civil law review outline

OBLIGATIONS
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1. Different kinds of obligations
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• PURE AND CONDITIONAL — “condition” vs. “period”
1. Suspensive — suspends demandability; the happening of the condition makes the obligation enforceable,
but the obligation is effective as of the constitution of the obligation (retroacts to perfection);
EX: contract to sell — nonpayment of full price prevents a contact of sale from taking place (see
notes on Sales)
- when the debtor binds himself to pay “when his means permit him to do so” is deemed an obligation with a
period (consequence: creditor may ask the court to fix the period)
- Gaite vs. Fonacier — payment of balance from the first LC obtained upon first shipment of iron ore; not
a condition but a term
- Gonzales vs. Heirs of Thomas — procurement of title is a suspensive condition before lessee can be
compelled to buy
2. Resolutory — immediately demandable, subject to the condition
- Parks vs. Province of Tarlac (49 PHIL 142) — donated to municipality, then to the province;
subsequently sold in the meantime to Parks et al who contended that the donation never became
effective because there is a condition
- Central Phil. University vs. CA (246 SCRA 511) —
Art. 1189. Conditional obligation to deliver a determinate thing — who bears the loss, deterioration, or who
is entitled to improvements transpiring before the obligation to deliver arises?
Art. 1188. Right of the creditor for the fulfillment of the condition to take the appropriate actions for the
preservation of his right. EX: annotation of right on the title
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• POTESTATIVE, CASUAL, MIXED
- Potestative — a condition the fulfillment of which depends on the will of the parties; if upon the SOLE will
of the debtor, VOID.
- Casual — depends upon chance or the will of a third person, the obligation shall take effect.
- Rustan Pulp & Paper Mills vs IAC — stipulation grants the buyer the right to stop the delivery if supply at
their plant is sufficient as ascertained by the buyer himself; potestative condition dependent upon the will
of debtor, void; but only the condition is void, but the obligation remains valid. The condition does not
relate to the perfection of the contract, but to an already pre-existing obligation, thus only the condition is
voided. Remedy: ask the court to fix a period within which the obligation should be fulfilled.
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Art. 1191. Reciprocal obligations and remedies.
- The power to rescind is IMPLIED in reciprocal ones.
- Remedy is either rescission or to demand fulfillment, with damages in either case, in case of non-
compliance by a party in a reciprocal obligation.
- The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period. Rescission can be judicially or extra-judicially made.
- UP vs De Los Angeles (L-28602) — in case of doubt as to the validity of the rescission, the courts shall
decide
- Consing vs. Jamandre (L-27674) — stipulation of a contract of lease allowing the lessor to retake the
property in case the lessee violates any of the conditions of the lease; valid stipulation even without
resorting to court action.
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RESCISSION
- It is as if the obligation/contract never existed
- Different from the remedy of rescission in reciprocal obligations (experts say that Art. 1191 should be
properly called “resolution” of the contract)
- Rescission is the remedy in rescissible contracts

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- Pryce Corp. vs. PAGCOR (157480) — Rescission vs. Termination of Contract; asking for rentals in
arrears is inconsistent with the theory of rescission. The action should be termination of contract which
acknowledges the existence of the contract prior to termination.
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• With a PERIOD or TERM
- When may courts fix a period?
When it can be inferred that a period has been intended; and when the period depends upon the sole will
of the debtor.
BAR: I’ll pay you “little by little” when my means permit; remedy is to ask court to fix period.
- A period is presumed to be for the benefit of both creditor and debtor, unless there is a contrary tenor.
- Debtor will lose the right to make use of the period when:
1. debtor becomes insolvent
2. failure of securities the debtor has promised
3. debtor impair said securities, or they disappear through fortuitous event, unless he gives a new security
4. debtor violates any undertaking
5. debtor attempts to abscond
EFFECT: The obligation becomes immediately demandable.
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• ALTERNATIVE OBLIGATIONS
- Right of choice belongs to the debtor. But the creditor cannot be compelled to accept part of one and part of
the other. (Rule on Integrity of Payment)
- Debtor cannot choose pre stations which are impossible, unlawful or could not have been the object of
obligations — limitation on the right of choice
- The choice must be communicated to the creditor to have any legal effect.
- Consent of the creditor to choice is NOT required.
- Choice is irrevocable
- Some things are impossible because of fault or the last thing is lost through a fortuitous event
- Some writers say that the obligation is extinguished
- TOLENTINO: since negligence/fault concurred with fortuitous event, debtor should not be relieved of
liability.’
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• FACULTATIVE OBLIGATIONS
- One prestation is agreed but the obligor may render another in substitution
- Can the debtor be compelled to deliver the substitute if he destroys the principal prestation? No. He has
absolute discretion, but he is liable for damages.
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• JOINT AND SOLIDARY OBLIGATIONS
- Solidarity is not presumed. In the absence of stipulation, the obligation is deemed joint.
- It exists only if expressed by law. EX: liability of joint torftfeasors, civil liability of co-perpetrators of felonies
- Just because the subet matter is invidisibke, it does not mean that the obligation is soldiery.
- Solidary creditor cannot his assign his rights without the consent of the others.
- Each one of the solidary debtors may do whatever may be useful to the others, but not anything prejudicial to
the latter.
- Novation, compensation, confusion, or remission of the debt may be made by a solidary creditor which shall
extinguish the obligation without prejudice to Art. 1219.
- Quiombing vs. CA (93010) — Can a solidary creditor sue without impleading his co-creditors? Yes.
- Art. 1214. The debtor may pay any of the solidary creditors, unless one of them made a demand whether
judicial or extrajudicial, in which case payment should be made to him.
- If they demand at the same time, debtor may choose which of whom to pay.
- If a solidary debtor is insolvent, the rest of the debtors shall bear his share in the debt proportionately.
- If there is fault in any one of the solidary debtors, all shall be responsible.
- A solidary debtor may avail himself of all defenses derived from the nature of the obligation and also those
personal to him or pertain to his own share.
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- Total defenses: non-existence, nullity due to defect, unenforceability, extinguishment, non-performance of

nonfulfillment of condition
- Personal defenses: minority, insanity, fraud, violence or intimidation.
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• DIVISIBLE AND INDIVISIBLE OBLIGATIONS — refers to the subject matter
- indivisible by nature, by law, or by stipulation
- Obligations to give definite things — deemed indivisible
- A joint indivisible obligation gives rise to indemnity for damages from the time any one of the debtors does not
comply with his obligation.
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Suretyship — when the creditor grants an extension of time to pay to the principal debtor, the surety is exonerated.
This is not applicable to solidary obligations.
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• OBLIGATIONS WITH A PENAL CLAUSE
- there is an accessory undertaking, intended to induce faithful performance of the principal obligation, that
becomes due and demandable when there is breach.
- the penalty shall substitute the payment of damages and interest in case of non-payment
- Exceptions: when the contrary is stipulated, etc
- the debtor cannot exempt himself from the performance of the obligation by paying the penalty.
- the creditor cannot demand fulfillment and the payment of the penalty at the same time (except if the right is
granted)
- proof of actual damages suffered by the creditor is not necessary.
- but the court has the reserved power to reduce the penalty if unconscionable.
- the nullity of the penal clause does not nullify the principal obligation; nullity of the principal obligation carries
with it the nullity of the penal clause.
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2. Extinguishment of Obligations
Modes under Art. 1231 not exclusive.
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• PAYMENT
- delivery of money or performance of an obligation
- payment at times may give rise to a new juridical relation. EX: legal subrogation or payment to a third person in
possession of credit.
- “Integrity of Payment” Principle — a debt is not understood as paid unless the thing or service in which the
obligation consists of has been completely delivered or rendered
- The creditor cannot be compelled to receive payment partially and neither may the debtor be required to
make partial payment.
- No valid tender of payment if amount is only partial
- Exceptions to the principle:
1. obligation has been substantially complied with in good faith
2. obligee accepts the performance knowings its incompleteness or irregularity (estoppel); creditor should
make a reservation of his acceptance of partial payment
3. when there is express stipulation
4. when the debt is in part liquidated and in part unliquidated
- THE BURDEN TO PROVE PAYMENT LIES WITH THE DEBTOR
- Normally, payment is made to the creditor by the debtor. No new juridical relation is made.
- But if payment is made by a third person INTERESTED in the fulfillment of the obligation (guarantor or
surety), the obligation is extinguished; but he is SUBROGATED to the rights of the creditor against the debtor.
- Art. 1242 Payment made in good faith
- Art. 1243
- “Identity of Payment” Principle — The very thing, service or forbearance must be performed or observed.
- The debtor cannot compel the creditor to receive a different one, although of the same value as, or more
valuable than, that which is due.
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- Dation in payment—property is alienated to the creditor in satisfaction of a debt in money. Subject to the law
on sales.
NOTE:
Creditor cannot be compelled to accept payment not in legal tender.
Exception: This rule only applies if the payment is made to extinguish an obligation. It does not apply if the payment
not in legal tender is for an exercise of a privilege or right (EX: right to redeem foreclosed property, cases of legal
redemption)
In Co vs. PNB, the SC has already sanctioned redemption by check.
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Place of payment
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Special forms of payment
(1) Application of Payment — when there are several debts or several debts are owing from one debtor to a
single creditor.
- Right of debtor: preferential right to choose which debt his payment is to be applied.
- Paculdo vs. Regalado — The debtor’s silence must be clear and definite; his silence is NOT tantamount
to consent
- Must comply with the rule on complete payment
- If the obligation bears interest, debtor cannot insist on the payment of the principal first. The law provides
that the interest must be paid first.
- Debtor must declare to which payment must be applied
- If debtors accepts from a creditor a receipt for the application for payment, debtor cannot complain
(Paculdo vs. Regalado)
- If payment cannot be applied in accordance with the foregoing, the debt which is more onerous shall be
deemed satisfied. Same nature and burden, proportionate application.
- what is “most onerous”? a question of fact.
- interest bearing, oldest debts, debts with encumbrances,
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(2) Payment by cession — no transfer of ownership, but things are placed under the administration of creditors
with authority to convert them into cash

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(3) Dation in payment — property is alienated to the creditor in satisfaction of a debt in money, governed by
the law on sales (consequence: subject to warranties of a seller)
Tan Shuy vs. Maulawin—dation extinguishes the obligation if the value of the thing is equivalent to the debt;
but the parties can agree that the thing, irrespective of value, extinguishes the obligation.

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(4) Tender of Payment and Consignation
Tender — manifestation by the debtor to the creditor of his desire to comply
Consignation — is the deposit of the object in a competent court
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Rule: Tender of payment is a PREPARATORY ACT which precedes consignation.
Applies if the creditor refuses the tender of payment without just cause. To be released, the debtor must
consign the thing with the court.
Mere tender alone does not extinguish obligation.
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Just cause to refuse accepting payment; the consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment (principles of indivisibility and integrity of
payment), viz:
- payment must be complete
- must be delivery of the thing agreed upon
- legal tender (cashiers check not legal tender)
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Requisites of valid tender:

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1. Debt must be due

2. There must be valid and unconditional tender of payment
3. Consignation must be first announced to the persons interested in the fulfillment of the oblation
4. Consignation shall be made by depositing the things due at the court’s disposal, before whom the
tender of payment shall be proved (it must be in COURT, not in another place, unless required by
law in another place)
5. The interested person shall be notified. EX: co-debtors, sureties, guarantors, solidary co-debtors
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Exceptions to requirement of tender:
• creditor is absent/unknown
• creditor is incapacitated
• creditor refuses to issue receipt
• two ore more persons claim same right to collect
• title of the obligation has been lost.
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Tender of payment, WITHOUT VALID CONSIGNATION, does not discharge the obligation.
But the rules on tender of payment and consignation do not apply to options which are not in the nature of
debts.
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(5) Loss of the thing due
Loss — when the thing perishes, goes out of commerce, disappeared in such a way that existence is
unknown or even if known, cannot be recovered
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Risk of loss lies with OWNER; res perit domino.
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In obligations and contract, it is res perit creditori—the creditor bears the loss
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In reciprocal obligations, the debtor whose obligation is extinguished due to loss from fortuitous event can
still require the other party to comply with his undertaking (JBL Reyes, Justice Vitug), except as otherwise
expressly provided by law. But Tolentino says otherwise: “He who has nothing has no reason to expect
anything.”
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Loss of a generic thing does not extinguish the obligation. EX: money
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Partial loss — the courts shall determine the “importance” of the part that was lost
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In an obligation to do, if service has become so difficult as to be manifestly beyond the parties’
contemplation, the obligor may be released. — Naga Telephone Co. vs. CA (230 SCRA 351)
“Doctrine of Unforeseen Events”; rebus sic stantibus
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(6) Condonation or Remission of Debt
Forgiveness of debt or waiver of enforcement
Essentially gratuitous and requires ACCEPTANCE by the obligor (as in a donation)
Express condonation shall comply with the FORMS OF DONATION
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Implied renunciation:
• Delivery of private document evidencing credit—the credit must have intended the denunciated
• When the private document is in possession of debtor—presumption that creditor delivered it voluntarily;
presumption not applicable to public documents
• Renunciation of principal debt extinguishes accessory obligation
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Art. 771. Inofficious Donations

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Art. 745. Requisites of Valid Donation

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(7) Confusion or merger of rights
The characters of creditor and debtor are merged in the same person
EX: Man married woman to whom he is indebted.
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(8) Compensation
Offsetting of two obligations. Arises by operation of law of concurring debts. It is a specie of abbreviated
payment.
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Compensation vs. Counterclaim
Counterclaim must be pleaded to be effectual
Compensation takes place by mere operation of law
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BPI vs. CA (116792) — Legal compensation takes place even against the will and without the consent of the
interested parties. It arises ipso jure. Here a depositor is a creditor of a bank.
Requisites:
1. obligors must be bound principally and are principal debtors of each other
2. both debts consists in money or of the same kind or quality
3. both debts are due
4. liquidated and demandable
5. over neither of them be any retention/controversy commenced by 3rd person
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EX: shares of stock are not debts subject to offset
when one of the obligations is subject to a suit
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Gan Tion vs. CA (L-22490) — Attorneys fees in the extraordinary sense belongs to the client. The client
here can subject such attorneys fees to legal compensation. The lawyer cannot object.
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Art. 1285 speaks of three cases of compensation which takes place after an assignment of rights made by
the creditor.
1. assignment made with the consent of the debtor — debtor cannot set up compensation as a defense
against the assignee, unless he reserved his right to the compensation with notice to the assignor.
2. assignment without the consent but with knowledge of debtor — compensation may be set up with
respect to credits that matured before the assignment
3. assignment without knowledge of the debtor — compensation can only be invoked with respect to debts
that matured prior to his knowledge of the assignment
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When compensation is not proper:
1. depositum or obligations of a depositary (only the depositary cannot set up, but the depositor can set
up)
2. obligations of a bailee in commodatum
3. claim for support due by gratuitous title except those in arrears
4. civil liability arising from a penal offense (but victim can set up compensation)
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(9) Novation
Obligations may be modified:
- changing their object/principal
- substituting the person of the debtor or creditor
- surrogating a third person in the rights of the creditor / obligation of the debtor
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• Express Novation

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• Implied Novation (when the two obligations are essentially incompatible with each other)
Incompatibility must be on the following points: (considered as substantial modifications)
- Juridical relation or tie (ex. from sale to loan)
- Object or principal obligation
- Subject (substitution of debtor) or subrogation of the creditor.
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• Extinctive Novation — when the old obligation is extinguished by the creation of a new one that takes place
of the former; It is never presumed.
four (4) requisites (p. 440 Aquino Reviewer 2014)
Millar vs. CA (L-29981) — additional security like a chattel mortgage does not novate the
agreement; not a substantial modification of the agreement
Garcia vs. Llamas (154127) — no incompatibility between the promissory note and the check; the
note evidences the loan obligation, while the check answers for it.
Fua Cam Lu vs. Yap Fauco — collateral stipulations do not novate the agreement
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• Modificatory Novation — old obligation subsists to the extent that it remains compatible with the novatory
agreement
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• Substitution of Debtor — in both cases, there must be consent of the creditor
- Expromission
- Delegacion
Quinto vs. People (126712) — The effect of accepting payment in installments when the original obligation
was to pay in full; no novation since it is only an incidental change.
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• Subrogation
Conventional — established by agreement
Legal — is not presumed
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Subrogation — a new obligation is created; defects are cured upon subrogation
Assignment — no new obligation, only a transfer to the assignee; without modifying or extinguishing the
obligation; defects are not cured by the assignment
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Art. 1302 where legal subrogation is presumed in the instances mentioned
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CONTRACTS
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CHARACTERISTICS:
Obligatory force
Mutuality
Relativity
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Interference with Contracts (Art. 1314)
So Ping Bun vs. Court of Appeals — business reasons, lack of malice
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Freedom to Contract Rule — as long as the stipulations are not contrary to law, morals, good customs, public order,
or public policy.
Manila Prince Hotel vs. GSIS (122156)
Cui vs. Arellano University
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ESSENTIAL ELEMENTS OF A CONTRACT:

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CONSENT, OBJECT CAUSE

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CONSENT
Cognition Theory
Business advertisements are generally not offers for sale; mere invitations only
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Acceptance — must be absolute; if qualified, constitutes counter-offer
Malbarosa vs. CA (125761) — Unless and until the respondent received the copy of the letter-offer, it cannot be
argued that a contract had already been perfected.
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Option (Art. 1324)
PNOC vs. Keppel Philippines (2016) — Once acceptance is made prior to withdrawal, a bilateral contract arises,
even if the option is not supported by a consideration separate from the price.
Equatorial Realty vs. Mayfair — Right of first refusal (part of the contract of lease) vs. option (separate contract)
Right of First Refusal — the contract subsequently entered into in violation of the right is RESCISSIBLE;
same footing as aggrieved creditor
Option — Breach of option contract gives rise to a cause of action on damages
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Capacity — consent must be given by a capacitated person, must be intelligent free spontaneous and real
Loyola vs. CA (115734)
Sps Theis vs. CA (126013) — mistake can invalidate consent
Martinez vs. Hong Kong & Shanghai Bank (15 Phil 252-272)
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Fraud or dolo (vice of consent)
Dolo causante
Dolo incidente
Geraldez vs. CA (230 SCR 320) — fraud in the inducement
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Failure to disclose facts; not necessarily fraudulent; only constitutes fraud if there is a duty to reveal them.
Usual exaggerations of trade; “dealer’s talk” not necessarily fraudulent when the other party is given the
opportunity to know the facts.
Trinidad vs. IAC (65922) — after the buyer has visited and examined the land himself and had the means and
opportunity of verifying the statements of the seller, he cannot avoid the contract on the ground of fraud; especially
if he is a licensed real estate broker.
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Misrepresentation (vices of consent)
If by a party
If by a third person
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Simulation of Contracts (Art. 1345)
Absolute simulation — no intention to be bound at all; VOID
Relative — parties conceal their true agreement; not necessarily void (ex. deed of sale, intention is donation)
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Differentiate Simulation (void) from Rescissible contracts (valid but the objective is to defraud creditors)
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OBJECT
- must be within the commerce of man
- may be tangible or intangible
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CAUSE
- Cause vs. Motive: motive is not an element of the contract, its illegality is does not affect the contract. Exception:
Liguez vs. CA — when motive predetermines the cause; illegal motive may affect the legality of the contract

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- Lesion—the inadequacy of consideration does not of itself make the contract defective; it must be coupled with
fraud, mistake or undue influence.
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FORM OF CONTRACTS
GR: contracts are valid in whatever form as long as all the essential requisites are present
EXCEPTIONS:
1. Formal contracts — for validity (donations, stipulation on interest, agency to sell land, antichresis, AMONG
OTHERS p. 480 Aquino)
2. Statute of Frauds (Art. 1403) — for enforceability. Ex. sale of a parcel of land (valid, unenforceable)
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Art. 1358 Contracts that must be in a PUBLIC DOCUMENT
Hernaez vs. CA — Art. 1358 does NOT provide for the effect if a contract enumerated in the provision is not in a
public instrument; therefore the contract is valid and enforceable still
But the provisions on donations (Art. 748, etc) explicitly require form for valid
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REFORMATION OF CONTRACTS
An action in personam; special civil action (Declaratory Relief and Other Remedies)
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INTERPRETATION OF CONTRACTS
If terms are clear: literal meaning
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If settling the doubt is impossible:
Gratutious — least transmission of rights
Onerous — greatest reciprocity of interests
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DEFECTIVE CONTRACTS
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A. RESCISSIBLE CONTRACTS (economic prejudice)
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1. Lesion
2. Contracts in Fraud of Creditors — badges of fraud (China Banking Corp. vs. CA 129644)
3. Transfer of Property in Litigation
4. Transfer by Insolvent
5. Rescissible under the Civil Code
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Consequence: Mutual restitution
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Rosencor Development vs. Inquing — Rescission is also a remedy when there is a violation of the right of first
refusal. The lessee is placed in the same position as an aggrieved creditor.
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B. VOIDABLE OR ANNULLABLE CONTRACTS (consent)
Only the innocent party can ask for annulment of the contract.
Exception: Development Bank of the Phil. vs. CA L-28774 — when a non-party is prejudiced in his rights with
respect to one of the contracting parties
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How a voidable contract may be cured:
1. Prescription — four (4) years from the time the intimidation, violence or undue influences ceases, or from the
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Carantes vs. CA L-3360 — the 4 year period should be counted from the discovery; the discovery of fraud
involving a document that is required to be registered with the Register of Deeds is deemed to have taken
place at the time of the registration (constructive notice rule).
2. Ratification —
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C. UNENFORCEABLE CONTRACTS — valid contract but it cannot be sued upon, unless ratified
1. Absence of authority — EX. compromise agreement without SPA; sale of property belonging to an estate
without authority from the probate court; sale of property by a receiver without authority from court; appearing
on behalf of one’s client during Pre-Trial
2. Violation of Statute of Frauds — the enumeration is EXCLUSIVE. Thus it does not apply to setting up of
boundaries orally, oral partition of real property, agreement creating right of way, agreement on right of first
refusal
NOTE: this does not apply to partially or wholly executed contracts
3. Incapacity of BOTH parties
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What constitutes as a sufficient memorandum?
As long as it contains the essential elements of the contract expressed with certainty. (SEE P. 508 AQUINO)
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Rule on Secondary Evidence — this only works if there was a memorandum in the first place but it was lost or
destroyed
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D. VOID OR INEXISTENT CONTRACTS
Characteristics
In Pari Delicto Rule — applies when there is EQUAL fault; the court takes a hands off policy; the law leaves the
parties where they are.
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Exceptions:
1. Absolutely simulated contracts — the rule applies only if there is a contract and the consideration is illegal;
but in simulated contracts, there is no contract.
2. Other party is much less guilty than the other
3. When superior public policy intervenes (ex. homestead sales,
4. A party repudiates the contract before the illegal purpose is accomplished — “may” recover
5. When the application of the rule contravenes the policy against unjust enrichment (Gonzalo vs. Tarnate
Jan.15, 2014)
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Action or defense for the declaration of the inexistence of the contracts does not prescribe.
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GR: There shall be mutual restitution when a contract is declared void.
XPN: If the subject of the contract is illegal.
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NATURAL OBLIGATIONS
At the outset, it does not give rise to a cause of action. But it allows the retention of what has been voluntarily
given. It is based on equity and natural law.
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Recall: Quasi-contracts are also sources of obligations. But these are civil, not natural obligations. When for
example payment has been made mistakenly, a cause of action arises for recovery. This is not true for natural
obligations.
Solutio Indebiti
Negotiorum Gestio
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Ansay vs. National Development Co.

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Instances under the law:
1. Prescription has set in, but voluntary compliance was nonetheless made
2. Third person pays the debt of another who is no longer obliged to pay such debt; the payor was nonetheless
reimbursed
3. Failure of an action to enforce a civil obligation, but the debtor nonetheless pays
4. Payment by the heir of the decedent’s debt in excess of his inheritance
5. Giving a legacy or devise despite the disallowance of a will
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ESTOPPEL
Through estoppel an admission or representation is rendered conclusive
Kalalo vs. Luz — elements of estoppel
(1) conduct amounting to false representation or concealment of material facts
(2) intent or expectation that this conduct shall be acted upon or influence the on the party
(3) knowledge actual or constructive of the real facts
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Estoppel does not lie against the government for the acts of its agents.
The lessee or the bailee is estopped from questioning the title of the lessor and bailor.
[Relate to Rule 131, Sec. 2 of the Rules of Court on Conclusive Presumptions]
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TRUSTS
Trustor
Trustee
Beneficiary
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Two kinds:
1. Express Trusts
2. Implied Trusts
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Express trusts over an immovable must be in writing (Statute of Frauds) and the existence thereof may not be
proved by parol evidence.
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See Art. 1456 on property acquired through mistake or fraud.
The usual action is for reconveyance. But to be precise about, it is Reconveyance Based on Implied Trust.
Prescriptive period
GR: 10 years from the issuance of the title (based on the constructive notice rule)
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CONTRACT OF SALE
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Olivarez Realty vs. Castillo:
Contract of Sale — The obligation to deliver the subject matter is demandable upon perfection. SELLER CAN NO
LONGER SELL after perfection.
Conditional Sale — In a contract of conditional sale, the buyer automatically acquires title to the property upon full
payment of the purchase price (the condition). The transfer of title is by operation of law without any further act
having to be performed by the seller. No need to execute deed of absolute sale. SELLER CAN NO LONGER SELL TO
THIRD PERSON. Nemo dat quod non habet.
Contract to Sell — Transfer of title to the prospective buyer is not automatic. The prospective seller must convey
title to the property through a deed of absolute sale. The non-payment of the full purchase price is not even a

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breach but is a suspensive condition that prevents a contract of sale from taking place. Rescission does not apply
(because there is no contract in the first place.) SELLER CAN STILL SELL since there is no contract yet before full
payment of the price.
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Consensual contract; perfected by mere consent. But delivery is required to transfer title to the buyer.
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Valid subject matter:
1. Existing, future or contingent things — ex. on future things: partition inter vivos of an estate
2. Licit
3. Determinate or determinable
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Option Contract
Principal contract, stands on its own
Preparatory
Needs separate consideration
Subject matter and price must be valid
Not conditional
Not subject to specific performance
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Right of First Refusal
Accessory, cannot stand on its own (more likely a mere stipulation, usually in a lease contract)
Does not need separate consideration
There must be subject matter, but price is not important (to be agreed upon later)
Conditional
Subject to specific performance
Remedy: Rescission, because the lessor is akin to an aggrieved creditor entitled to rescind the contract entered into
without offering the property to him first.
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Earnest Money
Money given as part of purchase price
Its acceptance is proof that the contract of sale exists
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DELIVERY
Actual
Constructive — execution of deed; such execution amounts to delivery and transfers title.
XPN: Decided case. When despite the execution of the deed of absolute sale, the property is in the adverse
possession of an adverse claimant. It serves as a legal impediment to the acquisition of title. (check case in Sales)
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Delivery through a Carrier
1. FAS — Free Along Side
• when goods are deliver alongside the ship, there is already delivery to the buyer
2. FOB — Free On Board
• shipment when goods are delivered at the point of shipment
3. CIF — Cost, Insurance, Freight
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DOUBLE SALE
First in time, priority in right.
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Requisites: Art. 1544
1. same subject matter
2. same immediate seller

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3. buyers represent conflicting interests

4. both sales are valid (does not apply to fictitious sales)
5. both contracts must be contracts of sale
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Movables:
1. Owner first to posses in good faith
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Immovables:
1. First to register in good faith — must be in the proper registry (Registry of Property)
2. No registration, first to possess in good faith
3. No registration and no possession in good faith, person who presents oldest title in good faith
• ex. oldest deed of sale
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But note that if the first buyer is the first to register the sale while he has knowledge of a second sale, he is entitled
to the property. (First in time, priority in right. He was after all the one who bought it first.)
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“good faith” — one who buys property without notice that another person has a right or interest in such property;
one who has paid the price before notice of another’s claim; good faith in double sale is not presumed
Lis pendent — serves as notice
Adverse claim
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Radiowealth Finance vs. Palileo — If subject is unregistered land, the rules on double sale does not apply.
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GR: NEMO DAT QUOD NON HABET
XPN: Ownership is not required during perfection. Only at the time of delivery.
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WHO BEARS THE LOSS

1. Before perfection — res perit domino (owner bears loss)
2. At perfection — res perit domino
• the contract becomes inefficacious because loss of the subject matter does not affect the validity of the sale
• seller cannot anymore comply with what is incumbent upon him
3. After perfection but before delivery
4. After delivery — res perit domino (buyer)
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REMEDIES FOR BREACH
1. possessory lien
2. stoppage in transitu
3. special right of re-sale
4. special right to rescind
3 and 4 can only be exercised when 2 prior rights have been exercised
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Requisites:
1. Subject matter — goods
2. Seller is unpaid — not completely paid or received
3. Physical possession is with seller
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SALE OF MOVABLES ON INSTALLMENTS (Recto Law)
Art. 1484
1. Exact fulfillment if buyer fails to pay (specific performance)
2. Cancel sale if buyer fails to pay 2 or more installments (rescission)
3. Foreclosure on chattel mortgage if buyer fails to pay 2 or more installments (foreclosure)

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• If buyer chooses foreclosure, no further action against buyer to recover any unpaid balance of the price; a
contrary stipulation is considered void.
• When law is applicable: sales of personal property payable in installments
• Sale on installment: payment by several partial payments on small amounts
• If foreclosure is sold, buyer not liable for any deficiency
• PCI Leasing vs. Giraffe-X — Recto Law applicable in “lease purchase agreement” or transactions which are
leases in name only and are in truth sales of personal property in installments, thereby bringing it within the
ambit of Art. 1481 or the Recto Law and its three alternative remedies given to the seller.
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SALE OF IMMOVABLES IN INSTALLMENTS
Remedies of Seller
1. Anticipatory breach
• Seller has reasonable grounds to fear loss of immovable sold and its price: RESCISSION
2. Non-payment of price
• Rescission
3. MACEDA LAW
A. If the buyer has paid at least two (2) years of installments—
1. The buyer is entitled to a grace period of one (1) month per year of installments paid, to pay the unpaid
installments, without additional interest
2. Seller must demand first, then allow the buyer to pay within the grace period. If still unpaid, seller must
give a Notarial Notice of Cancellation and allow another grace period of 30 days. Failure to pay within
30 days justifies the ACTUAL cancellation of the sale.
3. If the contract is cancelled, the buyer is entitled to the cash surrender value equivalent to 50% of the
total payments made
B. If the buyer has paid less than two (2) years of installments—
1. The buyer is entitled to a grace period of sixty (60) days from due date of installment (becomes due
upon demand)
2. Same rules as above on grace period, Notarial Notice of Cancellation and cash surrender value.
* Since no rescission can yet be made during the grace period (and the 30day extension), the sale remains valid in
the meantime and the buyer can still “reinstate” the contract by opting to pay the unpaid installments.
* The Notarial of Cancellation and the payment of the full cash surrender value MUST CONCUR. Otherwise the
contract remains valid.
* There must be compliance with the above requisites before an action for rescission can be filed. Otherwise, it
would be premature.
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SEE ALSO: P.D. 957 regulating the sale of subdivision lots and condominiums
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Communities Cagayan Inc vs. Sps. Nanol
Active Realty vs. Daroya
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Remedies of the Buyer
1. Disturbed in possession or with reasonable grounds to fear disturbance: Suspend payment
2. In case of subdivision or condo projects
If real estate developer fails to comply with obligation according to approved plan
• Rescind
• Suspend payment until seller complies
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Remedial Law principles:
Cerna vs. CA: Filing of foreclosure of mortgage abandons the remedy of foreclosure of mortgage
Torres vs. Medina: BP 22 is not a collection suit. Its filing does not bar the creditor from availing of the other
remedies.
Sps Chieng vs. Sps. Eulogio: Upon the filing of the BP 22 complaint, the plaintiff is deemed to have availed of the
remedy of collection. In BP 22 cases, there can be no reservation of the civil aspect.
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CONDITIONS & WARRANTIES
Warranties — statements or representations made by the seller of goods referring to the character, quality or title
of the goods, and by which he promises or undertakes to insure that certain facts are or shall be as he then
represents. They may be express or implied.
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Effects of breach of warranty:
1. Refuse to proceed with the contract; or
2. Proceed with the contract; waiver the condition
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Forms part of the obligation or contract by provision of the law without the parties agreed thereto.
Non-fulfillment of warranty constitutes breach of contract.
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Express Warranties
- any affirmation of fact or any promise by the seller tending to induce the buyer to purchase the same, and if the
buyer purchases the thing relying thereon.
- liability of seller for breach is damages
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Implied Warranties
- warranties deemed included in all contracts of sale by operation of law
- they do not apply to the sheriff, auctioneer, mortgagee, pledge
• Warranty that seller has the right to sell — refers to consummation stage.
• Warranty against eviction
- Disturbance in law is required and not just disturbance in fact. (ex. an adverse claimant; note that squatters in
the property merely constitutes disturbance in fact since they do not have the right to be there)
- It is a warranty by the seller that when ownership is to pass, the buyer shall from that time have and enjoy the
legal and peaceful possession of the thing.
- Requisites:
(1) buyer is evicted in whole or in part from the subject matter of the sale
(2) there is a final judgment
(3) basis of eviction is a right prior to sale
(4) seller was impleaded in the suit for eviction (filed against the buyer) at the instance of the buyer (Third Party
Complaint); Seller is an INDISPENSABLE PARTY
- Effect: buyer shall have the right to demand the seller for the return of the value of the thing sold, income or
fruits, costs of suit, etc.
• Warranty against encumbrances (non-apparent)
• Warranty against hidden defects
- “Hidden” meaning one which is unknown or could not have been known to the buyer.
- If the buyer is an expert, he cannot invoke this warranty
- Remedies: buyer may withdraw or demand a proportionate reduction of the price.
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Instances when implied warranties are not applicable
1. “As is where is” sale
2. Sale of second hand articles
3. Sale by virtue of authority in fact or law
4. Sale at public auction for tax delinquency
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Moles vs. IAC — Sale of a secondhand linotype machine; the seller argued that there are no implied warranties in
secondhand sales; but SC held that this was not a case of implied warranty but one of express warranty, because
the buyer explained to the seller his purpose of buying the machine.

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Effects of waiver of an implied warranty:
Seller in bad faith and there is waiver — VOID

When buyer without knowledge of a particular risk —
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EXTINGUISHMENT:
1. Grounds that extinguish obligations
2. Conventional Redemption — sales with right to repurchase
3. Legal Redemption — only in instances provided by law
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CONVENTIONAL REDEMPTION
• The seller has reserved the right to repurchase the thing sold
• Coupled with obligation to return the price of the sale, expenses of the contract and the necessary and useful
expenses
• The right to repurchase within 4 years from the date of the contract, in the absence of an agreement
• If there is an agreement, the period should not exceed ten years.
• But the vendor may still exercise the right to repurchase within 30 days from the time final judgment was rendered
in a civil action on the basis that the contract was a true sale with right to repurchase.
• Art. 1607 requires that there must be consolidation of ownership in the vendee. Consolidation cannot be
recorded in the Registry of Property without a judicial order.
• David vs. David — title immediately vests in the vendee, but subject to the resolutory condition of the repurchase
by the seller within the stipulated period.
• Fortunado vs. Court of Appeals: A check may be used for the exercise of the right of redemption, the same being
a right and not an obligation.
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EQUITABLE MORTGAGE
If any of the instances of Art. 1602 are present, the pacto de retro sale shall be deemed an equitable mortgage.
In case of doubt, a contract purporting to be a pacto de retro sale shall be construed as an equitable mortgage.
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LEGAL REDEMPTION
It is 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.
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When to exercise:
• The right of legal redemption or pre-emption must be exercised within 30 days from notice in writing by the
prospective vendor or 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 (applicable when the property is co-
owned)
• Barcelano vs. Banas: Without a written notice, the period of 30 days within which the right of legal pre-emption
or redemption may be exercised, does not start.
• Alonzo vs. IAC: There was no written notice; however the SC held that the 30 day notice has long expired because
the possible redemptioners had actual knowledge. Peculiar to this case is that the the complaint was filed thirteen
years after the sale. Such possible redemptioners cannot feign ignorance of the sale.
• Sps Si vs. CA: Co-owners with actual notice of the sale are not entitled to written notice. A written notice in such
case would be superfluous. The statute does not demand what is unnecessary.
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Legal Pre-emption — A right that may be exercised before any sale.
Applies 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
resold, the owner of any adjoining land has a right of pre-emption.
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CONTRACT OF LEASE
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Obligations of the Lessor
Duty to maintain the lessee in peaceful and adequate enjoyment of the leased property for the entire duration of
the lease. No violation as long as what is involved is only physical, not legal, possession
Does not contemplate squatters; as mentioned, it must be a legal trespass (has a claim of title)
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Rule on Sublease — Art. 1650, qualified by the Rent Control Law
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GR: An action for ejectment (unlawful detainer) must be filed to evict the lessee upon expiration of the lease.
XPN: Contractual stipulations empowering the lessor to repossess the leased property extrajudicially from a lessee
whose lease has expired have been held to be valid. Being the law between the parties, the contract must be
respected. (Republic vs. Peralta)
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MIAA vs. Ding Velayo Sports Center: An option allowing the lessee the option to renew the contract does not
violate the rule on mutuality of contracts. After all the lessor still has to agree.
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On improvements: A lessee cannot be deemed a builder in good faith. But the lessor has the option to retain the
improvements by paying 1/2 of their value.
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IMPLIED NEW LEASE
Dizon vs. Magsaysay — “Tacita _____”
Polytechnic University vs. Golden Horizon Realty — Right of First Refusal in the lease contracts. As a general rule,
it is not re-incorporated in an implied new lease. EXCEPTION: Negotiations for the exercise the right of first refusal
were underway when the lease expired. The lease was renewed. In this case, the right of first refusal was deemed
re-incorporated.
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