Activity 07

SALES AND LEASE
I. SALES
Contract of Sale
By the contract of sale, one of the contracting parties obligates himself to
transfer the ownership of and to deliver a determinate thing, and the other to
pay therefor a price certain in money or its equivalent (Civil Code, Art. 1458).
Elements of a Contract of Sale:

1. Essential– those, without which, there can be no valid sale.
a) Consent / Meeting of the Minds – refers to the consent on the part of
the seller or vendor to transfer and deliver, and on the part of the buyer
or vendee to pay (Civil Code, Art. 1475).
Note: the contract to sell is a bilateral contract. Where there is merely an
offer by one party without the acceptance of the other, there is no
consent (Salonga v. Farrales, G.R No. L-47088, July 10, 1981);
b) Object / Subject – refers to the determinate thing which is the object of
a contract (Civil Code, Art. 1460).
c) Cause / Consideration – refers to a price certain in money or its
equivalent (Civil Code, Art. 1458). It is presumed that a contract has
sufficient consideration (De Leon and De Leon Jr., Comments and Cases
on Sales and Lease, (2011), p.10) [hereinafter, De Leon, Sales]. It
includes the manner of payment.
The absence of any of the three (3) essential elements, negates the existence of
a perfected contract of sale (Dizon v. CA, G.R. No. 122544, January 28, 1999)
2. Natural – Those deemed to exist in certain contracts in the absence of any

contrary stipulations (De Leon, Sales, supra at 10)
3. Accidental – Those dependent on the parties’ stipulation (e.g., conditions,

interest, penalty, time or place of payment) (De Leon, Sales, supra at 11).
Phases or Stages of Contract of Sale

1. Preparation – the period of negotiation and bargaining, ending at the
moment of agreement of the parties;
Policitation is an unaccepted unilateral promise to buy or sell, prior to
acceptance, and does not give rise to any obligation or right. This produces no
juridical effect and creates no legal bond. This is a mere offer, and has not yet
been converted into a contract (Reyes v. CA, G.R. No. 94214, December 1,
1992).
2. Perfection–birth of contract; a contract of sale is a consensual contract,

perfected upon the meeting of the minds of the parties: (1) to enter into a
contract of sale, i.e., acceptance of offer, (2) on the thing subject of the sale; and
(3) consideration or price certain in money or its equivalent (Civil Code, Art.
1475, (1)). From that moment, the parties may reciprocally demand
performance (Civil Code, Art. 1475, Par. 2).
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Exception: when the sale is subject to a suspensive condition because
perfection takes place from the moment the condition is fulfilled (Reyes v.
Tuparan, G.R. No. 188064, June 1, 2011).
However, the more appropriate doctrine should be that when a contract of sale
is made subject to a suspensive condition, 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 (Villanueva, Law
on Sales, (2009), p. 193) [hereinafter, Villanueva, Sales].
Note: Actual delivery of the subject matter or payment of the price agreed upon
are not necessary to establish the existence of valid contract of sale; their non-
performance do not also invalidate or render void a sale that has begun to exist
as a valid contract at perfection. They merely become the legal basis for
remedies of either specific performance or rescission, with damages in either
case (Gabelo v. CA, G.R. No. 111743, October 8, 1999).
Consent
It is manifested by the meeting of the offer and the acceptance upon the thing
and the cause, which are to constitute the contract (Civil Code, Art. 1319).
Elements of Consent:
1. Subjects / contracting parties (Civil Code, Art. 1318);
2. Concurrence of offer and acceptance (Civil Code, Arts. 1319 – 1326);
3. Legal capacity of the contracting parties (Civil Code, Arts. 1327 – 1329); and
4. The consent must be given intelligently, freely and spontaneously (Civil Code,
Arts. 1330 – 1336).
Form of Offer – must be certain, definite and intentional (Civil Code, Art.
1319).
Business advertisements of things for sale are not definite offers, but mere
invitations to make an offer (Civil Code, Art. 1325).
Advertisements for bidders are merely invitations to make proposals; the

advertiser is not bound to accept the highest or lowest bidders (Civil Code, Art.
1326).
An offer becomes ineffective upon the death, civil interdiction, insanity, or

insolvency of either party before acceptance is conveyed (Civil Code Art. 1323).
Form of Acceptance
It must be absolute. A qualified acceptance constitutes a counter-offer. (Civil
Code, Art. 1319).
Acceptance by a letter or telegram does not bind the offeror except from the
time it came to his knowledge. Therefore, even if an acceptance has been
mailed or sent to the offeror, the offeror may still withdraw his offer anytime
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before he has knowledge of the acceptance (Civil Code, Art. 1319). An
acceptance may be express or implied (Civil Code, Art. 1321).
The person making the offer may fix the time, place, and manner of acceptance,
all of which must be complied with (Civil Code, Art. 1321).
Offer made through an agent is accepted from the time acceptance is

communicated to him (Civil Code, Art. 1322).
3. Consummation – Death of contract; Delivery/actual transfer of ownership of

the thing together with the payment of the price marks the consummation of
the contract of sale (PNB v. Ling, G.R. No. L-26937, October 5, 1927).
Characteristics: (PNB-TOC²)
1. Principal – it can stand on its own and does not depend on another contract
for its validity (Villanueva, Sales, supra at 6).
2. Nominate – it has been given a particular name by law (Civil Code, Art.
1458).
3. Bilateral – it imposes an obligation on both parties (id.);
a. Obligation of seller – to transfer ownership of and deliver a determinate
thing; and
b. Obligation of buyer – to pay a price certain in money or its equivalent.
4. Title – sale is merely a title that creates the obligation on the part of the
seller to transfer ownership and deliver possession, but on its own, it is not a
mode that transfers ownership. (San Lorenzo Development Corporation v. CA,
G.R. No. 124242, Jan. 21, 2005).
5. Onerous – it imposes a valuable consideration, which is a price certain in
money or its equivalent (Civil Code, Art. 1458).
Consequence: All doubts in construing an onerous contract shall be resolved in
greater reciprocity of interests (Civil Code, Art. 1378).
6. Commutative – it is a contract wherein a thing of value is exchanged for
equal value, i.e. the value of the subject matter is equivalent to the price paid
(Villanueva, Sales, supra at 12); and
7. Consensual – it is perfected by mere consent (Civil Code, Art. 1475).
Two Major Types of a Contract of Sale:

1. Absolute Sale – no conditions attached; transfer of ownership is vested upon
delivery (Civil Code, Art. 1497); and
2. Conditional Sale – subject to certain conditions; delivery does not transfer
ownership until the condition is fulfilled (Civil Code, Art. 1458, [2]).
Test: If the condition is imposed upon the seller’s obligation to transfer the
ownership of and deliver the thing, there is a conditional sale. Note that the
essence of sale is the acquisition of ownership.
However, if the condition is imposed upon the buyer’s obligation to pay the
price, the sale is still absolute. Payment of the purchase price is part of the
consummation stage (not perfection stage) of the contract of sale. Perfection of
the contract of sale is not affected by the fact that payment is subject to
conditions, since a contract of sale is perfected by mere consent.
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II. CONTRACT OF SALE DISTINGUISHED FROM OTHER KINDS OF
CONTRACTS
A. Sale v. Agency to Sell
Sale Agency to Sell

Transfer of Ownership
Buyer receives the goods as owner. Agent receives the goods as goods of
the principal who retains his
ownership over them.
Obligation as Regards the Price
Buyer pays the price Agent delivers the price, which he got
from his buyer, to his principal.
Right to Rerun the Thing
Buyer, as a general rule, cannot return Agent can return the goods in case he
the object sold. is unable to sell the same to a third
person.
Warranty as to the Object Sold
Seller warrants the thing sold (Civil Agent makes no warranty for which he
Code, Arts. 1547, 1548, 1561, 1562, assumes personal liability as long as
1564, 1565, and 1566) he acts within his authority and in the
name of the seller.
Right over That Thing
Buyer can deal with the thing sold as Agent in dealing with the thing
he pleases being the owner. received must act according to the
instruction of the principal.
Revocability
Contract of sale is not unilaterally Essentially revocable, because it
revocable (Villanueva, Sales, supra at covers an underlying fiduciary
29). relationship between the principal and
the agent (Civil Code, Arts. 1919-
1920).
(Civil Code, Art. 1466; De Leon, Sales, supra at 46)
The transfer of title or agreement to transfer it for a price paid is the essence of
sale. If such transfer puts the transferee in the position of an owner and makes
him liable for the agreed price, the transaction is a sale. On the other hand, the
essence of an agency to sell is the delivery to an agent, not as his property, but
as the property of his principal, who remains the owner and has the right to
control sales, fix the price and terms, demand and receive the proceeds less the
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agent’s commission upon sales made (Sps. Viloria v. Continental Airlines, Inc.,
G.R. 188288, January 16, 2012).
B. Sale v. Contract for a Price of Work
Sale Contract for a Piece of Work

Existence of Thing
The thing transferred is one which The thing transferred is not in
would have existed and would have existence and would never have
been the subject of sale to some other existed but for the order of the party
person, even if the order had not been desiring to acquire it (De Leon, Sales
given (De Leon, Sales, supra at 49). supra at 49).
Object of the Contract
Sale of a manufactured item; it is a The services dominate the contract
sale of goods even though the item is even though there is a sale of goods
manufactured by labor furnished by involved (De Leon, Sales supra at 49).
the seller and upon previous order of
the customer (De Leon, Sales supra at
49).
Applicability of Statute of Frauds
Governed by the Statute of Frauds Not within the Statute of Frauds
(Civil Code, Art. 1483).
Risk of Loss
Borne by the buyer (Civil Code, Arts. Borne by the worker or contractor, not
1189, 1480, and 1538). by the employer. (Civil Code, Arts.
1717-1718).
Rules in Determining if the Contract is one of Sale or a Piece of Work
If ordered or manufactured in the If manufactured especially for the
ordinary course of business (Civil customer and upon his special order,
Code, Art. 1467). and not for the general market (Civil
Code, Art. 1467).
C. Sale v. Barter
Sale Barter
Nature
A thing is given in exchange of a price A thing is given in exchange of another
certain in money or its equivalent. thing (Civil Code, Art. 1638).
Applicable Law
Law on Sales Law on Sales (Civil Code, Art. 1641).
If the consideration is partly in money and partly in another thing.
1. The transaction is characterized by the manifest intention of the parties.
2. If there is no manifest intention –
a) Barter if the value of the thing is more valuable than money.
b) Sale if the value of the thing is equal or less than the amount of money.
Rule on Money Exchange

If local currency is exchanged for foreign currency there is purchase and sale.
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If the local currency is exchanged with other denominations of the same local
currency, there is barter.
The rule is the same if a foreign currency is exchanged in the Philippines for
another foreign currency (Pineda, Civil Code of the Philippines Annotated V,
(2010), p. 42) [hereinafter, Pineda, Civil Code).
D. Sale v. Dation in Payment
Sale Dation in Payment

Existence of Credit
No pre-existing credit Pre-existing credit
Obligation
Obligations are created (Civil Code, Obligations are extinguished.
Art. 1458).
Consideration
On the part of the seller: the price On the part of the debtor: the
extinguishment of the debt.
On the part of the buyer: the
acquisition of the object. On the part of the creditor: the
acquisition of the object offered in lieu
of the original credit
Determination of Price
Greater freedom in determining the Less Freedom in determining the
price price.
Payment of price
Buyer still has to pay the price The debtor receives the payment
before the contract is perfected.
Governing Law
Law on Sales Law on Sales (Civil Code, Art. 1245).
E. Sale v Lease
Sale Lease
Ownership is transferred upon delivery No transfer of ownership because the
(Civil Code, Art. 1496). rights of the lessee are limited to the
use and enjoyment of the thing leased
Extent of Transfer
Permanent, unless subject to a Temporary (De Leon, Sales supra at
resolutory condition (Civil Code, Art. 602).
1465).
Who may convey the property
Seller must be the owner at the time Lessor need not be the owner (De
the property is delivered or at least Leon, Sales supra at 602).
authorized by the owner to transfer
ownership (Civil Code, Art. 149).
Significance of Price of Object
Usually, the selling price is mentioned, The price of the object, distinguished
as the parties involved can fix it. from the rent, is usually not mentioned
However, the fixing of the price cannot (De Leon, Sales, supra at 602).
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be left to the discretion of one of the
contracting parties (Civil Code, Art.
1473).
F. Sale v. Contract to Sell with Reserved Title
Contract of Sale Contract to Sell

Obligation Created
The perfection of the contract gives The perfection of the contract only
rise to reciprocal demandable gives rise to a reciprocal suspensive
obligations: conditional obligation (i.e. non-
1) On the part of the seller, demandable obligation until the
obligations to transfer condition happens) on the part of the
ownership and deliver seller to transfer ownership only upon
possession of the subject fulfillment of the obligation of the
matter; and buyer to pay the price in full.
2) On the part of the buyer, to pay
a price certain in money or its
equivalent.
Title passes to the buyer upon delivery Ownership is reserved in the seller and
of the thing sold (Civil Code, Art. will pass only to the buyer upon full
1496). payment of the price (Civil Code, Art.
1478).
Effect of Non-Payment of Price
Failure to pay is a negative resolutory Full payment is a positive suspensive
condition, which puts an end to the condition, the failure of which is not a
transaction (Civil Code, Art. 1179). breach but prevents the obligation of
the vendor to convey title from having
Remedies: a binding force (Reyes v. Tuparan, G.R.
1. Specific performance No. 188064, June 1, 2011).
2. rescission (Civil Code, Art. 1191)
In case there has been delivery of the
thing to the prospective buyer and the
buyer refuses to surrender the thing to
the seller, no further legal action need
be taken other than an action to
recover possession.
Contract to Sell
1. Exclusive right and privilege to purchase an object.
2. A bilateral contract where 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 positive suspensive condition (i.e. full
payment of the purchase price). Failure to do so is not a breach but a situation
preventing the obligation of the vendor to covey title from acquiring obligatory
force. Thus, for its non-fulfillment, there will be no contract to speak of for the
obligor failed to perform the suspensive condition which enforces a juridical
relation (Zamora Realty and Development Corporation v. Office of the President,
G.R. No. 165724, November 2, 2006).
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3. Absent a proviso in the contract that the title to the property is reserved in
the vendor until full payment of the purchase price or a stipulation giving the
vendor the right to unilaterally rescind the contract the moment the vendee
fails to pay within the fixed period, the transaction is an absolute contract of
sale, not a contract to sell (Dignos v. CA, G.R. No. L-59266, February 29, 1988).
4. The real character of the contract is determined by the intention of the
parties. Although a document is denominated as “Deed of Absolute Sale” and
there is no provision therein regarding the reservation of ownership to the
seller, it will be construed as a Contract to Sell if the true intent of the parties is
to transfer the ownership of the properties only upon the buyer’s full payment
of the purchase price (Sps. Orden, v. Sps. Aurea, G.R. No. 172733, August 20,
2008).
5. A buyer who covertly usurps the seller’s ownership of the property prior to
the full payment of the price is in breach of the contract and the seller is
entitled to rescission because the breach is substantial and fundamental as it
defeats the very object of the parties in entering into the contract to sell, (Sps.
Tumibay v. Sps. Lopez, G.R. No. 171692, June 3, 2013).
Other Cases of Contract to Sell:

1. Where subject matter is indeterminate (Civil Code, Arts. 1458, 1460);
2. Sale of future goods (Civil Code, Art. 1462);
3. Stipulation that deed of sale and corresponding certificate of sale would be
issued only after full payment (David v. Tiongson, G.R. No. 108169, Aug. 25,
1999).
Conditional Sale v. Contract to Sell
Conditional Sale Contract to Sell

Reservation of Title to the Subject Property
In both cases the seller may reserve the title to property until fulfillment of the
suspensive condition (e.g. payment) (Serrano v. Caguiat, G.R. No. 139173,
February 28, 2007).
Effect of Fulfillment of Suspensive Condition
The sale is perfected; if there has been Ownership is not automatically
previous delivery of subject property transferred to the buyer (even if there
to the buyer, ownership automatically has been previous delivery to him)
transfers to the buyer by operation of upon fulfillment of suspensive
law without any further act on the part condition (i.e., full payment of
of the seller. purchase price).
Seller still has to convey title to

prospective buyer by entering into a
contract of absolute sale.
Effect of Sale of the Subject Property to Third Persons
Upon the fulfillment of suspensive There is no double sale (because there
condition, sale becomes absolute is no previous sale of property despite
which affects the seller’s title. fulfillment of suspensive condition).
The third person becomes a buyer in The third person is not a buyer in bad
bad faith if he possesses constructive faith.
or actual knowledge of defect in
seller’s title.
Prospective buyer cannot seek relief of
A subsequent buyer cannot defeat the reconveyance of property (De Leon,
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first buyer’s title. Sales, supraat 25).
G. Contract of Sale v. Option Contract
Contract of Sale Option Contract

As to Consideration
Consideration must be a price certain Consideration may be anything of
in money or its equivalent (Civil Code, value.
Art. 1458).
Such consideration is separate and
distinct from the purchase price (San
Miguel Properties Philippines, Inc. v.
Huang, G.R. No. 137290, July 31,
2000).
Bilateral/Unilateral
Bilateral contract Unilateral Contract. Only the optioner
has an obligation (Villanueva, Sales,
supra at 142).
Subject Matter
Subject matter of the contract of sale The “option to purchase” such subject
itself matter. It is an intangible subject
matter or right (Villanueva, Sales
supra at 143).
Option Contract
It is a contract granting a privilege to one person, for which he has paid a
consideration, giving him the right to buy certain property at any time within
the agreed period at a fixed price (Civil Code, Art. 1479; Enriquez de la Cavada
v. Diaz, G.R. No. L-11668, April 1, 1918).
It is a preparatory contract in which one party grants to the other, for a fixed
period and under specified conditions, the power to decide, whether or not to
enter into a principal contract. It binds the party who has given the option not
to enter into a principal contract with any other person during the period
designated, and, within that period, to enter into such contract with the one to
whom the option was granted, if the latter should decide to use the option. It is
a separate agreement distinct from the contract of sale, which the parties may
enter into upon the consummation of the option (Carceller v. CA, G.R. No.
124791, February 10, 1999).
Elements of a Valid Option Contract: (CSP)

1. Consent;
2. Subject Matter: an option right or accepted unilateral offer to buy or an
option right or accepted unilateral offer to sell:
a. A determinate object;
b. For a price certain, including the manner of payment thereof;
3. Prestation: A consideration separate and distinct from the purchase price for
the option given (Villanueva, Sales supra at 144).
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An option to buy is not a contract of purchase and sale (Kilosbayan, Inc. v.
Morato, G.R. No. 118910, November 16, 1995).
When there is no consideration:

The case of Southwestern Sugar Molasses Co. v. Atlantic Gulf and Pacific Co.
held that when an option is not supported by a separate consideration, it is void
and can be withdrawn notwithstanding the acceptance made previously by the
offeree (G.R. No. L-7382, June 29, 1955).
This was overturned by the Sanchez doctrine, which held that without a
consideration separate and distinct from the purchase price, an option contract
would be void as a contract, but would still constitute a valid offer, so that if
the option is exercised prior to its withdrawal, the offer is accepted, and a valid
and binding contract of sale is entered into (Sanchez v. Rigos, G.R. No. L-25494,
June 14, 1972).
This view has the advantage of avoiding a conflict between Article 1324 and
Article 1479 of the Civil Code, in line with the cardinal rule of statutory
construction that, in construing different provisions of one and the same law or
code, such interpretation should be favored as will reconcile or harmonize said
provisions and avoid a conflict between the same.
When the offeror 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 (Civil Code, Art. 1324).
However, in Natino v. IAC, the Supreme Court made a contrary ruling. In the
said case, it was held that the commitment by a bank to resell a property within
a specified period, although accepted by the party in whose favor it was made
was considered an option not supported by a consideration and therefore void
and not binding upon the bank. The Court relied upon the Southwestern Sugar
ruling without even referring to Sanchez doctrine or at least stating that its
doctrine has been set aside (G.R. No. 73573, May 23, 1991).
Rules When a Period is given to the Offeree within Which to Accept the
Offer, i.e. option:
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
(Sanchez Doctrine);
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;
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;
4. The option is an independent contract by itself, and should be distinguished
from the projected main agreement (subject matter of the option), which is yet
to be concluded. If the optioner-offeror withdraws the offer before its
acceptance (exercise of option) by the optionee-offeree, the latter may not sue
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fro specific performance on the proposed contract (object of the option) since
there is no perfection of the option contract. The optioner-offeror, however, is
liable for damages due to breach of the option; and
5. Care should be taken of the real nature of the consideration giver, 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 contract
of sale that can evidence its perfection (Ang Yu Asuncion v. CA, G.R. No.
109125, December 2, 1994).
Proper Exercise of Option

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 on his part of the agreement.
Period Within Which to Enforce the Valid Exercise of an Option

Even when an option is exercised within the option period by the proper tender
of the amount due, nevertheless the action for specific performance to enforce
the option to purchase must be filed within 10 years after the accrual of the
cause of action as provided under Art. 1144 of the Civil Code (Dizon v. CA, G.R.
No. 122544, January 28, 1999).
Effect of Exercise of Option

Once an option is exercised, there arises a reciprocal obligation. The
performance of one obligation is conditional on the simultaneous fulfillment of
the other obligation (Heirs of Luis Bacus v. CA, G.R. No. 127695, December 3,
2001).
Right of First Refusal

It is a right of first priority, wherein all things and conditions being equal, and
there is identity of the terms and conditions offered to the optionee and all
other prospective buyers, with optionee to enjoy the right of first priority.
A deed of sale executed in favor of a third party not deemed a purchaser in good
faith, in violation of the right of first refusal granted to the optionee is valid but
rescissible under Articles 1380 to 1382 [3] of the New Civil Code which states
that a contract which is valid may be rescinded by reason of injury to third
persons (Guzman, Bocaling and Co. v. Bonnevie, G.R. No. 86150, March 2, 1992;
Rivera Filipina, Inc. v. CA. G.R. No. 117355, April 5, 2002).
In an option to buy, the basis of the right of first refusal must be the current
offer to sell of the seller or offer to purchase of any prospective buyer. Only
after the optionee fails to exercise its right if first priority under the same terms
and within the period contemplated could the owner validly offer to sell the
property to a third person, again, under the same terms as offered to the
optionee (Paranaque Kings Enterprises, Inc. v. CA, G.R. No. 111538, February
26, 1997).
Option Contract v. Right of First Refusal
Option Contract Right of First Refusal

Nature
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Principal Contract Accessory Contract
An option contract is a separate and The right of first refusal is an integral
distinct contract from that which the part of the contract of lease.
parties may enter into upon the
consummation of the option.
Consideration
Must be supported by a separate The consideration is built into the
consideration. reciprocal obligations of the parties.
Mutual Promises to Buy and Sell

Promise to sell a determinate thing coupled with a correlative promise to buy at
a specified price is binding as an executory agreement (Civil Code, Art. 1479).
In an agreement to buy and sell, which is an executory contract, title to the

property does not pass to the promise and the contracting parties are merely
given the right to demand fulfillment of the contract in the proper cases or
damages for breach thereof where it is not possible to carry out its terms
(Coronel v. CA, G.R. No. 103577, October 7, 1996).
Effect of Promise:
1. Accepted unilateral promise to sell or buy (Civil Code, Art. 1479, [2])
Only one makes the promise, which is accepted by the other (e.g., A promises to
sell to B, B accepts the promise, but does not in turn promise to buy).
If accepted, it is binding upon the promisor if the promise is supported by a

consideration (option money) distinct from the price. This results in a perfected
contract (De Leon, Sales, supra at 90).
Pending notice of its withdrawal, the accepted promise partakes the nature of
an offer to sell, which if accepted, results in a perfected contract of sale,
although the option is given without consideration (Sanchez v. Rigos, G.R. No. L-
25494, June 14, 1972).
2. Bilateral promise to buy and sell (Civil Code, Art. 1479, Par.1).
When one party accepts the other’s promise to buy and the latter accepts the
former’s promise to sell, a determinate thing for a price certain, it has the same
effect as a perfected contract of sale since it is reciprocally demandable (De
Leon, Sales supra at 110).
It is reciprocally demandable. Parties have the right to demand fulfillment or

damages, but there is no transfer of title or dominion yet. It requires no
consideration distinct from the selling price.
The prospective seller still has to convey title to the prospective buyer by
entering into a contract of absolute sale (Coronel v. CA, G.R. No. 103577,
October 7, 1996).
Rules Governing Auction Sales (Civil Code Art. 1476)

1. Sales of separate lots by auction are separate contracts of sale;
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2. Sale is perfected when the auctioneer announces its perfection by the fall of
the hammer or in other customary manner; and
Until such announcement is made:
a. Any bidder may retract his bid; and

b. The auctioneer may withdraw the goods from the sale unless the auction
has been announced to be without reserve.
3. Seller has the right to bid in the auction, provided:
a. Such right was reserved;

b. Notice was given that the sale was subject to a right to bid on behalf of
the seller; and
c. Right is not prohibited by law or by stipulation
Reason:To avoid puffing or secret bidding.
The owner of the property sold at the auction may provide terms under which
the auction will proceed and the same are binding upon all bidders, whether
they knew of such conditions or not (Leoquinco v. The Postal Savings Bank, G.R.
No. L-23630, August 25, 1925).
When the auction sale had already been perfected, a supplemental sale with
higher consideration at the instance of only one party could no longer be validly
executed (Dizon v. Dizon, G.R. No. 156539, September 5, 2007).
Earnest Money or “Arras”

Something of value to show that the buyer was really in earnest and given to
the seller to bind the bargain (De Leon, Sales supra at 120).
It is considered as:
1. Part of the purchase price, and earnest money is deducted from the total
price;
2. Proof of perfection of the contract (Civil Code, Art. 1482).
Note: Option money may become earnest money if the parties agree (De Leon,
Sales supra at 122).
Earnest Money v. Option Money
Earnest Money Option Money

Title passes to the buyer upon delivery Ownership is reserved to the seller
of the thing sold. and is not to pass until full payment.
Effect of Non-Payment
In case of non-payment, an action for In case of non-payment, there can be
specific performance or for rescission an action for specific performance.
can be filed by the injured party.
Consideration
It is part of the purchase price. Money is given as a distinct
consideration for an required to buy.
Obligation of the Buyer upon Payment of Consideration
13
When given, the buyer is bound to pay The would-be buyer is not required to
the balance. buy.
Perfection of Sale
There is already a sale. Applies to a sale not yet perfected.
Effect of Rescission on Earnest Money Received

In the absence of an express stipulation, the seller cannot keep the earnest
money received to answer for the damages sustained in the vent the sale fails
due to the fault of the prospective buyer. (Goldenrod, Inc. v. CA, G.R. No.
127232, September 28, 2001).
Rescission creates the obligation to return the things which were the object of
the contract together with their fruits and interest (Civil Code, Art. 1385).
Expenses of Execution and Registration

The expenses for the execution and registration of the sale shall be borne by the
vendor, unless there is a stipulation to the contrary (Civil Code, Art. 1487).
III. OBJECTS OF SALE
1. Rights
Requisites:
a. Transmissible or personal; and
b. Licit – it should not be contrary to law, morals, good customs, public
order, or public policy (Civil Code, Art. 1459).
Exceptions:
a. Future inheritance (Civil Code, Art. 1088); and
b. Service (Civil Code, Art. 1347).
2. Things
Requisites:
a. Actual or Possible (Civil Code, Arts. 1461, 1462 and 1465);
It must be existing, future, or subject to a resolutory condition. (Civil
Code, Arts. 1461, 1462, Par.2)
A thing is actual when it is existing.
When the requisite that the thing should be actual or possible does not
exist as to subject matter, the resulting contract of sale would be void
(Civil Code, Art. 1409, Par.3).
b. Licit (Civil Code, Art. 1459);
Requisites: (Co-In-In)
i. It is not outside the Commerce of men;
ii. It is not Intransmissible; and
iii. It does not contemplate a future Inheritance, unless expressly authorized
by law (Civil Code, Art. 1347).
14
The thing must be licit and the vendor must have a right to transfer the
ownership thereof at the time it is delivered (Civil Code, Art. 1459).
When the subject matter is illicit, the resulting contract is void (Civil Code, Art.
1409, Par.1).
Kinds of Illicit Things:

i. Illicit per se (of its nature); and
ii. Illicit per accidens (because of some provisions of law declaring it illegal)
(De Leon, Sales supra at 29).
Examples of Void Sale Due to Being Illicit:

i. Sale of animals suffering from contagious diseases (Civil Code, Art.
1575).
ii. Sale of animals if the use or service for which they are acquired has been
stated in the contract, and they are found to be unfit therefor (Civil Code,
Art. 1575).
iii. Sale of future inheritance (Civil Code, Art. 1347).
iv. Sale of land in violation of the constitutional prohibition against the
transfer of lands to aliens (Const. Art. XII)
c. Determinate or At Least Determinable (Civil Code, Arts. 1458 and 1460).
Determinate Thing – that which is:
i. Particularly designated; or
ii. Physically segregated from all others of the same class.
A determinate thing is identified by its individuality (e.g., my car, if I only have

one; the watch I am wearing; the house located at the corner of Rizal and Del
Pilar Streets etc.) (De Leon, Sales supra at 33).
Requisites:
i. At the time the contract is entered into, the thing is capable of being
made determinate; and
ii. There is no necessity for a new or further agreement between the parties
(Civil Code, Art. 1460, [2]).
A determinable subject matter is a generic object, because it has neither been

physically segregated nor particularly designated at the point of perfection from
the rest of its kind (Villanueva, Sales supra at 81).
Illustration:A particular bodega but it is not specified and the seller has more
than one bodega (De Leon, Sales supra at 33).
Note:Art. 1165 of the Civil Code provides that if the obligation is to deliver a
determinate thing, the creditor has the right to compel specific performance
and to recover damages for breach of the obligation (Jurado, Obligations and
Contracts. (2010), p.45) [hereinafter, Jurado, Obligations and Contracts].
Note: A contract of sale is also perfected even when the exact quantity or
quality of the subject matter is not known, so long as the source of the subject is
15
certain and fixed (National Grains Authority v. IAC, G.R. No. 74470, March 8,
1989).
Goods
Include all but not things in action or money of legal tender in the Philippines.
Kinds of Goods:
1. Existing Goods – those that are owned or possessed by the seller may be the
object of sale (Civil Code, Art. 1462).
The seller must have the right to transfer ownership at the time the thing is
delivered. Hence, it is not required that the seller is the owner of the thing at
the moment of the perfection of the contract of sale (Civil Code, Art. 1462).
2. Future Goods – cover goods that are to be manufactured, raised or acquired

by the seller after the perfection of the contract of sale (Civil Code, Art. 1462).
Property or goods which, at the time of the sale are not owned by the seller but
are to be acquired by him, cannot be the subject of an executed sale but may be
the subject of a contract for the future sale and delivery thereof, even though
the acquisition of the goods depends upon a contingency which may or may not
happen. In such case, the vendor assumes the risk of acquiring the title and
making the conveyance or responding in damages for the vendee’s loss of his
bargain (Martin v. Reyes, G.R. No. L-4402, July 28, 1952).
Note: the sole owner of a thing may sell an undivided interest therein (Civil
Code, Art. 1463).
A co-owner may sell, but the sale is limited to the portion which may be allotted
to him in the division of the thing upon the termination of the co-ownership
The effect is that the buyer becomes a co-owner in the thing sold (De Leon,
Sales supra at 41).
An undivided share of a specific mass may be sold.
Effect:The buyer becomes a co-owner with the seller of the whole mass in the
proportion in which the definite share bought bears to the mass (Civil Code, Art.
1464).
If later on, it be discovered that the mass of fungible goods contains less that
what was sold, the buyer becomes the owner of the whole mass and the seller
shall supply whatever is lacking from goods of the same kind and quality (Civil
Code, Art. 1464).
Things subject to a resolutory condition (e.g., pacto de retro sale) may be the
object of a contract of sale (Civil Code, Art. 1465).
Emptio Rei Speratae
16
It is the sale of a thing with potential existence, subject to a suspensive
condition that the thing will come into existence.
If the subject matter does not come into existence, the contract is deemed
extinguished as soon as the time expires or if it has become indubitable that the
event will not take place (Civil Code, Art. 1461).
Illustration: S binds himself to sell, for a specified price, to B a parcel of land if

he wins a case for the recovery of said land pending in the Supreme Court. The
obligation will arise if the “expected thing” (which is the land) will come into
existence. (i.e. if he wins the case).
An emptio rei speratae covers only contracts of sale whose subject matter are
determinate, and has no application to determinable generic things since the
condition that they must come into existence is wholly irrelevant, for generic
subject matters are never lost (Villanueva, Sales supra at 75).
Emptio Spei
Sale of a mere hope or expectancy, which is deemed subject to a condition that
the thing will come into existence (Civil Code, Art. 1461 [2]).
Illustration: Sale of a sweepstakes ticket for P100 where the buyer purchases
the ticket with the hope that upon the draw, the ticket would win him a million
pesos. The object of sale is not the prize, but the ticket or the chance to win.
Emptio spei typifies a situation where the commulative nature of a contract of

sale seems not to be complied with (Villanueva, Sales supra at 76).
Note: The sale of a vain hope or expectancy is void (Civil Code, Art. 1461). This
affirms the requisite of “possibility” of a subject matter as contrasted from an
impossible subject matter.
Illustration: Sale of a falsified sweepstake ticket which can never win.
Emptio Rei Speratae v. Emptio Spei
Emptio Rei Speratae Emptio Spei

Definition
Sale of a thing with potential Sale of a mere hope or expectancy that
existence. the thing will come to existence; Sale
of the hope itself.
Effectivity of the Contract
Sale is subject to the condition that the Sale is effective even if the thing does
thing will exist; if it does not, there is not come into existence, UNLESS it is
no contract. a vain hope.
Uncertainty
The uncertainty is with regard to the The uncertainty is with regard to the
quantity and quality of the thing and existence of the thing.
not the existence of the thing.
Object of Sale
The object is a future. The object is a present thing which is
the hope or expectancy.
17
(De Leon, Sales, supra at 38).
Note: in case of doubt, the presumption is in favor of emptio rei speratae; it is

more in keeping with the commutative character of the contract.
General Rule: A person cannot sell or convey what he does not have or own.
Exceptions:
1. Sale of a thing having potential existence (Civil Code, Art. 1461).
2. Sale of future goods (Civil Code, Art. 1462); and
3. Contract for the delivery at a certain price of an article which the vendor in
the ordinary course of the business manufactures or procures for the general
market, whether the same is on hand at the time or not (Civil Code, Art. 1467).
IV. PRICE
The sum stipulated as the equivalent of the thing sold and also every incident
taken into consideration for the fixing of the price, put to the debit of the
vendee and agreed to by him (Inchausti and Co. v. Cromwell, G.R. No. L-6584,
October 16, 1911).
Requisites for Valid Price: (R-CAM²)

1. Real (Civil Code, Art. 1471);
2. Certain or Ascertainable (Civil Code, Art. 1458);
3. In Money or its Equivalent (Civil Code, Arts. 1458,1468); and
4. Manner of payment must be agreed upon (Civil Code, Arts. 1458, 1468).
Real (not simulated)
18
Price is real when at the perfection of the contract, there is every intention on
the part of the buyer to pay the price, and every intention on the part of the
seller to receive such price (Villanueva, supra at 99).
If the Price is Stimulated:

General Price: The sale is void (Civil Code, Art. 1471).
Exception: if it can be shown to be a donation or another contract (id). The

price is simulated when neither party had any intention that the amount will be
paid (Yu Bun Guan v. Ong, G.R. No, 144735, October 18, 2001).
When a contract is void due to absence of consideration, no title over the

subject matter can be conveyed. Nemo potest nisi quod de jure potest – no man
can do anything except what he can do lawfully (Traders Royal Bank v. CA, G.R.
No. 93397, March 3, 1997).
Simulated Contract v. Simulated Price
Simulated Contract Simulated Price

An absolutely simulated or fictitious The contract is not simulated, but the
contract is void. A relative simulation, price (cause) is. Hre, the sale is void,
when it does not prejudice a third but the act may be shown to have been
person and is not intended for any in reality a donation, or some other act
purpose contrary to law, morals, good or contract (Civil Code, Art. 1471).
customs, public order or public policy
binds the parties to their real
agreement (Civil Code, Art. 1346).
General Rule: When the price in a purported contract of sale is completely

simulated, then pari delicto non oritur action shall apply, which denies all
recovery to the guilty parties inter se. such principle applies to cases where the
nullity arises from the illegality of the consideration or the purpose of the
contract.
Exception: When the principle is invoked with respect to inexistent contracts

(Modina v. CA, G.R. No. 109355, October 29, 1999).
False Price v. Non-payment of Price:
False Price or Consideration Non-payment of Price

Definition
The price is false when there is a real The failure of the buyer to pay the
price not declared, and what is stated price.
or declared in the sale is not the one
intended to be paid
Effect
The statement of a false cause or Failure to pay does not make the sale
consideration shall render a contract null and void for lack of consideration
void if it should not be proved that it but results in buyer’s default, for
was founded upon another cause which the seller may exercise his legal
which is true and lawful (Civil Code, remedies (Balatbat v. CA, G.R. No.
19
Art. 1353). 109410, August 28, 1996).
If the price indicated in the covering Reason: Contract of sale, being

instrument is false (i.e. there is consensual, is perfected by mere
actually another price upon which the consent (Civil Code, Art. 1475).
minds of the parties have met), the Delivery of the thing bought or
contract of sale is valid, but the payment of the price is not necessary
underlying deed is subject to for the perfection of the contract
reformation to indicate the real price (Alcantara-Daus v. De Leon, G.R. No.
agreed upon (Civil Code, Art. 1359). 149750, June 16, 2003.)
There is a presumption that the

consideration exists and that it is
lawful. Even though it is not stated in
the contract (Civil Code, Art. 1354).
Certain or Ascertainable
1. Certain – expressed and agreed in terms of specific pesos and centavos;
2. Ascertainable – it is sufficient that the price is with reference to another thing
certain or that determination be left to the judgment of a specified person or
persons (Civil Code, Art. 1469).
a. Fixed by a specified third person – if the third person is unable or
unwilling to fix the price, the contract is inefficacious, unless the parties
subsequently agree upon the price (Civil Code, Art. 1469).
If the third person is prevented from fixing the price by fault of either the
seller or the buyer, the party not in fault may have such remedies against
the party in fault (Civil Code, Art. 1469).
The party may demand from the courts the fixing of a reasonable price,
under the principle that when the party prevents a condition from
happening, that condition can be deemed fulfilled by the other party
Even before the fixing of the price by the designated third person, a
contract of sale is deemed to be perfected and existing albeit conditional.
b. Fixed by the court – where the third person fixes the price in bad faith or
by mistake (Civil Code, Art. 1469);
c. Fixed by reference to a definite day, particular exchange or market (Civil
Code, Art. 1472).
Price of securities, grains, liquid and things is considered certain when:

1. The price fixed is that which the thing would have on a definite day, or in a
particular exchange or market (Civil Code, Art. 1472);
2. An amount is fixed above or below the price on such day, or in exchange or
market, provided said amount be certain (Civil Code, Art. 1472);
3. Fixed by reference to another thing certain (Civil Code, Art. 1469).
Under Article 1469 of the Civil Code, the parties give rise to a contract of sale
when they appoint a third party to fix the price. However, this is not allowed for
the determination of the subject matter of the sale.
Reason: the obligation to pay the price is a fungible obligation: the price is
essentially generic, and generally, cannot be extinguished by fortuitous event.
20
On the other hand, the obligation to deliver a subject matter and the title
thereto is a specific obligation, and therefore is a designation cannot be left to
the will of a third party who may choose a subject matter beyond the capacity of
the seller to comply with his obligations to deliver the same.
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 (Civil Code, Art. 1473).
Basis: The validity or compliance of a contract cannot be made to depend upon

the will of one party (Civil Code, Art. 1308).
The owner of a thing has the right to quote his own price, reasonable or
unreasonable. It is up to the prospective buyer to accept or reject it.
In Money or its Equivalent

Article 1468 of the Civil Code recognizes that if the consideration consists
partly in money and partly in another thing, the transaction can still be
considered a contract of sale when it is the manifest intention of the parties.
Meaning of “or its equivalent”

This means that there is certainty as to the price but what is given as payment
is an object (e.g. p50, 000.00 worth of Maggi noodles).
Manner of Payment Must be Agreed Upon

Before a valid and binding contract of sale can exist, the manner of payment of
the purchase price must fist be established since the agreement on the manner
of payment goes into the price, such that a disagreement on the manner of
payment is tantamount to a failure to agree on the price (Sps. Navarra v.
Planters Development Bank, G.R. No. 172674, July 12, 2007).
Gross Inadequacy of Price (Civil Code, Arts. 1355, 1470).

If a reasonable man will not agree to dispose of his property at that amount
(Dorado Vda. De Delfin v. Dellota, G.R. No. 143697, January 28, 2008).
1. Voluntary Sales
General Rule: mere inadequacy of price does not affect the validity of
the sale if fixed in good faith and without fraud (Hulst v. PR. Builders,
Inc., G.R. No. 156364, September 3, 2007).
Exceptions:
a. Where low price indicates a vice of consent, sale may be annulled
(Civil Code, Art. 1355), or the contract is presumed to be an
equitable mortgage (Civil Code, Art. 1602 [1]);
b. Where the price is so low as to be “shocking to the conscience,”
sale may be set aside (Aguilar v. Rubiato, G.R. No. L-14823,
December 9, 1919).
c. Where the price is simulated such as when the parties intended a
donation or some other act or contract; and
d. Where the parties did not intend to be bound at all, the contract is
simulated and void (Villanueva, Sales supra at 131).
21
2. Involuntary or Forced Sales
General Rule: Mere inadequancy of the price is not a sufficient ground
for the cancellation of the sale of real property (Ponce de Leon v.
Rehabilitation Finance Corporation, G.R. No. L-24571, December 18,
1970).
Exceptions:
a. Where the price is so low as to be shocking to the moral
conscience, judicial sale of personal property will be set aside; and
b. If in the vent of a resale, a better price can be obtained.
Notes: the validity of the sale is not necessarily affected where the
law gives to the owner the right to redeem, upon the theory that
the lesser the price, the easier it is for the owner to effect
redemption (De Leon v. Salvador, G.R. No. L-30871, December 28,
1970).
3. Rescissible Contracts of Sale

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:
a. Those entered into by guardians whenever the ward whom they
represent suffers lesion by more than one-fourth (1/4) of the value
of the object of the sale; and
b. 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.
Existence of Sale Even When No Price is Agreed Upon

General Rule: When the price cannot be determined in accordance with
Articles 1469 to 1473, the contract is inefficacious (“inefficacious” means “the
inability to produce the effect wanted.”)
Exception: The thing or a part thereof has been delivered to and appropriated
by the buyer, in which case the buyer has to pay a reasonable price therefor
Appropriation:
“Acceptance” by the buyer, having treated the subject matter as his won
(Villanueva, Sales, supra at 123).
Requisites for the Applicability of the Exception: (MAD)

1. Meeting of the minds as to the subject matter;
2. Agreement that a price will be paid; and
3. Delivery by the seller and appropriation by the buyer of the subject matter.
Reasonable Price is generally the market price at the time and place fixed by
the contract or by law for the delivery of the goods (De Leon, Sales, supra at
66).
22
V. FORMALITIES OF CONTRACT OF SALE
General Rule: 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 (Civil Code, Art. 1483). Sale being a consensual contract,
no form is required for its validity (Villanueva, Sales, supra at 185).
Article 1358[1] of the Civil Code provides that acts and contracts which have for
their object the creation, transmission, modification or extinguishment of real
rights over immovable property must appear in a public document and that
sales of real property or an interest therein are governed by Article 1403, No. 2
and 1405 of the Civil Code (Villanueva, Sales supra at 185).
Despite the seemingly mandatory provisions, a public document is for purposes

of convenience, and not for validity or enforceability. Those enumerated under
such article that are not in a public document are still valid and enforceable,
and the article merely grants a cause of action to sue in order to compel the
other party to have the document acknowledged before a notary public (Dalion
v. CA, G.R. No. 78903, February 28, 1990).
However, to be binding upon third persons, such must be embodied in a public

instrument and recorded in the Register of Deeds (Talusan v. Tayag, G.R. No.
133698, April 4, 2001).
Exceptions:
The form of sale will affect validity under the following circumstances:
1. The power to sell a piece of land or interest must be in writing, otherwise, the
sale thereof by the agent would be void (Civil Code, Art. 1874).
2. Sale of large cattle must be in writing otherwise the sale will be void; and no
sale of large cattle shall be valid unless the sale is registered with the municipal
treasurer who shall issue a certificate of transfer (Civil Code, Art. 1581; P.D.
533).
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
People (Administrative Code of Mindanao and Sulu, Sec.145).
When Form is Important in Enforceability: (PReY Form)

The following must be in writing to be enforceable:
1. Sale of Personal property at a price not less than P500;
2. Sale of Real property or an interest therein;
3. Sale of property not to be performed within a Year from the date thereof; and
4. When an applicable statute requires that the contract of sale be in a certain
Form (Civil Code, Art. 1403).
Exceptions:
1. When there is a note or memorandum in writing and subscribed by the party
charged or his agent (Civil Code, Art. 1403);
2. When there has been partial consummation of the sale (id);
23
3. When there has been failure to object to the presentation of evidence
alliunde as to the existence of a contract (Baretto v. Manila Railroad Co., G.R.
No. L-21313, March 29, 1924); and
4. When sales are affected through electronic commerce (R.A. 8792, The
Electronic Commerce Act, Sec. 6).
Note: Statute of Frauds is applicable only to executory contracts and not to

contracts which are totally or partially performed (De Leon, Sales, supra at
126).
If Notary Public is Not Authorized

If the deed of sale of land is notarized by a Notary Public whose authority had
expired, the sale would still be valid, since for validity of the sale, a public
instrument is not even essential (Soriano v. Latono, G.R. No. L-3408, December
23, 1950).
Implied in Fact Contract of Sale

An Implied in Fact contract is one implied from facts and circumstances
showing a mutual intention to contract. It is a contract, the existence and terms
of which are manifested by conduct of the parties and not by direct or explicit
words between them. To create contracts implied in fact, circumstances must
warrant inference that one expected compensation and the other to pay
(University of the Philippines v. PHILAB, G.R. No. 152411, September 29, 2004).
VI. CAPACITY TO BUY OR SELL
General Rule: All persons, whether natural or juridical, who can bind
themselves, have legal capacity to buy and sell (Civil Code, Art. 1489,[1]).
Exceptions:
A. Absolute Incapacity – Persons who cannot bind themselves (De Leon,
Minors, insane, demented persons, and deaf-mutes, who do not know how
to write, have no legal capacity to contract (Civil Code, Art. 1327).
The contracts entered into by such legally incapacitated persons are not
void, but merely voidable, subject to annulment or ratification (Labagala
v. Santiago, G.R. No. 132305, December 4, 2001).
Purchase by a Minor
General Rule: The contract is voidable.
Exception: Where necessaries are sold and delivered to a minor or other

person without capacity to act, the incapacitated person must pay a
reasonable price therefor (Civil Code, Art. 1489, Par.2).
Necessaries cover everything indispensable for sustenance, dwelling,

clothing, medical attendance, education and transportation.
24
Sale by Minor
The sale of real property made by minors who have already passed the
age of puberty and adolescence and are near the adult age when they
pretend to have already reached their majority, while in fact they have
not, and the other party had good reason to believe that the minor was
capable of contracting, is valid. The parties cannot be permitted
afterwards to excuse themselves from compliance with obligation
assumed by them or to seek their annulment (Mercado and Mercado v.
Espiritu, G.R. No. L-11872, December 1, 1917).
Sale by Insane or Demented Persons

Contracts entered into during lucid intervals by insane or demented
persons are generally valid. Contracts agreed to in a state of drunkenness
or during a hypnotic spell are voidable (Civil Code, Art. 1328).
B. Relative Incapacity – When certain persons, under certain

circumstances, cannot buy certain property (Wolfson v. Estate of
Martinez, G.R. No. L-5970, October 13, 1911).
1) Husband and Wife

General Rule: A sale between husband and wife is inexistent and
void from the beginning because such contract is expressly
prohibited by law (Civil Code, Art. 1409, Par.7).
Note: The prohibition applies to common-law spouses (Ching v. Goyangko, G.R.

No. 165879. November 10, 2006).
Reasons:
a. To prevent commission of fraud or prejudice to third persons;
b. To prevent one from unduly influencing the other; and
c. To avoid indirect donations (Medina v. Collector of Internal Revenue, G.R.
No. l-15113, January 28, 1961).
Exceptions:
a. Regime of separation of property governs them; and
b. A judicial separation of property under Article 135 of the Family Code has
been decreed (Civil Code, Art. 1490[2]).
Note: if the spouses had been legally separated, there is no more
prohibition for them to sell properties to one another for they are now
governed by the regime of separation of property (Pineda, Civil Code
supra at 108).
Persons Permitted to Question the Sale between Husband and Wife:

a. Persons who bear such a relationship to the spouses or to the property
itself that such transfer interferes with their rights or interest (Cook v.
McMicking, G.R. No. L-8913 March 3, 1914); and
b. The Government is always an interested party in all matters governing
taxable transactions (Medina v. CIR, G.R. No. L-15113, January 20, 1961).
25
2. Incapacity by Reason of Relation to Property (Civil Code, Art. 1491)
The following cannot acquire property by purchase, even at a public auction,
either in person or through the mediation of another: (GAEP-JO)
a. Guardian, with respect to the property of his ward;
b. Agents, with respect to the property whose administration or sale may
have been entrusted to them, unless the consent of the principal has been
given;
Reason: the agent and the principal form one juridical person (De Leon,
After the termination of the relationship, the agent is not prohibited to

purchase a property belonging to the erstwhile principal (Valera v.
Velasco, G.R. No. L-28050, March 13, 1928).
Neither is he prohibited from buying properties of the principal, which

are not included among the properties of which he was commissioned to
sell (Moreno v. Villonea, 40 O.G. 2322).
c. Executor or administrator, with respect to the property of the estate
under administration;
Executors do not administer hereditary rights of any heir; hence, there is

no prohibition as to the purchase by an executor of hereditary rights
(Naval v. Enriquez, G.R. No. 1318 April 12, 1904).
Note: With respect to Art. 1491 (1, 2, and 3), the sale shall only be
voidable because in such cases only private interests are affected
(Wolfson v. estate of Martinez, G.R. No. L-5970, October 13, 1911).
The defect can be cured by ratification of the seller (Civil Code, Arts.
1392-1396).
d. Public officers and employees, with respect to the properties of the

government, its political subdivisions, or GOCCs that are entrusted to
them.
The prohibition includes judges and government experts who, in any

manner, take part in the sale.
Reason: To remove any occasion for fraud and also to eliminate suspicion
which, although unfounded, tends to discredit the institution by putting
into question the honor of said functionaries.
e. Judges, justices, prosecuting attorneys, clerks of courts, etc., with respect

to property in custodia legis; and
Prohibition with respect to Judges, Justices.

It is not required that some contest or litigation over the property itself
should have been tried by the judge; such property is in litigation from
the moment that it became subject to the judicial action of the judge,
26
such as levy on execution (Gan Tiangco v. Pabinguit, G.R. No. L-10439,
October 17, 1916).
Prohibition with Respect to Lawyers

For the prohibition to operate, the sale or assignment must take place
during the pendency of the litigation involving the property (Laig v. CA,
G.R. No. L-26882, April 5, 1978).
Violation of this prohibition would constitute malpractice, and is a ground

for suspension (Valencia v. Cabanting. A.M. no. 1302, April 26, 1991).
A contract for a contingent fee is not covered by Article 1491 because the
transfer or assignment of the property in litigation takes effect only after
the finality of a favorable judgment (Director of Lands v. Ababa, G.R. No.
L-26096, February 27, 1979).
The fact that the property in question was first mortgaged by the client to
his lawyer and only subsequently acquired by the latter in a foreclosure
sale long after the termination of the case will not remove it from the
scope of the prohibition for at the time the mortgage was executed the
relationship of lawyer and client still existed. To rule otherwise would be
to countenance indirectly what cannot be done directly (Fornilda v. RTC,
G.R. No. 72306, October 5, 1988).
f. Any Other person specially disqualified by law (Civil Code, Art. 1491).
Note: With respect to Art. 1491 (4, 5, and 6), the sale shall be null and void;
public interest is involved (Civil Code, Art. 1409[1]; Rubias v. Batiller, G.R. No.
L-35072, May 29, 1973).
Examples of persons Especially Disqualified by Law:

1. Aliens who are disqualified to purchase private agricultural lands, unless by
hereditary succession (intestate succession) (Const. Art. XII, Secs. 3 and 7).
Where a land is sold to an alien who later sold it to a Filipino, the sale to the
latter cannot be impugned. In such case, there would be no more public policy
to be served in allowing the Filipino seller or his heirs to recover the land as it
is already owned by a qualified person (Vicente Godinez v. Fong Pak Luen, G.R.
No. L-36731, January 27, 1983).
Aliens may still be lessees even if they cannot buy lands (De Leon, Sales supra
at 618).
2. An unpaid seller having a right of lien or having stopped the goods in transit,
who is prohibited from buying the goods either directly or indirectly in the
resale of the same at a public or private sale which he may make; (Civil Code,
Art. 1533, [5]; Civil Code, Art. 1476[4])
3. The office holding the execution or his deputies. (Rules of Court, Rule 39,
Sec. 19)
27
Note: The prohibitions are applicable to sales in legal redemption (Civil Code,
Art. 1619); compromises (Civil Code, Art. 2028; and renunciations (Civil Code,
Arts. 6 and 1270).
VIII. SALE BY NON-OWNER
Ownership is necessary only at the time of delivery (Civil Code, Art. 1459).
Thus, sale by non-owner at time of perfection is valid.
When a person who is not the owner of a thing sells or alienates and delivers it,
and later the seller or grantor acquires title, such title passes by operation of
law to the buyer or grantee (Civil Code, Art. 1434).
Perfection Stage:
1. Sale by owner – Valid
2. Sale by non-owner – Valid
Perfection pertains to the creation of the obligations to transfer and to pay

while consummation stage pertains to the actual transfer of ownership of the
subject matter and the payment of the price (Villanueva, Sales, supra at 320).
Consummation Stage:
1. Sale by owner – the contract is valid; the transfer of title is also valid.
2. Sale by non-owner- the contract is valid because it has passed perfection

stage; the transfer of title is void (Villanueva, Sales, supra at 322-323).
General Rule: 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 (Civil Code,
Art. 1505).
Reason:Nemo Dat quod habet (nobody can dispose of that which does not
belong to him).
Exceptions: (ERJ-MerTACU)
1. Owner is Estopped or precluded by his conduct (Civil Code, Art. 1505);
2. Sale made by the Registered or apparent owner in accordance with
registration laws (id.);
3. Sales sanctioned by Judicial or statutory authority (id.);
4. Purchases in Merchant’s stores, fairs or markets (Civil Code, Art. 1505; Code
of Commerce, Arts. 85-86).
Note: To allow recovery would retard commerce.
5. When a person who is not the owner sells and delivers a thing, and
subsequently acquires Title thereto (Civil Code, Art. 1434);
6. When the seller has a voidable title which has not been Avoided at the time of
the sale (Civil Code, Art. 1506), provided that the buyer acquires the goods –
a. In good faith;
b. For value; and
c. Without notice of the seller’s defect of title.
28
7. Sale by Co-owner of whole property or a definite portion thereof (Civil Code,
Art. 493);
Note:If a co-owner sells the whole property as his, the sale will affect only his
share, but not those of the other co-owners who did not consent to the sale.
Only the rights of the seller are transferred, thereby making the buyer a co-
owner of the property (Tomas Claudio Memorial College, Inc. v. CA, G.R. No.
124262. October 12, 1999).
8. Special rights of Unpaid seller (Civil Code, Arts. 1526-1533).
Difference between Article 1505 and Article 1506:

Article 1505 refers to sale with void title, while Article 1506 refers to sale with
voidable title.
Sale by Seller with Voidable Title

When a buyer buys a property from a seller with voidable title to property, he
acquires a good title to the property if:
1. He buys it in good faith;
2. He buys it for value; and
3. He is not aware of the seller’s defect of title (Civil Code, Art. 1506).
Reason: Art. 1506 is predicated on the principle that where loss has happened
which must fall on one of two innocent persons, it should be borne by him who
is the occasion of the loss (De Leon, Sales supra at 219).
Illustration: “A” purchased a genuine Rolex watch from “B” who is a minor, “C”
in turn purchased the watch from “A”. Although the title of “A” is voidable due to
minority of “B”, “C” became the owner of the watch after it was delivered to
him there being no annulment of the purchase made. The possible remedy of
“B” is to go after “A”.
Title as to Movable Properties

General Rule:Possession of movable property acquired in good faith is
equivalent to tile (Civil Code, Art. 559, Par.1).
Exceptions:
1. Owner lost the movable – owner may recover the movable without
reimbursement (id.); and
2. Owner is unlawfully deprived of the movable – owner may recover
the movable without reimbursement (Civil Code, Art. 559, Par.2).
Unlawful Deprivation – it is when the original owner has been

dispossessed without his consent. (Dizon v. Suntay, G.R. No. L-30817,
September 29, 1972). It includes not only cases of theft or robbery, but
also those occasioned by swindling or estafa (Del Rosario v. Lucena, G.R.
L-3546, September 13, 1907).
Exceptions to the Exceptions:
29
a. The person who possesses the movable property has
acquired the same in good faith at a public sale; (Civil Code,
Art. 559, [2])
Public Sale – One where there has been a public notice of

sale in which anyone is allowed to bid for the object he
desires to buy.
b. The buyer bought the movable at a merchant store (Civil

Code, Art. 1505).
Store is any place where goods are kept for sale, whether by
wholesale or retail.
IX. EFFECTS ON THE CONTRACT WHEN THE THING SOLD HAS BEEN
LOST
Effects of Loss of Thing at the Time of Sale:

1. Thing Entirely Lost – the contract shall be without any effect (Civil Code,
Art. 1493, Par. 1). Where the thing is entirely lost at the time of perfection, the
contract is inexistent and void (Civil Code, Art. 1409, Par. 3) because there is no
object (Civil Code, Art. 1318, Par. 2).
The thing is lost when it perishes or goes out of commerce or disappears in such
a way that its existence is unknown or it cannot be recovered (Civil Code, Art.
1189, Par. 2).
2. Thing Partially Lost – If the subject matter is only partially lost, the vendee
may elect between:
a. Withdrawing from the contract; or
b. Demanding the remaining part of the object, paying its price
in proportion to the sum agreed upon (Civil Code, Art. 1493,
Par.2).
Effect of Loss in Case of Specific Goods
30
Specific Goods – Goods identified and agreed upon at the time a contract of
sale is made (Civil Code, Art. 1636, Par.1).
Where the specific 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:
1. Rescind or withdraw from the contract; or
2. Give it a legal effect, paying the proportionate price of the remaining
object.
Sale Divisible: Option 2 is available only if the sale is divisible (Civil Code, Art.
1494, Par.2). A contract is divisible when its consideration is made up of several
parts (Civil Code, Art. 1420).
Sale Indivisible: It is believed that the buyer should be made to pay only the
proportionate price of the remaining goods as provided for in Art. 1493(2) of the
Civil Code. If the sale is indivisible, the object thereof may be considered as a
specific thing.
X. NEGOTIABLE DOCUMENTS OF TITLE
Document of Title
It is a document:
1. Used as proof of the possession or control of the goods; or
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 (Civil Code, Art. 1636).
Kinds:
1. Bill of Lading – A document that serves as evidence of receipt of goods
for shipment issued by a common carrier. It is an instrument of two-fold
character. It is at once a receipt and a contract. In the former character it
is an acknowledgement of the receipt of the property on board his vessel
by the owner of the vessel. The receipt of the goods lies at the foundation
of the contract to carry and deliver (Pineda, Sales and other Special
Contracts, (2002), p.146) [hereinafter, Pineda, Sales].
2. Dock Warrant – A warrant given by dock-owners to the owner of
merchandise imported and warehoused on the dock upon the faith of the
bills of lading as a recognition of his title to the goods;
3. Quedan – A warehouse receipt that covers sugar, tobacco, rice or hemp
(Philippine Legal Encyclopedia, p. 811)
4. Warehouse Receipt – A document of title issued by a warehouseman. It
is a receipt wherein it is stated that certain goods were received by the
bailee to be delivered to the bearer or to the order of any person named
in such receipt or to a specified person.
Negotiable Document of Title
31
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 (Civil Code, Art. 1507).
How Negotiated:
1. By Delivery – Where by the terms of the document, the one issuing the
same undertakes to deliver the goods to the bearer (Civil Code, Art.
1508).
Where by the terms of the document, the one issuing the same
undertakes to deliver the goods to the order of a specified person, and
such person or a subsequent endorsee has indorsed it in blank or to
the bearer.
Mere delivery without indorsement is sufficient if the document is

deliverable to the bearer. However, even though the document is
deliverable to the order of a specified person, if the latter indorsed it
in blank by simply signing his name without specifying any person to
whom the goods are to be delivered or indorsed it to bearer, the
document may now be negotiated by mere delivery (Pineda, Sales, supra
at 149).
2. By endorsement and Delivery – The endorsement may be in blank, to

bearer, or to a specified person (Civil Code, Art. 1509).
If indorsed to a specified person, it may be again negotiated by
endorsement of such person in blank, to bearer or to another specified
person (id.).
Who Can Negotiate:

1. The owner of the document; or
2. Any person to whom the possession or custody of the document has been
entrusted by the owner if:
a. By the terms of the document, the goods are deliverable to the
order of the person to whom the possession or custody of the
document has been entrusted; or
b. The document is in such for, that it may be negotiated by delivery
Effects of Negotiation:
A person to whom the document is negotiated acquires:
1. Title to the goods as the person negotiating the document to him had or
had ability to convey to a purchaser in good faith for value, and also such
title to the goods as the person to whose order the goods were to be
delivered by the terms of the document had or had ability to convey to a
purchaser in good faith for value; and
32
2. Direct obligation of the bailee issuing the document to hold possession of
the goods for him according to the terms of the document as fully as if
such bailee had contracted directly with him (Civil Code, Art. 1513).
Unauthorized Negotiation
As between the owner of negotiable document of title who indorsed it in blank

and entrusted it to a friend, and the 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 (Siy Long Bieng v. Hongkong and Shanghai
Banking Corp. G.R. No. 34655, March 5, 1932).
A purchaser in good faith is one who has purchased the property in good faith
without notice of the defect of the title of the seller and for valuable
consideration.
The validity of the negotiation of a negotiable document of title is not impaired

by the fact:
1. That the negotiation was a breach of duty on the part of the person
making the negotiation; or
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 negotiated or a person to whom the
document was subsequently negotiated paid value therefor in good faith
without notice of the breach of duty or loss, theft, fraud, accident,
mistake, duress or conversion (Civil Code, Art. 1518):
It is in protecting the rights and contractual expectations of a buyer in good

faith that the law encourages the public to accept by way of negotiations and at
face value negotiable documents of title (Villanueva, Sales, supra at 309).
Negotiable Instrument v. Negotiable Document of Title
Negotiable Instrument Negotiable Document of Title

Function
It operates as a substitute for money. It operates as proof of the possession
or control of the goods.
Authorizes or purports to authorize the

possessor of the document to transfer
or receive, either by endorsement or
by delivery, goods represented by such
document.
Governing Law
Governed by the Negotiable Governed by the Civil Code, and in
Instruments Law some cases, by the Warehouse Receipt
Law and the Code of Commerce
Special Endorsement of a Bearer Instrument
A bearer instrument is always a bearer The special endorsement of a bearer
instrument even if a special instrument has the effect of converting
endorsement is made. the bearer instrument into an order
33
instrument.
Placing of the Words “Non-negotiable” on the Instrument or Document
The instrument is no longer If words “non-negotiable” or the like
negotiable. are placed on the document, such
document may nevertheless be
negotiated by the holder.
Non-Negotiable Document of Title

How transferred or assigned
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 done. A
non-negotiable document cannot be negotiated and the endorsement of such a
document gives the transferee no additional right (Civil Code, Art. 1511).
A non-negotiable document contains terms wherein the goods are deliverable to

a specified person. In contrast, the terms of a negotiable document provides
that it is deliverable to the bearer, or to the order of any person named in the
document.
Effects of Transfer
A person to whom the document is assigned acquires:
1. The title to the goods, subject to the terms of any agreement with the
transferor; and
2. The right to notify the bailee who issued the document of the transfer and
also acquire the direct obligation of such bailee whoo hold possession of
the goods for him according to the terms of the document (Civil Code,
Art. 1514).
Note: Notification is an operative act to transfer the title or possession of

the goods in favor of the transferee.
Warranties on Negotiation or Assignment

A person who negotiates or transfers a document of title warrants that: (MINT-
G)
1. The goods are Merchantable or fit for a particular purpose;
2. He has knowledge of no fact which would Impair the validity or worth of
the document;
3. He has a legal right to Negotiate or transfer it;
4. He has a right to Transfer the title to the goods; and
5. The document is Genuine (Civil Code, Art. 1516).
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 (Civil
Code, Art. 1517). The indorsement of a document of title in the law on
sales is merely a conveyance of the document by the transferor to the
holder. It is not a contract of guaranty.
34
Rules on Levy / Garnishment of Goods
1. Negotiable Documents of Title
Goods cannot be attached by garnishment or levied, unless:
a. The document is first surrendered;
b. The negotiation of the document is enjoined; or
c. The document is impounded by the court.
A creditor whose debtor is the owner of a negotiable document of title

shall be entitled to aid from the courts by 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 (Civil Code, Art.
1520).
2. Non-Negotiable Document of Title

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.
XI. OBLIGATIONS OF THE VENDOR
Obligations of the Vendor

1. Accord the buyer the right to examine the goods (Civil Code, Art. 1584);
2. Deliver the thing sold (Civil Code, Arts. 1458 and 1495) – cannot be
waived;
3. Deliver the fruits and accessories (Civil Code, Arts. 1164, 1166 and
1537);
4. Enter into a contract with the carrier on behalf of the buyer as may be
reasonable under the circumstances (Civil Code, Art.1523);
5. Take care of the thing, pending delivery, with proper Diligence (Civil
Code, Art. 1163);
6. Make Warranties (Civil Code, Arts. 1545-1581) – can be waived or
modified; warranty is not an essential element of the contract of sale;
7. Pay for the Expenses for the execution and registration of the sale, unless
there is stipulation to the contrary (Civil Code, Art. 1487);
8. Notify the buyer regarding the necessity to insure goods if it is usual to
insure them (Civil Code, Art. 1523); and
9. Transfer ownership (Civil Code, Arts. 1458 and 1495) – cannot be waived.
Transfer of Ownership (Civil Code, Arts. 1458 and 1495)

General Rule: Ownership of the thing sold is acquired only upon its delivery,
actual or constructive, to the buyer (Daus v. Sps. De Leon, G.R. No. 149750,
June 16, 2003), even if purchase was made on credit.
Payment of the purchase price is not essential to the transfer of ownership, as

long as the property sold has been delivered (Sampaguita Pictures, Inc. v.
Jalwindor Manufacturers, Inc., G.R. No. L-43059, October 11, 1979).
35
Non-payment only creates a right to demand payment or to rescind the
contract, or to criminal prosecution in the case of bouncing checks (EDCA
Publishing and Distributing Corp. v. Santos, G.R. No. 80298, April 26, 1990).
Exceptions (Cases where there is Reservation of Ownership despite

Delivery): (P-CAR)
1. Pactum Reservati dominii (contractual reservation of title) – In sale, the
general rule is that delivery of the thing transfers ownership to the buyer
(Civil Code, Art. 1477). However, the parties may agree that the
ownership shall remain with the seller until the full payment of the
purchase price.
2. Contract to sell; and
3. Sale on Acceptance/ trial/ approval/ satisfaction (Civil Code, Art. 1502).
Ownership passes to the buyer only when:

a. He signifies his approval or acceptance to the seller or does any act
adopting the transaction; or
b. He does not signify his approval or acceptance but retains the goods
without giving notice of rejection, then if a time has been fixed for the
return of the goods, on the expiration of such time and if no time has
been fixed, on the expiration of a reasonable time, if the buyer does not
signify his approval or rejection.
Note: in “Sale or Return”, ownership passes to the buyer on 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 there is no time fixed, within a
reasonable time (Civil Code, Art. 1502, Par.1). What is reasonable is a
question of fact. It depends upon the prevailing circumstances. Moreover,
the decision to return or tender on the part of the buyer is discretionary on
his part without reference to the quality of goods (Pineda, Sales, supra at
125).
4. Implied Reservation of Ownership under Article 1503:

a. 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 agent-seller reserves ownership in the goods;
b. Where goods are shipped and by the bill of lading the goods are
deliverable to the order of the buyer or his agent, but the
possession of the bill of lading is retained by the seller or his agent-
seller reserves a right to the possession of the goods;
c. Where the seller of the goods draws on the buyer for the price and
transmit the bill of lading and bill of exchange to the buyer to
secure acceptance or payment of the bill of exchange and the
buyer does not honor the bill of exchange. Here, the seller is the
drawer and the buyer is the drawee. If the buyer, as drawee, does
not honor the bill of exchange, he shall return the bill of lading. If
he retains the same, he acquires no added right hereby.
Delivery of the Thing Sold (Civil Code, Arts. 1458 and 1459).
36
A mode of acquiring ownership, as a consequence of certain contracts such as
sale, by virtue of which, actually or constructively, the object is placed in the
control and possession of the vendee.
Seller is bound to deliver all goods unless delivery by installment has been
agreed upon (Civil Code, Art. 1583).
Seller is bound to deliver the thing sold and its accessions and accessories in its
condition at the time the contract was perfected (Civil Code, Art. 1537).
Requisites: (3 I’s of Delivery)

1. Identity – The very same object must be delivered.
2. Integrity – A seller’s duty is to deliver the thing sold in a condition
suitable for its enjoyment by the buyer for the purposes contemplated
(Consing v. CA, G.R. No. 78272, August 29, 1989).
3. Intentional – The act of delivery must be coupled with the intention of
delivering the thing and putting the buyer under control (Norkis
Distributor, Inc. v. CA, G.R. No. 91029, February 7, 1991).
In all modes of delivery, two things must concur: (1) there must be real
intention to deliver on the part of the seller and (2) there must be a real
intention to accept on the part of the buyer. Without these intentions,
there is no tradition (Norkis Distributors, Inc. v. CA, G.R. No. 91029,
February 7, 1991).
Delivery in Cases of Execution Sales

Thejudgement debtor in an execution sale is not obliged to deliver the property
sold to the buyer immediately after the sale since he is given the right of
redemption. He can redeem the property within one (1) year from the
registration of the sale in the Office of the Registry Property (Techico v.
Serrano, G.R. No. L-12692, May 29, 1959).
It is only after the lapse of one (1) year from the registration of the sale that the
buyer may take possession of the property. If the seller refuses to surrender
possession of the property, the buyer may petition the court for a Writ of
Possession (Pineda, Sales, supra at 113).
Kinds of Delivery: (ALT-D²Q)

1. Actual or Real;
2. Legal or Constructive;
3. Tradition by operation of law;
4. Delivery through document of title;
5. Delivery through carrier; and
6. Quasi-tradition;
Actual or Real – Placing the thing under the control and possession of the
buyer (Civil Code, Art. 1497).
Legal or Constructive – Delivery is represented by other signs or acts

indicative thereof. It is a delivery by fiction of law.
37
Requisites:
1. The seller must have actual possession and control over the thing;
2. The object must be placed under control of the vendor; and
3. There must be the intention to deliver the thing for purposes of
transferring ownership.
Types:
1. Delivery by Execution of Public Instrument (Civil Code, Art. 1498,
Par.1) – It gives rise to prima facie presumption of delivery, which is
destroyed when actual delivery is not effected due to legal impediment
(Ten Forty Realty v. Cruz, G.R. No. 151212, September 10, 2003).
Exceptions (Cases Where the Execution Does NOT Produce the

Effects of Delivery):
a. There is a stipulation in the instrument to the contrary.
Instances where contrary stipulation is present (Philippine

Suburban Development Corp. v. Auditor General, et al., G.R. No. L-
19545, April 18, 1975):
i. A certain date is fixed for the purchaser to take possession of
the property subject to the conveyance;
ii. In sale by installments, where it is stipulated that until the
last installment is made, the title to the property should
remain with the seller;
iii. When the seller reserves the right to use and enjoy the
property until the gathering of the pending crops; or
iv. Where the seller has no control over the thing sold at the
moment of the sale and therefore, its material delivery could
not have been made.
b. When at the time of the execution of the public instrument, the

subject matter was not subject to the control of the seller or there
is an impediment that may prevent the passing of the property.
If, notwithstanding the execution of the instrument, the purchaser

cannot have the enjoyment and material tenancy of the thing and
make use of it himself or through another in his name, because
such tenancy and enjoyment are opposed by another, the delivery
has not been effected. It is not enough for the vendor to vest unto
the vendee the ownership and the right of possession over the
property but its control (Addison v. Felix, G.R. No. L-12342, August
3, 1918).
c. The control or ability to transfer physical possession and enjoyment

does not subsist for a reasonable length of time after the execution
would create undue burden on the part of the buyer who would be
compelled to literally jump into the possession of the subject
matter soon after signing the instrument, for he would then obtain
no remedy from the seller.
38
Since tradition is an obligation on the part of the seller, then the
burden must continue to lie with the seller to grant the buyer a
reasonable period to take possession of the subject matter (Vda. de
Sarmiento v. Lesaca, G.R. No. L-15385, June 30, 1960).
Note: Symbolical delivery by public instrument is just presumptive

and it is rebuttable by strong evidence to the contrary
(Montenegro v. Roxas-Gomez, G.R. No. L-38085, November 13,
1933).
2. Traditio Symbolica
To effect delivery, parties use a token or symbol to represent the thing
delivered (e.g., key to a house).
3. Traditio Longa Manu (Long Hand)

Delivery of thing by mere agreement where seller points out to the buyer
the property without the need of actually delivering (as when the thing
sold cannot be transferred to the possession of the vendee at the time of
sale) but must be within the sight of the parties (Civil Code, Art. 1499).
4. Tradition Brevi Manu (Short Hand)

Opposite of constitutum possessorium. Before the contract of sale, the
would-be buyer was already in possession of the would-be subject matter
of the sale by virtue of another title which is not ownership (e.g. as
lessee) and pursuant to a sale, he would now hold possession in the
concept of an owner (id.).
5. Tradition Constitututm Possessorium

The delivery consists in the owner’s continuous possession of the
property he had already sold to another person but his present
possession is no longer that of an owner but under another capacity, like
that of a lessee, pledge, depository, etc. Under this kind of tradition, the
law considers all these formalities to have taken place by agreement of
the parties (Carboneel v. CA, G.R. No. L-29972, January 26, 1976). There
is both constructive and actual delivery in tradition constitutum
possessorium.
Quasi-Tradition – Delivery of rights, credits or incorporeal property, made by:

1. Execution of public instrument;
2. Placing title of ownership on the hands of buyer; or
3. Allowing buyer to make use of rights (Civil Code, Art. 1501).
Tradition by Operation of Law

When a non-owner who sells and delivers a thing subsequently acquires title
thereto, the title passes by operation of law to the buyer (Civil Code, Art. 1434).
Delivery through Document of Title (Civil Code, Arts. 1507-1520)

See discussions on Negotiable Documents of Title
Delivery through Carrier
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General Rule:Where the seller is authorized or required to send the goods to
the buyer, delivery to the carrier is delivery to the buyer(Civil Code, Art. 1523).
Note: This rule applies only if there is an agreement between the seller and the
buyer that the former will ship the goods.
Exceptions:
1. When a contrary intention appears (i.e. the parties did not intend the
delivery of the goods through the carrier); or
2. Implied reservation of ownership (Civil Code, Art. 1503).
Kinds of Delivery to Carrier:

a. F.A.S. ( Free Along Side)
The seller pays all charges and is subject to risk until the goods are
placed alongside the vessel.
b. F.O.B. (Free on Board)
Goods are to be delivered free of expense to the buyer to the point
where they are F.O.B. The point of F.O.B. (either at the point of
shipment or the point of destination) determines when the
ownership passes (e.g. F.O.B. shipping point – the title passes to
the buyer when the goods arrive at the port or pier, or truck).
c. C.I.F. (Cost, Insurance, Freight)
It signifies that the price fixed covers the costs of the goods, the
expenses of the freight and the insurance all of which are to be
paid by the seller.
d. C.O.D. (Collect On Delivery)
The carrier acts for the seller in collecting purchase price, which
the buyer must pay to obtain possession of the goods.
Note: the terms F.O.B. and C.O.D. merely make rules of presumption, which
yield to proof of contrary intention (General Foods Corp. v. National Coconut
Corp., G.R. No. L-8717, November 20, 1956).
Instances When the Vendor is NOT Bound to Deliver:

1. If vendee has not paid him the price;
Exception: if parties stipulated on different periods for delivery and

payment of price, vendor must deliver on the time agreed on despite non-
payment of price at time of delivery as price is considered due only upon
the expiration of the term agreed on (Civil Code, Art. 1193).
2. If no period for payment has been fixed in the contract (Civil Code, Arts.
1524); or
3. A period for payment has been fixed in the contract but the vendee has
lost the right to make use of the same (Arts. 1198 and 1536).
Place of Delivery:
1. The place of delivery agreed upon;
2. In the absence of agreement, place is determined by usage of trade;
3. In the absence of agreement and prevalent usage, the seller’s place;
4. In any other case, the place of delivery is the seller’s residence; or
40
5. In case of specific goods known by the parties at some place at the time
of the perfection of sale, such is the place of delivery, in the absence of
agreement or usage of trade to the contrary (Civil Code, Art. 1521 and
Art. 1251).
Wherever the proper place of delivery may be, either party acquires a
right of action by being ready and willing at that place to perform his
legal duty, but the other party is not present or even if present, is not
prepared to perform in a proper manner with what is incumbent upon
him (Civil Code, Art. 1169[3]).
Where, however, the delivery was not effected at the place specified in
the contract but the buyer place specified in the contract but the buyer
accepted the goods without complaint, the buyer would be deemed to
have waived the seller’s failure to deliver according to the terms of the
contract and would be liable to pay the price agreed upon (Sullivan v.
Gird, 22 Ariz. 332).
Time of Delivery:
1. Stipulated time; or
2. In the absence thereof, within a reasonable time (Civil Code, Art. 1521).
How does an as-is where-is type of sale affect the vendor’s obligation
to deliver?
The phrase as-is where-is basis pertains solely to the physical condition of
the thing sold, not to its legal situation (NDC v. Madrigal Wan Hai Lines
Corp., G.R. No. 148332, September 30, 2003).
It is merely descriptive of the state of the thing sold. Thus, the as-is where-is
basis merely describes the actual state and location of the property sold. The
depiction does not alter the seller’s responsibility to deliver the property to
the buyer.
Sale on Acceptance, Trial, Approval or Satisfaction

A contract is in the nature of an option to purchase if the goods prove to be
satisfactory, with the approval of the buyer being a condition precedent; the
sale is dependent upon the quality of goods (Civil Code, Art. 1502, Par.2).
Rules:
1. Title remains in the seller, until the sale becomes absolute by:
a. Buyer’s approval of the goods; or
b. Buyer’s failure to comply with the express or implied conditions of
the contract as to giving notice of dissatisfaction or as to returning
the goods;
2. Risk of loss remains with the seller, except when the buyer is at fault or
has agreed to bear the loss;
3. Buyer must give the goods a trial, except where it is evident that it
cannot perform the work intended;
4. Period within which buyer must signify acceptance runs only when all
parts essential for the operation of the object have been delivered;
41
5. If it is stipulated that a third person must signify approval or satisfaction,
the provision is valid, but the third person must be in good faith. If
refusal to accept is not justified, the seller may still sue; and
6. Generally, the sale and delivery to a buyer who is an expert on the object
purchased is not a sale on approval, trial, or satisfaction.
Sale or Return
Property is sold, but the buyer, who becomes the owner of the property on
delivery, has the option to return the same to the seller instead of paying the
price; such sale depends upon the discretion of the buyer (Civil Code, Art. 1502,
Par. 1).
Rules:
1. Title passes to the buyer upon delivery;
2. Buyer bears the risk of loss;
3. The option to purchase or return the goods rests entirely on the buyer
without reference to the quality of the goods;
4. The buyer may revest the ownership in the seller by returning or
tendering the goods within the time fixed in the contract or within a
reasonable time if no time is fixed; and
5. The buyer must comply with the express or implied conditions attached to
the privilege; otherwise, the sale becomes absolute.
Sale or Return v. Sale on Trial
Sale or Return Sale onTrial

Condition Imposed
Subject to a resolutory condition Subject to a suspensive condition
Option of the Buyer to Purchase
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 reverts the buyer signifies his approval or
ownership in the seller acceptance to the seller.
Ownership is revested in the seller if There is no revesting of ownership
the buyer so decides. because it is retained by the seller
until the sale becomes absolute.
Risk of Loss
Risk of loss of injury rests upon the Risk of loss remains with the seller.
buyer.
Sale by Description
A sale where a seller sells a thing as being of a certain kind, the buyer merely
relying on the seller’s representations or descriptions (Civil Code, Art. 1481).
42
Warranty:that the thing sold corresponds to the representations or
descriptions. Otherwise, the sale may be rescinded.
Sale by Sample
A sale where a small quantity of a commodity is exhibited by the seller as a fair
specimen of the bulk, which is not present and as to which there is no
opportunity to inspect or examine (Civil Code, Art. 1481). This is intended to
save the parties from the time and expense of examining the whole quantity of
the goods being purchased.
Mere exhibition of the sample does not necessarily make it a sale by sample.
The exhibition must have been the sole basis or inducement of the sale.
Warranty: That the bulk of the commodity will correspond in kind, quality and
character with the sample exhibited.
Rights of the Buyer in a sale by Sample:

1. Return the thing and recover the money paid, or
2. Retain the thing and sue for the breach of warranty (Paras, Civil Code of
the Philippines, supra at 69).
Sale by Sample and by Description Distinguished

In the former, the thing is shown to the buyer; in the latter, the thing is only
described.
Two-fold Warranty in Sale by Sample and Description

1. That the goods purchased matched with the description; and
2. That the goods matched in kind, quality and character with the samples
exhibited to the buyer.
Note: the buyer shall be given a reasonable opportunity to compare the bulk of
the goods with the description made on the sample presented. If the buyer has
failed to notice the differences, the seller is not excused from his warranties
(Civil Code, Art. 1481, [2]).
Completeness of Delivery
I. Movables (Civil Code, Art. 1522)

A. Where, in relation to what is contracted to sell, the quantity of goods
delivered is:
1. Less -
Buyer has two (2) options:
a. Reject the goods; or
b. Accept them
i. When the acceptance is with knowledge that the seller
is not going to perform the contract, the buyer shall
pay at contract rate;
ii. When knowledge is after the acceptance and
consummation or disposal of the goods, the buyer is
not liable for more than the fair value to him of the
goods delivered.
2. Larger –
43
Buyer has three (3) options:
a. Accept per contract and reject the rest;
b. Accept the whole and pay at the contract rate; or
c. If indivisible, reject the whole or accept it entirely.
3. Mixed with Goods of Different Description –
Buyer has two (2) options:
a. Accept the goods which are in accordance with the contract
and reject the rest; or
b. If indivisible, reject the goods entirely or accept them
entirely.
II. Immovables
A. Sold Per Unit or Number (Civil Code, Art. 1539-1540) – contains a
statement of the area at the rate of a certain price for a unit or measure
or number. Art. 1539-1540 of the Civil Code shall apply to judicial sales
Rules:
1. If the vendee should demand, the vendor shall deliver all that may
have been stated in the contract.
2. If what is delivered is:
a. Less in area or of inferior or different quality
Buyer may seek Rescission if:
i. Lack in area is at least one-tenth (1/10) of the area
agreed upon;
ii. The deficiency in quality specified in the contract
exceeds one-tenth (1/10) of the price agreed upon;
iii. The vendee would not have bought the immovable had
he known of its smaller area or inferior quality; and
iv. Proportional reduction of price.
b. Greater in area
i. Accept per stipulation and reject the res;
ii. Accept the whole and pay at contract rate; or
Note: the vendee is not given the right to rescind

because it is not prejudicial at all. He is free to accept
or not to accept the excess. The original agreement is
not affected at all.
Sold for Lump Sum (Civil Code, Art. 1542)

A cuerpo cierto / por precio alzado; when two or more
real estates are sold for a single price, the rule is the
same as when the real estate is sold for a lump sum.
There shall be no increase or decrease in the area
actually delivered and the area stated in the contract
(Azarraga v. Gay, G.R. No. L-29449, December 29,
1928).
iii. Where the price per unit is not indicated greater /
lesser.
44
No rescission or adjustment of price, unless there is
gross mistake.
Prescription of Action
Action for rescission arising from Articles 1539 and 1542 shall prescribe in six
(6) months counted from the day of delivery of the thing to the vendee (Civil
Code, Art. 1543).
Note: The Civil Code presumes that the purchaser had in mind a particular
piece of land and that he ascertained its area and quality before the contract of
sale was perfected. If he did not do so, or if having done so he made no
objection and consented to the transaction, he can blame no one but himself
(Teran v. Villanueva Vda. de Riosa, G.R. No. 34697, March 26, 1932).
Where the area of the immovable is stated in the contract based on an estimate,
the actual area delivered may not measure up exactly with the area stated in
the contract. According to Article 1542 of the Civil Code, in the sale of real
estate made for a lump sum, there shall be no increase or decrease of the price,
although there be a greater or lesser area or number than that stated in the
contract (Feliciano Esguerra, et al. v. Virginia Trinidad, G.R. No. 169890, March
12, 2007).
Double Sale
Requisites: (VIOS)
1. Two or more transaction must constitute Valid sales;
2. Two or more buyers who are at odds over the rightful ownership of the
subject matter must represent conflicting Interests;
3. They must pertain exactly to the same Object or subject matter; and
4. They must be bought from the same or immediate Seller (Civil Code, Art.
1544).
Issue on Validity of Both Sales

In order to constitute a double sale, both sales must be valid. Double sales rules
are applications to consummation issues. Hence, when the underlying contract
of sale is void, consummation, particularly tradition, cannot produce its legal
consequences.
However, in Caram, Jr. v. Laureta, the Supreme Court held that one of the
contracts of sale must be declared valid so that one vendee may exercise all the
rights of an owner, while the other contract must be declared void to cut off all
the rights which may arise from said contract ( G.R. no. L-28740 February 24,
1981).
Art. 1544 Does NOT Apply When:

1. Not all the elements are present;
Note:The principle of prior tempore, potior jure (he who is first in time is
preferred in right) should apply.
2. The two different contracts of sale are made by two different persons, one
of them not being the owner of the property sold (Sps. Salera v. Sps.
Rodaje, G.R. No. 135900, August 11, 2007);
3. The land sold is not registered under the Torrens system;
45
Note: The principle of prior tempore, potior jure (he who is first in teime
is preferred in right) should also apply
4. The first sale occurs when land is not yet registered and the second sale
is done when the land is already registered (Dagupan Trading Co. v.
Macam, G.R. No. L-18497, May 31, 1965);
Note:The principle of prior tempore, potior jure (he who is first in teime
is preferred in right) should also apply.
5. When the owner had previously sold his property (and dominion already
transferred) and thereafter executed a second sale in favor of another
person, the latter cannot acquire any right. At the time of the second sale,
the vendor had no more existing right over the property which he could
lawfully dispose of (Bautista v. Sioson, G.R. No. L-13125, February 11,
1919);
6. When the earlier transaction is a pacto e retrosale of an unregistered
land and the subsequent conveyance is a donation of the land in favor of
another by the vendor a retro (Sps. De Guzman v. CA, G.R. No. L-46935,
Dec. 21, 1987).
7. Where one of the deeds of sale is a forgery, in which case, the sale in
favor of the other shall prevail. (Remalante v. Tibe, G.R. No. L-59514,
February 25, 1988).
8. If one sale is simulated and the other is genuine (De Leon v. Caluag, G.R.
No. L-18722, September 14, 1967);
9. Where one sale is absolute and the other is a pacto de retro sale and the
period to redeem has not yet expired (Teodosio v. Sabala, 102 Phil. 118);
10.Where one of the sales is subject to a suspensive condition, which was
not complied with and the other is an absolute sale. The reason being a
conditional sale is not a sale before the condition had been performed
(Mendoza v. Kalaw G.R. No. L-16420, October 12, 1921);
11.Where one is sale and the other is an assignment of the right to
repurchase the same property (Dichoso v. Roxas, G.R. No. L-17441, July
31, 1962);
12.Where one transaction is sale and the other is a mortgage (Mamuyac v.
Abena, G.R. No. L-45742, April 12, 1939);
13.In a contract to sell, there being no previous sale of property, a third
person buying such property despite the fulfillment of the suspensive
condition cannot be deemed a buyer in bad faith and the prospective
buyer cannot seek relief of reconveyance of the property (Coronel v. CA,
G.R. No. 103577. October 7, 1996).
Rules on Preference (Civil Code, Art. 1544):

1. Personal Property – first possessor in good faith
2. Real Property
a. First registrant in good faith: second buyer must register the
document in good faith; otherwise, he does not have a better
right (Fudot v. Cattleya Land Inc., G.R. No. 171008,
September 13, 2007);
b. First possessor in good faith; or
c. Person with oldest title in good faith (Martinez v. CA, G.R.
No. 123547, May 21, 2001).
46
Applicability of the Rule of Caveat Emptor (Buyer Beware)
One who purchases real property, which is in actual possession of others, should
make some inquiry concerning the rights of those in possession.
Purchaser in Good Faith

One who –
1. Buys the property without notice that some other person has right to, or
interest in, such property; and
2. 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 (Agricultural and Home Extension Development Group v. CA,
G.R. No. 92310, September 3, 1992).
Burden of Proof
He who asserts the status of a purchaser in good faith and for value has the
burden of proving such assertion. (Mathay v. CA, G.R. No. 115788, September
17, 1998).
Lis Pendens (Suit Pending)

A buyer cannot be considered an innocent purchaser for value where he ignored
the noticed of lis pendens on the title when he bought the lot (Limketkai Sons
Milling, Inc. v. CA, G.R. No. 118509, December 1, 1995).
First Buyer is Always in Good Faith

Knowledge gained by the first buyer of the second sale cannot defeat the first
buyer’s rights except where the second buyer first registers in good faith the
second sale ahead of the first (Carbonell v. CA, G.R. No. L-29972 January 26,
1976).
If the second buyer in a sale of land registers the sale after he has acquired
knowledge that 910 there was a previous sale of the same land to another, or (2)
that another person claims the same land, the registration by the second buyer
will not confer any right upon him. The first vendee who took possession of the
land in good faith is preferred (Salvoro v. Tañaga, G.R. No. L-32988, December
29, 1978).
Illustration: A sold his land to B for P500,000. Before B could fully pay the
price, A sold the land to C and took possession of the land. B learned that the
sale between A and C is not yet registered. Thus, B registered an adverse claim
over the lot with the register of deeds. Subsequently, the deed of sale in favor of
C was registered and a TCT was issued to her but with annotation of the
adverse claim. Who has a better right over the land?
Answer: B, the first buyer. At the time of the first sale, B was in good faith
because the title was till in the name of A and B could not have been aware of
any sale involving the property. B’s good faith did not cease after he learned of
the subsequent sale between A and C. the recording of the adverse claim was
done to protect B’s rights. Consequently, the subsequent registration by C of the
sale was done in bad faith. Although at the time of the second sale C was a
47
buyer in good faith, his status as such ceased after the prior sale was made
known to him (Carbonell v. CA, G.R. L-29972, January 26, 1976).
Examination of Certificateof Title
General Rule: A purchaser maybe considered a purchaser in good faith if he

has examined the latest certificate of title.
Exception: When there exist important facts that would create suspicion in a
reasonable man to go beyond the present title and to investigate those that
preceded it (Sps. Sarmiento v CA, G.R. No. 152627, September 16, 2005;
Mercado v Aliied Bank. G.R. No. 171460, July 27, 2007).
Rule Governing Banks

The rule that persons dealing with registered lands can rely solely on the
certificate does not apply to banks because their business is one affected with
public interest keeping in trust the money belonging to their depositors (Sps.
Sarmiento v. CA, G.R. No. 152627, September 16, 2005).
When the Subject of Sale is an Unregistered Land

The rules in double sale under Article 1544 of the Civil Code, whereby the buyer
who is able to first register the purchase in good faith is in full accord with
Section 51 of P.D. 1529 which provides that no deed, mortgage, lease or other
voluntary instrument, except a will purporting to convey or affect registered
land shall take effect as a conveyance or bind the land until its registration.
Thus, if the sale is not registered, it is binding only between the seller and the
buyer but it does not affect innocent third persons (Sps. Abrigo v. De Vera, G.R.
No. 154409, June 21, 2004).
Article 1544 of the Civil Code is inapplicable to an unregistered land

because the purchaser of unregistered land at the sheriff’s execution only steps
into the shoes of the judgment debtor and merely acquires the latter’s interest
in the property sold as of the time the property was levied upon, as expressly
provided for in Section 33, Rule 39 of the Rules of Court (Carumba v. CA, G.R.
No. L-27587, February 18, 1970).
Under Act 3344, registration of instruments affecting unregistered lands is

“without prejudice to a third party with a better right”, which means that
mere registration does not give the buyer any right over the land if the seller
was not anymore the owner of the land having previously sold the same to
somebody else even if the earlier sale was unrecorded. The rules on double sale
under Article 1544 of the Civil Code has no application to land not registered
under the Torrens system (Acabal v. Acabal, G.R. No. 148376, March 31, 2005).
Illustration: A sold his land to B with the right to repurchase the same. A failed
to redeem the property, thus B registered the land in his name. Unknown to B, A
obtained a free patent over the land. The free patent was later on cancelled by a
TCT. Meanwhile, B sold the land to C. A also sold the land to C who registered
the sale and a TCT was issued in her name. Who has a better right?
48
Answer: D. Both C and D registered the sale of the property. Since C did not
know that the property was covered by Torrens System, he registered the sale
under Act 3344; while D registered the transaction under the Torrens system,
because during the sale, A presented the TCT covering the property. It has been
held that registration must be done in the proper registry in order to bind
the land. Since the property in dispute was already registered under the
Torrens System, C’s registration of the sale under Act 3344 was not effective for
purposes of Art. 1544 of the Civil Code. The priority in time principle is not
applicable in this case (Sps. Abrigo v. De Vera, G.R. 154409, June 21, 2004).
Registration
Any entry made in the books of registry, including both registration in its
ordinary and strict sense, and cancellation, annotation, and even marginal notes
(Cheng v. Genato, G.R. No. 129760, December 29, 1998).
It is the entry made in the registry which records solemnly and permanently the
right of ownership and other real rights.
Registration Requires Actual Recording

If the property was never really registered as when the registrar forgot to do so
although he has been handed the document, there is no registration (Po Sun
Tun v. Price, G.R. No. L-31346 December 28, 1929).
Bad faith on the part of one buyer amounts to registration in favor of the
innocent buyer.
A buyer of an unregistered land acquires a better title than a subsequent buyer,

even if the latter registered the sale in good faith after the registration of the
land by the seller because the second buyer merely steps into the shoes of the
seller who at the time of the sale to him is no longer the owner of the property.
Possession
Possession is either actual or constructive (Sanchez v. Ramos, G.R. No. 13442,
December 20, 1919).
Possession under Art. 1544 of the Civil Code is either material or symbolic (Ten
Forty Realty v. Cruz G.R. No. 151212, September 10, 2003).
Good Faith Must Concur with Registration

To be entitled to priority, the second purchaser must not only establish prior
recording of his deed, but must have acted in good faith (Gabriel v. Mabanta,
G.R. No. 142403, March 26, 2003).
Duly Registered Attachment

It is a settled rule that an attachment, which is duly registered, takes
precedence over a prior unregistered sale.
The preference created by the levy is not diminished even by subsequent

registration of the prior sale. The reason is that an attachment is a proceeding
in rem. It is against the particular property and is enforceable against the whole
world (Valdevieso v. Dalamerio, G.R. No. 133303, February 17, 2005).
49
Delivery of Fruit and Accessories (Civil Code, Arts. 1164, 1166 and 1537)
Accessions – It is the fruit additions to or improvements upon a thing.
Accessories – Anything attached to a principal thing for its completion,

ornament or better use.
The seller is bound to deliver accessions and accessories in the condition in

which they were upon perfection of the contract (Civil Code, Art. 1537). This
means that the seller has the duty to preserve the thing and its accessions and
accessories from the moment of perfection of the contract of sale. If anything
happens to the thing, (e.g. loss or deterioration), the seller will be liable for (1)
damages, or (2) the buyer is entitled to rescission with damages (Civil Code,
Art. 1538).
The buyer has a right to the fruits of the thing from the time the obligation to
deliver it arises. However, he shall acquire no real right over it until the same
has been delivered to him (Civil Code, Art. 1164).
The fruits (natural, industrial or civil) pertain to the buyer from the day on
which the contract was perfected (Civil Code, Art. 1537, [2]).
The obligation to give a determinate thing includes the delivery of all its
accessions and accessories, even though they may not have been mentioned
(Civil Code, Art.1166).
Condition
An uncertain event or contingency upon the happening of which the obligation
or right of the contract depends. In such case, the obligation of the contract
does not attach until the condition is performed (De Leon, Sales, supra at 309).
Note: there may be a contract of sale of goods, whose acquisition by the seller
depends upon a contingency, which may or may not happen (Civil Code, Art.
1462, [2]).
Effect of Non-Fulfillment of Condition

1. The other party may:
a. Refuse to proceed with the contract; or
b. Proceed with the contract, waiving the performance of the
condition.
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
breach of warranty (Civil Code, Art. 1545, Par.1).
Distinction between Condition Imposed on Perfection of Contract and

Condition Imposed on Performance of Obligation:
1. Condition imposed on perfection of contract prevents the juridical
relation from coming into existence.
2. Condition imposed on performance of obligation gives the option to
the party either to refuse or proceed with the contract of sale and waive
the condition (Romero v. CA, G.R. No. 107207, November 23, 1995).
50
Warranty v. Condition
Warranty Condition
As to the Obligation of the Parties
Goes into the performance of such Goes into the root of the existence of
obligation and in fact may constitute the obligation.
an obligation in itself.
As to Existence on Contract
May form part of the obligation or Must be stipulated by the parties in
contract by provision of the law order to from part of an obligation.
without the parties having agreed
thereto.
In Relation to Subject Matter of Contract
Whether express or implied, relates to May attach itself either to the
the subject matter itself or to the obligation of the seller or of the buyer
obligations of the seller as to the to deliver possession and transfer
subject matter of the sale. ownership over the subject matter of
the sale.
Effect of Non-Fulfillment
Non-fulfillment of a warranty would Although it may extinguish the
constitute a breach of contract. obligation upon which it is based, it
generally does not amount to a breach
of contract of sale.
(Villanueva, supra at 491-492)
Warranty
A statement or representation made by the seller contemporaneously and as
apart of the contract of sale, having reference to the character, quality or title of
the goods and by which he undertakes to insure that certain facts are or shall
be as he then represents (De Leon, Sales supra at 312).
The decisive test is whether the seller assumes to assert a fact of which the
buyer is ignorant (Goodyear Philippines Inc. v. Sy, G.R. No. 154554, November
9, 2005).
Note: The buyer may make warranties as well, as when he warrants that he will
pay or when he makes any affirmation or promise to induce the seller to enter
into the contract of sale.
Kinds:
1. Express – It is any affirmation of fact or promise by the seller relating to
the thing, inducing the buyer to purchase the same and if the buyer
purchases the thing relying thereon (Civil Code, Art. 1546).
Requisites: (AIR)
a. It must be an Affirmation of fact or promise by the seller relating to
the subject matter of the sale;
b. The natural tendency of such affirmation or promise is to Induce
the buyer to purchase the thing; and
c. The buyer purchases the thing Relying on such affirmation or
promise (Villanueva, Sales, supra at 494).
51
The breach of an express warranty makes the seller liable for
damages (Villanueva, Sales supra at 493).
A mere expression of opinion, no matter how positively asserted,

does not import a warranty, unless the seller is an expert and his
opinion was relied upon by the buyer (Civil Code, Art. 1431).
The usual exaggerations in trade, when the other party had an

opportunity to know the facts, are not in themselves fraudulent
Misrepresentation made in good faith is not fraudulent but may

constitute error (Civil Code, Art. 1343).
2. Implied – It is that which the law derives from the nature of the
transaction or the relative situation or circumstances of the parties,
irrespective of any intention of the seller to create it (De Leon, Sales
supra at 316).
Nature of Implied Warranty

It is a natural element of a contract, deemed incorporated in the contract
of sale (De Leon, Sales supra at 318).
It may be waived or modified by express stipulation (e.g. warranty

against eviction warranty against hidden defects).
Although only a seller is bound by implied warranties of law,

nevertheless, an agent of the seller may bind himself to such warranties,
by express contractual stipulation (Schmidt and Oberly inc. v. RJL
Martinez Fishing Corporation, G.R. No. 75198, October 18, 1988).
Illustrations:
a. As is and where is Sale – The vendor makes no warranty as to the
quality or workable condition of the goods and the vendee takes
them in the conditions in which they are found and from the place
they are located (De Leon, Sales supra 318).
b. Sale of Second Hand Articles – There is no implied warranty as
to the condition, adaptation, fitness or suitability or the quality of
an article sold as a second-hand article. Such articles might be
sold under such circumstances as to raise an implied warranty. A
certification issued by a vendor that a second-hand machine was in
A-1 condition is an express warranty binding on the vendor (Moles
v. IAC, G.R. No. 73913, January 31, 1989).
c. Not applicable to a sheriff, auctioneer, mortgage and pledgee (the
principle applicable to execution sales iscaveat emptor because the
purchaser acquires no better title than the judgment debtor has).
(Allure Manuacturing Inc., v. CA, G.R. 94452, July 16, 1991).
Warranty that Seller has Right to Sell
52
Although Art. 1547 uses the phrase “unless a contrary intention appears”, there
can be no legal waiver of such warranty without changing the basic nature of
the relationship, for the warranty on the part of the seller that he has the
capacity to sell, i.e. to transfer ownership of the thing is the essence of sale,
unless it amounts to clear assumption of risk on the part of the buyer (Civil
Code, Art. 1547, Par.1)
Warranty against Eviction

The seller guarantees that he has the right to sell the thing sold and to transfer
ownership to the buyer, who shall not be disturbed in his legal and peaceful
possession thereof (Civil Code, Art. 1548).
Elements:
1. Vendee is deprived, in whole or in part, of the thing purchased;
2. Deprivation is by virtue of a final judgment;
The warranty cannot be enforced until a final judgment has been

rendered, whereby the vendee loses the thing acquired or a part thereof
Note: The term final judgment in article 1548 refers to “final and
executory judgment” (Perez v. Zulueta, G.R. No. L-10374, September
30, 1959).
Eviction may take place by virtue of a final judgment of an administrative

office or board. It is not necessary that a court makes final judgment
(Bonzon v. Standard Oil Co. of New York, G.R. No. L-10297, March 11,
1916).
3. Judgment is based on a right prior to the sale or an act imputable to the

vendor;
4. Vendor was summoned in the suit for eviction at the instance of the
vendee:
a. To enable the seller to prove his claim;
b. To avoid multiplicity of suits; and
c. To satisfy due process;
The vendor shall not be obliged to make good the proper warranty,
unless he is summoned in the suit for eviction at the instance of the
vendee (Civil Code, Art. 1558).
Reason: in order to give the vendor an opportunity to intervene

and defend the title that he has transferred (De la Riva v. Escobar
and Bank of Philippine Islands, G.R. No. L-27300, December 17,
1927).
The defendant vendee shall ask, within the time fixed in the Rules
of Court for answering the complaint, that the vendor be made a
co-defendant (Civil Code, Art. 1559).
5. No waiver of warranty by the vendee (De Leon, Sales supra at 321)
53
In the absence of any of these essential requisites, breach of warranty of
eviction cannot be declared (De Leon, Sales supra at 321).
The disturbance referred to in the case of eviction is a disturbance in law

which requires that a person go to courts of justice claiming the thing
sold, or part thereof and invoking reasons (De Leon, Sales supra at 322).
Notes: Mere trespass in fact does not give rise to the application of the
doctrine of eviction (De Leon Sales at 322).
Vendor’s Liability
1. In case of Total Eviction (Civil Code, Art. 1555), the vendor’s liability
shall consist of: (VICED)
a. Value of thing at the time of eviction;
All kinds of improvements whether useful or necessary or even
recreational expenses voluntarily incurred by the vendee or caused
by the nature of time are taken into account in determining the
value of the property (De Leon, Sales supra at 328).
b. Income or fruits, if he has been ordered to deliver them to the
party who won the suit;
Note: To the vendee belongs the use, free of any liability, of the
subject matter of sale (De Leon, Sales supra at 328).
c. Costs of the suit;

d. Expenses of the contract; and
e. Damages and interests if the sale was in bad faith.
f.
2. In case of Partial Eviction, vendee may (Civil Code, Art. 1556):
a. Enforce vendor’s liability for eviction (VICED); or
b. Demand rescission of contract.
The choices are available in the following instances:

a. When the vendee is deprived of a part of the thing sold if such
part is of such importance that he would not have bought the
thing without said part (Civil Code, Art. 1556, Par.1); or
b. When two or more things are jointly sold, whether for a lump
sum on for separate price for each, and the vendee would not
have purchased one without the other (Civil Code, Art. 1556,
Par.2).
Vendee has no duty to appeal

Appeal is not needed, and the buyer need not resist eviction for the right
against the vendor to accrue. It is enough that the requisites are complied with
Applicability to Judicial Sale

Judgment debtor is responsible for eviction unless otherwise decreed in
judgment (Civil Code, Art. 1552).
54
Basis: Principle of law that a person may not enrich himself at the expense of
another (De Leon, Sales supra at 325).
Deprivation for Non-Payment of Taxes

If the property is sold for non-payment of taxes due and not made known to the
vendee before the sale, the vendor is liable for eviction (Civil Code, Art. 1551).
Vendee must act in good faith. He must not have knowledge of the non-payment
of taxes at the time of the sale (De Leon, Sales supra at 324).
Inapplicability of Rescission
Rescission is not a remedy in case of eviction because rescission contemplates
that the one demanding it is able to return whatever he has received under the
contract. Since the vendee can no longer restore the subject matter of the sale
to the vendor, rescission cannot be carried out (Civil Code, Art. 1385).
Exception: The buyer may demand rescission in case of partial eviction,

because there still remains a portion of the thing sold (De Leon, Sales supra at
331).
The suit for the breach can be directed only against the immediate seller, unless
the sellers of the seller had promised to warrant in favor of later buyers or the
immediate seller has expressly assigned to the buyer his own right to sue his
own seller (De Leon, Sales supra at 330).
Waiver of Liability
Vendor’s liability is waivable, but any stipulation exempting the vendor from the
obligation to answer for eviction shall be void if he acted in bad faith (Civil
Code, Art. 1553).
Kinds of Waiver
1. Consciente – voluntarily made by the vendee without the knowledge and
assumption of the risks of eviction.
2. Intencionada – made by the vendee with knowledge of the risks of
eviction and assumption of its consequences, in which case vendor is not
liable provided he did not act in bad faith (Civil Code, Art. 1554).
Note: Every waiver is presumed to be consciente. To consider it intencionada, it

must be accompanied by some circumstance, which reveals the vendor’s
knowledge of the risks of eviction and his intention to submit to such
consequences (El Banco Nacional Filipino v. Silo, G.R. No. L-47920, April 30,
1941).
Warranty against Non-Apparent Burden or Servitudes (Civil Code, Art.

1560)
Requisites:
1. Immovable sold is encumbered with non-apparent burden or servitude
not mentioned in the agreement; and
2. Nature of non-apparent servitude or burden is such that it must be
presumed that the buyer would not have acquired it had he been aware
thereof.
55
Note: Servitude is an encumbrance imposed upon an immovable for the
benefit of another immovable belonging to a different owner (Civil Code,
Art. 613).
Remedy of the Buyer in Case of Breach:

1. Rescission; or
2. Indemnity (Civil Code, Art. 1560).
When warranty not applicable: (ARAK)

1. Servitude is Apparent;
2. Non-apparent burden or servitude is Recorded in the Registry of
Property, except when there is express warranty that the thing is free
from all burdens and encumbrances;
3. The servitude is mentioned in the Agreement;
4. Vendee had Knowledge of servitude (De Leon, Sales supra at 335-336).
Prescriptive Period (Rescission)

The period is one (1) year, computed from the execution of the deed.
The period having elapsed, only action for damages may be brought, counted
from the date on which the burden or servitude was discovered (Civil Code, Art.
1560, pars.2 and 3).
Warranty against Hidden Defects

Seller guarantees that the thing sold is free from any hidden faults or defects or
any charge or encumbrance not declared or known to the buyer (Civil Code, Art.
1561).
This warranty in Sales is applicable in lease (Yap Kim Chuan v. Tiaoqui, G.R. No.
10006, September 18, 1915).
Hidden faults or defects pertain only to those that make the object unfit for the
use for which it was intended at the time of the sale (Investments and
Development Inc. v. CA, G.R. No. 51377, June 27, 1988).
Elements: (SHEN-PW)
1. Defect is Serious or important such that:
a. The hidden effect should render the subject matter unfit for the
use for which it is intended; or
b. The hidden defect should diminish the thing’s fitness such that
the buyer would not have acquired it or would have given a lower
price for it had he been aware of it (De Leon, Sales at 337-338).
2. Defect is Hidden
Hidden – Not known or could not have been known to the vendee
(McCullough v. Aenlle & Co., G.R. No. 1300, February 3, 1904); Hidden to
the eyes and cannot be discovered by ordinary careful inspection (De
56
3. Exists at the time of the sale;
4. Vendee must give Notice of the defect to the vendor within a reasonable
time;
5. Remedies must be brought within the Period of six (6) months from
delivery of the thing or forty (40) days from date of delivery in case of
animals (Civil Code, Arts. 1571 and 1577); and
6. No Waiver of the warranty.
Vendor is NOT Liable for:

1. Patent Defects
a. Defect, which the buyer must have observed; or
b. Defect, which is not obvious, but the seller tells the buyer, or which
the buyer knows or should have known (Civil Code, Art. 1561; De
2. Those that are not visible but the buyer is an expert who, by reason of his
profession, should have known them.
Knowledge of Vendor, Not Important (Applicability of Doctrine of Caveat

Venditor or Vendor Beware)
General Rules: Seller is liable even though he is not aware of the hidden
defect (Civil Code, Art. 1566, Par.1).
Exception: When there is stipulation to the contrary and the seller is not aware
of it (Civil Code, Art. 1566, Par.2).
Reason: A sound price warrants a sound article.
Note: If the vendee is aware of the defect in the thing he buys or the lack of
title in the vendor, he is deemed to have willfully and voluntarily assumed the
risk attendant to the sale (Martinez v. CA, G.R. No. L-31271, April 29, 1974).
Obligation of Seller in Case of Breach:

If there was no waiver of warranty and the thing was lost due to hidden defects
(Civil Code, Art. 1568):
1. When seller is aware of the hidden defects: (L-PED)
a. Bear the Loss;
b. Return the Price;
c. Refund the Expenses of the contract; and
d. Pay Damages
2. When seller is not aware of the hidden defects: (L-PIE)
a. Bear the Loss;
b. Return the Price;
c. Return Interest; and
d. Reimburse Expenses of the contract
If there was a waiver of warranty (Civil Code, Art. 1566, Par.2):

1. When the seller is aware of the hidden defects, the waiver is in bad faith;
as a corollary, seller is still liable.
2. When the seller is not aware of the hidden defects, the seller is not
liable.
57
If the defective thing is lost through a fortuitous event or through the fault
of the buyer, the buyer may demand of the seller the price paid less the value
of the thing at the time of loss (Civil Code, Art. 1569).
The difference between the price paid for the thing and the value at the time of
the loss represents damage suffered by the vendee. It is also the amount by
which the vendor has enriched himself (De Leon, Sales, supra at 351).
Illustration: A purchased a television from B at P250,000 which was paid in

full. The television has hidden defects, the repair of which will cost P50,000.
The television, however, was lost through fortuitous event. At the time of the
loss the television is worth P200,000. B is liable to refund to A the sum of
P50,000.
If it is the vendee who caused the loss of the thing, the vendor is still liable by
virtue of the existence of the defects in the thing. He will be liable for P50,000
the amount needed for the repairs of the thing had it not been lost.
Remedy of Buyer (Civil Code, Art. 1567)

Buyer may choose between the following:
1. Accion Redhibitoria (Redhibitory Action) – The buyer withdraws from the
contract.
Redhibition – Avoidance of the sale due to vice 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 (De Leon, Sales supra at 336-337).
2. Accion Quanti Minoris – Proportionate reduction of the price (Civil Code,

Art. 1567).
Note: The choice of remedies (accion quanti minoris or accion

redhibitoria) is available to the buyer only when the thing has not been
lost (Villanueva, Sales supra at 503).
Applicability to Judicial Sale

The warranty is applicable to judicial sales; however, the judgment debtor is
not liable for damages for the reason the he is merely compelled to sell his
property (Civil Code, Art. 1571).
Prescriptive Period
Six (6) months from the delivery of the thing sold (Civil Code, Art. 1571).
The prescriptive period of six (6) months is only applicable for implied
warranties. For express warranties, the prescriptive period of four (4) years
shall apply (De Leon, Sales supra at 353).
Warranty against Redhibitory Defects on Animals

Instances Where There is Redhibitory Defects: (EVA)
1. Expert knowledge is not sufficient to discover it (Civil Code, Art. 1576,
Par.1); or
58
2. The Veterinarian failed to discover or disclose it through ignorance or
bad faith (Civil Code, Art. 1576, Par.2); or
3. The Animal dies within three (3) days after its purchase and the disease
which caused the death existed at the time of the contract (Civil Code,
Art.1578).
Animals Sold at Fairs or Public Auction

There is no warranty against hidden defect of animals sold at fairs or at public
auctions or of livestock sold as concerned (Civil Code, Art. 1574).
Basis: It is assumed that the defects must have been clearly known to the buyer
Public auctions may either be judicial or extrajudicial. The law does not
distinguish (De Leon, Sales supra at 355).
Sale of a Team (Civil Code, Art. 1572)
General Rule: The defect of one will only give rise to its redhibition.
Exception: When the buyer refuses to buy them if one is defective (or would
not buy one without the other).
The exception is presumed when what is bought is a team, yoke, pair or set
(even if separate price has been fixed for each one of the animals composing the
same).
Remedy
1. Accion Redhibitoria; or
2. Accion Quanti Minoris (Civil Code, Art. 1580)
Void Sales
1. Sale of animals with contagious diseases.

2. Sale of unfit animals, i.e. the use or service for which the animals are
acquired has been stated and they are found to be unfit therefor (Civil
Code, Art. 1575).
Obligation of Buyer to Return

In case of rescission, the animals 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 (Civil Code, Art.
1579).
Prescriptive Period
Forty (40) days from the date of delivery to buyer (Civil Code, Art. 1577).
The prescriptive period shall apply only with respect to faults and defects,
which are determined by law or by local customs (Id).
Warranties in Sale of Goods / Warranties of Quality (Civil Code, Art. 1562)

Quality
59
State or condition (as to promote high standard in business and to discourage
sharp dealings) (De Leon, Sales supra at 341).
1. Warranty of Fitness
The seller guarantees that the thing sold is reasonably fit for the known
particular purpose for which it was acquired by the buyer. It exists in
the following instances:
a. Where the buyer, expressly or by implication manifests to the seller
the particular purpose for which the goods are acquired; and
b. Where the buyer relies upon the seller’s skill or judgment (Civil
Code, Art. 1562 [1]).
2. Warranty of Merchantability
The seller guarantees, where the goods were bought by description, that
they are reasonably fit for the general purpose for which they are sold.
It requires identity between what is described in the contract and what is

tendered, in the sense that the latter is of such quality and value (Civil
Code, Art. 1562 [2]).
Causes of Unmerchantability
Goods may be unmerchantable not because of a physical defect but
because of some other circumstances (e.g. infringement of trademark)
Preservation of the Thing Pending Delivery

The seller is bound to take care of the thing with the diligence of a good father
of a family (Civil Code, Art. 1163).
XII. OBLIGATIONS OF THE VENDEE
Principal Obligations (Civil Code, Art. 1582):
Obligations of the Vendee:

1. To accept delivery of the thing sold
2. To pay the price of the thing sold in legal tender unless another mode has
been agreed upon at the time and place stipulated in the contract; and
3. To bear the expenses for the execution and registration of the sale and
putting the goods in a deliverable state, if such is the stipulation (De
Grace Period to Vendee

A grace period granted the vendee in case of failure to pay the amount/s due is
a right, not an obligation. The grace period must not be likened to an obligation,
the nonpayment of which, under Article 1169 of the Civil Code, would still
generally require judicial or extrajudicial demand before default can be said to
arise (Bricktown Dev’t Corp. v. Amor Tierra Dev’t. Corp., G.R. No. 112182,
December 12, 1994).
Rules:
60
1. In a contract of sale, the vendor is not required to deliver the thing sold
until the price is paid, nor the vendee to pay the price before the thing is
delivered in the absence of an agreement in the contract;
2. If stipulated, the vendee is bound to accept delivery and to pay the price
at the time and place designated;
3. If there is no stipulation as to the time and place of payment and delivery,
the vendee is bound to pay at the time and place of delivery;
4. In the absence of a stipulation as to the place of delivery it shall be made
wherever the thing might be at the moment the contract was perfected;
5. If only the time for delivery of the thing has been fixed in the contract,
the vendee is required to pay even before the thing is delivered to him. If
only the time for payment of the price has been fixed, the vendee is
entitled to delivery even before the price is paid by him (De Leon, Sales
supra at 360).
Other Obligations:
1. To take care of the goods without the obligation to return, where the
goods are delivered to the buyer and he rightfully refuses to accept it. It
is sufficient that the buyer notifies the seller that he refuses to accept
them (Civil Code, Art. 1587).
If the seller refuses to take delivery of the goods after being notified to do
so by the buyer, the latter mat resell the goods (De Leon, Sales supra at
370-371).
The buyer in such a case is in the position of a bailee who has had goods
entrusted upon him without his assent. He has the obligation to take
reasonable care of the goods but nothing more can be demanded of him
(De Leon, Sales supra at 370-371).
The goods in the buyer’s possession are at the seller’s risk (De Leon,
Sales supra at 370-371).
2. To be liable as a depositary if he voluntarily constituted himself as such

3. To pay interest for the period between delivery of the thing and the
payment of the price in the following cases (Civil Code, Art. 1589): (IFV)
a. Interest is stipulated;
It is the rate stipulated which governs, if not, the legal rate
of interest shall be due (De Leon, Sales supra at 372).
Interest which must be in writing refers only to a loan (Civil

Code, Art. 1956).
b. Fruits or income are received by the vendee from the thing

sold (De Leon, Sales supra at 372);
Even if a term has been fixed for the payment of price (De
c. Vendee is guilty of default (De Leon, Sales supra at 372).
61
Under Art. 1169 of the Civil Code, the debtor incurs delay
from the time of judicial or extrajudicial demand for payment
of the price. However, demand is not necessary to constitute
delay in the following cases: (LTD)
i. The Law or obligation expressly provides;
ii. Time is of the essence; or
iii. Demand would be useless as when the obligor has
rendered it beyond his power to perform.
Acceptance
Acceptance is assent to become the owner of specific goods when delivery of
them is offered to the buyer (De Leon, Sales supra at 366).
Acceptance and delivery are different are different and separate acts.
Acceptance is the buyer’s obligation while delivery is the vendor’s obligation
Acceptance is not a condition to complete delivery. Vendee has nothing to do

with the vendor’s delivery. The seller must comply with his obligation to deliver
although there is no acceptance yet by the buyer (La Fureza Inc., v. CA, G.R. No.
L-24069, June 28, 1968).
Unless otherwise agreed upon, acceptance by the buyer does not discharge the
seller from liability for damages or other legal remedy like for breach of any
promise or warranty (Civil Code, Art. 1586).
Exception: If the buyer, after acceptance of the goods, fails to give notice to the
seller of the breach in any promise or warranty within a reasonable time after
the buyer knows or ought to know of such breach (Civil Code, Art. 1586).
Purpose: To protect the seller against belated claims (De Leon, Sales supra at
370).
Rights of the Buyer:

1. Not bound to accept delivery of goods by installments (Civil Code, Art.
1583).
However, where the contract provides for the delivery of goods by

installments and a separate price has been agreed upon for each
installment, it depends on each case of the terms of the contract and the
circumstances of the case whether the breach is severable or not.
Where breach affects the 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 installment, the
injured party may sue for damages for breach of the entire contract if the
breach is so material, that is, breach of one installment prevents the
performance of the contract, as to affect the contract as a whole.
62
Where the breach is severable: It will merely give rise to a claim for
compensation for the particular breach but not a right to treat the whole
contract as broken (De Leon, Sales supra at 364).
2. Reasonable opportunity to examine the goods upon delivery to ascertain

whether they are in conformity with the contract before accepting the
same (Civil Code, Art. 1584).
Exceptions:
1. There is a stipulation to the contrary (Civil Code, Art. 1584).
2. In case of C.O.D. (collect on delivery) – buyer is not entitled to examine
until payment is made; except if:
a. There is an agreement permitting examination; or
b. The usage of trade permits the examination (Civil Code, Art.
1523, [3]).
The right of examination is not absolute. The seller is bound

to afford the buyer a reasonable opportunity of examining
goods only on “request” (Civil Code, Art. 1584 [2]).
If the seller refused to allow inspection, the buyer may

rescind the contract (De Leon, Sales supra at 367).
3. Reject delivery of a wrong quantity of goods or of goods of a different

description not included in the contract, which are mixed with the goods
sold (Civil Code, Art. 1522).
4. If he refuses to accept the goods, having the right to do so, he is not
bound to return them to the seller; it being sufficient that he notifies the
seller of his refusal to accept.
If he voluntarily constitutes himself as depositary of the goods, he shall

be liable as such (Civil Code, Art. 1587).
Effect of Refusal to Accept Goods without Just Cause

Title to the goods passes to the buyer from the moment they are placed at his
disposal, except if ownership has been reserved by the seller (Civil Code, Art.
1588).
Acceptance and Actual Receipt; Distinguished

Acceptance and actual receipt do not imply each other.
Acceptance Actual Receipt

Implies approval of the contract. Refers only to the physical act of
taking or receiving the goods sold.
Acceptance by the buyer may precede actual delivery; there may be actual
receipt without acceptance and there may be acceptance without receipt.
Ways of Accepting Goods (Civil Code, Art. 1585):
63
1. Express Acceptance – when the buyer, after delivery of the goods,
intimates to the seller, verbally or in writing, that he has accepted them.
2. Implied acceptance –
a. When buyer performs acts of ownership.
b. Failure to return goods after reasonable lapse of time.
Note: The buyer must notify the seller within a reasonable time after the buyer
knows or ought to know of the breach; otherwise, the seller will be released
from such liability (Civil Code, Art. 1586).
Notice is still required even if the seller has knowledge of the facts constituting
the breach because whether or not the defect constitute a breach must be taken
from the point of view of the buyer (PARAS, Civil Code of the Philippines
Annotated, Book V, 2000 ed.).
Delivery v. Acceptance
Delivery Acceptance
Nature
An act of the vendor An act of the vendee
Obligation
One of the obligations of the vendor is Acceptance is an obligation on the part
the delivery of the thing sold (Civil of the vendee (Civil Code, Art. 1582).
Code, Art. 1495).
Note: The seller must comply with his obligation to deliver although there is no
acceptance yet by the buyer.
Payment
Non-payment does not prove simulation; at most, it gives the seller the right to
sue for collection.
Payment of the price is a resolutory condition and the remedy of the seller is to
exact fulfillment or, in case of substantial breach, to rescind the contract under
Art. 1191 of the Civil Code.

1. Suspension of payment (Civil Code, Art. 1590);
It contemplates a situation where the contract is not yet consummated. It
is applicable in the following cases:
a. Where the vendee is disturbed in possession or ownership of the
thing bought; or
b. Vendee has reasonable ground to fear that his possession or
ownership would be disturbed (by a vindicatory action or a
foreclosure of a mortgage).
In both instances, the vendee may retain only the price that has not
been paid to the vendor. He is not entitled to recover what has
already been paid (De Leon, Sales supra at 373).
64
Under the second case, it is not necessary that an action be
brought against the vendee (De Leon, Sales supra at 373).
Exceptions to Suspension of Payment (where vendee has no

right to suspend payment): (SSCTP)
a. Vendor gives Security for the return of the price (Civil Code,
Art. 1590);
b. Stipulation that vendee must make payment notwithstanding
such contingency (Civil Code, Art. 1590);
c. Cessation of disturbance or danger (Bareng v. CA, G.R. No, L-
12973, April 25, 1960);
d. Disturbance is a mere act of Trespass (De Leon, Sales supra at
374); or
e. Vendee has Paid the price in full (De Leon, Sales supra at 374).
When the disturbance is caused by non-apparent servitude, the

remedy is rescission, not suspension of payment (Civil Code, Art.
1560).
Length of Suspension of Payment

The right to suspend payment granted by law to the vendee exists
only while the danger or disturbance exists. Once the vendor has
caused the cessation of this disturbance such as by compromising
with the third person who poses the danger or disturbance such as
by compromising with the third person who poses the danger or
disturbance to the vendee’s possession or ownership, the vendee
must already pay (Bareng v. CA, G.R. No. L-12973, April 25, 1960).
Mere Act of Trespass

The mere act of trespass committed by a third person on the
property subject of the sale will not justify suspension of payment
(Bareng V. CA, G.R. No. L-12973, April 25, 1960).
2. In the sale of immovable property, to pay even after the expiration of the
period agreed upon, as long as no demand for rescission of the contract
has been made upon him either judicially or by a notarial act, even
though it may have been stipulated that rescission shall of right take
place upon failure to pay the price at the time agreed upon (Civil Code,
Art. 1592).
Art. 1592 is not applicable in the following cases:

a. Sale of installment on real estate – It does not apply to sale on
installment of real property when the parties have laid down the
procedure to be followed in the event that the vendee failed to
fulfill his obligation (Albea v. Inquimboy, G.R. No. L-1601, May 29,
1950).
b. Contract to sell/ conditional sale of real estate – In this case,
the title remains with the vendor until full payment of the purchase
price (Roque v. Lapuz, G.R. No. L-32811, March 31, 1980).
Payment in this case is a positive suspensive condition, the failure
65
of which prevents the obligation of the vendor to convey title. In an
absolute sale, non-payment is a resolutory condition (Pangilinan v.
CA, G.R. No. 83588, September 29, 1997).
XIII. REMEDIES FOR BREACH OF CONTRACT
Remedies of the Seller

In case of Immovables
1. When there is anticipatory breach
Seller may sue for rescission if the following concur:
a. There is delivery of immovable property;
b. Vendee has not yet paid the price; and
c. Vendor has reasonable ground to fear the:
i. Loss of property; and
ii. Loss of price (Civil Code, Art. 1591)
This contemplates a situation where there has been delivery of the

immovable property, but the vendee has not yet paid the price (De Leon,
This is applicable to both cash sales and to sales in installments as Art.

1591 of the Civil Code does not distinguish between one and the other
When there is no such reasonable ground, Art. 1191 of the Civil Code
shall be observed (when the vendee does not comply with what is
incumbent upon him). The vendor may sue for either fulfillment or
rescission with damages in either case.
Rescission of a contract would not be permitted for a slight or casual

breach but only for such substantial or fundamental breach that would
defeat the very object of the parties (De Leon, Sales supra at 379).
2. When there is failure on the part of buyer to pay the price (Civil
Code, Art. 1592).
Automatic rescission of sale of immovable property is stipulated.
Applicability of Art. 1592: it applies only to a conditional sale of real

property where title passes to the vendee upon the delivery of the thing
66
sold usually effected through the execution of public document. It does
not apply to contract to sell or promise to sell where the title remains
with the vendor until full payment of the price (Valarao v. CA, G.R. No.
130347, March 3, 1999).
Meaning of “even though”

According to Justice Paras and Dean Villanueva, the phrase “even
though” signifies that Article 1592 of the Civil Code is applicable to all
sales of immovable even when there is no stipulation on automatic
rescission. According to De Leon, however, the phrase “even though”
emphasizes that when no stipulation is found on automatic rescission, the
judicial or notarial requirement still applies. According to him, therefore,
the buyer may still pay the price even after the expiration of the period
and notwithstanding a stipulation on automatic rescission, as long as
there is no demand by judicial or notarial act.
Article 1191 of the Civil Code is subordinated to the provisions of Article

1592 of the Civil Code when applied to sales of immovable property (De
Leon, Sales supra at 375-376).
Prescriptive Period (rescission under Articles 1191 and 1592)

It must be brought within ten (10) year from the time the right of action
accrues (Civil Code, Art. 1144).
Seller is given an option to demand rescission upon judicial or notarial
demand (Civil Code, Art. 1592).
Note: An action for reconveyance is not an action for rescission. The

judicial rescission of a contract gives rise to mutual restitution which
does not happen in an action for reconveyance (Olympia Housing Inc. v.
Panasiatic Travel Corp., G.R. No. 140468, January 16, 2003).
However, when there is no judicial or notarial demand, the buyer may

still pay. Offer to pay is sufficient to defeat seller’s prerogative (Civil
Code, Art. 1592).
Seller’s right to rescind is not absolute. The court may extend the period
for payment (Civil Code, Art. 1191, Par.3).
However, if there is already a demand (by suit or notarial act), the court
may no longer fix a term (Civil Code, Art. 1592).
The right of automatic rescission, which is stipulated in a contract of

sale, is subject to waiver. In this case, the vendor never called the
attention of the vendee to the proviso in “Automatic rescission”
(Philippine Bank v. IAC, G.R. No. L-67881, June 30, 1987).
Art. 1592 of the Civil Code is not applicable in:

a. Sale on installment of real estate;
b. Contract to sell; and
67
c. Cases covered by the Maceda Law (R.A. 6552) (De Leon, Sales
supra at 380-383)
In Case of Movables –
1. Movables in general
Automatic rescission shall take place in the interest of the seller if the
buyer, upon the expiration of the period for delivery of thing;
a. Should not have appeared to receive it; or
b. Having appeared, should not have tendered the price at the time,
unless a longer period is stipulated for its payment (Civil Code, Art.
1593).
Reason behind Art. 1593: The delay is prejudicial to the vendor

since personal properties are not capable of maintaining a stable price
in the market (De Leon, Sales supra at 384).
Is applies only when thing sold has not been delivered to the buyer.
Reason: the buyer cannot take the law in his hands.
2. Sale of Goods
a. Action for the Price / Specific Performance (Civil Code, Art.
1595)
When the ownership of the goods has passed to the buyer and he
wrongfully neglects or refuses to pay for the goods according to
the terms of the contract, the seller may maintain an action against
him for the price of goods.
When price is payable on a certain day, irrespective of delivery or

transfer of title, and the buyer wrongfully neglects or refuses to
pay, the seller may maintain an action for the price although the
ownership in the goods has not passed.
However, it is a defense to such action that seller has manifested

an inability or lack of interest to perform his obligation before
judgment.
If goods cannot readily be resold for a reasonable price, although

transfer of ownership has not passed – seller may offer to deliver
the goods to the buyer; if buyer refuses to receive, seller may
notify the buyer that he holds the goods as bailee for the buyer.
Thereafter, the seller may treat the goods as the buyer’s and may
maintain an action for the price.
b. Action for Damages

i. When the buyer wrongfully neglects or refuses to accept and
pay for the goods (Civil Code, Art. 1596);
ii. In an executory contract, where the ownership in the goods
has not passed and the seller cannot maintain an action to
recover the price (Civil Code, Art. 1595); or
68
iii. If the goods are not yet identified at the time of the contract
or subsequently, the seller’s right is necessarily confined to
an action for damages (De Leon, Sales supra at 389).
Measure of Damages: Estimated loss directly and naturally

resulting in the ordinary course of events from the buyer’s
breach (Civil Code, Art. 1596, Par.2).
Measure of Damages (when there is available market):

The difference between the contract price and the market or
current price at the time the goods ought to have been
accepted, or at the time of refusal to accept when there is no
time fixed (Civil Code, Art. 1596, Par.3).
Measure of Damages for Repudiation or Countermand –

The measure of damages would include:
i. The labor performed and expenses incurred for materials

before receiving notice of the buyer’s repudiation; and
ii. The profit he would have realized if the sale had been
fully performed (Civil Code, Art. 1596 [4]).
c. Technical Rescission (Civil Code, Art. 1597)

This article applies where there has been no delivery of goods yet.
In the following instances, the seller may totally rescind by giving

notice of his election to do so to the buyer:
i. Buyer has repudiated the contract of sale;
ii. Buyer has manifested his inability to perform obligations; or
iii. Buyer has committed a breach
Unpaid Seller
1. The seller who to whom the whole of the price has not been paid or
tendered;
2. The seller of the goods, in case 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, insolvency of the buyer or otherwise (Civil Code, Art.
1525).
Remedies of Unpaid Seller: (PoS⁴A²RM)

1. Possessory lien
2. Stoppage of goods in transit
3. Special right of resale
4. Special right of rescission
5. Specific performance
6. Action for the price
7. Action for damages
8. Recto Law
9. Maceda Law
Possessory Lien
69
When it may be exercised: (WEI)
1. The goods have been sold Without any stipulation as to credit.

The seller is entitled to the payment of the price at the same time that
he transfers the possession of the goods (Civil Code, Art. 1524).
2. The goods have been sold on credit, but the term of credit has
Expired.
The obligation of the buyer to pay shall be governed by Article 1524 of

the Civil Code (De Leon, Sales supra at 251).
3. The buyer becomes Insolvent (Civil Code, Art. 1527).
Insolvent – A person who 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 (Civil
Code, Art. 1636 [2]).
Basis: When one party to a bilateral contract is incapacitated from

performing his part of the agreement, the other party is also excused
from performing his part (De Leon, Sales supra at 251).
Note: The seller may exercise his right of lien notwithstanding that he
is in possession of the goods as agent or bailee for the buyer (Civil
Code, Art. 1527 [2]).
When Unpaid Seller Has Made Part Delivery of the Goods

General Rule: He may exercise his right of lien on the remainder that has not
been delivered.
Exception: When part delivery has been made under such circumstances as to
show an intent to waive the lien or right of retention (Civil Code, Art. 1528).
When Unpaid Seller Loses His Lien: (COW)

1. Delivery of the goods to a Carrier or bailee, for the purpose of
transmission to the buyer without reserving ownership or right of
possession;
Reason: An unconditional delivery to an agent or bailee for the buyer

is the same as delivery to the buyer insofar as the seller’s lien is
concerned (De Leon, Sales supra at 253).
2. When the buyer lawfully Obtains possession of the goods;
Reason: The seller has no possession necessary for a lien (De Leon,
3. By Waiver of the lien (Civil Code, Art. 1529).
Loss of Lien
70
The lien of the seller depends upon either possession or control of the property
on which the lien is claimed and if the seller permits the property to go into
actual possession of the buyer, such lien is lost, although he delivers on the faith
of a chattel mortgage which turns out to be invalid, or draft given in payment
was dishonored. If however, the seller has been induced to part with possession
by fraud, the lien of the seller is not lost but continues (Tolentino, Civil Code of
the Philippines Annotated V, p. 82) [hereinafter, Tolentino, Civil Code].
Revival of Lien after Delivery:

1. 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 (Civil Code, Art. 1531, Pars. 1 and 2).
2. If the buyer refuses to receive the goods in wrongful repudiation of
the sale (De Leon, Sales, supra at 253).
However, the return of the goods by the buyer to the seller not in
radiation of the sale but for some special purpose, such as to have
repairs or alterations by the seller, does not revive the lien of the
seller (Tolentino, Civil Code, supra at 83).
Note: Possessory lien is lost after the seller loses possession but his
lien as an unpaid seller remains. His preference can only be defeated
by the government’s claim to the specific tax on the goods themselves
(Civil Code, Arts. 2241, 2247).
The bringing of an action to recover the purchase price is not one of

the ways of losing the possessory lien. An unpaid seller does not lose
his lien by reason that he has obtained a money judgment or decree
for the price of goods (Civil Code, Art. 1529, [2])
Possessory lien is different from lien on the price. In the first, the
seller is entitled to retain possession of the goods as security for the
purchase price. In the second, after delivery, the seller loses his
possessory lien but retains his lien on the price of the goods (Pineda,
Civil Code of the Philippines Annotated (2011) p. 199) [hereinafter,
Pineda Civil Code (2011)].
Stoppage of Goods in Transitu

Requisites: (UI-TE-RE)
1. Seller must be Unpaid (Civil Code, Art. 1525);
2. Buyer must be Insolvent (Civil Code, Art. 1530);
3. Goods must be in Transit (Civil Code, Art. 1531); and
4. Seller must Either:
a. Actually take possession of the goods sold; or
b. Give notice of his claim to the carrier or other person in
possession of the goods (Civil Code, Art. 1532, Par.1).
5. The carrier must Redeliver the goods to, or according to the
directions of, the seller (Civil Code, Art. 1532, Par. 2).
71
Note: If, however, a negotiable document of title representing the
goods has been issued, he shall not be obliged to deliver or
justified in delivering the goods to the seller unless such document
id first surrendered for cancellation.
6. The seller must bear the Expenses of delivery of the goods after
the exercise of the right (Civil Code, Art. 1532, Par.2).
Notice may be given either to the person in actual possession of the

goods or to his principal (Civil Code, supra at 163).
When the goods are considered “in transit”:

1. From the time when they are delivered to a carrier or other bailee
and before the buyer or his agent takes delivery of them; and
2. If the goods are rejected by the buyer, and the carrier or other
bailee continues in possession of them (even if the seller refused to
receive them back) (Civil Code, Art. 1531, Par.1).
Note: Taking of the goods in transit by an unauthorized agent of the

buyer does not extinguish the right of stoppage in transit (Paras, Civil
Code supra at 163).
In case of misdelivery, the goods are still considered in transit, hence,

the seller may still exercise said right pursuant to Article 1532 of the
Civil Code, which provides that an unpaid seller may exercise his right
of stoppage in transitu by giving notice of his claim to the carrier “or
other bailee in whose possession the goods are”.
When The Goods Are NO Longer In Transit: (ADAR)

1. After delivery to the buyer or his agent in that behalf;
2. If the buyer or his agent obtains Delivery of the goods at a point
before their arrival at the appointed destination;
3. If after the arrival of the goods at the appointed destination, the
carrier or the bailee Acknowledge to hold the goods in behalf of
the buyer (also known as Attornment by the Bailee); and
4. If the carrier or bailee wrongfully Refuses to deliver the goods
to the buyer (Civil Code, Art. 1531, Par.2).
When a carrier first receives goods consigned to the buyer, the carrier is agent
for the seller for the purpose of delivering the goods to the buyer. In order to
terminate the seller’s right to stop, the carrier must enter into a new relation,
distinct from the original contract of carriage, so that he then holds possession
of good for the buyer as his agent for the purpose of custody on the buyer’s
account (De Leon, Sales supra at 257).
Effect of Refusal to Attorn

1. Wrongful Refusal – The goods are no longer in transit. The carrier is not
allowed to enlarge the seller’s right by refusing to deliver or attorn as the
buyer’s agent (Civil Code, Art. 1531, Par.2 [3]).
2. Rightful Refusal – Right to stop by the seller would not be terminated
72
Effects of the Exercise of the Right of Stoppage in Transitu
1. The goods are no longer in transit (Civil Code, Art. 1531, Par.2);
2. The contract of carriage ends. The carrier now becomes a mere bailee
and will be liable as such (Civil Code, Art. 1531, Par.2[2]); and
3. The seller would have the same rights to the goods as if he had never
parted possession with it (Civil Code, Art. 1530).
Effect if the Buyer has Already Sold the Goods:

General Rule: The unpaid seller’s right to lien or stoppage in transit remains
even if buyer has sold the goods.
Exception:
1. When the seller has given consent thereto; and
2. When a negotiable document of title has been issued for goods (Civil
Code, Art. 1535)
Special Right of Resale

May be exercised only when the unpaid seller has either a right of lien or has
stopped the goods in transitu and under any of the following conditions:
Note: There must be notice or some other overt act of intention to rescind.
Overt act need not be communicated but the giving of notice is relevant in
case of default for an unreasonable time (Civil Code, Art. 1534, Par.2).
Effect of Resale: The new buyer acquires a good title as against the original
buyer (Civil Code, Art. 1533, Par. 2).
If Sold for MORE Than the Original If Sold for LESS Than the Original
Price Price
The seller is not liable to the original The seller has right to sue for the
buyer for any profit earned in the balance (Civil Code, Art. 1533, Par. 1)
resale (Civil Code, Art. 1533, Par. 1)
The seller is not liable to the original buyer for any profit earned in the resale
and may recover damages occasioned by the buyer’s breach of the contract of
sale. Action for the rescission of the sale is not necessary (Pineda, Civil Code,
supra at 211)
Manner of Resale
The law is satisfied with a fair sale made in good faith according to established
business methods (De Leon, Sales supra at 262).
Notice of sale need not be sent to the original buyer (Civil Code, Art. 1533, Par.
4).
Rescission
Special Right to Rescind
The unpaid seller having either the right of lien or a right to stop the goods in
transitu may rescind the transfer of title in the goods:
1. Where the right to rescind on default has been expressly reserved; or
73
2. Where the buyer has been in default for an unreasonable time (Civil Code
Art. 1534, Par.1).
Effect of Exercise of Right

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 contract (Civil Code, Art. 1534).
Note: There must be notice or some other overt act of intention to rescind.
Overt act need not be communicated but the giving of notice is relevant in case
of default for an unreasonable time (Civil Code, Art. 1534, Par. 2).
Action for the Price of the Goods

When it may be exercised:
1. Where the ownership has passed to the buyer and he wrongfully neglects
or refuses to pay for the price (Civil Code, Art. 1595, Par.1);
2. Where the price is payable on a day certain and he wrongfully neglects
or refuses to pay for the price, irrespective of the delivery or transfer of
title (Civil Code, Art. 1595, Par.2);
Defense to action for the price: When before the time of payment, the
seller has manifested an inability to perform the contract of sale or an
intention not to perform it (Civil Code, Art. 1595, Par.2).
3. Where the goods cannot readily be resold for a reasonable price and the
buyer wrongfully refuses to accept them even before the ownership of the
goods has passed, if Art. 1596 par. 4 of the Civil Code is inapplicable
(Civil Code, Art. 1595, Par.3).
Unless the contrary appears, the presumption is that the payment of the
price and the delivery of the goods were intended to be concurrent acts
and the obligation of each party is dependent upon the simultaneous
performance by the other party (De Leon, Sales supra at 387).
Action for Damages

When it may be exercised:
1. The ownership of the goods has passed to the buyer and he wrongfully
neglects or refuses to accept and pay for the thing sold (Civil Code, Art.
1596, Par.1);
2. The ownership of the goods has not passed but the price is payable on a
certain day, irrespective of delivery of or transfer of title and the buyer
wrongfully neglects or refuses to pay such price (Civil Code, Art. 1595);
Note: The buyer may use a defense before the judgment in such action
that the seller has manifested an inability to perform the contract of sale
or an intention not to perform it.
3. If the goods are not yet identified at the time of the contract or
subsequently (De Leon, Sales supra at 389).
74
Measure of Damages for Non-Acceptance:
1. Difference between contract price and market price – The difference
between the contract price (amount of the obligation not fulfilled by the
buyer) and the market or current price (value of the goods which the
seller left in his hands (Civil Code, Art. 1596, Par.3).
2. Full amount of damage – If there is no available market in which the
goods can be sold at the time (De Leon, Sales, supra at 390).
3. Proximate damages – The amount of damage that may be reasonably
attributed to the non-performance of the obligation (Civil Code, Art. 2201
[2]).
Article 1484 or Recto Law

It provides for remedies of a vendor in the sale of personal property by
installments (Villanueva, Sales, supra at 377).
Sale on Installment
When there is an initial payment and the balance is payable in the future, there
is no basis to apply the Recto Law. Such is not a sale on installments but rather
a “straight sale”. Under the language of then Article 1454 of the Civil Code, the
buyer needs to have defaulted in the payment of two or more installments to
allow the seller to rescind or foreclose on the chattel mortgage (Levy
Hermanos, Inc. v. Gervacio, G.R. No. L-46306, October 27, 1939).
Purpose of the Recto Law

To remedy the abuses committed in connection with the foreclosure of chattel
mortgages and was meant to prevent mortgages 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 (Universal Motors Corp. v. Dy
Hian Tat, G.R. No. L-23788, May 16, 1969).
Requisites: (SPIF)
1. Contract of Sale;
2. Personal property;
3. Payable in Installments; and
4. In the case of the second and third remedies, that there has been a
Failure to pay two or more installments (Civil Code, Art. 1484).
Note: Art. 1484 applies 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 (Civil Code, Art. 1485).
Art. 1484 of the Civil Code does NOT apply to:

1. Sale of personal property payable on straight terms (partly in cash and
partly in one term);
2. Sale or mortgage of real estate;
3. Action for replevin;
4. Contracts to sell on movables. In this case, the rules on rescission and
substantial breach are not applicable (Villanueva, Sales supra at 381).
Alternative and Exclusive Remedies
75
The remedies under Article 1484 of the Civil Code have been recognized as
alternative, not cumulative, in that the exercise of one would bar the exercise of
the others (Delta Motors Sales Corp. v. Niu Kim Duan, G.R. No. 61043
September 2, 1992).
Note: The remedies cannot also be pursued simultaneously (Luneta Motor Co.
v. Dimagiba, G.R. No. L-17061 December 30, 1961).
1. Specific Performance upon Vendee’s Failure to Pay

In sales on installments, 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 the mortgage,
hence, the seller-creditor is entitled to a deficiency judgment (Southern
Motors Inc. v. Mosocos, G.R. No. L-14475 May 30, 1961).
When Deemed Chosen

The seller is deemed to have chosen specific performance when he files
an action in court for recovery (Villanueva, Sales, supra at 385).
Resort to Rescission after Choosing Specific Performance

General Rule: When the seller has chosen specific performance, he can
no longer seek for rescission or foreclosure of the chattel mortgage
constituted on the thing sold (Villanueva, Sales supra at 385).
Exception: Even if the seller had chosen specific performance, if the

same has become impossible, the seller may still choose rescission (Civil
Code, Art. 1191 [2]).
2. Rescission of the Sale if Vendee shall have Failed to Pay Two (2) or
More Installments
When Deemed Chosen

When the seller has clearly indicated to end the contract such as when:
(NPA)
a. He sends a Notice of rescission;
b. He takes Possession of the subject matter of the sale; or
c. He files an Action for rescission (Villanueva, Sales supra at 387).
Forfeiture of Installment or Rentals Paid

General Rule: Rescission creates the obligation to return the things
which were the object of the contract, together with the fruits and the
price with interests. It can be carried out only when he who demands
rescission can return whatever he may be obliged to restore (Civil
Code, Art. 1385).
Exceptions: 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 (Civil Code, Art.
1486).
76
It is recognized that when the seller takes possession of the subject
property in rescission of the sale, the seller is barred from recovering
the balance of the price. Although no barring effect is expressly
provided for such remedy under Article 1484, the same is implicit
from the nature of the remedy of rescission, which requires mutual
restitution (Villanueva, Sales supra at 386).
3. Foreclosure of the Chattel Mortgage on the Thing Sold if Vendee

shall have Failed to Pay Two or More Installments.
In this case, there shall be no deficiency judgment (Civil Code, Art. 1484
[2]).
When Deemed Chosen

At the time of actual sale of the subject property at public auction
pursuant to the foreclosure proceedings commenced (Manila Motor Co.,
Inc. v. Fernanddez, G.R. No. L-8377 August 28, 1956).
Barring Effect of Foreclosure

It is the foreclosure and actual sale at public auction of the mortgaged
chattel that shall bar further recovery by the seller of any balance on the
purchaser’s outstanding obligation not satisfied by the sale (Villanueva
Sales, supra at 390-391; Manila Motor Co., Inc, v. Fernandez, G.R. No. L-
8377, August 28, 1956).
Any agreement allowing for further action to recover unpaid balance is

void (Civil Code, Art. 1484 [3]).
Prior to foreclosure and actual sale at public auction, the seller has every
right to receive payments on the unpaid balance of the price from the
buyer (Manila Motor Co., Inc, v. Millan, G.R. No. L-42256, April 25, 1935).
Payments made before actual foreclosure could be retained by the vendor

(Northern Motors, Inc. v. Sapinoso, G.R. No. L-28074, May 29, 1970).
Barring Effect on Other Securities Given for Payment of Price

After foreclosure, the vendor cannot proceed against any third party who
may have guaranteed the vendee’s performance of his obligation, for if
the guarantor should be compelled to pay the balance, the guarantor will
be entitled to recover what he has paid from the debtor-vendee, so that
ultimately, it will be the vendee who will be made to bear the payment of
the balance of the price (Cruz v. Filipinas Investment & Finance Corp.,
G.R. No. L-24772, May 27, 1968).
Seller’s Assignment of Credit

When the seller assigns his credit to another person, the same law
likewise binds the latter. Accordingly, when the assignee forecloses on the
mortgage, there can be no further recovery of the deficiency and the
seller-mortgage is deemed to have renounced any right thereto (Borbon
II v. Servicewide Specialists, Inc. G.R. No. 106418 July 11, 1996).
77
Art. 1484 [3] of the Civil Code does not bar one to whom the vendor has
assigned on a with-recourse basis his credit against the vendee from
recovering from the vendor the assigned credit in full although the
vendor may have no right of recovery against the vendee for the
deficiency (Filipinas Investment & Finance Corp. v. Vitug, Jr., G.R. No. L-
25951, June 30, 1969).
Extent of Barring Effect

Despite the limiting language of Article 1484 of the Civil Code, which
uses the phrase “any unpaid balance,” the Supreme Court, in Macondray
& Co., Inc. v. Eustaquio, ruled that the barring effect also applies to all
other claims (e.g. the interest on the principal, attorney’s fees, expenses
of collection and the costs) (G.R. No. L-43683 July 16, 1937).
Perverse Buyer-Mortgagor
When a defaulting buyer-mortgagor refuses to surrender the chattel to
the seller to allow the latter to be able to proceed with foreclosure, then
the seller, even after foreclosure, should be allowed to recover expenses
and attorney’s fees incurred in trying to obtain possession of the chattel
(Filipinas Investment & Finance Corp. v. Ridad, G.R. No. L-27645,
November 28, 1969). In effect, the Ridad ruling provides an exception to
the complete barring effect espoused in Eustaquio ruling.
R.A. 6552 or Maceda Law

Purpose
It is an expression of public policy to protect buyers of real estate on
installments against onerous and oppressive conditions (R.A. 6552, Sec.2).
Coverage
Transactions or contracts involving sale or financing of real estate on
installment payments including residential condominium apartments (R.A. 6552
Sec. 3)
It does NOT apply to:

1. Sale covering industrial lots;
2. Sale covering commercial buildings (and commercial lots by implication);
3. Sale to tenants under agrarian reform laws; or
4. Sale of lands payable in straight terms (R.A. 6552, Sec.3).
The exclusions provided under Sec. 3 of the Maceda Law is NOT exclusive,
since other transactions over immovable, which are not within the clearly
express coverage of the Maceda Law is deemed excluded. An example would be
the sale on installment of commercial condominium units (Villanueva, Sales
supra at 416).
Note: Section 3 of the Maceda Law is comprehensive enough to include both

contracts of sale and contracts to sell, provided that the terms of the payment of
the price require at least two installment (Villanueva, Sales supra 414).
Requisites:
78
1. Transaction or contracts involving the sale or financing of real estate on
installment payments, including residential condominium apartments;
and
2. Buyer defaults in payment of succeeding installments (R.A. 6552, Sec.3).
Sale by Installments
Its definition is the same for sale of movables by installments, which would
involve at least two (2) installments (Villanueva, Sales supra at 414).
Note: While under Sec. 3, down payment is included in computing the total
number of installment payments made, the proper divisor is the monthly
installment on the down payment (Jestra Development and Management Corp.
v. Pacifico, G.R. No. 167452, January 30, 2007).
Maceda Law Cannot be Availed of by the Developer

The Maceda Law has no application to protect the developer or one who
succeeds the developer (Lagandaon v. CA, G.R. Nos. 102526-31, May 21, 1998).

1. If the buyer has paid at least two (2) years of installments:
a. The buyer must pay, without additional interest, the unpaid
installments due within the total grace period earned by him.
There shall be one (1) month grace period for every one (1) year of
installment payments made (R.A. 6552, Sec. 3).
Note: This right shall be exercised by the buyer only one every five
(5) year of the life of the contract and its extensions (R.A. 6552,
Sec. 3).
b. Actual cancellation can only take place after thirty (3) days from
receipt by the buyer of the notice of cancellation or demand for
rescission by a notarial act and upon full payment of the cash
surrender value to the buyer (Olympia Housing v. Panasiatic Travel
Corp., G.R. No. 140468, January 16, 2003( R.A> 6552, Sec. 3).
c. Cancellation of Contract
For a valid and effective cancellation of the contract under the
Maceda Law, the mandatory twin requirements of a notarized
notice of cancellation and refund of the cash surrender value must
be compiled with (Gatchalian Realty Inc., v. Angeles, G.R. No.
202358, November 27, 2013).
Note: The seller shall refund to the buyer the cash surrender value
of the payments on the property equivalent to fifty percent (50%)
of the total payments made. After five (5) years of installments,
there shall be an additional five percent (5%) every year but not to
exceed ninety percent (90%) of the total payments made (R.A.
6552, Sec. 3).
79
The right of the buyer to refund accrues only when he has paid at
least two years of installments (Manuel Uy & Sons, Inc., v.
Valbueco, Inc., G.R. No. 179594, September 11, 2013).
d. The buyer shall have the right to sell his rights or assign the same
to another person OR to reinstate the contract by updating the
account during the grace period and before actual cancellation of
the contract (R.A. 6552, Sec. 5).
e. The buyer shall have the right to pay in advance any installment or
the full unpaid balance of the purchase price ant time without
interest and to have such payment annotated in the certificate of
title covering the property (R.A. 6552, Sec. 6).
2. If Buyer has paid less than two (2) years of installments:

a. The seller shall give the buyer a grace period of not less than sixty
(60) days from the date the installment became 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 contract by a notarial
act (R.A. 6552, Sec. 4).
b. The buyer shall have the right to sell his rights or assign the same
to another person or to reinstate the contract by updating the
account during the grace period and before the actual cancellation
of the contract (R.A. 6552, Sec. 5).
c. The buyer shall have the right to pay in advance any installment or
the full unpaid balance of the purchase price any time without
interest and to have such payment annotated in the certificate of
title covering the property (R.A. 6552, Sec. 6).
Note: Section 4 of R.A. 6552 is the provision applicable to buyers who

have paid less than two (2) years-worth of installments. The provision
provides for three (3) requisites before the seller may actually cancel
the subject contract: first, the seller shall give the buyer a 60-day
grace period to be reckoned from the date the installment became
due; second, the seller must give the buyer a notice of
cancellation/demand for rescission by notarial act if the buyer fails to
pay the installments due at the expiration of the said grace period;
and third, the seller may actually cancel the contract only after thirty
(30) days from the buyer’s receipt of the said notice of
cancellation/demand for rescission by notarial act (Optinum
Development Bank v. Sps. Jovellanos, G.R. No. 189145, December 4,
2013).
Note: Down payments, deposits or options on the contract shall be included in

the computation of the total number of installment payments made (R.A. 6552,
Sec. 3).
80
Remedies of the Buyer
1. In case of Immovables –
a. Suspension of payment (Civil Code, Art. 1590).
Note: When the disturbance is caused by non-apparent servitude,

the remedy is rescission, not suspension of payment (Civil Code,
Art. 1560).
b. In case of Subdivision or Condominium Projects (P.D. 957, The

Subdivision and Condominium Buyer’s Protective Decree)
Non-forfeiture of Payments
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 same (P.D. 957,
Section 23).
c. Right to the grace period stipulated

When a grace period is provided for in the contract of sale, it
should be construed as a right, not an obligation of the debtor and
when unconditionally conferred, the grace period is effective
without further need of demand either calling for the payment of
the obligation or for honoring the right (Bricktown Development
Corp. v. Amor Tierra Development Corp., G.R. No. 112182,
December 12, 1994).
In the sale of immovable property, the buyer has the right to pay
even after the expiration of the period agreed upon, as long as no
demand for rescission of the contract has been made upon him
either judicially or by a notarial act (Civil Code, Art. 1592).
2. In case of Movables –
a. In case of failure of seller to deliver, the buyer may seek action for
specific performance, without giving the seller the option of
retaining the goods on payment of damages. The judgment may be
unconditional, or upon such terms and conditions as to damages,
payment of the price and otherwise, as the court may deem just
This article applies only where the goods to be delivered are

specific or ascertained (Civil Code, Art. 1598).
b. In case of breach of seller’s warranty, the buyer may, at his

election, avail of the following remedies:
i. Recoupment – Accept or keep the goods and set up the
seller’s breach to reduce or extinguish the price;
81
Remedy of recoupment must be exercised in relation to
the same transaction:
Recoupment must arise out of the contract or transaction
upon which the plaintiff’s claim is founded. To be entitled to
recoupment, the claim must arise from the same transaction.
That there was a series of purchases made by petitioners
could not be considered as a single transaction (First United
Constructors Corporation v. Bayanihan Automotive
Corporation, G.R. No. 164985, January 15, 2014).
ii. Accept the goods and maintain an action for damages for
breach of warranty;
iii. Action or counterclaim for damages – Refuse to accept the
goods and maintain an action for damages for breach of
warranty; or
iv. Rescission – Rescind the contract and refuse to receive the
goods; or if goods have already been received, return them
or offer to return them and recover what was paid or any
part of it concurrently with return or immediately after it
These are alternative remedies, without prejudice to

paragraph 2 of Article 1191 of the Civil Code (a party may
still seek rescission after choosing specific performance if
the latter is impossible) (De Leon, Sales supra at 396).
Theory of Recoupment
The seller’s damages are cut down to an amount which will
compensate him for the value of what he has given (De
Leon, Sales supra at 396-397).
When Rescission by Buyer Not Allowed:

1. If the buyer accepted the goods knowing the breach of
warranty without protest;
2. If he fails to notify the seller within a reasonable time of
his election to rescind; or
3. If he fails to return or offer to return the goods in
substantially as good condition as they were in at the
time of the transfer of ownership to him (Civil Code, Art.
1599, Par. 4(3)).
Rights and Obligations of Buyer in Case of Rescission:

1. Buyer shall cease to be liable for the price, his only
obligation being to return the goods (Civil Code, Art.
1599, Par. 4(4));
2. If he has paid the price or any part thereof, he may
recover it from the seller (Civil Code, Art. 1599, Par.
4(4));
82
3. He has the right to hold the goods as bailee for the seller
should the latter refuse to accept the offer of the buyer to
return the goods (Civil Code, Art. 1599, Par. 4 (5)); and
4. He has a right to have a lien on the goods for any portion
of the price already paid which such lien may be enforced
as if he were an unpaid seller (Civil Code, Art. 1599, Par.
4 (5)).
c. Suspension of payments in anticipation of breach:

Applicable in the following cases:
i. Where the vendee is disturbed in possession or ownership of
the thing bought; or
ii. Vendee has reasonable ground to fear that his possession or
ownership would be disturbed (by a vindicatory action or a
foreclosure of a mortgage) (Civil Code, Art. 1590).
NOT applicable in the following cases:

i. If the vendor gives security for the return of the price
(Civil Code, Art. 1590);
ii. If it has been stipulated that notwithstanding such
contingency, the vendee is bound to make the payment
(Civil Code, Art. 1590);
iii. If the vendor has caused the disturbance or danger to
cease (Bareng v. CA, G.R. No. L-12973, April 25, 1960);
iv. If the disturbance is a mere act of trespass (Civil Code,
Art. 1590); or
v. If the vendee has fully paid the price (De Leon, Sales
supra at 374).
d. In case of sale of goods by sample or by description, the buyer may

demand rescission;
i. In a contract of sample or description, if the bulk of the
goods do not correspond to the sample or description; or
ii. In sale by description and sample, if the bulk of the goods do
not correspond with the sample and description (Civil Code,
Art. 1481).
Sale by Description
Purchaser has not seen the article sold and relies on the
description given to him by the vendor, or has seen the
goods but the wand of identity is not apparent on inspection
Sale by Sample
It must appear that the parties contracted solely with
reference to the sample, with the understanding that the
bulk was like it (De Leon, Sales supra at 119).
Sale by Description and by Sample
83
The goods must satisfy all the warranties appropriate to
either kind of sale (De Leon, Sales supra at 119).
Buyer’s Right to Specific Performance

In case the seller should violate his obligation to make
delivery, the buyer as a matter of right can demand specific
performance upon application to the court (Civil Code, Art.
1598).
The seller cannot retain the goods on payment of damages

Reason: Payment of damages is not a substitute for specific

performance. It is imposed by law to insure fulfillment of the
contract (De Leon, Sales supra at 394).
The judgment or decree by the court may be unconditional,

or upon such terms and conditions as to damages, payment
of the price and otherwise, as the court may deem just (Civil
Code, Art. 1598).
84
XIV. RISK OF LOSS AND DETERIORATION AND ITS EFFECTS
1. Before Perfection
The thing perishes with the owner (res perit domino) (Civil Code, Art.
1504).
Seller still owns the thing because there is no delivery or transfer of

ownership yet. Hence, the seller bears the risk of loss (Villanueva, Sales
supra at 345-346).
2. At Perfection
Res perit domino applies (Civil Code, Art. 1504).
a. If the thing is entirely lost, the contract is without effect (Civil
Code, Art. 1493 [1]).
b. If the thing should have been lost in part only, the buyer may
choose between:
i. Withdrawing from the contract; or
ii. Demanding the remaining part, paying its proportionate
price (Civil Code, Art. 1493, Par. 2).
Note: As there is no distinction, even if the loss is not substantial,

res perit domino applies (Pineda, Sales supra at 109).
The contract is considered void or inexistent because the object did

not exist at the time of the transaction. Any action for the
enforcement of such void contract can be defeated by a motion to
dismiss or by setting up a counter-claim for the declaration of its
nullity (Pineda, Sales supra at 108).
3. After Perfection but Before Delivery

a. Loss
General Rule: Who bears the risk of loss is governed by the
stipulations in the contract.
85
In the absence of stipulation: there are two conflicting views
First View:Res perit creditori or buyer bears the risk of loss

(according to Paras, Vitug, Padilla and De Leon).
Justification: Art. 1504 of the Civil Code, which embodies res

perit domino, only covers goods.
The obligation to pay on the part of the buyer is not extinguished

(as he is not the obligor) (Villanueva, Sales supra at 349).
Under the Roman Law, the reciprocal obligations of the parties are
considered distinct stipulations.
Under the same law, “the risk of the thing sold passes to the buyer,
even though he has not received the thing. For the seller is not
liable for anything which happens without his fraud or negligence
xxx”.
Pursuant to Article 1537 of the Civil Code, the vendee must also
bear the resulting disadvantages before the delivery but after the
contract has been perfected.
This theory is an exception to the rule of res perit domino.
Pursuant to Article 1262 of the Civil Code, if the thing is lost or

destroyed without the fault of the debtor (or seller in case of sale),
the obligation to deliver is extinguished but the obligation to pay,
shall subsist (Pineda, Sales supra at 70).
Second View:Res perit domino or seller bears the risk of loss

(according to Tolentino, Jurado, Baviera and Villanueva).
Justification: Dr. Tolentino opines that in reciprocal obligations,

the extinguishment of the obligation due to loss of the thing affects
both debtor and creditor; the entire juridical relation is
extinguished. Under this law, the rule on loss under Article 1189
would be different from the rule on deterioration – the loss would
be for the account of the seller, while the deterioration would be
for the account of the buyer (this view is affirmed by Baviera).
According to Justice Jurado, this view is more just and equitable

and more in conformity with the principle of res perit domino.
According to Dean Villanueva, this view would make Articles 1480

and 1538 consistent with provisions of Article 1504 (Villanueva,
According to Pineda:
i. Ownership is transferred only after delivery;
86
ii. Art. 1480, Par.3, is an expression of the general rule that the
risk is not imputed to the vendee until after delivery; and
iii. The contract is reciprocal. If the vendee cannot have the
thing, it is illogical and unjust to make him pay the price
(Pineda, Sales supra at 69).
b. Deterioration
Impairment is borne by the buyer if the thing deteriorates without
the fault of the seller (Civil Code, Art. 1189, Par.3).
If it deteriorates through the fault of the debtor, the creditor may

choose between the rescission of the obligation and its fulfillment
with indemnity for damages in either case (Civil Code, Art. 1189,
Par.4).
4. After Delivery
Res perit domino applies
The buyer is the owner, hence, the buyer bears risk of loss (Civil Code,
Art. 1504).
Exceptions:
a. Where the delivery has been made either to the buyer or to the
bailee for the buyer, but ownership in the goods has been retained
by the seller merely to secure performance by the buyer of his
obligations under the contract; and
b. 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
(Civil Code, Art. 1504, [1] & [2]).
87
XV. EXTINGUISHMENT OF SALE
Causes of Extinguishment
1. Same causes as in all other obligations (Civil Code, Arts. 1231, 1600);
2. Conventional Redemption (Civil Code, Arts. 1601-1618); or
3. Legal Redemption (Civil Code, Arts. 1619-1623).
Note: Conventional and legal redemption applies both to perfected and

consummated contracts since there is no distinction made in the law (Asiatic
Comm. Co. v. Ang, 40 O.G. [11th S] No. 15, p. 102).
Payment or performance only extinguishes the obligations to which they pertain

to in a contract of sale, but not necessarily the contract itself since the
relationship between buyer and seller remains after the performance or
payment, such as the continuing enforceability of the warranties of the seller
(Villanueva, Sales, supra at 515).
Causes of Extinguishment, in General: (PaLoCo³-PARe-FuN)

1. Payment or performance of obligation;
2. Loss of the thing due;
3. Condonation or remission of debt;
4. Confusion or merger of rights;
5. Compensation
6. Prescription;
7. Annulment;
8. Rescission
9. Fulfillment of a resolutory condition; or
10.Novation (Civil Code, Art. 1231)
Conventional Redemption
The right which the vendor reserves to himself to reacquire the property sold,
provided he returns to the vendee: (PEONU)
88
1. Price of the sale;
2. Expenses of the contract;
3. Any Other legitimate payments made therefore;
4. Necessary expenses made on the thing sold; and
5. Useful expenses made on the thing sold (Civil Code, Arts. 1601 & 1616).
Nature of Conventional Redemption: (CAP²OR³M)

1. Purely Contractual (Ordonez v. Villaroman, G.R. No. L-238, March 13,
1947);
2. Accidental (Alojado v. Lim Siongco, G.R. No. 27084, December 31, 1927);
3. Potestive (Civil Code, Art. 1182);
4. Power or privilege (Ocampo v. Potenciano, G.R. No. L-2263, May 30,
1951);
5. Person entitled to exercise is necessarily the Owner (Quimson v. PNB,
G.R. No. L-24920, November 24, 1970);
6. Real right (Civil Code, Art. 1608);
7. Resolutory condition (Civil Code, Art. 1179);
8. Gives Reciprocal obligation (Civil Code, Art. 1616); and
9. Reserved at the Moment of the perfection of contract (Diamante v. CA,
G.R. No. L-51824, February 7, 1992).
Proper Reservation of Right to Repurchase

The right to redeem must be reserved by the seller through a stipulation to that
effect in the contract of sale (Villarica v. CA, G.R. No. L-19196, November 29,
1968).
For a sale to be one a retro, the right must be reserved in the same sale
contract (Torres v. CA, G.R. No. 134559 December 9, 1999).
The essence of a pacto de retro sale is that title and ownership of the property
sold is immediately vested in the vendee a retro, subject to the restrictive
condition of repurchase by the vendor a retro within the redemption period
(Misterio v. Cebu State College of Science and Technology, G.R. No. 152199,
June 23, 2005).
Parol Evidence: The right of repurchase may be proved by parol evidence

when the contract of sale has been reduced in writing (Mactan Cebu
International Airport Authority v. CA, G.R. No. 121506, October 30, 1996).
Right to Redeem v. Option to Purchase
Right to Redeem Option to Purchase

Nature
Not a separate contract but merely Generally, it is a principal contract and
part of the main contract of sale may be created independent of
another contract
Consideration
Does not need its separate To be valid, it must have a
consideration in order to be valid and consideration separate and distinct
effective from the purchase price
Maximum Period for Exercise of the Right
Cannot exceed ten (10) years May be beyond ten (10) years
89
How Exercised
There must be a tender of payment of May be exercised by notice of its
the amount required by law, including exercise to the offeror.
consignment thereof if tender of
payment cannot be made effectively on
the buyer
Period of Redemption
When No Period is Agreed Upon
It shall last for four (4) years from the date of the contract (Civil Code, Art.
1606).
However, in Misterio v. Cebu State College of Science and Technology, the 4-

year period was held to begin from the happening of the stipulated condition
contained in the covering deed of sale rather than from the date of the contract,
and even when the entire covered period from the date of the contract would
exceed ten years (G.R. No. 152199, June 23, 2005).
When Period is Agreed Upon

The period cannot exceed ten (10) years (Civil Code, Art. 1606). If it exceeds ten
(10) years, the agreement is valid only for the first ten (10) years.
When a period of redemption is agreed upon by the parties in a sale a retro,

although the period agreed upon may be unclear or void, it is the 10-year period
and not the ²-year period that shall apply (Tayao v. Dulay, G.R. No. L-21160,
April 30, 1965).
When the Period Agreed Upon is “Indefinite”

(e.g. vendor a retro shall repurchase “at any time he has money” or vendor will
redeem “within the month of March of any year”), the time of redemption is
within ten (10) years from execution of contract (Pineda, Sales supra at 38).
Note: The right to redeem becomes functus officio on the date of its expiry and
its exercise after the period is not really one of redemption but a repurchase
Pendency of Action Tolls redemption Period

The pendency of an action brought in good faith and relating to the validity of a
sale a retro tolls the running of the period of redemption (Ong Chua v. Carr,
G.R. No. L-29512, January 17, 1929).
Non-payment of price does not affect the running of the redemption period
(Catangcatang v. Legayada, G.R. No. L-26295 July 14, 1978).
Possession of the Subject Matter During Period of Redemption

Buyer has a right to the immediate possession of the property sold, unless
otherwise agreed upon. This is subject only to the resolutory condition of
repurchase by the seller a retro within the stipulated period (Solid Homes, Inc.
v. CA, G.R. No. 117501, July 8, 1997).
Exercise of Redemption
90
Tender of payment is sufficient to compel redemption, but is not in itself a
payment that relieves the vendor from his liability tp pay the redemption price
(Paez v. Magno, G.R. No. L-793, April, 27, 1949).
It is enough for the vendor a retro to tender the repurchase price at the time of
redemption. The other amounts provided under Article 1616 of the Civil Code
may be paid afterwards (Tolentino, Civil Code, supra). Tender of payment is
needed in order to show that the repurchase was made within the redemption
period.
Consignation Is Required If:

1. The vendee a retro refuses to accept the redemption price (De Leon,
Sales, supra at 453);
2. When a judicial action has already been filed to enforce compliance with
the contract of sale with right of repurchase (De Leon, Sales supra at
454).
In Catangtang v. Lagayada, consignation is imperative when the tender of

payment cannot be validly made because the buyer cannot be located and
failing to do so within the redemption period, the right of redemption shall lapse
(G.R. No. L-26295, July 14, 1978).
In case of multi-parties:
The buyer of a part of an undivided immovable who acquires the whole thereof
in the case of Article 498 of the Civil Code may compel the seller to redeem the
whole property, if the latter wishes to make use of the right of redemption (Civil
Code, Art. 1611).
Illustration: A, B, and C are co-owners of an undivided parcel of land. A sold

his undivided portion to D with right to repurchase. As a result of a partition, D
who is now one of the co-owners, acquired the whole land after paying the
portions belonging to B and C. if A would like to repurchase the portion sold by
him, D may compel him to redeem the entire parcel of land so that the property
will not revert to a state of co-ownership.
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 (Civil Code, Art. 1612).
The buyer may demand of all the vendors or co-heirs that they come to an
agreement upon the repurchase of the whole thing sold; and should they fail to
do so, the buyer cannot be compelled to consent to a partial redemption (Civil
Code, Art. 1613).
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 buyer cannot compel him to redeem the whole property
91
Illustration: X, Y and Z are co-owners of a parcel of land. If they should sell the
property to B with the right to repurchase in the contract, each one of them
may exercise that right only as regards his own share or for one-third portion of
the property.
The same rule applies if C is the sole owner of the land and he sold it with right
to repurchase B and should he die and leave X, Y and Z as his heirs. Each one of
the, can only exercise the right of redemption for the one-third portion he has
inherited.
But B can demand that they come to an agreement upon the repurchase of the
whole property by all of them or any one of them. If they do not do so, B cannot
be compelled to assent to a partial redemption (Civil Code, Art, 1611).
If X, Y and Z sold their respective shares to B with the right of repurchase in

separate instruments and at different dates, each one of them may exercise his
right independently of the others and B cannot compel him to redeem the whole
property.
If the vendee should leave several heirs, the action for redemption cannot be
brought against each of them except for his own share, whether the thing is
undivided or it has been partitioned among them. But if the inheritance has
been divided and the thing sold has been awarded to one of heirs, the action for
redemption may be instituted against him for the whole (Civil Code, Art. 1615).
Illustration: S sold his parcel of land to B with right to repurchase. Then B died
leaving C, D, and E as his heirs. The right of redemption of S is against each of
the heirs only for his respective share or for one-third of the property. If the
property has been awarded to C by partition, then the action of redemption may
be instituted against him for the entire property.
In De Guzman v. CA, the Court held that under the rules in Article 1612 of the
Civil Code, should one of the co-owners or co-heirs succeed alone in redeeming
the whole property, such co-owner or co-heirs shall be considered as a mere
trustee with respect to the shares of his co-owners or co-heirs; accordingly no
prescription will lie against the right to any co-owner or co-heir to demand from
the redemptioner his respective share in the property redeemed (G.R. No. L-
47378, February 27, 1987).
In case of real property, the consolidation of ownership in the buyer shall not be
recorded in the Registry of Property without a judicial order, after the seller has
been duly heard (Civil Code, Art. 1607).
Art. 1607 of the Civil Code abolished automatic consolidation of title in the
buyer (a retro) upon expiration of the redemption period by requiring the buyer
to institute an action for consolidation where the vendor (a retro) may be heard
(Villanueva, Sales supra at 528).
92
Notwithstanding Article 1607 of the Civil Code, the recording of the
consolidation of ownership is not a condition sine qua non to transfer the
ownership (Villanueva, Sales supra at 529).
Grant of 30-day Redemption Right in Case of Litigation

When the period of redemption has expired, then ipso jure the right to redeem
has been extinguished. However, even when the right to redeem has expired
and there has been a previous suit on the nature of the contract, the seller may
still exercise the right to repurchase within thirty (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 (Civil Code, Art. 1606 [3]).
Non-Applicability
1. This is not applicable to absolute sale, pure and simple. This is applicable
only where the nature or character of the transaction, as to whether it is
a pacto de retro sale or equitable mortgage, was put in issue before the
court. It refers to cases where one of the parties contests or denies that
the true agreement is one of sale with right of repurchase (Tapas v. CA,
G.R. No. L-22202, February 27, 1976);
2. Neither does it apply when the sale is known and admitted by the vendor
as pacto de retro (Tapas v. CA, G.R. No. L-22202, February 27, 1976); and
3. When a party abandoned his position that the transaction was an
equitable mortgage after judicial declaration of transaction as a pacto de
retro sale (Abilla v. Gobonseng, G.R. No. 146651, January 17, 2002).
Fruits
If at the time of the execution of the sale there should be visible or growing
fruits on the land, there shall be no reimbursement for or pro-rating of those
existing at the time of redemption, if no indemnity was paid by the purchaser
when the sale was executed (Civil Code, Art. 1617 [1]).
Should there have been no fruits at the time of the sale and some exist at the
time of redemption, they shall be pro-rate between the redemptioner and the
buyer, giving the latter the part corresponding to the time he possessed the land
in the last year, counted from the anniversary of the date of the sale (Civil Code,
Art. 1617 [2]).
Applicability
The article applies only when there is no sharing agreement with respect to the
fruits existing at the time of redemption, otherwise such agreement will control.
It refers only to natural and industrial fruits. Civil fruits are deemed to accrue
daily and belong to the vendee in that proportion (Villanueva, Sales supra at
455).
Equitable Mortgage
One that lacks the proper formalities or other requisites prescribed by law for a
mortgage, but shows the intention of the parties to make the property subject of
93
the contract as security for a debt and contains nothing impossible or contrary
to law (Cachola v. CA, G.R. No. 97822, May 7, 1992).
Requisites for Presumption of Equiptable Mortgage:

1. Parties entered into a contract denominated as sale; and
2. Their intention was to secure an existing debt by way of mortgage
(Romulo v. Sps. Layug, G.R. No. 151217, September 8, 2006).
Note: When in doubt, courts are generally inclined to construe a transaction

purporting it to be a sale as an equiptable mortgage, which involves a lesser
transmission of rights and interest over property in controversy (Civil Code, Art.
1603; Salonga v. Concepcion, G.R. No. 151333, September 20, 2005).
When Presumed: (T-PERIOD)

1. Vendor binds himself tp pay the Taxes of the thing sold (Lumayag v. Heirs
of Nemeno, G.R. No, 162112, July 3, 2007);
2. Possession by the vendor remains, as lessee or otherwise (Capulong v.
CA, G.R. No. L-61337, June 29, 1984);
3. Extension of redemption period after expiration (Lacorte v. CA, G.R. No.
124574, February 2, 1998);
4. Retention by the vendee of part of the purchase price (Camus v. CA, G.R.
No. 102314, May 26, 1993);
5. Unusually Inadequate purchase price (Cachola v. CA, G.R. No. 97822,
May 7, 1992);
6. Any Other case where the parties really intended that the transaction
should secure the payment of a debt or the performance of any obligation
(Civil Code, Art. 1602); or
7. When there is Doubt as to whether contract is contract of sale with right
of repurchase or an equitable mortgage (Civil Code, Art. 1603).
Note: in the cases referred to in Arts. 1602 and 1604 of the Civil Code, the
apparent vendor may ask for the reformation of the instrument.
Pacto de Retro v. Mortgage
Pacto de Retro Mortgage

Nature
Ownership is immediately transferred, Ownership is not transferred but the
subject to the resolutory condition of property is merely subject to a charge
repurchase by the vendee. or lien as security
Interest
Failure of seller to repurchase loses all Mortgagor does not lose his interest if
his interest in the property, title to he fails to pay his debt at maturity but
which vests upon the buyer by subjects the property to foreclosure
operation of law and public sale
Foreclosure and Redemption
No obligation upon the purchaser to Duty of the mortgagee to foreclose if
foreclose nor the vendor to redeem he wishes to secure a perfect title
after the maturity of the debt thereto and mortgagor has right to
redeem after maturity of the debt and
before foreclosure
(De Leon, Sales, supra at 406-407)
94
Remedy of Reformation
To correct the instrument so as to make it express the true intent of the parties
Reason behind the Provisions on Equiptable Mortgage: To curtail

circumvention of the usury law and public policy on pactum commissorium
(Ching Sen Ben v. CA, G.R. No. 124355, September 21, 1999).
Applicability to Deeds of Absolute Sale

The provisions of Article 1602 on equitable mortgage shall also apply to a
contract purporting to be an absolute sale (Civil Code, Art. 1604).
This holds true if needed, the real intention of the parties is that the transaction
shall secure the payment of a debt or the performance of any other obligation
(Cruz v. CA, G.R. No. 143388, October 3, 2003).
Proof by Parol Evidence

Parol evidence may be adduced to prove the agreement granting the seller a
right to repurchase the property sold, since the deed of sale and the verbal
agreement allowing the right of repurchase should be considered as an integral
whole (Mactan Cebu International Airport Authority v. CA, G.R. No. 121506,
October 30, 1996).
Effects when Sale is Adjudged as an Equitable Mortgage:

1. The apparent seller may ask for the reformation of the instrument (Civil
Code, Art. 1605).
2. Money, fruit or other benefit to be received by the buyer as rent or
otherwise shall be considered as interest (Civil Code, Art. 1602).
3. The court may decree that “vendor-debtor” pay his outstanding loan to
the “vendee-creditor” (Banga v. Bello, G.R. No. 156705, September 30,
2005).
4. A remand of the case to the trial court where the latter did not pass upon
the mortgagor’s claim that he had paid his mortgage obligation, for the
purpose of the determining whether said obligation has been paid, and if
not, how much should still be paid (Banga v. Bello, G.R. No. 156705,
September 30, 2005).
Pactum Commissorium
A stipulation for automatic vesting of title over the security in the creditor in
case o debtor’s default (Villanueva, Sales, supra at 536).
The creditor cannot appropriate the things given by way of pledge or mortgage
or dispose of them, otherwise that would result in pactum commissorium. The
proper remedy is foreclosure of the mortgage. If there is no foreclosure, the
debtor retains the ownership (Vasquez v. CA, G.R. No. 144882, February 4,
2005).
95
Pactum commissorium applies only when the covering transaction is a mortgage
or other security contracts and has no application to a true sale or transfer
transaction (Vda. De Zulueta v. Octaviano, G.R. No. L-55350, March 28, 1983).
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:
1. Purchase;
2. Dation in payment; or
3. Any other transaction whereby ownership is transferred by onerous title
It may be effected against movables and immovable (U.S. v. Caballero, G.R. No.
8608, September 26, 1913).
It is not available in cases of donation, succession, barter, mortgage or lease

Reason: Under Art. 1619 of the Civil Code, legal redemption may take place in
purchase, dation in payment and in “any other transaction whereby ownership
is transferred by onerous title”.
Illustration: B, owner of a land adjoining the land of A. A donated it to X. in

this case, B cannot exercise legal redemption to acquire the property from X
since the latter acquired the adjoining lot gratuitously through donation and not
by onerous title.
It operates only one way and in favor of the redemptioner. Not having parted
with anything, the legal redemptioner can compel the purchaser to sell but the
former cannot be compelled to buy (De Leon, Sales supra at 460).
In sales of property approved by the court in testate or intestate proceedings

for the purpose of raising funds for payment of debts of the estate are final and
are not subject to legal redemption unlike in ordinary execution sales (Plan v.
IAC, G.R. No. L-65656, February 28, 1985).
It must be exercised within thirty (30) days from the notice in writing by the
vendor (Civil Code, Art. 1623).
Art. 1623 of the Civil Code does not prescribe any distinctive method for
notifying the redemptioner (Etcuban v. CA, G.R. No. L-45164, March 16, 1987).
There is no prescribed form for an offer to redeem to be properly effected. What

is paramount is the use of the fixed and definite period within which to exercise
the right of legal redemption (Lee Chuy Realty Corporation v. CA, G.R. No.
104114, December 1, 1995).
Basis and Nature of the Right of Legal Redemption

Source of the right proceeds from the law, which creates it. However, it may be
converted into one of conventional redemption (De Leon, Sales supra at 459).
96
Legal redemption is in the nature of a mere privilege created partly for reason
of public policy and partly for the benefit and convenience of the redemptioner
(Basa v. CA, G.R. No. L-30994, September 30, 1982).
It is not predicated on proprietary right but on a bare statutory privilege to be

exercised only by the person named in the statute. The statute does not make
actual ownership at the time of sale or redemption a condition precedent, the
right following the person and not the property (Magno v. Viola and Sotto, G.R.
No. 37521, December 22, 1934).
It is intended to minimize co-ownership, the latter being not favored by law (De
Conventional Redemption v. Legal Redemption
Conventional Legal
As to Constitution
By express reservation in a contract of Does not have to be expressly reserved
sale at time of perfection and covers sales and other “onerous
transfers of title”
As to Who may Exercise the Right
In favor of the seller Given to a third party to the sale
As to the Effect of its Exercise
Extinguishes the underlying contract Actually constitutes a new sale in
of sale as though there was never any substitute of the original sale
contract at all
(Villanueva, Sales supra at 548-549)
Pre-emption v. Redemption
Pre-Emption Redemption
As to Time of Exercise of Right
Arises before sale Arises after sale
Remedy of Rescission
No rescission because the sale does There can be rescission of the original
not yet exist sale
Against Whom the Action is Directed
The action is directed against the Action is directed against the buyer
prospective seller
(De Leon, Sales supra at 474)
Requirements for the Exercise of the Right of Pre-Emption or

Redemption:
1. The one exercising the right must be an adjacent owner;
2. The piece of urban land sold must be so small and so situated that major
portion thereof cannot be used for any practical purpose within
reasonable time; and
3. Such urban land was bought by its owner merely for speculation (Civil
Code, Art. 1622)
Instances of Legal Redemption:

1. Under the Civil Code:
97
a. Sale of a Co-owner of His Share to A Stranger (Civil Code, Art.
1620)
Requisites: (BRACES)
i. The sale must be Before partition (De Leon, Sales supra at
465);
Notes: The basis of the right of legal redemption is the status of

an owner (Butte v. M. Uy & Sons, Inc., G.R. No. L-15499,
February 28, 1962).
ii. The vendee must be Reimbursed for the price of the sale (De
Leon, Sales supra at 465);
iii. There must be Alienation of all or any of the shares of the
co-owners (De Leon, Sales supra 465);
iv. There must be subsisting Co-ownership;
Purpose: The rule proceeds on the theory that the privilege
conferred upon the co-owner to redeem is intended to
facilitate the termination of ownership in common, which
may be an obstacle in the development of property, of
industry and of wealth, and to consolidate the dominion in a
sole owner (Magno v. Viola and Sotto, G.R. No. 37521,
December 21, 1934).
v. The right must be Exercised within the period provided in

Art. 1623 of the Civil Code (De Leon, Sales supra at 465);
and
vi. The sale must be made to a Stranger, i.e., anyone who is not
a co-owner. The term “third person” or “stranger” refers to
all persons who are not heirs in succession and be heirs are
meant only those who are called either by will or the law to
succeed the deceased and who actually succeeds (Villanueva
v. Florendo, G.R. No. L-33158 October 17, 1985).
When the portion is sold to another co-owner, the right of

redemption does not arise (Estrada v. Reyes, G.R. No. L-10329
December 24, 1915).
If the price is grossly excessive, the redemptioner shall pay only a

reasonable one. This is to prevent collusion between the purchaser
and the selling co-owner. The payment of reasonable price requires
tender of payment and consignation of the price, independently of
the size of the redemptioner’s share in the co-owned property
(Pineda, Sales supra at 390).
The co-owners may only exercise redemption in proportion to the

share they may respectively have (Civil Code, Art. 1620, Par.2).
The right of redemption of co-owners excludes that of adjoining

owners (Civil Code, Art. 1623).
98
If a property of a co-ownership is partly sold by a co-owner, the
others must be informed so that they can exercise the right of
redemption (Cabales v. CA, G.R. No. 162421, August 31, 2007).
Reason: In order to remove all uncertainties about the sale, terms

and conditions, as well as its efficacy and status (Verdad v. CA, G.R.
No. 109972, April 29, 1996).
Exception: Co-owners with actual notice of the sale (Spouses Si v.

CA, G.R. No. 122047, October 12, 2000).
Contents of Written Notice of Sale

The notice, which Article 1623 of the Civil Code requires to be
made, is a notice not only of a perfected sale but of the actual
execution and delivery of the deed of sale. This is implied from the
second sentence of Art. 1623 of the Civil Code (De Leon, Sales
supra at 484).
Illustration of Legal Redemption between Co-owners: A, B

and C are co-owners of an undivided property valued at Php50,000.
A sells his interest to D for P20,000. B or C may exercise the right
of redemption by reimbursing D of the price of the sale. If both B
and C redeem the interest sold by A, each of them shall pay
P10,000 to D which is the proportion of their respective shares in
the co-ownership. If the price of P20,000 is grossly excessive, the
same may be equitably reduced by the court.
Co-owners have no right of legal redemption against each other

(Felicas v. Colegado, G.R. No. L-23374, September 30, 1970).
Art. 1620 Does NOT Apply When:

1. The thing owned in common had been partitioned, judicially or
extra-judicially;
2. The shares of all co-owners are sold; or
3. The thing owned in common had been offered for sale by co-
owners (De Leon, Sales supra at 468).
b. When A Credit or Other Incorporeal Right in Litigation is

Sold
Requisites: (SAP²E)
i. There must be a Sale or Assignment of a credit;
ii. The credit or right must be the subject of a Pending
litigation at the time of its assignment or sale, i.e. that an
answer to the complaint is already filed;
iii. The debtor must Pay the assignee:
1. The price paid;
2. Judicial costs; and
3. Interest on the price;
iv. The right must be Exercised by the debtor within thirty (30)
days from the date the assignee demands (judicially or
99
extrajudicially) payment from him (Civil Code, Art. 1634; De
c. Sale of an Heir of His Hereditary Rights to a Stranger

Should any of the heirs sell his hereditary rights to a stranger
before partition, any or all of the co-heirs may be subrogated to
the purchaser by reimbursing him for the price of the sale within
one (1) month from the time they were notified in writing of the
sale by selling co-heir (Civil Code, Art. 1088).
There is no right of legal redemption when the sale covers a

particular property of the estate since the right of legal redemption
applies only to the sale by an heir of his hereditary right (Plan v.
IAC, G.R. No. L-65656, February 28, 1985).
When the subject matter was a particular property and not

hereditary right, the redemption by co-owner redounds to the
benefit of all other co-owners; while redemption by a co-heir is
only for his own account.
d. Sale of Adjacent Rural Lands Not Exceeding One (1) Hectare

This right is not applicable to adjacent lands separated by brooks,
drains, ravines, roads and other apparent servitudes for the benefit
of other estates (Civil Code, Art. 1621).
Requisites: (RATE-OS)
i. Both the land of the one exercising the right of redemption
and the land sought to be redeemed must be Rural;
A rural land refers to a land adapted and used for

agricultural or pastoral purposes. It is principally used for
the purpose of obtaining products from the soil (De Leon,
The intention of the law is the promotion and protection of

agriculture by the union of small agricultural lands under
one owner for better exploitation of the two lands (Fabia v.
IAC, G.R. No. L-66101, November 21, 1984).
ii. The lands must be Adjacent;

iii. There must be alienation in favor of a Third person, not in
favor of another adjacent owner;
Purpose: To prevent the passing of the land to the hands of
strangers whose possession over the same will not be fore
public welfare (Del Pilar v. Catindig, G.R. No. 10432,
November 4, 1916)
iv. The piece of rural land alienated must not Exceed one
hectare (10,000 square meters) in area;
100
Purpose: To prevent the creation of big landed estates (10
Mancresa 372).
v. The vendee must be already Own some rural land; and

vi. The rural land sold must not be Separated by brooks, drains,
ravines, roads and other apparent5 servitudes from the
adjoining land
In case two (2) or more adjacent owners desire to exercise the

right of redemption, the law gives preference to the owner of
the adjoining land of smaller are but if both lands have the same
area, to the one who first requested to redeem (Civil Code, Art.
1621, Par.2).
Purpose: To encourage the maximum development and

utilization of agricultural lands (Ortega v. Orcine, G.R. No. L-
28317, March 31, 1971).
e. Sale of Adjacent Small Urban Lands Bought Merely for

Speculation
Requisites: (URAS²)
i. The piece of land is Urban
ii. It is about to be Re-sold or that its re-sale has been
perfected;
iii. The one exercising the right must be an Adjacent owner;
iv. The piece of land sold must be so Small and so situated that
a major portion thereof cannot be used for any practical
purpose within a reasonable time; and
v. Such land was bought for Speculation (Civil Code, Art. 1622;
De Leon, Sales supra at 475).
When the land is about to be resold, the owner of any adjoining

land has a right of pre-emption (Civil Code, Art. 1622, Par.1).
If the resale has been perfected, the owner of adjoining land

has a right of redemption (Civil Code, Art. 1622, Par.2).
When two (2) or more owners of adjoining lands wish to

exercise the right, the owner whose intended use of the land in
question appear best justified shall be preferred (Civil Code,
Art. 1622, Par.3).
Urban does not necessarily refer to the nature of the land itself
sought to be redeemed or to the purpose to which it is devoted,
but to the character of the community or vicinity in which it is
found (De Leon, Sales supra 476).
Purpose: To discourage speculation on real estate and

consequent aggravation of the housing problems in centers of
101
population (Ortega v. Orcine, G.R. No. L-28317, March 31,
1971).
2. Under Special Laws:

a. Equity of Redemption in cases of Judicial Foreclosures
The right must be exercised within a period of not less than ninety
(90) days not more than one hundred twenty (120) days after entry
of judgment or even after the foreclosure sale but prior to
confirmation of sale (GSIS v. Court of First Instance of Iloilo,
Branch III, G.R. No. L-45322, July 5, 1989).
b. Right of Redemption in cases of Extra-Judicial Foreclosures

The right must be exercised within (1) year from and after the date
of sale and registration of the certificate of sale (Lee Chuy Realty
Corp. v. CA, G.R. No. 104114, December 4, 1995).
The execution of dacion en pago by sellers effectively waives the

redemption period normally given by the mortgagor (First Global
Realty and Development Corp. v. San Agustin, G.R. No. 144499,
February 19, 2002).
c. Redemption of Homesteads
Conveyance of land acquired under free patent homestead
provisions shall be subject to repurchase within five (5) years from
the date of conveyance (Public Land Act, Sec. 119).
d. Redemption in tax sales

The delinquent taxpayer may exercise the right within one (1) year
from the date of sale (NIRC, Sec. 214).
e. Redemption by an agricultural tenant of land sold by the

landowner
The agricultural lessee has the right to redeem within one hundred
eighty (180) days from notice in writing (Agrarian Reform Code,
Sec. 12).
f. Redemption in foreclosure by rural banks (R.A. 720)

If the land is mortgaged to a rural bank, mortgagor may redeem
within two (2) years from the date of foreclosure or from the
registration of the sheriff’s certificate of sale at such foreclosure if
the property is not covered or is covered, respectively, by Torrens
Title. If the mortgagor fails to exercise such right, he or his heirs
may still repurchase within five (5) years from expiration of the 2-
year redemption period pursuant to section 119 of the Public Land
Act (Rural Bank of Davao City v. CA, G.R. No. 83992, January
27, 1993).
102
XVI. ASSIGNMENT OF CREDIT
It is a contract by which the owner (assignor/creditor) of a credit and other

incorporeal rights transfers, either onerously or gratuitously, to another
(assignee) his rights and actions against a third person (debtor) (De Leon, Sales
supra at 495).
Nature
1. Consensual, bilateral, onerous and commutative or aleatory contract (De
Leon, Sales supra at 496);
2. The assignment involves no transfer of ownership but merely effects the
transfer of rights which the assignor has at the to the assignee
(Casabuena v. CA, G.R. No. 115410, February 27, 1998); and
3. It may be done onerously or gratuitously (De Leon, Sales supra at 495).
The contract is perfected from the moment the parties agree upon the credit or
right assigned and upon the price even if neither has been delivered (Civil Code,
Art. 1475). However, the assignee will acquire ownership only upon delivery
(Civil Code, Arts. 1498, Par. 2 and 1501).
Contract of Sale v. Assignment of Credit
Contract of Sale Assignment of Credits

Object
Property (PNB v. CA, G.R. No. 11681, Credit, incorporeal rights or rights of
January 6, 1997) action (PNB v. CA, G.R. No. 11681,
January 6, 1997)
Manner of Delivery of Object
Need not be through a public Public instrument (Civil Code, Art.
instrument (Civil Code, Art. 1497) 1625)
Person/s Obligated
Whole world Definite third person (Villanueva,
Sales supra at 573)
When Ownership is Transferred
Transfer of ownership need not be Ownership is transferred upon delivery
upon delivery of the thing. The parties of the documents evidencing the credit
may agree that ownership be of incorporeal rights (constructive
transferred only after full payment delivery) (Villanueva, Sales supra at
(Civil Code, Art. 1478) 576)
Consideration
It is always a requisite (PNB v. CA, Not always a requisite. Action may be
G.R. No. 11681, January 6, 1997) maintained by the assignee based on
his title even if there is no
consideration (PNB v. CA, G.R. No.
11681, January 6, 1997)
(Pineda, Sales supra at 408)
Effects of Assignment
1. It transfers the right to collect the full value of the credit, even if he paid
a price less than such value; and
2. It transfers all the accessory rights (e.g. guaranty, mortgage, pledge,
preference) (Civil Code, Art. 1627);
103
Note: If the period for payment has been extended without the consent of
the guarantor, the assignee cannot go after the former because, as to him
his guaranty is only up to the original period.
Illustration: A obtained a loan (P100,000) from B. to secure the payment

of loan, C mortgaged his property to B. B assigned his credit owing from
A to D. A failed to pay the loan. D can foreclose the mortgage because
being an accessory right, it is deemed included in the assignment.
3. Debtor can set up against the assignee all the defenses he could have set
up against the assignor (Koa v. CA, G.R. No. 84847, March 5, 1998); and
4. Assignee cannot go after the assignor to enforce the credit if through his
own negligence he allowed the credit to prescribe provided the assignee
was given enough time to enforce the said credit.
Illustration: A lends money B on March 30, 2009. A then assigned the

credit to C on April 30, 2009. C demanded payment from B only on May
30, 2019. For ten years, C cannot collect from B since the loan has
already prescribed; neither can he collect from A (the assignor) – he
cannot through his own negligence, (and considering he was given
enough time to enforce the credit) go after the assignor if he cannot
anymore collect from the debtor.
Effectivity against Third Persons:

1. If the assignment involves credit, right or action, a public instrument is
needed to make the assignment effective against third persons.
2. If real property is involved, recording in the Registry of Property would
be needed (Civil Code, Art. 1625).
Effect of Payment by the Debtor after the Assignment of Credit:

1. Before notice of the assignment, payment to the original creditor is
valid and debtor shall e released from his obligation (Civil Code, Art.
1626); or
2. After notice, payment to the original creditor is not valid as against the
assignee. He can be made to pay again by the assignee (De Leon, Sales
supra at 499).
Formal notice is not essential. As long as the debtor has knowledge of the
assignment, he is not released from the responsibility should he pay the
original creditor (Pineda, Sales supra at 412).
The consent of the debtor is not necessary to make an assignment of

credit effective (De Leon, Sales supra at 499).
Reason: His duty to pay does not depend upon his consent to the
assignment. Otherwise, all creditors would be prevented from assigning
their credits because of the possibility of the debtor’s refusal to give
consent (Rodriguez v. CA, G.R. No. 84220, March 25, 1992).
104
Assignment does not result in extinguishing the debtor’s liability, even
when such is effected without his consent (South City Homes, Inc. v. BA
Finance Corp., G.R. No. 135462, December 7, 2001).
Warranties of the Assignor of Credit: (LES)

1. The Legality of the credit unless he sold it as doubtful, (i.e. he is not sure
of the validity of his acquisition of the thing sold which fact he has
disclosed to the assignee);
2. The Existence of the credit at the time of assignment;
3. The Solvency of the debtor, if expressly stipulated, or if the insolvency of
the debtor was prior to the sale and of common knowledge (Civil Code,
Art. 1628).
Liabilities of the Assignor of Credit for Violation of his Warranties:

1. Assignor in Good Faith – Liability is limited only to the price received
and to the expenses of the contract, and any other legitimate payments
by reason of the assignment (Civil Code, Art. 1628, Par.2);
2. Assignor in Bad Faith – Liable not only for the payment of the price and
all the expenses but also for damages (Civil Code, Art. 1628, Par.3).
Legal Redemption in Sale of Credit or Other Incorporeal Right in

Litigation (Civil Code, Art. 1634)
Sale of Credit or Other Incorporeal Rights

General Rule: Debtor has the right of legal redemption in sale of credit or
incorporeal rights in litigation. The debtor must pay the assignee:
1. The price paid by him;
2. The judicial costs incurred; and
3. Interest on the price from the date of payment (Civil Code, Art. 1634)
Exceptions:
1. Sale to a co-heir or co-owner of the right assigned
Reason: the law does not favor co-ownership (De Leon, Sales supra at
511);
2. Sale to a creditor in payment of his credit
Presumption: The assignment is above suspicion and is in the form of
dacion en pago, thus perfectly legal (De Leon, Sales supra at 511).
3. Sale to the possessor of property in question
Purpose: to presumably preserve the tenement, and not to speculate at
the expense of the debtor (De Leon, Sales supra at 511); Civil Code, Art.
1635)
105
XVII. BARTER
Barter
A contract whereby one of the parties binds himself to give one thing in
consideration of the other’s promise to give another thing (Civil Code, Art.
1638).
It is similar to a sale with the only difference that instead of paying a price in
money, another thing is given in lieu thereof (Civil Code, Art. 1468).
A contract whereby one person transfers the ownership of non-fungible things

to another with the obligation on the part of the latter to give things of the same
kind, quantity and quality (Civil Code, Art. 1954).
The use of the term “barter” in describing a contract is not controlling (Baluran
v. Navarro, G.R. No. L-44428, September 30, 1977).
Perfection and Consummation

Perfected from the moment there is meeting of minds upon the things
promised by each party in consideration of the other (Civil Code, Art. 1475).
Consummated from the time of mutual delivery by the contracting parties of

the things promised (Tagaytay Development Corp. v. Osorio, G.R. No. L-46069,
November 16, 1939).
Rules Governing Barter:

1. Where the giver of the thing bartered is not the lawful owner thereof, the
aggrieved party cannot be compelled to deliver the thing which he has
promised. He is also entitled to damages (Civil Code, Art. 1639)
2. Where a party is evicted of the thing exchanged, the injured party is
given the option, either to recover the property he has given in exchange
with damages, or claim an indemnity for damages (Civil Code, Art. 1640).
3. As to matters not provided for by the provisions on barter, the provisions
on Sales will apply suppletorily (Civil Code, Art. 1641).
106
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SALES AND LEASE

Elements of a Contract of Sale:

2. Natural – Those deemed to exist in certain contracts in the absence of any

3. Accidental – Those dependent on the parties’ stipulation (e.g., conditions,

Phases or Stages of Contract of Sale

2. Perfection–birth of contract; a contract of sale is a consensual contract,

Advertisements for bidders are merely invitations to make proposals; the

An offer becomes ineffective upon the death, civil interdiction, insanity, or

Offer made through an agent is accepted from the time acceptance is

3. Consummation – Death of contract; Delivery/actual transfer of ownership of

Two Major Types of a Contract of Sale:

A. Sale v. Agency to Sell

Sale Agency to Sell

B. Sale v. Contract for a Price of Work

Sale Contract for a Piece of Work

Rule on Money Exchange

D. Sale v. Dation in Payment

Sale Dation in Payment

F. Sale v. Contract to Sell with Reserved Title

Contract of Sale Contract to Sell

Other Cases of Contract to Sell:

Conditional Sale v. Contract to Sell

Conditional Sale Contract to Sell

Seller still has to convey title to

G. Contract of Sale v. Option Contract

Contract of Sale Option Contract

Elements of a Valid Option Contract: (CSP)

When there is no consideration:

Proper Exercise of Option

Period Within Which to Enforce the Valid Exercise of an Option

Effect of Exercise of Option

Right of First Refusal

Option Contract v. Right of First Refusal

Option Contract Right of First Refusal

Mutual Promises to Buy and Sell

In an agreement to buy and sell, which is an executory contract, title to the

If accepted, it is binding upon the promisor if the promise is supported by a

It is reciprocally demandable. Parties have the right to demand fulfillment or

Rules Governing Auction Sales (Civil Code Art. 1476)

Until such announcement is made:

a. Any bidder may retract his bid; and

3. Seller has the right to bid in the auction, provided:

a. Such right was reserved;

Reason:To avoid puffing or secret bidding.

Earnest Money or “Arras”

Earnest Money v. Option Money

Earnest Money Option Money

Effect of Rescission on Earnest Money Received

Expenses of Execution and Registration

III. OBJECTS OF SALE

A thing is actual when it is existing.

b. Licit (Civil Code, Art. 1459);

Kinds of Illicit Things:

Examples of Void Sale Due to Being Illicit:

c. Determinate or At Least Determinable (Civil Code, Arts. 1458 and 1460).

Determinate Thing – that which is:

A determinate thing is identified by its individuality (e.g., my car, if I only have

A determinable subject matter is a generic object, because it has neither been