Professional Documents
Culture Documents
TABLE OF CONTENTS
I. INTRODUCTION......2
II. PARTIES TO A CONTRACT OF SALE.............9
III. SUBJECT MATTER.........13
IV. OBLIGATION OF THE SELLER TO TRANSFER OWNERSHIP.18
V. PRICE...20
VI. FORMATION OF CONTRACT OF SALE........24
VII. TRANSFER OF OWNERSHIP...34
VIII. RISK OF LOSS46
IX. DOCUMENTS OF TITLE.49
X. REMEDIES OF AN UNPAID SELLER...52
XI. PERFORMANCE OF CONTRACT56
XII. WARRANTIES.64
XIII. BREACH OF CONTRACTS.71
XIV. EXTINGUISHMENT OF THE SALE78
XV. BULK SALES LAW84
XVI. RETAIL TRADE LIBERALIZATION ACT OF 2000.86
I. INTRODUCTION
Definition of sale
Art. 1458. By the contract of sale one of the contracting
parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor
a price certain in money or its equivalent.
A contract of sale may be absolute or conditional.
- A sale is a transaction, a relationship, an activity,
and a contract.
- The essence of a contract of sale is the transfer of
ownership (not possession alone. OWNERSHIP
meaning being able to do with the thing whatever
the owner wants because it is hissubject to
specific limitations though)
- Reason for purchase not just utility (can opt to just
lease if utility is the objective) but OWNERSHIP. In
ownership, there is no liability for damage and no
need to return, as compared to leasing. In
ownership, the owner can use, lease, donate, and
loan. People buy things to own.
Nature of the obligations
Obligations in Art 1458 are REAL obligations to give;
thus it may be the subject of actions for specific
performance.
Reciprocal demandable obligations:
Seller: obligations to transfer ownership and deliver
possession of the subject matter
Buyer: pay a price certain in money or its equivalent.
Essential requisites of a contract of sale
1. Consent meeting of the minds to transfer ownership
in exchange for the price; by virtue of which obligations
to transfer ownership, deliver the thing, and pay the price
occur.
2. Determinate (or determinable) subject matter
object certain, licit, determinate or capable of being
determinate without the necessity of a new or further
agreement between parties
3. Price certain (or cause/consideration) consideration
for the seller is the acquisition of the price certain in
money or its equivalent. For the buyer, it is the
acquisition of the thing which is the object of the
contract.
Dizon v. CA
Facts: Lease contract had an option to purchase.
Overland failed to pay increased rent and it did not
exercise the option. Overland sought to compel the
execution of a deed of sale pursuant to the option to
purchase, receipt of partial payment, and to fix the
period to pay the balance.
Issue: WON contract of sale was perfected. NO.
Held: NO CONTRACT OF SALE PERFECTED, NO
VALID CONSENT. The elements of a contract of sale
are consent, object, and price money. Absence of any of
these negates the existence of a perfected contract of
equivalent
Art. 1468. If the consideration of the contract consists
partly in money, and partly in another thing, the
transaction shall be characterized by the manifest
intention of the parties. If such intention does not clearly
appear, it shall be considered a barter if the value of the
thing given as a part of the consideration exceeds the
mount of the money or its equivalent; otherwise, it is a
sale.
Art. 1638. By the contract of barter or exchange, one of
the parties binds himself to give one thing in
consideration of the others promise to give another
thing.
Art. 1639. If one of the contracting parties, having
received the thing promised him in barter, should prove
that it did not belong to the person who gave it, he
cannot be compelled to deliver that which he offered in
exchange, but he shall be entitled to damages.
Art. 1640. One who loses by eviction the thing received
in barter may recover that which he fave in exchange
with a right to damages, or he may only demand an
indemnity for damages. However, he can only make use
of the right to recover the thing which he has delivered
while the same remains in the possession of the other
party, and without prejudice to the rights acquired in
good faith in the meantime by a third person.
Art. 1641. As to all matters nnot specifically provided for
in this Title, barter shall be governed by the provisions of
the preceding Title relating to sales.
Fule v. CA
Facts: Fule (banker and jeweler) acquired a 10-hectare
property through mortgage which he wanted to sell to Dr.
Cruz, who owned a pair of diamond earrings he wanted
to buy. Negotiations for the barter ensued. The actual
consideration of the sale of the lot was P200,000 and the
jewelry was appraised only at 160k. The parties agreed
that the balance of 40k could be paid later in cash. Fule
filed a complaint praying that the contract of sale be
declared null and void on the ground of fraud and deceit
because the jewelry was fake.
Issue: WON contract of sale was valid. YES.
Held: VALID CONTRACT OF SALE, cant be nullified.
NO BASIS TO NULLIFY THE CONTRACT OF SALE (or
barter). Ownership of the parcel of land and the pair of
jewelry had been transferred to Cruz and Fule,
respectively. Title was passed to the vendee upon the
delivery of the thing sold. No stipulation reserving the
title to the seller until full payment.
Sale
Barter
Nature
A thing is given in A thing is given in
exchange of money or its exchange of another thing
Applicable Law
Law on Sales
Law on Sales
If the consideration is partly in money and partly in
another thing
1. The transaction is characterized by the manifest
intention of the parties
2. If there is no manifest intention:
a. BARTER if the value of the thing is more
valuable than money
b. SALE if the value of the thing is equal or
less than the amount of money
Rule on Money Exchange
If local currency is exchanged for foreign currency, there
is purchase and sale.
If the local currency is exchanged with other
denominations of the local currency also, there is barter.
The rule is the same if a foreign currency is exchanged
in the Philippines for another foreign currency.
3. sale vs. contract for a piece of work
Art. 1467. A contract for the delivery at a certain price of
an article which the vendor in the ordinary course of his
business manufactures or procures for the general
market, whether the same is on hand at the time or not,
is a contract of sale, but if the goods are to be
manufactured specially for the customer and upon his
special order, and not for the general market, it is a
contract for a piece of work.
Art. 1713. By the contract for a piece of work the
contractor binds himself to execute a piece of work for
the employer, in consideration of a certain price or
compensation. The contractor may either employ only
his labor or skill, or also furnish the material.
Art. 1714. If the contractor agrees to produce the work
from material furnished by him, he shall deliver the thing
produced to the employer and transfer dominion over the
thing. This contract shall be governed by the following
articles as well as by the pertinent provisions on
warranty of title and against hidden defects and the
payment of price in a contract of sale.
Art. 1715. The contract shall execute the work in such a
manner that it has the qualities agreed upon and has no
defects which destroy or lessen its value or fitness for its
ordinary or stipulated use. Should the work be not of
such quality, the employer may require that the
contractor remove the defect or execute another work. If
the contract fails or refuses to comply with this
obligation, the employer may have the defect removed
or another work executed, at the contractor's cost.
a) In a contract for work, labor or materials or for a piece
of work, the thing transferred is one not in existence and
which never would have existed but for the order of the
party desiring to acquire it; while in a contract of sale, the
Agency to Sell
Transfer of Ownership
Buyer receives the goods Agent receives the goods
as owner
as goods of the principal
who retains his ownership
over them
Obligation as regards the Price
Buyer pays the price
Agent delivers the price,
which he got from his
buyer, to his principal
Right to Return the Thing
Buyer, as a general rule, Agent can return the goods
cannot return the object in case he is unable to sell
sold
the same to a third person
of
Transfer of
ownership
Ordinary
Does
depend
order
General
Covered
Service (mental,
physical labor)
Extra-ordinary
not
on
Depends
order
on
Specific Clientele
Not covered
4 Tests (ultimate
test: intention)
1. Risk of Loss
2. Payment
3. Exclusive
Dealership
4. Return of unsold
goods
Sale
Borne by
seller
Buyer
None
Sale
1.
Intention of
parties
2. Value of thing
vs.
Value
of
money
2 Tests
1. Debt
2. Stage of
contract
Sale
None
Perfection
Agency to Sell
Borne by
principal, not
agent
Principal, not
agent
Remittance test
Mandatory
Barter
Thing > Money
Dacion En Pago
Pre-existing
Extinguishment
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AGENTS
The law expressly provides for an exception: the
contract of sale will not be deemed void if the consent of
the principal has been given.
Agents can not buy the property of their principal without
the consent of the latter. BROKERS, however, do not
come within the prohibition, as their authority consists
merely in looking for a buyer or seller, and to bring the
latter and his principal together to consummate the
transaction. He is a mere go-between or middleman
between the seller and the buyer, bringing them together
to make the contract themselves.
Of course, after the agency is terminated, the agent can
buy the property of the principal, which was formerly
under his administration. Neither is he prohibited from
buying properties of the principal which are not included
among the properties of which he was commissioned to
sell.
Agent is one who accepts anothers representation to
perform in his name certain acts of more or less
transcendancy. The agents incapacity to buy his
principals property rests on the fact that greed might get
the better of the sentiments of loyalty and
disinterestedness which should animate an administrator
of agent.
Sale is only voidable because only private interests are
affected. The defect can be cured by ratification.
EXECUTORS AND ADMINISTRATORS
Although executors and administrators can not buy the
property under their administration, an executor may buy
the hereditary rights of an heir to the estate under his
administration, because the buyer, in such case, can not
get the share of the heir in the estate until after the
administration is ended.
Sale is only voidable because only private interests are
affected. The defect can be cured by ratification.
LAWYERS
The prohibition covering lawyers is intended to curtail
any undue influence of the lawyer on his client on
account of their confidential association.
The prohibition does not apply to other properties of the
client, nor to assignments of the property formerly in
litigation, when such assignment will take effect only
after final judgment (compensation of lawyers payable
on a contingent basis, unless unconscionable).
Rubias v. Batiller
Held: SALE VOID. Even assuming that Militante had
anything to sell, the deed of sale executed in 1956 by
him in favor of plaintiff, at a time when plaintiff was
concededly his counsel of record in the land registration
case involving the very land in dispute, was properly
declared inexistent and void by the lower court, as
decreed by CC Art. 1409 in relation to CC Art. 1491.
The permanent disqualification of public and judicial
officers and lawyers grounded on public policy differs
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Macariola v. Asuncion
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14
15
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Yu Tek v. Gonzales
Facts: Yu Tek bought 600 piculs of sugar from Gonzales
for P3,000 within a 3 month period. Agreement
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Art. 1459. The thing must be licit and the vendor must
have a right to transfer the ownership thereof at the time
it is delivered. (n)
EXCEPTIONS: When ownership transfers by nonowner
1. Estoppel
If the owner of the goods is precluded by his conduct
from denying the sellers authority to sell, buyer may
acquire a better title, although the seller had neither the
title nor the authority to sell the goods.
Art. 1434. When a person who is not the owner of a
thing sells or alienates and delivers it, and later the seller
or grantor acquires title thereto, such title passes by
operation of law to the buyer or grantee.
Hernaez v. Hernaez
Facts: Spouses Hernaez died leaving undivided estate
with descendants. Domingo, their son, sold his entire
share to his son Vicente. Domingo sold his shares to
Alejandro, in connivance with his son. Alejandro filed a
motion asking to be substituted as assignee of the
interests of which he purchased. Rosendo, sibling of
Domingo, with knowledge of the sale, entered into a
contract with Vicente, conveying all Vicentes interest in
the estate. She then instituted action seeking to
subrogate himself in the rights acquired by Alejandro.
Issue: WON Alejandro acquired the shares of the estate
(Yes)
Ratio: Alejandro acquired the rights of Domingo, but
under Art. 1607, Rosendo has the right to subrogate
himself in the place of the buyer if he pays the value of
the purchase within 1 month. LESSON: Alejandro was
able to acquire the share of the estate because the true
owner at the time (Vicente), allowed another (Domingo)
to appear as the owner or one with full authority to
dispose and the innocent 3rd party (Alejandro) is misled
into dealing with such apparent owner.
Siy Cong Bien V. HSBC
Facts: Ranft purchased hemp from Siy Cong Bien. The
hemp were deposited in bonded warehouses evidenced
by quedans. Siy Cong Bien sent quedans (warehouse
receipts) in blank to Raft. Raft delivered said quedans to
HSBC as a pledge for a preexisting debt. Later Raft
died. Siy Cong Bien demanded the return of the
quedans since payment was not made but HSBC
refused.
Issue: WON Siy Cong Bien is estopped from denying
that HSBC had validly acquired title to the quedans
(Yes)
Ratio: Siy Cong Bien voluntarily clothed Raft, who
negotiated the quedans with all the attributes of
ownership, by endorsing it in blank, upon which the bank
relied, he is estopped to deny that the bank had a valid
title to the quedans, despite breach of trust and violation
of the agreement on the part of Raft.
Jalbuena v. Lizarraga
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Masiclat v. Centeno
Facts: Centeno sold sacks of rice at a store on a street
near the public market. A person offered to buy 15 sacks
of rice, to be paid as soon as he sold his adobe stone,
which was being unloaded, from a truck on the opposite
side of the street. Centeno then order the sacks of rice to
be loaded onto the truck. Masiclat, loaded the rice while
Centeno watched. However the buyer did not come
back. Upon orders of Centeno to unload the rice,
Masiclat objected. Masiclat claimed to have bought the
rice.
Issue: WON Masiclat had better title to the rice over
Centeno (No)
Ruling: Centeno did not lose her ownership over the
rice as she did not intend to part with her ownership over
the rice until the price was paid. This was evident by her
watching the sacks being loaded in the truck. As
masiclat did not buy the rice from a merchants store or
market, he did not acquire a better title than Centeno.
SALE BY A PERSON HAVING A VOIDABLE TITLE
- Seller can transfer a valid title to an innocent
purchaser for value, unless title was annulled.
- So long as the goods are still in the possession of
the 1st buyer, they may still be recovered by the
vendor in an action for annulment.
- But once it has been transferred to an innocent
purchaser for value before the contract is annulled,
the latter acquired a valid title.
- An antecedent or pre-existing claim, WON for
money constitutes value where goods or document
of titloe are taken in satisfaction thereof or as
security therefore
Art. 1506. Where the seller of goods has a voidable title
thereto, but his title has not been avoided at the time of
the sale, the buyer acquires a good title to the goods,
provided he buys them in good faith, for value, and
without notice of the seller's defect of title. (n)
Art. 559. The possession of movable property acquired
in good faith is equivalent to a title. Nevertheless, one
who has lost any movable or has been unlawfully
deprived thereof may recover it from the person in
possession of the same.
If the possessor of a movable lost or which the owner
has been unlawfully deprived, has acquired it in good
faith at a public sale, the owner cannot obtain its return
without reimbursing the price paid therefor. (464a)
Tagatac v. Jimenez (1506 applies)
Facts: Tagatac owned a car bought from California. He
sold it to Feist, posing as a very wealthy man. They
signed a deed of absolute sale and Tagatac delivered
the car in exchange for a postdated check. The checks
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house but was left there and was never seen again.
Marella sold the car to Jose Aznar.
Issue: WON Santos had better right to possession (Yes)
Ratio: The ownership was not transferred by mere
contract, it requires delivery of the thing. The car was
never delivered to Marella, he took possession by
stealing the car. Art 559 applies. The effect of the thing
being lost or unlawfully deprived, grants the owner the
right to recover it from the possessor, even if bought in
good faith.
Meaning of Price
V. PRICE
20
21
22
OPTION MONEY
Part of
price
the
purchase
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Limson v. CA
Facts: Spouses De Vera through their agent Sanchez,
sold a lot to Limson. Limson paid P20K as earnest
money with 10 days option period to purchase the
property. De Vera informed Limson that the property was
mortgaged to Ramos and asked for the payment of the
balance to pay the mortgage. However, De Vera and
Ramos failed to appear at the meetings. Thus Limson
gave 3 checks to settle the payment. However, he later
found out that the property was sold to Sunvar Realty
Development after finally purchasing the lot.
Issue: WON there was a perfected contract to sell
between Limson and De Vera (No)
Ratio: The contract was an option contract and not a
contract to sell. The contract shall be interpreted by
looking at the inention of the parties, in this case only to
enter into a contract of option. The P20K referred as
earnest money is actually option money. But there is
nothing in the acts, conduct or words of Limson that
clearly manifest a present intention or determination to
accept the offer to buy the property of respondent
spouses within the 10-day option period. Limson only
manifested the intention to exercise the option after the
10 day period.
San Miguel v. Huang
Facts: San Miguel Property owned 2 lots along Meralco
Ave and offered to sell it to Helen Dauz for P52M. Dauz
offered P500K earnest money and tha balance to be
nd
paid in 8 installments. SMP refused. Dauz gave 2 offer
proposing P1M earnest money with 30 day option period
to buy and negotiate the terms and conditions. SMP VP
accepted the offer. Negotiations started but eventually
failed. SMP President returned deposit to Dauz for
failure to agre on the terms and conditions
Issue: WON there was a perfected contract of sale (No,
only an option contract)
Ratio: The P1M given was not earnest money but
merely a deposit which would become earnest money
which would become earnest money should a contract of
sale be made. The amount given was not part of the
purchase price but only a guarantee that they would not
back out. The contract was merely in the negotiation
stage,where the parties agree upon the terms of the
contract. While the parties already agreed on the real
properties which were the objects of the sale and on the
purchase price, the fact remains that they failed to arrive
at mutually acceptable terms of payment
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25
Carcellar v. CA
Facts: Carcellar and SIHI entered into a lease contract
with option to purchase two parcels of land. 3 weeks
before expiration of lease contract, SIHI notified Carcellar.
Carcellar requested for six-month extension of the lease
contract, alleging that he needs ample time to raise
sufficient funds in order to exercise the option. SIHI
replied that the request was disapproved. Carceller
notified SIHI of his decision to exercise the option to
purchase the property.
Issue: WON the option to buy should be allowed despite
the alleged 18-day delay in giving notice (YES)
Ratio: The delay was not a substantial and fundamental
delay amounting to a breach that would defeat the
intention of the parties. SIHI intended to dispose of the
leased property, which Carcellar intended to buy. An
option may be exercised validly even though in a way not
in accord with that stated in the contract, if it would be
consistent with the primary intent of the parties. The letter
of Carceller to SIHI is fair notice of the intent to exercise
the option, despite the request for the extension of the
lease contract.
a) meaning of consideration
Villamor v. CA
Facts: Reyes sold half of her land to Villamor in 1971.
She also executed a Deed of Option in favor of
Villamor for the remaining portion of the lot. Later
however, Reyes offered to repurchase the lot but it was
refused by Villamor, who instead expressed their desire
to purchase the remaining portion of the lot but the
Reyeses ignored them.
Issue: WON there deed of option was valid (YES)
Ratio: The CA found it very difficult to believe that the
Reyeses would agree to a Deed of Option when the
consideration for it was already included and
demandable in the previous Contract of Sale, but
improbabilities do not invalidate a contract.
Consideration is the why of the contract, the essential
reason which moves the contracting parties to enter into
the contract (Gonzales v. Trinidad). The cause of the
impelling reason on the part of private respondent
executing the deed of option as appearing in the deed
itself is the petitioners having agreed to buy the 300 sq.
m. portion at P70/sq.m. which was greatly higher than
the actual reasonable prevailing price. The consideration
here, in terms of money, is P70/sq.m. minus the
prevailing price in 1971 (P25 or P18/sq.m.). Note that
while the Deed of Option was valid, it would be iniquitous
to allow Villamor to demand delivery considering that it
has been 17 years since the execution of the deed (the
propertys market value is now much higher) and that
the Reyeses have no other decent place to live.
Soriano v. Bautista
Facts: Bautista mortgaged land to Soriano with an option
for Soriano to purchase the land within the 2-year period
of the mortgage. Within 2 years, Soriano informed
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27
28
29
30
a) Statute of Frauds
Art. 1403. The following contracts are unenforceable,
unless they are ratified:
(2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a
secondary evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(d) An agreement for the sale of goods, chattels or
things in action, at a price not less than five hundred
pesos, unless the buyer accept and receive part of such
goods and chattels, or the evidences, or some of them,
of such things in action or pay at the time some part of
the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is
made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein;
Art. 1405. Contracts infringing the Statute of Frauds,
referred to in No. 2 of Article 1403, are ratified by the
failure to object to the presentation of oral evidence to
prove the same, or by the acceptance of benefit under
them.
PURPOSE OF STATUTE: to prevent fraud and perjury
in the enforcement of obligations depending for their
evidence upon the unassisted memory of witnesses.
EXCEPTIONS TO STATUTE OF FRAUDS
a. When there is a note or memorandum thereof in
writing, and subscribed by the party charged or
his agent
b. When there has been partial consummation
c. When there has been a failure to object to the
presentation of evidence
d. Sales through electronic commerce
Paredes v. Espino
Facts: Espino and Paredes agreed about the sale of a
lot, the evidence of which is letters only without any
written contract. It was agreed that only upon Espinos
arrival at Puerto Princesa will the price be paid and the
deed of sale executed. But Espino refused to execute
the deed upon his arrival despite Paredes demand
and willingness to pay. Paredes sought specific
performance.
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(pertinent
Sec. 7. Legal Recognition of Electronic documentsElectronic documents shall have the legal effect, validity
or enforceability as any other document or legal writing,
and(a) Where the law requires a document to be in
writing, that requirement is met by an electronic
document if the said electronic document
maintains its integrity and reliability and can be
authenticated so as to be usable for subsequent
reference, in that
i. The electronic document has remained
complete and unaltered, apart from the
addition of any endorsement and any
authorized change, or any change which
32
arises
in
the
normal
course
of
communication, storage and display; and
ii. The electronic document is reliable in the
light of the purpose for which it was
generated and in the light of all relevant
circumstances.
(b) Paragraph (a) applies whether the
requirement therein is in the form of an
obligation or whether the law simply provides
consequences for the document not being
presented or retained in its original from.
(c) Where the law requires that a document be
presented or retained in its original form, that
requirement is met by an electronic document ifi. There exists a reliable assurance as to the
integrity of the document from the time when
it was first generated in its final from; and
ii. That document is capable of being
displayed to the person to whom it is to be
presented: Provided, That no provision of
this Act shall apply to vary any and all
requirements of existing laws on formalities
required in the execution of documents for
their validity.
For evidentiary purposes, an electronic document shall
be the functional equivalent of a written document under
existing laws.
This Act does not modify any statutory any statutory rule
relating to admissibility of electronic data massages or
electronic documents, except the rules relating to
authentication and best evidence.
Sec. 8. Legal Recognition of Electronic Signatures.- An
electronic signature on the electronic document shall be
equivalent to the signature of a person on a written
document if the signature is an electronic signature and
proved by showing that a prescribed procedure, not
alterable by the parties interested in the electronic
document, existed under which(a) A method is used to identify the party sought
to be bound and to indicate said party's access
to the electronic document necessary for his
consent or approval through the electronic
signature;
(b) Said method is reliable and appropriate for
the purpose for which the electronic document
was generated or communicated, in the light of
all circumstances, including any relevant
agreement;
(c) It is necessary for the party sought to be
bound, in or order to proceed further with the
transaction to have executed or provided the
electronic signature; and
(d) The other party is authorized and enable to
verify the electronic signature and to make the
decision to proceed with the transaction
authenticated by the same.
Sec. 11. Authentication of Electronic Data Messages
and Electronic Documents.- Until the Supreme Court by
appropriate rules shall have so provided, electronic
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c. Sale on acceptance/trial/approval
d. Sale on return/exchange
e. Implied reservation of ownership (Art. 1503)
a) sale on return/exchange
Art. 1502 (1). When goods are delivered to the buyer
"on sale or return" to give the buyer an option to return
the goods instead of paying the price, the ownership
passes to the buyer of delivery, but he may revest the
ownership in the seller by returning or tendering the
goods within the time fixed in the contract, or, if no time
has been fixed, within a reasonable time.
i.
Ownership passes on delivery but buyer may revest
such ownership to the seller by returning or
tendering goods within the time fixed or within a
reasonable time
ii.
Property is sold, but the buyer, who becomes the
owner of the property on delivery; has the option to
return the same to the seller instead of paying the
price; such sale depends upon the discretion of the
buyer.
iii.
Cf. conditional sale as opposed to a conditional
sale (where title passes upon full payment or
satisfaction of condition passing of legal title), in sale
on return, title passes on delivery with privilege of
revesting title in the vendor by returning the goods
iv.
Buyer remains liable for the price though it becomes
impossible without his fault to return the goods
v.
Non-exercise of the privilege of return renders the
sale absolute and the buyer becomes liable for the
price
Rules:
1. Title passes to the buyer upon delivery
2. Buyer bears the risk of loss, remains liable for the
price
3. The option to purchase or return the goods rests
entirely on the buyer without reference to the quality of
the goods.
4. The buyer may revest the ownership in the seller by
returning or tendering the goods within the time fixed in
the contract or within a reasonable time if time is not
fixed.
5. The buyer must comply with the express or implied
conditions attached to the return privilege; otherwise, the
sale becomes absolute.
b) sale on approval, trial, or satisfaction
Art. 1502 (2). When goods are delivered to the buyer on
approval or on trial or on satisfaction, or other similar
terms, the ownership therein passes to the buyer:
(1) When he signifies his approval or acceptance to the
seller or does any other act adopting the transaction;
(2) If he does not signify his approval or acceptance to
the seller, but retains the goods without giving notice of
rejection, then if a time as been fixed for the return of the
goods, on the expiration of such time, and, if no time has
been fixed, on the expiration of a reasonable time. What
is a reasonable time is a question of fact.
34
Rules:
1. Title remains in the seller, UNTIL sale becomes
absolute by:
Buyers approval of the goods; or
Buyers failure to comply with the express or implied
conditions of the contract as to giving notice of
dissatisfaction or as to returning the goods
2. Risk of loss remains with the seller except when the
buyer is at fault or has agreed to bear the loss
3. Buyer must give the goods a trial, except where it is
evident that it cannot perform the work intended
4. Period within buyer must signify acceptance runs only
when all parts essential for the operation of the object
have been delivered.
5. If it is stipulated that a third person must signify
approval or satisfaction, the provision is valid, but the
third person must be in good faith. If refusal to accept is
not justified, seller may still sue.
6. Generally, the sale and delivery to a buyer who is an
expert on the object purchased is not a sale on approval,
trial, or satisfaction.
Sale on Return
Sale on Trial
Condition Imposed
Subject to a resolutory Subject to a suspensive
condition
condition
Option of Buyer to Purchase
Depends entirely on the Depends on the character
will of the buyer
or quality of the goods
Transfer of Ownership
Ownership passes to the Ownership remains in the
buyer on delivery and seller until buyer signifies
subsequent return reverts his approval or acceptance
ownership in the seller
to the seller
Risk of Loss
Risk of loss or injury rests Risk of less remains with
upon the buyer
the seller
executory sales
Ownership of the thing shall not pass until the price is
fully paid
Seller may reserve the right of possession or ownership
in the goods until certain conditions have been fulfilled
Where the buyer failed to comply with the condition
precedent to the transfer of ownership or possession of
the thing sold, the seller may recover possession or
extrajudicially terminate the operation of the contract,
DELIVERY
Mode of acquiring ownership, as a consequence of
certain contracts such as sale, by virtue of which,
actually or constructively, the object is placed in the
control and possession of the vendee.
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37
38
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40
Requisites:
1. Two or more transactions must constitute valid sales
2. They must pertain exactly to the same object or
subject matter
3. They must be bought from the same or immediate
seller; and
4. Two or more buyers who are at odds over the rightful
ownership of the subject matter must represent
conflicting interests
There is no double sale when:
1. Not all the elements are present
The principle of prior tempore, prior jure (he who is first
in time is preferred in right) should apply
2. The two different contracts of sale are made by two
different persons, one of them not being the owner of the
property sold.
3. The land sold is not yet registered under the Torrens
system
4. The first sale occurred when land was not yet
registered, and the second sale was done when the land
was already registered prior tempore, prior jure should
apply
Rules on preference:
1. Personal property first possessor in good faith
2. Real property
First registrant in good faith: second buyer must
register the document in good faithl oitherwise, he
does not have a better right
First possessor in good faith
Person with oldest title in good faith
Caveat emptor: One who purchases real property which
is in actual possession of others should make some
inquiry concerning the rights of those in possession.
a) General Rule Prior tempore, prior jure
Carbonell v CA
Facts: Jose Poncio sold his lot to Carbonell on 27 Jan
1955 and 4 days later sold the same property to Infante.
A formal deed of sale was executed in favor of Infante.
Carbonell, upon seeing Infante building a wall around
the lot, registered an adverse claim on the property. The
deed of sale in favor of Infante was later registered and
the latter was thereafter in possession of the lot.
Issue: Was the second sale valid? No.
Held: The second sale was not valid. In case of double
sale, ownership should be recognized in favor of the one
who in good faith first recorded his right. It is essential
that the buyer must act in good faith in registering his
deed of sale. Carbonells prior purchase of the land is
made in good faith. Her good faith subsisted and
continued to exist when she recorded her adverse claim
4 days prior to the registration of Infantes deed of sale.
As there in inscription, prior registration in good faith is
pre-condition to a superior title.
b) Requisites for double sale
41
Cheng v. Genato
Facts: Genato sold lot to Jose sps and later on, to
Cheng, when he expressed interest in buying the
property.
Issue: WON rules on double sale are applicable. NO,
contract was a contract to sell. Rules on double sale
inapplicable. But prior tempore prior jure must apply.
Held: The rules on double sales under Art 1544 are not
applicable to a contract to sell, as in this case. The
provision connotes that the following circumstances
must concur:
1. The 2 or more sales transactions in the issue must
pertain to exactly the same subject matter, and
must be valid sales transactions.
2. The 2 or more buyers at odds over the rightful
ownership of the subject matter must each
represent conflicting interests; and
3. The 2 or more buyers at odds over the rightful
ownership of the subject matter must each have
brought from the very same seller.
These situations are lacking in a contract to sell for
neither a transfer of ownership nor a sales transaction
has been consummated. The contract to be binding
upon the obligee or the vendor depends upon the
fulfillment or non-fulfillment of an event.
NOTWITHSTANDING that is a Contract to Sell, the
Court is in the view that the governing principle of Art
1544, CC should apply in this casePRIMUS
TEMPORE, PORTIOR JURE (first in time, stronger in
right). For not only was the contract between Da Jose
sps and Genato first in time; it was also registered long
before Chengs intrusion as second buyer.
Villanueva: The Cheng ruling can only be interpreted to
mean that the contract to sell whereby the suspensive
conditions are first fulfilled, would be considered as first
in time.
If the requisites are not complied with, the main rule
must apply: FIRST IN TIME, STRONGER IN RIGHT
(prius tempore, potior jure)
Art. 1544 contemplates BOTH actual and constructive
delivery.
c) Who is purchaser in good faith
Purchaser in good faith one who:
(a) buys the property of another without notice that some
other person has a right to, interest in, such property and
(b) pays a full and fair price for the sale, at the time of
the purchase or before he as notice of the claim of
interest of some other person in the property.
Good faith consists in an honest intention to abstain from
taking any unconscious advantage of another.
A purchaser may be considered a purchaser in good
faith if he has examined the latest certificate of title.
Exception: When there exist important facts that would
create suspiction in an otherwise reasonable man to go
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f) sale of immovables
Carbonell v. CA (supra)
g) Sale by virtue of execution or attachment
GENERAL RULE: Article 1544 not applicable to
execution sales
PURPOSE: Because the purchaser at such sales is
substituted to or acquires whatever rights, title or
interests the judgment debtor may have over the
property as of the time of levy. [It is the duty of the
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(1) As avoided; or
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(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he
shall be obliged to pay damages; it is understood that
the thing is lost when it perishes, or goes out of
commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the
debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for damages
in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
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EXCEPTION:
- Contrary stipulation (Sun Bros. v Perez)
o Notwithstanding that title remained with the
seller, it can be validly agreed that the risk of
loss shall be borne by the buyer.
Stipulations govern the agreement.
- Security title (Lawyers Coop v Tabora)
o Where the goods have been delivered to the
buyer or to a bailee for the buyer in
pursuance of the contract, and title was
retained by the seller only to secure
payment of the price, the risk of loss is on
the buyer from the time of such delivery, as
the beneficial owner.
- Delay through the fault of the buyer or the seller
o Where actual delivery has been delayed
through the fault of the buyer or the seller,
the goods are at the risk of the party in fault.
Art. 1504. Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred
to the buyer, but when the ownership therein is
transferred to the buyer the goods are at the buyer's risk
whether actual delivery has been made or not, except
that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the goods
are at the buyer's risk from the time of such delivery;
(2) Where actual delivery has been delayed through the
fault of either the buyer or seller the goods are at the risk
of the party in fault. (n)
Sun Bros. V. Perez
Facts: Perez entered into a conditional sale agreement
with Sun Bros. Perez made a downpayment on the
same day, and the aircon was installed by Sun Bros.
The aircon was burned subsequently, causing Perez to
stop paying the monthly installments.
Issue: WON the loss of the aircon extinguish Perezs
obligation to pay (No)
Ratio: Agreement contained stipulation that buyer shall
suffer the loss or repairs of the aircon after its delivery to
the buyer. An agreement making the buyer responsible
for any loss whatsoever, fortuitous or otherwise, even if
the title to the property remained in the vendor is neither
contrary to law, morals or public policy.
Lawyers Coop v. Tabora
Facts: Tabora bought one complete set of American
Jurisprudence from Lawyers Cooperative Publishing
Company. Tabora made a partial payment and the
books were delivered to him. A fire broke out burning the
law office and the library, including the newly purchased
books. Tabora failed to pay monthly installments
claiming for majure.
Issue: WON Tabora should bear the loss and pay the
unpaid balance (Yes)
Ratio: It was agreed that title to and ownership of the
books remained with the seller until the purchase price
was fully paid. However, Tabora is still liable because
such stipulation was agreed on merely to secure the
performance by the buyer of his obligation to pay. Using
Art 1504 (1), where delivery of goods have been made
and the ownership of the goods are retained by the
seller to secure performance by the buyer of his
obligation, the buyer a bears the loss of the goods from
the time of delivery.
Song Fo v. Oria
Facts: Song Fo sold a launch to Oria. The launch was
delivered to Oria in Manila, but was shipwrecked and
lost while en route to Orias place of business in Samar.
No payment had been made, so Song Fo was
demanding such payment. Oria however argued that
Song Fo was obligated to insure the launch which they
failed to do, thus they were to suffer the loss of the
launch.
Issue: WON Song Fo is responsible for the loss of the
launch (No)
Ratio: Song Fo was able to deliver the launch to Oria in
Manila, and it was after this that the launch was lost in
sea. As the owner at the time, Oria was to bear the loss.
In addition, Song Fo did make a bona fide attempt to
insure the launch, but was not granted because of the
dangerous nature of the coast where Oria desired to
operate the launch, and the lack of confidence in the
character and reputation of Oria.
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Mere delivery,
If deliverable to bearer
If deliverable to the order of a
certain person and that person has
indorsed it in blank merely (put his
name at the back) or indorsed it to
bearer (at the back, he placed
delivery to bearer and then he
signed his name). The document
can now be negotiated by mere
delivery
Indorsement PLUS delivery
Indorsment of the person to whose
order the goods deliverable.
May be in blank, to bearer or to a
specific person.
Subsequent negotiations may be
made after indorsment.
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o
o
o
o
4. Effects of Negotiation
Art. 1513. A person to whom a negotiable document of
title has been duly negotiated acquires thereby:
(1) Such title to the goods as the person negotiating the
document to him had or had ability to convey to a
purchaser in good faith for value and also such title to
the goods as the person to whose order the goods were
to be delivered by the terms of the document had or had
ability to convey to a purchaser in good faith for value;
and
(2) The direct obligation of the bailee issuing the
document to hold possession of the goods for him
according to the terms of the document as fully as if
such bailee had contracted directly with him. (n)
5. Unauthorized Negotiation
Art. 1518. The validity of the negotiation of a negotiable
document of title is not impaired by the fact that the
negotiation was a breach of duty on the part of the
person making the negotiation, or by the fact that the
owner of the document was deprived of the possession
of the same by loss, theft, fraud, accident, mistake,
duress, or conversion, if the person to whom the
document was negotiated or a person to whom the
document was subsequently negotiated paid value
therefor in good faith without notice of the breach of
duty, or loss, theft, fraud, accident, mistake, duress or
conversion. (n)
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X. REMEDIES OF AN UNPAID
SELLER
DEFINITION OF UNPAID SELLER
Unpaid seller if the whole price has not been paid or
tendered, or when the check received as conditional
payment was dishonored by non-payment or insolvency
of the buyer.
Seller includes the agent of the seller to whom the bill
of lading was endorsed, or the consignor or agent who
had paid the price or is responsible for the price, or any
other person who is in the position of a seller.
Art 1525. The seller of goods is deemed to be an
unpaid seller within the meaning of this Title:
(1) When the whole of the price has not been paid or
tendered;
(2) When a bill of exchange or other negotiable
instrument has been received as conditional payment,
and the condition on which it was received has been
broken by reason of the dishonor of the instrument, the
insolvency of the buyer, or otherwise.
In Articles 1525 to 1535 the term "seller" includes an
agent of the seller to whom the bill of lading has been
indorsed, or a consignor or agent who has himself paid,
or is directly responsible for the price, or any other
person who is in the position of a seller. (n)
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2. Stoppage in transitu
Art 1530. Subject to the provisions of this Title, when the
buyer of goods is or becomes insolvent, the unpaid
seller who has parted with the possession of the goods
has the right of stopping them in transitu, that is to say,
he may resume possession of the goods at any time
while they are in transit, and he will then become entitled
to the same rights in regard to the goods as he would
have had if he had never parted with the possession. (n)
Art 1531. Goods are in transit within the meaning of the
preceding article:
(1) From the time when they are delivered to a carrier by
land, water, or air, or other bailee for the purpose of
transmission to the buyer, until the buyer, or his agent in
that behalf, takes delivery of them from such carrier or
other bailee;
(2) If the goods are rejected by the buyer, and the carrier
or other bailee continues in possession of them, even if
the seller has refused to receive them back.
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3. Right of Resale
Art 1533. Where the goods are of perishable nature, or
where the seller expressly reserves the right of resale in
case the buyer should make default, or where the buyer
has been in default in the payment of the price for an
unreasonable time, an unpaid seller having a right of lien
or having stopped the goods in transitu may resell the
goods. He shall not thereafter be liable to the original
buyer upon the contract of sale or for any profit made by
such resale, but may recover from the buyer damages
for any loss occasioned by the breach of the contract of
sale.
Where a resale is made, as authorized in this article, the
buyer acquires a good title as against the original buyer.
It is not essential to the validity of resale that notice of an
intention to resell the goods be given by the seller to the
original buyer. But where the right to resell is not based
on the perishable nature of the goods or upon an
express provision of the contract of sale, the giving or
failure to give such notice shall be relevant in any issue
involving the question whether the buyer had been in
default for an unreasonable time before the resale was
made.
It is not essential to the validity of a resale that notice of
the time and place of such resale should be given by the
seller to the original buyer.
The seller is bound to exercise reasonable care and
judgment in making a resale, and subject to this
requirement may make a resale either by public or
private sale. He cannot, however, directly or indirectly
buy the goods. (n)
-
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4. Right to Rescind
Art 1534. An unpaid seller having the right of lien or
having stopped the goods in transitu, may rescind the
transfer of title and resume the ownership in the goods,
where he expressly reserved the right to do so in case
the buyer should make default, or where the buyer has
been in default in the payment of the price for an
unreasonable time. The seller shall not thereafter be
liable to the buyer upon the contract of sale, but may
recover from the buyer damages for any loss occasioned
by the breach of the contract.
The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has manifested by
notice to the buyer or by some other overt act an
intention to rescind. It is not necessary that such overt
act should be communicated to the buyer, but the giving
or failure to give notice to the buyer of the intention to
rescind shall be relevant in any issue involving the
question whether the buyer had been in default for an
unreasonable time before the right of rescission was
asserted. (n)
-
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3. Effects of delivery
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive
delivery thereof. (n)
Art. 1478. The parties may stipulate that ownership in
the thing shall not pass to the purchaser until he has fully
paid the price. (n)
a. Delivery by installment
Art. 1583. Unless otherwise agreed, the buyer of goods
is not bound to accept delivery thereof by installments.
Where there is a contract of sale of goods to be
delivered by stated installments, which are to be
separately paid for, and the seller makes defective
deliveries in respect of one or more installments, or the
buyer neglects or refuses without just cause to take
delivery of or pay for one more installments, it depends
in each case on the terms of the contract and the
circumstances of the case, whether the breach of
contract is so material as to justify the injured party in
refusing to proceed further and suing for damages for
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Breach of warranty
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La Fuerza v. CA
Facts: Associated constructed a conveyor system for
La Fuerzas wine factory. When the construction was
finished, to La Fuerzas dismay, the conveyor system did
not met its expectation because: several bottles collided
with each other, some bottles jumped off the conveyor
belt and were broken, causing considerable damage
and the flow of the system was so sluggish. La Fuerza
refused to pay the balance of the conveyor systems
purchase price.
Issue: WON the delivery of the conveyors was subject
to the acceptance of La Fuerza. (NO)
Ratio: Art. 1571 (rescission prescribes 6 months from
delivery) applies because of Art. 1714 (pertinent
provisions on warranty of title against hidden defect in a
contract of sale applies to a contract for a piece of work).
Delivery must be construed in light of Art. 1497: the thing
sold shall be understood as delivered when it is placed
in the control and possession of the vendee. When the
thing subject of the sale is placed in the control and
possession of the vendee, delivery is complete. Delivery
and acceptance are two distinct and separate acts of
different parties, and therefore, acceptance cannot be a
condition to complete delivery. Delivery is an act of the
vendor, the vendee has nothing to do with the act of
delivery. Acceptance is an obligation on the part of the
vendee (Art. 1582).
B. PAYMENT OF PRICE
1. Liability for interest
Art. 1582. The vendee is bound to accept delivery and
to pay the price of the thing sold at the time and place
stipulated in the contract.
If the time and place should not have been stipulated,
the payment must be made at the time and place of the
delivery of the thing sold. (1500a)
The buyer shall owe interest on the price from the time
the thing is delivered up to the time of payment if there is
stipulation requiring interests, or even if there is none, if
the thing delivered produces fruits or income, or if the
buyer incurs in default from the time of judicial or extrajudicial demand for payment
2. Suspension of Payment
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a. Effect of Non-payment
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
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XII. WARRANTIES
A. EXPRESS WARRANTIES
a) Warranty where one party promised that the
contingency or some act fixed by the contract shall be
performed, like a promise that the goods are of a certain
kind and character or that certain state of facts would
exist, the promise constitutes a warranty, and failure of
which gives rise to an action for its breach.
Breach: the buyer may
1. accept goods + maintain an action for damages
2. accept goods + set up breach of warranty as a
recoupment in diminution/ extinction of price
3. refuse to accept goods and maintain action for
damages
4. rescind + refuse to accept goods; or return (or
offer to return) goods + recover price paid
1.
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2.
Warranty
Goes into the performance
of such obligation, and in
fact may constitute an
obligation in itself
May form part of obligation
by contract or provision of
law, without parties having
agreed thereto
Whether
express
or
implied, relates to subject
matter itself or to the
obligations of the seller as
to the subject matter of the
sale
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(3) The costs of the suit which caused the eviction, and,
in a proper case, those of the suit brought against the
vendor for the warranty;
4. Warranty
defects
against
hidden
encumbrances
or
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C. EFFECTS OF WARRANTIES
1. Natural tendency is to induce
buyer
to
purchase the subject matter
2. Buyer purchases subject matter
relying
thereon
3. Seller liable for damages in case of breach
D. EFFECTS OF WAIVERS
Only applicable to waiver of warranty against eviction
(see the following section) - parties may increase or
decrease warranty against eviction but the effect
depends on good/bad faith of the seller
1. Seller in bad faith and there is warranty against
eviction - null and void
2. buyer without knowledge of a particular risk, made
general renunciation of warranty not waiver but
merely limits liability of seller in case of eviction (pay
value of subject matter at time of eviction)
3. buyer with knowledge of risk of eviction
assumed its consequences and made a waiver vendor not liable
4. waiver to a specific case of eviction - wipes out
warranty as to that specific risk but not as to eviction
caused by other reasons
E. BUYERS OPTIONS IN CASE OF BREACH OF
WARRANTY
Art. 1599. xxx Where the goods have been delivered to
the buyer, he cannot rescind the sale if he knew of the
breach of warranty when he accepted the goods without
protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he fails to
return or to offer to return the goods to the seller in
substantially as good condition as they were in at the
time the ownership was transferred to the buyer. But if
deterioration or injury of the goods is due to the breach
or warranty, such deterioration or injury shall not prevent
the buyer from returning or offering to return the goods
to the seller and rescinding the sale. xxx
Ang v. CA
Facts: Soledad and Ang entered a car-swapping
scheme. Ang, being engaged in buy and sell of cars, sold
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Rescission
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when the buyer, after due notice to the owner or developer desists front further payment due to the failure of
the owner or developer to develop the subdivision or
condominium project according to the approved plans
and within the time limit for complying with the same.
Such buyer may, at his option, be reimbursed the total
amount paid.
3. Maceda Law: RA 6552 Sale of Immovables on
Installment
Mclaughlin v. CA: Sec 4 of RA 6552 provides: In case
where less than two years of installments were paid, the
seller shall give the buyer a grace period of not less than
sixty days from the date the installment became due. If
the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the
notice of the cancellation or the demand for rescission of
the contract by a notarial act. Flores tendered the
managers check after 17 days, which is well within the
30-day period. However, Flores did not follow tender of
payment with consignation. Since McLaughlin refused
to accept the tender of payment, it was incumbent upon
Flores to deposit the amount in court.
Luzon Brokerage v. Maritime: Luzon Brokerage sought
nd
a 2 MR for the Adverse decision against it, which was
discussed supra four times. The Court rejected it with
finality because the motion raised the same grounds,
which were dissected again, and also because the
enactment of the Maceda Law elevated the relevant
doctrines into legislative law, which no court decision
could repeal.
The governing law and precedents govern. There was
no case where the SC denied the vendor on installment
of his right to rescind for contracts to sell industrial or
commercial real estate. Such right is now enshrined in
the Maceda law. The original decision has already
become doctrinal, and Maritimes counsel Sen.
Ambrosio Padilla even cited it in his book on Civil Law.
The enactment of RA 6552, an act to provide Protection
to Buyers of Real Estate on Installment Payments, aka
the Maceda has now placed the 39 year-old
jurisprudence of the court into a category of law which is
beyond overturning even by the SC. The court cannot
now deny or refuse Myers contractual right of
cancellation, which is no longer a matter of precedents
or doctrinal jurisprudence.
REMEDIES OF THE BUYER
1. In case of movables
Specific performance
Art 1598. Where the seller has broken a contract to
deliver specific or ascertained goods, a court may, on
the application of the buyer, direct that the contract shall
be performed specifically, without giving the seller the
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Villarica v. CA
Facts: The Villaricas sold their land to the Consunjis for
P35,000, who granted the former an option to buy.
However, the latter later sold it to Francisco. The
Villaricas contend that the real nature of their transaction
with the Consunjis is not a contract of sale but an
equitable mortgage to their P28,000-loan.
Issue: WON the transaction was a sale or equitable
mortgage (Sale)
Ratio: 1.) The price was not inadequate since it was the
market price of the lot at that time. 2.) The Villaricas did
not remain in possession, as they were merely allowed
to collect the monthly rent for 5 months with the amount
collected charged against them. 3.) The option to buy
was in a separate public instrument from the contact of
sale, thus not being as a right to repurchase which must
be reserved in the same contract of sale. Thus it does
not fall under Art. 1602. 4.) The taxes paid by Villarica
was the back taxes up to the date of the sale.
Bautista v. Unangst
Facts: Salak rented a car from Bautista but failed to
return the car and was charged with BP 22 and
carnapping. In order to pay the rent and other fees,
Salak proposed to sell house titled in the name of his
wife, Unangst. They executed a written agreement with
right to repurchase, where if they failed to repurchase,
must vacate the premises. Unangst failed to repurchase
causing Bautista to file for specific performance.
Issue: WON the transaction was a sale with right to
repurchase or an equitable mortgage (Equitable
mortgage)
Ratio: The deed of sale with right to repurchase qualifies
as an equitable mortgage under 1602 since Unangst
merely secured the payment of the rentals and were
allowed to remain in possession. Under 1602, a contract
is presumed to be an equitable mortgage where (2) the
vendor remains in possession as lessee or otherwise (6)
it may be inferred that the real intention of the parties is
that the transaction shall secure the payment of a debt
or the performance of an obligation.
EQUITABLE MORTGAGE
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(1) When the price of a sale with right to repurchase is
unusually inadequate;
(2) When the vendor remains in possession as lessee or
otherwise;
(3) When upon or after the expiration of the right to
repurchase another instrument extending the period of
redemption or granting a new period is executed;
(4) When the purchaser retains for himself a part of the
purchase price;
(5) When the vendor binds himself to pay the taxes on
the thing sold;
(6) In any other case where it may be fairly inferred that
the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of
any other obligation.
In any of the foregoing case, any money, fruits, or other
benefit to be received by the vendees as rent or
otherwise shall be considered as interest which shall be
subject to the usury laws.
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Tan v. Valdehueza
Facts: Valdehueza executed 2 documents of deed of
pact de retro sale in favor of Tan, but Valdehueza
st
remained in possession. 1 document was registered
nd
while the 2 was not. Tan was claiming ownership over
the land described in the contract.
Issue: WON the sale was an equitable mortgage (Yes)
Ratio: When the vendor remains in possession and
pays taxes of the property under a pacto de retro, the
contract is presumed to be an equitable mortgage,
whether registered or not.
2. Rationale of Equitable Mortgage
To curtail the practice of creditors in making their
agreement of mortgage appear in the form of a sale
with pacto de retro, in order to circumvent the
prohibition of pactum commissorium in pledge and
mortgage (Art. 2208. The creditor cannot
appropriate the things given by way of pledge or
mortgage, or dispose of them. Any stipulation to the
contrary is null and void) [because in making it
appear a pacto de retro sale, the creditors can do
away with foreclosure proceedings]
3. Remedy
Reformation of the instrument [must be brought
within 10 years]
1) If the agreement is construed to be an equitable
mortgage, any money or other benefit received as
rents, shall be considered as interest.
2) Where the agreement is upheld as a pacto de
retro sale, the vendor may still exercise the right
within 30 days from the time the judgment becomes
final.
4. Pactum Commissorium
Right of redemption
Principal
contract
(preparatory to sale)
Not a separate contract,
but merely part of a main
contract of sale; cannot
exist unless reserved at
the time of the perfection
of the main contract of sale
Need not have separate
consideration in order to
be valid and effective
May not be beyond the 10
year period
Requires
tender
of
payment
of
amount
required by law, including
consignment thereof if
tender cannot be made
effectively
If right is exercised,
contract is extinguished
and becomes a deed of
absolute sale
Option to buy
Merely
an
accidental
contract
Principal contract and may
be created independent of
another contract
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must reimburse the vendee not only the price of the sale,
but also expenses of the contract, and necessary and
useful expenses made on the thing sold.
1. By whom exercised
Art. 1610. The creditors of the vendor cannot make use
of the right of redemption against the vendee, until after
they have exhausted the property of the vendor. (1512)
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82
3. Adjoining landowners
The law distinguishes between rural and urban
lands. The distinction is based on the character of
the community or vicinity in which it is found. This is
to encourage the maximum development and
utilization of lands.
3.1 Rural land
Art. 1621. The owners of adjoining lands shall
also have the right of redemption when a piece
of rural land, the area of which does not exceed
Special Laws
a. Under Extrajudicial Foreclosure Act 3175
sec. 6
83
84
RA 3952
85
86
total
equity.
87
(c)
Five
(5)-year
track
record
in
retailing;
and
88
c.
d.
e.
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90