LAW ON SALES | Atty.

Jazzie Sarona-Lozare, CPA st

Ateneo de Davao University College of Law | 1 Sem (2016-2017)

LAW ON SALES delivered.

Atty. Jazzie Sarona-Lozare, CPA o It is a well-settled principle in law that no one can give what
Ateneo de Davao University College of Law one does not have (nemo dat quod non habet). Accordingly,
1st Semester (School Year 2016-2017) one can sell only what one owns or is authorized to sell, and
the buyer can acquire no more than what the seller can
(Sources: Law on Sales Book by Villanueva, 2016 Lectures of Atty. transfer legally. (Gonzales vs. Heirs of Cruz)
Jazzie Sarona-Lozare, Civil Code of the Philippines, www.lawphil.net, o When a person who is not the owner of a thing sells or
www.sc.judiciary.gov.ph) alienates and delivers it, and later the seller or grantor
acquires title thereto, such title passes by operation of law to
Transcribed by 2-SANCHEZ ROMAN: the buyer or grantee. (Estoque vs. Pajimula)
1. BALGOA, Patricia Nicole o The declaration of nullity of a contract which is void ab initio
2. CANDOLITA, Therese Ann operates to restore things to the state and condition in which
3. CHIU, Ronald they were found before the execution thereof. (DPB vs. CA)
4. DAYANGHIRANG IV, Emilio o A contract of sale is perfected at the moment there is a
5. DULAY, Francis Roel meeting of minds upon the thing which is the object of the
6. ESTILLORE, Lizette Kaye contract and upon the price. It is, therefore, not required
that, at the perfection stage, the seller be the owner of the
7. MASANGUID, Remmon Lloyd
thing sold or even that such subject matter of the sale exists
8. PUBLICO, Stephanie at that point in time. Thus, under Art. 1434 of the Civil Code,
9. SABRIDO, Julian Rey when a person sells or alienates a thing which, at that time,
10. SINGANON, Alexa Marie was not his, but later acquires title thereto, such title passes
11. TITO, Carra Trisha by operation of law to the buyer or grantee. This is the same
principle behind the sale of "future goods" under Art. 1462 of
the Civil Code. However, under Art. 1459, at the time of
3rd EXAM COVERAGE delivery or consummation stage of the sale, it is required that
the seller be the owner of the thing sold. Otherwise, he will
not be able to comply with his obligation to transfer
SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE ownership to the buyer. It is at the consummation stage
where the principle of nemo dat quod non habet applies.
(Cavite Development Bank vs. Spouses Syrus Lim)
WHEN SELLER IS NOT OWNER OF THE SUBJECT MATTER
c) Sale by Co-Owner of the Whole Property or Definite Portion
Thereof
a) At Perfection Article 493. Each co-owner shall have the full ownership of his
o Perfection of a sale merely creates the obligation on the part part and of the fruits and benefits pertaining thereto, and he may
of the seller to transfer ownership, but by itself perfection therefore alienate, assign or mortgage it, and even substitute
does not transfer ownership. another person in its enjoyment, except when personal rights are
involved. But the effect of the alienation or the mortgage, with
Article 1459. The thing must be licit and the vendor must respect to the co-owners, shall be limited to the portion which may
have a right to transfer the ownership thereof at the time it is be allotted to him in the division upon the termination of the co-
delivered. ownership.

Article 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive
delivery thereof.
b) At Consummation
Article 1505. Subject to the provisions of this Title,
where goods are sold by a person who is not the owner
thereof, and who does not sell them under authority or with
the consent of the owner, the buyer acquires no better title to
the goods than the seller had, unless the owner of the goods
is by his conduct precluded from denying the seller's authority
to sell.
o The article does not say that the sale of good by a non-owner
renders the contract void.
o It describes the consequences when delivery under a sale is
effected when the seller is not the owner of the thing
o In co-ownership, none of the co-owners may claim any right,
title or interest to a particular portion of the thing owned in
common.
o General Rule: When a co-owner sells a particular potion of
the property owned in common, the early rule that the sale is
void as it attempts to sell a particular portion of the property,
but is valid as to the spiritual share of the co-owner-seller.
d) Exceptions to Rule on Effect of Sale of Definite Portion by Co-
Owner
o It does not apply to a situation where the subject matter is
indivisible in nature or by intent.
o When a sale of a particular portion of the thing owned in
common is with the consent of the other co-owners.
o 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 by

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law and equity may lay exclusive claim to the remaining
parcel of land. (Imperial vs. CA)
o Effect of the ipso jure transfer of ownership under Article
1434 of the Civil Code. When co-heirs sell and deliver the
entire lot owned in common with their father who was still
alive at that time, and subsequently the father dies, then the
buyer becomes the owner of the entire property bought
pursuant to the provisions of Article 1434 which upholds the
validity of a sale by one who previously did not have, but who
subsequently acquired, title to the property sold. (Pisuena vs.
Heirs of Petra Unating)
o Binding effect of registration under the Torrens System.
Although a co-owner may validly sell only her co-ownership
interests, and that the sale of the entire property or of a
particular portion thereof is void, nevertheless, when Torres
title to the conjugal property indicates that the wife is the
only owner thereof being described as a widow, then one
who buys such property from the wife in good faith and for
value, will acquire valid title thereto against the heirs of the
decease spouse: The rationale for this rule is that "a person
dealing with registered land is not required to go behind the
register to determine the condition of the property. He is only
charged with notice of the burdens on the property which are
noted on the face of the register or the certificate of title. To
require him to do more is to defeat one of the primary
objects of the Torrens system." (Cruz vs. Leis)
EXCEPTIONS TO RULES ON LEGAL EFFECTS OF SALE BY A NON-
OWNER
Article 1505. Subject to the provisions of this Title, where goods
are sold by a person who is not the owner thereof, and who does not
sell them under authority or with the consent of the owner, the buyer
acquires no better title to the goods than the seller had, unless the
owner of the goods is by his conduct precluded from denying the seller's
authority to sell.
Nothing in this Title, however, shall affect:
1. The provisions of any factors' act, recording laws, or any other
provision of law enabling the apparent owner of goods to
dispose of them as if he were the true owner thereof;
2. The validity of any contract of sale under statutory power of
sale or under the order of a court of competent jurisdiction;
3. Purchases made in a merchant's store, or in fairs, or markets,
in accordance with the Code of Commerce and special laws.
o The sale is valid even if the seller is not the owner thereof.
However, the buyer will not have a better right than the seller
if the delivery by the seller even if he is not the owner
thereof. There can be no transfer of ownership even if there
has been delivery by the seller or does not have the authority
thereof. Ownership is only necessary upon delivery.
Other Exceptions:
Article 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
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seller's defect of title.
There is a voidable title when a contract was entered into
where one of the parties is incapacitated. The requisites
mentioned in this sale should be present not only at the time
of the perfection of the contract but also upon delivery. For
Example: A, who was a minor, sold his property to B. B now
has a voidable title over said property. Now, B sells it to C,
without notice of the defect in title. Even if there has already
been a sale and agreement between B and C. The subject
property may still be transferred back to A if there has been
no delivery made yet from B to C.
Article 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.
Special rights of an unpaid seller of goods to resell under
Articles 1526 and 1533 of the Civil Code.
1) When Real Owner Estopped
Ex. Article 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.
2) Recording Laws
o Except on the effect of registration of chattel mortgage and its
subsequent foreclosure and sale at public auction, and the
jurisprudential rules that have come to govern the hierarchy
of claims on shares of stock of corporation, there are at
present no other recording laws pertaining to movables that
provide the same principle as registration as the operative
act principle applicable to registered land under The
Property Registration Decree.
3) Statutory Power; Court of Sale
o Judgments of courts divesting the registered owner of title
and vesting them in the other party are valid although the
courts may not be the owner of the land.
o Also, the sale by a sheriff of land levied upon at public auction
would validly transfer ownership to the highest bidder,
although the sheriff in executing the certificate of sale has no
ownership over said property.
4) Sale at Merchant Store
o Under paragraph (3) of Article 1505 of the Civil
Code, a person who buys a thing at a merchants store after
the same has been put on display thereat, acquires a valid
title to the thing although his predecessors in interest did not
have any right of ownership over it. This is a case of an
imperfect or void title ripening into a valid one, as a result of
some intervening causes. The policy of the law has always
been that where the rights and interests of a vendor come
into clash with that of an innocent buyer for value, the latter
must be protected protecting innocent third parties who
have made purchases of merchants stores in good faith and
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for value appears to be a wise and necessary rule not only to
facilitate commercial sales on movables but to give stability to
business transactions. This rule is necessary in a country such
as ours where free enterprise prevails, for a buyer cannot be
reasonably expected to look behind the title of every article
when he buys at a store. The doctrine of caveat emptor is
now rarely applied, and if it is ever mentioned it is more of an
exception rather than the general rule. (Sun Brothers & Co. vs.
Velasco)
o A merchant store is any place where goods are kept for sale;
or were good are deposited and sold by one engaged in
buying and selling them. Placing of an order for goods and
the making of payment thereto at a principal office does not
transform said office into a store, for it is a necessary element
that there must also be goods or wares stored therein or on
display, and provided also that the firm or person maintaining
that office is actually engaged in the business of buying and
selling. (Manila vs. Bugsuk Lumber Co.)
5) Sale by a Seller Who Has Voidable Title on the Subject
Matter Sold
Article 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.
o This article talks of title or ownership to the property which
covers the consummation stage. Perfection stage of sale
involves the obligation to transfer ownership, but does not
cover nor convey ownership itself.
o If the sellers voidable title thereto is avoided after the
perfection of the sale but before delivery, the buyer does not
obtain good title to the property.
o The language of the deed of sale may show bad faith on the
part of the buyer. In the deed, instead of the buyer insisting
that the seller guarantee its title to the land and recognize the
right of the buyer to proceed against the seller if the title to
the land turns out to be defective as when the land belongs to
another person, and instead the reverse is found in the deed
of sale providing that any losses which the buyer may incur in
the event the title turns out to be vested in another person
are to be borne by the buyer alone, show that the buyer did
not purchase the subject matter in good faith without notice
of any defect in the title of the seller. (Limketkai Sons Milling,
Inc. vs. CA)
6) Applicable Rules to Immovables
General Rule:
When the seller of a parcel of land has only voidable
or void title to the property, then the buyer, even though in
good faith and for value, and in spite of actual or constructive
delivery, takes only the same title to the land which his seller
had.
Exception:
The registration in good faith as the operative act
doctrine embodied in Section 113 of the Property Registration
Degree.
7) Title as to Movable Properties
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General Rule:
Article 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.
Exceptions:
By cross-reference to Article 1505, even if the owner of a
movable has lost it or has been unlawfully deprived thereof,
and even if he offers to reimburse the buyer, he cannot
recover the movable from the buyer who bought it at a
merchant store; and
By cross-reference to Article 1506, even if the owner of a
movable has lot it or has been unlawfully deprived thereof, if
the possessor in good faith acquired title from a seller who at
the time of delivery had a voidable title thereto, then the
original owner cannot recover the movable.
Tagatac vs. Jimenez
Facts:
Trinidad Tagatac bought a car for $4,500 in the US. After 7
months, she brought the car to the Philippines.
Warner Feist, who pretended to be a wealthy man, offered
to buy Trinidads car for P15,000, and Tagatac was amenable to the
idea. Hnece, a deed of sale was exceuted.
Feist paid by means of a postdated check, and the car was
delivered to Feist. However, PNB refused to honor the checks and told
her that Feist had no account in said bank.
Tagatac notified the law enforcement agencies of the estafa
committed by Feist, but the latter was not apprehended and the car
disappeared.
Meanwhile, Feist managed succeeded in having the cars
registration certificate (RC) transferred in his name. He sold the car to
Sanchez, who was able to transfer the registration certificate to his
name.
Sanchez then offered to sell the car to defendant Liberato
Jimenez, who bought the car for P10,000 after investigating in the
Motor Vehicles Office.
Tagatac discovered that the car was in California Car
Exchanges (place where Jimenez displayed the car for sale), so she
demanded from the manager for the delivery of the car, but the latter
refused.
Tagatac filed a suit for the recovery of the cars possession,
and the sheriff, pursuant to a warrant of seizure that Tagatac obtained,
seized and impounded the car, but it was delivered back to Jimenez
upon his filing of a counter-bond.
The lower court held that Jimenez had the right of
ownership and possession over the car.
Issue:
WON Jimenez was a purchaser in good faith and thus
entitled to the ownership and possession of the car. YES
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Held:
It must be noted that Tagactac was not unlawfully deprived
of his car.
In this case, there is a valid transmission of ownership from
true owner [Tagatac] to the swindler [Feist], considering that they had
a contract of sale (note: but such sale is voidable for the fraud and
deceit by Feist).
The disputable presumption that a person found in
possession of a thing taken in the doing of a recent wrongful act is the
taker and the doer of the whole act does NOT apply in this case
because the car was not stolen from Tagatac, and Jimenez came into
possession of the car two months after Feist swindled Tagatac.
Jimenez was a purchaser in good faith for he was not aware
of any flaw invalidating the title from the seller of the car
In addition, when Jimenez acquired the car, he had no
knowledge of any flaw in the title of the person from whom he
acquired it. It was only later that he became fully aware that there
were some questions regarding the car, when he filed a petition to
dissolve Tagatacs search warrant which had as its subject the car in
question.
The contract between Feist and Tagactac was a voidable
contract, it can be annulled or ratified
. . . The fraud and deceit practiced by Warner L. Feist
earmarks this sale as a voidable contract (Article 1390
N.C.C.). Being a voidable contract, it is susceptible of either
ratification or annulment.
If the contract is ratified, the action to annul it is
extinguished (Article 1392, N.C.C.) and the contract is cleansed from
all its defects (Article 1396, N.C.C.); if the contract is annulled, the
contracting parties are restored to their respective situations before
the contract and mutual restitution follows as a consequence (Article
1398, N.C.C.).
Being a voidable contract, it remains valid and binding until
annulled
However, as long as no action is taken by the party entitled,
either that of annulment or of ratification, the contract of sale remains
valid and binding. When plaintiff-appellant Trinidad C. Tagatac
delivered the car to Feist by virtue of said voidable contract of sale,
the title to the car passed to Feist. Of course, the title that Feist
acquired was defective and voidable.
Nevertheless, at the time he sold the car to Felix Sanchez,
his title thereto had not been avoided and he therefore conferred a
good title on the latter, provided he bought the car in good faith, for
value and without notice of the defect in Feist's title (Article 1506,
N.C.C.). There being no proof on record that Felix Sanchez acted in bad
faith, it is safe to assume that he acted in good faith.
Aznar vs. Yapdiangco
Facts
Theodoro Santos advertised in the newspapers the
sale of his Ford Fairlane 500.
After the advertisement, a certain de Dios, claiming to be
the nephew of Vicente Marella, went to the residence of Santos and
expressed his uncles intent to purchase the car.
Since Santos wasn't around, it was Irineo (son of Theodoro)
who talked with de Dios. On being informed, Santos advised his son to
see Marella, which the son did.
Marella expressed his intention to purchase the car. A deed
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of sale was prepared and Irineo was instructed by his father not to
part with the deed and the car without receiving the purchase price
from Marella.
Upon arriving at the house of Vicente Marella, he said that
his money was short and that he had to borrow from his sister.
Marella then instructed de Dios and Irineo to go the
supposed house of the sister to obtain the money with an unidentified
person.
He also asked Irineo to leave the deed to have his lawyer see
it. Relying on the good faith of Marella, Irineo did as requested.
Upon arriving at the house of Marellas supposed to be
sister, de Dios and the unidentified person then disappeared together
with the car. Santos reported the incident to the authorities.
Thereafter, Marella was able to sell the land to Aznar. While
in possession of the car, police authorities confiscated the same from
him.
Aznar filed an action for replevin (to recover the car).
Claiming ownership of the vehicle, he prayed for its delivery to him.
In the course of the litigation, however, Teodoro Santos
moved and was allowed to intervene by the lower court.
Lower court ruled in favor of Teodoro Santos saying that he
has been unlawfully deprived of his car and he retains ownership of
the same.
Issue
Between Teodoro Santos and the plaintiff-appellant, Jose B.
Aznar, who has a better right to the possession of the disputed
automobile?
Ruling
Teodoro Santos.
Under Article 1506, it is essential that the seller should have
a voidable title at least. It is very clearly inapplicable where, as in this
case, the seller had no title at all.
Vicente Marella did not have any title to the property under
litigation because the same was never delivered to him. He sought
ownership or acquisition of it by virtue of the contract. Vicente
Marella could have acquired ownership or title to the subject matter
thereof only by the delivery or tradition of the car to him.
Under Article 712 of the Civil Code, "ownership and other
real rights over property are acquired and transmitted by law, by
donation, by testate and intestate succession, and in consequence of
certain contracts, by tradition." As interpreted by this Court in a host
of cases, by this provision, ownership is not transferred by contract
merely but by tradition or delivery. Contracts only constitute titles or
rights to the transfer or acquisition of ownership, while delivery or
tradition is the mode of accomplishing the same
In the case on hand, the car in question was never delivered
to the vendee by the vendor as to complete or consummate the
transfer of ownership by virtue of the contract. It should be recalled
that while there was indeed a contract of sale between Vicente
Marella and Teodoro Santos, the former, as vendee, took possession
of the subject matter thereof by stealing the same while it was in the
custody of the latter's son.
There is no adequate evidence on record as to whether
Irineo Santos voluntarily delivered the key to the car to the
unidentified person who went with him and L. De Dios to the place on
Azcarraga where a sister of Marella allegedly lived. But even if Irineo
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Santos did, it was not the delivery contemplated by Article 712 of the
Civil Code. For then, it would be indisputable that he turned it over to
the unidentified companion only so that he may drive Irineo Santos
and De Dios to the said place on Azcarraga and not to vest the title to
the said vehicle to him as agent of Vicente Marella. Article 712 above
contemplates that the act be coupled with the intent of delivering the
thing.
The lower court was correct in applying Article 559 of the
Civil Code to the case at bar, for under it, the rule is to the effect that
if the owner has lost a thing, or if he has been unlawfully deprived of
it, he has a right to recover it, not only from the finder, thief or robber,
but also from third persons who may have acquired it in good faith
from such finder, thief or robber. The said article establishes two
exceptions to the general rule of irrevindicability, to wit, when the
owner (1) has lost the thing, or (2) has been unlawfully deprived
thereof. In these cases, the possessor cannot retain the thing as
against the owner, who may recover it without paying any indemnity,
except when the possessor acquired it in a public sale.
Finally, the plaintiff-appellant here contends that inasmuch
as it was the intervenor-appellee who had caused the fraud to be
perpetrated by his misplaced confidence on Vicente Marella, he, the
intervenor-appellee, should be made to suffer the consequences
arising therefrom, following the equitable principle to that effect.
Suffice it to say in this regard that the right of the owner to recover
personal property acquired in good faith by another, is based on his
being dispossessed without his consent. The common law principle
that where one of two innocent persons must suffer by a fraud
perpetrated by another, the law imposes the loss upon the party who,
by his misplaced confidence, has enabled the fraud to be committed,
cannot be applied in a case which is covered by an express provision
of the new Civil Code, specifically Article 559. Between a common law
principle and a statutory provision, the latter must prevail in this
jurisdiction. (Cruz v. Pahati, supra)
EDCA vs. Santos
Facts
A person identifying himself as Professor Cruz placed an
order by telephone with the petitioner for 406 books, payable on
delivery. Upon delivery, Cruz issued a check covering the purchase
price of P8,995.65. On October 7, 1981, Cruz sold 120 of the books to
private respondent Leonor Santos who, after verifying the seller's
ownership from the invoice he showed her, paid him P1,700.00.
EDCA made inquiries with the De la Salle College where he
had claimed to be a dean and was informed that there was no such
person in its employ. EDCA then went to the police, which set a trap
and arrested Cruz. Investigation disclosed his sale of 120 of the books
he had ordered from EDCA to the private respondents.
It is the contention of the petitioner that the private
respondents have not established their ownership of the disputed
books because they have not even produced a receipt to prove they
had bought the stock. Petitioner further argues that it was, because
the impostor acquired no title to the books that he could have validly
transferred to the private respondents. Its reason is that as the
payment check bounced for lack of funds, there was a failure of
consideration that nullified the contract of sale between it and Cruz.
Issue:
W/N respondents had the better right over the books
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purchased by Cruz.
W/N Petitioner title was transferred to respondents
Held:
(1) Yes. Respondents acquired the books in good faith.
Leonor Santos first ascertained the ownership of the books from the
EDCA invoice showing that they had been sold to Cruz, who said he
was selling them for a discount because he was in financial need. To
Leonor Santos, Cruz must have been only one of the many such sellers
she was accustomed to dealing with. It is hardly bad faith for any one
in the business of buying and selling books to buy them at a discount
and resell them for a profit.
(2) Yes. The petitioner argues that it was, because the
impostor acquired no title to the books that he could have validly
transferred to the private respondents. Its reason is that as the
payment check bounced for lack of funds, there was a failure of
consideration that nullified the contract of sale between it and Cruz.
The contract of sale is consensual and is perfected once
agreement is reached between the parties on the subject matter and
the consideration.
Art. 1475. The contract of sale is perfected at the moment
there is a meeting of minds upon the thing which is the object of the
contract and upon the price.
From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form
of contracts.
Art. 1477. The ownership of the thing sold shall be
transferred to the vendee upon the actual or constructive delivery
thereof.
Art. 1478. The parties may stipulate that ownership in the
thing shall not pass to the purchaser until he has fully paid the price.
It is clear from the above provisions, particularly the last one
quoted, that ownership in the thing sold shall not pass to the buyer
until full payment of the purchase only if there is a stipulation to that
effect. Otherwise, the rule is that such ownership shall pass from the
vendor to the vendee upon the actual or constructive delivery of the
thing sold even if the purchase price has not yet been paid.
Non-payment only creates a right to demand payment or to
rescind the contract, or to criminal prosecution in the case of
bouncing checks. But absent the stipulation above noted, delivery of
the thing sold will effectively transfer ownership to the buyer who can
in turn transfer it to another.
Actual delivery of the books having been made, Cruz
acquired ownership over the books which he could then validly
transfer to the private respondents. The fact that he had not yet paid
for them to EDCA was a matter between him and EDCA and did not
impair the title acquired by the private respondents to the books.
One may well imagine the adverse consequences if the
phrase "unlawfully deprived" were to be interpreted in the manner
suggested by the petitioner. A person relying on the seller's title who
buys a movable property from him would have to surrender it to
another person claiming to be the original owner who had not yet
been paid the purchase price therefor. The buyer in the second sale
would be left holding the bag, so to speak, and would be compelled to
return the thing bought by him in good faith without even the right to
reimbursement of the amount he had paid for it.
It bears repeating that in the case before us, Leonor Santos
took care to ascertain first that the books belonged to Cruz before she
agreed to purchase them. The EDCA invoice Cruz showed her assured
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her that the books had been paid for on delivery. By contrast, EDCA could be liable for any such deterioration. If there are fruits or additions
was less than cautious in fact, too trusting in dealing with the to the property through the effort, work or expense of the debtor, then
impostor. Although it had never transacted with him before, it readily the creditor can employ the right of usufruct over the property. So
delivered the books he had ordered (by telephone) and as readily that's what you have discussed under 1189. That's not far from what we
accepted his personal check in payment. It did not verify his identity had in a contract of sale.
although it was easy enough to do this. It did not wait to clear the
check of this unknown drawer. Worse, it indicated in the sales invoice BEFORE PERFECTION
issued to him, by the printed terms thereon, that the books had been
paid for on delivery, thereby vesting ownership in the buyer. Before the perfection of a sale, the rules on loss,
While we sympathize with the petitioner for its plight, it is deterioration, fruits and improvement of the purported subject matter
clear that its remedy is not against the private respondents but against are the same: such loss, deterioration, fruits and improvements shall
Tomas de la Pea, who has apparently caused all this trouble. The pertain to the purported SELLER, since he owns the thing.
private respondents have themselves been unduly inconvenienced, Notwithstanding the extent of the negotiations that have taken place,
and for merely transacting a customary deal not really unusual in their prior to perfection, the purported subject matter bears no legal or even
kind of business. It is they and not EDCA who have a right to complain. equitable relationship to the purported buyer, and therefore no
assumption or risk or loss or deterioration can be ascribed to the latter.
Discussion
The possession of a movable property in good faith is AT THE TIME OF PERFECTION
equivalent to title. In this case, books were actually delivered to Cruz,
therefore, he acquired thereof. The fact that he had not yet paid for the
Article 1493. If at the time the contract of sale is perfected,
books for EDCA did not impair his ownership over the books. Therefore,
the thing which is the object of the contract has been entirely lost, the
when Cruz sold and delivered his books to Santos, there was a valid
contract shall be without any effect.
transfer of ownership. Santos was an innocent purchaser in good faith
But if the thing should have been lost in part only, the VENDEE
because he first ascertained that the books belonged to Cruz which was
(BUYER) may choose between
evidenced by the invoiced issued in favour of Cruz. The sales invoice
(a) withdrawing from the contract and
showed that the books were sold on delivery. Thereby, vesting
(b) demanding the remaining part, paying its price in proportion to the
ownership in the buyer.
total sum agreed upon.
The sales invoice issued have been paid for by delivery
thereby vesting ownership to the buyer.
Article 1494. Where the parties purport a sale of specific
So take note of the disctinctions between or among these
goods, and the goods without the knowledge of the seller have perished
three instances. Again, as we have mentioned,
in part or have wholly or in a material part so deteriorated in quality as
1. even if the seller is not the owner at the time of perfection,
to be substantially changed in character, the BUYER may at his option
the sale is valid.
treat the sale as either avoided; or as valid in all of the existing goods or
2. If he is not the owner at the time of delivery, we apply Article
in so much thereof as have not deteriorated, and as binding the buyer
1505, the buyer does not acquire a better title over the
to pay the agreed price for the goods in which the ownership will pass,
subject matter unless we apply any of the exceptions
if the sale was divisible.
mentioned therein.
3. If the seller is not the owner at the time of delivery but
So here, you have Articles 1493 and 1494 as your guide in
subsequently acquires title thereto, we apply Article 1434. By
applying the previous provisions under your Obligations and
operation of law, title passes to the buyer.
Contracts.
----------------------------------
If the loss happened at the time of perfection, so wala pa
itong delivery, the general rule is res perit domino, seller
bears the loss.
But under Article 1493, what happens to the contract? The
LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS
contract shall be without any effect. That means the contract
is inefficacious. Why? Because loss of the subject matter does
not affect the validity of the sale. It just so happens that it
We now proceed to loss, deterioration, fruits and other
cannot take effect because the thing was lost without the
benefits.
fault of the parties at the time of perfection.
Actually we apply the same provisions that you have already
Like for example, you entered into a contract of sale of a
discussed in your Obligations and Contracts under Article 1189.
vessel or ship. You didn't know that at the time you entered
As a general rule, with regard to who bears the loss, we apply
into the conract, nasira na pala ang ship or nasunog in the
the principle res perit domino or owner bears the loss.
middle of the sea. So at that instance, it is inefficacious
With regard to deterioration, who will suffer the deterioration
because the seller cannot anymore comply with the
if it is without the fault of the debtor, then the creditor will suffer. This
obligation and therefor the buyer cannot be compelled to
is also a disadvantage becausefor any benefit without the effort of the
perform his obligation to pay the price.
debtor under 1189, the creditor will get the benefit. But of course, if
the deterioration was due to the fault of the debtor, then the debtor If the subject matter is lost at the point of perfection, and the

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seller bears the loss and the buyer is relieved of his obligation
under the contract, then the implication is that after
perfection, the buyer then bears the risk of loss and
deterioration even without prior delivery to him.
AFTER PERFECTION BUT BEFORE DELIVERY
What if loss happened after the perfection of the sale but
before delivery? The seller bears the loss because again, there is no
transfer yet of ownership. But with regard to deterioration and the
fruits, the buyer will have to bear the loss.
LOSS OF SUBJECT MATTER
General Rule:
Article 1477. The ownership of the thing sold shall be
transferred to the VENDEE (BUYER) upon the actual or constructive
delivery thereof.
Exception:
The risk of loss is borne by the SELER under the rule of res
perit domino.
Article 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.
Article 1480. Any injury to or benefit from the thing sold, after
the contract has been perfected, from the moment of the perfection of
the contract to the time of delivery, shall be governed by articles 1163
to 1165, and 1262.
Article 1163. Every person obliged to give
something is also obliged to take care of it with the proper
diligence of a good father of a family, unless the law or the
stipulation of the parties requires another standard of care.
Article 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to make
the delivery
Article 1262. An obligation which consists in the
delivery of a determinate thing shall be extinguished if it
should be lost or destroyed without the fault of the debtor,
and before he has incurred in delay.
Article 1538. In case of loss, deterioration or improvement of
the thing before its delivery, the rules in article 1189 shall be observed,
the vendor being considered the debtor.
Article 1189. When the conditions have been imposed
with the intention of suspending the efficacy of an obligation
to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the
pendency of the condition:
1) If the thing is lost without the fault of the debtor,
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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;
DETERIORATION, FRUITS AND IMPROVEMENTS
Article 1538. In case of loss, deterioration or improvement of
the thing before its delivery, the rules in article 1189 shall be observed,
the vendor being considered the debtor
Article 1189. When the conditions have been imposed with
the intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of deterioration of the thing
during the pendency of the condition:
1. When the thing deteriorates without the fault of the debtor,
the impairment is to be borne by the creditor;
2. 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;
3. If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
4. If it is improved at the expense of the debtor, he shall have no
other right than that granted to the usufructuary.
Article 1480. Any injury to or benefit from the thing sold, after
the contract has been perfected, from the moment of the perfection of
the contract to the time of delivery, shall be governed by articles 1163
to 1165, and 1262.
This rule shall apply to the sale of fungible things, made
independently and for a single price, or without consideration of their
weight, number, or measure.
Should fungible things be sold for a price fixed according to
weight, number, or measure, the risk shall not be imputed to the vendee
until they have been weighed, counted, or measured and delivered,
unless the latter has incurred in delay.
Article 1537. The vendor is bound to deliver the thing sold and
its accessions and accessories in the condition in which they were upon
the perfection of the contract.
All the fruits shall pertain to the vendee from the day on
which the contract was perfected.
AFTER DELIVERY
If the loss happened after perfection and after delivery, we go
back to res perit domino. Delivery extinguishes ownership of the owner
and creates a new one in favor of the buyer.
Article 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
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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.
STRUCTURING PROPER DOCTRINE ON LOSS, DETERIORATION, FRUITS
AND IMPROVEMENTS
Prior to Perfection
Both title and beneficial interests pertain to the SELLER and
therefore he must bear the rish of loss, deterioration, and
benefits from the fruits and improvements.
The buyer has no risk or participation in any of those aspects
since neither title nor beneficial interest over the subject
matter pertains to him, as in fact there is no legal relationship
that exists at that point between him and the seller on the
subject matter of the would-be sale, even assuming
negotiation was in the process.
After Delivery
The BUYER bears both the risk of loss and deterioration, as
well as benefits from the fruits and improvements of the
subject matter of sale.
Neither title nor beneficial interests pertain to the seller and
therefore he ceases to have any legal relation to the subject
matter and should not be affected by anything that may
happen to the subject matter without his fault.
After Perfection and Before Delivery
The title and beneficial interests actually do not pertain to the
same person.
The title remains with the SELLER but beneficial interest
actually pertain to the BUYER.
1. Article 1163. Every person obliged to give something is also
obliged to take care of it with the proper diligence of a good
father of a family, unless the law or the stipulation of the
parties requires another standard of care.
2. Article 1164. The creditor has a right to the fruits of the thing
from the time the obligation to deliver it arises. However, he
shall acquire no real right over it until the same has been
delivered to him.
3. Article 1165 and 1170. When what is to be delivered is a
determinate thing, the obligor who incurs fraud, negligence,
or delay, or contravene the tenor of their agreement, are
liable for damages.
4. Article 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and accessories,
even though they may not have been mentioned.
Chrysler vs. CA and Sambok Motors Bacolod
Facts
OnOctober 2, 1970, Sambok, Bacolod, ordered from
petitioner various automotive products worth P30,909.61, payable in
45 days
On November 25, 1970, petitioner delivered said products
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to its forwarding agent, Allied Brokerage Corporation, for shipment;
that Allied Brokerage loaded the goods on board the M/S Doa
Florentina, a vessel owned and operated by Negros Navigation
Company, for delivery to Sambok, Bacolod. When petitioner tried to
collect from the latter the amount of P31,037.56, representing the
price of the spare parts plus handling charges, Sambok, Bacolod,
refused to pay claiming that it had not received the merchandise
Petitioner also demanded the return of the merchandise or
their value from Allied Brokerage and Negros Navigation, but both
denied any liability.
On September 7, 1972, petitioner filed with the Court of
First Instance of Rizal, Branch XX, Pasig, Rizal, a Complaint for
Damages against Allied Brokerage Corporation, Negros Navigation
Company and Sambok, Bacolod.
In its Answer, Sambok, Bacolod, denied having received from
petitioner or from any of its co-defendants, the automotive products
referred to in the Complaint, and professed no knowledge of having
ordered from petitioner said articles.
Issue
Whether or not the act of the private respondent in refusing to take
delivery of the automotive spare parts that it purchased from the
petitioner after having been notified of the shipment constitutes
wrongful neglect resulting in the loss of the cargo for which it should
be liable in damages to the petitioner.
Ruling
NO.
The matter of misdelivery is not the decisive factor for
relieving Sambok, Bacolod, of liability herein. While it may be that the
Parts Order Form specifically indicated Iloilo as the destination, as
testified to by Ernesto Ordonez, Parts Sales Representative of
petitioner, Sambok, Bacolod, and Sambok, Iloilo, are actually one. In
fact, admittedly, the order for spare parts was made by the President
of Sambok, Pepito Ng, through its marketing consultant.
Notwithstanding, upon receipt of the Bill of Lading, Sambok, Bacolod,
initiated, but did not pursue, steps to take delivery as they were
advised by Negros Navigation that because some parts were missing.
they would just be informed as soon as the missing parts were
located.
It was only four years later, however, or in 1974, when a
warehouseman of Negros Navigation, Severino Aguarte, found in their
off-shore bodega, parts of the shipment.- in question, but already
deteriorated and valueless.
Under the circumstances, Sambok, Bacolod, cannot be
faulted for not accepting or refusing to accept the shipment from
Negros Navigation four years after shipment. The evidence is clear
that Negros Navigation could not produce the merchandise nor
ascertain its whereabouts at the time Sambok, Bacolod, was ready to
take delivery. Where the seller delivers to the buyer a quantity of
goods less than he contracted to sell, the buyer may reject them.
From the evidentiary record, Negros Navigation was the
party negligent in failing to deliver the complete shipment either to
Sambok, Bacolod, or to Sambok, Iloilo, but as the Trial Court found,
petitioner failed to comply with the conditions precedent to the filing
of a judicial action. Thus, in the last analysis, it is petitioner that must
shoulder the resulting loss. The general rule that before, delivery, the
risk of loss is home by the seller who is still the owner, under the
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principle of "res petit domino", is applicable in petitioner's case.
In sum, the judgment of respondent Appellate Court, will
have to be sustained not on the basis of misdelivery but on non-
delivery since the merchandise was never placed in the control and
possession of Sambok, Bacolod, the vendee.
Discussion
So here, there was no misdelivery but rather non-delivery.
Why? Because the merchandise was never placed in the control and
possession of Sambok, the vendee.
Kelan mag apply ang general rule here that delivery to the
carrier is delivery to the buyer? Precisely because of the arrangement
between the parties that delivery be made to Sambok Bacolod.
Moreover, very relevant also in this case is that delivery was
made only after 4 years. When the warehouseman of Negros
Navigation found the parts of the shipment already deteriorated and
devaluated. Spareparts where initially delivered but they were advised
that some were missing. The missing parts were located only 4 years
thereafter. Sambok Bacolod therefore cannot be faulted for not
accepting or refusing to accept the shipment from Negros Navigation 4
years after shipment.
Where the seller delivers to the buyer quantity of goods less
than what was contracted by the parties, the buyer may reject them. To
which, we apply again the general principle of res perit domino. The risk
of loss is borne by the seller who is still the owner since there was yet
no delivery to transfer ownership in favor of the buyer Sambok.
----------------------------------
Lawyers Coop vs. Tabora
Facts
On May 3, 1955, Perfecto A. Tabora bought from the
Lawyers Cooperative Publishing Company 1 complete set of American
Jurisprudence consisting of 48 volumes with 1954 pocket parts, plus 1
set of American Jurisprudence, General Index, consisting of 4 volumes,
for a total price of P1,675.50 which, in addition to the cost of freight
of P6.90, makes a total of P1,682.40. Tabora made a partial payment
of P300.00, leaving a balance of P1,382.40. The books were duly
delivered and receipted for by Tabora on May 15, 1955 in his law
office Ignacio Building, Naga City.
In the midnight of the same date, however, a big fire broke
out in that locality which destroyed and burned all the buildings
standing on one whole block including at the law office and library of
Tabora As a result, the books bought from the company as above
stated, together with Tabora's important documents and papers, were
burned during the conflagration. This unfortunate event was
immediately reported by Tabora to the company in a letter he sent on
May 20, 1955. On May 23, the company replied and as a token of
goodwill it sent to Tabora free of charge volumes 75, 76, 77 and 78 of
the Philippine Reports.
As Tabora failed to pay he monthly installments agreed upon
on the balance of the purchase price notwithstanding the long time
that had elapsed, the company demanded payment of the
installments due, and having failed, to pay the same, it commenced
the present action before the Court of First Instance of Manila for the
recovery of the balance of the obligation. Plaintiff also prayed that
defendant be ordered to pay 25% of the amount due as liquidated
damages, and the cost of action.
Defendant, in his answer, pleaded force majeure as a
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defense. He alleged that the books bought from the plaintiff were
burned during the fire that broke out in Naga City on May 15, 1955,
and since the loss was due to force majeure he cannot be held
responsible for the loss.
Issue
Whether or not appellee Lawyers Cooperative should be the one to
bear the loss for the loss is always borne by the owner.
Ruling
NO.
While as a rule the loss of the object of the contract of sale
is borne by the owner or in case of force majeure the one under
obligation to deliver the object is exempt from liability, the application
of that rule does not here obtain because the law on the contract
entered into on the matter argues against it. It is true that in the
contract entered into between the parties the seller agreed that the
ownership of the books shall remain with it until the purchase price
shall have been fully paid, but such stipulation cannot make the seller
liable in case of loss not only because such was agreed merely to
secure the performance by the buyer of his obligation but in the very
contract it was expressly agreed that the "loss or damage to the books
after delivery to the buyer shall be borne by the buyer." Any such
stipulation is sanctioned by Article 1504 of our Civil Code, which in
part provides:
(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.
Neither can appellant find comfort in the claim that since
the books were destroyed by fire without any fault on his part he
should be relieved from the resultant obligation under the rule that an
obligor should be held exempt from liability when the loss occurs thru
a fortuitous event. This is because this rule only holds true when the
obligation consists in the delivery of a determinate thing and there is
no stipulation holding him liable even in case of fortuitous event. Here
these qualifications are not present. The obligation does not refer to a
determinate thing, but is pecuniary in nature, and the obligor bound
himself to assume the loss after the delivery of the goods to him. In
other words, the obligor agreed to assume any risk concerning the
goods from the time of their delivery, which is an exception to the rule
provided for in Article 1262 of our Civil Code.
Discussion
First thing we have to take note here is the stipulation in the
contract:
Title and ownership of the books shall remain with
the seller until the purchase price have been fully paid. Loss
and damage to the goods after delivery to the buyer shall be
borne by the buyer.
So with that, it's very clear that Tabora will be the one liable
for the loss. The loss is not even the fault of Tabora and of Lawyer's
Coop. And by virtue of that provision, Tabora will still be liable to pay
the balance of the purchase price even if the loss of the goods was due
to force majeure.
While as a rule the loss of the object of the contract of sale is
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borne by the owner or in case of force majeure the one under
obligation to deliver the object is exempt from liability, the application
of that rule does not here obtain because of the stipulation by the
parties in the contract. Such stipulation cannot make the seller liable in
case of loss because it was expressly agreed that the loss or damage to
the books after delivery to the buyer shall be borne by the buyer. Any
stipulation is sanctioned by Article 1504.
Take note class that if walang ganyan na stipulation, we apply
the general rule na owner bears the loss. So who is the owner here?
Tabora. Why? Because there's already delivery.
Now what if wala yung 2nd phrase sa stipulation na Loss and
damage to the goods after delivery to the buyer shall be borne by the
buyer? Can we say that seller now bears the loss? The Supreme Court
took note of that. The seller cannot be made liable not only because it
was agreed to secure the performance of the buyer but because it was
also agreed that loss or damage shall be borne by the buyer after
delivery.
Also do take not that the obligation here does not refer to a
determinate thing. What is really the obligation of Tabora here? To pay
the price. The obligation to pay a sum of money. Which is a
indeterminate thing. Ang nawala is yung subject matter but the
obligation remains. So we only apply the loss of the thing rule which
will extinguish the obligation, if it refers to an obligation to deliver a
determinate thing.
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REMEDIES IN CASE OF BREACH
Article 1594. Actions for breach of the contract of sale of
goods shall be governed particularly by the provisions of this Chapter,
and as to matters not specifically provided for herein, by other
applicable provisions of this Title. (n)
In this chapter, very specific siya. It applies to goods lang.
A) ORDINARY REMEDIES OF SELLER
1) MOVABLES IN GENERAL
Article 1593. With respect to movable property, the rescission
of the sale shall of right take place in the interest of the vendor, if the
vendee, upon the expiration of the period fixed for the delivery of the
thing, should not have appeared to receive it, or, having appeared, he
should not have tendered the price at the same time, unless a longer
period has been stipulated for its payment.
In this provision, with regards to movable property, the
requirement to demand for rescission is not needed to
rescind the sale as long as the elements provided in this
article are present.
2) SALE OF GOODS
a) Non-Payment of Price by Buyer
Ownership Transferred to Buyer
Article 1595, par. 1. Where, under a contract of
sale, the ownership of the goods has passed to the buyer and
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he wrongfully neglects or refuses to pay for the goods
according to the terms of the contract of sale, the seller may
maintain an action against him for the price of the goods.
When Price Payable on Certain Day
Article 1595, par. 2. Where, under a contract of
sale, the price is payable on a certain day, irrespective of
delivery or of transfer of title and the buyer wrongfully
neglects or refuses to pay such price, the seller may maintain
an action for the price although the ownership in the goods
has not passed. But it shall be a defense to such an action
that the seller at any time before the judgment in such action
has manifested an inability to perform the contract of sale on
his part or an intention not to perform it.
This is in relation to the nature of a contract of sale
as a reciprocal contract. The seller cannot demand
from the buyer to pay the price if the seller himself
is unable to deliver the subject matter of the
contract of sale.
No Transfer of Ownership to Buyer
Article 1595, par. 3. Although the ownership in the
goods has not passed, if they cannot readily be resold for a
reasonable price, and if the provisions of article 1596, fourth
paragraph, are not applicable, the seller may offer to deliver
the goods to the buyer, and, if the buyer refuses to receive
them, may notify the buyer that the goods are thereafter held
by the seller as bailee for the buyer. Thereafter the seller may
treat the goods as the buyer's and may maintain an action for
the price.
b) When Buyer Wrongfully Neglects/Refuse to Accept Goods
Article 1596. Where the buyer wrongfully neglects
or refuses to accept and pay for the goods, the seller may
maintain an action against him for damages for
nonacceptance.
a) The measure of damages is the estimated loss directly
and naturally resulting in the ordinary course of events
from the buyer's breach of contract.
b) Where there is an available market for the goods in
question, the measure of damages is, in the absence of
special circumstances showing proximate damage of a
different amount, the difference between the contract
price and the market or current price at the time or times
when the goods ought to have been accepted, or, if no
time was fixed for acceptance, then at the time of the
refusal to accept.
c) If, while labor or expense of material amount is
necessary on the part of the seller to enable him to fulfill
his obligations under the contract of sale, the buyer
repudiates the contract or notifies the seller to proceed
no further therewith, the buyer shall be liable to the
seller for labor performed or expenses made before
receiving notice of the buyer's repudiation or
countermand.
d) The profit the seller would have made if the contract or
the sale had been fully performed shall be considered in
awarding the damages.
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This article tells us of the remedy available to the buyer in The purpose of the documents of title is used as an
case of breach of the buyer. evidence of control and possession of the goods
describes. It is a medium of transferring possession,
B) SPECIAL REMEDIES OF UNPAID SELLER OF GOODS control and even title of the goods described in
such document without having to undertake actual
delivery. (Ex. Warehouse Receipt, Bill of Warrants,
DEFINITION OF UNPAID SELLER
Bill of Lading, Quedan) In negotiable documents of
Article 1525. The seller of goods is deemed to be an unpaid
title, it may either be a bearer document or an
seller within the meaning of this Title:
order document. It is a bearer document, it may be
(1) When the whole of the price has not been paid or tendered;
negotiated by mere delivery because the one who is
(2) When a bill of exchange or other negotiable instrument has been
in possession of the document may claim the goods
received as conditional payment, and the condition on which it was
in the warehouse. An order document of title
received has been broken by reason of the dishonor of the instrument,
requires an indorsement of the document, which
the insolvency of the buyer, or otherwise.
you have to fix your signature and deliver it to the
proper party. If the goods referred in the title are
RIGHTS OF UNPAID SELLER
not stated that it will be delivered to the bearer or
1) Possessory Lien
to order of any person, then it is non-negotiable.
Article 1524. The vendor shall not be bound to deliver the
thing sold, if the vendee has not paid him the price, or if no period for
Article 1518. The validity of the negotiation of a
the payment has been fixed in the contract.
negotiable document of title is not impaired by the fact that
the negotiation was a breach of duty on the part of the
Article 1526. Subject to the provisions of this Title,
person making the negotiation, or by the fact that the owner
notwithstanding that the ownership in the goods may have passed to
of the document was deprived of the possession of the same
the buyer, the unpaid seller of goods, as such, has:
by loss, theft, fraud, accident, mistake, duress, or conversion,
(1) A lien on the goods or right to retain them for the price
if the person to whom the document was negotiated or a
while he is in possession of them;
person to whom the document was subsequently negotiated
Where the ownership in the goods has not passed to the
paid value therefor in good faith without notice of the breach
buyer, the unpaid seller has, in addition to his other remedies a right of
of duty, or loss, theft, fraud, accident, mistake, duress or
withholding delivery similar to and coextensive with his rights of lien
conversion.
and stoppage in transitu where the ownership has passed to the buyer.
Take note that what is required here is that you must be a
Article 1527. Subject to the provisions of this Title, the unpaid
buyer in good faith in order that the negotiation would
seller of goods who is in possession of them is entitled to retain
remain valid. The transferee now has a better title than the
possession of them until payment or tender of the price in the following
transferor.
cases, namely:
Negotiation gives a better right than assignment because an
1) Where the goods have been sold without any stipulation as to
assignee merely steps into the shoes of the assignor.
credit;
2) Where the goods have been sold on credit, but the term of credit
Article 1516. A person who for value negotiates or
has expired;
transfers a document of title by indorsement or delivery,
3) Where the buyer becomes insolvent.
including one who assigns for value a claim secured by a
document of title unless a contrary intention appears,
Note: Possessory Lien cannot be availed of by the seller if he
warrants:
does not have physical possession of the goods.
(1) That the document is genuine;
(2) That he has a legal right to negotiate or transfer it;
1. When Negotiable Document of Title Issued
(3) That he has knowledge of no fact which would impair the
Article 1535. Subject to the provisions of this Title,
validity or worth of the document; and
the unpaid seller's right of lien or stoppage in transitu is not
(4) That he has a right to transfer the title to the goods and
affected by any sale, or other disposition of the goods which
that the goods are merchantable or fit for a particular
the buyer may have made, unless the seller has assented
purpose, whenever such warranties would have been implied
thereto.
if the contract of the parties had been to transfer without a
If, however, a negotiable document of title has been
document of title the goods represented thereby.
issued for goods, no seller's lien or right of stoppage in
transitu shall defeat the right of any purchaser for value in
Article 1516 states the warranties over the negotiation or
good faith to whom such document has been negotiated,
transfers of document of title.
whether such negotiation be prior or subsequent to the
notification to the carrier, or other bailee who issued such In Article 1523, we have talked about delivery. It states that
document, of the seller's claim to a lien or right of stoppage in delivery to the carrier constitutes delivery to the buyer.
transitu. Unless, a different arrangement were agreed upon both
parties.

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2. When Part Delivery Effected
Article 1528. Where an unpaid seller has made part
delivery of the goods, he may exercise his right of lien on the
remainder, unless such part delivery has been made under
such circumstances as to show an intent to waive the lien or
right of retention.
3. Instances When Possessory Lien Lost
Article 1529. The unpaid seller of goods loses his
lien thereon:
1. When he delivers the goods to a carrier or other
bailee for the purpose of transmission to the buyer
without reserving the ownership in the goods or the
right to the possession thereof;
2. When the buyer or his agent lawfully obtains
possession of the goods;
3. By waiver thereof.
The unpaid seller of goods, having a lien thereon,
does not lose his lien by reason only that he has obtained
judgment or decree for the price of the goods.
2) Stoppage in Transitu
Article 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods may have passed to
the buyer, the unpaid seller of goods, as such, has:
(2) In case of the insolvency of the buyer, a right of
stopping the goods in transitu after he has parted with the possession
of them;
Article 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.
Article 1535, par. 1. Subject to the provisions of this Title, the
unpaid seller's right of lien or stoppage in transitu is not affected by any
sale, or other disposition of the goods which the buyer may have made,
unless the seller has assented thereto.
a) When Negotiable Document of Title Issued
Article 1535, par. 2. If, however, a negotiable
document of title has been issued for goods, no seller's lien or
right of stoppage in transitu shall defeat the right of any
purchaser for value in good faith to whom such document has
been negotiated, whether such negotiation be prior or
subsequent to the notification to the carrier, or other bailee
who issued such document, of the seller's claim to a lien or
right of stoppage in transitu.
b) When Buyer is Deemed Insolvent
Article 1636 (2). A person is insolvent within the
meaning of this Title who either has ceased to pay his debts in
the ordinary course of business or cannot pay his debts as
they become due, whether insolvency proceedings have been
commenced or not.
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c) When Goods are Deemed In Transit
Article 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.
d) When Goods are Deemed No Longer in Transit
Article 1531. Goods are no longer in transit within
the meaning of the preceding article:
If the buyer, or his agent in that behalf, obtains delivery
of the goods before their arrival at the appointed
destination;
If, after the arrival of the goods at the appointed
destination, the carrier or other bailee acknowledges to
the buyer or his agent that he holds the goods on his
behalf and continues in possession of them as bailee for
the buyer or his agent; and it is immaterial that further
destination for the goods may have been indicated by
the buyer;
If the carrier or other bailee wrongfully refuses to deliver
the goods to the buyer or his agent in that behalf.
If the goods are delivered to a ship, freight train, truck,
or airplane chartered by the buyer, it is a question depending
on the circumstances of the particular case, whether they are
in the possession of the carrier as such or as agent of the
buyer.
e) When Part Delivery Already Made
Article 1531. If part delivery of the goods has been
made to the buyer, or his agent in that behalf, the remainder
of the goods may be stopped in transitu, unless such part
delivery has been under such circumstances as to show an
agreement with the buyer to give up possession of the whole
of the goods.
f) How Right is Exercised
Article 1532. The unpaid seller may exercise his
right of stoppage in transitu either by
1. obtaining actual possession of the goods or
2. by giving notice of his claim to the carrier or other bailee
in whose possession the goods are. Such notice may be
given either to the person in actual possession of the
goods or to his principal. In the latter case the notice, to
be effectual, must be given at such time and under such
circumstances that the principal, by the exercise of
reasonable diligence, may prevent a delivery to the
buyer.
When notice of stoppage in transitu is given by the
seller to the carrier, or other bailee in possession of the goods,
he must redeliver the goods to, or according to the directions
of, the seller. The expenses of such delivery must be borne by
the seller.
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circumstances or requisites to consider before one can avail of the

g) When Goods Covered by Negotiable Document of Title special remedies of an unpaid seller.
Article 1532. If, however, a negotiable document of
title representing the goods has been issued by the carrier or
other bailee, he shall not be obliged to deliver or justified in 3) Special Right of Resale
delivering the goods to the seller unless such document is first Article 1526. Subject to the provisions of this Title,
surrendered for cancellation. notwithstanding that the ownership in the goods may have passed to
o It is only when the unpaid seller has exercised either his right the buyer, the unpaid seller of goods, as such, has:
of possessory lien or his right of stoppage in transit that he (3) A right of resale as limited by this Title;
can then proceed with his other special rights of resale or to
rescind. a) When Right Exercisable
Article 1533.
Whats the difference between Stoppage in Tansitu and Possessory 1. Where the goods are of perishable nature, or
Lien? 2. where the seller expressly reserves the right of
Stoppage in Transitu Possessory Lien resale in case the buyer should make default, or
Goods are no longer in sellers Good are still in the possession 3. where the buyer has been in default in the payment
possession of the seller of the price for an unreasonable time,
Instance: Buyer is already insolvent Instances: 4. an unpaid seller having a right of lien or having
(1) Where the goods stopped the goods in transitu may resell the goods.
have been sold without
any stipulation as to Note: This special right of resale can be resorted to by the unpaid
credit; seller only after he has exercised either possessory lien or
(2) Where the goods stoppage in transitu.
have been sold on credit,
but the term of credit has b) Effect of Having Exercised Right of Resale
expired; Article 1533. He shall not thereafter be liable to the
(3) Where the buyer original buyer upon the contract of sale or for any profit made
becomes insolvent. by such resale, but may recover from the buyer damages for
Requisites: Requisites: any loss occasioned by the breach of the contract of sale.
(a) Insolvent buyer (1) Any of the instances
above c) Transfer of Ownership
(b) Seller must Surrender
Article 1533, par. 2. Where a resale is made, as
the negotiable document of (2) Seller is in possession
authorized in this article, the buyer acquires a good title as
title, if any of the goods
against the original buyer.
(c) Seller must bear the notwithstanding that he is
Expenses of delivery of the in possession of the goods
d) Notice to Defaulting Buyer
goods after the exercise of as agent or bailee for the
Article 1533, par. 3. It is not essential to the validity
the right. buyer
of resale that notice of an intention to resell the goods be
(d) Seller must either
given by the seller to the original buyer. But where the right to
actually take possession of
resell is not based on the perishable nature of the goods or
the goods sold or give Notice
upon an express provision of the contract of sale, the giving or
of his claim to the carrier or
failure to give such notice shall be relevant in any issue
other person in possession
involving the question whether the buyer had been in default
(e) Goods must be in Transit
for an unreasonable time before the resale was made.
(f) Unpaid seller
Article 1533, par. 4. It is not essential to the validity
What happens if the buyer sells the goods while in transit? of a resale that notice of the time and place of such resale
The sale is valid if all the essential elements of sale are should be given by the seller to the original buyer.
present. Remember that ownership of the thing sold is not
required at the perfection of the sale. e) Standard of Care and Disqualification in Resale
The sellers right to stoppage in transitu is not affected. Article 1533, par. 5. The seller is bound to exercise
If, however, a negotiable document of title has been issued for reasonable care and judgment in making a resale, and subject
goods, no sellers lien or right of stoppage in transitu shall defeat to this requirement may make a resale either by public or
the right of any innocent purchaser for value private sale. He cannot, however, directly or indirectly buy the
goods.
Note: These remedies are not alternative in nature. In fact, we can say
that we apply hierarchy here. It is because this special right to rescind f) What makes the special right of resale and special right to
and special right to resale can only be availed of if either of these two rescind special?
(possessory lien or stoppage in transitu) are present. There are special Resale - The seller can do things which are not available in

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other ordinary contracts of sale. Notice that it is possible
ownership has already been delivered to the buyer.
Nevertheless, the seller is given the right to resell the goods
subject to the contract. This remedy is available regardless of
transfer of ownership. Remember, ownership can be
transferred through constructive delivery.
Rescind The sell can rescind the contract as well as the title
of the buyer. Title accorded to the buyer is rescinded even
without court intervention.
4) Special Right to Rescind
Article 1526. Subject to the provisions of this Title,
notwithstanding that the ownership in the goods may have passed to
the buyer, the unpaid seller of goods, as such, has:
(4) A right to rescind the sale as likewise limited by this Title.
Note: This special right to rescind is not similar to the right of
rescission in obligations and contracts.
a) When Right May Be Exercised
Article 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,
1. where he expressly reserved the right to do so in case the
buyer should make default, or
2. where the buyer has been in default in the payment of the
price for an unreasonable time.
Note:
Notice that perishable in nature is not present. In special
right of resale, the mere fact that goods are perishable in
nature and all the other requisites are present, it can be
availed of. In special right to rescind, it is not required that the
goods are perishable in nature.
Is it possible that this remedy can be availed of even if the
goods are perishable in nature? Yes. If the buyer is in default
for an unreasonable length of time or that it is expressly
stipulated.
b) Effect of Exercise of Such Right
Article 1534. 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.
Note: What is the effect of the exercise of the special right to
rescind?
(1) The seller assumes ownership;
(2) The seller shall not be liable to the buyer; and
(3) The seller can recover damages. (See Article 1534, par. 1)
c) Transfer of Title
Article 1534, par. 2. 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
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the right of rescission was asserted.
Note: Is it necessary to notify the buyer that the seller is
exercising his special right to rescind? No. It becomes
necessary if the ground for the exercise of the special right to
rescind is that the buyer is in default for an unreasonable
amount of time. (See Article 1534, par. 2)
C) REMEDIES OF BUYER
1) Suspension of payments in Anticipation of Breach
Article 1590. Should the vendee be disturbed in the possession
or ownership of the thing acquired, or should he have reasonable
grounds to fear such disturbance, by a vindicatory action or a
foreclosure of mortgage, he may suspend the payment of the price until
the vendor has caused the disturbance or danger to cease, unless the
latter gives security for the return of the price in a proper case, or it has
been stipulated that, notwithstanding any such contingency, the vendee
shall be bound to make the payment. A mere act of trespass shall not
authorize the suspension of the payment of the price.
a) Remedy of Buyer for Pending Suit
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. (Adelfa Properties vs. CA)
2) Specific Performance with Damages for Failure of Seller to Deliver
Article 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 option of retaining the goods on payment of
damages.
The judgment or decree may be unconditional, or upon such
terms and conditions as to damages, payment of the price and
otherwise, as the court may deem just
3) PD 957 The Subdivision and Condominium Buyers' Protective
Decree
Section 23. Non-Forfeiture of Payments. No installment
payment made by a buyer in a subdivision or condominium project for
the lot or unit he contracted to buy shall be forfeited in favor of the
owner or developer when the buyer, after due notice to the owner or
developer, desists from further payment due to the failure of the owner
or developer to develop the subdivision or condominium project
according to the approved plans and within the time limit for complying
with the same. Such buyer may, at his option, be reimbursed the total
amount paid including amortization interests but excluding delinquency
interests, with interest thereon at the legal rate.
4) In Case of Breach of Warranty
Article 1599. Where there is a breach of warranty by the
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seller, the buyer may, at his election:
1) Accept or keep the goods and set up against the seller, the
breach of warranty by way of recoupment in diminution or
extinction of the price;
2) Accept or keep the goods and maintain an action against the
seller for damages for the breach of warranty;
3) Refuse to accept the goods, and maintain an action against
the seller for damages for the breach of warranty;
4) Rescind the contract of sale and refuse to receive the goods or
if the goods have already been received, return them or offer
to return them to the seller and recover the price or any part
thereof which has been paid.
When the buyer has claimed and been granted a remedy in anyone
of these ways, no other remedy can thereafter be granted, without
prejudice to the provisions of the second paragraph of article 1191.
D) RECTO LAW (PD 957): SALE OF MOVABLE ON INSTALLMENTS
1) Coverage of Law
Article 1484. In a contract of sale of personal property the
price of which is payable in installments, the vendor may exercise any of
the following remedies:
1. Exact fulfillment of the obligation, should the vendee fail to
pay;
2. Cancel the sale, should the vendee's failure to pay cover two
or more installments;
3. Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover two
or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void. (1454-
A-a)
When do we apply Article 1484?
(1) in contracts of sale
(2) of personal property
(3) on installments.
What are the options when the buyer fails to pay
the installments in sale of personal property?
1. Exact fulfillment; or
2. Cancel the sale (rescission) if the buyer fails to pay 2 or
more installments; or
3. Foreclose the chattel mortgage, if any has been
executed, with the limitation that the buyer fails to pay
at least 2 installments. In this case, the seller cannot sue
for any unpaid balance.
Rationale of Recto Law
The passage of the Recto Law was meant to remedy
the abuses committed in connection with the foreclosure of
chattel mortgages and to prevent mortagagees from seizing
the mortgaged property, buying it at foreclosure sale for a low
price and then bringing suit against the mortgagor for a
deficiency judgment. The invariable result of such a
procedure was that the mortgagor found himself minus the
property and still owing practically the full amount of his
original indebtedness.
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When is Sale on Installments?
Levy vs. Gervacio
Facts:
Levy Hermanos, Inc. (Levy for brevity) sold to Lazaro Blas Gervacio, a
Packard car. The latter, after making the initial payment, executed a
promissory note for the balance of P2,400, payable on or before June
15, 1937, with interest at 12% per annum; to secure the payment of
the note, he mortgaged said car to Levy Gervacio failed to pay the
note it its maturity. Levy foreclosed the mortgage and the car was sold
at public auction, at which plaintiff was the highest bidder for P1,800.
It brought an action to collect the balance P1,600 and interest (note
that P2,400 was the amount due from Gervacio).
Issue:
Whether or not the cash payment made by Gervacio should be
considered as an installment in order to bring the contract sued upon
within the ambit of Article 1454-A of the old Civil Code
Held:
No. Article 1454-A of the Civil Code reads as follows:
In a contract for the sale of personal property payable in
installments shall confer upon the vendor the right to cancel the sale
or foreclose the mortgage if one has been given on the property,
without reimbursement to the purchaser of the installments already
paid, if there be an agreement to this effect.
However, if the vendor has chosen to foreclose the mortgage
he shall have no further action against the purchaser for the recovery
of any unpaid balance owing by the same and any agreement to the
contrary shall be null and void.
In order to apply the provisions of article 1454-A of the old
Civil Code it must appear that there was a contract for the sale of
personal property payable in installments and that there has been a
failure to pay two or more installments. The contract in this case,
while a sale of personal property, is not, however, one on installments,
but on straight term, in which the balance, after payment of the initial
sum, should be paid in its totality at the time specified in the
promissory note. The transaction is not is not, therefore, the one
contemplated in Article 1454-A and accordingly the mortgagee is not
bound by the prohibition therein contained as to the right to the
recovery of the unpaid balance.
Discussion
Can we apply the Recto Law? No. The sale in this case is not a
sale on installments but on straight term.
What was the remedy sought here by the seller?
Foreclosure.
Can we apply the provision on Article 1484? No. For Article
1484 to apply in case of foreclosure, there must be failure to pay 2 or
more installments. In this case, only one installment is yet to be paid.
When do we consider a sale not on installments? The
contract, in the instant case, while a sale of personal property, is not,
however, one on installments, but on straight term, in which the
balance, after payment of the initial sum, should be paid in its totality
at the time specified in the promissory note.
What remedy can be availed here? Rescission under 1593:
ARTICLE 1593. With respect to movable property, the
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rescission of the sale shall of right take place in the interest of the
vendor, if the vendee, upon the expiration of the period fixed for the
delivery of the thing, should not have appeared to receive it, or, having
appeared, he should not have tendered the price at the same time,
unless a longer period has been stipulated for its payment. (1505)
Whether or not Gervacio is liable for the balance? Yes. The
transaction is not, therefore, the one contemplated in Act No. 4122
(now Article 1484) and accordingly the mortgagee is not bound by the
prohibition therein contained as to the right to the recovery of the
unpaid balance.
----------------------------------
Kinds of Sale Covered by Article 1484
1) Loans and Financing Transactions
The provisions of the Recto Law are applicable to
financing transactions derived or arising from sales of
movables on installments, even if the underlying contract at
issue is a loan because the promissory note had been
assigned or negotiated by the original seller.
In all other cases, where the financing transaction is
derived from a sale, the provisions of the Recto Law do not
apply.
2) Contracts of lease with option to purchase.
Article 1485. The preceding article shall be applied
to contracts purporting to be leases of personal property with
option to buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing.
Article 1486. In the cases referred to in the two
preceding articles, a stipulation that the installments or rents
paid shall not be returned to the vendee or lessee shall be
valid insofar as the same may not be unconscionable under
the circumstances. (n)
3) Contracts to Sell Movables Not Covered
When the contract governing the sale of movables is
a contract to sell, then the rules on rescission and substantial
breach are not applicable, since when the suspensive
condition upon which the contract is based fails to
materialize, it would extinguish the contract, and
consequently there is no contract to rescind. Nevertheless,
the provisions of Article 1597 would apply which would grant
the seller the right to rescind the contract by giving notice
of his election so to do to the buyer.
2) Remedies Provided Under Article 1484
1) Nature of Remedies under Article 1484
The remedies under Article 1484 have been
recognized as alternative, not cumulative, in that the exercise
of one would bar the exercise of others.
The remedies cannot also be pursued
simultaneously, as when a complaint is filed to exact
fulfillment of the obligation, to seize the property purchased
and to foreclose the mortgage executed thereof.
2) Two Groups of Barring Effects of Remedies
Vertical choice of remedies
Horizontal on the non-recovery of an unpaid balance when
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it comes to the remedies of rescission and foreclosure on
Tajanlangit vs. Southern Motors
FACTS:
Tajanlangit bought 2 tractors and a thresher from Southern
Motors. They executed a promissory note in payment thereof; it
contained an acceleration clause. Tajanlang it failed to pay any of the
stipulated installments. Thus, Southern Motors sued him on the PN.
The sheriff levied upon the properties of Tajanlangit (same
machineries) and sold them at a public auction to satisfy the debt.
Southern Motors now prayed for execution. Tajanlangit sought to
annul the writ of execution claiming that since Southern Motors
repossessed the machineries (mortgaged), he was therefore relieved
from liability on the balance of the purchase price.
ISSUE:
W/N Tajanlangit is relieved from his obligation topay
HELD:
NO. While it is true that the foreclosure on the chattel
mortgage on the thing sold bars further action for the recovery of the
balance of the purchase price, this does not apply in this case since
Southern did not foreclose on the mortgage but instead sued based
on the PNs exclusively. That being the case, it is not limited to the
proceeds of the sale on execution of the mortgaged goods and may
claim the balance from Tajanlangit.
Discussion
What was the complaint? What did the spouses issue here? A:
A promissory note.
Isnt it the action here was based on the promissory note?
They were suing for payment based on the promissory note in relation
to the sale. That is why the action is not cancellation but exact
fulfillment.
The balance is evidenced by that promissory note that they
have executed. What is the effect if the actual remedy availed of here is
exact fulfillment and not foreclosure?
Foreclosure of mortgage this remedy would be available
only when there is chattel mortgage executed, which is present in the
instant case. But the seller here did not choose to foreclose the
mortgage but rather sued the spouses for the promissory note issued in
relation to the sale. In other words, that was exact fulfillment.
It is true that there was a chattel mortgage on the goods sold.
But the Southern Motors elected to sue on the note exclusively, i.e. to
exact fulfillment of the obligation to pay. It had a right to select among
the three remedies established in Article 1484. In choosing to sue on
the note, it was not thereby limited to the proceeds of the sale, on
execution, of the mortgaged good.
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3) Remedy of Specific Performance
General Rule: When the seller has chosen specific
performance, he can no longer seek for rescission nor foreclosure of the
chattel mortgage constituted on the thing sold.
Exception: Even if the seller had chosen specific performance
but the same has become impossible, he may still choose rescission
pursuant to the provisions of Article 1191 of the Civil Code, which
provides that the non-defaulting party to a reciprocal obligation may
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also seek rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The seller is deemed to have chosen specific performance to
foreclose the resort to the other two remedies under Article 1484 when
he files an action in court for recovery.
A judgment in an action for specific performance may be
executed on all personal and real properties of the buyer which are not
exempt from execution and which are sufficient to satisfy such
judgment, which would include the subject matter of the sale upon
which payment is being sought.
4) Remedy of Rescission
General Rule:
When a seller chooses the remedy of rescission, then
generally he is under obligation to make restitution, which would
include the return of any amount of the purchase price that the buyer
may have paid.
Exception:
Article 1486. A stipulation that the installments or rents paid
shall not be returned to the vendee or lessee shall be valid insofar as the
same may not be unconscionable under the circumstances.
When Rescission is Deemed Chosen
The seller is deemed to have chosen the remedy of
rescission, and can no longer avail of the other 2 remedies
under Article 1484, when he has clearly indicated to end the
contract, such as when he sends a notice of rescission, or
takes possession of the subject matter of the sale, or when he
files an action for rescission.
Barring Effect of Rescission
The present version of the Recto Law under Article
1484 only provides for a barring on recovery of balance only
when it comes to the remedy of foreclosure.
Although no barring effect is expressly provided for
the remedy of rescission under the present language of
Article 1484 of the Civil Code, the same is implicit from the
nature of the remedy of rescission, which requires mutual
restitution. Under Article 1385 of the Civil Code, even a non-
defaulting party cannot seek rescission unless he is in a
position to return what he has received under the contract.
Delta Motor Sales vs. Niu Kim Duan
Facts:
On 5 July 1975, Niu Kim Duan and Chan Fue Eng
(defendants) purchased from Delta Motor Sales Corporation 3 units
of DAIKIN air-conditioner all valued at P19,350.00. The deed of sale
stipulates that the defendants shall pay a down payment of P774.00
and the balance of P18,576.00 shall be paid by them in 24
installments ; that the title to the properties purchased shall remain
with Delta Motors until the purchase price thereof is fully paid; that if
any two installments are not paid by the defendants on their due
dates, the whole of the principal sum remaining unpaid shall become
due, with interest
However, after paying the amount of P6,966.00, the
defendants failed to pay at least 2 monthly installments. s of 6
January 1977, the remaining unpaid obligation of the defendants
amounted to P12,920.08. Statements of accounts were sent to the
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defendants and the Delta Motors collectors personally went to the
former to effect collections but they failed to do so. Because of the
unjustified refusal of the defendants to pay their outstanding account
and their wrongful detention of the properties in question, Delta
Motors tried to recover the said properties extra-judicially but it
failed to do so. The matter was later referred by Delta Motors to its
legal counsel for legal action.
In its verified complaint dated 28 January 1977, Delta
Motors prayed for the issuance of a writ of replevin, which the Court
granted in its Order dated 28 February 1977, after Delta Motors
posted the requisite bond. On 11 April 1977, Delta Motors, by virtue
of the writ, succeeded in retrieving the properties in question. The
trial court promulgated its decision on 11 October 1977 ordering the
defendants to pay Delta Motors the amount of P6,188.29 with a 14%
per annum interest which was due on the 3 Daikin air-conditioners
the defendants purchased from Delta Motors under a Deed of
Conditional Sale, after the same was declared rescinded by the trial
court. They were likewise ordered to pay Delta Motors P1,000.00 for
and as attorneys fees.
ISSUE:
WON the lower court erred in its decision to order the
defendants to pay the unpaid balance despite the fact that Delta
motors already retrieved the subject properties.
HELD:
The court held that remedies available to vendor in a sale of
personal property payable in installments The vendor in a sale of
personal property payable in installments may exercise one of three
remedies, namely, (1) exact the fulfillment of the obligation, should
the vendee fail to pay; (2) cancel the sale upon the vendees failure to
pay two or more installments; (3) foreclose the chattel mortgage, if
one has been constituted on the property sold, upon the vendees
failure to pay two or more installments. The third option or remedy,
however, is subject to the limitation that the vendor cannot recover
any unpaid balance of the price and any agreement to the contrary is
void (Art. 1484).
Moreover, the 3 remedies are alternative and NOT
cumulative. If the creditor chooses one remedy, he cannot avail
himself of the other two.
Thus in the case at bar, Air-conditioning units repossessed,
bars action to exact payment for balance of the price Delta Motors
had taken possession of the 3 air-conditioners, through a writ of
replevin when defendants refused to extra-judicially surrender the
same. The case Delta Motors filed was to seek a judicial declaration
that it had validly rescinded the Deed of Conditional Sale. Delta
Motors thus chose the second remedy of Article 1484 in seeking
enforcement of its contract with defendants. Having done so, it is
barred from exacting payment from defendants of the balance of the
price of the three air-conditioning units which it had already
repossessed. It cannot have its cake and eat it too.
Discussion
Isnt it that there is a stipulation that any payment shall be
deemed forfeited? Is it valid in case of cancellation or rescission of the
sale? Yes. It is valid as long as there is a stipulation and it is not
excessive or unconscionable. (See Article. 1486). Installments paid shall
be deemed rent for the goods. In this case, P6,966.00 is a reasonable
rent of the air-conditioner for 22 months.
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What is the nature of the sale here? Contract to sell. It should
be noted that the RECTO LAW is also applicable in contracts to sell.
----------------------------------
5) Foreclosure of Chattel Mortgage Constituted on Subject Property
When Remedy of Foreclosure Deemed Chosen
An action to foreclosure seeks the same objective as
an action for specific performance: to recover from the buyer
the price agreed upon in the sale.
The point by which the seller is deemed to have
chosen the remedy of foreclosure is only at the time of actual
sale of the subject property at public auction pursuant to the
foreclosure proceedings commenced.
Barring Effect of Foreclosure
It is the foreclosure and actual sale at public auction
of the mortgaged chattel that shall bar further recovery by
the seller of any balance on the purchasers outstanding
obligation not satisfied by the sale; prior to that point in time,
the seller has every right to receive payments on the unpaid
balance of the price from the buyer.
Barring Effect on Other Securities Given for Payment of Price
When the assignee forecloses on the chattel
mortgage, there can be no further recovery of the deficiency,
and the seller-mortgagee is deemed to have renounced any
right thereto. A contrario, in the event that the seller-
mortgagee first seeks the enforcement of the additional
mortgages, guarantees or other security arrangement, he
must then be held to have lost by waiver or non-choice his
lien on the chattel mortgage of the personal property sold by
and mortgaged back to him, although similar to an action for
specific performance, he may still levy on it. The implication
is that the remedy of foreclosing the chattel mortgage is no
longer available, but the barring effect as to prevent recovery
of deficiency judgment does not come into play since the
Court confirmed that the seller may still levy on it. (Borbon
II vs. Servicewide Specialists)
Extent of Barring Effect
The words any unpaid balance should be
interpreted as having reference to the deficiency judgment to
which the mortgagee may be entitled where, after the
mortgaged chattel is sold at public auction, the proceeds
obtained therefrom are insufficient to cver the full amount of
the secured obligation which in the c ase at bar as shown by
the note and by the mortgage deed, include interest on the
principal, attorneys fees, expenses of collection, and the
costs. Were it the intention of the Legislature to limit its
meaning to the unpaid balance of the prinicipal, it would have
so stated. (Macondray vs. Eustaquio). Thus, the extent of the
barring effect of foreclosure was then all-encompassing and
did not limit itself to the balance of the purchase price.
Perverse Buyer-Mortgagor
By way of exception to the complete barring effect
on the remedy of foreclosure, Filipinas Investment vs. Ridad
held that when a defaulting buyer-mortgagor refuses to
surrender the chattel to the seller to allow the latter to be
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able to proceed with foreclosure, then the seller, even after
actual foreclosure, should be allowed to recover expenses
and attorneys fees incurred in trying to obtain possession of
the chattel.
Where the mortgagor plainly refuses to deliver the
chattel subject of the mortgage upon his failure to pay two or
more installments, or if he conceals the chattel to place it
beyond the reach of the mortgagee, the necessary expenses
incurred in the prosecution by the mortgagee of the action
for replevin so that he can regain possession of the chattel
should be borne by the mortgagor. (Agustin vs. CA)
A mere demand to surrender the object which is not
heeded by the mortgagor will nto amount to a foreclosure,
but the repossession thereof by the vendor-mortgagee would
have the effect of foreclosure. (Borbon II vs. Servicewide
Specialist)
6) Lease with Option to Purchase
Article 1485. The preceding article shall be applied to
contracts purporting to be leases of personal property with option to
buy, when the lessor has deprived the lessee of the possession or
enjoyment of the thing.
Article 1486. In the case referred to in the two preceding
articles, a stipulation that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid insofar as the same may
not be unconscionable under the circumstances.
Barring Effect
Article 1485 carries the concept of rescission or foreclosure:
1. If the taking back of possession or enjoyment of the leased
movable is treated as a RESCISSION, then the barring effect of
rescission is applicable, which means that even after taking
back possession or enjoyment, and forfeiting all rentals
previously paid, the lessor-seller will be able to collect
damages as may be warranted by the circumstances.
2. If the taking back of possession or enjoyment of the leased
movable is equivalent to FORECLOSURE, then although the
seller-lessor may forfeit in his favor all rentals previously paid,
if such has been stipulated, he can no longer collect any
further amounts against the buyer-lessee, whether in the
form of damages, attorneys fees, or even unpaid but accrued
rentals, and not even the expenses incurred in repairing the
movable.
Elisco Tool vs. CA
FACTS:
Private respondent Rolando Lantan was employed at the
Elisco Tool Mfg. Corp. On Jan. 1980, he entered into a car plan with
the company, which constitutes a lease with option to buy for a period
of 5 years. The agreement provides that Lantan shall pay a monthly
rental of P 1010.65 to be deducted from his salary or a total of P60,
639.00 at the end of 5 years. The agreement provides that at the 60th
month of payment he may exercise his option to buy and all monthly
rentals shall be applied to the payment of the full purchase price of
the car. In 1981 Elisco Tool ceased operations, and Rolando Lantan was
laid off. Nonetheless, as of December 4, 1984, private respondent was
able to make payments for the car in the total amount of P61, 070.94.
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On 1986 Elisco filed a complaint for replevin plus sum of
money against Rolando Lantan for the latters alleged failure to pay
the monthly rentals as of May 1986. Elisco prayed for the following:
1. The payment of Lantan of the sum of the monthly rentals due as of
May 1986 plus legal interest;
2. The issuance of writ of replevin to gain possession of the car; and
3. On the alternative, should the delivery of the car not be possible,
that Lantan be ordered to pay the actual value of the car in the
amount of 60,000 plus the accrued monthly rentals thereof with
interest until fully paid. Both the trial court and the CA decided in
favor of Lantan, declaring the latter the lawful owner of the car and
sentencing Elisco to pay for actual damages caused to the private
respondents, thus this petition.
ISSUE:
WON the lease with option to buy is in reality an installment
sale so as to apply the Recto Law under Art. 1484.
WON Elisco is entitled to any of the remedies under Art.
1484.
HELD:
1. Yes. The agreement between Elisco and the Lantans is in
reality an installment sale of personal property. However, the
remedies under Article 1484 are alternative, not cumulative.
2. No. There was already full payment. In the case at bar,
although the agreement provides for the payment of monthly rentals,
it also provides the option to purchase upon the payment of the 60th
monthly rental and that all monthly rentals shall be applied to the
payment of the full purchase price of the car. Clearly the transaction is
a lease in name only and so Articles 1484 and 1485 apply.
It is noteworthy that the remedies provided for in Art. 1484
are alternative, not cumulative. The exercise of one bars the exercise
of the others. It was held that in choosing to deprive the defendant of
possession of the leased vehicles, the plaintiff waived its right to bring
an action to recover unpaid rentals on the said vehicles.
Furthermore, both the trial court and the CA correctly ruled that
Elisco is not entitled to any of the remedies under Art. 1484 as there
has already been full payment.
The agreement does not provide for the payment of interest
on unpaid monthly "rentals" or installments. The 2% surcharge is not
provided for in the agreement. Consequently, the total amount of P
61, 070.94 already paid is more than sufficient to cover the full
purchase price of the car which only amounts to P 60, 639.
Discussion
Is Recto Law applicable? Yes Art 1485
What was the remedy availed of? Specific performance
This is a contract of lease. But still Art 1484 is applicable
pursuant to 1485. Replevin is only for the purpose of ensuring specific
performance.
Court held that under a purported contract of lease with
option to purchase which is covered under Articles 1484 and 1485, the
condition that the lessor has deprived the lessee of possession or
enjoyment of the thing for the purpose of applying Article 1485 which
would be fulfi lled by the fi ling by the lessor of a complaint for replevin
to recover possession of movable property and its enforcement by the
sheriff, and barred all action to recover any amount from the lessee.
However, the Court also held that if the main purpose for
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seeking recovery of the personal property under a writ of replevin was
merely to ensure enforcement of the remedy of specifi c performance
under Article 1484(1), there would be no barring effect by reason of the
enforcement of the writ. Therefore, not every deprivation of possession
would result in producing the barring effect under Article 1485 of the
Civil Code.
Okay so we are already done with the Recto Law, under Art
1484. And in relation thereto we also have Art 1385 and 1386. Under
the Recto Law, we have there the 3 alternative remedies, applicable to
the contracts of sale of personal property in installments.
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E) REMEDIES IN CASES OF IMMOVABLES
1) Remedies of Seller
a) Anticipatory Breach
Article 1591. Should the vendor have reasonable
grounds to fear the loss of immovable property sold and its
price, he may immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of article 1191
shall be observed.
We have discussed that under the said article,
where there is anticipatory breach, if the seller has
reasonable grounds to fear the loss of the
immovable property sold and its price, he may
immediately sue for the rescission of the sale.
b) Failure of Buyer to Pay Price
Rescission under Article 1191
Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the Mortgage
Law. (1124)
Rescission under Article 1592
Article 1592. In the sale of immovable property,
even though it may have been stipulated that upon failure to
pay the price at the time agreed upon the rescission of the
contract shall of right take place, the vendee may pay, even
after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either
judicially or by a notarial act. After the demand, the court
may not grant him a new term.
Take note in this article that in the sale of immovable
property, it should not be sale on instalment. If it is a sale
on instalment, then we apply a different law. This is not
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also applicable in a contract to sell. Even if there is a
stipulation of automatic rescission, the vendee may still
pay as long as there is no demand for rescission either
judicially or a notarial act.
Remember, 1592, the requirement for rescission,
demand for a notarial act or a judicial act but it is solely
applicable to a contract of sale and not to a contract to
sell.
2) Remedies of Buyer
1) Suspension of Payment
Article 1590. Should the vendee be disturbed in the
possession or ownership of the thing acquired, or should he
have reasonable grounds to fear such disturbance, by a
vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has caused
the disturbance or danger to cease, unless the latter gives
security for the return of the price in a proper case, or it has
been stipulated that, notwithstanding any such contingency,
the vendee shall be bound to make the payment. A mere act
of trespass shall not authorize the suspension of the payment
of the price
Now in case of real properties, remedies available
to the buyer, we have also discussed under the
Condominium Act, the buyer may suspend payment
if the real estate developer fails to comply with the
obligations according to the approved plan, or the
buyer may even demand for rescission.
2) In Case of Subdivision or Condominium Projects
Section 23, PD 957. Non-Forfeiture of Payments.
No installment payment made by a buyer in a subdivision or
condominium project for the lot or unit he contracted to buy
shall be forfeited in favor of the owner or developer when the
buyer, after due notice to the owner or developer, desists from
further payment due to the failure of the owner or developer
to develop the subdivision or condominium project according
to the approved plans and within the time limit for complying
with the same. Such buyer may, at his option, be reimbursed
the total amount paid including amortization interests but
excluding delinquency interests, with interest thereon at the
legal rate.
Section 24, PD 957. Failure to pay installments.
The rights of the buyer in the event of this failure to pay the
installments due for reasons other than the failure of the
owner or developer to develop the project shall be governed
by Republic Act No. 6552.
Where the transaction or contract was entered into
prior to the effectivity of Republic Act No. 6552 on August 26,
1972, the defaulting buyer shall be entitled to the
corresponding refund based on the installments paid after the
effectivity of the law in the absence of any provision in the
contract to the contrary.
1. Notice Required under Section 23 of PD 957
Section 23 of PD 957 does not require that
a notice be given first by the buyer to the seller
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before a demand for refund can be made as the
notice and demand can be made in the same letter
or communication.
2. Retroactive Application of PD 957
PD 957 did not expressly provide for
retroactivity in its entirety, but such can be plainly
inferred from the unmistakable intent of the law.
3. Right to Grace Period Stipulated
When a grace period is provided for in the
contract of sale, it should be construed as 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.
F) MACEDA LAW (RA 6552): SALE OF REAL ESTATE ON
INSTALLMENTS
Now if we have the Recto Law, for sale of personal properties
in installment, then we also have the Maceda Law for sale of real estate
properties in installment.
Under sec 2 of RA 6552 thereof you have the purpose: for
public policy, to protect the buyers of real estate in installment
payments against onerous and oppressive conditions. So it is known as
The Sale Of Real Estate On Installment or also known as the Realty
Installment Buyer Act.
REPUBLIC ACT NO. 6552
AN ACT TO PROVIDE PROTECTION TO BUYER OF REAL ESTATE ON
INSTALLMENT PAYMENTS
Be it enacted by the Senate and House of Representatives of the
Philippines in Congress assembled:
SECTION 1. This Act shall be known as the Realty
Installment Buyer Protection Act.
SECTION 2. It is hereby declared a public policy to protect
buyers of real estate on installment payments against onerous and
oppressive conditions.
SECTION 3. In all transactions or contracts, involving the
sale or financing of real estate on installment payments, including
residential condominium apartments but excluding industrial lots,
commercial buildings and sales to tenants under Republic Act
Numbered Thirty-Eight hundred forty-four as amended by Republic
Act Sixty-three hundred eighty-nine, where the buyer has paid at
least two years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding installments:
To pay, without additional interest, the unpaid installments due
within the total grace period for every one year of installment
payments made; provided, That this right shall be exercised by
the Buyer only once in every five years of the life of the contract
and its extensions, if any.
If the contract is cancelled, the seller shall refund to the buyer
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the cash surrender value of the payments on the property
equivalent to fifty percent of the total payments made and,
after five years of installments, an additional five per cent every
year but not to exceed ninety per cent of the total payments
made; provided, that the actual cancellation or the demand for
rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall
be included in the computation of the total number of installment
payments made.
SECTION 4. In case where less than two years of
installments were paid the seller shall give the buyers a grace period
of not less than sixty days from the date the installment become due.
If the buyer fails to pay the installments due at the expiration of the
grace period, the seller may cancel the contract after thirty days from
receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act.
SECTION 5. Under Section 3 and 4, the buyer shall have the
right to sell his rights or assign the same to another person or to
reinstate the contract by updating the account during the grace
period and before actual cancellation of the contract. The deed of
sale or assignment shall be done by notarial act.
SECTION 6. The buyer shall have the right to pay in advance
any installments or the full unpaid balance of the purchase price any
time without interest and to have such full payment of the purchase
price annotated in the certificate of title covering the property.
SECTION 7. Any stipulation in any contract hereafter
entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall
be null and void.
SECTION 8. If any provisions of this Act is held invalid or
unconstitutional no other provision shall be affected thereby.
SECTION 9. This Act shall take effect upon its approval.
Approved August 26, 1972.
1) Role of Maceda Law
The law declares as a public policy to protect buyers of real
estate on installment payments against onerous and oppressive
conditions. (Section 2, RA 6552)
2) Retroactive Application of law
In Siska Dev. Corp. vs. Office of the President, the Court extended
the formal requirements of rescission under the Maceda Law to apply
even to contracts entered into prior to the effectivity of the Maceda
Law.
However, in Peoples Industrial vs. CA, the Court held that RA 6552
does not expressly provide for its retroactive application and, therefore,
it could not have encompassed the cancellation of the contracts to sell
pursuant to an automatic cancellation clause which had become
operational long before the approval of the law.
a) Transactions Covered
- Does not cover all sales of realty on installments but
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primary residential real estate.
- Covers not only sale on installments of real estate but
also financing of such acquisitions.
- It expressly covers all transactions or contracts involving
the sale or financing of real estate on installment
payments, including residential condominium
apartments. (Section 3, RA 6552)
- Includes in its provisions both contract of sale and
contract to sell with the use by the law of the twin terms
of notice of cancellation or the demand for rescission
of the contract.
b) Transactions Excluded from Coverage
1) Sales covering industrial lots,
2) Sales covering commercial buildings (and commercial
lots by implication), and
3) Sales to tenants under agrarian reform laws (RA 3844, as
amended by RA 6389).
The enumeration is not exclusive. An example would be the
sale on installment of commercial or office condominium
units.
1. Maceda Law Cannot be Invoked by Highest Bidder
in Foreclosure Proceedings
Such person or entity, although binding
itself to the terms of the contracts of sale, is not the
real party to the original installment sales, and
more importantly, does not have any rights
promoted under the Maceda Law which contains
provisions for the benefits of real estate buyers on
installments. (Lagandao vs. CA)
c) Rights Granted
(i) At Least 2 Years Installments Paid
o To pay, without additional interest, the unpaid installments
due within the total grace period for every 1 year of
installment payments made; provided, That this right shall be
exercised by the Buyer only once in every 5 years of the life of
the contract and its extensions, if any.
o If the contract is cancelled, the seller shall refund to the buyer
the cash surrender value of the payments on the property
equivalent to 50% of the total payments made and, after 5
years of installments, an additional 5% every year but not to
exceed 90% of the total payments made; provided, that the
actual cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of the cash
surrender value to the buyer.
Down payments, deposits or options on the contract
shall be included in the computation of the total number of
installment payments made. (Section 3, RA 6552)
(ii) Less than 2 Years Installments paid
In case where less than 2 years of
installments were paid the seller shall give the
buyers a grace period of not less than 60 days from
the date the installment become due. If the buyer
fails to pay the installments due at the expiration of
the grace period, the seller may cancel the contract
after 30 days from receipt by the buyer of the
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notice of cancellation or the demand for rescission
of the contract by a notarial act. (Section 4, RA
6552)
(iii) Compensation Rule on Amortization Payments
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. Nevertheless, the Court held 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. (Leano vs. CA)
(iv) Formula to Compute the Installment Mode
The proper formula to apply in determining how
many installments have been made is to include any
payment made as downpayment or reservation fee
as part of the installments made, and then to divide
them by the stipulated mode of payment (monthly,
quarterly, semi-annual or annual).
d) Interpretation of Grace Period and Modes of Cancellation
The case of McLaughin vs. CA provides for two grace
periods:
1) 1st Grace Period
o expressly provided by the law, which is a minimum of 60
days.
o availment of the right to update the installment
payments is without interest and penalties, even when
these are stipulated in the contract.
2) 2nd Grace Period
o the period before rescission or cancellation actually takes
place.
o the buyer would be liable for and would have to include in
his payments the stipulated interests and penalties
incurred.
e) Other Rights Granted to Buyer
The buyer shall have the right to pay in advance any
installments or the full unpaid balance of the purchase price
any time without interest and to have such full payment of
the purchase price annotated in the certificate of title
covering the property. (Section 6, RA 6552)
f) Effect of Contrary Stipulations
Any stipulation in any contract hereafter entered
into contrary to the provisions of Sections 3, 4, 5 and 6, shall
be null and void. (Section 7, RA 6552)
g) Maceda Law Cannot Be Availed of by Developer
The Maceda law has no application to protect the
develop or one who succeeds the developer, since the policy
of that law, as embodied in its title, is 'to provide protection
to buyers on real estate on installment payments.' against
onerous and oppressive conditions. (Lagandaon vs. CA)
Section 3(b) of the same law does not grant the
developer any legal ground to cancel the contracts to sell;
rather, it prescribes the responsibiity of the seller in case the
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'contracts are canceled.' (Lagandaon vs. CA)
3) Cancellation of Judicial Sale
Where a judicial sale is voided is without fault of the
purchaser, the latter is entitled to reimbursement of the purchase
money paid by him. A judicial sale can only be set aside upon the
return to the buyer of the 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. (Seven Brothers Shipping
vs. CA)
Valarao vs. CA
FACTS:
Spouses Valarao, thru their son, Carlos, sold to Arellano a
parcel of land situated in Diliman, Quezon City for the sum of 3.225 M
embodied under a Deed of Conditional Sale.
It was further stipulated upon that should Arellano fail to
pay three (3) successive monthly installments or any one year-end
lump sum payment within the period stipulated, the sale shall be
considered automatically rescinded without the necessity of judicial
action and all payments made by Arellano shall be forfeited in favor of
the spouses by way of rental for the use and occupancy of the
property and as liquidated damages. All improvements introduced by
Arellano to the property shall belong to the spouses without any right
of reimbursement.
Arellano alleged that as of September 1990 he was already
able to pay the sum of 2.028 M although she admitted that she failed
to pay for the installments due in October and November 1990.
Arellano tried to pay but was turned down by the spouses thru their
maid. Arellano avers that the same maid was the on who received
payments tendered by her. It appears that the maid refused to receive
the payment allegedly on orders of her employees who were not at
home. This prompted Arellano to seek the help of barangay officials.
Efforts to settle before the barangay was unavailing, as the spouses
never appeared in meetings.
Arellano sought judicial action by filing a petition for
consignation on January 4, 1991.
Spouses Valarao, thru counsel, sent Arellano a letter dated 4
January 1991 notifying her that they were enforcing the provision on
automatic rescission as a consequence of which the Deed of
Conditional Sale was deemed null and void, and xxx all payments
made, as well as the improvements introduced on the property, were
thereby forfeited. The letter also made a formal demand on Arellano
to vacate the property should she not heed the demand of the
spouses to sign a contract of lease for her continued stay in the
property.
The RTC ruled against Arellano but the Court of Appeals
reversed the decision of the trial court hence this petition.
ISSUE:
1. WON the automatic forfeiture clause is enforceable.
2. WON RA 6552 is applicable.
HELD:
1. Yes. As a general rule, a contract is the law between the
parties. Thus, "from the moment the contract is perfected, the parties
are bound not only to the fulfillment of what has been expressly
stipulated but also to all consequences which, according to their
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nature, may be in keeping with good faith, usage and law." Also, "the
stipulations of the contract being the law between the parties, courts
have no alternative but to enforce them as they were agreed [upon]
and written, there being no law or public policy against the stipulated
forfeiture of payments already made." However, it must be shown
that Arellano failed to perform her obligation, thereby giving spouses
the right to demand the enforcement of the contract.
We concede the validity of the automatic forfeiture clause,
which deems any previous payments forfeited and the contract
automatically rescinded upon the failure of the vendee to pay three
successive monthly installments or any one-yearend lump sum
payment. However, the spouses failed to prove the conditions that
would warrant the implementation of this clause.
Based on the facts of the case, the spouses were not
justified in refusing the tender of payment made by Arellano. Had the
spouses accepted the payment, she would have paid all three monthly
installments. In other words, there was no deliberate failure on
Arellanos part to meet her responsibility to pay.
2. Yes. Sec. 3, RA 6552 provides:
Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants under Republic Act. Numbered Thirty-
eight hundred Forty-four as amended by Republic Act Numbered
Sixty-three hundred eighty-nine, where the buyer has paid at least
two years of installments, the buyer is entitled to the following rights
in case he defaults in the payment of succeeding installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by him, which is
hereby fixed at the rate of one month grace period for every year of
installment payments made: Provided, That this right shall be
exercised by the buyer only once in every five years of the life of the
contract and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value on the payments on the property
equivalent to fifty percent of the total payments made and, after five
years of installments, an additional five percent every year but not to
exceed ninety percent of the total payments made: Provided, That the
actual cancellation of the contract shall take place after thirty days
from receipt by the buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act and upon full payment
of the cash surrender value to the buyer.
Down payments, deposits or options on the contract shall be
included in the computation of the total number of installments
made.
Therefore, Arellano is entitled to a one-month grace period
for every year of installment paid, which means that she had a total
grace period of three months from December 31, 1990. Indeed, to
rule in favor of the spouses would result in patent injustice and unjust
enrichment.
Discussion
Was there an action here for consignation? What happens in
consignation? Whats the purpose? Effect? Extinguish obligation as a
special form of payment, so if with the tender of payment, which was
refused and considered valid, the remedy available was to consign so
that the obligation will be extinguished. But what did the petitioner do
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here? They filed an action to enforce the automatic rescission, so what
was the ruling of SC?
So is the Maceda Law applicable? What is the effect of the
application? Yes.
Can we not apply article 1592? No. Contract here is a contract
to sell, 1592 only applies to contracts of sale.
So notice here we have the Maceda Law applicable to
contracts of sale of real properties in installment. But likewise the
contract in this case is denominated as a deed of conditional sale but
the same was regarded as a contract to sell based on their agreement.
So what can we deduce from that? That the Maceda Law is likewise
applicable to contracts to sell of real property in installment, not just to
contracts of sale.
So you distinguish this with regard to the application of 1592
because 1592 applies only a contract of sale.
Now since the Maceda Law is applicable, it was held that the
private respondent was entitled to a one-month grace period for every
year of installment paid, which means that she had a total grace period
of three months, so therefore they could still pay, not withstanding the
automatic rescission provision in their contract.
Now do also take note as to the sales that are covered under
the Maceda Law. So under sec 3 thereof, sale or financing of real estate
on installment payments, including residential condominium
apartments but excluding industrial lots, commercial buildings and sales
to tenants.
Now section 3 governs the instance wherein the buyer has
paid at least two years of installment, while section 4 provides for
instances wherein the buyer has paid for less than 2 years of
installment.
Under Section 3, where the buyer has paid at least two years
of installments, the buyer is entitled to the following rights in case he
defaults in the payment of succeeding installments:
To pay, without additional interest, the unpaid installments
due within the total grace period earned by him which is hereby fixed at
the rate of one month grace period for every one year of installment
payments made: Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract and its
extensions, if any. so this was the provision that was applied in
Valarao.
If the contract is canceled, the seller shall refund to the buyer
the cash surrender value of the payments on the property equivalent to
fifty per cent of the total payments made, and, after five years of
installments, an additional five per cent every year but not to exceed
ninety per cent of the total payments made: Provided, That the actual
cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the
cash surrender value to the buyer.
----------------------------------
Garcia vs. CA
FACTS:
On May 28, 1993, plaintiffs spouses Faustino and Josefina
Garcia and spouses Meliton and Helen Galvez (herein appellees) and
defendant Emerlita dela Cruz (herein appellant) entered into a
Contract to Sell wherein the latter agreed to sell to the former, for
P3,170,220.00, five (5) parcels of land. At the time of the execution of
the said contract, three of the subject lots, were registered in the
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name of one Angel Abelida from whom defendant allegedly acquired
said properties by virtue of a Deed of Absolute Sale dated March 31,
1989.
As agreed upon, plaintiffs shall make a down payment of
P500,000.00 upon signing of the contract. The balance of
P2,670,220.00 shall be paid in three installments.
On its due date, December 31, 1993, plaintiffs failed to pay
the last installment in the amount of One P1,670,220.00. Sometime in
July 1995, plaintiffs offered to pay the unpaid balance, which had
already been delayed by one and a half year, which defendant refused
to accept. On September 23, 1995, defendant sold the same parcels of
land to intervenor Diogenes G. Bartolome for P7,793,000.00.
Plaintiffs filed before the RTC a complaint for specific
performance to compel defendant to accept plaintiffs payment and,
thereafter, execute the necessary document of transfer.
In their complaint, plaintiffs alleged that they discovered the
infirmity of the Deed of Absolute Sale covering those 3 lots, between
their former owner Angel Abelida and defendant, the same being
spurious because the signature of Angel Abelida and his wife were
falsified. Due to their apprehension regarding the authenticity of the
document, they withheld payment of the last installment. They
tendered payment of the unpaid balance sometime in July 1995, after
Angel Abelida ratified the sale made in favor of defendant, but
defendant refused to accept their payment for no jusitifiable reason.
In her answer, defendant denied the allegation that the
Deed of Absolute Sale was spurious and argued that plaintiffs failed to
pay in full the agreed purchase price on its due date despite repeated
demands; that the Contract to Sell contains a proviso that failure of
plaintiffs to pay the purchase price in full shall cause the rescission of
the contract and forfeiture of 1/2 of the total amount paid to
defendant; that a notarized letter stating the indended rescission of
the contract to sell and forfeiture of payments was sent to plaintiffs at
their last known address but it was returned with a notation
"insufficient address."
ISSUE:
Whether or not Maceda Law is applicable in this case.
HELD:
No. Not applicable. It is clear from the above-quoted
provisions that the parties intended their agreement to be a Contract
to Sell: Dela Cruz retains ownership of the subject lands and does not
have the obligation to execute a Deed of Absolute Sale until
petitioners payment of the full purchase price.
The Maceda Law applies to contracts of sale of real estate
on installment payments, including residential condominium
apartments but excluding industrial lots, commercial buildings and
sales to tenants. The subject lands, comprising five (5) parcels and
aggregating 69,028 square meters, do not comprise residential real
estate within the contemplation of the Maceda Law. Moreover, even if
we apply the Maceda Law to the present case, petitioners offer of
payment to Dela Cruz was made a year and a half after the stipulated
date. This is beyond the sixty-day grace period under Section 4 of the
Maceda Law. Petitioners still cannot use the second sentence of
Section 4 of the Maceda Law against Dela Cruz for Dela Cruzs alleged
failure to give an effective notice of cancellation or demand for
rescission because Dela Cruz merely sent the notice to the address
supplied by petitioners in the Contract to Sell.
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The applicable provision of law in instant case is Article 1191
of the New Civil Code which provides as follows:
Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the
fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter
should become impossible.
The Court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a period.
Discussion
So what is the nature of the contract here? Contract to sell
Can we apply the Maceda Law? No.
Why? - The subject lands do not comprise residential real
estate within the contemplation of the Maceda Law.
So was there breach on the part of Dela Cruz when she sold
the property to another person? No.
Is 1191 applicable to contracts of sell? No. Rescission not
available in Contracts to sell. Here, no right to demand the execution of
the deed of absolute sale since the buyers have failed to pay within the
period provided. So ownership was never transferred so therefore they
could validly disagree without any breach of the obligation.
So here we have a contract to sell but the Maceda Law is not
applicable because again, under sec 3, it only applies to sale or
financing of real estate on installment payments, including residential
condominium apartments but excluding industrial lots, commercial
buildings and sales to tenants. The subject lands do not comprise
residential real estate within the contemplation of the Maceda Law.
Moreover, even if we apply the Maceda Law to the present case,
petitioners offer of payment to Dela Cruz was made a year and a half
after the stipulated date. This is beyond the sixty-day grace period
under Section 4 of the Maceda Law.
However, also take note here, there was no notice to rescind.
----------------------------------
Pagtalunan vs. Vda. De Manzano
FACTS:
On July 19, 1974, Patricio Pagtalunan (Patricio), petitioners
stepfather and predecessor-in-interest, entered into a Contract to Sell
with respondent Rufina dela Cruz Vda. De Manzano, whereby the
former agreed to sell, and the latter to buy, a house and lot which
formed half of a parcel of land for a consideration of P17,800. The
parties agreed that it shall be paid in the following manner: P1,500 as
downpayment upon execution of the Contract to Sell, and the balance
to be paid in equal monthly installments of P150 on or before the last
day of each month until fully paid.
It was also stipulated in the contract that respondent could
immediately occupy the house and lot; that in case of default in the
payment of any of the installments for 90 days after its due date, the
contract would be automatically rescinded without need of judicial
declaration, and that all payments made and all improvements done
on the premises by respondent would be considered as rentals for the
use and occupation of the property or payment for damages suffered,
and respondent was obliged to peacefully vacate the premises and
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deliver the possession thereof to the vendor.
Petitioner claimed that respondent paid only P12,950. She
allegedly stopped paying after December 1979 without any
justification or explanation. Petitioner asserted that when respondent
ceased paying her installments, her status of buyer was automatically
transformed to that of a lessee. Therefore, she continued to possess
the property by mere tolerance of Patricio and, subsequently, of
petitioner.
Respondent did not deny that she still owed Patricio P5,650,
but claimed that she did not resume paying her monthly installment
because of the unlawful acts committed by Patricio, as well as the
filing of the ejectment case against her.
Patricio and his wife died on September 17, 1992 and on
October 17, 1994, respectively. Petitioner became their sole
successor-in-interest pursuant to a waiver by the other heirs. On
March 5, 1997, respondent received a letter from petitioners counsel
dated February 24, 1997 demanding that she vacate the premises
within five days on the ground that her possession had become
unlawful. Respondent ignored the demand. The Punong
Barangayfailed to settle the dispute amicably.
On April 8, 1997, petitioner filed a Complaint for unlawful
detainer against respondent.
ISSUE:
Whether or not the cancellation of the contract complied
with what is required under the Maceda law.
HELD:
No. R.A. No. 6552, otherwise known as the "Realty
Installment Buyer Protection Act," 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 Court agrees
with petitioner that the cancellation of the Contract to Sell may be
done outside the court particularly when the buyer agrees to such
cancellation.
However, the cancellation of the contract by the seller must
be in accordance with Sec. 3 (b) of R.A. No. 6552, which requires a
notarial act of rescission and the refund to the buyer of the full
payment of the cash surrender value of the payments on the property.
Actual cancellation of the contract takes place after 30 days from
receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of
the cash surrender value to the buyer.
Based on the records of the case, the Contract to Sell was
not validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on
September 17, 1992 without canceling the Contract to Sell.
Second, petitioner also failed to cancel the Contract to Sell in
accordance with law.
Petitioner contends that that his demand letter dated
February 24, 1997 should be considered as the notice of cancellation
or demand for rescission by notarial act.
The Court, however, finds that the letter dated February 24,
1997, which was written by petitioners counsel, merely made formal
demand upon respondent to vacate the premises in question.
Clearly, the demand letter is not the same as the notice of
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cancellation or demand for rescission by a notarial act required by R.A
No. 6552. Petitioner cannot rely on Layug v. Intermediate Appellate
Court to support his contention that the demand letter was sufficient
compliance since the seller therein filed an action for annulment of
contract, which is a kindred concept of rescission by notarial act.
Evidently, the case of unlawful detainer filed by petitioner does not
exempt him from complying with the said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the
cash surrender value of the payments on the property to the buyer
before cancellation of the contract. The provision does not provide a
different requirement for contracts to sell which allow possession of
the property by the buyer upon execution of the contract like the
instant case.
Hence, petitioner cannot insist on compliance with the
requirement by assuming that the cash surrender value payable to the
buyer had been applied to rentals of the property after respondent
failed to pay the installments due.
There being no valid cancellation of the Contract to Sell, the
CA correctly recognized respondents right to continue occupying the
property subject of the Contract to Sell and affirmed the dismissal of
the unlawful detainer case by the RTC.
SC DISPOSITION: Considering that the Contract to Sell was
not cancelled by the vendor, the Court agrees with the CA that it is
only right and just to allow respondent to pay her arrears and settle
the balance of the purchase price.
Discussion
Do we have a contract to sell or contract of sale? - Contract to
sell.
Is the Maceda Law applicable? Yes.
Effect? It cancels the Contract to sell.
Automatic? No.
What is the requirement under Maceda Law for cancellation
of contracts where the same is applicable? Twin requirements: notice
of cancellation or demand for rescission by a notarial act; and refund of
the cash surrender value of the payments on the property to the buyer
before cancellation of the contract. So in here, no valid cancellation.
Applying the Maceda Law, for the cancellation of the contract,
the requirements are: the notarial act of rescission and refund of the
cash surrender value of the payments on the property. Actual
cancellation of the contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon full payment of the
cash surrender value to the buyer.
In this case, there was no demand in compliance with the
Maceda Law. The letter purported to be a demand is not the one
contemplated under the Maceda Law. It is not the same as the notice of
cancellation because what was provided herein is, in-indicate lang "long
ceased to have any right to possess the premises x x x due to [her]
failure to pay without justifiable cause the installment payments x x x."
Now assuming it could be considered as a demand required
under the Maceda Law, there was still no refund of the cash surrender
value. So again, even if it is a Contract to Sell, the Maceda Law is
applicable. So no cancellation took place here, continue to occupy but
bound to payment of arrears.
Take note of the distinction here, as to the 2 remedies. The
first thing that we should take note of is, again, if the Maceda Law is
applicable. And if it is applicable, whether the buyer has paid at least 2
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annual installments or less than 2 annual installments.
In Sec 4, less than 2 installments, option 1: grace period of not
less than sixty days is given.
Or if no payment is made within the grace period, the sale
may be cancelled within 30 days from receipt of cancellation or notice
of cancellation.
If there has been payment for 2 or more annual installments,
the buyer may pay without interest, within the grace period. However
the grace period can only be exercised once every 5 years. And take
note, the grace period is 1 month for every one year of installment
payments made.
However, if the contracts need to be cancelled, aside from the
notice, there must be the refund of the cash surrender value, five per
cent every year but not to exceed ninety per cent of the total payments
made.
So let us say the total installment that was already paid by the
buyer is 400k for 4 years. How much is the cash surrender value? 200k.
Now what if the total installment made is 600k and payment has
already been for 6 annual installment. How much is the cash surrender
value? So for the first 5 years, 50%. Plus 5% for every year. So kung 6
years, 55% ng 600k. Hanggang maabot sya but only up to 90% of the
installment made. Like for example long term talaga yung contract.
----------------------------------
Planters vs. Chandumal
FACTS:
BF Homes and Julie Chandumal entered into a contract to
sell a parcel of land located in Las Pinas. Later, BF Homes sold to PDB
all its rights over the contract.
Chandumal paid her monthly amortizations until she
defaulted in her payments. So, PDB sent a notice to Chandumal with a
demand to vacate the land within 30days, otherwise all of her rights
will be extinguished and the contract will be terminated and deemed
rescinded. In spite of the demand, Chandumal failed to settle her
account.
PDB filed an action for judicial confirmation of notarial
rescission and delivery of possession but still Chandumal refused to do
so. Summons were then issued and served by deputy sheriff Galing
but its was unavailing as she was always out of her house on the dates
the summons were served.
RTC then issued an order granting the motion of PDB.
Chandumal filed an urgent motion to set aside order of default and to
admit attached answer. Chandumal said that she did not receive the
summons and was not notified of the same and her failure to file an
answer within the reglementary period was due to fraud. RTC denied
Chandumals motion to set aside the order of default.
Chandumal appealed to the CA. CA nullified the RTCs
decision.
ISSUE:
(1) Whether there was valid substituted service of summons?
(2) Whether Chandumal voluntarily submitted to the jurisdiction of
the RTC?
(3) Whether there was proper rescission by notarial act of the contract
to sell?
HELD:
Correctly ruled that the sheriffs return failed to justify a
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resort to substituted service of summons. According to the CA, the
Return of Summons does not specifically show or indicate in detail the
actual exertion of efforts or any positive step taken by the officer or
process server in attempting to serve the summons personally to the
defendant.
The Court notes that aside from the allegation that she did
not receive any summons, Chandumals motion to set aside order of
default and to admit attached answer failed to positively assert the
trial court lack of jurisdiction. In fact, what was set forth therein was
the substantial claim that PDB failed to comply with the requirements
of R.A. No. 6552 on payment of cash surrender value, which already
delves into the merits of PDBs cause of action. In addition,
Chandumal even appealed the RTC decision to the CA, an act which
demonstrates her recognition of the trial courts jurisdiction to render
said judgment.
R.A. No. 6552 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 thirty (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.
Discussion
Was there a notarial demand? No.
How about the allegation of Planters here that they tried to
give the cash surrender value but they cannot find Chandumal
anymore? Such is not enough.
So let us say there is a valid demand for rescission, would it
not be unfair to the seller, na hindi na nya makita si buyer so di na nya
mabigay yung cash surrender value, so hindi na sya maka rescind?
Assuming that it was true that Chandumal was located out of the
country for a period of time? What is the proper step that Planters
should have done para macomply nila yung requirement under Maceda
Law? Consignation. This is another instance when the debtor cannot
pay the creditor because Chandumal here, with respect to the cash
surrender value, he is the creditor. If he cannot be located anymore
then consignation is a valid course of action for the seller to take
otherwise it would be prejudicial to the seller na maghintay sila forever
for the rescission of the contract.
Again, twin requirements: Twin requirements: notice of
cancellation or demand for rescission by a notarial act; and refund of
the cash surrender value of the payments on the property to the buyer
before cancellation of the contract. And the actual cancellation of the
contract to take place after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the contract by a
notarial act and upon full payment of the cash surrender value to the
buyer.
In this case there was failure to give the full payment of the
cash surrender value. The fact that Chandumal was unavailable for such
purpose is not sufficient, because again the proper action was for the
bank to consign the amount. The allegation that Chandumal made
herself unavailable for payment is not an excuse as the twin
requirements for a valid and effective cancellation under the law, i.e.,
notice of cancellation or demand for rescission by a notarial act and the
full payment of the cash surrender value, is MANDATORY. There was no
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valid rescission of the contract to sell by notarial act undertaken by PDB
and the RTC should not have given judicial confirmation over the same.
----------------------------------
Optimum vs. Spouses Jovellanos
FACTS:
On April 26, 2005, Sps. Jovellanos entered into a Contract to
Sell6 with Palmera Homes, Inc. (Palmera Homes) for the purchase of a
residential house and lot situated in Block 3, Lot 14, Villa Alegria
Subdivision, Caloocan City (subject property) for a total consideration
of P1,015,000.00. Pursuant to the contract, Sps. Jovellanos took
possession of the subject property upon a down payment of
P91,500.00, undertaking to pay the remaining balance of the contract
price in equal monthly installments of P13,107.00 for a period of 10
years starting June 12, 2005.
On August 22, 2006, Palmera Homes assigned all its rights,
title and interest in the Contract to Sell in favor of petitioner Optimum
Development Bank (Optimum) through a Deed of Assignment of even
date.
On April 10, 2006, Optimum issued a Notice of Delinquency
and Cancellation of Contract to Sell for Sps. Jovellanoss failure to pay
their monthly installments despite several written and verbal notices.
In a final Demand Letter dated May 25, 2006, Optimum
required Sps. Jovellanos to vacate and deliver possession of the
subject property within seven (7) days which, however, remained
unheeded. Hence, Optimum filed, on November 3, 2006, a complaint
for unlawful detainer before the MeTC, docketed as Civil Case No. 06-
28830. Despite having been served with summons, together with a
copy of the complaint, Sps. Jovellanos failed to file their answer within
the prescribed reglementary period, thus prompting Optimum to
move for the rendition of judgment.
Thereafter, Sps. Jovellanos filed their opposition with motion
to admit answer, questioning the jurisdiction of the court, among
others. Further, they filed a Motion to Reopen and Set the Case for
Preliminary Conference, which the MeTC denied.
ISSUE:
W/N there was a valid and effective cancellation of the
Contract to Sell in accordance with Section 4 of RA 6552
RULING:
YES. Verily, in a contract to sell, the prospective seller binds
himself to sell the property subject of the agreement exclusively to
the prospective buyer upon fulfillment of the condition agreed upon
which is the full payment of the purchase price but reserving to
himself the ownership of the subject property despite delivery thereof
to the prospective buyer.The full payment of the purchase price in a
contract to sell is a suspensive condition, the non-fulfillment of which
prevents the prospective sellers obligation to convey title from
becoming effective, as in this case.
Further, it is significant to note that given that the Contract
to Sell in this case is one which has for its object real property to be
sold on an installment basis, the said contract is especially governed
by and thus, must be examined under the provisions of RA 6552,
or the Realty Installment Buyer Protection Act, which provides for
the rights of the buyer in case of his default in the payment of
succeeding instalments.
Given the nature of the contract of the parties, the
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respondent court correctly applied Republic Act No. 6552. Known as
the Maceda Law, R.A. No. 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. It also provides
the right of the buyer on installments in case he defaults in the
payment of succeeding installments, viz.:
(1) Where he has paid at least two years of
installments,
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made:
Provided, That this right shall be exercised by the
buyer only once in every five years of the life of the contract
and its extensions, if any.
(b) If the contract is cancelled, the seller shall refund to the
buyer the cash surrender value of the payments on the
property equivalent to fifty per cent of the total payments
made and, after five years of installments, an additional five
per cent every year but not to exceed ninety per cent of the
total payments made:
Provided, That the actual cancellation of the
contract shall take place after cancellation or the demand
for rescission of the contract by a notarial act and upon full
payment of the cash surrender value to the buyer.
Down payments, deposits or options on the
contract shall be included in the computation of the total
number of installments made.
(2) Where he has paid less than two years in
installments, Sec. 4. x x x the seller shall give the buyer a
grace period of not less than sixty days from the date the
installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the
seller may cancel the contract after thirty days from receipt
by the buyer of the notice of cancellation or the demand for
rescission of the contract by a notarial act. (Emphasis and
underscoring supplied)
Pertinently, since Sps. Jovellanos failed to pay their
stipulated monthly installments as found by the MeTC, the Court
examines Optimums compliance with Section 4 of RA 6552, as above-
quoted and highlighted, which is the provision applicable to buyers
who have paid less than two (2) years-worth of installments.
Essentially, the said provision provides for three (3) requisites before
the seller may actually cancel the subject contract: first, the seller
shall give the buyer a 60-day grace period to be reckoned from the
date the installment became due; second, the seller must give the
buyer a notice of cancellation/demand for rescission by notarial act if
the buyer fails to pay the installments due at the expiration of the said
grace period; and third, the seller may actually cancel the contract
only after thirty (30) days from the buyers receipt of the said notice of
cancellation/demand for rescission by notarial act.
In the present case, the 60-day grace period automatically
operated in favor of the buyers, Sps. Jovellanos, and took effect from
the time that the maturity dates of the installment payments lapsed.
With the said grace period having expired bereft of any installment
payment on the part of Sps. Jovellanos, Optimum then issued a
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notarized Notice of Delinquency and Cancellation of Contract on April
10, 2006. Finally, in proceeding with the actual cancellation of the
contract to sell, Optimum gave Sps. Jovellanos an additional thirty (30)
days within which to settle their arrears and reinstate the contract, or
sell or assign their rights to another.
It was only after the expiration of the thirty day (30) period
did Optimum treat the contract to sell as effectively cancelled
making as it did a final demand upon Sps. Jovellanos to vacate the
subject property only on May 25, 2006. Thus, based on the foregoing,
the Court finds that there was a valid and effective cancellation of the
Contract to Sell in accordance with Section 4 of RA 6552 and since Sps.
Jovellanos had already lost their right to retain possession of the
subject property as a consequence of such cancellation, their refusal
to vacate and turn over possession to Optimum makes out a valid case
for unlawful detainer as properly adjudged by the MeTC.
Discussion
How is the Maceda Law related to the issue of jurisdiction? Is
the Maceda Law applicable here? Yes. The authority granted to the
MeTC to preliminarily resolve the issue of ownership to determine the
issue of possession ultimately allows it to interpret and enforce the
contract or agreement between the plaintiff and the defendant. To
deny the MeTC jurisdiction over a complaint merely because the issue
of possession requires the interpretation of a contract will effectively
rule out unlawful detainer as a remedy.
How is sec 4 different from sec 3?
In this case was there a valid rescission? Yes. It was only
after the expiration of the thirty-day (30) period did Optimum treat the
contract to sell as effectively cancelled making as it did a final demand
upon Sps. Jovellanos to vacate the subject property only on May 25,
2006.
Effect of rescission? Loss their right to possess, therefore,
the unlawful detainer was proper and within the jurisdiction of the
MeTC.
Take note when to apply section 3 and 4 and also notice the
difference.
Sec 4 is only applicable when the buyer failed to pay less than
2 annual installments. And in sec 4, when can there be rescission? The
seller shall give the buyer a grace period of not less than sixty days from
the date the installment became due. If the buyer fails to pay the
installments due at the expiration of the grace period, the seller may
cancel the contract after thirty days from receipt by the buyer of the
notice of cancellation or the demand for rescission of the contract by a
notarial act.
Notice, walang refund for cash surrender value.
In the present case, the 60-day grace period automatically
operated in favor of the buyers, Sps. Jovellanos, and took effect from
the time that the maturity dates of the installment payments lapsed.
With the said grace period having expired bereft of any installment
payment on the part of Sps. Jovellanos, Optimum then issued a
notarized Notice of Delinquency and Cancellation of Contract on April
10, 2006.
Finally, in proceeding with the actual cancellation of the
contract to sell, Optimum gave Sps. Jovellanos an additional thirty (30)
days within which to settle their arrears and reinstate the contract, or
sell or assign their rights to another. It was only after the expiration of
the thirty day (30) period did Optimum treat the contract to sell as
effectively cancelled making as it did a final demand upon Sps.
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Jovellanos to vacate the subject property only on May 25, 2006. So
there was a valid cancellation, Sps. Jovellanos had already lost their
right to retain possession of the subject property as a consequence of
such cancellation, their refusal to vacate and turn over possession to
Optimum makes out a valid case for unlawful detainer as properly
adjudged by the MeTC.
Noynay vs. Citihomes
FACTS:
On Dec. 29, 2004, Citihomes and Spouses Noynay executed
a contract to sell covering the sale of a house and lot. Under the terms
of the contract, the price of the property was fixed at P915,895, with a
downpayment of P183,179, and the remaining balance to be paid in
120 equal monthly installments with an annual interest rate of 21%.
Subsequently, Citihomes executed the Deed of Assignment
of Claims and Accountsin favor of UCPB. Under the said agreement,
UCPB purchased from Citihomes various accounts, including the
account of Spouses Noynay, for a consideration of P100,000,000.00.
In turn, Citihomes assigned its rights, titles, interests, and
participation in various contracts to sell with its buyers to UCPB. In
February 2007, Spouses Noynay allegedly started to default in their
payments. Months later, Citihomes decided to declare Spouses
Noynay delinquent and to cancel the contract considering that nine
months of agreed amortizations were left unpaid.
The notarized Notice of Delinquency and Cancellation of the
Contract to Sell was received by Spouses Noynay. They were given 30
days within which to pay the arrears and failure to do so would
authorize Citihomes to consider the contract as cancelled. Citihomes
sent its final demand letter asking Spouses Noynay to vacate the
premises due to their continued failure to pay the arrears. Spouses
Noynay insist that by virtue of the assignment of rights which
Citihomes executed in favor of UCPB, Citihomes did not have a cause
of action against them because it no longer had an interest over the
subject property.
The monthly installments amounting to three years were
already paid, by reason of which, Section 3(b) of the Maceda Law
should apply. This means that for the cancellation to be effective, the
cash surrender value should have been paid first to them by
Citihomes. Citihomes counters that it has the right to ask for the
eviction of the petitioners in its capacity as the registered owner
despite the assignment of rights it made to UCPB.
It believes that because Spouses Noynay failed to pay at
least 2 years of installments, the cancellation became effective upon
the expiration of the 30-day period following the receipt of the notice
of delinquency and cancellation notice and without the need for the
payment of the cash surrender value.
ISSUE:
W/N the the cancellation of the contract to sell was valid.
RULING:
No. The Contract to Sell dated December 29, 2004 is
enlightening on the matter. The amount of P183,179, representing full
down payment shall be paid upon signing of the contract. Citihomes
claimed that the period of the payment of the amortizations started
from May 31, 2005. As can be gleaned from the contract to sell,
however, it appears that the payment of the down payment started
from the signing thereof on December 29, 2004.
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Moreover, based on the Statement of Account, dated March May attach itself either to Whether express or implied, relates
18, 2009, Spouses Noynay started defaulting from January 8, 2008. the obligations of the seller to the subject matter itself or to the
This shows that prior to that date, amortizations covering the 3-year or of the buyer. obligations of the seller as to the
period, which started with the down payment, had been paid. This is subject matter of the sale.
consistent with the admission of Citihomes during the preliminary Non-happening thereof, Non-fulfillment thereof constitutes a
conference. By its admission that Spouses Noynay had been paying although it may extinguish breach of the contract.
the amortizations for 3 years, there is no reason to doubt Spouses the obligation upon which it
Noynay's compliance with the minimum requirement of two years is based, generally does not
payment of amortization, entitling them to the payment of the cash amount to a breach of the
surrender value provided for by law and by the contract to sell. contract of sale.
To reiterate, Section 3(b) of the Maceda Law requires that
for an actual cancellation to take place, the notice of cancellation by
notarial act and the full payment of the cash surrender value must be Gonzales vs. Lim
first received by the buyer. Clearly, no payment of the cash surrender Ruling
value was made to Spouses Noynay. Necessarily, no cancellation of the Applying article 1545, when the obligations of either party in a
contract to selI could be considered as validly effected. contract of sale subject to a 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 have been performed, such party may also treat
CONDITIONS AND WARRANTIES non-performance of condition as a breach of warranty.
In this case, respondents were deemed to have waived the
fulfillment of the condition. They negotiated directly with Tanglao for
Do not confuse condition with warranty. As you very well a new lease contract without the required official communication.
know, a condition refers to a future and uncertain event which may or That was the condition in the agreement. Although they had a right
may not happen upon which depends the rising or the extinguishment to the partys compliance with the condition or compel his
of an obligation, depending on whether we have a suspensive or a performance, they opted otherwise and directly negotiated with
resolutory condition. In relation to condition, we have Article 1545 Tanglao. The assertion that they were merely forced to deal with
referring to conditional sales wherein if the contract of sale is subject to Tanglao because they have been threatened has no merit. At that
a condition, such condition may be made by the parties.: time they entered into a contract, respondents already knew that
one of the Motowns lease contracts had been terminated with
Tanglao
A) CONDITIONS

Catungal Vs. Rodriguez

Article 1545. Where the obligation of either party to a
FACTS:
contract of sale is subject to any condition which is not performed, such
Agapita Catungal owned a parcel of land in Barrio Talamban,
party may
Cebu City. On April 232, 1990, Agapita, with the consent of her
1. refuse to proceed with the contract or
husband (Atty. Jose Catungal), entered a Contract to Sell with
2. he may waive performance of the condition.
respondent Angel Rodriguez. This Contract to Sell was further
upgraded into a Conditional Deed of Sale where it was stipulated that
Condition Imposed Condition Imposed on the Performance of the sum of P25 million will be payable as follows:
on the Perfection the Contract a. P500, 000 down payment upon signing of the agreement;
of the Contract b.The balance of P24, 500, 000 will be payable in five separate
The failure to The failure to comply with this only gives the checks:
comply with this other party the option to either refuse to First check shall be for P4, 500, 000 while the remaining balance
results in the failure proceed with the sale or to waive the to be paid in four checks in the amount of P5 million each will be
of the contract. condition (Article 1545) and that the choice is payable only after Rodriguez (Vendee) has successfully negotiated,
not with the obligor but with the injured secured, and provided a Road Right of Way. If however the Road
party. Right of Way could not be negotiated, Rodriguez shall notify the
Catungals for them to reassess and solve the problem by taking other
Distinction between Condition and Warranty options and should the situation ultimately prove futile, he shall take
Condition Warranty steps to rescind or cancel the herein Conditional Deed of Sale.
Generally goes into the root Goes into the performance of such It was also stipulated that the access road or Road Right of
of the existence of the obligation, and in fact may constitute Way leading to the lot shall be the responsibility of the VENDEE to
obligation. an obligation in itself. secure and any or all cost relative to the acquisition thereof shall be
Must be stipulated by the May form part of the obligation or borne solely by the VENDEE. He shall, however, be accorded with
parties in order to form part contract by provision of law, without enough time necessary for the success of his endeavor, granting him
of an obligation. the parties having expressly agreed a free hand in negotiating for the passage.
thereto. Spouses Catungal requested an advance of P5 million on the

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purchase price for personal reasons. However, Rodriguez refused on
the ground that the amount was not due under the terms of their
agreement. Further, he learned that the Catungals were offering the
property for sale to third parties who are willing to pay a higher
amount of money for a Road Right of Way than what Rodriguez has
initially negotiated. In other words, instead of assisting Rodriguez in
successfully negotiating, the Catungals allegedly maliciously defeated
his efforts so to justify the rescission. Rodriguez then received letters
signed by Atty. Jose Catungal demanding him to make up his mind
about buying the land or exercising his option to buy because they
needed money to pay personal obligations or else the Catungals
warned that they would consider the contract cancelled.
RTC ruled in favor of Rodriguez finding that his obligation to
pay the balance arises only after successfully negotiating a Road
Right of Way. CA affirmed the RTCs decision but the defendants filed
a motion for reconsideration and raised for the first time the
contention that the court erred in not finding their stipulations null
for violating the principle of mutuality of contracts.
ISSUE:
Whether or not the stipulations of their Conditional Deed of
Sale constitute a potestative condition (one that is subject to the will
of one of the parties either the debtor or creditor).
HELD:
NO. the condition in their Conditional Deed of Sale stating that
respondent shall pay the balance of the purchase price when he has
successfully negotiated and secured a road right of way, is not a
condition on the perfection of the contract nor on the validity of the
entire contract or its compliance as contemplated in Article 1308. It is
a condition imposed only on respondent's obligation to pay the
remainder of the purchase price. In our view and applying Article
1182, such a condition is not purely potestative as petitioners
contend. It is not dependent on the sole will of the debtor but also
on the will of third persons who own the adjacent land and from
whom the road right of way shall be negotiated. Ina manner of
speaking, such a condition is likewise dependent on chance as there
is no guarantee that respondent and the third party-landowners
would come to an agreement regarding the road right of way. This
type of mixed condition is expressly allowed under Article 1182 of
the Civil Code.
IN RELATION TO ARTICLE 1197 The Catungals also argued
that Rodriguez has been given enough time to negotiate for the Road
Right of Way. However, no stipulation regarding specific time can be
found in their agreement. SC said that Even assuming arguendo that
the Catungals were correct that the respondent's obligation to
negotiate a road right of way was one with an uncertain period, their
rescission of the Conditional Deed of Sale would still be unwarranted.
What the Catungals should have done was to first file an action in
court to fix the period within which Rodriguez should accomplish the
successful negotiation of the road right of way pursuant to the above
quoted provision. Thus, the Catungals' demand for Rodriguez to
make an additional payment of P5 million was premature and
Rodriguez's failure to accede to such demand did not justify the
rescission of the contract.
WHEREFORE, the Decision dated August 8, 2000 and the
Resolution dated January 30, 2001 of the Court of Appeals are
AFFIRMED with the following MODIFICATION:
If still warranted, respondent Angel S. Rodriguez is given a
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period of thirty (30) days from the finality of this Decision to
negotiate a road right of way. In the event no road right of way is
secured by respondent at the end of said period, the parties shall
reassess and discuss other options as stipulated in paragraph 1(b) of
the Conditional Deed of Sale and, for this purpose, they are given a
period of thirty (30) days to agree on a course of action. Should the
discussions of the parties prove futile after the said thirty (30)-day
period, immediately upon the expiration of said period for
discussion, Rodriguez may (a) exercise his option to rescind the
contract, subject to the return of his down payment, in accordance
with the provisions of paragraphs 1(b) and 5 of the Conditional Deed
of Sale or (b) waive the road right of way and pay the balance of the
deducted purchase price as determined in the RTC Decision dated
May 30, 1992.
Discussion
What makes it a conditional sale and not just a contract to
sell? What is the condition? The condition is imposed on the
performance of the obligation wherein the vendors imposed that for
the sale to take place, he must first secure a road right of way.
Will it affect the validity of the sale? No. its already on the
performance stage of the contract.
Is the condition here deemed potestative? No.
What do you mean by potestative condtion? A potestative
condition is one where the fulfillment of the condition depends upon
the sole will of one of the parties.
Whats the effect of a potestative condition? It will render the
condition void when it depends on the sole will of the debtor.
Here, it was a conditional deed of sale conditioned on the
payment of a certain price but the payment of the purchase price was
originally made contingent on the successful negotiation of a road right
of way. So the condition was not merely dependent on the full purchase
price which should have made it just a contract to sell. In this case, it
was clear that it was a conditional deed of sale.
SC made a distinction as to the condition imposed upon the
perfection of the contract and merely upon the performance. Take
note, if the condition is imposed upon the perfection of the contract,
failure to comply with such results to the failure of the contract. Failure
to comply with the condition on the performance merely gives the
other party the option to either refuse to proceed with the sale or to
waive the condition. This remedies are the ones mentioned in 1545.
SC also discussed that the condition imposed only on
respondents obligation to pay the purchase price, but such condition is
not purely potestative. It is not dependent on the sole will of the
debtor, but mostly on the will of third persons. It is also dependent on
chance, because there is no warranty that the respondents and the
third party would come to an agreement regarding the road right of
way. So we have here a mixed condition. Rodriguezs option to rescind
is not merely potestative, but rather subject to the same mixed
condition as the obligation to pay the balance in the event the
condition is fulfilled, Rodriguez must pay the balance. If not fulfilled,
Rodriguez has the choice not to proceed or with the condition and still
pay the purchase price. It is still warranted ,so Rodriguez is given the 30-
day period until the finality of the decision to negotiate the road right
of way. SC ruled that in the event that no right of way is secured by
Rodriguez, parties should reassess and discuss other options as
provided in the conditional deed of sale. Should the discussions prove
futile, Rodriguez may exercise his option to rescind or waive the road
right of way. So the condition here is the road right of way and such was
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a valid condition between the parties.
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Take note that the condition that is mentioned in 1545 and
the cases that we have discussed are different from warranty.
Warranty, again, is one of the obligations on the part of the
seller. Warranty is a collateral undertaking in a contract of sale of either
party, expressed or implied, that if the property sold does not possess
certain incidents or qualities, the first user may either consider the
same void or claim damages or breach of warranty. When we talk
about condition, the existence of the obligation must be stipulated.
When we talk abput a warranty, we refer to a perfected obligation even
without the parties agreeing thereto. Remember, in the elements, you
have implied warranties. Implied warranties exist in a contract even if
the parties did not stipulate as to its existence. When we talk about
condition, the parties must have agreed upon or stipulated it in their
agreement. Under condition, the condition is attached to the obligation
of the seller to deliver or transfer ownership. As to warranties, what is
attached? It is the subject matter itself or the obligation of the seller.
B) WARRANTIES
1) Express Warranties
1) Requites in order that there be an Express Warranty in a Contract
of Sale:
a) It must be an affirmation of fact or any promise by
the seller relating to the subject matter of the sale;
b) the natural tendency of such affirmation or promise
is to induce the buyer to purchase the thing, and
c) the buyer purchases the thing relying on such
affirmation or promise thereon (Article 1546).
2) A warranty is an affirmation of fact or any promise made by a
seller in relation to the thing sold, and that the decisive test is
whether the seller assumes to assert a fact of which the buyer is
ignorant of. (Goodyear vs. Sy)
No affirmation of the value of the thing, nor any
statement purporting to be a statement of the seller's
opinion only, shall be construed as a warranty, unless the
seller made such affirmation or statement as an expert
and it was relied upon by the buyer. (Article 1546).
A mere expression of an opinion does not signify
fraud, unless made by an expert and the other party has
relied on the former's special knowledge. (Article 1341)
3) 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 at his peril, and must take the
consequences of his own imprudence (Azarraga vs. Gay).
Harrison Motors vs. Navarro
FACTS:
Harrison Motors, through its president, Claros, sold two trucks
to Navarro. Prior to the sale, Claros represented to Navarro that all
the BIR taxes and customs duties for the parts used on the two trucks
had been paid for.
Subsequently, the BIR and the LTO and the BOC entered in a
Memorandum of Agreement which provided that for purposes of
registering vehicles, a Certificate of Payment should first be obtained
from the BIR. Government agents seized and detained the two
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trucks of Navarro after discovering that there were still unpaid taxes.
The BIR and BOC ordered Navarro to pay the proper
assessments or her trucks would be impounded.
Navarro went to Claros to ask the receipts evidencing payment
of BIR tax and customs duties however her demands were ignored.
ISSUE:
Who should pay the taxes and customs duties which the
administrative regulations sought to enforce?
HELD:
Harrison is liable for payment of revenue taxes and customs
duties.
It is true that the ownership o the trucks shifted to private
respondent after the sale. But petitioner must remember that prior
to its consummation it expressly intimated to her that it has already
paid taxes and customs duties Such representation shall be
considered as a seller's express warranty under Article 1546 of the
Civil Code which covers any affirmation of fact or any promise by the
seller which induces the buyer to purchase the thing and actually
purchases it relying on such affirmation or promise. It includes all
warranties which are derived from express language, whether
language is in the form of a promise or representation. Presumably,
therefore, private respondent would not have purchased the trucks
were it not for petitioner's assertion and assurance that all taxes
were already settled.
Discussion
Was there a breach of warranty? Yes.
Was it considered as an express warranty? Yes. It was
considered as an express warranty because it is noteworthy to
remember that prior to the sale there was an express inclination by
Renato that all the BIR taxes and customs duties on the motor vehicles
were already paid and settled. SC held that such representation shall be
considered as a sellers express warranty under Article 1546 of the Civil
Code which covers any affirmation or promise or fact by the seller
which induces the buyer to purchase the thing and actually purchases it
relying on such affirmation or promise. In the case at bar, SC held,
presumably, Navarro would not have purchased the 2 elf trucks were it
not for the representation of Renato that the BIR taxes and customs
duties of the motor vehicles have already been paid.
Under the law, what is the remedy of the buyer in case of
breach of express warranty? Under the law, the remedy of the buyer
would be that the buyer would be allowed to keep the goods, and also
be able to maintain an action for damages against the seller. In the case
at bar, this is exactly what Navarro did. She opted to keep the 2 elf
trucks for her business and filed an action for damages in the form of
complaint for sum of money.
Again, take note of what are the requirements or requisites
for a warranty to be considered as an express warranty.
In the case of Harrison, there was an express affirmation on
the part of the seller that the taxes and custom duties have been paid.
Private respondent would not have purchased the trucks were it not for
the petitioners assertion and assurance that all taxes on its parts were
already settled. Clearly it was an express warranty. Under Art. 1599 of
the Civil Code, once an express warranty is breached the buyer can
accept or keep the goods and maintain an action against the seller for
damages.
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Art. 1599. Where there is a breach of warranty by the seller,
the buyer may, at his election:
(1) Accept or keep the goods and set up against the seller, the breach of
warranty by way of recoupment in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action against the seller
for damages for the breach of warranty;
(3) Refuse to accept the goods, and maintain an action against the
seller for damages for the breach of warranty;
(4) Rescind the contract of sale and refuse to receive the goods or if the
goods have already been received, return them or offer to return them
to the seller and recover the price or any part thereof which has been
paid.
When the buyer has claimed and been granted a remedy in
anyone of these ways, no other remedy can thereafter be granted,
without prejudice to the provisions of the second paragraph of Article
1191.
Where the goods have been delivered to the buyer, he cannot
rescind the sale if he knew of the breach of warranty when he accepted
the goods without protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he fails to return or to
offer to return 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.
Where the buyer is entitled to rescind the sale and elects to do
so, he shall cease to be liable for the price upon returning or offering to
return the goods. If the price or any part thereof has already been paid,
the seller shall be liable to repay so much thereof as has been paid,
concurrently with the return of the goods, or immediately after an offer
to return the goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to do
so, if the seller refuses to accept an offer of the buyer to return the
goods, the buyer shall thereafter be deemed to hold the goods as bailee
for the seller, but subject to a lien to secure payment of any portion of
the price which has been paid, and with the remedies for the
enforcement of such lien allowed to an unpaid seller by Article 1526.
(5) In the case of breach of warranty of quality, such loss, in the absence
of special circumstances showing proximate damage of a greater
amount, is the difference between the value of the goods at the time of
delivery to the buyer and the value they would have had if they had
answered to the warranty. (n)
Moles vs. IAC
FACTS:
Moles bought from Mariano Diolosa owner of Diolosa
Publishing House a linotype printing machine(secondhand machine).
Moles promised Diolosa that will pay the full amount after the loan
from DBP worth P50,000.00 will be released. Private respondent on
return issued a certification wherein he warranted that the machine
was in A-1 condition, together with other express warranties.
After the release of the of the money from DBP, Petitioner
required the Respondent to accomplish some of the requirements.
On which the dependant complied the requirements on the same
day.
Subsequently, petitioner wrote private respondent that the
machine was not functioning properly. The petitioner found out that
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the said machine was not in good condition as experts advised and it
was worth lesser than the purchase price. After several telephone
calls regarding the defects in the machine, private respondent sent
two technicians to make necessary repairs but they failed to put the
machine in running condition and since then the petitioner wan
unable to use the machine anymore.
ISSUE/S:
1. Whether there is an implied warranty of its quality or fitness.
2. Whether the hidden defects in the machine is sufficient to
warrant a rescission of the contract between the parties.
HELD:
1. It is generally held that in the sale of a designated and specific
article sold as secondhand, there is no implied warranty as to its
quality or fitness for the purpose intended, at least where it is
subject to inspection at the time of the sale. On the other hand,
there is also authority to the effect that in a sale of secondhand
articles there may be, under some circumstances, an implied
warranty of fitness for the ordinary purpose of the article sold or for
the particular purpose of the buyer.
Said general rule, however, is not without exceptions. Article
1562 of our Civil Code, which was taken from the Uniform Sales Act,
provides:
"Art. 1562. In a sale of goods, there is an implied warranty or
condition as to the quality or fitness of the goods, asfollows:
(1) Where the buyer, expressly or by implication, makes known to
the seller the particular purpose for which the goods are acquired,
and it appears that the buyer relies on the seller's skill or judgment
(whether he be the grower or manufacturer or not), there is an
implied warranty that the goods shall be reasonably fit for such
purpose;"
2. We have to consider the rule on redhibitorydefects contemplated
in Article 1562. A redhibitory defect must be an imperfection
or defect of such nature as to engender a certain degree of
importance. An imperfection or defect of little consequence does
not come within the category of being redhibitory.
As already narrated, an expert witness for the petitioner
categorically established that the machine required major repairs
before it could be used. This, plus the fact that petitioner never
made appropriate use of the machine from the time of purchase
until an action was filed, attest to the major defects in said machine,
by reason of which the rescission of the contract of sale is sought.
The factual finding, therefore, of the trial court that the machine is
not reasonably fit for the particular purpose for which it was
intended must be upheld, there being ample evidence to sustain the
same.
At a belated stage of this appeal, private respondent came up
for the first time with the contention that the action for rescission is
barred by prescription. While it is true that Article 1571 of the Civil
Code provides for a prescriptive period of six months for
a redhibitory action, a cursory reading of the ten preceding articles to
which it refers will reveal that said rule may be applied only in case of
implied warranties. The present case involves one with an express
warranty.
Consequently, the general rule on rescission of contract, which
is four years shall apply. Considering that the original case for
rescission was filed only one year after the delivery of the subject
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machine, the same is well within the prescriptive period. This is
aside from the doctrinal rule that the defense of prescription is
waived and cannot be considered on appeal if not raised in the trial
court, and this case does not have the features for an exception to
said rule.
Discussion
Whats the purpose of the certification? The purpose of the
certification was for the DBP to release the loan. Such certification must
be given to DBP so DBP will release the loan in favor of Moles to buy
said machine.
The subject matter in this case is a second hand article. Is
there an implied warranty with regard to second hand articles? As a
general rule, there is no implied warranty on secondhand articles.
However, SC here ruled that under 1562, in a sale of goods where there
is an implied warranty or condition as to the quality or fitness of the
goods, the exception here is that: where the buyer, expressly or by
implication, makes known to the seller the particular purpose for which
the goods are required and it appears that the buyer relies on the
sellers view or judgment.
In other words, it is not an implied warranty anymore. It now
becomes an express warranty. Thus, there is no implied warranty in
secondhand articles, but there can be express warranties.
What was the affirmation or representation as to the express
warranty here? SC held that the issuance of Certificate of A-1 condition
issued by private respondent is the evidence that there was an express
warranty. The certification was a condition sine qua non for the release
of petitioners loan which has to be used as payment for the purchase
price. Since private respondent did not refute such allegation he ____
for such contract of sale.
Aside from the fact that private respondent is not considered
as a dealer, what was the other basis of the court in ruling that it was
not a dealers talk or sales talk? Ordinarily, what does not appear on the
face of the written instrument should be regarded as dealers or
traders talk. Thus, what is specifically stipulated on said document in
the case cannot be considered as mere dealers talk.
Take note that what was sold here was a secondhand item. It
is generally held that in the sale of a designated and specific article sold
as secondhand, there is no implied warranty as to its quality or fitness
for the purpose intended, at least where it is subject to inspection at
the time of the sale. On the other hand, there is also authority to the
effect that in a sale of a secondhand articles there may be, under some
circumstances, an implied warranty of fitness for the ordinary purpose
of the article sold or for the particular purpose of the buyer.
However, the issue in this case is not of implied warranty but
of the existence of an express warranty because here, there was a
certification that the machines sold and delivered were in A-1
condition.
A certification to the effect that the linotype machine bought
by petitioner was in A-1 condition was issued by Diolosa in favor of
Moles. This can only be considered as an express warranty.
With that, there is an express warranty, it cannot be
considered as mere dealers or traders talk which does not appear on
the face of the contract. Because when you say dealers or traders talk,
again, it does not appear on the face of the written instrument, unlike
in this case, where there is a certification.
Moreover, it is emphasized that rescission is available as a
remedy. Considering that what we have here is an express warranty, the
six-month prescriptive period is not applicable, but rather the general
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rule on rescission, which is four years. The action has not prescribed as
well.
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2) Implied Warranties
Implied warranties exist in contracts of sale even in the
absence of stipulation between the parties.
Implied warranties are those which by law constitute part of
every contract of sale, whether or not the parties were aware
of them, and whether or not the parties intended them.
However, these implied warranties may be modified or
suppressed by agreement of the parties.
Although only a seller is bound by the implied warranties of
law, nevertheless, by express contractual stipulation, an agent
of the seller may bind himself to such warranties. (Schmid vs.
RJL)
What are the implied warranties in relation to contracts of
sale?
1. The warranty of the seller that he has the right to
sell
2. The warranty against eviction
3. The warranty against non-apparent servitudes
4. The warranty against hidden defects
5. The warranty as to fitness or quality
a) Warranty That Seller has Right to Sell
Article 1547. In a contract of sale, unless a contrary
intention appears, there is:
1. An implied warranty on the part of the seller that he
has a right to sell the thing at the time when the
ownership is to pass, and that the buyer shall from
that time have and enjoy the legal and peaceful
possession of the thing;
2. An implied warranty that the thing shall be free
from any hidden faults or defects, or any charge or
encumbrance not declared or known to the buyer.
This article shall not, however, be held to render
liable a sheriff, auctioneer, mortgagee, pledgee, or other
person professing to sell by virtue of authority in fact or law,
for the sale of a thing in which a third person has a legal or
equitable interest.
Note:
Under the first paragraph, an implied warranty on
the part of the seller that he has a right to sell the thing at the
time when the ownership is to pass. As we already discussed,
ownership is not required at the time of perfection. However,
if at the time the thing is to be delivered the seller cannot do
so because he has no title over the property, there may be
breach of this warranty.
Also under the first paragraph, we have the
warranty against eviction, which is the warranty that the
buyer shall from that time have and enjoy the legal and
peaceful possession of the thing. This is also further discussed
in Art. 1548.
b) Warranty Against Eviction
Article 1548. Eviction shall take place whenever by a
final judgment based on a right prior to the sale or an act
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imputable to the vendor, the vendee is deprived of the whole
or of a part of the thing purchased.
The vendor shall answer for the eviction even
though nothing has been said in the contract on the subject.
The contracting parties, however, may increase,
diminish, or suppress this legal obligation of the vendor.
When There is Breach of Warranty Against Eviction:
- The sellers implied warranty against eviction only
applies when the following conditions are present:
(1) purchaser has been deprived of, or evicted from, the
whole or part of the thing sold;
(2) eviction is by a final judgment;
(3) basis thereof is by virtue of a right prior to the sale
made by the seller; and
(4) seller has been summoned and made co-defendant in
the suit for eviction at the instance of the buyer.
Power Commercial vs. CA
Facts: Power Commercial and Industrial Corporation entered into a
contract of sale with the Quiambao spouses. It agreed to assume the
mortgages thereon. A Deed of Absolute Sale with Assumption of
Mortgage was executed.
Subsequently, Power Commercial failed to settle the
mortgage debt contracted by the spouses, thus it could not undertake
the proper action to evict the lessees on the lot. Power Commercial
Corp thereafter sought to rescind the contract of sale alleging that it
failed to take actual and physical possession of the lot.
Issue: W/N there was a breach of warranty against eviction
Ruling: NO. First, such condition that the Quiambao spouses would
have to evict the lessees was not stipulated in the contract. Thus, it
cannot be considered a condition imposed upon its perfection. In fact,
Power Commercial was well aware of the presence of the tenants
therein. It was also given control over the said lot and it endeavored
to terminate the occupation of its actual tenants. Also, since it was
Power Commercial that knowingly undertook the risk of evicting the
lessees, it cannot now claim that there was a breach of warranty on
the part of the vendor.
Discussion
Here, the SC emphasized that the failure to eject the lessees
cannot be considered a breach of a condition. First, the failure was not
stipulated as a condition. Remember the difference between condition
and warrantythe condition must be expressly agreed upon by the
parties. Second, in this case, the effects and consequences were not
specified either.
What is specified here in the contract or the deed of sale is as
follows:
We hereby also warrant that we are the lawful and
absolute owners of the above described property, free from
any lien and/or encumbrance, and we hereby agree and
warrant to defend its title and peaceful possession thereof in
favor of the said Power Commercial and Industrial
Development Corporation, its successors and assigns, against
any claims whatsoever of any and all third persons;
As stated, the provision pertains to the usual warranty against
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eviction. Since it is stated in the contract, it is an express warranty but
nevertheless a warranty against eviction. It is not a condition that was
not met. Now, here, petitioner was aware of the presence of the
tenants at the time it entered into the sales transaction.
Symbolic delivery took place. Its efficacy can, however, be
prevented if the vendor does not possess control over the thing sold, in
which case this legal fiction must yield to reality.
However, in this case, the SC held that no breach of warranty
against eviction took place because not all the requisites are present.
A breach of this warranty requires the concurrence of the
following circumstances:
The purchaser has been deprived of the whole or part of
the thing sold;
This eviction is by a final judgment;
The basis thereof is by virtue of a right prior to the sale
made by the vendor; and
The vendor has been summoned and made co-defendant
in the suit for eviction at the instance of the vendee.
In the absence of these requisites, a breach of the warranty
against eviction under Article 1547 cannot be declared.
Petitioner argues that it has not yet ejected the occupants of
said lot, and not that it has been evicted therefrom. The presence of
lessees does not constitute an encumbrance of the land, nor does it
deprive petitioner of its control thereof.
However, petitioner's deprivation of ownership and control
finally occurred when it failed and/or discontinued paying the
amortizations on the mortgage, causing the lot to be foreclosed and
sold at public auction. But this deprivation is due to petitioner's fault,
and not to any act attributable to the vendor-spouses.
----------------------------------
So again take note of the distinctions between condition and
warranty, and the requisites for one to be held liable for
breach of warranty against eviction.
Other articles that mention the requirements for breach of
warranty, you have Art. 1549.
Art. 1549. The vendee need not appeal from the decision in
order that the vendor may become liable for eviction. (n)
You relate this with Art. 1557. What is only required is a final
judgment that has been rendered.
Article 1557. The warranty cannot be enforced until a final
judgment has been rendered, whereby the vendee loses the thing
acquired or a part thereof.
Even if nasa lower court lang and it already became final then
wala gi-appeal, and all the other requisites are present, there
will still be breach of warranty against eviction.
Eviction in Part:
Article 1556. Should the vendee lose, by reason of the
eviction, a part of the thing sold of such importance, in relation to the
whole, that he would not have bought it without said part, he may
demand the rescission of the contract; but with the obligation to return
the thing without other encumbrances that those which it had when he
acquired it.
He may exercise this right of action, instead of enforcing the
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vendor's liability for eviction.
The same rule shall be observed when two or more things
have been jointly sold for a lump sum, or for a separate price for each of
them, if it should clearly appear that the vendee would not have
purchased one without the other.
So under Art. 1556, the buyer can either (1) enforce the
remedy or demand those mentioned in Art. 1555, or (2) seek
the rescission of the contract with the obligation to return the
thing without encumbrances other than those which it had
when it was acquired. If inseparable, then those mentioned in
Art. 1555 may be demanded only to such extent.
Art. 1558. The vendor shall not be obliged to make good the
proper warranty, unless he is summoned in the suit for eviction at the
instance of the vendee. (1481a)
So very important here is the requirement that the vendor be
summoned in the suit for eviction.
Particular Causes Given by Law:
Article 1550. When adverse possession had been commenced
before the sale but the prescriptive period is completed after the
transfer, the vendor shall not be liable for eviction.
So what do you mean by possession here? Acquisitive
possession as you have already discussed in Property and
Land Titles as well. Thirty years in bad faith and ten years in
good faith.
Now here, if the prescription was already completed before
the contract of sale, if the buyer knew beforehand of the
acquisitive prescription by the third person and nevertheless
proceeded to purchase the property, he is deemed to have
waived his right to enforce the warranty against eviction.
However, if the prescriptive period is completed after the
perfection of the sale or transfer of ownership, the seller will
not be liable for eviction. Why? Because the buyer should
have interrupted the prescriptive period. The exception is if
the time left for interruption is too short for the buyer to be
given full opportunity to perform acts of interruption. To
which, the seller can be held liable for breach of warranty.
Article 1551. If the property is sold for nonpayment of taxes
due and not made known to the vendee before the sale, the vendor is
liable for eviction.
Applicability to Judicial Sales
Article 1552. The judgment debtor is also responsible for
eviction in judicial sales, unless it is otherwise decreed in the judgment.
In execution sales, the rule of caveat emptor applies. The
sheriff does not warrant the title to the property sold by him,
and it is not incumbent on him to place the purchaser in
possession of the property. (Allure Manufacturing vs. CA)
Amounts for Which Seller is Liable in Case of Eviction
Article 1555. When the warranty has been agreed upon or
nothing has been stipulated on this point, in case eviction occurs, the
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vendee shall have the right to demand of the vendor:
(1) The return of the value which the thing sold had at the
time of the eviction, be it greater or less than the price of the
sale;
(2) The income or fruits, if he has been ordered to deliver
them to the party who won the suit against him;
(3) The costs of the suit which caused the eviction, and, in a
proper case, those of the suit brought against the vendor for
the warranty;
(4) The expenses of the contract, if the vendee has paid them;
(5) The damages and interests, and ornamental expenses, if
the sale was made in bad faith.
So all of these are demandable from the vendor if there was
no waiver.
Also, even if there was only partial eviction, there could still
be a breach of warranty against eviction.
Waiver of Warranty and Effects Thereof
Article 1548. Eviction shall take place whenever by a final
judgment based on a right prior to the sale or an act imputable to the
vendor, the vendee is deprived of the whole or of a part of the thing
purchased.
The vendor shall answer for the eviction even though nothing
has been said in the contract on the subject.
The contracting parties, however, may increase, diminish, or
suppress this legal obligation of the vendor.
Article 1553. Any stipulation exempting the vendor from the
obligation to answer for eviction shall be void, if he acted in bad faith.
Article 1554. If the vendee has renounced the right to
warranty in case of eviction, and eviction should take place, the vendor
shall only pay the value which the thing sold had at the time of the
eviction. Should the vendee have made the waiver with knowledge of
the risks of eviction and assumed its consequences, the vendor shall not
be liable.
Art. 1554 emphasizes that there could be waiver of the
warranty. On the other hand, under Art. 1553, if the seller is
in bad faith, he shall nevertheless be liable for eviction even if
there is waiver on the part of the buyer. So please take note
of that.
Escaler vs. CA
Facts: Spouses Reynoso sold to petitioner-spouses Escaler a parcel of
land with an area of 239, 479 sq. m. The Deed of Sale contained a
covenant against eviction. Subsequently, the Register of Deeds of Rizal
and A. Doronilla Resources Development, Inc. filed a case for
cancellation of title issued in the name of Spouses Reynosos
predecessor-in-interest on the ground that the property covered by
said title is already previously registered in the name of A. Doronilla
Development, Inc. As a result, the title was cancelled for being null
and void.
Petitioner-spouses Escaler filed a case against their vendors,
herein private respondent-spouses Reynoso, for the recovery of the
value of the property sold to them plus damages on the ground that
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the latter have violated the vendors' "warranty against eviction."
They alleged that the Order which cancelled the title of
Angelina C. Reynoso and all subsequent Transfer Certificates of Title
derived and/or emanating therefrom and which includes the titles of
petitioners, is now final, and by reason thereof petitioners lost their
right over the property sold; and that the respondents were
summoned and/or given their day in court at the instance of the
petitioners.
Issue: WON private respondent-spouses Reynoso may be held liable
as vendors for breach of warranty against eviction
Ruling: NO.
In order that a vendor's liability for eviction may be
enforced, the following requisites must concura) there must be a
final judgment; b) the purchaser has been deprived of the whole or
part of the thing sold; c) said deprivation was by virtue of a right prior
to the sale made by the vendor; and d) the vendor has been
summoned and made co-defendant in the suit for eviction at the
instance of the vendee.
In the case at bar, the fourth requisitethat of being
summoned in the suit for eviction (Case No. 4252) at the instance of
the vendeeis not present. All that the petitioners did, per their very
admission, was to furnish respondents, by registered mail, with a copy
of the opposition they (petitioners) filed in the eviction suit.
Decidedly, this is not the kind of notice prescribed by the aforequoted
Articles 1558 and 1559 of the New Civil Code. The term "unless he is
summoned in the suit for eviction at the instance of the vendee"
means that the respondents as vendor/s should be made parties to
the suit at the instance of petitioners-vendees, either by way of asking
that the former be made a co-defendant or by the filing of a third-
party complaint against said vendors. Nothing of that sort appeared to
have been done by the petitioners in the instant case.
c) Warranty Against Non-Apparent Servitudes
Article 1560. If the immovable sold should be
encumbered with any non-apparent burden or servitude, not
mentioned in the agreement, of such a nature that it must be
presumed that the vendee would not have acquired it had he
been aware thereof, he may ask for the rescission of the
contract, unless he should prefer the appropriate indemnity.
Neither right can be exercised if the non-apparent burden or
servitude is recorded in the Registry of Property, unless there
is an express warranty that the thing is free from all burdens
and encumbrances.
Within one year, to be computed from the execution
of the deed, the vendee may bring the action for rescission, or
sue for damages.
One year having elapsed, he may only bring an
action for damages within an equal period, to be counted
from the date on which he discovered the burden or
servitude.
d) Warranty Against Hidden Defects
Article 1561. The vendor shall be responsible for
warranty against the hidden defects which the thing sold may
have,
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(1) should they render it unfit for the use for which it is
intended, or
(2) should they diminish its fitness for such use to such an
extent that, had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it;
but said vendor shall not be answerable for patent defects or
those which may be visible, or for those which are not visible
if the vendee is an expert who, by reason of his trade or
profession, should have known them.
Article 1566. The vendor is responsible to the
vendee for any hidden faults or defects in the thing sold, even
though he was not aware thereof.
This provision shall not apply if the contrary has
been stipulated, and the vendor was not aware of the hidden
faults or defects in the thing sold.
The warranty applies to both movable and immovable subject
matters.
So in case there is a breach of warranty under Article 1561,
breach of warranty against hidden defects, we also have
either of these remedies which are not that different from
that provided under Article 1599.
Now, also remember that one of the requisites for a breach of
warranty against hidden defects is that aside from it is hidden
and it is serious, the defect must exist at the time of sale.
Requisites for Breach of Warranty
The requisites to recover on account of hidden
defects are as follows (Nutrimix Feeds vs. CA):
(1) Defect must be hidden;
(2) Defect must exist at the time the sale was made;
(3) Defect must ordinarily have been excluded from the
contract;
(4) Defect, must be important (render the thing unfit or
considerably decreases fitness);
(5) Action must be instituted within the statute of limitations.
Remedies of Buyer and Obligation of Seller for Breach of
Warranty
A choice of remedies is available to the BUYER only
when the thing has not been lost:
Article 1567. In the cases of articles 1561, 1562,
1564, 1565 and 1566, the vendee may elect between
(1) Withdrawing from the contract (accion redhibitoria) and
(2) Demanding a proportionate reduction of the price (accion
quanti minoris),
with damages in either case.
So yung rescission is actually similar to withdrawing from the
contract. That is referred to as Accion Redhibitoria. And
proportionate reduction is referred to as Accion Quanti
Minoris.
If the subject matter of sale is actually lost, the extent of the
obligations of the SELLER for breach of warranty against
hidden defects depends upon the cause of the lost,
knowledge of the hidden defect by the seller, and whether
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there has been a waiver of the warranty:
Article 1568. If the thing sold should be lost in
consequence of the hidden faults, and
(a) the vendor was aware of them, he shall bear the loss, and
shall be obliged to return the price and refund the expenses of
the contract, with damages.
(b) If he was not aware of them, he shall only return the price
and interest thereon, and reimburse the expenses of the
contract which the vendee might have paid.
Article 1569. If the thing sold had any hidden fault
at the time of the sale, and should thereafter be lost by a
fortuitous event or through the fault of the vendee,
(a) the latter may demand of the vendor the price which he
paid, less the value which the thing had when it was lost.
(b) If the vendor acted in bad faith, he shall pay damages to
the vendee.
So in this article, what are the remedies available to the
vendee if the thing sold should be lost:
1. Withdraw from the contract with damages; or
2. Demand the proportionate reduction of the price
with damages (Article 1567); or
3. Demand from the seller the return of the price or
refund of the expenses with damages if the thing
sold should be lost by virtue of the hidden faults
and the seller was aware of the hidden faults; or
4. Demand from the seller the return of the price, plus
interest, and reimbursement of the expenses the
buyer might have paid if the thing sold should be
lost in consequence of the hidden faults and the
seller was NOT aware of the hidden defects; or
5. Demand the price paid less the value which the
thing had when it was lost if the thing sold had
hidden fault and thereafter it was lost by fortuitous
event through the fault of the vendee; or
6. Demand the price paid less the value of the thing at
the time of loss plus damages if the thing sold had
any hidden fault at the time of sale and thereafter
lost by fortuitous event or through the fault of the
buyer and the seller acted in bad faith.
Waiver of Warranty
Article 1566. The vendor is responsible to the
vendee for any hidden faults or defects in the thing sold, even
though he was not aware thereof.
This provision shall not apply if the contrary has
been stipulated, and the vendor was not aware of the hidden
faults or defects in the thing sold.
Applicability to Judicial Sales
Article 1570. The preceding articles of this
Subsection (on warranty against hidden defects) shall be
applicable to judicial sales, except that the judgment debtor
shall not be liable for damages.
Prescriptive Period
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Article 1571. Actions arising from the provisions of
the preceding ten articles shall be barred after six (6) months,
from the delivery of the thing sold.
So this is six (6) months from the date of the delivery and not
from the perfection of the contract.
Do take note that under Article 1562, it emphasizes the
implied warranty as to fitness or quality. It is:
1. implied warranty as to fitness if the warranty is as
regards to the special purpose of the goods and you
have;
2. implied warranty of merchantability if it refers to
the general purpose of the products or goods.
e) Redhibitory Defects of Animals
Article 1576. If the hidden defect of animals, even in case
a professional inspection has been made, should be of such a
nature that expert knowledge is not sufficient to discover it,
the defect shall be considered as redhibitory.
But if the veterinarian, through ignorance or bad faith
should fail to discover or disclose it, he shall be liable for
damages.
Sale of Team
Article 1572. If two or more animals are sold
together, whether for a lump sum or for a separate price for
each of them, the redhibitory defect of one shall only give rise
to its redhibition, and not that of the others; unless it should
appear that the vendee would not have purchased the sound
animal or animals without the defective one.
The latter case shall be presumed when a team,
yoke pair, or set is bought, even if a separate price has been
fixed for each one of the animals composing the same.
General Rule: Redhibitory defect of one animal which is
purchased with other animals will not affect the others
purchased.
Exception: Unless it should appear that the vendee would not
have purchased the sound animal or animals without the
defective one.
Example, Love Birds. Pair man siguro talaga yan sila noh?
Sabi nga nila pag mamatay yung isa mamatay na rin yung
isa, pano kaya nila malaman? Ma-feel lang niya? Ay
namatay na yung isa, mamatay na rin ako, so hindi sya
magkain? (hahaha) Anyway, for example you purchased love
birds then one of them has a hidden defect, may sakit, what
is the breach there? As to the two (2) birds. Pero kung binili
mo lang sya dalawa, you can purchase one without the other,
we apply the general rule that the redhibitory defect of one
shall only give rise to its redhibition and does not affect the
other.
Article 1573. The provisions of the preceding article
with respect to the sale of animals shall in like manner be
applicable to the sale of other things.
Again, if you purchased products or goods which you would
not purchase without the defective one, the breach will affect
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the two (2) products that were purchased.
Other Rules on Sale of Animals
Article 1574. There is no warranty against hidden
defects of animals sold at fairs or at public auctions, or of live
stock sold as condemned.
Article 1575. The sale of animals suffering from
contagious diseases shall be void.
A contract of sale of animals shall also be void if the
use or service for which they are acquired has been stated in
the contract, and they are found to be unfit therefor.
Okay, very clear noh, under the law. Suffering from
contagious diseases e.g. bird flu, etc. Those animals suffering
from these diseases, their sale is void. Not merely voidable
but also void.
The same with the second paragraph, the animal was sold
and the use or service for which they are acquired has been
stated in the contract, and they are found to be unfit. This is
also declared void. What is the effect if it is a void contract? It
cannot be ratified. And it has no prescriptive period.
Prescriptive Period
Article 1577. The redhibitory action, based on the
faults or defects of animals, must be brought within forty days
from the date of their delivery to the vendee.
This action can only be exercised with respect to
faults and defects which are determined by law or by local
customs.
Article 1578. If the animal should die within three
days after its purchase, the vendor shall be liable if the
disease which cause the death existed at the time of the
contract.
Okay, when it comes to animals, it is forty (40) days from
delivery. Others, six (6) months from delivery. Very easy to
remember yang 40 days, Noahs Ark, 40 days .
Obligation of Buyer to Return
Article 1579. If the sale be rescinded, the animal
shall be returned in the condition in which it was sold and
delivered, the vendee being answerable for any injury due to
his negligence, and not arising from the redhibitory fault or
defect.
Okay, so this still imposes an obligation on the vendee. If the
animal purchased had a redhibitory defect, he still has the
obligation to take care of it until he will be able to return the
animal back to the seller.
He cannot say Ay may sakit ito, bahala na, di ko na pakainin.
Magkasakit ba ang animals pag mabasa ng ulan? Pero tayo
pag mabasa ng ulan, pasok pa rin agad .
So meron syang obligation to take care of the thing (or animal
Maam?), ordinary diligence of a good father of a family.
Otherwise, his negligence would mitigate the liability on the
part of the seller who is liable for breach of warranty.
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Remedies of Buyer
Article 1580. In the sale of animals with redhibitory
defects, the vendee shall also enjoy the right mentioned in
article 1567; but he must make use thereof within the same
period which has been fixed for the exercise of the redhibitory
action.
Okay, so same. Accion Redhibitoria or Accion Quanti Minoris.
But again noh, he must file this action within forty (40) days
from the date of delivery.
Nutrimix Feeds vs. CA
Facts:
Spouses Evangelista are engaged in the business of poultry and hog-
raising. They purchased from Nutrimix feeds for their business.
A few months later, some of the checks that they used for payment
bounced. Hence, Nutrimix demanded for payment but the spouses
failed to heed to such demand.
This prompted Nutrimix to file a case for collection of sum of money.
While Spouses Evangelista did not deny that they had incurred such
balance, they justified their refusal to pay alleging that the feeds that
Nutrimix delivered were mixed with poison which caused the untimely
death of about 18,000 of their chickens and hundreds of their hogs .
So they said that there was a breach of warranty against hidden
defects.
Nutrimix countered by saying that Spouses Evangelista may have
caused the mixing of poison to evade their liability.
Issue:
W/N there was a breach of warranty against hidden defects
Ruling:
No. To prove warranty against hidden defects, complainant has the
burden of proving that indeed there were hidden defects. The
requisites are:
First, the defect should be hidden;
Second, the defect should have been existing at the time of sale;
Third, the defect must be ordinarily be excluded from the contract;
Fourth, the defect must be important such that it renders unfit or
considerably decreases the fitness the value of the thing;
Fifth, The action must be filed within the prescribed period.
In this case, the Spouses Evangelista failed to prove the 2 nd requisite.
They did not immediately notify Nutrimix Corporation that there were
some hidden defects. Likewise, it was only three (3) months from the
death of the chicken and hogs that they decided to have the feeds
checked by experts.
For the failure of Spouses Evangelista to prove that there were hidden
defects at the time of the sale, Nutrimix cannot be held liable for
breach of warranty against hidden defects.
Discussion
Okay, take note of the requisites for the seller to be held liable for
warranty against hidden defects:
1. The defect should be hidden;
2. The defect must exist at the time of sale;
3. The defect must be ordinarily be excluded from the contract;
4. The defect must be serious or important, rendering the thing
unfit or considerably decreases the fitness;
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5. The action must be instituted within the Statute of
Limitations.
Here, upon the sale of feeds, theres an implied warranty that it
would be fit for the purpose for which it is contemplated in relation to
the fact that there were (allegedly) hidden defects on such feeds. But, it
must be established that the defect existed when the products came to
the hands of the petitioners. However, in this case, there was no
evidence that the defect existed at the time of the sale or at the time of
the delivery of the goods. In a span of three (3) months, the feeds could
have been contaminated and subject to many conditions beyond the
control of the petitioners. Tracing the defect to the petitioners, there
should be evidence that there was no tampering of the animal feeds.
The nature of the animal feeds makes it necessarily difficult for the
respondent to prove that the defect was existing when the product left
the premises of the petitioner or when the products were delivered.
So again, take note of the requisites for the seller to be liable for
warranty against hidden defects.
So far, questions regarding these implied warranties in a
contract of sale?
Q: Maam, for example, feeds for animals. Tapos may fungus
na Maam so it poisoned the animals.
Maam Interrupts: So kung fungus, di sya hidden defect kase
makita man siguro?
Q: For example lang Maam hindi. Ay contamination nalang
Maam, the product is contaminated. Who shall be liable Maam? And
can he allege good faith?
A: The seller, kung sino ang nagbenta sayo. You cannot allege
good faith. Ang remedy lang nya is to go after the distributor or
producer. But as to the customer, kung kanino nya binili, sya habulin
nya.
In relation to that, you also have there noh, we have the
Consumer Act of the Philippines. In relation to warranties. If you take a
look at the Consumer Act of the Philippines, Republic Act 7394, its
quite long but I just want to point out Chapter 3 thereof - Consumer
Products and Service Warranties.
*Reproduced for your Study Convenience
CHAPTER III
CONSUMER PRODUCT AND SERVICE WARRANTIES
Art. 66. Implementing Agency. - The Department of Trade and
Industry, shall strictly enforce the provision of this Chapter and its
implementing rules and regulations.
Art. 67. Applicable Law on Warranties. - The provisions of the Civil
Code on conditions and warranties shall govern all contracts of sale
with conditions and warranties.
Art. 68. Additional Provisions on Warranties. - In addition to the Civil
Code provisions on sale with warranties, the following provisions
shall govern the sale of consumer products with warranty:
(a) Terms of express warranty. - Any seller or manufacturer who gives
an express warranty shall:
(1) set forth the terms of warranty in clear and readily
understandable language and clearly identify himself as the
warrantor;
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(2) identify the party to whom the warranty is extended;
(3) state the products or parts covered;
(4) state what the warrantor will do in the event of a defect,
malfunction of failure to conform to the written warranty and at
whose expense;
(5) state what the consumer must do to avail of the rights which
accrue to the warranty; and
(6) stipulate the period within which, after notice of defect,
malfunction or failure to conform to the warranty, the warrantor will
perform any obligation under the warranty.
(b) Express warranty - operative from moment of sale. - All written
warranties or guarantees issued by a manufacturer, producer, or
importer shall be operative from the moment of sale.
(1) Sales Report. - All sales made by distributors of products covered
by this Article shall be reported to the manufacturer, producer, or
importer of the product sold within thirty (30) days from date of
purchase, unless otherwise agreed upon. The report shall contain,
among others, the date of purchase, model of the product bought,
its serial number, name and address of the buyer. The report made in
accordance with this provision shall be equivalent to a warranty
registration with the manufacturer, producer, or importer. Such
registration is sufficient to hold the manufacturer, producer, or
importer liable, in appropriate cases, under its warranty.
(2) Failure to make or send report. - Failure of the distributor to make
the report or send them the form required by the manufacturer,
producer, or importer shall relieve the latter of its liability under the
warranty: Provided, however, That the distributor who failed to
comply with its obligation to send the sales reports shall be
personally liable under the warranty. For this purpose, the
manufacturer shall be obligated to make good the warranty at the
expense of the distributor.
(3) Retail. - The retailer shall be subsidiarily liable under the warranty
in case of failure of both the manufacturer and distributor to honor
the warranty. In such case, the retailer shall shoulder the expenses
and costs necessary to honor the warranty. Nothing therein shall
prevent the retailer from proceeding against the distributor or
manufacturer.
(4) Enforcement of warranty or guarantee. - The warranty rights can
be enforced by presentment of a claim. To this end, the purchaser
needs only to present to the immediate seller either the warranty
card of the official receipt along with the product to be serviced or
returned to the immediate seller. No other documentary
requirement shall be demanded from the purchaser. If the
immediate seller is the manufacturer's factory or showroom, the
warranty shall immediately be honored. If the product was
purchased from a distributor, the distributor shall likewise
immediately honor the warranty. In the case of a retailer other than
the distributor, the former shall take responsibility without cost to
the buyer of presenting the warranty claim to the distributor in the
consumer's behalf.
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(5) Record of purchases. - Distributors and retailers covered by this
Article shall keep a record of all purchases covered by a warranty or
guarantee for such period of time corresponding to the lifetime of
the product's respective warranties or guarantees.
(6) Contrary stipulations: null and void. - All covenants, stipulations
or agreements contrary to the provisions of this Article shall be
without legal effect.
(c) Designation of warranties. - A written warranty shall clearly and
conspicuously designate such warranty as:
(1) "Full warranty" if the written warranty meets the minimum
requirements set forth in paragraph (d); or
(2) "Limited warranty" if the written warranty does not meet such
minimum requirements.
(d) Minimum standards for warranties. - For the warrantor of a
consumer product to meet the minimum standards for warranty, he
shall:
(1) remedy such consumer product within a reasonable time and
without charge in case of a defect, malfunction or failure to conform
to such written warranty;
(2) permit the consumer to elect whether to ask for a refund or
replacement without charge of such product or part, as the case may
be, where after reasonable number of attempts to remedy the
defect or malfunction, the product continues to have the defect or to
malfunction.
The warrantor will not be required to perform the above duties if he
can show that the defect, malfunction or failure to conform to a
written warranty was caused by damage due to unreasonable use
thereof.
(e) Duration of warranty. - The seller and the consumer may
stipulate the period within which the express warranty shall be
enforceable. If the implied warranty on merchantability accompanies
an express warranty, both will be of equal duration.
Any other implied warranty shall endure not less than sixty (60) days
nor more than one (1) year following the sale of new consumer
products.
(f) Breach of warranties. - (1) In case of breach of express warranty,
the consumer may elect to have the goods repaired or its purchase
price refunded by the warrantor. In case the repair of the product in
whole or in part is elected, the warranty work must be made to
conform to the express warranty within thirty (30) days by either the
warrantor or his representative. The thirty-day period, however, may
be extended by conditions which are beyond the control of the
warrantor or his representative. In case the refund of the purchase
price is elected, the amount directly attributable to the use of the
consumer prior to the discovery of the non-conformity shall be
deducted.
(2) In case of breach of implied warranty, the consumer may retain in
the goods and recover damages, or reject the goods, cancel and
contract and recover from the seller so much of the purchase price
as has been paid, including damages.
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Art. 69. Warranties in Supply of Services. - (a) In every contract for
the supply of services to a consumer made by a seller in the course
of a business, there is an implied warranty that the service will be
rendered with due care and skill and that any material supplied in
connection with such services will be reasonably fit for the purpose
for which it is supplied.
(b) Where a seller supplies consumer services in the course of a
business and the consumer, expressly or by implication, makes
known to the seller the particular purpose for which the services are
required, there is an implied warranty that the services supplied
under the contract and any material supplied in connection
therewith will be reasonably fit for that purpose or are of such a
nature or quality that they might reasonably be expected to achieve
that result, unless the circumstances show that the consumer does
not rely or that it is unreasonable for him to rely, on the seller's skill
or judgment.
Art. 70. Professional Services. - The provision of this Act on warranty
shall not apply to professional services of certified public
accountants, architects, engineers, lawyers, veterinarians,
optometrists, pharmacists, nurses, nutritionists, dietitians, physical
therapists, salesmen, medical and dental practitioners and other
professionals engaged in their respective professional endeavors.
Art. 71. Guaranty of Service Firms. - Service firms shall guarantee
workmanship and replacement of spare parts for a period not less
than ninety (90) days which shall be indicated in the pertinent
invoices.
Art. 72. Prohibited Acts. - The following acts are prohibited:
(a) refusal without any valid legal cause by the local manufacturer or
any person obligated under the warranty or guarantee to honor a
warranty or guarantee issued;
(b) unreasonable delay by the local manufacturer or any person
obligated under the warranty or guarantee in honoring the warranty;
(c) removal by any person of a product's warranty card for the
purpose of evading said warranty obligation;
(d) any false representation in an advertisement as to the existence
of a warranty or guarantee.
Art. 73. Penalties. - (a) Any person who shall violate the provisions of
Article 67 shall be subject to fine of not less than Five hundred pesos
(P500.00) but not more than Five thousand pesos (P5,000.00) or an
imprisonment of not less than three (3) months but not more than
two (2) years or both upon the discretion of the court. A second
conviction under this paragraph shall also carry with it the penalty or
revocation of his business permit and license.
(b) Any person, natural or juridical, committing any of the illegal acts
provided for in Chapter III, except with respect to Article 67, shall be
liable for a fine of not less than One thousand pesos (P1,000.00) but
not more than Fifty thousand pesos (P50,000.00) or imprisonment
for a period of at least one (1) year but not more than five (5) years,
or both, at the discretion of the court.
The imposition of any of the penalties herein provided is without
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prejudice to any liability incurred under the warranty or guarantee.
Article 66, DTI shall enforce these provisions and theres reference
to the provisions in the Civil Code under Article 67.
What we have in this Consumer Act is only additional provisions
on warranties.
Theres also a mention there of express warranty under Article 68.
(Maam reads Article 68, See Table )
Also emphasized here noh, the minimum standards for
warranties. The remedy must be claimed within a reasonable time and
without charge.
Do not confuse this with the rule na bawal ang No return, no
exchange sa mga tindahan, that is true but only with regard to
defective products. Because if you already purchased goods tapos you
say Ay parang di man pala ako bagay, di mo yan sya pwede
mabalik.Unless noh, na willing sila.But di yan sya mahulog sa No
return, no exchange na policy.
Ang bawal ang No return, no exchange na policy, with regard to
hidden defects. In the absence of an express provision, you cannot
resort to the provisions of the Consumer Act which prohibits No
return, no exchange policy. This is the rule in the Philippines. (Maam
talks about her Lolos Christmas Tree )
Again the Consumer Act of the Philippines is only in addition to
our Civil Code provisions.
C) IMPLIED WARRANTIES IN SALE OF GOODS
1) Warranty as to Fitness or Quality
Article 1562. In a sale of goods, there is an implied
warranty or condition as to the quality or fitness of the goods, as
follows:
1. Where the buyer, expressly or by implication, makes
known to the seller the particular purpose for which the
goods are acquired, and it appears that the buyer relies
on the seller's skill or judgment (whether he be the
grower or manufacturer or not), there is an implied
warranty that the goods shall be reasonably fit for such
purpose;
2. Where the goods are brought by description from a
seller who deals in goods of that description (whether he
be the grower or manufacturer or not), there is an
implied warranty that the goods shall be of
merchantable quality.
Article 1564. An implied warranty or condition as to the
quality or fitness for a particular purpose may be annexed by the
usage of trade.
Article 1563. In the case of contract of sale of a specified
article under its patent or other trade name, there is no warranty as
to its fitness for any particular purpose, unless there is a stipulation
to the contrary.
a) Requisites for Breach of Warranty to Apply
That the buyer sustained injury because of the product;
That the injury occurred because the product was
defective or unreasonably unsafe; and
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The defect existed when the product left the hands of
the seller. (Nutrimix Feeds vs. CA)
b) Measure of Damage in Case of Breach of Warranty on
Quality
Article 1599(5). In the case of breach of warranty of
quality, such loss, in the absence of special circumstances
showing proximate damage of a greater amount, is the
difference between the value of the goods at the time of
delivery to the buyer and the value they would have had if they
had answered to the warranty.
2) Sale of Goods by Sample and/or by Description
Article 1565. In the case of a contract of sale by sample, if
the seller is a dealer in goods of that kind, there is an implied
warranty that the goods shall be free from any defect rendering
them unmerchantable which would not be apparent on reasonable
examination of the sample.
3) Buyers Option in Case of Breach of Warranty
Article 1599. Where there is a breach of warranty by the
seller, the buyer may, at his election:
Accept or keep the goods and set up against the seller, the breach
of warranty by way of recoupment in diminution or extinction of
the price;
Accept or keep the goods and maintain an action against the seller
for damages for the breach of warranty;
Refuse to accept the goods, and maintain an action against the
seller for damages for the breach of warranty;
Rescind the contract of sale and refuse to receive the goods or if
the goods have already been received, return them or offer to
return them to the seller and recover the price or any part thereof
which has been paid.
When the buyer has claimed and been granted a remedy
in anyone of these ways, no other remedy can thereafter be
granted, without prejudice to the provisions of the second
paragraph of article 1191 (buyers right to rescind, even if
previously he has chosen specific performance when fulfillment has
become impossible).
4) Waiver of Remedies by Buyer
Article 1599. 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.
5) Obligation of Buyer on the Price
Article 1599. Where the buyer is entitled to rescind the
sale and elects to do so, he shall cease to be liable for the price
upon returning or offering to return the goods. If the price or any
part thereof has already been paid, the seller shall be liable to
repay so much thereof as has been paid, concurrently with the
return of the goods, or immediately after an offer to return the
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goods in exchange for repayment of the price.
6) Refusal of Seller to Accept Return of Goods
Article 1599. Where the buyer is entitled to rescind the
sale and elects to do so, if the seller refuses to accept an offer of the
buyer to return the goods, the buyer shall thereafter be deemed to
hold the goods as bailee for the seller, but subject to a lien to secure
the payment of any portion of the price which has been paid, and
with the remedies for the enforcement of such lien allowed to an
unpaid seller by article 1526.
D) ADDITIONAL TERMS OF WARRANTIES FOR CONSUMER GOODS
Article 4(q), RA 7394 (Consumer Act of the Philippines).
"Consumer products and services" means goods, services and credits,
debts or obligations which are primarily for personal, family, household
or agricultural purposes, which shall include but not limited to food,
drugs, cosmetics, and devices.
Article 68. Additional Provisions on Warranties.
(a) Terms of express warranty. Any seller or manufacturer who gives
an express warranty shall:
1) set forth the terms of warranty in clear and readily
understandable language and clearly identify himself as the warrantor;
2) identify the party to whom the warranty is extended;
3) state the products or parts covered;
4) state what the warrantor will do in the event of a defect,
malfunction of failure to conform to the written warranty and at whose
expense;
5) state what the consumer must do to avail of the rights
which accrue to the warranty; and
6) stipulate the period within which, after notice of defect,
malfunction or failure to conform to the warranty, the warrantor will
perform any obligation under the warranty.
1) Subsidiary Liability of Retailer
Article 68(b)(3) Retail. The retailer shall be subsidiarily
liable under the warranty in case of failure of both the
manufacturer and distributor to honor the warranty. In such case,
the retailer shall shoulder the expenses and costs necessary to
honor the warranty. Nothing therein shall prevent the retailer from
proceeding against the distributor or manufacturer.
2) Enforcement of Warranty
Article 68(b)(4) Enforcement of warranty or guarantee.
The warranty rights can be enforced by presentment of a claim. To
this end, the purchaser needs only to present to the immediate
seller either the warranty card of the official receipt along with the
product to be serviced or returned to the immediate seller. No other
documentary requirement shall be demanded from the purchaser.
3) Duration of Warranty
Article 68(e) Duration of warranty. The seller and the
consumer may stipulate the period within which the express
warranty shall be enforceable. If the implied warranty on
merchantability accompanies an express warranty, both will be of
equal duration.
Any other implied warranty shall endure not less than
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sixty (60) days nor more than one (1) year following the sale of new
consumer products.
4) Breach of Warranties
Article 68(f) Breach of warranties.
1) In case of breach of express warranty, the consumer
may elect to have the goods repaired or its purchase price refunded
by the warrantor. In case the repair of the product in whole or in
part is elected, the warranty work must be made to conform to the
express warranty within thirty (30) days by either the warrantor or
his representative. The thirty-day period, however, may be extended
by conditions which are beyond the control of the warrantor or his
representative. In case the refund of the purchase price is elected,
the amount directly attributable to the use of the consumer prior to
the discovery of the non-conformity shall be deducted.
2) In case of breach of implied warranty, the consumer
may retain in the goods and recover damages, or reject the goods,
cancel and contract and recover from the seller so much of the
purchase price as has been paid, including damages.
5) Contrary Stipulations
All covenants, stipulations or agreements contrary to the
provisions of Article 68 are specifically declared null and void, and
without legal effect.
Supercars vs. Flores
Facts:
In the case at bar, Flores bought a vehicle from Supercars. A chattel
mortgage was executed in line with such.
However, after using the vehicle for a few days, the same started
malfunctioning. He returned the car and it was repaired. However, the
defects resurfaced. So, he demanded from the seller the rescission of
the contract and the refund of the payments he made.
When the seller failed to heed such demands, Flores stopped paying
the premiums in RCBC. When RCBC demanded for payment, Flores
said that he already rescinded the contract and that returned the said
vehicle to Supercars.
RCBC then executed the car and sold it at public auction. The car was
sold to one Lim.
Issue:
W/N Flores has the right to rescind the contract of sale and claim
damages
Ruling: Yes.
Discussion
Whats the basis of the action for rescission or for the
recovery of the car? The basis for the action for rescission is
the breach of warranty for hidden defects, Maam.
Was there any issue as to the existence of these hidden defects? How
was it established that there was a breach of this warranty?
A2: Flores already had the car repaired several times but the results
were unsatisfactory. He also wrote several letters to Supercars
regarding the defects which the latter accepted. Thus, producing legal
effects.
Article 1599 of the Civil Code is instructive Maam. This partly
provides that where there is a breach of warranty by the seller, the
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buyer may, at his election rescind the contract of sale and refuse to
receive the goods or if the goods have already been received, return
them or offer to return them to the seller and recover the price or any
part thereof which has been paid.
And when the buyer has availed of any of the four (4) remedies
under Article 1599, it is to the exclusion of the other remedies provided
thereunder.
Article 1191 cannot be availed of because in the case at bar, the
car has already been transferred to a buyer in good faith.
Okay, thank you. So here there was a breach of warranty of
hidden defects. Rescission is proper when one of the parties committed
a substantial breach in its provisions. However, for rescission to take
place, the one who demands must be able to return what he is obliged
to restore. Because the effect of rescission is mutual restitution. In this
case, the vehicle malfunctioned despite repeated repairs by petitioners.
So obviously, the vehicle had hidden defects. It was well within
respondents right to recover damages from petitioner who committed
a breach of warranty, rescind the sale and refuse to receive the goods
or if the goods have already been received, return them or offer to
return them to the seller and recover the price or any part thereof
which has been paid. In this case, the 30% down payment plus the
premium paid by respondent to Supercars.
EXTINGUISHMENT OF SALE
GROUNDS
Article 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this Code.
Article 1600. Sales are extinguished by the same causes as all
other obligations, by those stated in the preceding articles of this Title,
and by conventional or legal redemption.
CONVENTIONAL REDEMPTION
1) Definition
Conventional redemption shall take place when the seller
reserved for himself the right to repurchase the thing sold, with the
obligation to:
a) Return the price of the sale,
b) The expenses of the contract,
c) Any other legitimate payments made by reason of the sale,
and
d) The necessary and useful expenses made on the thing sold.
Article 1609. The vendee is subrogated to the vendor's rights
and actions.
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This is redemption with a repurchase. It is a very important
thing to consider that such right must reserve in the same
Contact of Sale and to which the Statute of Frauds is applicable.
The redemption feature of sale does not prevent its full
consummation
The right of repurchase may be exercised only by
o By the seller in whom the right is recognized by a
contract, or
o By any person to whom the right may have been
transferred, or
o By the person so entitled by law in case of legal
redemption.
Torres vs. CA
Facts
The ILLUSCUPIDESES are the owners of two (2)
adjoining parcels of lands located in the Tapuac District, Dagupan
City. The said properties were mortgaged to the (GSIS).
1965, the Illuscupideses contracted OLORES for the
construction of a nine (9) door apartment on the
parcels of land for the sum of P79,400.00.
Another door was added, increasing the cost of the
construction to P97,000.00.
Illuscupideses could only pay Olores P54,390.51, thus
compelling the latter to sue them for the balance.
1969, judgment was rendered in favor of OLORES for
the unpaid balance with interests and costs.
ILLUSCUPIDESES received a notice from the GSIS that it
was going to foreclosure the mortgage for their failure to pay the
loan when the same became due. To stave off the foreclosure,
the ILLUSCUPIDESES sold the properties to VIVENCIO TORRES
and SOCORRO TORRES, as evidenced by the Deed of Sale dated
October 19, 1973 for P130,000.00, of which the vendees paid the
vendors P10,000.00, P6,000.00 and P3,000.00. The vendees
likewise paid P51,498.97 to the GSIS. The aforesaid payments
were in accordance to the schedule found in the promissory note
executed by the parties on October 19, 1973.
The parties also executed on the same day an
agreement whereby the Torreses would "RESELL, RETRANSFER,
and RECONVEY" to the Illuscupideses "that certain building,
more particularly designated as a ten-door concrete apartment."
OLORES found out about the transaction and, fearing
that he would not be able to collect from the Illuscupideses, in
case the Court of Appeals would uphold the decision of the trial
court in his favor, filed a new case for rescission of the sale
against the Illuscupideses and the Torreses. The Illuscupideses
filed a counter-claim against Olores, and a cross-claim against
the Torreses, alleging that the Deed of Sale was a pacto de
retro sale.
CA upheld the decision in the collection case for the
unpaid balance of the construction costs in favor of Olores.
When said judgment became final and executory. Olores tried to
execute the same but was unable to do so.
Rescission case was DISMISSED.
OLORES and the ILLUSCUPIDES then appealed to the
Court of Appeals.
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CA AFFIRMED the dismissal of the complaint of Olores,
the cross-claim and counter-claim of Illuscupides, and the
counter-claim Torres.
With regard to the appeal of the
Illuscupideses, the Court of Appeals did not agree with
their contention that the sale of the properties to the
Torreses was actually a pacto de retro sale, since the
terms of the Deed of Sale did not provide for the
redemption of the property by the vendors. However, it
was discovered that the land and the apartment were
sold separately, and only the land appears to have been
fully paid. And since the Agreement provided that the
apartment should be resold to the Illuscupideses, the
Torreses should reconvey the apartment to the
Illuscupideses.
The Illuscupideses filed a motion asking that the Court
of Appeals rule upon the apartment rentals collected by
Torreses, since it had ruled that the apartment be reconveyed to
them. DENIED.
Issue
WHETHER OR NOT THE DEED OF SALE OF IS A PACTO DE RETRO
SALE.
Ruling
THE DEED OF SALE AS AN ABSOLUTE SALE.
ILLUSCUPIDESES: the appellate court should have taken
into account the circumstances surrounding the execution of the
deed, particularly the fact that an Agreement to resell the
apartment was executed on the very same day as the deed of
sale. NO MERIT.
Even if this Court were to agree with the Illuscupideses
that parole evidence may be allowed to add to the terms of the
deed of sale, this Court has held in the case of Villarica, et
al. vs. Court of Appeals, et al., that
[t]he right of repurchase is not a right granted the vendor by
the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale as
one of the stipulations of the contract. Once the instrument
of absolute sale is executed, the vendor can no longer
reserve the right to repurchase, and any right thereafter
granted the vendor by the vendee in a separate instrument
cannot be a right to repurchase but some other right like an
option to buy in the instant case.
Discussion
THERE WAS AN AGREEMENT TO RECONVEY/RESELL. WAS THAT
A VALID CONTRACT? Yes, it is valid.
HOW DOES IT DIFFER NOW WITH A PACTO DE RETRO SALE?
WHAT WAS THE OBJECT IN THE AGREEMENT TO RESELL? The building
only.
We have here two contracts executed on the same day. On the
first contract, the Illuscupideses sold the properties to Torres. There was a
Deed of Sale. On the same day, they executed another contract to resell,
retransfer and reconvey the building. Here, the land is a separate real-
estate from the building.
The SC also emphasized the sale with a right to repurchase with
pacto de retro sale. The former is a right reserved by the vendor on the
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same instrument as one of the stipulations of the contract. Once the sale
was already executed, the vendor can no longer reserve the same right.
Any right granted thereafter in a separate instrument cannot be
considered a right to repurchase.
When you execute an absolute sale, the seller does not have
the right to repurchase. What is being emphasized in a pacto de retro sale
is that the right must be expressly reserved. In the absence of that
stipulation, the seller cannot raise the right and repurchase the property.
Moreover, it must be in writing. Hence, the statute of fraud is applicable.
WHAT HAPPENS IN A CONVENTIONAL REDEMPTION WITH A
PACTO DE RETRO SALE? The vendor reserves to himself the right to
reacquire the property. There is a deed of sale which only extinguishes
the obligation pertaining to the contract of sale and not to sell.
If you remember your suspensive and resolutory conditions,
this is one of the instances wherein there is resolutory condition involved
where the seller exercises his right to repurchase because the contract of
sale will now be extinguished by the happening of the resolutory
condition.
----------------------------------
2) Proper Reservation of Right to Repurchase
The right to repurchase is not a right granted to the vendor by
the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale as one
of the stipulations of the contract. (Villarica vs. CA)
The valid existence of a stipulated right of repurchase is
premised upon the fact that the underlying contract of sale is
valid and there has been performance, upon which the right
to repurchase can be exercised later on. (Nool vs. CA)
3) Right of Repurchase May be Proved by Parol Evidence
General Rule: Since a right to repurchase is merely a feature
of the contract of sale, it is governed also by the Statute of Frauds.
Exception: However, when the contract of sale has been
reduced in writing, parol evidence may be adduced to prove the
agreement granting the seller a right to repurchase the property sold,
since the deed of sale and the verbal agreement allowing the right of
repurchase should be considered as an integral whole, then the deed of
sale relied upon by the seller is in itself the note or memorandum
evidencing the contract, which would take the case outside the
provisions of the Statute of Frauds.
4) Distinguished from Option to Purchase
Right of Redemption Option to Purchase
Not a separate contract, but Generally a principal, albeit
merely part of a main contract preparatory, contract and may be
of sale, and in fact cannot exist created independent of another
unless reserved at the time of contract.
the perfection of the main
contract of sale.
Must be imbedded in a contract May exist prior to or after the
of sale upon the latters perfection of the sale, or be
perfection. imbedded in another contract,
like a lease, upon that contracts
perfection.
Does not need a separate Must have a consideration
consideration in order to be separate and distinct from the
valid and effective. purchase price in order to be
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valid.
The redemption period cannot The period for an option right
exceed 10 years. may exceed 10 years.
Requires notice to be Requires only a notice of such
accompanied by a tender of exercise be given to the optioner.
payment, including
consignment when tender of
payment cannot be made
effectively on the buyer.
Extinguishes an existing Results into the perfection of a
contract of sale. contract of sale.
5) Period of Redemption
When No Period Agreed Upon
Article 1606, par. 1. The right referred to in article 1601, in the
absence of an express agreement, shall last four (4) years from the date
of the contract.
When Period Agreed Upon
Article 1606, par. 2. Should there be an agreement, the
period cannot exceed ten (10) years.
Pendency of Action Tolls Redemption Period
1) The pendency of an action brought in good faith and relating to
the validity of a sale a retro tolls the running of the period of
redemption. (Ong Chua vs. Carr)
2) The pendency of a litigation pertaining to the right of redemption
does not toll the period because such period is not suspended
merely and solely because there is a divergence of opinion
between the parties as to the precise meaning of the phrase
providing for the condition upon which the right to repurchase is
triggered. (Misterio vs. Cebu)
Non-Payment of Price does Not Affect Running on Redemption
Period
The sale was consummated upon the execution of the
document and the delivery of the subject matter thereof to the vendee.
It was a perfectly valid agreement, and the non-payment of the balance
of the purchase price could not have the effect of suspending the
efficacy of the provisions thereof. (Catangcatang vs. Legayada)
So before you apply 1606, there must already be an
expressed agreement that a right of repurchase is granted to
the seller. If there is no right to repurchase in say the Deed of
Sale, then you cannot apply Article 1605. Now if the parties
stipulated that the seller is hereby given the right to
repurchase the property within four years from the
constitution of the sale. Is that valid? Yes. Within five years?
Valid. Within 10 year? Valid. Within 12 years? No, but this is
valid only up to 10 years. Hindi na mag-apply for remaining
two years. It cannot exceed 10 years.
Now what if ang nakalagay lang that the seller has the right to
repurchase the property period. So you apply the first
paragraph- four years from the contract. So dalawa lang yan,
four or ten year. But if there is a pending case. In other words,
there is an on-going dispute whether it is a real pacto de retro
sale of an equitable mortgage and it turns out that the Court
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will rule that there is a true pacto de retro sale. Can the right
to repurchase still be exercised by the vendor? YES. But the
redemption period is 30 days from the decision was rendered.
Ofcourse, if the court rules that there was an equitable
mortgage, then the right of redemption cannot be exercised.
6) Possession of Subject Matter During Period of Redemption
Pending the repurchase of the property the vendee a retro
may alienate, mortgage or encumber the same, but such
alienation or encumbrance is as revocable as his right.
If the vendor a retro repurchases the property, the right of the
vendee a retro is resolved, because he has to return the
property free from all damages and encumbrances imposed by
him.
The vendor a retro may also register his right to repurchase
under the Land Registration Act and may be enforced against
any person deriving title from the vendee a retro.
7) How Redemption Effected
Article 1616. The vendor cannot avail himself of the right of
repurchase without returning to the vendee
The price of the sale;
The expenses of the contract, and any other legitimate
payments made by reason of the sale;
The necessary and useful expenses made on the thing sold.
Article 1608. The vendor may bring his action against every
possessor whose right is derived from the vendee, even if in the second
contract no mention should have been made of the right to repurchase,
without prejudice to the provisions of the Mortgage Law and the Land
Registration Law with respect to third persons.
a) How Redemption Exercised
In order to exercise the right to redeem, only tender of
payment is sufficient. (Legaspi vs. CA)
Mere sending of letters by the seller expressing his desire to
repurchase the property without accompanying tender of the
redemption price does not comply with the requirement of
the law. (Vda. De Zulueta vs. Octavio)
When tender of payment cannot be validly made, because
the buyer cannot be located, it becomes imperative for the
seller a retro then to file a suit for consignation with the
courts of the redemption price, and failing to do so within the
redemption period, his right of redemption shall lapse.
(Catangcatang vs. Legayda)
b) In Multi-Parties Cases
Article 1612. If several persons, jointly and in the
same contract, should sell an undivided immovable with a
right of repurchase, none of them may exercise this right for
more than his respective share.
The same rule shall apply if the person who sold an
immovable alone has left several heirs, in which case each of
the latter may only redeem the part which he may have
acquired.
So you have here co-ownwers of an undivided properties. In
the same one contract of sale, they sold their respective
shares with a right to repurchase. If any of them would
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exercise their right of repurchase, it is only to the extent of
their respective shares.
Article 1613. In the case of the preceding article, the
vendee may demand of all the vendors or co-heirs that they
come to an agreement upon the repurchase of the whole
thing sold; and should they fail to do so, the vendee cannot be
compelled to consent to a partial redemption.
What if you have an immovable property but the sale with a
right to repurchase by the co-owner are executed in the
different contracts separately. So we apply 1614.
Article 1614. Each one of the co-owners of an
undivided immovable who may have sold his share separately,
may independently exercise the right of repurchase as regards
his own share, and the vendee cannot compel him to redeem
the whole property.
They sold their shares here separately and independently. So
here, they can independently exercise their right to
repurchase and this time, the vendee cannot compel the
vendors to redeem the whole property.
Article 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.
Remember, in a deed of sale with a right of repurchase, there
is a true contract of sale and the ownership of the property is
transferred to the vendee. What about the creditors if they
have a knowledge on the right to repurchase of the vendor?
So here and debtor ay yung vendor. Can the creditors redeem
the property in behalf of the vendor? They can only do so if
they have exhausted all the properties of the vendor/debtor.
Kung meron pang ibang properties, they can not exercise the
right of repurchase against the buyer.
8) When Redemption Not Made
Article 1607. In case of real property, the consolidation of
ownership in the vendee by virtue of the failure of the vendor to
comply with the provisions of article 1616 shall not be recorded in
the Registry of Property without a judicial order, after the vendor
has been duly heard.
The proceeding for consolidation of title is an ordinary civil
action where a complaint or petition must be filed.
If such action for consolidation of ownership is denied
because the contract is found to be an equitable mortgage,
another action can be filed to collect on the indebtedness or
to foreclose the mortgage.
If the buyer succeeds in proving that the transaction was
indeed a pacto de retro, the vendor is still given a period of 30
days from the finality of the judgment within which to
repurchase the property.
9) Grant of 30-day Redemption Right in Case of Litigation
Article 1606, par. 3. However, the vendor may still exercise
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the right to repurchase within thirty days from the time final judgment
was rendered in a civil action on the basis that the contract was a true
sale with right to repurchase.
- General Rule: When the period of redemption has expired, then
ipso jure the right to redeem has been extinguished.
- Exception: Even when the right to redeem has expired, and there
has been a previous suit on the nature of the contract, the seller
may still exercise the right to repurchase within 30 days from the
time final judgment was rendered in a civil action on the basis that
the contract was a true sale with right to repurchase.
10) Fruits
Article 1617. If at the time of the execution of the sale there
should be on the land, visible or growing fruits, there shall be no
reimbursement for or prorating of those existing at the time of
redemption, if no indemnity was paid by the purchaser when the sale
was executed.
Should there have been no fruits at the time of the sale and
some exist at the time of redemption, they shall be prorated between
the redemptioner and the vendee, giving the latter the part
corresponding to the time he possessed the land in the last year,
counted from the anniversary of the date of the sale.
o Article 1617 on fruits applies only when the parties have not
provided for their sharing agreement with respect to the
fruits existing at the time of redemption.
o What if the subject property has fruits, would that be part of
the reimbursements by the vendor in case he decides to
redeem the property? So here, there is no reimbursement
those existing at the time of the redemption. Also take note
of the pro-rata reimbursements.
Article 1618. The vendor who recovers the thing sold shall
receive it free from all charges or mortgages constituted by the vendee,
but he shall respect the leases which the latter may have executed in
good faith, and in accordance with the custom of the place where the
land is situated. (1520)
Here, to bind the mortgagee, the right to repurchase must be
registered. If not, the mortgagor will have the better right.
11) Equitable Mortgage
Definition
o An equitable mortgage is 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. (Matanguihan vs. CA)
o The essential requisites of an equitable mortgage are as
follows:
That the parties entered into a contract denominated as
a contract of sale; and
That the intention was to secure existing debt by the way
of a mortgage.
1) When the 2 above-enumerated conditions are not proven, the
existence of any of the circumstances enumerated in Article 1602
cannot become the basis to treat the transaction as an equitable
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mortgage. (San Pedro vs. Lee)
2) A contract should be construed as a mortgage or a loan instead of
a pacto de retro sale when its terms are ambiguous or the
circumstances surrounding its execution or its performance are
incompatible or inconsistent with a sale. (Lapat vs. Rosario)
3) The intention of the parties to an agreement is shown not
necessarily by the terminology used therein but by all the
surrounding circumstances having a tendency to fix and determine
the real nature of their design and understanding. (Molina vs. CA)
Pactum Commissorium
Article 2088. The creditor cannot appropriate the
things given by way of pledge or mortgage, or dispose of
them. Any stipulation to the contrary is null and void.
Pactum commisorium is a stipulation for automatic vesting of
title over the security in the creditor in case of the debtors
fault.
When a purported sale a retro is found to be an equitable
mortgage, the proper remedy in case the borrower refuses to
pay the price is to foreclose on the mortgage, and there can
be no loss of the purported sellers right to redeem since this
would constitute the process as a pactum commissorium. In
such a case, the return of the redemption price would
actually be equivalent to the payment of the principal loan,
which would have the legal effect of extinguishing the
equitable mortgage as an ancillary security contract.
Kings Properties vs. Galido
Facts
18 April 1966, the HEIRS OF DOMINGO ENICEO, namely
Rufina Eniceo and Maria Eniceo, were awarded with Homestead
Patent No. 112947 consisting of four parcels of land (Antipolo
property).
The issuance of the homestead patent was subject to
the following conditions:
subject to the provisions of sections 118, 121, 122 and
124 of Commonwealth Act No. 141, which provide that
except in favor of the Government or any of its
branches, units or institutions, the land hereby acquired
shall be inalienable and shall not be subject to
incumbrance for a period of five (5) years next following
the date of this patent, and shall not be liable for the
satisfaction of any debt contracted prior to the
expiration of that period; that it shall not be alienated,
transferred or conveyed after five (5) years and before
twenty-five (25) years next following the issuance of
title, without the approval of the Secretary of
Agriculture and Natural Resources; that it shall not be
incumbered, alienated, or transferred to any person,
corporation, association, or partnership not qualified to
acquire public lands under the said Act and its
amendments;
10 Sept 1973, a deed of sale covering the Antipolo
property was executed between RUFINA ENICEO and MARIA
ENICEO as vendors and respondent as vendee. Rufina Eniceo and
Maria Eniceo sold the Antipolo property to respondent
for P 250,000. A certain Carmen Aldana delivered the owners
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duplicate copy of OCT No. 535 to respondent.
PET: alleges that when Maria Eniceo died in June 1975,
Rufina Eniceo and the heirs of Maria Eniceo, who continued to
occupy the Antipolo property as owners, thought that the owners
duplicate copy of OCT No. 535 was lost.
5 April 1988, the Eniceo heirs registered with the
Registry of Deeds a Notice of Loss dated 2 April 1988. The Eniceo
heirs also filed a petition for the issuance of a new owners
duplicate copy.
RTC: certified true copy of OCT No. 535 contained no
annotation in favor of any person, corporation or entity; ordered
the Registry of Deeds to issue a second owners copy of OCT No.
535 in favor of the Eniceo heirs and declared the original owners
copy of OCT NO. 535 cancelled and considered of no further
value.
ROD issued a second owners copy in favor of the Eniceo
heirs.
PET states that as early as 1991, respondent knew of the
RTC decision in LRC Case No. 584-A because respondent filed a
criminal case against Rufina Eniceo and Leonila Bolina for giving
false testimony upon a material fact during the trial of LRC Case
No. 584-A.
that sometime in February 1995, Bolinas came to the
office of (Tronio), petitioners general manager, and
offered to sell the Antipolo property. During an on-site
inspection, Tronio saw a house and ascertained that the
occupants were Bolinas relatives. Tronio also went to
the Registry of Deeds to verify the records on file.
Tronio ascertained that OCT No. 535 was clean and had
no lien and encumbrances. After the necessary
verification, petitioner decided to buy the Antipolo
property.
14 Mar 1995, RESP caused the annotation of his adverse
claim in OCT No. 535.
20 Mar 1995, the ENICEO HEIRS executed a deed of absolute sale
in favor of PET covering lots 3 and 4 of the Antipolo property
for P 500,000.
5 April 1995, executed another deed of sale covering
lots 1 and 5 of the Antipolo property for P1,000,000.
17 August 1995, (DENR Secretary) approved the deed of
sale between the Eniceo heirs and respondent.
RES filed a civil complaint against the Eniceo heirs and
petitioner; prayed for the cancellation of the certificates of title
issued in favor of petitioner, and the registration of the deed of
sale and issuance of a new transfer certificate of title in favor of
respondent. DISMISSED.
Issue
WHETHER THE ADVERSE CLAIM OF RESPONDENT OVER
THE ANTIPOLO PROPERTY SHOULD BE BARRED BY LACHES;
WHETHER THE DEED OF SALE DELIVERED TO RESPONDENT
SHOULD BE PRESUMED AN EQUITABLE MORTGAGE PURSUANT TO
ARTICLE 1602(2) AND 1604 OF THE CIVIL CODE.
Ruling
THE CONTRACT BETWEEN THE ENICEO HEIRS AND
RESPONDENT EXECUTED ON 10 SEPTEMBER 1973 WAS A
PERFECTED CONTRACT OF SALE. A contract is perfected once
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there is consent of the contracting parties on the object certain
and on the cause of the obligation.In the present case, the object
of the sale is the Antipolo property and the price certain
is P250,000.
THE CONTRACT OF SALE HAS ALSO BEEN
CONSUMMATED because the vendors and vendee have
performed their respective obligations under the contract. 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. The execution of the notarized deed of sale and the
delivery of the owners duplicate copy of OCT No. 535 to
respondent is tantamount to a constructive delivery of the object
of the sale.
PET: the deed of sale is a forgery. The Eniceo heirs also
claimed in their answer that the deed of sale is fake and spurious.
Forgery can never be presumed. The party alleging
forgery is mandated to prove it with clear and convincing
evidence. Whoever alleges forgery has the burden of proving it.
In this case, petitioner and the Eniceo heirs failed to discharge
this burden.
PET: the belated approval by the DENR Secretary, made
within 25 years from the issuance of the homestead, to nullify the
sale of the Antipolo property should be fatal.
The sale of the Antipolo property cannot be annulled on
the ground that the DENR Secretary gave his approval after 21
years from the date the deed of sale in favor of respondent was
executed.
No alienation, transfer, or conveyance of any homestead
after five years and before twenty-five years after the issuance of
title shall be valid without the approval of the Secretary of
Agriculture and Natural Resources, which approval shall not be
denied except on constitutional and legal grounds.
Spouses Alfredo v. Spouses Borras : The failure to secure
the approval of the Secretary does not ipso factomake a sale
void. The absence of approval by the Secretary does not a sale
made after the expiration of the 5-year period, for in such event
the requirement of Section 118 of the Public Land Act becomes
merely directory or a formality. The approval may be secured
later, producing the effect of ratifying and adopting the
transaction as if the sale had been previously authorized .
PET: the deed of sale in favor of respondent is an
equitable mortgage because the Eniceo heirs remained in
possession of the Antipolo property despite the execution of the
deed of sale.
An EQUITABLE MORTGAGE is 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. The essential
requisites of an equitable mortgage are:
1) The parties entered into a contract denominated as a
contract of sale; and
2) Their intention was to secure existing debt by way of a
mortgage.
Lim v. Calaguas : In order for the presumption of
equitable mortgage to apply, there must be: (1) something in the
language of the contract; or (2) in the conduct of the parties
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which shows clearly and beyond doubt that they intended the
contract to be a mortgage and not a pacto de retro sale. Proof by
parol evidence should be presented in court. Parol evidence is
admissible to support the allegation that an instrument in
writing, purporting on its face to transfer the absolute title to
property, was in truth and in fact given merely as security for the
payment of a loan. The presumption of equitable mortgage under
Article 1602 of the Civil Code is not conclusive. It may be rebutted
by competent and satisfactory proof of the contrary.
PET: An equitable mortgage can be presumed because
the Eniceo heirs remained in possession of the Antipolo property.
Apart from the fact that the Eniceo heirs remained in
possession of the Antipolo property, petitioner has failed to
substantiate its claim that the contract of sale was intended to
secure an existing debt by way of mortgage . In fact, mere
tolerated possession is not enough to prove that the transaction
was an equitable mortgage.
PET has not shown any proof that the Eniceo heirs were
indebted to respondent. On the contrary, the deed of sale
executed in favor of respondent was drafted clearly to convey
that the Eniceo heirs sold and transferred the Antipolo property
to respondent. The deed of sale even inserted a provision about
defrayment of registration expenses to effect the transfer of title
to respondent.
This defense of equitable mortgage is available only to
petitioners predecessors-in-interest who should have
demanded, but did not, for the reformation of the deed of sale.
Eniceo heirs never presented the defense of equitable mortgage
before the trial court. They claimed that the alleged deed of sale
dated 10 Sept 1973 between Rufina Eniceo and Maria Eniceo was
fake and spurious. The Eniceo heirs contended that even
assuming there was a contract, no consideration was involved. It
was only in the Appellees Brief filed before the CA that the
Eniceo heirs claimed as an alternative defense that the deed
should be presumed as an equitable mortgage.
ALTHOUGH PETITIONER RAISED THE DEFENSE OF
EQUITABLE MORTGAGE IN THE LOWER COURT, HE CANNOT CLAIM
THAT THE DEED WAS AN EQUITABLE MORTGAGE BECAUSE
PETITIONER WAS NOT A PRIVY TO THE DEED OF SALE DATED 10
SEPTEMBER 1973. PETITIONER MERELY STEPPED INTO THE SHOES
OF THE ENICEO HEIRS. PETITIONER, WHO MERELY ACQUIRED ALL
THE RIGHTS OF ITS PREDECESSORS, CANNOT ESPOUSE A THEORY
THAT IS CONTRARY TO THE THEORY OF THE CASE CLAIMED BY THE
ENICEO HEIRS.
The Court notes that the Eniceo heirs have not appealed
the CAs decision, hence, as to the Eniceo heirs, the CAs decision
that the contract was a sale and not an equitable mortgage is
now final. Since petitioner merely assumed the rights of the
Eniceo heirs, petitioner is now estopped from questioning the
deed of sale.
Petitioner is not a buyer in good faith
PETITIONER PURCHASED THE ANTIPOLO PROPERTY ONLY
ON 20 MARCH 1995 AND 5 APRIL 1995 AS SHOWN BY THE DATES
IN THE DEEDS OF SALE. ON THE SAME DATES, THE REGISTRY OF
DEEDS ISSUED NEW TCTS IN FAVOR OF PETITIONER WITH THE
ANNOTATED ADVERSE CLAIM. THE ADVERSE CLAIM REGISTERED
PRIOR TO THE SECOND SALE CHARGED PETITIONER WITH
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CONSTRUCTIVE NOTICE OF THE DEFECT IN THE TITLE OF ENICEO
HEIRS. THEREFORE, PETITIONER CANNOT BE DEEMED AS A
PURCHASER IN GOOD FAITH WHEN THEY BOUGHT AND
REGISTERED THE ANTIPOLO PROPERTY.
Discussion
WAS THE CONTRACT A SALE OR EQUITABLE MORTGAGE? THE
CONTRACT BETWEEN THE ENICEO HEIRS AND RESPONDENT EXECUTED
ON 10 SEPTEMBER 1973 WAS A PERFECTED CONTRACT OF SALE. A
contract is perfected once there is consent of the contracting parties on
the object certain and on the cause of the obligation.In the present case,
the object of the sale is the Antipolo property and the price certain is
P250,000.
THE CONTRACT OF SALE HAS ALSO BEEN CONSUMMATED
because the vendors and vendee have performed their respective
obligations under the contract.
HOW DID THE ISSUE OF EQUITABLE MORTGAGE ARISE?It was
the petitioner, in this case, who alleged that the deed of sale in favor of
respondent was an equitable mortgage because the Eniceo heirs
remained in possession of the Antipolo property despite the execution of
the deed of sale.
----------------------------------
Rationale Behind the Provisions on Equitable
Mortgages
1) Articles 1602, 1603 and 1604 were designed to prevent
circumvention of the laws on usury and the prohibition
against the creditor appropriating the mortgaged
property. Courts have taken judicial notice of the well-known
fact that contracts of sale with right of repurchase have been
frequently used to conceal the true nature of a contract, that
is a loan secured by a mortgage. The wisdom of the
provisions cannot be ignored nor doubted considering that in
many cases unlettered persons or even those of average
intelligence invariably find themselves in no position
whatsoever to bargain with the creditor. Besides, it is a fact
that in times 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. (Matanguihan vs. CA)
2) Since Article 1602 is remedial in nature, it was applied
retroactively in cases prior to the effectivity of the New Civil
Code.
When Presumed Equitable Mortgage
Article 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;
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(5) When the vendor binds himself to pay the taxes on the
thing sold;
(6) In any other case where it may be fairly inferred that the
real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other
obligation.
In any of the foregoing cases, any money, fruits, or
other benefit to be received by the vendee as rent or
otherwise shall be considered as interest which shall be
subject to the usury laws.
- The existence of any one of the conditions, not a
concurrence, nor an overwhelming number of such
circumstances, suffices to give rise to the presumption
that the contract is an equitable mortgage.
- Nonetheless, it should be noted that the presumption of
equitable mortgage is not conclusive it may be
rebutted by competent and satisfactory proof to the
contrary.
- In order for the presumption of equitable mortgage to
apply, there must be:
1. something in the language of the contract; or
2. in the conduct of the parties which shows clearly and beyond
doubt that they intended the contract to be a mortgage and
not a pacto de retro sale. (Lim vs. Calaguas)
Applicability to Deeds of Absolute Sale
Article 1604. The provisions of article 1602 shall
also apply to a contract purporting to be an absolute sale.
1. For the provision to apply, 2 requisites must be present:
(1) That the parties entered into a contract
denominated as a contract of sale; and
(2) That their intention was to secure an existing debt
by way of mortgage. (Tuazon vs. CA)
Proof by Parole Evidence; Best Evidence Rule
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 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 attitudes, acts, conduct, and
declarations of the parties; the negotiations between them
leading to the deed; and generally, all pertinent facts having a
tendency to fix and determine the real nature of their design
and understanding.
As such, documentary and parol evidence may be
submitted and admitted to prove the intention of the parties.
(Austria vs. Gonzales, Jr.)
Effects When Sale Adjudged to be an Equitable
Mortgage
Any money, fruits, or other benefit to be received by
the vendee as rent or otherwise shall be considered as
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interest which shall be subject to the usury laws. (Article
1602)
The apparent vendor may ask for the reformation of the
instrument. (Article 1605)
For the court to decree that vendor-debtor to pay his
outstanding loan to the vendee-creditor. (Banga vs. Bello)
Where the trial court did not pass upon the mortgagors claim that
he had paid his mortgage obligation, a remand of the case to
the trial court is in order, only for the purpose of determining
whether the mortgage obligation had indeed been settled,
and if not, how much should the mortgagor pay to settle the
same. (Banga vs. Bello)
Spouses Raymundo vs. Spouses Bandong
Facts
Eulalia was engaged in the business of buying and
selling large cattle from different provinces within
the Philippines. For this purpose, she employed biyaheros whose
primary task involved the procuring of large cattle with the
financial capital provided by Eulalia and delivering the procured
cattle to her for further disposal. In order to secure the financial
capital she advanced for the biyaheros, Eulalia required them to
surrender the Transfer Certificates of Title of their properties and
to execute the corresponding Deeds of Sale in her favor.
Eulaliano longer required Dominador to post any
security in the performance of his duties.
Eulalia found that Dominador incurred shortage in his
cattle procurement operation in the amount
of P 70K. Dominador and his wife Rosalia then executed a Deed of
Sale in favor of Eulalia , covering a parcel of land. On the
strength of the aforesaid deed, the subject property was
registered in the names of Eulalia and her husband. The subject
property was thereafter sold by the
Spouses Raymundo to Eulalias grandniece and herein co-
petitioner, Jocelyn Buenaobra.
After the TCT of the subject property was transferred
to their names, the Spouses Buenaobra instituted an action
for ejectment against the Spouses Bandong, seeking the eviction,
which the Spouses Bandong opposed on the ground that they are
the rightful owners and possessors thereof.
Spouses Bandong instituted an action for annulment of
sale against Eulalia and Jocelyn on the ground that their consent
to the sale of the subject property was vitiated by Eulalia after
they were served by Jocelyns counsel with the demand to
vacate. The Spouses Bandong alleged that there was no sale
intended but only equitable mortgage for the purpose of
securing the shortage incurred by Dominador in the amount
of P 70,000 while employed as biyahero by Eulalia.
Eulalia countered that Dominador received from her a
significant sum of money, either as cash advances for the
purpose of procuring large cattle or as personal loan, and when
he could no longer pay his obligations, the
Spouses Bandong voluntarily ceded the subject property to her
by executing the corresponding deed of sale in her favor. Indeed,
the Spouses Bandong personally appeared before the Notary
Public and manifested that the deed was their own voluntary act
and deed.
Jocelyn maintained that she was a buyer in good faith
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and for value for she personally inquired from the Register of
Deeds of the presence of any liens and encumbrances on the TCT
of the subject property and found that the same was completely
free therefrom. While she admitted that she had previous notice
that Dominador and a certain Lourdes Santos were in possession
of the subject property, Jocelyn claimed that the said possessors
already acknowledged her ownership thereof and even asked for
time to vacate. In the end, though, they refused to leave the
premises.
Issues
WHETHER OR NOT THE DEED OF SALE BETWEEN
DOMINADOR AND EULALIA IS VALID AND BINDING. No
WHETHER OR NOT JOCELYN IS A BUYER IN GOOD FAITH. No
Ruling
An equitable mortgage is one that - although lacking in
some formality, forms and words, or other requisites demanded
by a statute - nevertheless reveals the intention of the parties to
charge a real property as security for a debt and contains
nothing impossible or contrary to law.
The instances when a contract - regardless of its
nomenclature - may be presumed to be an equitable mortgage
are enumerated in the Civil Code (1602).
For Articles 1602 and 1604 to apply, two requisites must
concur: one, the parties entered into a contract denominated as
a contract of sale; and two, their intention was to secure an
existing debt by way of an equitable mortgage.
There is no question
that Dominador and Eulalia entered into a contract of sale as
evidenced by the document denominated as Deed of Sale signed
by them.
In determining whether a deed absolute in form is a
mortgage, the court is not limited to the written memorials of
the transaction. The decisive factor in 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 situation of
the parties at that time, the attitude acts, conduct, declarations
of the parties, the negotiations between them leading to the
deed, and generally, all pertinent facts having a tendency to fix
and determine the real nature of their design and
understanding.
In executing the said Deed of
Sale, Dominador and Eulalia never intended the transfer of
ownership of the subject property but to burden the same with
an encumbrance to secure the indebtedness incurred
by Dominador on the occasion of his employment with Eulalia.
By Eulalias own admission, it was her customary
business practice to require her biyaheros to deliver to her the
titles to their real properties and to execute in her favor the
corresponding deeds of sale over the said properties as security
for the money she provided for their cattle procurement task,
and since Dominador worked for Eulaliasbusiness for years, he
was allowed to advance the money without any
security. Significantly, it was only after he incurred a shortage
that the sale contract was executed.
We are not inclined to believe the contention of the
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petitioners that Dominador ceded his property to Eulalia as
payment for his obligation for it is contrary to human experience
that a person would easily part with his property after sustaining
a debt. Rather, he would first look for means to settle his
obligation, and the selling of a property on which the house that
shelters him and his family stands, would be his last resort. The
only reasonable conclusion that may be derived
from Dominadors act of executing a Deed of Sale in favor
of Eulalia is that the latter required him to do so in order to
ensure that he will subsequently pay his obligation to her.
The explicit provision of Article 1602 that any of those
circumstances would suffice to construe a contract of sale to be
one of equitable mortgage is in consonance with the rule that
the law favors the least transmission of property rights . To
stress, the existence of any one of the conditions under Article
1602, not a concurrence, or an overwhelming number of such
circumstances, suffices to give rise to the presumption that the
contract is an equitable mortgage.
While we agree in the petitioners insistence that
inadequacy of the price is not sufficient to nullify the contract of
sale, their persistence is, however, misplaced. It is worthy to
note that the factual circumstances attendant in the case at bar
call not for the application of the legal and jurisprudential
principles on annulment of contract per se, but more aptly, of
the provisions of Articles 1602 and 1604 of the Civil Code on the
construction of the contract of sale as an equitable mortgage.
The agreement between Dominador and Eulalia was
not avoided in its entirety so as to prevent it from producing any
legal effect at all. Instead, we construe that said transaction is an
equitable mortgage, thereby merely altering the relationship of
the parties from seller and buyer, to mortgagor and mortgagee,
while the subject property is not transferred but subjected to a
lien in favor of the latter.
Granting that the purchase price is adequate, the fact
that respondents remain in possession of the subject property
after its supposed sale is sufficient to support our finding that
the contract is one of equitable mortgage and not of sale. To
reiterate, the existence of any one of the conditions under
Article 1602, not a concurrence, or an overwhelming number of
such circumstances, suffices to give rise to the presumption
that the contract is an equitable mortgage .
Having threshed the issue that there was no sale in
favor of Eulalia but an equitable mortgage leads us to an
inevitable conclusion that she has no right to subsequently
transfer ownership of the subject property, in consonance with
the principle that nobody can dispose of what he does not
have. One of the exceptions to this rule, however, can be found
in Article 1506 of the Civil Code, wherein the seller
has voidable title to a property but his title has not yet been
nullified at the time of the sale, and the subsequent buyer of the
property was in good faith.
We are not convinced by the petitioners incessant
assertion that Jocelyn is an innocent purchaser for value. To
begin with, she is a grandniece of Eulalia and resides in the same
locality where the latter lives and conducts her principal
business. It is therefore impossible for her not to acquire
knowledge of her grand aunts business practice of requiring
her biyaheros to surrender the titles to their properties and to
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sign the corresponding deeds of sale over said properties in her
favor, as security. This alone should have put Jocelyn on guard
for any possible abuses that Eulalia may commit with the titles
and the deeds of sale in her possession.
The glaring lack of good faith of Jocelyn is more
apparent in her own admission that she was aware
that Dominador and a certain Lourdes were in possession of the
subject property.
Discussion
WHAT IS AN EQUITABLE MORTGAGE? An equitable mortgage is
one that - although lacking in some formality, forms and words, or other
requisites demanded by a statute - nevertheless reveals the intention of
the parties to charge a real property as security for a debt and contains
nothing impossible or contrary to law.
WHAT IS THE APPLICABLE INSTANCE AS PROVIDED BY ARTICLE
1602? When the vendor remains in possession as lessee or otherwise as
Dominador and his wife remained in possession of the property.
----------------------------------
Heirs of Reyes vs. Reyes
Facts
ANTONIO REYES and his wife, LEONCIA MAG-ISA REYES,
were owners of a parcel of residential land with an area of 442
square meters, more or less, located in Pulilan, Bulacan. On that
land they constructed their dwelling. The couple had four
children, namely: (Jose, Sr.), (Teofilo), (Jose, Jr.) and (Potenciana).
Antonio Reyes died intestate, and was survived by Leoncia and
their three sons, Potenciana having predeceased her father.
Potenciana also died intestate, survived by her children, namely:
Gloria, Maria, and Alfredo. Jose, Jr., and his family resided in the
house of the parents, but Teofilo constructed on the property his
own house, where he and his family resided.
On July 9, 1955, LEONCIA and her three sons executed a
deed denominated Kasulatan ng Biling Mabibiling Muli, whereby
they sold the land and its existing improvements to the SPOUSES
FRANCIA for P500.00, subject to the vendors right to repurchase
for the same amount sa oras na sila'y makinabang. Potencianas
heirs did not assent to that deed. Nonetheless, Teofilo and Jose,
Jr. and their respective families remained in possession of the
property and paid the realty taxes thereon.
Leoncia and her children did not repay the amount
of P 500.00.
SPOUSES FRANCIA both died intestate (i.e., Monica
Ajoco on September 16, 1963, and Benedicto Francia on January
13, 1964).
ALEJANDRO, the son of Jose, Sr., first partially paid to
the Spouses Francia the amount of P265.00 for the obligation of
Leoncia, his uncles and his father. Alejandro later paid the
balance of P235.00. Thus, on Aug 11, 1970, the heirs of Spouses
Francia executed a deed entitled Pagsasa-ayos ng Pag-aari at
Pagsasalin, whereby they transferred and conveyed to Alejandro
all their rights and interests in the property for P500.00.
Aug 21, 1970, executed a Kasulatan ng Pagmeme-
ari, wherein he declared that he had acquired all the
rights and interests of the heirs of the Spouses Francia,
including the ownership of the property, after the
vendors had failed to repurchase within the given
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period. On the basis of the Kasulatan ng Pagmeme-
ari, Tax Declaration No. 3703 covering the
property [7] was canceled by Tax Declaration No.
8715, effective 1971, issued to Alejandro. From then on,
he had paid the realty taxes for the property.
Oct 17, 1970, Alejandro, (Leoncia), and (Jose, Sr.)
executed a Magkakalakip na Salaysay by which Alejandro
acknowledged the right of Leoncia, Jose, Jr., and Jose, Sr. to
repurchase the property at any time for the same amount
of P 500.00.
Oct 22, 1970, Leoncia died intestate. She was survived
by Jose, Sr., Teofilo, Jose, Jr. and the heirs of Potenciana. Even
after Leonicas death, Teofilo and Jose, Jr., with their respective
families, continued to reside in the property.
Tax Declaration 1228, under the name of Alejandro, was
issued effective 1980. All of Leoncias sons eventually died
intestate, survived by their respective heirs.
Sep 2, 1993, Alejandro also died intestate. Surviving him
were his wife, Amanda Reyes, and their children, namely:
Consolacion Reyes, Eugenia Reyes-Elvambuena, Luciana Reyes-
Mendoza, Pedrito S. Reyes, Merlinda Reyes-Famodulan, Eduardo
Reyes and June S. Reyes (respondents herein).
RESP AMANDA REYES asked the heirs of Teofilo and
Jose, Jr., to vacate the property because she and her children
already needed it. After the PETs refused to comply, she filed a
complaint in the barangay, seeking their eviction from the
property. When no amicable settlement was reached, the
Barangay Lupon issued a certification to file action to
the respondents on September 26, 1994.
PET Nenita R. de la Cruz and her brother Romeo Reyes
also constructed their respective houses on the property.
RESP initiated this suit for quieting of title and
reconveyance. They alleged that their predecessor Alejandro had
acquired ownership of the property by virtue of
the deed Pagsasa-ayos ng Pag-aari at Pagsasalin executed on
Aug 11, 1970 by the heirs of the Spouses Francia; that on the
basis of such deed of assignment, Alejandro had consolidated his
ownership of the property via his Kasulatan ng Pagmeme-
ari; and that under the Magkasanib na Salaysay, Alejandro had
granted to Leoncia, his father Jose, Sr., and his uncles,
Teofilo and Jose, Jr. the right to repurchase the property, but
they had failed to do so.
PETs averred that the Kasulatan ng Biling Mabibiling
Muli was an equitable mortgage, not a pacto de retro sale;
that the mortgagors had retained ownership of the property;
that the heirs of the Spouses Francia could not have validly sold
the property to Alejandro through the Pagsasaayos ng Pag-aari
at Pagsasalin; that Alejandros right was only to
seek reimbursement of the P 500.00 he had paid from the co-
owners; and that Alejandro could not have also validly
consolidated ownership through the Kasulatan ng Pagmeme-
ari, because a consolidation of ownership could only be
effected via a court order.
interposed a counterclaim for the declaration of the
transaction as an equitable mortgage, and of their
property as owned in common by all the heirs of
Leoncia, Teofilo, Jose, Jr. and Jose, Sr.
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1st Issue
WHETHER RESP WERE ALREADY BARRED FROM
CLAIMING THAT THE TRANSACTION ENTERED INTO BY THEIR
PREDECESSORS-IN-INTEREST WAS AN EQUITABLE MORTGAGE
AND NOT A PACTO DE RETRO SALE;
Ruling
THE AGREEMENT WAS AN EQUITABLE MORTGAGE. The
CA correctly concluded that the true agreement of the
parties vis--vis the Kasulatan ng Biling Mabibiling Muli was an
equitable mortgage, not a pacto de retro sale. There was no
dispute that the purported vendors had continued in the
possession of the property even after the execution of the
agreement; and that the property had remained declared for
taxation purposes under Leoncias name, with the realty taxes
due being paid by Leoncia, despite the execution of the
agreement. Such established circumstances are among the
badges of an equitable mortgage enumerated in Article 1602,
paragraphs 2 and 5 of the Civil Code, to wit:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(2) When the vendor remains in possession as lessee or
otherwise;
(5) When the vendor binds himself to pay the taxes on
the thing sold;
The existence of any one of the conditions enumerated
under Article 1602 of the Civil Code, not a concurrence of all or
of a majority thereof, suffices to give rise to the presumption
that the contract is an equitable mortgage. Consequently, the
contract between the vendors and vendees (SPS Francia) was an
equitable mortgage.
2nd Issue
ARE THE PETITIONERS NOW BARRED FROM CLAIMING
THAT THE TRANSACTION UNDER THE KASULATAN NG BILING
MABIBILING MULI WAS AN EQUITABLE MORTGAGE BY THEIR
FAILURE TO REDEEM THE PROPERTY FOR A LONG PERIOD OF
TIME?
Considering that sa oras na silay makinabang, the
period of redemption stated in the Kasulatan ng Biling
Mabibiling Muli, signified that no definite period had been
stated, the period to redeem should be ten years from the
execution of the contract, pursuant to Articles 1142 and 1144 of
the Civil Code. Thus, the full redemption price should have been
paid by July 9, 1955; and upon the expiration of said 10-year
period, mortgagees Spouses Francia or their heirs should
have foreclosed the mortgage, but they did not do so. Instead,
they accepted Alejandros payments, until the debt was fully
satisfied by August 11, 1970.
The acceptance of the payments even beyond the 10-
year period of redemption estopped the mortgagees heirs from
insisting that the period to redeem the property had already
expired. Their actions impliedly recognized the continued
existence of the equitable mortgage. The conduct of the original
parties as well as of their successors-in-interest manifested that
the parties to the Kasulatan ng Biling Mabibiling Muli really
intended their transaction to be an equitable mortgage, not
a pacto de retro sale.
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The acceptance of partial payments was absolutely
incompatible with the idea of irrevocability of the title of
ownership of the purchaser upon the expiration of the term
stipulated in the original contract for the exercise of the right of
redemption. Thereby, the conduct of the parties manifested that
they had intended the contract to be a mortgage, not a pacto de
retro sale.
WHEN ALEJANDRO REDEEMED THE PROPERTY
ON AUGUST 11, 1970, HE DID NOT THEREBY BECOME A CO-
OWNER THEREOF, BECAUSE HIS FATHER JOSE, SR. WAS THEN
STILL ALIVE. Alejandro merely became the assignee of the
mortgage, and theproperty continued to be co-owned by Leoncia
and her sons Jose, Sr., Jose Jr., and Teofilo. As an assignee of the
mortgage and the mortgage credit, Alejandro acquired only the
rights of his assignors, nothing more. He himself confirmed so in
the Magkasanib na Salaysay, whereby he acknowledged the co-
owners right to redeem the property from him at any time ( sa
ano mang oras) for the same redemption price of P 500.00.
Alejandros confirmation in the Magkasanib na
Salaysay of the co-owners right to redeem was made despite 15
years having meanwhile elapsed from the execution of the
original Kasulatan ng Biling Mabibiling Muli (July 9, 1955) until
the execution of the Magkasanib na Salaysay (August 21, 1970).
NEITHER DID THE PET FAILURE TO INITIATE AN ACTION
FOR REFORMATION WITHIN TEN YEARS FROM THE EXECUTION
OF THE KASULATAN NG BILING MABIBILING MULI BAR THEM
FROM INSISTING ON THEIR RIGHTS IN THE PROPERTY. The
records show that the parties in the Kasulatan ng Biling
Mabibiling Muli had abided by their true agreement under the
deed, to the extent that they and their successors-in-interest still
deemed the agreement as an equitable mortgage despite the
lapse of 15 years from the execution of the purported pacto de
retro sale. Hence, an action for reformation of the Kasulatan ng
Biling Mabibiling Muli was unnecessary, if not superfluous,
considering that the reason underlying the requirement for an
action for reformation of instrument has been to ensure that the
parties to a contract abide by their true intended agreement.
The Kasulatan ng Pagmeme-ari executed by Alejandro
on August 21, 1970 was ineffectual to predicate the exclusion of
the petitioners and their predecessors in interest from insisting
on their claim to the property. Alejandros being an assignee of
the mortgage did not authorize him or his heirs to appropriate
the mortgaged property for himself without violating the
prohibition against pactum commissorium contained in Article
2088 of the Civil Code, to the effect that [t]he creditor cannot
appropriate the things given by way of pledge or mortgage, or
dispose of them[;] [a]ny stipulation to the contrary is null and
void.
The respondents, as Alejandros heirs, were entirely
bound by his previous acts as their predecessors-in-interest.
Thus, Alejandros acknowledgment of the effectivity of the
equitable mortgage agreement precluded the respondents from
claiming that the property had been sold to him with right to
repurchase.
3rd Issue
WHAT WAS THE EFFECT OF THE MAGKASANIB NA
SALAYSAY? The provisions of the Civil Code governing equitable
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mortgages disguised as sale contracts, like the one herein, are
primarily designed to curtail the evils brought about by
contracts of sale with right to repurchas e, particularly the
circumvention of the usury law and pactum
commissorium. Courts have taken judicial notice of the well-
known fact that contracts of sale with right to repurchase have
been frequently resorted to in order to conceal the true nature
of a contract, that is, a loan secured by a mortgage. It is a reality
that grave financial distress renders persons hard-pressed to
meet even their basic needs or to respond to an emergency,
leaving no choice to them but to sign deeds of absolute sale of
property or deeds of sale with pacto de retro if only to obtain the
much-needed loan from unscrupulous money lenders. This
reality precisely explains why the pertinent provision of the Civil
Codeincludes a peculiar rule concerning the period of
redemption, to wit:
Art. 1602. The contract shall be presumed to be an
equitable mortgage, in any of the following cases:
(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;
The law allows a new period of redemption to be agreed
upon or granted even after the expiration of the equitable
mortgagors right to repurchase, and treats such extension as one
of the indicators that the true agreement between the parties is
an equitable mortgage, not a sale with right to repurchase. It was
indubitable, therefore, that the Magkasanib na
Salaysay effectively afforded to Leoncia, Teofilo, Jose, Sr. and
Jose, Jr. a fresh period within which to pay to Alejandro the
redemption price of P 500.00.
Heirs of the Late Spouses Balite vs. Lim
Doctrine
A deed of sale that allegedly states a price lower than the
true consideration is nonetheless binding between the parties
and their successors in interest. Furthermore, a deed of sale in
which the parties clearly intended to transfer ownership of the
property cannot be presumed to be an equitable mortgage under
Article 1602 of the Civil Code. Finally, an agreement that
purports to sell in metes and bounds a specific portion of an
unpartitioned co-owned property is not void; it shall effectively
transfer the sellers ideal share in the co-ownership.
Facts
The SPS BALITE were the owners of a parcel of land.
When Aurelio died intestate [in 1985, his wife], Esperanza Balite,
and their children, PET Antonio Balite, Flor Balite-Zamar,
Visitacion Balite-Difuntorum, Pedro Balite, Pablo Balite, Gaspar
Balite, Cristeta (Tita) Balite and Aurelio Balite, Jr.,
inherited the subject property and became co-owners thereof,
with Esperanza inheriting an undivided share of 9,751 sqm.
ESPERANZA became ill and was in dire need of money
for her hospital expenses. She, through her daughter, Cristeta,
offered to sell to RODRIGO LIM, her undivided share for the
price of P1M. Esperanza and Rodrigo agreed that, under
the Deed of Absolute Sale , to be executed by Esperanza over the
property, it will be made to appear that the purchase price of the
property would be P150,000.00, although the actual price agreed
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upon by them for the property was P1M.
April 16, 1996, ESPERANZA executed a Deed of Absolute
Sale in favor of Rodrigo N. Lim over a portion of the property.
They also executed, on the same day, a Joint Affidavit under
which they declared that the real price of the property was P1M ,
payable to Esperanza, by installments.
Only Esperanza and two of her children, namely,
Antonio and Cristeta, knew about the said transaction. Geodetic
Engineer Bonifacio G. Tasic conducted a subdivision survey of the
property and prepared a Sketch Plan showing a portion of the
property, identified as Lot 243 with an area of 10,000 sqm, under
the name Rodrigo N. Lim.
The Sketch Plan was signed by Rodrigo and Esperanza.
Thereafter, Rodrigo took actual possession of the property and
introduced improvements thereon. He remitted to Esperanza and
Cristeta sums of money in partial payments of the property for
which he signed Receipts .
Gaspar, Visitacion, Flor, Pedro and Aurelio, Jr. learned of
the sale, and on Aug 21, 1996, they wrote a letter to the ROD,
saying that they were not informed of the sale of a portion of the
said property by their mother nor did they give their consent
thereto, and requested the [RD] to:
hold in abeyance any processal or approval of any
application for registration of title of ownership in the
name of the buyer of said lot, which has not yet been
partitioned judicially or extrajudicially, until the issue of
the legality/validity of the above sale has been cleared.
Aug 24, 1996, ANTONIO received from Rodrigo, the
amount of P 30K in partial payment of the property and signed
a Receipt for the said amount, declaring therein that the
remaining balance of P350,000.00 shall personally and directly
be released to my mother, Esperanza Balite, only . However,
Rodrigo drew and issued RCBC Check No. 309171, dated Aug 26,
1996, payable to the order of Antonio Balite in the amount
of P 30K in partial payment of the property.
Oct 1, 1996, ESPERANZA executed a Special Power of
Attorney appointing her son, Antonio, to collect and receive,
from Rodrigo, the balance of the purchase price of the property
and to sign the appropriate documents therefor.
Oct 23, 1996, signed a letter addressed to Rodrigo
informing the latter that her children did not agree to
the sale of the property to him and that she was
withdrawing all her commitments until the validity of
the sale is finally resolved.
Oct 31, 1996, Esperanza died intestate and was survived
by her aforenamed children.
RODRIGO caused to be published, on Nov 14, 21 and 28,
1996, the aforesaid Deed of Absolute Sale . Earlier, on November
21, 1996, Antonio received the amount of P10K from Rodrigo for
the payment of the estate tax due from the estate of Esperanza.
Also, the capital gains tax, in the amount of P14,506.25, based on
the purchase price of P 150,000.00 appearing on the Deed of
Absolute Sale, was paid to the BIR which issued a Certification of
said payments, on March 5, 1997, authorizing the registration of
the Deed of Absolute Sale. [RD] refused to issue a title over the
property to and under the name of Rodrigo unless and until the
owners duplicate of OCT No. 10824 was presented to [it].
Rodrigo filed a Petition for Mandamus against the RD. On June
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13, 1997, the court issued an Order to the RD to cancel OCT No.
10824 and to issue a certificate of title over Lot 243 under the
name of Rodrigo.
PET filed a complaint against Rodrigo for Annulment of
Sale, Quieting of Title, Injunction and Damages .
had a Notice of Lis Pendens , dated June 23, 1997,
annotated, on June 27, 1997, at the dorsal portion of
OCT No. 10824.
RD cancelled, on July 10, 1997, OCT No. 10824 and
issued [TCT] No. 6683 to and under the name of Rodrigo over Lot
243. The Notice of Lis Pendens was carried over in TCT No. 6683.
secured a loan from RCBC in the amount of P 2M and
executed a REM over the subject property as security
therefor.
Issue
WHETHER THE DEED OF ABSOLUTE SALE IS VALID.
Ruling
Validity of the Sale
PET: Deed of Absolute Sale is null and void, because the
undervalued consideration indicated therein was intended for an
unlawful purpose -- to avoid the payment of higher capital gains
taxes on the transaction. According to them, the appellate courts
reliance on Article 1353 of the Civil Code was erroneous. The
Joint Affidavit is not proof of a true and lawful cause, but an
integral part of a scheme to evade paying lawful taxes and
registration fees to the government.
RELATIVE SIMULATION. The parties intended to be
bound by the Contract, even if it did not reflect the actual
purchase price of the property. That the parties intended the
agreement to produce legal effect is revealed by the letter of
Esperanza Balite to respondent dated October 23, 1996 and
petitioners admission that there was a partial payment
of P 320,000 made on the basis of the Deed of Absolute Sale.
There was an intention to transfer the ownership of over 10,000
square meters of the property. Clear from the letter is the fact
that the objections of her children prompted Esperanza to
unilaterally withdraw from the transaction.
Since the Deed of Absolute Sale was merely relatively
simulated, it remains valid and enforceable. However, the parties
shall be bound by their real agreement for a consideration
of P 1M as reflected in their Joint Affidavit.
Petitioners cannot be permitted to unmake the Contract
voluntarily entered into by their predecessor, even if the stated
consideration was included therein for an unlawful purpose. The
binding force of a contract must be recognized as far as it is
legally possible to do so. However, the government has the right
to collect the proper taxes based on the correct purchase price.
Being onerous, the Contract had for its cause or
consideration the price of P 1M. Both this consideration as well
as the subject matter of the contract -- Esperanzas share in the
property covered by OCT No. 10824 -- are lawful. The motives of
the contracting parties for lowering the price of the sale -- in the
present case, the reduction of capital gains tax liability -- should
not be confused with the consideration. Although illegal, the
motives neither determine nor take the place of the
consideration.
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P1M as reflected in their Joint Affidavit.

Deed of Sale not an Equitable Mortgage Again, emphasis on the two requisites. For Articles 1602 and
PET: even assuming that the deed of sale is valid it 1604 to apply, two requisites must concur: one, the parties entered into a
should only be deemed an equitable mortgage pursuant to contract denominated as a contract of sale; and, two, their intention was
Articles 1602 and 1604 of the Civil Code, because the price was to secure an existing debt by way of mortgage.
clearly inadequate. They add that the presence of only one of the And here, there was merely a relative simulated contract.
circumstances enumerated under Article 1602 would be sufficient ----------------------------------
to consider the Contract an equitable mortgage. We disagree.
For Articles 1602 and 1604 to apply, two requisites must LEGAL REDEMPTION
concur: one, the parties entered into a contract denominated as
a contract of sale ; and, two, their intention was to secure an The other time type of redemption is the legal redemption.
existing debt by way of mortgage . What is the difference? Obviously, in conventional redemption, there
THERE WAS AN ABSOLUTE SALE. Indeed, the existence must be an agreement of the parties. In legal redemption, even if the
of any of the circumstances enumerated in Article 1602, not a parties do not agree, there is a right of redemption. So you have the
concurrence or an overwhelming number thereof, suffices to give definition under Article 1619.
rise to the presumption that a contract purporting to be an
absolute sale is actually an equitable mortgage. In the present 1) Definition
case, however, the Contract does not merely purport to be an Article 1619. Legal redemption is the right to be subrogated,
absolute sale. The records and the documentary evidence upon the same terms and conditions stipulated in the contract, in the
introduced by the parties indubitably show that the Contract is, place of one who acquires a thing by purchase or dation in payment, or
indeed, one of absolute sale. There is no clear and convincing by any other transaction whereby ownership is transmitted by onerous
evidence that the parties agreed upon a mortgage of the subject title.
property.
The voluntary, written and unconditional acceptance of Rationale:
contractual commitments negates the theory of equitable Legal redemption is in the nature of a privilege created by law
mortgage. There is nothing doubtful about the terms of, or the partly for reasons of public policy and partly for the benefit and
circumstances surrounding, the Deed of Sale that would call for convenience of the redemptioner, to afford him a way out of what
the application of Article 1602. The Joint Affidavit indisputably might be a disagreeable or inconvenient association into which he has
confirmed that the transaction between the parties was a sale. been thrust. It is intended to minimized co-ownership. The law grants a
PET never raised as an issue before the trial court the co-owner the exercise of the said right of redemption when the shares
fact that the document did not express the true intent and of the other owners are sold to "a third person." A third person, within
agreement of the contracting parties. They raised mere the meaning of this Article, is anyone who is not a co-owner. (Basa vs.
suppositions on the inadequacy of the price, in support of their Aguilar)
argument that the Contract should be considered as an equitable
mortgage. 2) Salient Distinctions Between Conventional and Legal Rights of
We find no basis to conclude that the purchase price of Redemption
the property was grossly inadequate. Petitioners did not present
any witness to testify as to the market values of real estate in the Conventional Legal
subjects locale. They made their claim on the basis alone of Strictly speaking, a right a A legal right of redemption does not
the P 2M loan that respondent had been able to obtain from the retro can only be have to be expressly reserved (it is as
RCBC. This move did not sufficiently show the alleged constituted by express right granted by law), and covers sales
inadequacy of the purchase price. A mortgage is a mere security reservation in a contract of and other onerous transfers of title.
for a loan. There was no showing that the property was the only sale at time of perfection.
security relied upon by the bank; or that the borrowers had no Right a retro is in favor of A legal right of redemption is given to
credit worthiness, other than the property offered as collateral. the seller. a third-party to the sale.
The exercise of the right a The exercise of the legal right of
Discussion retro extinguishes the redemption, although it extinguishes
WHY WAS THERE AN ALLEGATION OF AN EQUITABLE underlying contract of sale the original sale, actually constitutes a
MORTGAGE? For the part of the petitioners, even assuming that the deed as though there was never new sale in substitution of the original
of sale is valid it should only be deemed an equitable mortgage pursuant any contract at all. sale.
to Articles 1602 and 1604 of the Civil Code, because the price was clearly
inadequate. They add that the presence of only one of the circumstances 3) Legal Redemption under Civil Code
enumerated under Article 1602 would be sufficient to consider the
Contract an equitable mortgage. a) Among Co-Heirs
WHAT WAS REALLY THE PRICE? The Contract had for its cause or Article 1088. Should any of the heirs sell his hereditary rights
consideration the price of P1M. Since the Deed of Absolute Sale was to a stranger before the partition, any or all of the co-heirs may be
merely relatively simulated, it remains valid and enforceable. However, subrogated to the rights of the purchaser by reimbursing him for the
the parties shall be bound by their real agreement for a consideration of price of the sale, provided they do so within the period of one month

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from the time they were notified in writing of the sale by the vendor. owner and the redemption is demanded by the other co-
owner or co-owners. (Avila vs. Barabat)
There is no right of legal redemption available to the co-heirs
when the sale covers a particular property of the estate, since d) Distinguishing Between the Rights of Redemption of Co-heirs and
the legal right of redemption applies only to the sale by an Co-Owners
heir of his hereditary right. (Plan vs. IAC)
The heirs who participated in the execution of the Co-Heir Co-Owner
extrajudicial settlement which included the sale to a third An heir may validly redeem for The Court has construed Article
person of their pro indiviso shares in the property are bound himself alone the hereditary 1620 to include the doctrine that a
by the same, which the co-heirs who did not participate rights sold by another co-heir redemption by a co-owner of the
would have the right to redeem their shares pursuant to (Article 1088). property owned in common, even
Article 1088 of the Civil Code. (Cua vs. Vargas) when he uses his own fund, within
the period prescribed by law,
b) Among Co-Owners inures to the benefit of all the
Article 1620. A co-owner of a thing may exercise the right of other co-owners.
redemption in case the shares of all the other co-owners or of any of If the sale is the hereditary When the sale consists of an
them, are sold to a third person. If the price of the alienation is grossly right itself, fully or in part, in interest in some particular
excessive, the redemptioner shall pay only a reasonable one. the abstract sense, without property or properties of the
Should two or more co-owners desire to exercise the right of specifying any particular inheritance, the right of
redemption, they may only do so in proportion to the share they may object, the right recognized in redemption that arises in favor of
respectively have in the thing owned in common. Article 1088 exists. the other co-heirs is that
recognized in Article 1620.
Let us say you have A and B who are co-owners of this When the subject matter sold When the subject matter sold was
property. So when can we apply 1620? If B sells his was a particular property of a particular property of the estate
undivided interest in this property to C plus the same was the estate and not hereditary and not hereditary rights, the
made with 3rd person before partition and redemption must rights, the redemption by a co- redemption by a co-owner/co-heir
be made within the period provided by law, A can redeem the heir of hereditary rights sold is redounded to the benefit of all
property from C. So that is Aricle 1620, redemption available only for his own account. other co-owners.
to a co-owner of the property.
In second paragraph, what if we have 2 or more co-owners e) Among Adjoining Owners of Rural Lands
who wants to purchase the property. So let us say you have Article 1621. The owners of adjoining lands shall also have
here the owners, A, B, and C. And C will now sell his share to the right of redemption when a piece of rural land, the area of which
X. A and B will be given the right to dedeem the property but does not exceed one hectare, is alienated, unless the grantee does not
between them, who will be preferred? Wala. It will be in own any rural land.
proportion to their shares. This right of redemption is not This right is not applicable to adjacent lands which are
available if C will share his share to B. Ang requirement diti is separated by brooks, drains, ravines, roads and other apparent
that the sale has to be in favor of a third person because the servitudes for the benefit of other estates.
law is not in favor co-ownership. Mas gusto ng law na isa lang If two or more adjoining owners desire to exercise the right of
ang may-ari. redemption at the same time, the owner of the adjoining land of
smaller area shall be preferred; and should both lands have the same
Article 1623, par. 2. The right of redemption of co-owners area, the one who first requested the redemption.
excludes that of adjoining owners.
What would happen here? Let us say A, B and C adjoining
Under this provision, in the absence of the notice required, owners of rural lands. If B would sell his property to X, A and
yung 30-day period hindi magtakbo. Mere verbal notice is not C is given the right by the law to redeem the same if their
sufficient. Dapat may written notice. area does not exceed 1 hectares. So both A and C is given the
right. But who will be prefereed? The one with smaller area
c) Effect of De Facto Partition Among Co-Heirs and Co-Owners will be preferred. If they have the same area, then the one
Although an inherited property is succeeded to by the who first requested of the redemption.
heirs as co-owners thereof, if in fact they have partitioned Also take note whwn we talk about adjoining lands, dapat
it among themselves and each have occupied and treated magkatabi talaga. So does not include lands separated by
definite portions thereof as their own, co-ownership has roads and other apparent servitudes.
ceased even though the property is covered under one
title, and the sale by one of the heirs of his definite f) Among Adjoining Owners of Urban Land
portion cannot trigger the right of redemption in favor of Article 1622. Whenever a piece of urban land which is so
the other heirs. (Vda. De Ape vs. CA) small and so situated that a major portion thereof cannot be used for
The right of redemption to be exercised, co-ownership any practical purpose within a reasonable time, having been bought
must exist at the time of the conveyance is made by a co- merely for speculation, is about to be re-sold, the owner of any

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adjoining land has a right of pre-emption at a reasonable price.
If the re-sale has been perfected, the owner of the adjoining
land shall have a right of redemption, also at a reasonable price.
When two or more owners of adjoining lands wish to exercise
the right of pre-emption or redemption, the owner whose intended use
of the land in question appears best justified shall be preferred.
This time you have an urban land. Notice here that unlike
Articles 1620 and 1621, under 1622, a right of pre-emption is
also given. If you have two or more owners who wish to
exercise the right, the owner whose intended use is best
justified shall be preferred. Co-owners will also be preferred
over adjoining owners.
g) Sale of Credit in Litigation
Article 1634. When a credit or other incorporeal right in
litigation is sold, the debtor shall have a right to extinguish it by
reimbursing the assignee for the price the latter paid therefor, the
judicial costs incurred by him, and the interest on the price from the day
on which the same was paid.
A credit or other incorporeal right shall be considered in
litigation from the time the complaint concerning the same is
answered.
The debtor may exercise his right within thirty days from the
date the assignee demands payment from him.
h) When Legal Redemption Period Begins to Run
Article 1623. The right of legal pre-emption or redemption
shall not be exercised except within thirty days from the notice in
writing by the prospective vendor, or by the vendor, as the case may be.
The deed of sale shall not be recorded in the Registry of Property, unless
accompanied by an affidavit of the vendor that he has given written
notice thereof to all possible redemptioners.
Under this provision, in the absence of the notice required,
yung 30-day period hindi magtakbo. Mere verbal notice is not
sufficient. Dapat may written notice.
4) Other Instances when Right of Legal Redemption is Granted
a) Redemption of Homesteads
Every conveyance of land acquired under the free patent
homestead provisions, when proper, shall be subject to repurchase by
the applicant, his widow, or legal heirs, within a period of 5 years from
the date of the conveyance (Sec. 119, Public land Act).
The seller cannot avail himself of the right to repurchase
without returning to the buyer the price of the sale (Article 1616). A
mere notice of intent to redeem is not sufficient.
b) Redemption in Tax Sales
In case of delinquency sale of property of a taxpayer for
failure to pay tax assessments, within 1 year from the date of sale, the
delinquent taxpayer, or anyone for him, shall have the right of
redeeming property by paying to the Revenue District Officer the
amount of the public taxes, penalties, and interest thereon from the
date of delinquency to the date of sale, together with interests on the
purchase price (Section 214, National Internal Revenue Code of 1997).
c) Redemption by Judgment Debtor
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A judgment debtor, or his successor-in-interests, or a creditor
having a lien by attachment, judgment or mortgage on the property
sold at public auction shall have 1 year from date of resignation of the
certificate of sale, and not just 12 months after the sale as provided
previously under the old Rules of Court, to redeem the property by
paying the purchaser at the public auction the amount of his purchase,
with interest up to the time of redemption, together with amount of
any assessments or taxes which the purchaser may have paid thereon
after purchase, with interest thereon. (Sections 27 and 28, Rule 39 of
the Rules of Court)
d) Redemption in Extrajudicial Foreclosure
In all cases in which an extrajudicial foreclosure sale has been
made under a special power, the debtor, his successors-in-interests or
any judicial creditor or judgment creditor of said debtor, or any person
having lien on the property subsequent to the mortgage or deed of
trust under which the property has been sold, may redeem the same
within 1 year from and after the date of the sale and registration
thereof. (Section 6, Act No. 3135)
e) Redemption in Judicial Foreclosure
No right to redeem is granted to the debtor-mortgagor when
there has been a judicial foreclosure of a real estate mortgage, except
when the mortgagee is a bank or a banking institution. (GSIS vs. CFI of
Iloilo Branch III)
f) Foreclosures by Banking Institutions
In the event of foreclosure, whether judicially or extra-
judicially, of any mortgage on real estate which is security for any loan
or other credit accommodation granted, the mortgagor or debtor
whose real property has been sold for the full or partial payment of his
obligation shall have the right within one year after the sale of the real
estate, to redeem the property by paying the amount due under the
mortgage deed, with interest thereon at rate specified in the mortgage,
and all the costs and expenses incurred by the bank or institution from
the sale and custody of said property less the income derived
therefrom. However, the purchaser at the auction sale concerned
whether in a judicial or extra-judicial foreclosure shall have the right to
enter upon and take possession of such property immediately after the
date of the confirmation of the auction sale and administer the same in
accordance with law. Any petition in court to enjoin or restrain the
conduct of foreclosure proceedings instituted pursuant to this provision
shall be given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will pay all
the damages which the bank may suffer by the enjoining or the
restraint of the foreclosure proceeding. Notwithstanding Act 3135,
juridical persons whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to redeem the property in
accordance with this provision until, but not after, the registration of
the certificate of foreclosure sale with the applicable Register of Deeds
which in no case shall be more than three (3) months after foreclosure,
whichever is earlier. Owners of property that has been sold in a
foreclosure sale prior to the effectivity of this Act shall retain their
redemption rights until their expiration. (Section 47, RA 8791)
g) Period of Redemption When Rural Bank Forecloses
If the land, previously received under patent, is mortgaged to
a rural ban under RA 720, the mortgagor may redeem the property
within 2 years from the date of foreclosure or from the registration of
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the sheriffs 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 5 years from expiration of the
2 year redemption period pursuant to Section 119 of the Public Land
Act, where the subject matter was obtained through a homestead
patent.
h) Legal Right to Redeem Under Agrarian Reform Code
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. (Section 1, RA 3844).
ASSIGNMENT
NATURE OF ASSIGNMENT IN THE SCHEME OF THINGS
Article 1624. An assignment of creditors and other
incorporeal rights shall be perfected in accordance with the provisions
of article 1475.
WHAT MAKES ASSIGNMENT DIFFERENT?
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 vs. CA)
ASSIGNMENT AS AN EQUITABLE MORTGAGE
Like species sale used as a device to secure an obligation,
assignment of intangibles is also resorted to as a means to secure loans.
In both cases, the principles pertaining to equitable mortgages will
apply.
LEASE
Spouses Mamaril vs. BSP (Boy Scouts of the Philippines)
Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps.
Mamaril) are jeepney operators since 1971. They would park their six
(6) passenger jeepneys every night at the Boy Scout of the Philippines'
(BSP) compound located at 181 Concepcion Street, Malate, Manila for
a fee of P300.00 per month for each unit. On May 26, 1995 at 8
o'clock in the evening, all these vehicles were parked inside the BSP
compound. The following morning, however, one of the vehicles with
Plate No. DCG 392 was missing and was never recovered. According to
the security guards Cesario Pea (Pea) and Vicente Gaddi (Gaddi) of
AIB Security Agency, Inc. (AIB) with whom BSP had contracted for its
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security and protection, a male person who looked familiar to them
took the subject vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a complaint for
damages before the Regional Trial Court (RTC) of Manila, Branch 39,
against BSP, AIB, Pea and Gaddi. In support thereof, Sps. Mamaril
averred that the loss of the subject vehicle was due to the gross
negligence of the above-named security guards on-duty who allowed
the subject vehicle to be driven out by a stranger despite their
agreement that only authorized drivers duly endorsed by the owners
could do so. Pea and Gaddi even admitted their negligence during
the ensuing investigation. Notwithstanding, BSP and AIB did not heed
Sps. Mamaril's demands for a conference to settle the matter. They
therefore prayed that Pea and Gaddi, together with AIB and BSP, be
held liable for: (a) the value of the subject vehicle and its accessories
in the aggregate amount of P300,000.00; (b) P275.00 representing
daily loss of income/boundary reckoned from the day the vehicle was
lost; (c) exemplary damages; (d) moral damages; (e) attorney's fees;
and (f) cost of suit.
In its Answer, BSP denied any liability contending that not
only did Sps. Mamaril directly deal with AIB with respect to the
manner by which the parked vehicles would be handled, but the
parking ticket8 itself expressly stated that the "Management shall not
be responsible for loss of vehicle or any of its accessories or article left
therein." It also claimed that Sps. Mamaril erroneously relied on the
Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers,
and employees.
In addition to the foregoing defenses, AIB alleged that it has
observed due diligence in the selection, training and supervision of its
security guards while Pea and Gaddi claimed that the person who
drove out the lost vehicle from the BSP compound represented
himself as the owners' authorized driver and had with him a key to the
subject vehicle. Thus, they contended that Sps. Mamaril have no
cause of action against them.
Issue
Whether or not BSP should be held liable for the loss of their
vehicle based on the Guard Service Contract and the parking ticket it
issued
Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who,
contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same. Similarly, Article 2176 of the
Civil Code states:
Art. 2176. Whoever by act or omission causes
damage to another, there being fault or negligence, is
obliged to pay for the damage done. Such fault or
negligence, if there is no preexisting contractual relation
between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the
loss of Sps. Mamaril's vehicle was the negligent act of security guards
Pea and Gaddi in allowing an unidentified person to drive out the
subject vehicle. Proximate cause has been defined as that cause,
which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury or loss, and without which the
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result would not have occurred.
Neither will the vicarious liability of an employer under
Article 2180 of the Civil Code apply in this case. It is uncontested that
Pea and Gaddi were assigned as security guards by AIB to BSP
pursuant to the Guard Service Contract. Clearly, therefore, no
employer-employee relationship existed between BSP and the
security guards assigned in its premises. Consequently, the latter's
negligence cannot be imputed against BSP but should be attributed to
AIB, the true employer of Pea and Gaddi.
Nor can it be said that a principal-agent relationship existed
between BSP and the security guards Pea and Gaddi as to make the
former liable for the latter's complained act. Article 1868 of the Civil
Code states that "by the contract of agency, a person binds himself to
render some service or to do something in representation or on behalf
of another, with the consent or authority of the latter." The basis for
agency therefore is representation, which element is absent in the
instant case. Records show that BSP merely hired the services of AIB,
which, in turn, assigned security guards, solely for the protection of its
properties and premises. Nowhere can it be inferred in the Guard
Service Contract that AIB was appointed as an agent of BSP. Instead,
what the parties intended was a pure principal-client relationship
whereby for a consideration, AIB rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP
should be held liable for their loss on the basis of the Guard Service
Contract that the latter entered into with AIB and their parking
agreement with BSP.
In order that a third person benefited by the second
paragraph of Article 1311, referred to as a stipulation pour autrui, may
demand its fulfillment, the following requisites must concur: (1) There
is a stipulation in favor of a third person; (2) The stipulation is a part,
not the whole, of the contract; (3) The contracting parties clearly and
deliberately conferred a favor to the third person - the favor is not
merely incidental; (4) The favor is unconditional and uncompensated;
(5) The third person communicated his or her acceptance of the favor
before its revocation; and (6) The contracting parties do not represent,
or are not authorized, by the third party. However, none of the
foregoing elements obtains in this case.
It is undisputed that Sps. Mamaril are not parties to the
Guard Service Contract. Neither did the subject agreement contain
any stipulation pour autrui. And even if there was, Sps. Mamaril did
not convey any acceptance thereof. Thus, under the principle of
relativity of contracts, they cannot validly claim any rights or favor
under the said agreement.
Defendant-appellant sought the services of defendant AIB
Security Agency for the purpose of the security and protection of its
properties, as well as that of its officers and employees, so much so
that in case of loss of [sic] damage suffered by it as a result of any act
or negligence of the guards, the security agency would then be held
responsible therefor. There is absolutely nothing in the said contract
that would indicate any obligation and/or liability on the part of the
parties therein in favor of third persons such as herein plaintiffs-
appellees.
Moreover, the Court concurs with the finding of the CA that
the contract between the parties herein was one of lease as defined
under Article 1643 of the Civil Code. It has been held that the act of
parking a vehicle in a garage, upon payment of a fixed amount, is a
lease. Even in a majority of American cases, it has been ruled that
where a customer simply pays a fee, parks his car in any available
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space in the lot, locks the car and takes the key with him, the
possession and control of the car, necessary elements in bailment, do
not pass to the parking lot operator, hence, the contractual
relationship between the parties is one of lease.
In the instant case, the owners parked their six (6) passenger
jeepneys inside the BSP compound for a monthly fee of P300.00 for
each unit and took the keys home with them. Hence, a lessor-lessee
relationship indubitably existed between them and BSP.
On this score, Article 1654 of the Civil Code provides that
"the lessor (BSP) is obliged: (1) to deliver the thing which is the object
of the contract in such a condition as to render it fit for the use
intended; (2) to make on the same during the lease all the necessary
repairs in order to keep it suitable for the use to which it has been
devoted, unless there is a stipulation to the contrary; and (3) to
maintain the lessee in the peaceful and adequate enjoyment of the
lease for the entire duration of the contract." In relation thereto,
Article 1664 of the same Code states that "the lessor is not obliged to
answer for a mere act of trespass which a third person may cause on
the use of the thing leased; but the lessee shall have a direct action
against the intruder." Here, BSP was not remiss in its obligation to
provide Sps. Mamaril a suitable parking space for their jeepneys as it
even hired security guards to secure the premises; hence, it should
not be held liable for the loss suffered by Sps. Mamaril.
It bears to reiterate that the subject loss was caused by the
negligence of the security guards in allowing a stranger to drive out
plaintiffs-appellants' vehicle despite the latter's instructions that only
their authorized drivers may do so. Moreover, the agreement with
respect to the ingress and egress of Sps. Mamaril's vehicles were
coordinated only with AIB and its security guards, without the
knowledge and consent of BSP. Accordingly, the mishandling of the
parked vehicles that resulted in herein complained loss should be
recovered only from the tort feasors (Pea and Gaddi) and their
employer, AIB; and not against the lessor, BSP.
Anent Sps. Mamaril's claim that the exculpatory clause:
"Management shall not be responsible for loss of vehicle or any of its
accessories or article left therein" contained in the BSP issued parking
ticket was void for being a contract of adhesion and against public
policy, suffice it to state that contracts of adhesion are not void per se.
It is binding as any other ordinary contract and a party who enters into
it is free to reject the stipulations in its entirety. If the terms thereof
are accepted without objection, as in this case, where plaintiffs-
appellants have been leasing BSP's parking space for more or less 20
years, then the contract serves as the law between them. Besides, the
parking fee of P300.00 per month or P10.00 a day for each unit is too
minimal an amount to even create an inference that BSP undertook to
be an insurer of the safety of plaintiffs-appellants' vehicles.
Discussion:
As to the obligations enumerated in Article 1654, all of these
were performed by BSP. BSP was not remiss in its obligation to provide
Sps. Mamaril a suitable parking space for their jeepneys as it even
hired security guards to secure the premises; hence, it should not be
held liable for the loss suffered by Sps. Mamaril. Is there a contract of
agency between the BSP and the guards? None. The basis for agency
therefore is representation, which element is absent in this case. BSP
merely hired the services of AIB solely for the protection of its
properties and premises. It bears to reiterate that the subject loss was
caused by the negligence of the security guards in allowing a stranger to
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drive out plaintiffs-appellants' vehicle despite the latter's instructions
that only their authorized drivers may do so. Moreover, the agreement
with respect to the ingress and egress of Sps. Mamaril's vehicles were
coordinated only with AIB and its security guards, without the
knowledge and consent of BSP. Accordingly, the mishandling of the
parked vehicles that resulted in herein complained loss should be
recovered only from the tort feasors (Pea and Gaddi) and their
employer, AIB; and not against the lessor, BSP.
Anent Sps. Mamaril's claim that the exculpatory clause:
"Management shall not be responsible for loss of vehicle or any of its
accessories or article left therein" contained in the BSP issued parking
ticket was void for being a contract of adhesion and against public
policy, suffice it to state that contracts of adhesion are not void per se.
It is binding as any other ordinary contract and a party who enters into
it is free to reject the stipulations in its entirety. If the terms thereof are
accepted without objection, as in this case, where plaintiffs-appellants
have been leasing BSP's parking space for more or less 20 years, then
the contract serves as the law between them. Besides, the parking fee
of P300.00 per month or P10.00 a day for each unit is too minimal an
amount to even create an inference that BSP undertook to be an
insurer of the safety of plaintiffs-appellants' vehicles.
----------------------------------
Take note that those persons disqualified to enter into a
contract of sale enumerated in Article 1490 and Article 1491 are also
disqualified to enter into a contract of lease.
Art. 1490. The husband and the wife cannot sell property to
each other, except:
(1) When a separation of property was agreed upon in the marriage
settlements; or
(2) When there has been a judicial separation or property under Article
191. (1458a)
Art. 1491. The following persons cannot acquire by purchase,
even at a public or judicial auction, either in person or through the
mediation of another:
(1) The guardian, the property of the person or persons who may be
under his guardianship;
(2) Agents, the property whose administration or sale may have been
entrusted to them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under
administration;
(4) Public officers and employees, the property of the State or of any
subdivision thereof, or of any government-owned or controlled
corporation, or institution, the administration of which has been
intrusted to them; this provision shall apply to judges and government
experts who, in any manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and
inferior courts, and other officers and employees connected with the
administration of justice, the property and rights in litigation or levied
upon an execution before the court within whose jurisdiction or territory
they exercise their respective functions; this prohibition includes the act
of acquiring by assignment and shall apply to lawyers, with respect to
the property and rights which may be the object of any litigation in
which they may take part by virtue of their profession.
(6) Any others specially disqualified by law.
RIGHTS OF THE LESSEE:
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1. Demand delivery of the thing leased;
2. To be in peaceful and adequate enjoyment of the thing leased for the
duration of the contract;
3. To sub-lease the property unless there is a contrary stipulation;
4. If the thing leased was partially destroyed due to a fortuitous event,
to choose between proportional reduction of rent or rescission of the
contract of lease;
5. To suspend payment in case lessor fails to make necessary repairs or
to maintain peaceful and adequate enjoyment;
6. To terminate lease if it bring imminent and serious danger to the life
or health of the lessee or it becomes uninhabitable;
7. To also ask for proportional reduction for urgent repairs made by
lessor wherein the repairs last for more than 40 days
OBLIGATIONS OF THE LESSEE:
Art. 1657. The lessee is obliged:
(1) To pay the price of the lease according to the terms stipulated;
(2) To use the thing leased as a diligent father of a family, devoting it to
the use stipulated; and in the absence of stipulation, to that which may
be inferred from the nature of the thing leased, according to the custom
of the place;
(3) To pay expenses for the deed of lease. (1555) If theres breach as to
these pre-obligations on the part of the lessee, the lessor can ask for
rescission plus damages or damages only.
Other obligations of the lessee:
1. To notify the owner for urgent repairs;
2. To tolerate the work for urgent repairs;
3. To notify the lessor of every usurpation or untoward act of third
persons;
4. To return the thing leased at the end of the lease;
5. Liable for loss or deterioration due to his own fault/negligence, or
due to the fault of the members of his household or his own guests and
visitors;
In case the lessee fails to pay or comply with the conditions
of the contract, the lessor is entitled to the twin remedies of:
1. Rescission
2. Judicial Ejectment (Unlawful Detainer)
Take note, you cannot take the law into your own hands. You
must resort to the law. You must first demand the lessee to vacate then
demand to pay the unpaid rent. If ayaw pa rin, file a case of unlawful
detainer.
When and where to pay?
Art. 1679. If nothing has been stipulated concerning the
place and the time for the payment of the lease, the provisions or
Article 1251 shall be observed as regards the place; and with respect to
the time, the custom of the place shall be followed.
Art. 1251. Payment shall be made in the place designated in
the obligation. There being no express stipulation and if the
undertaking is to deliver a determinate thing, the payment shall be
made wherever the thing might be at the moment the obligation was
constituted. In any other case the place of payment shall be the
domicile of the debtor. If the debtor changes his domicile in bad faith or
after he has incurred in delay, the additional expenses shall be borne by
him. These provisions are without prejudice to venue under the Rules of
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Court.
Can you assign your right as a lessee?
1649. The lessee cannot assign the lease without the consent
of the lessor, unless there is a stipulation to the contrary. (n)
General Rule: Cannot assign
Exception: Contrary stipulation in the contract Sublease,
Differentiate this to the right of the lessee to sublease.
Art. 1650. When in the contract of lease of things there is no
express prohibition, the lessee may sublet the thing leased, in whole or
in part, without prejudice to his responsibility for the performance of
the contract toward the lessor. So thats why if you are the lessor, make
sure that in the contract, may stipulation na hindi pwedeng i-sublease
otherwise walang violation ang leasee if mag-sublease siya.
OBLIGATIONS OF THE SUB-LESEEE
Art. 1651. Without prejudice to his obligation toward the
sublessor, the sublessee is bound to the lessor for all acts which refer to
the use and preservation of the thing leased in the manner stipulated
between the lessor and the lessee. (1551) Take note that the sublessee
shall be subsidiarily liable to the lessor for any rent due to the lessee.
EXPIRATION OF THE LEASE
It would cease upon the date fixed by the parties without
need of demand. If the lessee continues possession despite expiration
of the contract over the lessors objection, then he will be considered as
a possessor in bad faith. This would be relevant in case for example
yung mga improvements dba, possessor in BF or GR in your Property.
RENEWAL
Option to renew stipulations shall be valid between the
parties, even if they have stipulated that it will be exercised by the
lessee or one of the parties. There also instances where it is upon the
discretion of the lessor or lessee as the case may be. Where the
renewal of the original lease is subject to the terms and conditions as
may be agreed upon by the parties, then the renewal is not automatic.
This more common in contracts of lease, it can be renewed subject to
the terms and conditions as may be agreed upon by the parties. What if
nag-expire na yung lease but the lessor did not take any action, the
lessee continued possession, then we have what we called implied new
lease, also known as Tacita Reconduccion.
An implied new lease or tacita reconduccion will set in when
the following requisites are found to exist:
a) the term of the original contract of lease has expired;
b) the lessor has not given the lessee a notice to vacate; and
c) the lessee continued enjoying (possession) the thing leased
for fifteen days with the acquiescence of the lessor.
d)Notice to the contrary by either party should not have been
previously given;
e)No express contract has been entered into after the old
contract has ended
Samelo vs. Manotok
FACTS:
Manotok Services, Inc. alleged that it is the administrator of a
parcel of land and that it entered into a contract with the petitioner
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for the lease of a portion of the land. The lease contract was for a
period of one (1) year. After the expiration of the lease contract, the
petitioner continued occupying the subject premises without paying
the rent. The respondent then sent a letter to the petitioner
demanding that she vacate the subject premises and pay
compensation for its use and occupancy. The petitioner, however,
refused to heed these demands. In her answer, the petitioner alleged
that the respondent had no right to collect rentals because the subject
premises are located inside the property of the Philippine National
Railways (PNR). She also added that the respondent had no certificate
of title over the subject premises. The petitioner further claimed that
her signature in the contract of lease was obtained through the
respondents misrepresentation. She likewise maintained that she is
now the owner of the subject premises as she had been in possession
since 1944.
ISSUE: Who has a better right over the property?
RULING: Manotok has a better right of possession over the
subject premises. The only issue to be resolved in an unlawful
detainer case is physical or material possession of the property
involved, independent of any claim of ownership by any of the parties
involved. Thus, when the relationship of lessor and lessee is
established in an unlawful detainer case, any attempt of the parties to
inject the question of ownership into the case is futile, except insofar
as it might throw light on the right of possession. In the present case,
it is undisputed that the petitioner and the respondent entered into a
contract of lease.
The petitioner did not deny that she signed the lease
contract (although she maintained that her signature was obtained
through the respondents misrepresentations). It bears emphasis that
the respondent did not give the petitioner a notice to vacate upon the
expiration of the lease contract in December 1997 (the notice to
vacate was sent only on August 5, 1998), and the latter continued
enjoying the subject premises for more than 15 days, without
objection from the respondent. By the inaction of the respondent as
lessor, there can be no inference that it intended to discontinue the
lease contract. An implied new lease was therefore created pursuant
to Article 1670 of the Civil Code. All the requisites for an implied new
lease or tacit reconduccion are present.
As to the rent, Article 1687 of the Civil Code on implied new
lease provides:
Article 1687. If the period for the lease has not
been fixed, it is understood to be from year to year, if the
rent agreed upon is annual; from month to month, if it is
monthly; from week to week, if the rent is weekly; and from
day to day, if the rent is to be paid daily.
Since the rent was paid on a monthly basis, the period of
lease is considered to be from month to month, in accordance with
Article 1687 of the Civil Code. [A] lease from month to month is
considered to be one with a definite period which expires at the end
of each month upon a demand to vacate by the lessor. When the
respondent sent a notice to vacate to the petitioner on August 5,
1998, the tacita reconduccion was aborted, and the contract is
deemed to have expired at the end of that month. [A] notice to vacate
constitutes an express act on the part of the lessor that it no longer
consents to the continued occupation by the lessee of its property.
After such notice, the lessees right to continue in possession ceases
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and her possession becomes one of detainer.
Dizon vs. CA
FACTS:
This is about a contract of lease between Overland Express Lines,
Inc. and Regina Dizon, et.al. In this case, they entered into a contract
of lease with option to buy involving a land in Quezon City. The term
of the lease was for 1 year commencing from May 16, 1974 up to May
15, 1975. During that period, Overland was given an option to
purchase for the amount of P3,000.00 per square meter. However
after that expiration of 1 year, Overland continued to stay on the land
even after the lapse of 15 days. It was only on June 1976 when there
was an increase in the rent for P8,000.00 that Overland failed to pay.
Thus, an action was filed by Dizon et.al. for ejectment. However,
Overland argued that they cannot be evicted from the premises
because they have already tendered an amount of P300,000.00 to the
alleged agent of the Dizons, namely Alice Dizon.
ISSUE/S:
1.W/N Dizon has the right to evict Overland. YES
2. W/N the option still exists. NO
RULING:
1ST ISSUE The Supreme Court that yes, Dizon has the right
to evict Overland. In this case, Overland, even after the lapse of the
lease period continued to stay on the premises. There was no explicit
renewal of the contract. However, by the very reason that they were
allowed to stay even after 15 days, there came about an implied new
lease. In an implied new lease, the Supreme Court said that since they
were paying in a monthly basis, it is implied that the new contract will
also expire on a month-to-month basis. Hence, in 1976, when
Overland failed to pay the P8,000.00 increase in the rent, Dizon
already had the right to evict Overland.
2nd ISSUE The Supreme Court ruled that the option does
not exist anymore. First of all, during the one year period, Overland
did not exercise the said option. Second, granting arguendo that the
option still exists, Overland cannot exercise it anymore because of the
fact that when there is an implied new lease, the only thing that
would be renewed are those terms that are germane to the property
i.e the payment of the rent. This would not apply to special
agreements i.e the option to purchase. When an implied new lease
came to existence, the stipulation as to the option to buy was not
carried over.
Discussion
Were not talking about the period of the contract. What
were talking about is the rent, the mode of rental payment. Notice that
in both cases, the contract was good for 1 year. But what was the rent
imposed for the implied new lease? Month to month. Why? Were
looking at the agreement. The agreement was P3,000.00/month,
P6,000.00/month from January-December 31. Pag-end sa Dec 31, i-
renew not for another year but on a month-to-month basis because of
their agreement as to the payment na month-to-month.
Now, in the case of Dizon, since month-to-month, maabot na
sa point na pwede niya nang i-increase for the next period. When were
talking about implied new lease, after the expiration of the period, yun
na nga maging month-to-month siya and then pwede na magsingil ang
lessor for a different lease payment. Like what happened in the case,
2-SR 2016 | BALGOA | CANDOLITA | CHIU | DAYANGHIRANG IV | DULAY | ESTILLORE | MASANGUID | PUBLICO | SABRIDO | SINGANON | TITO
st
Ateneo de Davao University College of Law | 1 Sem (2016-2017)
nag-increase nang P8,000.00, ayaw na magbayad so pwede na paalisin.
What do we mean by year-to-year? Example: Agreement is Jan-Dec 31
for 1 million for 1 year. So mag-renew yan, implied new lease, 1 year
din. Pag-end nung 1 year, pwede na siya magsabi nang sige, 1.2 million
na for the next year. But as long as it is implied, kunin ninyo yung mode
of payment, not yung contract period. Pag month-to-month,
pagkatapos ng isang month, pwede ka nang magdagdag. Okay? So
essentially, just take note of that with regard to implied new lease.
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Zosima vs. Salimbagat
Facts: Zosima, a domestic corporation, has been the
registered owner of an office building situated at 2414 Legarda Street,
Sampaloc, Manila. Sometime in April 1993, Zosima entered into a
contract with Salimbagat for the lease of the office building. The lease
was on a yearly basis with the initial monthly rate of P 8,000.00 that is
subject to an annual increase. In 1999, the monthly rental fee
reached P 14,621.00. In March 2000, no monthly fee was paid
because the contract of lease was allegedly not renewed.
On June 20, 2003, Zosima, through counsel, sent a formal
letter of demand to Salimbagat, requiring her to pay her arrears within
fifteen (15) days from receipt of the demand letter and to vacate the
property. Despite the receipt of the demand letter, Salimbagat refused
to vacate the property and to pay her alleged rental obligations.
On November 5, 2003, Zosima filed a case for unlawful
detainer against Salimbagat. Zosima alleged that from April 2000 to
October 2003, Salimbagat had accumulated arrears in her rental
payments amounting to P 628,703.00.
On March 26, 2004, Salimbagat filed her answer alleging
that she was not occupying the property of Zosima. Salimbagat
alleged that although she was occupying a property using the same
address denominated as "2414 Legarda Street, Sampaloc, Manila," it
was not the same office building that Zosima owned, but a warehouse
on a dried estero located at the back of the office building. Salimbagat
argued that the office building which belonged to Zosima was
demolished to pave the way for the construction of the Light Rail
Transit (LRT) Line II Project. She further alleged that she bought the
warehouse for P 300,000.00 as evidenced by a Deed of Conditional
Sale, and she had declared the property for taxation purposes.
Zosimas contention that although the lease contract had
already expired, the principle of implied new lease or tacita
reconduccion existed by operation of law between the periods of April
2000 and June 2003 is not correct. An implied new lease will set in if
it is shown that: (a) the term of the original contract of lease has
expired; (b) the lessor has not given the lessee a notice to vacate; and
(c) the lessee continued enjoying the thing leased for 15 days with the
acquiescence of the lessor. This acquiescence may be inferred from
the failure of the lessor to serve notice to vacate upon the lessee.This
principle is provided for under Article 1670 of the Civil Code:
Article 1670. If at the end of the contract the
lessee should continue enjoying the thing leased for fifteen
days with the acquiescence of the lessor, and unless a notice
to the contrary by either party has previously been given, it
is understood that there is an implied new lease, not for the
period of the original contract, but for the time established
in Articles 1682 and 1687. The other terms of the original
contract shall be revived. [emphasis and underscoring ours]
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 LAW ON SALES | Atty. Jazzie Sarona-Lozare, CPA st
Ateneo de Davao University College of Law | 1 Sem (2016-2017)

The cited Article 1687, on the other hand, provides:
Article 1687. If the period for the lease has not
been fixed, it is understood to be from year to year, if the
rent agreed upon is annual; from month to month, if it is
monthly; from week to week, if the rent is weekly; and from
day to day, if the rent is to be paid daily. However, even
though a monthly rent is paid, and no period for the lease
has been set, the courts may fix a longer term for the lease
after the lessee has occupied the premises for over one year.
If the rent is weekly, the courts may likewise determine a
longer period after the lessee has been in possession for
over six months. In case of daily rent, the courts may also fix
a longer period after the lessee has stayed in the place for
over one month. [emphasis ours]
Thus, after the expiration of the contract of lease, the
implied new lease should have only been in a monthly basis. In this
regard, we find it significant that it was only on June 20, 2003, or three
(3) years after the last payment of the monthly rentals, that Zosima
filed the complaint for unlawful detainer against Salimbagat. It does
not help that Zosima failed to adduce any additional evidence to rebut
the allegation that by April 2000, no office building stood to be leased
because it had been demolished to pave way for the construction of
the LRT Line II Project.
We further note that Salimbagat was able to produce tax
declarations and a copy of the Deed of Conditional Sale as proof of her
right to possess the warehouse located on a dried estero and
adjoining the demolished building she used to lease. While tax
receipts and declarations are not incontrovertible proof of ownership,
they constitute, at least, proof that the holder has a claim of title over
the property. In practical terms under the circumstances of this case,
we see it absurd for Salimbagat to be occupying a property and paying
monthly rentals on it when she owns and occupies the property just
behind it.
Under Section 5 of the Rent Control Act of 2009, the law
covers only certain residential units:
(g) when the total monthly rent does not exceed P10,000 in the
National Capital Region and other highly urbanized cities; and
(b) when the total monthly rent does not exceed P5,000 in all
other areas. Monthly rent in this case does not include utilities
and other charges.
Residential units which fall under R.A. No. 9653s coverage
have limits on annual rent increases. Under Section 4 of the law, the
monthly rent shall not be increased by more than seven (7%) percent
annually for the same lessee.
Example: If a condominium unit located in Paranaque City,
which is within the National Capital Region, charges a rent which does
not exceed P10,000, the lessor may not increase the rent by more than
7% annually. However, if the monthly rent exceeds P10,000, the lessor
may increase the rent by ten (10%) percent annually. Also, the law
provides that the lessor cannot demand more than one month advance
and two months deposit.
Also, as in the civil code, the rent control law provides that
assignment without the written consent of the lessor is prohibited.
Here, subleasing without the written consent is prohibited, unlike in the
civil code wherein it is allowed as long as there is no stipulation to the
contrary.
Also, assignment is considered as void.
--- End of 3rd Exam Coverage ---

Also take note:

Art. 1682. The lease of a piece of rural land, when its duration
has not been fixed, is understood to have been for all the time
necessary for the gathering of the fruits which the whole estate leased
may yield in one year, or which it may yield once, although two or more
years have to elapse for the purpose.

Art. 1687. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon is annual;
from month to month, if it is monthly; from week to week, if the rent is
weekly; and from day to day, if the rent is to be paid daily. However,
even though a monthly rent is paid, and no period for the lease has
been set, the courts may fix a longer term for the lease after the lessee
has occupied the premises for over one year. If the rent is weekly, the
courts may likewise determine a longer period after the lessee has been
in possession for over six months. In case of daily rent, the courts may
also fix a longer period after the lessee has stayed in the place for over
one month.

RENT CONTROL ACT OF 2009

Take note of Rent Control Law (RA 9341), effectivity of which
has been extended by the Housing and Urban Development
Coordinating Council (HUDCC) until 31 December 2015. It covers
residential units.

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