repurchase price. Manila Metal asked for the annulment of mortgage. PNB argues that period to

redeem has lapsed, making him the owner of the property.

HELD: There is no perfected contract between the parties. A definite agreement to the price is

an essential element of a binding agreement to sell property because it seriously affects the

rights and obligations of the parties. Fixing of price can never be left to the decision of one of theparties. To convert offer into contract – acceptance must be absolute and must not qualify the

terms of contract. A counter-offer is a rejection of the offer.

1. When Deviation Allowed

Vil lonco v Bormaheco (1975)

FACTS: supra

HELD: There was a perfected contract. There was meeting of the minds since there was

acceptance of the offer. Villoncos’ reply-letter did not constitute a counter offer as it only clarified

the modes of how the price of the property was to be paid (in installments). There were no

material changes to the original contract in this reply-letter. The latter merely amplified

Bormaheco’s original offer.

"It is true that an acceptance may contain a request for certain changes in the terms of the offer

and yet be a binding acceptance. 'So long as it is clear that the meaning of the acceptance ispositively and unequivocally to accept the offer, whether such request is granted or not, a

contract is formed.’” (Stuart v. Franklin Insurance Co.)

2. Sale by Auction

Art. 1476. supra

Art. 1403. The following contracts are unenforceable, unless they are ratified:

xxx xxx xxx

2. Those that do not comply with the Statute of Frauds as set forth in this number. In the

following cases an agreement hereafter made shall be unenforceable by action, unless the same,

or some note or memorandum thereof, be in writing, and subscribed by the part charged, or by




his agent; evidence, therefore, of the agreement cannot be received without the writing, or a

secondary evidence of its contents:

d. An agreement for the sale of goods, chattels of things in action, at a price not less than Five

hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the

evidences, or some of them, of such things in action, or pay at the time some part of the

purchase money; but when a sale is made by auction and entry is made by the auctioneer in his

sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price,

names of the purchasers and persons on whose account the sale is made, it is a sufficient

memorandum.

Art. 1326. supra

3. Earnest Money vs. Option Money

Art. 1482. supra

Limson v CA (2001)

FACTS: Spouses de Vera offered to sell their Parañaque property to Limson. Limson gave P20K

while spouses de Vera issued a receipt containing the following phrases:

“…Should the transaction of the property not materialize not on the fault of the buyer, I obligate

myself to return the full amount of P20,000 earnest money with option to buy or forfeit on the

fault of the buyer…This option to buy is good within ten (10) days…” Limson was already willing

to pay the balance of the purchase price, but the transaction did not materialize because offailure of Spouses de Vera to pay the back taxes of the property. Thereafter, the property was

sold to Sunvar. Limson filed a case for the annulment of deed of sale in favor of Sunvar and to

order spouses de Vera to execute a deed of sale in his favor.

HELD: The agreement was merely an option contract, and Limson may not demand for the

rescission of the sale to Sunvar nor ask the spouses to be compelled to sell to him the said

property. The exclusive offer to sell it to Limson already expired.

An option contract is when the owner of property agrees with another person that he shall

have the right to buy his property at a fixed price within a certain time. He does not sell his land;

he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at

the election or option of the other party. The receipt shows that it was a contract by which

Spouses de Vera agreed with Limson that the latter shall have the right to buy the former's

property at a fixed price. The agreement imposed no binding obligation on Limson, aside from

the consideration for the offer.

EARNEST MONEY OPTION MONEY

Part of purchase price Money given as a distinct consideration for the

period agreed upon

Perfected sale No perfected sale

Buyer is bound to pay the balance Would be buyer is not bound to pay the

balance, but may even forfeit it depending on

the terms of the option.

San Miguel Properties v Huang (2000)

FACTS: Spouses Huang paid P1M to serve as “earnest-deposit money” to San Miguel

properties subject to the conditions: 1) They have exclusive option to purchase property within 30

days of the acceptance of the offer; 2) During the period, the two parties will negotiate terms and

conditions; 3) The amount will be refunded if they do not come into an agreement. The money

was received. However, after the lapse of 45 days, the parties still has not come to an agreement

so San Miguel returned the P1M. The spouses demanded the execution of the deed of sale.

HELD: Their contract had not been perfected yet. Therefore, the spouses may not demand for

the execution of the deed of sale.

Respondents did not give the P1M as “earnest money”, this amount was paid merely as a deposit

of what would eventually become the earnest money or down payment should a contract of sale

be made by them. It is not part of the purchase price and not a proof of the perfection of the

contract of sale, but only as a guarantee that respondents would not back out of the sale. Theparties never got past the negotiation stage. While the parties already agreed on the real

properties which were the objects of the sale and on the purchase price, the fact remains that

they failed to arrive at mutually acceptable terms of payment, despite the 45-day extension given

by petitioner.

It is not the giving of earnest money, but the proof of the concurrence of al l the

essential elements of the contract of sale which establishes the existence of a

perfected sale.

4. Place of Perfection

Art. 1319. supra

Dalion v CA (1990)

FACTS: Sabasaje alleges that Dalion executed a private document of absolute sale of a parcel ofland for his favor. Dalion, however denied the fact of sale, contending that the document sued

upon is fictitious, his signature thereon, a forgery; and that subject land is conjugal property,

which he and his wife acquired in 1960. Dalion still impugns the validity of the sale on the ground

that the same is embodied in a private document, and did not thus convey title or right to the lot

in question since “acts and contracts which have for their object the creation, transmission,

modification or extinction of real rights over immovable property must appear in a public

instrument”

HELD: The sale is valid. A contract of sale is a consensual contract, which means that the sale is

perfected by mere consent. No particular form is required for its validity. Upon perfection of the

contract, the parties may reciprocally demand performance. The necessity of a public document

is only for convenience, not for validity or enforceability. It is not a requirement for the validity of

a contract of sale of a parcel of land that this be embodied in a public instrument.

B. Formalities of the Contract

1. General Rule: Form Not Important

Art. 1475. supra

Art. 1358. The following must appear in a public document:

1. Acts and contracts which have for their object the creation, transmission, modification or

extinguishment of real rights over immovable property; sales of real property or of an interest

therein are governed by articles 1403, No. 2, and 1405;

2. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal

partnership of gains;




3. The power to administer property, or any other power which has for its object an act appearing

or which should appear in a public document, or should prejudice a third person;

4. The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in

writing, even a private one. But sales of goods, chattels or things in action are governed by

articles 1403, No. 2 and 1405.

2. Exception: When Form Important

a. Form Important for Enforceabil ity

STATUTE OF FRAUDS

Art. 1403. The following contracts are unenforceable, unless they are ratified:

1. Those entered into in the name of another person by one who has been given no authority or

legal representation, or who has acted beyond his powers;

2. Those that do not comply with the Statute of Frauds as set forth in this number. In the

following cases an agreement hereafter made shall be unenforceable by action, unless the same,

or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by

his agent; evidence, therefore, of the agreement cannot be received without the writing, or a

secondary evidence of its contents:

a. An agreement that by its terms is not to be performed within a year from the making thereof;b. A special promise to answer for the debt, default, or miscarriage of another;

c. An agreement made in consideration of marriage, other than a mutual promise to marry;

d. An agreement for the sale of goods, chattels or things in action, at a price not less than five

hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the

evidences, or some of them, of such things in action, or pay at the time some part of the

purchase money; but when a sale is made by auction and entry is made by the auctioneer in his

sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price,

names of the purchasers and person on whose account the sale is made, it is a sufficient

memorandum;

e. An agreement for the leasing for a longer period than one year, or for the sale of real property

or of an interest therein;

f. A representation as to the credit of a third person.

3. Those where both parties are incapable of giving consent to a contract.

Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of article 1403, are

ratified by the failure to object to the presentation of oral evidence to prove the same, or by the

acceptance of benefits under them.

Paredes v Espino (1968)

FACTS: Espino agreed to sell his land at P4.00/sqm in Puerto Princesa by telegram. Paredes did

not accept any amount tendered by Espina. SC declared that the agreement was supported by a

document so it was enforceable and not barred by the Statute of Frauds. The SC held that it was

a valid memo because it was signed by the parties; refers to the Puerto princesa property, and

the purchase price of P4.00/sq. meter.

HELD: ART 1403 NCC: Statute of Frauds, any agreement between the parties shall be

unenforceable unless the agreement is supported by a note or memorandum evidenced in

writing and subscribed by the interested parties.

b. Form Important for Validity

SALE OF REALTY THROUGH AN AGENT

Art. 1874 . When a sale of a piece of land or any interest therein is through an agent, the

authority of the latter shall be in writing; otherwise, the sale shall be void.

SALE OF LARGE CATTLE

Art. 1581. The form of sale of large cattle shall be governed by special laws.

Revised Admin Code. Sec. 529. Registration necessary to validity of transfer. – No transfer of

large cattle shall be valid unless the same is registered and a certificate of transfer obtained as

herein provided, but large cattle under two years of age may be registered and branded gratis

for the purpose of effecting a valid transfer, if the registration and transfer are made at the same

time.

SECONDARY EVIDENCE

Rules of Court. Rule 130. Sec. 5. When original document is unavailable. – When the

original document has been lost or destroyed, or cannot be produced in court, the offeror, upon

proof of its execution or existence and the cause of its unavailability without bad faith on his part,may prove its contents by a copy, or by a recital of its contents in some authentic document, or

by the testimony of witnesses in the order stated.

Rules of Court. Rule 130. Sec. 9. Evidence of written agreements. – When the terms of an

agreement have been reduced to writing, it is considered as containing all the terms agreed

upon and there can be, between the parties and their successors in interest, no evidence of such

terms other than the contents of the written agreement. However, a party may present evidence

to modify, explain or add to the terms of the written agreement if he puts in issue in his pleading:

a. An intrinsic ambiguity, mistake or imperfection in the written agreement;

b. The failure of the written agreement to express the true intent and agreement of the parties

thereto;

c. The validity of the written agreement; or

d. The existence of other terms agreed to by the parties or their successors in interest after the

execution of the written agreement. The term “agreement” includes wills.

ELECTRONIC COMMERCE ACT (RA 8792)

Sec. 7. Legal Recognition of Electronic Documents. - Electronic documents shall have the legal

effect, validity or enforceability as any other document or legal writing, and -

a. Where the law requires a document to be in writing, that requirement is met by an electronic

document if the said electronic document maintains its integrity and reliability and can be

authenticated so as to be usable for subsequent reference, in that -




i. The electronic document has remained complete and unaltered, apart from the

addition of any endorsement and any authorized change, or any change which arises in the

normal course of communication, storage and display; and

ii. The electronic document is reliable in the light of the purpose for which it was

generated and in the light of all relevant circumstances.

b. Paragraph (a) applies whether the requirement therein is in the form of an obligation or

whether the law simply provides consequences for the document not being presented or retained

in its original form.

c. Where the law requires that a document be presented or retained in its original form, that

requirement is met by an electronic document if-i.There exists a reliable assurance as to the integrity of the document from the time

when it was first generated in its final form; and

ii. That document is capable of being displayed to the person to whom it is to be

presented: Provided, That no provision of this Act shall apply to vary any and all requirements of

existing laws on formalities required in the execution of documents for their validity.

For evidentiary purposes, an electronic document shall be the functional equivalent of a written

document under existing laws.

This Act does not modify any statutory rule relating to the admissibility of electronic data

messages or electronic documents, except the rules relating to authentication and best evidence.

Sec. 8. Legal Recognition of Electronic Signatures. - An electronic signature on the electronicdocument shall be equivalent to the signature of a person on a written document if the signature

is an electronic signature and proved by showing that a prescribed procedure, not alterable by

the parties interested in the electronic document, existed under which -

a. A method is used to identify the party sought to be bound and to indicate said party's access

to the electronic document necessary for his consent or approval through the electronic

signature;

b. Said method is reliable and appropriate for the purpose for which the electronic document was

generated or communicated, in the light of all circumstances, including any relevant agreement;

c. It is necessary for the party sought to be bound, in order to proceed further with the

transaction, to have executed or provided the electronic signature; and

d. The other party is authorized and enabled to verify the electronic signature and to make the

decision to proceed with the transaction authenticated by the same.

Sec. 11. Authentication of Electronic Data Messages and Electronic Documents. - Until the

Supreme Court by appropriate rules shall have so provided, electronic documents, electronic

data messages and electronic signatures, shall be authenticated by demonstrating, substantiating

and validating a claimed identity of a user, device, or another entity in an information or

communication system, among other ways, as follows:

a. The electronic signature shall be authenticated by proof that a letter, character, number or

other symbol in electronic form representing the persons named in and attached to or logically

associated with an electronic data message, electronic document, or that the appropriate

methodology or security procedures, when applicable, were employed or adopted by a person

and executed or adopted by such person, with the intention of authenticating or approving an

electronic data message or electronic document;

b. The electronic data message or electronic document shall be authenticated by proof that an

appropriate security procedure, when applicable was adopted and employed for the purpose of

verifying the originator of an electronic data message or electronic document, or detecting error

or alteration in the communication, content or storage of an electronic document or electronic

data message from a specific point, which, using algorithm or codes, identifying words or

numbers, encryptions, answers back or acknowledgement procedures, or similar security devices.

The Supreme Court may adopt such other authentication procedures, including the use of

electronic notarization systems as necessary and advisable, as well as the certificate ofauthentication on printed or hard copies of the electronic documents or electronic data messages

by electronic notaries, service providers and other duly recognized or appointed certification

authorities.

The person seeking to introduce an electronic data message or electronic document in any legal

proceeding has the burden of proving its authenticity by evidence capable of supporting a

finding that the electronic data message or electronic document is what the person claims it to

be.

In the absence of evidence to the contrary, the integrity of the information and communication

system in which an electronic data message or electronic document is recorded or stored may be

established in any legal proceeding-

a. By evidence that at all material times the information and communication system orother similar device was operating in a manner that did not affect the integrity of the electronic

data message or electronic document, and there are no other reasonable grounds to doubt the

integrity of the information and communication system;

b. By showing that the electronic data message or electronic document was recorded

or stored by a party to the proceedings who is adverse in interest to the party using it; or

c. By showing that the electronic data message or electronic document was recorded

or stored in the usual and ordinary course of business by a person who is not a party to the

proceedings and who did not act under the control of the party using the record.

VI. OBLIGATIONS OF THE VENDOR

Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant thething which is the object of the sale.

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.

Art. 1497. The thing sold shall be understood as delivered, when it is placed in the control and

possession of the vendee.

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.

Art. 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.

Art. 1500. There may also be traditio constitutum possessorium.

Art. 1501. With respect to incorporeal property, the provisions of the first paragraph of article

1498 shall govern. In any other case wherein said provisions are not applicable, the placing of the

titles of ownership in the possession of the vendee or the use by the vendee of his rights, with the

vendor’s consent, shall be understood as a delivery.

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.

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.

Art. 1503. supra

Art. 1504. Unless otherwise agreed, the goods remain at the seller’s risk until the ownership

therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the

goods are at the buyer’s risk whether actual delivery has been made or not, except that:

1. Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in

pursuance of the contract and the ownership in the goods has been retained by the seller merely

to secure performance by the buyer of his obligations under the contract, the goods are at the

buyer’s risk from the time of such delivery;

2. Where actual delivery has been delayed through the fault of either the buyer or seller the

goods are at the risk of the party in fault.

Art. 1505. Subject to the provisions of this Title, where goods are sold by a person who is not

the owner thereof, and who does not sell them under authority or with the consent of the owner,

the buyer acquires no better title to the goods than the seller had, unless the owner of the goods

is by his conduct precluded from denying the seller’s authority to sell.

Nothing in this Title, however, shall affect:

1. The provisions of any factors’ acts, recording laws, or any other provision of law enabling the

apparent owner of goods to dispose of them as if he were the true owner thereof;

2. The validity of any contract of sale under statutory power of sale or under the order of a court

of competent jurisdiction;

3. Purchases made in a merchant’s store, or in fairs, or markets, in accordance with the Code of

Commerce and special laws.

Art. 1506. Where the seller of goods has a voidable title thereto, but his title has not been

avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys

them in good faith, for value, and without notice of the seller’s defect of title.

Art. 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the

right to make use of the terms as provided in article 1198.

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.

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.

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.

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.

Art. 1541. The provisions of the two preceding articles shall apply to judicial sales.




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 thevendee does not accede to the failure to deliver what has been stipulated.

Art. 1543. The actions arising from articles 1539 and 1542 shall prescribe in six months, counted

from the day of delivery.

A. Transfer Ownership to the Vendee

Art. 1459, 1477, 1478, 1487, 1496, 1497, 1498, 1499, 1500, 1501 supra

Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to

deliver it arises. However, he shall acquire no real right over it until the same has been delivered

to him.

1. General Rule

Art. 1477, 1496, 1497 supra

Ocejo Perez Co. v International Bank (1918)

FACTS: Ocejo Perez & Co. sold to Chua a lot of sugar. Chua pledged a different lot of sugar to

International Bank. International Bank locked the warehouse that contained the sugar sold to Chu

by Ocejo. Ocejo wanted to rescind contract and retrieve the sugar because of non-payment. SC

declared that Chua owned the sugar because of its delivery to Chua’s warehouse.

HELD: Ownership of things is not transferred by contract merely but by delivery. 1462

provides that the thing sold is deemed to be delivered "when it passes into the possession

and control of the buyer."

2. Exceptions

a. Sale On Approval, Trial , or Satisfaction

Art. 1502. supra

Vallarta v CA (1987)

FACTS:Cruz entrusted 7 pieces of jewelry. Vallarta bought some of the jewelry by bartering her

own and with a post-dated check. The check bounced and Vallarta promised to replace it but

failed. Cruz filed an estafa case against her. SC found her guilty.

HELD: Vallarta issued the check only after she exhcanged one ring for another, thus it is a sale

on approval. 1502 which provides that ownership passes to the buyer on delivery and a

subsequent return of the goods reverts ownership in the seller.

b. Executory Sales

EXPRESS RESERVATION

Art. 1478. supra

Luzon Brokerage v Marit ime Bldg (1972)

FACTS: Meyers Bldg Co. entered into a deed of conditional sale with Maritime Bldg Co. for 3

parcels of land for P1M on installments (P5k/month). Maritime leased the properties to Luzon

Brokerage for P10k/month. Maritime failed to pay for the 144th installment (only paid 765K).

Meyers filed for rescission of the contract. SC: Meyers need not transfer the property because of

the breach of contract (non-payment).HELD: In contract to sell, the vendor retains ownership of the immovable object of the sale,

merely undertaking tot convey it provided the buyer strictly complied with the terms of the

contract. SC upholds the power of promisors, in case of failure of the other party to complete

payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain

the sums or installments already received, where such rights are expressly provided for, as in the

case at bar.

IMPLIED RESERVATION

Art. 1503. supra

3. Sale by a Person Not the Owner at the Time of Delivery

Art. 1459, 1462, 1505 supra

Aznar v Yapdingco (1965)

FACTS: Santos was selling his Ford Fairline. Marella wanted to buy it and sent his nephew to

negotiate. The nephew of Marella stole the car and subsequently sold it Aznar. SC held that

HELD: Art. 1506 which provides that the seller of goods has voidable title but the title has not

been voided at the time of the sale, the buyer acquires a good title to the goods, provided he

buys them in good faith, for value, and without notice of the seller’s defct of title is

INAPPLICABLE because the car was not delivered to him and thus, he did not acquire any title at

all.

EXCEPTIONS

a. Estoppel

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the

person making it, and cannot be denied or disproved as against the person relying thereon.

Art. 1433. Estoppel may be in pais or by deed.

Art. 1434. When a person who is not the owner of a thing sells or alienates and delivers it, and

later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer

or grantee.

Art. 1437. When in a contract between third persons concerning immovable property, one of

them is misled by a person with respect to the ownership or real right over the real estate, the




latter is precluded from asserting his legal title or interest therein, provided all these requisites

are present:

1. There must be fraudulent representation or wrongful concealment of facts known to the party ;

2. The party precluded must intend that the other should act upon the facts as misrepresented;

3. The party misled must have been unaware of the true facts; and

4. The party defrauded must have acted in accordance with the misrepresentation.

Art. 1439. Estoppel is effective only as between the parties thereto or their successors in

interest.

Art. 1911. Even when the agent has exceeded his authority, the principal is solidarily liable with

the agent if the former allowed the latter to act as though he had full powers.

Hernaez v Hernaez(1915)

FACTS: Domingo Hernaez sold his share in ther estate of his parents to his son, Vicente

Hernaez. He then sold it again to other buyers in connivance with Vicente. Rosendo, brother of

Domingo, bought Domingo’s share from Vicente and wants to claim the whole share from third

persons. SC declared that neither Domingo and Vicente had ownership on the interest but

Rosendo could claim their interest upon payment to third persons.

HELD: Where the true owner of property, for however short a time, holds out another, or, with

knowledge of his own right, allows another to appear as the owner of or as having full power of

disposition over the property, the same being in the latter's actual possession, and innocent third

parties are thus led into dealing with such apparent owner, they will be protected.Article 1067 of the Civil Code provides that the coheir may exercise the right of subrogation upon

the payment of the purchase price to the purchaser of another heir’s interest at the price

for which the heir who sold it parted with it.

Bucton v Gabar (1974)

FACTS: Sps. Villarin sold a lot to Gabar. Gabar then sold half of the lot to Sps. Bucton. Sps.

Bucton took possession of the lot and built their nipa hut house. When Sps. Villarin issued a title

in the name of Gabar and Sps. Bucton wanted a separate title but Gabar refused. SC held that

Sps. Bucton’s right of action (conveyance of title) has not yet prescribed (imprescriptible if in

actual and physical possession like in this case).

HELD: As a general rule, ownership is required at the time of delivery of the goods. The

exception is Art 1434 when a person who is not the owner of a thing sells or alientaes and

delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of

law to the buyer or grantee.

b. Factors Act, Recording Laws, Torrens System

c. Validity of the Sale under Statutory Power or Court Order to Sell

d. Sale in Merchant’s Store, Market or Fair

Sun Bros. v Velasco (1958)

FACTS: Lopez bought an admiral refrigerator from Sun Bros. under a conditional sale agreement

which provided that Lopez would not remove the refrigerator from his address of part possession

without consent of Sun Bros. Lopez placed the ref in his store. Lopez then sold it to Jose Velasco

Trading representing himself as the absolute owner. JV Trading then sold it to Chiu.

HELD: Lopez had yet to obtain the title when he sold it to JV Trading so JV Trading had no title

when it sold it to Chiu. However, paragraph 3 of Art. 1505 is properly applicable to the case

at bar because Chiu bought the refrigerator in good faith and for value at a merchant's store so

he has a title and a right over the ref.

4. Sale by a Person Having a Voidable Title

Art. 1506. supra

Art. 559. The possession of movable property acquired in good faith is equivalent to a title.

Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may

recover it from the person in possession of the same.

If the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired

it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price

paid therefor.

EDCA Publishing v. Santos (1990)

FACTS: EDCA sold to Cruz (alleged dean of DLSU) 406 books in exchange for a check of P8k.

Cruz sold them to Leonor Santos who had a bookstore. Cruz ordered books again from EDCA

even before the check cleared. EDCA found out that Cruz was not the dean of DLSU and there

was no account so it seized the books sold to Santos. SC held that Santos had title over the

books because ownership was already transfered to Cruz.HELD: Ownership in the thing sold shall not pass to the buyer until full payment of the purchase

price only if there is a stipulation to that effect. Otherwise, the rule is that such ownership shall

pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold

even if the purchase price has not yet been paid. Non-payment only created a right to demand

payment or to rescind the contract, or to criminal prosecution in the case of bouncing

checks. But absent the stipulation noted, delivery of the thing sold will effectively transfer

ownership to the buyer who can in turn transfer it to another.

B. Delivery of the Thing with Fruits and Accessions

Art. 1537. supra

Art. 1163. Every person obliged to give something is also obliged to take care of it with the

proper diligence of a good father of a family, unless the law or the stipulation of the parties

requires another standard of care..

Art. 1164, 1477, 1495 supra

Art. 1521. Whether it is for the buyer to take possession of the goods or for 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.

1. Place, Time, and Manner of Delivery

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.

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee

judicially or extrajudicially demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may

exist:1. When the obligation or the law expressly so declares; or

2. When from the nature and the circumstances of the obligation it appears that the designation

of the time when the thing is to be delivered or the service is to be rendered was a controlling

motive for the establishment of the contract; or

3. When demand would be useless, as when the obligor has rendered it beyond his power to

perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready

to comply in a proper manner with what is incumbent upon him. From the moment one of the

parties fulfills his obligation, delay by the other begins.

Art. 1521. supra

Art. 1523. 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, whether named by the buyer or not, for

the purpose of transmission to the buyer, is deemed to be a delivery of the goods to the buyer,

except in the cases provided for in Article 1503, first, second, and third paragraphs, or unless a

contrary intent appears.

Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on

behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other

circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in

course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself,

or may hold the seller responsible in damages.

Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in

which the seller know or ought to know that it is usual to insure, the seller must give such notice

to the buyer as may enable him to insure them during their transit, and, if the seller fails to do so,

the goods shall be deemed to be at his risk during such transit.

Art. 1537, 1164. supra

Art. 443. He who receives the fruits has the obligation to pay the expenses made by a third

person in their production, gathering, and preservation

a. Reasonable Time

Smith Bell v Matti (1922)

FACTS: Smith Bell obligated to sell Matti 2 steel tanks, 2 expellers and 2 electric motors with

various delivery dates from the US. Everything arrived later than the agreed upon date so Matti

refused. Smith Bell argues that it cannot be faulted by the delay because it was outside his

control (US requirements for shipment). SC HELD that the goods were delivered at a reasonable

time and Matti should accept them and pay.

HELD: The question as to what is a reasonable time for the delivery of the goods by the seller is

to be determined by the circumstances attending the particular transaction, such as the character

of the goods, and the purpose for which they are intended, the ability of the seller to produce the

goods if they are to be manufactured, the facilities available for transportation, and the distance

the goods must be carried, and the usual course of business in the particular trade.

b. When Time is of the Essence

Soler v. Chesley (1922)

FACTS: Soler bought coconut oil machinery from Wm. H. Anderson & Co. Soler then sold his

rights to Chelsey. The machinery arrived late in Manila so Chelsey refused to accept them and did

not pay.

HELD: Arrival of machinery within a reasonably short time was one of the determining elements

of Chesley’s consent. Since Soler failed to carry out his obligation, he has no right to compel the

defendant to comply with his obligation to pay Soler.

Republic v Litton (1953)

FACTS: Litton won the bid for the contract to supply RP of 96k of padlocks and other office

supplies for the upcoming elections. Litton only delivered a portion of the 96k of padlocks andforced RP to buy elsewhere at a higher price. RP wanted Litton to pay for the difference between

the contract price and the price of outside sources. SC ordered Litton to pay the difference

because of his non-fulfillment of the obligation on time.

HELD: Litton, an experienced businessman and aware of the difficulties and restrictions in

bringing U. S. goods to the Philippines at the time he entered into his contract with the plaintiff,

chose to bind himself to deliver the articles in question. RP relied on his guaranty to deliver the

goods before March 1, 1946 for the upcoming elections. Any later date would render the

contract useless.

c. When Vendor Not Bound to Deliver

Art. 1524, 1536. supra




Art. 1198. The debtor shall lose every right to make use of the period:

1. When after the obligation has been contracted, he becomes insolvent, unless he gives a

guaranty or security for the debt;

2. When 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 givers 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.

d. Acceptance not a Condition to Delivery

La Fuerza v CA (1968)

FACTS: Associated Engineering Co. installed conveyor belts in the premises of La Fuerza (wine

co.). La fuerza paid a downpayment of P5K. In the trial runs, the conveyor belt were not

functioning properly so La Fuerza refused to pay the balance. SC ruled that La Fuerza should pay

the balance.

HELD: Delivery was completed when the conveyor belts were in the possession and control of

La Fuerza. The failure of La Fuerza to to express acceptance or rejection does not detract from

the fact that the conveyor belts were in its possession and control. Delivery is an act of the vendor

(transfers ownership) while acceptance is the act of the vendee (perfects the contract). The

vendee has nothing to do with the obligation of vendor to deliver, so acceptance cannot be

considered as a condition for delivery.

2. Sale of Goods

Art. 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted to

sell, the buyer may reject them, but if the buyer accepts or retains the goods so delivered,

knowing that the seller is not going to perform the contract in full, he must pay for them at the

contract rate. If, however, the buyer has used or disposed of the goods delivered before he

knows that the seller is not going to perform his contract in hull, the buyer shall not be liable for

more than the fair value to him of the goods so received.

Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the

buyer may accept the goods included in the contract and reject the rest. If the buyer accepts the

whole of the goods so delivered, he must pay for them at the contract rate.

Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a

different description not included in the contract, the buyer may accept the goods which are in

accordance with the contract and reject the rest.

In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the

whole of the goods.

The provision of this article are subject to any usage of trade, special agreement, or course of

dealing between the parties.

Art. 1537, 1480 supra

a. Delivery of Wrong Quantity

Art. 1522. supra

b. Delivery by Instal lments

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 oneor 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 to a right to treat the whole contract

as broken.

3. Sale of Immovables

a. Where Price is at Certain Rate of Unit per Measure

Art. 1539, 1540 supra

b. Sale for a Lump Sum

Art. 1542. supra

Azarraga v Gay (1928)

FACTS: Azarraga sold 2 parcels of land to Gay for a lump sum of P47k. Gay paid P5k upon

signing the contract and P20k upon delivery of the 1st title. The 2nd title was delivered despite

Gay not paying the balance of P22k. Gay claims that there was a breach of contract because the

land of the 2nd title was only 68 he. and not 98 he.

HELD: ART. 1542 provides that in case of the sale of real estate for a lump sum, there shall be

no increase or decrease of the price even if the area be found to be more or less than that stated

in the contract. 1542 (2) is inapplicable to the facts of the case since all the land included within

the boundaries of the two parcels sold has been delivered in its entirety to Gay.

Esguerra v Trinidad (2007)

FACTS: Sps. Esguerra sold a 5,000 sqm. piece of lot to Sps. Trinidad. However, a cadastralsurvey made on the land showed that it was in fact 6,268 sqm. Sps. Esguerra now want to nullify

the contract because of an alleged fraud by Sps. Trinidad. SC upheld the contract based on

1542(1).

HELD: Rules in governing sales for a lump sum:

1. Where both the area and the boundaries of the immovable are declared, the area

covered within the boundaries of the immovable prevails over the stated area.

2.

The specific boundaries stated in the contract must control over any statement with

respect to the area contained within its boundaries.

3. It is not of vital consequence that a deed or contract of sale of land should disclose the

area with mathematical accuracy.




4. An error as to the superficial area is immaterial. Thus, the obligation of the vendor is to

deliver everything within the boundaries, inasmuch as it is the entirety thereof that

distinguishes the determinate object. (Rudolf Lietz, Inc. v. CA)

4. Inspection and Acceptance

a. Right of Inspection

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 goodsbefore the payment of the price, in the absence of agreement or usage of trade permitting such

examination.

b. Manifestation of Acceptance

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.

c. Breach of Warranty

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

d. Refusal to Accept

Art. 1587. Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to

accept them, having the right to do so, he is not bound to return them to the seller, but it is

sufficient if he notifies the seller that refuses to accept them. If he voluntarily constitutes himself a

depositary thereof, he shall be liable as such.

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.

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 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.

5. Kinds of Delivery

a. Real or Actual Delivery

Art. 1497. supra

Alfredo v Borras (2003)

FACTS: Sps. Alfredo mortgaged their land to DBP. Sps. Alfredo then sold it to Sps. Borras with a

stipulation that the latter will assume to pay the mortgage. After Sps. Borras paid the mortgage

and took possession of the land, they were surprised to learn that Sps. Alfredo sold it to several

other persons. SC declared that there was a perfected contract of sale between the Sps. Alfredo

and Sps. Borras.

HELD: In a contract of sale, the seller obligates himself to transfer the ownership of the

determinate thing sold, and to deliver the same, to the buyer who obligates himself to pay a

price certain to the seller. Sps. Alfredo delivered the Subject Land to Sps. BorraS, placing thelatter in actual physical possession of the Subject Land. This physical delivery of the Subject Land

constituted a transfer of ownership of the Subject Land to the Sps. Borras.

b. Constructive Delivery

SYMBOLIC DELIVERY / DELIVERY BY PUBLIC INSTRUMENT

Art. 1498. supra

Sarmiento v Lesaca (1960)

FACTS: Lesaca sold Sarmiento 2 parcels of land. When Sarmiento was to take physical

possession of the land, Martin claimed that he was the rightful owner. Sarmiento asked Lesaca to

replace the lands but the latter refused.




HELD: There was symbolic delivery through the execution of a deed of sale in a public

document (notarized). However, it is not enough to confer that the vendee has ownership

and right of the possession, it must also produce the effect that he has control over the property

thereof. Delivery will not be considered consummated if the ownership of the possession and the

control thereof has been transferred to the vendee.

Santos v Santos (2001)

FACTS: Sps. Santos sold their lot with a 4 door apartment to their son, Salvador. However, the

mother still got the rentals and exercised control over the property. The wife of Salvador and

Salvador’s siblings are fighting over who owned the property in question. SC declared that theproperty was still under the estate of the parents of Salvador.

HELD: Nowhere in the Civil Code does it provide that execution of a deed of sale is a conclusive

presumption of delivery of possession. The Code merely said that the execution shall be

equivalent to delivery. The presumption can be rebutted by clear and convincing evidence.

Presumptive delivery can be negated by the failure of the vendee to take actual possession

of the land sold. The execution of a public instrument to effect tradition, the purchaser must be

placed in control of the thing sold. But if, notwithstanding the execution of the instrument, the

purchaser cannot have the enjoyment and material tenancy nor make use of it himself or through

another in his name, then delivery has not been effected.

TRADITIO LONGA MANU (“DELIVERY BY AGREEMENT”)

Art. 1498, 1499 supra

Art. 1513. A person to whom a negotiable document of title has been duly negotiated acquires

thereby:

1. Such title to the goods as the person negotiating the document to him had or had ability to

convey to a purchaser in good faith for value and also such title to the goods as the person to

whose order the goods were to be delivered by the terms of the document had or had ability to

convey to a purchaser in good faith or value; and

2. The direct obligation of the bailee issuing the document to hold possession of the goods for

him according to the terms of the document as fully as if such bailee had contracted directly with

him.

Art. 1514. A person to whom a document of title has been transferred, but not negotiated,

acquires thereby, as against the transferor, the title to the goods, subject to the terms of any

agreement with the transferor.

If the document is non-negotiable, such person also acquires the right to notify the bailee who

issued the document of the transfer thereof, and thereby to acquire the direct obligation of such

bailee to hold possession of the goods for him according to the terms of the document.

Prior to the notification to such bailee by the transferor or transferee of a non-negotiable

document of title, the title of the transferee to the goods and the right to acquire the obligation

of such bailee may be defeated by the levy of an attachment of execution upon the goods by a

creditor of the transferor, or by a notification to such bailee by the transferor or subsequent

purchaser from the transferor of a subsequent sale of the goods by the transferor.

Board of Liquidators v Floro (1960)

FACTS: Malabanan entered into an agreement with the Board of Liquidators to salvage steel

from sunk ships in Batangas. Malabanan also entered into an agreement with Floro for the latter

so advance sums of money for the operation and in case of default by Malabanan, Floro would be

authorized to sell the steel mattings. Malabanan defaulted so Floro sold the steel mattings to

Legaspi. The Board claims that the steel mattings never became property of Malabanan.

HELD: While the Civil Code provides that there can be reservation of title in the seller until full

payment of the price, and while the execution of a public instrument amounts to delivery only

when the contrary does not appear or cannot clearly be inferred; there is nothing in the said

contract which may be deemed a reservation of title, or from which it, may clearly be inferred that

delivery was not intended. This is delivery by mere agreement (traditio longa manu) which isrecognized in our Civil code in Aritcle 1499.

TRADITIO BREVI MANU (“DELIVERY BY SHORT HAND”)

Art. 1499. supra

Abuan v Garcia (1965)

FACTS: Abuan sold a parcel of rice land to Garcia through a Deed of Absolute Sale. Because of

an alleged fraud, both parties created a new agreement which provided that is shall supersede all

previous agreements. Abuan filed an action to recover the land. SC declared that the right of

action of Garcia has prescribed and that first contract already vested Abuan with ownership of

the land while the subsequent agreement only superseded the terms and conditions of the sale.

HELD: This was delivery brevi manu permissible under Articles 1499 and 1501 of the New Civil

Code. Under Art. 1498, When the sale is made through a public instrument — as in this case —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 be clearly inferred. This

manner of delivery of the thing through the execution of a public document is common to

personal as well as real property. In the absence of an express stipulation to the contrary, the

payment of the price is not a condition precedent to the transfer of ownership, which passes by

delivery of the thing to the buyer.

Heirs of Pedro Escanlar v. CA (1997)

FACTS: Pedro Escanlar and family was the lessee of a lot. He bought the the rights and interests

of the lot from the heirs of Carian the owners. Since Escanlar failed to fully pay on time, the heirs

of Carian sold their shares to the Sps. Chua. The heirs of Carian eventually received the whole

property. SC HELD that their subsequent sale to Sps. Chua is void.

HELD: Prior to the sale, the Heirs of Escanlar were in possession of the subject property aslessees. Upon sale to them of the rights, interests and participation as to the 1/2 portion pro

indiviso, they remained in possession, not in concept of lessees anymore but as owners now

through symbolic delivery known as traditio brevi manu. Under Article 1477 of the Civil Code, the

ownership of the thing sold is acquired by the vendee upon actual or constructive delivery

thereof.

TRADITIO CONSTITUTUM POSSESSORIUM

Art. 1500. supra

Amigo v Teves (1954)

FACTS: Amigo, through his son, executed a deed of sale o f a parcel of land to Teves with a

stipulation that they could re-purchase the land within a period of 18 months and that the Amigo




would remain as lessees and that failure to pay rentals would be an automatic termination of

lease and the right to repurchase. Amigo failed to pay the lease and Teves got a consolidated

title over the land. SC found that Teves acted quickly on the failure to pay and upheld his title to

the land.

HELD: The lease that a vendor executes on the property may be considered as a means of

delivery of or tradition by constitutum possessorium. Where the vendor a retro continues to

occupy the land as lessee, by fiction of law, the possession is deemed to be constituted in the

vendee by virtue of this mode of tradition. Therefore, the covenant regarding the lease of the

land sold is germane to thecontract of sale with pacto de retro. While the lease covenant may be

onerous or may work hardship on the vendor because of its clause providing for the automatictermination of the period of redemption, however, the same is not contrary to law, morals, or

public order, which may serve as basis for its nullification.

DELIVERY TO COMMON CARRIER

Art. 1503, 1523 supra

Behn Meyer v Yangco (1918)

FACTS: Behn Meyer sold to Yangco 80 drums of caustic soda with 76% Carabao brand. 71

drums got detained by the British in Penang. Behn Meyer offered to Yangco the remaining 9

drums but Yangco refused. To avoid losses, Behn Meyer sold it at P6k rather than P10k. SC ruled

that Behn Meyer must bear his own costs for not delivering the entire 80 drums.

HELD: If the contract is silent as to the person or mode by which the goods are to be sent,

delivery by the seller to a common carrier, in the usual and ordinary course of business, transfersthe property to the buyer. In the case at bar, the contract provides for CIF Manila. Therefore,

ownership only transfers at the destination.

C. Double Sale

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be

transferred to the person who may have first taken possession thereof in good faith, if it should

be movable property.

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 wasfirst in the possession; and, in the absence thereof, to the person who presents the oldest tite,

provided there is good faith.

Art. 526. 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.

He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.

Mistake upon a doubtful or difficult question of law may be the basis of good faith.

Art. 527. Good faith is always presumed, and upon him who alleges bad faith on the part of a

possessor rests the burden of proof.

Express Credit v Velasco (2005)

FACTS: Sps. Velasco purchased on installment a house and lot from Sps. Garcia. The house was

yet to be finished so Sps. Garcia promised to give them the title after construction. Sps. Velasco

got the keys and moved in, only to find out that the house was encumbered to Express Credit.

Sps. Velasco filed for quieting of title. SC ruled that the Sps. Velasco had a preferential right.

HELD: Article 1544 of the Civil Code is the rule on double sale. It provides: 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. Express Credit is in the business of extending credit to the

public, including real estate loans It is standard in their business, as a matter of due diligencerequired of banks and financing companies, to ascertain whether the property being offered as

security for the debt has already been sold to another to prevent injury to prior innocent buyers.

Also, they have the resources to do so.

1. General Rule – prior tempore prior jure

Carbonell v CA (1976)

FACTS: Carbonell bought the land of Poncio in San Juan, Rizal on the condition that from the

purchase price would come the money to be paid to the bank. They executed a Deed of Sale.

Poncio later on told Carbonell not to push through with the sale as he had given it to Infante. SC

declared that Carbonell had a prior right over the property.

HELD: Art. 1544(2) provides the rule that 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.

Her prior purchase of the land was made in good faith. Good faith continued to exist when sherecorded her adverse claim 4 days prior to Infante’s registration of the DOS. Good faith did not

cease after Poncio told her of his sale to Infante, she in fact wanted an audience with Infante, who

refused to see her.

Tanglao v Parungao (2007)

FACTS: Sps. Parungao bought lots in the Laguna Spring Homes Subdivision under a Contract to

Sell. They introduced improvements but failed to pay the full purchase price so Laguna Spring

Homes did not issue a TCT in their favor. Consequently, Laguna Spring Homes sold the lots to

the Sps. Tanglao. SC HELD that the Parungaos owned the property.

HELD: There was a perfected contract to sell between them as early as 1992. According to Art

1544, in double sales of immovable property, the governing principle is prius tempore, prius jure

(first in time, stronger in right).

In Payongayong v. Court of Appeals , SC held that Article 1544, preferential rights shall beaccorded to:

(1) The person acquiring it who in good faith first recorded it in the Registry of Property

(2) In default thereof to the person who in good faith was first in possession, and

(3) In default thereof, to the person who presents the oldest title, provided there is good faith.

2. Requisites

Cheng v Genato (1998)

FACTS: Genato entered in a contrac to sell with Sps. Da Jose over 2 parcels of land. This

contract was in a public document and duly annotated on the back of the 2 TCTs. Genato

executed Affidavit to Annul the Contract to Sell because Sps. Da Jose failed to pay full down

payment but no annotation was made. Cheng then tried to buy the property and issued a check

upon assurance that the previous contract with the Sps. Da Jose would be annulled. Genato




changed his mind when Sps. Da Jose paid the balance and returned the check to Cheng. SC

declared that Sps. Da Jose as the first buyers and true owners of the 2 lands.

HELD: Contract with Cheng was a conditional contract of sale precluding the application of the

rule on double sales under Art. 1544. Primus tempore, portior jure (first in time, stronger in right)

must apply.

The rule exacted by Article 1544 of the Civil Code for the second buyer to be able to displace the

first buyer are (REQUISITES):

1. That the second buyer must show that he acted in good faith (i.e. in ignorance of the

first sale and of the first buyer’s rights) from the time of acquisition until title is

transferred to him by registration or failing registration, by delivery of possession.2.

The second buyer must show continuing good faith and innocence or lack of

knowledge of the first sale until his contract ripens into full ownership through prior

registration as provided by law.

3. Purchaser in Good Faith

Art. 526. supra

He is deemed a possessor in bad faith who possesses in any case contrary to the foregoing.

Mistake upon a doubtful or difficult question of law may be the basis of good faith.

Art. 527. Good faith is always presumed, and upon him who alleges bad faith on the part of a

possessor rests the burden of proof.

Art. 528. Possession acquired in good faith does not lose this character except in the case and

from the moment facts exist which show that the possessor is not unaware that he possesses the

thing improperly or wrongfully.

Paylago v Jarabe (1968)

FACTS: Paylago bought a piece of land. A subsequent subdivision survey disclosed that a

portion of the land was occupied by Jarabe. SC declared the Jarabe owned the property even

though Paylago first registered it because Paylago failed to inquire and investigate defects in the

title.HELD: One who purchases real es tate with knowledge of a defect or lack of title in his

vendor cannot claim that he has acquired title thereto in good faith, as against the true

owner of the land or of an interest therein; and the same rule must be applied to one

who has knowledge of facts which shou ld have put him upon such inquiry and investiga

tion as might be necessary to acquaint him with the defects of the title of his vendor.

A purchaser can not close his eyes to facts which should put a reasonable man upon his

guard and then claims that he acted in good faith under the belief that there was no defect in

the title of the vendor. His mere refusal to believe that such defect exists, or his willful

closing of his eyes to the possibility of the existence of a defect in his vendor's title, will

not make him an innocent purchaser for value, if it afterwards develops that the title was

defec tive, and it appears that he had such notice of the defect as would have led to its

discovery had he acted with that measure of precaution which may reasonably be

required of a prudent man in a like situation."

Agricultural Home Extension v CA (1992)

FACTS: Sps. Diaz sold to Gundran a piece of land. Gundran did not register the land because of

a notice of lis pendens on the title. Gundran and Agricultural & Home Extension went into a joint

venture to establish a subdivision on the land. Sps. Diaz sold the land to Cabautan who

registered it immediately. Sps Diaz were able to cancel the notice of lis pendens. SC declared

Cabautan as the owner of the land being a buyer in good faith.

HELD: A purchaser in good faith is defined as "one who buys the property of anotherwithout 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.

While it is true that notices of lis pendens in favor of other persons were earlier inscribed

on the title, these did not have the effect of establishing a lien or encumbrance on the

property affected. The ir only purpose was to give notice to third persons and to the

whole world that any interest they might acquire in the property pending litigation would be

subject to the result of the suit. (A notice of lis pendens is not a bar for registering the property

under one’s name.)

4. Sale of Movables

Art. 1497, 1498, 1499, 1500, 1501, 1544 supra

Rivera v Ong (1917)

FACTS: Rivera bought the Lichuaco siblings stem boilers, a steam motor, rice hullers and

feeding pumps but did not take immediate possession of them. Ong bought from the Lichuaco

siblings a lot of old iron and other junk metal. When Rivera took possession of his property, it was

found out the the auxiliary parts of the machines were with Ong already. SC upheld the

ownership of Ong over the metals.

HELD: Ong Che was a purchaser of these articles in good faith. He also acquired possession by

virtue of the purchase. Under 1473 of the Old Civil Code (1544, NCC), he has a better

title than Marciano, who has never had possession at all. On double sale of movable property

1544 of the New Civil Code: 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.

5. Sale of Immovables

Art. 1544. supra, (2nd par.)

Consolidated v CA (2005)

FACTS: The Madrid brothers sold the land to Gamiao and Dayag who sold it to De La Cruz and

and another person. The Madrid brothers then sold all their rights and interestes to Marquez who

mortgaged the same property and then, sold it again to Calixto. Marquez alleges that he is the

owner since he is the first to register. SC declared that De La Cruz owned the property

mortgaged because the Madrid brothers did not own the property anymore before the sale to

Marquez.

HELD: Art. 1544 is not applicable in this case—this contemplates a case of double or multiple

sales by a single vendor or a situation where one vendor sold same immovable property to two or




more buyers; in the case at bar, the subject property was not transferred to several purchasers by

a single vendor.

Assuming arguendo that 1544 applies, prior registration of the subject property does not by itself

confer ownership or a better right over the property. Article 1544 requires that before the second

buyer can obtain priority over the first, he must show that he acted in good faith throughout, from

the time of acquisition until title is transferred to him by registrations or by delivery of possession.

While certificates of title are indefeasible, unassailable and binding against the whole world, they

merely confirm or record title already existing and vested. They cannot be used to protect a

usurper from the true owner, nor can they be used for the perpetration of fraud; neither do theypermit one to enrich himself at the expense of others.

6. Sale by Virtue of Execution or Attachment

Carumba v CA (1970)

FACTS: Sps. Canuto sold a partly residential and partly coconut land to Sps. Carumba.

Balbuena, a creditor of Sps. Canuto, obtained a favorable judgment in a claim for a sum of

money. The sheriff then transfered the said property to Balbuena through an execution of

judgment.

HELD: While under the invoked 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 to the case at bar, even if Balbuena,

the later vendee, was ignorant of the prior sale made by his judgment debtor in favor of

petitioner Carumba. The reason is that the purchaser of unregistered land at a sheriff'sexecution sale only s teps 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.

When the levy was made by the Sheriff, therefore, the judgment debtor no longer had dominical

interest nor any real right over the land that could pass to the purchaser at the execution

sale. The rule is different in case of lands covered by Torrens titles, where the prior sale

is neither recorded nor known to the execution purchaser prior to the levy (will make the

execution sale valid).

Dagupan v Macam (1965)

FACTS: Maron and 7 siblings were the owners of an unregistered parcel of land. Manila Trading

got a favorable judgment against Maron and his 1/8 share was sold in a public auction and

bought by Manila Trading. Manila Trading sold it to Dagupan Trading. However, Macam claims

that he had preivously bought the whole unregistered land prior to the execution sale. SC held

that Macam owned the land.HELD: Upon the execution and delivery of the final certificate of sale in favor of the purchaser of

land sold in an execution sale, such purchaser "shall be substituted to and acquire all the right,

title, interest and claim of the judgment debtor to the property as of the time of the levy." Maron

had no interest because for a considerable time prior to the levy, his interest had already been

conveyed to appellee and the subsequent levy made on the property for the purpose of

satisfying the judgment rendered against Sammy Maron in favor of the Manila Trading Company

was void and of no effect.

7. Unregistered Land

PD 1529 (Property Registration Decree). Sec. 113. Recording of instruments relating to

unregistered lands. – No deed, conveyance, mortgage, lease, or other voluntary instrument

affecting land not registered under the Torrens system shall be valid, except as between the

parties thereto, unless such instrument shall have been recorded in the manner herein prescribed

in the office of the Register of Deeds for the province or city where the land lies.

a. The Register of Deeds for each province or city shall keep a Primary Entry Book and a

Registration Book. The Primary Entry Book shall contain, among other particulars, the

entry number, the names of the parties, the nature of the document, the date, hour,

and minute it was presented and received. The recording of the deed and other

instruments relating to unregistered lands shall be effected by any of annotation on the

space provided therefor in the Registration Book, after the same shall have been

entered in the Primary Entry Book.b. If, on the face of the instrument, it appears that it is sufficient in law, the Register of

Deeds shall forthwith record the instrument in the manner provided herein. In case the

Register of Deeds refuses its administration to record, said official shall advise the party

in interest in writing of the ground or grounds for his refusal, and the latter may appeal

the matter to the Commissioner of Land Registration in accordance with the provisions

of Section 117 of this Decree. It shall be understood that any recording made under

this section shall be without prejudice to a third party with a better right.

c. After recording on the Record Book, the Register of Deeds shall endorse among

other things, upon the original of the recorded instruments, the file number and the

date as well as the hour and minute when the document was received for recording as

shown in the Primary Entry Book, returning to the registrant or person in interest the

duplicate of the instrument, with appropriate annotation, certifying that he has

recorded the instrument after reserving one copy thereof to be furnished the provincialor city assessor as required by existing law.

d. Tax sale, attachment and levy, notice of lis pendens, adverse claim and other

instruments in the nature of involuntary dealings with respect to unregistered lands, if

made in the form sufficient in law, shall likewise be admissible to record under this

section.

e. For the services to be rendered by the Register of Deeds under this section, he shall

collect the same amount of fees prescribed for similar services for the registration of

deeds or instruments concerning registered lands.

Hanopol v Pi lapil (1963)

FACTS: Hanopol claims ownership over a piece of UNREGISTERED land that he bought through

a series of purchases in private documents and on the strength of a favorable decision on his

ownership of the land. Pilapil, however, claims that he owns it through a notarized deed of saleand that he is the first to register. SC declared Pilapil as the true owner.

HELD: Even if we adopt the view that Art 1544 only applies to registered land, still we can’t

agree that by the mere fact of Hanopol having a previous title or deed of sale, he has acquired

thereby as the better right that wou ld be unaffected by the registration of a second deed

of sale under the same law. Under such theory, there would never be a case of double sale of the

same unregistered property. The better right referred to in Act. No. 3344 is much more than the

mere prior deed of sale in favor of the first vendee. In the Lichauco case, it was the prescriptive

right that had supervened. Or, as also suggested in that case, other facts and

circumstances exist which, in addition to his deed of sale, the first vendee can be said to have

better right than the second purchaser.

8. First Possession in Good Faith




Sanchez v Ramos (1919) (Old ruling and already inapplicable)

FACTS: Fernandez sold the land to Sanchez and husband under a pacto de retro. Sanchez did

not take possession of the land and the period for repurchased elapsed. Nonetheless, Fernandez

still sold the land to Ramos who immediately took material possession. SC declared Fernandez as

the true owner.

HELD: The possession mentioned in article 1473 (!544, NCC) includes not only the material but

also the symbolic possession, which is acquired by the execution of a public instrument.The

execution of a public instrument is equivalent to the delivery of the realty sold (art.

1462, Civil Code) and its possession by the vendee (art. 438).

Quimson v Rosete (1950)

FACTS: Quimson transfered a piece of land to his daughter, Tomasa, but he still continued to

posses and enjoy the property. Quimson then, sold it to Sps. Manzano who then sold it to

Rosete. SC recognized Tomasa as the first possessor of the property and gave it to her.

HELD: Upheld Sanchez v. Ramos. Upon a sale of real estate, the execution of a notarial

document of sale is a sufficient delivery of the property sold. (Buencamino v. Viceo) When the

sale is made by means of a public instrument, the execution is tantamount to conveyance, unless

the contrary appears in the instrument. (Florendo v. Doz)

Beatingo v Gasis (2011) (More correct interpretation of 1544).

FACTS: Beatingo bought a parcel of land from Gasis. Lilia, the first possessor of the property,

alleges that she bought the property without knowing any prior sale and in good faith from Gasis.

SC ruled that Lilia is the rightful owner of the property.HELD: The execution of a public instrument shall be equivalent to the delivery of the thing that

is the object of the contract. However, the Court has held that the execution of a public

instrument gives rise only to a prima facie presumption of delivery. It is deemed negated

by the failure of the vendee to take actual possession of the land sold.

9. Oldest Tit le

Art. 1544. supra

D. Risk of Loss

1. General Rule

Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the

same kind does not extinguish the obligation.

2. Loss Before Perfection

Roman v. Grimalt (1906)

FACTS: Roman bought Grimalt’s shooner (boat). Grimalt accepted Roman’s plan of payment but

before delivery to Roman of the shooner, it sank in Manila harbor. SC delcared the sale as not

having been perfected so Grimalt should bare the loss.

HELD: If no contract of sale was actually executed by the parties the loss of the vessel

must be borne by its owner and not by a party who only intended to purchase it and

who was unable to do so on account of failure on the part of the owner to show proper

title to the vessel and thus enable them to draw up the contract of sale.

Article 1452 of the Civil Code relative to the injury or benefit of the thing sold af ter a

contract has been perfected and articles 1096 and 1182 of the same code re lative to the

obligation to deliver a specified thing and the extinction of such obligation when the

thing is either lost or destroyed, are not applicable to the case at bar.

3. Loss at the Time of Perfection

Art. 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 totalsum agreed upon.

Art. 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.

Norkis v CA (1991)

FACTS: Norkis sold Yamaha motorcycles and a certain Nepales bought one. Nepales executed a

chattel mortgage over the motorcycle in favor of DBP to secure the loan for the payment of thesame motorcycle. One month later, the motorcycle was wrecked in an accident by Payba

(stranger). SC held that Norkis should shoulder the loss because still retained ownership.

HELD: The issuance of a sales invoice doesn’t prove the transfer of ownership of the thing sold

to the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and

cost of the things sold and has been considered NOT a bill of sale.

Art 1496 of the Civil Code provides, “in absence of an express assumption of risk by the buyer,

the things sold remain at seller’s risk until the ownership thereof is transferred to the buyer,” is

applicable to this case, for there was neither an actual nor constructive delivery of the thing sold,

hence, the risk of loss should be borne by the seller, Norkis, which was still the owner and

possessor of the motorcycle when it was wrecked. Res perit domino (the owner bears the loss).

4. Loss After Perfection but Before Delivery

Art. 1480, 1163, 1164, supra

Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the

right granted him by Article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the

expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do

not have the same interest, he shall be responsible for any fortuitous event until he has effected

the delivery.




Art. 1189. 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 therescission 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.

Art. 1262. An obligation which consists in the delivery of a determinate thing shall be

extinguished if it should be lost or destroyed without the fault of the debtor, and before he has

incurred in delay.

When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing

does not extinguish the obligation, and he shall be responsible for damages. The same rule

applies when the nature of the obligation requires the assumption of risk.

a. General Rule – res perit domino (the thing is lost to the owner)

b. Loss by Fault of a Party

Art. 1480, 1504, 1538 supra

Art. 1636. In the preceding articles in this Title governing the sale of goods, unless the context

or subject matter otherwise requires:

1. “Document of title to goods” includes any bill of lading, dock warrant, “quedan,” or

warehouse receipt or order for the delivery of goods, or any other document used in the ordinary

course of business in the sale or transfer of goods, as proof of the possession or control of the

goods, or authorizing or purporting to authorize the possessor of the document to transfer or

receive, either by indorsement or by delivery, goods represented by such document.“Goods” includes all chattels personal but not things in action or money of legal tender in the

Philippines. The term includes growing fruits or crops.

“Order” relating to documents of title means an order by indorsement on the documents.

“Quality of goods” includes their state or condition.

“Specific goods” means goods identified and agreed upon at the time a contract of sale is made.

An antecedent or pre-existing claim, whether for money or not, constitutes “value” where goods

or documents of title are taken either in satisfaction thereof or as security therefor.

2. A person is insolvent within the meaning of this Title 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.

3. Goods are in a “deliverable state” within the meaning of this Title when they are in such a state

that the buyer would, under the contract, be bound to take delivery of them.

c. Loss by Fortuitous Events

Art. 1163, 1165, 1189, 1480, 1504, 1538 supra

d. Fruits or Improvements

Art. 1537. supra

5. Loss After Delivery

Art. 1504. supra

Sun Bros v Perez (1963)

FACTS: An Admiral Air Conditioner was delivered to the defendant by the plaintiff under a

conditional sale agreement but that it was totally destroyed by fire. Defendant did not pay any of

the monthly thereafter, on the premise that loss by fire extinguishes the obligation of the

defendant to pay to the plaintiff the subsequent installments of the initial payment.

HELD: Where goods are sold and delivered to the vendee under an agreement that the title is to

remain in the vendor until payment, the loss or destruction of the property while in the

possession of the vendee before payment, without his fault, does not relieve him from the

obligation to pay the price, and he, therefore, suffers the loss. Basis: 1. Absolute and

unconditional nature of the vendee's promise to pay; 2. The vendor has fully performed his

contract and has nothing further to do except receive payment; 3. Incentive to care properly forthe goods, they being exclusively under the control and dominion at the vendee.

Lawyers Cooperative v Tabora (1965)

FACTS: Atty. Tabora purchased set of American Jurisprudence consisting of 48 volumes, which

was destroyed by fire. Coop filed an action for the recovery of the balance of the obligation, 25%

of the amount as liquidated damages and costs. Tabora pleaded force majeure as a defense.

HELD: Though in the contract entered into between the parties the seller agreed that the

ownership of the books shall remain with it until the purchase price shall have been, fully paid,

such stipulation cannot make the seller liable in case of loss not only because such was agreed

merely to secure the performance by the buyer of his obligation but in the very contract it was

expressly agreed that "the loss or damage to the books after delivery to the buyer shall be borne

by the buyer. Re: rule that an obligor should be held exempt from liability when the loss occurs

thru a fortuitous event – this only holds true when the obligation consists in the delivery of adeterminate thing and there is no stipulation holding him liable even in case of fortuitous event.

The obligation does not refer to a determinate thing, but is pecuniary in nature, and the obligor

bound himself to assume the loss after the delivery of the goods to him. In other words, the

obligor agreed to assume any risk concerning the goods from the time of their delivery, which is

an exception to the rule provided for in Article 1262 of our Civil Code.

Song Fo v Oria (1915)

FACTS: Song Fo sold a launch to Oria for P16,500, payable in quarterly installments of P1,000 +

10% p.a. interest. Launch was delivered to Oria in Manila but was shipwrecked and became a

total loss while en route to Oria’s place of business in Samar. No payment has been made. Under

the DOS, Song Fo had obligated itself to insure the launch and since it had failed to do so, it

should suffer the loss resulting from the shipwreck without insurance.




HELD: There is nothing in the record which would justify a holding that Song Fo & Co. obligated

themselves to insure the launch at all events. On the contrary, the language of the contract, which

authorized Song Fo & Co. to take out insurance in their own name and to charge the amount of

the premium to Oria. Oria, who had exclusive control of the operation of the vessel, sent her from

Manila to Samar on the trip in the course of which she was shipwrecked, well knowing that she

had not yet been insured. Plaintiffs are entitled to recover judgment not only for the installments

of the indebtedness due under the terms of the contract at the time when they instituted their

action, but also for all installments which, but for the loss of the vessel, had not matured at that

time.

E. Warranties

Ang v CA (2008)

FACTS: Bruno Soledad sold his Mitsubishi GSR sedan 1982 model to Jaime Ang while Ang

conveyed his Mitsubishi Lancer model 1988 under a car-swapping scheme. Soledad paid an

additional Php55,000. Ang, a buyer and seller of used vehicles, sold the Mitsubishi GSR to Paul

Bugash through a second-hand auto display center. Before the deed could be registered in

Bugash’s name, it was seized by virtue of a writ of replevin due to the failure of Ronaldo Panes

(owner of vehicle prior to Soledad) to pay the mortgage debt. To secure the release of the

vehicle, Ang paid BA Finance the amount of Php62,038.47. Soledad refused to reimburse the

amount so Ang filed a complaint against him.

HELD: What Soledad, as seller, gave was an implied warranty, so the prescriptive period to file a

breach thereof is six months after the delivery of the vehicle, following Art. 1571. In declaring thathe owned and had a clean title to the vehicle, Soledad gave an implied warranty of the title. In

pledging that he “will defend the same from all claims or any claim whatsoever...” he gave an

express warranty against eviction.

• Warranty – statement or representation made by the seller of goods contemporaneously

and as part of the contract of sale, having reference to the character, quality, or title of the

goods, and by which he promises or undertakes to insure that certain facts are or shall be as

he then represents them

• Express Warranty – any affirmation of fact or any promise by the seller relating to the thing 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 (Art. 1548). The prescriptive

period for instituting actions based on a breach of express warranty is that specified in the

contract, and in the absence of such period, the general rule on rescission of contract, whichis 4 years.

• Implied Warranty – that which the law derives by application or inference from the nature of

the transaction of the relative situation or circumstances of the parties, irrespective of any

intention of the seller to create it. For actions based on breach of implied warranty, the

prescriptive period is, under Art. 1571 and Art. 1548, 6 months from the date of delivery of

the thing sold

• Essential requisites for breach of warranty against eviction requires concurrence of the

following circumstances: (1) Purchaser has been deprived of the whole or part of the thing

sold; (2) Eviction is by final judgment; (3) Basis thereof is by virtue of a right prior to the sale

made by the vendor; (4) Vendor has been summoned and made co-defendant in the suit for

eviction at the instance of the vendee.

1. Express Warranties

Fil invest Credit Corp v CA (1989)

FACTS: Spouses Bang applied for financial assistance from Filinvest Credit Corporation, to

purchase a rock crusher. Parties entered a contract of lease of machinery (with option to

purchase). Spouses sent a letter complaint to the petitioner, alleging that contrary to the 20 to 40

tons per hour capacity of the machine as stated in the lease contract, the machine could only

process 5 tons of rocks and stones per hour. Subsequently, the Spouses stopped payment on the

remaining checks they had issued to the petitioner and filed for the rescission of the contract of

lease.

HELD: One of the stipulations in the contract they entered into with the petitioner is an express

waiver of warranties in favor of the latter. Taking into account that due to the nature of its

business and its mode of providing financial assistance to clients, the petitioner deals in goods

over which it has no sufficient know-how or expertise, and the selection of a particular item is left

to the client concerned, the latter, therefore, shoulders the responsibility of protecting himself

against product defects.

Harrison Motors v Navarro (2000)

FACTS: Harrison Motors Corp sold to respondent Navarro 2 Isuzu Elf Trucks. Claros (president of

Harrison) represented to Navarro that all BIR customs taxes and duties have already been paid

for. The BIR, BOC and LTO entered into tripartite MOA stating that prior to registration in LTO of

any locally assembled vehicles, a Certificate of Payment must be obtained from BIR and BOC.

Gov’t seized and detained the Elf trucks due to non-payment of BIR taxes and customs duties.HELD: This representation is the seller’s express warranty (Art. 1546) which covers any affirmation

of fact or any promise of the seller that induces the buyer to purchase the thing; relying on such

affirmation or promise. Once warranty is breached the buyer can accept or keep the goods and

maintain an action against seller. (Navarro did this since she kept the trucks then filed a complaint

for damages.)

Guinhawa v People (2005)

FACTS: Sps. Ralph and Josephine Silo purchased an L-300 Versa Van on display in Guinhawa's

showroom. They no longer inspected the under chassis since they presumed that the vehicle was

brand new. Eventually, after inspection, the couple discovered that the van was not brand new.

HELD: The rule of caveat emptor only requires the purchaser to exercise such care and attention

as is usually exercised by ordinarily prudent men in like business affairs, and only applies to

defects which are open and patent to the service of one exercising such care. Article 1389 of theNew Civil Code provides that failure to disclose facts when there is a duty to reveal them

constitutes fraud. In a contract of sale, a buyer and seller do not deal from equal bargaining

positions when the latter has knowledge of a material fact which, if communicated to the buyer,

would render the grounds unacceptable or, at least, substantially less desirable.

a. Distinguished from Condition

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 nonperformance 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.

Art. 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:

1. Accept or keep the goods and set up against the seller, the breach of warranty by way of

recoupment in diminution or extinction of the price;

2. Accept or keep the goods and maintain an action against the seller for damages for the breach

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

breach of warranty.

4. Rescind the contract of sale and refuse to receive the goods or if the goods have already been

received, return them or offer to return them to the seller and recover the price or any part

thereof which has been paid.

When the buyer has claimed and been granted a remedy in anyone of these ways, no other

remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of

Article 1191.

Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the

breach of warranty when he accepted the goods without protest, or if he fails to notify the seller

within a reasonable time of the election to rescind, or if he fails to return or to offer to return thegoods to the seller in substantially as good condition as they were in at the time the ownership

was transferred to the buyer, But if deterioration or injury of the goods is due to the breach of

warranty, such deterioration or injury shall not prevent the buyer from returning or offering to

return the goods to the seller and rescinding the sale.

Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for

the price upon returning or offering to return the goods. If the price or any part thereof has

already been paid, the seller shall be liable to repay so much thereof as has been paid,

concurrently with the return of the goods, or immediately after an offer to return the goods in

exchange for repayment of the price.

Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept

an offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goodsas bailee for the seller, but subject to a lien to secure the payment of any portion of the price

which has been paid, and with the remedies for the enforcement of such lien allowed to an

unpaid seller by Article 1526.

5. In the case of breach of warranty of quality, such loss, in the absence of special circumstances

showing proximate damage of a greater amount, is the difference between the value of the

goods at the time of delivery to the buyer and the value they would have had if they had

answered to the warranty.

b. Distinguished from Opinion, Dealer’s Talk

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.

Art. 1341. 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.

Songco v Sellner (1917)

FACTS: False representation was allegedly made by Songco with respect to the quantity ofuncut cane standing in the fields when Sellner purchased said cane

HELD: A misrepresentation upon a mere matter of opinion is not an actionable deceit, nor is it a

sufficient ground for avoiding a contract as fraudulent. There is a difference between giving an

honest opinion and making a false representation. The law allows considerable latitude to seller's

statements, or dealer's talk and experience teaches that it is exceedingly risky to accept it at its

face value. It is not every false representation relating to the subject matter of a contract which

will render it void—must be as to matters of fact substantially affecting the buyer's interest, not as

to matters of opinion, judgment, probability, or expectation. When the purchaser undertakes to

make an investigation of his own, and the seller does nothing to prevent this investigation from

being as full as he chooses to make it, the purchaser cannot afterwards allege that the seller

made misrepresentations.

c. Distinguished from False Representation

Gochangco v Dean (1925)

FACTS: Gochangco alleges that Dean made false and fraudulent representations as to the

existence of 6,000 coconut trees on his lands in Masbate offered for exchange, where in a

contract of exchange, the defendant stated:"[…] I declared that I believe there are more than

6,000 coconut trees so growing, together with any and all improvements of any kind whatsoever

existing on the said land including all movable goods, chattel, etc., found thereof." Gochangco

claimed that Dean made false and fraudulent representations.

HELD: It does not appear in the record that the defendant deliberately violated the truth in

stating his belief that there were such a number of coconut trees on said lands. Furthermore, it

was shown that the plaintiff viewed the lands and that he himself estimated that there were there

more than six thousand coconut trees.

Phil Manufacturing v Go Jocco (1926)

FACTS: Go Joco sold to Phil Manufacturing Co. (PMC) 500 tons of Coconut oil for P27/kilo.

PMC's secretary and chemist, Mason, took samples of the oil from said tanks for analysis. PMC

sold the oil by contract in writing to the Portsmouth Cotton Oil Refining, who refused to accept

the oil on the ground that it was contaminated with cottonseed oil.

HELD: There must be some active misstatement of fact, or, at all events, such a partial and

fragmentary statement of fact as that the withholding of that which is not stated makes that which

is stated absolutely false. An intention to deceive or mislead the other party to his prejudice is an

essential element of the fraud here considered. In commercial sales, the fact that the vendor does

not volunteer detailed statements of all he knows, whether important or not, in regard to the

goods sold by him, is not fraud per se.

2. Implied Warranties




a. Implied Warranty of Tit le

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 they 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.

Eviction by Judgment

Art. 1547. In a contract of 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.

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 thething 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.

Effects of Warranty:

The warranty against eviction imposes these obligations upon the vendor:

1.

He must abstain from disturbing the vendee in the peaceful possession of the thing

sold.

2.

If a third person seeks to evict the vendee, the vendor must come to the defense of hisvendee, giving him the means to resist the eviction; pursuant to this duty, he must

respond when he is notified of the suit for eviction.

3.

If the eviction is actually consummated, the vendor must pay the vendee the proper

indemnity.

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.

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.

Waiver

Art. 1544. supra

Effects of Eviction

Art. 1548, 1555 supra

Art. 1556. Should the vendee lose, by reason of the eviction, a part of the 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.

Art. 1599. supra

b. Implied Warranty Against Encumbrances or Defects

Art. 1567. In the cases of Articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect

between withdrawing from the contract and demanding a proportionate reduction of the price,

with damages in either case.

Hidden Encumbrances or DefectsArt. 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.

Requisites for Warranty:

1.

The defect must be really important

2.

The defect must be hidden

3.

The defect must be unknown, or could not have been known to the vendee. If it is

known or could have been known, even if it is hidden, there is no warranty




Thus, the defects of a thing which are so common, usual, or current, that they must

always be expected, are not covered by the warranty

4.

The defect must exist at the time of the sale (at the time of transfer of risks, according

to article 459 of the German Code)

5. The defect must not have been excluded by the contract. This warranty, like that

against eviction, can be renounced, provided that the vendor is in good faith, and

without knowledge of the defect

6. The claim to enforce this warranty must be brought within the proper period

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 or

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 brought 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.

Art. 1563. In the case of contract of sale of a specified article under its patent or other trade

name, there is no warranty as to its fitness for any particular purpose, unless there is a stipulation

to the contrary.

Art. 1564. An implied warranty or condition as to the quality or fitness for a particular purpose

may be annexed by the usage of trade.

Art. 1565. In the case of a contract of sale by sample, if the seller is a dealer in goods of that

kind, there is an implied warranty that the goods shall be free from any defect rendering them

unmerchantable which would not be apparent on reasonable examination of the sample.

Art. 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing

sold, even though he was not aware thereof.

This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of

the hidden faults or defects in the thing sold.

Art. 1567. supra

Art. 1568. If the thing sold should be lost in consequence of the hidden faults, and the vendor

was aware of them, he shall bear the loss, and shall be obliged to return the price and refund the

expenses of the contract, with damages. If he was not aware of them, he shall only return the

price and interest thereon, and reimburse the expenses of the contract which the vendee might

have paid.

Art. 1569. If the thing sold had any hidden fault at the time of the sale, and should thereafter be

lost by a fortuitous event or through the fault of the vendee, the latter may demand of the vendor

the price which he paid, less the value which the thing had when it was lost.

If the vendor acted in bad faith, he shall pay damages to the vendee.

Art. 1570. The preceding articles of this Subsection shall be applicable to judicial sales, except

that the judgment debtor shall not be liable for damages.

Art. 1571. Actions arising from the provisions of the preceding ten articles shall be barred after

six months, from the delivery of the thing sold.

Art. 1572. If two or more animals are sold together, whether for a lump sum or for a separate

price for each of them, the redhibitory defect of one shall only give rise to its redhibition, and not

that of the others; unless it should appear that the vendee would not have purchased the sound

animal or animals without the defective one.

The latter case shall be presumed when a team, yoke pair, or set is bought, even if a separate

price has been fixed for each one of the animals composing the same.

Art. 1573. The provisions of the preceding article with respect to the sale of animals shall in like

manner be applicable to the sale of other things.

Art. 1574. There is no warranty against hidden defects of animals sold at fairs or at public

auctions, or of livestock sold as condemned.

Art. 1575. supra

Art. 1576. If the hidden defect of animals, even in case a professional inspection has been

made, should be of such a nature that expert knowledge is not sufficient to discover it, the defectshall be considered as redhibitory.

But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he

shall be liable for damages.

Requisites for Enforcement of Warranty:

1.

that the defect be hidden;

2. that it be one determined by law or local customs;

3. that the sales is not made at fairs or at public auction;

4.

that the animal be not sold as condemned; and

5.

that the action has not yet prescribed

Art. 1577. The redhibitory action, based on the faults or defects of animals, must be broughtwithin forty days from the date of their delivery to the vendee.

This action can only be exercised with respect to faults and defects which are determined by law

or by local customs.

Art. 1578. If the animal should die within three days after its purchase, the vendor shall be liable

if the disease which cause the death existed at the time of the contract.

Art. 1579. If the sale be rescinded, the animal shall be returned in the condition in which it was

sold and delivered, the vendee being answerable for any injury due to his negligence, and not

arising from the redhibitory fault or defect.




Art. 1580. In the sale of animals with redhibitory defects, the vendee shall also enjoy the right

mentioned in article 1567; but he must make use thereof within the same period which has been

fixed for the exercise of the redhibitory action.

Power Commercial v CA (1997)

FACTS: PCI filed for recission and damages because they were not able to take physical

possession due to the Spouses Quiambaos’ failure to clear the people occupying the property.

HELD: The deed of sale only makes reference to the agreement of Quiambaos to defend PCI’s

title and peaceful possession against any claims of any and all third persons. If the parties

intended to impose on respondent spouses the obligation to eject the tenants from the lot sold,

it should have included in the contract a provision to that effect. Absent such stipulation, there

was no intention to make nonfulfillment as a ground for rescission.

A breach of the warranty against eviction requires the concurrence of the following

circumstances:

1. The purchaser has been deprived of the whole or part of the thing sold;

2. This eviction is by a final judgment;

3. The basis thereof is by virtue of a right prior to the sale made by the vendor; and

4. The vendor has been summoned and made co-defendant in the suit for eviction at the instance

of the vendee.

Absent any proof that these requisites have been satisfied, no breach of warranty against eviction

can be appreciated.

Engineering and Machinery v CA (1996)

FACTS: 1962 - Engineering & Machinery Corp (EMC) undertook to fabricate, furnish, and install

the air-conditioning (A/C) system in Almeda's building for P210k. The system was completed in

1963 and accepted by Almeda who paid the contract price in full. 1971 – a report concluded the

system was not capable of maintaining the desired temp. Almeda sued for damages. EMC

moved to dismiss, alleging the prescriptive period of 6 months had lapsed pursuant to CC1566-

67, in relation to CC1571 (responsibility of vendor for hidden faults/defects).

HELD: Clearly, the contract is one for a piece of work. EMC's business and particular field of

expertise is the fabrication and installation of such systems as ordered by customers. The

obligations of a contractor for a piece of work are in CC1714-15. The provisions on warranty

against hidden defects mentioned in CC1714 are in CC1561 and 1566. The remedy against

violations of the warranty against hidden defects is either to withdraw from the contract(redhibitory action) or to demand a proportionate reduction of the price (accion quanti minoris),

with damages in either case.

Nutrimix v CA (2004)

FACTS: The Spouses Evangelista contended that the sudden and massive death of their animals

was caused by the contaminated products of the petitioner, the nonpayment of their obligation

(to Nutrimix) was based on a just and legal ground.

HELD: The provisions on warranty against hidden defects are found in Articles 1561 and 1566 of

the New Civil Code of the Philippines.

A hidden defect is one which is unknown or could not have been known to the vendee. Under the

law, the requisites to recover on account of hidden defects are as follows:

(a) the defect must be hidden;

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

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

(d) the defect, must be important (renders thing UNFIT or considerably decreases FITNESS);

(e) the action must be instituted within the statute of limitations.

To be able to prove liability on the basis of breach of implied warranty, three things must be

established by the respondents: The first is that they sustained injury because of the product; the

second is that the injury occurred because the product was defective or unreasonably unsafe; and

finally, the defect existed when the product left the hands of the petitioner.

A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by

the product in the absence of any proof that the product in question was defective. The defect

must be present upon the delivery or manufacture of the product; or when the product left the

seller’s or manufacturer’s control; or when the product was sold to the purchaser; or the product

must have reached the user or consumer without substantial change in the condition it was sold.

Tracing the defect to the petitioner requires some evidence that there was no tampering with, or

changing of the animal feeds. The nature of the animal feeds makes it necessarily difficult for the

respondents to prove that the defect was existing when the product left the premises of the

petitioner.

De Guzman v Toyota Cubao (2006)

FACTS: Petitioner demanded replacement of the engine of the vehicle he purchased fromrespondent because it developed a crack after traversing Marcos Highway during heavy rain.

Petitioner asserted that respondent should replace the engine with a new one based on an

implied warranty.

HELD: Since no warranty card or agreement was attached to the complaint, the contract of sale

of the subject pick up carried an implied warranty that it was free from any hidden faults or

defects, or any charge or encumbrance not declared or known to the buyer. The prescriptive

period thereof is six (6) months under the Civil Code (Art. 1571). Even if the complaint is made to

fall under The Consumer Act, the same should still be dismissed because the prescriptive period

for implied warranty thereunder, which is 1 year, had likewise lapsed.

Warranties in Sales of Animals / Redhibitory Defects

Arts 1574 – 1580 , supra.

Sale by Sample or Description/Merchantable Quality

Art. 1574, 1481, 1562, 1565, supra

c. Implied Warranty of Quality

Fitness for a Particular Purpose

Arts. 1562(1), 1563, 1564, supra.

Rodriguez v Findlay (1909)




FACTS: Rodriguez entered into a contract of sale with Findlay & Co., wherein agreed to purchase

certain machinery from Findlay to be placed in the vessel. Rodriguez stated the speed necessary

that the Constancia should have in order to be available as a coastwise vessel, and left the kind,

nature, and construction of the machinery to the greater knowledge and experience of Swann.

Findlay discovered that the 8’ in diameter brass propeller would not be able to generate the

specified speed –instead of giving the ship a speed of about 9 1⁄2 knots an hour, gave a speed of

less than 7 knots an hour.

HELD: In an action against a manufacturer or dealer for a breach of warranty upon a sale of

goods, which he knew at the time of the sale were intended to be used for a particular purpose,

the measure of damages is not limited to the difference in value of the goods as warranted, and

as they prove to be, as in cases where like articles are sold as merchandise for general purposes;

but profits lost and expenses incurred, because of the breach, may be recovered.

d. Consumer Act, RA 7494

Art. 68. Additional Provisions on Warranties. - In addition to the Civil Code provisions on

sale with warranties, the following provisions shall govern the sale of consumer products with

warranty:

a. Terms of express warranty. - Any seller or manufacturer who gives an express warranty

shall:

1.

set forth the terms of warranty in clear and readily understandable language

and clearly identify himself as the warrantor;

2.

identify the party to whom the warranty is extended;

3.

state the products or parts covered;4. state what the warrantor will do in the event of a defect, malfunction or

failure to conform to the written warranty and at whose expense;

5.

state what the consumer must do to avail of the rights which accrue to the

warranty; and

6. stipulate the period within which, after notice of defect, malfunction or failure

to conform to the warranty, the warrantor will perform any obligation under

the warranty.

b. Express warranty - operative from moment of sale. - All written warranties or guarantees

issued by a manufacturer, producer, or importer shall be operative from the moment of

sale.

1.

Sales Report. - All sales made by distributors of products covered by this

Article shall be reported to the manufacturer, producer, or importer of the

product sold within thirty (30) days from date of purchase, unless otherwiseagreed upon. The report shall contain, among others, the date of purchase,

model of the product bought, its serial number, name and address of the

buyer. The report made in accordance with this provision shall be equivalent

to a warranty registration with the manufacturer, producer, or importer. Such

registration is sufficient to hold the manufacturer, producer, or importer

liable, in appropriate cases, under its warranty.

2.

Failure to make or send report. - Failure of the distributor to make the report

or send them the form required by the manufacturer, producer, or importer

shall relieve the latter of its liability under the warranty: Provided, however,

That the distributor who failed to comply with its obligation to send the sales

report shall be personally liable under the warranty. For this purpose, the

manufacturer shall be obligated to make good the warranty at the expense of

the distributor.

3.

Retail. - The retailer shall be subsidiarily liable under the warranty in case of

failure of both the manufacturer and distributor to honor the warranty. In such

case, the retailer shall shoulder the expenses and costs necessary to honor

the warranty. Nothing therein shall prevent the retailer from proceeding

against the distributor or manufacturer.

4. Enforcement of warranty or guarantee. - The warranty rights can be enforced

by presentment of a claim. To this end, the purchaser needs only to present

to the immediate seller either the warranty card or the official receipt along

with the product to be serviced or returned to the immediate seller. No other

documentary requirement shall be demanded from the purchaser. If the

immediate seller is the manufacturer's factory or showroom, the warranty

shall immediately be honored. If the product was purchased from a

distributor, the distributor shall likewise immediately honor the warranty. In

the case of a retailer other than the distributor, the former shall take

responsibility without cost to the buyer of presenting the warranty claim to

the distributor in the consumer's behalf.

5. Record of purchases. - Distributors and retailers covered by this article shall

keep a record of all purchases covered by a warranty or guarantee for such

period of time corresponding to the lifetime of the products' respective

warranties or guarantees.

6.

Contrary stipulations-null and void. - All covenants, stipulations oragreements contrary to the provisions of this article shall be without legal

effect.

c.

Designation of warranties. - A written warranty shall clearly and conspicuously

designate such warranty as

1. "Full warranty" if the written warranty meets the minimum requirements set

forth in paragraph (d); or

2.

"Limited warranty" if the written warranty does not meet such minimum

requirements.

d. Minimum standards for warranties. - For the warrantor of a consumer product to meet

the minimum standards for warranty, he shall:

1.

remedy such consumer product within a reasonable time and without charge

in case of a defect, malfunction or failure to conform to such written warranty;

2.

permit the consumer to elect whether to ask for a refund or replacementwithout charge of such product or part, as the case may be, where after

reasonable number of attempts to remedy the defect or malfunction, the

product continues to have the defect or to malfunction.

The warrantor will not be required to perform the above duties if he can show that the defect,

malfunction or failure to conform to a written warranty was caused by damage due to

unreasonable use thereof.

e.

Duration of warranty. - The seller and the consumer may stipulate the period within

which the express warranty shall be enforceable. If the implied warranty on

merchantability accompanies an express warranty, both will be of equal 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.

f. Breach of warranties. -




1. In case of breach of express warranty, the consumer may elect to have the

goods repaired or its purchase price refunded by the warrantor. In case the

repair of the product in whole or in part is elected, the warranty work must be

made to conform to the express warranty within thirty (30) days by either the

warrantor or his representative. The thirty-day period, however, may be

extended by conditions which are beyond the control of the warrantor or his

representative. In case the refund of the purchase price is elected, the

amount directly attributable to the use of the consumer prior to the discovery

of the non-conformity shall be deducted.

2.

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.

VII. OBLIGATIONS OF THE VENDEE

A. Obligation to Accept Delivery

Art. 1169, 1198, 1521, 1522, 1524, 1536,1584, 1585, 1586, 1587, 1588 supra

B. Obligation to Pay the Price

Torcuator v Bernabe (2005)

FACTS: Spouses Salvador purchased a lot in Ayala Alabang Village subject to the condition that

no lot may be resold by the buyer unless a residential house has been constructed thereon.

Spouses Salvador sold the land to spouses Bernabe but in light of the said condition, the former

executed a special power of attorney to authorize the latter to construct the house and transfer

the property in their name. The Bernabes, without making improvements, sold the land to spouse

Torcuator and agreed that a new deed of sale and irrevocable SPA to construct the house from

Salvador to Torcuators shall be made. But the deed of sale was not consummated nor was

payment effected. Bernabe sold it to Angeles, brother in law. Torcuators filed for specific

performance or rescission with damages.

HELD: The agreement was a contract to sell. The respondents were not obliged to convey title

to the property before the happening of two (2) suspensive conditions, namely: full payment of

the purchase price and construction of a residence on the property.

1. Liabil ity for Interests

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.

Art. 1589. supra

Bareng v CA (1960)

FACTS: Bareng purchased from Alegria the cinematographic equipment. Ruiz informed Bareng

that he was a co-owner of the equipment; several days thereafter, Ruiz sent Bareng a telegram

instructing him to suspend payments to Alegria as he was not agreeable to the sale. Bareng

refused to make any more payments to Alegria until the latter had settled his dispute with Ruiz.

Alegria later recognized Ruiz as co-owner and promised to pay him 2/3 of whatever amount he

could recover from the latter. Alegria sued Bareng for P13.5K, the unpaid balance.

HELD: The right of the vendee to suspend payment of the price of the thing sold in the face of

any danger that he might be disturbed in its possession of ownership is conferred by Art. 1590,

CC. Bareng had the right to suspend payment of the balance of the price of the equipment to his

vendor, Alegria, from the time he was informed by Ruiz of the latter's claims of co-ownership

thereof and objection to the sale. Nevertheless, said right of Bareng ended as soon as "the

vendor has caused the disturbance or danger to cease". Alegria had caused the disturbance or

danger to Bareng's ownership or possession to cease when he (Alegria) reached a compromise

with Ruiz.

2. Suspension of Payments

Art. 1590. supra

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 theaction 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.

Requisites for Warranty:

This article deals with juridical hidden defects. Its requisites are:

1. that the encumbrance be hidden; that is, non-apparent, not stated in the contract of

sale, and not recorded in the Registry of Property;

2.

that is of such character that it must be presumed that the vendee would not have

acquired the property had he known of the encumbrance; and

3. that the action to enforce the warranty must be brought within the proper period.

Art. 1664. The lessor is not obliged to answer for a mere act of trespass which a third person

may cause on the use of the thing leased; but the lessee shall have a direct action against the

intruder.

There is a mere act of trespass when the third person claims no right whatever.

Sps. Mahusay v BE San Diego (2011)

FACTS: Petitioners entered into two Contracts to Sell with respondent for the purchase of

several lots. After petitioners breached the contract and the compromise agreement, CA held

petitioners liable for the payment of all the unpaid amortizations, including amortizations yet to

be paid, until the expiration of the contract. Apparently, the CA was silent on the payment of the

interest/penalty for the delay in payments, which led to the Motion for Clarification filed by

respondent.




HELD: The fair market value of the land has tremendously increased over the past years. It is,

therefore, just, fair, and equitable that petitioners be made to pay interest/penalty for the delay in

their payments. Since rescission is no longer an option considering that petitioners have been in

possession of the properties for a considerable period of time, substantial justice dictates that

respondent be entitled to receive the unpaid balance of the purchase price, plus legal interest

thereon.

VIII. BREACH OF CONTRACT

A. Remedies of Unpaid Vendor

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 to 1535 the term "seller" includes an agent of the seller to whom the bill of

lading has been indorsed, or a consignor or agent who has himself paid, or is directly responsible

for the price, or any other person who is in the position of a seller.

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.

Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition

to his other remedies a right of withholding delivery similar to and coextensive with his rights of

lien and stoppage in transitu where the ownership has passed to the buyer.

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 inthe 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 or 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 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.

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.

Rescission

This article allows rescission under two situations:

1.

where the right to rescind on default has been expressly reserved;

2. where the buyer has been in default for an unreasonable time

1. Possessory Lien

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.

Art. 1528. Where an unpaid seller has made part delivery of the goods, he may exercise his

right of lien on the remainder, unless such part delivery has been made under such circumstances

as to show an intent to waive the lien or right of retention.

Art. 1529. The unpaid seller of goods loses his lien thereon:

1. When he delivers the goods to a carrier or other bailee for the purpose of transmission to the

buyer without reserving the ownership in the goods or the right to the possession thereof;

2. When the buyer or his agent lawfully obtains possession of the goods;




3. By waiver thereof.

The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he

has obtained judgment or decree for the price of the goods.

2. Stoppage in Transitu

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 aquestion 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.

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 reasonablediligence, 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 obliged to deliver or justified in delivering the goods to the seller unless such document is

first surrendered for cancellation.

Art. 1533, 1534 supra.

Art. 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in

transitu is not affected by any sale, or other disposition of the goods which the buyer may have

made, unless the seller has assented thereto.

If, however, a negotiable document of title has been issued for goods, no seller's lien or right of

stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such

document has been negotiated, whether such negotiation be prior or subsequent to the

notification to the carrier, or other bailee who issued such document, of the seller's claim to a lien

or right of stoppage in transitu.

3. Resale

Art. 1533. supra

Katigbak v CA (1962)

FACTS: Katigbak agreed to purchase a winch for Php12K. The winch needed some repairs,

payments for which, were advanced by Katigbak -total of Php 2,029.85. For one reason or

another, the sale was not consummated and Katigbak sued Evanglista, Lundberg and the latter's

company, for the refund of such amount.

HELD: Evangelista had the right to recover his loss of Php 2K, which is the difference between

the contract price for the sale of the winch between him and appellee and the actual price for

which it was sold better the latter had refused to carry out his agreement. If the purchaser of

goods upon an executory contract fails to take delivery and pay the purchase price, the vendor is

entitled to resell the goods. If he is obliged to sell for less than the contract price, he holds thebuyer for the difference; if he sells for as much as or more than the contract price, the breach of

contract by the original buyer is damnum absque injuria. But it has never been held that there is

any need of an action of rescission to authorize the vendor, who is still in possession, to dispose

of the property where the buyer fails to pay the price and take delivery.

4. Rescission

Art. 1534. supra

B. Sale of Movables

1. Action for Price

Art. 1595. Where, under a contract of sale, the ownership of the goods has passed to the buyer

and he wrongfully neglects or refuses to pay for the goods according to the terms of the contractof sale, the seller may maintain an action against him for the price of the goods.

Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or

of transfer of title and the buyer wrongfully neglects or refuses to pay such price, the seller may

maintain an action for the price although the ownership in the goods has not passed. But it shall

be a defense to such an action that the seller at any time before the judgment in such action has

manifested an inability to perform the contract of sale on his part or an intention not to perform it.

Although the ownership in the goods has not passed, if they cannot readily be resold for a

reasonable price, and if the provisions of article 1596, fourth paragraph, are not applicable, the

seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them, may




notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter

the seller may treat the goods as the buyer's and may maintain an action for the price.

a. When ownership has passed = Art 1595 (1), supra

b. When ownership has not passed = Art 1595 (3), supra

2. Action for Damages for Non-Acceptance

Art. 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the

seller may maintain an action against him for damages for nonacceptance.

The measure of damages is the estimated loss directly and naturally resulting in the ordinary

course of events from the buyer's breach of contract.

Where there is an available market for the goods in question, the measure of damages is, in the

absence of special circumstances showing proximate damage of a different amount, the

difference between the contract price and the market or current price at the time or times when

the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time

of the refusal to accept.

If, while labor or expense of material amount is necessary on the part of the seller to enable him

to fulfill his obligations under the contract of sale, the buyer repudiates the contract or notifies

the seller to proceed no further therewith, the buyer shall be liable to the seller for laborperformed or expenses made before receiving notice of the buyer's repudiation or countermand.

The profit the seller would have made if the contract or the sale had been fully performed shall

be considered in awarding the damages.

3. Rescission

Art. 1597. Where the goods have not been delivered to the buyer, and the buyer has

repudiated the contract of sale, or has manifested his inability to perform his obligations

thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale

by giving notice of his election so to do to the buyer.

Art. 1593. With respect to movable property, the rescission of the sale shall of right take place

in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the

delivery of the thing, should not have appeared to receive it, or, having appeared, he should nothave tendered the price at the same time, unless a longer period has been stipulated for its

payment.

4. Sale of Movables on Instal lment (Recto Law)

Art. 1484, 1485 1486 supra

Bourbon v Servicewide (1996)

FACTS: The Borbons signed a promissory note in favor of Pangasinan Auto Mart, for the sum of

P122, 856.00, to be payable without need of notice or demand, in installments of P10,238.00

monthly for Twelve (12) months, which they failed to pay. An action for replevin was instituted for

the foreclosure of the vehicle in question. Petitioners merely seek a modification of the decision

of the appellate court insofar as it has upheld the court a quo in the award of liquidated damages

and attorney's fees in favor of private respondent.

HELD: The remedies under Article 1484 of the Civil Code are not cumulative but alternative and

exclusive. Should the vendee or purchaser of a personal property default in the payment of two

or more of the agreed installments, the vendor or seller has the option to avail of any of these

three remedies - either to exact fulfillment by the purchaser of the obligation, or to cancel the

sale, or to foreclose the mortgage on the purchased personal property, if one was constituted.

Legislative intent is not to merely limit the proscription of any further action to the "unpaid

balance of the principal" but, to all other claims that may likewise be called for in the

accompanying promissory note against the buyer-mortgagor or his guarantor, including costs and

attorney's fees.

Sps. Nonato v IAC (1985)

FACTS: Spouses Nonato bought a Volkswagen Sakbayen on installment basis. To secure

payment, they executed promissory notes and chattel mortgage in favor of People’s Car Inc.

People’s Car assigned its rights and interests over the notes to Investor’s Finance Corporation

(IFC). People’s Car Inc repossessed car after defendant’s failure to pay two or more installments.

Despite repossession, IFC demanded payment of balance from Sps. Nonato by filing complaint

with CFI.

HELD: The remedies under 1484 are alternative not cumulative. Exercise of one is a bar to

others. Actions of IFC wholly consistent with cancelling sale so it is thus barred from extracting

payment from Sps. Nonato for balance of car it had already repossessed.

Delta Motors v Niu Kim

FACTS: Defendants purchased from the plaintiff three (3) units of ‘DAIKIN’ air-conditioner and

failed to pay at least two (2) monthly installments. Court granted Plaintiff a writ of replevin and

allowed Defendant’s downpayment and installment payments to be treated as rentals.

HELD: Since they admit having used the air-conditioners for twenty-two (22) months, this means

that they did not pay fifteen (15) monthly installments on the said air-conditioners and were thus

using the same FREE for said period -- to the prejudice of plaintiff- appellee. Under the

circumstances, the treatment of the installment payments as rentals cannot be said to be

unconscionable. Clearly, plaintiff-appellee chose the second remedy of Article 1484 in seeking

enforcement of its contract with defendants-appellants. Having done so, it is barred from

exacting payment from defendants-appellants of the balance of the price of the three air-

conditioning units which it had already repossessed. It cannot have its cake and eat it too.

Elisco Tool Manufacturing v CA (1999)

FACTS: Lantan entered into an agreement with his employer, Elisco for the latter to lease a

vehicle to respondent for a period of 5 years. At the end of the 5-year period or upon payment

of the 60th monthly rental, respondent may exercise the option to purchase the vehicle from

petitioner and all monthly rentals shall be applied to the payment of the full purchase price of the

car Elisco ceased operations and respondent was laid off NONETHELESS, respondent was able

to make payments for the car in the amount of P61,074.94. Petitioner filed a complaint for the

issuance of a Writ of Replevin ordering the seizure of the car, plus collection of sum of money

against respondent, his wife and two other persons; alleging that: 1) respondents failed to pay

monthly rentals amounting to P39,054.86; 2) Despite demands, respondents failed to settle their

obligation thus entitling petitioner to the possession of the car; 3) In case respondents couldn’t




return the car, they should be held liable for P60,000 plus accrued monthly rentals with interest at

14% per annum until fully paid.

HELD: Although the agreement provides for the payment by private respondents of "monthly

rentals," it is clear that the transaction in this case is a lease in name only. The so-called monthly

rentals are in truth monthly amortizations on the price of the car. The contract being one of sale

on installment, article 1484 applies. The condition that the lessor has deprived the lessee of

possession or enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in this

case by the filing by petitioner of the complaint for replevin to recover possession of movable

property. This case should be considered as one for specific performance pursuant to Art.

1484(1); therefore, private respondents could no longer be held liable for the amounts of

Php39,054.86 or Php60,000.00 because private respondents had fulfilled their part of the

obligation—the total amount of P61,070.94 already paid to petitioner should be considered

payment of the full purchase price of the car or the total installments paid.

PCI Leasing v Giraffe-X (2007)

FACTS: Giraffe defaulted in its monthly rental-payment obligations for equipment leased from

PCI. PCI filed a complaint, also asking for the issuance of a writ of replevin, which was issued.

Giraffe filed a Motion to Dismiss, arguing that the seizure of the equipment stripped of its cause

of action and that, pursuant to Article 1484 of the Civil Code on installment sales of personal

property. PCI, on the other hand, maintains that its contract with GIRAFFE is a straight lease

without an option to buy.

HELD: By the filing of the complaint for a sum of money with prayer for replevin to recover

possession of the office equipment, PCI has effectively deprived Giraffe of their use, a situationwhich, by force of the Recto Law, in turn precludes them from maintaining an action for recovery

of “accrued rentals” or the recovery of the balance of the purchase price plus interest. Also, the

Court held that adding up the amounts paid by the Giraffe, the residual value of the property

recovered, and the amount claimed by the PCI as sued upon herein (for a total of

P21,779,029.47), then it would end up making an instant killing out of the transaction at the

expense of Giraffe. The Recto Law was precisely enacted to prevent this kind of aberration.

C. Sale of Immovables

1. Anticipatory Breach

Art. 1591. Should the vendor have reasonable grounds to fear the loss of immovable property

sold and its price, he may immediately sue for the rescission of the sale.

Should such ground not exist, the provisions of Article 1191 shall be observed.

2. PD 957

PD 957. Sec. 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.

PD 957. Sec. 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 RA 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.

Manila Banking v Sps Rabina (2008)

FACTS: Respondent MDC obtained a loan from Manila Banking. They executed a real estate

mortgage covering real estate properties including a lot which was the subject of a Contract to

Sell to one Amante Sibuyan, who transferred the lot via "Assignment and Transfer of Rights" to

respondent Celestina Rabina with the conformity of MDC. Rabina instituted a complaint with

husband for non-delivery of titles, annulment of mortgage and

incomplete development of the subdivision. Meanwhile, Manila Banking was placed under

receivership proceedings by the Monetary Board of the Central Bank.

HELD: The act of MDC in mortgaging the lot to Manila Banking, without the knowledge and

consent of lot buyer-Spouses and without the approval of the HLURB, as required by P.D. 957

(Sec 18), is not only an unsound real estate business practice but also highly prejudicial to them.

The jurisdiction of the HLURB to regulate the real estate trade is broad enough to include

jurisdiction over complaints for annulment of mortgage. Pursuant to Sec 17 of PD 957, the Seller,

not the buyer, which is duty bound to register the Contract to Sell and/or the Deed ofAssignment.

Luzon Development v Enriquez (2011)

FACTS: LDB loaned P4M to DELTA (owned by De Leon) to develop and sell properties. As

security for loan, De Leon executed a real estate mortgage (REM) on several of their properties,

including Lot 4. DELTA executed Contract to Sell with Angeles Enriquez over aforementioned Lot

4. DELTA defaulted on its loan obligation to LDB, who agreed to a dacion en pago instead of

foreclosing on REM. DELTA, via Deed of Assignment in Payment of Debt, assigned properties to

LDB, including Lot 4 (Enriquez was not made aware of this Deed). Enriquez filed complaint

against DELTA and LDB before HLURB Region IV, claiming that DELTA violated the Contract to

Sell by selling the house and lots for an excessive price, violative of BP 220 and by failing to get

clearance for the REM from HLURB.

HELD: Since ownership was retained by DELTA, it could validly transfer ownership to LDB.However, LDB is bound by PD 957 to respect Enriquez’s rights under the Contract to Sell. Sec.17

provides for the requirement of registration in order to make transfers binding on third parties.

The purpose of registration is to protect buyers from any future unscrupulous transactions,

whether the purchase price has been fully paid or not. Registration serves as a notice to the

whole world that the property is subject to the prior right of the buyer of the property. While

DELTA failed to register the Contract with Enriquez, it shall not work to the prejudice of Enriquez.

Despite the non-registration, LDB cannot be considered as an innocent purchaser when it

accepted the properties in the dacion en pago. LDB knew or should have known of the possibility

and risk that the assigned properties were already covered by existing contracts to sell in favor of

subdivision lot buyers. LDB is bound by the Contract to Sell, thus obliged to respect Enriquez’s

down payments. LDB can only collect the balance of the purchase price from Enriquez and

deliver a clean title to her thereafter.




3. Maceda Law (RA 6552): Sale of Immovables on Instal lment

Sec. 1. This Act shall be known as the "Realty Installment Buyer Act."

Sec. 2. It is hereby declared a public policy to protect buyers of real estate on installment

payments against onerous and oppressive conditions.

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 canceled, the seller shall refund to the buyer the cash surrender value of the

payments on the property equivalent to fifty per cent of the total 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 tothe buyer.

Down payments, deposits or options on the contract shall be included in the computation of the

total number of installment payments made.

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.

Sec. 5. Under Section 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 periodand before actual cancellation of the contract. The deed of sale or assignment shall be done by

notarial act.

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.

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 provision of this Act is held invalid or unconstitutional, no other provision shall be

affected thereby

Ril lo v CA Corb Realty (1997)

FACTS: Rillo signed a "Contract to Sell of Condominium Unit" with Corb Realty. Corb Realty

informed him that it was cancelling their contract due to his defaults. When Rillo failed to pay

even after the execution of a compromise agreement, Corb Realty filed a complaint for

cancellation of the contract to sell.

HELD: Rescission is not needed because the contract was a contract to sell. Also, the

Condominium Act does not provide anything on forfeiture proceedings involving installment

sales, so it should be RA 6552 (Realty Installment Buyer Protection Act/ Maceda Law), in rel. to PD

957 (Subdivision and Condominium Buyers Protective Decree), which should govern. RA 6552

recognizes in conditional sales of all kinds of real estate the right of the seller to cancel the

contract upon nonpayment of an installment by the buyer, which is simply an event that prevents

the obligation of the vendor to convey title from acquiring binding force.

• Where he has paid at least 2 years in installments

o To pay, w/o additional interest, the unpaid installments due within the total

grace period he earned (which is hereby fixed at 1 month grace period for

every 1 year of installment payments made): provided, that this right shall be

exercised only once every 5 years

o If the contract is cancelled, the seller shall refund the cash surrender value

(CSV) of the payments equivalent to 50% of the total payments made

(including down payments, deposit, or options): provided, that the actual

cancellation of the contract shall take place after cancellation/demand for

rescission by a notarial act and upon full payment of the CSV.• Where he has paid less than 2 years in installments:

o The seller shall give the buyer a grace period of not less than 60 days from

the due date of the installment. If the buyer fails to pay the installments due

at the end of the grace period, the seller may cancel the contract after 30

days from the buyer's receipt of the notice of cancellation/demand for

rescission of the contract by notarial act.

Active Realty v Daroya (2002)

FACTS: Active Realty entered into a Contract to Sell with respondent NECITA DAROYA, for a

subdivision lot. Respondent was in default of three monthly amortizations. Petitioner sent

respondent a notice of cancellation of their contract to sell, to take effect thirty days from receipt

of the letter. It is not known, however, when Daroya received the letter. Nonetheless, when

Daroya offered to pay for the balance of the contract price, Active Realty refused as it has

allegedly sold the lot to another buyer.HELD: Maceda Law’s declared public policy is to protect buyers of real estate on installment

basis against onerous and oppressive conditions. Most of these contracts of adhesion, drawn

exclusively by the developers, entrap innocent buyers by requiring cash deposits for reservation

agreements which oftentimes include, in fine print, onerous default clauses where all the

installment payments made will be forfeited upon failure to pay any installment due even if the

buyers had made payments for several years. They get to forfeit all the installment payments of

defaulting buyers and resell the same lot to another buyer with the same exigent conditions.

Respondent has already paid in four years a total of P314,860.76 or P90,835.76 more than the

contract price of P224,035.00. Active Realty failed to comply with the mandatory twin

requirements for a valid and effective cancellation under the law and before reselling the lot; they

failed to send a notarized notice of cancellation and refund the cash surrender value. For failure




to cancel the contract in accordance with the procedure provided by law, the contract to sell

between the parties remains valid and subsisting.

Fabrigas v San Francisco Del Monte (2005)

FACTS: Del Monte agreed to sell to Sps. Fabrigas a parcel of residential land. Among the clauses

in the contracts is an automatic cancellation in case of default. Sps. Fabrigas took possession of

the property but failed to make any installment payments on the balance of the purchase price.

After sending 4 demand letters, Del Monte considered this 1st Contract cancelled 15 days after,

but did not furnish petitioners any notice regarding cancellation. Parties entered into another

agreement covering the same property but under restructured terms of payment. Petitioners

failed to pay. Del Monte notified them that Contract to Sell had been cancelled and demanded

that petitioners vacate the property.

HELD: 1st contract was improperly rescinded (because didn’t comply with the requirements on

the manner of rescission under RA 6552); but then it was novated with a valid and binding

contract. Mere notice or letter without a notarial act would not suffice. The auto-rescission clause

is void under Sec 7 in relation to Sec 4 to RA 6552. Because of absence of the husband’s

signature, 2nd contract was an unenforceable contract under but the husband’s subsequent acts of

remitting payments for the satisfaction of the obligation under the 2nd Contract to Sell

constituted a ratification of the contract. In sum, the 2nd Contract to Sell is valid and binding.

4. Rescission of Sale of Non-Residential Realty on Instal lment

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the

obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with

the payment of damages in either case. He may also seek rescission, even after he has chosen

fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a

period.

This is understood to be without prejudice to the rights of third persons who have acquired the

thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.

Art. 1560. supra

Art. 1592. In the sale of immovable property, even though it may have been stipulated that

upon failure to pay the price at the time agreed upon the rescission of the contract shall of right

take place, the vendee may pay, even after the expiration of the period, as long as no demand

for rescission of the contract has been made upon him either judicially or by a notarial act. After

the demand, the court may not grant him a new term.

Song Fo v Hawaiian (1925)

FACTS: Molasses! Hawaiian argues that Song Fo defaulted in the payment of the December

1922 delivered goods which Song Fo received on January 5, 1923, saying that Song Fo should

have paid for it on or before January 31, 1923. Song Fo only paid on February 20, 1923. Hawaiian

filed a complaint for breach of contract.

HELD: The general rule is that rescission will not be permitted for a slight or casual breach of the

contract, but only for such breaches as are so substantial and fundamental as to defeat the object

of the parties in making the agreement. A delay in payment for a small quantity of molasses for

some twenty days is not such a violation of an essential condition of the contract as warrants

rescission for non-performance. Not only this, but the Hawaiian-Philippine Co. waived this

condition when it arose by accepting payment of the overdue accounts and continuing with the

contract.

Luzon Brokerage v Marit ime (1972)

FACTS : Myers sold 3 parcels of land through a “Deed of Conditional Sale” to Maritime Building

Co. (Maritime) for P1m. Maritime regularly paid for the monthly installments until March, 1961.

The VP of Maritime, Schedler, wrote a letter to the President of Myers requesting a

moratorium/suspension on the monthly payments until the end of 1961 because they were having

difficulties with their warehouse business. However, this request was rejected. Maritime still failed

to pay for the next 3 months, which forced Myers to make a demand for them to pay. They still

didn’t pay so another letter advising them of the cancellation of the Deed of Conditional Sale was

sent. Maritime contends that: 1) Myers cannot cancel their contract extrajudicially; 2) that they did

not fail to pay monthly installments and therefore did not violate the contract.

HELD: Determining whether the breach was casual or serious not important in contracts to sell.

Where ownership is retained by the seller and is not to pass until the full payment of the price,

such payment is a positive suspensive condition, the failure of which is not a breach, casual or

serious, but simply an event that prevented the obligation of the vendor to convey title from

acquiring binding force. TJudicial action is not necessary where contract provides that it may berevoked or cancelled for violation of any of its terms and conditions. Proper remedy is to question

this rescission in court like UP v. De Los Angeles. Court in repeated decisions has upheld the

power of promisors under contracts to sell in case of failure of the other party to complete

payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain

the sums or installments already received, where such rights are expressly provided for.

IX. EXTINGUISHMENT OF SALE

A. Causes

Art. 1600. Sales are extinguished by the same causes as all other obligations, by those stated in

the preceding articles of this Title, and by conventional or legal redemption.

Art. 1231. Obligations are extinguished:

1. By payment or performance;

2. By the loss of the thing due;

3. By the condonation or remission of the debt;

4. By the confusion or merger of the rights of creditor and debtor;

5. By compensation;

6. By novation.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a

resolutory condition, and prescription, are governed elsewhere in this Code.

B. Conventional Redemption




Art. 1601. Conventional redemption shall take place when the vendor reserves the right to

repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and

other stipulations which may have been agreed upon.

Vil larica v CA (1968)

FACTS: Sps. Villarica sold to Sps. Consunji a lot through an instrument of absolute sale. Sps.

Consunji executed another public instrument whereby they granted sps. Villarica an option to buy

the same property within 1 year. Villarica brought an action against Sps. Consunji and Francisco

for the reformation of the instrument of absolute sale into an equitable mortgage as a security for

a usurious loan of P28K alleging that such was the real intention of the parties. Sps. Consunji as

new owners of the lot granted Sps. Villarica an option to buy the property within the period of 1

year from May 25, 1951 for P37.75K.

HELD: Said option to buy is different and distinct from the right of repurchase which must be

reserved by the vendor, by stipulation to that effect, in the contract of sale. he right of repurchase

is not a tight granted the vendor by the vendee in a subsequent instrument, but is a right

reserved by the vendor in the same instrument of sale as one of the stipulations of the contract.

Once the instrument of absolute sale is executed, the vendor can no longer reserve the right to

repurchase, and any right thereafter granted the vendor by the vendee in a separate instrument

cannot be a right of repurchase but some other right like the option to buy in this case.

Torres v CA (1992)

FACTS: - Adela Flores leased 10 parcels of land to Spouses Torres for a specified term of 4agricultural years. Before the expiration of the contracts, the parties agreed on their renewal

under the original terms, subject to the condition that the lessees would deliver to Flores 50k not

later than Feb. 15, 1989. Sps Flores failed to comply with this condition. She informed them that

she was taking over her property upon the expiration of the contracts. Her demands were

disregarded. Flores sued Sps Torres for illegal detainer.

HELD: There was an oral agreement to extend the lease provided that they delivered 50k, a

suspensive condition to consider the renewal, not the actual renewal of the contracts. This

condition was not met. Hence, Flores was not obliged to extend the contracts. Given the fact that

there was notice that she was terminating the lease, there can be no implied renewal of lease

(tacita reconduccion), but that the continued possession and cultivation of the subject lands

constitutes illegal detainer.

1. Distinguished from Equitable Mortgage

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following

cases:

1. When the price of a sale with right to repurchase is unusually inadequate;

2. When the vendor remains in possession as lessee or otherwise;

3. When upon or after the expiration of the right to repurchase, another instrument extending the

period of redemption or granting a new period is executed;

4. When the purchaser retains for himself a part of the purchase price;

5. When the vendor binds himself to pay the taxes on the thing sold;

6. In any other case where it may be fairly inferred that the real intention of the parties is that the

transaction shall secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as

rent or otherwise shall be considered as interest which shall be subject to the usury laws.

Art. 1603 . In case of doubt, a contract purporting to be a sale with right to repurchase shall be

construed as an equitable mortgage.

Art. 1604. The provisions of Article 1602 shall also apply to a contract purporting to be an

absolute sale.

Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or

dispose of them. Any stipulation to the contrary is null and void.

Roberts v Papio (2007)

FACTS: To redeem their property and prevent the foreclosure of the real estate mortgage, Sps.

Papio executed a Deed of Absolute Sale over the property in favor of Amelia Roberts. Roberts

and Papio executed a two-year contract of lease, subject to renewal or extension for a like period

at the option of the lessor, the lessee waiving thereby the benefits of an implied new lease. After

Papio defaulted, Roberts filed a Complaint for unlawful detainer and damages before the MeTC.

Roberts asserts that Papio is barred from raising the issue of equitable mortgage because his

defense in the MeTC and RTC was that he had repurchased the property, impliedly admitting the

existence and validity of the deed of absolute sale.

HELD: Contract between the parties was NOT an equitable mortgage. His claim that Roberts

gave him the right to repurchase the property is antithetical to an equitable mortgage. He is thus

estopped from asserting that the contract under the deed of absolute sale is an equitable

mortgage.

Equitable mortgage: is one that, although lacking in some formality, form, or words, or other

requisites demanded by a statute, nevertheless reveals the intention of the parties to change a

real property as security for a debt and contain nothing impossible or contrary to law.

Requisites:

• Parties entered into a contract denominated as a contract of sale

• Intention was to secure and existing debt by way of mortgage

In an equitable mortgage, the mortgagor retains ownership over the property by subject to

foreclosure and sale at public auction upon failure of the mortgagor to pay his obligation. In

contrast, in a pacto de retro sale, ownership of the property sold is immediately transferred to the

vendee a retro subject only to the right of the vendor a retro to repurchase the property uponcompliance with legal requirements for the repurchase. The failure of the vendor a retro to

exercise the right to repurchase within the agreed time vests upon the vendee a retro, by

operation of law, absolute title over the property.

Tan v Valdehueza (1975)

FACTS: The respondents executed TWO documents of DEED OF PACTO DE RETRO SALE in

favor of Petitioner LUCIA TAN. After the execution of the Deed of Sale with right to repurchase.

defendants remained in the possession of the land. 1 st Deed of Pacto de Retro was not registered

in the Registry of Deeds while the 2nd Deed of Pacto de Retro was registered. The trial court

treated the registered deed of pacto de retro as an equitable mortgage but considered the

unregistered deed of pacto de retro "as a mere case of simple loan, secured by the property thus




sold under pacto de retro," on the ground that no suit lies to foreclose an unregistered

mortgage.

HELD: Under article 1875 of the Civil Code of 1889, registration was a necessary requisite for the

validity of a mortgage even as between the parties, but under article 2125 of the new Civil Code

(in effect since August 30,1950), this is no longer so. If the instrument is not recorded, the

mortgage is nonetheless binding between the parties. The Valdehuezas having remained in

possession of the land and the realty taxes having been paid by them, the contracts which

purported to be pacto de retro transactions are presumed to be equitable mortgages, whether

registered or not, there being no third parties involved. Tan’s prayer for consolidation of

ownership is properly rejected, the contracts being equitable mortgages.

Arrofo v Quino (2005)

FACTS:

Pedro Quin !o executed a Deed of Absolute Sale over his parcel of land favor of Renato

Mencias, explicitly excluding from the sale the house standing on the property. Deed of Absolute

Sale #2 over same property in favor of Renata, this time without the provision excluding the

house from the sale. Renato executed a deed of absolute sale over the property in f avor of

Lourdes Arrofo. Quin !o filed an action for reconveyance of property and annulment of deeds of

sale with damages, claiming that the transaction was a mortgage NOT an absolute sale. He had

allegedly borrowed P15k from Renato and the property served as security for the loan and that

they agreed that the Deed of Absolute Sale would only be registered should he fail to pay.

HELD:

Contract between Renato and Quin !o was one of equitable mortgage. Circumstances

which show that true intention was to treat transaction as equitable mortgage: Renato and Myrna

did not take possession of the Property after the execution of the first Deed of Absolute Sale.Moralde, a lessee of Quin !o, continued to pay rentals to Quin !o. Only in April 1993 did he learn

about the sale to Renato. Moralde was never informed that there was a new owner and since he

continued to pay Quin !o then Quin !o must have retained ownership.

2. Distinguished from Option to Buy

Art. 1602. supra

Adiarte v Tumaneng (1951)

FACTS: Feb 1929—Amanda Adiarte sold her two parcels of land to Spouses Tumaneng,

reserving for her the right to repurchase them within ten years. April 1944—Amanda called on the

vendees at their residence offering to repurchase the two parcels of land. Cirilo agreed to resell,

on the condition that he would have them in his possession for the following two years, and

executed a document (in Ilonggo dialect) to that effect. In October 1944, Cirilo died. In 1946,Amanda offered to repurchase the two parcels from the widow, Emiliana. Emiliana refused.

Amanda filed the present action to compel Emiliana to accept the sum of P1,100 and to execute

in favor of the former the deed of sale. (Note: Art. 1508 of the Old Civil Code prohibited any

repurchase beyond ten years.)

HELD: After the lapse of the ten-year period agreed upon in the deed of sale with right to

repurchase, the spouses became the absolute owners of the two parcels of land. The Court

considered the document executed by Cirilo as a promise to sell, and not an extension of the

right to repurchase. The promise referred to, not being contrary to law, morals, or public order or

policy, is lawful, valid and enforceable.

3. Period of Redemption

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

true sale with right to repurchase.

Heirs of Arches v Diaz (1973)

FACTS: The heirs of Jose A. Arches filed a complaint against Maria B. Vda. de Diaz alleging that

the defendant executed in favor of the late Jose A. Arches a deed of sale with pacto de retro

over a parcel of land. Jose A. Arches during his lifetime filed a petition on to consolidate

ownership over the lot but the defendant opposed the petition alleging among other things that

the said deed of sale with pacto de retro did not express the true intention of the parties, which

was merely to constitute a mortgage on the proper security for a loan. The petitioners demanded

by registered letter from defendant the payment of the sum of P12,500.00, the consideration

mentioned in the sale a retro, and reimbursement of the sum of P1,543.70 (for improvements

introduced). Defendant moved to dismiss it on the ground that recovery of the sum of P12,500.00

was barred by the statute of limitations.

HELD: Where a pacto de retro sale is construed as an equitable mortgage, Plaintiff has the right

"within sixty days after final judgment, for a failure to pay the amount due and owing him, to

foreclose his mortgage in a proper proceeding and sell all or any part of the ten parcels of land to

satisfy his debt.". Court recognizes the right of the plaintiff to enforce his lien in a separate

proceeding notwithstanding the fact that he had failed to obtain judgment declaring him the sole

and absolute owner of the parcels of land. It would be unjust to allow the defendant to escapepayment of debt and, worse still, to rationalize such a result by his very claim that he is a debtor

and not, as the plaintiff says, a vendor of property in favor of the latter. Where the petition of the

vendee in a pacto de retro sale is for a judicial order pursuant to Art. 1607, so that consolidation

of ownership by virtue of the failure of the vendor to redeem may be recorded in the Registry of

Property, the right of action to foreclose the mortgage or to collect the indebtedness arises from

the judgment of the court declaring the contract as equitable mortgage.

4. Exercise of Right to Redeem

Art. 1616. The vendor cannot avail himself of the right to repurchase without returning to the

vendee the price of the sale, and in addition:

1. The expenses of the contract, and any other legitimate payments made by reason of the sale.

2. The necessary and useful expenses made on the thing sold.

Gargollo v Duero (1961)

FACTS: 1953, Gargollo sold to the defendants with pacto de retro a parcel of land with the

improvements, for P750.00. According to the deed of sale with pacto de retro, the plaintiff could

redeem said lot on or before the year 1962. 1958: Perpetua verbally notified defendants that she

would redeem the property in the following October. October 18: Perpetua gave the written

notice to accept the redemption amount of P750 but the defendants refused because they made

improvements on the land (planting trees, rice, corn).

HELD: For a vendor a retro to be entitled to exercise his right of redemption, he must reimburse

the vendee a retro, not only (1) the price of the sale, but also (2) the expenses of the contract and

any other legitimate payments made by reason of the sale, and (3) the necessary and useful

expenses made on the thing sold. Under Article 1616, the vendor a retro must pay for the useful

improvements introduced by the vendee a retro; otherwise, the latter may retain possession of




the land until reimbursement is made. Since, in the instant case, Perpetua (vendor a retro) is

unwilling to reimburse defendants (vendees a retro) the value of the useful improvements

introduced by the latter on the land in question, they may not lawfully be ordered nor compelled

to vacate and deliver said land to Perpetua.

a. Who Can Exercise

Art. 1610. The creditors of the vendor cannot make use of the right of redemption against the

vendee, until after they have exhausted the property of the vendor.

Art. 1611. In a sale with a right to repurchase, the vendee of a part of an undivided immovable

who acquires the whole thereof in the case of Article 498, may compel the vendor to redeem the

whole property, if the latter wishes to make use of the right of redemption.

Art. 1612. If several persons, jointly and in the same contract, should sell an undivided

immovable with a right of repurchase, none of them may exercise this right for more than his

respective share.

The same rule shall apply if the person who sold an immovable alone has left several heirs, in

which case each of the latter may only redeem the part which he may have acquired.

Art. 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-

heirs that they come to an agreement upon the repurchase of the whole thing sold; and should

they fail to do so, the vendee cannot be compelled to consent to a partial redemption.

b. From Whom to Redeem

Art. 1615. If the vendee should leave several heirs, the action for redemption cannot be

brought against each of them except for his own share, whether the thing be undivided, or it has

been partitioned among them.

But if the inheritance has been divided, and the thing sold has been awarded to one of the heirs,

the action for redemption may be instituted against him for the whole.

c. Effect of Redemption

Art. 1617. If at the time of the execution of the sale there should be on the land, visible or

growing fruits, there shall be no reimbursement for or prorating of those existing at the time of

redemption, if no indemnity was paid by the purchaser when the sale was executed.

Should there have been no fruits at the time of the sale, and some exist at the time of the

redemption, they shall be prorated between the redemptioner and the vendee, giving the latter

the part corresponding to the time he possessed the land in the last year, counted from the

anniversary of the date of the sale/

d. Effect of Non-Redemption

Art. 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the

failure of the vendor to comply with the provisions of Article 1616 shall not be recorded in the

Registry of Property without a judicial order, after the vendor has been duly heard.

C. Legal Redemption

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.

1. Period to Redeem

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.

Doromal v CA (1975)

FACTS: The 7 children of Horilleno inherited land under a co-ownership. One of the children

already died and was succeeded by her only daughter, Filomena Javellana (Private Respondent).

Sps. Dormal showed interest to buy the land. Co-owners went ahead with their sale of their 6/7

undivided share of the land without the consent of Filomena. Filomena’s lawyer went to the

house of Sps. Doromal with a letter stating a formal offer of P30,000 for the redemption of 6/7 of

the undivided share of the land. When Sps. Doromal refused, Filomena filed a case for the

redemption of the property.

HELD: For purposes of the co-owner's right of redemption granted by Article 1620 of the Civil

Code, the notice in writing which Article 1623 requires to be made to the other co-owners and

from receipt of which the 30-day period to redeem should be counted is a notice not only of aperfected sale but of the actual execution and delivery of the deed of sale.

Francisco v Boiser (2000)

FACTS: Adalia Francisco and three of her sisters co-owned four parcels of registered lands in

Caloocan (where Ten Commandments Building stands). They sold one-fifth (1/5) of their

undivided share to their mother, Adela Blas for P10,000. This made all five of them co-owner of

the said real properties. On August 8, 1986, Adela sold his share to Zenaida Boiser (another sister

of Francisco) for P10,000 without the knowledge of the other co-owners. Francisco received

summons and complaint for a civil case filed by Boiser demanding her share of the rentals being

collected by Francisco from the tenants of the Ten Commandments building. Francisco, in

response, informed Boiser that she is exercising her right of redemption as co-owner, and

deposited P10K as redemption price with the Clerk of Court..

HELD: Under the New Civil Code, Art 1623 added the requirement that notice be given by thevendor. The reasons for requiring that the notice should be given by the seller are 1) the seller of

an undivided interest is in the best position to know who his co-owners are (who must be

notified), and 2) the notice by the seller acts a reaffirmation of the fact of sale, that the party

notified need not entertain doubt that the seller may still contest the alienation. By not

immediately notifying co-owner, a vendor can delay or even prevent the redemption. In this case,

the sale took place in 1986, but was kept secret until 1992. The summons constituted actual

knowledge, on the basis of which Francisco can now exercise her right of legal redemption within

30 days from finality of the decision.

Misterio v Cebu State College (2005)

FACTS: Provincial Board of Cebu donated 41 lots of the Banilad Friar Lands Estate to SAHS,

subject to 2 conditions: (1) if the SAHS ceases to operate, ownership of the lots would




automatically revert to the province, and (2) SAHS could not alienate, lease, or encumber the

properties. June 1983 - BP 412 was enacted, incorporating and consolidating as one school

system certain vocational schools in Cebu, including SAHS. It became an extension of CSCST.

1990—Asuncion's heirs informed CSCST of their intention to exercise the option to repurchase

Lot 1064 since SAHS had ceased to exist. CSCST's Vocational School Superintendent II informed

their counsel that SAHS still existed; only the name was changed.

HELD: In this case, the vendor a retro and the vendee a retro did not agree on any period for the

exercise of the right to repurchase the property. Hence, the vendor a retro may extend the said

right within 4 years from the happening of the allocated condition. The 4-year period to

repurchase the property was not suspended merely and solely because there was a divergence of

opinion between the parties as to the precise meaning of the phrase “after the SAHS shall cease

to exist” in the deed of sale.

2. Instances of Legal Redemption

a. Co-owners

Art. 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all

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.

b. Co-heirs

Art. 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition,

any or all of the co-heirs may be subrogated to the rights of the purchaser by reimbursing him forthe price of the sale, provided they do so within the period of one month from the time they were

notified in writing of the sale by the vendor.

c. Adjoining Landowners of Rural Land

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.

The 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 thesame area, the one who first requested the redemption.

d. Adjoining Landowners of Urban Land

Art. 1622. Whenever a piece of urban land which is so small and so situated that a major

portion thereof cannot be used for any practical purpose within a reasonable time, having been

bought merely 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 rights of pre-emption

or redemption, the owner whose intended use of the land in question appears best justified shall

be preferred.

e. Under the Public Land Act

CA 141. Sec. 118. Except in favor of the Government or any of its branches, units or institutions, or legally

constituted banking corporations, lands acquired under free patent or homestead provisions shall not be

subject to encumbrance or alienation from the date of the approval of the application and for a term of five

years from and after the date of issuance of the patent or grant nor shall they become liable to the satisfaction

of any debt contracted prior to the expiration of said period; but the improvements or crops on the land may

be mortgaged or pledged to qualified persons, associations, or corporations.No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after

issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural Resources, which

approval shall not be denied except on constitutional and legal grounds

CA 141. Sec. 119. Every conveyance of land acquired under the free patent or homestead provisions, when

proper, shall be subject to repurchase by the applicant, his widow, or legal heirs, within a period of five years

from the date of the conveyance.

f. Under Extrajudicial Foreclosure

Act 3135. 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.

g. Under Agrarian Land Reform Code

RA 6389. (Amending RA 3844. Sec. 12.) Lessee's right of Redemption. – In case the landholding is sold

to a third person without the knowledge of the agricultural lessee, the latter shall have the right to redeem the

same at a reasonable price and consideration: Provided, That where there are two or more agricultural lessees,

each shall be entitled to said right of redemption only to the extent of the area actually cultivated by him. The

right of the redemption under this Section may be exercised within one hundred eighty days from notice in

writing which shall be served by the vendee on all lessees affected and the Department of Agrarian Reform

upon the registration of the sale, and shall have priority over any other right of legal redemption. The

redemption price shall be the reasonable price of the land at the time of the sale.

Upon the filing of the corresponding petition or request with the department or corresponding case in court by

the agricultural lessee or lessees, the said period of one hundred and eighty days shall cease to run.

Any petition or request for redemption shall be resolved within sixty days from the filing thereof; otherwise, the

said period shall start to run again.

The Department of Agrarian Reform shall initiate, while the Land Bank shall finance, said redemption as in the

case of pre-emption."

HAPPY STUDYING!

No discipline seems pleasant at the time, but painful. Later on, however, it produces a harvest of righteousness

and peace for those who have been trained by it. –Hebrews 12:11