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ATENEO DE MANILA LAW SCHOOL

LAW ON SALES 1
DEAN CESAR L. VILLANUEVA
FIRST SEMESTER, SY 2017-2018 ATTY. TERESA V. TIANSAY

I. NATURE OF SALE
A. DEFINITION AND ESSENCE OF SALE (Art. 1458)
Sale is a contract whereby one party [seller] obligates himself to transfer the ownership2 and to
deliver the possession, of a determinate thing, and the other party [buyer] obligates himself to pay
therefor a price certain in money or its equivalent. xDantis v. Maghinang, Jr., 695 SCRA 599 (2013).3

1. Elements of Sale: (a) Consent: meeting of minds on, (b) Subject Matter, and (c) Consideration:
price certain in money or its equivalent. x Dantis v. Maghinang, Jr., 695 SCRA 599 (2013).4
Absence of any essential elements negates the existence of a perfected contract of sale. xDizon
v. Court of Appeals, 302 SCRA 288 (1999),5 even when earnest money or downpayment has
been paid. xManila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).6

2. Stages of the Contract of Sale: (a) Policitacion or Negotiation Stage, starts from the time the
prospective contracting parties indicate interest in the contract to the time the contract is
perfected; (b) Perfection, takes place upon the concurrence of the essential elements of the sale;
and (c) Consummation, commences when the parties perform their respective undertakings
under the contract of sale, culminating in the extinguishment of the contract of sale. xGSIS v.
Lopez, 592 SCRA 456 (2009).7

3. Sale Creates Real Obligations TO GIVE (Art. 1165) So, what gives?

4. Essential Characteristics of Sale:


a. Nominate and Principal A contract of sale is what the law defines it to be, taking into
consideration its essential elements, and not what the contracting parties call it. xSantos v.
Court of Appeals, 337 SCRA 67 (2000).8
b. Consensual (Art. 1475) Sale being a consensual contract, is perfected, valid and binding
upon meeting of the minds on the subject matter and the consideration;9 being a consensual,
and not real, in character, sales essential elements must be proven, xVillanueva v. CA, 267
SCRA 89 (1997); but once all elements are proven, its validity is not affected by a previously
executed fictitious deed of sale, xPealosa v. Santos, 363 SCRA 545 (2001); and the burden
is on the other party to prove otherwise, xHeirs of Ernesto Biona v. CA, 362 SCRA 29 (2001).

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The OUTLINE presents the manner by which Law on Sales will be taken-up in class. The x's and footnotes represent cases or topics which
need no extended discussions, either because the essence of the rulings are already summarized in the Outline or they contain similar
rulings or doctrines as the cases to be discussed. Unless otherwise indicated, numbered articles pertain to the Civil Code.
2
Ownership is the independent and general power of a person over a thing for purposes recognized by law and within the limits established
thereby, which includes the right to enjoy and dispose of a thing, without other limitations than those established by law. Aside from the jus
utendi and the jus abutendi inherent in the right to enjoy the thing, the right to dispose, or the jus disponendi, is the power of the owner to
alienate, encumber, transform and even destroy the thing owned. Flancia v. CA, 457 SCRA 224 (2005).
3
Alfredo v. Borras, 404 SCRA 145 (2003); Cruz v. Fernando, 477 SCRA 173 (2005); Manila Metal Container Corp. v. PNB, 511 SCRA 444
(2006); Roberts v. Papio, 515 SCRA 346 (2007); Hyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex Assn., 636
SCRA 401 (2010).
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Jovan Land v. CA, 268 SCRA 160 (1997); Quijada v. CA, 299 SCRA 695 (1998); Co v. CA, 312 SCRA 528 (1999); San Andres v.
Rodriguez, 332 SCRA 769 (2000); Roble v. Arbasa, 362 SCRA 69 (2001); Polytechnic University v. CA, 368 SCRA 691 (2001); Katipunan v.
Katipunan, 375 SCRA 199 (2002); Londres v. CA, 394 SCRA 133 (2002); Manongsong v. Estimo, 404 SCRA 683 (2003); Jimenez, Jr. v.
Jordana, 444 SCRA 250 (2004); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Roberts v.
Papio, 515 SCRA 346 (2007); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Republic v. Florendo, 549 SCRA 527 (2008); GSIS v.
Lopez, 592 SCRA 456 (2009); Baladad v. Rublico, 595 SCRA 125 (2009); Del Prado v. Caballero, 614 SCRA 102 (2010); Montecalvo v.
Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); Hyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex Assn., 636
SCRA 401 (2010); David v. Misamis Occidental II Electric Cooperative, 676 SCRA 367 (2012); First Optima Realty Corp. v. Securitron
Security Services, 748 SCRA 534 (2015).
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Roberts v. Papio, 515 SCRA 346 (2007); XYST Corp. v. DMC Urban Properties Dev., 594 SCRA 598 (2009); Hyatt Elevators and
Escalators Corp. v. Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010).
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Del Prado v. Caballero, 614 SCRA 102 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); David v. Misamis
Occidental II Electric Coop., 676 SCRA 367 (2012); Dantis v. Maghinang, Jr., 695 SCRA 599 (2013).
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Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); Jovan Land v. CA, 268 SCRA 160 (1997); San Miguel Properties v. Huang, 336
SCRA 737 (2000); Bugatti v. CA, 343 SCRA 335 (2000); Moreno, Jr. v. PMO, 507 SCRA 63 (2006); Manila Metal Container Corp. v. PNB,
511 SCRA 444 (2006); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315
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CONSEQUENTLY: UPON SALES PERFECTION
Its binding effect is based on the principle that the obligations arising therefrom have the force
of law between the parties. xVeterans Federation of the Phils. v. CA, 345 SCRA 348 (2000).
The parties may reciprocally demand performance, xHeirs of Venancio Bejenting v. Baez,
502 SCRA 531 (2006);10 subject only to the provisions of law governing the form of contracts.
xCruz v. Fernando, 477 SCRA 173 (2005).
It remains valid even though the parties have not affixed their signatures to its written form,
xGabelo v. CA, 316 SCRA 386 (1999);11 nor translated into written form, Duarte v. Duran, 657
SCRA 607 (2011); or the manner of payment is breached, xPilipinas Shell Petroleum Corp v.
Gobonseng, 496 SCRA 305 (2006).
Failure of developer to obtain a license to sell does not render its sales void especially that the
parties have admitted that there was already a meeting of the minds as to the subject of the
sale and price. xCantemprate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009).
Perfection Distinguished from Demandability: Not all contracts of sale become
automatically and immediately effective. In sale with assumption of mortgage, there is a
condition precedent to the sellers consent and without the approval of the mortgagee, the sale
is not perfected. xBian Steel Corp. v. CA, 391 SCRA 90 (2002).
No Contract Situation versus Void Contract: Absence of complete meeting of minds
negates existence of a perfected sale, xFirme v. Bukal Enterprises, 414 SCRA 190 (2003); the
contract is void and absolutely wanting in civil effects, and does not create or modify the
juridical relation to which it refers, xCabotaje v. Pudunan, 436 SCRA 423 (2004).
When the contract of sale is not perfected, as when there is no meeting of minds on the
price, it cannot, as an independent source of obligation, serve as a binding juridical relation
between the parties, xHeirs of Fausto C. Ignacio v. Home Bankers Savings, 689 SCRA 173
(2013);12 and should be accurately denominated as inexistent, as it did not pass the stage of
generation to the point of perfection. xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).

c. Bilateral and Reciprocal (Arts. 1169 and 1191) A contract of sale gives rise to reciprocal
obligations, which arise from the same cause with each party being a debtor and creditor of
the other, such that the obligation of one is dependent upon the obligation of the other; and
they are to be performed simultaneously, so that the performance of one is conditioned upon
the simultaneous fulfillment of the other. xCortes v. CA, 494 SCRA 570 (2006).13
A perfected contract of sale is bilateral because it carries the correlative duty of the seller to
deliver the property and the obligation of the buyer to pay the agreed price. xCongregation of
the Religious of the Virgin Mary v. Orola, 553 SCRA 578 (2008).
The power to rescind without need of prior demand is implied in reciprocal ones when one
of the obligors does not comply with his obligation. xAlmocera v. Ong, 546 SCRA 164 (2008).14
When rescission of a contract of sale is sought under Article 1191 of the Civil Code, it need
not be judicially invoked because the owner to resolve is implied in reciprocal obligations. The
resolution immediately produces legal effects if the nonperforming party does not question the
resolution. Court intervention only becomes necessary when the party who allegedly failed to
comply with his or her obligation disputes the resolution of the contract. Lam v. Kodak
Philippines, 778 SCRA 96 (2016).

d. Onerous and Commutative (Arts. 1355 and 1470) The resolution of issues pertaining to
periods and conditions in a contract of sale must be based on its onerous and commutative
nature. Gaite v. Fonacier, 2 SCRA 830 (1961).
In a contract of sale, there is no requirement that the price be equal to the exact value of
the subject matter of sale; all that is required is that the parties believed that they will receive
good value in exchange for what they will give. Buenaventura v. CA, 416 SCRA 263 (2003).

e. Sale Is Title and Not Mode 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. 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 (delivery as a consequence of sale)
that actually transfers ownership. xSan Lorenzo Dev. Corp. v. Court of Appeals, 449 SCRA 99
(2005),15 citing VILLANUEVA, PHILIPPINE LAW ON SALES, 1995 ed., at p. 5.
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Ownership by seller of the thing sold is not an element of perfection; what the law requires
is seller has the right to transfer ownership at the time of delivery. xQuijada v. CA, 299 SCRA
695 (1998).16 BUT SEE: xTitong v. CA, 287 SCRA 102 (1998), which defined a sale as a
contract transferring dominion and other real rights in the thing sold.

B. SALE DISTINGUISHED FROM SIMILAR CONTRACTS


A contract is what the law defines it to be, taking into consideration its essential elements, and
the title given to it by the parties is not as much significant as its substance:17 the transfer of
ownership in exchange for a price paid or promised is the very essence of a contract of sale.
xSantos v. Court of Appeals, 337 SCRA 67 (2000).
In determining the real character of sale, courts look at the intent of the parties, their true
purpose in entering into the contract, as well as by their conduct, words, actions and deeds prior to,
during and immediately after executing the agreement, and not at the nomenclature used to
describe it. xLao v. Court of Appeals, 275 SCRA 237 (1997).

1. Donation (Arts. 725 and 1471) Unlike donation, sale is a disposition for valuable
consideration with no diminution of sellers estate but merely substitution of valuesproperty sold
replaced by the equivalent monetary considerationand therefore cannot have the legal effect of
depriving compulsory heirs of their legitimes. xManongsong v. Estimo, 404 SCRA 683 (2003).
Art. 1544 double sales rules not relevant to donations. xHemedes v. CA, 316 SCRA 347 (1999).

2. Barter (Arts. 1468, 1638 to 1641)

3. Contract for a Piece-of-Work (Arts. 1467, 1713 to 1715) Ineluctably, whether the contract
be one of sale or one for a piece of work, a transfer of ownership is involved and a party
necessarily walks away with an object. xCommissioner of Internal Revenue v. CA, 271 SCRA
605 (1997), citing VILLANUEVA, LAW ON SALES, pp. 7-9 (1995). In both, the provisions on warranty
of title against hidden defects applies. xDio v. CA, 359 SCRA 91 (2001).
When one stipulates for the future sale of articles which he is habitually making, and which at
the time are not made or finished, it is essentially a contract of sale and not a contract for labor,
xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911); even when he executes production thereof
only after an order is placed by customers. Celestino & Co. v. Collector, 99 Phil. 841 (1956).
If the thing is specially done only upon the specific order of another, this is a contract for a
piece of work; if it is manufactured or procured for the general market in the ordinary course of
business, it is a contract of sale. CIR v. Engineering Equipment, 64 SCRA 590 (1975).18
To Tolentino, the distinction depends on the parties intention: if they intended that at some
future date an object has to be delivered without considering the work or labor of the party bound
to deliver, the contract is one of sale; but if one party accepts the undertaking on the basis of
some plan, taking into account the particular work to be done by himself or through others, the
contract is for a piece of work. xEngineering & Machinery Corp. v. CA, 252 SCRA 156 (1996).

4. Agency to Sell (Art. 1466) Assumption by agent of the risk pertaining to the cost or price of
the subject matter makes the relationship that of buyer-seller, for the agent does not assume risk
with respect to the price or the property subject of the relationship. xKer & Co. v. Lingad, 38
SCRA 524 (1971).
CONSEQUENTLY:
(a) Contractual relation is not inherently revocable. Quiroga v. Parsons, 38 Phil. 501 (1918);
(b) Purported agent does not have to account for the profit margin earned from acquiring the
property for the purported principal. Puyat v. Arco Amusement Co., 72 Phil. 402 (1941).
One factor that most clearly distinguishes agency from other legal concepts, including sale, is
control; one person the agent agrees to act under the control or direction of another the
principal. xVictorias Milling Co. v. CA, 333 SCRA 663 (2000).
Commercial broker, commission merchant or indentor is a middleman acting in his own name,
and acts as agent for both seller and buyer to effect a sale between them. Although he is neither
seller nor buyer to the contract effected he may voluntarily assume warranties of seller. xSchmid
and Oberly v. RJL Martinez, 166 SCRA 493 (1988).
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debt in money it involves the delivery and transmission of ownership of a thing as an accepted
equivalent of the performance of the obligation. xYuson v. Vitan, 496 SCRA 540 (2007).
Elements of dacion en pago: (a) performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against
the third person; (b) some difference between the prestation due and that which is given in
substitution (aliud pro alio); and (c) agreement between the creditor and debtor that the obligation
is immediately extinguished by reason of the performance of a presentation different from that
due. Lo v. KJS Eco-Formwork System Phil., 413 SCRA 182 (2003).19 CONSEQUENTLY:
In its modern concept, what 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 as the purchase
price. xAquintey v. Tibong 511 SCRA 414 (2006).20
In a true dacion en pago, assignment of the property extinguishes the monetary debt.
xEstanislao v. East West Banking Corp., 544 SCRA 369 (2008).21
BUT SEE: Dation extinguishes the obligation to the extent of the value of the thing delivered,
either as agreed upon by the parties or as may be proved, unless the parties by agreement
express or implied, or by their silenceconsider the thing as equivalent to the obligation, in
which case the obligation is totally extinguished. xTan Shuy v. Maulawin, 665 SCRA 604 (2012).
There must be actual delivery of the property to the creditor by way of extinguishment of the
pre-existing debt, xPhilippine Lawin Bus Co. v. CA, 374 SCRA 332 (2002).22
BUT SEE OBITER: xSSS v. AG& P Company of Manila, 553 SCRA 677 (2008).
There is no dation where there is no transfer of ownership in creditors favor, as when
possession of the thing is merely given to the creditor by way of security. xFort Bonifacio Dev.
Corp. v. Yllas Lending Corp., 567 SCRA 454 (2008).23
Dacion en pago is governed by the Law of Sales, and is therefore subject to the same rules on
express and implied warranties pertaining to contracts of sale. The implied warranty in case of
eviction is waivable and cannot be invoked if the buyer knew of the risks or danger of eviction and
assumed its consequences. Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).

6. Lease (Arts. 1484 and 1485) When rentals in a lease are meant to be installment payments
to an underlying sale contract, despite the nomenclature given by the parties, it is a sale by
installments and governed by Recto Law. xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).

II. PARTIES TO A CONTRACT OF SALES


1. GENERAL RULE: Every person having legal capacity to obligate himself, may validly
enter into a contract of sale, whether as seller or as buyer. (Art. 1489)

2. Minors, Insane and Demented Persons, Deaf-Mutes (Arts. 1327, 1397 and 1399)
A minor cannot be deemed to have given her consent to a sale; consent is among the
essential requisites of a contract of sale, absent of which there can be no valid contract. [?]
xLabagala v. Santiago, 371 SCRA 360 (2001).
a. Necessaries (Arts. 1489 and 290)
b. Protection of the Senile and Elderly (Art. 24), Illiterates (Art. 1332)
While a person is not incompetent to contract merely because of advanced years or by
reason of physical infirmities, when such age or infirmities have impaired the mental faculties
so as to prevent the person from properly, intelligently or firmly protecting his property rights,
then he is undeniably incapacitated, and the sale he entered into is void. [?]. Paragas v.
Heirs of Dominador Balacano, 468 SCRA 717 (2005).24

3. Sales By and Between Spouses:


a. Sales with Third Parties (Arts. 73, 96, and 124, Family Code)
Under Art. 124 of Family Code, sale by husband of a conjugal property without the wifes
consent is void, not merely voidable, since the resulting contract lacks one of the essential
elements of full consent. xGuiang v. CA, 291 SCRA 372 (1998).25
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A wife affixing her signature to a Deed of Sale as a witness is deemed to have given her
consent. xPelayo v. Perez, 459 SCRA 475 (2005).
As an exception, husband may dispose of conjugal property without wifes consent if such
sale is necessary to answer for conjugal liabilities mentioned in Articles 161 and 162. xAbalos
v. Macatangay, Jr., 439 SCRA 64 (2004).
b. Sales Between Spouses (Arts. 133, 1490, 1492; Sec. 87, Family Code)
Sales between spouses who are not governed by a complete separation of property regime
are void, not just voidable. xMedina v. Collector, 1 SCRA 302 (1960).
Since the spouses cannot validly sell property to one another under Art. 1490, then policy
consideration and the dictates of morality require that the prohibition should apply also to
common-law relationships. Matabuena v. Cervantes, 38 SCRA 284 (1971).
Sale by husband of conjugal land to his concubine is void for being contrary to morals and
public policy and subversive of the stability of the family, a basic social institution which public
policy cherishes and protects. xCalimlim-Canullas v. Fortun, 129 SCRA 675 (1984).26
The in pari delicto doctrine would not apply to the spouses-parties under Art. 1490, since
only the heirs and the creditors can question the sales nullity, xModina v. CA, 317 SCRA 696
(1999); nevertheless, when the property is re-sold to a third-party buyer in good faith and for
value, reconveyance is no longer available. xCruz v. CA, 281 SCRA 491 (1997).

4. WHEN BUYERS RELATIVELY DISQUALIFIED (Arts. 1491 and 1492)


Contracts entered into in violation of Arts. 1491 and 1492 are not merely voidable, but are null
and void. Rubias v. Batiller, 51 SCRA 120 (1973).27

a. Guardians, Agents and Administrators


Hereditary rights are not included in the prohibition insofar as administrator or executor of
the estate of the deceased. xNaval v. Enriquez, 3 Phil. 669 (1904).
No more need to comply with the requirement in xRodriquez v. Mactal, 60 Phil. 13 (1934) to
show that a third party bought as conduit/nominee of the buyer disqualified under Art. 1491;
rather, the presumption now is that such disqualified party obtained the property in violation of
said article. Philippine Trust Co. v. Roldan, 99 Phil. 392 (1956).
Prohibition against agents does not apply if the principal consents to the sale of the
property in the hands of the agent. xDistajo v. CA, 339 SCRA 52 (2000).

b. Attorneys
(1) Prohibition Against Attorneys Purchasing Properties of Their Clients in Litigation Applies:
Even though litigation is not adversarial in nature, Rubias v. Batiller, 51 SCRA 120 (1973);
or a certiorari proceeding that has no merit, xValencia v. Cabanting, 196 SCRA 302 (1991).
Sale pursued while litigation is pending. xDirector of Lands v. Ababa, 88 SCRA 513 (1979).
Only to a lawyer of record, and does not cover assignment of the property given in
judgment made by a client to an attorney, who has not taken part in the case. xMunicipal
Council of Iloilo v. Evangelista, 55 Phil. 290 (1930).28
(2) Prohibition Does Not Apply To:
A lawyer who acquired property prior to the time he intervened as counsel in the suit
involving such property. xDel Rosario v. Millado, 26 SCRA 700 (1969).
Sale of the land acquired by a client to satisfy a judgment to his attorney as long as the
property was not the subject of the litigation. xDaroy v. Abecia, 298 SCRA 172 (1998);
Contingency fee arrangement granting the lawyer proprietary rights to the property in
litigation since the payment of said fee is not made during the pendency of litigation but
only after judgment has been rendered. Fabillo v. IAC, 195 SCRA 28 (1991).29

c. Judges
Even when the main cause is a collection of a sum of money, the properties levied are still
subject to the prohibition. xGan Tingco v. Pabinguit, 35 Phil. 81 (1916).
A judge who buys property in litigation before his court after the judgment becomes final
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A judge should restrain himself from participating in the sale of propertiesit is incumbent
upon him to advise the parties to discontinue the transaction if it is contrary to law. Britanico v.
Espinosa, 486 SCRA 523 (2006).

III. SUBJECT MATTER OF SALE


The transfer of title or an agreement to transfer title for a price paid or promised to be paid is the
essence of sale. xCommissioner of Internal Revenue v. CA and AdeMU, 271 SCRA 605 (1997).
Civil Code provisions defining sales is a catch-all provision which effectively brings within the
Law on Sales a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.
Polytechnic University v. Court of Appeals, 368 SCRA 691 (2001).
An agreement whereby a party renounces and transfers whatever rights, interests, or claims
she has over a parcel of land in favor of another party in consideration of the latters payment of
therein loan, is essentially a sale, and the rule on delivery effected through a public instrument
applies. xCaoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273 (2006).

1. Subject Matter Must Be Existing, Future or Contingent (Arts. 1347, 1348, and 1462)
a. Emptio Rei Speratae (Arts. 1347 and 1461) Pending crops which have potential existence
may be valid object of sale. xSibal v. Valdez, 50 Phil. 512 (1927); and such transaction cannot
be considered to effectively be sale of the land or any part thereof. xPichel v. Alonzo, 111
SCRA 341 (1981).
Sale of copra for future delivery does not make non-delivering seller liable for estafa since sale
is valid and obligation was civil and not criminal. xEsguerra v. People, 108 Phil. 1078 (1960).
b. Emptio Spei (Art. 1461)
c. Subject to a Resolutory Condition (Art. 1465)

2. Must Be Licit (Arts. 1347, 1459 and 1575)


Although under Art. 1347, a sale involving future inheritance is void and does not create an
obligation, xTaedo v. CA, 252 SCRA 80 (1996); such does not cover a waiver of hereditary
rights which is not equivalent to sale, since waiver is a mode of extinction of ownership in favor of
the other persons who are co-heirs. xAcap v. Court of Appeals, 251 SCRA 30 (1995).
Mortgagor can legally sell the mortgaged propertymortgage is merely an encumbrance that
does not affect his principal attribute as owner thereof. Law even considers void a stipulation
forbidding owner from alienating mortgaged immovable. xPineda v. CA, 409 SCRA 438 (2003).30

3. Must Be Determinate or At Least Determinable (Art. 1460)


When deed of sale erroneously describes the lot adjacent to the land seen and eventually
delivered to the buyer, such vetted land is the one upon which the minds have met, and not that
erroneously described in the deed. Prudent people buy land on the basis of what they see, not on
what is technically described in Deed or Torrens title. Atilano v. Atilano, 28 SCRA 231 (1969).31
a. Non-Specific Things (Generic) May Be the Object of Sale (Arts. 1246 and 1409[6])
Determinable subject matter of sale are not subject to risk of loss until they are physically
segregated or particularly designated. Yu Tek & Co. v. Gonzales, 29 Phil. 384 (1915).
Subject matter is determinable when from the formula or description adopted at perfection
there is a way by which the courts can delineate it independent of the will of the parties.
Melliza v. City of Iloilo, 23 SCRA 477 (1968).
Where lot sold is described to adjoin previously paid lot on three sides thereof, it can be
determined without need of a new contract, even when the exact area of adjoining lot is
subject to the result of a survey. xSan Andres v. Rodriguez, 332 SCRA 769 (2000).
As the quoted portion of the Kasunduan gave reference to the area, the locality located,
and vicinity with reference of old trees, there is no doubt that the object of the sale is
determinable. xCarabeo v. Dingco, 647 SCRA 200 (2011).

b. Quantity of Goods Not Essential for Perfection? (Art. 1349)


Sale of grains is perfected even when the exact quantity or quality is not known, so long as
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c. Undivided Interest (Art. 1463), Undivided Share in a Mass of Fungible Goods (Art. 1464)
May Result In Co-ownership

5. Sellers Obligation to Transfer Title to Buyer (Art. 1459, 1462, and 1505)
a. Seller Need Not Be the Owner at the Time of Perfection
A perfected sale cannot be challenged on the ground of the sellers non-ownership of the
thing sold at the time of the perfection; it is at delivery that the law requires the seller to have
the ownership of the thing sold. xAlcantara-Daus v. de Leon, 404 SCRA 74 (2003).32
BUT SEE: It is essential that seller is owner of the property he is selling. The principal
obligation of a seller is to transfer the ownership of the property sold (Art. 1458). This law
stems from the principle that nobody can dispose of that which does not belong to him. NEMO
DAT QUOD NON HABET. xNoel v. Court of Appeals, 240 SCRA 78 (1995).33
THEN SEE: Although it appears that seller is not owner of the goods at perfection is one of
the void contracts enumerated in Art. 1409, and Art. 1402 recognizes a sale where the goods
are to be acquired by the seller after the perfection of the contract of sale, clearly implying
that a sale is possible even if seller was not the owner at time of sale, nevertheless such
contract may be deemed to be inoperative and falls, by analogy, under Art. 1409(5): Those
which contemplate an impossible service. xNool v. Court of Appeals, 276 SCRA 149 (1997).
NOW SEE: Seller and buyer must agree as to the certain thing that will be subject of the
sale, as well as the price in which the thing will be sold. The thing to be sold is the object of the
contract, while the price is the cause or consideration. The object of a valid sale must be
owned by the seller, or seller must be authorized by the owner to sell the object; otherwise,
sale is null and void. xCabrera v. Ysaac, 740 SCRA 612 (2014).

b. Subsequent Acquisition of Title by Non-Owner Seller Title Passes to Buyer by


Operation of Law (Art. 1434)
c. Acquisition by the Buyer May Even Depend on Contingency (Art. 1462)

X6. Illegality of Subject Matter (Arts. 1409, 1458, 1461, 1462, and 1575)
a. Special Laws: narcotics (R.A. 6425); wild bird or mammal (Act 2590); rare wild plants (Act
3983); poisonous plants/fruits (R.A. 1288); dynamited fish (R.A 428); gunpowder and
explosives (Act 2255); firearms and ammunitions (P.D. 9); sale of realty by non-Christians
(Sec. 145, Revised Adm. Code, R.A. 4252)
b. Following Sales of Land Void:
By Non-Christian if not approved by Provincial Governor per Sec. 145 of Revised
Administrative Code. xTac-an v. Court of Appeals, 129 SCRA 319 (1984).
Friar land without consent of Secretary of Agriculture required under Act No. 1120. xAlonso v.
Cebu Country Club, 375 SCRA 390 (2002); xLiao v. CA, 323 SCRA 430 (2000).
Made in violation of land reform laws declaring tenant-tillers as the full owners of the lands
they tilled. xSiacor v. Gigantana, 380 SCRA 306 (2002).
Reclaimed lands are of the public domain and cannot, without congressional fiat, be sold,
public or private. xFisheries Dev. Authority v. CA, 534 SCRA 490 (2007).
Alien who purchases land in the name of his Filipina lover, has no standing to recover the
property or the purchase price paid, since the transaction is void ab initio for being in violation
of the constitutional prohibition. xFrenzel v. Catito, 406 SCRA 55 (2003).

IV. PRICE AND OTHER CONSIDERATION (Arts. 1469-1474)


Price signifies the sum stipulated as the equivalent of the thing sold and also every incident
taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him.
xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911).
Under the doctrine of obligatory force, seller cannot unilaterally increase the price previously
agreed upon with the buyer, even when due to increased construction costs. xGSIS v. Court of
Appeals, 228 SCRA 183 (1993).
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assert that mere prompt payment of the monthly installments should obviate imposition of the
stipulated interest is to ignore an economic fact and negate one of the most important principles on
which commerce operates. Bortikey v. AFP-RSBS, 477 SCRA 511 (2005).

1. Price Must Be Real (Art. 1471)


a. When Price Is Simulated
(1) Mapalo v. Mapalo, 17 SCRA 114 (1966), versus: When two old ladies, not versed in
English, sign a Deed of Sale on representation by buyer that it was merely to evidence
their lending of money, the situation constitutes more than just fraud and vitiation of
consent to give rise to a voidable contract, since there was in fact no intention to enter
into a sale, there was no consent at all, and more importantly, there was no consideration
or price agreed upon, which makes the contract void ab initio. Rongavilla v. CA, 294
SCRA 289 (1998).
(2) Mate v. Court of Appeals, 290 SCRA 463 (1998), versus: When Deed of Sale was
executed to facilitate transfer of property to buyer to enable him to construct a commercial
building and to sell the property to the children, such arrangement being merely a
subterfuge on the part of buyer, the agreement cannot also be taken as a consideration
and sale is void. Yu Bun Guan v. Ong, 367 SCRA 559 (2001).
(3) Effects When Price Simulated The principle of in pari delicto nonoritur action denies
all recovery to the guilty parties inter se, where the price is simulated; the doctrine applies
only where the nullity arises from the illegality of the consideration or the purpose of the
contract. Modina v. Court of Appeals, 317 SCRA 696 (1999).34

b. When Price Is False (Arts. 1353 and 1354)


When the parties intended to be bound by the sale, but the deed did not reflect the actual
price agreed upon, there is only a relative simulation of the contract which remains valid and
enforceable, but subject to reformation. xMacapgal v. Remorin, 458 SCRA 652 (2005).
When price indicated in deed of absolute sale is undervalued pursuant to intention to avoid
payment of higher capital gains taxes, the price stated is false, but the sale is still valid and
binding on the real terms agreed upon. xHeirs of Spouses Balite v. Lim, 446 SCRA 54 (2004).

c. Effect of Non-Payment of Price


Sale being consensual, failure of buyer to pay the price does not make the contract void for
lack of consideration or simulation, but results in buyers default, for which seller may exercise
his legal remedies. xBalatbat v. Court of Appeals, 261 SCRA 128 (1996).35
In a contract of sale, the non-payment of the price is a resolutory condition which
extinguishes the transaction that, for a time, existed and discharges the obligations created
thereunder. [?] The remedy of an unpaid seller in a contract of sale is to seek either specific
performance or rescission. xHeirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997).36
Badge That Price Simulated, Not Just Unpaid: It is a badge of simulated price, which
render the sale void, when price is expressly stipulated to have been paid, but in fact never
been paid by the buyer to the seller. xVda. de Catindig. v. Heirs of Catalina Roque, 74 SCRA
83 (1976).37

2. Price Must Be in Money or Its Equivalent (Arts. 1458 and 1468)


Price must be valuable consideration as mandated by Civil Law, instead of any price
mandated in Common Law. Ong v. Ong, 139 SCRA 133 (1985); Bagnas v. CA, 176 SCRA
159 (1989).
Consideration for a valid contract of sale need not be money or its equivalent,Republic v.
Phil. Resources Dev., 102 Phil. 960 (1958); and can take different forms, such as the prestation
or promise of a thing or service by another, such as when the consideration is:
The expected profits from the subdivision project. xTorres v. CA, 320 SCRA 428 (1999).
The cancellation of liabilities on the property in favor of the seller. xPolytechnic University v.
Court of Appeals, 368 SCRA 691 (2001).
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The assumption of mortgage constituted on property sold. xDoles v. Angeles, 492 SCRA 607
(2006).38

3. Price Must Be Certain or Ascertainable at Perfection (Art. 1469)


a. Price Is Ascertainable When:
(1) Set by Third Person Appointed at Perfection (Art. 1469)
(2) Set by the Courts (Art. 1469)
(3) By Reference to a Definite Day, Particular Exchange or Market (Art. 1472)
(4) By Reference to Another Thing Certain, such as to invoices then in existence and
clearly identified by the agreement xMcCullough v. Aenlle, 3 Phil. 285 (1904); or based on
known factors or stipulated formula. xMitsui v. Manila, 39 Phil. 624 (1919).
Price is ascertainable if the terms of the contract furnishes the courts a basis or measure
for determining the amount agreed upon, without having to refer back to either or both parties.
Villanueva v. Court of Appeals, 267 SCRA 89 (1997).39
However, where the sale involves an asset under a privatization scheme which attaches a
peculiar meaning or signification to the term indicative price as merely constituting a ball-park
figure, then the price is not certain. xMoreno, Jr. v. PMO, 507 SCRA 63 (2006).
Price or consideration is generally agreed upon as whole even if it consists of several parts,
and even if it is contained in one or more instruments; otherwise there would be no price
certain, and the contract of sale not perfected. xArimas v. Arimas, 55 O.G. 8682.

b. Price Can Never Set By One or Both Parties After Alleged Perfection, Unless Such Price
Is Separately Accepted by the Other Party. (Arts. 1473, 1182)

c. Effects When Price Is Neither Certain or Ascertainable: Sale Is Inefficacious


BUT: If Buyer Appropriates the Object, He Must Pay a Reasonable Price (Art. 1474)
No Appropriation When It Comes to Land? Where a church organization has been
allowed possession and introduced improvements on the land as part of its application to
purchase with the NHA, and thereafter it refused the formal resolution of the NHA Board
setting the price and insisted on paying the lower price allegedly given by the NHA Field
Office, there can be no binding contract of sale upon which an action for specific performance
can prosper, not even on fixing the price equal to the fair market value of the property. NHA v.
Grace Baptist Church, 424 SCRA 147 (2004).
Even when there was no meeting on the minds of the price, yet to deny petitioners claim
would unjustly enrich respondent who had benefited from the repairs of their four elevators.
Hyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex Assn.,
636 SCRA 401 (2010).

4. Manner of Payment of Price IS ESSENTIAL (Art. 1179)


A definite agreement on the manner of payment of price is an essential element in the
formation of a binding and enforceable contract sale; without which the sale is void and an action
for specific performance must fail. Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007).40
When the manner of payment of the price is discussed after acceptance, then such
acceptance did not produce a binding and enforceable contract of sale. xNavarro v. Sugar
Producers Corp., 1 SCRA 1180 (1961).
Where there is no other basis for the payment of the subsequent amortizations in a Deed of
Conditional Sale, the reasonable conclusion is that the subsequent payments shall be made in
the same amount as the first payment. [?] xDBP v. Court of Appeals, 344 SCRA 492 (2000).

5. Inadequacy of Price (Arts. 1355 and 1470)


a. Simple Inadequacy of Price Does Not Affect Ordinary Sales Mere inadequacy of the
price does not affect the validity of the sale when both parties are in a position to form an
independent judgment concerning the transaction, unless fraud, mistake, or undue influence
indicative of a defect in consent is present. The contract may be annulled for vitiated consent
and not due to the inadequacy of price. xBautista v. CA, 436 SCRA 141 (2004).41
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(1) Raise the Presumption of Equitable Mortgage in an Ordinary Sale (Art. 1602)
(2) Render Voidable a Judicial Sale: (i) Only when it is shocking to the conscience of
man. xPascua v. Simeon, 161 SCRA 1 (1988); and (ii) There is showing that, in the
event of a resale, a better price can be obtained. xCu Bie v. CA, 15 SCRA 307 (1965).42
UNLESS: There is right of redemption, in which case the proper remedy is to redeem.
xDe Leon v. Salvador, 36 SCRA 567 (1970).43
HOWEVER: By way of extraordinary circumstances perceived, when in a judicial sale the
right of redemption has been lost, where the inadequacy of the price is purely shocking
to the conscience, such that the mind revolts at it and such that a reasonable man would
neither directly or indirectly be likely to consent to it, the same will be se aside. xCometa
v. Court of Appeals, 351 SCRA 294 (2001).
(3) Render Rescissible a Sale by Fiduciary, where Beneficiary suffers lesion of more
than 1/4 of value of thing sold, unless approved by the courts (Arts. 1381and1386)
There can be no legal conclusion of inadequacy of price in the absence of any evidence of
the fair market value of a land at the time of sale. xAcabal v. Acabal, 454 SCRA 897 (2005).44
There is gross inadequacy in price if it is such that a reasonable man will not agree to
dispose of his property. xDorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).
When judicial sale is voided without fault of purchaser, latter is entitled return of price with
simple interest, together with all sums paid out in improvements introduced on the property,
taxes, and other expenses. xSeven Brothers Shipping Corp. v. CA, 246 SCRA 33 (1995).

V. FORMATION OF THE CONTRACT OF SALE

A. POLICITACION STAGE (Art. 1479)


Policitation stage covers the doctrine of Freedom to contract which signifies the right to choose
with whom to contract. A property owner is free to offer his property for sale to any interested
person, and is not duty bound to sell the same to the occupant thereof, absent any prior agreement
vesting the occupants the right of first priority to buy. xGabelo v. CA, 316 SCRA 386 (1999).
Negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to
the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the
offer may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert
the offer into a contract, the acceptance must be absolute and must not qualify the terms of the offer;
it must be plain, unequivocal, unconditional and without variance of any sort from the proposal.
Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).45
Where the offer is given with a stated time for its acceptance, the offer is terminated at the
expiration of that time. xVillegas v. CA, 499 SCRA 276 (2006).
Letter of Intent to Buy and Sell is just thata manifestation of offerors intention to sell the
property and offerees intention to acquire the samewhich is neither a contract to sell nor a
conditional contract of sale. xMuslim and Christian Urban Poor Assn. v. BRYC-V Devt Corp., 594
SCRA 724 (2009).
When the offeree negotiates for a much lower price, it constitutes a counter-offer and is therefor
not an acceptance of the offer of offeror. xTuazon v. Del Rosario-Suarez, 637 SCRA 728 (2010).

1. OPTION CONTRACT
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. It is a
separate agreement distinct from the contract of sale which the parties may enter into upon the
consummation of the option. Carceller v. Court of Appeals, 302 SCRA 718 (1999).46
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An option imposes no binding obligation on the person holding the option aside from the
consideration for the offer. Until accepted (exercised), it is not treated as a sale. Tayag v.
Lacson, 426 SCRA 282 (2004).47

a. Meaning of Separate Consideration (Arts. 1479 and 1324) A unilateral promise to sell,
in order to be binding upon the promissor, must be for a price certain and supported by a
consideration separate from such price. xSalame v. CA, 239 SCRA 356 (1995).48
Separate consideration in an option may be anything of value, unlike in sale where it must
be the price certain in money or its equivalent. Villamor v. CA, 202 SCRA 607 (1991),49 such
when the option is attached to real estate mortgage xSoriano v. Bautista, 6 SCRA 946 (1962).
Although no consideration is expressly mentioned in an option, it may be proved, and once
proven, option is binding. xMontinola v. Cojuangco, 78 Phil. 481 (1947).

b. Option With No Separate Consideration: Void as Option, Valid as a Certain Offer He


who draws first wins. Sanchez v. Rigos, 45 SCRA 368 (1972).50
BUT SEE: Nothing Arises From an Option Without Separate Consideration. xYao Ka Sin
Trading v. Court of Appeals, 209 SCRA 763 (1991).51
If the option is without any consideration, the offeror may withdraw his offer by
communicating such withdrawal to the offeree at any time before acceptance. If it is founded
upon a consideration, the offeror cannot withdraw his offer before the lapse of the period
agreed upon. Tuazon v. Del Rosario-Suarez, 637 SCRA 728 (2010).
c. The Double Acceptance Rule An option to rise to the level of a contract, there must be
formal acceptance of the option offer. Vazquez v. CA, 199 SCRA 102 (1991).
d. Exercise of Option Contract In an option to buy, oitonee-offeree may validly and effectively
exercise his right by merely advising the optioner-offeror of his decision to buy and expressing
his readiness to pay the stipulated price as soon as the seller is able to execute the proper
deed of sale; thus, notice of the optionee-offerees decision to exercise his option to buy need
not be couple with actual payment of the price. Nietes v. CA, 46 SCRA 654 (1972).
An option attached to a lease when not exercised within the option period is extinguished
and cannot be deemed to have been included in the implied renewal of the lease (tacita
reconduccion). xDizon v. CA, 302 SCRA 288 (1999). BUT SEE: There may be virtual exercise
of option with the option period. Carceller v. Court of Appeals, 302 SCRA 718 (1999).
Proper exercise of an option gives rise to the reciprocal obligations of sale xHeirs of Luis
Bacus v. CA, 371 SCRA 295 (2001),52 which must be enforced with ten (10) years as provided
under Art. 1144. xDizon v. CA, 302 SCRA 288 (1999).

2. RIGHT OF FIRST REFUSAL


A right of first refusal cannot be the subject of specific performance, but breach on the part of
the promissor would allow a recovery of damages. xGuerrero v. Yigo, 96 Phil. 37 (1954).
Rights of first refusal only constitute innovative juridical relations, but do not rise to the level
of contractual commitment since with the absence of agreement on price certain, they are not
subject to contractual enforcement. Ang Yu Asuncion v. CA, 238 SCRA 602 (1994).
Right of first refusal contained in a Contract of Lease, when breached by promissor allows
enforcement by the promisee by way of rescission of the sale entered into with the third party,
pursuant to Arts. 1381(3) and 1385 of Civil Code. xGuzman, Bocaling & Co. v. Bonnevie, 206
SCRA 668 (1992), Equatorial Realty Dev. v. Mayfair Theater, 264 SCRA 483 (1996);53
Paraaque Kings Enterprises v. Court of Appeals, 268 SCRA 727 (1997);
BUT: Not against a purchaser for value and in good faith. Rosencor Dev. Corp. v. Inquing,
354 SCRA 119 (2001).
A right of first refusal in a lease in favor of the lessee cannot be availed of by the sublessee.
xSadhwani v. Court of Appeals, 281 SCRA 75 (1997).
In a right of first refusal, while the object might be made determinate, the exercise of the right
would be dependent not only on the grantors eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that are yet to be firmed up. . . the
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offer may be withdrawn anytime by communicating the withdrawal to the other party. Vasquez
v. Ayala Corp., 443 SCRA 231 (2004).
A right of first refusal simply means that should lessor decide to sell the leased property during
the term of the lease, such sale should first be offered to the lessee; and the series of
negotiations that transpire between the lessor and the lessee on the basis of such preference is
deemed a compliance of such clause even when no final purchase agreement is perfected
between the parties. The lessor was then at liberty to offer the sale to a third party who paid a
higher price, and there is no violation of the right of the lessee. Riviera Filipina, Inv. v. CA, 380
SCRA 245 (2002).54
Right of first refusal applies to a case where the owner of the property intends to sell it to a
third party, and does not apply to this situation where the owner to eject the tenant on the ground
that the former needs the premises for residential purposes. xEstanislao v. Gudito, 693 SCRA
330 (2013).

3. MUTUAL PROMISES TO BUY AND SELL (Art. 1479): TRUE CONTRACT TO SELL
Mutual promises to buy and sell a certain thing for a certain price gives parties a right to
demand from the other the fulfillment of the obligation, xBorromeo v. Franco, 5 Phil. 49 (1905);
even in this case the certainty of the price must also exist, otherwise, there is no valid and
enforceable contract to sell, xTan Tiah v. Yu Jose, 67 Phil. 739 (1939).
An accepted bilateral promise to buy and sell is in a sense similar to, but not exactly the same,
as a perfected contract of sale because there is already a meeting of minds upon the thing which
is the object of the contract and upon the price.55 But a contract of sale is consummated only
upon delivery and payment, whereas in a bilateral promise to buy and sell gives the contracting
parties rights in personam, such that each has the right to demand from the other the fulfillment of
their respective undertakings. Macion v. Guiani, 225 SCRA 102 (1993).56
Cause of action under a mutual promise to buy and sell is 10 years. xVillamor v. Court of
Appeals, 202 SCRA 607 (1991).

B. PERFECTION STAGE OF SALE (Arts. 1475, 1319, 1325 and 1326)


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 law governing the form of contracts. xMarnelego v. Banco Filipino
Savings and Mortgage Bank, 480 SCRA 399 (2006).57
Mutual consent being a state of mind, its existence may only be inferred from the confluence of
two acts of the parties: an offer certain as to the object of the contract and its consideration, and an
acceptance of the offer which is absolute in that it refers to the exact object and consideration
embodied in said offer. xVillanueva v. PNB, 510 SCRA 275 (2006).58
If a material element of a contemplated contract is left for future negotiations, the same is too
indefinite to be enforceable. For a contract to be enforceable, its terms must be certain and explicit,
not vague or indefinite. xBoston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).59

1. Absolute Acceptance of a Certain Offer (Art. 1475)


Under Article 1319, the acceptance of an offer must therefore be unqualified and absolute. In
other words, it must be identical in all respects with that of the offer so as to produce consent or
meeting of the minds. Here, petitioners acceptance of the offer was qualified, which amounts to a
rejection of the original offer. Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).60
Placing the word Noted and signing below such word at the bottom of the written offer is not
an absolute acceptance that would give rise to a valid sale. xDBP v. Ong, 460 SCRA 170 (2005).
Subject to Suspensive Condition: There is no perfected sale of a lot where award thereof was
made subject to approval by the higher authorities and there eventually was no acceptance
manifested by the supposed awardee. xPeople's Homesite. v. CA, 133 SCRA 777 (1984).

2. When Deviation Allowed


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 is
positively and unequivocally to accept the offer, whether such request is granted or not, a
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contract is formed. Vendors change in a phrase of the offer to purchase which do not essentially
change the terms of the offer, does not amount to a rejection of the offer and the tender or a
counter-offer. Villonco v. Bormaheco, 65 SCRA 352 (1975).61

3. Sale by Auction (Arts. 1476, 1403(2)(d), 1326)


Owners terms and conditions for the sale of property under auction are binding on all bidders,
whether or not they knew of them. xLeoquinco v. Postal Savings Bank, 47 Phil. 772 (1925).
An auction sale is perfected by the fall of the hammer or in other customary manner and it
does not matter that another was allowed to match the bid of the highest bidder. xProvince of
Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).

4. Earnest Money (Art. 1482)


Earnest money given by the buyer shall be considered as part of the price and as proof of the
perfection of the contract. It constitutes an advance payment to be deducted from the total price.
xEscueta v. Lim, 512 SCRA 411 (2007).
In a potential sale transaction, prior payment of earnest money even before the owner can
agree to sell his property is irregular, and cannot be used to bind the owner to the obligations of a
seller under an otherwise perfected contract of sale. Property owner/prospective seller may not
be legally obliged to enter into a sale with a prospective buyer through the latter's employment of
questionable practices which prevent the owner from freely giving his consent to the transaction.
First Optima Realty Corp. v. Securitron Security Services, 748 SCRA 534 (2015).62
Article 1482 does not apply when earnest money given in a contract to sell xSerrano v.
Caguiat, 517 SCRA 57 (2007), especially where by stipulation the buyer has the right to walk
away from the transaction, with no obligation to pay the balance, although he will forfeit the
earnest money. xChua v. Court of Appeals, 401 SCRA 54 (2003).63
When there is no provision for forfeiture of earnest money in the the sale fails to materialize,
then with the rescission it becomes incumbent upon seller to return the earnest money as legal
consequence of mutual restitution. xGoldenrod, Inc. v. CA, 299 SCRA 141 (1998).
Where parties merely exchanged offers and counter-offers, there being no perfection of a
contract of sale yet, money given as deposit cannot be considered earnest money since such
term applies only to a perfected sale. xStarbright Sales Enterprises v. Philippine Realty Corp.,
663 SCRA 326 (2012).

5. Differences Between Earnest Money and Option Money. Oesmer v. Paraiso Dev. Corp.,
514 SCRA 228 (2007).
6. Sale Deemed Perfected at the Place Where Offer Was Made (Art. 1319)

C. FORMAL REQUIREMENTS FOR CONTRACTS OF SALE


(Arts. 1357, 1358(1), 1406 and 1483)
1. Form Not Important for Validity of Sale, Which Is Consensual in Character
Sale of land under private instrument is enforceable. xGallar v. Husain, 20 SCRA 186 (1967).64
Articles 1357 and 1358, in relation to Art. 1403(2), do not require that the conveyance of land
to be in a public instrument in order to validate the act or contract, but only to ensure its efficacy.
xEstate of Pedro C. Gonzales v. Heirs of Marcos Perez, 605 SCRA 47 (2009).65
The legal consequence of the sale not being in a public instrument is that both its due
execution and its authenticity must be proven, pursuant to Sec. 20, Rule 132 of the Rules of
Court. xTigno v. Aquino, 444 SCRA 61 (2003).

a. Other Rulings on Deeds of Sale:


Seller may validly agree to a deed of absolute sale before full payment of the purchase price.
xPan Pacific Industrial Sales Co. v. Court of Appeals, 482 SCRA 164 (2006).
Failure of the buyers failed to pay the full price stated in the Deed of Sale would not render the
sale void. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).
That marital consent executed prior to the Deed of Absolute Sale does not indicate that it is a
phoney. xPan Pacific Industrial Sales Co. v. Court of Appeals, 482 SCRA 164 (2006).
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A notarized Deed of Sale enjoys the presumption of regularity and due execution; to overthrow
that presumption, sufficient, clear and convincing evidence is required, otherwise the document
should be upheld. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).66
Notarization of Deeds of Sale by one who was not a notary public does not affect the validity
thereof; the documents merely remained private documents. xR.F. Navarro & Co. v. Vailoces,
361 SCRA 139 (2001).
Notarization does not guarantee a Deed of Sales validity nor the veracity of its contents, for it is
not the function of the notary public to validate an instrument that was never intended by the
parties to have any binding legal effect. xSalonga v. Concepcion, 470 SCRA 291 (2005).67
Buyers immediate taking of possession of subject property corroborates the truthfulness and
authenticity of the deed of sale. xAlcos v. IAC, 162 SCRA 823 (1988); conversely, the sellers
continued possession of the property makes dubious the contract of sale between them.
xSantos v. Santos, 366 SCRA 395 (2001).68
Any substantial difference between the terms of the Contract to Sell and the concomitant Deed
of Absolute Sale (such as difference in subject matter, in price and/or the terms thereof), does
not make the transaction between the seller and the buyer void, for it is truism that the execution
of the Deed of Absolute Sale effectively rendered the previous Contract to Sell ineffective and
cancelled [through the process of novation]. xLumbres v. Talbrad, Jr., 516 SCRA 575 (2007).

2. HOW FORM IS IMPORTANT IN CONTRACTS OF SALE


a. To Bind Third Parties Article 1358, which requires the embodiment of certain contracts in a
public instrument, is only for convenience, and registration of the instrument only adversely
affects third parties. Formal requirements are, therefore, for the benefit of third parties; and
non-compliance therewith does not adversely affect the validity of the contract and the rights
and obligations of the parties thereunder. Dalion v. CA, 182 SCRA 872 (1990).69
While sale of land appearing in a private deed is binding between the parties, it cannot be
considered binding on third persons, if it is not embodied in a public instrument and recorded
in the Registry of Deeds. Secuya v. Vda. De Selma, 326 SCRA 244 (2000).70

b. For Enforceability Between the Parties: STATUTE OF FRAUDS (Arts. 1403 and 1405)
The term Statute of Frauds is descriptive of the statutes which require certain enumerated
contracts and transactions, such as agreements for the sale of real property, to be in writing
and signed by the party to be charged, the purpose being to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the unassisted memory of
witnesses. xShoemaker v. La Tondea, 68 Phil. 24 (1939).
Presupposes Valid Contract of Sale: Application of the Statute of Frauds presupposes the
existence of a perfected contract; otherwise, there is no basis to apply the Statute. xFirme v.
Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).71
(1) Coverage:
(i) Sale of Real Property Cannot be proven by means of witnesses, but must necessarily be
evidenced by a written instrument, duly subscribed by party charged, or by secondary
evidence of the contents of such document. xGorospe v. Ilayat, 29 Phil. 21 (1914).72
(ii) Agency to Sell or to Buy As contrasted from sale, agency to sell does not belong to any
of the categories of contracts covered by Arts. 1357 and 1358 and not one enumerated
under the Statutes of Frauds in Art. 1403. xLim v. CA, 254 SCRA 170 (1996).73
(iii) Rights of First Refusal Are not covered since Art. 1403(2)(e) presupposes the existence
of a perfected, albeit unwritten, contract of sale; a right of first refusal, is not by any means
a perfected sale. xRosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001).
(iv) Right to Repurchase Deed and verbal agreement allowing the right of repurchase should
be considered as an integral whole; the deed of sale is itself the note or memorandum
evidencing the contract. xMactan Cebu Intl Airport Authority v. CA, 263 SCRA 736 (1996).
(v) Equitable Mortgage Statute does not stand in the way of treating an absolute deed as a
mortgage, when such was the parties intention, although the agreement for redemption or
defeasance is proved by parol evidence. xCuyugan v. Santos, 34 Phil. 100 (1916).74

66
Yason v. Arciaga, 449 SCRA 458 (2005); Union Bank v. Ong, 491 SCRA 581 (2006); Tapuroc v. Loquellano Vda. De Mende, 512 SCRA
97 (2007); Alfaro v. CA, 519 SCRA 270 (2007); Santos v. Lumbao, 519 SCRA 408 (2007); Pedrano v. Heirs of Benedicto Pedrano, 539
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(2) Requisite of Memorandum For the memorandum to take the sale out of the coverage
of the Statute of Frauds, it must contain all the essential terms of the contract of sale.
Yuviengco v. Dacuycuy, 104 SCRA 668 (1981);75 even when scattered into various
correspondences which can be brought together, xCity of Cebu v. Heirs of Candido Rubi,
306 SCRA 408 (1999).76
EXCEPTION: Electronic Documents under the E-COMMERCE ACT (R.A. 8792)
(3) Waiver (Art. 1405) Cross-examination on the contract is deemed a waiver of the
defense of the Statute. xAbrenica v. Gonda, 34 Phil. 739 (1916).77
(4) Partial Execution (Art. 1405). Ortega v. Leonardo, 103 Phil. 870 (1958).
Claudel v. Court of Appeals, 199 SCRA 113 (1991).
Statute of Frauds does not apply to contracts either partially or totally performed. In
addition, a contract that violates the Statute of Frauds is ratified by the acceptance of benefits
under the contract, such as the acceptance of the purchase price and using the proceeds to
pay outstanding loans. Alfredo v. Borras, 404 SCRA 145 (2003).78
Delivery of the deed to buyers agent, with no intention to part with the title until the
purchase price is paid, does not take the case out of the Statute of Frauds. xBaretto v. Manila
Railroad Co., 46 Phil. 964 (1924).
Probative Value of Commercial Documents: Business forms, e.g., order slip, delivery
invoice, issued in the ordinary course of business are not always fully accomplished to contain
all the necessary information describing in detail the whole business transaction; despite their
being incomplete, they are commonly recognized in ordinary commercial transactions as valid
between the parties and serve as an acknowledgment that a business transaction has in fact
transpired. xDonato C. Cruz Trading Corp. v. CA, 347 SCRA 13 (2000).79
A sales invoice is a commercial document (i.e., those used by merchants or businessmen
to promote or facilitate trade or credit transactions) which is not a mere scrap of paper bereft
of probative value, but vital piece of evidence of commercial transactions, written memorials of
the details of the consummation of contracts. xSeaoil Petroleum Corp. v. Autocorp Group, 569
SCRA 387 (2008); it constitutes evidence of the receipt of the goods; since the best evidence
to prove payment is the official receipt. xEl Oro Engravers Corp. v. CA, 546 SCRA 42 (2008).
In itself, the absence of receipts, or any proof of consideration, would not be conclusive of
the inexistence of a sale since consideration is always presumed. xTigno v. Aquino, 444
SCRA 61 (2003); but a receipt proves payment which takes the sale out of the Statute of
Frauds. Toyota Shaw v. Court of Appeals, 244 SCRA 320 (1995).80
CONTRA: A receipt which is merely an acknowledgment of the sum received, without any
indication therein of the total purchase price of the land or of the monthly installments to be
paid, cannot be the basis of valid sale. xLeabres v. Court of Appeals, 146 SCRA 158 (1986).81

c. For Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874)
When 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,82 even when:
Agent is the owners son. xDelos Reyes v. Court of Appeals, 313 SCRA 632 (1999).
83
There is partial payment of price received by agent. xDizon v. CA, 396 SCRA 154 (2003).
Seller is a corporation. xCity-Lite Realty Corp. v. Court of Appeals, 325 SCRA 385 (2000).84
When the Contract to Sell was signed by the co-owners themselves as witnesses, the
written authority for their agent mandated under Article 1874 of the Civil Code is no longer
required. xOesmer v. Paraiso Dev. Corp., 514 SCRA 228, 237 (2007).
Art. 1874 should be interpreted to mean that the sale is unenforceable to the principal, who
may otherwise ratify it. Pahud v. Court of Appeals, 597 SCRA13 (2009).85

d. Sale of Large Cattle (Art. 1581; Sec. 529, Revised Adm. Code)

75
Paredes v. Espino, 22 SCRA 1000 (1968); Torcuator v. Bernabe, 459 SCRA 439 (2005).
76
Berg v. Magdalena Estate, 92 Phil. 110 (1952); Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); First Philippine Intl Bank v. CA, 252
SCRA 259 (1996).
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XD. SIMULATED SALES
Characteristic of simulation is that the apparent contract is not really desired or intended to
produce legal effect or in any way alter the parties juridical situation, or that the parties have no
intention to be bound by the contract. The requisites are: (a) an outward declaration of will different
from the will of the parties; (b) false appearance must have been intended by mutual agreement; and
(c) purpose is to deceive third persons. xManila Banking Corp. v. Silverio, 466 SCRA 438 (2005).86

1. Badges of Simulation:
Non-payment of the stipulated consideration, absence of any attempt by the buyers to assert their
alleged rights over the subject property. xVillaflor v. CA, 280 SCRA 297 (1997).87
Failure of alleged buyers to collect rentals from alleged seller. xSantiago v. CA, 278 SCRA 98
(1997); but not when there appears a legitimate lessor-lessee relationship between the vendee and
the vendor. xUnion Bank v. Ong, 491 SCRA 581 (2006).
Although agreement did not provide for absolute transfer ownership of the land to buyer, that did
not amount to simulation, since delivery of TCT and execution of deed of absolute sale were
expressly stipulated as suspensive conditions, which gave rise to the corresponding obligation on
part of buyer to pay the last installments. xVillaflor v. CA, 280 SCRA 297 (1997).
When signature on a deed of sale is a forgery, Fidel v. CA, 559 SCRA 186 (2008); but bare
assertions that the signature appearing on the Deeds of Sale is not enough to allege simulation,
since forgery is not presumed; it must be proven by clear, positive and convincing evidence. xR.F.
Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).
Simulation of contract and gross inadequacy of price are distinct legal concepts, with different
effects the concept of a simulated sale is incompatible with inadequacy of price. When the
contracting parties do not really intend to be bound by it, the contract is simulated and void. Gross
inadequacy of price by itself will not result in a void contract, and it does not even affect the validity
of a contract of sale, unless it signifies a defect in the consent or that the parties actually intended a
donation or some other contract. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

2. When Motive Nullifies the Sale In sale, consideration is, as a rule, different from the motive
of parties, and when the primary motive is illegal, such as when the sale was executed over a
land to illegally frustrate a person's right to inheritance and to avoid payment of estate tax, the
sale is void because illegal motive predetermined purpose of the contract. xOlegario v. CA, 238
SCRA 96 (1994).88
Where the parties to a contract of sale agreed to a consideration, but the amount reflected in
the final Deed of Sale was lower, their motivation being to pay lower taxes on the transaction, the
contract of sale remains valid and enforceable upon the terms of the real consideration. Although
illegal, the motives neither determine nor take the place of the consideration. xHeirs of Spouses
Balite v. Lim, 446 SCRA 54 (2004).

3. Remedies Allowed When Sale Simulated When a contract of sale is void, the right to set up
its nullity or non-existence is available to third persons whose interests are directly affected
thereby. Likewise, the remedy of accion pauliana is available when the subject matter is a
conveyance, otherwise valid, undertaken in fraud of creditors. xManila Banking Corp. v. Silverio,
466 SCRA 438 (2005).
The rescissory action to set aside contracts in fraud of creditors is accion pauliana, a
subsidiary remedy accorded under Article 1383 which the party suffering damage can avail of
only when he has no other legal means to obtain reparation for the same. xUnion Bank v. Ong,
491 SCRA 581 (2006).

4. Effects When Sale Declared Void:


Action for the declaration of the contracts nullity is imprescriptiblean action for reconveyance of
property on a void contract of sale does not prescribe. xFil-Estate Golf and Dev. v. Navarro, 526
SCRA 51 (2007); xCampos v. Pastrana, 608 SCRA 55 (2009).
Possessor is entitled to keep the fruits during the period for which the buyer held the property in
good faith. xDBP v. Court of Appeals, 316 SCRA 650 (1999).
Restoration of what has been given is in order. xDe los Reyes v. CA, 313 SCRA 632 (1999);
xHeirs of Ignacia Aguilar-Reyes v. Mijares, 410 SCRA 97 (2003).
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VI. CONSUMMATION (Arts. 1493-1506)
PERFORMANCE OF CONTRACT OF SALE (Arts. 1536-1544, 1582-1590)

A. OBLIGATIONS OF SELLER
1. Preserve with Due Diligence the Subject Matter (Art. 1163)
2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537)
3. DELIVER THE SUBJECT MATTER (Art. 1477)
a. Legal Premises for Tradition Doctrines to Come Into Play
(i) Nemo Potest Nisi Quod De Jure Potest No man can do anything except what he can do
lawfully. When the sale is void, even when there is delivery, no valid title over the subject
matter can be conveyed to the buyer. xTraders Royal Bank v. CA, 269 SCRA 15 (1997).89
(ii) Nemo Dat Quod Non Habet No man can give that which he does not have. Even when
the sale is valid, if the seller had no ownership over the subject matter at the time of delivery,
no valid title can pass in favor of the buyer. xTsai v. CA, 366 SCRA 324 (2001).90
A tax declaration by itself is not considered conclusive evidence of ownership; it is merely
an indicium of a claim of ownership. Daclag v. Macahilig, 560 SCRA 137 (2008); nevertheless,
when at delivery there is no proof that seller had ownership and propertys tax declaration was
in the name of another person, then there was no transfer of ownership by delivery. xHeirs of
Severina San Miguel v. CA, 364 SCRA 523 (2001).
Article 1459 on contracts of sale specifically requires that the vendor must have ownership
of the property at the time it is delivered; ownership need not be with the seller at the time of
perfection. xHeirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).
One can sell only what one owns or is authorized to sell, and the buyer can acquire no
more than what the seller can transfer legally. xDaclag v. Macahilig, 560 SCRA 137 (2008).
A contract to sell, or a conditional contract of sale where the suspensive condition has not
happened, even when found in a public document, cannot be treated as constituting
constructive delivery, especially when from the face of the instrument it is shown that the seller
was not yet the owner of the property and was only expecting to inherit it. xHeirs of Arturo
Reyes v. Socco-Beltran, 572 SCRA 211 (2008).

b. GENERAL DOCTRINES ON TRADITION, WHETHER ACTUAL OR CONSTRUCTIVE


(1) Meaning of Delivery (Art. 1477) Delivery contemplates the absolute giving up of the
control and custody of the property on the part of the vendor, and the assumption of the
same by the vendee. Non nudis pactis sed traditione dominia rerum transferantur. There is
delivery if and when the thing sold is placed in the control and possession of the vendee.
xEquatorial Realty Dev. v. Mayfair Theater, 370 SCRA 56 (2001).
Delivery in sales refers to the concurrent transfer of two things: (1) possession and (2)
ownership. If the vendee is placed in actual possession of the property, but by agreement of
the parties ownership of the same is retained by the vendor until the vendee has fully paid
the price, the mere transfer of the possession of the property subject of the sale is not the
delivery contemplated in the Law on Sales or as used in Art. 1543 of the Civil Code. xCebu
Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA 120 (2009).
(2) Relationship to the Price It may be stipulated that ownership in the thing shall not pass to
buyer until he has fully paid price (Art. 1478). CONSEQUENTLY:
Absence of an express stipulation to the contrary, payment of price of the goods is not a
condition precedent to the transfer of title to the buyer, but title passes by the delivery of
the goods. xPhil. Suburban Dev. Corp. v. Auditor General, 63 SCRA 397 (1975).91
Failure of buyer to make good the price does not cause the ownership to revest to the
seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Art.
1191. xBalatbat v. Court of Appeals, 261 SCRA 128 (1996).
(3) Tradition Per Se Transfers Ownership to the Buyer (Arts. 1477, 1478, and 1496) In
the absence of a stipulation to the contrary, tradition produces its natural legal effects, most
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In a contract of sale, title to the property sold passes to buyer upon delivery of thing
sold; seller loses ownership by delivery and cannot recover it until and unless contract is
resolved or rescinded by court process. David v. Misamis Occidental II Electric
Cooperative, 676 SCRA 367 (2012).
c. ACTUAL OR PHYSICAL DELIVERY (Art. 1497) Article 1477 recognizes that the ownership of
the thing sold shall be transferred to the vendee upon the actual or constructive delivery
thereof; related to this is Article 1497 which provides that [t]he thing sold shall be understood
as delivered when it is placed in the control and possession of the vendee. Santiago v.
Villamor, 686 SCRA 313 (2012).
It is not necessary that seller himself physically delivers title to the buyer because the thing
sold is understood as delivered when it is placed in control and possession of buyer. Thus,
when sellers themselves introduced the tenant to the buyer as the new owners of the land,
and from that time on the buyer acted as landlord thereof, there was delivery that transferred
title to the buyer. xAlfredo v. Borras, 404 SCRA 145 (2003).

d. CONSTRUCTIVE DELIVERY: EXECUTION OF A PUBLIC INSTRUMENT (Art. 1498) Where deed


of sale or any agreement analogous to a deed of sale, is made through a public instrument, its
execution is equivalent to the delivery of the property. xCaoibes, Jr. v. Caoibes-Pantoja, 496
SCRA 273 (2006).93
Under Art. 1498, the mere execution of the deed of conveyance in a public instrument is
equivalent to the delivery of the property, and that prior physical delivery or possession is not
legally required, since ownership and possession are two entirely different legal concepts.
Notwithstanding the presence of illegal occupants on the subject property, transfer of
ownership by symbolic delivery under Art. 1498 can still be effected through the execution of
the deed of conveyance. xSabio v. Intl Corporate Bank, 364 SCRA 385 (2001).
BUT SEE: There is nothing in Article 1498 that provides that execution of a deed of sale is a
conclusive presumption of delivery of possession; presumptive delivery can be negated by the
failure of buyer to take actual possession of the land or the continued enjoyment of possession
by the vendor. Santos v. Santos, 366 SCRA 395 (2001).94
As a general rule, when sale is made through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing which is the object of sale, if from the deed the
contrary does not appear or cannot clearly be inferred. In order the execution of a public
instrument to effect tradition, the purchaser must be placed in control of the thing sold. A
person who does not have actual possession of the thing sold cannot transfer constructive
possession by the execution and delivery of a public instrument. xAsset Privatization Trust v.
T.J. Enterprises, 587 SCRA 481 (2009).
A contract to sell, or a condition contract of sale where the suspensive condition has not
happened, even when found in a public document, cannot be treated as constituting
constructive delivery, especially when from the face of the instrument it is shown that the seller
was not yet the owner of the property and was only expecting to inherit it. Heirs of Arturo
Reyes v. Socco-Beltran, 572 SCRA 211 (2008).95
Issuance of an acknowledgment receipt of partial payment, when it is not a public
instrument does not convey title. xSan Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005).
(i) As to Movables (Arts. 1498-1499, 1513-1514) The effects of delivery on ownership can
be segregated from the delivery of possession. Dy, Jr. v. CA, 198 SCRA 826 (1991).
Where it is stipulated that deliveries must be made to the buyer or his duly authorized
representative named in the contracts, seller is under obligation to deliver in accordance with
such instructions. xLagon v. Hooven Comalco Industries, 349 SCRA 363 (2001).
Neither issuance of an invoice, which is not a document of title xP.T. Cerna Corp. v. CA,
221 SCRA 19 (1993),96 nor of the registration certificate of vehicle xUnion Motor Corp. v. CA,
361 SCRA 506 (2001),97 would constitute constructive delivery of the vehicle.
(ii) As to Immovables (Art. 1498) In case of immovables, when sale is made through a
public instrument, execution thereof shall be equivalent to delivery of the thing object of the
sale, if from the deed the contrary does not appear or cannot clearly be inferred.
xMunicipality of Victorias v. Court of Appeals, 149 SCRA 31 (1987);98 and that prior

93
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physical delivery or possession is not legally required since execution of the deed is
deemed equivalent to delivery. xManuel R. Dulay Enterprises v. CA, 225 SCRA 678 (1993);
PROVIDED THAT:
(a) Thing Sold Subject to Control of Seller, Addison v. Felix, 38 Phil. 404 (1918);
for a person who does not have actual possession or control of the thing sold
cannot transfer constructive possession by the execution and delivery of a public
instrument. xVillamar v. Mangaoil, 669 SCRA 426 (2012).99
and
(b) Such Control Should Remain within a Reasonable Period after Execution of
the instrument, Danguilan v. IAC, 168 SCRA 22 (1988).
EXCEPT: When Buyer Assumes Risks of Ownership and Possession. Power
Commercial and Industrial Corp. v. CA, 274 SCRA 597 (1997).100

Registration of Title Is Separate Mode from Execution of Public Instrument Recording of


the sale with the proper Registry of Deeds and transfer of the TCT in the name of the buyer
are necessary only to bind third parties. As between the seller and the buyer, transfer of
ownership takes effect upon the execution of a public instrument conveying the real estate.
Chua v. CA, 401 SCRA 54 (2003).
BUT SEE: Under Art. 1495, seller is obliged to transfer title over the property and deliver
the same to the vendee. Vive Eagle Land, v. CA, 444 SCRA 445 (2004).
Customary Steps in Selling Immovables Customarily, in the absence of a contrary
agreement, the submission by an individual seller to the buyer of the following papers would
complete a sale of real estate: (1) owners duplicate copy of the Torrens title; (2) signed deed
of absolute sale; (3) tax declaration; and (4) latest realty tax receipt. They buyer can retain
the amount for the capital gains tax and pay it upon authority of the seller, or the seller can
pay the tax, depending on the agreement of the parties. Chua v. Court of Appeals, 401
SCRA 54 (2003).
Execution of notarized deed of sale and the delivery of the owners duplicate copy of the
original certificate of title to the buyer is tantamount to constructive delivery of the object of
the sale. Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
(iii) As to Incorporeal Property (Arts. 1498 and 1501) In the sale of shares of stock,
delivery of a stock certificate is one of the essential requisites for the transfer of
ownership of the stocks purchased. Sellers failure to delivery the stock certificates
representing the shares of stock amounted to a substantial breach which gave rise to a
right to rescind the sale. Raquel-Santos v. CA, 592 SCRA 169 (2009).
e. Constitutum Possessorium (Art. 1500) A provision in the deed of sale granting to seller a
right to lease the subject matter of the sale is valid: possession is deemed to be constituted in
the vendee by virtue of this mode of tradition. xAmigo v. Teves, 96 Phil. 252 (1954).
f. Traditio Brevi Manu Prior to the sale, petitioners were in possession of the subject property
as lessees. Upon sale to them of the rights, interests and participation as to the portion pro
indiviso, they remained in possession, not in the concept of lessees anymore but as owners
now through symbolic delivery known as traditio brevi manu. xHeirs of Pedro Escanlar v. CA,
281 SCRA 176 (1997).
4. Obligation to Take-Out Insurance Coverage (Art. 1523)
5. Time and Place of Delivery (Art. 1521)
6. Expenses of Execution and Registration (Art. 1487);
and of Putting Goods in Deliverable State (Art. 1521)
Unless otherwise stipulated: (a) under Art. 1487 the expenses for the registration of the sale
should be shouldered by the seller. xVive Eagle Land, v. CA, 444 SCRA 445 (2004); and (b) duty
to withhold taxes due on the sale is imposed on seller. xEquitable Realty Devt v. Mayfair Theater,
332 SCRA 139 (2000).
Although buyer has more interest in having the capital gains tax paid immediately as a pre-
requisite to the issuance of a new Torrens title in his name, nonetheless, as far as the
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A judgment that decrees sellers obligations to execute and deliver the deed of absolute sale
and the certificate of title does not necessarily include within its terms the obligation to pay for the
expenses in notarizing a deed of sale and in obtaining new certificate of title. xJose Clavano, Inc.
v. HLRB, 378 SCRA 172 (2002).

B. SPECIAL RULES ON COMPLETENESS OF DELIVERY


1. In Case of Movables (Art. 1522 and 1537, 1480)
When the contract does not provide for the measuring or weighing of a sold specific mass, and
the price agreed upon was not based on such measurement, then [t]he subject matter of the
sale is, therefore, a determinate object, the mass, and not the actual number of units or tons
contained therein, so that all that is required of seller was to deliver in good faith to his buyer all of
those found in the mass, notwithstanding that the quantity delivered is less than the amount
estimated in the contract. xGaite v. Fonacier, 2 SCRA 831 (1961).
a. Rules on Delivery to Carrier (Art. 1523)
(i) FAS Sales The seller pays all charges and is subject to risk until the goods are placed
alongside the vessel. xA. Soriano Y Cia. v. Collector, 97 Phil. 505 (1955).
(ii) FOB Sales In mercantile contracts of American origin, F.O.B. stand for the words Free
on Board, i.e., that the seller shall bear all expenses until the goods are delivered
according as to whether the goods are to be delivered F.O.B. at the point of shipment or
at the point of destination determines the time when property passes. Behn Meyer & Co.
v. Yangco, 38 Phil. 602, 606 (1918).101

(iii) CIF Sales. General Foods v. NACOCO, 100 Phil. 337 (1956).
C.I.F. found in British contracts stand for costs, insurance, and freight; they signify that the
price fixed covers not only the costs of the goods, but the expense of freight and insurance to
be paid by the seller. Behn Meyer & Co. v. Yangco, 38 Phil. 602, 606 (1918).
Under an arrangement c.i.f. U.S. Pacific Coast, the vendor is to pay not only the cost of
the goods, but also the freight and insurance expenses, and, as it was judicially interpreted,
this is taken to indicate that the delivery is to be made at the port of destination. Pacific
Vegetable Oil Corp. v. Singzon, Supreme Court Advance Decisions, 29 April 1955.
b. Sale on Approval, Trial or Satisfaction (Art. 1502)
In a sale or return, the ownership passes to the buyer on delivery pursuant to a perfected
contract of sale; and the subsequent return of the goods reverts ownership back to the seller.
In such case, tradition as a mode of acquiring ownership must be in consequence of a
contract. xVallarta v. CA, 150 SCRA 336 (1987).
In a sale on approval (also called sale on acceptance, sale on trial or sale on
satisfaction), the delivery of the object does not transfer ownership to the buyer since the
delivery was not for purposes of transferring ownership, since the prestation to effect a
meeting of the minds to give rise to a valid contract is incumbent on the buyer. xVallarta v. CA,
150 SCRA 336 (1987).
For a sale to be a sale or return or a sale on approval, there must be a clear agreement
to either of such effect, otherwise, the provisions of Art. 1502 of Civil Code governing such
sales cannot be invoked by either party to the contract. xIndustrial Textile Manufacturing Co. v.
LPJ Enterprises, 217 SCRA 322 (1993).
c. Sale by Description and/or Sample (Art. 1481)
There is a sale by sample when a small quantity is exhibited by the seller as a fair
specimen of the bulk, which is not present and there is no opportunity to inspect or examine
the same; and the parties treated the sample as the standard of quality and that they
contracted with reference to the sample with the understanding that the product to be
delivered would correspondent with the sample. xMendoza v. David, 441 SCRA 172 (004)
Even in sales by description and/or sample, buyer will not be released from his obligation to
accept and pay for the goods by deviations on the part of the seller from the exact terms of the
contract, if buyer had acquiesced to such deviations after due notice thereof. xEngel v.
Mariano Velasco & Co., 47 Phil. 115 (1924).
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2. In Case of Immovables
a. Sale Per Unit of Measure (Arts. 1539 and 1540) In a unit price sale, the statement of the
area of immovable is not conclusive and the price may be reduced or increased depending on
the area actually delivered. If the vendor delivers less than the area agreed upon, the vendee
may oblige the vendor to deliver all that is stated in the contract or demand for the
proportionate reduction of the purchase price if delivery is not possible. If the vendor delivers
more than the area stated in the contract, the vendee has the option to accept only the amount
agreed upon or to accept the whole area, provided he pays for the additional area at the
contract rate. Rudolf Lietz, Inc. v. CA, 478 SCRA 451 (2005).102
Where parties agreed on a sale at a rate of a certain price per unit of measure and not one
for a lump sum, it is Art. 1539 and not Art. 1542 which is the applicable lawbuyer is entitled
to the relief afforded to him under Article 1529, that is, either a proportional reduction of the
price or the rescission of the contract. xCebu Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA
120 (2009).
EXCEPT: A buyer of land, when sold in gross or with the description more or less or similar
words in designating quantity covers only a reasonable excess of deficiency. In the case at bar
an area of 644 square meters more is not reasonable excess or deficiency, to be deemed
included in the deed of sale. Roble v. Arbasa, 362 SCRA 69 (2001).103
EXCEPTION TO EXCEPTION: When buyer, who has been occupying the land for two years as
lessee, actually is deemed to take risk on the actual size of the property bought at lump sum.
xGarcia v. Velasco, 72 Phil. 248 (1941).
b. Sale for a Lump Sum (A cuerpo cierto or por precio alzado) (Art. 1542) In a contract
of sale of land in a mass, the specific boundaries stated in the contract must control over any
statement with respect to the area contained within its boundaries. Salinas v. Faustino, 566
SCRA 18 (2008).
In a lump-sum sale, when land delivered to buyer is exactly as that described in the deed
and covered within the boundaries designated, the difference in actual area (34 versus 10
hectares) will not authorize the buyer to rescind the contract because the seller has complied
with delivering the subject matter agreed upon. xTeran v. Villanueva, 56 Phil. 677 (1932); this
is the rule when evidence shows that the parties never gave importance to the area of the land
in fixing the price (97 versus 60 hectares). xAzarraga v. Gay, 52 Phil. 599 (1928).

C. DOUBLE SALES (Arts. 1544104 and 1165)

1. Primacy of Torrens System of Registration The rules on double sales under Art. 1544 do
not overcome the rules provided under the Property Registration Decree (P.D. 1459), such as:
a. When two different titles are issued over the same registered land, the buyer who claims under
a title that was first issued shall be preferred. xLiao v. CA, 323 SCRA 430 (2000);
b. Invoking the rules on double sales and priority in time under Art. 1544 would be misplaced by
a first buyer who bought the land not within the Torrens system but under Act No. 3344, as
against the second buyer who bought the same property when it was already registered under
the Torrens system, because: (i) of the well-known rule in this jurisdiction that persons dealing
with registered land have the legal right to rely on the fact of the Torrens Certificate of Title and
to dispense with the need to inquire further, except when the party concerned has actual
knowledge of facts and circumstances that would impel a reasonably cautious man to make
such inquiry; and (ii) the Torrens system rule that formal registration proceedings undertaken
on the property and the subsequent issuance of a title over the land had under the Torrens
system had the legal effect of cleansing title on the property of all liens and claims not
annotated therein. Naawan Community Rural Bank v. CA, 395 SCRA 43 (2003).105
BUT SEE: Naval v. Court of Appeals, 483 SCRA 102 (2006).
Gopiao v. Metropolitan Bank, 731 SCRA 131 (2014).

2. Tests Applicable under Article 1544:


Caveat emptor requires the buyer to be aware of the supposed title of the seller and he who
buys without checking the seller's title takes all the risks and losses consequent to such failure.
xCaram, Jr. v. Laureta, 103 SCRA 7 (1981).
- 22 -
faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer
satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first
buyer. xCoronel v. CA, 263 SCRA 15 (1996).
In spite of the three levels of tests provided under Art. 1544, the Court seems to recognize
only registration in good faith by the second buyer and does not characterize the meaning of the
last two tests of possession and oldest title. Carilo v. CA, 503 SCRA 66 (2006).
a. MAIN RULE UNDER ART. 1544: Primus Tempore, Portior Jure. Carbonell v. Court of
Appeals, 69 SCRA 99 (1976).106
In double sales, first buyer always has priority rights over subsequent buyers of the same
property. Good faith of the first buyer remains all throughout despite his subsequent
acquisition of knowledge of the subsequent sale. xKings Properties Corp. v. Galido, 606 SCRA
137 (2009).
Ownership of an immovable property which is the subject of a double sale shall be
transferred: (1) to 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 titled, provided there is good faith.
The requirement of the law then is two-fold: acquisition in good faith and registration in good
faith. Good faith must concur with registration. If it would be shown that a buyer was in bad
faith, the alleged registration they have made amounted to no registration at all. The principle
of primus tempore, potior jure (first in time, stronger in right) gains greater significance in case
of a double sale of immovable property. When the thing sold twice is an immovable, the one
who acquires it and first records in the Registry of Property, both made in good faith, shall be
deemed the owner. Verily, the act of registration must be coupled with good faith that is, the
registrant must have no knowledge of the defect or lack of title of his vendor or must not have
been aware of facts which would have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. xRosaroso v. Soria, 699
SCRA 232 (2013).107

3. Requisites for Double Sale Rule to Apply : Cheng v. Genato, 300 SCRA 722 (1998).108
a. There Must Be Two Different Valid Sales: Article 1544 does not apply where:
There is only one valid sale, while the other sale over the same property is void. xFudot v.
Cattleya Land, 533 SCRA 350 (2007);109 or
Where one or both of the contracts is a contract to sell. San Lorenzo Dev. Corp. v. CA,
449 SCRA 99 (2005).110
When the seller sold the same properties to two buyers, first to the respondent and then to
Viloria on two separate occasions, the second sale was not void for the sole reason that
petitioner had previously sold the same properties to respondent. This case involves a double
sale as the disputed properties were sold validly on two separate occasions by the same seller
to the two different buyers in good faith. xDe Leon v. Ong, 611 SCRA 381, 388 (2010).
When the seller sold the same properties to two buyers, first to the respondent and then to
Viloria on two separate occasions, the second sale was not void for the sole reason that
petitioner had previously sold the same properties to respondent. This case involves a double
sale as the disputed properties were sold validly on two separate occasions by the same seller
to the two different buyers in good faith. De Leon v. Ong, 611 SCRA 381, 388 (2010).
Rules on double sales applies even if one of the sales is an auction sale. Gopiao v.
Metrobank, 731 SCRA 131 (2014).
(1) Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims: Adalin v. CA,
280 SCRA 536 (1997).111
Rules on double sales under Art. 1544 are not applicable to contract to sell, because of the
circumstances that must concur in order for the provisions to Art. 1544 on double sales to
apply, namely that there must be a valid sales transactions, and buyers must be at odds over
the rightful ownership of the subject matter who must have bought from the very same seller,
are lacking in a contract to sell for neither a transfer of ownership nor a sales transaction has
been consummated, and such contract is binding only upon the fulfillment or non-fulfillment of
an event. Nevertheless, the governing principle of Art. 1544 should apply, mainly the
governing principle of primus tempore, portior jure (first in time, stronger in right). Cheng v.
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b. Exact Same Subject Matter Art. 1544 applies where the same thing is sold to different
buyers by the same seller. xOng v. Oalsiman, 485 SCRA 464 (2006); and does not apply
where there was a sale to one party of the land itself while the other contract was a mere
promise to sell the land or at most an actual assignment of the rights to repurchase the same
land. xDischoso v. Roxas, 5 SCRA 781 (1962).

c. Exact Same Seller for Both Sales Art. 1544 applies where the same thing is sold to
different vendees by the same vendor. It does not apply where the same thing is sold to
different vendees by different vendors, or even to the same buyer but by different sellers.
xSalera v. Rodaje, 530 SCRA 432, 438 (2007);112 or by several successive vendors. xMactan-
Cebu International Airport Authority v. Tirol, 588 SCRA 635 (2009).113
BUT SEE: Badilla v. Bragat, 757 SCRA 131 (2015).
For Article 1544 to apply, it is necessary that the conveyance must have been made by a
party who has an existing right in the thing and the power to dispose of it. It cannot be invoked
where the two different contracts of sale are made by two different persons, one of them not
being the owner of the property sold. And even if the sale was made by the same person, if
the second sale was made when such person was no longer the owner of the property,
because it had been acquired by the first purchaser in full dominion, the second purchaser
cannot acquire any right. Consolidated Rural Bank (Cagayan Valley) v. CA, 448 SCRA
347 (2005),114 citing VILLANUEVA, PHILIPPINE LAW ON SALES 100 (1995).

4. Registration in Good Faith as First Priority


a. Meaning of Registration
The annotation of adverse claim can qualify as the registration mandated under the rules on
double sale. Carbonnel v. CA, 69 SCRA 99 (1976).
Registration means any entry made in the books of the registry, including both registration
in its ordinary and strict sense, and cancellation, annotation, and even marginal notes. It is
the entry made in the registry which records solemnly and permanently the right of ownership
and other real rights. xCheng v. Genato, 300 SCRA 722 (1998).115
Declaration of purchase for taxation purposes does not comply with the required
registration. xBayoca v. Nogales, 340 SCRA 154 (2000).
Registration of the Extra-judicial Partition which merely mentions the sale is not the
registration covered under Art. 1544 and cannot prevail over the registration of the pacto de
retro sale. xVda. de Alcantara v. CA, 252 SCRA 457 (1996).
There can be no constructive notice to the second buyer through registration under Act
3344 if the property is registered under the Torrens system. xAmodia Vda. De Melencion v.
CA, 534 SCRA 62, 82 (2007), thereby overturning obiter in Santiago v. CA, 247 SCRA 336
(1995).
b. Registration Must Always Be in Good Faith In cases of double sales of immovables, what
finds relevance and materiality is not whether or not the second buyer was a buyer in good
faith or that he was first to register, but whether or not said second buyer registers such
second sale in good faith, that is, without knowledge of any defect in the title of the property
sold. xMartinez v. CA, 358 SCRA 38 (2001);116 this is so because the defense of indefeasibility
of a Torrens title does not extend to a transferee who takes the certificate of title in bad faith.
xOccea v. Esponilla, 431 SCRA 116 (2004).

c. Knowledge of First Buyer of the Second Sale Does Not Amount to Registration in Favor
of the Second Buyer In double sales, first buyer always has priority rights over subsequent
buyers of the same property. Good faith of the first buyer remains all throughout despite his
subsequent acquisition of knowledge of the subsequent sale. xKings Properties Corp. v.
Galido, 606 SCRA 137 (2009).
Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights
except where the second buyer registers in good faith the second sale ahead of the first. Such
knowledge of the first buyer does not bar her from availing of her rights under the law, among
them, to register first her purchase as against the second buyer. But in converso, knowledge
gained by the second buyer of the first sale defeats his rights even if he is first to register the
second sale, since such knowledge taints his prior registration with bad faith. This is the priced
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throughout (i.e., in ignorance of the first sale and of the first buyer's right) from the time of
acquisition until the title is transferred to him by registration or failing registration, by delivery of
possession. xUraca v. CA, 278 SCRA 702 (1997).117
In a situation where a party has actual knowledge of the claimants actual, open and
notorious possession of a disputed property at the time of registration, the actual notice and
knowledge are equivalent to registration, because to hold otherwise would be to tolerate fraud
and the Torrens system cannot be used to shield fraud while certificates of title are
indefeasible, unassailable and binding against the whole world, they merely confirm or record
title already existing and vested. Consolidated Rural Bank (Cagayan Valley) v. CA, 448
SCRA 347 (2005).
d. Registration in Good Faith Always Pre-empts Possession in Good Faith Between two
purchasers, the one who registered the sale in his favor has a preferred right over the other
who has not registered his title, even if the latter is in actual possession of the immovable
property. xTaedo v. CA, 252 SCRA 80 (1996).118
The registration of a sale after the annotation of the notice of lis pendens does not obliterate
the effects of delivery and possession in good faith. The rules on constructive notice upon
registration provided for under Section 52 of the Property Registration Decree (P.D. No. 1529)
operate only from the time of the registration of the notice of lis pendens which in this case
was effected only after the time the sale in favor of the second buyer had long been
consummated by delivery of the subject matter. San Lorenzo Dev. Corp. v. CA, 449 SCRA
99 (2005).

5. First to Possess in Good Faith as Second Priority


In the absence of inscription, the law gives preferential right to buyer who in good faith is first
in possession, under the following jurisprudential parameters: (a) possession mentioned in Art.
1544 includes not only material but also symbolic possession;119 (b) possessors in good faith are
those who are not aware of any flaw in their title or mode of acquisition; (c) Buyers of real
property that is in the possession of persons other than the seller must be wary they must
investigate the rights of the possessors; and (d) good faith is always presumed, upon those who
allege bad faith on the part of possessors rests the burden of proof. xTen Forty Realty v. Cruz,
410 SCRA 484 (2003).120
After the sale of a realty by means of a public instrument, the vendor, who resells it to another,
does not transmit anything to the second vendee, and if the latter, by virtue of this second sale
takes material possession of the thing, he does it as mere detainer, and it would be unjust to
protect this detention against the rights of the thing lawfully acquired by the first vendee. The
Roman Catholic Church v. Pante, 669 SCRA 234 (2012).

6. Who is Purchaser in Good Faith?


a. Must Have Paid Price in Full A purchaser in good faith is one who buys property without
notice that some other person has a right to, or interest in, such property, and pays a full
and fair price for the same at the time of such purchase, or before he has notice of claim
or interest of some other person in the property. Locsin v. Hizon, 735 SCRA 547 (2014).121
A purchaser in good faith is one who buys with the well-founded belief that the person
from he receives the property had title to it and had the capacity to convey it. In this case,
the buyers bought. Heirs of Soliva v. Soliva, 757 SCRA 26 (2015); Bliss Dev. Corp./HGC v.
Diaz, 765 SCRA 453 (2015).
Under Art. 1544, mere registration is not enough to acquire a new title; good faith must
concur. Clearly, when buyer has not yet fully paid purchase price, and as long as seller
remains unpaid, buyer cannot feign good faith. xPortic v. Cristobal, 546 SCRA 577 (2005).122

117
Cruz v. Cabana, 129 SCRA 656 (1984); Gatmaitan v. CA, 200 SCRA 37 (1991); Vda. de Jomoc v. CA, 200 SCRA 74 (1991); Bucad v.
CA, 216 SCRA 423 (1992); Berico v. CA, 225 SCRA 469 (1993); Bautista v. CA, 322 SCRA 294 (2000); Bautista v. CA, 322 SCRA 294
(2000); Ulep v. CA, 472 SCRA 241 (2005); Escueta v. Lim, 512 SCRA 411 (2007); Lumbres v. Tablada, Jr., 516 SCRA 575 (2007); Fudot v.
Cattleya Land, 533 SCRA 350 (2007); Tanglao v. Parungao, 535 SCRA 123 (2007).
118
Liao v. CA, 323 SCRA 430 (2000); Talusan v. Tayag, 356 SCRA 263 (2001); Dauz v. Exchavez, 533 SCRA 637 (2007).
119
Roman Catholic Church v. Pante, 669 SCRA 234 (2012).
120
Sanchez v. Ramos, 40 Phil. 614 (1919); Quimson v. Rosete, 87 Phil. 159 (1950); Navera v. CA, 184 SCRA 584 (1990); The Roman
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BUT SEE: In the determination of whether or not the buyer is in good faith, the point in time
to be considered is the moment when the parties actually entered into the contract of sale.
xEstate of Lino Olaquer v. Ongjoco, 563 SCRA 373 (2008).
Not being purchasers in good faith, buyers having registered the sale, will not, as against
the petitioners, carry the day for any of them under Article 1544 of the Civil Code prescribing
rules on preference in case of double sales of immovable properties. Ordua v. Fuentebella,
622 SCRA 146 (2010).

b. Burden of Proof The burden of proving the status of a purchaser in good faith lies upon him
who asserts that status. It is not sufficient to invoke the ordinary presumption of good faith, that
is, that everyone is presumed to have acted in good faith, since the good faith that is here
essential is integral with the very status that must be established. xTanglao v. Parungao, 535
SCRA 123 (2007).123
As a general rule, the question of whether or not a person is a purchaser in good faith is a
factual matter that will not be delved into by this Court, since only questions of law may be
raised in petitions for review. Tio v. Abayata, 556 SCRA 175 (2008).
BUT SEE: It is anxiomatic that good faith is always presumed in the absence of any direct
evidence of bad faith. xSantiago v. CA, 247 SCRA 336 (1995).

c. Instances When No Good Faith One who buys from one who is not the registered owner is
expected to examine not only the certificate of title but all factual circumstances necessary for
one to determine if there are any flaws in the title of the transferor, or in the capacity to transfer
the land. It is a well-settled rule that a purchaser cannot close his eyes to facts which should
put a reasonable man upon his guard, and then claim that he acted in good faith under the
belief that there was no defect in the title of the vendor. xHeirs of Nicolas S. Cabigas v.
Limbaco, 654 SCRA 643 (2011).
(1) Being In Business on Realty A mortgagee who eventually ended buying the property at the
public auction, cannot claim to be a buyer in good faith when his business in the constructing
and selling townhouses and extending credit to the public, including real estate loans; for he is
charged with greater diligence that ordinary buyers or encumbrances for value, because it
would be standard in his business, as a matter of due diligence required 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. xExpresscredit
Financing Corp. v. Velasco, 473 SCRA 570 (2005).124
A banking institution is expected to exercise due diligence before entering into a mortgage
contract, and the ascertainment of the statute or condition of a proper offered to it as security
for a loan must be a standard and indispensable part of its operations; and it cannot simply
rely upon reviewing the title to the property offered for mortgage. Tio v. Abayata, 556 SCRA
175 (2008).125
(2) Close Relationship The sale to ones daughter and sons will give rise to the conclusion that
the buyers, not being really third parties, knew of the previous sales and cannot be considered
in good faith. The buyers are deemed to have constructive knowledge by virtue of their
relationship to their sellers. xPilapil v. CA, 250 SCRA 566 (1995).
(3) Gross Inadequacy of Price Mere inadequacy of price is not ipso facto a badge of lack of
good faithto be so, the price must be grossly inadequate or shocking to the conscience such
that the mind revolts against it and such that a reasonable man would neither directly or
indirectly be likely to consent to it. xTio v. Abayata, 556 SCRA 175 (2008).
(4) Obligation to Investigate or To Follow Leads A purchaser who is aware of facts which should
put a reasonable man upon his guard cannot turn a blind eye and later claim that he acted in
good faith,126 such as
Buyer of a registered land would be in bad faith when he purchases without asking to see the
owners copy of the title and/or without visiting the land where he would then have seen first
buyer occupying the same. xSantiago v. CA, 247 SCRA 336 (1995).127
When there are occupants to the land being bought, since it is the common practice in the real
estate industry, an ocular inspection of the premises involved is a safeguard a cautious and
prudent purchaser usually takes. xMartinez v. CA, 358 SCRA 38 (2001).128
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Any person engaged in business would be wary of buying from a company that is closing shop,
because it may be dissipating its assets to defraud creditors. Such buyer is bound to inquire
whether the owners had unsettled obligations encumbrance that could burden the property.
xSamson v. CA, 238 SCRA 397 (1994).129
Property was titled and transferred with undue haste, plus the fact that the subject property is a
vast tract of land in a prime location, should have, at the very least, triggered petitioners
curiosity. Eagle Realty Corp v. Republic, 557 SCRA 77, 94 (2008).
(5) Land in Adverse Possession Where land sold is in the possession of a person other than
vendor, purchaser must go beyond the certificate of title and make inquiries concerning the
actual possessor. Without such inquiry, the buyer cannot be said to be in good faith and
cannot have any right over the property. xTio v. Abayata, 556 SCRA 175 (2008).130
Buyer who could not have failed to know or discover that the land sold to him was in the
adverse possession of another is a buyer in bad faith. xHeirs of Ramon Durano, Sr. v. Uy,
344 SCRA 238 (2000).131
(6) Existence of Lis Pendens or Adverse Claim Registration of an adverse claim places any
subsequent buyer of the registered land in bad faith. xKings Properties Corp. v. Galido, 606
SCRA 137 (2009).132
Settled is the rule that one who deals with property with a notice of lis pendens, even
when at the time of sale the annotation was cancelled but there was a pending appeal,
cannot invoke the right of a purchaser in good faith. A purchaser cannot close his eyes to
facts which should put a reasonable man on guard and claim that he acted in the belief that
there was no defect in the title of the seller, xPo Lam v. CA, 316 SCRA 721 (1999).
CONTRA: When knowledge of lis pendens was acquired at the time there was order to
have it cancelled, xPo Lam v. CA, 347 SCRA 86 (2000).133 A buyer cannot be in bad faith
when it was shown that at the time of purchase the notice of lis pendens was already being
ordered cancelled and the cancellation of the notice terminated the effects of such notice.
xPudadera v. Magallanes, 633 SCRA 332 (2010).
(7) Annotation of Lien in Settlement of Estate An annotation placed on new certificates of title
issued pursuant to the distribution and partition of a decedents real properties is a warning to
third persons on the possible interest of excluded heirs or unpaid creditors in these
propertieswhere a buyer purchases the real property despite the annotation, he must be
ready for the possibility that the title be subject to the rights of excluded parties. xTan v.
Benolirao, 604 SCRA 36 (2009).
(8) Banks Are Vested with Public Interest and Obligation to Exercise Extraordinary Diligence
One of the protections afforded by P.D. 957 to buyers is the right to have her contract to sell
registered with the Register of Deeds in order to make it binding on third parties.
Nonetheless, despite the non-registration of the contract to sell, the mortgagee bank cannot
be considered, under the circumstances, an innocent purchaser for value of the lot when it
accepted the latter (together with other assigned properties) as payment for the mortgagor
developers obligationthe bank was well aware that the assigned properties were
subdivision lots and therefore within the purview of P.D. 957. xLuzon Dev. Bank v. Enriquez,
639 SCRA 332 (2011).
When financial institutions exercise extraordinary diligence in determining the validity of
the certificates of title to property being sold or mortgaged to them and still fail to find any
defect or encumbrance upon the subject properties after said inquiry, such financial
institutions should be protected like any other innocent purchaser for value if they paid a full
and fair price at the time of the purchase or before having notice of some other persons
claim on or interest in the property. xTy v. Queens Row Subdivision, 607 SCRA 324 (2009)

7. When Subject of Sale Is Unregistered Land:


When first sale is over unregistered land and the second sale is when it is registered, the rules on
double sale do not apply. Dagupan Trading Co. v. Macam, 14 SCRA 179 (1965).
Article 1544 is inapplicable to unregistered land because the purchaser of unregistered land
at a sheriffs execution sale only steps into the shoes of the judgment debtor, and merely acquires
the latters interest in the property sold as of the time the property was levied upon, as expressly
128
Mathay v. CA, 295 SCRA 556 (1998); Republic v. De Guzman, 326 SCRA 267 (2000); Heirs of Ramon Durano, Sr. v. Uy, 344 SCRA
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provided for in then Sec. 35, Rule 39 of the Revised Rules of Court on execution sale [now Sec.
33, Rule 39, 1997 Rules of Civil Procedure)]. Carumba v. CA, 31 SCRA 558 (1970).
Article 1544 rules in double sale, whereby the buyer who is able to first register the purchase
in good faith, is in full accord with Sec. 51 of P.D. 1529 which provides that no deed, mortgage,
lease, or other voluntary instrument shall take effect as a conveyance or bind the land until its
registration. Thus, if the sale is not registered, it is binding only between seller and buyer, but it
does not affect innocent third persons. Abrigo v. De Vera, 432 SCRA 544 (2004).134
Under Act 3344, registration of instruments affecting unregistered lands is without prejudice to
a third party with a better right, which means that mere registration does not give buyer any right
over the land if seller was not anymore owner thereof, having previously sold it to somebody else
even if the earlier sale was unrecorded. The rules on double sale have no application to land no
registered under the Torrens system.Acabal v. Acabal, 454 SCRA 555 (2005).135

C. OBLIGATIONS OF BUYER

1. Buyer Must Pay the Price (Art. 1582)


When seller cannot show title to the subject matter, then he cannot compel the buyer to pay
the price. xHeirs of Severina San Miguel v. CA, 364 SCRA 523 (2001).
Mere sending of a letter by the buyer expressing the intention to pay without the
accompanying payment is not considered a valid tender of payment and consignation of the
amount due are essential in order to extinguish the obligation to pay and oblige the seller to
convey title. xTorcuator v. Bernabe, 459 SCRA 439 (2005).
Unless the parties to a sale have agreed to the payment of the purchase price to any other
party, then its payment to be effective must be made to the seller in accordance with Article 1240
which provides that Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it. xMontecillo v.
Reynes, 385 SCRA 244 (2002).

2. Buyer is Obliged to Accept Delivery of the Subject Matter (Arts. 1582-1585)


a. Buyers Right to Inspect Before Acceptance (Arts. 1481 and 1584[1]);
EXCEPT: When Carrier Delivers under COD Terms
b. When Buyer Refuses to Accept (Art. 1588) Since delivery of subject matter is an obligation
on the part of the seller, the acceptance thereof by the buyer is not a condition for the
completeness of delivery. xLa Fuerza v. CA, 23 SCRA 1217 (1968).

VII. DOCUMENTS OF TITLE (Arts. 1507-1520)


1. Definition (Art. 1636)

2. Purpose of Documents of Title


Through a document of title, seller is allowed by fiction of law to deal with the goods described
therein as though he had physically delivered them to the buyer; and buyer may take the
document as though he had actually taken possession and control over the goods described
therein. xPhilippine Trust Co. v. National Bank, 42 Phil. 413 (1921).
Warehouse receipt represents the goods, but the intrusting of the receipt is more than the
mere delivery of the goods; it is a representation that the one to whom the possession of the
receipt has been so entrusted has the title to the goods. xSiy Cong Bieng v. Hongkong &
Shanghai Bank, 56 Phil. 598 (1932).

3. Negotiable Documents of Title


a. How Negotiated (Arts. 1508-1509)
b. Who Can Negotiate (Art. 1512)
c. Effects of Negotiation (Art. 1513) Endorsement and delivery of a negotiable quedan
operates as the transfer of possession and ownership of the property referred to therein, and
had the effect of divorcing the property covered therein from the estate of the insolvent prior to
the filing of the petition for insolvency. xPhilippine Trust Co. v. PNB, 42 Phil. 413 (1921).
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document of title to whom it was negotiated and who received it in good faith and for value, the
latter is preferred, under the principle that as between two innocent persons, he who made the
loss possible should bear the loss. xSiy Long Bieng v. HSBC, 56 Phil. 598 (1932).

4. Non-Negotiable Documents of Title


a. How Transferred or Assigned (Art. 1514)
b. Effects of Transfer (Art. 1514).

5. Warranties of Seller Through a Documents of Title (Art. 1516)

6. Rules of Levy/Garnishment of Goods (Arts. 1514, 1519, 1520)

VIII. SALE BY NON-OWNER OR ONE HAVING VOIDABLE TITLE:


THE LIFE OF A CONTRACT OF SALE
1. RULES ON THE SALE EFFECT BY NON-OWNER:
a. Where Seller Is Not Owner at Perfection: Contract Is Valid, For Ownership by Seller
at Perfection Is Not One of the Requisites for Subject Matter
b. Where Seller Is Not Owner at Delivery: Buyer Acquires No Better Title to the Goods
Than the Seller Had. (Art. 1505)
c. Remedy of Buyer in Either of the Two Situations: Rescission of the Contract of Sale
with Damages, But Not An Action for Declaration of Nullity Thereof.
If one buys the land of another, to which the seller is supposed to have a good title, and in
consequence of facts unknown alike to both parties, the seller has in fact no title at all, equity
will cancel the sale and cause the purchase money to be restored to the buyer, putting both
parties in status quo. xDBP v. Court of Appeals, 249 SCRA 331 (1995).

2. EXCEPTIONS: When Non-Owners Act of Selling Transfers Title to Buyer


a. Sales by Co-Owners (Art. 493) Sale of a co-owner of entire property as his own, is effective
only as a sale of his spiritual share, and will not affect the shares of the other co-owners who
never gave their consent. xPaulmitan v. Court of Appeals, 215 SCRA 866 (1992).136
ALSO: An agreement that purports a specific portion of an un-partitioned co-owned property is
not void; it shall effectively transfer the sellers ideal share in the co-ownership, Heirs of the
Late Spouses Aurelio and Esperanza Balite v. Lim, 446 SCRA 54 (2004).137
EXCEPT: When the intention of the purchase was clearly the property itself and not just the
spiritual share. Mindanao v. Yap, 13 SCRA 190 (1965).
A co-owner who sells one of the two lands owned in common with another co-owner, and
does not turn-over one-half of sale proceeds to the other co-owner, latter may by law and
equity lay exclusive claim to the remaining parcel of land, xImperial v. CA, 259 SCRA 65
(1996); in which case, proper action is not for nullification of sale, or for the recovery of
possession of the property owned in common, but for division or partition of the entire
property. xTomas Claudio Memorial College v. CA, 316 SCRA 502 (1999).138
CURIOUS: Sale of a portion of the property is considered an alteration of the thing owned in
common. Under the Civil Code, such disposition requires the unanimous consent of the other
co-owners. Prior to partition, a sale of a definite portion of common property requires the
consent of all co-owners because it operates to partition the land with respect to the co-owner
selling his or her share. At best, the agreement between the parties is a contract to sell, not a
contract of sale. Cabrera v. Ysaac, 740 SCRA 612 (2014).
b. Estoppel on the True Owner (Art. 1434) Bucton v. Gabar, 55 SCRA 499 (1974).
Owner who has been unlawfully deprived of his goods may recover it even from a
purchaser in good faith. Thus, the purchaser of property which has been stolen from the owner
has been held to acquire no title to it even though he purchased for value and in good faith.
Exception is when the true owner is estopped. xFrancisco v. Chemical Bulk Carriers, 657
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c. Recording Laws; Torrens System (P.D. 1529).
Where innocent third persons, relying on the correctness of the certificate of title, acquire
rights over the property, the court cannot disregard such rights and order the cancellation of
the certificate, since the effect of such outright cancellation will be to impair public confidence
in the certificate of title. Every person dealing with the registered land may safely rely on the
correctness of the certificate of title issued therefor. xHeirs of Spouses Benito Gavino. v. Court
of Appeals, 291 SCRA 495 (1998).
An innocent purchaser for value is one who purchases a titled land by virtue of a deed
executed by the registered owner himself not by a forged deed. xInsurance Services and
Commercial Traders v. Court of Appeals, 341 SCRA 572 (2000).
The defense of indefeasibility of Torrens title where the disputed buildings and equipment
are located is unavailing, since such defense is available to sale of lands and not to sale of
properties situated therein. xTsai v. Court of Appeals, 366 SCRA 324 (2001).
A person who deals with registered land through someone who is not the registered owner
is expected to look beyond the certificate of title and examine all the factual circumstances
thereof in order to determine if the vendor has the capacity to transfer any interest in the land.
xSy v. Capistrano, Jr., 560 SCRA 103 (2008).
c. Exercise by the Courts of Statutory Power to Make Sale Effective
When a defeated party refuses to execute the absolute deed of sale in accordance with the
judgment, the court may direct the act to be done at the cost of the disobedient party by some
other person appointed by the court and the act when so done shall have the like effect as is
done by the party. xManila Remnant Co. v. Court of Appeals, 231 SCRA 281 (1994)

d. Sales in Merchants Stores, Fairs or Markets (Arts. 85 and 86, Code of Commerce)
A merchant store requires a fixed establishment where the merchant not only stores his
merchandise, but where he conducts the ordinary court of business. City of Manila v.
Bugsuk, 101 Phil. 859 (1957).139
The owner of the goods who has been unlawfully deprived of it may recover it even from a
purchaser in good faith. Thus, the purchaser of property which has been stolen from the owner
has been held to acquire no title to it even though he purchased for value and in good faith.
xFrancisco v. Chemical Bulk Carriers, 657 SCRA 355 (2011).

3. SALE BY SELLER HAVING VOIDABLE TITLE (Art. 1506, as an exception to Art. 559)
Whenever there is an underlying sale which grants to the culprit-buyer a voidable title, even
when this is accompanied by the criminal act of estafa or swindling, Art. 1506 would grant to the
buyer in good faith a better title as against the original owner even though the latter may be
classified to have been unlawfully deprived of the subject matter under Art. 559. Tagatac v.
Jimenez, 53 O.G. 3792 (1957); EDCA Publishing v. Santos, 184 SCRA 614 (1990).
When owner did not voluntarily deliver possession of the car, and in effect it was stolen from
him, then one who buys the car even in good faith from the thief will lose the car to the owner who
is deemed to have been unlawfully deprived. Aznar v. Yapdiangco, 13 SCRA 486 (1965).
In all other cases of unlawful deprivation done through estafa, the original owner recovers
even from the buyer in good faith. Cruz v. Pahati, 98 Phil. 788 (1956). [Decision showed that
second buyer, or current possessor could not claim good faith because of erasures in the
covering documents presented by his seller]
Owner of diamond ring may recover it from pawnshop where owners agent had pledged it
without authority to do so; Art. 559 applies and the defense that the pawnshop acquired
possession without notice of any defect of the pledgor-agent is unavailing. Dizon v. Suntay, 47
SCRA 160 (1972).140 [Possessor is a merchant and only has a pledge in his favor]

IX. LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS


1. No Application When Subject Matter Is Determinable (Generic) (Art. 1263)
2. Effect of Loss/Deterioration of Thing Sold:
a. Before Perfection. Roman v. Grimalt, 6 Phil. 96 (1906).
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(1) General Rule: Before delivery, risk of loss is borne by seller under the rule of res perit
domino. xChrysler Phil. v. CA, 133 SCRA 567 (1984).
In sale of motor vehicle, where there was neither physical nor constructive delivery, the
thing sold remained at the sellers risk. xUnion Motor Corp v. CA, 361 SCRA 506 (2001).
(2) Loss by Fault of a Party (Arts. 1480, 1504, 1538)
(3) Loss by Fortuitous Event (Arts. 1480, 1163, 1164, 1165, 1504, 1538, and 1189; READ
Comments of PARAS, TOLENTINO, PADILLA, and BAVIERA).
(4) Deterioration (Arts. 1480, 1163-65, and 1262; Arts. 1189 and 1538)
(5) Fruits or Improvements from time of perfection pertain to buyer (Arts. 1480, 1537-1538)
d. After Delivery (Art. 1504). Lawyer's Coop v. Tabora, 13 SCRA 762 (1965).141

X. REMEDIES FOR BREACH OF CONTRACT OR SALE (Arts. 1594-1599)

A. REMEDIES OF THE SELLER


1. In Case of Movables (Arts. 1593, 1595 to 1597)
Under Art. 1597, Where buyer of scrap iron fails to put up the letter of credit in favor of the
seller as the condition of the sale, under Art. 1597 the seller may terminate the contract, since
non-compliance with the condition meant that the sellers obligation to sell never arose. xVisayan
Sawmill Co. v. Court of Appeals, 219 SCRA 378 (1993).

2. Unpaid Seller of Goods (Arts. 1524-1535)


a. Who Is an Unpaid Seller? (Art. 1525)
b. Rights of the Unpaid Seller:
Possessory Lien (Arts. 1526-1529, 1503(1), 1535)
Right of Stoppage in Transitu (Arts. 1530-1532, 1535, 1636[2])
Special Right of Resale (Art. 1533)
Special Right to Rescind (Art. 1534)
Even before the formal statutory adoption of the remedies of an unpaid seller, the Supreme
Court had already recognized the right of a seller, when the contract of sale is still executory in
stage, to resell the movables subject matter of the sale, when the buyer fails to pay the
purchase price. xHanlon v. Hausserman, 40 Phil. 796 (1920).
The unpaid seller in possession of goods may sell them at buyers risk. xKatigbak v. Court
of Appeals, 4 SCRA 243 (1962).

3. RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS (Arts. 1484, 1485, 1486)


The Recto Law prevents mortgagee from seizing the mortgaged property, buying it at
foreclosure sale for a low price and then bringing the suit against the mortgagor for a deficiency
judgment. The almost invariable result was that the mortgagor found himself minus the property
and still owing practically the full amount of his original indebtedness. xMagna Financial Services
Group v. Colarina, 477 SCRA 245 (2005).
a. When Is There Installment Sale?: At least two (2) stipulated payments in the future,
whether or not there is a downpayment. xLevy v. Gervacio, 69 Phil. 52 (1939).
b. Contracts to Sell Movables Not Covered. xVisayan Sawmill v. CA, 219 SCRA 378 (1993).
c. Unpaid Sellers Remedies Not Cumulative, But Alternative and Exclusive. Delta Motor
Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992).142
Seeking a writ of replevin consistent with any of the three remedies. xUniversal Motors
Corp. v. Dy Hian Tat, 28 SCRA 161 (1969).

d. Remedy of Specific Performance That seller obtained a writ of execution against the
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e. Remedy of Rescission Surrender of mortgaged property is not necessarily equivalent to
rescission. xVda. de Quiambao v. Manila Motors Co., 3 SCRA 444 (1961).
Mutual restitution prevents recovering on the balance of the purchase price. Nonato v.
IAC, 140 SCRA 255 (1985); but stipulation on non-return of payments is valid provided not
unconscionable. xDelta Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992).

f. Remedy of Foreclosure When the seller assigns his credit to another person, assignee is
likewise bound by the same law. Zayas v. Luneta Motors, 117 SCRA 726 (1982).144
Barring effect would cover a third-party mortgage, when it was the chattel mortgage that
was first foreclosed. Ridad v. Filipinas Investment, 120 SCRA 246 (1983).
BUT SEE: A judicious perusal of the records would reveal that mortgagor-buyer never
bought the subject vehicle from financing company but from a third party, and merely sought
financing from mortgagee for its full purchase price. Consequently Art. 184 does not apply
against financing company. Equitable Savings Bank v. Palces, 787 SCRA 260 (2016).
(1) Barring Effects of Foreclosure: All amounts due from the sale, including damages and
attorneys fees, barred from recovery. Macondray & Co. v. Eustaquio, 64 Phil. 446
(1937).
Action of replevin in order to foreclose on the chattel mortgage does not produce the
barring effect under the Recto Law; for it is the fact of foreclosure and actual sale of the
mortgaged chattel that bar further recovery by the seller of any balance on the buyers
outstanding obligation not satisfied by the sale. The voluntary payment of the installment by
the buyer-mortgagor is valid and not recoverable in spite the restrictive provisions of Art.
1484(3). Northern Motors v. Sapinoso, 33 SCRA 356 (1970). 145
Foreclosure on chattel mortgage prevents further action on the supporting real estate
mortgage, whether the chattel mortgage is first foreclosed Cruz v. Filipinas Investment &
Finance Corp., 23 SCRA 791 (1968);146 and vice versa when the real estate mortgage is first
foreclosed. Borbon II v. Servicewide Specialists, 258 SCRA 634 (1996).
(2) Rule on Perverse Buyer: Filipinas Investment. v. Ridad, 30 SCRA 564 (1969).
g. Purported Lease with Option to Buy
Judicial notice has been taken of the practice of vendors of personal property of
denominating a contract of sale on installment as one of lease to prevent the ownership of the
object of the sale from passing to the vendee until and unless the price is fully paid. xElisco
Tool Manufacturing Corp. v. Court of Appeals, 307 SCRA 731 (1999).147
Where a lease agreement over equipment is without an express option to purchase, but
nevertheless when a final demand is given prior to suit, the demand letter indicates clearly it
was within the option of the lessee to fully pay the balance of the unpaid rentals and would be
able to keep the equipment, then the real contract between the parties was a sale of movable
on installment disguised as a lease agreement. PCI Leasing and Finance v. Giraffe-X
Creative Imaging, 527 SCRA 405 (2007).

4. IN CASE OF IMMOVABLES:
a. Anticipatory Breach (Art. 1591). Legarda v. Saldaa, 55 SCRA 324 (1974).
b. Sales of Subdivision Lots and Condominium Units (P.D. 957) P.D.957 was issued in the
wake of numerous reports that many real estate subdivision owners, developers, operators
and/or sellers have reneged on their representations and obligations to provide and maintain
properly subdivision roads, drainage, sewerage, water systems, lighting systems and other
basic requirements or the health and safety of home and lot buyers. xCasa Filipinas Realty
Corp. v. Office of the President, 241 SCRA 165 (1995).
It is the intent of P.D. 957 to protect the buyer against unscrupulous developers, operators
and/or sellers who reneged on their obligations. Thus, in order to achieve this purpose, equity
and justice dictate that the injured party should be afforded full recompensed and as such, be
allowed to recover the prevailing market value of the undelivered lot which had ben fully paid
for. xGotesco Properties v. Fajardo, 692 SCRA 319 (2013).
Retroactive application of P.D. No. 957 to transactions entered into prior to its enactment in
1976 is already settled. xEugenio v. Exec. Sec. Drilon, 252 SCRA 106 (1996); xRotario v.
Alcantara, 736 SCRA 584 (2014).
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(1) Buyer under P.D. 957 includes one who acquires for a valuable consideration a
condominium unit by way of assignment by project owner in payment of its indebtedness
for contractors fee. xAMA Computer College v. Factora, 378 SCRA 121 (2002).
(2) Section 20 of P.D. 957 directs every developer of real property to provide the necessary
facilities, improvements, infrastructure and other forms of development, failure to carry out
which is sufficient cause for the buyer to suspend payment, and any sums of money
already paid shall not be forfeited. xTamayo v. Huang, 480 SCRA 156 (2006).
In case the developer fails in its obligation under Section 20, the Sec. 23 provides:
Buyer has the option to demand reimbursement of the total amount paid, or to wait for
further development of the subdivision; if buyer opts for the latter, he may suspend
payment of the installments until such time that the owner or developer has fulfilled its
obligations. xTamayo v. Huang, 480 SCRA 156 (2006).
Option granted by law is with buyer and not the developer/seller. xRelucio v. Brillante-
Garfin, 187 SCRA 405 (1990).
In exercising the option, buyer required only to give due notice to owner or developer
of the buyers intention to suspend payment. xZamora Realty and Dev. Corp. v. Office
of the President, 506 SCRA 591 (2006);
It is not required that a notice be given first by buyer to seller before a demand for
refund can be made as the notice and demand can be made in the same letter or
communication. xCasa Filipinas Realty Corp v. Office of the President, 241 SCRA 165
(1995);
Even with a mortgage over the lot, seller is still bound to redeem said mortgage without
any cost to buyer apart from the balance of the purchase price and registration fees
subdivision developers and owners have the obligation to deliver the corresponding
clean certificates of title of the subdivision lots where the purchase price of which have
been paid in full by the buyers. xCantemprate v. CRS Realty Dev. Corp., 587 SCRA
492 (2009).
Buyers would be justified in suspending payments, when developer-seller fails to give
a copy of the Contract to Sell despite repeated demands, xGold Loop Properties v. CA,
350 SCRA 371 (2001); or when they failed to provide for the amenities mandated
under their development plan, xFedman Dev. Corp. v. Agcaoili, 656 SCRA 354 (2011).
However, when the Reservation Agreement provides that buyer shall be entitled to a
Contract to Sell only upon payment of at least 30% of contract price, the non-
happening yet of that condition does not render seller in default as to warrant the buyer
the right to rescind the sale and demand a refund. xG.G. Sportwear Mfg. Corp. v.
World Class Properties, 614 SCRA 75 (2010).
Buyers cause of action against the developer for failure to develop ripens only when
the developer fails to complete the project on the lapse of the completion period stated
on the sale contract or the developers Licenses to Sell. Any premature demand prior
to the indicated completion date would be premature. xG.G. Sportwear Mfg. Corp. v.
World Class Properties, 614 SCRA 75 (2010).
(3) One of the protections afforded by P.D. 957 to buyers is the right to have the Contract to
Sell registered with the Register of Deeds to bind third parties, THUS:
Nothing in P.D. 957 provides for the nullification of a contract to sell in the event the
seller, at the time the contract was entered into, did not possess a certificate of
registration or a license to sell, sale being a consensual contract. xCo Chien v. Sta.
Lucia Realty, 513 SCRA 570 (2007).148
Dissatisfaction of the buyer under a Contract of Sale as to the completion date of the
project does not itself constitute substantial breach as to authorize the buyer to rescind
the contract and ask for refund of the amounts paid to the seller. xG.G. Sportwear Mfg.
Corp. v. World Class Properties, 614 SCRA 75 (2010).
Despite non-registration of Contract to Sell, foreclosing mortgagee bank cannot be
considered, an innocent purchaser for value of the lots when it accepted the latter
(together with other assigned properties) as payment for the mortgagor developers
obligation bank was well aware that the assigned properties were subdivision lots
and therefore within the purview of P.D. 957. xLuzon Dev. Bank v. Enriquez, 639
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Since the lots are involved in litigation and there is a notice of lis pendens at the back
of the titles involved, the subdivision developer have to be given a reasonable period of
time to work on the adverse claims and deliver clean titles to the buyer, and should the
former fail to deliver clean titles at the end of the period, it ought to reimburse the buyers
not only for the purchase price of the subdivision lots sold to them but also the
incremental value arising from the appreciation of the lots. Cantemprate v. CRS Realty
Dev. Corp., 587 SCRA 492 (2009).
(5) Developers lack of Certificate of Registration or License to Sell merely subjects it to
administrative sanctions, but do not render the sales entered into on the project null and
void. xG.G. Sportswear Mfg. Corp. v. World Class Properties, 614 SCRA 75 (2010).

5. MACEDA LAW: SALES OF RESIDENTIAL REALTY ON INSTALLMENTS (R.A. 6552).


The contract for the purchase of a piece of land on installment basis is not only lawful; it is
also of widespread usage or custom in our economic system. . . . If [buyer] eventually found the
interest stipulation in the contract financially disadvantageous to him, he cannot now turn to this
Court for succor without impairing the constitutional right to the obligation of contracts. This Court
will not relieve petitioner of the necessary consequences of his free and voluntary, and otherwise
lawful, act. xBortikey v. AFP - RSBS, 477 SCRA 511 (2005).
a. Role of Maceda Law Maceda Laws declared policy is to protect buyers of real estate on
installment basis against onerous and oppressive conditions, and seeks to address the acute
housing shortage problem in our country that has prompted thousands of middle and lower
class buyers of houses, lots and condominium units to enter into all sorts of contracts with
private housing developers involving installment schemes. xActive Realty & Dev. Corp.
Daroya, 382 SCRA 152 (2002).149
Maceda Law recognizes in conditional sales of all kinds of real estate sellers right to cancel
the contract upon non-payment 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. xPagtulunan
v. Dela Cruz Vda. De Manzano, 533 SCRA 242 (2008).150

b. Transactions Covered The formal requirements of rescission under the Maceda Law apply
even to contracts entered into prior to its effectivity. xSiska Dev. Corp. v. Office of the
President, 231 SCRA 674 (1994).151 BUT SEE: xPeoples Industrial and Commercial Corp. v.
Court of Appeals, 281 SCRA 206 (1997).
Maceda Law makes no distinctions between option and sale which under P.D. 957 also
includes an exchange or attempt to sell, an option of sale or purchase, a solicitation of a sale
or an offer to sell directly, and the all-embracing definition virtually includes all transactions
concerning land and housing acquisition, including reservation agreements. xRealty Exchange
Venture Corp. v. Sendino, 233 SCRA 665 (1994).
Maceda Law has no application to protect the developer or one who succeeds the
developer. xLagandaon v. Court of Appeals, 290 SCRA 463 (1998).
Maceda Law finds no application to a contract to sell where the suspensive condition has
not been fulfilled, because said Law presuppose the existence of a valid and effective contract
to sell a condominium. [?] xMortel v. KASSCO Inc., 348 SCRA 391, 398 (2000).152
Since Maceda Law governs sales of real estate on installments, Communities Cagayan,
Inc. v. Nanol, 685 SCRA 453 (2012), it has no application to the sale of large tracts of land
(69,028 square meters) which do not constitute residential real estate within the contemplation
of the Maceda Law. xGarcia v. Court of Appeals, 619 SCRA 280 (2010).
Maceda Law does not cover a loan extended by the employer to enable its employee to
finance the purchase of a house and lot. The law protects only a buyer acquiring the property
by installment, not a borrower whose rights are governed by the terms of the loan from the
employer xSpouses Sebastian v. BPI Family Bank, 739 SCRA 9 (2014).
c. How to Determine Years of Installments: Jestra Dev. and Management Corp. v.
Pacifico, 513 SCRA 413 (2007).
d. How Cancellation of Contract Can Be Effected: The cancellation of the contract under the
Maceda Law must follow the following steps:
First, seller should extend the buyer a grace period of at least 60 days from the due date
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Second, at end of grace period, seller shall furnish buyer with a notarial notice of
cancellation or demand for rescission, effective 30 days from buyers receipt thereof; a
mere notice or letter, would not suffice. McLaughlin v. CA, 144 SCRA 693 (1986).153
Third, for contracts covering more than two years of payments, there must be return to
the buyer of the cash surrender value. xVilldara, Jr. v. Zabala, 545 SCRA 325 (2008).154
Until and unless seller complies with these mandatory requirements, the contract to sell
between remains valid and subsisting. xCommunities Cagayan, Inc. v. Nanol, 685
SCRA 453 (2012).
Additional formality of a demand on [the sellers] part for rescission by notarial act would
appear, in the premises, to be merely circuitous and consequently superfluous since the seller
therein filed an action for annulment of contract, which is a kindred concept of rescission by
notarial act. xLayug v. IAC, 167 SCRA 627 (1988).
Decision rendered in an ejectment case operates as the required notice of cancellation
under the Maceda Law; but as buyer was not given the cash surrender value, there was still
no actual cancellation of the contract. xLeao v. CA, 369 SCRA 36 (2001).
Formal letter demand upon buyer to vacate the premises is not the same as the notice of
cancellation or demand for rescission by a notarial act required by R.A. No. 6552. Evidently,
the case of unlawful detainer filed by petitioner does not exempt him from complying with the
said requirement. xPagtulunan v. Dela Cruz Vda. De Manzano, 533 SCRA 242 (2008).
Where buyers under a contract to sell offers to pay the last installment a year and a half
after the stipulated date, that was beyond the sixty-day grace period under Section 4 of the
Maceda Law. The buyers cannot use the second sentence of Section 4 of the Maceda Law
against the sellers alleged failure to give an effective notice of cancellation or demand for
rescission because the sellers merely sent the notice to the address supplied by the buyers in
the Contract to Sell. Garcia v. CA, 619 SCRA 280 (2010).
Under the Maceda Law, the right of the buyer to refund accrues only when he has paid at
least two years of installments. xManuel Uy & Sons v. Valbueco, Inc., 705 SCRA 537 (2013).

6. RESCISSION ON SALES OF NON-RESIDENTIAL IMMOVABLES ON INSTALLMENTS


(Arts. 1191 and 1592)
Articles 1191 and 1592 on rescission cannot apply to a contract to sell since there can be no
rescission of an obligation that is still non-existent, the suspensive condition not having
happened. xValarao v. CA, 304 SCRA 155 (1999).155
Article 1191 of Civil Code providing for the remedy of rescission cannot be applied to sales of
real property on installments since they are governed by the Maceda Law. Bonrostro v. Luna, 702
SCRA 1 (2013).
Automatic rescission clauses are not valid nor can they be given legal effect under Articles
1191 and 1592. xIringan v. Court of Appals, 366 SCRA 41 (2001).156
Indeed, rescission requires under the law a positive act of choice on the party of the non-
defaulting party. xOlympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003).
Art. 1592 allows the buyer of an immovable to pay as long as no demand for rescission has
been made; consignation of the balance of the purchase price before the trial court operates as
full payment. xProvince of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
Seller cannot recover ownership of the thing sold until and unless the contract itself is resolved
and set aside; a party who fails to invoke judicially or by notarial act the resolution of a contract of
sale would be prevented from blocking the consummation of the same in light of the precept that
mere failure to fulfill the contract does not operate ipso facto as rescission. xPlatinum Plans Phil.
v. Cucueco, 488 SCRA 156 (2006).
For Art. 1592 to apply, the following requisites must be present: (1) a contract of sale of an
immovable property and (2) a stipulation in the contract that failure to pay the price at the time
agreed upon will cause the rescission of the contract. The buyer can still pay even after the time
agreed upon, if the agreement between the parties has these requisites. This right of vendee to
pay ceases when the vendor or the seller demands the rescission of the contract judicially or
extrajudicially. In case of an extrajudicial demand to rescind the contract, it should be notarized.
xCabrera v. Ysaac, 740 SCRA 612 (2014).
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B. REMEDIES OF THE BUYER
1. In the Case of Movables (Arts. 1598-1599)
2. In the Case of Immovables (Arts. 1191; Secs. 23 and 24, P.D. 957)
3. Suspension of Payment (Art. 1590) The pendency of suit over the subject matter of the
sale justifies the buyer in suspending payment of the balance of the purchase price by reason of
aforesaid vindicatory action filed against it. The assurance made by the seller that the buyer did
not have to worry about the case because it was pure and simple harassment is not the kind of
guaranty contemplated under Article 1590 wherein the buyer is bound to make payment if the
seller should give a security for the return of the price. xAdelfa Properties v. Court of Appeals,
240 SCRA 565 (1995).

XI. REMEDY OF RESCISSION IN SALES OF IMMOVABLES:


CONTRACT OF SALE VERSUS CONTRACT TO SELL
A. NATURE OF REMEDY OF RESOLUTION (Arts. 1191, 1479, 1592)
1. Distinguishing from Other Remedy of Rescission. xUniversal Food Corp. v. Court of
Appeals, 33 SCRA 22 (1970).157 BUT SEE CONTRA: xSuria v. IAC, 151 SCRA 661 [1987]).
While Art. 1191 uses the term rescission, the original term which was used in the old Civil
Code was resolution. Resolution is a principal action which is based on breach of a party, while
rescission under Art. 1383 is a subsidiary action limited to cases of rescission for lesion under Art.
1381. xOng v. Court of Appeals, 310 SCRA 1 (1999).158
Outside of sales that have been entered into in fraud of creditors, the general rule for ordinary
contracts of sale is that the sellers creditors do not have such material interest as to allow them
to sue for rescission of a sale theirs is only a personal right to receive payment for the loan, not
a real right over the property subject of the deed of sale. xAdorable v. CA, 319 SCRA 200 (1999).
To rescind is to declare a contract void at its inception and to put an end to it as though it
never was. It is not merely to terminate it and release the parties from further obligations to each
other, but to abrogate it from the beginning and restore the parties to their relative positions as if
no contract has been made. xVelarde v. Court of Appeals, 361 SCRA 56 (2001).159

2. Remedy of Rescission (Resolution) Is Inherent in the Reciprocity of Sale Rescission


under Art. 1191 is predicated on a breach of faith by the other party who violates the reciprocity
between them, and the breach contemplated is the obligors failure to comply with an existing
obligation. When the obligee may seek rescission and, in the absence of any just cause for the
court to determine the period of compliance, the court shall decree the rescission. xVelarde v.
Court of Appeals, 361 SCRA 56 (2001).160
Non-payment of the price is a resolutory condition for which the remedy is either rescission or
specific performance under Art. 1191. This is true for reciprocal obligations where the obligation is
a resolutory condition of the other. On the other hand, the buyer is entitled to retain the purchase
price or a part thereof if the seller fails to perform any essential obligation of the contract. Such
right is premised on the general principles of reciprocal obligation. xGil v. Court of Appeals, 411
SCRA 18 (2003).161
Consignation by the buyer of the purchase price of the property, there having been no previous
receipt of a notarial demand for rescission, is sufficient to defeat the right of the seller to demand
for a rescission of the deed of absolute sale. xGil v. CA, 411 SCRA 18 (2003).
When a party asks for the resolution or cancellation of a contract it is implied that he
recognizes it existence a non-existent contract cannot be cancelled. xPan Pacific Industrial
Sales Co. v. Court of Appeals, 482 SCRA 164 (2006).
Action for Rescission Not Similar to An Action for Reconveyance: In the sale of real property,
seller is not precluded from going to the court to demand judicial rescission in lieu of a notarial act
of rescission. But such action is different from an action for reconveyance of possession on the
thesis of a prior rescission of the contract covering the property. The effects that flow from an
affirmative judgment in either case would be materially dissimilar in various respects: (a) judicial
resolution of a contract gives rise to mutual restitution which is not necessarily the situation that
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authorize for a just cause the fixing of a period. xOlympia Housing v. Panasiatic Travel Corp., 395
SCRA 298 (2003).

3. Power to Rescind Generally Judicial in Nature A seller cannot unilaterally and


extrajudicially rescind a contract of sale where there is no express stipulation authorizing it.
Unilateral rescission will not be judicially favored or allowed if the breach is not substantial and
fundamental to the fulfillment of the obligation. xBenito v. Saquitan-Ruiz, 394 SCRA 250 (2002);162
nonetheless, the law does not prohibit the parties from entering into agreement that violation of
the terms of the contract would cause cancellation thereof, even without court intervention.
xFroilan v. Pan Oriental Shipping Co., 12 SCRA 276 (1964).163

4. Mutual Restitution and Forfeiture (Art. 1385) When sale is rescinded, the general rule
under Art. 1398 is for the parties to restore to each other the things which have been the subject
matter of the contract, with their fruits, and price with interest. xInes v. CA, 247 SCRA 312
(1995);164 HOWEVER: sellers right in a contract to sell with reserved title to extrajudicially cancel
the sale upon failure of the buyer to pay the stipulated installments and retain the sums and
installments already received has long been recognized by the well-established doctrine of 39
years standing. xPangilinan v. CA, 279 SCRA 590 (1997).165
Pursuant to Art. 1188, in a contract to sell, even if buyers did not mistakenly make partial
payments, inasmuch as the suspensive condition was not fulfilled, it is only fair and just that
buyers be allowed to recover what they had paid in expectancy that the condition would happen;
otherwise, there would be unjust enrichment on part of seller. xBuot v. CA, 357 SCRA 846 (2001).

B. DISTINCTIONS BETWEEN CONTRACT OF SALE AND CONTRACT TO SELL

1. CONTRACT OF SALE versus CONTRACT TO SELL (Art. 1458)


In a contract of sale, title to the property passes to buyer upon the delivery of the thing sold; in
a contract to sell, ownership is, by agreement, reserved in the seller and is not to pass to buyer
until full payment of purchase price. Otherwise stated, in a contract of sale, seller loses ownership
over the property and cannot recover it until and unless the contract is resolved or rescinded,
whereas in a contract to sell, title is retained by the seller until full payment of the price. In the
latter contract, payment of the price is a positive suspensive condition, failure of which is not a
breach but an event that prevents the obligation of the vendor to convey title from becoming
effective. Adelfa Properties v. Court of Appeals, 240 SCRA 575 (1995).166

a. Does Contract to Sell Fall under the Definition of Sale in Article 1458? A Contract to
Sell as a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price. Coronel v. CA, 263
SCRA 15, 27 (1996).167 BUT SEE: PNB v. Court of Appeals, 262 SCRA 464 (1996).
To be sure, a contract of sale may either be absolute or conditional. One form of conditional
sales is what is now popularly termed as a Contract to Sell, where ownership or title is
retained until the fulfillment of a positive suspensive condition normally the payment of the
purchase price in the manner agreed upon. For a contract, like a contract to sell, involves a
meeting of minds between two persons whereby one binds himself, with respect to the other,
to give something or to render some service. xGomez v. CA, 340 SCRA 720, 728 (2000).168
A Contract to Sell is akin to a conditional sale, in which the efficacy or obligatory force of the
sellers obligation to transfer title is subordinated to the happening of a future and uncertain
event, so that if the suspensive condition does not take place, the parties would stand as if the
conditional obligation never existed. xOrden v. Aurea, 562 SCRA 660 (2008).169
A Contract to Sell is perfect at the moment there is a meeting of minds upon the thing which
is the object of the contract and upon the price. Thus, for a contract to sale to be valid, all of

162
Ocejo, Perez & Co. v. International Banking Corp. 37 Phil. 631 (1918); Republic v. Hospital de San Juan de Dios, 84 Phil. 820 (1949);
De la Rama Steamship Co. v. Tan, G.R. No. 8784, May 21, 1956; 99 Phil. 1034 (unrep.) (1956); Heirs of Jesus M. Mascuana v. CA, 461
SCRA 186 (2005).
163
Luzon Brokerage Co., v. Maritime Building Co., 43 SCRA 95 (1972); 86 SCRA 305 (1978); Pangilinan v. CA, 279 SCRA 590 (1997);
Calilap-Asmeron v. DBP, 661 SCRA 54 (2011).
164
Velarde v. CA, 361 SCRA 56 (2001); Orden v. Aurea, 562 SCRA 660 (2008).
165
Manila Racing Club v. Manila Jockey Club, 69 Phil. 55 (1939).
- 37 -
the following essential elements must concur: a) consent or meeting of the minds; b)
determinate subject matter; and c) price certain in money or its equivalent. The contract to sell
undergoes also the three stages of a contract: negotiation, perfection and consummation.
xRobern Dev. Corp. v. Peoples Landless Assn., 693 SCRA 24 (2013).
A contract of sale is defined under Article 1458 of the Civil Code: By the contract of sale,
one of the contracting parties obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefore a price certain in money or its equivalent. A
contract to sell, on the other hand, is defined by Article 1479 of the Civil Code: [A] bilateral
contract whereby the prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price. In a contract of sale, the title
to the property passes to the buyer upon the delivery of the thing sold, whereas in a contract to
sell, the ownership is, by agreement, retained by the seller and is not to pass to the vendee
until full payment of the purchase price. xAkang v. Municipality of Isulan, Sultan Kudarat
Province, 699 SCRA 745 (2013).
b. What Is the Difference in Legal Effect Between a Contract to Sell and a Conditional
Contract of Sale? While conditionality inheres in a contract to sell, the same should not be
confused with a conditional contract of sale. In a contract to sell, the fulfillment of the
suspensive condition will not automatically transfer ownership 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. On the other hand, in
a conditional contract of sale, the fulfillment of the suspensive condition renders the sale
absolute and the previous delivery of the property has the effect of automatically transferring
the sellers owenrship or title to the property to the buyer. xVentura v. Heirs of Spouses
Endaya, 706 SCRA 631 (2013).
In contracts of sale, seller loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; in a contract to sell, title is retained by seller until
full payment of the price. xMontecalvo v. Heirs of Eugenia Primero, 624 SCRA 575 (2010).
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 the happening of an
event, which for present purposes we shall take as the full payment of the purchase price.
xRepublic v. Marawi-Marantao General Hospital, 686 SCRA 546 (2012).
A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the latter upon his
fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or
compliance with the other obligations stated in the contract to sell. Given its contingent nature,
the failure of the prospective buyer to make full payment and/or abide by his commitments
stated in the contract to sell prevents the obligation of the prospective seller to execute the
corresponding deed of sale to effect the transfer of ownership to the buyer form arising.
xVentura v. Heirs of Spouses Endaya, 706 SCRA 631 (2013).170
c. Importance of Locating the Condition Placed on the Obligation to Pay Price in Full In
a contract of sale, the non-payment of the price is a resolutory condition which extinguishes
the transaction that, for a time existed, and discharges the obligations created thereunder.
xBlas v. Angeles-Hutalla, 439 SCRA 273 (2004).171 Whereas, in a contract to sell, the payment
of the purchase price is a positive suspensive condition, and sellers obligation to convey the
title does not become effective in case of failure to pay. xBuot v. CA, 357 SCRA 846 (2001).172
When buyers obligation to pay the the purchase price was made subject to the condition
that seller first delivers clean title over the parcel bough within 20 months from the signing of
the contract, such condition is imposed merely on the performance of the obligation, as
distinguished from a condition imposed on the perfection of the contract. The non-happening
of the condition merely granted the buyer the right to rescind the contract or even to waive it
and enforce performance on the part of the seller, all in consonance with Art. 1545 of Civil
Code which provides that 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
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Rationale for Contracts to Sell: A contract to sell is commonly entered into so as to protect
the seller against a buyer who intends to buy the property in installments by withholding
ownership over the property until the buyer effects full payment therefor. It cannot be inferred
in a situation where both parties understood the price to be paid in cash. xCity of Cebu v.
Heirs of Candido Rubi, 306 SCRA 408 (1999).173
Remedy of Rescission Does Not Apply to Contracts to Sell: The remedy of rescission under
Article 1191 of the Civil Code cannot apply to mere contracts to sellin a contract to sell, the
payment of the purchase price is a positive suspensive condition, and failure to pay the price
agreed upon is not a mere breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an obligatory force. xTan v. Benolirao,
604 SCRA 36 (2009).174
In a contract to sell, payment of the price is a positive suspensive condition, failure of which
is not a breach of contract warranting rescission under Article 1191 of the Civil Code but rather
just an event that prevents the supposes seller from being bound to convey title to the
supposed buyer. xBonrostro v. Luna, 702 SCRA 1 (2013).
In a contract to sell, the sellers obligation to deliver the corresponding certificates of title is
simultaneous and reciprocal to the buyers full payment of the purchase price. xGotesco
Properties v. Fajardo, 692 SCRA 319 (2013).

d. Essential Stipulations to Constitute a Contract to Sell A contract is one of sale, absent


any stipulation therein (a) reserving title over the property to the vendee until full payment of
the purchase price,175 and (b) giving the vendor the right to unilaterally rescind the contract in
case of non-payment.176 Valdez v. CA, 439 SCRA 55 (2004); De Leon v. Ong, 611 SCRA
381 (2010);177 BUT SEE: Dignos v. CA, 158 SCRA 375 (1988). CONSEQUENTLY:
It was enough to characterize the Deed of Condition Sale as a contract to sell alone by
the reservation of ownership. xHeirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008).
Reservation of title may not be found in express provision of the contract, but may also be
determined from proven acts of the parties. xSalazar v. CA, 258 SCRA 325 (1996).
Absence of a formal deed of conveyance [or a stipulation to execute the deed of sale only
full payment of the purchase price] is a strong indication that parties did not intend
immediate transfer of ownership, but only a transfer after full payment of purchase
price,178 especially where seller retained possession of the certificate of tile and all other
documents relative to the sale until there was full payment of the price. xChua v. Court of
Appeals, 401 SCRA 54 (2003).
An agreement in which ownership is reserved in the seller and is not to pass to the buyer
until full payment of the purchase price is known as a contract to sell. The absence of full
payment suspends the sellers obligation to convey title, even if the sale has already been
registered. Registration does not vest, but merely serves as evidence of, title to a
particular property. xPortic v. Cristobal, 456 SCRA 577 (2005).179
It is not the title of the contract, but its express terms or stipulations that determine the
kind of contract entered into by the parties. Where seller promises to execute a deed of
absolute sale upon the completion by buyer of the payment of the price, which shows that
seller reserved title to the property until full payment of the purchase price, the contract is
only a contract to sell. xNabus v. Pacson, 605 SCRA 334 (2009).180
e. Substantial Breach (Arts. 1191 and 1234) Concept of substantial breach is irrelevant in
contracts to sell. xLuzon Brokerage Co. v. Maritime Building Co., 43 SCRA 93 (1972).181
In a contract to sell real property on installments, the full payment of the purchase price is a
positive condition, the failure of which is not considered a breach, casual or serious, but simply
an event that prevented the obligation of the vendor to convey title from acquiring any

173
Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); Tumibay v. Lopez, 697 SCRA 21 (2013).
174
Traders Royal Bank v. Cuison Lumber Co., 588 SCRA 690 (2009); Nabus v. Pacson, 605 SCRA 334 (2009); Diego v. Diego, 691 SCRA
361 (2013).
175
Topacio v. CA, 211 SCRA 219 (1992); Laforteza v. Machuca, 333 SCRA 643 (2000); Almira v. CA, 399 SCRA351 (2003); Manuel Uy &
Sons v. Valbueco, Inc., 705 SCRA 537 (2013); Reyes v. Tuparan, 650 SCRA 238 (2011).
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obligatory force. The transfer of ownership and title would occur after full payment of the price.
xLeao v. Court of Appeals, 369 SCRA 36 (2001).182

2. Minimum Requirement for Cancellation of Contracts to Sell


The act of a party in treating a contract as cancelled should be made known to the other party
because this act is subject to scrutiny and review of the courts in case the alleged defaulter bring
the matter for judicial determination. University of the Philippines v. De los Angeles, 35
SCRA 103 (1970); Palay Inc. v. Clave, 124 SCRA 638 (1983).183
BUT SEE: In a contract to sell, upon failure of buyer to comply with its obligation, there was
no need to judicially rescind the contract to sell. Failure by one of the parties to abide by the
conditions in a contract to sell resulted in the rescission of the contract. AFP Mutual Benefit
Assn. v. CA, 364 SCRA 768 (2001).184
The notice of termination of a Contract to Sell may take any of the following forms:
Act of the seller in notifying the buyer of his intention to sell the properties to other interested
persons if the latter failed to pay the balance of the purchase price is sufficient notice for the
cancellation or resolution of their contract to sell. xOrden v. Aurea, 562 SCRA 660 (2008).
If mere nonpayment is enough to cancel a contract to sell, the letter given to petitioners lawyer is
also an acceptable form of rescinding the contract. The law does not require notarization for a letter
to rescind a contract to sell immovable. Notarization is only required if a contract of sale is being
rescinded. Cabrera v. xYsaac, 740 SCRA 612 (2014).

3. Equity Resolutions on Contracts to Sell Although buyer clearly defaulted in his installment
payments in a contract to sell covering two parcels of land, he should nevertheless be awarded
ownership over one of the two (2) lots jointly purchased by the buyer, on the basis that the total
amount of installments paid, although not enough to cover the purchase price of the two lots were
enough to cover fully the purchase price of one lot, ruling there was substantial performance
insofar as one of the lots concerned as to prevent rescission thereto. xLegarda Hermanos v.
Saldaa, 55 SCRA 3246 (1974).
Where buyer had religiously been paying monthly installments for 8 years, but even after
default he was willing and had offered to pay all the arrears, on the basis of equity he shall be
granted additional period of 60 days from receipt of judgment to make all installments payments
in arrears plus interests, although demand for rescission had already been made. xJ.M. Tuazon
Co. v. Javier, 31 SCRA 829 (1970).

XII. CONDITIONS AND WARRANTIES


1. Conditions (Art. 1545)
Failure to comply with condition imposed upon perfection of the contract results in failure of a
contract, while the failure to comply with a condition imposed on the performance of an obligation
only gives the other party the option either to refuse to proceed with sale or waive the condition.
Laforteza v. Machuca, 333 SCRA 643 (2000).185
In a Sale with Assumption of Mortgage, assumption of mortgage is a condition to the sellers
consent so that without approval by the mortgagee, no sale is perfected. In such case, the seller
remains the owner and mortgagor of the property and retains the right to redeem the foreclosed
property. xRamos v. CA, 279 SCRA 118 (1997).186 But such condition is deemed fulfilled when
the seller takes any action to prevent its happening. xDe Leon v. Ong, 611 SCRA 381 (2010).
There has arisen a confusion in the concepts of validity and efficacy of a contract. Under
Art. 1318 of Civil Code, absence any of the essential requisites of a contract (i.e., consent of the
parties, object certain which is the subject matter, and cause of the obligation), then no contract
arises. Conversely, where all are present, the result is a valid contract. However, some parties
introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the
validity of the contract. A provision this Contract of Sale of rights, interests and participations
shall become effective only upon the approval by the Honorable Court, in the event of non-
approval by the courts, affect only the effectivity and not the validity of the contract of sale. Heirs
of Pedro Escanlar v. Court of Appeals, 281 SCRA 176 (1997).
As Is, Where Is in sale pertains solely to the physical condition of the thing sold, not to its
legal situation. xAssets Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).
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outstanding obligation to the bank and taking back the certificates of title without even notifying
the buyer. xDe Leon v. Ong, 611 SCRA 381 (2010).

2. Conditions versus Warranties. Power Commercial and Industrial Corp. v. Court of


Appeals, 274 SCRA 597 (1997).

3. Express Warranties (Art. 1546) A warranty is a 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. xAng v. CA, 567 SCRA 53 (2008).
A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing
sold. The decisive test is whether the vendor assumes to assert a fact of which the vendee is
ignorant. xGoodyear Philippines v. Sy, 474 SCRA 427 (2005).
Sellers Talk: The law allows considerable latitude to sellers statements, or dealers talk; and
experience teaches that it is exceedingly risky to accept it at its face value. Assertions concerning
the property which is the subject of a contract of sale, or in regard to its qualities and
characteristics, are the usual and ordinary means used by sellers to obtain a high price and are
always understood as affording to buyers no ground for omitting to make inquiries. A man who
relies upon such an affirmation made by a person whose interest might so readily prompt him to
exaggerate the value of his property does so as his peril, and must take the consequences of his
own imprudence. xSongco v. Sellner, 37 Phil. 254 (1917).
Caveat emptor only requires the purchaser to exercise care and attention ordinarily exercised
by prudent men in like business affairs, and only applies to defects which are open and patent to
the service of one exercising such care. It can only be applied where it is shown or conceded that
the parties to the contract stand on equal footing and have equal knowledge or equal means of
knowledge and there is no relation of trust or confidence between them. It does not apply to a
representation that amounts to a warranty by the seller and the situation requires the buyer to rely
upon such promise or affirmation. Guinhawa v. People, 468 SCRA 278 (2005).187
Breach of an express warranty makes seller liable for damages. The following requisites must
be established in order that there be an express warranty: (1) express warranty must be an
affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) natural
tendency of such affirmation or promise is to induce the buyer to purchase the thing; and (3)
buyer purchases the thing relying on such affirmation or promise thereon. xCarrascoso, Jr. v.
Court of Appeals, 477 SCRA 666 (2005).

4. Implied Warranties (Art. 1547)


a. Seller Has Right to Sell
b. Warranty Against Eviction (Arts. 1548-1560) Seller must be summoned in the suit for
eviction at the instance of the buyer (Art. 1558), and be made a co-defendant (or made a third-
party defendant (Art. 1559). xEscaler v. Court of Appeals, 138 SCRA 1 (1985).188
A dacion en pago is governed by the law of sales, and contracts of sale come with
warranties, either express (if explicitly stipulated by the parties) or implied (under Article 1547
et seq. of the Civil Code). The implied warranty in case of eviction is waivable and cannot be
invoked if the buyer knew of the risks or danger of eviction and assumed its consequences.
xLuzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
No Warranty Against Eviction When Execution Sale: In voluntary sales, vendor can be
expected to defend his title because of his warranty to the vendees but no such obligation is
owed by the owner whose land is sold at execution sale. xSantiago Land Dev. Corp. v. CA,
276 SCRA 674 (1997). BUT SEE: Art. 1552.
The seller, in declaring that he owned and had clean title to the vehicle, gave an implied
warranty of title, and in pledging that he will defend the same from all claims or any claim
whatsoever [and] will save the vendee from any suit by the government of the Republic of the
Philippines, he gave a warranty against eviction, and the prescriptive period to file a breach
thereof is six months after the delivery of the vehicle. Ang v. CA, 567 SCRA 53 (2008).
c. Warranty Against Non-Apparent Servitudes (Arts. 1560)
d. Warranty Against Hidden Defects (Arts. 1561, 1566-1580) Stipulation in a lease with
- 41 -
A hidden defect is one which is unknown or could not have been known to the buyer. Under
the law, the requisites to recover on account of hidden defects are as follows: 1. Defect must:
(a) be hidden; (b) exist at the time the sale was made; (c) ordinarily have been excluded from
the contract; and (d) be important to render the thing unfit or considerably decreases fitness;
and 2. The action must be instituted within the statute of limitations. Nutrimix Feeds Corp. v.
Court of Appeals, 441 SCRA 357 (2004).189
Sellers agent can by agreement be liable for the warranty against hidden defects. xSchmid
and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
e. Warranty as to Fitness or Quality of Goods (Arts. 1562, 1565, 1599)
In order to enforce the implied warranty that the goods are reasonably fit and suitable to be
used for the purpose which both parties contemplated, the following must be established: (a)
that the buyer sustained injury because of the product; (b) that the injury occurred because the
product was defective or unreasonably unsafe; and finally (c) the defect existed when the
product left the hands of the petitioner. Nutrimix Feeds Corp. v. CA, 441 SCRA 357 (2004).
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 is defective,
which was present upon the delivery or manufacture of the product; or when the product left
the sellers or manufacturers 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. Nutrimix Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).
f. Sale of Goods by Sample (Art. 1565)
There is a sale by sample when a small quantity is exhibited by the seller as a fair
specimen of the bulk, which is not present and there is no opportunity to inspect or examine
the same. To constitute a sale by sample, it must appear that the parties treated the sample as
the standard of quality and that they contracted with reference to the sample with the
understanding that the product to be delivered would correspondent with the sample. In a
contract of sale by sample, there is an implied warranty that the goods shall be free from any
defect which is not apparent on reasonable examination of the sample and which would render
the goods unmerchantable. xMendoza v. David, 441 SCRA 172 (2004).
g. Additional Warranties for Consumer Products (Arts. 68, Consumer Act, R.A. 7394).

5. Effects and Prescription of Warranties (Art. 1599) A breach in the warranties of the seller
entitles the buyer to a proportionate reduction of the purchase price. xPNB v. Mega Prime Realty
and Holding Corp., 567 SCRA 633 (2008).
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, which is 4 years, while for actions based on breach of implied warranty, the prescriptive
period is 6 months from the date of the delivery of the thing sold. xAng v. Court of Appeals, 567
SCRA 53 (2008).

6. Effects of Waivers The phrase as is, where is basis pertains solely to the physical condition
of the thing sold, not to its legal situation. In the case at bar, the US tax liabilities constitute a
potential lien which applies to the subjects matters legal situation, not to its physical aspect.
Thus, the buyer has no obligation to shoulder the same. xNDC v. Madrigal Wan Hui Lines Corp.,
412 SCRA 375 (2003).

7. Buyers Options in Case of Breach of Warranty (Art. 1599) The remedy against violation
of warranty against hidden defects is either to withdraw from the contract (accion redhibitoria) or
to demand a proportionate reduction of the price (accion quanti minoris), with damages in either
case. Nutrimix Feeds Corp. v. CA, 441 SCRA 357 (2004).

XIII. EXTINGUISHMENT OF THE CONTRACT OF SALE


A. IN GENERAL (Arts. 1231 and 1600)

B. CONVENTIONAL REDEMPTION (SALE A RETRO)


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absolutely; and, if he afterwards grants the vendor the right to repurchase, it is a new contract
entered into by the purchases as absolute owner. Roberts v. Papio, 515 SCRA 346 (2007).191
In sales denominated as pacto de retro, the price agreed upon should not generally be
considered as the just value of the thing sold, absent other corroborative evidencethere is no
requirement in sales that the price be equal to the exact value of the thing subject matter of the
sale. xDorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).

2. Redemption Period
The period to repurchase is not suspended merely because there is a divergence of opinion
between the parties as to the precise meaning of the phrase providing for the condition upon
which the right to repurchase is triggered. The existence of seller a retros right to repurchase the
proper is not dependent upon the prior final interpretation by the court of the said phrase.
Misterio v. Cebu State College of Science and Technology, 461 SCRA 122 (2005).

3. Situation Prior to Redemption (Art. 1606)


In a sale a retro, buyer has a right to the immediate possession of the property sold, unless
otherwise agreed upon, since title and ownership of the property sold are immediately vested in
the buyer a retro, subject only to the resolutory condition of repurchase by the seller a retro within
the stipulated period. xVda. de Rigonan v. Derecho, 463 SCRA 627 (2005).192

4. Who Can Exercise Right of Redemption? (Arts. 1611 to 1614)

5. How Is Redemption Effected? (Art. 1616)


In order to exercise the right to redeem, only tender of payment is sufficient xLegaspi v. CA,
142 SCRA 82 1986); consignation is not required after tender is refused xMariano v. CA, 222
SCRA 736 (1993). BUT: When tender not possible, consignation should be made xCatangcatang
v. Legayada, 84 SCRA 51 (1978).
A formal offer to redeem, accompanied by a bona fide tender of redemption price, is not
essential where the right to redeem is exercised through a judicial action within the redemption
period and simultaneously depositing the redemption price. xLee Chuy Realty Corp. v. Court of
Appeals, 250 SCRA 596 (1995).193

6. Redemption Price (Art. 1616)


A stipulation in a sale a retro requiring as part of the redemption price interest for the cost of
money, is not in contravention with Art. 1616, since the provision is not restrictive nor exclusive,
and does not bar additional amounts that the parties may agree upon, since the article itself
provides and other stipulations which may have been agreed upon. xSolid Homes v. Court of
Appeals, 275 SCRA 267 (1997).
Article 448 on the rights of a builder in good faith is inapplicable in contracts of sale with right
of repurchasewhere true owner himself is the builder of the works on his own land, the issue of
good faith or bad faith is entirely irrelevant. The right to repurchase may be exercised only by the
vendor in whom the right is recognized by contract or by any person to whom the right may have
been transferred. In a sale with right of repurchase, the applicable provisions are Articles 1606
and 1616 of the Civil Code, and not Article 448. xNarvaez v. Alciso, 594 SCRA 60 (2009).

7. Fruits (Art. 1617) Article 1617 on the disposition of fruits of property redeemed applies only
when the parties failed to provide a sharing arrangement thereof; otherwise, the parties
contractual stipulations prevail. xAlmeda v. Daluro, 79 SCRA 327 (1977).

8. Effect When No Redemption Made (Art. 1607): CONSOLIDATION


Art. 1607 abolished automatic consolidation of ownership in the vendee a retro upon expiration
of the redemption period by requiring the vendee to institute an action for consolidation where the
vendor a retro may be duly heard. If the vendee succeeds in proving that the transaction was
indeed a pacto de retro, the vendor is still given a period of thirty days from the finality of the
judgment within which to repurchase the property. xSolid Homes v. CA, 275 SCRA 267 (1997).
Once vendor fails to redeem the property within the stipulated period, irrevocable title shall be
vested in the vendee by operation of law. xVda. de Rigonan v. Derecho, 463 SCRA 627 (2005).
Under a sale a retro, failure of buyer to consolidate his title under Art. 1607 does not impair
such title and ownership because the method prescribed thereunder is merely for purpose of
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the effect of consolidation, the mortgage or re-sale by the seller a retro of the same property
would not transfer title and ownership to the mortgagee or buyer, as the case may be, under the
Latin maxim NEMO DAT QUOD NON HABET. xCadungog v. Yap, 469 SCRA 561 (2005).

9. EQUITABLE MORTGAGE (Arts. 1602-1604)


It is a fact that in time of grave financial distress which render persons hard-pressed to meet
even their basic needs or answer an emergency, such persons would have no choice but to sign
a deed of absolute sale of property or a sale thereof with pacto de retro if only to obtain a much-
needed loan from unscrupulous money lenders. xMatanguihan v. CA, 275 SCRA 380 (1997).194
That is why parol evidence is competent and admissible in support of the allegations that an
instrument purporting on its face to transfer the absolute title to property, or to transfer the title
with a right to repurchase under specified conditions reserved to the seller, was in truth and in
fact given merely as security for the repayment of a loan. xMariano v. CA, 220 SCRA 716
(1993).195
The law on equitable mortgage favors the least transmission of rights and interest over a
property in controversy, since the law seeks to prevent circumvention of the law on usury and the
prohibition against pactum commissorium provisions. Additionally, it is aimed to end unjust or
oppressive transactions or violations in connection with a sale or property. The wisdom of these
provisions cannot be doubted, considering many cases of unlettered persons or even those with
average intelligence invariably finding themselves in no position whatsoever to bargain fairly with
their creditors. xSpouses Misea v. Rongavilla, 303 SCRA 749 (1999).196
An equitable mortgage is defined as one which although lacking in some formality or form or
words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties
to charge real property as security for a debt, and contains nothing impossible or contrary to law.
xRaymundo v. Bandong, 526 SCRA 514 (2007).197
This kind of arrangement, where the ownership of the land is supposedly transferred to the
buyer who provides for the funds to redeem the property from the bank but nonetheless allows
the seller to later on buy back the properties, is in the nature of an equitable mortgage governed
by Articles 1602 and 1604 of the Civil Code. xBacungan v. CA, 574 SCRA 642 (2008).
Sales with rights of repurchase are not favored. Courts will not construe instruments to be
sales with a right to repurchase, with the stringent and onerous effects which follow, unless the
terms of the document and the surrounding circumstances require it. Whenever, any other
construction can fairly and reasonably be made, such construction will be adopted and the
contract will be construed as a mere loan unless the court can see that, if enforced according to
its terms, it is not an unconscionable one. xBautista v. Unangst, 557 SCRA 256 (2008).198
The decisive factor in evaluating whether an agreement is an equitable mortgage is the
intention of the parties, as shown not necessarily by the terminology used in the contract but by
all the surrounding circumstances, such as the relative situation of the parties at that time, the
attitude, acts, conduct, declarations of the parties, the negotiations between them leading to the
deed, and generally, all pertinent facts having a tendency to fix and determine the real nature of
their design and understanding. Necessitous men are not always free, in that to answer a
pressing emergency, they will submit to any term that the crafty may impose on them. xBanga v.
Bello, 471 SCRA 653 (2005).199
The essential requisites for the presumption of equitable mortgage to apply, there must be: (a)
something in the language of the contract; or (b) in the conduct of the parties which shows clearly
and beyond doubt that they intended the contract to be a mortgage and not a pacto de retro sale.
xKings Properties Corp. v. Galido, 606 SCRA 137 (2009).
The provisions of the Civil Code governing equitable mortgage disguised as sale contracts are
primarily designed to curtail the evils brought about by contracts of sale with right to repurchase,
particularly the circumvention of the usury law and pactum commissorium. Heirs of Jose Reyes,
Jr. v. Reyes, 626 SCRA 758 (2010).
An equitable mortgage is defined as one although lacking in some formality, or form or words,
or other requisites demanded by a statute, nevertheless reveals the parties intention to charge
real property as security for a debt, and contains nothing impossible or contrary to law. For
equitable mortgage to arise, two requisites must concur: (1) that the parties entered into a
contract denominated as a sale; and (2) the intention was to secure an existing debt by way of
194
Salonga v. Concepcion, 470 SCRA 291 (2005).
195
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mortgage.200 Consequently, the non-payment of the debt when due gives the mortgagee the right
to foreclose the mortgage, sell the property and apply the proceeds of the sale for the satisfaction
of the loan obligation. While there is no single test to determine whether the deed of absolute sale
on its face is really a simple loan accommodation secured by a mortgage, Art. 1602 of the Civil
Code, however, enumerates several instances when a contract is presumed to be an equitable
mortgage. xHeirs of Dela Rosa v. Batongbacal, 731 SCRA 263 (2014).201
a. Badges of Equitable Mortgage under Art. 1602202 A sale a retro actually intended to secure
the payment of an obligation is presumed an equitable mortgage. xRomulo v. Layug, Jr., 501
SCRA262 (2006);203 such presumption of equitable mortgage applies also to a contract
purporting to be an absolute sale. xTuazon v. CA, 341 SCRA 707 (2000).204
The presence of only one Art. 1602 circumstance is sufficient for a contract of sale a retro
to be presumed an equitable mortgage. xHilado v. Medalla 377 SCRA 257 (2002).205
When doubt exists as to the true nature of the transaction purporting to be a sale, courts
must construe it as an equitable mortgage, as the latter involves a lesser transmission of rights
and interest over the property. Solitarios v. Jaque, 740 SCRA 226 (2014).
The presumption in Art. 1602 jibes with the rule that the law favors the least transmission of
property rights. xEnriquez, Sr. v. Heirs of Spouses Baldonado, 498 SCRA 365 (2006); but it is
not conclusive, for it may be rebutted by competent and satisfactory proof to the contrary.
xSantiago v. Dizon, 543 SCRA 402 (2008).
A contract purporting to be an absolute sale is presumed to be an equitable mortgage: (a)
when the price of the sale is unusually inadequate;206 (b) when the vendor remains in
possession as lessee or otherwise;207 (c) when after the expiration of the right of repurchase, it
is extended by the buyer. xHilado v. Heirs of Rafael Medalla, 37 SCRA 257 (2002);208 (d) when
the purported seller continues to collect rentals from the lessees of the property sold. Ramos
v. Dizon, 498 SCRA 17 (2006); (e) when the purported seller was in desperate financial
situation when he executed the purported sale. xBautista v. Unangst, 557 SCRA 256 (2008);
or under threat of being sued criminally. xAyson, Jr. V. Paragas, 557 SCRA 50 (2008).
Payment of real estate taxes is a usual burden attached to ownership, and when such
payment is coupled with continuous possession of the property, it constitutes evidence of great
weight that a person under whose name the realty taxes were declared has a valid and right
claim over the land. xGo v. Bacaron, 472 SCRA 229 (2005).209
The fact that the price in a pacto de retro sale is not the true value of the property does not
justify the conclusion that the contract is one of equitable mortgage; in fact a pacto de retro
sale, the practice is to fix a relatively reduced price to afford the seller a retro every facility to
redeem the property. xIgnacio v. CA, 246 SCRA 242 (1995).210
To presume a contract is an equitable mortgaged based on gross inadequacy of price, it
must be clearly shown from the evidence presented that the consideration was in fact grossly
inadequate at the time the sale was executed. Mere inadequacy of price is not sufficient to
create the presumption. xOlivares v. Sarmiento, 554 SCRA 384 (2008).211
Inadequacy of purchase price is considered so far short of the real value of the property
as to startle a correct mind. xSantiago v. Dizon, 543 SCRA 402 (2008); or that the mind
revolts at it as such that a reasonable man would neither directly or indirectly be likely to
consent to it. xVda de Alvarez v. Court of Appeals, 231 SCRA 309 (1994); it must be grossly
inadequate or shocking to the conscience. xTio v. Abayata, 556 SCRA 175 (2008).
Although under the agreement the seller shall remain in possession of the property for only
one year, such stipulation does not detract from the fact that possession of the property, an
indicium of ownership, was retained by the alleged vendor to qualify the arrangement as an

200
Muoz, Jr. v. Ramirez, 629 SCRA 38 (2010).
201
Matanguihan v. CA, 275 SCRA 380 (1997); Martinez v. CA, 358 SCRA 38 (2001); Hilado v. Heirs of Rafael Medlla, 37 SCRA 257
(2002); Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); San Pedro v. Lee, 430 SCRA 338 (2005); Go v.
Bacaron, 472 SCRA 229 (2005), citing VILLANUEVA, CESAR L. PHILIPPINE LAW ON SALES, (1998 ed.), p. 271; Romulo v. Layug, Jr., 501
SCRA262 (2006); Roberts v. Papio, 515 SCRA 346 (2007); Raymundo v. Bandong, 526 SCRA 514 (2007); Dorado Vda. De Delfin v. Dellota,
542 SCRA 397 (2008); Muoz, Jr. V. Ramirez, 629 SCRA 38 (2010); Heirs of Soliva v. Soliva, 757 SCRA 26 (2015).
202
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Balatero v. IAC, 154 SCRA 530 (1987); Mariano v. CA, 220 SCRA 716 (1993); Lobres
v. CA, 351 SCRA 716 (2001).
203
Ayson, Jr. V. Paragas, 557 SCRA 50 (2008); Bautista v. Unangst, 557 SCRA 256 (2008).
204
Zamora v.CA, 260 SCRA 10 (1996).
205
Claravall v. CA, 190 SCRA 439, 448 (1990); Uy v. CA, 230 SCRA 664 (1994); Lobres v. CA, 351 SCRA 716 (2001); Alvaro v. Ternida,
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equitable mortgage, especially when it was shown that the vendor retained part of the
purchase price. xLegaspi v. Ong, 459 SCRA 122 (2005).212
Mere tolerated possession is not enough to prove that the transaction was an equitable
mortgage. xRedondo v. Jimenez, 536 SCRA 639 (2007).213
Mere allegations without proof to support inadequacy of price, or when continued
possession by seller is supported by a valid arrangement consistent with the sale, would not
support the allegation of equitable mortgage. xCirelos v. Hernandez, 490 SCRA 624 (2006).214
Under Art. 1602, delay in transferring title is not one of the instances enumerated by law
instances in which an equitable mortgage can be presumed. Nor does the fact that the original
transaction on the land was to support a loan, which when it was not paid on due date was
negotiated into a sale, without evidence that the subsequent deed of sale does not express the
true intentions of the parties, give rise to a presumption of equitable mortgage. xCeballos v.
Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004).
Where the ownership of the land is supposedly transferred to the buyer who provides for
the funds to redeem the property from the bank but nonetheless allows the seller to later on
buy back the properties, is in the nature of an equitable mortgage governed by Articles 1602
and 1604 of the Civil Code. xBacungan v. Court of Appeals, 574 SCRA 642 (2008).
An equitable mortgage is a voidable contract. It may be annulled within four (4) years from
the time the cause of action accrues. Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).

b. Remedies Allowed in an Equitable Mortgage Situation (Arts. 1454, 1602, 1605) In the
case of an equitable mortgage, although Art. 1605 which allows for the remedy of reformation,
nothing therein precludes an aggrieved party from pursuing other remedies to effectively
protect his interest and recover his property, such as an action for declaration of nullity of the
deed of sale and specific performance. xTolentino v. CA, 386 SCRA 36 (2002).
In equitable mortgage, consolidation of ownership in the mortgagee in equity upon failure of
the mortgagor in equity to pay the obligation, would amount to a pactum commissorium. The
only proper remedy is to cause the foreclosure of the mortgage in equity. xBriones-Vasquez v.
CA, 450 SCRA 644 (2005); or to determine if the principal obligation secured by the equitable
mortgage has been paid or settled. xBanga v. Bello, 471 SCRA 653 (2005).

c. Pactum Commissorium (Art. 2088) A stipulation which is a pactum commisorium enables


the mortgagee to acquire ownership of the mortgaged properties without need of any
foreclosure proceedingsit is a nullity being contrary to the provisions of Art. 2088 of the Civil
Code, xLumayag v. Heirs of Jacinto Nemeo, 526 SCRA 315 (2007);215 and has been
repeatedly declared as contrary to morals and public policy, xSolitarios v. Jaque, 740 SCRA
226 (2014).
Elements of pactum commissorium are: (1) there should be a property mortgaged by way of
security for the payment of the principal obligation, and (2) there should be a stipulation for
automatic appropriation by the creditor of the thing mortgaged in case of non-payment of the
principal obligation within the stipulated period. That the questioned contracts were freely and
voluntarily executed by petitioners and respondent is of no moment, pactum commissorium
being void for being prohibited by law. xOng v. Roban Lending Corp., 557 SCRA 516
(2008).216
It does not apply when the security for a debt is also money in the form of time deposit.
xConsing v. Court of Appeals, 177 SCRA 14 (1989).
Provision in MOA/Dacion en Pago with a Right to Repurchase that if borrower fails to
comply with the new terms of restructuring the loan, the agreement shall automatically operate
as a dacion en pago without need of executing any new document does not constitute pactum
commissorium. Solid Homes v. Court of Appeals, 275 SCRA 267 (1997).
BUT SEE: Stipulation in promissory note providing that upon failure of makers to pay
interests, ownership of property would automatically be transferred to payee, and the covering
deed of sale would be registered, is in substance a pactum commissorium in violation of Art.
2088, and the resultant sale is void and the registration and obtaining of new title in the name
of the buyer would have be declared void also. A. Francisco Realty v. CA, 298 SCRA 349
(1998).217
In this case, Sections 13.1 and 13.2 of the Contract of Guaranty call for the "prompt
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properties in the Asset Pool" that are held as security in favor of the guarantor. Moreover,
Sections 13.1 and 13.2 dispense with the need of conducting foreclosure proceedings, judicial
or otherwise. Albeit requiring the intervention of the trustee of the Asset Pool, Sections 13.1
and 13.2 spell out what is, for all intents and purposes, the automatic appropriation by the
paying guarantor of the properties held as security. This is thus a clear case of pactum
commissorium. It is null and void. Accordingly, whatever conveyance was made by Planters
Development Bank to Home Guaranty Corporation in view of this illicit stipulation is ineffectual.
It did not vest ownership in Home Guaranty Corporation. . . All that this transfer engendered is
a constructive trust in which the properties comprising the Asset Pool are held in trust by
Home Guaranty Corporation, as trustee, for the trustor, La Savoie. . . . So, too, this case falls
squarely under Article 1456 of the Civil Code. Home Guaranty Corporation acquired the
properties comprising the Asset Pool by mistake or through the ineffectual transfer (i.e., for
being pactum commissorium) made by the original trustee, Planters Development Bank.
Home Guaranty Corp. v. La Savoie Dev. Corp., 748 SCRA 312 (2015).

d. Final Chance to Redeem in Mistaken Equitable Mortgage (Art. 1606) The 30 day
period under Art. 1606 does not apply if the courts should find the sale to be absolute.
xPangilinan v. Ramos, 181 SCRA 359 (1990).218
Sellers in a sale judicially declared as pacto de retro may not exercise the right to
repurchase within 30-day period under Art. 1606, although they have taken the position that
the same was an equitable mortgage, if it is shown that there was no honest belief thereof
since none of the circumstances under Art. 1602 were shown to exist; that if they truly believed
the sale to be an equitable mortgage, as a sign of good faith, they should have consigned with
the amount representing their alleged loan, on or before the expiration of the right to
repurchase. Abilla v. Gobonseng, 374 SCRA 51 (2002).219

C. LEGAL REDEMPTION

1. Definition (Art. 1619) Legal redemption is in the nature of a privilege created by law partly for
reasons of public policy and partly for the benefit and convenience of the redemptioner, to afford him
a way out of what might be a disagreeable or an inconvenient association into which he has been
thrust. It is intended to minimize co-ownership. xFernandez v. Tarun, 391 SCRA 653 (2002).220

2. Legal Redemption Rights under the Civil Code


a. Among Co-Heirs (Art. 1088)
Redemption right pertain to disposition of right to inherit, and not when there is a sale of a
particular property of the estate. xPlan v. IAC, 135 SCRA 270 (1985).
When heirs have partitioned the estate among themselves and each have occupied and
treated definite portions thereof as their own, co-ownership has ceased even though the
property is still under one title, and sale by one of the heirs of his definite portion cannot trigger
the right of redemption in favor of the other heirs. xVda. De Ape v. Court of Appeals, 456
SCRA 193 (2005).
Heirs who actually participated in the execution of the extrajudicial settlement, which
included the sale to a third person of their pro indiviso shares in the property, are bound by the
same; while the co-heirs who did not participate are given the right to redeem their shares
pursuant to Art. 1088. xCua v. Vargas, 506 SCRA 374 (2006).

b. Among Co-Owners (Art. 1620)


When seller a retro dies, the right to redeem cannot be exercised by a co-heir alone, since
the right to redeem belonged in common to all the heirs. xDe Guzman v. CA, 148 SCRA 75
(1987).
The right of redemption may be exercised by a co-owner only when part of the community
property is sold to a stranger, now when sold to another co-owner because a new participant
is not added to the co-ownership. xFernandez v. Tarun, 391 SCRA 653 (2002).
For the right of redemption to be exercised, co-ownership must exist at the time of the
conveyance is made by a co-owner and the redemption is demanded by the other co-owner or
co-owners. xAvila v. Barabat, 485 SCRA 8 (2006).
Redemption by co-owner redounds to the benefit of all co-owners. xMariano v. CA, 222
- 47 -
The requisites for the exercise of legal redemption are as follows: (1) there must be co-
ownership; (2) one of the co-owners sold his right to a stranger; (3) the sale was made before
the partition of the co-owned property; (4) the right of redemption must be exercised by one or
more co-owners within a period of thirty days to be counted from the time he or they were
notified in writing by the co-owner vendor; and (5) the vendee must be reimbursed the price of
the sale. xCalma v. Santos, 590 SCRA 359 (2009).

c. Distinguishing Between Right of Redemption of Co-Heirs and Co-Owners


Art. 1620 includes the doctrine that redemption by a co-owner of the property owned in
common, even when he uses his own fund, within the period prescribed by law inures to the
benefit of all the other co-owners. xAnnie Tan v. CA, 172 SCRA 660 (1989).221

d. Among Adjoining Owners (Arts. 1621 and 1622)


Requisite to show property previously bought on speculation dropped. xLegaspi v. Court
of Appeals, 69 SCRA 360 (1976).
Right of redemption covers only resale and does not cover exchanges or barter of
properties xDe Santos v. City of Manila, 45 SCRA 409 (1972); and cannot arise unless both
adjacent lands are rural lands. xPrimary Structures Corp. v. Valencia, 409 SCRA 371 (2003).
When there is no issue that when the adjoining lands involved are both rural lands, then the
right of redemption can be exercised and the only exemption provided is when the buyer can
show that he did not own any other rural land. But the burden of proof to provide for the
exception lies with the buyer. xPrimary Structures Corp. v. Valencia, 409 SCRA 371, 374
(2003).

e. Sale of Credit in Litigation (Art. 1634) 30 Days from Notice of Demand to Pay.
For the debtor to be entitled to extinguish his credit by reimbursing the assignee under Art.
1634, the following requisites must concur: (a) there must be a credit or other incorporeal right;
(b) the credit or other incorporeal right must be in litigation; (c) the credit or other incorporeal
right must be sold to an assignee pending litigation; (d) the assignee must have demanded
payment from the debtor; (e) the debtor must reimburse the assignee for the price paid by the
latter, the judicial costs incurred by the latter and the interest on the price form the day on
which the same was paid; and (f) the reimbursement must be done within 30 days from the
date of the assignees demand. xSitus Dev. Corp. v. Asiatrust Bank, 677 SCRA 495 (2012).

3. When Period of Legal Redemption Begins (Art. 1623)


Both the letter and the spirit of the law argue against any attempt to widen the scope of the
notice specified in the Civil Code to include any other kind of notice, such as verbal or by
registration. xMarinao v. Court of Appeals, 222 SCRA 736 (1993).222
The 30-day period for the commencement of the right to exercise the legal redemption right,
even when such right has been recognized to exist in a final and executory court decision, does
not begin from the entry of judgment, but from the written notice served by the seller to the party
entitled to exercise such redemption right. xGuillen v. CA, 589 SCRA 399 (2009).
The interpretation of Art. 1623 where there is a need for notice in writing, should always tilt in
favor of the redemptioner and against the buyer, since the purpose is to reduce the number of
participants until the community is terminated, being a hindrance to the development and better
administration of the property. It is a one-way street, in favor of the redemptioner since he can
compel the buyer to sell to him but he cannot be compelled by the vendee to buy. xHermoso v.
Court of Appeals, 300 SCRA 516 (1998).
The 30-day period does not begin to run in the absence of written notification coming from the
seller. xCua v. Vargas, 506 SCRA 374 (2006);223 and it must be a written notice of a perfected
sale. xSpouses Doromal v. Court of Appeals, 66 SCRA 575 (1975).
The written notice of sale is mandatory, notwithstanding actual knowledge of a co-owner, in
order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy
and status. xVerdad v. CA, 256 SCRA 593 (1996).
Notice to minors may validly be served upon parents even when the latter have not been
judicially appointed as guardians since the same is beneficial to the children. xBadillo v. Ferrer,
152 SCRA 407 (1987).
Neither the registration of the sale xCabrera v. Villanueva, 160 SCRA 627 (1988), nor the
- 48 -
Notice required under Art. 1623 is deemed to have been complied with when other co-owner
has signed Deed of Extrajudicial Partition which embodies the disposition of part of the property
owned in common. xFernandez v. Tarun, 391 SCRA 653 (2002).
The existence of a clause in the deed of sale to the effect that the vendor has complied with
the provisions of Art. 1623, cannot be taken to being the written affirmation under oath, as well
as the evidence, that the required written notice to petitioner under Art. 1623 has been meet, for
the person entitled to the right is not a party to the deed of sale. xPrimary Structures Corp. v.
Valencia, 409 SCRA 371 (2003).
Francisco v. Boiser, 332 SCRA 305 (2000), summarized the case-law on Art. 1623, and
with definitiveness declared:
For the 30-day redemption period to begin to run, notice must be given by seller; notice given by
the buyer or even by the Register of Deeds is not sufficient. This expressly affirms the original
rulings in xButte v. Manuel Uy and Sons, 4 SCRA 526 (1962), and xSalatandol v. Retes, 162
SCRA 568 (1988); and expressly overruled the ruling in xEtcuban v. CA, 148 SCRA 507 (1987),
which allowed the giving of notice by the buyer to be effective under Art. 1623.
When notice is given by the proper party (seller), no particular form of written notice is prescribed
under Art. 1623, so that the furnishing of the copies of the deeds of sale to the co-owner would be
sufficient, as held previously in xDistrito v. CA, 197 SCRA 606 (1991); xConejero v. CA, 16 SCRA
775 (1966); xBadillo v. Ferrer, 152 SCRA 407 (1987.
Affirmed ruling in xAlonzo v. IAC, 150 SCRA 259 (1987), that filing of suit for ejectment or
collection of rentals against a co-owner actually dispenses with the written notice, and
commences running of period to exercise the right of redemption, since filing of the suit amounted
to actual knowledge of the sale.

a. Rare Exceptions When the sale to the buyer was effected through the co-owner who acted
as the broker, and never indicated that he would exercise his right to redeem. xDistrito v. CA,
197 SCRA 606 (1991).
When the buyers took possession of the property immediately after the execution of the
deed of sale in their favor and lived in the midst of the other co-owners who never questioned
the same. xPilapil v. CA, 250 SCRA 560 (1995).

4. OTHER LEGAL REDEMPTION RIGHTS


a. Redemption in Patents (Sec. 119, C.A. 141)
Right to repurchase is granted by law and need not be provided for in the deed of sale.
xBerin v. Court of Appeals, 194 SCRA 508 (1991).
Under free patent or homestead provisions of the Public Land Act a period of five (5) years
from the date of conveyance is provided, to be reckoned from the date of the sale and not from
the date of registration in the office of the Register of Deeds. xLee Chuy Realty v. CA, 250
SCRA 596 (1995).224

b. Redemption in Tax Sales (Sec. 215, NIRC of 1997)

c. Redemption by Judgment Debtor (Secs. 27-28, Rule 39, Rules of Civil Procedure)
Written notice must be given to the judgment debtor before the sale of the property on
execution, to give him the opportunity to prevent the sale by paying the judgment debt sought
to be enforced and the costs which have been incurred. xTorres v. Cabling, 275 SCRA 329
(1997).
Where there is a third-party claim, sheriff should demand from the judgment creditor who
becomes the highest bidder, payment in cash of his bid instead of merely crediting the amount
to the partial satisfaction of the judgment debt. xTorres v. Cabling, 275 SCRA 329 (1997).
Under Sec. 28, Rule 39 of the 1997 Rules of Civil Procedure, the period of redemption shall
be at any time within one (1) year from the date of registration of the certificate of sale, so
that the period is now to be understood as composed of 365 days, unlike the 360 days under
the old provisions of the Rules of Court. xYsmael v. Court of Appeals, 318 SCRA 215 (1999).

d. Redemption in Extrajudicial Foreclosure (Sec. 6, Act 3135)


The redemption of extra-judicially foreclosed properties is exercised within one (1) year
from the date of the auction sale as provided for in Act 3135. xLee Chuy Realty Corp. v. Court
- 49 -
A stipulation to render the right to redeem defeasible by an option to buy on the part of the
creditor. Soriano v. Bautista, 6 SCRA 946 (1962).
No right to redeem from a judicial foreclosure sale, except those granted by banks or
banking institutions. xGSIS v. CFI, 175 SCRA 19 (1989).
The one-year redemption period in the case of foreclosure is not interrupted by the filing of
an action assailing the validity of the mortgage, so that at the expiration thereof, the mortgagee
who acquires the property at the foreclosure sale can proceed to have title consolidated in his
name and a writ of possession issued in his favor. xUnion Bank v. CAs, 359 SCRA 480
(2001).225
After bank has foreclosed the property as highest bidder in the auction sale, the accepted
offer of spouses-borrowers to repurchase the property was actually a new option contract,
and the condition that the spouses-borrowers will pay monthly interest during the one-year
option period is considered to be the separate consideration to hold the option contract valid.
xDijamco v. Court of Appeals, 440 SCRA 190 (2004).

f. Redemption in Foreclosure by Rural Banks (R.A. No. 720)


If the land is mortgaged to a rural bank, mortgagor may redeem within two (2) years from
the date of foreclosure or from the registration of the sheriff's certificate of sale at such
foreclosure if the property is not covered or is covered, respectively, by Torrens title. If the
mortgagor fails to exercise such right, he or his heirs may still repurchase within five (5) years
from expiration of the two (2) year redemption period pursuant to Sec. 119 of the Public Land
Act (C.A. 141). xRural Bank of Davao City v. Court of Appeals, 217 SCRA 554 (1993).226

g. Legal Right to Redeem under Agrarian Reform Code


Under Section 12 of R.A. 3844, as amended, in the event that the landholding is sold to a
third person without the knowledge of the agricultural lessee, the latter is granted by law the
right to redeem it within 180 days from notice in writing and at a reasonable price and
consideration. xQuio v. Court of Appeals, 291 SCRA 249 (1998).227

XIV. ASSIGNMENT (Arts. 1624-1635)


Assignment is the process of transferring the right of assignor to assignee who would then have
the right to proceed against the debtor. The assignment may be done gratuitously or onerously [?],
in the latter case, the assignment has an effect similar to that of a sale. xLicaros v. Gatmaitan, 362
SCRA 548 (2001).228
In its most general and comprehensive sense, an assignment is a transfer or making over to
another of the whole of any property, real or personal, in possession or in action, or of any estate or
right therein. It includes transfers of all kinds of property, and is peculiarly applicable to intangible
personal property and, accordingly, it is ordinarily employed to describe the transfer of non-
negotiable choses in action and of rights in or connected with property as distinguished from the
particular item or property. xPNB v. Court of Appeals, 272 SCRA 291 (1997).

1. Perfection by Mere Consent (Art. 1624)

2. But Must Be in Public Instrument to Affect Third Parties (Art. 1625)

3. Effects of Assignment
a. Assignment of Credit
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the
assignor, by a legal cause, such as sale, dacion en pago, exchange or donation, and without the
consent of the debtor, transfers his credit and accessory rights to another, known as the
assignee, who acquires the power to enforce it to the same extent as the assignor could enforce
it against the debtor. xAquintey v. Tibong, 511 SCRA 414 (2006).229
As a consequence, the third party steps into the shoes of the original creditor as subrogee of
the latter. Although constituting a novation, such assignment does not extinguish the obligation
under the credit assigned, even when the assignment is effected without his consent. xSouth City
Homes V. BA Finance Corp., 371 SCRA 603 (2001).
By virtue of the Deed of Assignment, the assignee is deemed subrogated to the rights and
- 50 -
assignor. The general rule is that an assignee of a nonnegotiable chose in action acquires no
greater right than what was possessed by his assignor and simply stands into the shoes of the
latter. xFort Bonifacio Dev. Corp. v. Fong, 754 SCRA 544 (2015).
b. Issues Relating to Debtor (Art. 1626)
In an assignment of credit, the debtors consent is not essential for its perfection, his
knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any
payment he might make. xProject Builders v. Court of Appeals, 358 SCRA 626 (2001).
Consent of debtor is not necessary in order that assignment may fully produce legal effects,
and the duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would
be prevented from assigning their credits because of the possibility of the debtors refusal to given
consent. What the law requires in an assignment of credit is mere notice to debtor, the purpose of
which is only to inform the debtor that from the date of the assignment, payment should be made
to the assignee and not to the original creditor. xNIDC v. De los Angeles, 40 SCRA 489 (1971).230
c. Accessories and Accessions (Art. 1627)
Assignment of a credit includes all the accessory rights, such as guaranty, mortgage, pledge
or preference. xUnited Planters Sugar Milling Co. (UPSUMCO) v. CA, 527 SCRA 336 (2007).
d. Tradition in Assignment
Notarization converts a private document Assignment of Credit into a public document, thus
complying with the mandate of Art. 1625 of the Civil Code and making it enforceable even as
against third persons. xLedonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
4. Warranties of Assignor (Art. 1628)
Assignor warrants only the existence or legality of the credit but not the solvency of the debtor.
Nyco Sales Corp. v. BA Finance, 200 SCRA 637 (1991).
EXCEPTIONS: (a) If this is expressly warranted;
(b) If insolvency is known by the assignor prior to assignment;
(c) If insolvency is prior to assignment is common knowledge.
When dacion en pago takes the form of an assignment of credit, it may extinguishe the obligation;
however, by virtue of the warranty in Art. 1628, which makes the vendor liable for the existence and
legality of the credit at the time of sale, when it is shown that the assigned credit no longer existed at
the time of dation, then it behooves the assignor to make good its warranty and pay the obligation.
xLo v. KJS Eco-Formwork System Phil., 413 SCRA 182 (2003).

5. Right of Repurchase on Assignment of Credit under Litigation (Arts. 1634 and1635)

6. Subrogation versus Assignment of Credit (Art.1301)


Subrogation extinguishes the obligation and gives rise to a new one; assignment refers to the
same right which passes from one person to another. Nullity of an old obligation may be cured by
subrogation, such that a new obligation will be perfectly valid; but such nullity is not remedied by the
assignment of the creditors right to another. In an assignment of credit, the consent of the debtor is
not necessary in order that the assignment may fully produce legal effects; whereas, conventional
subrogation requires an agreement among the three parties concerned original creditor, debtor,
and new creditor. It is a new contractual relation based on the mutual agreement among all the
necessary parties. Licaros v. Gatmaitan, 362 SCRA 548 (2001).231

7. Assignment of Copyright (Sec. 180, Intellectual Property Code)

8. Assignment as an Equitable Mortgage


When assignor executes a Deed of Assignment covering her leasehold rights in order to secure
payment of promissory notes covering the loan she obtained from the bank, such assignment is
equivalent to an equitable mortgage, and non-payment of the loan cannot authorize bank to register
the leasehold rights in its name as it would be a violation of Art. 2088 against pactum commissorium.
The proper remedy of the assignee is to proceed to foreclose on the leasehold right assigned as
security for the loan. xDBP v. CA, 284 SCRA 14 (1998).
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a. Goods, wares, merchandise, provisions or material other than in the ordinary course of
business;
b. All, or substantially all of all or substantially all of the fixtures and equipment used in
and about the business;
c. All, or substantially all of the business or trade theretofore conducted by the vendor,
mortgagor, transferor, or assignor.
The Bulk Sales Law (BSL) must be construed strictly. The disposal by the owner of a foundry
shop of all his iron bars and others does not fall under the law, because the contents of a foundry
shop are not wares and merchandise. BSL only covers sales in bulk of fixtures and equipment
used in the mercantile business, which involves the buying and selling of merchandise. xPeople
v. Wong, [CA] 50 O.G. 4867 (1954).
BSL applies to merchants who are in the business of selling goods and wares and similar
merchandise, and cannot cover the sale of assets by a manufacturer since the nature of his
business does not partake of merchandise. DBP v. Judge of the RTC of Manila, 86 O.G. No. 6
1137 (05 Feb. 1990).

3. Compliance Requirements Under the Law


a. The merchant must give the buyer a certified schedule of his debts: names of creditors,
amounts owing to each and the nature of the debt.
b. Purchase price paid must be applied proportionately to these debts.
c. Ten (10) days before the sale, the seller must take an inventory of his stock and advise all his
creditors of the same.
EXCEPTION: When the seller obtains a written waiver from all creditors.

4. Effects of Non-Compliance
a. If purchase money or mortgage proceeds are not applied pro-rata to payment of the bona fide
claims of the creditors, the sale is deemed fraudulent and void. (Sec. 4)
b. Non-giving of the list of creditors or intentional omission of the names of some of the creditors,
and placing of wrong data required by law, would subject the seller or mortgagor to penal
sanctions. (Sec. 4)
c. Bulk transfer without consideration or for nominal consideration punishable. (Sec. 7)
d. Failure to comply with other provisions of the law the non-application of the consideration
proportionately to the creditors, the preparation of the inventory, and the notification to
creditors, are also made punishable. (Sec. 11)
A bulk sale done without complying with the Law, makes the transaction fraudulent and void,
but does not change th relationship between seller/assignor/encumbrancer and his creditor.
Hence, a judgment providing for subsidiary liability is invalidproper remedy is to collect on the
credit against the defendants, and if they cannot pay, to attach on the property fraudulently
mortgage since it still pertain to the debtors-defendants. xPeople v. Mapoy, 73 Phil. 678 (1942).

XVI. RETAIL TRADE LIBERALIZATION ACT (RTLA)


1. Public Policy under RTLA: A Reversal of Paradigm; Focus from Protecting Filipino
Retailers to Promoting the Consumers Interests.
The control and regulation of trade in the interest of the public welfare is an exercise of the
police power of the State. To the extent that the Retail Trade Liberalization Act (R.A. 8762),
lessens the restraint on the foreigners right to property or to engage in an ordinarily lawful
business, it cannot be said that the law amounts to a denial of the Filipinos right to property and
to due process of law. xEspina v. Zamora, 631 SCRA 17 (2010).

2. Scope and Definition of Retail Trade


a. Elements: (1) Seller engaged in habitual selling;
(2) Selling direct to the general public; and
(3) Object of the sale is limited to merchandise,
commodities or goods for consumption.
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a hotel-owner or -keeper since the same does not constitute the act of habitually selling direct
to the general public merchandise, commodities or goods for consumption. SEC Opinion No.
11, series of 2002, 13 Nov. 2002.
c. Meaning of For Consumption (DOJ Opinion No. 325, series of 1945; IRR of Law).
The Law limits its application to the sale of items sold for domestic or household, or
properly called consumer goods; whereas, when the same items are sold to commercial users,
they would constitute non-consumer goods and not covered by the Law. Balmaceda v.
Union Carbide Philippines, 124 SCRA 893 (1983).232
d. Meaning of General Public (DOJ Opinion No. 253, series of 1954).
Even when consumer goods is limited only to the officers of the company, the same would
still constitute retail trade covered by the Law. Goodyear Tire v. Reyes, Sr., 123 SCRA 273
(1983).
Where company manufactures glass products only on specific orders, it does not sell
directly to consumers but manufacturers its products only for the particular clients, it cannot be
said that it is a merchandiser. DBP v. Judge of RTC of Manila, 86 O.G. No. 6 1137, 05
Feb. 1990.

3. Categories of Retail Trade Enterprises


a. CATEGORY A Exclusive to Filipino citizens and 100% Filipino entities
b. CATEGORIES B AND C
c. CATEGORY D Luxury Items
d. Exempted Areas
e. Rights Granted to Former Natural-Born Filipinos

4. Foreign Investment or Engagement in Retail Trade in the Philippines


a. Requirements for Foreign Investors
b. Grandfather Rule on 100% Filipino Ownership of Corporate Entity: SEC Opinions, dated
20 March 1972 and 22 April 1983; DTI Opinion to Tanada, Teehankee & Carreon Law Office,
dated 3 August 1959.
c. Public Offerings of Shares of Stock

5. Foreign Retailers in the Philippines


a. Pre-qualification Requirements
b. Rules on Branches/Stores
c. Promotion of Locally-Manufactured Products
d. Prohibited Activities of Foreign Retailers
e. Binding Effect of License to Engage in Retail on Private Parties When a license to
engage in cocktail lounge and restaurant is issued to a Filipino married to a foreigner, it is
conclusive evidence of the latter's ownership of the retail business as far as private parties are
concerned. xDando v. Fraser, 227 SCRA 126 (1993).

6. Penalty Provision

7. Applicability of the Anti-Dummy Act (Comm. Act. 108, as amended by P.D. 715)
a. Law penalizes Filipinos who permit aliens to use them as nominees/dummies to enjoy
privileges reserved for Filipinos. Criminal sanctions are imposed on the president, manager,
board member or persons in charge of the violating entity and causing the latter to forfeit its
privileges, rights and franchises.
b. Section 2-A of the Law prohibits aliens from intervening in the management, operation,
administration or control of nationalized business, whether as officers, employees or laborers,
with or without remuneration. Aliens may not take part in technical aspects, provided no
Filipino can do such technical work, and with express authority from the Philippine President.
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The amendment was meant to settle the uncertainty created in the obiter opinion in Luzon
Stevedoring Corp. v. Anti-Dummy Board, 46 SCRA 474 (1972), which rejected the argument
that the Anti-Dummy Law covered only employment in wholly nationalized businesses and not
in those that are only partly nationalized.
The Filipino common-law wife of a Chinese national is not barred from engaging in the
retail business provided she uses capital exclusively derived from her paraphernal properties;
allowing her common-law Chinese husband to take part in management of the retail business
would be a violation of the law. xTalan v. People, 169 SCRA 586 (1989).

oOo

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