ATENEO DE MANILA LAW SCHOOL

LAW ON SALES OUTLINE

FIRST SEMESTER, SY 2004-2005
TUESDAY

DEAN CESAR L. VILLANUEVA

14 JUNE 2005,

I. INTRODUCTION
A. DEFINITION OF SALE (Art. 1458)
In a contract of sale, the seller obligates himself to transfer the ownership of the determinate thing sold, and to deliver the same, to the buyer who obligates himself to pay a price certain to the seller. xAlfredo v. Borras, 404 SCRA 145 (2003). 1. Does Definition Cover Both Contract of Sale and Contract to Sell? No: xCoronel v. CA, 263 SCRA 15, 26 (1996). Yes: xGomez v. CA, 340 SCRA 720, 728 (2000).

2. ELEMENTS OF CONTRACT OF SALE

Since sale is a consensual contract, then he who alleges its existence must prove it by competent evidence, as well as of the essential elements thereof. xVillanueva v. CA, 267 SCRA 89 (1997). Article 1458 of the Civil Code provides for the elements of a valid contract of sale: (1) consent or meeting of the minds; (2) determinate subject matter; and (3) price certain in money or its equivalent. xManongsong v. Estimo, 404 SCRA 683 (2003).1 And the absence of any of these essential elements negates the existence of a perfected contract of sale. xDizon v. CA, 302 SCRA 288 (1999). When all three elements of a sale are present and proven, there being a meeting of the minds, then a perfected contract of sale arises, and its validity is not affected by the fact that previously a fictitious deed of sale was executed by the parties. xPealosa v. Santos, 363 SCRA 545 (2001); and hence the burden is on the other party to prove the contrary. xHeirs of Ernesto Biona v. CA, 362 SCRA 29 (2001). The absence of consent, as demonstrated by the rejection of the offer and the non-execution of the deed of sale, negates the existence of a perfected sale of land. xSpouses Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003). Absent such consent, the contract is null and void ab initio, is absolutely wanting in civil effects; it is equivalent to nothing. It produces no effects whatsoever either against or in favor of anyone; hence, it does not create, modify, or extinguish the judicial relation to which it refers. Under Article 1410 of the Civil Code, the action for the declaration of the non-existence of a contract does not prescribe. xCabotaje v. Pudunan, 436 SCRA 423 (2004).

3. STAGES OF CONTRACT OF SALE

A contract of sale undergoes the stages of negotiation or preparation, perfection, and finally consummation. xJovan Land, Inc. v. CA, 268 SCRA 160 (1997). Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is perfected. Perfection takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price. Consummation begins when the parties perform their respective undertaking under the contract of sale, culminating in the extinguishment thereof. xSan Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000).

The Outline presents the manner by which the LAW ON SALES will be taken-up in class. The x's and those footnoted in the Outline 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 other cases to be discussed. Unless otherwise indicated, the numbered articles refer to articles of the Civil Code of the Philippines)
Yason v. Arciaga, G.R. No. 145017, 28 January 2005; Jimenez, Jr. v. Jordana, 444 SCRA 250 (2004); Londres v. Court of Appeals, 394 SCRA 133 (2002); Katipunan v. Katipunan, 375 SCRA 199 (2002); Polytechnic University v. CA, 368 SCRA 691 (2001);Roble v. Arbasa, 362 SCRA 69 (2001); San Andres v. Rodriguez, 332 SCRA 769 (2000); Co v. CA, 312 SCRA 528 (1999); Quijada v. CA, 299 SCRA 695 (1998); Jovan Land, Inc. v. CA, 268 SCRA 160 (1997)

4. OBLIGATIONS CREATED: Two (2) sets of real obligations "to give" (Art. 1165). 5. CHARACTERISTICS OF SALE:
(a) Nominate and Principal A contract of sale is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. xSantos v. CA, 337 SCRA 67 (2000).2 (b) Consensual (Art. 1475; 20033)

Spouses Buenaventura v. Court of Appeals, G.R. No. 126376, 20 November

Sale is a consensual contract and is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price. xLaforteza v. Machuca, 333 SCRA 643 (2000); xYason v. Arciaga, G.R. No. 145017, 28 January 2005. From the time a party accepts the other partys offer to sell within the stipulated period without qualification, a contract of sale is deemed perfected, although they have not affixed their signatures to its written form. x Gabelo v. CA, 316 SCRA 386 (1999). The binding effect of sale on the parties is based on the principle that the obligations arising therefrom have the force of law between them. xVeterans Federation of the Philippines v. CA, 345 SCRA 348 (2000). Conditions Compatible with Nature of Sale. But, even if consensual, not all contracts of sale become automatically and immediately effective. . . In sales with assumption of mortgage, the assumption of mortgage is a condition precedent to the sellers consent and therefore, without approval of the mortgagee, the sale is not perfected. xBian Steel Corp. v. Court of Appeals, 391 SCRA 90 (2002). (c) Bilateral and Reciprocal (Arts. 1169 and 1191) Reciprocal obligations arise from the same cause, where each party is debtor and creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other . Ong v. CA, 310 SCRA 1 (1999). A contract of sale is a reciprocal transaction, the obligation or promise of each party is the cause or consideration for the obligation or promise by the other: buyer is obliged to pay the price, while seller must deliver actual possession of the subject matter. xAgro Conglomerates, Inc. v. CA, 348 SCRA 450 (2000).4 In reciprocal obligations [CLV: Like the option of the lessee to purchase the leased premises?] , the obligation or promise of each party is the consideration for that of the other. In the language of Article 1350, (i)n onerous contracts the cause is understood to be, for each contracting party, the prestation or promise of a thing or service by the other. Consequently, (t)he power to rescind . . . is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. xVda. De Quirino v. Palarca, 29 SCRA 1 (1969). (d) Onerous (Gaite v. Fonacier, 2 SCRA 830 [1961]). (e) Commutative (but see: Arts. 1355 and 1470) No proof was shown of the instances mentioned in Articles 1355 and 1470 of the Civil Code which would invalidate or even affect the Deeds of Sale. Indeed, there is no requirement that the price be equal to the exact value of the subject matter of sale; all that sellers believed was that they received the commutative value of what they gave. Buenaventura v. CA, 416 SCRA 263 (2003). (f) Sale Is Title and Not Mode5 While a contract of sale is perfected by mere consent, ownership of the thing sold is acquired only upon its delivery to the buyer. Upon the perfection of the sale, the seller assumes the obligation to transfer ownership and to delivery the thing sold, but the real right of ownership is transferred only by tradition or delivery thereof to the buyer. Alcantara-Daus v. de Leon, 404 SCRA 74 (2003).
2 3 4 5

Cavite Development Bank v. Lim, 324 SCRA 346 (2000); Lao v. CA, 275 SCRA 237 (1997); Romero v. CA, 250 SCRA 223 (1995); Bowe v. CA, 220 SCRA 158 (1993). Agasen v. CA, 325 SCRA 504 (2000); City of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 [1999]; Coronel v. CA, 263 SCRA 15, 26 (1996); Balatbat v. CA, 261 SCRA 128 (1996); Romero v. CA, 250 SCRA 223 (1995). Mortel v. KASSCO, 348 SCRA 391 (2000); xVelarde v. CA, 361 SCRA 56 (2001). Acap v. CA, 251 SCRA 30 (1995).

Sale, being a consensual contract, is perfected by mere consent. Ownership by seller on the thing sold at the time of perfection of the contract of sale is not an element for its perfection. What the law requires is that seller has the right to transfer ownership at the time the thing sold is delivered. Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale is still valid. xQuijada v. CA, 299 SCRA 695 (1998). While the general proposition is that a contract of sale is valid until rescinded, it is equally true that ownership of the thing sold is not acquired by mere agreement, but by tradition or delivery. x Equatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001). BUT SEE: xTitong v. CA, 287 SCRA 102 (1998), which defined a sale as a contract transferring dominion and other real rights in the thing sold.

B. SALE DISTINGUISHED FROM SIMILAR CONTRACTS

In determining the real character of sale, the title given to it by the parties is not as much significant as its substance. xRomero v. CA, 250 SCRA 223 (1995). Courts look at the intent of the parties and not at the nomenclature used to describe it. Pivotal to deciding this issue is the true aim and purpose of the contracting parties as shown by the terminology used in the covenant, as well as by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement. xLao v. CA, 275 SCRA 237 (1997). A contract is what the law defines it to be, taking into consideration its essential elements, and not what the contracting parties call it. The transfer of ownership in exchange for a price paid or promised is the very essence of a contract of sale. xSantos v. CA, 337 SCRA 67 (2000).

1. DONATION (Arts. 725 and 1471)

As opposed to a disposition inter vivos by lucrative or gratuitous title, a valid sale for valuable consideration does not diminish the estate of the seller. When the disposition is for valuable consideration, there is no diminution of the estate but merely substitution of values, that is, the property sold is replaced by the equivalent monetary consideration. Therefore, unlike a donation by the decedent, a valid sale cannot have the legal effect of depriving the compulsory heirs of their legitimes. xManongsong v. Estimo, 404 SCRA 683 (2003).

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

Assignment of property to the corporation by controlling shareholders in exchange for shares of stock is not a sale nor barter because the corporation cannot be considered a third party when it would be controlled by the transferor as part of estate planning. xDelpher Trades Corp. v. IAC, 157 SCRA 349 (1988).

3. CONTRACT

FOR PIECE-OF-WORK (Arts. 1467, 1713 to 1715; Celestino & Co. v. Collector, 99 Phil. 841 [1956]; Commissioner of Internal Revenue v. Engineering Equipment & Supply Co. , 64 SCRA 590 [1975]).

When a person 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. x Inchausti & Co. v. Cromwell , 20 Phil. 345 (1911). To Tolentino, the distinction between the two contracts depends on the intention of parties: if parties 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 of the parties accepts the undertaking on the basis of some plan, taking into account the work he will employ personally or through another, there is a contract for a piece of work. Engineering & Machinery Corp. v. CA, 252 SCRA 156 (1996). Under Art. 1467, what determines whether the contract is one of work or of sale is whether the thing has been manufactured specially for the customer and upon his special order. If the thing is specially done at the order of another, this is a contract for a piece of work. If the thing is manufactured or procured for the general market in the ordinary course of business, it is a contract of sale." xCommissioner of Internal Revenue v. Arnoldus Carpentry Shop , 159 SCRA 199 (1988). 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. [ Citing VILLANUEVA, LAW ON SALES, pp. 7-9 (1995)]. xCommissioner of Internal Revenue v. CA, 271 SCRA 605 (1997). The contract covered the manufacture upon order of 20,000 pieces of vinyl frogs and 20,000 pieces of vinyl mooseheads according to the samples given. Respondent did not ordinarily manufacture these products, but only upon order of the petitioners and at the price agreed upon. Clearly, the contract executed was a contract for a piece of work. At any rate, whether the agreement between the parties was one of a contract of sale or a piece of work, the provisions on warranty of title against hidden defects in a contract of sale apply. xDio v. CA, 359 SCRA 91 (2001).

4. AGENCY

TO

SELL (Art. 1466; Quiroga v. Parsons, 38 Phil. 501 [1918]; Puyat v. Arco Amusement Co., 72 Phil.
402 [1941]; Ker & Co., Ltd. v. Lingad, 38 SCRA 524 [1971])

The authorization given by original owner for and in our behalf to authorize buyer to withdraw part of the merchandise from the bailee did not establish any agency, since the letter to the bailee of the original owner used clearly the words sold and endorsed for the document of title, which meant clearly to cover a contract of sale, not an agency. One factor that most clearly distinguishes agency from other legal concepts, including sale, is control; one personthe agentagrees to act under the control or direction of anotherthe principal. The very word agency has come to connote control by the principal. The control factor, more than any other, has caused the courts to put contracts between principal and agent in a separate category. xVictorias Milling Co., Inc. v. CA, 333 SCRA 663 (2000). (a) An agency to sell does not belong to any of the three categories of contracts covered by Arts. 1357 and 1358 and not one enumerated under the Statutes of Frauds in Art. 1403. Hence, it is valid and enforceable in whatever form it may be entered into. xLim v. CA, 254 SCRA 170 (1996). (b) Special Position of Broker 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, Inc. v. RJL Martinez, 166 SCRA 493 (1988).

5. DACION EN PAGO (Arts. 1245 and 1934)

Dation in payment requires delivery and transmission of ownership of a thing owned by debtor to creditor as an accepted equivalent of the performance of the obligation. There is no dation when there is no such transfer of ownership in favor of the creditor, as when the possession is only by way of security. xPNB v. Pineda, 197 SCRA 1 (1991). In dacion en pago, as a special mode of payment, debtor offers another thing to the creditor who accepts it as equivalent of payment of a debt. In order that there be a valid dation in payment, the following are the requisites: (1) There must be the 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; (2) There must be some difference between the prestation due and that which is given in substitution ( aliud pro alio); (3) There must be an 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., Inc., 413 SCRA 182 (2003). What Does an Agreement to Dacion Prior to Delivery Represent? Philippine Lawin Bus Co. v. CA, 374 SCRA 332 (2002); xFilinvest Credit Corp. v. Philippine Acetylene Co., Inc. 111 SCRA 421 (1982).

6. LEASE (Arts. 1484 and 1485)

When rentals in a "lease" are clearly meant to be installment payments to a sale contract, despite the nomenclature given by the parties, it is a sale by installments. xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).

II. PARTIES TO A CONTRACT OF SALE (Arts. 1489-1492)

A. GENERAL RULE: A person authorized under the law to obligate himself, may enter into a contract of sale, whether
as seller or as buyer (Art. 1489). Majority age now at 18 years (Art. 234, Family Code, amended by R.A. 6809).

B. MINORS, INSANE AND DEMENTED PERSONS, DEAF-MUTES (Arts. 1327, 1397, 1399)
Petitioner could not have given her consent to the contract, being a minor at that time. Consent of the contracting parties is among the essential requisites of a contract, including one of sale, absent which there can be no valid contract. xLabagala v. Santiago, 371 SCRA 360 (2001). [CLV: in this case it would be voidable, and not void]

1. NECESSARIES (Arts. 1489 and 290) 2. XEMANCIPATION (Arts. 399 and 1397; Art. 234 and 236, Family Code; rendered inutile by R.A. 6809) C. SALES BY AND BETWEEN SPOUSES: 1. CONTRACTS WITH THIRD PARTIES (Arts. 73, 96, and 124, Family Code)

Under Art. 124 of Family Code, sale of a husband of a conjugal property without the consent of the wife is void, not merely voidable, since the resulting contract lacks one of the essential elements of full consent. x Guiang v. CA, 291 SCRA 372 (1998). Under the regime of the Civil Code [as contrasted from the Family Code], the alienation or encumbrance of a conjugal real property requires the consent of the wife. The absence of such consent renders the entire transaction merely voidable and not void. The wife may, during the marriage and within ten years from the transaction questioned, bring an action for the annulment of the contract [on the entire property, and not just the one-half portion that pertains to her share] entered into by her husband without her consent. x Heirs of Ignacia Aguilar-Reyes v. Mijares , 410 SCRA 97 (2003). Sale by husband of conjugal property without the wifes consent when there is no showing that the latter is incapacitated, is void ab initio because it is in contravention of the mandatory requirements of Art. 166 of the Civil Code. As an exception, the husband may dispose of conjugal property without the wifes consent if such sale is necessary to answer for conjugal liabilities mentioned in Articles 161 and 162 of the Civil Code. xAbalos v. Macatangay, Jr., 439 SCRA 64 (2004).

2. BETWEEN SPOUSES (Arts. 133, 1490, 1492; Medina v. Collector, 1 SCRA 302) 3. APPLICABILITY TO COMMON-LAW SPOUSES (Art. 133)
Sale by husband of conjugal land to his concubine is null and void for being contrary to morals and public policy and was subversive of the stability of the family, a basic social institution which public policy cherishes and protects. Calimlim-Canullas v. Fortun, 129 SCRA 675 (1984). Under Art. 1490, the husband and wife cannot sell property to one another as a rule which for policy consideration and the dictates of morality require that the prohibition apply to common-law relationships. xMatabuena v. Cervantes, 38 SCRA 284 (1971). Nevertheless, when the property has been resold to a third-party buyer in good faith and for value, reconveyance is no longer available. xCruz v. CA, 281 SCRA 491 (1997). 4. Is In Pari Delicto Doctrine Applicable to Prohibit Recovery? Only the heirs and the creditors can question its nullity and not the spouses themselves who executed the contract will full knowledge of the prohibition under Art. 1490. In effect, the in pari delicto doctrine would apply to the spouses-parties under Art. 1490. xModina v. CA, 317 SCRA 696 (1999).

D. OTHERS (Arts. 1491 and 1492) 1. STATUS OF SUCH CONTRACTS

(Rubias v. Batiller, 51 SCRA 120 [1973]).

Contracts entered into in violation of Arts. 1490 and 1492 are not merely voidable, but are null and void. xMedina v. Collector, 1 SCRA 302 (1961); xUy Sui Pin v. Cantollas, 70 Phil. 55 (1940).

2. GUARDIANS, AGENTS

AND

ADMINISTRATORS (Philippine Trust Co. v. Roldan , 99 Phil. 392 [1956]; xRodriquez v.

Mactal, 60 Phil. 13 [1934]).

(a) The prohibition under Art. 1491(2) against agents is not absolute, and does not apply if the principal consents to the sale of the property in the hands of the agent or administrator. xDistajo v. CA, 339 SCRA 52, 57 (2000). (b) Hereditary rights are not included in the prohibition insofar as administrator or executor of the estate of the deceased. xNaval v. Enriquez, 3 Phil. 669 (1904). (c) An RTC has jurisdiction to annul a sale made upon prior authority of a probate court but which is prohibited under Art. 1492. This does not constitute an interference or review of the order of a co-equal court since the probate court has no jurisdiction over the question of title to subject properties. x Modina v. CA, 317 SCRA 696, 706 (1999).

3. ATTORNEYS (Rubias v. Batiller, 51 SCRA 120 [1973])

(a) Prohibition applies only to sale 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, and made in payment of professional services in other cases. xMunicipal Council of Iloilo v. Evangelista , 55 Phil. 290 (1930); xGregorio Araneta, Inc. v. Tuason de Paterno, 49 O.G. 45 (1952). Prohibition does not apply to sale of a land, acquired by a client to satisfy a judgment in his favor, to his attorney as long as the property was not the subject of the litigation. xDaroy v. Abecia, 298 SCRA 172 (1998).

(b) Prohibition applies only while litigation is pending (xDirector of Lands v. Ababa, 88 SCRA 513 [1979]); the pendency of a certiorari proceeding even after final judgment is still covered by the restriction. xValencia v. Cabanting, 196 SCRA 302 (1991). Prohibition does not apply to lawyer who acquired property prior to the time he intervened as counsel in an ejectment suit involving such property. xDel Rosario v. Millado, 26 SCRA 700 (1969). (c) Contingency Fee Arrangements The prohibition does not apply to a contingent fee based on the value of property involved in litigation and does not prohibit a lawyer from acquiring a percentage of the value of properties in litigation that may be awarded to his client. xRecto v. Harden, 100 Phil. 427 (1956); xVda. de Laig v. CA, 86 SCRA 641 (1978). Does not apply to a contingency fee arrangement which grants the lawyer of record 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 in the case. Fabillo v. IAC, 195 SCRA 28 (1991).

4. JUDGES
A judge who buys property in litigation in his court after the judgment becomes final does not violate the provisions of Art. 1491, but he can be administratively disciplined for violation of the code of judicial ethics. x Macariola v. Asuncion, 114 SCRA 77 (1982). 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).

III. SUBJECT MATTER OF SALE (Arts. 1459 to 1465)

The general requisite for a valid and enforceable contract of sale that it be mutually obligatory, i.e., there should be a concurrence of the promise of the vendor to sell a determinate thing and the promise of the vendee to receive and pay for the property so delivered and transferred. The Civil Code provision is, in effect, a catch-all provision which effectively brings within it grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration . Polytechnic University v. CA, 368 SCRA 691 (2001). Research undertaken by the Institute of Philippine Culture of the Ateneo de Manila University pursuant to an endowment or grant given by sponsors cannot be considered a contract of sale or a contract for a piece of work, since the essence of a contract of sale requires a transfer of ownership. Transfer of title or an agreement to transfer if for a price paid or promised to be paid is the essence of sale. xCommissioner of Internal Revenue v. CA and Ateneo de Manila University, 271 SCRA 605 (1997),

A. MUST BE EXISTING, FUTURE OR CONTINGENT (Arts. 1347, 1348, and 1462) 1. EMPTIO REI SPERATAE (Arts. 1461 and 1347)
There can be a valid contract of sale over future fruits of a coconut farm (sale of the coconut fruits), and such transaction cannot be considered to effectively be sale of the land itself. xPichel v. Alonzo, 111 SCRA 341 (1981). Pending crops which have potential existence may be valid subject matter of sale. xSibal v. Valdez, 50 Phil. 512 (1927). To remove all doubts, we hereby categorically rule that, pursuant to Art. 1347 of Civil Code, "(n)o contract may be entered into upon a future inheritance except in cases expressly authorized by law." Consequently, said contract is not valid and cannot be the source of any right nor create any obligation between the parties. xTaedo v. CA, 252 SCRA 80 (1996). Art. 1347 does not cover waiver of hereditary rights which is not equivalent to sale of hereditary rights, since waiver is a mode of extinction of ownership where there is abdication or intentional relinquishment of a known right with knowledge of its existence and intention to relinquish it, in favor of the other persons who are co-heirs in the succession. xAcap v. CA, 251 SCRA 30 (1995).

2. EMPTIO SPEI (Art. 1461) 3. SUBJECT TO RESOLUTORY CONDITION (Art. 1465) B. MUST BE LICIT (Arts. 1347, 1459 and 1575) C. MUST BE DETERMINATE OR DETERMINABLE
(Art. 1460; Melliza v. City of Iloilo, 23 SCRA 477 [1968]; Londres v. CA, 394 SCRA 133 (2002);

When the deed of sale describes a lot adjacent to the land seen and agreed upon and actually delivered to the buyer, the land upon which the minds have met, and not that described in the deed, is the basis of consummation and enforcement. xAtilano v. Atilano, 28 SCRA 231 [1969]). Where the lot sold is said to adjoin the previously paid lot on three sides thereof, the subject lot is capable of being determined without the need of any new contract, and the fact that the exact area of the adjoining residential lot is subject to the result of a survey does not detract from the fact that they are determinate or determinable. x San Andres v. Rodriguez, 332 SCRA 769 (2000). 1. GENERIC THINGS MAY BE OBJECT OF SALE (Arts. 1246 and 1409[6]; Yu Tek & Co. v. Gonzales, 29 Phil. 384 [1915]). 2. UNDIVIDED INTEREST (Art. 1463) or UNDIVIDED SHARE IN A MASS OF FUNGIBLE GOODS (Art. 1464) may be valid object of sale. It would result it co-ownership. When parties have not made any contractual provisions for the measuring or weighing of the subject matter sold which is a specific mass, and the price agreed upon was not based on such measurement, then "[t]he subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein, so that all that is required of seller was to deliver in good faith to his buyer all of those found in the mass, notwithstanding that the quantity delivered is less than the amount estimated in the contract. xGaite v. Fonacier, 2 SCRA 831 (1961). 3. Effect of Sale of Mortgaged Property A prior mortgage does not prevent the mortgagor from selling the property. A mortgage is merely encumbrance on the property and does not extinguish the title of the debtor who does not lose his principal attribute as owner to dispose of the property. The law even considers void a stipulation forbidding the owner of the property from alienating the mortgaged immovable. xPineda v. Court of Appeals 409 SCRA 438 (2003). D. QUANTITY OF SUBJECT MATTER NOT ESSENTIAL FOR PERFECTION? (Art. 1349; National Grains Authority v. IAC, 171 SCRA 131 [1989]; Johannes Schuback & Sons Phil. Trading Corp. v. CA, 227 SCRA 719 [1993]). E. SELLER'S OBLIGATION TO TRANSFER OWNERSHIP AT TIME OF DELIVERY (Art. 1459, 1462, & 1505). 1. Seller's ownership need not exist at perfection of contract because future goods may be sold at time of perfection. It is sufficient that he is owner at time of delivery. A contract of sale cannot be declared void for failure of seller to reveal fact that it was not owner of the property sold. xHilltop v. Villacorta, 13 CAR 113 (1968). Sale of copra for future delivery does not make seller liable for estafa for failing to deliver because the contract is still valid and the obligation becomes civil and not criminal. xEsguerra v. People, 108 Phil. 1078 (1960). It is essential that seller is the 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. Noel v. CA, 240 SCRA 78 (1995). Although a situation where sellers were no longer owners of the goods at perfection does not appear to be one of the void contracts enumerated in Art. 1409 of Civil Code, and under Art. 1402 the Civil Code itself recognizes a sale where the goods are to be acquired x x x by the seller after the perfection of the contract of sale" clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on; nevertheless such contract may be deemed to be inoperative and may thus fall, by analogy, under Art. 1409(5): "Those which contemplate an impossible service." Article 1459 provides that "the vendor must have a right to transfer the ownership thereof [object of the sale] at the time it is delivered." Here, delivery of ownership is no longer possible; it has become impossible. Nool v. CA, 276 SCRA 149 (1997). The contract of sale creates an obligation on the part of the seller to transfer ownership and to deliver the subject matter of the contract. It is during the delivery that the law requires the seller to have the right to transfer ownership of the thing sold. In general, a perfected contract of sale cannot be challenged on the ground of the sellers non-ownership of the thing sold at the time of the perfection of the contract. x Alcantara-Daus v. de Leon, 404 SCRA 74 (2003). 2. Subsequent acquisition of title by a seller without title validates the sale and title passes to the seller by operation of law (Art. 1434). 3. Acquisition by the buyer may even depend on contingency (Art. 1462). F. LEGALITY OF SUBJECT MATTER (Arts. 1409, 1458, 1461, 1462, and 1575)

1. xSpecial Laws: narcotics (R.A. 6425); wild bird or mammal (Act 2590, Sec. 7); rare wild plants (Act 3983); poisonous plants or 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) Sale of land by Non-Christian void if not approved by Provincial Governor per Sec. 145 of Revised Administrative Code. xTac-an v. CA, 129 SCRA 319 (1984). Sale of friar land without the consent of the Secretary of Agriculture required under Act No. 1120 null and void. xAlonso v. Cebu Country Club, Inc., 375 SCRA 390 (2002); Liao v. CA, 323 SCRA 430 (2000). Sales of land made in violation of the land reform laws declaring tenant-tillers as the full owners of the lands they tilled, are considered null and void. xSiacor v. Gigantana, 380 SCRA 306 (2002).

2. SALE COMPLETELY SIMULATED

A deed of sale that is completely simulated is void and without effect. xYu Bun Guan v. Ong, 367 SCRA 559 (2001). Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was really executed. A simulated contract is not really desired or intended to produce legal effects or does not in any way alter the juridical situation of the parties. x Payongayong v. Court of Appeals, 430 SCRA 210 (2004). Article 1345 of the Civil Code provides that the simulation of a contract may either be absolute or relative. In absolute simulation, there is a colorable contract but without any substance, because the parties have no intention to be bound by it. An absolutely simulated contract is void, and the parties may recover from each other what they may have given under the contract. On the other hand, if the parties state a false cause in the contract to conceal their real agreement, such a contract is relatively simulated, and the parties real agreement binds them. x Heirs of Spouses Balite v. Lim, G.R. No. 152168, 10 December 2004. When parties enter into sale to which they did not intend to be legally bound, such is void and is not susceptible of ratification, produces no legal effects, and does not convey property rights nor in any way alter the juridical situation of the parties. xRosario v. CA, 310 SCRA 464, 481 (1999). Simulation occurs when an apparent contract is a declaration of a fictitious will, deliberately made by agreement of the parties, in order to produce, for the purpose of deception, the appearance of a juridical act which does not exist or is different from that which was really executed. xVillaflor v. CA, 280 SCRA 297 (1997). 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. xLoyola v. CA, 326 SCRA 285 (2000). Simulation takes place when the parties do not really want the contract they have executed to produce the legal effects expressed by its wordings, as shown by the non-payment of the stipulated consideration, and also the absence of any attempt by the buyers to assert their alleged rights over the subject property. When the Deed of Sale is executed merely to facilitate the use of the property as collateral to secure a loan from a bank, being merely a subterfuge, these agreements could not have been the source of any consideration for the supposed sale. xCruz v. Bancom Finance Corp., 379 SCRA 490 (2002); xMendezona v. Ozamiz, 376 SCRA 482 (2002). Failure of alleged buyers to take exclusive possession of property sold, or alternatively to collect rentals from alleged seller, is contrary to the principle of ownership and a clear badge of simulation that renders the whole transaction void. xSantiago v. CA, 278 SCRA 98 (1997). Although the agreement did not provide for the absolute transfer ownership of the land to buyer, that did not amount to simulation, since delivery of certificate of ownership 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. Such conditions do not affect the perfection of the contract or prove simulation. x Villaflor v. CA, 280 SCRA 297 (1997). Bare assertions that the signature appearing on the Deeds of Sale is not that of her husband is not enough to allege simulation, since forgery is not presumed; it must be proven by clear, positive and convincing evidence. Those who make the allegation of forgery have the burden of proving it since a mere allegation is not evidence. In the case at bar, where the alleged forced signature was that of a President of a corporation, petitioners could have easily presented other documents bearing the true signature. xR.F. Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).

3. EFFECT WHEN SALE DECLARED VOID

When a contract of sale is void, the possessor is entitled to keep the fruits during the period for which the buyer held the property in good faith. xDBP v. CA, 316 SCRA 650 (1999).

When a performed contract of sale is declared void, then restoration of what has been given is in order, since the relationship between parties in any contract even if subsequently voided must always be characterized and punctuated by good faith and fair dealing. xDe los Reyes v. CA, 313 SCRA 632 (1999). An alien who purchases land and places the deed of sale in the name of his Filipina lover, has no standing to seek legal remedies to either recover the properties or to recover the purchase price paid. The transactions is void ab initio for being in violation of the constitutional prohibition against aliens owning private land, and under the doctrines ex dolo oritur actio and in pari delicto potior est conditio defendentis, neither a court of equity nor a court of law will administer a remedy. The provision of on unjust enrichment under Article 1416 of the Civil Code will also not apply since they cover only contracts which are merely prohibited in order to benefit private interests. xFrenzel v. Catito, 406 SCRA 55 (2003). If a voidable contract of sale is annulled, the restoration of what has been given is proper. The relationship between parties in any contract even if subsequently annulled must always be characterized and punctuated by good faith and fair dealing. Hence, for the sake of justice and equity, and in consonance with the salutary principle of nonenrichment at anothers expense, the amount paid as price must be refunded, and to earn legal interest at 6% per annum to be computed from the filing of the complaint, and not at 12% because its is deemed not to constitute a loan or a forbearance of money. However, when the judgment on the principal and interests becomes final, thereafter the interest rate shall be at 12% per annum computed from the time the judgment becomes final and executory until it is fully satisfied. Heirs of Ignacia Aguilar-Reyes v. Mijares, 410 SCRA 97, 109-111 (2003).

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

"Price" signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him. xInchausti & Co v. Cromwell, 20 Phil. 345 (1911). A seller cannot unilaterally increase the purchase price previously agreed upon with the buyer, even when the need to adjust the price of sale is due to increased construction costs. xGSIS v. CA, 228 SCRA 183 (1993). A. PRICE MUST BE REAL (Art. 1471) 1. Sale is void, if the price is simulated; unless it can be shown to be a donation or another contract. ( Mapalo v. Mapalo, 17 SCRA 114 [1966]; Ong v. Ong, 139 SCRA 133 [1985]; Bagnas v. CA, 176 SCRA 159 [1989]; Mate v. CA, 290 SCRA 463 [1998]). (a) When Price Simulated When the deed of absolute sale states on its face that the purchase price has been paid by the buyer and received by the seller, and it is shown that no such price has been paid, then the sale will be adjudged as null and void for utter lack of consideration, and which must be distinguished from mere failure to pay the price stated, which would only entitle the seller to seek rescission. xMontecillo v. Reynes, 385 SCRA 244 (2002). When Deed of Sale was executed to merely facilitate transfer of property to buyer pursuant to enable buyer to construct a commercial building and to sell the property to the children, such arrangement being merely a subterfuge on the part of buyer, the agreement cannot also be taken as a consideration for the sale which is void. xYu Bun Guan v. Ong, 367 SCRA 559 (2001). When two aged ladies, not versed in English, are made to sign a Deed of Sale on representation by buyer that it was merely to evidence their lending of money, the situation constitutes more than just fraud and vitiation of consent to give rise to a voidable contract, since there was in fact no intention to enter into a sale, there was no consent at all, and more importantly, there was no consideration or price agreed upon, which makes the contract void ab initio. xRongavilla v. CA, 294 SCRA 289 (1998). Effects When Price Simulated When a contract of sale is fictitious, and therefore void and inexistent, as there was no consideration for the same, no title over the subject matter of the sale can be conveyed. Nemo potest nisi quod de jure potestno man can do anything except what he can do lawfully. x Traders Royal Bank v. CA, 269 SCRA 15 (1997). When the price in a purported contract of sale is completely simulated, then pari delicto nonoritur actio shall apply, which denies all recovery to the guilty parties inter se. Such principle applies to cases where the nullity arises from the illegality of the consideration or the purpose of the contract. The principle of in pari delicto does not apply with respect to inexistent and void contracts where the price or consideration is simulated. The doctrine applies only to cases where the nullity of the contract arises from the illegality of the consideration or the purpose of the contract. xModina v. CA, 317 SCRA 696 (1999).1

Yu Bun Guan v. Ong, , 367 SCRA 559 (2001); Gonzales v. Trinidad, 67 Phil. 682 (1939)

(b) False consideration (Arts. 1353 and 1354). (c) Non-Payment of Price Contract of sale being consensual, it is perfected by mere consent; delivery of the thing bought or payment of the price is not necessary for the perfection of the contract; and failure of the buyer to pay the price after the execution of the contract does not make the sale null and void for lack of consideration but results in buyers default, for which the seller may exercise his legal remedies. x Balatbat v. CA, 261 SCRA 128 (1996); xPealosa v. Santos, 363 SCRA 545 (2001). Failure to pay the consideration is different from lack of consideration. The former results in a right to demand the fulfillment or cancellation of the obligation under an existing valid contract while the latter prevents the existence of a valid contract. Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration. xMontecillo v. Reynes, 385 SCRA 244 (2002). There is a valid sale even though the purchase price is not paid in full. The unpaid sellers remedy is an action to collect the balance or to rescind the contract within the time allowed by law. xSoliva v. The Intestate Estate of Marcelo M. Villalba, 417 SCRA 277 (2003).

BUT: Curiously, there seems to be jurisprudence to the effect that when the price is not paid, the contract is void. xLadanga v. CA, 131 SCRA 361 (1984).
Admission by the buyer that he did not pay any centavo for the property, makes the sale void, especially when shown that the deed of sale was forged. xLabagala v. Santiago, 371 SCRA 360 (2001). A contract of sale is void and produces no effect whatsoever where the price, which appears thereon as paid, has in fact never been paid by the purchaser to the vendor. xVda. de Catindig. v. Heirs of Catalina Roque , 74 SCRA 83 (1976). "In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission. x Heirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997). B. MUST BE IN MONEY OR ITS EQUIVALENT (Arts. 1458, 1468; Republic v. Phil. Resources Development , 102 Phil. 960 [1958]). Consideration, more properly denominated as cause, can take different forms, such as the prestation or promise of a thing or service by another. When the covering contract of sale of a parcel of land clearly provides that the consideration was the expectation of profits from the subdivision project, it constitutes valid cause or consideration to validate the sale and delivery of the land. xTorres v. CA, 320 SCRA 428 (1999). The cancellation of liabilities in favor of the seller of property constitutes valid consideration for the sale. xPolytechnic University v. CA, 368 SCRA 691 (2001). C. MUST BE CERTAIN OR ASCERTAINABLE AT TIME OF PERFECTION (Art. 1469) D. MANNER OF PAYMENT ESSENTIAL (Velasco v. CA, 51 SCRA 439 [1973]). In a contract of sale, the parties must agree not only on the price, but also on the manner of payment of the price. An agreement on the price but a disagreement on the manner of its payment will not result in consent, thus preventing the existence of a valid contract for lack of consent. This lack of consent is separate and distinct from lack of consideration where the contract states that the price has been paid when in fact never been paid. xMontecillo v. Reynes, 385 SCRA 244 (2002).2 When the manner of payment of the price is discussed after "acceptance," then such "acceptance" did not produce a binding and enforceable contract of sale; there was therefore no complete meeting of the minds and there is no basis to sue on a "contract" that does not exist. xNavarro v. Sugar Producer's Corp., 1 SCRA 1180 (1961) Consideration appearing in a supplemental agreement to a sale must have been part of the consideration for the sale of hacienda, for it is not normal human behavior for parties to a sale to execute a deed without a settled consideration and latter agree on further consideration. Consideration is generally agreed upon as whole even if it consists of several parts, and even if it is contained in one or more instruments. Otherwise there would be no price certain, and no meeting of minds as to the consideration; and the contract of sale could not be perfected. xArimas v. Arimas, 55 O.G. 8682.

San Miguel Properties Philippines v. Huang, 336 SCRA 737 (2000); Co v. CA, 286 SCRA 76 (1998).

10

Where there is no other basis for the payment of the subsequent amortizations in a Deed of Conditional Sale, the reasonable conclusion one can reach is that the subsequent payments shall be made in the same amount as the first payment. xDevelopment Bank of the Philippines v. CA, 344 SCRA 492 (2000). E. HOW PRICE DETERMINED 1. By Third Person (Art. 1469) 2. By the Courts (Art. 1469) 3. By Reference to a Definite Day, Particular Exchange or Market (Art. 1472) 4. By Reference to Another Thing Certain The price of a thing is certain at the point of perfection by reference to another thing certain, such as to certain invoices the in existence and clearly identified by the agreement (xMcCullough v. Aenlle, 3 Phil. 285 [1904]); or known factors or stipulated formula (xMitsui v. Manila, 39 Phil. 624 [1919]). 5. BUT Never by One Party to the Contract (Arts. 1473, 1182), unless the price is separately accepted by the other party. 6. Effect of Unascertainability: Contract is inefficacious; but if buyer nonetheless appropriates the object, he must pay reasonable price (Art. 1474). F. INADEQUACY OF PRICE DOES NOT AFFECT ORDINARY SALE (Arts. 1355 and 1470) That the consideration in the sale was cheap is not a ground for the infirmity of the sale. Inadequacy of cause in a contract does not of itself invalidate the contract. xEreeta v. Bezore, 54 SCRA 13 (1973). Inadequacy of price may be a ground for setting aside an execution sale but is not sufficient for cancellation of a voluntary sale which otherwise free from invalidating effects. xAlarcon v. Kasilag, 40 O.G. Supp. 15, p. 203 (1940). The mere inadequacy of the price does not affect the validity of the sale when both parties are in a position to form an independent judgment concerning the transaction, unless fraud, mistake, or undue influence indicative of a defect in consent is present. A contract may consequently be annulled on the ground of vitiated consent and not due to the inadequacy of the price. Bautista v. Court of Appeals, 436 SCRA 141 (2004). 1. Gross inadequacy of price may avoid judicial sale only when it is shocking to the conscience of man ( xPascua v. Simeon, 161 SCRA 1 [1988]); and there is showing that, in the event of a resale, a better price can be obtained (x Cu Bie v. CA, 15 SCRA 307 [1965]; xTayengco v. CA, 15 SCRA 306 [1965]). By way of extraordinary circumstances perceived, when in a judicial sale the right of redemption has been lost, where the inadequacy of the price is purely shocking to the conscience, such that the mind revolts at it and such that a reasonable man would neither directly or indirectly be likely to consent to it, the same will be se aside. x Cometa v. CA, 351 SCRA 294 (2001). A sale in mass of separate known lots will not be set aside, unless it is made to appear that a larger sum could have been realized from a sale in parcels or that a sale of less than the whole would have been sufficient to satisfy the debt. xRepublic v. NLRC, 244 SCRA 564 (1995). (a) Unless there is right of redemption (xVda. de Gordon v. CA , 109 SCRA 388; xDe Leon v. Salvador, 36 SCRA 567 [1970]). (b) When judicial sale is voided without fault of purchaser, the latter is entitled reimbursement of purchase money paid. A judicial sale can only be set aside upon return to buyer of purchase price with simple interest, together with all sums paid out by him in improvements introduced on the property, taxes, and other expenses by him. xSeven Brothers Shipping Corp. v. CA, 246 SCRA 33 (1995). 2. In instances covered by Art. 1381, lesion or more than 1/4 of value of thing makes sale rescissible unless approved by court (Art. 1386). 3. Gross inadequacy of price is sale a retro raises presumption of equitable mortgage (Art. 1602). G. WHEN MOTIVE ESSENTIAL AND WHEN NOT ESSENTIAL 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. x Olegario v. CA, 238 SCRA 96 (1994); xUy v. CA, 314 SCRA 69, 81 (1999).

11

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. The motives of the contracting parties for the lowering of price of the salein the present case, the reduction of the capital gains tax liabilityshould not be confused with the consideration. Although illegal, the motives neither determine nor take the place of the consideration. Heirs of Spouses Balite v. Lim, G.R. No. 152168, 10 December 2004.

V. FORMATION OF CONTRACT OF SALE (Arts. 1475-1488)

The phases that a sale contract follows are: (a) preparation, conception or generation, which is the period of negotiation and bargaining, ending at the moment of agreement of the parties; (b) perfection or birth of the contract, which is the moment when the parties come to agree on the terms of the contract; and (c) consummation or death, which is the fulfillment or performance of the terms agreed upon in the contract. x Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995). Freedom of contract signifies or implies the right to choose with whom to contract. In the Law on Sales, an owner of property is free to offer the subject property for sale to any interested person, and is not duty bound to sell the same to the occupant thereof, absent any prior agreement vesting the occupants the right of first priority to buy. Gabelo v. CA, 316 SCRA 386 (1999). A. PREPARATORY (Art. 1479) 1. Policitacion: Unaccepted unilateral promise to buy or sell prior to acceptance, does not give rise to any obligation or right. xRaroque v. Marquez, 37 O.G. 1911. 2. OPTION CONTRACT: An accepted unilateral promise to sell with promise at liberty to buy or not at his option, or vice versa: must have separate consideration independent from price (Arts. 1479 and 1324; xDe la Cavada v. Diaz, 37 Phil. 982 [1918]). An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. xLaforteza v. Machuca, 333 SCRA 643 (2000); xBuot v. CA, 357 SCRA 846 (2001). An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract of option. xAbalos v. Macatangay, Jr., 439 SCRA 649 (2004). 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. CA, 302 SCRA 718 (1999). An option is a contract by which the owner of the property agrees with another person that he shall have the right to buy his property at a fixed price within a certain time. It is a condition offered or a contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a certain time, or under, or in compliance with certain terms and conditions, or which given to the of the property the right to sell or demand a sale. It imposes no binding obligation on the person holding the option aside from the consideration for the offer. Until accepted, it is not, properly speaking, treated as a contract. Tayag v. Lacson, 426 SCRA 282 (2004). Tenants of the land, not being the registered owners, cannot grant an option on the land, much less any exclusive right to buy the property under the Latin saying nem dat quod non habet. xTayag v. Lacson, 426 SCRA 282 (2004). After the bank has foreclosed the property and bought it as the highest bidder in the auction sale, the offer of the spouses-borrowers to repurchase the property is actually a contract of option to purchase and a contract to sell, and the condition that the spouses-borrowers will pay monthly interest during the one-year option period is considered to be the separate consideration to hold the option contract valid. xDijamco v. Court of Appeals, 440 SCRA 190 (2004). (a) An option to buy is not a contract of purchase and sale. xAdelfa Properties, Inc. v. CA, 240 SCRA 565 (1995); xKilosbayan, Inc. v. Morato, 246 SCRA 540 (1995). Option giving the respondents the exclusive right to buy the properties within the period agreed upon is separate and distinct from the contract of sale which the parties may enter into. x San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000).

12

An option is a continuing offer or contract by which the owner stipulates with another that the latter shall have the right to buy the property at a fixed price within a time certain, or under, or in compliance with, certain terms and conditions, or which gives to the owner of the property the right to sell or demand a sale. It is also sometimes called an unaccepted offer. An option is not of itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a sale of the right to purchase. It is simply a contract by which the owner of property agrees with another person that he shall have the right to buy his land; he does not then agree to sell it; but he does sell something, i.e., the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it imposes no binding obligation on the person holding the option, aside from the consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is merely a contract by which the owner of the property gives the optionee the right or privilege of accepting the offer and buying the property on certain terms. Limson v. CA, 357 SCRA 209 (2001).

(b) Meaning of "Consideration" (Villamor v. CA, 202 SCRA 607 [1991]). 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 the price. xSalame v. CA, 239 SCRA 356 (1995). Consideration in an option contract may be anything of value, unlike in sale where it must be the price certain in money or its equivalent. xSan Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000). Although no consideration is expressly mentioned in an option contract, it is presumed that it exists and may be proved, and once proven, the contract is binding. xMontinola v. Cojuangco, 78 Phil. 481 (1947). (c) An option to buy attached to a real estate mortgage is a valid stipulation, and "the mortgagor's promise to sell is supported by the same consideration as that of the mortgage itself, which is distinct from that which would support the sale." Soriano v. Bautista, 6 SCRA 946 (1962). (d) An option to purchase attached to a contract of lease when not exercised within the original period is extinguished and cannot be deemed to have been included in the implied renewal ( tacita reconduccion) of the lease. xDizon v. CA, 302 SCRA 288 (1999). (e) Without Consideration Void as Option, But Valid as Offer (Sanchez v. Rigos, 45 SCRA 368 [1972], affirming xAtkins, Kroll & Co., Inc. v. Cua, 102 Phil. 948 [1958]; overturning xSouthwestern Sugar Molasses Co. v. Atlantic Gulf & Pacific Co., 97 Phil. 249 [1955]). But See Lately: Yao Ka Sin Trading v. CA, 209 SCRA 763 (1991); xMontilla v. CA, 161 SCRA 855 (1988); xNatino v. IAC, 197 SCRA 323 (1991); and xDiamante v. CA, 206 SCRA 52 (1992). (f) There must be acceptance of the option (Vazquez v. CA, 199 SCRA 102) (g) Proper exercise of an option contract. Nietes v. CA, 46 SCRA 654 (1972). When Option May Be Validly Exercised Beyond the Original Option Period: Carceller v. CA, 302 SCRA 718 (1999). (h) Period within Which To Enforce the Valid Exercise of Option Even when an option is exercised within the option period by the proper tender of the amount due, nevertheless the action for specific performance to enforce the option must be filed within ten (10) year after the accrual of the cause of action as provided under Art. 1144. xDizon v. CA, 302 SCRA 288 (1999). (i) What Rights Does an Option Give? (Ang Yu Asuncion v. CA, 238 SCRA 602 [1994]). When there is an option contract, then the timely, affirmative and clear acceptance of the offer would convert the option contract into a bilateral promise to sell and to buy where both parties were then reciprocally bound to comply with their respective undertakings. xLimson v. CA, 357 SCRA 209 (2001). Obligations under an option to buy are reciprocal obligations; the performance of one obligation is conditioned on the simultaneous fulfillment of the other obligation. In other words, in an option to buy, the payment of the purchase price by the creditor is contingent upon the execution and delivery of a deed of sale by the debtor. In this case, when private respondent opted to buy the property, their obligation was to advise petitioners of their decision and their readiness to pay the price. They were not obliged to make actual payment. Only upon petitioners' actual execution and delivery of the deed of sale were they required to pay. x Heirs of Luis Bacus v. CA, 371 SCRA 295 (2001). [CLV: covers a duly exercised option]

13

3. DISTINGUISHING OPTION FROM RIGHT OF FIRST REFUSAL (Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., 264 SCRA 483 [1996]; Paranaque Kings Enterprises, Inc. v. CA, 268 SCRA 727, 741 (1997); xGuzman, Bocaling & Co. v. Bonnevie, 206 SCRA 668 [1992]). The Court has clearly distinguished between an option and a right of first refusal. An option is a preparatory contract in which one party grants to another, for a fixed period and at a determined price, the privilege to buy or sell, or 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 one to whom the option was granted, if the latter should decide to use the option. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be supported by consideration. In a right of first refusal, on the other hand, while the object might be made determinate, the exercise of the right would be dependent not only on the grantors eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that are yet to be firmed up. . . . the offer may be withdrawn anytime by communicating the withdrawal to the other party. Vasquez v. Ayala Corp., 443 SCRA 231 (2004). The ordinary language of a right of first refusal clause simply means that should the lessor decide to sell the leased property during the term of the lease, such sale should first be offered to the lessee; and the series of negotiations that transpire between the lessor and the lessee on the basis of such preference is deemed a compliance of such clause even when no final purchase agreement is perfected between the parties. The lessor was then at liberty to offer the sale to a third party who paid a higher price, and there is no violation of the right of the lessee, especially if previous to the sale to the third party, a written notice was sent by the lessor to the lessee confirming that the latter has lost his right of first refusal. xRiviera Filipina, Inv. V. Court of Appeals, 380 SCRA 245 (2002). The concept and interpretation of the rights of first refusal and the consequences of a breach thereof evolved in Philippine juristic sphere only within the last decade. It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie where the Court held that a lease with a proviso granting the lessee the right of first priority all things and conditions beings equal meant that there should be identity of the terms and conditions to be offered to the lessee and all other prospective buyers, with the lessee to enjoy the right of first priority. x Riviera Filipina, Inv. V. Court of Appeals , 380 SCRA 245 (2002). A right of first refusal cannot be the subject of specific performance, but breach would allow a recovery of damages. xGuerrero v. Yigo, 96 Phil. 37 (1954). A deed of sale executed in favor of a third party who cannot be deemed a purchaser in good faith, and which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of Frauds but rescissible under Articles 1380 to 1381(3) of the New Civil Code. x Riviera Filipina, Inv. V. Court of Appeals , 380 SCRA 245 (2002); xConculada v. CA, 367 SCRA 164 (2001). Pursuant to Arts. 1381(3) and 1385 of Civil Code, a contract of sale entered into in violation of a third partys right of first refusal may be rescinded in order that such third party can exercise said right, but only if the buyer did not act in good faith as he was aware of the right of first refusal granted to another person by his seller. x Rosencor Development Corp. v. Inquing, 354 SCRA 119 (2001). A right of first refusal in favor of the lessee is an integral and indivisible part of the contract of lease and is inseparable from the whole contract, such that the consideration for the right is built into the reciprocal obligations of the parties, making the consideration for the lease the same as that for the option. In such case, the lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right that the lessors first offer shall be in his favor. The basis of the right of first refusal must be the current offer of the seller to sell or the offer to purchase of a prospective buyer. Only after the lessee grantee fails to exercise its rights under the same terms and within the period contemplated can the owner validly offer to sell the property to a third person, again under the same terms as offered to the grantee. Polytechnic University v. CA, 368 SCRA 691 (2001). A right of first refusal granted in the contract of lease in favor of the lessee cannot be availed of by the sublessee who is deemed as a stranger to the lessor who is bound to respect the right of first refusal in favor of the lessee only. xSadhwani v. CA, 281 SCRA 75 (1997). (a) Limited Application of the Equatorial Realty Ruling It is not correct to say that there is no consideration for the grant of the right of first refusal if such grant is embodied in the same contract of lease. Rent paid by the lessee constitutes sufficient consideration for the grant of right of first refusal aside from the fact that such right is stipulated in the same contract of lease. xLucrative Realty and Dev. Corp. v. Bernabe, Jr., 392 SCRA 679 (2002). [CLV by definition, a right of first refusal does not need consideration for its validity and effectivity, since it is merely a stipulation in a valid contract]. The provision entitling the lessee the option to purchase the leased premises is not deemed incorporated in the impliedly renewed contract because it is alien to the possession of the lessee. The right to exercise the option to purchase expired with the termination of the original contract of lease for one year. xDizon v. Court of Appeals, 396 SCRA 152 (2003).

14

4. MUTUAL PROMISES

TO BUY AND SELL: Promise to sell a determinate thing coupled with a correlative promise to buy at a specified price is binding as an executory agreement (Art. 1479).

Mutual promises to buy and sell a certain thing for a certain price gives each of the contracting parties a right to demand from the other the fulfillment of the obligation. xBorromeo v. Franco, 5 Phi. 49 (1905). Sometimes, the Supreme Court treats of mutual promise to buy and sell as a contract of sale, with what is left to be done was for either party to demand from the other their respective undertaki8ngs under the contract. But when the written contract does not provide for a period within which the obligations are to be performed, an action thereon must be brought within ten (10) years. Villamor v. Court of Appeals, 202 SCRA 607 (1991). 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.3 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. xMacion v. Guiani, 225 SCRA 102 (1993).4 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). In an agreement to buy and sell, which is an executory contract, title to the property does not pass to the promisee and the contracting parties are merely given the right to demand fulfillment of the contract in the proper cases, or damages for breach thereof where it is not possible to carry out its terms. xGan v. Reforma, 11 CAR 57 [1967]; xCoronel v. CA, 263 SCRA 15 (1996).

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

A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object and upon the price. (Art. 1475). Being consensual, a contract of sale has the force of law between the contracting parties and they are expected to abide in good faith by their respective contractual commitments. Article 1358 which requires the embodiment of certain contracts in a public instrument, is only for convenience, and registration of the instrument only adversely affects third parties. Formal requirements are, therefore, for the benefit of third parties. Non-compliance therewith does not adversely affect the validity of the contract nor the contractual rights and obligations of the parties thereunder. Fule v. CA, 286 SCRA 698 (1998). In order for an acceptance to have the effect of converting an offer into a perfected contract, it must be plain and unconditionally, and it will not be so, if it involves any new proposition, for in that case, it will not be the acceptant's conformity with the offer which is what gives rise to the birth of the contract. xZayco v. Serra, 44 Phil. 326 (1923). Promises are binding when and so long as they are accepted in the exact terms in which they are made; it not being legally proper to modify the conditions imposed by the promissor without his consent. In order that the acceptance of a proposition or offer may be efficacious, perfect and binding upon the parties thereto, it is necessary that such acceptance should be unequivocal and unconditional and the acceptance and proposition shall be without any variation whatsoever. Any modification or deviation from the terms of the offer annuls the latter and frees the offeror. xBeaumont v. Prieto, 41 Phil. 670 (1916).

1. PERFECTION: Generally by mere consent (Art. 1475); perfected even when the exact quantity or quality is not known, so
long as the source of the subject is certain. xNational Grains Authority v. IAC, 171 SCRA 131 (1989). A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. xValdez v. Court of Appeals, 439 SCRA 55 (2004); xBlas v. Angeles-Hutalla, 439 SCRA 273 (2004). Where the seller quoted to the buyer the items offered for sale, by item number, quantity, part number, description and unit price and total price, and the buyer had sent in reply a purchase order, there was already a perfected contract of sale, even the required letter of credit had not been opened by the buyer. x Johannes Schuback & Sons Phil. Trading Corp. v. CA, 227 SCRA 719 (1993). Even when there is a duly executed written document purporting to be a contract of sale, the same cannot be considered valid when the evidence presented shows that there had been no meeting of the minds between the supposed seller and the corresponding buyer. xSantos v. Heirs of Jose P. Mariano, 344 SCRA 284 (2000). (a) EXCEPT: If sale subject to suspensive condition: No perfected sale of a lot where the award thereof was expressly made subject to approval by the higher authorities and there eventually was no acceptance manifested by the supposed awardee. xPeople's Homesite & Housing Corp. v. CA, 133 SCRA 777 (1984).

3 4

El Banco Nacional Filipino v. Ah Sing, 69 Phil. 611 (1940); Manuel v. Rodriguez, 109 Phil. 1 (1960). Villamor v. CA, 202 SCRA 607 (1991); Borromeo v. Franco, 5 Phil. 49 (1905).

15

2. WHEN DEVIATION ALLOWED: Villonco v. Bormaheco, 65 SCRA 352 (1975). 3. SALE BY AUCTION (Arts. 1476, 1403(2)(d), 1326)
(a) Owner of property sold at auction may provide the terms under which the auction will proceed and the same are binding upon all bidders, whether they knew of such conditions or not. xLeoquinco v. Postal Savings Bank, 47 Phil. 772 (1925).

4. EARNEST MONEY (Art. 1482; Spouses Doromal, Sr. v. CA, 66 SCRA 575 [1975]5)
It is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale. xSan Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000). When there is no contractual provision for forfeiture of earnest money in favor of seller in the event the sale fails to materialize, then with the rescission of the sale, it becomes incumbent upon seller to return to buyer the earnest money as legal consequence of rescission under Art. 1385, which provides for the obligation to return the things which were the object of the contract together with their fruits and interest. xGoldenrod, Inc. v. CA, 299 SCRA 141 (1998). (a) Varying Treatment of Earnest Money When amount given is not part of purchase price and as proof of perfection of the contract of sale but only as a guarantee that buyer would not back out of the sale, then what was given was not earnest money as defined under Article 1482, especially when at the time the amount was given the final terms of the purchase had not been agreed upon. xSan Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737, 743 (2000). The Receipt evidencing the contract to sell stipulates that the earnest money shall be forfeited if the sale is not consummated by none payment of the purchase price. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. The buyer therefore has the right to walk away from the transaction, with no obligation to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract of sale. The earnest money was given in a contract to sell, and thus Article 1482 is not applicable. xChua v. Court of Appeals, 401 SCRA 54 (2003). (b) Difference Between Earnest Money and Option Money Earnest money and option money are not the same but distinguished thus: (a) earnest money is part of the purchase price, while option money is the money given as a distinct consideration for an option contract; (b) earnest money is given only where there is already a sale, while option money applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay the balance, while when the would-be buyer gives option money, he is not required to buy, but may even forfeit it depending on the terms of the option. x Limson v. CA, 357 SCRA 209 (2001).

5. PLACE OF PERFECTION (Art. 1319). C. FORM OF SALES (Arts. 1357, 1358, 1406 and 1483) 1. REALLY NO FORM: Thus the sale of land under private instrument is valid. x Gallar v. Husain, 20 SCRA 186 (1967); F.
Irureta Goyena v. Tambunting, 1 Phil. 490 (1902). (a) The provisions of Art. 1358 on the necessity of public document are for purposes of convenience, not for validity or enforceability; and the failure to comply therewith does not affect the validity and binding effect of the act between the parties. Dalion v. CA, 182 SCRA 872 (1990).6 Articles 1357 and 1358, in relation to Art. 1403(2) of Civil Code requires that the sale of real property must be in writing for it to be enforceable, it need not be notarized, but there is nothing in those provisions which require that a contract of sale of realty must be executed in a public document. x Martinez v. CA, 358 SCRA 38 (2001); xHeirs of Biona v. CA, 362 SCRA 29 (2001). Even if the Deeds of Sale were notarized by one who was not a real notary public, the same does not affect the validity thereof. Said documents were merely converted into private documents, which remained to be valid contracts of sale between the parties, since sale is a consensual contract and is perfected by mere consent. xR.F. Navarro & Co. Inc. v. Vailoces, , 361 SCRA 139 (2001). The notarization of a deed of sale is not a guarantee of the validity of its contents (x Nazareno v. CA, 343 SCRA 637 [2000]); and nowhere in the Civil Code is it provided that execution of a deed of sale is a conclusive presumption of delivery of possession (xSantos v. Santos, 366 SCRA 395 [2001]).
5 6

Villonco v. Bormaheco, 65 SCRA 352 [1975]; xPNB v. CA, 262 SCRA 464, 484 [1996]; Limjoco v. CA, 37 SCRA 663 [1971]). Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995); Agasen v. CA, 325 SCRA 504 (2000).

16

That the contract of sale was not registered does not affect its validity. Being consensual in nature, it is binding between the parties. Article 1358, which requires the embodiment of certain contracts in a public instrument, is only for convenience, and the registration of the instrument would merely affect third persons. Formalities intended for greater efficacy or convenience or to bind third persons, if not done, would not adversely affect the validity or enforceability of the contract between the contracting parties themselves. xUniversal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002). Rule Does Not Apply to Third-Parties. While sale of land appearing in a private deed is binding between the parties, it cannot be considered binding on third persons, if it is not embodied in a public instrument and recorded in the Registry of Deeds. Secuya v. Vda. De Selma, 326 SCRA 244 (2000). An unregistered deed of sale of a condominium unit has not binding effect with respect to third persons who have no knowledge of it. xTalusan v. Tayag, 356 SCRA 263 (2001). That the contract of sale was not registered does not affect its validity. Being consensual in nature, it is binding between the parties . . . Article 1358 of the New Civil Code, which requires the embodiment of certain contracts in a public instrument, is only for convenience, and the registration of the instrument would merely affect third persons. Formalities intended for greater efficacy or convenience or to bind third persons, if not done, would not adversely affect the validity or enforceability of the contract between the contracting parties themselves. xUniversal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002). (b) Actions of Parties Supporting Validity of Sale Buyers immediate taking of possession of the property subject matter of the contract corroborates the truthfulness and authenticity of the deed of sale. xAlcos v. IAC, 162 SCRA 823, 837 (1988). Conversely, the vendors continued possession of the property makes dubious the contract of sale between the parties. x Santos v. Santos, 366 SCRA 395 (2001); xDomingo v. CA, 367 SCRA 368 (2001). (c) Rulings on Deeds of Sale From a civil law perspective, the absence of notarization of a deed of sale would not necessarily invalidate the transaction evidenced therein. Tigno v. Aquino, 444 SCRA 61 (2003). An invalidly notarized deed of sale is not a public document but is to be considered merely as a private document, subject to the requirements of proof under Section 20, Rule 132 of the Rule of Court. Tigno v. Aquino, 444 SCRA 61 (2003). A deed of sale which was validly notarized would still be classified as a private document where it was not properly acknowledged but merely subscribed and sworn to by way of jurat. Tigno v. Aquino, 444 SCRA 61 (2003). Where the deed of sale is a private document, not only the due execution of the document must be proven but also its authenticity. Tigno v. Aquino, 444 SCRA 61 (2003). (d) Value of Business Forms to Prove Sale Business forms, e.g., order slip, delivery charge invoice and the like, which are issued by the seller in the ordinary course of the business are not always fully accomplished to contain all the necessary information describing in detail the whole business transactionmore often than not they are accomplished perfunctorily without proper regard to any legal repercussion for such neglect such that despite their being often incomplete, said business forms are commonly recognized in ordinary commercial transactions as valid between the parties and at the very least they serve as an acknowledgment that a business transaction has in fact transpired. xDonato C. Cruz Trading Corp. v. CA, 347 SCRA 13 (2000). We are not unaware of the slipshod manner of preparing receipts, order slips and invoices, which unfortunately has become a common business practice of traders and businessmen. In most cases, these commercial forms are not always fully accomplished to contain all the necessary information describing the whole business transaction. The sales clerks merely indicate a description and the price of each item sold without bothering to fill up all the available spaces in the particular receipt or invoice, and without proper regard for any legal repercussion for such neglect. Certainly, it would not hurt if businessmen and traders would strive to make the receipts and invoices they issue complete, as far as practicable, in material particulars. These documents are not mere scraps of paper bereft of probative value but vital pieces of evidence of commercial transactions. They are written memorials of the details of the consummation of contracts. xLagon v. Hooven Comalco Industries, Inc., 349 SCRA 363 (2001).

2. EXCEPTIONS: WHEN FORM IMPORTANT (a) STATUTE OF FRAUDS (Arts. 1403 and 1405)

17

The application of the Statute of Frauds presupposes the existence of a perfected contract. When the records show that there was no perfected contract of sale, there is no basis for the application of the Statute of Frauds. Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003). The purpose of the Statute is to prevent fraud and perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of witnesses by requiring certain enumerated contracts and transactions to be evidence by a writing signed by the party to be charged. xShoemaker v. La Tondea, 68 Phil. 24 (1939). The Statute of Frauds cannot be invoked to deny the existence of the verbal contract of sale where the obligations have been performed, and the benefits have been accepted under the verbal contract. The Statute of Frauds was enacted to prevent fraud. This law cannot be used to advance the very evil the law seeks to prevent. xAlfredo v. Borras, 404 SCRA 145 (2003). A sale of realty cannot be proven by means of witnesses, but must necessarily be evidenced by a written instrument, duly subscribed by the party charged, or by secondary evidence of the contents of such document. No other evidence can be received except the documentary evidence referred to, insofar as regards such contracts, and these are valueless as evidence unless they are drawn up in writing in the manner aforesaid. This is especially so when the claimants-alleged-buyers were not even in possession of the subject realty. x Gorospe v. Ilayat, 29 Phil. 21 (1914). Reliance on testimony of witnesses as secondary evidence to prove a sale of realty, will not prosper against counter-evidence disputing such sale, because a sale must necessarily be evidenced by a written instrument. xAlba Vda. De Rax v. CA, 314 SCRA 36 (1999). (i) Coverage: The Statute refers to specific kinds of transactions and cannot apply to any other transaction that is not enumerated therein. The application of such statute presupposes the existence of a perfected contract. xRosencor Development Corp. v. Inquing, 354 SCRA 119 (2001). Rights of First Refusal A right of first refusal is not covered by the statute of frauds. Furthermore, Art. 1403(2)(e) of Civil Code presupposes the existence of a perfected, albeit unwritten, contract of sale; a right of first refusal, such as the one involved in the instant case, is not by any means a perfect contract of sale of real property. At best, it is a contractual grant, not of the sale of the real property involved, but of the right of first refusal over the property sought to be sold. A right of first refusal need not be in writing to be enforceable and may be proven by oral evidence xRosencor Development Corp. v. Inquing, 354 SCRA 119 (2001). Equitable Mortgage The 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). An equitable mortgage is not different from a real estate mortgage, and the lien created thereby ought not to be defeated by requiring compliance with the formalities necessary to the validity of a voluntary real estate mortgage. xRosales v. Suba, 408 SCRA 664 (2003). (ii) Memorandum (Yuviengco v. Dacuycuy, 104 SCRA 668 [1981]; Limketkai Sons Milling, Inc. v. CA , 250 SCRA 523 [1995]; but see 255 SCRA 6). For the memorandum to take the sale transaction out of the coverage of the Statute of Frauds, it must contain "all the essential terms of the contract" of sale. xParedes v. Espino, 22 SCRA 1000 (1968). Various correspondences taken together would constitute sufficient memorandasince they include the names of the parties, the terms and conditions of the contract, the price and a description of the property as the object of the contract. xCity of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999).7 The deed of sale and the 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. x Mactan Cebu International Airport Authority v. CA, 263 SCRA 736 (1996). EXCEPTION: Electronic documents (R.A. 8792) (iii) Partial Execution (Art. 1405; Ortega v. Leonardo, 103 Phil. 870 [1958]; Claudel v. CA, 199 SCRA 113 [1991]). Partial execution of a contract of sale over real property takes the transaction out of the provisions of Statute of Frauds; consequently even when not complete in form, so long as the essential requisites of consent of the contracting parties, object and cause of the obligation concur clearly established to be present (even by parol evidence), the sale is valid and binding. xVda. de Jomoc v. CA, 200 SCRA 74 (1991).
7

First Philippine Intl Bank v. CA, 252 SCRA 259 (1996); Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995); Berg v. Magdalena Estate, Inc., 92 Phil. 110 (1952).

18

Delivery of the deed to the agent of the buyer, 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. x Baretto v. Manila Railroad Co., 46 Phil. 964 (1924). Acceptance of Benefits Under Art. 1405. The Statute of Frauds applies only to executory contracts and not to contracts either partially or totally performed. Thus, where one party has performed ones obligation, oral evidence will be admitted to prove the agreement. x x x 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). (iv) Waiver (Art. 1405) Cross-examination on the contract is deemed a waiver of the defense of the Statute. xLimketkai Sons Milling, Inc. v. CA, 250 SCRA 523 [1995]; xLacanilao v. CA, 262 SCRA 486 [1996]). Moreover, while the contract between the parties might have been unenforceable under Article 1403(2) of the Civil Code, the admission by the petitioner that she had accepted payments under the oral contract of sale took the case out of the scope of the Statute of Frauds. The ratification of the contract rendered it valid and enforceable. Soliva v. The Intestate Estate of Marcelo M. Villalba, 417 SCRA 277 (2003). (v) Rulings on Receipts and Other Documentary Evidence of Sale (Toyota Shaw, Inc. v. CA, 244 SCRA 320 [1995]). Since a contract of sale is perfected by mere consent, then when the dealer of motor vehicles accepts a deposit of P50,0000 and pulls out a unit from the assembler for that purpose, it was in breach of contract when it sold the car subsequently to another buyer. Xentrex Automotive, Inc. v. CA, 291 SCRA 66 (1998). 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. x Leabres v. CA, 146 SCRA 158 (1986). 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). There is nothing in the Receipt which indicates that the P20,000 was part of the purchase price. Moreover, it was not shown that there was a perfected sale between the parties where earnest money was given. Finally, when petitioner gave the earnest money, the Receipt did not reveal that she was bound to pay the balance of the purchase price. In fact, she could even forfeit the money given if the terms of the option were not met. Thus, the P20,000 could only be money given as consideration for the option contract. xLimson v. CA, 357 SCRA 209 (2001). (b) Sale of Realty through Agent (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. This is the case even for a corporate owner of realty. xCity-Lite Realty Corp. v. CA, 325 SCRA 385 [2000]; xPineda v. CA, 376 SCRA 222 (2002). The acceptance of a supposed agent of part of the purchase price for the purported sale of a parcel of land does not give rise to a binding contract of sale since under Article 1874 of the Civil Code it is expressly provided that the sale of a piece of land or any interest therein through an agent requires that the authority of the latter shall be in writing, otherwise, the sale shall be void. Dizon v. Court of Appeals, 396 SCRA 154 (2003). Authority of an agent to execute a contract for the sale of real estate must be in writing and must give him specific authority; and that the express mandate required by law to enable an appointee of an agency couched in general terms to sell must be one that expressly mentions a sale or that includes a sale as a necessary ingredient of the act mentioned. The power granted to an agent to institute a suit and to appear at pre-trial and enter into any stipulation of facts and/or compromise agreement does not include the authority to sell the land by way of compromise, and any sale effected under such authority is void. xCosmic Lumber Corp. v. CA, 265 SCRA (1996). When a son enters into an oral sale covering a real property registered in the name of his father, such sale would be void under Art. 1874. xDelos Reyes v. CA, 313 SCRA 632 (1999). (c) Sale of Large Cattle (Art. 15851; Sec. 529, Revised Adm. Code)

VI. CONSUMMATION (Arts. 1493-1506) AND PERFORMANCE OF CONTRACT (Arts. 1536-1544, 1582-1590)
A. OBLIGATIONS OF SELLER 1. PRESERVE SUBJECT MATTER (Art. 1163) 19

2. DELIVER

WITH

FRUITS AND ACCESSORIES (Arts. 1164, 1166, 1495, 1537)

When the contract of sale is void, no valid title can pass in favor of the buyer; consequently, the subsequent sale thereof was also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have. xTsai v. CA, 366 SCRA 324 (2001). Delivery has been described as a composite act, a thing in which both parties must join and the minds of both parties concur. It is an act by which one party parts with the title to and the possession of the property, and the other acquires the right to and the possession of the same. In its natural sense, delivery means something in addition to the delivery of property or title; it means transfer of possession. Whether actual or contractual, delivery contemplates the absolute giving up of the control and custody of the property on the part of the vendor, and the assumption of the same by the vendee. xEquatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001). As in the case of receipt and invoice, the signing and delivery of the vehicle registration certificate do not conclusively prove that constructive delivery was made nor that ownership has been transferred to supposed buyers, especially when qualified as a requirement of supposed seller for sale and financing contract to be approved. In all forms of delivery, whether constructive or actual, the act of delivery should be coupled with intention of delivering the thing. The critical factor in the different modes of effecting delivery which gives legal effect to the act, is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that intention, there is no tradition . xUnion Motor Corp. v. CA, 361 SCRA 506 (2001); also xSantos v. Santos, 366 SCRA 395 (2001); xAbuan v. Garcia, 14 SCRA 759 (1965).

3. TYPES OF DELIVERY (Art. 1477)

Ownership of the thing sold is a real right, which the buyer acquires only upon delivery of the thing to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. This right is transferred, not merely by contract, but also by tradition or delivery. Non nudis pactis sed traditione dominia rerum transferantur . And there is said to be delivery if and when the thing sold is placed in the control and possession of the vendee. x Equatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001). (a) Physical Delivery (Art. 1497) It is not necessary that the seller himself delivers title of the property to the buyer because the thing sold is understood as delivered when it is placed in the control and possession of the buyer. Thus, when the seller themselves introduced the tenant to the buyer as the new owners of the land, and from that time on the buyer acted as landlord of the land, there was delivery that transferred title to the buyer. xAlfredo v. Borras, 404 SCRA 145 (2003). (b) Constructive Delivery Execution of a public instrument gives rise only to a prima facie presumption of delivery, which is destroyed when the instrument itself expresses or implies that delivery was not intended; or when by the other means it is shown that such delivery was not effected, because a third person was actually in possession of the thing. In the latter case, the sale cannot be considered consummated. xEquatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001). Although Art. 1488 provides that when the sale is made through a public instrument, its execution is equivalent to the delivery of the thing subject of the contract, nevertheless, there is nothing in the Civil Code that provides that execution of a deed of sale is a conclusive presumption of delivery of possession; the Code merely said that the execution shall be equivalent to delivery, and that the presumption can be rebutted by clear and convincing evidence. Presumptive delivery can be negated by the failure of the vendee to take actual possession of the land or the continued enjoyment of possession by the vendor. Santos v. Santos, 366 SCRA 395 (2001). Under Art. 1498, the mere execution of the deed of conveyance in a public instrument is equivalent to the delivery of the property, and that prior physical delivery or possession is not legally required. It is well-established that ownership and possession are two entirely different legal concepts. Just as possession is not a definite proof of ownership, neither is non-possession inconsistent with ownership. Thus, it is of no legal consequence that respondents were never in actual possession or occupation of the subject property. They, nevertheless, perfected and completed ownership and title to the subject property. Notwithstanding the presence of illegal occupants on the subject property, transfer of ownership by symbolic delivery under Art. 1498 can still be effected through the execution of the deed of conveyance. [Exception to Addission doctrine]. xSabio v. International Corporate Bank, 364 SCRA 385 (2001).

20

Execution by supposed buyers of a chattel mortgage over subject vehicle in favor of the financing company does not mean that ownership had been transferred to them since there was neither delivery nor transfer of possession of the subject motor vehicle to the supposed buyer. Consequently, the said accessory contract of chattel mortgage has no legal effect whatsoever, since ownership of the mortgagor is an essential requirement of a valid mortgage contract. xUnion Motor Corp. v. CA, 361 SCRA 506 (2001). Although under the law on sales the seller is bound to transfer ownership of and deliver the thing object of the sale to the buyer, and generally when a sale is made through a public document it is equivalent to delivery of the thing sold, nevertheless, when the seller vehemently denies the fact of the sale and interposed her objection to the alleged buyers enjoyment of the property, then fiction must yield to reality and sellers obligation to deliver the sold to buyer remains. xEngreso v. De La Cruz, 401 SCRA 217 (2003). (i) As to Immovables (Art. 1498) In case of immovables, when sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. xFlorendo v. Foz, 20 Phil. 388 (1911). Mere execution of deed in a public document is equivalent to delivery of the property, and that prior physical delivery or possession is not legally required since execution of the deed is deemed equivalent to delivery. xManuel R. Dulay Enterprises, Inc. v. CA, 225 SCRA 678 (1993). Symbolic delivery by the execution of a public instrument is equivalent to actual delivery only when the thing sold is subject to the control of the seller ( Addison v. Felix, 38 Phil. 404 [1918]; Danguilan v. IAC, 168 SCRA 22 [1988]; Pasagui v. Villablanca, 68 SCRA 18 [1975]; but see Dy, Jr. v. CA, 198 SCRA 826 [1991]). When buyer assumes the risks of ownership and possession. Power Commercial and Industrial Corp. v. CA, 274 SCRA 597 (1997). Article 1498 lays down the general rule: the execution of a public instrument shall be equivalent to the delivery of the thing that is the object of the contract if, from the deed, the contrary does not appear or cannot be clearly inferred. However, ownership is transferred not by contract but by tradition or delivery. Nowhere in the Civil Code is it provided that the execution of a Deed of Sale is a conclusive presumption of delivery of possession of a piece of real estate. This Court has held that the execution of a public instrument give rise only to a prima facie presumption of delivery. Such presumption is destroyed when the delivery is not effected because of a legal impediment. Being merely presumptive, was deemed negated by the failure of the vendee to take actual possession of the land sold. xTen Forty Realty and Dev. Corp. v. Cruz, 410 SCRA 484 (2003); see also xSantos v. Santos, 366 SCRA 395 (2001). [CLV: In Ten Forty Realty the seller was not in possession nor control of the subject land at the time of the execution of the public instruments. The declaration that the execution of a public instrument only creates a rebuttable presumption of delivery and transfer of ownership is wrong. More importantly, the case really covers a situation of double sales, the rules of who have better claim of ownership over the subject matter are specially covered by Article 1544, which may be considered an exemption to the general rules on tradition.] The legal effects and consequences of actual or physical delivery, also apply equally to constructive delivery by the execution of public instrument. xMunicipality of Victorias v. CA , 149 SCRA 31 (1987). EXCEPT: when there is stipulation to the contrary, since not even the full payment of the price is a condition precedent to the transfer of title to the buyer once delivery has been made. xPhil. Suburban Dev. v. Auditor, 63 SCRA 397 (1975). Execution of Deed of Conditional Sale with provision that final deed of sale to be executed upon full payment does not transfer ownership of the subject matter. xFortune Tobacco Corp. v. NLRC, 200 SCRA 766 (1991). True, in contract of sale, the vendor need not possess title to the thing sold at the perfection of the contract. However, the vendor must possess title and must be able to transfer title at the time of delivery. In a contract of sale, title only passes to the vendee upon full payment of the stipulated consideration, or upon delivery of the thing sold. Although tax declaration is not evidence of title, nevertheless when at the time of delivery there is no proof that the seller had ownership and as in fact the tax declaration to the subject property was in the name of another person, though they do not prove ownership of the property of the declarant, the tax declarations and receipts can be strong evidence of ownership of land when accompanied by possession for a period sufficient for prescription. x Heirs of Severina San Miguel v. CA , 364 SCRA 523 (2001). Registration of Title is Separate Mode from Execution of Public Instrument. The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real property, the seller is not

21

obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and the transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of title is still registered in the name of the seller. As between the seller and buyer, ownership is transferred not by issuance of a new certificate of title in the name of the buyer but by the execution of instrument of sale in a public instrument. x x x. The recording of the sale with the proper Registry of Deeds and the transfer of the certificate of title in the name of the buyer are necessary only to bind third parties to the transfer of ownership. As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument conveying the real estate. Registration of the sale with the Registry of Deeds, or the issuance of a new certificate of title, does not confer ownership on the buyer. Such registration or issuance of a new certificate of title is not one of the modes of acquiring ownership. xChua v. Court of Appeals, 401 SCRA 54 (2003). Customary Steps in Selling Immovables. Customarily, in the absence of a contrary agreement, the submission by an individual seller to the buyer of the following papers would complete a sale of real estate: (1) owners duplicate copy of the Torrens title; (2) signed deed of absolute sale; (3) tax declaration; and (4) latest realty tax receipt. They buyer can retain the amount for the capital gains tax and pay it upon authority of the seller, or the seller can pay the tax, depending on the agreement of the parties. x Chua v. Court of Appeals, 401 SCRA 54 (2003). (ii) As to Movables (Arts. 1498-1499, 1513-1514; Dy, Jr. v. CA, 198 SCRA 826). Where it is stipulated that deliveries must be made to the buyer or his duly authorized representative named in the contracts, the seller is under obligation to deliver to the buyer only and to no other, unless the buyer specifically designated someone to receive the delivery of materials and his name is written opposite the words Authorized Receiver/Depository. xLagon v. Hooven Comalco Industries, Inc., 349 SCRA 363 (2001). Issuance of an invoice, which is not a document of title, is not constructive delivery. xNorkis Distributors v. CA, 193 SCRA 694 (1991); xP.T. Cerna Corp. v. CA, 221 SCRA 19 (1993). (iii) As to Incorporeal Property (Arts. 1498, 1501). (c) Constitutum Possessorium (Art. 1500) A provision in the deed of sale granting to seller a right to lease the subject matter of the sale is valid: the possession is deemed to be constituted in the vendee by virtue of this mode of tradition. x Amigo v. Teves, 96 Phil. 252 (1954). (d) Traditio Brevi Manu Prior to the sale, petitioners were in possession of the subject property as lessees. Upon sale to them of the rights, interests and participation as to the portion pro indiviso, they remained in possession, not in the concept of lessees anymore but as owners now through symbolic delivery known as traditio brevi manu. Under Article 1477, ownership of the thing sold is acquired by vendee upon actual or constructive delivery thereof. x Heirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997).

4. TRANSFER OWNERSHIP TO VENDEE UPON DELIVERY (Arts. 1477, 1478, and 1496)
In the absence of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon the actual or constructive delivery thereof. xFroilan v. Pan Oriental Shipping Co., 12 SCRA 276 [1964]). Where there is no express provision that the title shall not pass until payment of the price, and the thing sold has been delivered, title passes from the moment the thing sold is placed in the possession and control of the buyer. xKuenzle & Streiff v. Watson & Co., 13 Phil. 26 ([1909). Delivery produces its natural effects in law, principal and most important of which being conveyance of ownership, without prejudice to right of the seller to claim payment of the price. xOcejo, Perez & Co. v. Int'l Banking Corp., 37 Phil. 631 (1918). Devoid of stipulation that "ownership in the thing shall not pass to the purchaser until he has fully paid the price" (Art. 1478), ownership in the thing shall pass from the seller to buyer upon actual or constructive delivery of the thing sold even if the purchase price has not yet been fully paid. Failure of the buyer to make good the price does not, in law, cause the ownership to revest to the seller unless the bilateral contract of sale is first rescinded or resolved pursuant to Art. 1191. xBalatbat v. CA, 261 SCRA 128 (996). As the auction sale of the subject properties is void, no valid title passed, and consequently, the subsequent sale thereof is also a nullity under the elementary principle of nemo dat quod non habet, one cannot give what one does not have. xTsai v. CA, 366 SCRA 324 (2001).

22

It is a well-settled principle that no one can give what one does not have nemo quod no habet. Accordingly, 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. xTangalin v. CA, 371 SCRA 49 (2001). (a) When Buyer Refuses to Accept (Art. 1588) (b) Rules on Delivery to Carrier (Art. 1523) (i) FAS sales Under an FAS arrangement, the seller pays all charges and is subject to risk until the goods are placed alongside the vessel. xA. Soriano Y Cia. v. Collector, 97 Phil. 505 (1955). (ii) FOB sales In mercantile contracts of American origin, F.O.B. stand for the words Free on Board, i.e., that the seller shall bear all expenses until the goods are delivered according as to whether the goods are to be delivered F.O.B. at the point of shipment or at the point of destination determines the time when property passes. Behn Meyer & Co. v. Yangco, 38 Phil. 602, 606 (1918). (iii) CIF sales (General Foods v. NACOCO, 100 Phil. 637 [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. Pacific Coast (destination), 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. (c) When Delivery Does NOT Transfer Title: (i) 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 ownershp back to the seller. In such case, delivery, or tradition, as a mode of acquiring ownership must be in consequence of a contract, e.g. sale. Vallarta 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 buiyer. Vallarta v. CA, 150 SCRA 336 (1987). For a sale to be considered and construed as 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, Inc., 217 SCRA 322 (1993). (ii) In case of express reservation (Arts. 1478, 1503) (iii) In case of implied reservation (Art. 1503) 5. Buyer's Right to Inspect Before Acceptance (Arts. 1481 and 1584) except when carrier delivers COD. 6. Sale by Description and/or Sample: Bulk of goods must correspond (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. To constitute a sale by sample, it must appear that the parties treated the sample as the standard of quality and that they contracted with reference to the sample with the understanding that the product to be delivered would correspondent with the sample. In a contract of sale by sample, there is an implied warranty that the goods shall be free from any defect which is not apparent on reasonable examination of the sample and which would render the goods unmerchantable. Mendoza 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).

23

When the machine delivered is in accordance with the description stated in the sales contract, the buyer cannot refuse to pay the balance of the purchase price and the cost of installation if it proves that the machine cannot be used satisfactorily for the purposes for which he bought it when such purpose was not made known to the seller. x Pacific Commercial Co. v. Ermita Market & Cold Stores, 56 Phil. 617 (1932). 7. Taking-Out Insurance Coverage (Art. 1523).

B. COMPLETENESS OF DELIVERY 1. IN CASE OF IMMOVABLES

Where it is stipulated that deliveries must be made to the buyer or his duly authorized representative, seller is under obligation to deliver to the buyer only and to no other, unless the buyer specifically designated someone to receive the delivery of materials and his name is written opposite the words Authorized Receiver/Depository. x Lagon v. Hooven Comalco Industries, 349 SCRA 363 (2001). (a) Where Sold Per Unit or Number (Arts. 1539 and 1540; Santa Ana v. Hernandez, 18 SCRA 973 [1966]). (b) Where Sold for a Lump Sum [a cuerpo cierto or por precio alzado] (Art. 1542; Sta. Ana v. Hernandez, 18 SCRA 973 [1966]) When the land delivered to the buyer is exactly as that described in the deed and covered within the boundaries designated, the difference is actual area (34 hectares versus 10 hectares) will not authorize the buyer to rescind the contract because the seller has complied with delivering the subject matter agreed upon. x Teran 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 hectares versus 60 hectares) xAzarraga v. Gay, 52 Phil. 599 (1928). To hold buyer to no more than the area recited on the deed, it must be made clear therein that the sale was made by unit of measure at a definite price for each unit and that such type of purchase must be specifically stated in the contract. xGoyena v. Tambunting, 1 Phil. 490 (1902). The well-settled rule is that what defines a land is not the area calculated with more or less certainty mentioned in the description but the boundaries therein laid down as enclosing the land and indicating its limits. Where land is sold for a lump sum and not so much per unit of measure or number, the boundaries of the land stated in the contract determine the effects and scope of the sale not the area thereof. xBalantakbo v. CA, 249 SCRA 323 (1995). A vendee of land when it is sold in gross or with the description more or less does not thereby ipso facto take all the risk of quantity in the land. The use of more or less or similar words in designating quantity covers only a reasonable excess or deficiency. Mutual mistake of the contracting parties to a sale in regard to the subjectmatter of the sale which is so material as to go to the essence of the contract, is a ground for relief and rescission. It has even been held that when the parties saw the premises and knew that boundaries it cannot prevent relief when there was mutual gross mistake as to quantity. Innocent and mutual mistake alone are sufficient grounds for rescission. [The essence of the contract was the area and quality of the land sold] xAsiain v. Jalandoni, 45 Phil 296 (1923). EXCEP: 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. x Garcia v. Velasco, 72 Phil. 248 (1941). Pursuant to Art. 1542, in the sale of realty on lump sum the obligation of vendor is to deliver everything within the boundaries, inasmuch as it is the entirety thereof that distinguishes the determinate object. However, this rule admits of an exception. 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).

2. IN CASE OF MOVABLES (Art. 1522 and 1537, 1480)

If there is no provision in the contract for the measuring or weighing of the fungible movables sold in order to complete or perfect the sale, nor is the price agreed upon by the parties to be based upon such measurement, then the subject matter of the sale is, therefore, a determinate object, the mass, and not the actual number of units or tons contained therein. xGaite v. Fonacier, 2 SCRA 830 (1961).

3. EFFECTS OF DELIVERY
Acceptance Not a Condition for Delivery. Since delivery of the subject matter of the sale is an obligation on the part of the seller, the acceptance thereof by the buyer is not a condition for the completeness of delivery. x La Fuerza v. CA, 23 SCRA 1217 (1968).

24

Payment of Price Not a Condition for Delivery. In the absence of an express stipulation to the contrary, the payment of the purchase price of the goods is not a condition precedent to the transfer of title to the buyer, but title passes by the delivery of the goods. xPhil. Suburban Dev. Corp. v. Auditor General, 63 SCRA 397 (1975). Effects of Delivery May Be Prevented by Stipulation. Parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price (Art. 1478). C. TIME AND PLACE OF DELIVERY (Art. 1521). D. EXPENSES OF EXECUTION AND REGISTRATION (Art. 1487), and of putting goods in deliverable estate (Art. 1521). Duty to withhold taxes due on the sale is imposed on the seller. x Equitable Realty Development Inc. v. Mayfair Theater, Inc., 332 SCRA 139 (2000). The buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the government is concerned, the capital gains tax remains a liability of the seller since it is a tax on the sellers gain from the sale of the real estate. Payment of the capital gains tax, however, is not a pre-requisite to the transfer of ownership to the buyer. The transfer of ownership takes effect upon the signing and notarization of the deed of absolute sale. xChua v. Court of Appeals, 401 SCRA 54 (2003). A judgment on a contract of sale that decrees the obligations of the seller to execute and deliver the deed of absolute sale and the certificate of title, does not necessarily include within its terms the obligation to pay for the expenses in notarizing a deed of sale and in obtaining new certificate of title. xJose Clavano, Inc. v. HLRB, 378 SCRA 172 (2002). Under Article 1487 of the Civil Code, the expenses for the registration of the sale should be shouldered by the vendor unless there is a stipulation to the contrary. xVive Eagle Land, Inc. v. Court of Appeals, 444 SCRA 445 (2004). Under Article 1495 of the Civil Code, the vendor is obliged to transfer title over the property and deliver the same to the vendee. xVive Eagle Land, Inc. v. Court of Appeals, 444 SCRA 445 (2004).

25

E. DOUBLE SALES (Arts. 1544 and 1165) 1. MAIN RULE: PRIOR TEMPORE, PRIOR JURE (Carbonell v. CA, 69 SCRA 99 [1976]8).
In cases of double sale of immovables, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. xGabriel v. Mabanta, 399 SCRA 573 (2003). Caveat emptor requires the buyer to be aware of the supposed title of the seller and he who buys without checking the seller's title takes all the risks and losses consequent to such failure. x Caram, Jr. v. Laureta, 103 SCRA 7 (1981); 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). Priority in time principle cannot be invoked when it comes to land registered under the Torrens system. It is a well-known rule in this jurisdiction that person 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. Naawan Community Rural Bank, Inc. v. CA, 395 SCRA 43 (2003). The rules on double sales under Art. 1544 find no relevance in an ordinary donation. x Hemedes v. CA, 316 SCRA 347 (1999).

2. REQUISITES FOR DOUBLE SALE (Cheng v. Genato, 300 SCRA 722 [1998]).
(a) Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims (Mendoza v. Kalaw, 42 Phil. 236 [1921]; Adalin v. CA, 280 SCRA 536 [1997]). The provision on double sale presumes title or ownership to pass to first buyer, exception being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer. Coronel v. CA, 263 SCRA 15, 37 (1996). The 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. Genato, 300 SCRA 722 (1998). (b) When one of the sales is a forgery. xEspiritu v. Valerio, 9 SCRA 761 (1963). (c) Rule not applicable when first sale is property itself and second sale involves the right to repurchase the property. xDischoso v. Roxas, 5 SCRA 781 (1962).

3. REGISTRATION AS FIRST PRIORITY

(a) Meaning of Registration The annotation of adverse claim can qualify as the registration mandated under the rules on double sale. Carbonnel v. CA, 69 SCRA 99 (1976). Registration means any entry made in the books of the registry, including both registration in its ordinary and strict sense, and cancellation, annotation, and even marginal notes . It is the entry made in the registry which records solemnly and permanently the right of ownership and other real rights. Cheng v. Genato, 300 SCRA 722 (1998). Registration by first buyer under Act No. 3344 can have the effect of constructive notice to the second buyer that can defeat his right as such buyer. xBayoca v. Nogales, 340 SCRA 154 (2000); xSpouses Honorio Santiago v. CA, 247 SCRA 336 (1995). Declaration of purchase for taxation purposes does not comply with the required registration, and the fact alone does not even itself constitute evidence of ownership. xBayoca v. Nogales, 340 SCRA 154 (2000).

Quimson v. Rosete, 87 Phil. 159; Sanchez v. Ramos, 40 Phil. 614; Florendo v. Foz, 20 Phil. 388; Gallardo v. Gallardo, 46 O.G. No. 11 p. 5568.

26

Registration of the Extra-judicial Partition which merely mentions the sale is not the registration covered under Art. 1544 on double sales and cannot prevail over the registration of the pacto de retro sale. xVda. de Alcantara v. CA, 252 SCRA 457 (1996). (b) Prior Registration Must Always Be in Good Faith. 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. Before a second buyer can obtain priority over the first, he must show that he acted in good faith throughout, from the time of acquisition until title is transferred to him by registration or failing registration, by delivery of possession. xBautista v. CA, 322 SCRA 294 (2000). In cases of double sale of immovables, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold. XGabriel v. Mabanta, 399 SCRA 573 (2003). In all cases of double sales, good faith is essential. It is the basic premise of the preferential rights granted to the one claiming ownership over an immovable. What is material is whether the second buyer first registers the second sale in good faith, i.e., without knowledge of any defect in the title of the property sold. The defense of indefeasibility of a Torrens title does not extent to a transferee who takes the certificate of title in bad faith, with notice of a flaw. xOccea v. Esponilla, 431 SCRA 116 (2004). (c) Knowledge of the first unregistered sale by the second buyer is equivalent to registration in favor of the first buyer (Cruz v. Cabana, 129 SCRA 656 [1984]9) Prior registration by second buyer does not by itself confer ownership or a better right over the property. Article 1544 requires that such registration must be coupled with good faith. Jurisprudence teaches us that "(t)he governing principle is primus tempore, potior jure (first in time, stronger in rights). 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, as provided by the Civil Code. 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 exacted by Article 1544 for the second buyer being able to displace the first buyer; that before the second buyer can obtain priority over the first, he must show that he acted in good faith 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). (e) 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. Taedo v. CA, 252 SCRA 80 (1996). xLiao v. CA, 323 SCRA 430 (2000);10 The settled rule is that when ownership or title passes to the buyer, the seller, ceases to have any title to transfer to any third person. If the seller sells the same land to another, the second buyer who has actual or constructive knowledge of the prior sale cannot be a registrant in good faith. Such second buyer cannot defeat the first buyers title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale. xAlfredo v. Borras, 404 SCRA 145 (2003).

4. POSSESSION REFERS BOTH TO MATERIAL AND SYMBOLIC POSSESSION. xNavera v. CA, 184 SCRA 584 (1990).
In the absence of inscription under double sales, the law gives preferential right to the buyer who in good faith is first in possession, under the following jurisprudential parameters: (a) Possession mentioned in Article 1544 includes not only material but also symbolic possession; (b) possessors in good faith are those who are not aware of any flaw in their title or mode of acquisition; (c) Buyers of real property that is in the possession of persons other than the seller must be warythey must investigate the rights of the possessors; and (d) good faith is always presumed, upon those who allege bad faith on the part of the possessors rests the burden of proof. [CLV: How come first buyer did not win when he had in his favor a deed of absolute sale? Earlier, we ruled that the subject property had not been delivered to petitioner; hence, it did not acquire possession either materially or symbolically. As between the two buyers, therefore, respondent [second buyer] was first in actual possession of the property. ANSWER: The seller remained in possession after the execution of the deed of absolute sale.] xTen Forty Realty and Dev. Corp. v. Cruz, G.R. No. 151212, 10 September 2003.

5. WHO

IS PURCHASER IN GOOD FAITH? (Agricultural and Home Extension Dev. v. CA., 213 SCRA 536 [1992]; xBalatbat v. CA, 261 SCRA 128 [1996]).

9 10

Bautista v. CA, 322 SCRA 294 (2000); Berico v. CA, 225 SCRA 469 (1993); Bucad v. CA, 216 SCRA 423 (1992); Vda. de Jomoc v. CA, 200 SCRA 74 (1991); Gatmaitan v. CA, 200 SCRA 37 (1991). Liao v. CA, 323 SCRA 430 (2000); Talusan v. Tayag, 356 SCRA 263 (2001).

27

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. xAguirre v. Court of Appeals, 421 SCRA 310 (2004). 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. xAguirre v. Court of Appeals, 421 SCRA 310 (2004). Knowledge by the buyer even prior to the sale that there were erected on the land in question an old wooden house and a semi-bungalow house which were occupied by third parties, would not classify the buyer as one in good faith. At the very least the purchaser failed to make the necessary inquiry as to possessory rights of the relatives of the sellers. No amount of good faith can therefore be appreciated in favor of such buyer. x Heirs of Celestial v. Heirs of Celestial, 408 SCRA 291 (2003). A purchase in good faith is one who buys property of another, without notice that some other person has a right to, or interest in, such property and pays full and fair price for the sale, at the time of such purchase, or before he has a notice of the claim or interest of some other persons in the property. He buys the property with the belief that the person from whom he receives the thing was the owner and could convey title to the property. A purchaser cannot close his eyes to facts which should put a reasonable man on his guard and still claim he acted in good faith. x Heirs of Aguilar-Reyes v. Spouses Mijares, 410 SCRA 97 (2003). A purchaser in good faith or an innocent purchaser for value is one who buys property and pays a full and fair price for it at the time of the purchase or before any notice of some other persons claim on or interest in it. We emphasize that one cannot close ones eyes to facts that should put a reasonable person on guard and still claim to have acted in good faith. xTanongon v. Samson, 382 SCRA 130 (2002). An innocent purchaser is one who acquired the property for a valuable consideration, not knowing that the title of the vendor or grantor is null and void. He is also one who buys the property of another without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same, at the time of such purchase, or before he has notice of the claim or interest of some other persons in the property. The concept underscores two important factors: (1) the property which is bought for consideration, and (2) the lack of knowledge or notice of adverse claim or interest prior to the sale. x Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves , 389 SCRA 316 (2002). The requirement of the law on double sales, where title to the property is recorded in the Register of Deeds, is two-fold: (a) acquisition in good faith; and (b) recording in good faith. To be entitled to priority, the second purchaser must not only prove prior recording of his title but that he acted in good faith, i.e., without knowledge or notice of a prior sale to another. xMartinez v. CA, 358 SCRA 38 (2001). A purchaser is good faith is one who buys property of another, without notice that some other person has a right to, or interest in, such property and pays a full and fair price for the same at the time of such purchase , or before he has notice of the claim or interest of some other person in the property. x Diaz-Duarte v. Ong, 298 SCRA 388 (1998); xVeloso v. CA, 260 SCRA 593 (1996); xMathay v. CA, 295 SCRA 556 (1998);. The person who asserts that the status of a purchaser in good faith and for value has the burden of proof. x Tsai v. CA, 366 SCRA 324 (2001). (a) Instances When No Good Faith: (1) 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. x Pilapil v. CA, 250 SCRA 566 (1995). (2) 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, such as When there are occupants to the land being bought, since it its 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)11 When the property is subject to an annotated lis pendens. xPo Lam v. CA, 316 SCRA 721 (1999); but not when cancelled at time of purchase xPo Lam v. CA, 347 SCRA 86 (2000).

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. The fact that there were already occupants on the property should put a buyer on inquiry as to the nature of the occupants right over the property. x Martinez v. CA, 358 SCRA 38 (2001); xModina v. CA, 317 SCRA 696, 706 (1999).
11

Heirs of Ramon Durano, Sr. v. Uy, 344 SCRA 238 (2000); Republic v. De Guzman, 326 SCRA 267 (2000); Mathay v. CA, 295 SCRA 556 (1998).

28

(3) Land in Adverse Possession A 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. x Heirs of Ramon Durano, Sr. v. Uy, 344 SCRA 238 (2000). The rule is settled that a buyer of real property which is in the possession of persons other than the seller must be wary and should investigate the rights of those in possession, otherwise, without such inquiry, the buyer can hardly be regarded as buyer in good faith. xRepublic v. De Guzman, 326 SCRA 267 (2000). An adverse claim registered prior to the second sale charged the subsequent buyers with constructive notice of the defect in the title of the seller. xAlfredo v. Borras, 404 SCRA 145 (2003). Where the land sold is in the possession of a person other than the vendor, the purchaser must go beyond the certificate of title and make inquiries concerning the rights of the actual possessor. xHeirs of Trinidad de Leon Vda. De Roxas v. Court of Appeals , 422 SCRA 101 (2004); xOccena v. Esponilla, 431 SCRA 116 (2004). (4) Existence of Lis Pendens 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). EXCEPT: When knowledge of lis pendens was acquired at the time there was order to have it cancelled. x Po Lam v. CA, 347 SCRA 86 (2000).

6. WHEN UNREGISTERED LAND (Naawan Community Rural Bank, Inc. v. CA, 395 SCRA 43 [2003])
When first sale is over unregistered land and the second sale is when it is registered, the rules on double sale do not apply. Dagupan Trading Co. v. Macam, 14 SCRA 179 (1965). Article 1544 is inapplicable to unregistered land because the purchaser of unregistered land at a sheriffs execution sale only steps into the shoes of the judgment debtor, and merely acquires the latters interest in the property sold as of the time the property was levied upon, as expressly provided for in then Sec. 35, Rule 39 of the Revised Rules of Court on execution sale [now Sec. 33, Rule 39, 1997 Rules of Civil Procedure)]. Carumba v. CA, 31 SCRA 558 (1970); Under Act 3344, registration of instruments affecting unregistered lands is without prejudice to a third party with a better right, which means that mere registration does not give the buyer any right over the land if the seller was not anymore the owner of the land having previously sold the same to somebody else even if the earlier sale was unrecorded. The rules on double sale under Art. 1544 has no application to land no registered under the Torrens system. Radiowealth Finance Co. v. Palileo, 197 SCRA 245 (1991). Registration by the first buyer under Act 3344 can have the effect of constructive notice to the second buyer that can defeat his right as such buyer in good faith. xBayoca v. Nogales, 340 SCRA 154 (2000); xSpouses Honorio Santiago v. CA, 247 SCRA 336 (1995). The provisions of Act 3344 on registration of instruments affecting unregistered lands is without prejudice to a third party with a better right. The better right that cannot be prejudiced by the registration of a second sale of a parcel of land must mean more than a mere prior deed of sale in favor of the first buyer. It involves facts and circumstances in addition to a deed of sale which, combined, would make it clear that the first buyer has a better right than the second purchaser. xHanapol v. Pilapil, 7 SCRA 452 (1963).

G. OBLIGATIONS OF BUYER 1. PAY THE PRICE (Art. 1582)

Failure of buyer to pay the price within a fixed period does not, by itself, bar the transfer of the ownership or possession, much less dissolve the contract of sale. xOcampo v. CA, 233 SCRA 551 (1994). Non-payment of the consideration in the contract of sale does not prove simulation, at most, it gives the seller the right to sue for collection. Generally, in a contract of sale, payment of the price is a resolutory condition and the remedy of the seller is to exact fulfillment or, in case of a substantial breach, to rescind the contract under Art. 1191 of Civil Code. xVillaflor v. CA, 280 SCRA 297 (1997). In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. The remedy of an unpaid seller in a contract of sale is to seek either specific performance or rescission. xHeirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997). When seller cannot show title to the subject matter, then he cannot compel the buyer to pay the price. The essence of a sale is the transfer of title or an agreement to transfer it for a price actually paid or promised. x Heirs of Severina San Miguel v. CA, 364 SCRA 523 (2001).

29

Unless the parties to a sale have agreed to the payment of the purchase price to any other party, then its payment to be effective must be made to the seller in accordance with Article 1240 of the Civil Code which provides that Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it. xMontecillo v. Reynes, 385 SCRA 244 (2002).

2. ACCEPT DELIVERY (Arts. 1582-1585)

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

A. DEFINITION (Art. 1636) B. PURPOSE OF DOCUMENTS OF TITLE
Through a document of title, seller is allowed by fiction of law to deal with the goods described therein as though he had physically delivered them to the buyer; and buyer may take the document of title as though he had actually taken possession and control over the goods described therein. The endorsement and delivery of a negotiable quedan operates as the transfer of possession and ownership of the property referred to therein, and had the effect of divorcing the property covered therein from the estate of the insolvent prior to the filing of the petition for insolvency. x Philippine Trust Co. v. National Bank, 42 Phil. 413 (1921). Warehouse receipt represents the goods, but the intrusting of the receipt is more than the mere delivery of the goods; it is a representation that the one to whom the possession of the receipt has been so entrusted has the title to the goods. xSiy Cong Bieng v. Hongkong & Shanghai Bank, 56 Phil. 598 (1932).

C. NEGOTIABLE DOCUMENTS OF TITLE

1. 2. 3. 4. How Negotiated (Arts. 1508-1509) Who Can Negotiate (Art. 1512) Effects of Negotiation (Art. 1513) Unauthorized Negotiation (Art. 1518) As between the owner of a negotiable document of title who endorsed it in blank and entrusted it to a friend, and the holder of such negotiable document of title to whom it was negotiated and who received it in good faith and for value, the latter is preferred, under the principle that as between two innocent persons, he who made the loss possible should bear the loss. xSiy Long Bieng v. Hongkong and Shanghai Banking Corp., 56 Phil. 598 (1932).

D. NON-NEGOTIABLE DOCUMENTS OF TITLE

1. How Transferred or Assigned (Art. 1514) 2. Effects of Transfer (Art. 1514).

E. WARRANTIES OF SELLER OF DOCUMENTS OF TITLE (Art. 1516) F. RULES OF LEVY/GARNISHMENT OF GOODS (Arts. 1514, 1519, 1520).

VIII. SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE: THE LIFE OF A CONTRACT OF SALE
A. EFFECT OF SALE WHERE SELLER NOT OWNER AT TIME OF DELIVERY (Art. 1505; Paulmitan v. CA, 215 SCRA 866 [1992]). In sale, it is essential that the seller is the 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. CA, 240 SCRA 78 (1995); xAzcona v. Reyes, 59 Phil. 446 (1934); xCoronel v. Ona, 33 Phil. 456 (1916). Sale by one who is not the owner of the subject matter is void, and consequently, the right to repurchase the property would also be void. Although a situation (where the sellers were no longer owners) does not appear to be one of the void contracts enumerated in Art. 1409 of Civil Code, and under Art. 1402 Civil Code itself recognizes a sale where the goods are to be "acquired x x x by the seller after the perfection of the contract of sale" clearly implying that a sale is possible even if the seller was not the owner at the time of sale, provided he acquires title to the property later on. . . . Here, delivery of ownership is no longer possible. It has become impossible." xNool v. CA, 276 SCRA 149 (1997).

30

As a general rule, if one buys the land of another, to which the seller is supposed to have a good title, and in consequence of facts unknown alike to both parties, the seller has in fact no title at all, equity will cancel the sale and cause the purchase money to be restored to the buyer, putting both parties in status quo. xDBP v. CA, 249 SCRA 331 (1995). 1. Sale by Co-Owners (Art. 493; Mindanao v. Yap, 13 SCRA 190 [1965]; Estoque v. Pajimula, 24 SCRA 59 [1968]; Almendra v. IAC, 204 SCRA 142 [1991]). The sale by a co-owner of a parcel of land affects only the sellers share pro indiviso, and the transferee gets only what corresponds to his grantors share in the partition of the property owned in common. Since a co-owner is entitled to sell his undivided share, a sale of the entire property by one co-owner without the consent of the other co9owners is not null and void; only the rights of the co-owner/seller are transferred, thereby making the buyer a coowner of the property. xAguirre v. Court of Appeals, 421 SCRA 310 (2004). The appropriate recourse of co-owners in cases where their consent were not secured in a sale of the entire property as well as in a sale merely of the undivided shares of some of the co-owners is an action for partition under Rule 69 of the Revised Rules of Court. xAguirre v. Court of Appeals, 421 SCRA 310 (2004). A co-owner who sells one of the two lands owned in common with another co-owner, and does not turn-over one-half of the proceeds of the sale to the other co-owner, the latter may by law and equity lay exclusive claim to the remaining parcel of land. xImperial v. CA, 259 SCRA 65 (1996). Under Art. 493, if a co-owner sells the whole property as his, the sale will affect only his spiritual share, but not those of the other co-owners who did not consent to the sale. However, only the rights of the co-owner/seller are transferred, thereby making the buyer a co-owner of the property. The proper action is not for the nullification of the sale, or for the recovery of possession of the property owned in common from the other co-owners, but for division or partition of the entire property. xTomas Claudio Memorial College, Inc. v. CA, 316 SCRA 502 (1999); xHeirs of Romana Ingjug-Tiro v. Casals, 363 SCRA 435 (2001). A sale of the entire building without the consent of other co-owners is not null and void as only the rights of the co-owner seller are transferred, thereby making the buyer a co-owner of the building. xFernandez v. Fernandez, 363 SCRA 811 (2001).

B. EXCEPTIONS: WHEN OWNERSHIP TRANSFERS BY NON-OWNER 1. ESTOPPEL

ON

TRUE OWNER (Art. 1434; Bucton v. Gabar, 55 SCRA 499 [1974]).

2. RECORDING LAWS; TORRENS SYSTEM (Pres. Decree 1529).

The defense of indefeasibility of Torrens title where the disputed buildings and equipment are located is unavailing, since such defense is available to sale of lands and not to sale of properties situated therein. x Tsai v. CA, 366 SCRA 324 (2001). An innocent purchaser for value is one who purchases a titled land by virtue of a deed executed by the registered owner himself not by a forged deed. xInsurance Services and Commercial Traders, Inc. v. CA, 341 SCRA 572 (2000). Even when the sale is void for being based on a fictitious transfer from a previous seller to the current seller (as the former did not own the property in its entirety when sold), the general rule that the direct result of a previous void contract cannot be valid, is inapplicable when it will directly contravene the Torrens system of registration. Where innocent third persons, relying on the correctness of the certificate of title thus issued, acquire rights over the property, the court cannot disregard such rights and order the cancellation of the certificate, since the effect of such outright cancellation will be to impair public confidence in the certificate of title. Every person dealing with the registered land may safely rely on the correctness of the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to determine the condition of the property. x Heirs of Spouses Benito Gavino. v. CA, 291 SCRA 495 (1998).

3. STATUTORY POWER ORDER OF COURTS

When a defeated party refuses to execute the absolute deed of sale in accordance with the judgment, the court may direct the act to be done at the cost of the disobedient party by some other person appointed by the court and the act when so done shall have the like effect as is done by the party. x Manila Remnant Co., Inc. v. CA, 231 SCRA 281 (1994)

4. SALE

IN MERCHANTS STORES, FAIRS OR MARKETS (Arts. 85 and 86, Code of Commerce; City of Manila v. Bugsuk, 101 Phil. 859 [1957]; Sun Bros. & Co. v. Velasco, 54 O.G. 5143 [1958]).

C. SALE BY ONE HAVING VOIDABLE TITLE (COMPARE Arts. 559 and 1506; EDCA Publishing v. Santos , 184
SCRA 614 [1990]; Aznar v. Yapdiangco, 13 SCRA 486 [1965]; Tagatac v. Jimenez, 53 O.G. 3792 [1957]).

31

IX. LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS

A. NO APPLICATION WHEN SUBJECT MATTER IS DETERMINABLE (Art. 1263) B. EFFECT OF LOSS/DETERIORATION OF THING SOLD: 1. BEFORE PERFECTION (Roman v. Grimalt, 6 Phil. 96 [1906]). 2. AT TIME OF PERFECTION (Arts. 1493 and 1494). 3. AFTER PERFECTION BUT BEFORE DELIVERY (Arts. 1164, 1189, and 1262).
(a) General Rule: Before delivery, risk of loss is borne by seller under the rule of res perit domino. xChrysler Phil. v. CA, 133 SCRA 567 (1984). In the case of a motor vehicle, where there was neither physical or constructive delivery of a determinate thing, the thing sold remained at the sellers risk. xUnion Motor Corp v. CA, 361 SCRA 506 (2001). (b) Loss by Fault of a Party (Arts. 1480, 1504, 1538) (c) Loss by Fortuitous Event (Arts. 1480, 1163, 1164, 1165, 1504, 1538, and 1189; READ Comments of PARAS, TOLENTINO, PADILLA, and BAVIERA. (d) Deterioration (Arts. 1480, 1163-65, and 1262; Arts. 1189 and 1538) (e) Fruits or Improvements from time of perfection pertain to buyer (Arts. 1480, 1537-1538).

4. AFTER DELIVERY (Art. 1504; Song Fo & Co. v. Oria, 33 Phil. 3 [1915]; Lawyer's Coop v. Tabora, 13 SCRA 762
[1965]; xLawyer's Coop v. Narciso, 55 O.G. 3313).

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

A. ON PART OF SELLER

1. IN CASE OF MOVABLES ((Arts. 1593, 1595 to 1597)

Under Article 1597, when the buyer of scrap iron fails to put up the letter of credit in favor of the seller as the condition of the sale, the seller had a right to terminate the contract, and non-compliance with the condition meant that the sellers obligation to sell never did arise. xVisayan Sawmill Co. v. CA, 219 SCRA 378 (1993).

2. UNPAID SELLER OF GOODS (Arts. 1524-1535)

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

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

(a) Meaning of Installment Sale (Levy v. Gervacio, 69 Phil. 52 [1939]) (b) Contracts to Sell Movables Not Covered (Visayan Sawmill Company, Inc. v. CA, 219 SCRA 378 (1993). (c) Remedies Available to Unpaid Seller (Delta Motor Sales Corp. v. Niu Kim Duan , 213 SCRA 259 [1992]; xDe la Cruz v. Asian Consumer, 214 SCRA 103 [1992]). Remedies under Art. 1484 are not cumulative but alternative and exclusive. xBorbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996).

32

Seeking a writ of replevin consistent with any of the three remedies x Universal Motors Corp. v. Dy Hian Tat , 28 SCRA 161 (1969). (d) REMEDY OF SPECIFIC PERFORMANCE: No bar to full recovery. Tajanglangit v. Southern Motors , 101 Phil. 606 (1957). (i) Even when it is the mortgaged property that is sold on execution. xSouthern Motors v. Moscoso, 2 SCRA 168 (1961). (ii) Even with replevin and recovery of the subject property, the action may still be for specific performance. xIndustrial Finance Corp. v. Ramirez, 77 SCRA 152 (1977). (e) NATURE OF REMEDY OF RESCISSION (Nonato v. IAC, 140 SCRA 255 [1985]). (i) Surrender of mortgaged property not equivalent to rescission. x Vda. de Quiambao v. Manila Motors Co., Inc. , 3 SCRA 444 (1961); (ii) 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 (i) Third Party Mortgage (Ridad v. Filipinas Investment, 120 SCRA 246). (ii) Assignor-Assignee; Financing Transactions (Zayas v. Luneta Motors, 117 SCRA 726 [1982]). When the seller assigns his credit to another person, the latter is likewise bound by the same law. xBorbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996). (iii) Barring" Effect of Foreclosure Filing of the 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 boligation not satisfied by the sale. The voluntary payment of the installment by the buyer-mortgagor is valid and not recoverable under the restrictive provisions of Art. 1484(3). xNorthern Motors v. Sapinoso, 33 SCRA 356 (1970). Foreclosure on the chattel mortgage prevents further action on the supporting real estate mortgage. Cruz v. Filipinas Investment & Finance Corp. , 23 SCRA 791 (1968);1 Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 [1996]). (iv) Amounts Barred from Recovery (Macondray & Co. v. Eustaquio, 64 Phil. 446 [1937]). (v) Perverse Buyer: When expenses of litigation may be recovered despite foreclosure effected ( Filipinas Investment & Finance Corp. v. Ridad, 30 SCRA 564 [1969]). (g) PURPORTED LEASE WITH OPTION TO BUY (Filinvest Credit Corp. v. CA, 178 SCRA 188 [1989]2). The Court took judicial notice 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. Elisco Tool Manufacturing Corp. v. CA, 307 SCRA 731 (1999).

4. IN CASE OF IMMOVABLES:
(a) Anticipatory breach (Art. 1591; Legarda v. Saldaa, 55 SCRA 324). (b) Sections 23 and 24, Pres. Decree 957 Pres. Decree 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' for the health and safety of home and lot buyers. It was designed to stem the tide of `fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers free from liens and encumbrances." xCasa Filipinas Realty Corp. v. Office of the President, 241 SCRA 165 (1995). Option granted by law to demand reimbursement or wait for further development is with buyer and not the developer/seller. xRelucio v. Brillante-Garfin, 187 SCRA 405 (1990).
1 2

xPascual v. Universal Motors Corp., 61 SCRA 121 (1974). U.S. Commercial v. Halili, 93 Phil. 271 (1953); H.E. Heacock v. Bantal Manufacturing , 66 Phil. 245; Manila Gas Corp. v. Calupita , 66 Phil. 747; Vda. de Jose v. Barrueco, 67 Phil. 191 (1939)

33

Buyers of condominium units would be justified in suspending payments, when the developer-seller fails to give them a copy of the Contract to Sell despite repeated demands. The buyers are entitled to a copy of the contract to sell, otherwise they would not be informed of their rights and obligations under the contract. x Gold Loop Properties, Inc. v. CA, 350 SCRA 371 (2001). The term buyer under P.D. 957 is not limited to those who enter into contract of saleits concept is broad enough as to include those who acquire for a valuable consideration a condominium unit. One who acquires condominium units by way of assignment by the condominium project owner in payment of its indebtedness for contractors fee does so for valuable consideration, and is a buyer in contemplation of P.D. 957. AMA Computer College, Inc. v. Factora, 378 SCRA 121 (2002).

5. MACEDA LAW: SALES

OF RESIDENTIAL REALTY ON INSTALLMENTS (R.A. 6552; McLaughlin v. CA, 144 SCRA 693 [1986]; xLuzon Brokerage v. Maritime Bldg., 86 SCRA 305 [1978]; xLuzon Brokerage v. Maritime Bldg., 43 SCRA 93 [1972]).

(a) Role of Maceda Law Maceda Laws declared policy is to protect buyers of real estate on installment basis against onerous and oppressive conditions. The law seeks to address the acute housing shortage problem in our country that has prompted thousands of middle and lower class buyers of houses, lots and condominium units to enter into all sorts of contracts with private housing developers involving installment schemes. x Active Realty & Development Corp. Daroya, 382 SCRA 152 (2002). The Realty Installment Buyer Protection Act, is a special law governing transactions that involve, subject to certain exceptions, the sale on installment basis of real property, and has been enacted mainly to protect buyers of real estate on installment payments against onerous and oppressive conditions. xOIympia Housing Inc. v. Panasiatic Travel Corp., 395 SCRA 298 (2003). (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).3 BUT SEE: As with Presidential Decrees Nos. 957 and 1344, Republic Act 6552 does not expressly provide for its retroactive application and, therefore, it could not have encompass(ed) the cancellation of the contracts to sell pursuant to an automatic cancellation clause which had become operational long before the approval of the law. xPeoples Industrial and Commercial Corp. v. CA, 281 SCRA 206 (1997). When a contract to sell is constituted over a condominium unit subject to suspensive condition on the acquisition of individual condominium certificates of title (CCT) which seller undertook to accomplish within a year, the non-fulfillment of the condition extinguished the contract. Consequently, the Maceda Law finds no application to the present case because said laws presuppose the existence of a valid and effective contract to sell a condominium. Mortel v. KASSCO, Inc., 348 SCRA 391, 398 (2000). Pursuant to Art. 1253 of Civil Code, in a contract involving installments with interest chargeable against the remaining balance of the obligation, it is the duty of the creditor-seller to inform the debtor-buyer of the amount of the interest that falls due and that is applying the installment payments to cover said interest. Otherwise, the creditor cannot apply the payments to the interest and then hold the debtor in default for non-payment of installments on the principal. xRapanut v. CA, 246 SCRA 323 (1995). The 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. This 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 The policy of the Maceda Law, as embodied in its title, is to provide protection to installment buyers of real estate, and as provided in section 3 thereof, the declared public policy is to protect buyers of real estate on installment payments against onerous and oppressive conditions. Therefore, one who buys the property from the developer and who steps into the shoes of the seller under the Contract to Sell cannot claim any right or protection under the law. And thus, if the Maceda Law has any relevance at all, it is to protect the buyer, not the developer-seller or his successor-in-interest. Furthermore, Section 3(b) of the Law does not grant the developer any legal ground to cancel the contracts to sell; rather, it prescribes the responsibility of the seller in case the contract[s are] cancelled. xLagandaon v. CA, 290 SCRA 463 (1998). (c) How Cancellation of Contract Can Be Effected (Active Realty & Dev. Corp. v. Daroya, 382 SCRA 152 [2002]).
3

PNB v. Office of the President, 252 SCRA 620 (1996); Eugenio v. Executive Secretary Franklin M. Drilon, 252 SCRA 106 (1996).

34

The Maceda law recognizes the right of the seller to cancel the contract but any such cancellation must be done in conformity with the requirements therein prescribed. In addition to the notarial act of rescission, the seller is required to refund to the buyer the cash surrender value of the payments on the property. The actual cancellation of the contract can only be deemed to take place upon the expiry of a 30-day period following the receipt by the buyer of the notice of cancellation or demand for rescission by a notarial act and the full payment of the cash surrender value. xOlympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003). R.A. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to convey title from acquiring binding force. The law also provides for the rights of the buyer in case of cancellation. Pursuant to Section 3(b) of the law, a decision rendered in an ejectment case operated as the required notice of cancellation. As the buyer was not given the cash surrender value of the payments she made, there was still no actual cancellation of the contract. Consequently, the buyer may still reinstate the contract by updating the account during the grace period and before actual cancellation. Leano v. CA, 369 SCRA 36 (2001). (d) Compensation Rule on Amortization Payments Although the contract to sell allows a total of 10 years within which to pay the purchase price, nevertheless, the buyer cannot ignore the stipulation on the monthly amortization payments required under the contract by claiming that the ten-year period within which to pay has not elapsed. When the buyer fails to pay any monthly amortization, he is under Article 1169 already in default and liable for the damages stipulated in the contract. However, we agree with the trial court that the default committed by the buyer in respect of the obligation could be compensated by the interest and surcharges imposed upon the buyer under the contract. Leao v. CA, 369 SCRA 36 (2001).

5. RESCISSION ON SALE ON NON-RESIDENTIAL REALTY ON INSTALLMENTS (Arts. 1191 and 1592)

Article 1592 requiring demand by suit or by notarial act in case the seller of realty wants to rescind, does not apply to a contract to sell or promise to sell, where title remains with the seller until full payment of the price. xManuel v. Rodriguez, 109 Phil. 1 (1960).4 Articles 1191 and 1592 on rescission cannot apply to a contract to sell since there can be no rescission of an obligation that is still non-existent, the suspensive condition not having happened. xRillo v. CA, 274 SCRA 461 (1997). In Contracts to Sell commercial lots, Art. 1191 cannot be applied, since in the contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligation force. The breach contemplated in Art. 1191 is the obligors failure to comply with an obligation already extant, not a failure of a condition to render binding that obligation. xOdyssey Park, Inc. v. CA, 280 SCRA 253 (1997).

B. ON PART OF BUYER
1. In case of Movables (Arts. 1598-1599) 2. In case of Immovables (Arts. 1191; Secs. 23 and 24, P.D. 957) 3. Suspension of Payment (Art. 1590) The pendency of suit over the subject matter of the sale justifies the buyer in suspending payment of the balance of the purchase price by reason of aforesaid vindicatory action filed against it. The assurance made by the seller that the buyer did not have to worry about the case because it was pure and simple harassment is not the kind of guaranty contemplated under the exceptive clause in Article 1590 wherein the buyer is bound to make payment even with the existence of a vindicatory action if the seller should give a security for the return of the price. x Adelfa Properties, Inc. v. CA, 240 SCRA 565, 586 (1995). Section 23 of P.D. 957 does not require that a notice be given first by the buyer to the seller before a demand for refund can be made as the notice and demand can be made in the same letter or communication. x Casa Filipinas Realty Corp v. Office of the President, 241 SCRA 165 (1995). 4. In Case of Subdivision or Condominium Projects A buyer of a condominium unit is justified in suspending payment of his monthly amortizations where the seller fails to give the former a copy of the Contract to Sell despite repeated demands therefore. x Gold Loop Properties, Inc. v. CA, 350 SCRA 371 (2001).
4

xValarao v. CA, 304 SCRA 155 (1999); Jacinto v. Kaparaz, 209 SCRA 246 (1992); Gimenez v. CA, 195 SCRA 205 (1991); Joseph & Sons Enterprises, Inc. v. CA, 143 SCRA 663 (1986);; Caridad Estates, Inc. v. Santero , 71 Phil. 114 (1940). Caridad Estates v. Santero, 71 Phil. 120; Aldea v. Inquimboy, 86 Phil. 1601.

35

5. Remedies of Rescission under Articles 1191 and 1592 Have No Application to Contracts To Sell Even if Art. 1191 were applicable, petitioner would still not be entitled to automatic rescission. In Escueta v. Pando, we ruled that under Art. 1191, the right to resolved reciprocal obligations, is deemed implied in case one of them obligors shall fail to comply with what is incumbent upon him. But that right must be invoked judicially. The same article also provides: The Court shall decree the resolution demanded, unless there should be grounds which justify the allowance of a term for the performance of the obligation. xIringan vs. CA, 366 SCRA 41 (2001).

XI. REMEDY OF RESCISSION IN SALES CONTRACTS COVERING IMMOVABLES: CONTRACT OF SALE versus CONTRACT TO SELL
A. NATURE OF REMEDY OF RESCISSION (RESOLUTION) (Arts. 1191, 1479, 1592) 1. DISTINGUISHING
FROM

OTHER REMEDY

OF

RESCISSION (Universal Food Corp. v. CA, 33 SCRA 22 [1970]). But see

contra Suria v. IAC, 151 SCRA 661 [1987]). While Art. 1191 uses the term rescission, the original term which was used in the old Civil Code, from which the article was based, was resolution. Resolution is a principal action which is based on breach of a party, while rescission under Art. 1383 is a subsidiary action limited to cases of rescission for lesion under Art. 1381. x Ong v. CA, 310 SCRA 1 (1999). Articles 1380 and 1381are applicable to rescissible contracts, as enumerated and defined therein. It must be stressed that rescission in Art. 1381 is not akin to the term rescission in Arts. 1191 and 1592. In Arts. 1191 and 1592, the rescission is a principal action which seeks the resolution or cancellation of the contract while in Art. 1381, the action is a subsidiary one limited to cases of rescission for lesion as enumerated in said article. x Iringan v. CA, 366 SCRA 41 (2001). 2. Basis of Remedy of Rescission The right of rescission under Art. 1191 is predicated on a breach of faith by the other party who violates the reciprocity between them. The breach contemplated in the said provision is the obligors failure to comply with an existing obligation. When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission. xVelarde v. CA, 361 SCRA 56 (2001).5 Non-payment of the purchase price constitutes a very good reason to rescind a sale for it violates the very essence of the contract of sale. In Central Bank of the Philippines v. Bichara , we held that the non-payment of the purchase price is a resolutory condition for which the remedy is either rescission or specific performance under Article 1191 of the New Civil Code. This is true for reciprocal obligations where the obligation is a resolutory condition of the other. On the other hand, the buyer is entitled to retain the purchase price or a part of the purchase price of realty if the seller fails to perform any essential obligation of the contract. Such right is premised on the general principles of reciprocal obligation. xGil v. Court of Appeals, 411 SCRA 18 (2003). The consignation by the buyer of the purchase price of the property, there having been no previous receipt of a notarial demand for rescission, is sufficient to defeat the right of the seller to demand for a rescission of the deed of absolute sale. xGil v. Court of Appeals, 411 SCRA 18 (2003). A seller cannot unilaterally and extrajudicially rescind a contract of sale where there is no express stipulation authorizing it. xBenito v. Saquitan-Ruiz, 394 SCRA 250 (2002). Rescission creates the obligation to return the object of the contract, and can be carried out only when the one who demands rescission can return whatever he may be obliged to restore. To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from the beginning and restore the parties to their relative positions as if no contract has been made. xVelarde v. CA, 361 SCRA 56 (2001).6 The power to rescind is only given to the injured party who has faithfully fulfilled his obligation or is ready and will to perform with his obligation. Thus, when the seller is not in a position to comply with the condition to deliver a free and clean title, they are not in a position to ask for rescission. xAlmira v. CA, 399 SCRA 351 (2003). Creditors do not have such material interest as to allow them to sue for rescission of a contract of saletheirs is only a personal right to receive payment for the loan, not a real right over the property subject of the deed of sale. xAdorable v. CA, 319 SCRA 200 (1999).

5 6

Central Philippine University v. CA, 246 SCRA 511 (1995); Uy v. CA, 314 SCRA 63 (1999); Romeo v. CA, 250 SCRA 223 (1995); Cheng v. Genato, 300 SCRA 722 (1998). Ocampo v. CA, 233 SCRA 551 (1994); Co v. CA, 312 SCRA 528 (1999).

36

Action for Rescission Not Similar to An Action for Reconveyance In the sale of real property, the seller is not precluded from going to the court to demand judicial rescission in lieu of a notarial act of rescission. But such action is different from an action for reconveyance of possession on the thesis of a prior rescission of the contract covering the property. Also, the effects that flow from an affirmative judgment in either case would be materially dissimilar in various respects. The judicial resolution of a contract gives rise to mutual restitution which is not necessarily the situation that arise in an action for reconveyance. Additionally, in an action for rescission (also often termed as resolution), unlike in an action for reconveyance predicated on an extrajudicial rescission (rescission by notarial act), the court, instead of decreeing rescission, may authorize for a just cause the fixing of a period. x Olympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003). 3. Power to Rescind Generally Judicial in Nature , and therefore a rightful party may demand rescission as against the defaulting party only by seeking remedy from the courts.7 In a conditional contract, the non-injured party has no right to seek rescission of the sale where the condition has not yet happened. xRomero v. CA, 250 SCRA 223 (1995); xLim v. CA, 263 SCRA 569 (1996). When the obligor fails to comply with a reciprocal obligation, the remedies of the injured party are (1) specific performance or (2) judicial rescission. A seller cannot unilaterally and extrajudicially rescind a contract of sale where there is no express stipulation authorizing it. Unilateral rescission will not be judicially favored or allowed if the breach is not substantial and fundamental to the fulfillment of the obligation. xBenito v. Saquitan-Ruiz, 394 SCRA 250 (2002). Rescission Requires a Positive Act There is no basis for a seller to file an action of reconveyance predicated on an assumption that the contract to sell had been validly cancelled or rescinded, when no such cancellation took place at any time prior to the institution of the action. The sending of a demand letter for the buyer to pay the purchase price does not constitute an action for rescission or cancellation. Likewise, the attachment to the complaint of notarial rescission could not cure the defect in the cause of action. x Olympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003). 4. Stipulation on Extra-judicial Rescission There is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. x Froilan v. Pan Oriental Shipping Co., 12 SCRA 276 (1964).8 5. Mutual Restitution (Art. 1385) A provision in the contract providing for forfeiture of the amounts paid in a contract of sale is valid being in the nature of a penal clause. xThe Manila Racing Club v. The Manila Jockey Club, 69 Phil. 55 (1939). When sale is annulled, parties are governed by Art. 1398 whereunder they shall 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).

B. DISTINCTIONS BETWEEN CONTRACT OF SALE AND CONTRACT TO SELL

1. CONTRACT OF SALE VERSUS CONTRACT TO SELL (Art. 1458; Adelfa Properties, Inc. v. CA, 240 SCRA 575 [1995]). In a contract to sell, ownership is, by agreement, reserved to the vendor and is not to pass until full payment of the purchase price; whereas in a contract of sale, title to the property passes to the vendee upon delivery of the thing sold. Non-payment by the vendee in a contract of sale entitles the vendor to demand specific performance or rescission of the contract, with damages, under Art. 1191. xAlmira v. CA, 399 SCRA 351 (2003). In a contract of sale, title to the property passes to buyer upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the seller and is not to pass to buyer until full payment of purchase price. Otherwise stated, in a contract of sale, seller loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded, whereas in a contract to sell, title is retained by the seller until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. x Tuazon v. Garilao, 362 654 (2001).9 A contract is one of sale, absent any stipulation therein reserving title over the property to the vendee until full payment of the purchase price nor giving the vendor the right to unilaterally rescind the contract in case of nonpayment. Valdez v. Court of Appeals, 439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004); xDel Castillo v. Spouses Naguiat, G.R. No. 137909, 11 December 2003 (unrep.).
7 8 9

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). Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 95 (1972); Luzon Brokerage v. Maritime Bldg., 86 SCRA 305 (1978). Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves , 389 SCRA 316 (2002); Buot v. CA, 357 SCRA 846 (2001); Abesamis v. CA, 361 SCRA 328 (2001); Leao v. CA, 369 SCRA 36 (2001); Lim v. CA, 182 SCRA 564 (1990).

37

(a) Rationale of 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. x City of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999). (b) Is a Contract to Sell a Sale under Article 1458? In one recent case, the Supreme Court defined 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] ; but see PNB v. CA, 262 SCRA 464 [1996], decided a few days earlier). 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). A contract to sell imposes reciprocal obligations and so cannot be terminated unilaterally by either party. Judicial rescission is required under Article 1191 of the Civil Code. However, this rule is not absolute. We have held that in proper cases, a party may take it upon itself to consider the contract rescinded and act accordingly albeit subject to judicial confirmation, which may or may not be given. xLim v. CA, 182 SCRA 564 (1990). (c) Nature of Condition to Pay Price In a contract to sell, the payment of the purchase price is a positive suspensive condition. The vendors obligation to convey the title does not become effective in case of failure to pay. x Buot v. CA, 357 SCRA 846 (2001); xHeirs of Spouses Sandejas v. Lina, 351 SCRA 183 (2001). 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). When Non-Happening of the Condition Does Not Necessary Destroy Contract When the obligation of buyer to pay the full amount of the purchase price was made subject to the condition that the seller first delivery the clean title over the parcel bough within twenty (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 he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty. Babasa v. CA, 290 SCRA 532 (1998). (d) Stipulation on Power to Rescind or Cancel (Roque v. Lapuz, 96 SCRA 741 [1980]; Angeles v. Calanz, 135 SCRA 323 [1985]; xAlfonso v. CA, 186 SCRA 400 [1990]). But see contra Dignos v. CA, 158 SCRA 375 [1988]). Although denominated a Deed of Conditional Sale, a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. xSan Andres v. Rodriguez, 332 SCRA 769 (2000). There is nothing in the Kasunduan which expressly provides that vendors retain title or ownership of the property, until full payment of the purchase price. The absence of such stipulation in the Kasunduan couple with the fact that vendees took possession of the property upon the execution of the Kasunduan indicate that the parties have contemplated a contract of absolute sale. xAlmira v. CA, 399 SCRA 351 (2003). A contract of sale is considered absolute in nature when there is neither a stipulation in the deed that title to the property sold is reserved to the seller until the full payment of the price; nor a stipulation giving the vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period . xDel Castillo v. Spouses Naguiat, G.R. No. 137909, 11 December 2003. (e) Condition on Reservation of Title (Topacio v. CA, 211 SCRA 219 [1992])

38

In a contract to sell, where ownership is retained by the seller and is not to pass until the full payment of the price, the failure to make such payment is not a breach, casual or serious, but simply an event that prevented the obloigation of the seller to convey title from acquiring binding force. xManuel v. Rodriguez, 109 Phil. 1 (1960). In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded, whereas in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective. xAbesamis v. CA, 361 SCRA 328 (2001). A deed of sale is absolute in nature although denominated a conditional sale in the absence of a stipulation reserving title in the seller until full payment of the purchase price. Consequently, the mere fact that the obligation of the buyer to pay the balance of the purchase price is made subject to the condition that the seller first deliver the reconstituted title of the house and lot does not make the contract a contract to sell for such condition is not inconsistent with a contract of sale. xLaforteza v. Machuca, 333 SCRA 643 (2000). In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee. xChua v. Court of Appeals, 401 SCRA 54 (2002). A deed of sale is absolute in nature in the absence of any stipulation reserving title to the vendor until full payment of the purchase price. The absence of a stipulation the agreement which expressly provides that the seller retains title or ownership of the property until full payment of the purchase price , coupled with the fact that the buyer took possession of the property upon execution of the agreement, indicates that the parties have contemplated a contract of absolute sale. xAlmira v. Court of Appeals, 399 SCRA351 (2003). Notwithstanding the language of the Deed of Absolute Sale, which does not reserve ownership with the seller, however, considering the other documents executed at the same time as the Deed of Absolute Sale , as well as the oral testimony of the circumstances surrounding the execution of the Deed of Absolute Sale, the transaction is still to be classified as a contract to sell in that the true intent of the seller was to transfer ownership of the property to the buyer only after the latter pays full consideration. xSalazar v. CA, 258 SCRA 325 (1996). A contract to sell, i.e., one whereby the prospective seller would explicitly reserve the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to sell until the full payment of the price, such payment being a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation from acquiring any obligatory force. xLaforteza v. Machuca, 333 SCRA 643 (2000). Lack of Deed of Absolute Sale and Other Circumstances. The following circumstances indicate that the agreement between the parties was a contract to sell, rather than a contract of sale, thus: (a) The meeting of minds was evidenced merely by a receipt which provided that the earnest money shall be forfeited in case the buyer fails to pay the balance of the purchase price on the stipulated date. This is in the nature of a stipulation reserving ownership in the seller until full payment of the purchase price. This is also similar to given the seller the right to rescind unilaterally the contract the moment the buyer fails to pay within a fixed period; (b) that the agreement was embodied in a receipt rather than in a deed of sale supports the proposition that ownership was not to pass between the parties. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price; and (c) The seller retained possession of the certificate of tile and all other documents relative to the sale until there was full payment of the purchase price. xChua v. Court of Appeals, 401 SCRA 54 (2003). The absence of a formal deed of conveyance strongly indicates that the parties did not intend immediate transfer of title, but only a transfer after full payment of the price. xBowe v. CA, 220 SCRA 158 (1993). It is well established that where the seller promised to execute a deed of absolute sale upon completion of payment of the purchase price by the buyer, the agreement is a contract to sell. Rayos v. Court of Appeals, 434 SCRA 365 (2004). (f) Issue of Substantial Breach (Arts. 1191 and 1234; Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 [1972]; xSiska Dev. Corp. v. Office of the President, 231 SCRA 674 [1994].) In a contract to sell real property on installments, the full payment of the purchase price is a positive condition, the failure of which is not considered a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring any obligatory force. The transfer of ownership and title would occur after full payment of the price. xLeao v. CA, 369 SCRA 36 (2001). (g) Restitution versus Forfeiture

39

The 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). Pursuant to the second paragraph of Article 1188, in a contract to sell, even if the buyers did not mistakenly make partial payments, inasmuch as the suspensive condition was not fulfilled, it is only fair and just that the buyers be allowed to recover what they had paid in expectancy that the condition would happen; otherwise, there would be unjust enrichment on the part of the seller. xBuot v. CA, 357 SCRA 846 (2001).

2. GOVERNING LAW ON RESCISSION IN CONTRACTS OF SALES: ARTS. 1591 & 1592.

Since the contract between the parties provides no absolute conveyance of real property, it constituted a contract to sell, and Arts. 1191and 1592 on rescission cannot apply. In a contract to sell real property on installments, the full payment of the purchase price is a positive suspensive condition, the failure of which is not considered a breach, casual or serious, but simply an event which prevented the obligation of the seller to convey title from acquiring any obligatory force; the transfer of ownership and title would occur after full payment of the purchase price; and therefore, there can be no rescission of an obligation that is still non-existent, the suspensive condition not having happened. In such a case the applicable law is the Maceda Law which recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the seller to convey title from acquiring binding force. It also provides the buyer on installments in case he defaults in the payment of succeeding installments. xRillo v. CA, 274 SCRA 461 (1997).

3. MINIMUM REQUIREMENT

OF RESCISSION (University of the Philippines v. De los Angeles, 35 SCRA 103 [1970]; Cheng v. Genato, 300 SCRA 722 [1998];10 but see Torralba v. De los Angeles, 96 SCRA 69 [1980]).

In a contract to sell, upon failure of buyer to comply with its obligation, there was no need to judicially rescind the contract to sell. Failure by one of the parties to abide by the conditions in a contract to sell resulted in the rescission of the contract. xAFP Mutual Benefit Association, Inc. vs. CA, 364 SCRA 768 (2001).

4. GRACE PERIOD: A grace period is a right, not an obligation of the debtor, and when unconditionally conferred, the grace
period is effective without further need of demand either calling for the payment of the obligation or for honoring the right. xBricktown Dev. Corp. v. Amor Tierra Development Corp., 239 SCRA 126 (1995).

C. EQUITY RESOLUTIONS ON CONTRACTS TO SELL

1. Although buyer clearly defaulted in his installment payments on a contract to sell covering two parcels of land, the Supreme Court nevertheless 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).

2. 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, the Court granted additional period of 60 days from receipt of judgment for buyer to make all installments payments in arrears plus interests, although demand for rescission had already been made. xJ.M. Tuazon Co., Inc. v. Javier, 31 SCRA 829 (1970). Although seller was contractually obliged to evict the squatters, the seller's failure to remove the squatters from the property within the stipulated period gave the buyer the right to either refuse to proceed with the agreement or waive that condition in consonance with Art. 1545. The option clearly belongs to the buyer and not to the seller. The seller's act of rescission cannot therefore be allowed, because the seller is not the injured party. The right of resolution of a party to an obligation under Art. 1191 is predicated on breach of faith by the other party that violates the reciprocity between them. xRomero v. CA, 250 SCRA 223 (1995) Under Art. 1545, where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. When the condition is set not on the perfection of the contract, but on the performance of the obligation, the choice of rescission or waiver of the non-fulfillment of the condition is with the obligee. Nothing in law justifies the seller to undertake a radical change of posture to justify the re-selling of the property previously sold under a Contract of Conditional Sale, to hold that pending the happening of the condition, that the contract was dependent on the sellers not changing their minds about selling the property. xAdalin v. CA, 280 SCRA 536 (1997).

10

xPalay Inc. v. Clave, 124 SCRA 638 (1983); xJison v. CA, 164 SCRA 339 (1988); xLim v. CA, 182 SCRA 564 (1990)

40

XII. CONDITIONS AND WARRANTIES

A. CONDITIONS (Art. 1545; Romero v. CA, 250 SCRA 223 [1995])
Failure to comply with condition imposed upon perfection of the contract results in failure of a contract, while the failure to comply with a condition imposed on the performance of an obligation only gives the other party the option either to refuse to proceed with sale or waive the condition. xLaforteza v. Machuca, 333 SCRA 643 (2000). There has arisen here a confusion in the concepts of validity and the efficacy of a contract. Under Art. 1318 of Civil Code, the essential requisites of a contract are: consent of the contracting parties; object certain which is the subject matter of the contract and cause of the obligation which is established. Absent one of the above, no contract can arise. Conversely, where all are present, the result is a valid contract. However, some parties introduce various kinds of restrictions or modalities, the lack of which will not, however, affect the validity of the contract. In the instant case, the Deed of Sale, complying as it does with the essential requisites, is a valid one. However, it did not bear the stamp of approval of the court. This notwithstanding, the contracts validity was not affected for in the words of the stipulation . . . this Contract of Sale of rights, interests and participations shall become effective only upon the approval by the Honorable Court . . . In other words, only the effectivity and not the validity of the contract is affected. Heirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997). In a Sale with Assumption of Mortgage, the assumption of mortgage is a condition to the sellers consent so that without approval by the mortgagee, no sale is perfected. In such case, the seller remains the owner and mortgagor of the property and retains the right to redeem the foreclosed property. xRamos v. CA, 279 SCRA 118 (1997).

B. CONDITIONS VERSUS WARRANTIES (Power Commercial and Industrial Corp. v. CA, 274 SCRA 597 [1997]). C. EXPRESS WARRANTIES (Art. 1546)
The law allows considerable latitude to sellers statements, or dealers talk; and experience teaches that it is exceedingly risky to accept it at its face value. Assertions concerning the property which is the subject of a contract of sale, or in regard to its qualities and characteristics, are the usual and ordinary means used by sellers to obtain a high price and are always understood as affording to buyers no ground for omitting to make inquiries. A man who relies upon such an affirmation made by a person whose interest might so readily prompt him to exaggerate the value of his property does so as his peril, and must take the consequences of his own imprudence. xSongco v. Sellner, 37 Phil. 254 (1917).

D. IMPLIED WARRANTIES (Art. 1547) 1. SELLER HAS RIGHT TO SELL 2. WARRANTY AGAINST EVICTION (Arts. 1548-1560)
Seller must be summoned in the suit for eviction at the instance of the buyer (Art. 1558), and be made a codefendant (Art. 1559); or made a third-party defendant.11 No Warranty Against Eviction When Execution Sale In voluntary sales, vendor can be expected to defend his title because of his warranty to the vendees but no such obligation is owed by the owner whose land is sold at execution sale. xSantiago Land Dev. Corp. v. CA, 276 SCRA 674 (1997). But see Art. 1552.

3. WARRANTY AGAINST NON-APPARENT SERVITUDES (Arts. 1560) 4. WARRANTY AGAINST HIDDEN DEFECTS (Arts. 1561-1580; Nutrimix Feeds Corp. v. Court of Appeals , 441 SCRA
357 (2004); xInvestments & Development, Inc. v. CA, 162 SCRA 636 [1988]). The stipulation in a contract of lease with option to purchase (which it treated as a sale of movable on installments) that the buyer-lessee "absolutely releases the lessor from any liability whatsoever as to any and all matters in relation to warranty in accordance with the provisions hereinafter stipulated," was held as an express waiver of warranty against hidden defect in favor of the seller-lessor which "absolved the [seller-lessor] from any liability arising from any defect or deficiency of the machinery they bought." xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989). A mere agent of the seller, such an indentor can by agreement be liable for the warranty against hidden defects. xSchmid and Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).

5. ADDITIONAL WARRANTIES FOR CONSUMER PRODUCTS (Arts. 68, Consumer Act of the Philippines, R.A. 7394). E. EFFECTS OF WARRANTIES F. EFFECTS OF WAIVERS

11

Escaler v. CA, 138 SCRA 1 (1985); Canizares Tiana v. Torrejos, 21 Phil. 127 (1911); J.M. Tuazon v. CA,94 SCRA 413 (1979).

41

As Is, Where Is Provision 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).

G. BUYER'S 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. Court of Appeals, 441 SCRA 357 (2004).

XIII. EXTINGUISHMENT OF SALE

A. IN GENERAL (Arts. 1231, 1600). B. CONVENTIONAL REDEMPTION:

1. DEFINITION (Art. 1601); nature of the right to repurchase (Villarica v. CA, 26 SCRA 189 [1968]).
Right to repurchase must be reserved in the same instrument ( Torres v. CA, 216 SCRA 287 [1992]; xClaravall v. CA, 190 SCRA 439 [1990]). Article 1623 of the Civil Code clearly provides that the right of legal redemption shall not be exercised except within thirty days from the notice in writing by the vendor. In stressing the mandatory character of the requirement, the law states that the deed of sale shall not be recorded in the Registry of Property unless the same is accompanied by an affidavit of the vendor that he has given notice thereof to all possible redemptioners. The existence of a clause in the deed of sale to the effect that the vendor has complied with the provisions of Article 1623 of the Civil Code, cannot be taken to being the written affirmation under oath, as well as the evidence, that the required written notice to petitioner under Article 1623 has been meet. . . . petitioner is not a party to the deed of sale between respondents and Mendoza and has had no hand in the preparation and execution of the deed of sale. It could not thus be considered a binding equivalent of the obligatory written notice prescribed by the Code. xPrimary Structures Corp. v. Valencia , 409 SCRA 371, 374-375 (2003).

2. EQUITABLE MORTGAGE (Arts. 1602-1604)

(a) Definition and Elements of Equitable Mortgage An equitable mortgage is defined as one which although lacking in some formality or form or words, or other requisites demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law. Its essential requisites are: (a) That the parties entered into a contract denominated as a contract of sale; and (b) That their intention was to secure an existing debt by way of a mortgage. xMolina v. CA, 398 SCRA 97 (2003).12 Since Art. 1602 is remedial in nature, it may be applied retroactively in cases prior to the effectivity of the New Civil Code. xOlea v. CA, 247 SCRA 274 (1995). An equitable mortgage is one thatalthough lacking in some formality, form or words, or other requisites demanded by a statutenevertheless reveals the intention of the parties to charge a real property as security for a debt and contains nothing impossible or contrary to law. xCeballos v. Intestate Estate of the Late Emigdio Mercado , 430 SCRA 323 (2004). (b) Rationale of Equitable Mortgage Principle The law on equitable mortgage favors the least transmission of rights and interest over a property in controversy. The purpose of the law is to prevent circumvention of the law on usury and the prohibition against a creditor appropriating the mortgage property. Additionally, it is aimed to end unjust or oppressive transactions or violations in connection with a sale or property. The wisdom of these provisions cannot be doubted, considering many cases of unlettered persons or even those with average intelligence invariably finding themselves in no position whatsoever to bargain fairly with their creditors. xSpouses Misea v. Rongavilla, 303 SCRA 749 (1999). . . . Besides, it is a fact that in time of grave financial distress which render persons hard-pressed to meet even their basic needs or answer an emergency, such persons would have no choice but to sign a deed of absolute sale of property or a sale thereof with pacto de retro if only to obtain a much-needed loan from unscrupulous money lenders. xMatanguihan v. CA, 275 SCRA 380 (1997).

12

Martinez v. CA, 358 SCRA 38 (2001); Matanguihan v. CA, 275 SCRA 380 (1997).

42

The borrowers urgent need for money places the latter at a disadvantage vis--vis the lender who can thus dictate the terms of their contract, the court, in case of an ambiguity, deems the contract to be one which involves the lesser transmission of rights and interest over the property in controversy. xLao v. CA, 275 SCRA 237 (1997). (c) Badges of Equitable Mortgage (Art. 160213) The presence of only one circumstance defined in Art. 1602 is sufficient for a contract of sale a retro to be presumed an equitable mortgage. xHilado v. Medalla 377 SCRA 257 (2002).14 A contract purporting to be an absolute sale is presumed to be an equitable mortgage: (a) when the price of the sale is unusually inadequate; (b) when the vendor remains in possession as lessee or otherwise; (c) when after the expiration of the right of repurchase, it is extended by the buyer. x Hilado v. Heirs of Rafael Medlla, 37 SCRA 257 (2002); xCruz v. Court of Appeals, 412 SCRA 614 (2003). However mere allegations without proof to support inadequacy of price, or when continued possession by the seller is supported by a valid arrangement consistent with the sale, would not support the allegation of equitable mortgage. xAustria v. Gonzales, Jr., 420 SCRA 414 (2004). According to Tolentino, the presumption of equitable mortgage will apply only if the consideration is unusually inadequate such that the mind revolts at it as such that a reasonable man would neither directly or indirectly be likely to consent to it. xVda de Alvarez v. CA, 231 SCRA 309 (1994). Although under the agreement the seller shall remain in possession of the property for only one year, such stipulation does not detract from the fact that possession of the property, an indicium of ownership, was retained by the alleged vendor to qualify the arrangement as an equitable mortgage, especially when it was shown that the vendor retained part of the purchase price. xOronce v. CA, 298 SCRA 133 (1998). Under Article 1602 of the Civil Code, 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). The fact that the price in a pacto de retro sale is not the true value of the property does not justify the conclusion that the contract is one of equitable mortgage; in fact a pacto de retro sale, the practice is to fix a relatively reduced price to afford the seller a retro every facility to redeem the property . xIgnacio v. CA, 246 SCRA 242 (1995).15 The provisions of Art. 1602 on the presumption of equitable mortgage applies also to a contract purporting to be an absolute sale. xTuazon v. CA, 341 SCRA 707 (2000); xZamora v.CA, 260 SCRA 10 (1996). Although Article 1602 of the Civil Code provides for the instances in which an equitable mortgage can be presumed, it is still required for two requisites to concur: (a) that the parties entered into a contract denominated as a sale; and (b) that their intention was to secure an existing debt by way of a mortgage. When the two conditions are not proven, then the existence of any of the circumstances enumerated in Article 1602 cannot become the basis to treat the transaction as an equitable mortgage. xSan Pedro v. Lee, 430 SCRA 338 (2005). (d) Parol Evidence Parol evidence is competent and admissible in support of the allegations that an instrument in writing, purporting on its face to transfer the absolute title to property, or to transfer the title with a right to repurchase under specified conditions reserved to the seller, was in truth and in fact given merely as security for the repayment of a loan. xMariano v. CA, 220 SCRA 716 (1993).16 Under the wise, just and equitable presumption in Art. 1602 a document which appears on is fact to be a sale absolute or with pacto de retro may be proven by the seller or seller- a-retro to be one of a loan with mortgage. In this case, parol evidence becomes competent and admissible to prove that the instrument was in truth and in fact given merely as a security for the payment of a loan. xMatanguihan v. CA, 275 SCRA 380 (1997). Even if a document appears on its face to be a sale, the owner of the property may prove that the contract is really a loan with mortgage and that the document does not express the true intent and agreement of the parties. xHilado v. Heirs of Rafael Medlla, 37 SCRA 257 (2002). Rationale: There is no conclusive test to determine whether a deed absolute on its face is really a simple loan accommodation secured by a mortgage. To determine whether a deed absolute in form is a mortgage in reality, the court is not limited to the written memorials of the transaction. This is so because the decisive factor in
13 14 15 16

Lobres v. CA, 351 SCRA 716 (2001); Mariano v. CA, 220 SCRA 716 (1993); Balatero v. IAC, 154 SCRA 530 (1987); Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948). Lobres v. CA, 351 SCRA 716 (2001); Uy v. CA, 230 SCRA 664 (1994); Claravall v. CA, 190 SCRA 439, 448 (1990). Belonio v. Movella, 105 Phil. 756 (1959); Feliciano v. Limjuco, 41 Phil.147 (1920); De Ocampo v. Lim, 38 Phil. 579 (1918). Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Cuyugan v. Santos, 34 Phil. 100 (1916).

43

evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding circumstances, such as the relative situations of the parties at that time; the negotiations between them leading to the deed; and generally, all pertinent facts having a tendency to fix and determine the real nature of their design and understanding. As such, documentary and parole evidence may be submitted and admitted to prove the intention of the parties. xAustria v. Gonzales, Jr., 420 SCRA 414 (2004). (e) Effects of Presumption of Equitable Mortgage (Art. 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). (f) Pactum Commissorium (Art. 2088; Vda. de Zulueta v. Octaviano , 121 SCRA 314 [1983]; 96 Phil. 37 [1954]; xMontevirgin v. CA, 112 SCRA 641 [1982]).

Guerrero v. Yigo,

It does not apply when the security for a debt is also money in the form of time deposit. xConsing v. CA, 177 SCRA 14 (1989). When the lender and borrower enter into a Memorandum of Agreement/ Dacion en Pago with a Right to Repurchase in order to restructure the defaulted loan of the borrower, and the terms thereof provide that in the event the borrower fails to comply with the new terms of payment, the agreement shall automatically operate to be an instrument of dacion en pago without need of executing any document to such an effect and that the borrower thereby obligates and binds himself to transfer, convey and assign the covered real property in favor of the lender in full payment of the outstanding obligation, such arrangement does not constitute pactum commissorium. xSolid Homes, Inc. v. CA, 275 SCRA 267 (1997). The stipulation in the promissory note providing that upon failure of the makers to pay interests, ownership of the property would automatically be transferred to the payee, and the covering deed of sale would be registered is in substance a pactum commissorium in violation of Art. 2088, and consequently, the resultant sale is void and the registration and obtaining of new title in the name of the buyer would have be declared void also. x A. Francisco Realty v. CA, 298 SCRA 349 (1998). (g) Additional Period of Redemption (Art. 1606) The 30 day period does not apply if the courts should find the sale to be absolute. x Pangilinan v. Ramos, 181 SCRA 359 (1990); xTapas v. CA, 69 SCRA 393 (1976). The vendors in a sale judicially declared as pacto de retro may not exercise the right to repurchase within the 30-day period provided under Art. 1606, after they have taken the position that the same was an equitable mortgage, and it is shown that there was an honest belief that the sale was an equitable mortgage since: (a) none of the circumstances under Article 1602 were shown to exist to warrant a conclusion that the transaction was an equitable mortgage; and (b) that if they truly believed the sale to be an equitable mortgage, as a sign of good faith, they should have, at the very least, consigned with the trial court the amount representing their alleged loan, on or before the expiration of the right to repurchase. Abilla v. Gobonseng, 374 SCRA 51 (2002); xVda. de Macoy v. CA, 206 SCRA 244 (1992). 4. Situation Prior to Redemption (Reyes v. Hamada, 14 SCRA 215 [1965]). In a contract of sale with pacto de retro, the buyer has a right to the immediate possession of the property sold, unless otherwise agreed upon. It is basic that in a pacto de retro sale, the title and ownership of the property sold are immediately vested in the buyer a retro, subject only to the resolutory condition of repurchase by the seller a retro within the stipulated period. xSolid Homes, Inc. v. CA, 275 SCRA 267 (1997). 5. Who Can Redeem (Arts. 1611-1614). 6. How Redemption Effected (Art. 1616). (a) In order to exercise the right to redeem, only tender of payment is sufficient (xLegaspi v. CA, 142 SCRA 82 [1986]) consignation is not required after tender is refused (xMariano v. CA, 222 SCRA 736 [1993]). But when tender not possible, consignation should be made xCatangcatang v. Legayada, 84 SCRA 51 (1978). (b) A formal offer to redeem, accompanied by a bona fide tender of redemption price, is not essential where the right to redeem is exercised through a judicial action within the redemption period and simultaneously depositing the redemption price. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995). 7. Redemption Price

44

A stipulation in a sale a retro requiring as part of the redemption price interest for the cost of money, is not in contravention with Art. 1616, since the provision is not restrictive nor exclusive, barring additional amounts that the parties may agree upon. The said provision should be construed with Art. 1601 which provides that convention redemption shall take place when the seller reserves the right to repurchase the thing sold, with the obligation to comply with the provisions of Article 1616 and other stipulations which may have been agreed upon. x Solid Homes v. CA, 275 SCRA 267 (1997). 8. Fruits (Art. 1617; Almeda v. Daluro, 79 SCRA 327 [1977]). 9. Effect When No Redemption Made Article 1607 abolished automatic consolidation of ownership in the vendee a retro upon expiration of the redemption period by requiring the vendee to institute an action for consolidation where the vendor a retro may be duly heard. If the vendee succeeds in proving that the transaction was indeed a pacto de retro, the vendor is still given a period of thirty days from the finality of the judgment within which to repurcahse the property. x Solid Homes v. CA, 275 SCRA 267 (1997).

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. The law grants a coowner the exercise of the said right of redemption when the shares of the other owners are sold to a third person. xFernandez v. Tarun, 391 SCRA 653 (2002); xBasa v. Aguilar, 117 SCRA 128 (1982).

2. WHEN PERIOD OF LEGAL REDEMPTION BEGINS (Art. 1623; Francisco v. Boiser, 332 SCRA 792 [2000]).
(a) It must be a written notice of a perfected sale (Art. 1623; xSpouses Doromal v. CA, 66 SCRA 575 [1975]). (b) Notice to minors may validly be served upon parents even when the latter have not been judicially appointed as guardians since the same is beneficial to the children. xBadillo v. Ferrer, 152 SCRA 407 (1987). (c) In the three (3) cases under Art. 1623 where there is a need for notice in writing, the interpretation thereof always tilts in favor of the redemptioner and against the buyer. The purpose is to reduce the number of participants until the community is terminated, being a hindrance to the development and better administration of the property. It is a one-way street. It is always in favor of the redemptioner since he can compel the buyer to sell to him but he cannot be compelled by the vendee to buy the alienated property. xHermoso v. CA, 300 SCRA 516 (1998). The notice required under Article 1623 is deemed to have been complied with when the other co-owner has signed the Deed of Extrajudicial Partition and Exchange of Shares which embodies the disposition of part of the property owned in common. xFernandez v. Tarun, 391 SCRA 653 (2002). (d) Recent Ruling: In Francisco v. Boiser, 332 SCRA 305 (2000), the Supreme Court reviewed the requirements under Art. 1623 and the case-law that has interpreted the article, and with definitiveness declared: (i) For the 30-day redemption period to begin to run, notice must be given by the seller; and that notice given by the buyer or even by the Register of Deeds is not sufficient. This expressly affirms the original ruling in Butte v. Manuel Uy and Sons, Inc., 4 SCRA 526 (1962), as affirmed in xSalatandol v. Retes, 162 SCRA 568 (1988). This expressly overruled the ruling in xEtcuban v. CA, 148 SCRA 507 (1987), which allowed the giving of notice by the buyer to be effective under Article 1623; (ii) When notice is given by the proper party (i.e., the seller), no particular form of written notice is prescribed under Article 1623, so that the furnishing of the copies of the deeds of sale to the co-owner would be sufficient, as held previously in xDistrito v. CA, 197 SCRA 606 (1991); Conejero v. CA, 16 SCRA 775 (1966); xBadillo v. Ferrer, 152 SCRA 407 (1987), but only on the form of giving notice but not on the ruling of who is the proper party to give notice; (iii) Affirmed ruling in xAlonzo v. IAC, 150 SCRA 259 (1987), that the filing of the suit for ejectment or collection of rentals against a co-owner actually dispenses with the need for a written notice, and must be construed as commencing the running of the period to exercise the right of redemption, since the filing of the suit amounted to actual knowledge of the sale from which the 30-day period of redemption commences to run.

3. INSTANCES OF LEGAL REDEMPTION:

(a) Among Co-heirs (Art. 1088) A co-heir cannot exercise the right of redemption alone. De Guzman v. CA, 148 SCRA 75 (1987).

45

No legal redemption for sale of the property of the estate. xPlan v. IAC, 135 SCRA 270 (1985). The 30-day period does not begin to run in the absence of written notification in xGarcia v. Calaliman, 17 SCRA 201 (1989); but see express exemption because of equity in xAlonzo v. IAC, 150 SCRA 259 (1987). The provision of the law requiring the seller of the property to give a written notice of sale to the other coowners had been rendered inutile by the fact that even as the buyers took possession of the property immediately after the execution of the deed of sale in their favor, no one of the co-owners questioned the same. x Pilapil v. CA, 250 SCRA 560 (1995). When a co-owner learns of the sale of the co-ownership interest only from the city treasurer, her exercise of the right of redemption was timely since no written notice of the sale was ever given by the vendors as required under Art. 1623, and therefore the 30-day period has not even began to run. The written notice of sale is mandatory; and notwithstanding actual knowledge of a co-owner, the latter is still entitled to a written notice from the selling coowner in order to remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status. xVerdad v. CA, 256 SCRA 593 (1996). (b) Among Co-owners (Art. 1620) The right of redemption may be exercised by a co-owner only when part of the community property is sold to a stranger. When the portion is sold to a co-owner, the right does not arise because a new participant is not added to the co-ownership. xFernandez v. Tarun, 391 SCRA 653 (2002). Registration of the sale does not estop a co-owner. xCabrera v. Villanueva, 160 SCRA 627 (1988) Notice required to be given to co-owners must be in writing; and redemption by co-owner redounds to the benefit of all other co-owners. xMariano v. CA, 222 SCRA 736 (1993). No written notice to co-owner who acted as active intermediary in the consummation of the sale. xDistrito v. CA, 197 SCRA 606 (1991). Distinguishing Between Right of Redemption of Co-heirs and Co-owners The Supreme Court has construed Art. 1620 to include the doctrine that a redemption by a co-owner of the property owned in common, even when he uses his own fund, within the period prescribed by law inures to the benefit of all the other co-owners. xAnnie Tan v. CA, 172 SCRA 660 (1989).17 (c) Among Adjoining Owners (Art. 1621-1622) Redemption covers only "resale" and does not cover exchanges or barter of properties. x De Santos v. City of Manila, 45 SCRA 409 (1972). Requisite of "speculation" dropped. xLegaspi v. CA, 69 SCRA 360 (1976). In order that the right of redemption may arise, the land sought to be redeemed and the adjacent property belonging to the person exercising the right of redemption must both be rural lands; if one or both are urban lands, the right cannot be invoked. xPrimary Structures Corp. v. Valencia, 409 SCRA 371, 373-374 (2003). When there is no issue that when the adjoining lands involved are both rural lands, then the right of redemption can be exercised and the only exemption provided is when the buyer can show that he did not own any other rural land. But the burden of proof to provide for the exception lies with the buyer. xPrimary Structures Corp. v. Valencia, 409 SCRA 371, 374 (2003). (d) Sale of Credit in Litigation (Art. 1634) - 30 days. (e) Redemption of Homesteads (Sec. 119, C.A. 141). The right to repurchase is granted by law and need not be provided for in the deed of sale. xBerin v. CA, 194 SCRA 508 (1991). Under the free patent or homestead provisions of the Public Land Act a period of five (5) years from the date of conveyance is provided, the five-year period to be reckoned from the date of the sale and not from the date of registration in the office of the Register of Deeds. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995). For purposes of reckoning the five-year period to exercise the right of repurchase, the date of conveyance is construed to refer to the date of the execution of the deed transferring the ownership of the land to the buyer. x Mata v. CA, 318 SCRA 416 (1999). (f) Redemption in Tax Sales (Sec. 215, NIRC of 1997) (g) Redemption by judgment debtor (Sec. 27, Rule 39, Rules of Civil Procedure).

17

Adille v. CA, 157 SCRA 455 (1988); De Guzman v. CA, 148 SCRA 75 (1987).

46

Written notice is required to 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, the sheriff should demand from the judgment creditor who becomes the highest bidder, payment in cash of the amount 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 Rule 39, Sec. 28 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 which referred to the 12-month redemption period. xYsmael v. CA, 318 SCRA 215 (1999). (h) Redemption in Extrajudicial Foreclosure One (1) year from registration in the Registry of Deeds on Mortgage (Sec. 6, Act 3135). The redemption of extra-judicially foreclosed properties is exercised within one (1) year from the date of the auction sale as provided for in Act 3135. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995). The execution of a dacion en pago by sellers effectively waives the redemption period normally given a mortgagor. xFirst Global Realty and Dev. Corp. v. San Agustin, 377 SCRA 341 (2002). (i) Redemption in judicial foreclosure of mortgage (Section 47, General Banking Law of 2000, R.A. 8791). A stipulation to render the right to redeem defeasible by an option to buy on the part of the creditor. v. Bautista, 6 SCRA 946 (1962).

Soriano

No right to redeem from a judicial foreclosure sale, except those granted by banks or banking institutions. xGSIS v. CFI, 175 SCRA 19 (1989). The one-year redemption period in the case of foreclosure of a real estate mortgage is not interrupted by the filing of an action assailing the validity of the mortgage, so that at the expiration thereof, the mortgagee who acquires the property at the foreclosure sale can proceed to have title consolidated in his name and a writ of possession issued in his favor. xUnion Bank of the Philippines v. CA, 359 SCRA 480 (2001); xVaca v. CA, 234 SCRA 146 (1994). The execution of dacion en pago effectively constitutes a waiver of the redemption period normally given a mortgagor. xFirst Global Realty and Dev. Corp. v. San Agustin, 377 SCRA 341 (2002). (j) Redemption in Foreclosure by Rural Banks If the land is mortgaged to a rural bank under R.A. 720, the mortgagor may redeem the property within two (2) years from the date of foreclosure or from the registration of the sheriff's certificate of sale at such foreclosure if the property is not covered or is covered, respectively, by Torrens title. If the mortgagor fails to exercise such right, he or his heirs may still repurchase the property within five (5) years from expiration of the two (2) year redemption period pursuant to Sec. 119 of the Public Land Act (C.A. 141). x Rural Bank of Davao City v. CA, 217 SCRA 554 (1993); xHeirs of Felicidad Canque v. CA, 275 SCRA 741 (1997). (k) Legal Right to Redeem under Agrarian Reform Code Under Section 12 of R.A. 3844, as amended, in the event that the landholding is sold to a third person without the knowledge of the agricultural lessee, the latter is granted by law the right to redeem it within 180 days from notice in writing and at a reasonable price and consideration. xQuio v. CA, 291 SCRA 249 (1998).

XIV. ASSIGNMENT (Arts. 1624-1635)

A. DEFINITION AND NATURE OF ASSIGNMENT An assignment is the process of transferring the right of assignor to assignee who would then have the right to proceed against the debtor. The assignment may be done gratuitously or onerously, in which case, the assignment has an effect similar to that of a sale. Licaros v. Gatmaitan, 362 SCRA 548 (2001).18 In its most general and comprehensive sense, an assignment is "a transfer or making over to another of the whole of any property, real or personal, in possession or in action, or of any estate or right therein. It includes transfers of all kinds of property, and is peculiarly applicable to intangible personal property and, accordingly, it is ordinarily employed to describe the transfer of non-negotiable choses in action and of rights in or connected with property as distinguished from the particular item or property." PNB v. CA, 272 SCRA 291 (1997).
18

Rodriguez vs. CA, 207 SCRA 533; Nyco Sales Corp. vs. BA Finance Corp., 200 SCRA 637 (1991).

47

B. PERFECTION BY MERE CONSENT (Art. 1624); but has to be in public instrument to affect third parties (Art. 1625). The "meeting of the minds" in assignment contemplates that between the assignor of the credit and his assignee, there being no necessity for the consent of the debtor. It is sufficient that the assignment be brought to the debtor's knowledge in order to be binding upon him. xC & C Commercial Corp. v. PNB, 175 SCRA 1 (1989). C. EFFECTS OF ASSIGNMENT 1. 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. Lo v. KJS Eco-Formwork System Phil., Inc., 413 SCRA 182 (2003). When dacion en pago takes the form of an assignment of credit, which is in the nature of a sale of personal property, it produces the effects of a dation in payment, which may extinguishes the obligation; however, as in any other contract of sale, the vendor or assignor is bound by certain warranties, more specifically that of the first paragraph of Article 1628 of the Civil Code, which makes the vendor liable for the existence and legality of the credit at the time of sale. When it is shown therefore that the assigned credit no longer existed at the time of dation, then it behooves the assignor-debtor to make good its warranty and pay the obligation. Lo v. KJS Eco-Formwork System Phil., Inc. , 413 SCRA 182 (2003). 2. Notice but not consent, to the debtor is enough (Art. 1626), but payment by debtor before notice of assignment, extinguishing obligation, but with consent of creditor. Consent of debtor is not necessary in order that assignment may fully produce legal effects, and hence 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, and the purpose of the notice 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. x NIDC v. De los Angeles, 40 SCRA 489 (1971); xSison & Sison v. Yap Tico, 37 Phil. 587 (1918). 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, know as the assignee, who acquires the power to enforce it to the same extent as the assignor could enforce it against the debtor. 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, Inc. V. BA Finance Corp., 371 SCRA 603 (2001). 3. Assignee takes the right subject to all defenses of debtor prior to notice of assignment. 4. The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation (Art. 1626). 5. The assignment of a credit includes all the accessory rights, such as guaranty, mortgage, pledge or preference (Art. 1627). D. WARRANTIES OF ASSIGNOR (Art. 1628) The 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. E. RIGHT OF REPURCHASE ON ASSIGNMENT OF CREDIT UNDER LITIGATION (Arts. 1634-1635) An assignment of credit is an act of transferring, either onerously or gratuitously, the right of an assignor to an assignee who would then be capable of proceeding against the debtor for enforcement or satisfaction of the credit. The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all appurtenant accessory rights, is thereupon acquired by the assignee. The assignment binds the debtor only upon acquiring knowledge of the assignment but he is entitled, even then, to raise against the assignee the same defenses he could set up against the assignor. Where the assignment is on account of pure liberality on the part of the assignor, the rules on donation would

48

likewise be pertinent; where valuable consideration is involved, the assignment partakes of the nature of a contract of sale or purchase. . . In an assignment of credit, the consent of the debtor 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. x Project Builders, Inc. v. CA, 358 SCRA 626 (2001). Subrogation versus Assignment of Credit Under the Civil Code, conventional subrogation is not identical to assignment of credit. Subrogation extinguishes the obligation and gives rise to a new one; assignment refers to the same right which passes from one person to another. The nullity of an old obligation may be cured by subrogation, such that a new obligation will be perfectly valid; but the nullity of an obligation is not remedied by the assignment of the creditors right to another. The crucial distinction deals with the necessity of the consent of the debtor in the original transaction. In an assignment of credit, the consent of the debtor is not necessary in order that the assignment may fully produce legal effects. What the law requires in an assignment of credit is not the consent of the debtor but merely notice to him as the assignment takes effect only from the time he has knowledge thereof. On the other hand, conventional subrogation requires an agreement among the three parties concerned the original creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual agreement among all the necessary parties. Thus, Art. 1301 explicitly states that (C)onventional subrogation of third person requires the consent of the original parties and of the third person.. x Licaros v. Gatmaitan, 362 SCRA 548 (2001). F. ASSIGNMENT OF COPYRIGHT (Sec. 180, Intellectual Property Code) G. ASSIGNMENT AS AN EQUITABLE MORTGAGE When an assignor executes a Deed of Assignment covering her leasehold rights in order to secure the payment of promissory notes covering the loan she obtained from the bank, such assignment is equivalent to an equitable mortgage, and the non-payment of the loan cannot authorize the assignee to register the assigned leasehold rights in its name as it would be a violation of Art. 2088 against pactum commissorium. The proper remedy of the assignee is to proceed to foreclose on the leasehold right assigned as security for the loan. xDBP v. CA, 284 SCRA 14 (1998).

XV. BULK SALES LAW (ACT 3952)

A. SCOPE (Chin v. Uy, 40 O.G. 4 Supp. 52) The Bulk Sales Law must be construed strictly. Thus, the disposal by the owner of a foundry shop of all his iron bars and others does not fall under the law, because the contents of a foundry shop are not wares and merchandise. The Law only covers sales in bulk of fixtures and equipment used in the mercantile business, which involves the buying and selling of merchandise. People v. Wong, [CA] 50 O.G. 4867 (1954). B. COVERAGE OF "BULK SALE" 1. A sale, transfer, mortgage or assignment of goods, wares, merchandise, provisions or material other than in the ordinary course of business; 2. The sale, transfer, mortgage, or assignment of all, or substantially all of the business or trade theretofore conducted by the vendor, mortgagor, transferor, or assignor; 3. The sale transfer, mortgage, or assignment of all, or substantially all of all or substantially all of the fixtures and equipment used in and about the business. C. COMPLIANCE REQUIREMENTS UNDER THE LAW 1. The merchant must give the buyer a certified schedule of his debts: names of creditors, amounts owing to each and the nature of the debt. 2. Purchase price paid must be applied to these debts. 3. Ten (10) days before the sale, the seller must take an inventory of his stock and advise all his creditors of the same. EXCEPTION: When the seller obtains a written waiver from all creditors. D. EFFECTS OF NON-COMPLIANCE 1. 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); 2. 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; 3. Bulk transfer without consideration or for nominal consideration punishable (Sec. 7);

49

4. 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 sale in bulk done without complying with the terms of the Law, makes the transaction fraudulent and void, but does not change the basic relationship between the seller, assignor or encumbrancer and his creditor. The portion of a judgment providing for subsidiary liability is invalid, since the proper remedy of the creditor is to collect on the credit against the defendant, and if they cannot pay to attach on the property fraudulently mortgage since the same still pertain to the debtors-defendants. xPeople v. Mapoy, 73 Phil. 678 (1942).

XVI. RETAIL TRADE LIBERALIZATION ACT OF 2000 AND RELATED PROVISIONS OF THE ANTI-DUMMY LAW
A. PUBLIC POLICY UNDER THE ACT: A reversal of paradigm; a pretense B. SCOPE AND DEFINITON OF RETAIL TRADE (King v. Hernaez, 4 SCRA 792)

1. ELEMENTS:
(a) The seller habitually engaged in selling; (b) The sale is direct to the general public; and (c) The object of the sale is limited to merchandise, commodities or goods for consumption. Engaging in the sale of merchandise as an incident to the primary purpose of a corporation [e.g., operation of a pharmacy by a hospital; sale of cellphones by a telecommunication company] does not constitute retail trade within the purview of the Retail Trade Nationalization Law, as this is taken from the provision thereof excluding form the term retail business the operation of a restaurant by a hotel-owner or -keeper since the same does not constitute the act of habitually selling direct to the general public merchandise, commodities or goods for consumption. (SEC Opinion No. 11, series of 2002, 13 November 2002) 2. Meaning of Consumption (Op. Secretary of Justice No. 325, series of 1945; IRR of the Law). 3. Consumer Goods Coverage (Balmaceda v. Union Carbide Philippines, Inc. 124 SCRA 893 [1983]; B.F. Goodrich Philippines, Inc. v. Reyes, Sr. , 121 SCRA 363 [1983]; Goodyear Tire v. Reyes, Sr., 123 SCRA 273 [1983]; Marsman & Co., Inc. v. First Coconut Central Co., Inc., 162 SCRA 206 [1988]) 4. Meaning of general public (Op. Secretary of Justice No. 253, series of 1954). D. RIGHTS OF FORMER NATURAL-BORN FILIPINOS E. CATEGORIES OF RETAIL TRADE ENTERPRISES F. HOW ALIENS MAY INVEST IN RETAIL TRADE IN THE PHILIPPINES 1. GRANDFATHER RULE ON 100% FILIPINO OWNERSHIP OF CORPORATE ENTITY: SEC Opinions, dated 20 March 1972 and 22 April 1983; DTI Opinion to Tanada, Teehankee & Carreon Law Office, dated 3 August 1959. 2. Requirements of Foreign Investors 3. Public Offerings of Shares of Stock G. RULES ON FOREIGN RETAILERS IN THE PHILIPPINES 1. Pre-qualification requirements 2. Rules on Branches/Stores 3. Promotion of Locally-Manufactured Products 4. Prohibited Activities of Foreign Retailers 5. Binding Effect of License to Engage in Retail on Private Parties When a license to engage in cocktail lounge and restaurant is issued in the name of a Filipino citizen, such license shall be conclusive evidence of the latter's ownership of the retail business as far as private parties are concerned. xDando v. Fraser, 227 SCRA 126 (1993). H. PENALTY CLAUSE I. ANTI-DUMMY ACT (Comm. Act. 108, as amended by P.D. 715)

50

The law penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Filipino corporations. 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. 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 President of the Philippines. Later, Pres. Decree 715 was enacted amending the law by the addition of a proviso expressly allowing the election of aliens as members of the boards of directors or the governing bodies of corporations or associations engaged in partially nationalized activities in proportion to their allowable participation or share in the capital of such entities. The amendment was meant to settle the uncertainty created in the obiter opinion in Luzon Stevedoring Corp. v. AntiDummy Board, 46 SCRA 474 (1972), which rejected the argument of a public utility corporation that had no-American aliens in its employ, that the Anti-Dummy Law covered only employment in wholly nationalized businesses and not in those that are only partly nationalized. The Filipino common-law wife of a Chinese national is not barred from engaging in the retail business provided she uses capital exclusively derived from her paraphernal properties; allowing her common-law Chinese husband to take part in management of the retail business would be a violation of the law. xTalan v. People, 169 SCRA 586 (1989).

oOo
444SCRA\19 MAY 2005

51