LAW ON SALES A.4.8.

Sale is a form of “title” and Not a “Mode” – sale by itself

does not transfer or affect ownership; rather it creates the
NATURE OF SALE obligation to transfer ownership; it is tradition or delivery, as
a consequence of sale, that actually transfer ownership
A. Sale –a contract whereby one of the contracting parties obligates himself A.4.8.1. mode – the legal means or process by which
to transfer the ownership and to deliver a determinate thing, and the other dominion or ownership is created, transferred or
to pay therefor a price certain in money or its equivalent (Art. 1458) destroyed
A.1. Nature of Obligations created in a sale – perfection of contract A.4.8.2. title – constitutes the legal basis by which to affect
of sale give rise to REAL obligations: dominion or ownership
A.1.1. seller: B. Sale Distinguished from other similar contracts
A.1.1.1. Transfer the Ownership B.1. Sale v. Donation
A.1.1.2. Deliver the Possession, of the Subject matter Sale Donation – An act of liberality
A.1.2. buyer: whereby a person disposes
A.1.2.1. Pay the price gratuitously of a thing or right in
A.2. Elements of the Contract of Sale favor of another person, who
A.2.1. Consent, meeting of minds to transfer ownership in accepts it
exchange for the price Essentially an onerous contract Gratuitous contract
A.2.2. Subject matter
Perfected by mere consent Being a solemn contract, although
A.2.2.1. Law on Sales has expanded the coverage from
consent is also required, must
“determinate” to “determinable”
comply with the formalities
A.2.3. Price, certain in money or its equivalent
mandated by law for its validity
A.3. Stages in the Life of Sale
A.3.1. Policitation, negotiation, or preparation stage – covers the Governed by Law on Sales Governed by Law on Donations
period from the time the prospective contracting parties B.1.1. If the price is simulated, the sale is void, but the act may be
indicate their interest in the contract to the time the contract shown to have been in reality a donation, or some other act
is perfected or contract. (Art. 1471)
A.3.2. Perfection, conception or birth – takes place upon the B.2. Sale v. Barter
concurrence of the essential elements of the sale which are Sale Contract of barter or exchange
the meeting of the minds of the parties as to the object of One of the parties binds himself to One of the parties binds himself to
the contract and upon the price deliver a thing in consideration of give one thing in consideration of
A.3.3. Consummation or death – begins when the parties the other’s undertaking to pay the the other’s promise to give another
perform their respective undertaking under the contract of price in money or its equivalent thing
sale, culminating in the extinguishment thereof The rules on the Statute of Frauds, which apply to the sale of real
A.4. Characteristics of Sale property and personal property bought at P500 or more do not apply to
A.4.1. Nominate – it is given a special name or designation in the barter
Civil Code, namely “sale” Right of legal redemption granted by law to an adjoining owner of an
A.4.2. Principal – it can stand on its own; it does not depend for urban land covers only “resale” and does not cover exchanges of
its existence and validity upon another contract properties
A.4.3. Consensual – it is perfected by mere consent, at the B.2.1. Rules to determine whether the contract is a sale or a
moment there is a meeting of minds upon the thing which barter:
is the object of the contract and upon the price B.2.1.1. Manifest Intention of the Parties – even if the
A.4.3.1. The contract of sale is perfected at the moment acquisition of a thing is paid for by another object
there is a meeting of minds upon the thing which is of greater value than the money component, it
the object of the contract and upon the price. may still be a sale and not a barter, when such
From that moment, the parties may reciprocally was the intention of the parties
demand performance, subject to the provisions of B.2.1.2. When Intention Does Not Appear and
the law governing the form of contracts (Art. 1475) Consideration Consists Partly in money and
A.4.3.2. Modalities affecting “Consensuality of Sale Partly in another thing:
A.4.3.2.1. suspensive term or condition B.2.1.2.1. Barter – where the value of the thing
A.4.4. Bilateral – obligations arising are imposed on both parties given as part of the consideration
A.4.4.1. legal effects and consequences of sale being exceeds the amount of money given or its
bilateral equivalent
A.4.4.1.1. the power to rescind is implied, and such B.2.1.2.2. Sale – where the value of the thing given
power need not be stipulated in the as part of the consideration equals or is
contract in order for the innocent party to less than the amount of money given (Art.
invoke the remedy (Art. 1191) 1468)
A.4.4.1.2. Neither party incurs delay if the other B.2.2. As to all matters not specifically provided for in this Title,
party does not comply, or is not ready to barter shall be governed by the provisions of the preceding
comply in a proper manner, with what is Title relating to sales. (Art. 1641)
incumbent upon him B.3. Sale v. Dacion En Pago
A.4.4.1.3. From the moment one of the parties
Sale Dation in payment – one whereby
fulfills his obligation, the default by the
property is alienated to the creditor
other begins, without the need of prior
in full satisfaction of a debt in
demand
money
A.4.5. Reciprocal – both parties are mutually bound to each
other; such that the obligation of one is dependent upon There is no preexisting credit or The debtor has a debt to the
the obligation of the other debt creditor
A.4.6. Onerous – imposes burden; because the thing sold is Obligation are created Obligations are extinguished
conveyed in consideration of the price and vice versa The cause is the price paid , from The cause is extinguishment of the
A.4.7. Commutative – the thing sold is considered the equivalent the viewpoint of the seller, or the debt, from the viewpoint of the
of the price paid and vice versa thing sold, from the viewpoint of debtor, or the object acquired in
A.4.7.1. TEST IS SUBJECTIVE: there is no requirement the buyer lieu of the credit, from the
that the price be equal to the exact value of the viewpoint of the creditor
subject matter; all that is required is for the parties There is more freedom in fixing the
to believe honestly that they received good value price
for what they have given up in exchange The buyer has still to pay the price The payment is effectively received
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 by the debtor before the contract is
perfected
B.3.1. Dation in payment is governed by the Law on Sales (Art.
1245), since it is essentially involves the transfer of
ownership of a subject matter
B.4. Sale v. Contract for a Piece of work
Sale Contract for a piece of work –
the contractor binds himself to
execute a piece of work for the
employer, in consideration of a
certain price or compensation; the
contractor may either employ only
his labor or skill, or also furnish the
material
Constituted of real obligations and Main subject matter is the service
would be the proper subject for to be rendered, and would not be a
specific performance proper subject for specific
performance
Risk of loss is borne by the buyer Risk of loss before delivery is
borne by the worker or contractor,
not by the employer
Not within the Statute of Frauds
B.4.1. A contract for the delivery at a certain price of an article
which the vendor in the ordinary course of his business
manufactures or procures for the general market, whether
the same is on hand at the time or not, is a contract of
sale, but
if the goods are to be manufactured specially for the
customer and upon his special order, and not for the
general market, it is a contract for a piece of work. (Art.
1467)
B.5. Sale v. Agency to Sell or to Buy
Sale Agency to sell – a person binds
himself to render some service or
to do something in representation
or on behalf of another, with the
consent or authority of the latter
The buyer receives the goods as The agent receives the goods as
owner the goods of the principal who
retains his ownership over them
and has the right to fix the price
and the terms of the sale and
receive the proceeds less the
agent’s commission upon the sales
made
The buyer has to pay the price The agent has simply to account
for the proceeds of the sale he
may make on the principal’s behalf
The buyer, as a general rule, The agent can return the object in
cannot return the object sold case he is unable to sell the same
to a third person
The seller warrants the thing sold The agent make no warranty for
which he assumes personal liability
as long as he acts within his
authority and in the name of the
seller
The buyer can deal with the thing The agent must act and is bound
sold as he pleases being the according to the instructions of his
owner principal
B.5.1. In construing a contract containing provisions characteristic
of both the contract of sale and of the contract of agency to
sell, the essential clauses of the whole instrument shall be
considered. (Art. 1466)
B.6. Sale v. Lease
Sale Lease – one of the parties binds
himself to give to another the
enjoyment or use of a thing for a
price certain and for a period which
may be definite or indefinite
The seller transfer ownership of The landlord or lessor transfers
the thing sold merely the temporary possession
and enjoyment of the thing leased
B.6.1. A conditional sale may be made in the form of a “lease with
option to buy” as a device to circumvent the provisions of
the Recto Law governing the sale or personal property on
installments
PARTIES TO THE CONTRACT OF SALE
A. General Rule on Capacity of the Parties
A.1. All persons who are authorized in this Code to obligate
themselves, may enter into a contract of sale, saving the
modifications contained in the following articles.
xxx (Art. 1489)
A.1.1. Capacity to act – act that will produce some legal effect
A.2. Minors, Insane or Demented Persons, and Deaf-Mutes
A.2.1. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do
not know how to write. (Art. 1327)
A.2.1.1. Valid sale of contract
A.2.1.1.1. Minors
A.2.1.1.1.1. When minor misrepresents his
age (It must be an active not
merely constructive
representation)
A.2.1.1.1.2. Contracts involving the sale and
delivery of necessaries to minors
A.2.1.1.1.2.1. xxx Where necessaries
are those sold and
delivered to a minor or
other person without
capacity to act, he must
pay a reasonable price
therefor. Necessaries
are those referred to in
Article 290. (Art. 1489)
A.2.1.1.1.2.2. Necessaries –
everything
indispensable for
sustenance, dwelling,
clothing, medical
attendance, education
and transportation, in
keeping with the
financial capacity of the
family xxx(Art. 194 of
Family Code)
A.2.1.1.1.3. Contracts by guardians or legal
representatives.
A.2.1.2. Insane or Demented Persons - Unless the
contract was entered into during a lucid interval
(Art. 1328).
A.2.2. incapacitated person is not obliged to make restitution
except insofar as he has been benefited by the thing or
price received by him (Art. 1304)
A.2.3. contracts entered into by such legally incapacitated
persons are not void, but merely VOIDABLE, subject to
annulment or ratification.(Art. 1393)
A.2.4. The action for annulment cannot be instituted by the
person who is capacitated since he is disqualified from
alleging the incapacity of the person with whom he
contracts(Art. 1397)
A.2.5. Contract between 2 minors = unenforceable contract
A.3. Senility and Serious Illness
A.3.1. General rule is that a person is not incompetent to contract
merely because of advanced years or by reason of
physical infirmities. However, when such age or infirmities
have impaired the mental faculties so as to prevent the
person from properly, intelligently and firmly protecting her
property rights then she is undeniably incapacitated.
B. Sales by and between Spouses
B.1. Sales with Third Parties
B.1.1. a spouse may, without consent of the others spouse, enter
into sale transactions in the regular or normal pursuit of
their profession, vocation or trade
B.1.2. Either spouse may exercise any legitimate profession,
occupation, business or activity without the consent of the
other. The latter may object only on valid, serious, and
moral grounds.
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 In case of disagreement, the court shall decide whether or
not:
(1) The objection is proper; and
(2) Benefit has occurred to the family prior to the objection
or thereafter. If the benefit accrued prior to the objection,
the resulting obligation shall be enforced against the
separate property of the spouse who has not obtained
consent.
The foregoing provisions shall not prejudice the rights of
creditors who acted in good faith. (Art. 73 of the Family
Code)
B.1.3. The administration and enjoyment of the community
property shall belong to both spouses jointly. In case of
disagreement, the husband's decision shall prevail, subject
to recourse to the court by the wife for proper remedy,
which must be availed of within five years from the date of
the contract implementing such decision.
In the event that one spouse is incapacitated or otherwise
unable to participate in the administration of the common
properties, the other spouse may assume sole powers of
administration. These powers do not include disposition or
encumbrance without authority of the court or the written
consent of the other spouse. In the absence of such
authority or consent, the disposition or encumbrance shall
be void. However, the transaction shall be construed as a
continuing offer on the part of the consenting spouse and
the third person, and may be perfected as a binding
contract upon the acceptance by the other spouse or
authorization by the court before the offer is withdrawn by
either or both offerors. (Art. 96)
B.2. Sales Between Spouses
B.2.1. The husband and the wife cannot sell property to each
other, except:
(1) When a separation of property was agreed upon in the
marriage settlements; or
(2) When there has been a judicial separation of property
under Article 191. (Art. 1490)
B.2.1.1. prohibition is applied to common law relationships
B.2.1.2. Rationale for prohibition:
B.2.1.2.1. To prevent a spouse defrauding his
creditors by transferring his properties to
the other spouse
B.2.1.2.2. To avoid a situation where the dominant
spouse would unduly take advantage of
the weaker spouse, thereby effectively
defrauding the latter
B.2.1.2.3. To avoid an indirect violation of the
prohibition against donations between
spouses under Art. 133 of the Civil Code
B.2.1.3. Rationale for exceptions to prohibition under
Art. 1940
B.2.1.3.1. “psychology of the situation” – it would be
unlikely that spouse under a separation of
property regime, would allow the other
spouse to influence him or her; or would
allow his or her properties involved in a
suit covering the creditors of the other
spouse
B.2.2. The prohibitions in the two preceding articles are applicable
to sales in legal redemption, compromises and
renunciations. (Art. 1492)
B.2.3. Contracts entered into violation of Arts. 1490 and 1492 are
not merely voidable, but have been declared as being null
and VOID
B.2.4. Persons permitted to question the sale
B.2.4.1. the heirs of either of the spouses who have been
prejudiced
B.2.4.2. prior creditors
B.2.4.3. the State when it comes to the payment of the
proper taxes due on the transaction
B.2.5. Spouses themselves cannot avail of the illegality of sale on
the ground of pari delicto, and the courts will generally
leave them as they are
C. Specific Incapacity mandated by law
C.1. The following persons cannot acquire by purchase, even at a
public or judicial auction, either in person or through the mediation
of another:
C.1.1. The guardian, the property of the person or persons who
may be under his guardianship;
C.1.2. Agents, the property whose administration or sale may
have been entrusted to them, unless the consent of the
principal has been given;
C.1.2.1. When so authorized by the principal, the agent is
not disqualified from purchasing the property he
holds under a contract of agency to sell
C.1.2.2. can buy the property after the termination of the
agency
C.1.2.3. Brokers do not come within the coverage of the
prohibition as their authority consist merely in
looking for a buyer or a seller, and to bring the
former and the latter together to consummate the
transaction; therefore they are not prohibited to but
for themselves
C.1.3. Executors and administrators, the property of the estate
under administration;
C.1.4. Public officers and employees, the property of the State
or of any subdivision thereof, or of any government-owned
or controlled corporation, or institution, the administration of
which has been entrusted to them; this provision shall
apply to judges and government experts who, in any
manner whatsoever, take part in the sale;
C.1.5. Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of
justice, the property and rights in litigation or levied upon
an execution before the court within whose jurisdiction or
territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and
shall apply to lawyers, with respect to the property and
rights which may be the object of any litigation in which
they may take part by virtue of their profession.
C.1.5.1. not covered
C.1.5.1.1. sale of property of the client effected
before it became involved in the action;
C.1.5.1.2. assignment of the amount of a judgment
made by a person to his attorney in
payment of professional services in other
cases;
C.1.5.1.3. sale of a parcel of land, acquired by a
client to satisfy a judgment in his favor, to
his attorney as long as the property was
not the subject of the litigation;
C.1.5.1.4. charging of contingent fee based on a
certain percentage of the value of the
property
C.1.5.2. no need to alleged fraud
C.1.5.3. no prescription
C.1.6. Any others specially disqualified by law. (Art. 1491)
C.1.6.1. aliens who are disqualified to purchase private
agricultural lands
C.1.6.2. unpaid seller having a right of lien or having
stopped the goods in transit, who is prohibited
from buying the goods in the resale of the same at
a public or private sale which he may make
C.1.6.3. officer conducting the execution sale or his
deputies cannot become a purchaser, or be
interested directly or indirectly in any purchase at
an execution sale
C.2. Effect of sale: null and void – because public interest is involved
C.3. The prohibitions in the two preceding articles are applicable to
sales in legal redemption, compromises and renunciations. (Art.
1492)
SUBJECT MATTER
A. Subject Matter is the Nexus of Sale
Whether the contract of sale involves a present object or a future subject
to a suspensive condition, or a present object to a resolutory condition, the
subject matter must be existing or must come into existence to be
delivered to the buyer; otherwise, the contract of sale is void, or an
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 existing contract of sale is extinguished, with the obligation on the part of
the seller to return the price he has received thereby
B. Requisites of a valid Subject Matter
B.1. It must be existing, having potential existence, a future thing, or
even contingent or subject to a resolutory condition, in other
words, it must be a “possible thing”
B.1.1. Things having a potential existence may be the object of
the contract of sale.
The efficacy of the sale of a mere hope or expectancy is
deemed subject to the condition that the thing will come
into existence.
The sale of a vain hope or expectancy is void. (Art. 1461)
B.1.1.1. Contracts whose object did not exist at the time of
the transaction are inexistent and void from the
beginning, however, with respect to a sales
contract, the civil code allows the sale of things
having potential existence as well as future goods
if:
B.1.1.1.1. its coming into existence is a condition for
the effectivity of the contract
B.1.1.1.2. the contract is effective and the buyer has
to pay the purchase price whether or not
the thing comes into existence
Emptio rei speratae Emptio spei
the sale is subject to the condition It is not certain that the thing itself will
that the thing will come into existence, exist, much less its quantity and
whatever its quantity or quality quality
The contract deals with the sale of a The contract relates to the sale of the
future thing hope or expectancy
The sale is subject to the condition It produces effect even though the
that the thing should exist, so that if it thing does not come into existence
does not, there will be no contract by because the object of the contract is
reason of the absence of an essential the hope itself, unless it is a vain hope
element or expectancy
B.1.1.2. the state of technology and science at the time the
sale is perfected shall be taken into consideration
B.1.2. The goods which form the subject of a contract of sale may
be either existing goods, owned or possessed by the seller,
or goods to be manufactured, raised, or acquired by the
seller after the perfection of the contract of sale, in this Title
called "future goods."
There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency which
may or may not happen. (Art. 1462)
B.1.2.1. The following contracts are inexistent and void
from the beginning:
XXX
(3) Those whose cause or object did not exist at
the time of the transaction; xxx(Art. 1409)
B.1.2.1.1. Literal application of this provision is not
warranted in contracts of sale, because
under Art. 1458, the whether such
obligation (to transfer the ownership of
and to deliver a determinate thing) exist
or not, and not the existence of the
subject matter, is the essence of sale
B.1.3. Things subject to a resolutory condition may be the object
of the contract of sale. (Art. 1465)
B.1.3.1. resolutory condition – an uncertain event upon
the happening of which the obligation subject to it
is extinguished
B.2. It must be licit
B.2.1. The thing must be licit and the vendor must have a right to
transfer the ownership thereof at the time it is delivered.
(Art. 1459)
B.2.2. All things which are not outside the commerce of men,
including future things, may be the object of a contract. All
rights which are not intransmissible may also be the object
of contracts.
No contract may be entered into upon future inheritance
except in cases expressly authorized by law.
All services which are not contrary to law, morals, good
customs, public order or public policy may likewise be the
object of a contract (Art. 1347)
B.2.3. The sale of animals suffering from contagious diseases
shall be void.
A contract of sale of animals shall also be void if the use or
service for which they are acquired has been stated in the
contract, and they are found to be unfit therefor. (Art. 1575)
B.3. It must be determinate, or at least determinable
B.3.1. A thing is determinate when it is particularly designated or
physical segregated from all other of the same class.
The requisite that a thing be determinate is satisfied if at
the time the contract is entered into,
B.3.1.1. the thing is capable of being made determinate
B.3.1.2. without the necessity of a new or further
agreement between the parties. [no further
agreement test](Art. 1460)
B.3.2. When the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality.
The purpose of the obligation and other circumstances
shall be taken into consideration. (Art. 1246)
B.3.3. The following contracts are inexistent and void from the
beginning:
xxx
(6) Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained;
xxx (Art. 1409)
B.3.4. The sole owner of a thing may sell an undivided interest
therein. (Art. 1463)
B.3.5. In the case of fungible goods, there may be a sale of an
undivided share of a specific mass, though the seller
purports to sell and the buyer to buy a definite number,
weight or measure of the goods in the mass, and though
the number, weight or measure of the goods in the mass is
undetermined. By such a sale the buyer becomes owner in
common of such a share of the mass as the number,
weight or measure bought bears to the number, weight or
measure of the mass. If the mass contains less than the
number, weight or measure bought, the buyer becomes the
owner of the whole mass and the seller is bound to make
good the deficiency from goods of the same kind and
quality, unless a contrary intent appears. (Art. 1464)
C. Lack of any requisite results in Nonexistent Sale
C.1. when the subject matter fails to meet the requisites, the situation
would either be:
C.1.1. no contract
C.1.1.1. buyer can still recover based on the principle of
“unjust enrichment”
C.1.2. void contract
C.1.2.1. When the nullity proceeds from the illegality of the
cause or object of the contract, and the act
constitutes a criminal offense, both parties
being in pari delicto, they shall have no action
against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal
Code relative to the disposal of effects or
instruments of a crime shall be applicable to the
things or the price of the contract.
This rule shall be applicable when only one of the
parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to
comply with his promise. (Art. 1411)
C.1.2.2. If the act in which the unlawful or forbidden cause
consists does not constitute a criminal offense,
the following rules shall be observed:
(1) When the fault is on the part of both
contracting parties, neither may recover what he
has given by virtue of the contract, or demand the
performance of the other's undertaking;
(2) When only one of the contracting parties is
at fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of
what has been promised him. The other, who is
not at fault, may demand the return of what he has
given without any obligation to comply his
promise. (Art. 1412)
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 C.1.2.3. When the agreement is not illegal per se but is
merely prohibited, and the prohibition by the law
is designated for the protection of the plaintiff, he
may, if public policy is thereby enhanced, recover
what he has paid or delivered. (Art. 1416)
D. Seller’s Obligation to Transfer Ownership Required at Time of
Delivery
D.1. In general, a perfected contract of sale cannot be challenged on
the ground that seller had no ownership of the thing sold at the
time of perfection
D.2. The thing must be licit and the vendor must have a right to transfer
the ownership thereof at the time it is delivered. (Art. 1459)
D.3. Subject to the provisions of this Title, where goods are sold by a
person who is not the owner thereof, and who does not sell
them under authority or with the consent of the owner, the
buyer acquires no better title to the goods than the seller had, XXX
D.3.1. exceptions;
D.3.1.1. where the owner of the goods is, by his conduct,
precluded from denying the seller’s authority to
sell XXX (Art. 1505
D.3.1.2. where the law enables the apparent owner to
dispose of the goods as if he were the true owner
thereof
D.3.1.3. where the sale is sanctioned by statutory or
judicial authority
D.3.1.4. where the sale is made at merchant’s stores, fairs
or markets
D.3.1.5. where the seller has a voidable title which has not
been avoided at the time of the sale
D.3.1.6. where seller subsequently acquires title
PRICE ANDOTHER CONSIDERATION
A. Price – signified the sum stipulated as the equivalent of the thing sold and
every incident taken into consideration for the fixing of the price put to the
debit of the buyer and agreed to by him
B. Requisites for valid price
B.1. it must be real
B.1.1. When price is real: when at the perfection of the sale,
there is legal intention on the part of the buyer to pay the
price, and legal expectation on the part of the seller to
receive such price as the value of the subject matter he
obligates himself to deliver
B.1.2. If the price is simulated, the sale is void, but the act may be
shown to have been in reality a donation, or some other act
or contract. (Art. 1471)
B.1.2.1. 2 Kinds of Simulation of contract
B.1.2.1.1. Absolute – purchase price was stated
but the parties do not intend to be bound
at all
= VOID but may be valid as a donation; if
not a donation = contract is void
B.1.2.1.1.1. Parties may recover from each
other what they may have given
B.1.2.1.2. Relative – the parties conceal their true
agreement.
there is false price if the parties agreed
on the price but the true price is not
reflected in the contract of sale = VALID
subject to reformation
B.1.2.1.2.1. When, there having been a
meeting of the minds of the
parties to a contract, their true
intention is not expressed in the
instrument purporting to embody
the agreement, by reason of
mistake, fraud, inequitable
conduct or accident, one of the
parties may ask for the
reformation of the instrument
to the end that such true
intention may be expressed.
B.1.2.1.2.2. If mistake, fraud, inequitable
conduct, or accident has
prevented a meeting of the
minds of the parties, the proper
remedy is not reformation of the
instrument but annulment of the
contract. (Ar. 1359)
B.1.3. Meeting of minds as to price
B.1.3.1. If the minds of the parties never meet as to the
price, because the price stipulated is known by
both parties as simulated, the contract is
undoubtedly void;
B.1.3.2. if the minds of the parties have met as to the price,
the contract of sale is valid, irrespective of the
manner of payment they agreed upon, or even by
the breach of that manner of payment agreed
upon.
B.1.4. Effect of Nonpayment of Price
B.1.4.1. If the price is fixed but is later on remitted or
condoned, this is perfectly all right, for then the
price would not be fictitious. The failure to pay the
price does not cancel a sale for lack of
consideration, for there is still consideration.
B.1.4.2. Failure to pay the consideration is different from
lack of consideration. The former results in a right
to demand the fulfillment or cancellation of the
obligation under an existing valid contract while
the latter prevents the existence of a valid
contract.
B.1.5. Accommodation does not make sale void for lack of
price
B.1.5.1. even when undoubtedly the price stipulated in the
covering instrument is simulated the underlying
sale would still be valid and enforceable provided
there is another consideration (apart from the false
price) to support the sale.
B.1.6. Simulation of Price Affects Delivery of Subject Matter
B.1.6.1. When a contract of sale is fictitious, and therefore
void and inexistent, as there was no consideration
for the same, no title over the subject matter of the
sale can be conveyed.
B.1.6.2. Nemopotest nisi quod de jure potest — no man
can do anything except what he can do lawfully
B.2. it must be in money or its equivalent
B.2.1. If the consideration of the contract consists partly in money,
and partly in another thing, the transaction shall be
characterized by the manifest intention of the parties. If
such intention does not clearly appear, it shall be
considered a barter if the value of the thing given as a part
of the consideration exceeds the amount of the money or
its equivalent; otherwise, it is a sale. (Art. 1468)
B.3. it must be certain or ascertainable
B.3.1. Price is considered certain:
B.3.1.1. the parties have fixed or agreed upon a definite
amount
B.3.1.2. it be certain with reference to another thing certain
B.3.1.2.1. The price of securities, grain, liquids, and
other things shall also be considered
certain, when the price fixed is that which
the thing sold would have on a definite
day, or in a particular exchange or
market, or when an amount is fixed above
or below the price on such day, or in such
exchange or market, provided said
amount be certain.(Art. 1472)
B.3.1.3. the determination of the price is left to the
judgment of a specified person or persons
B.3.2. As a general rule, the price fixed by a third person
designated by the parties is binding upon them
B.3.2.1. exception:
B.3.2.1.1. when the third person acts in bad faith or
by mistake – the court may fix the price
B.3.2.1.2. when the third person disregards specific
instructions marked out by the parties
B.3.2.2. The fixing of the price can never be left to the
discretion of one of the contracting parties.
However, if the price fixed by one of the parties is
accepted by the other, the sale is perfected. (Art.
1473)
DANA | 5
B.3.3. Effect where price is not fixed by the third person
designated
B.3.3.1. if the third person refuses or cannot fix it, the
contract shall become inefficacious unless the
parties subsequently agree upon the price
B.3.3.2. if the third person is prevented from fixing the price
by the fault of the seller or the buyer, the party not
in fault may obtain redress against the party in
fault. (rescission or fulfillment, with damages) (Art.
1469)
o Designation of a third party to fix the subject matter
is not allowed; The difference in rules between subject
matter and price on designation of third party springs
from the essence of the obligations they pertain to
 the obligation to pay the price is essentially a
fungible obligation,
 the obligation to deliver subject matter and the
title thereto is not a generic obligation but rather
a specific obligation
B.3.4. Where the price cannot be determined in accordance with
the preceding articles, or in any other manner, the contract
is inefficacious.
However, if the thing or any part thereof has been delivered
to and appropriated by the buyer he must pay a
reasonable price therefor. What is a reasonable price is a
question of fact dependent on the circumstances of each
particular case. (Art. 1474)
B.3.4.1. Art. 1474 is the only exception to the rule that
there would still be a valid sale even when there
has been no meeting of the minds as to the price
or any other consideration
B.3.4.2. Elements:
B.3.4.2.1. There was a meeting of the minds of the
parties of sale and purchase as to the
subject matter;
B.3.4.2.2. There was an agreement that price would
be paid which fails to meet the criteria of
being certain or ascertainable; and
B.3.4.2.3. There was delivery by the seller and
appropriation by the buyer, of the subject
matter of the sale.
B.3.4.3. “Preceding articles” – Arts. 1469 to 1473
B.3.4.4. “Inefficacious” – the inability to produce the
effect wanted
B.3.4.4.1. the law does not use the term “void,”
because the price, though not certain, is
ascertainable
B.3.4.5. Appropriation doctrine – where the buyer
accepts delivery knowing the price claimed by the
seller, he cannot thereafter refuse to pay for it at
that price, even if there is no agreement as to
price. Hence, where goods used by the buyer who
knows the seller’s price for such goods, he is liable
for that price, and not for the reasonable value of
the goods
B.3.4.5.1. The doctrine is based on the principle of
unjust enrichment directed against the
buyer who is not allowed to retain the
subject matter of the sale without being
liable to pay the price even when no such
agreement on the price was previously
made; and
B.3.4.5.2. The doctrine applies even when there is a
“no contract” situation because of no
meeting of the minds as to the price,
although there was a meeting of the
minds as to the subject matter, and may
also apply to void sale contract situation
where the defect is as to the price.
B.3.5. Manner of payment of the price goes into the essence of
what makes price certain or ascertainable. It is deemed to
be an essential ingredient before a valid and binding
contract of sale can be said to exist, since it is part of the
prestation of the contract, and without which there can be
no valid sale, nor can an action for specific performance be
made against the alleged seller.
B.3.5.1. Every obligation whose performance does not
depend upon a future or uncertain event, or upon
a past event unknown to the parties, is
demandable at once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of the happening of the
event. (Art. 1179)
C. Inadequacy of Price
C.1. Except in cases specified by law, lesion or inadequacy of cause
shall not invalidate a contract, unless there has been fraud,
mistake or undue influence. (Art. 1355)
C.2. Gross inadequacy of price does not affect a contract of sale,
except as it may indicate a defect in the consent, or that the
parties really intended a donation or some other act or contract.
(Art. 1470)
C.2.1. there is gross inadequacy in price if a reasonable man
will not agree to dispose of his property at that amount.
C.3. Inadequacy of price is a ground for rescission of conventional sale
in case of rescissible contracts covered under Article 1381 of the
Civil Code, namely:
C.3.1. Those entered into by guardians whenever the ward whom
they represent suffer lesion by more than one-fourth (1/4)
of the value of the object of the sale; and
C.3.2. Those agreed upon in representation of absentees, if the
latter should suffer lesion by more than one-fourth (1/4) of
the value of the object of the sale.
C.3.3. Gross inadequacy of price may avoid judicial sale of real
property
C.3.3.1. for a judicial sale to be set aside on the ground of
inadequacy of price,
C.3.3.1.1. the inadequacy must be such as to be
shocking to the conscience of man.
C.3.3.1.2. there must be showing that, in the event
of a resale, a better price can be
obtained.
C.3.3.2. But even if the foregoing requisites are shown, a
judicial sale will not be set aside by the court when
there is a right of redemption, since the more
inadequate the winning bid at public sale, the
more easily it is for the owner to redeem the
property. In this case, the proper remedy is not
rescission, but to exercise the right of redemption.
C.3.4. In a conventional sale with a right to repurchase feature,
the gross inadequacy of price raises a presumption of
equitable mortgage.
C.3.4.1. The proper remedy of the alleged seller, who is
actually an equitable mortgagor, is not to rescind
the contract of sale, but to have it reformed or
declared a mortgage contract, and to pay off the
indebtedness which is secured.
C.3.4.2. On the other hand, the remedy of the alleged
buyer would not be to appropriate the subject
matter as a buyer for that would be Pactum
commissorium, but to foreclose on the equitable
mortgage.
D. When Motive Nullifies Sale
D.1. In a contract of sale, consideration is, as a rule, different from the
motive of the parties, and when the primary motive is illegal, such
as when the sale was executed over a parcel of 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
the purpose of the contract
D.1.1. cause – the essential reason which moves the contracting
parties to enter into it, and “is the immediate, direct and
proximate reason which justifies the creation of an
obligation through the will of the contracting parties,”
D.1.2. motive – is the particular reason of a contracting party
which does not affect the other party.
FORMATION OF SALE
Stages in Life of Sale
 Policitation
 Perfection
 Consummation
DANA | 6
A. Policitation Stage
A.1. Advertisement and Invitations
A.1.1. Unless it appears otherwise, business advertisements of
things for sale are not definite offers, but mere invitations to
make an offer. (Art. 1325)
A.1.2. Advertisements for bidders are simply invitations to make
proposals, and the advertiser is not bound to accept the
highest or lowest bidder, unless the contrary appears. (Art.
1326)
A.2. Offers
A.2.1. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to
constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a
counter-offer.
XXX (Art. 1319)
A.2.1.1. Counter offer – a rejection of the original offer
and has the effect of extinguishing the original
offer
A.2.2. The person making the offer may fix the time, place, and
manner of acceptance, all of which must be complied with.
(Art. 1321)
A.2.3. An offer made through an agent is accepted from the time
acceptance is communicated to him. (Art. 1322)
A.2.4. An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed (Art. 1323)
A.2.5. When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as
something paid or promised. (Art. 1324)
A.2.5.1. it is not necessary that the offeree learns of the
withdrawal
A.3. Option contracts – A preparatory contract in which one party
grants to the other for a fixed period under specified conditions, to
decide whether or not to enter into a principal contract.
A.3.1. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon the
promissor if the promise is supported by a consideration
distinct from the price. (Art. 1479)
A.3.2. Requisites:
A.3.2.1. Consent – meeting of the minds
A.3.2.2. Subject matter – option right to an “unaccepted
unilateral offer to sell, or to buy” or an “accepted
promise to sell, or promise to buy”a determinate or
determinable object for a price certain, including
the manner of payment thereof
A.3.2.3. Prestation – a consideration separate and distinct
from the purchase price for the option given
A.3.2.3.1. Consideration in an option contract may
be anything of value, unlike in sale where
it must be the price certain in money or its
equivalent
A.3.3. Characteristics of an Option Contract
A.3.3.1. Onerous – must have a separate consideration
from the purchase price
A.3.3.2. Consensual – perfected by the meeting of the
minds
A.3.3.3. Unilateral – only the offeror is obliged, even when
the offeree has not paid the separate
consideration
A.3.3.4. Subject matter of an option contract is not the
subject matter of the sought sale, but rather the
option to purchase such subject matter
A.3.3.5. not a species of the genus sale, it is not covered
by the Statue of Frauds and can be proved by
parol evidence
A.3.4. Obligations of the Offeror in a valid Option
A.3.4.1. Not to offer to any third party the sale of the object
of the option during the option period
A.3.4.2. Not to withdraw the offer or option during the
option period
A.3.4.3. To hold the subject matter for sale and to transfer
it to the offeree in the event that offeree exercises
his option during the option period
A.3.5. Option Not deem part of renewal of lease
A.3.5.1. An option to purchase embedded into a contract of
lease when not exercised within the original period
is extinguished and cannot be deemed to have
been included in the implied renewal (tacita
reconduccion) of the lease
A.3.6. Option period
A.3.6.1. when the option contract does not contain a
period: it cannot be presumed that the exercise
thereof can be made indefinitely, and even render
uncertain the status of the subject matter. Under
Article 1144(1) of the Civil Code, actions upon
written contract must be brought within ten (10)
years, and thereafter, the right of option would
prescribe.
A.3.7. Proper exercise of option
A.3.7.1. notice of the exercise of the option need not be
coupled with actual payment of the price, so long
as this is delivered to the owner of the property
upon performance of his part of the agreement.
A.3.8. Summation of Rules Pertaining to Options:
A.3.8.1. If the period itself is not founded upon or
supported by a separate consideration, the offeror
is still free and has the right to withdraw the offer
before its acceptance, or, if an acceptance has
been made, before the offeror’s coming to know of
such fact, by communicating that withdrawal to the
offeree.
A.3.8.2. The right to withdraw, however, must not be
exercised whimsically or arbitrarily; otherwise, it
could give rise to a damage claim under Article 19
of the Civil Code which ordains that “every person
must, in the exercise of his right and in the
performance of his duties, act with justice, give
everyone his due, and observe honesty and good
faith.”
A.3.8.3. If the period has a separate consideration, a
contract of “option” is deemed perfected, and it
would be a breach of that contract to withdraw the
offer during the agreed period.
A.3.8.4. The option, however, is an independent contract
by itself, and it is to be distinguished from the
projected main agreement which is obviously yet
to be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance by the
optionee-offeree, the latter may not sue for
specific performance on the proposed contract
since it has failed to reach its own stage of
perfection. The optioner-offeror, however, renders
himself liable for damages for breach of the option.
A.3.8.5. In these cases, care should be taken of the real
nature of the consideration given, for if in fact, it
has been intended to be part of the consideration
for the main contract with a right of withdrawal on
the part of the optionee, the main contract could
be deemed perfected; a similar instance would be
an “earnest money” in sale that can evidence its
perfection.
A.3.9. When the offerer has allowed the offeree a certain period
to accept, the offer may be withdrawn at any time before
acceptance by communicating such withdrawal, except
when the option is founded upon a consideration, as
something paid or promised. (Art. 1324)
A.4. Right of first refusal – a promise on the part of the owner that if
he decides to sell the property in the future, he would first
negotiate its sale to the promisee
A.4.1. “a right of first refusal cannot have the effect of a contract
because, by its very essence, certain basic terms would
have yet to be determined and fixed”
A.4.2. Violation of a right of first refusal: contract is
RESCISSIBLE.
A.4.3. The basis of the right of first refusal must be the current
offer of the seller to sell or the offer to purchase of a
DANA | 7
 prospective buyer. Only after the lessee grantee fails to
exercise its rights under the same terms and within the
period contemplated can the owner validly offer to sell the
property to a third person, again under the same terms as
offered to the grantee
A.4.4. A right of first refusal granted in the contract of lease in
favor of the lessee cannot be availed of by the sublessee
because such sublessee is a stranger to the lessor who is
bound to respect the right of first refusal in favor of the
lessee only; and had the contract of lease granted the
lessee the right to assign the lease, then the assignee
would be entitled to exercise such right as he steps into the
shoes of the assignor-lessee
A.4.5. A provision entitling the lessee the option to purchase the
leased premises is not deemed incorporated in the
impliedly renewed contract because it is alien to the
possession of the lessee. The right to exercise the option
to purchase expired with the termination of the original
contract of lease
A.5. Letter of Intent to Buy and to Sell – a peculiar commercial
arrangement whereby the purported seller and the purported buyer
memorialize their mutual intentions to buy and sell a determinate
thing, which means to negotiate in earnest towards achieving a
perfected contract of sale
A.6. Mutual Promises to Buy and Sell is binding as an executory
agreement
B. Perfection Stage: Offer and Acceptance
B.1. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in
such a case, is presumed to have been entered into in the place
where the offer was made. (Art. 1319)
B.1.1. Consent Perfects a Sale (Art. 1475)
B.1.2. Offer must be Certain
B.1.2.1. what makes an offer “certain” is when it is
floated by the offeror having within its terms
B.1.2.1.1. the description of the subject matter that
has all three requisites of “possible thing,”
licit, and determinate or at least
determinable; and
B.1.2.1.2. with a price that has the requisites of
being real, money or its equivalent, and
must be certain or at least ascertainable,
including on the terms of payment
thereof.
B.1.3. Acceptance must be Absolute
B.1.3.1. acceptance should be unequivocal and
unconditional and the acceptance and proposition
shall be without any variation whatsoever;
B.1.3.2. any (SUBSTANTIAL) modification or deviation of
the offer annuls the latter and frees the offeror to
offer it to another person
B.1.3.3. Kinds of Acceptance:
B.1.3.3.1. express
B.1.3.3.2. implied. (Art. 1320)
B.1.3.4. Letter
B.1.3.4.1. xxx Acceptance made by letter or
telegram does not bind the offerer except
from the time it came to his
knowledge.XXX
B.1.3.5. Sale subject to suspensive condition: Even
when there is a meeting of minds as to the subject
matter and the price, there is deemed to be no
perfected sale
B.1.3.5.1. XXX There is already a contract upon the
meeting of the minds, but because the
condition has not happened, the contract
itself and its underlying obligations are not
yet demandable; and in case of non-
happening of the condition, then the
contract is extinguished as though the
contract has never been entered into, as
the consequence of the retroactive effect
of the non-happening of a suspensive
condition (Art. 1187)
B.1.3.6. Auction
B.1.3.6.1. Each lot, where the goods are put up for
sale, is the subject of a separate contract
of sale
B.1.3.6.2. Sale is perfected when the auctioneer
announces its perfection by the fall of the
hammer
B.1.3.6.2.1. bidder may retract/auctioneer
may withdraw the goods any
time before the hammer falls;
unless if sale has been
announced to be without reserve,
the auctioneer cannot withdraw
once the bid has been made
B.1.3.6.3. the seller or his agent may bid in an
auction sale provided:
B.1.3.6.3.1. such right was reserved
B.1.3.6.3.2. notice was given that the sale is
subject to a right to bid on behalf
of the seller
B.1.3.6.3.2.1. to prevent puffing or
secret bidding by or on
behalf of the seller by
people who are not
themselves bound
B.1.3.6.3.3. the right to bid by the seller is not
prohibited by law or by stipulation
(Art. 1476)
B.2. Earnest Money – something of value given by the buyer to the
seller to show that the buyer is really earnest, and to bind the
bargain; actually a partial payment of the purchase price and is
considered as proof of the perfection of the contract
Earnest money Option money
Part of the purchase price The money given as distinct
consideration for an option contract
Whenever earnest money is given in
a contract of sale, it shall be
considered as part of the price and
as proof of the perfection of the
contract. (Art. 1482)
Given only where there is already a Applies to a sale not yet perfected
perfected sale
When it is given, the buyer is bound The would be buyer is not required to
to pay the balance buy but may even forfeit it depending
on the terms of the option
B.2.1. When the seller seeks to rescind the sale, under Article
1385 of the Civil Code, such rescission creates the
obligation to return the things which were the object of the
contract together with their fruits and interest.
B.2.2. nothing prevents the parties to the sale to treat earnest
money differently
B.2.2.1. When the amount is given only as a guarantee
that the buyer would not back out of the sale, then
what was given is not earnest money as defined
under Article 1482 of the Civil Code, especially
when at the time the amount is given, the final
terms of the purchase had not been agreed upon
B.2.2.2. if earnest money was given in a contract to sell,
Art. 1482 does not apply
B.3. Place of Perfection
B.3.1. Generally, the sale’s place of perfection is where there is a
meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract.
B.3.2. In case of acceptance through letter or telegram, it is
presumed that the contract was entered into in the place
where the offer was made (Art. 1319)
B.4. Expenses of Execution and Registration
B.4.1. The expenses for the execution and registration of the
sale shall be borne by the vendor, unless there is a
stipulation to the contrary. (Art. 1487)
B.4.1.1. expenses incurred subsequent to the transfer of
title are to be borne by the buyer, unless caused
by the fault of the seller
DANA | 8
 B.4.2. XXX In the case of goods, unless otherwise agreed, the
expenses of, and incidental to, putting the goods into a
deliverable state must be borne by the seller. xxx(Art.
1521)
B.4.3. The duty to withhold taxes due on the sale is imposed on
the seller
B.5. Performance Should not Affect Perfection
B.5.1. Since sale is a consensual contract, then the ability of the
parties to perform the contract (after perfection) does not
affect the perfection of the contract, which occurs when the
minds of the parties have met as to the subject matter,
price and terms of payment.
Form of sales
A. Form not generally important for validity of sale
A.1. Subject to the provisions of the Statute of Frauds and of any other
applicable statute, a contract of sale may be made in writing, or by
word of mouth, or partly in writing and partly by word of mouth, or
may be inferred from the conduct of the parties. (Art. 1483)
A.2. Form of contract of sale (the manner in which it is executed or
manifested)
A.2.1. contract of sale has no prescribed form
A.2.1.1. it may be:
A.2.1.1.1. in writing
A.2.1.1.2. oral
A.2.1.1.3. partly in writing and partly oral
A.2.1.2. exceptions:
A.2.1.2.1. in case the contract of sale is covered by
the Statute of Frauds, the law requires
that the agreement be in writing
subscribed by the party charged or by his
agent
A.2.1.2.2. where the applicable statute requires that
the contract of sale be in a certain form
for its validity
A.2.1.2.3. a certain form is required for the
convenience of the parties in order that
the sale may be registered in the Registry
of Deeds to make effective against 3rd
persons
A.3. Requirement for Public instrument for Immovables
A.3.1. The following must appear in a public document:
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment of
real rights over immovable property; sales of real property
or of an interest therein a governed by Articles 1403, No. 2,
and 1405;
xxx (Art. 1358)
A.3.2. The following contracts are unenforceable, unless they are
ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as
set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged,
or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary
evidence of its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage, other
than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless
the buyer accept and receive part of such goods and
chattels, or the evidences, or some of them, of such things
in action or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the
sale, of the amount and kind of property sold, terms of sale,
price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein;
(f) A representation as to the credit of a third person. (Art.
1403)
A.4. Function of the “Deed of Sale”
A.4.1. Deed of Sale operates as a formal or symbolic delivery of
the property sold and authorizes the buyer to use the
document as proof of ownership
A.4.2. To make it a public document, a deed of sale must be
properly subscribed and acknowledged before a notary
public; and when so acknowledged, a deed of sale enjoys
the presumption of regularity and due execution
A.4.2.1. notarization of the document does not guarantee
its validity nor those of its contents, because 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, and neither is the
notarization of a document conclusive of the
nature of the transaction conferred by the said
document, nor is it conclusive of the true
agreement of the parties thereto.
B. When form of sales affects its validity
B.1. GR: form is not important for the validity of a sale,
Except:
B.1.1. the power to sell a piece of land or interest therein must be
in writing, otherwise, the sale thereof by the agent would
be void
B.1.1.1. the authority of an agent to execute a contract for
the sale of real estate must be conferred in writing
and must give him specific authority
B.1.2. sale of large cattle must be in writing, and registered with
the municipal treasurer who shall issue a certificate of
transfer; otherwise, the sale is void
B.1.3. sale of land by “non-Muslim hill tribe cultural
minorities all throughout the Philippines” is void if not
approved by the National Commission on Indigenous
Peoples
C. Statute of Frauds – descriptive of statutes which require certain classes
of contracts to be in writing
C.1. Purpose: to prevent fraud and perjury in the enforcement of
obligations depending of their evidence upon the unassisted
memory of witnesses
C.2. Under the Statute of Frauds the following contracts must be
in writing; otherwise they shall be UNENFORCEABLE
C.2.1. sale of property not to be performed within a year from the
making thereof
C.2.2. Sale of goods, chattels or things in action, at a price not
less than P500.00
C.2.3. sale of real property or an interest therein
C.3. Exceptions to coverage of the Statute in sales contracts:
C.3.1. when there is a note or memorandum thereof in writing
and subscribed by the party charged or his agent
C.3.2. when there has been at least partial consummation of the
sale
C.3.2.1. The doctrine of partial execution when covering
sale of real properties cannot be applied to third
parties, who are granted legal remedies against
the contract
C.3.2.2. partial execution applicable only to goods
C.3.2.3. possession of movable property acquired in good
faith is equivalent to a title (Art. 559)
C.3.2.4. Partial performance to constitute as an exception
to the Statute of Frauds must by itself pertain to
the subject matter or to the price of the purported
sale, and must involve an act or “complicity” on the
party sought to be changed. These requisites are
essential because partial performance must
amount to estoppel against the party sought to be
charged
C.3.3. when there has been a failure to object to the
presentation of evidence aliunde as to other existence of
a contract
C.3.4. when sales are effected through electronic commerce
(Art. 1403)
C.4. Statute of Frauds applies to executory and not TO BE completed,
executed, or partially executed contracts.
DANA | 9
 C.5. Contracts infringing the Statute of Frauds may be ratified by:
C.5.1. Failure to object to the presentation of oral evidence to
prove such contracts; or
C.5.2. Acceptance of benefits under these contracts (Art. 1405)
C.6. While the sale of land appearing in a private deed is binding
between the parties, it cannot be considered binding on a third
persons, if it is not embodied in a public instrument and recorded
in the Registry of Deeds
C.7. Receipt – an acknowledgement on the part of the seller of the
receipt of the purchase price, or a portion thereof, like
downpayment
C.8. Business forms, e.g., order slip, delivery charge invoice and
the like, which are issued by the seller in the ordinary course of
the business are not always fully accomplished to contain all the
necessary information describing in detail the whole business
transaction — more often than not they are accomplished
perfunctorily without proper regard to any legal repercussion for
such neglect such that despite their being often incomplete, said
business forms are commonly recognized in ordinary commercial
transactions as valid between the parties and at the very least they
serve as an acknowledgment that a business transaction has in
fact transpired.
D. Sales Effected as Electronic Commerce
D.1. Electronic Document – information or the representation of
information, data, figures, symbols or other modes of written
expression, described or however represented, by which a fact
may be proved or affirmed, which is received, recorded,
transmitted, stored, processed, retrieved or produced
electronically.
D.1.1. electronic date message or electronic document shall
have legal effect
D.1.2. Information merely incorporated by reference shall not be
denied validity
D.1.3. if law required a document to be in writing, it is
sufficient if:
D.1.3.1. maintains its integrity and reliability
D.1.3.2. can be authenticated so as to be usable for
subsequent reference
D.1.3.2.1. it has remained complete and unaltered,
apart from the addition of any
endorsement and any authorized change,
or any change which arises in the normal
course of communication, storage or
display
D.1.3.2.2. it is reliable in the light of the purpose for
which it was generated and in the light of
all relevant circumstances
D.1.4. if law requires a document be presented or retained in
its original form, it is sufficient if:
D.1.4.1. there exist a reliable assurance as to the integrity
of the electronic document or electronic data
message from the time it was first generated in its
final form and such integrity is shown by evidence
aliunde
D.1.4.2. capable of being displayed to the person to whom
it is to be presented
D.1.5. electronic data message or electronic document is
admissible as evidence equivalent of a written document
under existing laws
D.1.5.1. factors to be considered for evidential weight
D.1.5.1.1. reliability of the manner in which it was
generated, stored, or communicated
D.1.5.1.2. reliability of the manner in which its
originator was identified
D.1.5.2. other relevant factors
D.2. Electronic Signature – any distinctive mark, characteristic and/or
sound in electronic form, representing the identity of a person and
attached to or logically associated with the electronic data
message or electronic document or any methodology or
procedures employed or adopted by a person and executed or
adopted by such person with the intention of authenticating or
approving an electronic data message or electronic document
D.2.1. electronic signature relating to an electronic document or
electronic data message shall be equivalent to the
signature of a person on a written document; if
D.2.1.1. a method is used
D.2.1.1.1. to identify the party sought to be bound
and
D.2.1.1.2. to indicate said party’s access to the
electronic document necessary for his
consent or approval through the
electronic signature
D.2.1.2. said method is reliable and appropriate for the
purpose for which the electronic document was
generated or communicated, in the light of all
circumstances, including any relevant agreement
D.2.1.3. the party sought to be bound, in order to proceed
further with the transaction, to have executed or
provided the electronic signature
D.2.1.4. other party is authorized and enabled to verify the
electronic signature and to make the decision to
proceed with the transaction thus duly
authenticated
D.2.2. Presumption relating to electronic signatures
D.2.2.1. electronic signature is the signature of the person
to whom it correlates
D.2.2.2. electronic signature was affixed by that person
with the intention of signing or approving the
electronic document
D.2.2.2.1. unless the person relying on the
electronically signed electronic document
knows or has notice of defects in or
unreliability of the signature or reliance
thereon is not reasonable under the
circumstances
D.3. Perfection if electronic transactions: except as otherwise
agreed by the parties, an offer, the acceptance of an offer may be
expressed by means of electronic data messages or electronic
documents
D.4. Consummation of Electronic Transaction: electronic
transactions made through networking among banks, or linkages
thereof with other entities or networks, and vice versa, shall be
deemed consummated upon the actual dispensing of cash or the
debit of one account and the corresponding credit to another,
whether such transaction is initiated by the depositor or by an
authorized collecting party: Provided, That the obligation of one
bank, entity, or person similarly situated to another arising
therefrom shall be considered absolute and shall not be subjected
to the process of preference of credits.
E. Equitable Mortgage Claims Need not be in Writing
F. Sales on Return or Approval must be in writing
G. Right of First Refusal must be in writing
When sale completely simulated
A. When a sale is absolutely simulated, then it is completely void and non-
existent
A.1. when the parties enter into a sale to which they did not intend to
be legally bound, such is void and is not susceptible of ratification,
produces no legal effects, and does not convey property rights nor
in any way alter the juridical situation of the parties
B. Requisites for simulation:
B.1. An outward declaration of will different from the will of the parties;
B.2. The false appearance must have been intended by mutual
agreement; and
B.3. The purpose is to deceive third persons
C. When a sale is void, the right to set up its nullity or nonexistence is
available to third persons whose interests are directly affected thereby;
and the action for the declaration of the contract’s nullity is
imprescriptible
CONSUMMATION OF SALE
Obligations of Seller
A. To Preserve the subject matter
A.1. Every person obliged to give something is also oblige to take care
of it with the proper diligence of a good father of a family, unless
the law or the stipulations of the parties requires another standard
of care. (Art. 1163)
A.2. Duty to the preserve is only applicable if the subject matter is a
determinate thing; If the subject matter is a generic thing, the
vendor is only obliged to deliver a thing which is of the quality
DANA | 10
 intended by the parties taking into consideration the purpose of the
obligation and other circumstances
B. To Deliver the subject matter
B.1. The vendor is bound to transfer the ownership of and deliver, as
well as warrant the thing which is the object of the sale. (Art. 1495)
B.1.1. The vendor need not be the owner of the thing at the time
of perfection of the contract; it is sufficient that he has a
right to transfer the ownership thereof at the time it is
delivered
B.1.2. No obligation to make delivery during the period of
redemption, in cases in execution of sales and of
extrajudicial foreclosure sale
C. To deliver the fruits and accessories
C.1. The vendor is bound to deliver the thing sold and its accessions
and accessories in the condition in which they were upon the
perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the
contract was perfected. (Art. 1537)
C.1.1. Accessions – fruits of a thing; or additions to, or
improvements upon
C.1.2. Accessories – anything attached to a principal thing for its
completion, ornament, or better use
C.2. Right of vendee to the fruits
C.2.1. When vendee entitled
C.2.1.1. The vendee has a right to the fruits of the thing
sold from the time the obligation to deliver it
arises. However, he shall acquire no real right
over it until the same has been delivered to him.
(Art. 1164)
C.2.1.1.1. The obligation to deliver arises
C.2.1.1.1.1. upon the perfection of the
contract of sale (Art. 1475)
C.2.1.1.1.2. suspensive condition – from the
moment of the fulfillment of the
obligation
C.2.1.1.1.3. suspensive term – upon the
expiration of the designated term
or period
C.2.2. When vendee not entitled
C.2.2.1. when the rule provided in Art. 1537 (2) is modified
by agreement of the parties, their agreement shall,
of course govern
C.2.2.2. if the vendee rescinds the contract of sale instead
of exacting the fulfillment thereof, he is entitled
only to damages like interest, attorney’s fees and
costs but he may not also claim the fruits of the
thing sold
C.2.2.3. in a contract of promise to sell, the vendee is not
entitled to the fruits. The only right of the
contracting parties is to reciprocally demand the
fulfillment of the contract. Prior to the sale and
conveyance of the subject matter of the contract,
the promisee or would be vendee acquires no
rights to the fruits thereof
C.3. In accordance with the principle that the accessories always follow
the principal, the accessories and fruits must then on be held for
the account of the buyer
D. To warrant the subject matter
D.1. The vendor is bound to transfer the ownership of and deliver, as
well as warrant the thing which is the object of the sale. (Art. 1495)
Obligations of Buyer
A. Pay the Price
A.1. The vendee is bound to accept delivery and to pay the price of the
thing sold at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment
must be made at the time and place of the delivery of the thing
sold. (Art. 1582)
A.2. 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 (Art. 1240)
A.3. The vendee shall owe interest for the period between the delivery
of the thing and the payment of the price, in the following three
cases:
(1) Should it have been so stipulated;
(2) Should the thing sold and delivered produce fruits or income;
(3) Should he be in default, from the time of judicial or extrajudicial
demand for the payment of the price. (Art. 1589)
A.4. Non-payment of the consideration in the sale does not prove
simulation; at most, it gives the seller the right to sue for collection
B. Accept Delivery of Thing Bought
B.1. The vendee is bound to accept delivery and to pay the price of the
thing sold at the time and place stipulated in the contract.
If the time and place should not have been stipulated, the payment
must be made at the time and place of the delivery of the thing
sold. (Art. 1582)
B.2. In case of goods, the buyer is deemed to have accepted the
goods
B.2.1. when he intimates to the seller that he has accepted them,
or
B.2.2. when the goods have been delivered to him, and he does
any act in relation to them which is inconsistent with the
ownership of the seller, or
B.2.3. when, after the lapse of a reasonable time, he retains the
goods without intimating to the seller that he has rejected
them. (Art. 1585)
B.3. Opportunity to Inspect Goods
B.3.1. Where goods are delivered to the buyer, which he has not
previously examined, he is not deemed to have accepted
them unless and until he has had a reasonable opportunity
of examining them for the purpose of ascertaining whether
they are in conformity with the contract if there is no
stipulation to the contrary.
B.3.2. Unless otherwise agreed, when the seller tenders delivery
of goods to the buyer, he is bound, on request, to afford the
buyer a reasonable opportunity of examining the goods for
the purpose of ascertaining whether they are in conformity
with the contract.
B.3.3. Where goods are delivered to a carrier by the seller, in
accordance with an order from or agreement with the
buyer, upon the terms that the goods shall not be delivered
by the carrier to the buyer until he has paid the price,
whether such terms are indicated by marking the goods
with the words "collect on delivery," or otherwise, the buyer
is not entitled to examine the goods before the payment of
the price, in the absence of agreement or usage of trade
permitting such examination. (Art. 1584)
B.4. Goods Sold deliverable by Installments
B.4.1. GR: buyer is not bound to receive delivery in
installments.
B.4.1.1. Similarly buyer has no right to pay the price in
installments unless agreed upon
B.4.2. Where separate price has been agreed upon for each
installment, it depends in each case on the terms of the
contract and the circumstances of the case whether the
breach thereof is severable or not
B.4.2.1. where breach affects whole contract – if the
seller makes defective, partial or incomplete
deliveries or the buyer wrongfully neglects or
refuses to accept delivery or fails to pay any
installment, the injured party may sue for damages
for breach of the entire contract if the breach is so
material as to affect the contract as a whole
B.4.2.2. where breach severable – it will merely give rise
to a claim for compensation for the particular
breach but not a right to treat the whole contract
broken
B.4.3. Where separate price was not fixed for each
installment – in the event that the seller fails to deliver an
installment, the buyer should be able to choose between
fulfillment and rescission of the obligation, with the
payment of damages in either case. The same remedy
should apply in the event that the buyer fails to pay the
purchase price within the period agreed upon. (Art. 1583)
B.5. Effect of Acceptance of Goods on Seller’s Warranty
B.5.1. In the absence of express or implied agreement of the
parties, acceptance of the goods by the buyer shall not
discharge the seller from liability in damages or other legal
remedy for breach of any promise or warranty in the
contract of sale.
B.5.2. But, if, after acceptance of the goods, the buyer fails to
give notice to the seller of the breach in any promise of
DANA | 11
 warranty within a reasonable time after the buyer knows, or
ought to know of such breach, the seller shall not be liable
therefor. (Art. 1586)
B.6. Refusal to Accept Goods
B.6.1. Unless otherwise agreed, where goods are delivered to the
buyer, and he refuses to accept them, having the right so
to do, he is not bound to return them to the seller, but it is
sufficient if he notifies the seller that he refuses to accept
them. If he voluntarily constitutes himself a depositary
thereof, he shall be liable as such. (Art. 1587)
B.6.2. If there is no stipulation as specified in the first paragraph
of article 1523, when the buyer's refusal to accept the
goods is without just cause, the title thereto passes to
him from the moment they are placed at his disposal. (Art.
1588)
Tradition as a consequence of a valid sale
A. Essence of Tradition
A.1. The ownership of the thing sold is acquired by the vendee from the
moment it is delivered to him in any of the ways specified in
Articles 1497 to 1501, or in any other manner signifying an
agreement that the possession is transferred from the vendor to
the vendee. (Art. 1496)
A.2. Tradition – delivery of possession by the proprietor with an
intention to transfer the property to the receiver
A.2.1. requisite
A.2.1.1. intention or consent of the owner to transfer it
A.2.1.2. actual delivery in pursuance of that intention
A.3. Delivery – the means by which the seller can transfer the
ownership of the subject matter
A.3.1. Refers to the concurrent transfer of two things:
A.3.1.1. Possession
A.3.1.2. Ownership
A.3.2. Ways of effecting delivery
A.3.2.1. by actual or real delivery (Art. 1497)
A.3.2.2. by constructive or legal delivery (Arts. 1498-1501)
A.3.2.3. by delivery in any other manner signifying an
agreement that the possession is transferred to
the vendee (Arts. 1496-1499)
A.4. ownership is not transferred by mere contract but by delivery,
actual or constructive (even if the purchase price has not yet been
fully paid)
A.5. delivery of the thing together with the payment of the price, marks
the consummation of the contract of sale
A.6. it is during the delivery that the law requires the seller to have the
right to transfer ownership of the thing sold
A.7. where the buyer has not become the owner for lack of delivery, his
action is not accion reinvidicatoria but one against the vendor for
specific performance or rescission, with damages in either case
A.8. Principles on tradition (no application to a void or simulated sale)
A.8.1. Acceptance by the buyer, although an obligation on his
part, is not essential for delivery by the seller to achieve its
legal effects
A.8.2. An express intention on the matter by the parties to the
sale, at the point of delivery is not essential for tradition to
produce its legal consequences
A.8.3. The only way to prevent the legal consequences of
tradition from coming into effect at the point of delivery is
by an express reservation to the contrary set by the parties
A.9. The ownership of the thing sold shall be transferred to the vendee
upon the actual or constructive delivery thereof (Art. 1477)
A.1.1. Types of delivery
A.1.1.1. Actual or physical delivery
A.1.1.2. Constructive delivery
B. Actual delivery – when the thing sold is placed in the control and
possession of the vendee
B.1. The thing sold shall be understood as delivered, when it is placed
in the control and possession of the vendee. (Art. 1497)
C. Constructive delivery – a general term comprehending all those acts
which, although not conferring physical possession of the thing, have
been held by construction of law equivalent to act of real delivery
C.1. Essence of constructive delivery: the existence of an agreement
between seller and buyer that the latter is understood to have
control of the subject matter of sale
C.2. Constructive delivery may be effected in any of the following
ways:
C.2.1. Execution of Public Instrument
C.2.1.1. When the sale is made through a public
instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the
object of the contract, if from the deed the contrary
does not appear or cannot clearly be inferred.
With regard to movable property, its delivery may
also be made by the delivery of the keys of the
place or depository where it is stored or kept. (Art.
1498)
C.2.1.2. applies to movable as well as immovable – law
does not make any distinction
C.2.1.3. Constructive Delivery has the same legal effect
as actual or physical delivery
C.2.1.3.1. Functions of Notarized deed of sale:
C.2.1.3.1.1. it operates as a formal or
symbolic delivery of the property
sold
C.2.1.3.1.2. it authorizes the buyer to use the
document as proof of ownership
C.2.1.4. Execution of public instrument only gives rise
to a prima facie presumption of delivery
C.2.1.4.1. presumption can be rebutted by means of
clear and convincing evidence, as when
the delivery is not affected because of
legal impediment…negated by the failure
of the vendee to take actual possession
C.2.1.5. When execution of public instrument does not
produce effects of delivery
C.2.1.5.1. when in the execution of a public
instrument there is a stipulation to the
contrary (Art. 1498)
C.2.1.5.2. when at the time of the execution of the
public instrument, the subject matter was
not subject to the control of the seller,
then the legal effects of delivery would not
happen
C.2.1.5.3. when such control or ability to transfer
physical possession and enjoyment failed
to subsist for a reasonable length of time
after the instrument’s execution
C.2.1.6. Addison Doctrine: It is the duty of the vendor to
deliver the thing sold. Symbolic delivery by the
execution of a public Instrument is equivalent to
actual delivery when the thing sold is subject to
the control of the vendor. (Addison v. Felix)
C.2.1.6.1. if the sale had been made under the
express agreement of imposing upon the
purchaser the obligation to take the
necessary steps to obtain the material
possession of the thing sold, and it were
proven that she knew that the thing was
in the possession of a third person
claiming to have property rights therein,
such agreement would perfectly be valid
C.2.1.6.2. Special Variation: Dy Jr. v. CA
C.2.1.6.2.1. it must be provided that at the
time of the execution there was
no legal impediment on the
part of the seller to transfer
title to the buyer, even if at the
time of sale, control or
possession thereof was not in
the hands of the seller.
C.2.2. Symbolic delivery – when to effect the delivery, the
parties make use of a token symbol to present the thing
delivered
C.2.2.1. XXX
With regard to movable property, its delivery may
also be made by the delivery of the keys of the
place or depository where it is stored or kept. (Art.
1498)
C.2.2.2. Symbolic delivery must involve or cover the
subject matter and cannot take a form relating to
the payment of the purchase price.
DANA | 12
C.2.3. Constitutum Possesorium – mode of constructive
delivery that takes effect when at the time of the perfection
of the sale, the seller held possession of the subject matter
in the concept of the owner, and pursuant to the contract,
the seller continues to hold physical possession thereof no
longer in the concept of an owner, but as a lessee or any
other form of possession other than in the concept of
owner
C.2.4. Traditio Brevi Manu (short hand delivery) – opposite of
constitutum possessorium, where before the sale, the
would-be buyer was already in possession of the would-be-
subject matter of the sale (Art. 1499)
C.2.4.1. Ex. a lessee, and pursuant to sale, he would now
hold the possession in the concept of an owner
C.2.5. Traditio Longa Manu (long hand delivery) – The delivery
of movable property may be made by the mere consent or
agreement of the contracting parties, if the thing sold
cannot be transferred to the possession of the vendee at
the time of the sale, or if the latter already had it in his
possession for any other reason. (Art. 1499)
C.2.5.1. Ex. the vendor merely points to the things sold
which shall thereafter be at the control and
disposal of the vendee
C.2.6. Delivery of Incorporeal Property (Quasi-traditio)
C.2.6.1. With respect to incorporeal property, the
provisions of the first paragraph of article 1498
shall govern. In any other case wherein said
provisions are not applicable, the placing of the
titles of ownership in the possession of the vendee
or the use by the vendee of his rights, with the
vendor's consent, shall be understood as a
delivery. (Art. 1501)
C.2.6.2. Tradition can only be made with respect to
corporeal things. In the case of incorporeal things,
delivery is effected:
C.2.6.2.1. by the execution of a public instrument
C.2.6.2.2. by the placing of the titles of ownership in
the possession of the vendee when the
first mode of delivery is not applicable
C.2.6.2.3. by allowing the vendee to use his rights
as new owner with the consent of the
vendor
C.2.7. Delivery by Negotiable Document of Title
C.2.7.1. A person to whom a negotiable document of title
has been duly negotiated acquires xxx title to the
goods as transferor had or had ability to
convey to a purchaser in good faith for value,
and also the title of the persons to whom the
documents was originally issued. The buyer of
the goods can by the process of negotiation of the
covering document have a title better than that of
his immediate seller xxx (Art. 1513)
C.2.7.2. xxx the buyer to whom a document of title has
been transferred by assignment, acquires only his
transferor’s title to the goods, and always subject
to the terms of any agreement with the
transferor.xxx (Art. 1514)
C.2.7.3. since an invoice is not a negotiable document of
title, the issuance thereof would not constitute
constructive delivery
C.2.8. Delivery through carrier (only pertains to goods)
C.2.8.1. the general rule, and in the absence of stipulation
or circumstances to the contrary, delivery to
carrier is deemed delivery to the buyer, the
premise being that the carrier acts as an agent of
the buyer
C.2.8.2. Where, in pursuance of a contract of sale, the
seller is authorized or required to send the goods
to the buyer, delivery of the goods to a carrier,
whether named by the buyer or not, for the
purpose of transmission to the buyer is deemed to
be a delivery of the goods to the buyer, except in
the case provided for in Article 1503, first, second
and third paragraphs, or unless a contrary intent
appears.
Unless otherwise authorized by the buyer, the
seller must make such contract with the carrier on
behalf of the buyer as may be reasonable, having
regard to the nature of the goods and the other
circumstances of the case. If the seller omit so to
do, and the goods are lost or damaged in course
of transit, the buyer may decline to treat the
delivery to the carrier as a delivery to himself, or
may hold the seller responsible in damages.
Unless otherwise agreed, where goods are sent
by the seller to the buyer under circumstances in
which the seller knows or ought to know that it is
usual to insure, the seller must give such notice to
the buyer as may enable him to insure them
during their transit, and, if the seller fails to do so,
the goods shall be deemed to be at his risk during
such transit. (Art. 1523)
C.2.8.3. F.A.S. Sales (Fee Along Side ship)
C.2.8.3.1. Seller pays all charges and is subject to
risk until the goods are placed alongside
the vessel.
C.2.8.3.2. delivery of the goods alongside the vessel
completes the effect of tradition
C.2.8.4. F.O.B. Sales (Free On Board)
C.2.8.4.1. Seller shall bear all expenses until the
goods are delivered, depending on
whether the goods are to be delivered
f.o.b., :
C.2.8.4.1.1. at the point of shipment –
delivery of goods to the carrier is
equivalent to the delivery to the
buyer, and at the point the risk of
loss pertains to the buyer
C.2.8.4.1.2. at the point of destination –
only when the vessel has arrived
at the point of destination would
there be delivery to the buyer
and prior to that point in time, the
risk of loss over the subject
matter of the sale will be borne
by the seller
C.2.8.5. C.I.F. Sales (Cost, Insurance, and Freight)
C.2.8.5.1. the price fixed covers not only the costs of
the goods, but the expense of freight and
insurance to be paid by the seller
Effects and Completeness of delivery
A. For tradition to produce the twin legal consequences of transferring
ownership to the buyer and effecting a fulfillment of the primary
obligation of the seller, 2 principles must apply:
A.1. Delivery must be made pursuant to a valid sale
A.1.1. When a sale is fictitious and void, no title over the subject
matter of the sale can be conveyed.
A.1.2. Nemopotest nisi quod de jure potest – No man can do
anything except what he can do lawfully
A.2. Delivery must be made by seller who has ownership over the
subject matter
A.2.1. Nemodat quod non habet – No man can dispose of that
which does not belong to him
A.2.2. a seller without a title cannot transfer a better title than he
has. Only the owner of the goods or one authorized by the
owner to sell can transfer title to the buyer.
B. To whom delivery must be made: to the buyer or his duly authorized
representative named in the contracts, the seller is bound to deliver in
such manner only, unless the buyer specifically designated someone to
receive delivery
C. When buyer refuses to accept
C.1. acceptance by the buyer is not a condition for the completeness of
delivery
C.2. Unless otherwise agreed, where goods are delivered to the buyer,
and he refuses to accept them, having the right so to do, he is
not bound to return them to the seller, but it is sufficient if he
notifies the seller that he refuses to accept them. If he voluntarily
constitutes himself a depositary thereof, he shall be liable as such.
(Art. 1587)
C.3. If there is no stipulation as specified in the first paragraph of article
1523, when the buyer's refusal to accept the goods is without just
DANA | 13
 cause, the title thereto passes to him from the moment they are
placed at his disposal. (Art. 1588)
C.3.1. Seller is still legally obliged to take certain steps as not to
be held liable for consequent loss or damage to the goods
D. Rules on effects of delivery for movables
D.1. Rules covering the Delivery of goods
D.1.1. Where the seller delivers to the buyer a quantity of
goods less than he contracted to sell,
D.1.1.1. the buyer may reject them, but
D.1.1.2. if the buyer accepts or retains the goods so
delivered, knowing that the seller is not going to
perform the contract in full, he must pay for them
at the contract rate.
D.1.1.3. If, however, the buyer has used or disposed of the
goods delivered before he knows that the seller is
not going to perform his contract in full, the buyer
shall not be liable for more than the fair value to
him of the goods so received.
D.1.2. Where the seller delivers to the buyer a quantity of
goods larger than he contracted to sell,
D.1.2.1. the buyer may accept the goods included in the
contract and reject the rest.
D.1.2.2. If the buyer accepts the whole of the goods so
delivered he must pay for them at the contract
rate.
D.1.2.3. xxx if the subject matter is indivisible, the buyer
may reject the whole of the goods.
D.1.3. Where the seller delivers to the buyer the goods he
contracted to sell mixed with goods of a different
description not included in the contract,
D.1.3.1. the buyer may accept the goods which are in
accordance with the contract and reject the rest.
D.1.3.2. xxx if the subject matter is indivisible, the buyer
may reject the whole of the goods.
The provisions of this article are subject to any usage of
trade, special agreement, or course of dealing between the
parties. (Art. 1522)
D.2. Sale of specific mass
D.2.1. Any injury to or benefit from the thing sold, after the
contract has been perfected, from the moment of the
perfection of the contract to the time of delivery, shall be
governed by Articles 1163 to 1165, and 1262.
This rule shall apply to the sale of fungible things, made
independently and for a single price, or without
consideration of their weight, number, or measure.
Should fungible things be sold for a price fixed according to
weight, number, or measure, the risk shall not be imputed
to the vendee until they have been weighed, counted, or
measured and delivered, unless the latter has incurred in
delay. (Art. 1480)
D.3. The vendor is bound to deliver the thing sold and its accessions
and accessories in the condition in which they were upon the
perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the
contract was perfected. (Art. 1537)
D.4. When Goods held by Third party
D.4.1. xxx Where the goods at the time of sale are in the
possession of a third person, the seller has not fulfilled his
obligation to deliver to the buyer unless and until such third
person acknowledges to the buyer that he holds the goods
on the buyer's behalf. xxx (Art. 1521)
D.5. Reservation of Ownership
GR: ownership in the goods sold passes to the buyer upon their
delivery to the carrier
Exception:
D.5.1. The parties may stipulate that ownership in the thing shall
not pass to the purchaser until he has fully paid the price.
(Art. 1478)
D.5.2. When there is a contract of sale of specific goods, the
seller may, by the terms of the contract, reserve the
right of possession or ownership in the goods until
certain conditions have been fulfilled. The right of
possession or ownership may be thus reserved
notwithstanding the delivery of the goods to the buyer or to
a carrier or other bailee for the purpose of transmission to
the buyer.
D.5.2.1. Where goods are shipped, and by the bill of
lading the goods are deliverable to the seller or
his agent, or to the order of the seller or of his
agent, the seller thereby reserves the ownership
in the goods. But, if except for the form of the bill
of lading, the ownership would have passed to the
buyer on shipment of the goods, the seller's
property in the goods shall be deemed to be only
for the purpose of securing performance by the
buyer of his obligations under the contract.
D.5.2.2. Where goods are shipped, and by the bill of
lading the goods are deliverable to order of the
buyer or of his agent, but possession of the
bill of lading is retained by the seller or his
agent, the seller thereby reserves a right to the
possession of the goods as against the buyer.
D.5.2.3. Where the seller of goods draws on the buyer
for the price and transmits the bill of exchange
and bill of lading together to the buyer to
secure acceptance or payment of the bill of
exchange, the buyer is bound to return the bill of
lading if he does not honor the bill of exchange,
and if he wrongfully retains the bill of lading he
acquires no added right thereby.
D.5.2.3.1. If, however, the bill of lading provides that
the goods are deliverable to the buyer or
to the order of the buyer, or is indorsed in
blank, or to the buyer by the consignee
named therein, one who purchases in
good faith, for value, the bill of lading, or
goods from the buyer will obtain the
ownership in the goods, although the bill
of exchange has not been honored,
provided that such purchaser has
received delivery of the bill of lading
indorsed by the consignee named therein,
or of the goods, without notice of the facts
making the transfer wrongful. (Art. 1503)
D.5.3. Where, in pursuance of a contract of sale, the seller is
authorized or required to send the goods to the buyer,
delivery of the goods to a carrier, whether named by the
buyer or not, for the purpose of transmission to the buyer
is deemed to be a delivery of the goods to the buyer,
except in the case provided for in Article 1503, first, second
and third paragraphs, or unless a contrary intent appears.
D.5.3.1. Unless otherwise authorized by the buyer, the
seller must make such contract with the carrier
on behalf of the buyer as may be reasonable,
having regard to the nature of the goods and the
other circumstances of the case. If the seller omit
so to do, and the goods are lost or damaged in
course of transit, the buyer may decline to treat
the delivery to the carrier as a delivery to himself,
or may hold the seller responsible in damages.
D.5.3.2. Unless otherwise agreed, where goods are sent
by the seller to the buyer under circumstances in
which the seller knows or ought to know that it is
usual to insure, the seller must give such notice
to the buyer as may enable him to insure them
during their transit, and, if the seller fails to do
so, the goods shall be deemed to be at his risk
during such transit. (Art. 1523)
D.6. “Sale by Description and/or Sample”
D.6.1. “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
D.6.1.1. 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 correspond with the sample
D.6.1.2. bulk of goods – goods as distinguished from the
sample with which they must correspond
D.6.2. “sale of goods by description” – one where a seller sells
things as being of a particular kind, the buyer not knowing
DANA | 14
 whether the seller’s representations are true or false, but
relying on them as true; or as otherwise stated, where the
buyer has not seen the article sold and relies on the
description given to him by the seller, or has seen the
goods, but the want of identity is not apparent on
inspection.
D.6.3. In the contract of sale of goods by description or by
sample, the contract may be rescinded if the bulk of the
goods delivered do not correspond with the description or
the sample, and
D.6.4. if the contract be by sample as well as description, it is
not sufficient that the bulk of goods correspond with the
sample if they do not also correspond with the description.
The buyer shall have a reasonable opportunity of
comparing the bulk with the description or the sample. (Art.
1481)
D.6.5. the purchaser 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 the
purchaser has acquiesced to such deviations
D.7. “On Sale or Return” / “Sale on Approval, Trial, Satisfaction, or
Acceptance”
D.7.1. When goods are delivered to the buyer "on sale or
return" to give the buyer an option to return the goods
instead of paying the price, the ownership passes to the
buyer of delivery, but he may revest the ownership in the
seller by returning or tendering the goods within the time
fixed in the contract, or, if no time has been fixed, within a
reasonable time.
D.7.2. When goods are delivered to the buyer on approval or on
trial or on satisfaction, or other similar terms, the
ownership therein passes to the buyer
D.7.2.1. When he signifies his approval or acceptance to
the seller or does any other act adopting the
transaction;
D.7.2.2. If he does not signify his approval or acceptance
to the seller, but retains the goods without giving
notice of rejection, then
D.7.2.2.1. if a time has been fixed for the return of
the goods, on the expiration of such time,
and,
D.7.2.2.2. if no time has been fixed, on the
expiration of a reasonable time. What is a
reasonable time is a question of fact. (Art.
1502)
Contract of Sale or return – contract Contract of Sale on trial or approval
by which property is sold but the or satisfaction – contract in the
buyer, who becomes the owner of the nature of an option to purchase if the
property on delivery, has the option to goods prove satisfactorily, the
return the same to the seller instead approval of the buyer being a
of paying the price condition precedent
subject to a resolutory condition Subject to a suspensive condition
Depends entirely on the will of the Depends on the character or quality of
buyer the goods
Ownership passes to the buyer on Ownership remains in the seller until
delivery and subsequent return of the the buyer signifies his approval or
goods reverts ownership in the seller acceptance to the seller
Risk of loss or injury rests upon the Risk still remains with the seller
buyer
D.7.3. Form of such Special Sales
D.7.3.1. for a sale to be considered and construed as a
“sale or return” or a “sale on approval”, there must
be a clear agreement to either of such effect,
otherwise, the provisions of Art. 1502 of the Civil
Code governing such sales cannot be invoked by
either party to the contract, and therefore must be
in writing, and cannot be proved by parol
evidence
D.8. Written Proof of delivery
D.8.1. in case of goods, delivery is generally evidenced by a
written acknowledgment of a person that he has actually
received the thing or the goods, as in delivery receipts,
under the following rules:
D.8.1.1. A bill of lading cannot substitute for a delivery
receipt, because it is a written acknowledgment of
receipt of the goods by the carrier and an
agreement to transport and deliver them at a
specific place to a person named or upon his
order; it does not evidence receipt of the goods by
the consignee or the person named in the bill of
lading; and
D.8.1.2. A factory consignment invoice is not evidence
of actual delivery of the goods since in the
invoice nothing more than a detailed statement of
the nature, quantity and cost of the thing sold, and
it not proof that the thing or goods were actually
delivered to the buyer or the consignee.
D.9. Time, Place and Expenses of Delivery
D.9.1. Whether it is for the buyer to take possession of the
goods or of the seller to send them to the buyer is a
question depending in each case on the contract, express
or implied, between the parties.
D.9.2. Place of delivery:
D.9.2.1. GR: the place expressed or implied in the contract
D.9.2.2. usage of trade
D.9.2.3. seller's place of business
D.9.2.4. seller’s residence
D.9.2.5. in case of a contract of sale of specific goods,
which to the knowledge of the parties when the
contract or the sale was made were in some other
place xxx
D.9.3. Where by a contract of sale the seller is bound to send the
goods to the buyer, but no time for sending them is
fixed, the seller is bound to send them within a reasonable
time.
D.9.4. Where the goods at the time of sale are in the
possession of a third person, the seller has not fulfilled
his obligation to deliver to the buyer unless and until such
third person acknowledges to the buyer that he holds the
goods on the buyer's behalf.
D.9.5. Demand or tender of delivery may be treated as
ineffectual unless made at a reasonable hour. What is a
reasonable hour is a question of fact.
D.9.6. Unless otherwise agreed, the expenses of and incidental
to putting the goods into a deliverable state must be
borne by the seller. (Art. 1521)
E. Rules on Effects of delivery for Immovables
E.1. 2 pricing methods of sales over immovables
E.1.1. Unit price contract – the purchase price is determined by
way of reference to a stated rate per unit
RULES:
E.1.1.1. entire area stated in contract must be delivered, if
the vendee should demand it
E.1.1.2. if the entire area could not be delivered, the
vendee may:
E.1.1.2.1. enforce the contract with the proportional
reduction in price
E.1.1.2.2. rescind the sale of real property; such is
available in the following cases:
E.1.1.2.2.1. if the lack in area is at least
1/10th than that stated or
stipulated
E.1.1.2.2.1.1. must be based on the
area stipulated in the
contract, and not on the
real area which the thing
may actually have
E.1.1.2.2.2. if the deficiency in the quality
specified in the contract exceeds
1/10th of the price agreed upon
E.1.1.2.2.3. if the vendee would not have
brought the immovable had he
known of its smaller area or
inferior quality; even when the
smaller area or inferior of quality
does not conform to the
minimum amount or value
provided by law to allow
rescission on the part of the
buyer (Art. 1539)
DANA | 15
 E.1.1.3. If, in the case of the preceding article, there is a
greater area or number in the immovable than
that stated in the contract,
E.1.1.3.1. the vendee may accept the area included
in the contract and reject the rest.
E.1.1.3.2. If he accepts the whole area, he must pay
for the same at the contract rate. (Art.
1540)
 the vendee may not withdraw from the contract
E.1.2. Lump sum contract – states a full purchase price for an
immovable, the area of which may be declared based on
an estimate or where both the area and boundaries are
stated
RULES:
E.1.2.1. there shall be no increase or decrease of the
price, although there be a greater or less area or
number than that stated in the contract. especially
with the use of qualifying words of “more or less”
in describing the area
E.1.2.1.1. rule of no increase or decrease admits
exception because the sale of land under
description “more or less” or similar words
in designating quantity covers “only
reasonable excess or deficiency”
E.1.2.1.2. “About”, “more or less”, etc – word of
safety and caution, intended to cover
some slight or unimportant inaccuracy,
and while enabling an adjustment to the
imperative demand of fixed monuments,
they do not weaken or destroy the
statements of distance and quantity when
no other guides are furnished
E.1.2.2. The same rule shall be applied when two or more
immovables as sold for a single price;
E.1.2.3. but if, besides mentioning the boundaries, which is
indispensable in every conveyance of real estate,
its area or number should be designated in the
contract, the vendor shall be bound to deliver
all that is included within said boundaries,
even when it exceeds the area or number
specified in the contract; and,
E.1.2.3.1. If the vendor cannot deliver to the vendee
all that is included within the boundaries
mentioned in the contract, the latter has
the option
E.1.2.3.1.1. to reduce the price in proportion
to the deficiency or
E.1.2.3.1.2. to rescind the contract failure to
deliver what has been stipulated
(Art. 1542)
E.1.2.4. In case of conflict between area included within
the stipulated boundaries and that which the title
shows, the former shall prevail when the
boundaries are certain and no alteration thereof
has been proven
E.1.2.5. In case conflict between areas and boundaries, it
is the latter which should prevail – what really
defines a piece of ground is not the area but the
boundaries laid down as enclosing the land and
indicating its limits – though this rule is not
applicable where the boundaries relied upon do
not identify the land beyond doubt
E.1.2.6. where the identity of the disputed property has
been clearly established by both parties’
pleadings, the mistake in designating the property
in the deed of sale does not vitiate consent of the
parties or affect the validity and binding effect of
the contract
E.1.3. Lump sum sale vs. Sale by Unit of measure or number:
if the price per unit of measure or number is not expressly
provided for in the contract, the rules of lump sum sale
shall prevail in the sale of real property.
E.2. Where Immovables sold in mass
E.2.1. A judicial sale in mass of separate known lots or parcels
will not be set aside, unless
E.2.1.1. it is made to appear that a larger sum could have
been realized from a sale in parcels or
E.2.1.2. that a sale of less than the whole would have been
sufficient to satisfy the debt.
E.3. Expenses of delivery and registration on real estate
E.3.1. Registration of the title of the buyer over the purchased real
estate is not an ingredient necessary for tradition to have
full effect,
E.3.1.1. The seller is not obligated to transfer in the name
of the buyer a new certificate of title, but rather to
transfer ownership of the real property.
E.3.1.2. The buyer may become the owner of the real
property even if the certificate of title is still
registered in the name of the seller.
E.3.1.3. As between the seller and buyer, ownership is
transferred not by issuance of a new certificate of
title in the name of the buyer but by the execution
of the instrument of sale in a public document.
E.3.1.4. Registration or issuance of a new certificate of title
is not one of the modes of acquiring ownership.
E.3.1.5. The recording of the sale with the proper Registry
of Deeds and the transfer of the certificate of title
in the name of the buyer are necessary only to
bind third parties to the transfer of ownership.
E.3.2. The expenses for the execution and registration of the sale
shall be borne by the vendor, unless there is a stipulation
to the contrary. (Art. 1487)
Double Sales
A. Rules of Double Sales must be considered in the Realm of Tradition
A.1. the conflicting sales are all valid and demandable sales, pursuant
to which tradition was or could be effected
A.2. the seller who effected multiple sales to various buyer over the
same subject matter actually had ownership to convey
B. Article 1544: Rules on double or multiple sales
B.1. If the property sold is movable, the ownership shall be acquired by
the vendee who
B.1.1. first takes possession
B.1.2. in good faith
B.1.2.1. Possession of movable property acquired in good
faith is equivalent to title. (Art. 559)
B.2. If the property sold is immovable, the ownership shall belong, in
the order hereunder stated to:
B.2.1. Registered land
B.2.1.1. first registers the sale
B.2.1.2. in good faith in the Registry of Deeds
B.2.1.2.1. If a vendee registers the sale after he has
acquired knowledge of a previous sale,
the registration is in bad faith – it as if
there is no registration at all
B.2.2. Unregistered land (absence of registration) (treated as
movable)
B.2.2.1. first takes possession
B.2.2.1.1. possession includes not only material but
also symbolic possession
B.2.2.2. in good faith
B.2.3. in absence of both registration and possession, to the
vendee who presents the oldest title in good faith (who has
a document having dated first)
B.2.3.1. Prius tempore, potior jure – first in time, stronger
in right
C. 2 Divergent Systems when it comes to Land
C.1. Case for Registered Land
C.1.1. Art. 1544 does not overcome the priority rules under P.D.
1529
C.1.1.1. xxx The act of registration shall be the operative
act to convey or affect the land transfer insofar as
third persons are concerned xxx (Sec. 51, P.D.
1529)
C.1.2. “registration” – the annotation or inscription with the
Register of Deeds of a contract, transaction or legal
process involving real estate
C.2. Case for Unregistered Land
C.2.1. Art. 1544 has no application to land not registered under
the Torrens system
DANA | 16
 C.2.1.1. the rules on double sales under Art. 1544 are
applicable to unregistered land, but only insofar as
they do not undermine specific rules and
legislations that have a higher hierarchical
enforcement value, such as: xxx Registration is
without prejudice to a third party with a better right
xxx (Sec. 113, P.D. 1529)
C.2.2. buyer with a “better right” – one who has more than just
having in his favor an earlier deed of sale, but rather a
mode by which ownership is directly affected, like
acquisitive prescription or when one who has taken
possession of the property bought either by actual or
constructive delivery
D. Global rules on Double Sales
D.1. Highest Priority: Registration in Good Faith under P.D. 1529
D.2. Second Priority: Principle Applicable to Buyer at Auction sale
under the Rules of Court
D.2.1. this second rule can pertain only to cases involving
unregistered land.
D.2.2. where one of the two conflicting sales of a piece of land
was executed before the land was registered, while the
other was an execution sale in favor of the judgment
creditor of the owner made after the same property had
been registered and issued a title “free from all liens and
encumbrances,” Article 1544 should not apply – since the
land was previously sold to the first buyer, the second
buyer at the execution sale actually bought nothing since
the judgment debtor no longer had rights to the property
previously sold
D.3. Third Priority: Art. 1544 Rules on Double Sales
E. Essential Elements for Applicability of Art. 1544
E.1. Requisites of double sales:
E.1.1. the two (or more) sales transactions must constitute valid
sales (or at least voidable)
E.1.1.1. The attempt to deliver the subject matter pursuant
to a second valid sale would not produce the legal
effects of delivery; but the second contract itself
would remain a valid contract, and can be
rescinded for breach of the obligation to deliver.
The lack of ownership on the part of the seller
does not affect the validity of an otherwise valid
sale; and the failure of the seller to effect proper
delivery does not render the contract void, but
merely constitutes a breach as the basis for
rescission.
E.1.1.2. Rules on double sales have no application when
the covered valid contracts are not yet
demandable (consummated) sales, such as where
the first transaction is a contract to sell/ conditional
sale
E.1.2. the two (or more) sales transactions must pertain to exactly
the same subject matter
E.1.2.1. In a case where one buyer bought the parcel of
land, and the other buyer bought the right to
redeem the same parcel of land, Article 1544 was
deemed to be inapplicable, because the subject of
the second sale is not the land itself, but the right
to redeem.
E.1.3. the two (or more) buyers at odds over the rightful
ownership of the subject matter must each represent
conflicting interests
E.1.3.1. Art. 1544 is not a contest between 2 Protagonists
running the same race
E.1.3.2. The governing principle here is prius tempore,
potior jure (first in time, stronger in right) –
Knowledge gained by the first buyer of the second
sale cannot defeat the first buyer’s rights except
only as provided by the Civil Code and that is
where the second buyer first registers in good faith
the second sale ahead of the first.
E.1.4. the two (or more) buyers at odds over the rightful
ownership of the subject matter must each have bought
from the very same seller
E.1.4.1. Successors and predecessors-in-interest theories
are not applicable to be able to obtain application
of the provisions of Article 1544.
E.1.4.2. 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.
E.2. Peculiar Developments in the Law on Double Sales
E.2.1. the annotation of lispendens by the first buyer is ineffective
to overcome the previous possession acquired in good
faith by the second buyer, because the annotation was
done at the time when first buyer already knew of the
second sale – annotation of lispendens by the first buyer
cannot qualify to be equivalent to the requisite of
registration under Article 1544.
E.3. Purchaser in good faith – one who buys the property of
another/// without notice that some other person has a right to or
interest in such property and/// pays a full and fair price for the
same/// at the time of such purchase or before he has notice of the
claim or interest of some other person in the property
E.3.1. Burden of Proof: he who asserts the status of a purchaser
in good faith and for value, has the burden of proving such
assertion
E.3.2. Obligation to Investigate Known Facts
E.3.2.1. Mirror doctrine: anyone dealing with registered
land may safely rely on the correctness of
certificate of title. They are not required to go
beyond the CTC in search of defect
E.3.2.2. exception: need to go beyond the certificate of
title
E.3.2.2.1. there are circumstances that would put a
reasonable and prudent man to inquire
and investigate (cannot turn a blind eye
and later claim that he acted in good faith)
E.3.2.2.2. Bank and other real estate market players
– it is always the duty to inquire and
investigate the status and condition of the
land being offered as collateral or security
E.4. “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
E.4.1. Requisites of Prior Registration
E.4.1.1. Prior Registration by the Second Buyer must
always be in good faith
E.4.1.2. The need for Second Buyer to do Positive act
under Art. 1544 – Register
E.4.2. Annotation of an adverse claim or lispendens have
been held to produce the same effect as formal
registration.
DOCUMENTS OF TITLE
A. Document of Title
A.1. A document:
A.1.1. used as proof of the possession or control of the goods or
A.1.2. authorizing or purporting to authorize the possessor of the
document to transfer or receive, either by endorsement or
by delivery, goods represented by such document (Art.
1636)
A.2. Most common form of document of title
A.2.1. Bill of lading – a contract and a receipt for the transport of
goods and their delivery to the person name therein, to
order, or to bearer. It usually involves 3 persons: carrier,
shipper, and the consignee
A.2.2. Dock warrant – an instrument given by dock owners to an
importer of goods warehoused on the dock as a recognition
of the importer’s title to the said goods, upon production of
the bill of lading
A.2.3. Warehouse receipt – a contract or receipt for goods
deposited with a warehouseman containing the latter’s
undertaking to hold and deliver the said goods to a
specified person, to order, or to bearer
A.2.4. Quedan– negotiable instrument used in sugar trading in
the Philippines
A.3. Laws governing documents of title
DANA | 17
 A.3.1. civil code
A.3.2. warehouse receipt law
A.3.3. code of commerce
B. Types of documents of title
B.1. negotiable documents of title – a document of title in which it is
stated that the goods referred to will be delivered to the bearer, or
to the order of any person named in such document (Art. 1507)
B.2. non negotiable documents of title – those by the terms of which
the goods covered are deliverable to a specified person
C. Negotiation of Negotiable Documents of Title
C.1. Who can negotiate
C.1.1. By the owner therefor; or
C.1.2. By any person to whom the possession or custody of the
document has been entrusted by the owner,
C.1.2.1. if, by the terms of the document the bailee issuing
the document undertakes to deliver the goods to
the order of the person to whom the possession or
custody of the document has been entrusted, or
C.1.2.2. if at the time of such entrusting the document is in
such form that it may be negotiated by deliver.
(Art. 1512)
C.2. How negotiation properly effected
C.2.1. by delivery alone
C.2.1.1. if the goods are deliverable to the bearer, or
C.2.1.2. when it is indorsed in blank or to the bearer by the
person to whose order the goods are deliverable
or by a subsequent indorsee (Art. 1508)
C.2.2. by endorsement and delivery
C.2.2.1. if indorsed in blank or to bearer, the document
becomes negotiable by delivery
C.2.2.2. if indorsed to a specified person, it may be again
negotiated by the indorsement of such person in
blank, to bearer, or to another specified person.
Delivery alone is not sufficient(Art. 1509)
C.2.2.2.1. a party is liable only as guarantor and not
as indorser if his indorsement is made for
the purpose of identification only
C.3. Effects of Negotiation
C.3.1. a person to whom a negotiable document of title has
been duly negotiated, either by delivery, in the case of
a document of title to bearer, or by indorsement and
delivery, in the case of a document of title to order,
acquires:
C.3.1.1. title of the person negotiating the document, over
the goods covered by the document
C.3.1.2. title of the person to whose order by the terms of
the document the goods were to be delivered,
over such goods
C.3.1.3. direct obligation of the bailee to hold possession of
the goods for him, as if the bailee had contracted
directly with him (Art. 1513)
C.4. Unauthorized negotiation
C.4.1. As between the owner of a negotiable document of title
who indorsed it in blank and entrusted it to a friend, and a
holder of such negotiable document of title to whom it was
negotiated 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
C.4.2. The validity of the negotiation of a negotiable
document of title is not impaired by the fact:
C.4.2.1. that the negotiation was a breach of duty on the
part of the person making the negotiation
C.4.2.2. that the owner of the document was deprived of
the possession of the same by loss, theft, fraud,
accident, mistake, duress or conversion, if the
person to whom the document was subsequently
negotiated paid value therefor in good faith without
notice of the breach of duty or loss, theft, fraud,
accident, mistake, duress or conversion (Art.
1518)
D. Non-negotiable Documents of Title
 Negotiation – used with respect to documents
negotiable in form
 Transfer – non negotiable documents
D.1. How transferred or assigned
D.1.1. A document of title which is not in such form that it can be
negotiated by delivery may be transferred by the holder by
delivery to a purchaser or donee.
A non-negotiable document cannot be negotiated and the
endorsement of such a document gives the transferee no
additional right. (Art. 1511)
D.2. Effects of transfer
D.2.1. a person to whom document has been transferred, but
not negotiated acquires:
D.2.1.1. title to the goods, subject to the terms of any
agreement with the transferor
D.2.1.2. the right to notify the bailee who issued the
document of the transfer and also acquire the
direct obligation of the goods for him according to
the terms of the document (Art. 1514)
D.3. Transfer of order document without indorsement
D.3.1. A person with whom an order document of title, which may
not be properly be negotiated by mere delivery, has been
delivered, without indorsement, acquires
D.3.1.1. right to the goods as against the transferor
D.3.1.2. right to compel the transferor to indorse the
document
D.3.2. The negotiation shall take effect as of the time when the
indorsement is actually made (Art. 1515)
E. Warranties on negotiation and assignment of Documents of Title
E.1. A person who for value negotiates or transfers a document of
title by endorsement or delivery, including one who assigns
for value a claim secured by a document of title unless a
contrary intention appears, warrants:
E.1.1. That the document is genuine;
E.1.2. That he has a legal right to negotiate or transfer it;
E.1.3. That he has knowledge of no fact which would impair the
validity or worth of the document; and
E.1.4. That he has a right to transfer the title to the goods and
E.1.5. that the goods are merchantable or fit for a particular
purpose, whenever such warranties would have been
implied if the contract of the parties had been to transfer
without a document of title the goods represented thereby.
(Art. 1516)
E.2. The endorsement of a document of title shall not make the
endorser liable for any failure on the part of the bailee who issued
the document or previous endorsers thereof to fulfill their
respective obligations.” (Art. 1517)
F. Rules on levy/Garnishment of Goods
F.1. Negotiable Document of Title
F.1.1. Goods cannot be attached by garnishment or levied unless
F.1.1.1. the document is first surrendered
F.1.1.2. the negotiation of the document is enjoined
F.1.1.3. the document is impounded by the court (Art.
1519)
F.1.2. A creditor whose debtor is the owner of a negotiable
document of title shall be entitled to aid from the courts of
appropriate jurisdiction nu injunction and otherwise in
attaching the document or in satisfying the claim by means
thereof as is allowed at law or in equity in regard to
property which cannot be attached or levied upon by
ordinary legal process (Art. 1520)
F.2. Non Negotiable Document of Title
F.2.1. it cannot be negotiated but it can only be transferred or
assigned by delivery. Even if the document is indorsed, the
transferee acquires no additional right
F.2.2. Prior to notification of the bailee of the transfer of document
of title, the title of the transferee to the goods may be
defeated by levy of attachment of execution (Art. 1514)
G. Effects of Errors on Document of Title
G.1. Clerical errors in the words of negotiability and the wrongful
designation of the subject of the receipt does not destroy the
validity nor the negotiability of the document of title, nor the effects
of the negotiation thereof.
H. Effects of Use of “Non-Negotiable” Terms on Negotiable Documents
of Title
H.1. xxx The words “not negotiable”, “non negotiable” and the like when
placed upon a document of title in which the goods are to be
delivered to “order” or to “bearer” have no effect and the document
continues to be negotiable xxx (Art. 1510)
DANA | 18

SALE BY A NON-OWNEROR BY ONE HAVING A VAOIDABLE TITLE
A. When seller is not owner of the subject matter
A.1. At Perfection
A.1.1. a valid sale exists to bind both seller and buyer even if at
the time of perfection the seller was not the owner thereof
A.1.1.1. an action to annul such contract is improper; and it
is his failure to comply with his obligation to
transfer ownership over the subject matter that
would give rise to an action for rescission with
damages.
A.1.2. Perfection of a sale merely creates the obligation on the
part of the seller to transfer ownership, but by itself
perfection does not transfer ownership.
A.1.3. When the person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor
acquires title thereto, such title passes by operation of law
to the buyer or grantee. (Art. 1434)
A.2. At Consummation
A.2.1. The thing must be licit and the vendor must have a right to
transfer the ownership thereof at the time it is delivered.
(Art. 1459)
A.2.2. Subject to the provisions of this Title, where goods are
sold by a person who is not the owner thereof, and
who does not sell them under authority or with the
consent of the owner, the buyer acquires no better title to
the goods than the seller had, unless the owner of the
goods is by his conduct precluded from denying the seller's
authority to sell. xxx (Art.1505)
A.2.3. nemodat quod non habet – no one can give what one
does not have
B. Sales by Co-Owners
B.1. Rules in co-ownership
B.1.1. Every co-owner has the right to sell his pro-indiviso share
in the co-owned property even without the consent of the
other co-owners
B.1.2. but that none of the co-owners may claim any right, title or
interest to a particular portion of the thing owned in
common and
B.1.3. therefore, a co-owner has no right to sell a divided part of
the real estate
B.2. GR: the effect of the sale of the entire property owned in common
by one of the co-owners, to be void as a sale of the whole property
or any definite portion thereof, but valid as to the co-owner-seller’s
spiritual share
B.2.1. the proper action to take is not the nullification of the sale,
or for recovery of possession of the property owned in
common from the other co-owners, but for division or
partition of the entire property
B.2.2. Exceptions to the Rule on Effect of sale of definite
portion by co-owner
B.2.2.1. where the subject matter is indivisible in nature
or by intent.
B.2.2.1.1. incapable of partial annulment
B.2.2.2. when a sale of a particular portion of the thing
owned in common is with the consent of the other
co-owners
B.2.2.2.1. there is a partial partition, and the sale of
the definite portion can no longer be
assailed by the other co-owners.
B.2.2.3. a co-owner who sells one of the two lands owned
in common with another co-owner, and does not
turn-over one-half of the proceeds of the sale to
the other co-owner, the latter by law and equity
may lay exclusive claim to the remaining parcel of
land.
B.2.2.4. the effect of the ipso jure transfer of ownership
under Article 1434 of the Civil Code.
B.2.2.5. the binding effect of registration under the Torrens
System.
C. GR: one who has no title at all can transfer none (Art. 1505)
C.1. Exceptions to rules on legal effects of sales by a non-owner
C.1.1. where the owner of the goods is, by his conduct, precluded
from denying the seller’s authority to sell
C.1.1.1. for the doctrine of estoppels to apply, the owner
must, by word or conduct, have caused or allowed
it to appear that title or authority to sell is with the
seller and the buyer must have been misled to his
damage
C.1.2. when the contrary is provided for in recording law
C.1.3. where the sale is sanctioned by statutory or judicial
authority
C.1.4. where the sale is made at merchant’s stores, fairs or
markets (Art. 1505)
C.1.4.1. the only exception under Art. 1505 that needs to
assert GOOD FAITH because unlike the other, it
has no notice and publication
C.1.4.2. a buyer cannot be reasonably expected to look
behind the title of every article when he buys at a
store.
C.1.4.3. Merchant store – any place where goods are kept
for sale; or where goods are deposited and sold by
one engaged in buying and selling them.
C.1.5. Where the seller of goods has a voidable title thereto, but
his title has not been avoided at the time of the sale, the
buyer acquires a good title to the goods, provided he buys
them in good faith, for value, and without notice of the
seller's defect of title. (Art. 1506)
C.1.6. where the real owner has not lost or been unlawfully
deprived of the movable, makes the possessor the rightful
owner
C.1.6.1. Possession of movable property acquired in good
faith is equivalent to title (Art. 559)
C.1.6.2. deceit or fraud, which do not render the contract
void but merely voidable resulted into the
existence of a sale, so that when delivery was
effected pursuant to such voidable contract,
tradition effectively and legally transferred
ownership to the buyer, even though he was a
deceitful person.
C.1.6.3. Non-payment only creates a right to demand
payment or to rescind the contract, or to criminal
prosecution in the case of bouncing checks
C.1.7. Special rights of an “Unpaid seller of goods”
LOSS AND DETERIORATION, FRUITS AND OTHER BENEFITS
A. Before perfection, the seller and not the one who intends to purchase it
bears the loss
B. At the time of perfection,
B.1. if thing is
B.1.1. entirely lost – the contract shall be “without any effect”
B.1.1.1. inexistent and void because there is no object
B.1.2. partially lost – the vendee may elect between
B.1.2.1. withdrawing from the contract and
B.1.2.2. demanding the remaining part, paying its
proportionate price (Art. 1493)
B.2. Where the parties purport a sale of specific goods, and the
goods without the knowledge of the seller have perished in part or
have wholly or in a material part so deteriorated in quality as to be
substantially changed in character, the buyer may at his option
treat the sale:
B.2.1. As avoided; or
B.2.2. As valid in all of the existing goods or in so much thereof as
have not deteriorated, and as binding the buyer to pay the
agreed price for the goods in which the ownership will
pass, if the sale was divisible. (Art. 1494)
C. After the perfection but before its delivery, (that is even before the
ownership is transferred to the buyer),
C.1. Res Perit Domino
C.1.1. Art. 1504 – Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred to
the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
C.1.1.1. Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of
the contract and the ownership in the goods has
been retained by the seller merely to secure
performance by the buyer of his obligations under
DANA | 19
 the contract, the goods are at the buyer's risk from
the time of such delivery;
C.1.1.2. Where actual delivery has been delayed through
the fault of either the buyer or seller the goods are
at the risk of the party in fault.
C.1.1.2.1. restricted to sale of “goods” as defined in
Art. 1636; all chattels personal and
growing fruits or crops, but not things in
action or money of legal tender
C.1.2. Art. 1480 – even before the ownership is transferred to the
buyer, risk of loss is borne by the buyer as an exception of
the rule of res perit domino
C.1.2.1. restricted to sales of “things” which cannot be
called “goods”
C.1.2.2. the obligation of the buyer to pay the price is not
extinguished by the loss of the thing before
delivery
C.2. In case of loss, deterioration or improvement of the thing before its
delivery, the rules in Article 1189 shall be observed, the vendor
being considered the debtor. (Art. 1538)
C.3. Loss, Deterioration, Improvement (Art. 1189)
C.3.1. Loss
C.3.1.1. When It perishes, or
C.3.1.2. When It goes out of commerce, or
C.3.1.3. When It disappears in such a way that its
existence is unknown or it cannot be recovered
C.3.1.3.1. Without seller’s fault – obligation is
extinguished
C.3.1.3.2. With seller’s fault – obligation is converted
into one of indemnity for damages
C.3.2. Deterioration – any reduction or impairment in the
substance or value of a thing which does not amount to a
loss
C.3.2.1.1. Without seller’s fault – impairment to be
borne by the buyer
C.3.2.1.2. With seller’s fault – buyer may choose
between bringing an action for rescission
of the obligation OR bringing an action for
specific performance with damages in
either case
C.3.3. Improvement – anything added to, incorporated in, or
attached to the thing that is due
C.3.3.1.1. By the thing’s nature or by time – shall
inure to the benefit of the buyer
C.3.3.1.2. At the seller’s expense – seller shall have
no other right than that granted to a
usufructuary (Arts. 579 and 580)
C.3.3.1.2.1. Consequently, the seller cannot
ask reimbursement for the
expenses incurred for useful
improvements of for
improvements for mere pleasure
(Art. 579), he can only ask
reimbursement for necessary
expenses. (Art. 546)
C.4. After delivery, the buyer bears the risk of loss following the
general rule of res perit domino
To perhaps oversimplify the unifying doctrine on the risk of loss, deterioration
and improvement, the same shall always be for the account of the person or
party who has both title and beneficial interest over the property or subject
matter of the sale. When title and beneficial interest do not merge in the same
party, then he who bears the risk of loss or deterioration, and who benefits from
the improvement of the thing, should be the party who at that point in time is
understood to have the beneficial interest over the subject matter.
REMEDIES OF PARTIES
REMEDIES IN CASES OF MOVABLES
A. Ordinary remedies of seller
A.1. Movables in General
A.1.1. With respect to movable property, the rescission of the sale
shall of right take place in the interest of the vendor,
A.1.1.1. if the vendee, upon the expiration of the period
fixed for the delivery of the thing, should not have
appeared to receive it, or,
A.1.1.2. having appeared, he should not have tendered the
price at the same time, unless a longer period has
been stipulated for its payment. (Art. 1593)
A.2. Sale of Goods
A.2.1. Non-Payment of Price by Buyer
A.2.1.1. Seller may maintain an action for the price of
the goods
A.2.1.1.1.1. Where the ownership of the
goods has passed to the buyer
who wrongfully neglects or
refuses to pay for them
according to the terms of the
contract
A.2.1.1.1.2. When the ownership in the
goods has not passed, if they
cannot readily be resold for a
reasonable price, the seller may
offer to deliver the goods to the
buyer, and, if the buyer refuses
to receive them, may notify the
buyer that the goods are
thereafter held by the seller as
bailee for the buyer; thereafter,
the seller may treat the goods as
the buyer’s
A.2.1.1.1.3. Where the price is payable on
a certain day, irrespective of
delivery or of transfer of title, and
the buyer wrongfully neglects or
refuses to pay such price
A.2.1.2. However, it shall be a defense to such an action
that the seller at any time before the judgment in
such action has manifested an inability to perform
the sale on his part or an intention not to perform it
(Art. 1595)
A.2.2. When Buyer wrongfully/neglects or refuses to accept
goods
A.2.2.1. Where the buyer wrongfully neglects or refuses to
accept and pay for the goods, the seller may
maintain an action against him for damages for
non-acceptance, in accordance with the following
rules:
A.2.2.1.1. Damages shall cover the estimated loss
directly and naturally resulting in the
ordinary course of events from the
buyer’s breach of contract;
A.2.2.1.2. Where there is an available market for the
goods in question, in the absence of
special circumstances showing proximate
damage of a different amount, the
measure of damages is the difference
between the contract price and market or
current price at the time or times when
the goods ought to have been accepted,
or, if no time was fixed fmor acceptance,
then at the time of the refusal to accept;
A.2.2.1.3. If the buyer repudiates the contract or
notifies the seller to proceed no further,
buyer shall be liable for labor performed
or expenses of material amount is
necessary on the part of the seller to
enable him to fulfill his obligations under
the sale made before receiving notice of
the buyer’s repudiation or countermand;
and
A.2.2.1.4. The profits the seller would have made
if the contract or the sale had been fully
performed shall be considered in
awarding damages. (Art. 1596)
B. Special remedies of “Unpaid Seller” of goods
The remedies of an unpaid seller are similar to the “doctrine of self-help”
embodied in Article 429 of the Civil Code, which authorizes the owner or
lawful possessor of a thing to use force as may be reasonably necessary
DANA | 20
 to repel or prevent an actual or threatened unlawful physical invasion or
usurpation of his property.
B.1. “Unpaid Seller”
B.1.1. The seller of goods is deemed to be an unpaid seller within
the meaning of this Title:
B.1.1.1. When the whole of the price has not been paid or
tendered;
B.1.1.2. When a bill of exchange or other negotiable
instrument has been received as conditional
payment, and the condition on which it was
received has been broken by reason of the
dishonor of the instrument, the insolvency of the
buyer, or otherwise.
B.1.2. In Articles 1525 to 1535 the term "seller" includes an agent
of the seller to whom the bill of lading has been indorsed,
or a consignor or agent who has himself paid, or is directly
responsible for the price, or any other person who is in the
position of a seller. (Art. 1525)
B.2. Rights of Unpaid Seller
B.2.1. xxx, notwithstanding that the ownership in the goods may
have passed to the buyer, the unpaid seller of goods, as
such, has:
B.2.1.1. A lien on the goods or right to retain them for the
price while he is in possession of them;
B.2.1.2. In case of the insolvency of the buyer, a right of
stopping the goods in transitu after he has parted
with the possession of them;
B.2.1.3. A right of resale as limited by this Title;
B.2.1.4. A right to rescind the sale as likewise limited by
this Title.
B.2.2. Where the ownership in the goods has not passed to the
buyer, the unpaid seller has, in addition to his other
remedies a right of withholding delivery similar to and
coextensive with his rights of lien and stoppage in transitu
where the ownership has passed to the buyer. (Art. 1526)
a) Possessory Lien
a.1. lien – a charge upon property for the payment or discharge of a
debt or duty
a.2. xxx the unpaid seller of goods who is in possession of them is
entitled to retain possession of them until payment or tender
of the price in the following cases, namely:
a.2.1. Where the goods have been sold without any stipulation as
to credit;
a.2.2. Where the goods have been sold on credit, but the term of
credit has expired;
a.2.3. Where the buyer becomes insolvent.
The seller may exercise his right of lien notwithstanding that he is in
possession of the goods as agent or bailee for the buyer. (Art.
1527)
a.3. xxx the unpaid seller's right of lien or stoppage in transitu is not
affected by any sale, or other disposition of the goods which the
buyer may have made, unless the seller has assented thereto. xxx
(Art. 1535)
a.4. When a negotiable document of title has been issued for
goods,
a.4.1. no seller's lien or right of stoppage in transitu shall defeat
the right of any purchaser for value in good faith to whom
such document has been negotiated, whether such
negotiation be prior or subsequent to the notification to the
carrier, or other bailee who issued such document, of the
seller's claim to a lien or right of stoppage in transitu. (Art.
1535)
a.5. Where an unpaid seller has made part delivery of the goods,
a.5.1. he may exercise his right of lien on the remainder,
a.5.1.1. unless such part delivery has been made under
such circumstances as to show an intent to waive
the lien or right of retention. (Art. 1528)
a.6. The unpaid seller of goods loses his lien thereon:
a.6.1. When he delivers the goods to a carrier or other bailee for
the purpose of transmission to the buyer without reserving
the ownership in the goods or the right to the possession
thereof;
a.6.2. When the buyer or his agent lawfully obtains possession of
the goods;
a.6.3. By waiver thereof.
The unpaid seller of goods, having a lien thereon, does not lose his
lien by reason only that he has obtained judgment or decree for the
price of the goods. (Art. 1529)
b) Stoppage in Transitu
b.1. xxx when the buyer of goods is or becomes insolvent, the unpaid
seller who has parted with the possession of the goods has the
right of stopping them in transitu, that is to say, he may resume
possession of the goods at any time while they are in transit, and
he will then become entitled to the same rights in regard to the
goods as he would have had if he had never parted with the
possession. (Art. 1530)
b.2. When a negotiable document of title has been issued for
goods,
b.2.1. no seller's lien or right of stoppage in transitu shall defeat
the right of any purchaser for value in good faith to whom
such document has been negotiated, whether such
negotiation be prior or subsequent to the notification to the
carrier, or other bailee who issued such document, of the
seller's claim to a lien or right of stoppage in transitu. (Art.
1535)
b.3. When buyer deemed “Insolvent
b.3.1. (2) A person is insolvent xxx who either has ceased to pay
his debts in the ordinary course of business or cannot pay
his debts as they become due, whether insolvency
proceedings have been commenced or not. (Art. 1636)
b.4. In transit v no longer in transit (Art. 1531)
b.4.1. When goods deemed “in transit”
b.4.1.1. From the time when they are delivered to a carrier
by land, water, or air, or other bailee for the
purpose of transmission to the buyer, until the
buyer, or his agent in that behalf, takes delivery of
them from such carrier or other bailee;
b.4.1.2. If the goods are rejected by the buyer, and the
carrier or other bailee continues in possession of
them, even if the seller has refused to receive
them back.
b.4.2. When goods deemed no longer in transit
b.4.2.1. If the buyer, or his agent in that behalf, obtains
delivery of the goods before their arrival at the
appointed destination;
b.4.2.2. If, after the arrival of the goods at the appointed
destination, the carrier or other bailee
acknowledges to the buyer or his agent that he
holds the goods on his behalf and continues in
possession of them as bailee for the buyer or his
agent; and it is immaterial that further destination
for the goods may have been indicated by the
buyer;
b.4.2.3. If the carrier or other bailee wrongfully refuses to
deliver the goods to the buyer or his agent in that
behalf.
b.4.3. If the goods are delivered to a ship, freight train, truck,
or airplane chartered by the buyer, it is a question
depending on the circumstances of the particular case,
whether they are in the possession of the carrier as such or
as agent of the buyer.
b.5. If part delivery of the goods has been made to the buyer, or his
agent in that behalf, the remainder of the goods may be stopped in
transitu,
b.5.1. unless such part delivery has been under such
circumstances as to show an agreement with the buyer to
give up possession of the whole of the goods.
b.6. How right is exercised (Art. 1532)
b.6.1. The unpaid seller may exercise his right of stoppage in
transitu either
b.6.1.1. Obtaining actual possession of the goods or
b.6.1.2. Giving notice of his claim to the carrier or other
bailee in whose possession the goods are
b.6.1.2.1. Such notice may be given either
b.6.1.2.1.1. to the person in actual
possession of the goods or
b.6.1.2.1.2. to his principal
b.6.1.2.1.2.1. In the latter case the
notice, to be effectual,
must be given at such
time and under such
DANA | 21
 circumstances that the
principal, by the
exercise of reasonable
diligence, may prevent a
delivery to the buyer.
b.6.2. When notice of stoppage in transitu is given by the seller to
the carrier, or other bailee in possession of the goods, he
must redeliver the goods to, or according to the directions
of, the seller. The expenses of such delivery must be borne
by the seller.
b.6.2.1. If, however, a negotiable document of title
representing the goods has been issued by the
carrier or other bailee, he shall not obliged to
deliver or justified in delivering the goods to the
seller unless such document is first surrendered
for cancellation.
c) Special right to Resell goods (Art. 1533)
c.1. When right exercisable
c.1.1. The special right of resale can be made only when the
unpaid seller has previously exercised either his right of
possessory lien or stoppage in transit AND under any of
the following conditions:
c.1.1.1. Where the goods are of perishable nature, or
c.1.1.2. Where the seller expressly reserves the right of
resale in case the buyer should make default, or
Where the buyer has been in default in the
payment of the price for an unreasonable time
c.2. Effect of having exercised Right of Resale
c.2.1. xxx He shall not thereafter be liable to the original buyer
upon the contract of sale or for any profit made by such
resale, but may recover from the buyer damages for any
loss occasioned by the breach of the contract of sale.
c.3. Transfer of ownership
c.3.1. Where a resale is made, xxx, the buyer acquires a good
title as against the original buyer.
c.4. Notice of Defaulting buyer
c.4.1. It is not essential to the validity of resale that notice of an
intention to resell the goods be given by the seller to the
original buyer. But where the right to resell is not based on
the perishable nature of the goods or upon an express
provision of the contract of sale, the giving or failure to give
such notice shall be relevant in any issue involving the
question whether the buyer had been in default for an
unreasonable time before the resale was made.
c.4.2. It is not essential to the validity of a resale that notice of the
time and place of such resale should be given by the seller
to the original buyer.
c.5. Standard of care and disqualification in resale
c.5.1. The seller is bound to exercise reasonable care and
judgment in making a resale, and subject to this
requirement may make a resale either by public or private
sale.
c.5.2. He cannot, however, directly or indirectly buy the goods.
d) Special right to rescind (Art. 1534)
d.1. When right may be exercised
d.1.1. Where he expressly reserved the right to do so in case the
buyer should make default, or
d.1.2. Where the buyer has been in default in the payment of the
price for an unreasonable time.
d.2. Effect of exercise of such right
d.2.1. The seller shall not thereafter be liable to the buyer upon
the contract of sale, but may recover from the buyer
damages for any loss occasioned by the breach of the
contract.
d.3. Transfer of title
d.3.1. The transfer of title shall not be held to have been
rescinded by an unpaid seller until he has manifested by
notice to the buyer or by some other overt act an intention
to rescind. It is not necessary that such overt act should be
communicated to the buyer, but the giving or failure to give
notice to the buyer of the intention to rescind shall be
relevant in any issue involving the question whether the
buyer had been in default for an unreasonable time before
the right of rescission was asserted.
C. Remedies of Buyer
C.1. Failure of seller to deliver
C.1.1. Where the seller has broken a contract to deliver specific or
ascertained goods, a court may, on the application of the
buyer, direct that the contract shall be performed
specifically, without giving the seller the option of retaining
the goods on payment of damages.
C.1.2. The judgment or decree may be unconditional, or upon
such terms and conditions as to damages, payment of the
price and otherwise, as the court may deem just. (Art.
1598)
C.2. Breach of seller’s warranty
C.2.1. Where there is a breach of warranty by the seller, the buyer
may, at his election:
C.2.1.1. Accept or keep the goods and set up against the
seller, the breach of warranty by way of
recoupment in diminution or extinction of the price;
C.2.1.2. Accept or keep the goods and maintain an action
against the seller for damages for the breach of
warranty;
C.2.1.3. Refuse to accept the goods, and maintain an
action against the seller for damages for the
breach of warranty;
C.2.1.4. Rescind the contract of sale and refuse to receive
the goods or if the goods have already been
received, return them or offer to return them to the
seller and recover the price or any part thereof
which has been paid.
C.2.2. When the buyer has claimed and been granted a remedy in
anyone of these ways, no other remedy can thereafter be
granted, without prejudice to the provisions of the second
paragraph of Article 1191. xxx (Art. 1599)
C.2.2.1. The injured party may choose between the
fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
(Art. 1191 (2))
C.3. Suspension of payments in anticipation of breach
C.3.1. Should the vendee be disturbed in the possession or
ownership of the thing acquired,
OR should he have reasonable grounds to fear such
disturbance, by a vindicatory action or a foreclosure of
mortgage, he may suspend the payment of the price
until the vendor has caused the disturbance or danger
to cease,
C.3.1.1. unless the latter gives security for the return of the
price in a proper case, or it has been stipulated
that, notwithstanding any such contingency, the
vendee shall be bound to make the payment.
C.3.1.1.1. Vendee is only entitled to retain the price
that has not been paid. He is not entitled
to recover what has already been paid.
C.3.2. A mere act of trespass shall not authorize the suspension
of the payment of the price. (Art. 1590)
C.3.3. Remedy of buyer for pending suit
C.3.3.1. The pendency of suit over the subject matter of
the sale justifies the buyer in suspending payment
of the balance of the purchase price by reason of
aforesaid vindicatory action filed against it. The
assurance made by the seller that the buyer did
not have to worry about the case because it was
pure and simple harassment is not the kind of
guaranty contemplated under the exceptive clause
in Article 1590 wherein the buyer is bound to make
payment even with the existence of a vindicatory
action if the seller should give a security for the
return of the price
D. RECTO LAW (Installment Sales Law): sales of movables on installments
D.1. Rationale of Recto Law
D.1.1. to remedy the abuses committed in connection with the
foreclosure of chattel mortgages and
D.1.2. to prevent mortgagees from seizing the mortgaged
property, buying it at foreclosure sale for a low price and
then bringing suit against the mortgagor for a deficiency
judgment
D.2. Applicability of Recto law (Art. 1484)
DANA | 22
 D.2.1. (Requisites) it must appear that there was a contract for
the sale of personal property payable in installment and
that there has been a failure to pay 2 or more
installments
D.2.1.1. does not apply to a sale of personal property
D.2.1.1.1. on straight term or
D.2.1.1.2. partly in cash and partly in term
D.2.1.2. does not apply to Action for replevin
D.2.1.3. does not apply to a sale of immovable property
D.2.1.3.1. Under Art. 1484, the creditor is given the
right or option to seize the chattel and
dispose of the same in accordance with
the Chattel Mortgage Law, while the
mortgage on real property may only be
foreclosed in conformity with the
provisions of the Rules of Court, or those
of Act. No. 3135, if a special power to sell
is granted to the creditor under the
contract
D.2.1.4. does not apply to contracts to sell;
D.2.1.4.1. reason: when the suspensive condition
upon which the contract is based fails to
materialize, it would extinguish the
contract and consequently there is no
contract to rescind – Art. 1597 would
apply granting the seller the right to
rescind
D.2.1.5. applicable to financing transaction derived or
arising from sales of movables on installments,
even if the underlying contract at issue is a loan
because the promissory note had been assigned
or negotiated by the original seller
D.3. Art. 1484 – Remedies of vendor in sale of personal property
payable in installment
D.3.1. In a contract of sale of personal property the price of which
is payable in installments, the vendor may exercise any of
the following remedies:
D.3.1.1. Exact fulfillment of the obligation, should the
vendee fail to pay;
D.3.1.1.1. When Specific performance deemed
chosen: when he files an action in court
for recovery
D.3.1.1.2. even if the seller had chosen specific
performance, but the same has become
impossible, he may still choose rescission
pursuant to Article 1191
D.3.1.1.3. Where the action instituted is for specific
performance and the mortgaged property
is subsequently attached and sold, the
sale thereof does not amount to a
foreclosure of mortgage, hence the seller
is entitled to a deficiency judgment
D.3.1.2. (Rescission) Cancel the sale, should the vendee's
failure to pay cover two or more installments;
D.3.1.2.1. GR: Seller is under obligation to make
restitution, which would include the return
of any amount of the purchase price that
the buyer may have paid
Exception: xxx a stipulation that the
installments or rents paid shall not be
returned to the vendee or lessee shall be
valid insofar as the same may not be
unconscionable under the circumstances.
(Art. 1486)
D.3.1.2.2. When Rescission deemed chosen:
when he has clearly indicated to end the
contract, such as
D.3.1.2.2.1. when he sends a notice of
rescission, or
D.3.1.2.2.2. when he takes possession of the
subject matter of the sale, or
D.3.1.2.2.3. when he files an action for
rescission.
D.3.1.2.3. Barring effect of Rescission
D.3.1.2.3.1. seller is barred from recovering
the balance of the price
D.3.1.3. Foreclose the chattel mortgage on the thing
sold, if one has been constituted, should the
vendee's failure to pay cover two or more
installments.
D.3.1.4. When remedy of foreclosure deemed chosen
D.3.1.4.1. Although the filing of an action for
foreclosure should be the point in which
the seller is deemed to have chosen such
remedy; the point is only at the time of
actual sale of the subject property at
public auction pursuant to the foreclosure
proceedings commenced
D.3.1.5. Barring effect of Foreclosure
D.3.1.5.1. In this case, he shall have no further
action against the purchaser to recover
any unpaid balance of the price. Any
agreement to the contrary shall be void
D.3.1.5.2. if prior to the actual sale of the subject
property at public auction, the seller had
received further payments from the buyer,
the seller was not obliged to refund said
payments after foreclosure to the buyer.
D.3.1.5.3. the guarantor will in turn be entitled to
recover what she has paid from the
debtor vendee (Art. 2066, Civil Code); so
that ultimately, it will be the buyer who will
be made to bear the payment of the
balance of the price, despite the earlier
foreclosure of the chattel mortgage given
by him.
D.3.1.6. Perverse buyer-mortgagor
D.3.1.6.1. where the mortgagor plainly refuses to
deliver the chattel subject of the mortgage
upon his failure to pay two or more
installments, or if he conceals the chattel
to place it beyond the reach of the
mortgagee, the necessary expenses
incurred in the prosecution by the
mortgagee of the action for replevin so
that he can regain possession of the
chattel should be borne by the mortgagor.
D.3.2. these remedies are alternative and are not to be exercised
cumulatively or successively and the election of one is a
waiver of the right to resort to the others; unless the chosen
alternative proves to be ineffectual or unavailing due to no
fault on his part.
D.4. Two groups barring effects of remedies
D.4.1. First level on the choice of remedies (vertical); and
D.4.2. Second level, on the non-recovery of any unpaid balance
when it comes to the remedies of rescission and
foreclosure (horizontal). There can be no mixing of the
effects of the remedies provided in Article 1484.
D.5. Lease with option to purchase
D.5.1. The preceding article shall be applied to contracts
purporting to be leases of personal property with option to
buy, when the lessor has deprived the lessee of the
possession or enjoyment of the thing. (Art. 1485)
D.5.2. In the case referred to in two preceding articles, a
stipulation that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid insofar as
the same may not be unconscionable under the
circumstances. (Art. 1486)
REMEDIES IN CASES OF IMMOVABLES
A. Remedies of Seller
A.1. Anticipatory breach
A.1.1. Should the vendor have reasonable grounds to fear the
loss of immovable property sold and its price, he may
immediately sue for the rescission of the sale.
Should such ground not exist, the provisions of Article 1191
shall be observed. (Art. 1591)
A.1.2. Art. 1191 – upon substantial breach by the buyer for failure
to comply with his obligation to pay the price when due, the
seller may sue for rescission of the sale
A.2. Failure of buyer to pay price
DANA | 23
 A.2.1. Rescission under Art. 1592
A.2.1.1. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay
the price at the time agreed upon the rescission of
the contract shall of right take place, the vendee
may pay, even after the expiration of the period,as
long as no demand for rescission of the contract
has been made upon him either judicially or by a
notarial act. After the demand, the court may not
grant him a new term. (Art. 1592)
A.2.1.2. Right of seller to rescind not absolute
A.2.1.2.1. court may grant vendee a new term
A.2.1.2.2. vendor may waive his right
A.2.1.2.3. written of cancellation must be given
A.2.1.2.4. breach must be substantial
A.2.1.3. When Art. 1592 is not applicable
A.2.1.3.1. sale on installment of real estate
A.2.1.3.2. contract to sell/conditional sale of real
estate
A.2.1.3.3. cases covered by R.A. No. 6552 (law
governing sales of real estate on
installment)
B. Remedies of Buyer
B.1. Suspension of payment
B.1.1. Should the vendee be disturbed in the possession or
ownership of the thing acquired, or should he have
reasonable grounds to fear such disturbance, by a
vindicatory action or a foreclosure of mortgage, he may
suspend the payment of the price until the vendor has
caused the disturbance or danger to cease, unless the
latter gives security for the return of the price in a proper
case, or it has been stipulated that, notwithstanding any
such contingency, the vendee shall be bound to make the
payment. A mere act of trespass shall not authorize the
suspension of the payment of the price (Art. 1590)
B.2. In case of Subdivisions or Condominium Projects
B.2.1. Sections 23 and 24 of Pres. Decree 957, provide that no
installment payments made by the buyer in a subdivision or
condominium project for the lot or unit he contracts to buy
shall be forfeited in favor of the owner or developer when
the buyer, after due notice to the owner or developer
desists from further payment due to the failure of the owner
or developer to develop the subdivision or condominium
project according to the approved plans and within the time
limit for complying with the same. The sections also grant
to the buyer the option to be reimbursed the total amount
paid.
B.2.2. Notice and remedies allowed under P.D. 957
B.2.2.1. Section 23 of Pres. Decree 957 does not require
that a notice be given first by the buyer to the
seller before a demand for refund can be made as
the notice and demand can be made in the same
letter or communication
B.3. Right to Grace Period Stipulated
B.3.1. When a grace period is provided for in the contract of sale,
it should be construed as a right, not an obligation of the
debtor, and when unconditionally conferred, the grace
period is effective without further need of demand either
calling for the payment of the obligation or for honoring the
right
B.4. Effect of the Mortgage of Property on the Property Subject to
Development
B.4.1. Presidential Decree No. 957 cannot totally prevent the
owner or developer form mortgaging the subdivision lot or
condominium unit when the title thereto still resides in the
owner or developer awaiting the full payment of the
purchase price by the installment buyer
C. MACEDA LAW (Realty Installment Buyer Protection Act): sales of real
estate
C.1. Role of Maceda law: to protect buyers of real estate on
installment payments against onerous and oppressive conditions
C.2. Retroactive application of law: apply even to contracts entered
into prior to the effectivity of the Maceda Law
C.3. Transactions covered
C.3.1. Maceda Law does not cover all sales of realty on
installments, but primarily residential real estate. But unlike
the Recto Law on movables, the Maceda Law covers not
only “sales” on installments of real estate, but also
“financing” of such acquisitions
C.3.2. Maceda law Covers contracts to sell
C.4. Transactions excluded from coverage
C.4.1. Sales covering industrial lots;
C.4.2. Sales covering commercial buildings (and commercial lots
by implication); and
C.4.3. Sales to tenants under agrarian reform laws.
C.4.4. Sales of land payable in straight terms
C.5. Requisites:
C.5.1. Transactions or contracts involving the sale or financing of
real estate on installment payments, including residential
condominium apartments
C.5.2. Buyer defaults in payment of succeeding installments
C.6. Maceda Law CANNOT be availed of by the Developer
C.7. Rights of buyer depend on whether or not he has paid less than
or more than two (2) years of installments.
C.7.1. At least two years installments paid
C.7.1.1. Rights
C.7.1.1.1. To pay, without additional interest, the
unpaid installments due within the total
grace period earned by him, which is
fixed at the rate of one (1) month grace
period for every one (1) year of
installment payments;
C.7.1.1.2. If the contract is cancelled, the seller
shall refund to the buyer the cash
surrender value of the payments on the
property equivalent to 50% of the total
payments made and, after five (5) years
of installments, an additional 5% every
year but not to exceed 90% of the total
payments made.
C.7.1.2. Exercise of grace period
C.7.1.2.1. The right to make use of the grace period
can be exercised by the buyer only once
in every five (5) years of the life of the
contract and its extensions, if any.
C.7.1.2.2. Down payments, deposits or options on
the contract shall be included in the
computation of the total number of
installments made.
C.7.1.3. How cancellation of contract can be effected
C.7.1.3.1. The actual cancellation of the contract
shall take place after thirty (30) days
from receipt by the buyer of the notice
of cancellation or the demand for
rescission of the contract by a notarial act
and upon full payment of the cash
surrender value to the buyer.
C.7.2. Less than 2 years installments paid
C.7.2.1. the buyer shall still be entitled to a grace period of
sixty (60) days from the date the installment
became due.
C.7.2.2. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may
cancel the contract after thirty (30) days from
receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a
notarial act.
C.8. Other rights granted to buyer
C.8.1. To sell his rights or assign the same to another person
or to reinstate the contract by updating the account during
the grace period and before actual cancellation of the
contract. The deed of sale assignment shall be done by
notarial act.
C.8.2. To pay in advance any installment or the full unpaid
balance of the purchase price any time without interest and
to have such full payment of the purchase price annotated
in the certificate of title covering the property
C.9. Downpayments, deposits or options on the contract shall be
included in the computation of the total number of installment
payments made
C.10. Effect of Contrary Stipulations to the provision of Maceda Law
– Null and void
DANA | 24
. A.2.6.1.
CANCELLATION OF JUDICIAL SALE
A. Where a judicial sale is voided without fault of the purchaser, the latter is
entitled to reimbursement of the purchase money paid by him. A judicial
sale can only be set aside upon the return to the buyer of the purchase
price with simple interest, together with all sums paid out by him in
improvements introduced on the property, taxes, and other expenses by
him
REMEDIES IN SALES OF IMMOVABLES
A. Remedy of Rescission
A.1. Remedy of “Rescission Covered”
A.1.1. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law. (Art.
1191)
A.1.2. In the sale of immovable property, even though it may have
been stipulated that upon failure to pay the price at the time
agreed upon the rescission of the contract shall of right
take place, the vendee may pay, even after the expiration
of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him
a new term. (Art. 1592)
A.1.3. Non servant fidem, non est fides servanda – one need
not hold to his word vis-à-vis those who do not
A.1.4. When Principles of Rescission for Rescissible
Contracts Applied to Resolution of Sale
A.1.4.1. The remedy of rescission under Article 1384 of the
Civil Code is merely subsidiary in the absence of
legal remedies available to the seller, such as
foreclosure.
A.1.5. When Rescission should have been Applied
A.1.5.1. Where the obligation of either party to a
contract of sale is subject to any condition
which is not performed, such party may refuse
to proceed with the contract or he may waive
performance of the condition. If the other party has
promised that the condition should happen or be
performed, such first mentioned party may also
treat the nonperformance of the condition as a
breach of warranty.
Where the ownership in the thing has not passed,
the buyer may treat the fulfillment by the seller of
his obligation to deliver the same as described and
as warranted expressly or by implication in the
contract of sale as a condition of the obligation of
the buyer to perform his promise to accept and
pay for the thing. (Art. 1545)
A.2. Nature of Remedy of Rescission
A.2.1. Rescission Generally Judicial in Nature
A.2.2. When Extrajudicial Rescission Allowed
A.2.2.1. Parties may enter into an agreement that a
violation of the terms of the contract would cause
its cancellation even without court intervention
A.2.3. Who May Demand Rescission– the injured party
A.2.4. Rescission Must be Based on Substantial Breach; But
Courts have Power to Grant Reprieve
A.2.4.1. If the obligation has been substantially performed
in good faith, the obligor may recover as though
there had been a strict and complete fulfillment,
less damages suffered by the obligee. (Art. 1234)
A.2.5. Rescission requires a Positive Act
A.2.6. Restitution as Consequence of Rescission
When Forfeiture of Payments Allowed in
Rescission
A.2.6.1.1. In the case referred to in two preceding
articles, a stipulation that the installments
or rents paid shall not be returned to the
vendee or lessee shall be valid insofar as
the same may not be unconscionable
under the circumstances. (Art. 1486)
A.2.6.1.2. Courts may still allow such forfeiture even
in the absence of a forfeiture clause, as a
reasonable compensation for the use of
the subject matter of the contract
B. Contract of Sales v. Contract to Sell
B.1. “contract to sell” – “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.”
B.2. Importance of Proper Characterization of Contracts to Sell
B.2.1. to determine the set of laws that govern such contracts,
including the appropriate remedies available to the
contracting parties.
B.2.2. contracts to sell are primarily subject to suspensive
conditions, and therefore must be governed by the
doctrines pertaining to conditional contracts
B.3. Recent Rulings that Consider Contracts to Sell Not Covered
by the Genus Sale
B.3.1. contract to sell “may not be considered a contract of sale
because the first essential element is lacking,” which is
consent or meeting of the minds, “that is, consent to
transfer ownership in exchange for the price,”
B.4. Rulings Characterizing Contract to Sell
B.4.1. Rationale for Parties Entering into Contracts to Sell
B.4.1.1. to protect the seller against a buyer who intends to
buy the property in installment by withholding
ownership over the property until the buyer effects
full payment therefor
B.4.2. “On Where” the Suspensive Condition is Pinned
Determines Nature of a Sale
B.4.2.1. the main ingredient in a contract to sell is the
existence of a stipulation or agreement imposing a
suspensive condition on the effectivity or
demandability of the contract itself, and not just on
the obligation of the seller to transfer and deliver
the subject matter, for in the latter case, it would
amount to a conditional contract of sale.
B.5. Issue of Substantial Breach Relevant Only in Contracts of
Sale
B.5.1. in a contract to sell, the doctrine of substantial breach has
no application, since the non-happening of the condition by
whatever means or reason, substantial or not, ipso jure
extinguishes the contract
B.6. Crux of the Distinction
B.6.1. In a contract of sale, delivery would transfer ownership to
the buyer, and therefore rescission must necessarily be
done judicially since only the courts can grant the remedy
of recalling ownership that has passed to the buyer and
reverting it to the seller.
In a contract to sell, by express agreement, delivery of the
subject matter does not transfer ownership to the buyer,
and therefore when the condition is not fulfilled (i.e., non-
payment of the purchase price) no court intervention is
needed to “rescind” the contract since ownership has
remained with the seller.
B.6.2. in a contract of sale, by mere notarial notice of rescission
under Article 1592 the contract may be rescinded; in a
contract to sell, mere notice of cancellation would be suffi
cient
C. Recap of the Rulings
C.1. At Perfection
C.1.1. Requisite Contractual Stipulations
C.1.1.1. Full payment of the purchase price by the buyer
constitutes a suspensive condition on the
obligation of the seller to sell and transfer
ownership of the subject matter;
DANA | 25
  What really defines a contract to sell is the
express stipulation that the effectivity or
demandability of the contract is subject to
the happening of a suspensive condition
(usually full payment of the price), as
distinguished from a situation where the
suspensive condition modifies not the
contract itself but rather only the obligation
of the seller to sell and deliver the subject
matter, in which case it is a conditional
contract of sale
C.1.1.2. Accompanied by stipulations or agreements that:
(Requisite stipulation)
C.1.1.2.1. Reservation of Ownership by Seller
C.1.1.2.2. Reservation of Right to Extrajudicially
Rescind in Event of Non-Fulfillment of
Condition
 The lack of stipulation expressly reserving
title to the seller in spite delivery of the
subject matter to the buyer would not
constitute the transaction into a contract to
sell.
 The lack of a stipulation allowing the seller to
rescind the contract in the event the buyer
fails to comply with his obligation to pay the
purchase price clearly prevents the contract
from being classified as a contract to sell.
 even in the absence of such stipulations, the
contract would still be considered a contract
to sell, because of the absence of deeds of
conveyance covering registered land where
the operative act of sale is registration of the
deed of sale
C.1.2. Stipulation on Execution of Deed of Absolute Sale
C.1.2.1. When there is a stipulation or promise that the
seller shall execute a deed of absolute sale upon
completion of payment of the purchase price by
the buyer, the agreement is a contract to sell,
because it would be equivalent to reservation of
title clause.
 Where there is an express stipulation that
the sellers would execute a final deed of
absolute sale in favor of the buyer upon
payment of the balance of the purchase
price, the contract would still not be a
contract to sell, where nowhere in the
contract in question is a proviso or
stipulation to the effect that title to the
property sold is reserved in the seller until
full payment of the purchase price, nor is
there a stipulation giving the seller the right
to unilaterally rescind the contract the
moment the buyer fails to pay within a fixed
period.
C.1.3. Stipulation on the Payment of Price
C.1.3.1. In contract to sell, payment of the price is a
suspensive condition, failure of which is not a
breach, casual or serious, but an event that
prevents the obligation of the seller to convey title
from acquiring obligatory force.
 If there has been substantial compliance
with the obligation to pay the price, then
cancellation cannot be effected, for
unilateral rescission will not be judicially
favored or allowed if the breach is not
substantial and fundamental to the
fulfillment of the obligation.
C.2. During Consummation Stage
C.2.1. Legal Effect of Delivery Made
C.2.1.1. In contract of sale, the title to the property passes
to the buyer upon the delivery of the thing sold;
whereas, in a contract to sell, ownership is, by
agreement, reserved in the seller and is not to
pass to the buyer until full payment of the
purchase price
C.2.2. Legal Effect of Full Payment of Price
C.2.2.1. In a contract to sell, full payment of the price
constitutes the happening of the condition which
would convert it into an executory contract of sale,
thus:
C.2.2.1.1. If delivery of the subject matter had
previously been made, then ownership is
transferred ipso jure to the buyer.
C.2.2.1.2. If delivery of the subject matter has not
been made, then it allows the buyer to
demand for specific performance.
 There is still no perfected or executory
contract of sale; it merely gives rise to an
action to enforce the obligation of the seller
to enter into a contract of sale; there is no
transfer of ownership to buyer even when
delivery was previously made; and much
less can there be demand to deliver the
subject matter when no contract of sale has
been executed.
C.2.3. Legal Effect of Non-Payment of Price
C.2.3.1. In contract of sale, the non-payment of the
purchase price is a breach, and when substantial
in nature, would allow the seller to rescind the
sale.
C.2.3.2. In contract to sell, where ownership is retained by
the seller until payment of the price in full, such
payment is a positive suspensive condition, failure
of which is not really a breach but an event that
prevents the obligation of the vendor to convey
title in accordance with Article 1184 of the Civil
Code.”
 Even when the basis for the breach of the
condition is present, a notice of “rescission”
or cancellation must be made on buyer to
effect the extinguishment of the contract to
sell
 In residential real estate, when the non-
payment of the purchase price constitute
merely a casual breach, it would not
extinguish the contract to sell, and the
courts may extend equity rights to the buyer.
C.3. Remedies Available
C.3.1. When Condition on Price Payment Not fulfilled
C.3.1.1. In contract of sale, if seller had delivered the
subject matter previously without reserving title, it
would mean that ownership has been transferred
to the buyer, and seller cannot recover ownership
until and unless the contract is resolved or
rescinded by court action.
Whereas in contract to sell, since ownership was
retained by the seller by express reservation until
full payment of the price, and the contract is
extinguished, then no action is necessary other
than recovery of possession in case buyer refuses
to voluntarily deliver.
C.3.1.2. In conditional contract of sale, the non-happening
of the condition may be waived by the obligee who
may still seek specific performance.
Whereas, in contract to sell, the non-happening of
the condition prevents the contract from coming
into existence (i.e., extinguishes the contract) and
consequently neither rescission or specific
performance may be pursued.
C.3.1.3. In conditional contract of sale, the basis of
rescission must be substantial breach.
Whereas, in a contract to sell, the issue of breach
is completely irrelevant.
C.3.1.4. In contract of sale and conditional contract of sale,
rescission may be pursued with forfeiture of the
amounts paid when that has been expressly
provided for.
Whereas, in contract to sell, it becomes imperative
that the amounts paid must be returned and there
would be no basis upon which to retain them since
there was no breach upon which a claim of
damage may be interposed
DANA | 26
  Based on equity principles, the
doctrine of substantial breach to allow
rescission and court discretion under
Article 1191 have been made to apply
to contracts to sell involving
residential immovables
C.3.2. Laws Applicable
C.3.2.1. In contract of sale, the applicable rules are found
in Articles 1191 and 1592 providing for the remedy
of rescission, but when there is a suspensive
condition, Article 1545 allows the seller to choose
between rescission or waiving the condition;
whereas, in contract to sell, the remedies of
rescission being incompatible thereto,198 the
applicable rules are found in Articles 1184 and
1545.199 The issue of whether the breach was
casual or serious under Article 1191 is completely
irrelevant in a contract to sell.
 There have been several instances
when Article 1191 was made to apply
to a contract to sell involving
residential real estate, with application
of the doctrine of substantial breach
 But: The requirements of the Maceda
Law on grace period, cash surrender
value and prescribed manner of
notarial rescission or cancellation
must always apply, whether it is a
contract of sale or contract to sell,
involving installment sales of
residential real estate and residential
condominium unit
CONDITIONS AND WARRANTIES
 Redhibition – avoidance of a sale on account of some vice or defect in
the thing sold, which renders its use impossible, or so inconvenient and
imperfect that it must be supposed that the buyer would not have
purchased it had he known of the vice
 Redhibitory action – an action instituted to avoid a sale on account of
some vice or defect in the thing sold which renders its use impossible, or
so inconvenient and imperfect that it must be supposed that the buyer
would not have purchased it had he known of the vice
 Redhibitory vice or defect – defect in the article sold against which
defect the seller is bound to warrant
A. CONDITIONS – uncertain event or contingency on the happening of
which the obligation of the contract depends. In such case, the obligation
of the contract does not attach until the condition is performed.
A.1. Effect of non fulfillment of condition
A.1.1. if the obligation of either party is subject to any condition
and such condition is not fulfilled, such party may either
A.1.1.1. refuse to proceed with the contract
A.1.1.2. proceed with the contract, waiving the
performance of the condition
A.1.2. if the condition is in the nature of a promise that it should
happen, the non performance of such condition may be
treated by the other party as a breach of warranty… (Art.
1545)
B. DISTINCTION BETWEEN CONDITIONS AND WARRANTIES
Condition Warranties
Non happening may extinguish the Non fulfillment constitutes a breach
obligation upon which it is based; of contract
generally does not amount to a
breach of contract
Under Article 1545 of the Civil Code, if the party has promised that the
where the ownership in the things condition should happen or be
has not passed, the buyer may treat performed, the other party may also
the fulfillment by the seller of his treat the non-performance of the
obligation to deliver the same, as condition as a breach of warranty
described and as warranted
expressly or by implication in the
contract of sale, as a condition of the
obligation of the buyer to perform his
promise to accept and pay for the
thing.
generally goes into the root of the goes into the performance of such
existence of the obligation obligation, and in fact may constitute
an obligation in itself
must be stipulated by the parties in may form part of the obligation or
order to form part of an obligation contract by provision of law, without
the parties having expressly agreed
thereto
may attach itself either to the whether express or implied, relates
obligations of the seller or of the to the subject matter itself or to the
buyer obligations of the seller as to the
subject matter of the sale
C. EXPRESS WARRANTIES
C.1. Requisites in order that there be an express warranty
C.1.1. It must be an affirmation of fact or any promise by the seller
relating to the subject matter of the sale;
C.1.2. The natural tendency of such affirmation or promise is to
induce the buyer to purchase the thing; and
C.1.3. The buyer purchases the thing relying on such affirmation
or promise thereon.
C.2. Any affirmation of fact or any promise by the seller relating to the
thing is an express warranty if the natural tendency of such
affirmation or promise is to induce the buyer to purchase the same,
and if the buyer purchase the thing relying thereon.
No affirmation of the value of the thing, nor any statement
purporting to be a statement of the seller's opinion only, shall be
construed as a warranty, unless the seller made such affirmation
or statement as an expert and it was relied upon by the buyer. (Art.
1546)
C.2.1. A mere expression of an opinion does not signify fraud,
unless made by an expert and the other party has relied on
the former’s special knowledge (Art. 1341)
D. IMPLIED WARRANTIES
In a contract of sale, unless a contrary intention appears, there is:
(1) An implied warranty on the part of the seller that he has a right to sell the
thing at the time when the ownership is to pass, and that the buyer shall from
that time have and enjoy the legal and peaceful possession of the thing;
(2) An implied warranty that the thing shall be free from any hidden faults or
defects, or any charge or encumbrance not declared or known to the buyer.
This Article shall not, however, be held to render liable a sheriff, auctioneer,
mortgagee, pledgee, or other person professing to sell by virtue of authority in
fact or law, for the sale of a thing in which a third person has a legal or equitable
interest. (Art. 1547)
D.1. Warranty that Seller has right to sell
D.2. Warranty against eviction
D.2.1. Eviction shall take place whenever by a final judgment
based on a right prior to the sale or an act imputable to the
vendor, the vendee is deprived of the whole or of a part of
the thing purchased.
The vendor shall answer for the eviction even though
nothing has been said in the contract on the subject.
The contracting parties, however, may increase, diminish,
or suppress this legal obligation of the vendor. (Art. 1548)
D.2.1.1. When there is breach of warranty against
eviction (conditions)
D.2.1.1.1. Purchaser has been deprived of, or
evicted from, the whole or part of the
thing sold;
D.2.1.1.2. Eviction is by a final judgment;
D.2.1.1.3. Basis thereof is by virtue of a right prior to
the sale made by the seller; and
D.2.1.1.4. Seller has been summoned and made co-
defendant in the suit for eviction at the
instance of the buyer
D.2.1.2. The vendee need not appeal from the decision in
order that the vendor may become liable for
eviction (Art. 1549)
D.2.2. Eviction in Part
D.2.2.1. Vendee has the option to
D.2.2.1.1. enforce the vendor’s liability for eviction
D.2.2.1.2. demand rescission of the contract
D.2.2.1.2.1. remedy of rescission is not
available in case of total eviction
– he can no longer restore the
thing to the vendor
DANA | 27
 D.2.2.1.2.2. vendee has obligation to return
the thing without other
encumbrances that those which
it had when he acquired it
D.2.2.2. it is applicable:
D.2.2.2.1. when the vendee is deprived of a part of
the thing sold if such part is of such
importance to the whole that he would not
have bought the thing without said part
D.2.2.2.2. when 2 or more things are jointly sold
whether for a lump sum or for a separate
price for each, and the vendee would not
have purchased one without the other
(Art. 1556)
D.2.3. Particular Causes Given by law
D.2.3.1. When adverse possession had been commenced
before the sale but the prescriptive period is
completed after the transfer, the vendor shall not
be liable for eviction. (Art. 1550)
D.2.3.1.1. By prescription, one acquires ownership
and other real rights through the lapse of
time in the manner and under the
conditions prescribed by law. In the same
way, rights and actions are lost by
prescription
D.2.3.1.1.1. completed before sale – vendee
may lose the thing purchased to
a third person who has acquired
title thereto by prescription.
When prescription has
commenced to run against the
vendor and was already
complete before the sale, the
vendee can enforce the warranty
against eviction. In this case, the
deprivation is based on a right
prior to the sale and an act
imputable to the vendor
D.2.3.1.1.2. completed after sale – even if
prescription has started before
the sale but has reached the limit
prescribed by law after the sale,
the vendor is not liable for
eviction. The reason is that the
vendee could easily interrupt the
running of the prescriptive period
be bringing the necessary action
D.2.3.2. If the property is sold for nonpayment of taxes due
and not made known to the vendee before the
sale, the vendor is liable for eviction (Art. 1551)
D.2.4. Applicability to Judicial Sale
D.2.4.1. The judgment debtor is also responsible for
eviction in judicial sales, unless it is otherwise
decreed in the judgment (Art. 1152)
D.2.4.2. Although the seller ina voluntary sales can be
expected to defend his title because of his
warranty to the vendees, no such obligation is
owed by the owner whose land is sold at
execution sale
D.2.4.3. in execution sales, the rule of caveat emptor
applies; the sheriff does not warrant the title to the
property sold by him, and it is not incumbent on
him to place the purchaser in possession of the
property.
D.2.5. Amounts for which Seller is Liable in case of eviction
D.2.5.1. The return of the value which the thing sold had at
the time of the eviction, be it greater or less than
the price of the sale;
D.2.5.2. The income or fruits, if he has been ordered to
deliver them to the party who won the suit against
him;
D.2.5.3. The costs of the suit which caused the eviction,
and, in a proper case, those of the suit brought
against the vendor for the warranty;
D.2.5.4. The expenses of the contract, if the vendee has
paid them;
D.2.5.5. The damages and interests, and ornamental
expenses, if the sale was made in bad faith. (Art.
1555)
D.2.6. Waiver of warranty
D.2.6.1. XXX The contracting parties, however, may
increase, diminish, or suppress this legal
obligation of the vendor. (Art. 1548)
D.2.6.2. Any stipulation exempting the vendor from the
obligation to answer for eviction shall be void, if he
acted in bad faith. (Art. 1553)
D.2.6.2.1. Effect of bad faith
D.2.6.2.1.1. vendor’s – it consists in his
knowing beforehand at the time
of the sale, of the presence of
the fact giving rise to eviction,
and its possible consequence
D.2.6.2.1.2. vendee’s– if he knew the defect
of title at the time of sale, or had
knowledge of the facts which
should have put him upon inquiry
and investigation as might be
necessary to acquaint him with
the defects of the title of the
vendor, he cannot claim that the
vendor has warranted his legal
and peaceful possession of the
property sold on the theory that
he proceeded with the sale with
the assumption of the danger of
eviction
D.2.6.3. If the vendee has renounced the right to
warranty in case of eviction, and eviction should
take place, the vendor shall only pay the value
which the thing sold had at the time of the eviction.
Should the vendee have made the waiver with
knowledge of the risks of eviction and
assumed its consequences, the vendor shall not
be liable. (Art. 1554)
D.3. Warranty against Non-Apparent Servitudes
D.3.1. When applicable (conditions)
D.3.1.1. The immovable sold is encumbered with any non-
apparent burden or servitude, not mentioned in the
agreement; and
D.3.1.2. The nature of such non-apparent burden or
servitude is such that it must presumed that the
buyer would not have acquired it had he been
aware thereof.
D.3.2. When warranty Not applicable
D.3.2.1. If the servitude is mentioned in the agreement;
D.3.2.2. If the non-apparent burden or servitude is
recorded in the Registry of Deeds, unless there is
an express warranty that the thing is free from all
burdens and encumbrances
D.3.3. Remedies of the buyer and Prescriptive period
D.3.3.1. within 1 year computed from the execution of the
deed:
D.3.3.1.1. an action for rescission or
D.3.3.1.2. sue for damages only
D.3.3.2. 1 year period has lapsed – an action for damages
within an equal period, to be counted from the
date on which he discovered the burden or
servitude
D.4. Warranty against Hidden Defects
D.4.1. Requisites for breach of warranty
D.4.1.1. Defect must be hidden
D.4.1.1.1. when defect hidden
D.4.1.1.1.1. there is no warranty implied
against defects of which the
buyer has full knowledge or of
which he has knowledge
sufficient to put him on notice.
Similarly no warranty is implied
against defects disclosed by the
seller to the buyer
DANA | 28
 D.4.1.1.1.2. it is hidden it was not known and
could not have been known to
the vendee
D.4.1.1.1.3. vendor’s liability for warranty
cannot be enforced although the
defect is hidden if the vendee is
an expert who, by reason of his
trade or profession, should have
known it
D.4.1.2. Defect must exist at the time of the sale
D.4.1.2.1. as a rule, vendor cannot be held liable for
defects suffered by the thing sold after the
perfection of the sale
D.4.1.2.2. vendee who claims breach of warranty
against hidden defects must prove that
the defect existed at the time of the sale
D.4.1.3. Defect must ordinarily have been excluded from
the contract
D.4.1.4. Defect must be important or serious
D.4.1.4.1. when defect is important
D.4.1.4.1.1. it renders the thing sold unfit
for the use for which it is
intended
D.4.1.4.1.2. if it diminishes its fitness for
such use to such an extent
that the vendee would not
have acquired it had been
aware thereof or would have
given a lower price for it (Art.
1561)
D.4.1.5. Action must be instituted within the statute of fraud
D.4.2. Remedies of buyer and obligation of seller for breach
of warranty
D.4.2.1. if the thing has not been lost
D.4.2.1.1. to withdraw from the contract or
D.4.2.1.1.1. known as accion redhibitoria
(action for rescission)
D.4.2.1.2. demand a proportionate reduction of the
price, with a right to damages in either
case (Art. 1567)
D.4.2.1.2.1. known as accion quanti minoris
D.4.2.2. If the thing sold should be lost
D.4.2.2.1. as a consequence of the hidden faults:
D.4.2.2.1.1. If the seller was aware of them,
he shall bear the loss, and shall
be obliged to return the price and
refund the expenses of the
contract, with damages; or
D.4.2.2.1.2. If seller was not aware of them,
the seller is obliged only to return
the price and interest thereon,
and reimburse the expenses of
the contract which the buyer
might have paid, but not for
damages.
D.4.2.2.2. through a fortuitous event or through the
fault of the buyer, then:
D.4.2.2.2.1. If the seller was not aware of the
hidden defects, the buyer may
demand from the seller the price
which he paid, less the value
which the thing had when it was
lost;
D.4.2.2.2.2. If the seller acted in bad faith, in
addition he shall pay damages to
the buy
D.4.3. Waiver of warranty
D.4.3.1. If there has been a stipulation exempting the seller
from hidden defects, then:
D.4.3.1.1. If the seller was not aware of the hidden
defects, the loss of the thing by virtue of
such defect will not make the seller liable
at all to the buyer; or
D.4.3.1.2. If the seller was fully aware of such
defect, such waiver is in bad faith, and the
seller would still be liable for the warranty.
D.4.3.2. The vendor is responsible to the vendee for any
hidden faults or defects in the thing sold, even
though he was not aware thereof.
This provision shall not apply if the contrary has
been stipulated, and the vendor was not aware of
the hidden faults or defects in the thing sold. (Art.
1566)
D.4.3.3. the phrase “as is, where is” basis pertains solely to
the physical condition of the thing sold, not to its
legal situation, and therefore does not amount to a
waiver on the legal defects pertaining to the
subject matter.
D.4.4. Applicability to Judicial sales
D.4.4.1. The warranty against hidden defects shall be
applicable to judicial sales, except that the
judgment debtor shall not be liable for damages.
(Art. 1570)
D.4.5. Prescriptive period:
D.4.5.1. Actions on warranties against hidden defects shall
be barred after six (6) months from the delivery of
the thing sold. (Art. 1571)
D.5. Redhibitory defects on Animals
D.5.1. If the hidden defect of animals, even in case a professional
inspection has been made, should be of such a nature that
expert knowledge is not sufficient to discover it, the defect
shall be considered as redhibitory.
But if the veterinarian, through ignorance or bad faith
should fail to discover or disclose it, he shall be liable for
damages. (Art. 1576)
D.5.2. Sale of Team
D.5.2.1. If two or more animals are sold together, whether
for a lump sum or for a separate price for each of
them, the redhibitory defect of one shall only
give rise to its redhibition, and not that of the
others; unless it should appear that the vendee
would not have purchased the sound animal or
animals without the defective one.
The latter case shall be presumed when a team,
yoke pair, or set is bought, even if a separate price
has been fixed for each one of the animals
composing the same. (Art. 1572)
D.5.2.2. The provisions of the preceding article with
respect to the sale of animals shall in like manner
be applicable to the sale of other things. (Art.
1573)
D.5.3. Other rules on sale of animals
D.5.3.1. There is no warranty against hidden defects of
animals sold at fairs or at public auctions, or of live
stock sold as condemned. (Art. 1574)
D.5.3.2. The sale of animals suffering from contagious
diseases shall be void.
A contract of sale of animals shall also be void if
the use or service for which they are acquired has
been stated in the contract, and they are found to
be unfit therefor. (Art. 1575)
D.5.4. Prescriptive period
D.5.4.1. The redhibitory action, based on the faults or
defects of animals, must be brought within 40 days
from the date of their delivery to the vendee.
This action can only be exercised with respect to
faults and defects which are determined by law or
by local customs.(Art. 1577)
D.5.4.2. If the animal should die within three days after its
purchase, the vendor shall be liable if the disease
which cause the death existed at the time of the
contract. (Art. 1578)
D.5.5. Obligation of buyer to return
D.5.5.1. If the sale be rescinded, the animal shall be
returned in the condition in which it was sold and
delivered, the vendee being answerable for any
injury due to his negligence, and not arising from
the redhibitory fault or defect. (Art. 1579)
D.5.6. Remedies of buyer
D.5.6.1. In the sale of animals with redhibitory defects, the
vendee shall also enjoy the right mentioned in
article 1567; but he must make use thereof within
DANA | 29
 the same period which has been fixed for the
exercise of the redhibitory action.(Art. 1580)
E. IMPLIED WARRANTIES IN SALE OF GOODS
E.1. Warranty as to Fitness or Quality
E.1.1. Implied warranty as to the quality or fitness
E.1.1.1. There is no implied warranty as to the quality or
fitness for any particular purpose of goods under a
contract of sale, except as follows
E.1.1.1.1. the buyer expressly or by implication,
makes known to the seller the particular
purpose for which the goods are required
E.1.1.1.1.1. wants and needs of the buyer
must be disclosed
E.1.1.1.2. the buyer relies upon the seller’s skill or
judgment
E.1.2. Implied warranty of merchantable quality
E.1.2.1. where goods are brought by description, the seller
impliedly warrants that the goods are of
merchantable quality (Art. 1562)
E.1.2.2. merchantable quality – good is of such quality and
in such condition that a reasonable man would,
after full examination, accept it under the
circumstances of the case, in performance of his
offer to buy the goods, whether he buys it for his
own use or to sell again
E.1.3. An implied warranty or condition as to the quality or fitness
for a particular purpose may be annexed by the usage of
trade. (Art. 1564)
E.1.3.1. a usage in order to bind both parties must be
known to both or, if unknown to one, the other
must be justified in assuming knowledge of the
part of the person with whom he is dealing
E.1.3.2. the presumption is that the parties are aware of
the usage of trade
E.1.4. In the case of contract of sale of a specified article under its
patent or other trade name, there is no warranty as to its
fitness for any particular purpose, unless there is a
stipulation to the contrary. (Art. 1563)
E.1.5. Requisites for breach of warranty to apply
E.1.5.1. That the buyer sustained injury because of the
product;
E.1.5.2. That the injury occurred because the product was
defective or unreasonably unsafe; and
E.1.5.3. The defect existed when the product left the hands
of the seller.
E.1.6. Measure of Damage in case of breach of warranty on
Quality
E.1.6.1. In the case of breach of warranty of quality, such
loss, in the absence of special circumstances
showing proximate damage of a greater amount,
is the difference between the value of the goods at
the time of delivery to the buyer and the value they
would have had if they had answered to the
warranty
E.2. Sale of Goods by sample and/or by description
E.2.1. In the case of a contract of sale by sample, if the seller is a
dealer in goods of that kind, there is an implied warranty
that the goods shall be free from any defect rendering them
unmerchantable which would not be apparent on
reasonable examination of the sample. (Art. 1565)
E.3. Buyer’s Option in case of breach of warranty
E.3.1. Accept or keep the goods and set up against the seller, the
breach of warranty by way of recoupment in diminution or
extinction of the price;
E.3.2. Accept or keep the goods and maintain an action against
the seller for damages;
E.3.3. Refuse to accept the goods, and maintain an action against
the seller for damages;
E.3.4. Rescind the contract of sale and refuse to receive the
goods or if the goods have already been received, return
them or offer to return them to the seller and recover the
price or any part thereof which has been paid.
E.4. Waiver of remedies by buyer
E.4.1. When goods have been delivered to the buyer, he cannot
rescind the sale if he knew of the breach of warranty when
he accepted the goods without protest, or if he fails to
notify the seller within a reasonable time of the election to
rescind, or if he fails to return or to offer to return the goods
to the seller in substantially as good condition as they were
in at the time the ownership was transferred to the buyer.
E.4.2. But if deterioration or injury of the goods is due to the
breach of warranty, such deterioration or injury shall not
prevent the buyer from returning or offering to return the
goods to the seller and rescinding the sale
E.5. Obligation of buyer on the price
E.5.1. Where the buyer is entitled to rescind the sale and elects to
do so, he shall cease to be liable for the price upon
returning or offering to return the goods.
E.5.2. If the price or any part thereof has already been paid, the
seller shall be liable to repay so much thereof as has been
paid, concurrently with the return of the goods, or
immediately after an offer to return the goods in exchange
for repayment of the price
E.6. Refusal of seller to accept return of goods
E.6.1. Where the buyer is entitled to rescind the sale and elects to
do so, and the seller refuses to accept an offer of the buyer
to return the goods, the buyer shall thereafter be deemed
to hold the goods as bailee for the seller, but subject to a
lien to secure payment of any portion of the price which
has been paid, and with the remedies for the enforcement
of such lien allowed to an unpaid seller by Article 1526 of
the Civil Code
F. ADDITIONAL WARRANTIES FOR CONSMER GOODS
F.1. Subsidiary Liability of retailer
F.1.1. The retailer shall be subsidiarily liable under the warranty in
case of failure of both the manufacturer and distributor to
honor the warranty, and that in such case the retailer shall
shoulder the expenses and costs necessary to honor the
warranty.
F.1.2. The remedy of the retailer in such case would be to
proceed against the distributor or manufacturer
F.2. Enforcement of warranty
F.2.1. The warranty rights can be enforced by presentment to the
immediate seller either the warranty card or the official
receipt along with the product to be serviced or returned to
the immediate seller. No other documentary requirement
shall be demanded from the purchaser
F.3. Duration of Warranty
F.3.1. The seller and the consumer may stipulate the period
within which the express warranty shall be enforceable. But
if the implied warranty on merchantability accompanies an
express warranty, both will be of equal duration.
F.3.2. Any other implied warranty shall endure not less than sixty
(60) days nor more than one (1) year following the sale of
new consumer products
F.4. Breach of warranties
F.4.1. In case of breach of express warranty, the consumer may
elect to have the goods repaired or its purchase price
refunded by the warrantor.
F.4.2. In case the repair of the product in whole or in part is
elected, the warranty work must be made to conform to the
express warranty within thirty (30) days by either the
warrantor or his representative.
F.4.3. The thirty-day period, however, may be extended by
conditions which are beyond the control of the warrantor or
his representatives.
F.4.4. In case the refund of the purchase price is elected, the
amount directly attributable to the use of the consumer
prior to the discovery of the non-conformity shall be
deducted.
F.4.5. In case of breach of implied warranty, the consumer may
retain the goods and recover damages, or reject the goods,
cancel the contract and recover from the seller so much of
the purchase price as has been paid, including damages
F.5. Contrary Stipulations
F.5.1. All covenants, stipulations or agreements contrary to the
provisions of Article 68 are specifically declared null and
void, and without legal effect.
EXTINGUISMENT OF SALE
A. GENERAL MODES OF EXTINGUISMENT
DANA | 30
 A.1. Sales are extinguished by the same causes as all other
obligations, by those stated in the preceding articles of this Title,
and by conventional or legal redemption. (Art. 1600)
A.1.1. Common Causes – causes which are also the means of
extinguishing all other contracts like payment, loss of the
thing, condonation, etc
A.1.1.1. Payment of price or performance
A.1.1.2. Loss of subject matter
A.1.1.3. Condonation or Remission
A.1.1.4. Confusion or merger of the rights of creditor and
debtor
A.1.1.5. Compensation
A.1.1.6. Novation
A.1.1.7. Annulment
A.1.1.8. Rescission
A.1.1.9. Fulfillment of a resolutory condition
A.1.1.10. Prescription
A.1.2. Special Causes – causes which are recognized by the law
on sales
A.1.3. Extra-Special Causes – causes which are given special
discussion by the Civil Code and these are conventional
redemption and legal redemption
B. CONVENTIONAL REDEMPTION
B.1. Definition
B.1.1. right which the vendor reserves to himself, to reacquire
(repurchase) the property sold provided that he:
B.1.1.1. return the price of the sale,
B.1.1.2. the expenses of the contract,
B.1.1.3. any other legitimate payments made by reason of
the sale,
B.1.1.4. and the necessary and useful expenses made on
the thing sold (Art. 1601 and 1616)
B.1.2. The vendee is subrogated to the vendor's rights and
actions (Art. 1609)
B.1.3. Right of repurchase may be exercised by:
B.1.3.1. Seller
B.1.3.2. any person to whom the right may have been
transferred
B.1.3.3. Person so entitled by law in case of legal
redemption
Option to buy Right of repurchase
right granted the vendor by the right reserved by the vendor in the
vendee in a subsequent instrument same instrument of sale as one of the
stipulations of the contract
Once the instrument of absolute sale is executed, the vendor no longer reserves
the right to repurchase, and any right thereafter granted the vendor by the
vendee in a separate instrument cannot be a right of repurchase, but some other
right like the option to buy
B.2. Proper Reservation of right to repurchase
B.2.1. Right of repurchase is not a right granted to the vendor by
the vendee in a subsequent instrument, but is a right
reserved by the vendor in the same instrument of sale as
one of the stipulations of the contract. Once the instrument
of absolute sale is executed, the vendor can no longer
reserve the right to repurchase, and any right thereafter
granted the vendor by the vendee in a separate instrument
cannot be a right of repurchase but some other right like
the option to buy in the instant case
B.3. Right of Repurchase may be proved by Parol evidence
B.4. Period of Redemption
B.4.1. Permutations on Agreement or Non-Agreement on the
Redemption Period
B.4.1.1. no agreement granting right to redeem – there is
no right of redemption since the sale should be
considered an absolute sale
B.4.1.2. agreement merely grants right
B.4.1.2.1. absence of an express stipulation as to
the time within which the repurchase
should be made – 4 years from the date
of the contract
B.4.1.2.2. parties may stipulate a period not
exceeding the maximum period of 10
years from the date of the contract (Art.
1606)
B.4.1.2.2.1. where the agreed period
exceeds 10 years, the vendor a
retro has 10 years from the
execution of the contract to
exercise his right of redemption
B.4.1.2.2.2. when a period of redemption is
agreed upon by the parties in a
sale a retro, although the
stipulation as to period may be
unclear or void, it is the 10 year
period provided in Article 1606
that applies and not the 4 year
period provided therein where
there is no agreement as to
period.
B.4.1.3. XXX However, the vendor may still exercise the
right to repurchase within thirty days from the time
final judgment was rendered in a civil action on the
basis that the contract was a true sale with right
to repurchase. (Art. 1606 (3))
B.4.1.3.1. when Art. 1606 par 3 not applicable
B.4.1.3.1.1. where the contract is found to be
an absolute deed of sale
B.4.1.3.1.2. where the sale is admittedly one
with pacto de retro
B.4.2. The Mysterious Aberration of Misterio
B.4.2.1. since no period was agreed upon, the applicable
period under Article 1606 of the Civil Code should
be four (4) years to be counted, not from the “date
of the contract” as required in the article, but within
four (4) years from the happening of the condition,
even though it would exceed the maximum 10-
year limitation provided in said Article 1606
B.4.3. Pendency of Action Tolls Redemption Period
B.4.3.1. In the case of Ong Chua, the seller a retro had
given notice of the exercise of the redemption right
within the redemption period; whereas in Misterio
the facts showed the successors-in-interests of the
sellers a retro actual sought to exercise the
redemption right after the expiration of the four-
year redemption period. In essence therefore, the
completion of the redemption process (i.e., the
payment of the amounts required by Article 1616)
is tolled by the fi ling of a civil action relating to the
issue of such redemption, provided that the
exercise of the redemption right and the fi ling of
the suit are done within the redemption period.
B.4.4. Non payment of price does not affect the running of
redemption period
B.5. Possession of Subject Matter During Period of Redemption
B.5.1. In a sale a retro, the buyer has a right to the immediate
possession of the property sold, unless otherwise agreed
upon – the title and ownership of the property sold are
immediately vested in the buyer a retro
B.6. How Redemption if effected
B.6.1. (Art. 1601 &1616)
B.6.2. The vendor may bring his action against every possessor
whose right is derived from the vendee, even if in the
second contract no mention should have been made of the
right to repurchase, without prejudice to the provisions of
the Mortgage Law and the Land Registration Law with
respect to third persons. (Art. 1608)
B.6.2.1. right to redeem is a real right; it is not an obligation
B.6.2.2. a vendor a retro cannot exercise his right of
redemption against a subsequent transferee for
value and in good faith if his right is not properly
registered or annotated
B.6.3. Art 448 of the Civil Code on the rights of a builder in good
faith is inapplicable in cases of involving contracts of sale
with right of repurchase
B.6.4. Proper Exercise of the Right of Redemption
B.6.4.1. in order to exercise the right to redeem, only
tender of payment is sufficient.
B.6.4.2. mere sending of letters by the seller expressing
his desire to repurchase the property without
DANA | 31
 accompanying tender of the redemption price
does not comply with the requirement of law
B.6.4.3. when tender of payment cannot be validly made,
because the buyer cannot be located, it becomes
imperative for the seller a retro then to file a suit
for consignation with the courts of the redemption
price, and failing to do so within the redemption
period, his right of redemption shall lapse.
B.6.5. In Multi-Parties Cases
B.6.5.1. In a sale with a right to repurchase, the vendee of
a part of an undivided immovable who
acquires the whole thereof in the case of article
498, may compel the vendor to redeem the whole
property, if the latter wishes to make use of the
right of redemption. (Art. 1611)
B.6.5.2. If several persons, jointly and in the same
contract, should sell an undivided immovable
with a right of repurchase, none of them may
exercise this right for more than his respective
share.
The same rule shall apply if the person who sold
an immovable alone has left several heirs, in
which case each of the latter may only redeem the
part which he may have acquired. (Art. 1612)
B.6.5.2.1. the redemption of one co heir or co owner
of the property in its totality does not vest
him ownership over it – does not provide
for a mode of terminating co ownership –
co owners are liable for reimbursement
B.6.5.3. In the case of the preceding article, the vendee
may demand of all the vendors or co-heirs that
they come to an agreement upon the purchase of
the whole thing sold; and should they fail to do so,
the vendee cannot be compelled to consent to
a partial redemption. (Art. 1613)
B.6.5.4. Each one of the co-owners of an undivided
immovable who may have sold his share
separately, may independently exercise the right
of repurchase as regards his own share, and the
vendee cannot compel him to redeem the whole
property. (Art. 1614)
B.6.5.5. The creditors of the vendor cannot make use of
the right of redemption against the vendee, until
after they have exhausted the property of the
vendor. (Art. 1610)
B.7. When Redemption is Not Made
B.7.1. In case of real property, the consolidation of ownership
in the vendee by virtue of the failure of the vendor to
comply with the provisions of article 1616 shall not be
recorded in the Registry of Property without a judicial
order, after the vendor has been duly heard. (Art. 1607)
B.7.1.1. Judicial order is necessary because the
transaction may not be a genuine pacto de retro
but only an equitable mortgage
B.7.1.2. action to consolidate ownership
B.7.1.2.1. ordinary civil actions
B.7.1.2.2. registration proceeding
B.7.1.3. action for consolidation must be filed to prove that
the transaction was indeed a pacto de retro >>> if
provento be pacto de retro, the vendor is still given
a period of 30 days from the finality of the
judgment within which to repurchase the property
B.8. Disposition of Fruits of the Subject Matter of Sale
B.8.1. If there were fruits at the time of the execution of the
sale
B.8.1.1. vendee paid for them – he must be reimbursed at
the time of redemption as the payment forms part
of the purchase price
B.8.1.2. if no indemnity was paid by the vendee – no
reimbursement
B.8.2. if there are no fruits at the time of the sale and some
exist at the time of redemption
B.8.2.1. they shall be apportioned proportionately between
the redemptioner and the vendee, giving the latter
a share in proportion to the time he possessed the
property during the last year counted form the
anniversary of the date of the sale to compensate
the vendee for his expense (Art. 1617)
B.8.2.1.1. Art. is applicable only when the parties
have not provided for any sharing
arrangement with respect to the fruits
existing at the time of redemption
B.8.2.1.2. refers only to natural and industrial fruits –
civil fruits are deemed to accrue daily and
belong to the vendee in that proportion
B.9. Distinguished from Option to Purchase
Right to Redeem Option to Purchase
not a separate contract, but merely generally a principal, albeit
part of a main contract of sale, and in preparatory, contract and may be
fact cannot exist unless reserved at created independent of another
the time of the perfection of the contract
contract of sale
must be imbedded in a contract of may exist prior to or after the
sale upon the latter’s perfection; perfection of the sale, or be
whereas, an option right imbedded in another contract, like a
lease, upon that contract’s perfection
does not need a separate must have a consideration separate
consideration in order to be valid and and distinct from the purchase price
effective
redemption period cannot exceed ten period for an option right may exceed
(10) years ten (10) years
exercise of a right of redemption exercise of a option to purchase
requires notice to be accompanied requires only a notice of such
by a tender of payment, including exercise be given to the optioner
consignment when tender of
payment cannot be made effectively
on the buyer
exercise of a right of redemption the valid exercise of an option right
extinguishes an existing contract of results into the perfection of a
sale contract of sale.
B.10. Equitable Mortgages – one which lacks the proper formalities,
forms or words, or other requisites prescribed by law for a
mortgage, but shows the intention of the parties to make the
property subject of the contract denominated as a contract of sale,
as security for a debt, and contains nothing impossible or contrary
to law
B.10.1. Requisites for a presumption of an equitable mortgage
to arise
B.10.1.1. that the parties entered into a contract
denominated as a contract of sale with a right of
repurchase or purporting to be an absolute sale
B.10.1.2. that their intention was to secure an existing debt
by way of mortgage of the property
B.10.2. In case of doubt, a contract purporting to be a sale with
right to repurchase shall be construed as an equitable
mortgage. (Art. 1603)
B.10.2.1. involves lesser transmission of rights and interest
over the property
B.10.3. Pactum Commissorium – stipulation whereby the thing
used as a security shall automatically become the property
of the creditor in the event of non-payment of the principal
obligation
B.10.3.1. GR: Pactum Commissorium is forbidden by law.
Any stipulation to that effect is declared null and
void
Exception: The pledgee may appropriate the thing
pledge if after the first and second auctions, the
thing is not sold (Art. 2112)
B.10.3.2. Elements
B.10.3.2.1. There should be a pledge, mortgage, or
antichresis of property
B.10.3.2.2. There is a stipulation for an automatic
appropriation by the creditor of the
property in case of nonpayment of
principal obligation
B.10.3.3. Proper Remedies in Pactum Commissorium
Situations
B.10.3.3.1. FORECLOSE the mortgage – the return
of the redemption price would actually be
equivalent to the payment of the principal
DANA | 32
 loan, which would have the legal effect of
extinguishing
B.10.4. Rationale behind the Provisions on equitable Mortgage
– to curtail the evils brought about by contracts of sale with
right of repurchase, such as the circumvention of usury
laws and the public policy on pactum commissorium
B.10.5. When Equitable Mortgage is Presumed
B.10.5.1. The contract shall be presumed to be an equitable
mortgage, in any of the following cases:
B.10.5.1.1. When the price of a sale with right to
repurchase is unusually inadequate;
B.10.5.1.2. When the vendor remains in possession
as lessee or otherwise;
B.10.5.1.3. When upon or after the expiration of the
right to repurchase another instrument
extending the period of redemption or
granting a new period is executed;
B.10.5.1.4. When the purchaser retains for himself a
part of the purchase price;
B.10.5.1.5. When the vendor binds himself to pay the
taxes on the thing sold;
B.10.5.1.6. In any other case where it may be fairly
inferred that the real intention of the
parties is that the transaction shall secure
the payment of a debt or the performance
of any other obligation.
B.10.5.2. In any of the foregoing cases, any money, fruits, or
other benefit to be received by the vendee as rent
or otherwise shall be considered as interest which
shall be subject to the usury laws. (Art. 1602)
B.10.5.3. Presumption is not conclusive – may be rebutted
by competent and satisfactorily proof to the
contrary
B.10.6. Circumstances indicative of intention to execute
mortgage
B.10.6.1. vendor in urgent need of money
B.10.6.2. automatic appropriation by vendee of property
sold stipulated
B.10.6.3. vendee given possession of certificate of title
B.10.6.4. escalation of purchase price every month
stipulated
B.10.6.5. vendor borrowed from vendee money used in
buying property sold
B.10.6.6. vendor of low intelligence and illiterate
B.10.6.7. vendor continued to pay monthly interest. property
not transferred to vendee
B.10.6.8. vendor continued to be indebted
B.10.6.9. vendor mortgaged property sold to a bank; paid
taxes thereon etc
B.10.7. Applicability to deeds of Absolute sale
B.10.7.1. The provisions of Article 1602 shall also apply to a
contract purporting to be an absolute sale. (Art.
1604)
B.10.8. Proof by Parol Evidence; Best Evidence Rule
B.10.8.1. Parole evidence is competent and admissible in
support of the allegations that an instrument in
writing, purporting on its face to transfer the
absolute title to property, or to transfer the title with
a right to repurchase under specified conditions
reserved to the seller, was in truth and in fact
given merely as security for the repayment of a
loan; provided that the nature of the agreement in
placed in issue by the pleadings fi led with the trial
court
B.10.9. Effects When Sale Adjudge to be an equitable
mortgage
B.10.9.1. Any money, fruit, or other benefit to be received by
the buyer as rent or otherwise shall be considered
as interest which shall be subject to the usury
laws; (Art. 1602)
B.10.9.2. The apparent “seller” may ask for the reformation
of the instrument. (Art. 1605)
B.10.9.3. For the court to decree that “vendor” debtor to pay
his outstanding loan to the “vendee”-creditor.
B.10.9.4. Where the trial court did not pass upon the
mortgagor’s claim that he had paid his mortgage
obligation, a remand of the case to the trial court is
in order, only for the purpose of determining
whether the mortgage obligation had indeed been
settled, and if not, how much should the mortgagor
pay to settle the same
C. LEGAL REDEMPTION – the right to be subrogated, upon the same terms
and conditions stipulated in the contract, in the place of one who acquires
a thing by purchase or dation in payment, or by any other transaction
whereby ownership is transmitted by onerous title. (Art. 1619)
C.1. Essence of Legal Rights of Redemption
C.1.1. 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.
C.1.2. It is intended to minimize co-ownership. The law grants a
co-owner the exercise of the said right of redemption when
the shares of the other owners are sold to a ‘third person
C.2. Salient Distinctions between Convention and Legal Rights of
Redemption
Right a retro Legal right of redemption
can only be constituted by express does not have to be expressly
reservation in a contract of sale at reserved (it is a right granted by law),
time of perfection and covers sales and other “onerous
transfers of title”
in favor of the seller given to a thirdparty to the sale
extinguishes the underlying contract although it extinguishes the original
of sale as though there was never any sale, actually constitutes a new sale in
contract at all substitution of the original sale.
C.3. Legal Redemption under Civil Code
C.3.1. Among Co-Heirs
should any of the heirs sell his hereditary rights to a
stranger before the partition of the decedent’s estate, any
or all of the other co-heirs may be subrogated to the rights
of the purchaser by reimbursing him for the price of the
sale, provided they do so within the period of one (1) month
from the time they were notified in writing of the sale by the
selling co-heir. (Art. 1088)
C.3.1.1. stranger – all persons who are not heirs in
succession
C.3.1.2. There is no right of legal redemption available to
the coheirs when the sale covers a particular
property of the estate, since the legal right of
redemption applies only to the sale by an heir of
his hereditary right
C.3.2. Among Co-Owners
A co-owner of a thing may exercise the right of
redemption in case the shares of all the other co-
owners or of any of them, are sold to a third person. If
the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the
right of redemption, they may only do so in proportion to
the share they may respectively have in the thing owned in
common. (Art. 1620)
C.3.2.1. Purpose: to minimize co ownership
C.3.2.2. Requisites for the right of legal redemption of
co owner to exist
C.3.2.2.1. there must be co-ownership of a thing
C.3.2.2.2. there must be alienation of the shares of
all the other co owners or of any one of
them
C.3.2.2.3. the sale must be to a third person or
stranger
C.3.2.2.4. the sale must be before partition
C.3.2.2.5. the right must be exercised within the
period provided in Art. 1623
C.3.2.2.6. The vendee must be reimbursed for the
price of the sale
C.3.2.3. redemption is not a mode of termination a co
ownership
C.3.2.4. When the portion is sold to another co-owner, the
right does not arise because a new participant is
not added to the co-ownership.
DANA | 33
 C.3.2.5. The right of redemption of co-owners excludes
that of adjoining owners
C.3.3. Effect of De Facto Partition Among Co-heirs and Co-
Owners
C.3.3.1. Once a property is partitioned among the co-
owner, the community ceases to exists and there
is no more reason to sustain any right of legal
redemption
C.3.4. Distinguishing between the rights of redemption of co-
heirs and co-owners
Art. 1620 Art. 1088
a co-owner of the property owned in an heir may validly redeem for himself
common, even when he uses his own alone the hereditary rights sold by
fund, within the period prescribed by another co-heir.
law inures to the benefit of all the
other co-owners
when the subject matter sold was a redemption by a co-heir of hereditary
particular property of the estate and rights sold is only for his own account.
not hereditary rights, the redemption
by a co-owner/co-heir redounded to
the benefit of all other co-owners,
C.3.5. Among Adjoining Owners of Rural Lands
The owners of adjoining lands shall also have the right of
redemption when a piece of rural land, the area of which
does not exceed one hectare, is alienated, unless the
grantee does not own any rural land.
This right is not applicable to adjacent lands which are
separated by brooks, drains, ravines, roads and other
apparent servitudes for the benefit of other estates.
If two or more adjoining owners desire to exercise the
right of redemption at the same time, the owner of the
adjoining land of smaller area shall be preferred; and
should both lands have the same area, the one who first
requested the redemption. (Art. 1621)
C.3.5.1. Requisites for the exercise of right of legal
redemption of adjacent owners of rural lands
C.3.5.1.1. both the land of the one exercising the
right of redemption and the land sought to
be redeemed must be rural
C.3.5.1.1.1. rural – relating to or constituting
tenement in land adopted and
used for agricultural or pastoral
purposes
C.3.5.1.2. the land must be adjacent
C.3.5.1.3. there must be an alienation
C.3.5.1.4. the piece of rural land alienated must not
exceed 1 hectare
C.3.5.1.5. the grantee or vendee must already own
any other rural land
C.3.5.1.6. the rural land sold must not be separated
by brooks, drains, ravines, roads and
other apparent servitudes from the
adjoining lands
C.3.5.1.6.1. the right of redemption can only
be exercised against a stranger
C.3.5.2. Purpose of the grant of right to owners of
adjoining rural lands
C.3.5.2.1. to benefit adjacent owners and public
weal as well
C.3.5.2.2. to avoid difficulties in cultivation
C.3.5.2.3. to protect agriculture
C.3.5.3. burden of proof to apply the exemption lies with
the buyer
C.3.6. Among Adjoining Owners of Urban land
Whenever a piece of urban land which is so small and so
situated that a major portion thereof cannot be used for any
practical purpose within a reasonable time, having been
bought merely for speculation, is about to be re-sold, the
owner of any adjoining land has a right of pre-emption at
a reasonable price.
If the re-sale has been perfected, the owner of the
adjoining land shall have a right of redemption, also at a
reasonable price.
When two or more owners of adjoining lands wish to
exercise the right of pre-emption or redemption, the
owner whose intended use of the land in question appears
best justified shall be preferred. (Art. 1622)
C.3.6.1. Pre-emption – the act or right of purchasing
before others. It is exercised before the sale or
resale against the would-be vendor
C.3.6.2. Redemption – exercised after the sale has been
perfected against the vendee. The recognition of
the right of redemption will result in the rescission
of the sale
C.3.6.3. Requisites for the exercise of the right
C.3.6.3.1. that the piece of land is urban land
C.3.6.3.1.1. urban – belonging to a city or
town – purpose is for dwelling,
industry or commerce
C.3.6.3.2. the land is so small that a major portion
thereof cannot be used for any practical
purpose within a reasonable time
C.3.6.3.3. it was bought merely for speculation
C.3.6.3.4. the land is about to be resold, or that its
resale has been perfected
C.3.6.4. Purpose of the grant of right
C.3.6.4.1. to discourage speculation in real estate
and consequent aggravation of the
housing problems in centers of population
C.3.6.5. no right of redemption can be exercised when the
urban land is transferred under an “exchange of
properties” – applies only to resale
C.3.6.6. does not apply to lessee trying to buy the land that
he is leasing
C.3.7. Sale of Credits in Litigation
C.3.7.1. When a credit or other incorporeal right in litigation
is sold, the debtor shall have a right to
extinguish it by reimbursing the assignee for
the price the latter paid therefor, the judicial
costs incurred by him, and the interest on the
price from the day on which the same was paid.
The debtor may exercise his right within 30 days
from the date the assignee demands payment
from him (Art. 1634)
C.3.8. When Legal Pre-emption of Redemption Period Begins
to run
C.3.8.1. The right of legal pre-emption or redemption shall
not be exercised except within thirty days from
the notice in writing by the prospective vendor,
or by the vendor, as the case may be. The deed
of sale shall not be recorded in the Registry of
Property, unless accompanied by an affidavit of
the vendor that he has given written notice
thereof to all possible redemptioners.
The right of redemption of co-owners excludes
that of adjoining owners. (Art. 1623)
C.3.8.1.1. the 30 day period is not a prescriptive
period but is more a requisite or condition
precedent to exercise the right of legal
redemption
C.3.8.1.2. Purpose – to discourage the keeping for
a long time of property in a state of
uncertainty, beyond the 30 day period, a
situation which obviously is unjust to the
purchaser and prejudicial to public
interest
C.3.8.2. Notice Must Cover Perfected Sale
C.3.8.3. Proper Party to Give Notice: vendor
C.3.8.4. Strict Requirement on the Written Form of the
Notice – law did not provide for any particular
mode of written notice and therefor any
compliance with “written notice” should suffice,
including the giving copy of the deed of sale
C.3.8.5. Exceptions to Written Notice Requirement -
laches
C.4. Other Instances When Right of Legal Redemption is Granted
C.4.1. Redemption of Homesteads
C.4.1.1. Under Section 119, of Public Land Act, every
conveyance of land acquired under the free patent
homestead provisions, when proper, shall be
subject to repurchase by the applicant, his widow,
DANA | 34
 or legal heirs, within a period of five (5) years from
the date of the conveyance.
C.4.1.2. Sale of homestead within the 5-year prohibition
period is void even when the sale is in favor of the
homesteader’s own son or daughter
C.4.1.3. right to repurchase in homestead land cannot be
waived
C.4.1.4. The 5-year redemption period fixed under Section
119 of the Public Land Law of homestead sold at
extra-judicial foreclosure begins to run from the
day after the expiration of the one-year period of
repurchase allowed in an extra-judicial
foreclosure.
In all other cases, the 5-year redemption period is
to be reckoned from the date of the sale and not
from the date of registration of the deed in the
office of the Register of Deeds,198 which is
reckoned from the date execution of the deed
transferring the ownership of the land to the buyer
C.4.2. Redemption in Tax Auction Sales
C.4.2.1. Under Section 214, National Internal Revenue
Code of 1997, in case of delinquency sale of
property of a taxpayer for failure to pay tax
assessments, within one (1) year from the date of
sale, the delinquent taxpayer, or anyone for him,
shall have the right of redeeming the property by
paying to the Revenue District Offi cer the amount
of the public taxes, penalties, and interest thereon
from the date of delinquency to the date of sale
with interest on the price
C.4.2.2. the owner shall not be deprived of the possession
of the said property and shall be entitled to the
rents and other income thereof until the expiration
of the time allowed for its redemption.
C.4.3. Redemption by Judgment Debtors
C.4.3.1. Under Sections 27 and 28, Rule 39 of the Rules
of Court, a judgment debtor, or his successor-in-
interests, or a creditor having a lien by attachment,
judgment or mortgage on the property sold at
public auction shall have “one (1) year from date
of registration of the certificate of sale,” and not
just twelve (12) months after the sale as provided
previously under the old Rules of Court, to redeem
the property by paying the purchaser at the public
auction the amount of his purchase, with interest
up to the time of redemption, together with amount
of any assessments or taxes which the purchaser
may have paid thereon after purchase, with
interest thereon.
C.4.4. Redemption in Extrajudicial Foreclosures
C.4.4.1. Under Section 6 of Act No. 3135, as amended, in
all cases in which an extrajudicial foreclosure sale
has been made under a special power, the debtor,
his successors-in-interests or any judicial creditor
or judgment creditor of said debtor, or any person
having a lien on the property subsequent to the
mortgage or deed of trust under which the
property has been sold, may redeem the same
within one (1) year from and after the date of the
sale and registration thereof
C.4.4.2. Before the expiration of the one-year redemption
period within which the judgment-debtor or
mortgagor may redeem the property, the
purchaser thereof is not entitled, as a matter of
right, to the possession of the subject matter.
While the Rules of Court allow the purchaser to
receive the rentals if the purchased property is
occupied by tenants, such purchaser is
nevertheless accountable to the judgment-debtor
or mortgagor as the case may be, for the amount
so received and the same will be duly credited
against the redemption price when the said
judgment debtor or mortgagor effects the
redemption
C.4.4.3. While the right of redemption of one year is
retained for both judicial and extrajudicial
foreclosure, an exception is now created under
Section 47 of the General Banking Law of 2000: in
the case of extrajudicial foreclosures where the
mortgagor is a juridical person redemption is
available only until the registration of the certificate
of foreclosure sale, which shall be no more than
three (3) months after foreclosure, “whichever is
earlier.”
C.4.5. Redemption in Judicial Foreclosures
C.4.5.1. no right to redeem is granted to the debtor-
mortgagor when there has been a judicial
foreclosure of a real estate mortgage, except
when the mortgagee is a bank or a banking
institution.
C.4.5.2. doctrine of “equity of redemption” which covers the
right of a defendant mortgagor to extinguish the
mortgage and retain ownership of the property by
paying the secured debt within the 90-day period
after the judgment becomes final, in accordance
with Rule 68 of the Rules of Court, or even after
the foreclosure sale but prior to the confirmation of
such auction sale by the court.
C.4.6. Foreclosures by Banking Institutions
C.4.6.1. Under Section 47 of the Law, in the event of
foreclosure of any mortgage on real estate which
is security for any loan or other credit
accommodation granted:
C.4.6.1.1. The individual mortgator or debtor whose
real property has been sold for the full or
partial payment to his obligation, whether
judicially or extra-judicially; and
C.4.6.1.2. The corporate mortgator or debtor whose
real property has been sold for the full or
partial payment to his obligation, by virtue
of a judicial foreclosure; shall have the
right within one (1) year after the sale of
the real estate, to redeem the property by
paying the amount due under the
mortgage deed, with interest thereon at
the rate specified in the mortgage, and all
the costs and expenses incurred by the
bank or institution from the sale and
custody of said property less the income
derived therefrom; whereas,
C.4.6.1.3. Notwithstanding Act 3135, judicial
persons whose property is being sold
pursuant to an extrajudicial foreclosure,
shall have the right to redeem the
property in accordance with this provision
until, but not after, the registration of the
certificate of foreclosure sale with the
applicable Register of Deeds which in no
case shall be more than three (3) months
after foreclosure, whichever is earlier.
C.4.7. Foreclosures by Rural Banks
C.4.7.1. If the land, previously received under patent, is
mortgaged to a rural bank under Rep. Act No. 720,
the mortgagor may redeem the property within two
(2) years from the date of foreclosure or from the
registration of the sheriff’s certificate of sale at
such foreclosure if the property is not covered or is
covered, respectively, by Torrens title.
C.4.7.2. If the mortgagor fails to exercise such right, he or
his heirs may still repurchase the property within
five (5) years from expiration of the two (2) year
redemption period pursuant to Sec. 119 of the
Public Land Act, where the subject matter was
obtained through a homestead patent
C.4.8. Redemption under Agrarian reform Code
C.4.8.1. Under Section 12 of Rep. Act No. 3844, 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.
DANA | 35
ASSIGNMENT– sale of credits and other incorporeal rights B.4.3.5.1.2. if there is no stipulation
B.4.3.5.1.2.1. for 1 year from the
A. NATURE OF ASSIGNMENT IN THE SCHEME OF THINGS assignment of the credit
A.1. An assignment of creditors and other incorporeal rights shall be when the period for
perfected in accordance with the provisions of Article 1475. (Art. payment of the credit
1624) – Consensual has expired
A.1.1. Assignment of credit – a contract by which the owner of a B.4.3.5.1.2.2. for 1 year after its
credit and other incorporeal rights transfers, either maturity, when such
onerously or gratuitously, to another his rights and actions period for payment has
against a third person not yet expired (Art.
B. WHAT MAKES ASSIGNMENT DIFFERENT? 1629)
B.1. Validity and Binding Effect B.4.3.5.2. reason
B.1.1. The subject matter of an assignment is an intangible B.4.3.5.2.1. to prevent fraud which may be
property, whereas the object of species sale would be committed by feigning the
tangible property. solvency of the debtor at the time
B.2. Binding Effect as to Third Parties of the assignment when in fact
B.2.1. An assignment of a credit, right or action shall produce no he is insolvent
effect as against third person, unless it appears in a public B.4.3.5.2.2. to oblige the assignee to exert
instrument, or the instrument is recorded in the Registry of efforts in the recovery of the
Property in case the assignment involves real property. credit and thereby avoid that by
(Art. 1625) his oversight, the assignor may
B.2.2. exception on the binding effect of a public instrument suffer
covering an assignment is that when the assignment B.4.3.6. Assignment of Sale of Inheritance
involves a document of title, the assignment does not bind B.4.3.6.1. One who sells an inheritance without
the bailee unless specific notice of the transfer of the enumerating the things of which it is
covering document of title is given by the transferor or composed, shall only be answerable for
transferee to the bailee his character as an heir. (Art. 1630)
B.3. Effect of Assignment of Credit on Debtor B.4.3.6.1.1. while an heir may sell his
B.3.1. The debtor who, before having knowledge of the hereditary rights before partition,
assignment, pays his creditor shall be released from the the law prohibits the sale of a
obligation. (Art. 1626) future inheritance
B.3.1.1. consent of the debtor nor required; B.4.3.6.1.2. the seller warrants only the fact
B.3.1.2. before notice, payment to the original creditor is of his heirship but he does not
valid warrant the objects which make
B.3.1.3. Even without notice, the debtor will not also be up his inheritance
released from his obligation should he pay the B.4.3.6.2. One who sells for a lump sum the whole
creditor after having had knowledge of the of certain rights, rents, or products, shall
assignment of the obligation – bad faith comply by answering for the legitimacy of
B.3.1.4. If the creditor communicated the assignment to the whole in general; but he shall not be
him but the debtor did not consent thereto the obliged to warrant each of the various
debtor may still set up the compensation of debts parts of which it may be composed,
previous to the assignment, but not the except in the case of eviction from the
subsequent ones. whole or the part of greater value. (Art.
B.4. Transfer of Ownership 1631)
B.4.1. transfer of title or ownership over the subject matter of B.4.3.6.3. Should the vendor have profited by some
assignment should also be effected not by the mere of the fruits or received anything from the
perfection of the assignment, but by the same manner by inheritance sold, he shall pay the vendee
which ownership is transferred under the species sale, by thereof, if the contrary has not been
constructive delivery, such as the execution of a public stipulated. (Art. 1632)
instrument. B.4.3.6.4. The vendee shall, on his part, reimburse
B.4.2. Accessories and Accessions the vendor for all that the latter may have
B.4.2.1. The assignment of a credit includes all the paid for the debts of and charges on the
accessory rights, such as a guaranty, mortgage, estate and satisfy the credits he may
pledge or preference. (1627) have against the same, unless there is an
B.4.3. Warranties agreement to the contrary. (Art. 1633 )
B.4.3.1. The vendor in good faith shall be responsible for C. ASSIGNMENT OF CREDIT IN LITIGATION
the existence and legality of the credit at the C.1. When a credit or other incorporeal right in litigation is sold, the
time of the sale, unless it should have been sold debtor shall have a right to extinguish it by reimbursing the
as doubtful; assignee for the price the latter paid therefor, the judicial costs
B.4.3.2. but not for the solvency of the debtor, incurred by him, and the interest on the price from the day on
B.4.3.2.1. unless it has been so expressly stipulated which the same was paid.
or A credit or other incorporeal right shall be considered in litigation
B.4.3.2.2. unless the insolvency was prior to the from the time the complaint concerning the same is answered.
sale and of common knowledge. The debtor may exercise his right within thirty days from the date
B.4.3.3. Even in these cases he shall only be liable for the the assignee demands payment from him. (Art. 1634)
price received and for the expenses specified in C.1.1. Requisites for the exercise by the debtor of the right of
No. 1 of Article 1616. legal redemption
B.4.3.4. The vendor in bad faith shall always be C.1.1.1. there must be a sale or assignment of a credit or
answerable for the payment of all expenses, and other incorporeal right. The rights cannot be
for damages. (Art. 1628) exercised if the transaction is exchange or
B.4.3.5. In case the assignor in good faith should have donation
made himself responsible for the solvency of the C.1.1.2. the credit or other incorporeal right must be in
debtor litigation
B.4.3.5.1. the duration of the assignor’s liability: C.1.1.3. there must be a pending litigation at the time of the
B.4.3.5.1.1. if there is a stipulation, then for assignment.
the term or period fixed
DANA | 36
 C.1.1.4. the assignee must have demanded payment from
the debtor
C.1.1.5. the debtor must reimburse the assignee
C.1.1.5.1. the price paid by him
C.1.1.5.2. the judicial costs incurred by him
C.1.1.5.3. the interest on the price from the date of
payment
C.1.1.6. the reimbursement must be made by the debtor
within 30 days from the date the assignee
demands payment from him
C.1.2. purpose of grant of right to debtor
C.1.2.1. to avoid the purchase by third person of credits in
litigation merely for speculation
C.1.3. The right to redeem on the part of the debtor shall not exist
with respect to the following assignments which the law
considers not for speculation:
C.1.3.1. Assignment of the credit or incorporeal right to the
co-heir or co-owner of the rights assigned;
C.1.3.2. Assignment to a creditor in payment for his own
credit; and
C.1.3.3. Assignment to the possessor of a tenement or
piece of land which is subject to the right in
litigation assigned.
C.2. Differentiating from Subrogation
Assignment of credit Subrogation
Consent of the debtor is not Under Art. 1301, conventional
necessary, and what the law requires subrogation requires an agreement
is merely notice to him; a creditor among the three parties concerned –
may, therefor, validly assign his credit the original creditor, the debtor, and
and accessories without the debtor’s the new creditor. It is a new
consent contractual relation based on the
mutual agreement among all the
necessary parties
Refers to the same right which passes Extinguishes the original obligation
from one person to another and gives rise to a new one
Does not cure the nullity of an Cures the nullity of an old obligation,
obligation such that a new obligation will be
perfectly valid
D. ASSIGNMENT OF COPYRIGHT
D.1. the owner of a copyright may assign it in whole or in part, and the
assignee is entitled to all the rights and remedies which the
assignor had with respect thereto
D.2. If two or more jointly own a copyright, neither shall be entitled to
grant licenses without the prior written consent of the other owner
or owners
D.3. The copyright is not deemed assigned inter vivos in whole or in
part unless there is a written indication of such intention.
D.4. The submission of a literary, photographic or artistic work to a
newspaper, magazine or periodical for publication shall constitute
an assignment but only a license to make a single publication,
unless a greater right is expressly granted
D.5. Since the copyright is distinct from the property in the material
object subject to it, the transfer or assignment of the copyright shall
not itself constitute a transfer of the material object. In the same
manner, the transfer or assignment of the sole copy or of one or
several copies of the work does not imply transfer or assignment of
the copyright
E. ASSIGNMENT AS AN EQUITABLE MORTGAGE
E.1. In Development Bank of the Philippines v. Court of Appeals, where
an assignor executed a Deed of Assignment covering her
leasehold rights in order to secure the payment of promissory
notes covering the loan she obtained from the bank, the Court held
that such assignment is equivalent to an equitable mortgage, and
the non-payment of the loan cannot authorize the assignee to
register the assigned leasehold rights in its name as it would be a
violation of Article 2088 of the Civil Code against pactum
commissorium. The proper remedy of the assignee-bank is to
proceed to foreclose on the leasehold right assigned as security
for the loan.
E.2. In addition, the Court held that the assignment cannot even be
considered as a dacion en pago, because dation in payment is
effected in satisfaction of a debt in money, contrary to the case
where the assignment is effected at the commencement of the
transaction to secure a loan.
E.3. Finally, the Court also held that the assignment could not amount
to payment by cession under Article 1255 of the Civil Code for the
plain and simple reason that there was only one creditor, whereas
cession contemplates the existence of two or more creditors and
involves the assignment of all the debtor’s property.
THE BULK SALES LAW
A. Purpose: to prevent the defrauding of creditors by the secret sale in bulk
of substantially all of a merchant's stock of goods.
B. Constitutionality of the Law
B.1. The Bulk Sales Law is constitutional.
B.2. Bulk sales statutes have been sustained as a constitutional
exercise of the police power, and as such not in violation of the
constitution prohibiting the enactment of laws which shall deprive
any person of life, liberty, or property without due process of law,
or which shall deny to such person the equal protection of the
laws. Nor do they infringe constitutional provisions guaranteeing
the right of acquiring, possessing, and protecting property.
B.3. Legislature may, under its police power, place reasonable
restrictions on the right of an owner in relation to his property as it
finds necessary to protect the interests of the public, or prevent
frauds among individuals
C. Construction of the law
C.1. statute should be read as a whole
C.2. strictly construed against the State and liberally in favor of the
accused
C.3. should be construed and applied with a view to cure the evil at
which it is aimed, which is the defrauding of creditor by secret bulk
sales
D. TRANSACTIONS COVERED BY THE LAW
D.1. 3 Types of transactions (under Sec. 2) which are treated as
“bulk sales” – any sale, transfer, mortgage, or assignment of:
D.1.1. A stock of goods, wares, merchandise, provisions, or
materials not in the ordinary course of trade and the regular
prosecution of the business of the seller, mortgagor,
transferor, or assignor (“Extraordinary sale of goods”);
D.1.2. All, or substantially all, of the fixtures and equipment used
in and about the business of the seller, mortgagor,
transferor or assignor (“Extraordinary sale of fixtures and
equipment”); and
D.1.3. All, or substantially all, of the business or trade theretofore
conducted by the seller, mortgagor, transferor, or assignor;
(“Sale of business enterprise”)
D.2. “Bulk Sales” Not Covered by the Law
D.2.1. Even if the transaction falls within the definition of “bulk
sale” under Section 2 of the Law, in the following cases,
the Law would not be made to apply:
D.2.1.1. If the seller, transferor, mortgagor or assignor
produces and delivers a written waiver of the
provisions of the Law from his creditors as shown
by verified statements; and
D.2.1.2. Transactions effected by executors,
administrators, receivers, assignees in insolvency,
or public officers, acting under legal process.
D.3. “Business” Covered by the Law
D.3.1. stock – goods which are kept for sale
D.3.2. merchandise – things that are usually bought and sold in
trade by merchants; something that is sold every day and
is constantly going out of the store and being replaced by
other goods
D.3.3. fixtures – articles of merchandise usually possess and
annex to the premise occupied by merchants to enable
them better to store, handle, and display their wares and
which are commonly known as trade fixtures, although
removable without material injury to the premises at or
before the end of tenancy
D.3.4. mortgage
D.3.4.1. Bulk Sales Law should apply only to mortgages
that passes title and therefor amounts to a sale or
transfer of property.
D.3.4.2. It should not apply to the chattel mortgage
provided in the Civil Code
D.3.4.2.1. chattel mortgage merely creates a lien
and does not constitute a sale or disposal
of property
DANA | 37
E. OBLIGATIONS OF SELLER/ENCUMBRANCER WHEN TRANSACTION
IS A BULK SALE
E.1. To Deliver a Sworn Statement of Listing of Creditors – Before
receiving from the buyer, mortgagee, or his/its agent or
representative, any part of the purchase price thereof, or any
promissory note, memorandum, or other evidence therefor, to
deliver to such buyer, mortgagee or agent, or if the buyer,
mortgagee, or agent be a partnership firm, then to a member
thereof, a written statement of:
E.1.1. Names and addresses of all creditors to whom said seller
or mortgagor may be indebted;
E.1.2. Description of the amount of indebtedness due or owing, or
to become due or owing by said seller or mortgagor to
each of said creditors.
E.2. Pro-Rata Application of Proceeds – Apply the purchase or
mortgage proceeds to the pro-rata payment of bona fi de claims of
the creditors as shown in the verified statement.
E.3. Written Advance Disclosure to Creditors – The seller,
transferor, mortgagor or assignor, shall:
E.3.1. at least ten (10) days before the sale, transfer or
encumbrance execution of a mortgage upon any stock of
goods, wares, merchandise, provisions or materials, in
bulk, make a full detailed inventory thereof of goods,
wares, merchandise, provisions or materials and to
preserve the same showing the quantity and, so far as
possible with the exercise of reasonable diligence, the cost
price to the seller, transferor, mortgagor or assignor of
each article to be included in the sale, transfer or
mortgage; and
E.3.2. notify every creditor whose name and address is set forth
in the verified statement at least (10) ten days before
transferring possession thereof, personally or by registered
mail, of the price, terms and conditions of the sale, transfer
and mortgage or assignment.
E.4. Bulk Transfers for Nominal Value – It is unlawful for any person,
firm or corporation, as owner of any stock of goods, wares,
merchandise, provisions or materials, in bulk, to transfer title to the
same without consideration or for a nominal consideration only
F. CONSEQUENCES OF VIOLATION OF THE LAW
F.1. Any person violating any provision of this Act shall, upon
conviction thereof, be punished by imprisonment not less than 6
months, nor more than 5 years, or fined in sum not exceeding
5,000 pesos, or both such imprisonment and fine, in the discretion
of the court. (Sec. 11)
 Remedies available to creditors
o mere non compliance with the statute does not render
the purchaser personally liable to creditors
o An ordinary action against him by creditors to obtain a
money judgment will not lie, unless the purchaser has
sold or otherwise disposed of, or dealt with, the
property, so as to become personally liable to creditors
for the value of it
o the proper remedy is one against the goods to subject
them to the payment of a debt, such as
1. execution
2. attachment
3. garnishment
4. by a proceeding in equity
RETAIL TRADE LIBERALIZATION ACT (The Retail Trade Nationalization
Law)
A. IMPORTANCE OF RETAIL TRADE
A.1. Retail dealers perform the functions of capillaries in the human
body, thru which all the needed food and supplies are ministered
to members of the communities comprising the nation
B. LIBERAL POLICY UNDER RTLA
B.1. to promote consumer welfare in attracting, promoting and
welcoming productive investments that will bring down prices for
the Filipino consumer, create more jobs, promote tourism, assist
small manufacturers, stimulate economic growth and enable
Philippine goods and services to become globally competitive
through the liberalization of the retail trade sector
C. “RETAIL TRADE” – any act, occupation or calling of habitually selling
direct to the general public merchandise, commodities or goods for
consumption
C.1. Elements of Retail Trade
C.1.1. Habitual Act or Business of Selling
C.1.2. to the “General Public”
C.1.2.1. that the activities of the seller must be such that
the target clientele or customers must not only be
a particular person or group of persons
C.1.3. of merchandise, commodities or goods for consumption
C.1.3.1. consumption – “the utilization of economic goods
in the satisfaction of want resulting in immediate
destruction, gradual decay or deterioration or
transformation into other goods
C.1.3.2. coverage of retail trade
C.1.3.2.1. “consumption goods” or “consumer
goods” which directly satisfy human
wants and desires and are needed for
home and daily life
C.1.3.2.2. it excluded from the coverage of retail
trade goods which are considered
generally raw materials used in the
manufacture of other goods, or if not, as
one of the component raw material, or at
least as elements utilized in the process
of production and manufacturing
C.2. Exempted Transactions
C.2.1. Sales by a manufacturer, processor, laborer, or worker, to
the general public of the products manufactured,
processed or produced by him if his capital does not
exceed P100,000.00;
C.2.2. Sales by a farmer or agriculturist, of the products of his
farm, regardless of capital;
C.2.3. Sales in restaurant operations by a hotel owner or inn-
keeper irrespective of the amount of capital, provided that
the restaurant is incidental to the hotel business;
C.2.4. Sales to the general public, through a single outlet owned
by a manufacturer of products manufactured, processed or
assembled in the Philippines, irrespective of capitalization;
C.2.5. Sales to industrial and commercial users or consumers
who use the products bought by them to render service to
the general public and/or produce or manufacture of goods
which are in turn sold by them; and
C.2.6. Sales to the government and/or its agencies and
government-owned and controlled corporations
C.3. Special Exemption for Former Natural-Born Filipinos
C.3.1. A natural-born citizen of the Philippines who has lost his
Philippine citizenship but who resides in the Philippines
shall be granted the same rights as Filipino citizens for
purposes of retail trade under RTLA
D. CATEGORIES OF RETAIL TRADE ENTERPRISES
D.1. For purposes of determining who are qualified to invest in retail
trade in the Philippines, RTLA provides for four (4) categories of
retail trade enterprises based on capital level, namely:
D.1.1. CATEGORY A – Enterprises with paid-up capital, of the
peso equivalent of less than US$2.5 Million;
D.1.2. CATEGORY B – Enterprises with a minimum paid-up
capital of the peso equivalent of US$2.5 Million, but less
than US$7.5 Million, provided that in no case shall the
investments for establishing a store be less than the peso
equivalent of US$30,000.00;
D.1.3. CATEGORY C – Enterprises with a paid-up capital of the
peso equivalent of US$7.5 Million or more, provided that in
no case shall the investments for establishing a store be
less than the peso equivalent of US$830,000.00; and
D.1.4. CATEGORY D – Enterprises specializing in “high-end or
luxury products” with a paid-up capital of the peso
equivalent of US$250,000.00 per store.
D.2. “High-end or luxury goods” – goods which are not necessary for
life maintenance and whose demand is generated in large part by
the higher income groups, which shall include, but are not limited
to, products such as: jewelry, branded or designer clothing and
footwear, wearing apparel, leisure and sporting goods, electronics
and other personal effects
E. WHEN ALIENS MAY INVEST AND/OR ENGAGE IN RETAIL TRADE
E.1. Grandfather Rule – a process of characterizing the citizenship of
shares in one corporation held by another corporation by
attributing the controlling interest of individual stockholders in the
second layer of corporate ownership
DANA | 38
 E.1.1. For purposes of investments (as distinguished from
engaging), the SEC has adopted the rule that shares
belonging to corporations or partnerships at least 60% of
the capital of which is owned by Filipino citizens shall be
considered as Philippine nationality, but if the percentage
of Filipino ownership in the corporation or partnership is
less than 60%, only the number of shares corresponding to
such percentage shall be counted as of Philippine
nationality
E.2. Requirements of Foreign Investors
E.2.1. The foreign investor shall be required to maintain in the
Philippines the full amount of the prescribed minimum
capital, unless the foreign investor has notified the SEC
and the DTI of its intention to repatriate its capital and
cease operations in the PhilippinesThe actual use in
Philippine operations of the inwardly remitted minimum
capital requirement shall be monitored by the SEC.
E.2.2. Failure to maintain the full amount of the prescribed
minimum capital prior to notification of the SEC and the
DTI, shall subject the foreign investor to penalties or
restrictions on any future trading activities and business in
the Philippines.
E.2.3. Foreign retail stores shall secure a certification from the
Bangko Sentral ng Pilipinas (“BSP”) and the DTI, which will
verify or confirm inward remittance of the minimum
required capital investment
F. FOREIGN RETAILERS – an individual who is not a Filipino citizen, or a
corporation, partnership, association or entity that is not wholly-owned by
Filipinos, engaged in retail trade
F.1. Prequalification Requirements
F.1.1. A minimum Net Worth, of:
F.1.1.1. US$200 Million of the registrant corporation in
Categories B and C; and
F.1.1.2. US$50 Million of the registrant corporation in
Category D.
F.1.2. Five (5) retailing branches or franchises, in operation
anywhere around the world unless such retailer has at
least one (1) store, capitalized at a minimum of US$25
Million;
F.1.3. Five (5)-year track record in retailing; and
F.1.4. They must be nationals from, or juridical entities formed or
incorporated in, countries which allow the entry of Filipino
retailers
- For purposes of determining compliance with the above
requirements, the net worth, existence of branches and
franchises, track record as well as the domiciles of the
registrant’s parent company, its subsidiaries, its affi
liate companies as well as their predecessors shall be
considered
- For purposes of determining the “track record” of a
foreign retailer, the past business operation in the retail
business of the applicant foreign retailer, its
predecessors, its principal stockholders, affi liates,
subsidiaries or its management team, may be
considered.
- For publicly traded companies, net worth may be
determined by the number of outstanding shares
multiplied by the shares’ annual average trading price
F.2. Application for Prequalification
F.2.1. A request for prequalification duly signed and
acknowledged under oath by an authorized officer of the
foreign retailer mentioned in the preceding section, must be
submitted to the Board of Investments before filing a formal
application to engage in retail or invest in a retail store.57
F.2.2. The application must be accompanied by a certification by
the proper official of the home state of the applicant-foreign
retailer or the local embassy/consulate of the home-
country, to the effect that the laws of such state allows or
permits “reciprocal rights” to Philippine citizens and
enterprises together with the extent of participation
allowed.
F.2.3. “Reciprocity rights” denote the relation between two states
when each of them, by their respective laws or by treaty,
gives the citizens or nationals of the other certain
privileges, as in the undertaking of retail trade activities, on
condition that its own citizens or nationals shall enjoy
similar privileges, as in the undertaking of retail trade
activities, on condition that its own citizens or nationals
shall enjoy similar privileges in the latter state.
F.2.4. Notwithstanding RTLA allowing 100% foreign ownership of
retail activities subject to the capitalization requirements, a
foreign retailer shall be allowed to own only up to the extent
of the foreign ownership allowed for retailing in its home
country
F.3. Branches/Stores
F.3.1. Direct Opening of Branches/Stores
F.3.1.1. A registered foreign retailer may open branches
and/or stores in the Philippines falling under
Categories B and C, provided that the investments
for each branch/store must be no less than the
peso equivalent of US$830,000.00.61 Such
requirement shall be complied with also, when at
least 51% of the outstanding capital stock of any
existing retail store is acquired by a single foreign
retailer
F.3.2. Acquiring/Investing in Existing Retail Stores
F.3.2.1. Whenever a foreign investor is also engaged in
retail trade (i.e., foreign retailer) and such foreign
investor acquires 51% or more of the outstanding
capital stock of an existing retail store, no transfer
of shares to any such foreign investor shall be
recorded by the Corporate Secretary in the
corporate books thereof, unless a Certificate of
Compliance with Prequalification is presented
F.4. Promotion of Locally-Manufactured Products
F.4.1. For ten (10) years after the effectivity of RTLA, at least
thirty percent (30%) of the aggregate cost of the stock
inventory of foreign retailers falling under Categories B and
C and ten percent (10%) for Category D shall be made in
the Philippines
F.5. Prohibited Activities of Qualified Foreign Retailers
F.5.1. Qualified foreign retailers shall not be allowed to engage in
certain retailing activities outside their accredited stored
through the use of mobile or rolling stores or carts, the use
of sales representatives, door-to-door selling, restaurants
and sari-sari stores and such other similar retailing
activities
F.6. Binding Effect of License to Engage in Retail on Private
Parties
F.6.1. Only the government can question the matter, and the
existence of such license in binding on private individuals.
G. PENALTY CLAUSE
G.1. Imprisonment of not less than six (6) years and one (1) day but not
more than eight (8) years; and
G.2. Fine of not less than 1.0 Million, but not more than 20.0 Million
G.3. In the case of associations, partnerships or corporations, the
penalty shall be imposed upon its partners, president, directors,
manager and other officers responsible for the violation. If the
offender is not a citizen of the Philippine, he shall be deported
immediately after service of sentence
G.4. If the Filipino offender is a public offi cer or employee, he shall, in
addition to the penalty prescribed herein, suffer dismissal and
permanent disqualifi cation from public offi ce
H. APPLICATION OF ANTI-DUMMY LAW
H.1. penalizes Filipinos who permit aliens to use them as nominees or
dummies to enjoy privileges reserved for Filipinos or Filipino
corporations. Criminal sanctions are imposed on the president,
manager, board member or persons in charge of the violating
entity and causing the latter to forfeit its privileges, rights and
franchises.
H.2. 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 take part in technical aspects,
provided no Filipino can do such technical work, and with express
authority from the President of the Philippines. Strictly speaking
therefore, aliens could be mere employees in a business engaged
in retail trade.
H.3. when an alien gives or donates his money to a citizen of the
Philippines so that the latter could invest it in retail trade, such act,
provided it is done in good faith, does not violate our laws. What
DANA | 39
 was prohibited by the Anti-dummy Law and the retail trade law
then prevailing was the conduct of retail trade by the alien himself
I. IMPLEMENTING AGENCY
I.1. DTI as the Implementing Agency
I.1.1. DTI is tasked to monitor and regulate foreign sole
proprietorship, partnerships, associations, or corporations
allowed to engage in retail trade, including the resolution of
conflicts, as well as the following:
I.1.1.1. pre-qualify all foreign retailers before they are
allowed to conduct business in the Philippines
I.1.1.2. to issue the implementing rules and regulations
I.1.1.3. keep a record of qualified foreign retailers who
may, upon compliance with law, establish retail
stores in the Philippines
I.1.1.4. ensure that the parent retail trading company of
the foreign investor complies with the
qualifications prescribed on capitalization and
track record
I.1.2. The Inter-Agency Committee on Tariff and Related Matters
of the NEDA shall formulate and regularly update a list of
foreign retailers of high-end or luxury goods and render an
annual report on the same to Congress
I.2. Role of DOJ and SEC
I.2.1. Secretary of Justice, as Government’s counsel shall issue
rulings and opinions pertaining to RTLA
I.2.2. SEC, as the agency charged with the supervision and
control of partnerships, associations and corporations can
be expected to issue its own rulings pertaining to RTLA as
it affects juridical entities registered with it
LEASE
GENERAL PROVISIONS
A. Concepts and scope (NCC Arts. 1642-1644)
A.1. Contract of lease – an agreement whereby one person binds
himself to grant temporarily the enjoyment or use of a thing or to
render some work or service to another who undertakes to pay
rent, compensation or price therefor
A.1.1. GR: Lease is only a personal right
Exception: It is a real right if
A.1.1.1. lease of real property is more than 1 year and to
be enforceable, it must be in writing
A.1.1.2. lease of real property is registered regardless of
duration with Registry of Property
A.1.2. rights and obligation are transmissible to the heirs of the
lessor and lessee
A.2. Characteristics
A.2.1. principal
A.2.2. consensual
A.2.3. commutative
A.2.4. bilateral
A.2.5. onerous
A.2.6. nominate
A.3. Elements
A.3.1. consent of the contracting parties
A.3.2. object certain which is the subject matter of the contract
A.3.3. cause of the obligation which is established
A.3.3.1. Rent – cause, in money or in its equivalent which
the lessee binds himself to undertake
A.3.3.2. amount must not be nominal or so insignificant as
to indicate an intention to enter into a contract of
Commodatum
A.4. Form – may be oral, but if the lease of real property is for more
than 1 year, it must be in writing, in compliance of Statute of
Frauds
A.5. Kinds of lease according to subject matter
A.5.1. The contract of lease may be of things, or of work and
service. (Art. 1642)
A.5.1.1. Lease of things – whether real or personal,
involving an obligation on the part of the lessor to
deliver the thing which is the object thereof and
the correlative right of the lessee to the peaceful
and adequate enjoyment thereof for a price certain
A.5.1.2. Lease of work – refers to a contract for a piece of
work, involving an obligation on the part of the
independent contractor to execute a piece of work
for the employer in consideration of a certain price
or compensation
A.5.1.3. Lease of service – involving an obligation on the
part of the housekeeper, laborer or employee or
common carrier to do or perform a service for the
head of a family or master, employer, or
passenger or shipper of goods, respectively, in
consideration of compensation
B. Lease of things
B.1. In the lease of things, one of the parties binds himself to give to
another the enjoyment or use of a thing for a price certain, and for
a period which may be definite or indefinite. However, no lease for
more than ninety-nine years shall be valid. (Art. 1643)
B.2. need not be the owner of the thing leased as long as he can
transmit its enjoyment or use to the lessee – ownership is not
being transferred
B.3. Period of lease
B.3.1. must be for a definite period – longest is 99 years – it is an
unsound economic policy to allow ownership and
enjoyment to be separated for a very long time
B.3.2. in case the period fixed is more than 99 years, the lease
should be considered as having expired after the end of the
term and there is an implied new lease
B.3.3. if a term is fixed but is it indefinite, but from the
circumstances it can be inferred that a period was intended
– the court may fix the duration thereof
B.3.4. if no term is fixed
B.3.4.1. rural lands – Art. 1682
B.3.4.2. urban lands – Art. 1687
B.3.5. “for as long as the lessees are doing business and as long
as they can pay just rents” – a lease from month to month
under Art. 1687 (definite period)
B.3.6. a lease for such time as the lessor or the lessee may
please, is one for life, ending upon the death of either party
B.3.7. lease contract expressly gives the lessee the sole option to
renew the lease is valid – right of renewal is part of the
agreement
B.3.8. lease contract expressly gives the lessor the sole option to
renew lease – valid – not contrary to mutuality of contracts
– right of renewal is a part of agreement
B.4. Estoppel against lessee
A lessee is stopped from asserting title to the thing leased as
against the lessor (Art. 1436)
B.4.1. estoppels applies even though the lessor had no title at the
time the relation of lessor and lessee is created
B.4.2. relationship of lessor and lessee not dependent on former’s
title but on the agreement between the parties as long as
the lessee remains in undisturbed possession
B.4.3. Conclusive presumption not applicable to title acquired
subsequent to commencement of relation
B.4.3.1. Conclusive presumption includes the tenant is not
permitted to deny the title of his landlord at the
time of the commencement of the relation of
landlord and tenant between them
C. Distinguish Lease
Lease Sale
Only the enjoyment or use is Ownership is transferred
transferred
Transfer is temporary Transfer is permanent, unless subject
to a resolutory condition
Lessor not be the owner The seller must be the owner or at
least authorized by the owner to
transfer ownership, of the thing sold at
the time it is delivered
Price of the subject matter, is usually Price of the thing is usually fixed in the
not mentioned, being immaterial contract
- Lease of personalty with option to buy is an installment sale and not a
lease
Lease Commodatum – by the contract of
loan, one of the parties delivers to
another, either something not
consumable so that the latter may use
the same for a certain time and return
DANA | 40

Onerous contract, although the rent
may be subsequently be condoned or
remitted
Not essentially personal in character,
therefore the right may be transmitted
to the heirs
Consensual contract
Lease
Owner of the property does not lose
his ownership
Relationship is one of lessor and
lessee
Subject matter may be real and/or
personal property
Governed by the statute of frauds
where the thing leased is real property
for more than one year
Not governed by the Usury Law
Lease
Real right only in the case of real
property where the lease is registered
Lessor may or may not be owner
Lessor has the active obligation to
maintain the lessee in the enjoyment
or use of the property
Lessee generally pays no taxes
Lessee generally has no obligation to
pay for repairs
Lessee cannot constitute a usufruct
on the property
May be created only by contract
Generally covers particular uses
limited by the contract
Lease
Enjoyment or use of the thing leased
is the essential purpose
Lessor cannot demand the return of
thing leased before the expiration of
the contract
Both movable and immovable
property may be the object
onerous
consensual
Lease
Relationship is that of lessor and
lessee
Lessor loses control or management
over the chattel leased
The lessor has no control or
supervision over the lessee
Lessee pays rent to the lessor for the
enjoyment or use of the chattel
it
Essentially gratuitous
Purely personal in character, and the
death of either the bailor or the bailee
extinguishes the contract
Real contract as it is perfected only
upon delivery of the object thereof
Mutuum
The lender or creditor loses
ownership of the thing loaned which
becomes the property of the borrower
or debtor
It is that of creditor or oblige and
debtor or obligor
It is only money or any other fungible
thing
Not governed by the statute of frauds
Governed by the Usury Law
Usufruct
Always a real right
The creator of the right must be the
owner or one duly authorized by him
The owner has the passive duty to
allow the usufructuary to enjoy or use
the same
Usufructuary pays the annual charges
and taxes on the fruits
Usufructuary is oblige to make the
ordinary repairs needed by the thing
given in usufruct
Usufructuary may lease the thing in
usufruct to another
May be created by law, contract, last
will and testament, or prescription
Covers all possible uses of the
property
Deposit– constituted from the
moment a person receives a thing
belonging to another, with the
obligation of safely keeping it and
returning the same
Safekeeping of the thing delivered is
the principal purpose
Depositor can demand the return of
the subject matter at will
If it is extrajudicial, only movable
things may be the object
May be gratuitous
A real contract perfected only upon
delivery of the object thereof
Employment
Is one of employer and employee
Employer retains control or
management over his property used
by the employee
Employer exercises control and
supervision over his employee
The employer pays wage or salary for
the services of the employee
D. Lease of work or Service
D.1. In the lease of work or service, one of the parties binds himself to
execute a piece of work or to render to the other some service for
a price certain, but the relation of principal and agent does not
exist between them. (Art. 1644)
Lease of work Lease of Service
The object is the execution of a piece It is the performance of some service
work for an employer by an or an employer by a house helper or
independent contractor laborer or for a passenger or owner of
goods by a common carrier
Lease of work/service Agency– a person binds himself to
render some service or to do
something in representation or on
behalf of another, with the consent or
authority of the latter
The basis is employment It is representation
The lessor performs a material act for The agent executes a juridical act for
the benefit of his employer without and in behalf of his principal
representation of the latter
The work or service must be for a It is presumed for a compensation
price or compensation
The will of both parties is necessary The will of one is sufficient
for the extinguishment of the
relationship
Only 2 persons are involved: 3 persons:
1. lessor 1. principal
2. lessee 2. agent
3. third person with whom the
agent has contracted
The risk of loss before delivery is The risk is borne by the principal since
borne by the independent contractor, the agent acts merely as his
especially in the lease of work for a representative
fixed price
The independent contractor is Agent is not, unless he expressly
personally liable for his contracts with binds himself or exceeds the limits of
third persons his authority
The lessor ordinarily performs only The agent exercises discretionary
ministerial duties powers
Lease of work or service Partnership – two or more persons
bind themselves to contribute money,
property, or industry to a common
fund, with the intention of dividing the
profits among themselves
There is no principle of representation Every partner is an agent of the
partnership for the purpose of its
business
Lessor performs a material act for the The partners enter into commercial or
benefit of the employer business transactions for the
realization of profits
Only two persons are involved Juridical personality separate and
distinct from that of each of the
partner is formed
Work or service is dependent upon the Partners perform acts conducive to
ends or purposes of the lessee their own business purposes
Work or service must be for a price or Partners share in the profits or losses
compensation
The will of both parties is necessary The will of any partner is sufficient
for the extinguishment of the
relationship
The independent contractor is Generally not
personally liable for his contracts with
third persons
The lessor ordinarily performs only Every partner as an agent of the
ministerial duties partnership, exercises discretionary
powers
D.2. Compensation in lease of work or service
D.2.1. Where there is an agreement
D.2.1.1. lessee must be compelled to pay the agreed price
unless it is found to be iniquitous or unreasonable
DANA | 41
 in which case the courts may fix a reasonable and
just remuneration
D.2.1.2. where the compensation is renounced or waived
after the service has been rendered, there is still a
lease of service although it has become gratuitous
D.2.2. Where the agreement may be implied
D.2.2.1. court will fix the reasonable worth of the services
rendered
D.2.3. Where no rate or amount is fixed in the contract
D.2.3.1. the contract is valid if the amount can be
ascertained in the light of the customs and usages
of the place, or by findings of fact on the basis of
evidence submitted in case of disagreement
D.3. Service as driver under the boundary system
D.3.1. Boundary system – a scheme by an owner/ operator
engaged in transporting passengers as a common carrier
to primarily govern, the compensation of the driver, that is,
the latter’s daily earnings are remitted to the
owner/operator less the excess of the boundary which
represents the driver’s compensation – employer and
employee, NOT lessor and lessee
E. Lease of consumable goods
E.1. Consumable goods cannot be the subject matter of a contract of
lease, except
E.1.1. when they are merely to be exhibited or
E.1.2. when they are accessory to an industrial establishment.
(Art. 1645)
F. Disqualifications of lessee
F.1. The persons disqualified to buy referred to in Articles 1490 and
1491, are also disqualified to become lessees of the things
mentioned therein. (Art. 1646)
F.1.1. Art. 1490. The husband and the wife cannot sell property to
each other, except:
(1) When a separation of property was agreed upon in the
marriage settlements; or
(2) When there has been a judicial separation or property
under Article 191.
F.1.2. Art. 1491. The following persons cannot acquire by
purchase, even at a public or judicial auction, either in
person or through the mediation of another:
(1) The guardian, the property of the person or persons
who may be under his guardianship;
(2) Agents, the property whose administration or sale may
have been entrusted to them, unless the consent of the
principal has been given;
(3) Executors and administrators, the property of the estate
under administration;
(4) Public officers and employees, the property of the State
or of any subdivision thereof, or of any government-owned
or controlled corporation, or institution, the administration of
which has been entrusted to them; this provision shall
apply to judges and government experts who, in any
manner whatsoever, take part in the sale;
(5) Justices, judges, prosecuting attorneys, clerks of
superior and inferior courts, and other officers and
employees connected with the administration of justice, the
property and rights in litigation or levied upon an execution
before the court within whose jurisdiction or territory they
exercise their respective functions; this prohibition includes
the act of acquiring by assignment and shall apply to
lawyers, with respect to the property and rights which may
be the object of any litigation in which they may take part
by virtue of their profession.
(6) Any others specially disqualified by law.
F.1.3. Lease of real property to aliens
F.1.3.1. Although foreigners are prohibited by the
Constitution, except only in cases of hereditary
succession, to acquire lands they can lease real
property in the Philippines
F.1.3.2. Maximum Period – 25 years, renewable period of
25 years upon mutual agreement of both lessor
and lessee
G. Recording of lease
G.1. If a lease is to be recorded in the Registry of Property, the
following persons cannot constitute the same without proper
authority:
G.1.1. the husband with respect to the wife's paraphernal real
estate,
G.1.2. the father or guardian as to the property of the minor or
ward, and
G.1.3. the manager (Administrator) without special power. (Art.
1647)
G.1.3.1. Under old civil code said persons could not lease
for a term of more than 6 years without a special
power of attorney for the purpose because such a
lease was considered an act of strict ownership
and not a mere act of administration
G.1.3.2. In the absence of a special power, a lease for
more than 1 year executed by the persons
mentioned is valid only for 1 year but void as to
the excess (Under Art. 1878(8) a special power of
attorney is necessary to lease any real property to
another person for more than 1 year)
G.2. Every lease of real estate may be recorded in the Registry of
Property. Unless a lease is recorded, it shall not be binding upon
third persons. (Art. 1648)
G.2.1. Art. 1648 applies only to real estate; hence, leases of
personal or movable cannot be registered – to be binding
against third persons, parties must execute a public
document
H. Assignment of lease
H.1. The lessee cannot assign the lease without the consent of the
lessor, unless there is a stipulation to the contrary. (Art. 1649
H.1.1. sublease arrangement not covered
I. Sublease – a separate and distinct contract of lease wherein the original
lessee becomes a sublessor to a sublessee of the thing, in whole or in
part, without prejudice to his responsibility for the performance of the
contract toward the lessor
I.1. existence of sublease depends upon the lease, the sublease is
terminated upon the rescission of the lease contract
I.2. When in the contract of lease of things there is no express
prohibition, the lessee may sublet the thing leased, in whole or in
part, without prejudice to his responsibility for the performance of
the contract toward the lessor. (Art. 1650)
I.2.1. unlike in assignment of a lease, a lessee may sublease the
property
Sublease Assignment of lease
There are 2 leases and 2 distinct There is only one juridical relationship,
juridical relationships although that of the lessor and the assignee,
immediately connected and related to who is converted into a leassee
each other
Personality of the lessee does not Personality of the lessee disappears
disappear
The lessee foes not transmits The lessee transmits absolutely his
absolutely his rights and obligations to rights to the assignee
the sublessee
The sublessee, generally, does not The assignee has a direct action
have any direct action against the against the lessor
lessor
I.3. Obligations of sublessee
I.3.1. GR: Sublessee is directly liable to the sublessor and not
the lessor – no juridical relationship between lessor and
sublessee
I.3.2. Exception: Sublesse is responsible to the lessor for:
I.3.2.1. all acts which refer to the use and preservation of
the thing leased in the manner stipulated between
the lessor and the lessee. (Art. 1651)
I.3.2.2. rent due from the lessee which the latter have
failed to pay XXX (Art. 1652)
I.3.2.2.1. Purpose: to prevent situation where the
lessee collects rents form the sublessee
but does not pay his rents to the lessor
I.3.2.2.2. Accion Directa – a direct action which
the lessor may bring against a sublessee
who misuses the subleased property
I.3.2.2.3. Limitation: sublessee shall not be
responsible beyond the amount of rent
due from him, in accordance with the
terms of the sublease, at the time of the
extrajudicial demand by the lessor. XXX
DANA | 42
 I.3.2.2.4. XXX Payments of rent in advance by the A.4.1.1.1. Requirements to be entitled to
sublessee shall be deemed not to have reimbursement
been made, so far as the lessor’s claim is A.4.1.1.1.1. the lessee should introduce
concerned, unless said payments were improvements in good faith
affected in virtue of the custom of the A.4.1.1.1.2. the improvement must be
place. (Art. 1652) suitable to the use for which the
I.3.2.2.5. sublesse is not liable to the lessor upon lease is intended, without altering
mere demand by the lessor on him. There the form and substance of the
must be a judgment cancelling the property leased
lessee’s principal lease contract or A.4.1.1.1.3. the improvements must be useful
ousting the lessee from the premises A.4.2. With regard to ornamental expenses, the lessee shall
before the sublessee becomes not be entitled to any reimbursement, but he may remove
subsidiarily liable the ornamental objects, provided no damage is caused to
the principal thing, and the lessor does not choose to retain
RIGHTS AND OBLIGATIONS OF LESSOR AND LESSEE them by paying their value at the time the lease is
extinguished. (Art. 1678)
A. Rights and Obligations of the LESSOR A.5. Where lease contract contains right of first refusal
A.1. General obligations A.5.1. the lessor is under a legal duty to the lessee not to sell to
A.1.1. The lessor is obliged: anybody at any price until after he has made an offer to sell
A.1.1.1. To deliver the thing which is the object of the to the latter at a certain price and the lessee has failed to
contract in such a condition as to render it fit for accept it
the use intended; A.5.2. sale made in violation of right of first refusal is valid – may
A.1.1.2. To make on the same during the lease all the be rescinded or subject to an action for specific
necessary repairs in order to keep it suitable for performance
the use to which it has been devoted, unless there o Right to continue same business or industry engaged in by
is a stipulation to the contrary; lessee
A.1.1.2.1. obligation to make repair does not extend  The lessor of a business or industrial establishment may
to the obligation to re construct (totally continue engaging in the same business or industry to which
destroyed) the lessee devotes the thing leased, unless there is a
A.1.1.3. To maintain the lessee in the peaceful and stipulation to the contrary. (Art. 1656)
adequate enjoyment of the lease for the entire
duration of the contract. (Art. 1654) B. Rights and Obligations of the LESSEE
A.1.1.3.1. obligation arises when there is legal B.1. General obligations
trespass B.1.1. The lessee is obliged:
A.2. Warranties of lessor B.1.1.1. To pay the price of the lease according to the
A.2.1. The provisions governing warranty, contained in the Title terms stipulated;
on Sales, shall be applicable to the contract of lease. B.1.1.1.1. arises only when the thing leased has
In the cases where the return of the price is required, been delivered to the lessee
reduction shall be made in proportion to the time during B.1.1.1.2. Only the lessor has the right to fix the
which the lessee enjoyed the thing. (Art. 1653) rents. The court cannot determine the
A.2.1.1. warranty of the lessor rent and compel the lessor to conform
A.2.1.1.1. that he has a right to lease the thing thereto
A.2.1.1.2. that the lessee shall enjoy the legal and B.1.1.1.3. Place and time for payment of lease
peaceful possession of the thing, and B.1.1.1.3.1. If nothing has been stipulated
A.2.1.1.3. that the thing is fit for the use for which it concerning the place and the
is intended and free from any hidden fault time for the payment of the
or defect lease,
A.2.1.2. in case of eviction, and the return of the rents paid B.1.1.1.3.1.1. the provisions or Article
is required, a reduction shall be made taking into 1251 shall be observed
account the period during, which the lessee as regards the place;
enjoyed the thing and
A.2.1.3. lessee has the right for the proportionate reduction B.1.1.1.3.1.1.1. domicile of the
of the rents agreed upon where the area or lessee or
number of the object of the lease is less than that B.1.1.1.3.1.1.2. where the leased
stated in the contract premises are
A.3. Alteration of the thing leased located or
A.3.1. The lessor cannot alter the form of the thing leased in such B.1.1.1.3.1.1.3. if the rent is
a way as to impair the use to which the thing is devoted payable in the
under the terms of the lease. (Art. 1661) form of a
A.3.1.1. lessee may alter the form of the lease so long as determinate thing,
the value of the property is not impaired by the wherever the thing
alteration might be at the
A.4. Useful improvements and ornamental expenses moment of the
A.4.1. If the lessee makes, in good faith, useful improvements contract was
which are suitable to the use for which the lease is entered into
intended, without altering the form or substance of the B.1.1.1.3.1.2. with respect to the time,
property leased, the lessor upon the termination of the the custom of the place
lease shall pay the lessee one-half of the value of the shall be followed. (Art.
improvements at that time. 1679)
A.4.1.1. Should the lessor refuse to reimburse said B.1.1.2. To use the thing leased as a diligent father of a
amount, the lessee may remove the family, devoting it to the use stipulated; and in the
improvements, even though the principal thing absence of stipulation, to that which may be
may suffer damage thereby. He shall not, inferred from the nature of the thing leased,
however, cause any more impairment upon the according to the custom of the place;
property leased than is necessary. B.1.1.3. To pay expenses for the deed of lease. (Art. 1657)
B.2. Urgent repairs
DANA | 43
 B.2.1. If during the lease it should become necessary to make
some urgent repairs upon the thing leased, which cannot
be deferred until the termination of the lease, the lessee is
obliged to tolerate the work, although it may be very
annoying to him, and although during the same, he may be
deprived of a part of the premises.
B.2.2. If the repairs last more than forty days the rent shall be
reduced in proportion to the time - including the first forty
days - and the part of the property of which the lessee has
been deprived.
B.2.3. When the work is of such a nature that the portion
which the lessee and his family need for their dwelling
becomes uninhabitable, he may rescind the contract if
the main purpose of the lease is to provide a dwelling place
for the lessee. (Art. 1662)
B.2.3.1. the burden is on the lessor to prove the urgency of
the repair
B.2.3.2. modifications or improvements (not repair) cannot
be done against the objection of the lessee
B.2.3.3. regardless of the length of time taken up for
repairs, rescission may be availed if the main
purpose of the lease is to provide a dwelling place
B.3. Trespass made by a third person
B.3.1. Obligation to notify
B.3.1.1. The lessee is obliged to bring to the knowledge of
the proprietor, within the shortest possible time,
every usurpation or untoward act which any
third person may have committed or may be
openly preparing to carry out upon the thing
leased.
B.3.1.1.1. purpose – to enable the owner to
maintain his civil possession
B.3.1.2. He is also obliged to advise the owner, with the
same urgency, of the need of all repairs included
in No. 2 of Article 1654.
B.3.1.3. In both cases the lessee shall be liable for the
damages which, through his negligence, may be
suffered by the proprietor.
B.3.1.4. If the lessor fails to make urgent repairs, the
lessee, in order to avoid an imminent danger, may
order the repairs at the lessor's cost.(Art. 1663)
B.3.2. The lessor is not obliged to answer for a mere act of
trespass which a third person may cause on the use of the
thing leased; but the lessee shall have a direct action
against the intruder.
There is a mere act of trespass when the third person
claims no right whatever. (Art. 1664)
B.3.2.1. 2 kinds of trespass
B.3.2.1.1. mere act of trespass – where a third
person claims no right whatever, as in
forcible entry
B.3.2.1.2. trespass in law – where a third person
claims legal right to the property, such as
an action to recover possession based on
ownership
B.4. Lessee has to Return the property upon termination of the
lease in the same condition as he received it save what has
been lost or impaired by:
B.4.1. lapse of time
B.4.2. ordinary wear and tear
B.4.3. inevitable cause/fortuitous event
o Right of lessee
 The purchaser of a piece of land which is under a lease that is not
recorded in the Registry of Property may terminate the lease, save
when there is a stipulation to the contrary in the contract of sale, or
when the purchaser knows of the existence of the lease.
 If the buyer makes use of this right, the lessee may demand that he
be allowed to gather the fruits of the harvest which corresponds to
the current agricultural year and that the vendor indemnify him for
damages suffered. XXX (Art. 1676)
REMEDIES
A. Remedies of the lessee
A.1. Extinguishment of the lease when the thing leased is totally
destroyed by a fortuitous event
A.1.1. If the thing leased is totally destroyed by a fortuitous
event, the lease is extinguished. xxx
A.1.1.1. where the buildings and the land, which formed
part of the consideration of the lease contract,
constituted an indivisible unit, the destruction of
the buildings extinguished the obligation or
terminated the lease contract
A.2. Proportional Reduction of the rent or Rescission of the lease
in case of partial destruction of the thing leased by fortuitous
event
A.2.1. xxx If the destruction is partial, the lessee may choose
between
A.2.1.1. a proportional reduction of the rent and
A.2.1.2. a rescission of the lease. (Art. 1655)
A.2.1.2.1. once the choice has been communicated
to the lessor, the lessee cannot change it
A.2.1.2.2. if reduction of rent is chosen, the same
shall be retroactive to the date the partial
destruction occurred
A.2.1.2.3. partial destruction should be important or
substantial for rescission to be granted
A.3. Suspension of payment when the lessor fails to make repairs
A.3.1. The lessee may suspend the payment of the rent in case
the lessor fails
A.3.1.1. to make the necessary repairs or
A.3.1.1.1. may suspend from the time demand is
made upon the lessor and the latter fails
to perform his obligation
A.3.1.2. to maintain the lessee in peaceful and adequate
enjoyment of the property leased. (Art. 1658)
A.3.1.2.1. lessee is released from the obligation to
pay rents from the time he is unlawfully
dispossessed. However, where the
disturbance in the lessee’s possession is
cause by mere intruder who acted without
any color of title or right, the disturbance
is a mere act of trespass for which the
lessor is not liable.
A.4. Rescission and Indemnification for damages or only the latter
allowing the contract to remain in force, in case of failure of
the lessor to comply with article 1654
A.4.1. If the lessor or the lessee should not comply with the
obligations set forth in Articles 1654 and 1657, the
aggrieved party may ask for the
A.4.1.1. rescission of the contract and indemnification for
damages, or
A.4.1.2. only the latter, allowing the contract to remain in
force. (Art. 1659)
A.4.1.2.1. lessor may seek rescission of a lease
contract and ejectment of the lessee
simultaneously in a single action for
unlawful detainer
A.5. Termination of the lease in case of dangerous condition of the
thing leased for habitation
A.5.1. If a dwelling place or any other building intended for
human habitation is in such a condition that its use brings
imminent and serious danger to life or health, the
lessee may terminate the lease at once by notifying the
lessor, even if at the time the contract was perfected the
former knew of the dangerous condition or waived the right
to rescind the lease on account of this condition. (Art.
1660)
A.6. Return of the thing leased
A.6.1. The lessee shall return the thing leased, upon the
termination of the lease, as he received it, save what has
been lost or impaired by the lapse of time, or by ordinary
wear and tear, or from an inevitable cause. (Art. 1665)
A.6.1.1. lessee is not liable for loss or depreciation due
to :
A.6.1.1.1. lapse of time
A.6.1.1.2. ordinary wear and tear
A.6.1.1.3. inevitable cause or fortuitous event
A.6.1.2. Complaint for unlawful detainer
DANA | 44
 A.6.1.2.1. lessor need only prove the fact of lease
and expiration or violation thereof
A.6.1.2.2. period to file: within 1 year from the date
of the last demand
A.6.2. In the absence of a statement concerning the condition
of the thing at the time the lease was constituted, the
law presumes that the lessee received it in good condition,
unless there is proof to the contrary. (Art. 1666)
A.6.2.1. No such presumption arises where there is a
statement or representation, written or oral,
concerning the actual condition of the thing at the
time the lease was constituted
A.7. Liability for loss or deterioration of the thing leased
A.7.1. The lessee is responsible for the deterioration or loss of the
thing leased, unless he proves that it took place without his
fault. This burden of proof on the lessee does not apply
when the destruction is due to earthquake, flood, storm or
other natural calamity. (Art. 1667)
A.7.1.1. GR: lessee is responsible on the presumption that
he is guilty of fault or negligence – burden of proof
is upon the lessee
A.7.1.2. No such presumption when the destruction is due
to a natural calamity
A.7.2. The lessee is liable for any deterioration caused by
members of his household and by guests and visitors.
(Art. 1668)
A.7.2.1. he is made legally responsible for their acts as in
quasi delicts under the principle of command
responsibility
B. Remedies of the lessor
B.1. Rescission and Indemnification for damages or only the latter
allowing the contract to remain in force, in case of failure of
the lessee to comply with article 1657
B.1.1. If the lessor or the lessee should not comply with the
obligations set forth in Articles 1654 and 1657, the
aggrieved party may ask for the rescission of the contract
and indemnification for damages, or only the latter,
allowing the contract to remain in force. (Art. 1659)
B.2. May hold the sublessee bound for all acts which refer to the
use and preservation of the things leased
B.2.1. Without prejudice to his obligation toward the sublessor,
the sublessee is bound to the lessor for all acts which refer
to the use and preservation of the thing leased in the
manner stipulated between the lessor and the lessee. (Art.
1651)
B.3. May hold the sublessee subsidiarily liable for any rent due
from the lessee
B.3.1. The sublessee is subsidiarily liable to the lessor for any
rent due from the lessee. However, the sublessee shall not
be responsible beyond the amount of rent due from him, in
accordance with the terms of the sublease, at the time of
the extrajudicial demand by the lessor.
Payments of rent in advance by the sublessee shall be
deemed not to have been made, so far as the lessor's
claim is concerned, unless said payments were effected in
virtue of the custom of the place. (Art. 1652)
DURATION OF LEASE
A. Definite time or period
A.1. If the lease was made for a determinate time, it ceases upon the
day fixed, without the need of a demand. (Art. 1669)
A.1.1. court is without authority to extend a lease where the
stipulated period of the contract has already expired,
especially if the lessor is unwilling to extend the same
B. No fixed period
B.1. Rural lands
B.1.1. The lessee shall have no right to a reduction of the rent on
account of the sterility of the land leased, or by reason of
the loss of fruits due to ordinary fortuitous events; but he
shall have such right in case of the loss of more than one-
half of the fruits through extraordinary and unforeseen
fortuitous events, save always when there is a specific
stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire,
war, pestilence, unusual flood, locusts, earthquake, or
others which are uncommon, and which the contracting
parties could not have reasonably foreseen. (Art. 1680)
B.1.1.1. Requisites for the lessee to be entitled to
reduction of rent
B.1.1.1.1. the land leased is rural
B.1.1.1.2. more than ½ of the fruits have been lost
B.1.1.1.3. the loss occurred through extraordinary
and un foreseen fortuitous event
B.1.1.1.4. there is no specific stipulation that the
lessee is nevertheless not entitled to
reduction
B.2. Urban lands
B.2.1. If the period for the lease has not been fixed, it is
understood to be from year to year, if the rent agreed upon
is annual; from month to month, if it is monthly; from week
to week, if the rent is weekly; and from day to day, if the
rent is to be paid daily. However, even though a monthly
rent is paid, and no period for the lease has been set, the
courts may fix a longer term for the lease after the lessee
has occupied the premises for over one year. If the rent is
weekly, the courts may likewise determine a longer period
after the lessee has been in possession for over six
months. In case of daily rent, the courts may also fix a
longer period after the lessee has stayed in the place for
over one month. (Art. 1687)
C. Implied new lease (tacita reconduccion)
C.1. If at the end of the contract the lessee should continue enjoying
the thing leased for fifteen days with the acquiescence of the
lessor, and unless a notice to the contrary by either party has
previously been given, it is understood that there is an implied
new lease, not for the period of the original contract, but for the
time established in Articles 1682 and 1687. The other terms of the
original contract shall be revived. (Art. 1670)
C.1.1. Implied new lease
C.1.1.1. Period
C.1.1.1.1. Rural lease (Art. 1682) – period extends
to 1 year or period necessary to gather
the fruits
C.1.1.1.2. Urban lease (Art. 1687) – period depends
upon the periods of payment
C.1.1.2. Terms which are revived – only those which are
germane to the lessee’s right of continued
enjoyment of the property leases or related to
such possession
C.1.1.3. Requisites for an implied renewal of lease
C.1.1.3.1. term of the original contract has expired
C.1.1.3.2. lessee continuous enjoying the thing
leased at the end of the contract for at
least 15 days
C.1.1.3.3. continuation of the occupation by the
lessee is with the acquiescence of the
lessor
C.1.1.3.4. lessor or lessee has not previously given
a notice to vacate
C.1.1.3.4.1. notice to vacate is the one given
AFTER the expiration of the
lease period
C.1.1.4. Instances when implied renewal not applicable
C.1.1.4.1. where the parties stipulated that there
would be no renewal by implication
C.1.1.4.2. where the original lease was declared
void for being repugnant to the
Constitution
C.1.1.4.3. the acceptance of rentals beyond the
original term by the lessor
C.1.1.4.4. the lessor had accepted partial payments
from the lessee, in amounts less than the
stipulated rentals
C.1.1.4.5. where the lessee did not pay rentals for
the use and occupation of the property
C.1.2. If the lessee continues enjoying the thing after the
expiration of the contract, over the lessor’s objection,
the former shall be subject to the responsibilities of a
possessor in bad faith (Art. 1671)
C.1.2.1. remedy of the lessor: unlawful detainer
C.1.2.2. damages = rents
DANA | 45
 C.1.2.3. Fair rental value – amount at which a willing
lessee would pay and a willing lessor would
receive, for the use of certain property neither
being under compulsion and both parties having
reasonable knowledge of all facts, such as the
extent, character, and utility of the property, sales
and holding prices of similar land and the highest
and best use of the property
C.1.3. In case of an implied new lease, the obligation contracted
by a third person for the security of the principal contract
shall cease with respect to the new lease (Art. 1672)
C.1.3.1. GR: when the principal obligation is extinguished
in consequence of a novation, accessory
obligations are also extinguished
D. Perpetual lease
E. EJECTMENT
E.1. Issue in ejectment proceedings – legality of the possessor’s
physical possession of the subject property
E.2. Grounds for judicial ejectment of lessee
E.2.1. Expiration of the period agreed upon or the period under
Arts. 1682 and 1687 of the Civil Code
E.2.2. Non-payment of the rentals agreed upon
E.2.3. Violation of any of the conditions agreed upon in the
contract
E.2.4. Improper use or enjoyment by the lessee of the thing
leased
E.2.4.1.1. In all cases except #1, for the case of
unlawful detainer to prosper, a demand to
pay and vacate should be given to the
lessee
E.3. when a lease provides for the payment of the rent in installments,
each failure to pay an installment is a separate cause of action. In
an action upon such a lease for the recovery of rent, all
installments due and demandable at the time the action is brought,
should be pleaded, and failure to do so will constitute a bar to a
subsequent action for the payment of that rent
E.4. Preliminary mandatory injunction to restore possession
pending appeal
E.4.1. In ejectment cases where an appeal is taken, the remedy
granted in article 539, second paragraph, shall also apply,
if the higher court is satisfied that the lessee’s appeal is
frivolous or dilatory, or that the lessor’s appeal is prima
facie meritorious. The period of 10 days referred to in said
article shall be counter from the time the appeal is
perfected. (Art. 1674)
E.4.1.1. Every possessor has a right to be respected in his
possession; and should he be disturbed therein he
shall be protected in or restored to said
possession by the means established by the laws
and the Rules of Court.
A possessor deprived of his possession through
forcible entry may within ten days from the filing of
the complaint present a motion to secure from the
competent court, in the action for forcible entry, a
writ of preliminary mandatory injunction to restore
him in his possession. The court shall decide the
motion within thirty (30) days from the filing
thereof. (Art. 539)
E.4.1.2. Rationale: to put an end to the presents state of
law which unjustly allows the lessee to continue in
possession during an appeal
E.4.1.3. Judgment is binding not only on the defendant in
the suit but also against those not parties thereto,
if they are:
E.4.1.3.1. trespassers, squatters, or agents of the
defendant fraudulently occupying the
property to frustrate the judgment
E.4.1.3.2. quests or other occupants of the premises
with the permission of the defendant
E.4.1.3.3. transfereed pendent lite
E.4.1.3.4. sublessees or co-lessees
E.4.1.3.5. member of the family, relatives, and other
privies of the defendant
E.5. Use by lessee of legal period
E.5.1. Except in cases stated in Art. 1673, the lessee shall have a
right to make use of the periods established in articles
1682 and 1687. (Art. 1675)
F. Termination of lease by purchaser
F.1. The purchaser of a piece of land which is under a lease that is
not recorded in the Registry of Property may terminate the
lease,xxx
F.1.1. Purchaser may terminate unless:
F.1.1.1. when there is a stipulation to the contrary in the
contract of sale, or
F.1.1.2. when the purchaser knows of the existence of the
lease
F.1.1.3. If the sale is fictitious, for the purpose of
extinguishing the lease
F.1.1.3.1. The sale is presumed to be fictitious if at
the time the supposed vendee demands
the termination of the lease, the sale is
not recorded in the Registry of Property.
(Art. 1676)
F.2. The purchaser in a sale with the right of redemption cannot
make use of the power to eject the lessee until the end of the
period for the redemption. (Art. 1677)
F.2.1. Art. 1977 not applicable – where the vendor, on disposing
of real property under right of repurchase, continues in
possession thereof by virtue of a special agreement, not as
owner, but as a tenant of the purchase by the payment of
rent. if he violate any of the conditions agreed upon in the
contract of lease, he may be evicted by the vendee even
before the end of redemption period
G. Termination of the lease
G.1. By the expiration of the period
G.2. By the resolution of the right of the lessor (e.g. when the lessor is
an usufructuary and the usufruct is terminated
G.3. By the will of the purchaser or transferee of the thing
G.4. By total loss of the thing
G.5. By rescission due to non-performance of the obligation of one of
the parties
RENT CONTROL ACT
A. Purpose: To encourage the development of affordable housing for the
lower income brackets and oteh beneficiaries and to protect them from
unreasonable rent increases
B. Coverage
B.1. all residential units in the NCR and other highly urbanized cities,
the total monhly rent for each of which ranges from P1.00 to
P10,000.00
B.2. all residential units in all other areas the total monthly rental for
each of which ranges from P1.00 to P5,000.00
except” already existing contracts
B.3. Exception: Rent-to-own Scheme at the option of the lessor, he or
she may engage the lessee in a written rent-to-own agreement
that will result in the transfer of ownership of the particular dwelling
in favor of the latter
C. Limit on increase
C.1. For a period of 1 year from effectivity, no increase shall be
imposed on the rent of any residential unit covered by this Act.
After such period until Dec. 31, 2013, the rent shall not be
increased by more than 1% annually as long as the unit is
occupied by the same lessee
C.2. When the residential unit becomes vacant the lessor may set the
initial rent for the next lessee
C.3. In case f boarding houses, dormitories, rooms, bedspaces offered
to student, no increase in rental more than 1 per year shall be
allowed
D. Rent and Requirement of a bank deposit
D.1. Rent shall be paid in advance within the first 5 days of every
current month or the beginning of the lease agreement unless the
contract provides for a later date of payment
D.2. Lessor is Prohibited:
D.2.1. to demand more than 1 month advance rent
D.2.2. to demand more than 2 month deposit which shall be kept
in a bank under the lessor’s account name during the entire
duration of the lease agreement
D.3. any and all interest that shall accrue shall be returned to the
lessee at the expiration of the lease contract
DANA | 46
 D.4. In the event that the lessee fails to:
D.4.1. settle rent, electric, telephone, or other utility bills or
D.4.2. destroys any house components or accessories
The deposits and interest shall be forfeited
E. Assignment of lease or subleasing without written consent of the
lessor is prohibited
F. Grounds for judicial ejectment
F.1. Expiration of the period of the lease contract
F.2. Assignment of lease or subleasing of residential unit in whole or in
part, including the acceptance of boarders or bedspacers, without
the written consent of the owner/lessor
F.3. Legitimate need of the owner/lessor to repossess his share or her
property or his or her own use or for the use of any immediate
member of his family as a residential unit
F.3.1. Conditions:
F.3.1.1. lease for a definite period has expired
F.3.1.2. lessor has given the lessee formal notice 3 months
in advance of the lessor’s intention to repossess
the property
F.3.1.3. owner/lessor is prohibited from leasing the
residential unit or allowing its use by a third party
for a period of at least 1 year from the time of
repossession
F.4. Need of the lessor to make necessary repairs of the leased
premises which is the subject of an existing order of condemnation
by appropriate authorities concerned in order to make the said
premises safe and habitable
F.4.1. Conditions:
F.4.1.1. after said repair, the lessee rejected shall have the
first preference to lease the same premises
F.4.1.2. new rent shall be reasonably commensurate with
the expenses incurred for the repair of the said
residential unit
F.4.1.3. if the residential unit is condemned or completely
demolished, the lease of of the new building will
no longer be subject to the aforementioned first
preference rule
F.5. Arrears in payment of rent for a total of 3 months
F.5.1. in case of refusal by the lessor ti accept payment, lesse
may deposit by way of consignation in court or with city or
municipal treasurer, or in a bank in the name and with
notice to the lessor within 1 month after the refusal of the
lessor to accept payment
G. No lessor or his successor in interest shall be entitled to eject the lessee
upon the ground that the leased premises have been sold or mortgaged to
a third person regardless of whether the lease or mortgage is registered or
not
H. Penalties
H.1. Fine not less than P25,000.00 nor more than P50,000.00
H.2. Imprisonment of not less than 1 month and on day to not more
than 6 months or
H.3. both

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