ATENEO DE MANILA LAW SCHOOL

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

I. NATURE OF SALE
A. DEFINITION AND ESSENCE OF SALE (Art. 1458)
Sale is a contract whereby one party [seller] obligates himself to transfer the ownership 2 and to deliver the
possession, of a determinate thing, and the other party [buyer] obligates himself to pay therefor a price certain in
money or its equivalent. xDantis v. Maghinang, Jr., 695 SCRA 599 (2013).3

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

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

3. Sale Creates Real Obligations TO GIVE (Art. 1165)

4. Essential Characteristics of Sale:

a. Nominate and Principal Sale is what the law defines it to be, taking into consideration its essential
elements, and not what the contracting parties call it. xSantos v. Court of Appeals, 337 SCRA 67 (2000).8
b. Consensual (Art. 1475) Sale being a consensual contract, is perfected, valid and binding upon meeting
of the minds on the subject matter and the consideration;9 being a consensual, and not real, in character,
sales essential elements must be proven, xVillanueva v. CA, 267 SCRA 89 (1997); but once all elements
are proven, its validity is not affected by a previously executed fictitious deed of sale, xPealosa v. Santos,
363 SCRA 545 (2001); and the burden is on the other party to prove otherwise, xHeirs of Ernesto Biona v.
CA, 362 SCRA 29 (2001).
CONSEQUENTLY: UPON SALES PERFECTION
Its binding effect is based on the principle that the obligations arising therefrom have the force of law
between the parties. xVeterans Federation of the Phils. v. CA, 345 SCRA 348 (2000).

1
The OUTLINE presents the manner by which Law on Sales will be taken-up in class. The xs and footnotes represent cases or topics which need no
extended discussions, either because the essence of the rulings are already summarized in the Outline or they contain similar rulings or doctrines as the
cases to be discussed. Unless otherwise indicated, numbered articles pertain to the Civil Code.
2
Ownership is the independent and general power of a person over a thing for purposes recognized by law and within the limits established thereby, which
includes the right to enjoy and dispose of a thing, without other limitations than those established by law. Aside from the jus utendi and the jus abutendi
inherent in the right to enjoy the thing, the right to dispose, or the jus disponendi, is the power of the owner to alienate, encumber, transform and even destroy
the thing owned. Flancia v. Court of Appeals (CA), 457 SCRA 224 (2005).
3
Alfredo v. Borras, 404 SCRA 145 (2003); Cruz v. Fernando, 477 SCRA 173 (2005); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts
v. Papio, 515 SCRA 346 (2007); Hyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010).
4
Jovan Land v. CA, 268 SCRA 160 (1997); Quijada v. CA, 299 SCRA 695 (1998); Co v. CA, 312 SCRA 528 (1999); San Andres v. Rodriguez, 332 SCRA
769 (2000); Roble v. Arbasa, 362 SCRA 69 (2001); Polytechnic University v. CA, 368 SCRA 691 (2001); Katipunan v. Katipunan, 375 SCRA 199 (2002);
Londres v. CA, 394 SCRA 133 (2002); Manongsong v. Estimo, 404 SCRA 683 (2003); Jimenez, Jr. v. Jordana, 444 SCRA 250 (2004); San Lorenzo Dev.
Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Roberts v. Papio, 515 SCRA 346 (2007); Navarra v. Planters Dev. Bank, 527
SCRA 562 (2007); Republic v. Florendo, 549 SCRA 527 (2008); GSIS v. Lopez, 592 SCRA 456 (2009); Baladad v. Rublico, 595 SCRA 125 (2009); Del Prado
v. Caballero, 614 SCRA 102 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); Hyatt Elevators and Escalators Corp. v. Cathedral
Heights Building Complex Assn., 636 SCRA 401 (2010); David v. Misamis Occidental II Electric Coop., 676 SCRA 367 (2012); First Optima Realty Corp. v.
Securitron Security Services, 748 SCRA 534 (2015).
5
Roberts v. Papio, 515 SCRA 346 (2007); XYST Corp. v. DMC Urban Properties Dev., 594 SCRA 598 (2009); Hyatt Elevators and Escalators Corp. v.
Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010).
6
Del Prado v. Caballero, 614 SCRA 102 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); David v. Misamis Occidental II Electric
Coop., 676 SCRA 367 (2012); Dantis v. Maghinang, Jr., 695 SCRA 599 (2013).
7
Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); Jovan Land v. CA, 268 SCRA 160 (1997); San Miguel Properties v. Huang, 336 SCRA 737 (2000);
Bugatti v. CA, 343 SCRA 335 (2000); Moreno, Jr. v. PMO, 507 SCRA 63 (2006); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Navarra v.
Planters Dev. Bank, 527 SCRA 562 (2007); Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008); XYST Corp. v. DMC Urban Properties Dev.,
594 SCRA 598 (2009); First Optima Realty Corp. v. Securitron Security Services, 748 SCRA 534 (2015).
8
Bowe v. CA, 220 SCRA 158 (1993); Romero v. CA, 250 SCRA 223 (1995); Lao v. CA, 275 SCRA 237 (1997); Cavite Devt Bank v. Lim, 324 SCRA 346
(2000).
9
Romero v. CA, 250 SCRA 223 (1995); Balatbat v. CA, 261 SCRA 128 (1996); Coronel v. CA, 263 SCRA 15 (1996); City of Cebu v. Heirs of Candido Rubi,
306 SCRA 408 (1999); Agasen v. CA, 325 SCRA 504 (2000); Laforteza v. Machuca, 333 SCRA 643 (2000); Londres v. CA, 394 SCRA 133 (2002); Alcantara-
Daus v. de Leon, 404 SCRA 74 (2003); Buenaventura v. CA, 416 SCRA 263 (2003); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga,
449 SCRA 458 (2005); Ainza v. Padua, 462 SCRA 614 (2005); Roberts v. Papio, 515 SCRA 346 (2007); MCC Industrial Sales Corp. v. Ssangyong Corp., 536
SCRA 408 (2007); Castillo v. Reyes. 539 SCRA 193 (2007); XYST Corp. v. DMC Urban Properties Dev., 594 SCRA 598 (2009); Del Prado v. Caballero, 614
SCRA 102 (2010); Heirs of Fausto C. Ignacio v. Home Bankers Savings, 689 SCRA 173 (2013); Dantis v. Maghinang, Jr., 695 SCRA 599 (2013); Lam v.
Kodak Phil., 778 SCRA 96 (2016).
 The parties may reciprocally demand performance, xHeirs of Venancio Bejenting v. Baez, 502 SCRA 531
(2006);10 subject only to the provisions of law governing the form of contracts. xCruz v. Fernando, 477
SCRA 173 (2005).
It remains valid even though the parties have not affixed their signatures to its written form, xGabelo v. CA,
316 SCRA 386 (1999);11 nor translated into written form, Duarte v. Duran, 657 SCRA 607 (2011); or the
manner of payment is breached, xPilipinas Shell Petroleum Corp v. Gobonseng, 496 SCRA 305 (2006).
Failure of developer to obtain a license to sell does not render its sales void especially that the parties have
admitted that there was already a meeting of the minds as to the subject of the sale and price.
xCantemprate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009).
Perfection Distinguished from Demandability: Not all contracts of sale become automatically and
immediately effective. In sale with assumption of mortgage, there is a condition precedent to the sellers
consent and without the approval of the mortgagee, the sale is not perfected. xBian Steel Corp. v. CA,
391 SCRA 90 (2002).
No Contract Situation versus Void Contract: Absence of complete meeting of minds negates
existence of a perfected sale, xFirme v. Bukal Enterprises, 414 SCRA 190 (2003); the contract is void and
absolutely wanting in civil effects, and does not create or modify the juridical relation to which it refers,
xCabotaje v. Pudunan, 436 SCRA 423 (2004).
When the contract of sale is not perfected, as when there is no meeting of minds on the price, it cannot,
as an independent source of obligation, serve as a binding juridical relation between the parties, xHeirs of
Fausto C. Ignacio v. Home Bankers Savings, 689 SCRA 173 (2013);12 and should be accurately
denominated as inexistent, as it did not pass the stage of generation to the point of perfection. xNHA v.
Grace Baptist Church, 424 SCRA 147 (2004).

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

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

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

10
Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
11
Baladad v. Rublico, 595 SCRA 125 (2009).
12
Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts v. Papio, 515 SCRA 346 (2007).
13
Ong v. CA, 310 SCRA 1 (1999); Mortel v. KASSCO, 348 SCRA 391 (2000); Agro Conglomerates v. CA, 348 SCRA 450 (2000); Velarde v. CA, 361 SCRA
56 (2001); Carrascoso, Jr. v. CA, 477 SCRA 666 (2005); Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Antonino v. Register of Deeds of Makati,
674 SCRA 227 (2012).
14
Vda. De Quirino v. Palarca, 29 SCRA 1 (1969); Cabrera v. Ysaac, 740 SCRA 612 (2014).
15
Acap v. CA, 251 SCRA 30 (1995).
16
Equatorial Realty Dev. v. Mayfair Theater, 370 SCRA 56 (2001); Alcantara-Daus v. De Leon, 404 SCRA 74 (2003); Heirs of Jesus M. Mascuana v. CA,
461 SCRA 186 (2005).
2
B. SALE DISTINGUISHED FROM SIMILAR CONTRACTS
A contract is what the law defines it to be, taking into consideration its essential elements, and the title given
to it by the parties is not as much significant as its substance: 17 the transfer of ownership in exchange for a price
paid or promised is the very essence of a contract of sale. xSantos v. Court of Appeals, 337 SCRA 67 (2000).
In determining the real character of sale, courts look at the intent of the parties, their true purpose in
entering into the contract, as well as by their conduct, words, actions and deeds prior to, during and immediately
after executing the agreement, and not at the nomenclature used to describe it. xLao v. Court of Appeals, 275
SCRA 237 (1997).

1. Donation (Arts. 725 and 1471) Unlike donation, sale is a disposition for valuable consideration with no
diminution of sellers estate but merely substitution of valuesproperty sold replaced by the equivalent
monetary considerationand therefore cannot have the legal effect of depriving compulsory heirs of their
legitimes. xManongsong v. Estimo, 404 SCRA 683 (2003).
Art. 1544 double sales rules not relevant to donations. xHemedes v. CA, 316 SCRA 347 (1999).
Donation is an act of liberality, while sale is essentially an onerous contract.
Sale is perfected by mere consent, while donation, being a solemn contract, must also comply with the
formalities mandated by law, aside from consent.

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

Barter one of the parties binds himself to give one thing in consideration of the others promise to give
another thing

Sale one of the parties binds himself to deliver a thing in consideration of the others undertaking to pay
the price in money or its equivalent.

Rules to Determine if Contract is Sale or Barter:

1. Manifest Intention of the Parties

2. When intention does not appear, and consideration consists partly in money and partly in another
thing:

a. Barter if value of thing exceeds the amount of money given or its equivalent

b. Sale if the value of thing is equal or less than the amount of money given

3. Contract for a Piece-of-Work (Arts. 1467, 1713 to 1715) Ineluctably, whether the contract be one of
sale or one for a piece of work, a transfer of ownership is involved and a party necessarily walks away with an
object. xCommissioner of Internal Revenue v. CA, 271 SCRA 605 (1997), citing VILLANUEVA, LAW ON SALES,
pp. 7-9 (1995). In both, the provisions on warranty of title against hidden defects applies. xDio v. CA, 359
SCRA 91 (2001).
When one stipulates for the future sale of articles which he is habitually making, and which at the time are
not made or finished, it is essentially a contract of sale and not a contract for labor, xInchausti & Co. v.
Cromwell, 20 Phil. 345 (1911); even when he executes production thereof only after an order is placed by
customers. Celestino & Co. v. Collector, 99 Phil. 841 (1956).
Distinction between a sale and a contract for work is tested by the inquiry of whether the thing transferred
is one not in existence and which never would have existed but for the order of the party desiring to acquire it,
or a thing would would have existed and been the subject of sale to some other person, even if the order had
not been given.
Article 1467: x x x but if the goods are to be manufactured specially for the customer and upon his special
order, and not for the general market, it is a contract for a piece of work
- Manufacturing in the ordinary course of business to cover sales contracts
- Manufacturing upon special order of customers, to cover contracts for piece-of-work

The proper application of the upon special order test is one that goes into the nature of the product involved
when it was possible for the manufacturer or producer to be able to produce the product ahead of any special
order given by a customer or client.
If the thing is specially done only upon the specific order of another, this is a contract for a piece of work; if
it is manufactured or procured for the general market in the ordinary course of business, it is a contract of
sale. CIR v. Engineering Equipment, 64 SCRA 590 (1975).18

17
Romero v. CA, 250 SCRA 223 (1995); Lao v. CA, 275 SCRA 237 (1997); Orden v. Aurea, 562 SCRA 660 (2008); Ver Reyes v. Salvador, Sr., 564 SCRA
456 (2008)..
18
CIR v. Arnoldus Carpentry Shop, 159 SCRA 199 (1988); Del Monte Phil. v. Aragones, 461 SCRA 139 (2005).
3
 To Tolentino, the distinction depends on the parties intention: if they intended that at some future date an
object has to be delivered without considering the work or labor of the party bound to deliver, the contract is
one of sale; but if one party accepts the undertaking on the basis of some plan, taking into account the
particular work to be done by himself or through others, the contract is for a piece of work. xEngineering &
Machinery Corp. v. CA, 252 SCRA 156 (1996).
Contract for a piece-of-work, contractor binds himself to execute a piece of work for the employer, in
consideration of a certain price or compensation; the contractor may either employ only his labor or skill, or
also furnish the material.
Main distinguishing factor is the essence of why parties enter into it:
1. If essence is the object, the contract is sale.
2. If essence is the service, knowledge or even reputation of the person who executes or manufactures
the object, the contract is for piece-of-work.
Sale is constituted of real obligations, therefore, subject to specific performance.
Contract for piece-of-work, main subject matter is the services to be rendered, cannot be subject to specific
performance.
Contract for piece-of-work, unlike sale, is not governed by the Statute of Frauds.
Seller Contractor
Ordinary course of business Upon special order of court
Use of ordinary skills Extraordinary skills
On hand Not general market

Essentially, in piece-of-work,

4. Agency to Sell (Art. 1466) Assumption by agent of the risk pertaining to the cost or price of the subject
matter makes the relationship that of buyer-seller, for the agent does not assume risk with respect to the price
or the property subject of the relationship. xKer & Co. v. Lingad, 38 SCRA 524 (1971).
CONSEQUENTLY:
(a) Contractual relation is not inherently revocable. Quiroga v. Parsons, 38 Phil. 501 (1918);
(b) Purported agent does not have to account for the profit margin earned from acquiring the property for the
purported principal. Puyat v. Arco Amusement Co., 72 Phil. 402 (1941).
One factor that most clearly distinguishes agency from other legal concepts, including sale, is control; one
person the agent agrees to act under the control or direction of another the principal. xVictorias Milling
Co. v. CA, 333 SCRA 663 (2000).
Commercial broker, commission merchant or indentor is a middleman acting in his own name, and acts as
agent for both seller and buyer to effect a sale between them. Although he is neither seller nor buyer to the
contract effected he may voluntarily assume warranties of seller. xSchmid and Oberly v. RJL Martinez, 166
SCRA 493 (1988).
Agency a person binds himself to render some service or to do something in representation or on
behalf of the principal, with the consent or authority of the latter.
Sale is not revocable, but agency is, due to its fiduciary character.
Sale buyer himself pay for the price of the object; agency to sell, the agent is not obliged to pay the price, and
is merely obliged to deliver the price which he may receive from the buyer.
Sale buyer, after delivery, becomes the owner of the subject matter; agency to sell, agent does not become the
owner of the thing, even if the object is delivered to him
In agency, the essence is the delivery to an agent, not his property, but as the property of the principal, who
remains the owner and has the right to control the sale, fix the price and terms, demand and receive the
proceeds less the agents commission upon sales made.

5. Dacion En Pago (Arts. 1245 and 1934) Governed by the Law on Sales, dation in payment is a
transaction that takes place when property is alienated to the creditor in full satisfaction of a debt in money
it involves the delivery and transmission of ownership of a thing as an accepted equivalent of the
performance of the obligation. xYuson v. Vitan, 496 SCRA 540 (2007).
Elements of dacion en pago: (a) performance of the prestation in lieu of payment (animo solvendi) which
may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (b) some
difference between the prestation due and that which is given in substitution (aliud pro alio); and (c)
agreement between the creditor and debtor that the obligation is immediately extinguished by reason of the

4
 performance of a presentation different from that due. Lo v. KJS Eco-Formwork System Phil., 413 SCRA
182 (2003).19 CONSEQUENTLY:
In its modern concept, what takes place in dacion en pago is an objective novation of the obligation where
the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of
the contract of sale, while the debt is considered as the purchase price. xAquintey v. Tibong 511 SCRA 414
(2006).20
In a true dacion en pago, assignment of the property extinguishes the monetary debt. xEstanislao v. East
West Banking Corp., 544 SCRA 369 (2008).21
BUT SEE: Dation extinguishes the obligation to the extent of the value of the thing delivered, either as agreed
upon by the parties or as may be proved, unless the parties by agreementexpress or implied, or by their
silenceconsider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished. xTan Shuy v. Maulawin, 665 SCRA 604 (2012).
There must be actual delivery of the property to the creditor by way of extinguishment of the pre-existing
debt, xPhil. Lawin Bus Co. v. CA, 374 SCRA 332 (2002).22
BUT SEE OBITER: xSSS v. AG& P Company of Manila, 553 SCRA 677 (2008).
There is no dation where there is no transfer of ownership in creditors favor, as when possession of the
thing is merely given to the creditor by way of security. xFort Bonifacio Dev. Corp. v. Yllas Lending Corp., 567
SCRA 454 (2008).23
Dacion en pago is governed by the Law of Sales, and is therefore subject to the same rules on express
and implied warranties pertaining to contracts of sale. The implied warranty in case of eviction is waivable
and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its consequences.
Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).

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

Lease, lessor binds himself to give to another (lessee) the enjoyment or use of a thing for a price certain, and for
a period which may be definite or indefinite.

II. PARTIES TO A CONTRACT OF SALES

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

Natural persons 18 years; juridical persons a juridical personality separate and distinct
from that of the shareholders, partners, or members
2. Minors, Insane and Demented Persons, Deaf-Mutes (Arts. 1327, 1397 and 1399)
A minor cannot be deemed to have given her consent to a sale; consent is among the essential requisites
of a contract of sale, absent of which there can be no valid contract.[?] xLabagala v. Santiago, 371 SCRA 360
(2001).
a. Necessaries (Arts. 1489 and 290)
- Under Article 194, Family Code, everything indispensable for sustenance, dwelling, transportation, medical
attendance, education, etc. However, since sales cover only the obligation to deliver a thing, the sale of
necessaries valid under Art 1489 can only cover sales pertaining to sustenance, dwelling and clothing, and
perhaps medicine, educational books and materials.
b. Protection of the Senile and Elderly (Art. 24), Illiterates (Art. 1332)
While a person is not incompetent to contract merely because of advanced years or by reason of
physical infirmities, when such age or infirmities have impaired the mental faculties so as to prevent the
person from properly, intelligently or firmly protecting his property rights, then he is undeniably
incapacitated, and the sale he entered into is void.[?] Paragas v. Heirs of Dominador Balacano, 468
SCRA 717 (2005).24

3. Sales By and Between Spouses:

a. Sales with Third Parties (Arts. 73, 96, and 124, Family Code)

19
Aquintey v. Tibong 511 SCRA 414 (2006); Rockville Excel International Exim Corp. v. Culla, 602 SCRA 124 (2009).
20
Vda. de Jayme v. CA, 390 SCRA 380 (2002); Dao Heng Bank v. Laigo, 571 SCRA 434 (2008); Technogas Phil. Mfg. Corp. v. PNB, 551 SCRA 183 (2008);
Ocampo v. LBP, 591 SCRA 562 (2009); D.B.T. Mar-Bay Construction v. Panes, 594 SCRA 578 (2009).
21
Ong v. Roban Lending Corp., 557 SCRA 516 (2008).
22
Filinvest Credit Corp. v. Philippine Acetylene Co., 111 SCRA 421 (1982); Vda. de Jayme v. CA, 390 SCRA 380 (2002); Ong v. Roban Lending Corp., 557
SCRA 516 (2008); Pen v. Julian, 778 SCRA 56 (2016).
23
PNB v. Pineda, 197 SCRA 1 (1991).
24
Domingo v. CA, 367 SCRA 368 (2001); Vda. De Ape v. CA, 456 SCRA 193 (2005).
5
 Under Art. 124 of Family Code, sale by husband of a conjugal property without the wifes consent is
void, not merely voidable, since the resulting contract lacks one of the essential elements of full consent.
xGuiang v. CA, 291 SCRA 372 (1998).25
A wife affixing her signature to a Deed of Sale as a witness is deemed to have given her consent.
xPelayo v. Perez, 459 SCRA 475 (2005).
As an exception, husband may dispose of conjugal property without wifes consent if such sale is
necessary to answer for conjugal liabilities mentioned in Articles 161 and 162. xAbalos v. Macatangay, Jr.,
439 SCRA 64 (2004).
b. Sales Between Spouses (Arts. 133, 1490, 1492; Sec. 87, Family Code)
Sales between spouses who are not governed by a complete separation of property regime are void,
not just voidable. xMedina v. Collector, 1 SCRA 302 (1960).
Since the spouses cannot validly sell property to one another under Art. 1490, then policy consideration
and the dictates of morality require that the prohibition should apply also to common-law relationships.
Matabuena v. Cervantes, 38 SCRA 284 (1971).
Sale by husband of conjugal land to his concubine is void for being contrary to morals and public policy
and subversive of the stability of the family, a basic social institution which public policy cherishes and
protects. xCalimlim-Canullas v. Fortun, 129 SCRA 675 (1984).26
The in pari delicto doctrine would not apply to the spouses-parties under Art. 1490, since only the heirs
and the creditors can question the sales nullity, xModina v. CA, 317 SCRA 696 (1999); nevertheless,
when the property is re-sold to a third-party buyer in good faith and for value, reconveyance is no longer
available. xCruz v. CA, 281 SCRA 491 (1997).

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

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

a. Guardians, Administrators and Agents

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

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

25
Cirelos v. Hernandez, 490 SCRA 625 (2006); Bautista v. Silva, 502 SCRA 334 (2006).
26
Ching v. Goynako, Jr., 506 SCRA 735 (2006).
27
Uy Sui Pin v. Cantollas, 70 Phil. 55 (1940); Medina v. Collector, 1 SCRA 302 (1961).
28
Gregorio Araneta, Inc. v. Tuason de Paterno, 49 O.G. 45 (1952).
29
Recto v. Harden, 100 Phil. 427 (1956); Vda. de Laig v. CA, 86 SCRA 641 (1978).
6
 c. Judges
Even when the main cause is a collection of a sum of money, the properties levied are still subject to
the prohibition. xGan Tingco v. Pabinguit, 35 Phil. 81 (1916).30
A judge who buys property in litigation before his court after the judgment becomes final does not
violate Art. 1491, but he can be administratively disciplined for violation of the Code of Judicial Ethics.
xMacariola v. Asuncion, 114 SCRA 77 (1982).

III. SUBJECT MATTER OF SALE

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

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

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

Although under Art. 1347, a sale involving future inheritance is void and does not create an obligation,
xTaedo v. CA, 252 SCRA 80 (1996); such does not cover a waiver of hereditary rights which is not
equivalent to sale, since waiver is a mode of extinction of ownership in favor of the other persons who are co-
heirs. xAcap v. Court of Appeals, 251 SCRA 30 (1995).
Mortgagor can legally sell the mortgaged propertymortgage is merely an encumbrance that does not
affect his principal attribute as owner thereof. Law even considers void a stipulation forbidding owner from
alienating mortgaged immovable. xPineda v. CA, 409 SCRA 438 (2003).1

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

When deed of sale erroneously describes the lot adjacent to the land seen and eventually delivered to the
buyer, such vetted land is the one upon which the minds have met, and not that erroneously described in the
deed. Prudent people buy land on the basis of what they see, not on what is technically described in Deed or
Torrens title. Atilano v. Atilano, 28 SCRA 231 (1969).2
a. Non-Specific Things (Generic) May Be the Object of Sale (Arts. 1246 and 1409[6])
Determinable subject matter of sale are not subject to risk of loss until they are physically segregated or
particularly designated. Yu Tek & Co. v. Gonzales, 29 Phil. 384 (1915).
Subject matter is determinable when from the formula or description adopted at perfection there is a
way by which the courts can delineate it independent of the will of the parties. Melliza v. City of Iloilo, 23
SCRA 477 (1968).
Where lot sold is described to adjoin previously paid lot on three sides thereof, it can be determined
without need of a new contract, even when the exact area of adjoining lot is subject to the result of a
survey. xSan Andres v. Rodriguez, 332 SCRA 769 (2000).
As the quoted portion of the Kasunduan gave reference to the area, the locality located, and vicinity
with reference of old trees, there is no doubt that the object of the sale is determinable. xCarabeo v.
Dingco, 647 SCRA 200 (2011).

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

Sale of grains is perfected even when the exact quantity or quality is not known, so long as the source
of the subject is certain. NGA v. IAC, 171 SCRA 131 (1989).

30
Britanico v. Espinosa, 486 SCRA 523 (2006).
1
Typingco v. Lim, 604 SCRA 396 (2009).
2
Londres v. CA, 394 SCRA 133 (2002).
7
 Where seller quoted items offered for sale, by item number, part number, description and unit price, and
buyer had sent in reply a purchase order without indicating the quantity being order, there was already a
perfected contract of sale, even when required letter of credit had not been opened by the buyer.
Johannes Schuback & Sons v. CA, 227 SCRA 719 (1993).

c. Undivided Interest (Art. 1463), Undivided Share in a Mass of Fungible Goods (Art. 1464) May
Result In Co-ownership

5. Sellers Obligation to Transfer Title to Buyer (Art. 1459, 1462, and 1505)
a. Seller Need Not Be the Owner at the Time of Perfection
A perfected sale cannot be challenged on the ground of the sellers non-ownership of the thing sold at
the time of the perfection; it is at delivery that the law requires the seller to have the ownership of the thing
sold. xAlcantara-Daus v. de Leon, 404 SCRA 74 (2003).3
BUT SEE: It is essential that seller is owner of the property he is selling. The principal obligation of a
seller is to transfer the ownership of the property sold (Art. 1458). This law stems from the principle that
nobody can dispose of that which does not belong to him. NEMO DAT QUOD NON HABET. xNoel v. Court
of Appeals, 240 SCRA 78 (1995).4
THEN SEE: Although it appears that seller is not owner of the goods at perfection is one of the void
contracts enumerated in Art. 1409, and Art. 1402 recognizes a sale where the goods are to be acquired
by the seller after the perfection of the contract of sale, clearly implying that a sale is possible even if
seller was not the owner at time of sale, nevertheless such contract may be deemed to be inoperative and
falls, by analogy, under Art. 1409(5): Those which contemplate an impossible service. xNool v. Court of
Appeals, 276 SCRA 149 (1997).
NOW SEE: Seller and buyer must agree as to the certain thing that will be subject of the sale, as well as
the price in which the thing will be sold. The thing to be sold is the object of the contract, while the price is
the cause or consideration. The object of a valid sale must be owned by the seller, or seller must be
authorized by the owner to sell the object; otherwise, sale is null and void. xCabrera v. Ysaac, 740 SCRA
612 (2014).

b. Subsequent Acquisition of Title by Non-Owner Seller Title Passes to Buyer by Operation of Law
(Art. 1434)
c. Acquisition by the Buyer May Even Depend on Contingency (Art. 1462)

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

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

Price signifies the sum stipulated as the equivalent of the thing sold and also every incident taken into
consideration for the fixing of the price put to the debit of the buyer and agreed to by him. xInchausti & Co. v.
Cromwell, 20 Phil. 345 (1911).
Under the doctrine of obligatory force, seller cannot unilaterally increase the price previously agreed upon
with the buyer, even when due to increased construction costs. xGSIS v. Court of Appeals, 228 SCRA 183
(1993).
Buyer who opted to purchase the land on installment basis with imposed interest at 24% p.a., cannot
unilaterally disavow the obligation created by the stipulation in the contract: The rationale behind having to pay
3
Heirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).
4
Azcona v. Reyes, 59 Phil. 446 (1934); Coronel v. Ona, 33 Phil. 456 (1916); Francisco v. Chemical Bulk Carriers, 657 SCRA 355 (2011).
8
a higher sum on the installment is to compensate the vendor for waiting a number of years before receiving the
total amount due. The amount of the stated contract price paid in full today is worth much more than a series of
small payments totaling the same amount. To assert that mere prompt payment of the monthly installments
should obviate imposition of the stipulated interest is to ignore an economic fact and negate one of the most
important principles on which commerce operates. Bortikey v. AFP-RSBS, 477 SCRA 511 (2005).

1. Price Must Be Real (Art. 1471)

a. When Price Is Simulated
(1) Mapalo v. Mapalo, 17 SCRA 114 (1966), versus: When two old ladies, not versed in English, sign a
Deed of Sale on representation by buyer that it was merely to evidence their lending of money, the
situation constitutes more than just fraud and vitiation of consent to give rise to a voidable contract,
since there was in fact no intention to enter into a sale, there was no consent at all, and more
importantly, there was no consideration or price agreed upon, which makes the contract void ab initio.
Rongavilla v. CA, 294 SCRA 289 (1998).
(2) Mate v. Court of Appeals, 290 SCRA 463 (1998), versus: When Deed of Sale was executed to
facilitate transfer of property to buyer to enable him to construct a commercial building and to sell the
property to the children, such arrangement being merely a subterfuge on the part of buyer, the
agreement cannot also be taken as a consideration and sale is void. Yu Bun Guan v. Ong, 367
SCRA 559 (2001).
(3) Effects When Price Simulated The principle of in pari delicto nonoritur action denies all recovery to
the guilty parties inter se, where the price is simulated; the doctrine applies only where the nullity
arises from the illegality of the consideration or the purpose of the contract. Modina v. Court of
Appeals, 317 SCRA 696 (1999).5

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

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

c. Effect of Non-Payment of Price

Sale being consensual, failure of buyer to pay the price does not make the contract void for lack of
consideration or simulation, but results in buyers default, for which seller may exercise his legal remedies.
xBalatbat v. Court of Appeals, 261 SCRA 128 (1996).6
In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the
transaction that, for a time, existed and discharges the obligations created thereunder. [?] The remedy of
an unpaid seller in a contract of sale is to seek either specific performance or rescission. xHeirs of Pedro
Escanlar v. CA, 281 SCRA 176 (1997).7
Price Simulated, Not Just Unpaid: It is a badge of simulated price, which render the sale void, when
price is expressly stipulated to have been paid, but in fact never been paid by the buyer to the seller.
xVda. de Catindig. v. Heirs of Catalina Roque, 74 SCRA 83 (1976).8

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

Price must be valuable consideration under by Civil Law, instead of any price mandated in Common
Law. Ong v. Ong, 139 SCRA 133 (1985); Bagnas v. CA, 176 SCRA 159 (1989).
Consideration for a valid contract of sale need not be money or its equivalent,Republic v. Phil.
Resources Dev., 102 Phil. 960 (1958); and can take different forms, such as the prestation or promise of a
thing or service by another, such as when the consideration is:
Expected profits from the subdivision project. xTorres v. CA, 320 SCRA 428 (1999).
Cancellation of liabilities on the property in favor of the seller. xPolytechnic University v. Court of Appeals,
368 SCRA 691 (2001).
Assumption of mortgage on property sold. xDoles v. Angeles, 492 SCRA 607 (2006).9

5
Yu Bun Guan v. Ong, , 367 SCRA 559 (2001); Gonzales v. Trinidad, 67 Phil. 682 (1939)
6
Pealosa v. Santos, 363 SCRA 545 (2001); Soliva v. Intestate Estate of Marcelo M. Villalba, 417 SCRA 277 (2003); Province of Cebu v. Heirs of Rufina
Morales, 546 SCRA 315 (2008).
7
Villaflor v. CA, 280 SCRA 297 (1997).
8
Ocejo v. Flores, 40 Phil. 921 (1920); Ladanga v. CA, 131 SCRA 361 (1984); Rongavilla v. CA, 294 SCRA 289 (1998); Labagala v. Santiago, 371 SCRA 360
(2001); Cruz v. Bancom Finance Corp., 379 SCRA 490 (2002); Montecillo v. Reynes, 385 SCRA 244 (2002); Republic v. Southside Homeowners Asso., 502
SCRA 587 (2006); Quimpo, Sr. v Abad Vda de Beltran, 545 SCRA 174 (2008); Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008);
Clemente v. CA, 772 SCRA 339 (2015).
9
The deed of sale with assumption of mortgage is a registrable instrument and must be registered with the Register of Deeds in order to bind third parties.
Rodriguez v. CA, 495 SCRA 490 (2006).
9
3. Price Must Be Certain or Ascertainable at Perfection (Art. 1469)
a. Price Is Ascertainable When:
(1) Set by Third Person Appointed at Perfection (Art. 1469)
(2) Set by the Courts (Art. 1469)
(3) By Reference to a Definite Day, Particular Exchange or Market (Art. 1472)
(4) By Reference to Another Thing Certain, such as to invoices then in existence and clearly identified
by the agreement xMcCullough v. Aenlle, 3 Phil. 285 (1904); or based on known factors or stipulated
formula. xMitsui v. Manila, 39 Phil. 624 (1919).
Price is ascertainable if the terms of the contract furnishes the courts a basis or measure for
determining the amount agreed upon, without having to refer back to either or both parties. Villanueva v.
Court of Appeals, 267 SCRA 89 (1997).10
However, where the sale involves an asset under a privatization scheme which attaches a peculiar meaning
or signification to the term indicative price as merely constituting a ball-park figure, then the price is not
certain. xMoreno, Jr. v. PMO, 507 SCRA 63 (2006).
Price or consideration is generally agreed upon as whole even if it consists of several parts, and even if
it is contained in one or more instruments; otherwise there would be no price certain, and the contract of
sale not perfected. xArimas v. Arimas, 55 O.G. 8682.

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

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

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

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

A definite agreement on the manner of payment of price is an essential element in the formation of a
binding and enforceable contract sale; without which the sale is void and an action for specific performance
must fail. Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007).11
When the manner of payment of the price is discussed after acceptance, then such acceptance did not
produce a binding and enforceable contract of sale. xNavarro v. Sugar Producers Corp., 1 SCRA 1180
(1961).
Where there is no other basis for the payment of the subsequent amortizations in a Deed of Conditional
Sale, the reasonable conclusion is that the subsequent payments shall be made in the same amount as the
first payment. [?] xDBP v. Court of Appeals, 344 SCRA 492 (2000).

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

a. Simple Inadequacy of Price Does Not Affect Ordinary Sales Mere inadequacy of the price does not
affect the validity of the sale when both parties are in a position to form an independent judgment
concerning the transaction, unless fraud, mistake, or undue influence indicative of a defect in consent is
present. The contract may be annulled for vitiated consent and not due to the inadequacy of price.
xBautista v. CA, 436 SCRA 141 (2004).12
b. Gross Inadequacy of Price May:
(1) Raise the Presumption of Equitable Mortgage in an Ordinary Sale (Art. 1602)
(2) Render Voidable a Judicial Sale: (i) Only when it is shocking to the conscience of man. xPascua
v. Simeon, 161 SCRA 1 (1988); and (ii) There is showing that, in the event of a resale, a better price
can be obtained. xCu Bie v. CA, 15 SCRA 307 (1965).13

10
Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).
11
Velasco v. CA, 51 SCRA 439 (1973); Co v. CA, 286 SCRA 76 (1998); San Miguel Properties v. Huang, 336 SCRA 737 (2000); Montecillo v. Reynes, 385
SCRA 244 (2002); Edrada v. Ramos, 468 SCRA 597 (2005); Cruz v. Fernando, 477 SCRA 173 (2005); Marnelego v. Banco Filipino Savings Bank, 480 SCRA
399 (2006); Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006); Platinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006); Manila Metal Container
Corp. v. PNB, 511 SCRA 444 (2006); Dantis v. Maghinang, Jr., 695 SCRA 599 (2013).
12
Ereeta v. Bezore, 54 SCRA 13 (1973); Bacungan v. CA, 574 SCRA 642 (2008).
13
Tayengco v. CA, 15 SCRA 306 (1965); Republic v. NLRC, 244 SCRA 564 (1995).
10
 UNLESS: There is right of redemption, in which case the proper remedy is to redeem. xDe Leon v.
Salvador, 36 SCRA 567 (1970).14
HOWEVER: By way of extraordinary circumstances perceived, when in a judicial sale the right of
redemption has been lost, where the inadequacy of the price is purely shocking to the conscience,
such that the mind revolts at it and such that a reasonable man would neither directly or indirectly be
likely to consent to it, the same will be se aside. xCometa v. Court of Appeals, 351 SCRA 294
(2001).
(3) Render Rescissible a Sale by Fiduciary, where Beneficiary suffers lesion of more than 1/4 of
value of thing sold, unless approved by the courts (Arts. 1381and1386)
There can be no legal conclusion of inadequacy of price in the absence of any evidence of the fair
market value of a land at the time of sale. xAcabal v. Acabal, 454 SCRA 897 (2005).15
There is gross inadequacy in price if it is such that a reasonable man will not agree to dispose of his
property. xDorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).
When judicial sale is voided without fault of purchaser, latter is entitled return of price with simple
interest, together with all sums paid out in improvements introduced on the property, taxes, and other
expenses. xSeven Brothers Shipping Corp. v. CA, 246 SCRA 33 (1995).

V. FORMATION OF THE CONTRACT OF SALE

A. POLICITACION STAGE (Art. 1479)

Policitation stage covers the doctrine of Freedom to contract which signifies the right to choose with whom
to contract. A property owner is free to offer his property for sale to any interested person, and is not duty bound
to sell the same to the occupant thereof, absent any prior agreement vesting the occupants the right of first
priority to buy. xGabelo v. CA, 316 SCRA 386 (1999).
Negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to the
perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer may be
withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into a contract, the
acceptance must be absolute and must not qualify the terms of the offer; it must be plain, unequivocal,
unconditional and without variance of any sort from the proposal. Manila Metal Container Corp. v. PNB, 511
SCRA 444 (2006).16
Where the offer is given with a stated time for its acceptance, the offer is terminated at the expiration of that
time. xVillegas v. CA, 499 SCRA 276 (2006).
Letter of Intent to Buy and Sell is just thata manifestation of offerors intention to sell the property and
offerees intention to acquire the samewhich is neither a contract to sell nor a conditional contract of sale.
xMuslim and Christian Urban Poor Assn. v. BRYC-V Devt Corp., 594 SCRA 724 (2009).
When the offeree negotiates for a much lower price, it constitutes a counter-offer and is therefor not an
acceptance of the offer of offeror. xTuazon v. Del Rosario-Suarez, 637 SCRA 728 (2010).

1. OPTION CONTRACT
An option is a preparatory contract in which one party grants to the other, for a fixed period and under
specified conditions, the power to decide, whether or not to enter into a principal contract. It binds the party
who has given the option, not to enter into the principal contract with any other person during the period
designated, and, within that period, to enter into such contract with the one to whom the option was granted, if
the latter should decide to use the option. It is a separate agreement distinct from the contract of sale which
the parties may enter into upon the consummation of the option. Carceller v. Court of Appeals, 302 SCRA 718
(1999).17
An option imposes no binding obligation on the person holding the option aside from the consideration for
the offer. Until accepted (exercised), it is not treated as a sale. Tayag v. Lacson, 426 SCRA 282 (2004).18

a. Meaning of Separate Consideration (Arts. 1479 and 1324) A unilateral promise to sell, in order to
be binding upon the promissor, must be for a price certain and supported by a consideration separate from
such price. xSalame v. CA, 239 SCRA 356 (1995).19

14
Vda. de Gordon v. CA, 109 SCRA 388 (1981).
15
Avila v. Barabat, 485 SCRA 8 (2006).
16
Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); San Miguel Properties Phil. v. Huang, 391 Phil. 636 (2000); First Optima Realty Corp. v. Securitron
Security Services, 748 SCRA 534 (2015)
17
Laforteza v. Machuca, 333 SCRA 643 (2000); Buot v. CA, 357 SCRA 846 (2001); Abalos v. Macatangay, Jr., 439 SCRA 649 (2004); Vasquez v. Ayala
Corp., 443 SCRA 231 (2004); Eulogio v. Apeles, 576 SCRA 561 (2009); Polytechnic University of the Phil. v. Golden Horizon Realty Corp., 615 SCRA 478
(2010).
18
Adelfa Properties v. CA, 240 SCRA 565 (1995); Kilosbayan v. Morato, 246 SCRA 540 (1995); San Miguel Properties Phil. v. Huang, 336 SCRA 737
(2000); Limson v. CA, 357 SCRA 209 (2001).
19
JMA House v. Sta. Monica Industrial and Dev. Corp., 500 SCRA 526 (2006).
11
 Separate consideration in an option may be anything of value, unlike in sale where it must be the
price certain in money or its equivalent. Villamor v. CA, 202 SCRA 607 (1991),20 such when the option is
attached to real estate mortgage xSoriano v. Bautista, 6 SCRA 946 (1962).
Although no consideration is expressly mentioned in an option, it may be proved, and once proven,
option is binding. xMontinola v. Cojuangco, 78 Phil. 481 (1947).

b. Option With No Separate Consideration: Void as Option, Valid as a Certain Offer He who draws
first wins. Sanchez v. Rigos, 45 SCRA 368 (1972).21
BUT SEE: Nothing Arises From an Option Without Separate Consideration. xYao Ka Sin Trading v.
Court of Appeals, 209 SCRA 763 (1991).22
If the option is without any consideration, the offeror may withdraw his offer by communicating such
withdrawal to the offeree at any time before acceptance. If it is founded upon a consideration, the offeror
cannot withdraw his offer before the lapse of the period agreed upon. Tuazon v. Del Rosario-Suarez,
637 SCRA 728 (2010).
c. The Double Acceptance Rule An option to rise to the level of a contract, there must be formal
acceptance of the option offer. Vazquez v. CA, 199 SCRA 102 (1991).
d. Exercise of Option Contract In an option to buy, oitonee-offeree may validly and effectively exercise
his right by merely advising the optioner-offeror of his decision to buy and expressing his readiness to pay
the stipulated price as soon as the seller is able to execute the proper deed of sale; thus, notice of the
optionee-offerees decision to exercise his option to buy need not be couple with actual payment of the
price. Nietes v. CA, 46 SCRA 654 (1972).
An option attached to a lease when not exercised within the option period is extinguished and cannot
be deemed to have been included in the implied renewal of the lease (tacita reconduccion). xDizon v. CA,
302 SCRA 288 (1999). BUT SEE: There may be virtual exercise of option with the option period.
Carceller v. Court of Appeals, 302 SCRA 718 (1999).
Proper exercise of an option gives rise to the reciprocal obligations of sale xHeirs of Luis Bacus v. CA,
371 SCRA 295 (2001),23 which must be enforced with ten (10) years as provided under Art. 1144. xDizon v.
CA, 302 SCRA 288 (1999).

2. RIGHT OF FIRST REFUSAL

A right of first refusal cannot be the subject of specific performance, but breach on the part of the
promissor would allow a recovery of damages. xGuerrero v. Yigo, 96 Phil. 37 (1954).
Rights of first refusal only constitute innovative juridical relations, but do not rise to the level of
contractual commitment since with the absence of agreement on price certain, they are not subject to
contractual enforcement. Ang Yu Asuncion v. CA, 238 SCRA 602 (1994).
Right of first refusal contained in a Contract of Lease, when breached by promissor allows enforcement by
the promisee by way of rescission of the sale entered into with the third party, pursuant to Arts. 1381(3) and
1385 of Civil Code. xGuzman, Bocaling & Co. v. Bonnevie, 206 SCRA 668 (1992), Equatorial Realty Dev.
v. Mayfair Theater, 264 SCRA 483 (1996);24 Paraaque Kings Enterprises v. Court of Appeals, 268
SCRA 727 (1997).
BUT: Not against a purchaser for value and in good faith. Rosencor Dev. Corp. v. Inquing, 354 SCRA
119 (2001).
A right of first refusal in a lease in favor of the lessee cannot be availed of by the sublessee. xSadhwani v.
Court of Appeals, 281 SCRA 75 (1997).
In a right of first refusal, while the object might be made determinate, the exercise of the right would be
dependent not only on the grantors eventual intention to enter into a binding juridical relation with another but
also on terms, including the price, that are yet to be firmed up. . . the offer may be withdrawn anytime by
communicating the withdrawal to the other party. Vasquez v. Ayala Corp., 443 SCRA 231 (2004).
A right of first refusal simply means that should lessor decide to sell the leased property during the term of
the lease, such sale should first be offered to the lessee; and the series of negotiations that transpire
between lessor and lessee on the basis of such preference is a compliance even when no final purchase
agreement is perfected between the parties. The lessor was then at liberty to offer the sale to a third party
who paid a higher price, and there is no violation of the right of the lessee. Riviera Filipina, Inc. v. CA, 380
SCRA 245 (2002).25

20
De la Cavada v. Diaz, 37 Phil. 982 (1918); San Miguel Properties Phil. v. Huang, 336 SCRA 737 (2000)
21
Affirmed in Vasquez v. CA, 199 SCRA 102 (1991).
22
Montilla v. CA, 161 SCRA 855 (1988); Natino v. IAC, 197 SCRA 323 (1991); Diamante v. CA, 206 SCRA 52 (1992).
23
Limson v. CA, 357 SCRA 209 (2001).
24
Rosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001); Conculada v. CA, 367 SCRA 164 (2001); Polytechnic University v. CA, 368 SCRA 691 (2001);
Riviera Filipina, Inv. v. CA, 380 SCRA 245 (2002); Lucrative Realty and Dev. Corp. v. Bernabe, Jr., 392 SCRA 679 (2002); Villegas v. CA, 499 SCRA 276
(2006); Polytechnic University of the Phil. v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).
25
Polytechnic University v. CA, 368 SCRA 691 (2001); Villegas v. CA, 499 SCRA 276 (2006); Polytechnic University of the Phil. v. Golden Horizon Realty
Corp., 615 SCRA 478 (2010).
12
 Right of first refusal clause does not apply to this situation where the owner to eject the tenant on the
ground that the former needs the premises for residential purposes. xEstanislao v. Gudito, 693 SCRA 330
(2013).

3. MUTUAL PROMISES TO BUY AND SELL (Art. 1479): TRUE CONTRACT TO SELL
Mutual promises to buy and sell a certain thing for a certain price gives parties a right to demand from the
other the fulfillment of the obligation, xBorromeo v. Franco, 5 Phil. 49 (1905); even in this case the certainty of
the price must also exist, otherwise, there is no valid and enforceable contract to sell. xTan Tiah v. Yu Jose,
67 Phil. 739 (1939).
An accepted bilateral promise to buy and sell is in a sense similar to, but not exactly the same, as a
perfected contract of sale because there is already a meeting of minds upon the thing which is the object of
the contract and upon the price.26 But a contract of sale is consummated only upon delivery and payment,
whereas in a bilateral promise to buy and sell gives the contracting parties rights in personam, such that each
has the right to demand from the other the fulfillment of their respective undertakings. Macion v. Guiani,
225 SCRA 102 (1993).27
Cause of action under a mutual promise to buy and sell is 10 years. xVillamor v. Court of Appeals, 202
SCRA 607 (1991).

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

Sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally demand performance subject to the
law governing the form of contracts. xMarnelego v. Banco Filipino Savings and Mortgage Bank, 480 SCRA 399
(2006).28
Mutual consent being a state of mind, its existence may only be inferred from the confluence of two acts of
the parties: an offer certain as to the object of the contract and its consideration, and an acceptance of the offer
which is absolute in that it refers to the exact object and consideration embodied in said offer. xVillanueva v.
PNB, 510 SCRA 275 (2006).29
If a material element of a contemplated contract is left for future negotiations, the same is too indefinite to
be enforceable. For a contract to be enforceable, its terms must be certain and explicit, not vague or indefinite.
xBoston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).30

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

Under Article 1319, the acceptance of an offer must therefore be unqualified and absolute. In other words,
it must be identical in all respects with that of the offer so as to produce consent or meeting of the minds.
Here, petitioners acceptance of the offer was qualified, which amounts to a rejection of the original offer.
Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006).31
Placing the word Noted and signing below such word at the bottom of the written offer is not an absolute
acceptance that would give rise to a valid sale. xDBP v. Ong, 460 SCRA 170 (2005).
Subject to Suspensive Condition: There is no perfected sale of a lot where award thereof was made
subject to approval by the higher authorities and there eventually was no acceptance manifested by the
supposed awardee. xPeople's Homesite. v. CA, 133 SCRA 777 (1984).

2. When Deviation Allowed

It is true that an acceptance may contain a request for certain changes in the terms of the offer and yet be
a binding acceptance, so long as it is clear that the meaning of the acceptance is positively and unequivocally
to accept the offer, whether such request is granted or not, a contract is formed. Vendors change in a phrase
of the offer to purchase which do not essentially change the terms of the offer, does not amount to a rejection
of the offer and the tender or a counter-offer. Villonco v. Bormaheco, 65 SCRA 352 (1975).32

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

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

4. Earnest Money (Art. 1482)

26
El Banco Nacional Filipino v. Ah Sing, 69 Phil. 611 (1940); Manuel v. Rodriguez, 109 Phil. 1 (1960).
27
Borromeo v. Franco, 5 Phil. 49 (1905); Villamor v. CA, 202 SCRA 607 (1991); Coronel v. CA, 263 SCRA 15 (1996).
28
Valdez v. CA, 439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004); Ainza v. Padua, 462 SCRA 614 (2005); Cruz v. Fernando, 477 SCRA
173 (2005).
29
Moreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).
30
Moreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).
31
Beaumont v. Prieto, 41 Phil. 670 (1916); Zayco v. Serra, 44 Phil. 326 (1923); Limketkai Sons Milling, v. CA, 255 SCRA 626 (1996); XYST Corp. v. DMC
Urban Properties Dev., 594 SCRA 598 (2009); Tuazon v. Del Rosario-Suarez, 637 SCRA 728 (2010).
32
Limketkai Sons Milling v. CA, 250 SCRA 523 (1995), but reversed in 255 SCRA 626,
13
 Earnest money given by the buyer shall be considered as part of the price and as proof of the perfection of
the contract. It constitutes an advance payment to be deducted from the total price. xEscueta v. Lim, 512
SCRA 411 (2007).
In a potential sale transaction, prior payment of earnest money even before the owner can agree to sell his
property is irregular, and cannot be used to bind the owner to the obligations of a seller under an otherwise
perfected contract of sale. Property owner/prospective seller may not be legally obliged to enter into a sale
with a prospective buyer through the latter's employment of questionable practices which prevent the owner
from freely giving his consent to the transaction. First Optima Realty Corp. v. Securitron Security
Services, 748 SCRA 534 (2015).33
Article 1482 does not apply when earnest money given in a contract to sell xSerrano v. Caguiat, 517
SCRA 57 (2007), especially where by stipulation the buyer has the right to walk away from the transaction,
with no obligation to pay the balance, although he will forfeit the earnest money. xChua v. Court of Appeals,
401 SCRA 54 (2003).34
When there is no provision for forfeiture of earnest money in the the sale fails to materialize, then with the
rescission it becomes incumbent upon seller to return the earnest money as legal consequence of mutual
restitution. xGoldenrod, Inc. v. Court of Appeals, 299 SCRA 141 (1998).
Where parties merely exchanged offers and counter-offers, there being no perfection of a contract of sale
yet, money given as deposit cannot be considered earnest money since such term applies only to a perfected
sale. xStarbright Sales Enterprises v. Philippine Realty Corp., 663 SCRA 326 (2012).

5. Differences Between Earnest Money and Option Money: Oesmer v.

Paraiso Dev. Corp., 514 SCRA 228 (2007).
6. Sale Deemed Perfected at the Place Where Offer Was Made (Art. 1319)

C. FORMAL REQUIREMENTS FOR CONTRACTS OF SALE (Arts.

1357, 1358(1), 1406 and 1483)
1. Form Not Important for Validity of Sale, Which Is Consensual in Character
Sale of land under private instrument is enforceable. xGallar v. Husain, 20 SCRA 186 (1967).35
Articles 1357 and 1358, in relation to Art. 1403(2), do not require that the conveyance of land to be in a
public instrument in order to validate the act or contract, but only to ensure its efficacy. xEstate of Pedro C.
Gonzales v. Heirs of Marcos Perez, 605 SCRA 47 (2009).36
The legal consequence of the sale not being in a public instrument is that both its due execution and its
authenticity must be proven, pursuant to Sec. 20, Rule 132 of the Rules of Court. xTigno v. Aquino, 444
SCRA 61 (2003).

a. Other Rulings on Deeds of Sale:

Seller may validly agree to a deed of absolute sale before full payment of the purchase price. xPan Pacific
Industrial Sales Co. v. Court of Appeals, 482 SCRA 164 (2006).
Failure of the buyers failed to pay the full price stated in the Deed of Sale would not render the sale void.
xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).
That marital consent executed prior to the Deed of Absolute Sale does not indicate that it is a phoney. xPan
Pacific Industrial Sales Co. v. Court of Appeals, 482 SCRA 164 (2006).
A notarized Deed of Sale enjoys the presumption of regularity and due execution; to overthrow that
presumption, sufficient, clear and convincing evidence is required, otherwise the document should be
upheld. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).37
Notarization by one who was not a notary public does not affect the validity thereof; deed merely remained
private documents. xR.F. Navarro & Co. v. Vailoces, 361 SCRA 139 (2001).
Notarization does not guarantee a Deed of Sales validity nor the veracity of its contents, for it is not the
function of the notary public to validate an instrument that was never intended by the parties to have any
binding legal effect. xSalonga v. Concepcion, 470 SCRA 291 (2005).38
Buyers immediate taking of possession of subject property corroborates the truthfulness and authenticity of
the deed of sale. xAlcos v. IAC, 162 SCRA 823 (1988); conversely, the sellers continued possession of the
property makes dubious the contract of sale between them. xSantos v. Santos, 366 SCRA 395 (2001).39

33
Limjoco v. CA, 37 SCRA 663 (1971); Villonco v. Bormaheco, 65 SCRA 352 (1975); Spouses Doromal, Sr. v. CA, 66 SCRA 575 (1975); PNB v. CA, 262
SCRA 464 (1996); San Miguel Properties v. Huang, 336 SCRA 737 (2000); Platinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006); Manila Metal Container
Corp. v. PNB, 511 SCRA 444 (2006); GSIS v. Lopez, 592 SCRA 456 (2009); XYST Corp. DMC Urban Properties Dev., 594 SCRA 598 (2009).
34
San Miguel Properties v. Huang, 336 SCRA 737 (2000).
35
F. Irureta Goyena v. Tambunting, 1 Phil. 490 (1902).
36
Martinez v. CA, 358 SCRA 38 (2001); Heirs of Biona v. CA, 362 SCRA 29 (2001); Estate of Pedro C. Gonzales v. Heirs of Marcos Perez, 605 SCRA 47
(2009).
37
Yason v. Arciaga, 449 SCRA 458 (2005); Union Bank v. Ong, 491 SCRA 581 (2006); Tapuroc v. Loquellano Vda. De Mende, 512 SCRA 97 (2007); Alfaro
v. CA, 519 SCRA 270 (2007); Santos v. Lumbao, 519 SCRA 408 (2007); Pedrano v. Heirs of Benedicto Pedrano, 539 SCRA 401 (2007); Olivares v.
Sarmiento, 554 SCRA 384 (2008).
38
Nazareno v. CA, 343 SCRA 637 (2000); Santos v. Heirs of Jose P. Mariano, 344 SCRA 284 (2000)
39
Domingo v. CA, 367 SCRA 368 (2001).
14
 Any substantial difference between the terms of the Contract to Sell and the concomitant Deed of Absolute
Sale (such as difference in subject matter, in price and/or the terms thereof), does not make the transaction
between the seller and the buyer void, for it is truism that the execution of the Deed of Absolute Sale
effectively rendered the previous Contract to Sell ineffective and cancelled [through the process of novation].
xLumbres v. Talbrad, Jr., 516 SCRA 575 (2007).

2. HOW FORM IS IMPORTANT IN CONTRACTS OF SALE

a. To Bind Third Parties Article 1358, which requires the embodiment of certain contracts in a public
instrument, is only for convenience, and registration of the instrument only adversely affects third parties.
Formal requirements are, therefore, for the benefit of third parties; and non-compliance therewith does not
adversely affect the validity of the contract and the rights and obligations of the parties thereunder.
Dalion v. CA, 182 SCRA 872 (1990).40
While sale of land appearing in a private deed is binding between the parties, it cannot be considered
binding on third persons, if it is not embodied in a public instrument and recorded in the Registry of Deeds.
Secuya v. Vda. De Selma, 326 SCRA 244 (2000).41

b. For Enforceability Between the Parties: STATUTE OF FRAUDS (Arts. 1403 and 1405)
The term Statute of Frauds is descriptive of the statutes which require certain enumerated contracts
and transactions, such as agreements for the sale of real property, to be in writing and signed by the party
to be charged, the purpose being to prevent fraud and perjury in the enforcement of obligations depending
for their evidence on the unassisted memory of witnesses. xShoemaker v. La Tondea, 68 Phil. 24 (1939).
Presupposes Valid Contract of Sale: Application of the Statute of Frauds presupposes the existence of
a perfected contract; otherwise, there is no basis to apply the Statute. xFirme v. Bukal Enterprises and
Dev. Corp., 414 SCRA 190 (2003).42
(1) Coverage:
(i) Sale of Real Property Cannot be proven by means of witnesses, but must necessarily be evidenced
by a written instrument, duly subscribed by party charged, or by secondary evidence of the contents of
such document. xGorospe v. Ilayat, 29 Phil. 21 (1914).43
(ii) Agency to Sell or to Buy As contrasted from sale, agency to sell does not belong to any of the
categories of contracts covered by Arts. 1357 and 1358 and not one enumerated under the Statutes of
Frauds in Art. 1403. xLim v. CA, 254 SCRA 170 (1996).44
(iii) Rights of First Refusal Are not covered since Art. 1403(2)(e) presupposes the existence of a
perfected, albeit unwritten, contract of sale; a right of first refusal, is not by any means a perfected sale.
xRosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001).
(iv) Right to Repurchase Deed and verbal agreement allowing the right of repurchase should be
considered as an integral whole; the deed of sale is itself the note or memorandum evidencing the
contract. xMactan Cebu Intl Airport Authority v. CA, 263 SCRA 736 (1996).
(v) Equitable Mortgage Statute does not stand in the way of treating an absolute deed as a mortgage,
when such was the parties intention, although the agreement for redemption or defeasance is proved
by parol evidence. xCuyugan v. Santos, 34 Phil. 100 (1916).45

(2) Requisite of Memorandum For the memorandum to take the sale out of the coverage of the
Statute of Frauds, it must contain all the essential terms of the contract of sale. Yuviengco v.
Dacuycuy, 104 SCRA 668 (1981); 46 even when scattered into various correspondences which can be
brought together, xCity of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999).47
EXCEPTION: Electronic Documents under the E-COMMERCE ACT (R.A. 8792)
(3) Waiver (Art. 1405) Cross-examination on the contract is deemed a waiver of the defense of the
Statute. xAbrenica v. Gonda, 34 Phil. 739 (1916).48
(4) Partial Execution (Art. 1405). Ortega v. Leonardo, 103 Phil. 870 (1958).
Claudel v. Court of Appeals, 199 SCRA 113 (1991).
Statute of Frauds does not apply to contracts either partially or totally performed. In addition, a contract
that violates the Statute of Frauds is ratified by the acceptance of benefits under the contract, such as the

40
Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); Fule v. CA, 286 SCRA 698 (1998); Agasen v. CA, 325 SCRA 504 (2000); Universal Robina Sugar
Milling v. Heirs of Angel Teves, 389 SCRA 316 (2002); Estreller v. Ysmael, 581 SCRA 247 (2009).
41
Limketkai Sons Milling v. CA, 255 SCRA 6 (1996); 261 SCRA 464 (1996); Talusan v. Tayag, 356 SCRA 263 (2001); Santos v. Manalili, 476 SCRA 679
(2005).
42
Rosencor Devt Corp. v. Inquing, 354 SCRA 119 (2001).
43
Alba Vda. De Ray v. CA, 314 SCRA 36 (1999).
44
Torcuator v. Bernabe, 459 SCRA 439 (2005).
45
Rosales v. Suba, 408 SCRA 664 (2003); Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).
46
Paredes v. Espino, 22 SCRA 1000 (1968); Torcuator v. Bernabe, 459 SCRA 439 (2005).
47
Berg v. Magdalena Estate, 92 Phil. 110 (1952); Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); First Philippine Intl Bank v. CA, 252 SCRA 259
(1996).
48
Talosig v. Vda. De Nieba, 43 SCRA 472 (1972); Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); Lacanilao v. CA, 262 SCRA 486 (1996).
15
 acceptance of the purchase price and using the proceeds to pay outstanding loans. xAlfredo v. Borras,
404 SCRA 145 (2003).49
Delivery of the deed to buyers agent, with no intention to part with the title until the purchase price is
paid, does not take the case out of the Statute of Frauds. xBaretto v. Manila Railroad Co., 46 Phil. 964
(1924).
Probative Value of Commercial Documents: Business forms, e.g., order slip, delivery invoice, issued in
the ordinary course of business are not always fully accomplished to contain all the necessary information
describing in detail the whole business transaction; despite their being incomplete, they are commonly
recognized in ordinary commercial transactions as valid between the parties and serve as an
acknowledgment that a business transaction has in fact transpired. xDonato C. Cruz Trading Corp. v. CA,
347 SCRA 13 (2000).50
A sales invoice is a commercial document (i.e., those used by merchants or businessmen to promote or
facilitate trade or credit transactions) which is not a mere scrap of paper bereft of probative value, but vital
piece of evidence of commercial transactions, written memorials of the details of the consummation of
contracts. xSeaoil Petroleum Corp. v. Autocorp Group, 569 SCRA 387 (2008); it constitutes evidence of
the receipt of the goods; since the best evidence to prove payment is the official receipt. xEl Oro
Engravers Corp. v. CA, 546 SCRA 42 (2008).
In itself, the absence of receipts, or any proof of consideration, would not be conclusive of the
inexistence of a sale since consideration is always presumed. xTigno v. Aquino, 444 SCRA 61 (2003); but
a receipt proves payment which takes the sale out of the Statute of Frauds. Toyota Shaw v. Court of
Appeals, 244 SCRA 320 (1995).51
CONTRA: A receipt which is merely an acknowledgment of the sum received, without any indication
therein of the total purchase price of the land or of the monthly installments to be paid, cannot be the basis
of valid sale. xLeabres v. Court of Appeals, 146 SCRA 158 (1986).52

c. For Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874) When sale of a
piece of land or any interest therein is through an agent, the authority of the latter shall be in writing;
otherwise, the sale shall be void,53 even when:
Agent is the owners son. xDelos Reyes v. Court of Appeals, 313 SCRA 632 (1999).
There is partial payment of price received by agent. xDizon v. CA, 396 SCRA 154 (2003).54
Seller is a corporation. xCity-Lite Realty Corp. v. Court of Appeals, 325 SCRA 385 (2000).55
When the Contract to Sell was signed by the co-owners themselves as witnesses, the written authority
for their agent mandated under Article 1874 of the Civil Code is no longer required. xOesmer v. Paraiso
Dev. Corp., 514 SCRA 228, 237 (2007).
Art. 1874 should be interpreted to mean that the sale is unenforceable to the principal, who may
otherwise ratify it. Pahud v. Court of Appeals, 597 SCRA13 (2009).56

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

XD. SIMULATED SALES

Characteristic of simulation is that the apparent contract is not really desired or intended to produce legal
effect or in any way alter the parties juridical situation, or that the parties have no intention to be bound by the
contract. The requisites are: (a) an outward declaration of will different from the will of the parties; (b) false
appearance must have been intended by mutual agreement; and (c) purpose is to deceive third persons.
xManila Banking Corp. v. Silverio, 466 SCRA 438 (2005).57

1. Badges of Simulation:
Non-payment of the stipulated consideration, absence of any attempt by the buyers to assert their alleged rights
over the subject property. xVillaflor v. CA, 280 SCRA 297 (1997).58
Failure of alleged buyers to collect rentals from alleged seller. xSantiago v. CA, 278 SCRA 98 (1997); but not
when there appears a legitimate lessor-lessee relationship between the vendee and the vendor. xUnion Bank v.
Ong, 491 SCRA 581 (2006).
Although agreement did not provide for absolute transfer ownership of the land to buyer, that did not amount to
simulation, since delivery of TCT and execution of deed of absolute sale were expressly stipulated as

49
Vda. de Jomoc v. CA, 200 SCRA 74 (1991); Soliva v. Estate of Marcelo M. Villalba, 417 SCRA 277 (2003); Ainza v. Padua, 462 SCRA 614 (2005); De la
Cena v. Briones, 508 SCRA 62 (2006); Yaneza v. CA, 572 SCRA 413 (2008); Duarte v. Duran, 657 SCRA 607 (2011).
50
Lagon v. Hooven Comalco Industries, 349 SCRA 363 (2001).
51
Xentrex Automotive v. CA, 291 SCRA 66 (1998).
52
Limson v. CA, 357 SCRA 209 (2001).
53
Alcantara v. Nido, 618 SCRA 333 (2010); Camper Realty Corp. v. Pajo-Reyes, 632 SCRA 400 (2010).
54
Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).
55
Pineda v. CA, 376 SCRA 222 (2002).
56
Escueta v. Lim, 512 SCRA 411 (2007).
57
Rosario v. CA, 310 SCRA 464 (1999); Loyola v. CA, 326 SCRA 285 (2000); Yu Bun Guan v. Ong, 367 SCRA 559 (2001); Payongayong v. CA, 430 SCRA
210 (2004).
58
Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008).
16
 suspensive conditions, which gave rise to the corresponding obligation on part of buyer to pay the last
installments. xVillaflor v. CA, 280 SCRA 297 (1997).
When signature on a deed of sale is a forgery, Fidel v. CA, 559 SCRA 186 (2008); but bare assertions that the
signature appearing on the Deeds of Sale is not enough to allege simulation, since forgery is not presumed; it
must be proven by clear, positive and convincing evidence. xR.F. Navarro & Co. v. Vailoces, 361 SCRA 139
(2001).
Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects the
concept of a simulated sale is incompatible with inadequacy of price. When the contracting parties do not really
intend to be bound by it, the contract is simulated and void. Gross inadequacy of price by itself will not result in
a void contract, and it does not even affect the validity of a contract of sale, unless it signifies a defect in the
consent or that the parties actually intended a donation or some other contract. xBravo-Guerrero v. Bravo, 465
SCRA 244 (2005).

2. When Motive Nullifies the Sale In sale, consideration is, as a rule, different from the motive of parties,
and when the primary motive is illegal, such as when the sale was executed over a land to illegally frustrate a
person's right to inheritance and to avoid payment of estate tax, the sale is void because illegal motive
predetermined purpose of the contract. xOlegario v. CA, 238 SCRA 96 (1994).59
Where the parties to a contract of sale agreed to a consideration, but the amount reflected in the final
Deed of Sale was lower, their motivation being to pay lower taxes on the transaction, the contract of sale
remains valid and enforceable upon the terms of the real consideration. Although illegal, the motives neither
determine nor take the place of the consideration. xHeirs of Spouses Balite v. Lim, 446 SCRA 54 (2004).

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

4. Effects When Sale Declared Void:

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

VI. CONSUMMATION (Arts. 1493-1506)

PERFORMANCE OF CONTRACT OF SALE (Arts. 1536-1544, 1582-1590)

A. OBLIGATIONS OF SELLER
1. Preserve with Due Diligence the Subject Matter (Art. 1163)
2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537)
3. DELIVER THE SUBJECT MATTER (Art. 1477)
a. Legal Premises for Tradition Doctrines to Come Into Play
(i) Nemo Potest Nisi Quod De Jure Potest No man can do anything except what he can do lawfully.
When the sale is void, even when there is delivery, no valid title over the subject matter can be conveyed
to the buyer. xTraders Royal Bank v. CA, 269 SCRA 15 (1997).60
(ii) Nemo Dat Quod Non Habet No man can give that which he does not have. Even when the sale is
valid, if the seller had no ownership over the subject matter at the time of delivery, no valid title can pass in
favor of the buyer. xTsai v. CA, 366 SCRA 324 (2001).61
A tax declaration by itself is not considered conclusive evidence of ownership; it is merely an indicium
of a claim of ownership. Daclag v. Macahilig, 560 SCRA 137 (2008); nevertheless, when at delivery there
is no proof that seller had ownership and propertys tax declaration was in the name of another person,
then there was no transfer of ownership by delivery. xHeirs of Severina San Miguel v. CA, 364 SCRA 523
(2001).

59
Uy v. CA, 314 SCRA 69, 81 (1999).
60
Rufloe v. Burgos, 577 SCRA 264, 272-273 (2009).
61
Tangalin v. CA, 371 SCRA 49 (2001); Heirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008); Francisco v. Chemical Bulk Carriers, 657 SCRA 355
(20
17
 Article 1459 on contracts of sale specifically requires that the vendor must have ownership of the
property at the time it is delivered; ownership need not be with the seller at the time of perfection. xHeirs
of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).
One can sell only what one owns or is authorized to sell, and the buyer can acquire no more than what
the seller can transfer legally. xDaclag v. Macahilig, 560 SCRA 137 (2008).
A contract to sell, or a conditional contract of sale where the suspensive condition has not happened,
even when found in a public document, cannot be treated as constituting constructive delivery, especially
when from the face of the instrument it is shown that the seller was not yet the owner of the property and
was only expecting to inherit it. xHeirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).

b. GENERAL DOCTRINES ON TRADITION, WHETHER ACTUAL OR CONSTRUCTIVE

(1) Meaning of Delivery (Art. 1477) Delivery contemplates the absolute giving up of the control and
custody of the property on the part of the vendor, and the assumption of the same by the vendee. Non
nudis pactis sed traditione dominia rerum transferantur. There is delivery if and when the thing sold is
placed in the control and possession of the vendee. xEquatorial Realty Dev. v. Mayfair Theater, 370
SCRA 56 (2001).
Delivery in sales refers to the concurrent transfer of two things: (1) possession and (2) ownership. If
the vendee is placed in actual possession of the property, but by agreement of the parties ownership of
the same is retained by the vendor until the vendee has fully paid the price, the mere transfer of the
possession of the property subject of the sale is not the delivery contemplated in the Law on Sales or
as used in Art. 1543 of the Civil Code. xCebu Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA 120
(2009).
(2) Relationship to the Price It may be stipulated that ownership in the thing shall not pass to buyer until
he has fully paid price (Art. 1478). CONSEQUENTLY:
Absence of an express stipulation to the contrary, payment of price of the goods is not a condition
precedent to the transfer of title to the buyer, but title passes by the delivery of the goods. xPhil.
Suburban Dev. Corp. v. Auditor General, 63 SCRA 397 (1975).62
Failure of buyer to make good the price does not cause the ownership to revest to the seller unless
the bilateral contract of sale is first rescinded or resolved pursuant to Art. 1191. xBalatbat v. Court of
Appeals, 261 SCRA 128 (1996).
(3) Tradition Per Se Transfers Ownership to the Buyer (Arts. 1477, 1478, and 1496) In the absence
of a stipulation to the contrary, tradition produces its natural legal effects, most important of which being
conveyance of ownership, without prejudice to right of seller to claim payment of price. xFroilan v. Pan
Oriental Shipping, 12 SCRA 276 (1964).63
In a contract of sale, title to the property sold passes to buyer upon delivery of thing sold; seller
loses ownership by delivery and cannot recover it until and unless contract is resolved or rescinded by
court process. David v. Misamis Occidental II Electric Cooperative, 676 SCRA 367 (2012).
c. ACTUAL OR PHYSICAL DELIVERY (Art. 1497) Article 1477 recognizes that the ownership of the thing
sold shall be transferred to the vendee upon the actual or constructive delivery thereof; related to this is
Article 1497 which provides that [t]he thing sold shall be understood as delivered when it is placed in the
control and possession of the vendee. Santiago v. Villamor, 686 SCRA 313 (2012).
It is not necessary that seller himself physically delivers title to the buyer because the thing sold is
understood as delivered when it is placed in control and possession of buyer. Thus, when sellers
themselves introduced the tenant to the buyer as the new owners of the land, and from that time on the
buyer acted as landlord thereof, there was delivery that transferred title to the buyer. xAlfredo v. Borras,
404 SCRA 145 (2003).

d. CONSTRUCTIVE DELIVERY: EXECUTION OF A PUBLIC INSTRUMENT (Art. 1498) Where deed of sale or any
agreement analogous to a deed of sale, is made through a public instrument, its execution is equivalent to
the delivery of the property. xCaoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273 (2006).64
Under Art. 1498, the mere execution of the deed of conveyance in a public instrument is equivalent to
the delivery of the property, and that prior physical delivery or possession is not legally required, since
ownership and possession are two entirely different legal concepts. Notwithstanding the presence of illegal
occupants on the subject property, transfer of ownership by symbolic delivery under Art. 1498 can still be
effected through the execution of the deed of conveyance. xSabio v. Intl Corporate Bank, 364 SCRA 385
(2001).
BUT SEE: There is nothing in Article 1498 that provides that execution of a deed of sale is a conclusive
presumption of delivery of possession; presumptive delivery can be negated by the failure of buyer to take
actual possession of the land or the continued enjoyment of possession by the vendor. Santos v.
Santos, 366 SCRA 395 (2001).65

62
Ocampo v. CA, 233 SCRA 551 (1994).
63
Kuenzle & Streiff v. Watson & Co., 13 Phil. 26 (1909); Ocejo, Perez & Co. v. Int'l Banking Corp., 37 Phil. 631 (1918).
64
Tating v. Marcella, 519 SCRA 79 (2007); De Leon v. Ong, 611 SCRA 381 (2010); Villamar v. Mangaoil, 669 SCRA 2012 (2012); Santiago v. Villamor, 686
SCRA 313 (2012).
18
 As a general rule, when sale is made through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of sale, if from the deed the contrary does not
appear or cannot clearly be inferred. In order the execution of a public instrument to effect tradition, the
purchaser must be placed in control of the thing sold. A person who does not have actual possession of
the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument.
xAsset Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).
A contract to sell, or a condition contract of sale where the suspensive condition has not happened,
even when found in a public document, cannot be treated as constituting constructive delivery, especially
when from the face of the instrument it is shown that the seller was not yet the owner of the property and
was only expecting to inherit it. Heirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).66
Issuance of an acknowledgment receipt of partial payment, when it is not a public instrument does not
convey title. xSan Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005).
(i) As to Movables (Arts. 1498-1499, 1513-1514) The effects of delivery on ownership can be
segregated from the delivery of possession. Dy, Jr. v. CA, 198 SCRA 826 (1991).
Where it is stipulated that deliveries must be made to the buyer or his duly authorized representative
named in the contracts, seller is under obligation to deliver in accordance with such instructions. xLagon v.
Hooven Comalco Industries, 349 SCRA 363 (2001).
Neither issuance of an invoice, which is not a document of title xP.T. Cerna Corp. v. CA, 221 SCRA 19
(1993),67 nor of the registration certificate of vehicle xUnion Motor Corp. v. CA, 361 SCRA 506 (2001), 68
would constitute constructive delivery of the vehicle.
(ii) As to Immovables (Art. 1498) In case of immovables, when sale is made through a public
instrument, execution thereof shall be equivalent to delivery of the thing object of the sale, if from the
deed the contrary does not appear or cannot clearly be inferred. xMunicipality of Victorias v. Court of
Appeals, 149 SCRA 31 (1987); 69 and that prior physical delivery or possession is not legally required
since execution of the deed is deemed equivalent to delivery. xManuel R. Dulay Enterprises v. CA, 225
SCRA 678 (1993); PROVIDED THAT:
(a) Thing Sold Subject to Control of Seller, Addison v. Felix, 38 Phil. 404 (1918); for a
person who does not have actual possession or control of the thing sold cannot transfer
constructive possession by the execution and delivery of a public instrument. xVillamar v.
Mangaoil, 669 SCRA 426 (2012).70
and
(b) Such Control Should Remain within a Reasonable Period after Execution of the
instrument, Danguilan v. IAC, 168 SCRA 22 (1988).
EXCEPT: When Buyer Assumes Risks of Ownership and Possession. Power Commercial
and Industrial Corp. v. CA, 274 SCRA 597 (1997).71

Registration of Title Is Separate Mode from Execution of Public Instrument Recording of the sale
with the proper Registry of Deeds and transfer of the TCT in the name of the buyer are necessary only to
bind third parties. As between the seller and the buyer, transfer of ownership takes effect upon the
execution of a public instrument conveying the real estate. Chua v. CA, 401 SCRA 54 (2003).
BUT SEE: Under Art. 1495, seller is obliged to transfer title over the property and deliver the same to
the vendee. Vive Eagle Land, v. CA, 444 SCRA 445 (2004).
Customary Steps in Selling Immovables Customarily, in the absence of a contrary agreement, the
submission by an individual seller to the buyer of the following papers would complete a sale of real
estate: (1) owners duplicate copy of the Torrens title; (2) signed deed of absolute sale; (3) tax
declaration; and (4) latest realty tax receipt. They buyer can retain the amount for the capital gains tax
and pay it upon authority of the seller, or the seller can pay the tax, depending on the agreement of the
parties. Chua v. Court of Appeals, 401 SCRA 54 (2003).
Execution of notarized deed of sale and the delivery of the owners duplicate copy of the original
certificate of title to the buyer is tantamount to constructive delivery of the object of the sale. Kings
Properties Corp. v. Galido, 606 SCRA 137 (2009).
(iii) As to Incorporeal Property (Arts. 1498 and 1501) In the sale of shares of stock, delivery of a
stock certificate is one of the essential requisites for the transfer of ownership of the stocks
purchased. Sellers failure to delivery the stock certificates representing the shares of stock
65
Equatorial Realty Dev. v. Mayfair Theater, 370 SCRA 56 (2001); Engreso v. De La Cruz, 401 SCRA 217 (2003); Ten Forty Realty and Dev. Corp. v. Cruz,
410 SCRA 484 (2003); Copuyoc v. De Solas, 504 SCRA 176 (2006); Cebu Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA 120 (2009); Beatingo v. Gasis,
642 SCRA 539 (2011).
66
Fortune Tobacco Corp. v. NLRC, 200 SCRA 766 (1991).
67
Norkis Distributors v. CA, 193 SCRA 694 (1991).
68
Abuan v. Garcia, 14 SCRA 759 (1965); Santos v. Santos, 366 SCRA 395 (2001).
69
Florendo v. Foz, 20 Phil. 388 (1911); Sanchez v. Ramos, 40 Phil. 614 (1919); Quimson v. Rosete, 87 Phil. 159 (1950); Phil. Suburban Dev. v. Auditor, 63
SCRA 397 (1975); Kings Properties Corp. v. Galido, 606 SCRA 137 (2009); Monasterio-Pe v. Tong, 646 SCRA 161 (2011).
70
Asset Privatization Trust v. TY.J. Enterprises, 587 SCRA 481 (2009).
71
Villamar v. Mangaoil, 669 SCRA 426 (2012).
19
 amounted to a substantial breach which gave rise to a right to rescind the sale. Raquel-Santos v.
CA, 592 SCRA 169 (2009).
e. Constitutum Possessorium (Art. 1500) A provision in the deed of sale granting to seller a right to
lease the subject matter of the sale is valid: possession is deemed to be constituted in the vendee by
virtue of this mode of tradition. xAmigo v. Teves, 96 Phil. 252 (1954).
f. Traditio Brevi Manu Prior to the sale, petitioners were in possession of the property as lessees; upon
sale to them, they remained in possession, not in the concept of lessees anymore but as owners now
through symbolic delivery known as traditio brevi manu. xHeirs of Pedro Escanlar v. CA, 281 SCRA 176
(1997).
4. Obligation to Take-Out Insurance Coverage (Art. 1523)
5. Time and Place of Delivery (Art. 1521)
6. Expenses of Execution and Registration (Art. 1487); and of Putting
Goods in Deliverable State (Art. 1521)
Unless otherwise stipulated: (a) under Art. 1487 the expenses for the registration of the sale should be
shouldered by the seller. xVive Eagle Land, v. CA, 444 SCRA 445 (2004); and (b) duty to withhold taxes due
on the sale is imposed on seller. xEquitable Realty Devt v. Mayfair Theater, 332 SCRA 139 (2000).
Although buyer has more interest in having the capital gains tax paid immediately as a pre-requisite to the
issuance of a new Torrens title in his name, nonetheless, as far as the government is concerned the capital
gains tax remains sellers liability since it is a tax on the sellers gain on sale of the real estate. Payment of
the capital gains tax, however, is not a pre-requisite to the transfer of ownership to the buyer since the
delivery takes effect upon the signing and notarization of the deed of absolute sale. xChua v. CA, 401 SCRA
54 (2003).
A judgment that decrees sellers obligations to execute and deliver the deed of absolute sale and the
certificate of title does not necessarily include within its terms the obligation to pay for the expenses in
notarizing a deed of sale and in obtaining new certificate of title. xJose Clavano, Inc. v. HLRB, 378 SCRA 172
(2002).

B. SPECIAL RULES ON COMPLETENESS OF DELIVERY

1. In Case of Movables (Art. 1522 and 1537, 1480)
When the contract does not provide for the measuring or weighing of a sold specific mass, and the price
agreed upon was not based on such measurement, then [t]he subject matter of the sale is, therefore, a
determinate object, the mass, and not the actual number of units or tons contained therein, so that all that is
required of seller was to deliver in good faith to his buyer all of those found in the mass, notwithstanding that
the quantity delivered is less than the amount estimated in the contract. xGaite v. Fonacier, 2 SCRA 831
(1961).
a. Rules on Delivery to Carrier (Art. 1523)
(i) FAS Sales The seller pays all charges and is subject to risk until the goods are placed alongside the
vessel. xA. Soriano Y Cia. v. Collector, 97 Phil. 505 (1955).
(ii) FOB Sales In mercantile contracts of American origin, F.O.B. stand for the words Free on Board,
i.e., that the seller shall bear all expenses until the goods are delivered according as to whether the
goods are to be delivered F.O.B. at the point of shipment or at the point of destination determines the
time when property passes. Behn Meyer & Co. v. Yangco, 38 Phil. 602, 606 (1918).72

(iii) CIF Sales. General Foods v. NACOCO, 100 Phil. 337 (1956).
C.I.F. found in British contracts stand for costs, insurance, and freight; they signify that the price fixed
covers not only the costs of the goods, but the expense of freight and insurance to be paid by the seller.
Behn Meyer & Co. v. Yangco, 38 Phil. 602, 606 (1918).
Under an arrangement c.i.f. U.S. Pacific Coast, the vendor is to pay not only the cost of the goods,
but also the freight and insurance expenses, and, as it was judicially interpreted, this is taken to indicate
that the delivery is to be made at the port of destination. Pacific Vegetable Oil Corp. v. Singzon,
Supreme Court Advance Decisions, 29 April 1955.
b. Sale on Approval, Trial or Satisfaction (Art. 1502)
In a sale or return, the ownership passes to the buyer on delivery pursuant to a perfected contract of
sale; and the subsequent return of the goods reverts ownership back to the seller. In such case, tradition
as a mode of acquiring ownership must be in consequence of a contract. xVallarta v. CA, 150 SCRA 336
(1987).
In a sale on approval (also called sale on acceptance, sale on trial or sale on satisfaction), the
delivery of the object does not transfer ownership to the buyer since the delivery was not for purposes of
transferring ownership, since the prestation to effect a meeting of the minds to give rise to a valid contract
is incumbent on the buyer. xVallarta v. CA, 150 SCRA 336 (1987).
72
Chua Ngo v. Universal Trading Co., 87 Phil. 331 (1950).
20
 For a sale to be a sale or return or a sale on approval, there must be a clear agreement to either of
such effect, otherwise, the provisions of Art. 1502 of Civil Code governing such sales cannot be invoked by
either party to the contract. xIndustrial Textile Manufacturing Co. v. LPJ Enterprises, 217 SCRA 322
(1993).
c. Sale by Description and/or Sample (Art. 1481)
There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the
bulk, which is not present and there is no opportunity to inspect or examine the same; and the parties
treated the sample as the standard of quality and that they contracted with reference to the sample with
the understanding that the product to be delivered would correspondent with the sample. xMendoza v.
David, 441 SCRA 172 (004)
Even in sales by description and/or sample, buyer will not be released from his obligation to accept and
pay for the goods by deviations on the part of the seller from the exact terms of the contract, if buyer had
acquiesced to such deviations after due notice thereof. xEngel v. Mariano Velasco & Co., 47 Phil. 115
(1924).
When the machine delivered is in accordance with the description stated in the sales contract, the
buyer cannot refuse to pay the balance of the purchase price and the cost of installation if it proves that
the machine cannot be used satisfactorily for the purposes for which he bought it when such purpose was
not made known to the seller. xPacific Commercial Co. v. Ermita Market & Cold Stores, 56 Phil. 617
(1932).

2. In Case of Immovables
a. Sale Per Unit of Measure (Arts. 1539 and 1540) In a unit price sale, the statement of the area of
immovable is not conclusive and the price may be reduced or increased depending on the area actually
delivered. If the vendor delivers less than the area agreed upon, the vendee may oblige the vendor to
deliver all that is stated in the contract or demand for the proportionate reduction of the purchase price if
delivery is not possible. If the vendor delivers more than the area stated in the contract, the vendee has
the option to accept only the amount agreed upon or to accept the whole area, provided he pays for the
additional area at the contract rate. Rudolf Lietz, Inc. v. CA, 478 SCRA 451 (2005).73
Where parties agreed at a rate of a certain price per unit of measure and not one for a lump sum, it is
Art. 1539 and not Art. 1542 which is the applicable lawbuyer is entitled to the relief afforded to him under
Article 1529, that is, either a proportional reduction of the price or the rescission of the contract. xCebu
Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA 120 (2009).
EXCEPT: A buyer of land, when sold in gross or with the description more or less or similar words in
designating quantity covers only a reasonable excess of deficiency. In the case at bar an area of 644
square meters more is not reasonable excess or deficiency, to be deemed included in the deed of sale.
Roble v. Arbasa, 362 SCRA 69 (2001).74
EXCEPTION TO EXCEPTION: When buyer, who has been occupying the land for two years as lessee,
actually is deemed to take risk on the actual size of the property bought at lump sum. x Garcia v. Velasco,
72 Phil. 248 (1941).
b. Sale for a Lump Sum (A cuerpo cierto or por precio alzado) (Art. 1542) In a sale of land in a
mass, the specified boundaries must control over any statement with respect to the area contained within
its boundaries. Salinas v. Faustino, 566 SCRA 18 (2008).
In a lump-sum sale, when land delivered to buyer is exactly as that described in the deed and covered
within the boundaries designated, the difference in actual area (34 versus 10 hectares) will not authorize
the buyer to rescind the contract because the seller has complied with delivering the subject matter agreed
upon. xTeran v. Villanueva, 56 Phil. 677 (1932); this is the rule when evidence shows that the parties
never gave importance to the area of the land in fixing the price (97 versus 60 hectares). xAzarraga v.
Gay, 52 Phil. 599 (1928).

C. DOUBLE SALES (Arts. 154475 and 1165)

1. Primacy of Torrens System of Registration The rules on double sales under Art. 1544 do not
overcome the rules provided under the Property Registration Decree (P.D. 1459), such as:
a. When two different titles are issued over the same registered land, the buyer who claims under a title that
was first issued shall be preferred. xLiao v. CA, 323 SCRA 430 (2000);
b. Invoking the rules on double sales and priority in time under Art. 1544 would be misplaced by a first
buyer who bought the land not within the Torrens system but under Act No. 3344, as against the second
buyer who bought the same property when it was already registered under the Torrens system, because:
(i) of the well-known rule in this jurisdiction that persons dealing with registered land have the legal right
to rely on the fact of the Torrens Certificate of Title and to dispense with the need to inquire further, except
when the party concerned has actual knowledge of facts and circumstances that would impel a reasonably
73
Goyena v. Tambunting, 1 Phil. 490 (1902); Santa Ana v. Hernandez, 18 SCRA 973 (1966).
74
Asiain v. Jalandoni, 45 Phil 296 (1923); Balantakbo v. CA, 249 SCRA 323 (1995); Rudolf Lietz, Inc. v. CA, 478 SCRA 451 (2005); Esguerra v. Trinidad,
518 SCRA 186 (2007); Del Prado v. Caballero, 614 SCRA 102 (2010).
75
Pudadera v. Magallanes, 633 SCRA 332 (2010).
21
 cautious man to make such inquiry; and (ii) the Torrens system rule that formal registration proceedings
undertaken on the property and the subsequent issuance of a title over the land had under the Torrens
system had the legal effect of cleansing title on the property of all liens and claims not annotated therein.
Naawan Community Rural Bank v. CA, 395 SCRA 43 (2003).76
BUT SEE: Naval v. Court of Appeals, 483 SCRA 102 (2006).
Gopiao v. Metropolitan Bank, 731 SCRA 131 (2014).

2. Tests Applicable under Article 1544:

Caveat emptor requires the buyer to be aware of the supposed title of the seller and he who buys without
checking the seller's title takes all the risks and losses consequent to such failure. xCaram, Jr. v. Laureta,
103 SCRA 7 (1981).
The provision on double sale presumes title or ownership to pass to first buyer, exception being: (a) when
second buyer, in good faith, registers the sale ahead of first buyer, and (b) should there be no inscription by
either of the buyers, when second buyer, in good faith, acquires possession ahead of the first buyer. Unless,
second buyer satisfies these requirements, title or ownership will not transfer to him as against first buyer.
xCoronel v. CA, 263 SCRA 15 (1996).
In spite of the three levels of tests provided under Art. 1544, the Court seems to recognize only
registration in good faith by the second buyer and does not characterize the meaning of the last two tests of
possession and oldest title. Carilo v. CA, 503 SCRA 66 (2006).
a. MAIN RULE UNDER ART. 1544: Primus Tempore, Portior Jure. Carbonell v. Court of Appeals, 69
SCRA 99 (1976).77
In double sales, first buyer always has priority rights over subsequent buyers of the same property. First
buyers good faith remains all throughout despite his subsequent acquisition of knowledge of the
subsequent sale. xKings Properties Corp. v. Galido, 606 SCRA 137 (2009).
Ownership of an immovable property which is the subject of a double sale shall be transferred: (1) to
the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default thereof,
to the person who in good faith was first in possession; and (3) in default thereof, to the person who
presents the oldest titled, provided there is good faith. The requirement of the law then is two-fold:
acquisition in good faith and registration in good faith. Good faith must concur with registration. If it would
be shown that a buyer was in bad faith, the alleged registration they have made amounted to no
registration at all. The principle of primus tempore, potior jure (first in time, stronger in right) gains greater
significance in case of a double sale of immovable property. When the thing sold twice is an immovable,
the one who acquires it and first records in the Registry of Property, both made in good faith, shall be
deemed the owner. Verily, the act of registration must be coupled with good faith that is, the registrant
must have no knowledge of the defect or lack of title of his vendor or must not have been aware of facts
which would have put him upon such inquiry and investigation as might be necessary to acquaint him with
the defects in the title of his vendor. xRosaroso v. Soria, 699 SCRA 232 (2013).78

3. Requisites for Double Sale Rule to Apply : Cheng v. Genato, 300 SCRA 722 (1998).79
a. There Must Be Two Different Valid Sales: Article 1544 does not apply where:
There is only one valid sale, while the other sale over the same property is void. xFudot v. Cattleya
Land, 533 SCRA 350 (2007);80 or
Where one or both of the contracts is a contract to sell. San Lorenzo Dev. Corp. v. CA, 449 SCRA 99
(2005).81
When the seller sold the same properties to two buyers, first to the respondent and then to Viloria on
two separate occasions, the second sale was not void for the sole reason that petitioner had previously
sold the same properties to respondent. This case involves a double sale as the disputed properties were
sold validly on two separate occasions by the same seller to the two different buyers in good faith. xDe
Leon v. Ong, 611 SCRA 381, 388 (2010).
When the seller sold the same properties to two buyers, first to the respondent and then to Viloria on
two separate occasions, the second sale was not void for the sole reason that petitioner had previously
sold the same properties to respondent. This case involves a double sale as the disputed properties were
sold validly on two separate occasions by the same seller to the two different buyers in good faith. De
Leon v. Ong, 611 SCRA 381, 388 (2010).
Rules on double sales applies even if one of the sales is an auction sale. Gopiao v. Metrobank, 731
SCRA 131 (2014).

76
Abrigo v. De Vera, 432 SCRA 544 (2005); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008).
77
Tanglao v. Parungao, 535 SCRA 123 (2007); Calma v. Santos, 590 SCRA 359 (2009).
78
Pudadera v. Magllanes, 633 SCRA 332 (2010); Calma v. Santos, 590 SCRA 359 (2009).
79
Mactan-Cebu International Airport Authority v. Tirol, 588 SCRA 635 (2009); Cano Vda. De Viray v. Usi, 686 SCRA 211 (2012); Roque v. Aguado, 720
SCRA 780 (2014); Skunac Corp. v. Sylianteng, 723 SCRA 625 (2014).
80
Espiritu v. Valerio, 9 SCRA 761 (1963); Remalante v. Tibe, 158 SCRA 138 (1988); Delfin v. Valdez, 502 SCRA 24 (2006).
81
Torrecampo v. Alindogan, Sr., 517 SCRA 84 (2007).
22
 (1) Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims: Adalin v. CA, 280 SCRA
536 (1997).82
Rules on double sales under Art. 1544 are not applicable to contract to sell, because of the
circumstances that must concur in order for the provisions to Art. 1544 on double sales to apply, namely
that there must be a valid sales transactions, and buyers must be at odds over the rightful ownership of
the subject matter who must have bought from the very same seller, are lacking in a contract to sell for
neither a transfer of ownership nor a sales transaction has been consummated, and such contract is
binding only upon the fulfillment or non-fulfillment of an event. Nevertheless, the governing principle of
Art. 1544 should apply, mainly the governing principle of primus tempore, portior jure (first in time, stronger
in right). Cheng v. Genato, 300 SCRA 722 (1998).

b. Exact Same Subject Matter Art. 1544 applies where the same thing is sold to different buyers by the
same seller. xOng v. Oalsiman, 485 SCRA 464 (2006); and does not apply where there was a sale to one
party of the land itself while the other contract was a mere promise to sell the land or at most an actual
assignment of the rights to repurchase the same land. xDischoso v. Roxas, 5 SCRA 781 (1962).

c. Exact Same Seller for Both Sales Art. 1544 applies where the same thing is sold to different vendees
by the same vendor. It does not apply where the same thing is sold to different vendees by different
vendors, or even to the same buyer but by different sellers. xSalera v. Rodaje, 530 SCRA 432, 438
(2007);83 or by several successive vendors. xMactan-Cebu International Airport Authority v. Tirol, 588
SCRA 635 (2009).84
BUT SEE: Badilla v. Bragat, 757 SCRA 131 (2015).
For Article 1544 to apply, it is necessary that the conveyance must have been made by a party who has
an existing right in the thing and the power to dispose of it. It cannot be invoked where the two different
contracts of sale are made by two different persons, one of them not being the owner of the property sold.
And even if the sale was made by the same person, if the second sale was made when such person was
no longer the owner of the property, because it had been acquired by the first purchaser in full dominion,
the second purchaser cannot acquire any right. Consolidated Rural Bank v. CA, 448 SCRA 347
(2005),85 citing VILLANUEVA, PHILIPPINE LAW ON SALES 100 (1995).

4. Registration in Good Faith as First Priority

a. Meaning of Registration
The annotation of adverse claim can qualify as the registration mandated under the rules on double
sale. Carbonnel v. CA, 69 SCRA 99 (1976).
Registration means any entry made in the books of the registry, including both registration in its
ordinary and strict sense, and cancellation, annotation, and even marginal notes. It is the entry made in
the registry which records solemnly and permanently the right of ownership and other real rights. xCheng
v. Genato, 300 SCRA 722 (1998).86
Declaration of purchase for taxation purposes does not comply with the required registration. xBayoca
v. Nogales, 340 SCRA 154 (2000).
Registration of the Extra-judicial Partition which merely mentions the sale is not the registration covered
under Art. 1544 and cannot prevail over the registration of the pacto de retro sale. xVda. de Alcantara v.
CA, 252 SCRA 457 (1996).
There can be no constructive notice to the second buyer through registration under Act 3344 if the
property is registered under the Torrens system. xAmodia Vda. De Melencion v. CA, 534 SCRA 62, 82
(2007), thereby overturning obiter in Santiago v. CA, 247 SCRA 336 (1995).
b. Registration Must Always Be in Good Faith In cases of double sales of immovables, what finds
relevance and materiality is not whether or not the second buyer was a buyer in good faith or that he was
first to register, but whether or not said second buyer registers such second sale in good faith, that is,
without knowledge of any defect in the title of the property sold. xMartinez v. CA, 358 SCRA 38 (2001);87
this is so because the defense of indefeasibility of a Torrens title does not extend to a transferee who takes
the certificate of title in bad faith. xOccea v. Esponilla, 431 SCRA 116 (2004).

c. Knowledge of First Buyer of the Second Sale Does Not Amount to Registration in Favor of the
Second Buyer In double sales, first buyer always has priority rights over subsequent buyers of the
same property. Good faith of the first buyer remains all throughout despite his subsequent acquisition of
knowledge of the subsequent sale. xKings Properties Corp. v. Galido, 606 SCRA 137 (2009).
82
Mendoza v. Kalaw, 42 Phil. 236 (1921); Ruiz v. CA, 362 SCRA 40 (2001) and Valdevieso v. Damalerio, 451 SCRA 664 (2005); Rural Bank of Sta. Barbara
[Pangasinan] v. Manila Mission of the Church of Jesus Christ of Latter Day Saints, 596 SCRA 415 (2009).
83
Ong v. Olasiman, 485 SCRA 464 (2006).
84
Roque v. Aguado, 720 SCRA 780 (2014); Skunac Corp. v. Sylianteng, 723 SCRA 625 (2014); Badilla v. Bragat, 757 SCRA 131 (2015).
85
Gallardo v. Gallardo, 46 O.G. No. 11 p. 5568; Sigaya v. Mayuga, 467 SCRA 341, 357 (2005).
86
Ulep v. CA, 472 SCRA 241 (2005).
87
Blanco v. Rivera, 488 SCRA 148 (2006); Gabriel v. Mabanta, 399 SCRA 573 (2003); De la Cena v. Briones, 508 SCRA 62 (2006); Tanglao v. Parungao,
535 SCRA 123 (2007); Bernardez v. CA, 533 SCRA 451 (2007); Ordua v. Fuentebella, 622 SCRA 146 (2010); Estate of Margarita D. Cabacungan v. Laigo,
655 SCRA 366 (2011).
23
 Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except
where the second buyer registers in good faith the second sale ahead of the first. Such knowledge of the
first buyer does not bar her from availing of her rights under the law, among them, to register first her
purchase as against the second buyer. But in converso, knowledge gained by the second buyer of the first
sale defeats his rights even if he is first to register the second sale, since such knowledge taints his prior
registration with bad faith. This is the priced exacted by Article 1544 for the second buyer being able to
displace the first buyer; that before the second buyer can obtain priority over the first, he must show that
he acted in good faith throughout (i.e., in ignorance of the first sale and of the first buyer's right) from the
time of acquisition until the title is transferred to him by registration or failing registration, by delivery of
possession. xUraca v. CA, 278 SCRA 702 (1997).88
In a situation where a party has actual knowledge of the claimants actual, open and notorious
possession of a disputed property at the time of registration, the actual notice and knowledge are
equivalent to registration, because to hold otherwise would be to tolerate fraud and the Torrens system
cannot be used to shield fraud while certificates of title are indefeasible, unassailable and binding
against the whole world, they merely confirm or record title already existing and vested. Consolidated
Rural Bank) v. CA, 448 SCRA 347 (2005).
d. Registration in Good Faith Always Pre-empts Possession in Good Faith Between two purchasers,
the one who registered the sale in his favor has a preferred right over the other who has not registered his
title, even if the latter is in actual possession of the immovable property. xTaedo v. CA, 252 SCRA 80
(1996).89
The registration of a sale after the annotation of lis pendens does not obliterate the effects of delivery
and possession in good faith. The rules on constructive notice upon registration provided for under Section
52 of the Property Registration Decree (P.D. No. 1529) operate only from the time of the registration of the
notice of lis pendens which in this case was effected only after the time the sale in favor of the second
buyer had long been consummated by delivery of the subject matter. San Lorenzo Dev. Corp. v. CA,
449 SCRA 99 (2005).

5. First to Possess in Good Faith as Second Priority

Absence inscription, the law gives preference to buyer who in good faith is first in possession, under the
following jurisprudential parameters: (a) possession mentioned in Art. 1544 includes not only material but
also symbolic possession;90 (b) possessors in good faith are those who are not aware of any flaw in their title
or mode of acquisition; (c) buyers of real property that is in the possession of persons other than the seller
must be wary they must investigate the rights of the possessors; and (d) good faith is always presumed,
upon those who allege bad faith on the part of possessors rests the burden of proof. xTen Forty Realty v.
Cruz, 410 SCRA 484 (2003).91
After the sale of a realty by means of a public instrument, the vendor, who resells it to another, does not
transmit anything to the second vendee, and if the latter, by virtue of this second sale takes material
possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention against
the rights of the thing lawfully acquired by the first vendee. The Roman Catholic Church v. Pante, 669
SCRA 234 (2012).

6. Who is Purchaser in Good Faith?

a. Must Have Paid Price in Full A purchaser in good faith is one who buys property without notice that
some other person has a right to, or interest in, such property, and pays a full and fair price for the
same at the time of such purchase, or before he has notice of claim or interest of some other person
in the property. xLocsin v. Hizon, 735 SCRA 547 (2014).92
A purchaser in good faith is one who buys with the well-founded belief that the person from he
receives the property had title to it and had the capacity to convey it. In this case, the buyers bought.
xHeirs of Soliva v. Soliva, 757 SCRA 26 (2015); xBliss Dev. Corp./HGC v. Diaz, 765 SCRA 453 (2015).
Under Art. 1544, mere registration is not enough to acquire a new title; good faith must concur. Clearly,
when buyer has not yet fully paid purchase price, and as long as seller remains unpaid, buyer cannot feign
good faith. xPortic v. Cristobal, 546 SCRA 577 (2005).93

88
Cruz v. Cabana, 129 SCRA 656 (1984); Gatmaitan v. CA, 200 SCRA 37 (1991); Vda. de Jomoc v. CA, 200 SCRA 74 (1991); Bucad v. CA, 216 SCRA 423
(1992); Berico v. CA, 225 SCRA 469 (1993); Bautista v. CA, 322 SCRA 294 (2000); Bautista v. CA, 322 SCRA 294 (2000); Ulep v. CA, 472 SCRA 241 (2005);
Escueta v. Lim, 512 SCRA 411 (2007); Lumbres v. Tablada, Jr., 516 SCRA 575 (2007); Fudot v. Cattleya Land, 533 SCRA 350 (2007); Tanglao v. Parungao,
535 SCRA 123 (2007).
89
Liao v. CA, 323 SCRA 430 (2000); Talusan v. Tayag, 356 SCRA 263 (2001); Dauz v. Exchavez, 533 SCRA 637 (2007).
90
Roman Catholic Church v. Pante, 669 SCRA 234 (2012).
91
Sanchez v. Ramos, 40 Phil. 614 (1919); Quimson v. Rosete, 87 Phil. 159 (1950); Navera v. CA, 184 SCRA 584 (1990); The Roman Catholic Church v.
Pante, 669 SCRA 234 (2012).
92
Agricultural and Home Extension Dev. v. CA., 213 SCRA 536 (1992); Veloso v. CA, 260 SCRA 593 (1996); Balatbat v. CA, 261 SCRA 128 (1996); Mathay
v. CA, 295 SCRA 556 (1998); Diaz-Duarte v. Ong, 298 SCRA 388 (1998); Liao v. CA, 323 SCRA 430 (2000); Tanongon v. Samson, 382 SCRA 130 (2002);
Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002); Aguirre v. CA, 421 SCRA 310 (2004); Galvez v. CA, 485 SCRA 346
(2006); Chua v. Soriano, 521 SCRA 68 (2007); Raymundo v. Bandong, 526 SCRA 514 (2007); Tanglao v. Parungao, 535 SCRA 123 (2007); Kings Properties
Corp. v. Galido, 606 SCRA 137 (2009); De Leon v. Ong, 611 SCRA 381 (2010); The Heirs of Romana Saves v. The Heirs of Escolastico Saves, 632 SCRA
236 (2010); De Leon v. Ong, 611 SCRA 381 (2010); Yared v. Tiongco, 660 SCRA545 (2011); PCSO v. New Dagupan Metro Gas Corp., 676 SCRA 156
(2012); Santiago v. Villamor, 686 SCRA 313 (2012); Angeles v. Domingo, 692 SCRA 277 (2013); Nobleza v. Nuega, 752 SCRA 602 (2015).
93
Uy v. Fule, 727 SCRA 456 (2014); Peralta v. Heirs of Bernardina Abalon, 727 SCRA 477 (2014); Locsin v. Hizon, 735 SCRA 547 (2014).
24
 BUT SEE: In the determination of whether or not the buyer is in good faith, the point in time to be
considered is the moment when the parties actually entered into the contract of sale. xEstate of Lino
Olaquer v. Ongjoco, 563 SCRA 373 (2008).
Not being purchasers in good faith, buyers having registered the sale, will not, as against the
petitioners, carry the day for any of them under Article 1544 of the Civil Code prescribing rules on
preference in case of double sales of immovable properties. xOrdua v. Fuentebella, 622 SCRA 146
(2010).

b. Burden of Proof The burden of proving the status of a purchaser in good faith lies upon him who
asserts that status. It is not sufficient to invoke the ordinary presumption of good faith, that is, that
everyone is presumed to have acted in good faith, since the good faith that is here essential is integral with
the very status that must be established. xTanglao v. Parungao, 535 SCRA 123 (2007).94
As a general rule, the question of whether or not a person is a purchaser in good faith is a factual
matter that will not be delved into by this Court, since only questions of law may be raised in petitions for
review. xTio v. Abayata, 556 SCRA 175 (2008).
BUT SEE: It is anxiomatic that good faith is always presumed in the absence of any direct evidence of
bad faith. xSantiago v. CA, 247 SCRA 336 (1995).

c. Instances When No Good Faith One who buys from one who is not the registered owner is expected to
examine not only the certificate of title but all factual circumstances necessary for one to determine if there
are any flaws in the title of the transferor, or in the capacity to transfer the land. It is a well-settled rule that
a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard, and then
claim that he acted in good faith under the belief that there was no defect in the title of the vendor. xHeirs
of Nicolas S. Cabigas v. Limbaco, 654 SCRA 643 (2011).
(1) Being In Business on Realty A mortgagee who eventually ended buying the property at the public
auction, cannot claim to be a buyer in good faith when his business in the constructing and selling
townhouses and extending credit to the public, including real estate loans; for he is charged with greater
diligence that ordinary buyers or encumbrances for value, because it would be standard in his business,
as a matter of due diligence required of banks and financing companies, to ascertain whether the property
being offered as security for the debt has already been sold to another to prevent injury to prior innocent
buyers. xExpresscredit Financing Corp. v. Velasco, 473 SCRA 570 (2005).95
A bank is expected to exercise due diligence before entering into a mortgage contract, and the
ascertainment of the statute or condition of a proper offered to it as security for a loan must be a standard
and indispensable part of operations; and it cannot simply rely upon reviewing the title to the property
offered for mortgage. xTio v. Abayata, 556 SCRA 175 (2008).96
(2) Close Relationship The sale to ones daughter and sons will give rise to the conclusion that the buyers,
not being really third parties, knew of the previous sales and cannot be considered in good faith. The
buyers are deemed to have constructive knowledge by virtue of their relationship to their sellers. xPilapil
v. Court of Appeals, 250 SCRA 566 (1995).
(3) Gross Inadequacy of Price Mere inadequacy of price is not ipso facto a badge of lack of good faithto
be so, the price must be grossly inadequate or shocking to the conscience such that the mind revolts
against it and such that a reasonable man would neither directly or indirectly be likely to consent to it. xTio
v. Abayata, 556 SCRA 175 (2008).
(4) Obligation to Investigate or To Follow Leads A purchaser who is aware of facts which should put a
reasonable man upon his guard cannot turn a blind eye and later claim that he acted in good faith, 97 such
as
Buyer of a registered land would be in bad faith when he purchases without asking to see the owners copy
of the title and/or without visiting the land where he would then have seen first buyer occupying the same.
xSantiago v. CA, 247 SCRA 336 (1995).98
When there are occupants to the land being bought, since it is the common practice in the real estate
industry, an ocular inspection of the premises involved is a safeguard a cautious and prudent purchaser
usually takes. xMartinez v. CA, 358 SCRA 38 (2001).99
Any person engaged in business would be wary of buying from a company that is closing shop, because it
may be dissipating its assets to defraud creditors. Such buyer is bound to inquire whether the owners had
unsettled obligations encumbrance that could burden the property. xSamson v. CA, 238 SCRA 397 (1994).100
94
Tsai v. CA, 366 SCRA 324 (2001); Aguirre v. CA, 421 SCRA 310 (2004); Raymundo v. Bandong, 526 SCRA 514 (2007); Eagle Realty Corp. v. Republic,
557 SCRA 77 (2008); Rufloe v. Burgos, 577 SCRA 264 (2009)Pudadera v. Magallanes, 633 SCRA 332 (2010), Nobleza v. Nuega, 752 SCRA 602 (2015).
95
Adriano v. Pangilinan, 373 SCRA 544 (2002); Lloyds Enterprises and Credit Corp. v. Dolleton, 555 SCRA 142 (2008); Eagle Realty Corp v. Republic, 557
SCRA 77 (2008); Eagle Realty Corp v. Republic, 557 SCRA 77 (2008).
96
Agag v. Alpha Financing Corp., 407 SCRA 602 (2003); Bank of Commerce v. San Pablo, Jr., 522 SCRA 713 (2007); Lloyds Enterprises and Credit Corp.
v. Dolleton, 555 SCRA 142 (2008);Ty v. Queens Row Subdivision, 607 SCRA 324 (2009).
97
Filinvest Dev. Corp. v. Golden Haven Memorial Part, 634 SCRA 372 (2010); Yared v. Tiongco, 660 SCRA545 (2011).
98
R.R. Paredes v. Calilung, 517 SCRA 369 (2007); Chua v. Soriano, 521 SCRA 68 (2007).
99
Mathay v. CA, 295 SCRA 556 (1998); Republic v. De Guzman, 326 SCRA 267 (2000); Heirs of Ramon Durano, Sr. v. Uy, 344 SCRA 238 (2000); Heirs of
Celestial v. Heirs of Celestial, 408 SCRA 291 (2003); Erasusta, Jr. v. CA, 495 SCRA 319 (2006); De la Cena v. Briones, 508 SCRA 62 (2006); Tanglao v.
Parungao, 535 SCRA 123, 132 (2007).
100
Eagle Realty Corp v. Republic, 557 SCRA 77 (2008).
25
 Property was titled and transferred with undue haste, plus the fact that the subject property is a vast tract of
land in a prime location, should have, at the very least, triggered petitioners curiosity. xEagle Realty Corp v.
Republic, 557 SCRA 77, 94 (2008).
(5) Land in Adverse Possession Where land sold is in the possession of a person other than vendor,
purchaser must go beyond the certificate of title and make inquiries concerning the actual possessor.
Without such inquiry, the buyer cannot be said to be in good faith and cannot have any right over the
property. xTio v. Abayata, 556 SCRA 175 (2008).101
Buyer who could not have failed to know or discover that the land sold to him was in the adverse
possession of another is a buyer in bad faith. xHeirs of Ramon Durano, Sr. v. Uy, 344 SCRA 238
(2000).102
(6) Existence of Lis Pendens or Adverse Claim Registration of an adverse claim places any subsequent
buyer of the registered land in bad faith. xKings Properties Corp. v. Galido, 606 SCRA 137 (2009).103
Settled is the rule that one who deals with property with a notice of lis pendens, even when at the
time of sale the annotation was cancelled but there was a pending appeal, cannot invoke the right of a
purchaser in good faith. A purchaser cannot close his eyes to facts which should put a reasonable man
on guard and claim that he acted in the belief that there was no defect in the title of the seller, xPo Lam v.
CA, 316 SCRA 721 (1999).
CONTRA: When knowledge of lis pendens was acquired at the time there was order to have it
cancelled, xPo Lam v. CA, 347 SCRA 86 (2000).104 A buyer cannot be in bad faith when it was shown that
at the time of purchase the notice of lis pendens was already being ordered cancelled and the
cancellation of the notice terminated the effects of such notice. xPudadera v. Magallanes, 633 SCRA 332
(2010).
(7) Annotation of Lien in Settlement of Estate An annotation on CTC issued pursuant to the distribution
and partition of a decedents real properties is a warning to third persons on the possible interest of
excluded heirs or unpaid creditors in these propertieswhere a buyer purchases the real property
despite the annotation, he must be ready for the possibility that the title be subject to the rights of
excluded parties. xTan v. Benolirao, 604 SCRA 36 (2009).
(8) Banks Are Vested with Public Interest and Obligation to Exercise Extraordinary Diligence One of the
protections afforded by P.D. 957 to buyers is the right to have her contract to sell registered with the
Register of Deeds to bind on third parties. Nonetheless, despite such non-registration, the mortgagee
bank cannot be considered, under the circumstances, an innocent purchaser for value of the lot when it
accepted the latter (together with other assigned properties) as payment for the mortgagor developers
obligationthe bank was well aware that the assigned properties were subdivision lots and therefore
within the purview of P.D. 957. xLuzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
When financial institutions exercise extraordinary diligence in determining the validity of the
certificates of title to property being sold or mortgaged to them and still fail to find any defect or
encumbrance upon the subject properties after said inquiry, such financial institutions should be
protected like any other innocent purchaser for value if they paid a full and fair price at the time of the
purchase or before having notice of some other persons claim on or interest in the property. xTy v.
Queens Row Subdivision, 607 SCRA 324 (2009)

7. When Subject of Sale Is Unregistered Land:

When first sale is over unregistered land and the second sale is when it is registered, the rules on double
sale do not apply. Dagupan Trading Co. v. Macam, 14 SCRA 179 (1965).
Article 1544 is inapplicable to unregistered land because the purchaser of unregistered land at a sheriffs
execution sale only steps into the shoes of the judgment debtor, and merely acquires the latters interest in
the property sold as of the time the property was levied upon, as expressly provided for in then Sec. 35, Rule
39 of the Revised Rules of Court on execution sale [now Sec. 33, Rule 39, 1997 Rules of Civil Procedure)].
Carumba v. CA, 31 SCRA 558 (1970).
Article 1544 rules in double sale, whereby the buyer who is able to first register the purchase in good faith,
is in full accord with Sec. 51 of P.D. 1529 which provides that no deed, mortgage, lease, or other voluntary
instrument shall take effect as a conveyance or bind the land until its registration. Thus, if the sale is not
registered, it is binding only between seller and buyer, but it does not affect innocent third persons. Abrigo
v. De Vera, 432 SCRA 544 (2004).105
Under Act 3344, registration of instruments affecting unregistered lands is without prejudice to a third
party with a better right, which means that mere registration does not give buyer any right over the land if
seller was not anymore owner thereof, having previously sold it to somebody else even if the earlier sale was
101
Games and Garments Developers v. Allied Banking Corp., 762 SCRA 447 (2015).
102
Modina v. CA, 317 SCRA 696, 706 (1999); Republic v. De Guzman, 326 SCRA 267 (2000); Martinez v. CA, 358 SCRA 38 (2001); Heirs of Trinidad de
Leon Vda. De Roxas v. CA, 422 SCRA 101 (2004); Occena v. Esponilla, 431 SCRA 116 (2004); PNB v. Heirs of Estanislao Militar, 494 SCRA 308 (2006);
Raymundo v. Bandong, 526 SCRA 514 (2007); Tanglao v. Parungao, 535 SCRA 123 (2007); Tio v. Abayata, 556 SCRA 175 (2008); Ordua v. Fuentebella,
622 SCRA 146 (2010); Deanon v. Mag-abo, 622 SCRA 180 (2010); The Heirs of Romana Saves v. The Heirs of Escolastico Saves, 632 SCRA 236 (2010);
Rosaroso v. Soria, 699 SCRA 232 (2013).
103
Tan v. Benolirao, 604 SCRA 36 (2009).
104
Pudadera v. Magallanes, 633 SCRA 332 (2010).
105
Sabitsana, Jr. v. Muertegui, 703 SCRA 145 (2013)
26
 unrecorded. The rules on double sale have no application to land no registered under the Torrens
system.Acabal v. Acabal, 454 SCRA 555 (2005).106

C. OBLIGATIONS OF BUYER

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

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

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

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

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

1. Definition (Art. 1636)

2. Purpose of Documents of Title

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

3. Negotiable Documents of Title

a. How Negotiated (Arts. 1508-1509)
b. Who Can Negotiate (Art. 1512)
c. Effects of Negotiation (Art. 1513) Endorsement and delivery of a negotiable quedan operates as the
transfer of possession and ownership of the property referred to therein, and had the effect of divorcing the
property covered therein from the estate of the insolvent prior to the filing of the petition for insolvency.
xPhilippine Trust Co. v. PNB, 42 Phil. 413 (1921).
d. Unauthorized Negotiation (Art. 1518) As between the owner of a negotiable document of title who
endorsed it in blank and entrusted it to a friend, and the holder of such negotiable document of title to
whom it was negotiated and who received it in good faith and for value, the latter is preferred, under the
principle that as between two innocent persons, he who made the loss possible should bear the loss. x Siy
Long Bieng v. HSBC, 56 Phil. 598 (1932).

4. Non-Negotiable Documents of Title

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

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

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

106
Hanopol v. Pilapil, 7 SCRA 452 (1963); Radiowealth Finance Co. v. Palileo, 197 SCRA 245 (1991); Spouses Honorio Santiago v. CA, 247 SCRA 336
(1995); Bayoca v. Nogales, 340 SCRA 154 (2000); Fidel v. CA, 559 SCRA 186 (2008); Daclag v. Macahilig, 560 SCRA 137 (2008); Amodia Vda. De
Melencion v. CA, 534 SCRA 62, 82 (2007); Fidel v. CA, 559 SCRA 186 (2008).

27
VIII. SALE BY NON-OWNER OR ONE HAVING VOIDABLE TITLE: THE
LIFE OF A CONTRACT OF SALE
1. RULES ON THE SALE EFFECT BY NON-OWNER:
a. Where Seller Is Not Owner at Perfection: Contract Is Valid, For Ownership by Seller at
Perfection Is Not One of the Requisites for Subject Matter
b. Where Seller Is Not Owner at Delivery: Buyer Acquires No Better Title to the Goods Than the
Seller Had. (Art. 1505)
c. Remedy of Buyer in Either of the Two Situations: Rescission of the Contract of Sale with
Damages, But Not An Action for Declaration of Nullity Thereof.
If one buys the land of another, to which the seller is supposed to have a good title, and in
consequence of facts unknown alike to both parties, the seller has in fact no title at all, equity will cancel
the sale and cause the purchase money to be restored to the buyer, putting both parties in status quo.
xDBP v. Court of Appeals, 249 SCRA 331 (1995).

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

a. Sales by Co-Owners (Art. 493) Sale of a co-owner of entire property as his own, is effective only as a
sale of his spiritual share, and will not affect the shares of the other co-owners who never gave their
consent. xPaulmitan v. Court of Appeals, 215 SCRA 866 (1992).107
ALSO: An agreement that purports a specific portion of an un-partitioned co-owned property is not void; it
shall effectively transfer the sellers ideal share in the co-ownership, Heirs of the Late Spouses Aurelio and
Esperanza Balite v. Lim, 446 SCRA 54 (2004).108
EXCEPT: When the intention of the purchase was clearly the property itself and not just the spiritual share.
Mindanao v. Yap, 13 SCRA 190 (1965).
A co-owner who sells one of the two lands owned in common with another co-owner, and does not turn-
over one-half of sale proceeds to the other co-owner, latter may by law and equity lay exclusive claim to
the remaining parcel of land, xImperial v. CA, 259 SCRA 65 (1996); in which case, proper action is not for
nullification of sale, or for the recovery of possession of the property owned in common, but for division or
partition of the entire property. xTomas Claudio Memorial College v. CA, 316 SCRA 502 (1999).109
CURIOUS: Sale of a portion of the property is considered an alteration of the thing owned in common.
Under the Civil Code, such disposition requires the unanimous consent of the other co-owners. Prior to
partition, a sale of a definite portion of common property requires the consent of all co-owners because it
operates to partition the land with respect to the co-owner selling his or her share. At best, the agreement
between the parties is a contract to sell, not a contract of sale. xCabrera v. Ysaac, 740 SCRA 612 (2014).
b. Estoppel on the True Owner (Art. 1434) Bucton v. Gabar, 55 SCRA 499 (1974).
Owner who has been unlawfully deprived of his goods may recover it even from a purchaser in good
faith. Thus, purchaser of property stolen from the owner has been held to acquire no title to it even though
he purchased for value and in good faith. Exception is when the true owner is estopped. xFrancisco v.
Chemical Bulk Carriers, 657 SCRA 355 (2011).
c. Recording Laws; Torrens System (P.D. 1529).
Where innocent third persons, relying on the correctness of the TCT, acquire rights over the property,
the courts cannot disregard such rights and order the cancellation of the TCT, since the effect will be to
impair public confidence in the certificate of title. Every person dealing with the registered land may safely
rely on the correctness of the certificate of title issued therefor. xHeirs of Spouses Benito Gavino. v. CA,
291 SCRA 495 (1998).
An innocent purchaser for value is one who purchases a titled land by virtue of a deed executed by the
registered owner himself not by a forged deed. xInsurance Services and Commercial Traders v. Court of
Appeals, 341 SCRA 572 (2000).
The defense of indefeasibility of Torrens title where the disputed buildings and equipment are located is
unavailing, since such defense is available to sale of lands and not to sale of properties situated therein.
xTsai v. Court of Appeals, 366 SCRA 324 (2001).
A person who deals with registered land through someone who is not the registered owner is expected
to look beyond the certificate of title and examine all the factual circumstances thereof in order to
determine if the vendor has the capacity to transfer any interest in the land. xSy v. Capistrano, Jr., 560
SCRA 103 (2008).
c. Exercise by the Courts of Statutory Power to Make Sale Effective
107
Estoque v. Pajimula, 24 SCRA 59 (1968); Aguirre v. CA, 421 SCRA 310 (2004); Acabal v. Acabal, 454 SCRA 555 (2005); Barcenas v. Tomas, 454 SCRA
593 (2005); Panganiban v. Oamil, 542 SCRA 166 (2008); Vda. de Figuracion v. Figuracion-Gerilla, 690 SCRA 495 (2013); Heirs of Dela Rosa v. Batongbacal,
731 SCRA 263 (2014); Heirs of Gregotion Lopez v. DBP, 741 SCRA 153 (2014); Torres, Jr. v. Lapinid, 742 SCRA 646 (2014).
108
Almendra v. IAC, 204 SCRA 142 (1991); Fernandez v. Fernandez, 363 SCRA 811 (2001); Aguirre v. CA, 421 SCRA 310 (2004); Santos v. Lumbao, 519
SCRA 408 (2007); Republic v. Heirs of Francisca Dignos-Sorono, 549 SCRA 58 (2008); Torres, Jr. v. Lapinid, 742 SCRA 646 (2014).
109
Heirs of Romana Ingjug-Tiro v. Casals, 363 SCRA 435 (2001); Aguirre v. CA, 421 SCRA 310 (2004).
28
 When a defeated party refuses to execute the absolute deed of sale in accordance with the judgment,
the court may direct the act to be done at the cost of the disobedient party by some other person
appointed by the court and the act when so done shall have the like effect as is done by the party.
xManila Remnant Co. v. Court of Appeals, 231 SCRA 281 (1994)

d. Sales in Merchants Stores, Fairs or Markets (Arts. 85 and 86, Code of Commerce)
A merchant store requires a fixed establishment where the merchant not only stores his merchandise,
but where he conducts the ordinary court of business. City of Manila v. Bugsuk, 101 Phil. 859 (1957).110
The owner of the goods who has been unlawfully deprived of it may recover it even from a purchaser in
good faith. Thus, the purchaser of property which has been stolen from the owner has been held to
acquire no title to it even though he purchased for value and in good faith. xFrancisco v. Chemical Bulk
Carriers, 657 SCRA 355 (2011).

3. SALE BY SELLER HAVING VOIDABLE TITLE (Art. 1506, as an exception to Art. 559)
Whenever there is an underlying sale which grants to the culprit-buyer a voidable title, even when this is
accompanied by the criminal act of estafa or swindling, Art. 1506 would grant to the buyer in good faith a
better title as against the original owner even though the latter may be classified to have been unlawfully
deprived of the subject matter under Art. 559. Tagatac v. Jimenez, 53 O.G. 3792 (1957); EDCA
Publishing v. Santos, 184 SCRA 614 (1990).
When owner did not voluntarily deliver possession of the car, and in effect it was stolen from him, then one
who buys the car even in good faith from the thief will lose the car to the owner who is deemed to have been
unlawfully deprived. Aznar v. Yapdiangco, 13 SCRA 486 (1965).
In all other cases of unlawful deprivation done through estafa, the original owner recovers even from the
buyer in good faith. Cruz v. Pahati, 98 Phil. 788 (1956). [Decision showed that second buyer, or
current possessor could not claim good faith because of erasures in the covering documents
presented by his seller]
Owner of diamond ring may recover it from pawnshop where owners agent had pledged it without
authority to do so; Art. 559 applies and the defense that the pawnshop acquired possession without notice of
any defect of the pledgor-agent is unavailing. Dizon v. Suntay, 47 SCRA 160 (1972).111 [Possessor is a
merchant and only has a pledge in his favor]

IX. LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS

1. No Application When Subject Matter Is Determinable (Generic) (Art. 1263)
2. Effect of Loss/Deterioration of Thing Sold:
a. Before Perfection. Roman v. Grimalt, 6 Phil. 96 (1906).
b. At the Time of Perfection (Arts. 1493 and 1494) The risk of loss or deterioration of the goods sold
does not pass to the buyer until there is actual or constructive delivery thereof. xAPT v. T.J. Enterprises,
587 SCRA 481 (2009).

c. After Perfection But Before Delivery (Arts. 1164, 1189, and 1262).
(1) General Rule: Before delivery, risk of loss is borne by seller under the rule of res perit domino.
xChrysler Phil. v. CA, 133 SCRA 567 (1984).
In sale of motor vehicle, where there was neither physical nor constructive delivery, the thing sold
remained at the sellers risk. xUnion Motor Corp v. CA, 361 SCRA 506 (2001).
(2) Loss by Fault of a Party (Arts. 1480, 1504, 1538)
(3) Loss by Fortuitous Event (Arts. 1480, 1163, 1164, 1165, 1504, 1538, and 1189; READ Comments
of PARAS, TOLENTINO, PADILLA, and BAVIERA).
(4) Deterioration (Arts. 1480, 1163-65, and 1262; Arts. 1189 and 1538)
(5) Fruits or Improvements from time of perfection pertain to buyer (Arts. 1480, 1537-1538)
d. After Delivery (Art. 1504). Lawyer's Coop v. Tabora, 13 SCRA 762 (1965).112

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

A. REMEDIES OF THE SELLER

1. In Case of Movables (Arts. 1593, 1595 to 1597)

110
Sun Bros. & Co. v. Velasco, 54 O.G. 5143 (1958).
111
Valera v. Matute, 9 Phil. 479 (1908); Arenas v. Raymundo, 19 Phi. 47 (1911).
112
Song Fo & Co. v. Oria, 33 Phil. 3 (1915); Lawyer's Cooperative v. Narciso, 55 O.G. 3313.
29
 Under Art. 1597, where buyer of scrap iron fails to put up the LC in favor of the seller as the condition of
the sale, seller may terminate the contractnon-compliance with condition meant that sellers obligation to
sell never arose. xVisayan Sawmill Co. v. CA, 219 SCRA 378 (1993).

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

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

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

Recto Law prevents mortgagee from seizing mortgaged property, buying it at foreclosure sale for a low
price and then bringing the suit against the mortgagor for a deficiency judgment. The almost invariable result
was that the mortgagor found himself minus the property and still owing practically the full amount of his
original indebtedness. xMagna Financial Services Group v. Colarina, 477 SCRA 245 (2005).
a. When Is There Installment Sale?: At least two (2) stipulated payments in the future, whether or not
there is a downpayment. xLevy v. Gervacio, 69 Phil. 52 (1939).
b. Contracts to Sell Movables Not Covered. xVisayan Sawmill v. CA, 219 SCRA 378 (1993).
c. Unpaid Sellers Remedies Not Cumulative, But Alternative and Exclusive. Delta Motor Sales Corp.
v. Niu Kim Duan, 213 SCRA 259 (1992).113
Seeking a writ of replevin consistent with any of the three remedies. xUniversal Motors Corp. v. Dy Hian
Tat, 28 SCRA 161 (1969).

d. Remedy of Specific Performance That seller obtained a writ of execution against the mortgaged
property pursuant to an action for specific performance, does not amount to a foreclosure of the chattel
mortgage covered by the Recto Law. Tajanglangit v. Southern Motors, 101 Phil. 606 (1957).114

e. Remedy of Rescission Surrender of mortgaged property is not necessarily equivalent to rescission.

xVda. de Quiambao v. Manila Motors Co., 3 SCRA 444 (1961).
Mutual restitution prevents recovering on the balance of the purchase price. Nonato v. IAC, 140
SCRA 255 (1985); but stipulation on non-return of payments is valid provided not unconscionable. xDelta
Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992).

f. Remedy of Foreclosure When the seller assigns his credit to another person, assignee is likewise
bound by the same law. Zayas v. Luneta Motors, 117 SCRA 726 (1982).115
Barring effect would cover a third-party mortgage, when it was the chattel mortgage that was first
foreclosed. Ridad v. Filipinas Investment, 120 SCRA 246 (1983).
BUT SEE: A judicious perusal of the records would reveal that mortgagor-buyer never bought the
subject vehicle from financing company but from a third party, and merely sought financing from
mortgagee for its full purchase price. Consequently Art. 184 does not apply against financing company.
Equitable Savings Bank v. Palces, 787 SCRA 260 (2016).
(1) Barring Effects of Foreclosure: All amounts due from the sale, including damages and attorneys fees,
barred from recovery. Macondray & Co. v. Eustaquio, 64 Phil. 446 (1937).
Action of replevin in order to foreclose on the chattel mortgage does not produce the barring effect
under the Recto Law; for it is the fact of foreclosure and actual sale of the mortgaged chattel that bar
further recovery by the seller of any balance on the buyers outstanding obligation not satisfied by the sale.
The voluntary payment of the installment by the buyer-mortgagor is valid and not recoverable in spite the
restrictive provisions of Art. 1484(3). Northern Motors v. Sapinoso, 33 SCRA 356 (1970). 116

113
De la Cruz v. Asian Consumer, 214 SCRA 103 (1992); Borbon II v. Servicewide Specialists, 258 SCRA 634 (1996).
114
Southern Motors v. Moscoso, 2 SCRA 168 (1961); Industrial Finance Corp. v. Ramirez, 77 SCRA 152 (1977); Rosario v. PCI Leasing and Finance, 474
SCRA 500 (2005).
115
Borbon II v. Servicewide Specialists, 258 SCRA 634 (1996).
116
Manila Motor Co. v. Fernandez, 99 Phil. 782 (1956); Magna Financial Services Group, v. Colarina, 477 SCRA 245 (2005).
30
 Foreclosure on chattel mortgage prevents further action on the supporting real estate mortgage,
whether the chattel mortgage is first foreclosed Cruz v. Filipinas Investment & Finance Corp., 23
SCRA 791 (1968);117 and vice versa when the real estate mortgage is first foreclosed. Borbon II v.
Servicewide Specialists, 258 SCRA 634 (1996).
(2) Rule on Perverse Buyer: Filipinas Investment. v. Ridad, 30 SCRA 564 (1969).
g. Purported Lease with Option to Buy
Judicial notice has been taken of the practice of vendors of personal property of denominating a
contract of sale on installment as one of lease to prevent the ownership of the object of the sale from
passing to the vendee until and unless the price is fully paid. xElisco Tool Manufacturing Corp. v. Court of
Appeals, 307 SCRA 731 (1999).118
Where a lease agreement over equipment is without an express option to purchase, but nevertheless
when a final demand is given prior to suit, the demand letter indicates clearly it was within the option of the
lessee to fully pay the balance of the unpaid rentals and would be able to keep the equipment, then the
real contract between the parties was a sale of movable on installment disguised as a lease agreement.
PCI Leasing and Finance v. Giraffe-X Creative Imaging, 527 SCRA 405 (2007).

4. IN CASE OF IMMOVABLES:
a. Anticipatory Breach (Art. 1591). Legarda v. Saldaa, 55 SCRA 324 (1974).
b. Sales of Subdivision Lots and Condominium Units (P.D. 957) P.D.957 was issued in the wake of
numerous reports that many real estate subdivision owners, developers, operators and/or sellers have
reneged on their representations and obligations to provide and maintain properly subdivision roads,
drainage, sewerage, water systems, lighting systems and other basic requirements or the health and
safety of home and lot buyers. xCasa Filipinas Realty Corp. v. Office of the President, 241 SCRA 165
(1995).
It is the intent of P.D. 957 to protect the buyer against unscrupulous developers, operators and/or
sellers who reneged on their obligations. Thus, in order to achieve this purpose, equity and justice dictate
that the injured party should be afforded full recompensed and as such, be allowed to recover the
prevailing market value of the undelivered lot which had ben fully paid for. xGotesco Properties v. Fajardo,
692 SCRA 319 (2013).
Retroactive application of P.D. No. 957 to transactions entered into prior to its enactment in 1976 is
already settled. xEugenio v. Exec. Sec. Drilon, 252 SCRA 106 (1996); xRotario v. Alcantara, 736 SCRA
584 (2014).
(1) Buyer under P.D. 957 includes one who acquires for a valuable consideration a condominium unit by
way of assignment by project owner in payment of its indebtedness for contractors fee. xAMA
Computer College v. Factora, 378 SCRA 121 (2002).
(2) Section 20 of P.D. 957 directs every developer of real property to provide the necessary facilities,
improvements, infrastructure and other forms of development, failure to carry out which is sufficient
cause for the buyer to suspend payment, and any sums of money already paid shall not be forfeited.
xTamayo v. Huang, 480 SCRA 156 (2006).
In case the developer fails in its obligation under Section 20, the Sec. 23 provides:
Buyer has the option to demand reimbursement of the total amount paid, or to wait for further
development of the subdivision; if buyer opts for the latter, he may suspend payment of the
installments until such time that the owner or developer has fulfilled its obligations. xTamayo v.
Huang, 480 SCRA 156 (2006).
Option granted by law is with buyer and not the developer/seller. xRelucio v. Brillante-Garfin, 187
SCRA 405 (1990).
In exercising the option, buyer required only to give due notice to owner/developer of buyers
intention to suspend payment. xZamora Realty v. OP, 506 SCRA 591 (2006);
It is not required that a notice be given first by buyer to seller before a demand for refund can be
made as the notice and demand can be made in the same letter or communication. xCasa
Filipinas Realty Corp v. OP, 241 SCRA 165 (1995);
Even with a mortgage over the lot, seller still bound to redeem said mortgage without any cost to
buyer apart from the balance of the purchase price and registration feessubdivision developers
have are obliged to deliver the corresponding clean certificates of title of the subdivision lots where
the purchase price of which have been paid in full by the buyers. xCantemprate v. CRS Realty
Dev. Corp., 587 SCRA 492 (2009).
Buyers would be justified in suspending payments, when developer-seller fails to give a copy of the
Contract to Sell despite repeated demands, xGold Loop Properties v. CA, 350 SCRA 371 (2001);
or when they failed to provide for the amenities mandated under their development plan, xFedman
Dev. Corp. v. Agcaoili, 656 SCRA 354 (2011).
117
Pascual v. Universal Motors Corp., 61 SCRA 121 (1974).
118
Vda. de Jose v. Barrueco, 67 Phil. 191 (1939); U.S. Commercial v. Halili, 93 Phil. 271 (1953); H.E. Heacock v. Bantal Manufacturing, 66 Phil. 245
(1938); Manila Gas Corp. v. Calupita, 66 Phil. 747 (1938); Filinvest Credit Corp. v. CA, 178 SCRA 188 (1989).
31
 When Reservation Agreement provides that buyer is entitled to a Contract to Sell only upon
payment of at least 30% of price, non-happening yet of that condition does not render seller in
default as to warrant buyer the right to rescind sale and demand refund. xG.G. Sportwear Mfg.
Corp. v. World Class Properties, 614 SCRA 75 (2010).
Buyers cause of action against the developer for failure to develop ripens only when the developer
fails to complete the project on the lapse of the completion period stated on the sale contract or the
developers Licenses to Sell. Any premature demand prior to the indicated completion date would
be premature. xG.G. Sportwear Mfg. Corp. v. World Class Properties, 614 SCRA 75 (2010).
(3) One of the protections afforded by P.D. 957 to buyers is the right to have the Contract to Sell
registered with the Register of Deeds to bind third parties, THUS:
Nothing in P.D. 957 provides for the nullification of a contract to sell if seller, at the time perfection,
did not possess a certificate of registration or a license to sell, sale being a consensual contract.
xCo Chien v. Sta. Lucia Realty, 513 SCRA 570 (2007).119
Buyers dissatisfaction under a Contract of Sale as to the completion date of the project does not
constitute substantial breach to allow rescission and ask for refund. xG.G. Sportwear Mfg. Corp. v.
World Class Properties, 614 SCRA 75 (2010).
Despite non-registration of Contracts to Sell, foreclosing mortgagee-bank cannot be considered an
innocent purchaser for value of the subdivision lots which it accepted as payment for mortgagors
obligationbank was well aware that the assigned properties were subdivision lots and therefore
within the purview of P.D. 957. xLuzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
(4) Sec. 25 of P.D. 957 imposes on the subdivision owner or developer the obligation to cause the
transfer of the corresponding certificate of title to the buyer upon full payment. xGotesco Properties v.
Fajardo, 692 SCRA 319 (2013).
Since the lots are involved in litigation and there is a notice of lis pendens at the back of the titles
involved, the subdivision developer have to be given a reasonable period of time to work on the
adverse claims and deliver clean titles to the buyer, and should the former fail to deliver clean titles at
the end of the period, it ought to reimburse the buyers not only for the purchase price of the
subdivision lots sold to them but also the incremental value arising from the appreciation of the lots.
xCantemprate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009).
(5) Developers lack of Certificate of Registration or License to Sell merely subjects it to administrative
sanctions, but do not render the sales entered into on the project null and void. xG.G. Sportswear
Mfg. Corp. v. World Class Properties, 614 SCRA 75 (2010).

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

The contract for the purchase of a piece of land on installment basis is not only lawful; it is also of
widespread usage or custom in our economic system. . . . If [buyer] eventually found the interest stipulation in
the contract financially disadvantageous to him, he cannot now turn to this Court for succor without impairing
the constitutional right to the obligation of contracts. This Court will not relieve petitioner of the necessary
consequences of his free and voluntary, and otherwise lawful, act. xBortikey v. AFP - RSBS, 477 SCRA 511
(2005).
a. Role of Maceda Law Maceda Laws declared policy is to protect buyers of real estate on installment
basis against onerous and oppressive conditions, and seeks to address the acute housing shortage
problem in our country that has prompted thousands of middle and lower class buyers of houses, lots and
condominium units to enter into all sorts of contracts with private housing developers involving installment
schemes. xActive Realty & Dev. Corp. Daroya, 382 SCRA 152 (2002).120
Maceda Law recognizes in conditional sales of all kinds of real estate sellers right to cancel the
contract upon non-payment of an installment by the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force. xPagtulunan v. Dela Cruz Vda. De
Manzano, 533 SCRA 242 (2008).121

b. Transactions Covered The formal requirements of rescission under the Maceda Law apply even to
contracts entered into prior to its effectivity. xSiska Dev. Corp. v. Office of the President, 231 SCRA 674
(1994).122 BUT SEE: xPeoples Industrial and Commercial Corp. v. Court of Appeals, 281 SCRA 206 (1997).
Maceda Law makes no distinctions between option and sale which under P.D. 957 also includes an
exchange or attempt to sell, an option of sale or purchase, a solicitation of a sale or an offer to sell
directly, and the all-embracing definition virtually includes all transactions concerning land and housing
acquisition, including reservation agreements. xRealty Exchange Venture Corp. v. Sendino, 233 SCRA
665 (1994).

119
Cantemplate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009); Moldex Realty v. Saberon, 695 SCRA 34331 (2013).
120
OIympia Housing v. Panasiatic Travel, 395 SCRA 298 (2003); Jestra Dev. and Management Corp. v. Pacifico, 513 SCRA 413 (2007).
121
Leao v. CA, 369 SCRA 36 (2001); Cordero v. F.S. Management & Dev. Corp., 506 SCRA 451 (2006); Manuel Uy & Sons v. Valbueco, 705 SCRA 537
(2013).
122
Eugenio v. E.S. Franklin M. Drilon, 252 SCRA 106 (1996); PNB v. Office of the President, 252 SCRA 620 (1996).
32
 Maceda Law has no application to protect the developer or one who succeeds the developer.
xLagandaon v. Court of Appeals, 290 SCRA 463 (1998).
Maceda Law finds no application to a contract to sell where the suspensive condition has not been
fulfilled, because said Law presuppose the existence of a valid and effective contract to sell a
condominium. [?] xMortel v. KASSCO Inc., 348 SCRA 391, 398 (2000).123
Since Maceda Law governs sales of real estate on installments, Communities Cagayan, Inc. v. Nanol,
685 SCRA 453 (2012), it has no application to the sale of large tracts of land (69,028 square meters)
which do not constitute residential real estate within the contemplation of the Maceda Law. xGarcia v.
Court of Appeals, 619 SCRA 280 (2010).
Maceda Law does not cover a loan extended by the employer to enable its employee to finance the
purchase of a house and lot. The law protects only a buyer acquiring the property by installment, not a
borrower whose rights are governed by the terms of the loan from the employer xSpouses Sebastian v.
BPI Family Bank, 739 SCRA 9 (2014).
c. How to Determine Years of Installments: Jestra Dev. and Management Corp. v. Pacifico, 513
SCRA 413 (2007).
d. How Cancellation of Contract Can Be Effected: The cancellation of the contract under the Maceda Law
must follow the following steps:
First, seller should extend the buyer a grace period of at least 60 days from the due date of the
installments.
Second, at end of grace period, seller shall furnish buyer with a notarial notice of cancellation or
demand for rescission, effective 30 days from buyers receipt thereof; a mere notice or letter, would
not suffice. McLaughlin v. CA, 144 SCRA 693 (1986).124
Third, for contracts covering more than two years of payments, there must be return to the buyer of
the cash surrender value. xVilldara, Jr. v. Zabala, 545 SCRA 325 (2008).125
Until and unless seller complies with these mandatory requirements, contract to sell remains valid
and subsisting. xCommunities Cagayan v. Nanol, 685 SCRA 453 (2012).
Additional formality of a demand on [the sellers] part for rescission by notarial act would appear, in the
premises, to be merely circuitous and consequently superfluous since the seller therein filed an action for
annulment of contract, which is a kindred concept of rescission by notarial act. xLayug v. IAC, 167
SCRA 627 (1988).
Decision rendered in an ejectment case operates as the required notice of cancellation under the
Maceda Law; but as buyer was not given the cash surrender value, there was still no actual cancellation of
the contract. xLeao v. CA, 369 SCRA 36 (2001).
Formal letter demand upon buyer to vacate the premises is not the same as the notice of cancellation
or demand for rescission by a notarial act required by R.A. No. 6552. Evidently, the case of unlawful
detainer filed by petitioner does not exempt him from complying with the said requirement. xPagtulunan v.
Dela Cruz Vda. De Manzano, 533 SCRA 242 (2008).
Where buyers under a contract to sell offers to pay the last installment a year and a half after the
stipulated date, that was beyond the sixty-day grace period under Section 4 of the Maceda Law. The
buyers cannot use the second sentence of Section 4 of the Maceda Law against the sellers alleged failure
to give an effective notice of cancellation or demand for rescission because the sellers merely sent the
notice to the address supplied by the buyers in the Contract to Sell. Garcia v. CA, 619 SCRA 280 (2010).
Under the Maceda Law, the right of the buyer to refund accrues only when he has paid at least two
years of installments. xManuel Uy & Sons v. Valbueco, Inc., 705 SCRA 537 (2013).

6. RESCISSION ON SALES OF NON-RESIDENTIAL IMMOVABLES ON INSTALLMENTS (Arts. 1191

and 1592)
Articles 1191 and 1592 on rescission cannot apply to a contract to sell since there can be no rescission of
an obligation that is still non-existent, the suspensive condition not having happened. xValarao v. CA, 304
SCRA 155 (1999).126
Article 1191 providing for rescission cannot be applied to sales of real property on installments since they
are governed by the Maceda Law. Bonrostro v. Luna, 702 SCRA 1 (2013).
Automatic rescission clauses are not valid nor can they be given legal effect under Articles 1191 and 1592.
xIringan v. Court of Appeals, 366 SCRA 41 (2001).127

123
Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).
124
Luzon Brokerage v. Maritime Bldg., 43 SCRA 93 (1972) & 86 SCRA 305 (1978); Fabrigas v. San Francisco del Monte, 475 SCRA 247 (2005).
125
Active Realty & Dev. Corp. v. Daroya, 382 SCRA 152 (2002); Olympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003); Jestra Dev. and
Management Corp. v. Pacifico, 513 SCRA 413 (2007).
126
Caridad Estates v. Santero, 71 Phil. 114 (1940); Albea v. Inquimboy, 86 Phil. 477 (1950); Manuel v. Rodriguez, 109 Phil. 1 (1960); Joseph & Sons
Enterprises v. CA, 143 SCRA 663 (1986) Gimenez v. CA, 195 SCRA 205 (1991); Jacinto v. Kaparaz, 209 SCRA 246 (1992); Odyssey Park v. CA, 280 SCRA
253 (1997); Rillo v. CA, 274 SCRA 461 (1997); Platinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006); Tan v. Benolirao, 604 SCRA 36 (2009); Garcia v. CA,
619 SCRA 280 (2010).
127
Escueta v. Pando, 76 Phil. 256 (1946).
33
 Indeed, rescission requires under the law a positive act of choice on the party of the non-defaulting party.
xOlympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003).
Art. 1592 allows the buyer of an immovable to pay as long as no demand for rescission has been made;
consignation of the balance of the purchase price before the trial court operates as full payment. xProvince of
Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
Seller cannot recover ownership until and unless the contract itself is resolved and set aside; a party who
fails to invoke judicially or by notarial act the resolution of a sale would be prevented from blockingits
consummation in light of the precept that mere failure to fulfill the contract does not operate ipso facto as
rescission. xPlatinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006).
For Art. 1592 to apply, the following requisites must be present: (1) a contract of sale of an immovable
property and (2) a stipulation in the contract that failure to pay the price at the time agreed upon will cause the
rescission of the contract. Buyer can still pay even after the time agreed upon, if the agreement between the
parties has these requisites. This right of buyer to pay ceases when seller demands rescission judicially or
extrajudicially (which must be notarized). xCabrera v. Ysaac, 740 SCRA 612 (2014).

B. REMEDIES OF THE BUYER

1. In the Case of Movables (Arts. 1598-1599)
2. In the Case of Immovables (Arts. 1191; Secs. 23 and 24, P.D. 957)
3. Suspension of Payment (Art. 1590) Pendency of suit over the subject matter of sale justifies buyer in
suspending payment of the balance of the purchase price by reason of aforesaid vindicatory action filed
against it. The assurance made by the seller that the buyer did not have to worry about the case because it
was pure and simple harassment is not the kind of guaranty contemplated under Article 1590 wherein the
buyer is bound to make payment if the seller should give a security for the return of the price. xAdelfa
Properties v. CA, 240 SCRA 565 (1995).

XI. REMEDY OF RESCISSION IN SALES OF IMMOVABLES: CONTRACT OF

SALE VERSUS CONTRACT TO SELL
A. NATURE OF REMEDY OF RESOLUTION (Arts. 1191, 1479, 1592)
1. Distinguishing from Other Remedy of Rescission. xUniversal Food Corp. v. Court of Appeals, 33 SCRA
22 (1970).128 BUT SEE CONTRA: xSuria v. IAC, 151 SCRA 661 [1987]).
While Art. 1191 uses the term rescission, the original term which was used in the old Civil Code was
resolution. Resolution is a principal action which is based on breach of a party, while rescission under Art.
1383 is a subsidiary action limited to cases of rescission for lesion under Art. 1381. xOng v. Court of Appeals,
310 SCRA 1 (1999).129
Outside of sales that have been entered into in fraud of creditors, the general rule for ordinary contracts of
sale is that the sellers creditors do not have such material interest as to allow them to sue for rescission of a
sale theirs is only a personal right to receive payment for the loan, not a real right over the property subject
of the deed of sale. xAdorable v. CA, 319 SCRA 200 (1999).
To rescind is to declare a contract void at its inception and to put an end to it as though it never was. It is
not merely to terminate it and release the parties from further obligations to each other, but to abrogate it from
the beginning and restore the parties to their relative positions as if no contract has been made. xVelarde v.
Court of Appeals, 361 SCRA 56 (2001).130

2. Remedy of Rescission (Resolution) Is Inherent in the Reciprocity of Sale Rescission under Art.
1191 is predicated on a breach of faith by the other party who violates the reciprocity between thembreach
contemplated is obligors failure to comply with an existing obligation. When obligee seeks rescission, in the
absence of any just cause for courts to determine the period of compliance, they shall decree the rescission.
xVelarde v. CA, 361 SCRA 56 (2001).131
Non-payment of price is a resolutory condition for which the remedy is either rescission or specific
performance under Art. 1191. This is true for reciprocal obligations where the obligation is a resolutory
condition of the other. On the other hand, buyer is entitled to retain the purchase price if the seller fails to
perform any essential obligation of the contract. Such right is premised on the general principles of reciprocal
obligation. xGil v. CA, 411 SCRA 18 (2003).132

128
Congregation of the Religious of the Virgin Mary v. Orola, 553 SCRA 578 (2008); Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Congregation
of the Religious of the Virgin Mary v. Orola, 553 SCRA 578 (2008).
129
Iringan v. CA, 366 SCRA 41 (2001).
130
Ocampo v. CA, 233 SCRA 551 (1994); Co v. CA, 312 SCRA 528 (1999); Orden v. Aurea, 562 SCRA 660 (2008).
131
Almira v. CA, 399 SCRA 351 (2003).
132
Central Philippine University v. CA, 246 SCRA 511 (1995); Romeo v. CA, 250 SCRA 223 (1995); Cheng v. Genato, 300 SCRA 722 (1998); Uy v. CA, 314
SCRA 63 (1999).
34
 Consignation by the buyer of the purchase price of the property, there having been no previous receipt of a
notarial demand for rescission, is sufficient to defeat the right of the seller to demand for a rescission of the
deed of absolute sale. xGil v. CA, 411 SCRA 18 (2003).
When a party asks for the resolution or cancellation of a contract it is implied that he recognizes it
existence a non-existent contract cannot be cancelled. xPan Pacific Industrial Sales Co. v. Court of
Appeals, 482 SCRA 164 (2006).
Action for Rescission Not Similar to Action for Reconveyance: In sale of real property, seller is not
precluded from going to the court to demand judicial rescission in lieu of a notarial act of rescission. But such
action is different from an action for reconveyance of possession on the thesis of a prior rescission of the
contract covering the property. The effects that flow from an affirmative judgment in either case would be
materially dissimilar in that: (a) judicial resolution gives rise to mutual restitution which is not necessarily the
situation in an action for reconveyance; (b) unlike in an action for reconveyance predicated on an extrajudicial
rescission (rescission by notarial act), in an action for rescission, the court may authorize for a just cause the
fixing of a period. xOlympia Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003).

3. Power to Rescind Generally Judicial in Nature A seller cannot extrajudicially rescind a contract of sale
where there is no express stipulation authorizing it. Unilateral rescission will not be judicially favored or
allowed if the breach is not substantial and fundamental to the fulfillment of the obligation. xBenito v.
Saquitan-Ruiz, 394 SCRA 250 (2002);133 nonetheless, the law does not prohibit the parties from entering into
agreement that violation of the terms of the contract would cause cancellation thereof, even without court
intervention. xFroilan v. Pan Oriental Shipping Co., 12 SCRA 276 (1964).134

4. Mutual Restitution and Forfeiture (Art. 1385) When sale is rescinded, the general rule under Art. 1398
is for parties to restore to each other the things which have been the subject matter of the contract, their fruits,
and price with interest. xInes v. CA, 247 SCRA 312 (1995).135
HOWEVER: Sellers right in a contract to sell with reserved title to extrajudicially cancel the sale upon failure of
the buyer to pay the stipulated installments and retain the sums and installments already received has long
been recognized by the well-established doctrine of 39 years standing. xPangilinan v. Court of Appeals, 279
SCRA 590 (1997).136
Pursuant to Art. 1188, in a contract to sell, even if buyers did not mistakenly make partial payments,
inasmuch as the suspensive condition was not fulfilled, it is only fair and just that buyers be allowed to
recover what they had paid in expectancy that the condition would happen; otherwise, there would be unjust
enrichment on part of seller. xBuot v. CA, 357 SCRA 846 (2001).

B. DISTINCTIONS BETWEEN CONTRACT OF SALE AND CONTRACT TO SELL

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

In a contract of sale, title to the property passes to buyer upon the delivery of the thing sold; in a contract
to sell, ownership is, by agreement, reserved in the seller and is not to pass to buyer until full payment of
purchase price. Otherwise stated, in a contract of sale, seller loses ownership over the property and cannot
recover it until and unless the contract is resolved or rescinded, whereas in a contract to sell, title is retained
by the seller until full payment of the price. In the latter contract, payment of the price is a positive suspensive
condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey
title from becoming effective. Adelfa Properties v. Court of Appeals, 240 SCRA 575 (1995).137

a. Does Contract to Sell Fall under the Definition of Sale in Article 1458? A Contract to Sell as a
bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to sell the said property
exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of
the purchase price. Coronel v. CA, 263 SCRA 15, 27 (1996).138 BUT SEE: PNB v. Court of Appeals,
262 SCRA 464 (1996).
To be sure, a contract of sale may either be absolute or conditional. One form of conditional sales is
what is now popularly termed as a Contract to Sell, where ownership or title is retained until the
fulfillment of a positive suspensive condition normally the payment of the purchase price in the manner
agreed upon. For a contract, like a contract to sell, involves a meeting of minds between two persons

133
Ocejo, Perez & Co. v. International Banking Corp. 37 Phil. 631 (1918); Republic v. Hospital de San Juan de Dios, 84 Phil. 820 (1949); De la Rama
Steamship Co. v. Tan, G.R. No. 8784, May 21, 1956; 99 Phil. 1034 (unrep.) (1956); Heirs of Jesus M. Mascuana v. CA, 461 SCRA 186 (2005).
134
Luzon Brokerage Co., v. Maritime Building Co., 43 SCRA 95 (1972); 86 SCRA 305 (1978); Pangilinan v. CA, 279 SCRA 590 (1997); Calilap-Asmeron v.
DBP, 661 SCRA 54 (2011).
135
Velarde v. CA, 361 SCRA 56 (2001); Orden v. Aurea, 562 SCRA 660 (2008).
136
Manila Racing Club v. Manila Jockey Club, 69 Phil. 55 (1939).
137
Lim v. CA, 182 SCRA 564 (1990); Buot v. CA, 357 SCRA 846 (2001); Abesamis v. CA, 361 SCRA 328 (2001); Tuazon v. Garilao, 362 SCRA 654 (2001);
Leao v. CA, 369 SCRA 36 (2001); Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002); Almira v. CA, 399 SCRA 351 (2003);
Chua v. CA, 401 SCRA 54 (2002); Flancia v. CA, 457 SCRA 224 (2005); Vidad, Sr. v. Tayamen, 531 SCRA 147 (2007); Hulst v. PR Builders, 532 SCRA 74
(2007); Castillo v. Reyes, 539 SCRA 193 (2007); Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Sta. Lucia Realty & Dev., v. Uyecio, 562 SCRA 226
(2008); Orden v. Aurea, 562 SCRA 660 (2008); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008); Tan v. Benolirao, 604 SCRA36 (2009); Bank of P.I. v. SMP,
Inc., 609 SCRA 134 (2009); De Leon v. Ong, 611 SCRA 381 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010).
138
Platinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006); Valenzuela v. Kalayaan Dev. and Industrial Corp., 590 SCRA 380 (2009);Tan v. Benolirao, 604
SCRA 36 (2009);
35
 whereby one binds himself, with respect to the other, to give something or to render some service.
xGomez v. CA, 340 SCRA 720, 728 (2000).139
A Contract to Sell is akin to a conditional sale, in which the efficacy or obligatory force of the sellers
obligation to transfer title is subordinated to the happening of a future and uncertain event, so that if the
suspensive condition does not take place, the parties would stand as if the conditional obligation never
existed. xOrden v. Aurea, 562 SCRA 660 (2008).140
A Contract to Sell 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. It undergoes also the three stages of a contract: negotiation,
perfection and consummation. xRobern Dev. Corp. v. Peoples Landless Assn., 693 SCRA 24 (2013).
A contract of sale is defined under Article 1458 of the Civil Code. A contract to sell, on the other hand, is
defined by Article 1479 of the Civil Code: [A] bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the subject property despite delivery thereof to the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the prospective
buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the purchase price. xAkang v. Municipality of Isulan, Sultan
Kudarat Province, 699 SCRA 745 (2013).
b. What Is the Difference in Legal Effect Between a Contract to Sell and a Conditional Contract of
Sale? While conditionality inheres in a contract to sell, the same should not be confused with a
conditional contract of sale. In a contract to sell, the fulfillment of the suspensive condition will not
automatically transfer ownership to the buyer although the property may have been previously delivered to
him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of
absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of the suspensive
condition renders the sale absolute and the previous delivery of the property has the effect of automatically
transferring the sellers owenrship or title to the property to the buyer. xVentura v. Heirs of Spouses
Endaya, 706 SCRA 631 (2013).
In contracts of sale, seller loses ownership over the property and cannot recover it until and unless the
contract is resolved or rescinded; in a contract to sell, title is retained by seller until full payment of the
price. xMontecalvo v. Heirs of Eugenia Primero, 624 SCRA 575 (2010).
In a contract to sell, the prospective seller explicitly reserves the transfer of title to the prospective
buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the
property subject of the contract to sell until the happening of an event, which for present purposes we shall
take as the full payment of the purchase price. xRepublic v. Marawi-Marantao General Hospital, 686 SCRA
546 (2012).
A contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds
himself to sell the said property exclusively to the latter upon his fulfillment of the conditions agreed upon,
i.e., the full payment of the purchase price and/or compliance with the other obligations stated in the
contract to sell. Given its contingent nature, the failure of the prospective buyer to make full payment
and/or abide by his commitments stated in the contract to sell prevents the obligation of the prospective
seller to execute the corresponding deed of sale to effect the transfer of ownership to the buyer form
arising. xVentura v. Heirs of Spouses Endaya, 706 SCRA 631 (2013).141
c. Importance of Locating the Condition Placed on the Obligation to Pay Price in Full In a contract
of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a
time existed, and discharges the obligations created thereunder. xBlas v. Angeles-Hutalla, 439 SCRA 273
(2004).142 Whereas, in a contract to sell, the payment of the purchase price is a positive suspensive
condition, and sellers obligation to convey the title does not become effective in case of failure to pay.
xBuot v. CA, 357 SCRA 846 (2001).143
When buyers obligation to pay the the purchase price was made subject to the condition that seller first
delivers clean title over the parcel bough within 20 months from the signing of the contract, such condition
is imposed merely on the performance of the obligation, as distinguished from a condition imposed on the
perfection of the contract. The non-happening of the condition merely granted the buyer the right to
rescind the contract or even to waive it and enforce performance on the part of the seller, all in
consonance with Art. 1545 of Civil Code which provides that Where the obligation of either party to a
contract of sale is subject to any condition which is not performed, such party may refuse to proceed with
the contract or he may waive performance of the condition. Babasa v. CA, 290 SCRA 532 (1998).
Rationale for Contracts to Sell: A contract to sell is commonly entered into so as to protect the seller
against a buyer who intends to buy the property in installments by withholding ownership over the property

139
Demafelis v. CA, 538 SCRA 305 (2007).
140
De Leon v. De Leon, 593 SCRA 768 (2009).
141
Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011); Associated Marine Officers and Seamens Union PTGWO-ITF v. Decena, 683 SCRA 308
(2012);Tumibay v. Lopez, 697 SCRA 21 (2013).
142
Valenzuela v. Kalayaan Devt and Industrial Corp., 590 SCRA 380 (2009); Traders Royal Bank v. Cuison Lumber Co., 588 SCRA 690 (2009).
143
Heirs of Spouses Sandejas v. Lina, 351 SCRA 183 (2001); Zamora Realty and Dev. Corp v. Office of the President, 506 SCRA 591 (2006); Nabus v.
Pacson, 605 SCRA 334 (2009); Union Bank v. Maunlad Homes, 678 SCRA 539 (2012).
36
 until the buyer effects full payment therefor. It cannot be inferred in a situation where both parties
understood the price to be paid in cash. xCity of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999).144
Remedy of Rescission Does Not Apply to Contracts to Sell: The remedy of rescission under Article
1191 of the Civil Code cannot apply to mere contracts to sellin a contract to sell, the payment of the
purchase price is a positive suspensive condition, and failure to pay the price agreed upon is not a mere
breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from
acquiring an obligatory force. xTan v. Benolirao, 604 SCRA 36 (2009).145
In a contract to sell, payment of the price is a positive suspensive condition, failure of which is not a
breach of contract warranting rescission under Article 1191 of the Civil Code but rather just an event that
prevents the supposes seller from being bound to convey title to the supposed buyer. xBonrostro v. Luna,
702 SCRA 1 (2013).
In a contract to sell, the sellers obligation to deliver the corresponding certificates of title is
simultaneous and reciprocal to the buyers full payment of the purchase price. xGotesco Properties v.
Fajardo, 692 SCRA 319 (2013).

d. Essential Stipulations to Constitute a Contract to Sell A contract is one of sale, absent any stipulation
therein (a) reserving title over the property to the vendee until full payment of the purchase price, 146 and (b)
giving the vendor the right to unilaterally rescind the contract in case of non-payment. 147 Valdez v. CA,
439 SCRA 55 (2004); De Leon v. Ong, 611 SCRA 381 (2010); 148 BUT SEE: Dignos v. CA, 158 SCRA
375 (1988). CONSEQUENTLY:
It was enough to characterize the Deed of Condition Sale as a contract to sell alone by the
reservation of ownership. xHeirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008).
Reservation of title may not be found in express provision of the contract, but may also be determined
from proven acts of the parties. xSalazar v. CA, 258 SCRA 325 (1996).
Absence of a formal deed of conveyance [or a stipulation to execute the deed of sale only full
payment of the purchase price] is a strong indication that parties did not intend immediate transfer of
ownership, but only a transfer after full payment of purchase price, 149 especially where seller retained
possession of the certificate of tile and all other documents relative to the sale until there was full
payment of the price. xChua v. Court of Appeals, 401 SCRA 54 (2003).
An agreement in which ownership is reserved in the seller and is not to pass to the buyer until full
payment of the purchase price is known as a contract to sell. The absence of full payment suspends
the sellers obligation to convey title, even if the sale has already been registered. Registration does
not vest, but merely serves as evidence of, title to a particular property. xPortic v. Cristobal, 456 SCRA
577 (2005).150
It is not the title of the contract, but its express terms or stipulations that determine the kind of contract
entered into by the parties. Where seller promises to execute a deed of absolute sale upon the
completion by buyer of the payment of the price, which shows that seller reserved title to the property
until full payment of the purchase price, the contract is only a contract to sell. xNabus v. Pacson, 605
SCRA 334 (2009).151
e. Substantial Breach (Arts. 1191 and 1234) Concept of substantial breach is irrelevant in contracts to
sell. xLuzon Brokerage Co. v. Maritime Building Co., 43 SCRA 93 (1972).152
In a contract to sell real property on installments, the full payment of the purchase price is a positive
condition, the failure of which is not considered a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring any obligatory force. The transfer of
ownership and title would occur after full payment of the price. xLeao v. Court of Appeals, 369 SCRA 36
(2001).153

2. Minimum Requirement for Cancellation of Contracts to Sell

The act of a party in treating a contract as cancelled should be made known to the other party because
this act is subject to scrutiny and review of the courts in case the alleged defaulter bring the matter for judicial

144
Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); Tumibay v. Lopez, 697 SCRA 21 (2013).
145
Traders Royal Bank v. Cuison Lumber Co., 588 SCRA 690 (2009); Nabus v. Pacson, 605 SCRA 334 (2009); Diego v. Diego, 691 SCRA 361 (2013).
146
Topacio v. CA, 211 SCRA 219 (1992); Laforteza v. Machuca, 333 SCRA 643 (2000); Almira v. CA, 399 SCRA351 (2003); Manuel Uy & Sons v.
Valbueco, Inc., 705 SCRA 537 (2013); Reyes v. Tuparan, 650 SCRA 238 (2011).
147
Roque v. Lapuz, 96 SCRA 741 (1980); Angeles v. Calanz, 135 SCRA 323 (1985); Alfonso v. CA, 186 SCRA 400 (1990)
148
San Andres v. Rodriguez, 332 SCRA 769 (2000); Vda. De Mistica v. Naguiat, 418 SCRA 73 (2003); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004);
Villadar, Jr. V. Zabala, 545 SCRA 325 (2008); Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008).
149
Bowe v. CA, 220 SCRA 158 (1993); Rayos v. CA, 434 SCRA 365 (2004); Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008);
Tan v. Benolirao, 604 SCRA 36 (2009); Nabus v. Pacson, 605 SCRA 334 (2009).
150
Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Bank of P.I. v. SMP, Inc., 609 SCRA 134 (2009).
151
Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197 (2008)Tan v. Benolirao,
604 SCRA 36 (2009); Nabus v. Pacson, 605 SCRA 334 (2009); Union Bank v. Maunlad Homes, 678 SCRA 539 (2012); Diego v. Diego, 691 SCRA 361
(2013).
152
Siska Dev. Corp. v. Office of the President, 231 SCRA 674 (1994); Sta. Lucia Realty & Dev. v. Uyecio, 562 SCRA 226 (2008).
153
Manuel v. Rodriguez, 109 Phil. 1 (1960); Laforteza v. Machuca, 333 SCRA 643 (2000); Villamaria, Jr. v. CA, 487 SCRA 571 (2006); Valenzuela v.
Kalayaan Dev. and Industrial Corp. 590 SCRA 380 (2009).
37
 determination. University of the Philippines v. De los Angeles, 35 SCRA 103 (1970); Palay Inc. v.
Clave, 124 SCRA 638 (1983).154
BUT SEE: In a contract to sell, upon failure of buyer to comply with its obligation, there was no need to
judicially rescind the contract to sell. Failure by one of the parties to abide by the conditions in a contract to
sell resulted in the rescission of the contract. AFP Mutual Benefit Assn. v. CA, 364 SCRA 768 (2001).155
The notice of termination of a Contract to Sell may take any of the following forms:
Act of the seller in notifying the buyer of his intention to sell the properties to other interested persons if the
latter failed to pay the balance of the purchase price is sufficient notice for the cancellation or resolution of their
contract to sell. xOrden v. Aurea, 562 SCRA 660 (2008).
If mere nonpayment is enough to cancel a contract to sell, the letter given to petitioners lawyer is also an
acceptable form of rescinding the contract. The law does not require notarization for a letter to rescind a
contract to sell immovable. Notarization is only required if a contract of sale is being rescinded. Cabrera v.
xYsaac, 740 SCRA 612 (2014).

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

XII. CONDITIONS AND WARRANTIES

1. Conditions (Art. 1545)
Failure to comply with condition imposed upon perfection of the contract results in failure of a contract,
while the failure to comply with a condition imposed on the performance of an obligation only gives the other
party the option either to refuse to proceed with sale or waive the condition. Laforteza v. Machuca, 333
SCRA 643 (2000).156
In a Sale with Assumption of Mortgage, assumption of mortgage is a condition to the sellers consent so
that without approval by the mortgagee, no sale is perfected. In such case, the seller remains the owner and
mortgagor of the property and retains the right to redeem the foreclosed property. xRamos v. CA, 279 SCRA
118 (1997).157 But such condition is deemed fulfilled when the seller takes any action to prevent its happening.
xDe Leon v. Ong, 611 SCRA 381 (2010).
There has arisen a confusion in the concepts of validity and efficacy of a contract. Under Art. 1318,
absence any of the essential requisites of a contract (i.e., consent of the parties, object certain which is the
subject matter, and cause of the obligation), then no contract arises. Conversely, where all are present, the
result is a valid contract. However, some parties introduce various kinds of restrictions or modalities, the lack
of which will not, however, affect the validity of the contract. A provision this Contract of Sale of rights,
interests and participations shall become effective only upon the approval by the Honorable Court, in the
event of non-approval by the courts, affect only the effectivity and not the validity of the contract of sale.
Heirs of Pedro Escanlar v. Court of Appeals, 281 SCRA 176 (1997).
As Is, Where Is in sale pertains solely to the physical condition of the thing sold, not to its legal situation.
xAssets Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).
The condition in the contract of sale of buyers assumption of the mortgage constituted on the subject
matter is deemed fulfilled when the seller prevented its fulfillment by paying his outstanding obligation to the
bank and taking back the certificates of title without even notifying the buyer. xDe Leon v. Ong, 611 SCRA
381 (2010).

2. Conditions versus Warranties. Power Commercial and Industrial Corp. v. Court of Appeals, 274
SCRA 597 (1997).

3. Express Warranties (Art. 1546) A warranty is a statement or representation made by the seller of
goods, contemporaneously and as part of the contract of sale, having reference to the character, quality or
title of the goods, and by which he promises or undertakes to insure that certain facts are or shall be as he
then represents them. xAng v. CA, 567 SCRA 53 (2008).

154
Jison v. CA, 164 SCRA 339 (1988); Lim v. CA, 182 SCRA 564 (1990); Lim v. CA, 182 SCRA 564 (1990); Cheng v. Genato, 300 SCRA 722 (1998);
Toledo v. CA, 765 SCRA 104 (2015).
155
Torralba v. Delos Angeles, 96 SCRA 69 (1980).
156
Romero v. CA, 250 SCRA 223 (1995); Adalin v. CA, 280 SCRA 536 (1997); Republic v. Florendo, 549 SCRA 527 (2008).
157
Bian Steel Corp. v. CA, 391 SCRA 90 (2002).
38
 A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing sold. The
decisive test is whether the vendor assumes to assert a fact of which the vendee is ignorant. xGoodyear
Philippines v. Sy, 474 SCRA 427 (2005).
Sellers Talk: The law allows considerable latitude to sellers statements, or dealers talk; and experience
teaches that it is exceedingly risky to accept it at its face value. Assertions concerning the property which is
the subject of a contract of sale, or in regard to its qualities and characteristics, are the usual and ordinary
means used by sellers to obtain a high price and are always understood as affording to buyers no ground for
omitting to make inquiries. A man who relies upon such an affirmation made by a person whose interest might
so readily prompt him to exaggerate the value of his property does so as his peril, and must take the
consequences of his own imprudence. xSongco v. Sellner, 37 Phil. 254 (1917).
Caveat emptor only requires the purchaser to exercise care and attention ordinarily exercised by prudent
men in like business affairs, and only applies to defects which are open and patent to the service of one
exercising such care. It can only be applied where it is shown or conceded that the parties to the contract
stand on equal footing and have equal knowledge or equal means of knowledge and there is no relation of
trust or confidence between them. It does not apply to a representation that amounts to a warranty by the
seller and the situation requires the buyer to rely upon such promise or affirmation. Guinhawa v. People,
468 SCRA 278 (2005).158
Breach of an express warranty makes seller liable for damages. The following requisites essential to
establish an express warranty: (1) it must be an affirmation of fact or any promise by the seller relating to the
subject matter of the sale; (2) natural tendency of such affirmation or promise is to induce the buyer to
purchase the thing; and (3) buyer purchases the thing relying on such affirmation or promise thereon.
xCarrascoso, Jr. v. CA, 477 SCRA 666 (2005).

4. Implied Warranties (Art. 1547)

a. Seller Has Right to Sell
b. Warranty Against Eviction (Arts. 1548-1560) Seller must be summoned in the suit for eviction at the
instance of the buyer (Art. 1558), and be made a co-defendant (or made a third-party defendant (Art.
1559). xEscaler v. Court of Appeals, 138 SCRA 1 (1985).159
A dacion en pago is governed by the law of sales, and contracts of sale come with warranties, either
express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil Code). The
implied warranty in case of eviction is waivable and cannot be invoked if the buyer knew of the risks or
danger of eviction and assumed its consequences. xLuzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
No Warranty Against Eviction When Execution Sale: In voluntary sales, vendor can be expected to
defend his title because of his warranty to the vendees but no such obligation is owed by the owner whose
land is sold at execution sale. xSantiago Land Dev. Corp. v. CA, 276 SCRA 674 (1997). BUT SEE: Art.
1552.
The seller, in declaring that he owned and had clean title to the vehicle, gave an implied warranty of
title, and in pledging that he will defend the same from all claims or any claim whatsoever [and] will save
the vendee from any suit by the government of the Republic of the Philippines, he gave a warranty
against eviction, and the prescriptive period to file a breach thereof is six months after the delivery of the
vehicle. Ang v. CA, 567 SCRA 53 (2008).
c. Warranty Against Non-Apparent Servitudes (Arts. 1560)
d. Warranty Against Hidden Defects (Arts. 1561, 1566-1580) Stipulation in a lease with option to
purchase (treated as a sale of movable on installments) that buyer-lessee absolutely releases the lessor
from any liability whatsoever as to any and all matters in relation to warranty in accordance with the
provisions hereinafter stipulated, is an express waiver of warranty against hidden defect in favor of seller-
lessor who is absolved from any liability arising from any defect or deficiency of the machinery sold.
xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).
A hidden defect is unknown or could not have been known to the buyer. Requisites to recover on
account of hidden defects are: 1. Defect must: (a) be hidden; (b) exist at perfection of contract; (c)
ordinarily have been excluded from the contract; and (d) be important to render the thing unfit or
considerably decreases fitness; and 2. Action must be instituted within the statute of limitations. Nutrimix
Feeds Corp. v. Court of Appeals, 441 SCRA 357 (2004).160
Sellers agent can by agreement be liable for the warranty against hidden defects. xSchmid and Oberly,
Inc. v. RJL Martinez, 166 SCRA 493 (1988).
e. Warranty as to Fitness or Quality of Goods (Arts. 1562, 1565, 1599)
In order to enforce the implied warranty that the goods are reasonably fit and suitable to be used for the
purpose which both parties contemplated, the following must be established: (a) that the buyer sustained
injury because of the product; (b) that the injury occurred because the product was defective or

158
Oro Land Realty Dev. Corp. v. Claunan, 516 SCRA 681 (2007)
159
Canizares Tiana v. Torrejos, 21 Phil. 127 (1911); J.M. Tuazon v. CA, 94 SCRA 413 (1979).
160
Investments & Devt, Inc. v. CA, 162 SCRA 636 [1988]).
39
 unreasonably unsafe; and finally (c) the defect existed when the product left the hands of the petitioner.
Nutrimix Feeds Corp. v. CA, 441 SCRA 357 (2004).
A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by the
product in the absence of any proof that the product in question is defective, which was present upon the
delivery or manufacture of the product; or when the product left the sellers or manufacturers control; or
when the product was sold to the purchaser; or the product must have reached the user or consumer
without substantial change in the condition it was sold. Nutrimix Feeds Corp. v. Court of Appeals, 441
SCRA 357 (2004).
f. Sale of Goods by Sample (Art. 1565)
There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the bulk,
which is not present and there is no opportunity to inspect or examine the same. To constitute a sale by
sample, it must appear that the parties treated the sample as the standard of quality and that they
contracted with reference to the sample with the understanding that the product to be delivered would
correspondent with the sample. In a contract of sale by sample, there is an implied warranty that the
goods shall be free from any defect which is not apparent on reasonable examination of the sample and
which would render the goods unmerchantable. xMendoza v. David, 441 SCRA 172 (2004).
g. Additional Warranties for Consumer Products (Arts. 68, Consumer Act, R.A. 7394).

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

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

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

XIII. EXTINGUISHMENT OF THE CONTRACT OF SALE

A. IN GENERAL (Arts. 1231 and 1600)

B. CONVENTIONAL REDEMPTION (SALE A RETRO)

1. Definition (Art. 1601)
Right to repurchase must be constituted as part of a valid sale at perfection. xVillarica v. CA, 26 SCRA 189
(1968).161
An agreement to repurchase becomes a promise to sell when made after the sale because when the sale
is made without such agreement the purchases acquires the things sold absolutely; and, if he afterwards
grants the vendor the right to repurchase, it is a new contract entered into by the purchases as absolute
owner. Roberts v. Papio, 515 SCRA 346 (2007).162
In sales s pacto de retro, the price agreed upon should not generally be considered as the just value of the
thing sold, absent other corroborative evidencethere is no requirement in sales that the price be equal to
the exact value of the thing subject matter of the sale. xDorado Vda. De Delfin v. Dellota, 542 SCRA 397
(2008).

2. Redemption Period
The period to repurchase is not suspended merely because there is a divergence of opinion between the
parties as to the precise meaning of the phrase providing for the condition upon which the right to repurchase
161
Claravall v. CA, 190 SCRA 439 (1990); Torres v. CA, 216 SCRA 287 (1992); Roberts v. Papio, 515 SCRA 346 (2007).
162
Ramos v. Icasiano, 51 Phil (1927).
40
 is triggered. The existence of seller a retros right to repurchase the proper is not dependent upon the prior
final interpretation by the court of the said phrase. Misterio v. Cebu State College of Science and
Technology, 461 SCRA 122 (2005).

3. Situation Prior to Redemption (Art. 1606)

In a sale a retro, buyer has a right to the immediate possession of the property sold, unless otherwise
agreed upon, since title and ownership of the property sold are immediately vested in the buyer a retro,
subject only to the resolutory condition of repurchase by the seller a retro within the stipulated period. xVda.
de Rigonan v. Derecho, 463 SCRA 627 (2005).163

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

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

In order to exercise the right to redeem, only tender of payment is sufficient xLegaspi v. CA, 142 SCRA 82
1986); consignation is not required after tender is refused xMariano v. CA, 222 SCRA 736 (1993). BUT: When
tender not possible, consignation should be made xCatangcatang v. Legayada, 84 SCRA 51 (1978).
A formal offer to redeem accompanied by a tender of redemption price is not essential where the right is
exercised through a judicial action within the redemption period and simultaneously depositing the
redemption price. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995).164

6. Redemption Price (Art. 1616)

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

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

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

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

9. EQUITABLE MORTGAGE (Arts. 1602-1604)

It is a fact that in time of grave financial distress which render persons hard-pressed to meet even their
basic needs or answer an emergency, such persons would have no choice but to sign a deed of absolute sale
of property or a sale thereof with pacto de retro if only to obtain a much-needed loan from unscrupulous
money lenders. xMatanguihan v. CA, 275 SCRA 380 (1997).165
Parol evidence is competent and admissible in support of the allegations that an instrument purporting on
its face to transfer the absolute title to property, or to transfer the title with a right to repurchase under
specified conditions reserved to the seller, was in truth and in fact given merely as security for the repayment
of a loan. xMariano v. CA, 220 SCRA 716 (1993).166

163
Reyes v. Hamada, 14 SCRA 215 (1965); Solid Homes v. CA, 275 SCRA 267 (1997); Misterio v. Cebu State College of Science and Technology, 461
SCRA 122 (2005); Cadungog v. Yap, 469 SCRA 561 (2005); Ramos v. Dizon, 498 SCRA 17 (2006); Lumayag v. Heirs of Jacinto Nemeo, 526 SCRA 51
(2007).
164
Villegas v. CA, 499 SCRA 276 (2006).
165
Salonga v. Concepcion, 470 SCRA 291 (2005).
166
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Cuyugan v. Santos, 34 Phil. 100 (1916); Matanguihan v. CA, 275 SCRA 380 (1997); Hilado v. Heirs of
Rafael Medlla, 37 SCRA 257 (2002); Madrigal v. CA, 456 SCRA 659 (2005); Legaspi v. Ong, 459 SCRA 122 (2005); Banga v. Bello, 471 SCRA 653 (2005);
41
 Equitable mortgage favors the least transmission of rights and interest over a property in controversy,
since the law seeks to prevent circumvention of the law on usury and the prohibition against pactum
commissorium provisions.167 Additionally, it is aimed to end unjust or oppressive transactions or violations in
connection with a sale or property. The wisdom of these provisions cannot be doubted, considering many
cases of unlettered persons or even those with average intelligence invariably finding themselves in no
position whatsoever to bargain fairly with their creditors. xSpouses Misea v. Rongavilla, 303 SCRA 749
(1999).168
An equitable mortgage is defined as one although lacking in some formality, or form or words, or other
requisites demanded by a statute, nevertheless reveals the parties intention to charge real property as
security for a debt, and contains nothing impossible or contrary to law. For equitable mortgage to arise, two
requisites must concur: (1) that the parties entered into a contract denominated as a sale; and (2) the
intention was to secure an existing debt by way of mortgage. xRaymundo v. Bandong, 526 SCRA 514
(2007).169
This kind of arrangement, where the ownership of the land is supposedly transferred to the buyer who
provides for the funds to redeem the property from the bank but nonetheless allows the seller to later on buy
back the properties, is in the nature of an equitable mortgage governed by Arts. 1602 and 1604 of the Civil
Code. xBacungan v. CA, 574 SCRA 642 (2008).
Sales with rights of repurchase are not favored. Courts will not construe instruments to be sales with a
right to repurchase, with the stringent and onerous effects which follow, unless the terms of the document and
the surrounding circumstances require it. Whenever, any other construction can fairly and reasonably be
made, such construction will be adopted and the contract will be construed as a mere loan unless the court
can see that, if enforced according to its terms, it is not an unconscionable one. xBautista v. Unangst, 557
SCRA 256 (2008).170
The decisive factor in evaluating whether an agreement is an equitable mortgage is the intention of the
parties, as shown not necessarily by the terminology used in the contract but by all the surrounding
circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct,
declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent
facts having a tendency to fix and determine the real nature of their design and understanding. xBanga v.
Bello, 471 SCRA 653 (2005).171
Consequently, the non-payment of the debt when due gives the mortgagee the right to foreclose the
mortgage, sell the property and apply the proceeds of the sale for the satisfaction of the loan obligation. While
there is no single test to determine whether the deed of absolute sale on its face is really a simple loan
accommodation secured by a mortgage, Art. 1602 of the Civil Code, however, enumerates several instances
when a contract is presumed to be an equitable mortgage. xHeirs of Dela Rosa v. Batongbacal, 731 SCRA
263 (2014).172
a. Badges of Equitable Mortgage under Art. 1602173 A sale a retro actually intended to secure the
payment of an obligation is presumed an equitable mortgage. xRomulo v. Layug, Jr., 501 SCRA262
(2006);174 such presumption of equitable mortgage applies also to a contract purporting to be an absolute
sale. xTuazon v. CA, 341 SCRA 707 (2000).175
The presence of only one Art. 1602 circumstance is sufficient for a contract of sale a retro to be
presumed an equitable mortgage. xHilado v. Medalla 377 SCRA 257 (2002).176
When doubt exists as to the true nature of the transaction purporting to be a sale, courts must construe
it as an equitable mortgage, as the latter involves a lesser transmission of rights and interest over the
property. Solitarios v. Jaque, 740 SCRA 226 (2014).
The presumption in Art. 1602 jibes with the rule that the law favors the least transmission of property
rights. xEnriquez, Sr. v. Heirs of Spouses Baldonado, 498 SCRA 365 (2006); but it is not conclusive, for it
may be rebutted by competent and satisfactory proof to the contrary. xSantiago v. Dizon, 543 SCRA 402
(2008).
Dio v. Jardines, 481 SCRA 226 (2006); Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).
167
Heirs of Jose Reyes, Jr. v. Reyes, 626 SCRA 758 (2010).
168
Lao v. CA, 275 SCRA 237 (1997).
169
Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); Alvaro v. Ternida, 479 SCRA 288 (2006); Cirelos v. Hernandez, 490
SCRA 624 (2006); Lumayag v. Heirs of Jacinto Nemeo, 526 SCRA 51 (2007); Olivares v. Sarmiento, 554 SCRA 384 (2008); Tio v. Abayata, 556 SCRA 175
(2008); Deheza-Inamarga v. Alano, 574 SCRA 651 (2008); Rockville Excel Intl Exim Corp. v. Culla, 602 SCRA 124 (2009); Kings Properties Corp. v. Galido,
606 SCRA 137 (2009); Muoz, Jr. v. Ramirez, 629 SCRA 38 (2010); Martires v. Chua, 694 SCRA 38 (2013); Heirs of Soliva v. Soliva, 757 SCRA 26 (2015).
170
Padilla v. Linsangan, 19 Phil. 65 (1911); Aquino v. Deala, 63 Phil. 582 (1936); Ramos v. CA 180 SCRA 635 (1989).
171
Austria v. Gonzales, Jr., 420 SCRA 414 (2004); Raymundo v. Bandong, 526 SCRA 514 (2007).
172
Matanguihan v. CA, 275 SCRA 380 (1997); Martinez v. CA, 358 SCRA 38 (2001); Hilado v. Heirs of Rafael Medlla, 37 SCRA 257 (2002); Ceballos v.
Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); San Pedro v. Lee, 430 SCRA 338 (2005); Go v. Bacaron, 472 SCRA 229 (2005), citing
VILLANUEVA, CESAR L. PHILIPPINE LAW ON SALES, (1998 ed.), p. 271; Romulo v. Layug, Jr., 501 SCRA262 (2006); Roberts v. Papio, 515 SCRA 346 (2007);
Raymundo v. Bandong, 526 SCRA 514 (2007); Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008); Muoz, Jr. V. Ramirez, 629 SCRA 38 (2010); Heirs
of Soliva v. Soliva, 757 SCRA 26 (2015).
173
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Balatero v. IAC, 154 SCRA 530 (1987); Mariano v. CA, 220 SCRA 716 (1993); Lobres v. CA, 351 SCRA
716 (2001).
174
Ayson, Jr. V. Paragas, 557 SCRA 50 (2008); Bautista v. Unangst, 557 SCRA 256 (2008).
175
Zamora v.CA, 260 SCRA 10 (1996).
176
Claravall v. CA, 190 SCRA 439, 448 (1990); Uy v. CA, 230 SCRA 664 (1994); Lobres v. CA, 351 SCRA 716 (2001); Alvaro v. Ternida, 479 SCRA 288
(2006); Dio v. Jardines, 481 SCRA 226 (2006); Raymundo v. Bandong, 526 SCRA 514 (2007); Aleligay v. Laserna, 537 SCRA 699 (2007); Dorado Vda. De
Delfin v. Dellota, 542 SCRA 397 (2008); Bautista v. Unangst, 557 SCRA 256 (2008); Rockville Excell International Exim Corp. V. Culla, 602 SCRA 124 (2009);
Heirs of Jose Reyes, Jr. v. Reyes, 626 SCRA 758 (2010); Heirs of Soliva v. Soliva, 757 SCRA 26 (2015).
42
 A contract purporting to be an absolute sale is presumed to be an equitable mortgage: (a) when the
price of the sale is unusually inadequate; 177 (b) when the vendor remains in possession as lessee or
otherwise;178 (c) when after the expiration of the right of repurchase, it is extended by the buyer. xHilado v.
Heirs of Rafael Medalla, 37 SCRA 257 (2002);179 (d) when the purported seller continues to collect rentals
from the lessees of the property sold. Ramos v. Dizon, 498 SCRA 17 (2006); (e) when the purported seller
was in desperate financial situation when he executed the purported sale. xBautista v. Unangst, 557 SCRA
256 (2008); or under threat of being sued criminally. xAyson, Jr. V. Paragas, 557 SCRA 50 (2008).
Payment of real estate taxes is a usual burden attached to ownership, and when such payment is
coupled with continuous possession of the property, it constitutes evidence of great weight that a person
under whose name the realty taxes were declared has a valid and right claim over the land. xGo v.
Bacaron, 472 SCRA 229 (2005).180
The fact that the price in a pacto de retro sale is not the true value of the property does not justify the
conclusion that the contract is one of equitable mortgage; in fact a pacto de retro sale, the practice is to fix
a relatively reduced price to afford the seller a retro every facility to redeem the property. xIgnacio v. CA,
246 SCRA 242 (1995).181
To presume a contract is an equitable mortgaged based on gross inadequacy of price, it must be
clearly shown from the evidence presented that the consideration was in fact grossly inadequate at the
time the sale was executed. Mere inadequacy of price is not sufficient to create the presumption.
xOlivares v. Sarmiento, 554 SCRA 384 (2008).182
Inadequacy of purchase price is considered so far short of the real value of the property as to startle a
correct mind. xSantiago v. Dizon, 543 SCRA 402 (2008); or that the mind revolts at it as such that a
reasonable man would neither directly or indirectly be likely to consent to it. xVda de Alvarez v. Court of
Appeals, 231 SCRA 309 (1994); it must be grossly inadequate or shocking to the conscience. xTio v.
Abayata, 556 SCRA 175 (2008).
Although under the agreement the seller shall remain in possession of the property for only one year,
such stipulation does not detract from the fact that possession of the property, an indicium of ownership,
was retained by the alleged vendor to qualify the arrangement as an equitable mortgage, especially when
it was shown that the vendor retained part of the purchase price. xLegaspi v. Ong, 459 SCRA 122
(2005).183
Mere tolerated possession is not enough to prove that the transaction was an equitable mortgage.
xRedondo v. Jimenez, 536 SCRA 639 (2007).184
Mere allegations without proof to support inadequacy of price, or when continued possession by seller
is supported by a valid arrangement consistent with the sale, would not support the allegation of equitable
mortgage. xCirelos v. Hernandez, 490 SCRA 624 (2006).185
Under Art. 1602, delay in transferring title is not one of the instances enumerated by lawinstances in
which an equitable mortgage can be presumed. Nor does the fact that the original transaction on the land
was to support a loan, which when it was not paid on due date was negotiated into a sale, without
evidence that the subsequent deed of sale does not express the true intentions of the parties, give rise to
a presumption of equitable mortgage. xCeballos v. Intestate Estate of the Late Emigdio Mercado, 430
SCRA 323 (2004).
Where the ownership of the land is supposedly transferred to the buyer who provides for the funds to
redeem the property from the bank but nonetheless allows the seller to later on buy back the properties, is
in the nature of an equitable mortgage governed by Articles 1602 and 1604 of the Civil Code. xBacungan
v. Court of Appeals, 574 SCRA 642 (2008).
An equitable mortgage is a voidable contract. It may be annulled within four (4) years from the time the
cause of action accrues. Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).

b. Remedies Allowed in an Equitable Mortgage Situation (Arts. 1454, 1602, 1605) In the case of an
equitable mortgage, although Art. 1605 which allows for the remedy of reformation, nothing therein
precludes an aggrieved party from pursuing other remedies to effectively protect his interest and recover
his property, such as an action for declaration of nullity of the deed of sale and specific performance.
xTolentino v. CA, 386 SCRA 36 (2002).
In equitable mortgage, consolidation of ownership in the mortgagee in equity upon failure of the
mortgagor in equity to pay the obligation, would amount to a pactum commissorium. The only proper
remedy is to cause the foreclosure of the mortgage in equity. xBriones-Vasquez v. CA, 450 SCRA 644
(2005); or to determine if the principal obligation secured by the equitable mortgage has been paid or
settled. xBanga v. Bello, 471 SCRA 653 (2005).
177
Romulo v. Layug, Jr., 501 SCRA262 (2006).
178
Romulo v. Layug, Jr., 501 SCRA262 (2006); Ayson, Jr. V. Paragas, 557 SCRA 50 (2008); Bautista v. Unangst, 557 SCRA 256 (2008); Rockville Excell
International Exim Corp. v. Culla, 602 SCRA 124 (2009).
179
Cruz v. CA, 412 SCRA 614 (2003).
180
Lumayag v. Heirs of Jacinto Nemeo, 526 SCRA 51 (2007).
181
De Ocampo v. Lim, 38 Phil. 579 (1918); Feliciano v. Limjuco, 41 Phil.147 (1920); Belonio v. Movella, 105 Phil. 756 (1959).
182
Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
183
Oronce v. CA, 298 SCRA 133 (1998).
184
Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
185
Austria v. Gonzales, Jr., 420 SCRA 414 (2004).
43
 c. Pactum Commissorium (Art. 2088) A stipulation which is a pactum commisorium enables the
mortgagee to acquire ownership of the mortgaged properties without need of any foreclosure proceedings
it is a nullity being contrary to the provisions of Art. 2088 of the Civil Code, xLumayag v. Heirs of Jacinto
Nemeo, 526 SCRA 315 (2007); 186 and has been repeatedly declared as contrary to morals and public
policy, xSolitarios v. Jaque, 740 SCRA 226 (2014).
In a pactum commissorium there should bee: (1) a property mortgaged by way of security for the
payment of the principal obligation, and (2) a stipulation for automatic appropriation by the creditor of the
thing mortgaged in case of non-payment of the principal obligation within the stipulated period. That the
questioned contracts were freely and voluntarily executed by petitioners and respondent is of no moment,
pactum commissorium being void for being prohibited by law. xOng v. Roban Lending Corp., 557 SCRA
516 (2008).187
It does not apply when the security for a debt is also money in the form of time deposit. xConsing v.
Court of Appeals, 177 SCRA 14 (1989).
Provision in MOA/Dacion en Pago with a Right to Repurchase that if borrower fails to comply with the
new terms of restructuring the loan, the agreement shall automatically operate as a dacion en pago
without need of executing any new document does not constitute pactum commissorium. Solid Homes
v. Court of Appeals, 275 SCRA 267 (1997).
BUT SEE: Stipulation in promissory note that upon failure of makers to pay interests, owner-ship of
property would automatically be transferred to payee, and the covering deed of sale would be registered,
is in substance a pactum commissorium in violation of Art. 2088, and the resultant sale is void and the
registration and obtaining of new title in the name of the buyer would have be declared void also. A.
Francisco Realty v. CA, 298 SCRA 349 (1998).188
Stipulation in the Contract of Guaranty for the prompt assignment and conveyance to [Home Guaranty
Corp.] of all the corresponding properties in the Asset Pool that are held as security in favor of the
guarantor, and dispensing with the need of conducting foreclosure proceedings, judicial or otherwise,
cover a pactum commissorium situation. Thus, whatever conveyance was made by Planters Development
Bank to Home Guaranty Corp. in view of this illicit stipulation is ineffectual; it did not vest ownership in
Home Guaranty Corp. All that this transfer engendered is a constructive trust in which the properties
comprising the Asset Pool are held in trust by Home Guaranty Corp., as trustee, for the trustor, La Savoie
Home Guaranty Corp. v. La Savoie Dev. Corp., 748 SCRA 312 (2015).

d. Final Chance to Redeem in Mistaken Equitable Mortgage (Art. 1606): 30-day period under Art. 1606
does not apply if courts find the sale to be absolute. xPangilinan v. Ramos, 181 SCRA 359 (1990).189
Sellers in a sale judicially declared as pacto de retro may not exercise right to repurchase within 30-day
period under Art. 1606, although they have taken the position that the same was an equitable mortgage, if
it is shown that there was no honest belief thereof since none of the circumstances under Art. 1602 were
shown to exist. If they truly believed the sale to be an equitable mortgage, as a sign of good faith, they
should have consigned with the amount representing their alleged loan, on or before the expiration of the
right to repurchase. Abilla v. Gobonseng, 374 SCRA 51 (2002).190

C. LEGAL REDEMPTION

1. Definition (Art. 1619) Legal redemption is in the nature of a privilege created by law partly for reasons of
public policy and partly for the benefit and convenience of the redemptioner, to afford him a way out of what
might be a disagreeable or an inconvenient association into which he has been thrust. It is intended to minimize
co-ownership. xFernandez v. Tarun, 391 SCRA 653 (2002).191

2. Legal Redemption Rights under the Civil Code

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

186
Guerrero v. Yigo, 96 Phil. 37 (1954); Montevirgin v. CA, 112 SCRA 641 (1982); Vda. de Zulueta v. Octaviano, 121 SCRA 314 (1983); Ong v. Roban
Lending Corp., 557 SCRA 516 (2008); Heirs of Jose Reyes, Jr. V. Reyes, 626 SCRA 758 (2010); Martires v. Chua, 694 SCRA 38 (2013).
187
Philnico Industrial Corp. v. PMO, 733 SCRA 703 (2014).
188
Legaspi v. Ong, 459 SCRA 122 (2005); Home Guaranty Corp. v. La Savoie Dev. Corp., 748 SCRA 312 (2015).
189
Tapas v. CA, 69 SCRA 393 (1976).
190
Vda. de Macoy v. CA, 206 SCRA 244 (1992).
191
Basa v. Aguilar, 117 SCRA 128 (1982).
44
 b. Among Co-Owners (Art. 1620)
When seller a retro dies, right to redeem cannot be exercised by a co-heir alone, since the right
belonged in common to all the heirs. xDe Guzman v. CA, 148 SCRA 75 (1987).
The right of redemption may be exercised by a co-owner only when part of the community property is
sold to a stranger, now when sold to another co-owner because a new participant is not added to the co-
ownership. xFernandez v. Tarun, 391 SCRA 653 (2002).
For the right of redemption to be exercised, co-ownership must exist at the time of the conveyance is
made by a co-owner and the redemption is demanded by the other co-owner or co-owners. xAvila v.
Barabat, 485 SCRA 8 (2006).
Redemption by co-owner redounds to the benefit of all co-owners, xMariano v. CA, 222 SCRA 736
(1993); and 30-day redemption period, even when such right has been recognized to exist in a final and
executory court decision, does not begin from the entry of judgment, but from written notice served by
seller to the party entitled to exercise such redemption right, xGuillen v. Court of Appeals, 589 SCRA 399
(2009).
The requisites for the exercise of legal redemption are as follows: (1) there must be co-ownership; (2)
one of the co-owners sold his right to a stranger; (3) the sale was made before the partition of the co-
owned property; (4) the right of redemption must be exercised by one or more co-owners within a period of
thirty days to be counted from the time he or they were notified in writing by the co-owner vendor; and (5)
the vendee must be reimbursed the price of the sale. xCalma v. Santos, 590 SCRA 359 (2009).

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

Art. 1620 includes the doctrine that redemption by a co-owner of the property owned in common, even
when he uses his own fund, within the period prescribed by law inures to the benefit of all the other co-
owners. xAnnie Tan v. CA, 172 SCRA 660 (1989).192

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

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

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

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

Both the letter and the spirit of the law argue against any attempt to widen the scope of the notice
specified in the Civil Code to include any other kind of notice, such as verbal or by registration. xMarinao v.
Court of Appeals, 222 SCRA 736 (1993).193
The 30-day period for the commencement of the right to exercise the legal redemption right, even when
such right has been recognized to exist in a final and executory court decision, does not begin from the entry
of judgment, but from the written notice served by the seller to the party entitled to exercise such redemption
right. xGuillen v. CA, 589 SCRA 399 (2009).
Interpretation of Art. 1623 where there is a need for notice in writing, should always tilt in favor of
redemptioner and against buyer, since the purpose is to reduce the number of participants until the
community is terminated, being a hindrance to the development and better administration of the property. It
is a one-way street, in favor of redemptioner who can compel buyer to sell to him but he cannot be
compelled to buy. xHermoso v. Court of Appeals, 300 SCRA 516 (1998).
The 30-day period does not begin to run in the absence of written notification coming from the seller. xCua
v. Vargas, 506 SCRA 374 (2006);194 and it must be a written notice of a perfected sale. xSpouses Doromal v.
Court of Appeals, 66 SCRA 575 (1975).
Written notice of sale is mandatory, notwithstanding actual knowledge of a co-owner, in order to remove all
uncertainties about the sale, its terms and conditions, as well as its efficacy and status. xVerdad v. Court of
Appeals, 256 SCRA 593 (1996).

192
De Guzman v. CA, 148 SCRA 75 (1987); Adille v. CA, 157 SCRA 455 (1988).
193
Hernaez v. Hernaez, 32 Phil. 214 (1915); Castillo v. Samonte, 106 Phil. 1024 (1960).
194
Garcia v. Calaliman, 17 SCRA 201 (1989); Mariano v. CA, 222 SCRA 736 (1993).
45
 Notice may validly be served upon parents even when they have not been judicially appointed as
guardians since same is beneficial to the children. xBadillo v. Ferrer, 152 SCRA 407 (1987).
Neither the registration of the sale, xCabrera v. Villanueva, 160 SCRA 627 (1988); nor the annotation of an
adverse claim, xVda. De Ape v. CA, 456 SCRA 193 (2005); nor notice being given by the city treasurer,
xVerdad v. CA, 256 SCRA 593 (1996); comply with the written notice required under Art. 1623 to begin the
tolling of the 30-day period of redemption.
Notice required under Art. 1623 is deemed to have been complied with when other co-owner has signed
Deed of Extrajudicial Partition which embodies the disposition of part of the property owned in common.
xFernandez v. Tarun, 391 SCRA 653 (2002).
The clause in the deed of sale that seller has complied with the provisions of Art. 1623, cannot be taken to
being the written affirmation under oath, as well as the evidence, that the required written notice to petitioner
under Art. 1623 has been meet, for the person entitled to the right is not a party to the deed of sale. xPrimary
Structures Corp. v. Valencia, 409 SCRA 371 (2003).
Francisco v. Boiser, 332 SCRA 305 (2000), summarized the case-law on Art. 1623, and with
definitiveness declared:
For 30-day redemption period to begin to run, notice must be given by seller; notice given by the buyer or
even by the Register of Deeds is not sufficient. This expressly affirms the original rulings in xButte v. Manuel
Uy and Sons, 4 SCRA 526 (1962), and xSalatandol v. Retes, 162 SCRA 568 (1988); and expressly overruled
the ruling in xEtcuban v. CA, 148 SCRA 507 (1987), which allowed the giving of notice by the buyer to be
effective under Art. 1623.
When notice is given by the proper party (seller), no particular form of written notice is prescribed under Art.
1623, so that the furnishing of the copies of the deeds of sale to the co-owner would be sufficient, as held
previously in xDistrito v. CA, 197 SCRA 606 (1991); xConejero v. CA, 16 SCRA 775 (1966); xBadillo v. Ferrer,
152 SCRA 407 (1987.
Affirmed ruling in xAlonzo v. IAC, 150 SCRA 259 (1987), that filing of suit for ejectment or collection of rentals
against a co-owner actually dispenses with the written notice, and commences running of period to exercise
the right of redemption, since filing of the suit amounted to actual knowledge of the sale.
a. Rare Exceptions When sale to the buyer was effected through the co-owner acting as broker, and never
indicated that he would exercise his right to redeem. xDistrito v. CA, 197 SCRA 606 (1991).
When buyers took possession of the property immediately after the execution of the deed of sale in
their favor and lived in the midst of the other co-owners who never questioned the same. xPilapil v. CA,
250 SCRA 560 (1995).

4. OTHER LEGAL REDEMPTION RIGHTS

a. Redemption in Patents (Sec. 119, C.A. 141)
Right to repurchase is granted by law and need not be provided for in the deed of sale. xBerin v. Court
of Appeals, 194 SCRA 508 (1991).
Under free/homestead patent provisions of the Public Land Act a period of 5 years from the date of
conveyance is provided, to be reckoned from the date of the sale and not from the date of registration in
the Register of Deeds. xLee Chuy Realty v. CA, 250 SCRA 596 (1995).195

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

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

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

Redemption of extra-judicially foreclosed properties is exercised within 1-year from date of auction sale
as provided r in Act 3135. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995).
Execution of a dacion en pago by sellers effectively waives the redemption period normally given a
mortgagor. xFirst Global Realty and Dev. Corp. v. San Agustin, 377 SCRA 341 (2002).

e. Redemption in Judicial Foreclosure of Mortgage (Sec. 47, R.A. 8791)

195
Mata v. CA, 318 SCRA 416 (1999).
46
 A stipulation to render the right to redeem defeasible by an option to buy on the part of the creditor.
Soriano v. Bautista, 6 SCRA 946 (1962).
No right to redeem from a judicial foreclosure sale, except those granted by banks or banking
institutions. xGSIS v. CFI, 175 SCRA 19 (1989).
One-year redemption period in foreclosure is not interrupted by filing an action assailing the validity of
the mortgage, so that at the expiration thereof, the mortgagee who acquires the property at the foreclosure
sale can proceed to have title consolidated in his name and a writ of possession issued in his favor.
xUnion Bank v. CA, 359 SCRA 480 (2001).196
After bank has foreclosed the property as highest bidder in the auction sale, the accepted offer of
spouses-borrowers to repurchase the property was actually a new option contract, and the condition that
the spouses-borrowers will pay monthly interest during the one-year option period is considered to be the
separate consideration to hold the option contract valid. xDijamco v. Court of Appeals, 440 SCRA 190
(2004).

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

If the land is mortgaged to a rural bank, mortgagor may redeem within two (2) years from the date of
foreclosure or from the registration of the sheriff's certificate of sale at such foreclosure if the property is
not covered or is covered, respectively, by Torrens title. If the mortgagor fails to exercise such right, he or
his heirs may still repurchase within five (5) years from expiration of the two (2) year redemption period
pursuant to Sec. 119 of the Public Land Act (C.A. 141). xRural Bank of Davao City v. Court of Appeals, 217
SCRA 554 (1993).197

g. Legal Right to Redeem under Agrarian Reform Code

Under Section 12 of R.A. 3844, as amended, in the event that the landholding is sold to a third person
without the knowledge of the agricultural lessee, the latter is granted by law the right to redeem it within
180 days from notice in writing and at a reasonable price and consideration. xQuio v. Court of Appeals,
291 SCRA 249 (1998).198

XIV. ASSIGNMENT (Arts. 1624-1635)

Assignment is the process of transferring the right of assignor to assignee who would then have the right to
proceed against the debtor. Assignment may be done gratuitously or onerously, in latter case, assignment has
effect similar to that of a sale. xLicaros v. Gatmaitan, 362 SCRA 548 (2001).199
In its most general and comprehensive sense, an assignment is a transfer or making over to another of the
whole of any property, real or personal, in possession or in action, or of any estate or right therein. It includes
transfers of all kinds of property, and is peculiarly applicable to intangible personal property and, accordingly, it is
ordinarily employed to describe the transfer of non-negotiable choses in action and of rights in or connected with
property as distinguished from the particular item or property. xPNB v. Court of Appeals, 272 SCRA 291 (1997).

1. Perfection by Mere Consent (Art. 1624)

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

3. Effects of Assignment
a. Assignment of Credit
An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor,
by a legal cause, such as sale, dacion en pago, exchange or donation, and without the consent of the debtor,
transfers his credit and accessory rights to another, known as the assignee, who acquires the power to
enforce it to the same extent as the assignor could enforce it against the debtor. xAquintey v. Tibong, 511
SCRA 414 (2006).200
As a consequence, the third party steps into the shoes of the original creditor as subrogee of the latter.
Although constituting a novation, such assignment does not extinguish the obligation under the credit
assigned, even when the assignment is effected without his consent. xSouth City Homes V. BA Finance
Corp., 371 SCRA 603 (2001).
By virtue of the Deed of Assignment, assignee is deemed subrogated to the rights and obligations of
assignor and is bound by exactly the same conditions as those which bound the assignor. Accordingly,
assignee of a nonnegotiable chose in action acquires no greater right than what was possessed by his
assignor and simply stands into the shoes of the latter. xFort Bonifacio Dev. Corp. v. Fong, 754 SCRA 544
(2015).
b. Issues Relating to Debtor (Art. 1626)

196
Vaca v. CA, 234 SCRA 146 (1994).
197
Heirs of Felicidad Canque v. CA, 275 SCRA 741 (1997).
198
Springsun Management Systems Corp. v. Camerino, 449 SCRA 65 (2005).
199
Nyco Sales Corp. v. BA Finance Corp., 200 SCRA 637 (1991); Rodriguez v. CA, 207 SCRA 553 (1992); Project Builders v. CA, 358 SCRA 626 (2001).
200
Lo v. KJS Eco-Formwork System Phil., 413 SCRA 182 (2003); Spouses Chin Kong Wong Choi v. UCPB, 753 SCRA 153 (2015).
47
 In an assignment of credit, the debtors consent is not essential for its perfection, his knowledge thereof or
lack of it affecting only the efficaciousness or inefficaciousness of any payment he might make. xProject
Builders v. Court of Appeals, 358 SCRA 626 (2001).
Consent of debtor is not necessary in order that assignment may fully produce legal effects, and the duty
to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented from
assigning their credits because of the possibility of the debtors refusal to given consent. What the law
requires in an assignment of credit is mere notice to debtor, the purpose of which is only to inform the debtor
that from the date of the assignment, payment should be made to the assignee and not to the original
creditor. xNIDC v. Delos Angeles, 40 SCRA 489 (1971).201
c. Accessories and Accessions (Art. 1627)
Assignment of a credit includes all the accessory rights, such as guaranty, mortgage, pledge or
preference. xUnited Planters Sugar Milling Co. (UPSUMCO) v. CA, 527 SCRA 336 (2007).
d. Tradition in Assignment - Notarization converts a private document Assignment of Credit into a public
document, thus complying with the mandate of Art. 1625 and making it enforceable even as against third
persons. xLedonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
4. Warranties of Assignor (Art. 1628)
Assignor warrants only the existence or legality of the credit but not the solvency of the debtor. Nyco Sales
Corp. v. BA Finance, 200 SCRA 637 (1991).
EXCEPTIONS: (a) If this is expressly warranted;
(b) If insolvency is known by the assignor prior to assignment;
(c) If insolvency is prior to assignment is common knowledge.
When dacion en pago takes the form of an assignment of credit, it may extinguishe the obligation; however,
by virtue of the warranty in Art. 1628, which makes the vendor liable for the existence and legality of the credit at
the time of sale, when it is shown that the assigned credit no longer existed at the time of dation, then it
behooves the assignor to make good its warranty and pay the obligation. xLo v. KJS Eco-Formwork System
Phil., 413 SCRA 182 (2003).

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

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

Subrogation extinguishes the obligation and gives rise to a new one; assignment refers to the same right
which passes from one person to another. Nullity of an old obligation may be cured by subrogation, such that a
new obligation will be perfectly valid; but such nullity is not remedied by the assignment of the creditors right to
another. In an assignment of credit, the consent of the debtor is not necessary in order that the assignment may
fully produce legal effects; whereas, conventional subrogation requires an agreement among the three parties
concerned original creditor, debtor, and new creditor. It is a new contractual relation based on the mutual
agreement among all the necessary parties. Licaros v. Gatmaitan, 362 SCRA 548 (2001).202

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

8. Assignment as an Equitable Mortgage

When assignor executes a Deed of Assignment covering her leasehold rights in order to secure payment of
promissory notes covering the loan she obtained from the bank, such assignment is equivalent to an equitable
mortgage, and non-payment of the loan cannot authorize bank to register the leasehold rights in its name as it
would be a violation of Art. 2088 against pactum commissorium. The proper remedy of the assignee is to
proceed to foreclose on the leasehold right assigned as security for the loan. xDBP v. Court of Appeals, 284
SCRA 14 (1998).

XV. BULK SALES LAW (ACT NO. 3952)

1. Scope. Chin v. Uy, 40 O.G. 4 Supp. 52
2. Coverage of Bulk Sale Sale, transfer, mortgage or assignment of:
a. Goods, wares, merchandise, provisions or material other than in the ordinary course of business;
b. All, or substantially all of all or substantially all of the fixtures and equipment used in and about the
business;
c. All, or substantially all of the business or trade theretofore conducted by the vendor, mortgagor,
transferor, or assignor.
The Bulk Sales Law (BSL) must be construed strictly. The disposal by the owner of a foundry shop of all
his iron bars and others does not fall under the law, because the contents of a foundry shop are not wares

201
Sison & Sison v. Yap Tico, 37 Phil. 587 (1918); C&C Commercial Corp. v. PNB, 175 SCRA 1 (1989); Project Builders v. CA, 358 SCRA 626 (2001);
Aquintey v. Tibong, 511 SCRA 414 (2006); Ledonio v. Capitol Devt Corp., 526 SCRA 379 (2007).
202
Ledonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
48
 and merchandise. BSL only covers sales in bulk of fixtures and equipment used in the mercantile business,
which involves the buying and selling of merchandise. xPeople v. Wong, [CA] 50 O.G. 4867 (1954).
BSL applies to merchants who are in the business of selling goods, wares and similar merchandise, and
cannot cover the sale of assets by a manufacturer since the nature of his business does not partake of
merchandise. DBP v. Judge of the RTC of Manila, 86 O.G. No. 6 1137 (05 Feb. 1990).

3. Compliance Requirements Under the Law

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

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

XVI. RETAIL TRADE LIBERALIZATION ACT (RTLA)

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

2. Scope and Definition of Retail Trade

a. Elements: (1) Seller engaged in habitual selling;
(2) Selling direct to the general public; and
(3) Object of the sale is limited to merchandise, commodities or
goods for consumption.
b. Meaning of Habitual Selling
Engaging in sale of merchandise as an incident to the primary purpose of a corporation [e.g., operation
of a pharmacy by a hospital; sale of cellphones by a telecommunication company] does not constitute
retail trade within the purview of RTNL, as this is taken from the provision thereof excluding form the term
retail business the operation of a restaurant by a hotel-owner or -keeper since the same does not
constitute the act of habitually selling direct to the general public merchandise, commodities or goods for
consumption. SEC Opinion No. 11, series of 2002, 13 Nov. 2002.
c. Meaning of For Consumption (DOJ Opinion No. 325, series of 1945; IRR of Law).
The Law limits its application to the sale of items sold for domestic or household, or properly called
consumer goods; whereas, when the same items are sold to commercial users, they would constitute non-
consumer goods and not covered by the Law. Balmaceda v. Union Carbide Philippines, 124 SCRA
893 (1983).203
d. Meaning of General Public (DOJ Opinion No. 253, series of 1954).
Even when consumer goods is limited only to the company officers, same would still be retail trade
covered by the Law. Goodyear Tire v. Reyes, Sr., 123 SCRA 273 (1983).

203
Marsman & Co. v. First Coconut Central Co., 162 SCRA 206 (1988); B.F. Goodrich Phil. v. Reyes, Sr., 121 SCRA 363 (1983).
49
 Where company manufactures glass products only on specific orders, it does not sell directly to
consumers but manufacturers, it cannot be said that it is a merchandiser. DBP v. Judge of RTC of
Manila, 86 O.G. No. 6 1137, 05 Feb. 1990.

3. Categories of Retail Trade Enterprises

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

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

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

5. Foreign Retailers in the Philippines

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

6. Penalty Provision

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

oOo

50