Professional Documents
Culture Documents
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?
1
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).
4
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).
5
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).
6
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).
7
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.
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).
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).
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
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).
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)
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).
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).
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)
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).
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).
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)
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).
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).
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
(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).
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).
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).
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).
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)
C. OBLIGATIONS OF BUYER
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]
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).
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).
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).
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).
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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).
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
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).
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).
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).
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).
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).
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
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).
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).
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).
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
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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).
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).
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).
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