Week 1 & 2: Nature and Form of a Contract of Sale

Concept of Contract of Sale

 The contract of sales is an agreement whereby one of the parties (called the seller or vendor) obligates himself
to deliver something to the other (called the buyer or purchaser or vendee) who, on his part, hinds himself to
pay therefore a sum of money or its equivalent (known as the price).
 The transfer of title to property or the agreement to transfer title for a price paid or promised, not mere physical
transfer of the property, is the essence of sale.
 
Characteristics of a Contract of Sale
 Consensual - perfected by mere consent of the parties without further acts.
 Bilateral - both the contracting parties are bound to fulfill correlative obligations towards each other (the seller
to deliver and transfer ownership of the thing sold, and the buyer to pay the price).
 Onerous - the thing sold is conveyed in consideration of the price and vice versa.
 Commutative - the thing sold is considered the equivalent of the price paid and vice versa.
 Aleatory - in the case of sale of hope, one of the parties or both reciprocally bind themselves to give or to do
something in consideration of what the other shall give or do upon the happening of an event which is
uncertain, or which is to occur at an indeterminate time.
 Nominate - the contract is given a special name or designation in the Civil Code.
 Principal - the contract does not depend for its existence and validity upon another contract.
 
Essential Requisites of a Contract of Sale
 Consent or meeting of the minds – refers to the conformity of the parties to the terms of the contract, the
acceptance by one of the offers made by the other. As a bilateral contract, the acceptance of payment by a party
is an indication of his consent to a contract of sale, thereby precluding him from rejecting its binding effect
[Clarin vs. Rulova, 127 SCRA 512].

There may be a sale against the will of the owner in case of expropriation and the three different kinds of sale
under the law – ordinary execution sale, judicial foreclosure sale, and extra-judicial foreclosure sale.
 Object or subject matter – refers to the determinate thing which is the object of the contract;
Even a future thing not existing at the time the contract is entered into may be the object of sale, provided it has
a potential or possible existence, that is, it is reasonably certain to come into existence as the natural increment or usual
incident of something in existence already belonging to the seller, and the tile will vest the buyer the moment the thing
comes into existence (Art. 1461).
 
Elements of the Contract of Sale
 Essential elements – those without which there can be no valid sale
- Consent or meeting of the minds
- Determinate subject matter
 
Even a future thing not existing at the time the contract is entered into may be the object of sale, provided it has a
potential or possible existence, that is, it is reasonably certain to come into existence as the natural increment or usual
incident of something in existence already belonging to the seller, and the tile will vest the buyer the moment the thing
comes into existence (Art. 1461).
 

Emptio rei speratae Emptio spei

-the sale of a thing not yet in

existence, subject to the - the sale of hope itself that the
condition that the thing will exist thing will come into existence,
and on failure of the condition, where it is agreed that the buyer
the contract becomes ineffective will pay the price even if the thing
and hence, the buyer has not does not eventually exist;
obligation to pay the price;

- like the sale of a sweepstake

- the future thing is certain as to ticket, it is not certain that the
itself but uncertain as to its thing itself (winning a prize) will
quantity and quality; exist, much less it quantity and
quality;
 - contract relates to a thing which
- contract deals with a future
exists or is present – the hope or
thing;
expectancy;
- produces effect even though the
thing does not come into
- sale is subject to the condition
existence because the object of
that the thing should exist, so
the contract is the hope itself,
that if it does not, there will be
unless it is a vain hope or
no contract by reason of the
expectancy (like the sale of a
absence of an essential element.
falsified sweepstakes ticket which
can never win).

 
Price certain in money or its equivalent
 Natural elements – those which are inherent in the contract, and which in the absence of any contrary
provision, are deemed to exist in the contract
- Warranty against eviction – deprivation of property brought
- Warranty against hidden defects
 Accidental elements – those that may be present or absent in the stipulation, such as the place or time of
payment, or the presence of conditions
 
Stages in the Contract of Sale
a) Generation or Negotiation
b) Perfection – meeting of the minds
c) Consummation – when the object is delivered and the price is paid
 
Kinds of a Contract of Sale
As to presence or absence of conditions
 Absolute – where the sale is not subject to any condition whatsoever and where the title passes to the buyer
upon delivery of the thing sold.
 Conditional – where the sale contemplates a contingency and where the contract is subject to certain
conditions, usually in the case of the vendee, for the full payment of the agreed purchase price.
Other kinds
 As to the nature of the subject matter – real or personal, tangible or intangible
 As to the manner of payment – cash or installment
 As to its validity – valid, rescissible, unenforceable, void
 
Contract of Sale Distinguished from Contract to Sell 

Contract of Sale Contract to Sell

Transfer of - passes to the buyer upon delivery of - remains with the seller until full
title: the thing sold. payment of the agreed price.
- full payment is a positive suspensive
condition, the failure of which is not a
- non-payment of the price is a
breach, casual or serious, of the
Payment of negative resolutory condition, and
contract but simply an event that
price: the remedy is to exact fulfillment or
prevents the obligation of the vendor
to rescind the contract.
to convey title from acquiring binding
force.
- vendor loses and cannot recover
ownership of the thing sold and
Ownership of - title remains in the vendor until full
delivered, actually or constructively
vendor: payment of price.
until and unless the contract of sale
itself is resolved and set aside.

 
Sale Distinguished from Dacion en pago

Sale Dacion en pago

 - no pre-existing credit - there is pre-existing credit
- gives rise to obligation - extinguishes obligation
- cause of consideration is extinguishment of
the debt (from the point of view of the
- cause or consideration is the price, or the
offeror), and the acquisition of the object
acquisition of title to the property
offered (from the point of view of the
creditor) in lieu of the original credit
- there is greater freedom in the
- less freedom
determination of the price
- the giving of the object in lieu of the credit
- giving of the price may generally end the
may extinguish completely or partially the
obligation of the buyer
credit (depending on the agreement)

 
Dacion en pago distinguished from Cession
 

Dation in Payment Cession

1.    There must be 2 or more

1.    One creditor is sufficient
creditors

2.    Not all properties of the 2.    All the debtor’s properties

debtor are conveyed are conveyed

3.    Debtor may be solvent or 3.    Cession takes place only if

insolvent the debtor is insolvent

4.    The creditor becomes the 4.    The creditors do not become

owner of the thing conveyed owners of the thing conveyed.

 
Contract of Sale Distinguished from Agency to Sell 
 

  Contract of Sale Agency to Sell

The agent delivers the price

Price The buyer pays the price which in turn he get from his
buyer

The agent who is supposed to

sell does not become the
The buyer after delivery
Ownership owner, even if the property
becomes the owner
has already been delivered to
him

The agent who sells assumes

no personal liability as long as
Warranty The seller warrants he acts within his authority
and in the name of the
principal.

 
Form of Contract of Sale
 
Generally, a contract may be entered into in any form provided all the essential requisites for its validity are present
(Art. 1356).  It may be in writing, oral, or partly in writing and party oral.  It may even be inferred from the conduct of the
parties, since sale is a consensual contract that is perfected by mere consent.
 
However, in case the contract of sale should be covered by the Statute of Frauds, the law requires that the agreement
be in writing subscribed by the party charged, or by his agent; otherwise, the contract cannot be enforced by action [see
Art. 1403].
 
Under the Statute of Frauds (Art. 1403 [2, a, d, e].) of the Civil Code, the following contracts of sale must be in writing to
be enforceable:
a) sale of personal property at a price not less than P500;
b) sale of real property or an interest therein regardless of the price involved; and
c) sale of property not to be performed within a year from the date thereof regardless of the nature of the
property and the price involved.
 
The Statute Frauds specifies three (3) ways in which contracts of sales of goods within its terms may be made binding:
a) the giving of a memorandum;
b) acceptance and receipt of part of the goods (or things in action) sold and actual receipt of the same (Art. 1585);
and
c) payment or acceptance at the time some part of the purchase price.
 
The Statute of Frauds is applicable only to executory contracts (where no performance, i.e., delivery and payment, has
as yet been made by both parties), and not to contracts which are totally consummated or partially performed [Vda. De
Espiritu vs. CFI of Cavite, 47 SCRA 354].
Week 3: Capacity to buy or sell; Effects of the contract when the thing sold has been lost
CAPACITY TO BUY OR SELL
Persons Who May Enter into a Contract of Sale 
As a general rule, all persons, whether natural or juridical, who can bind themselves, have the legal capacity to buy and
sell.
Persons Who Are Incapacitated to Enter Into a Contract of Sale
 
 Absolute Incapacity – pertains to persons who cannot bind themselves
a) Minor
b) Insane or demented persons
c) Deaf-mutes who do not know how to read and write
Contracts entered into by a minor and other incapacitated persons are voidable.  However, where the necessaries are
sold and delivered to him (without the intervention of the parent or guardian), he must pay a reasonable price therefor.
The contract is therefore valid, but the minor has the right to recover any excess above a reasonable value paid by him.
Sale of real property by minors who have already passed the ages of puberty and adolescence and are now in the adult
age, when they pretended to have already reached their majority, while in fact they have not, is valid, and they cannot
be permitted afterwards to excuse themselves from compliance with the obligations assumed by them or to seek their
annulment.  This is in accord with the doctrine of estoppel[Mercado and Mercado vs. Espiritu, 37 Phil. 265].
 Relative Incapacity – where it exists only with reference to certain persons or class of property (Art. 1490-1491).
The prohibition extends to sales by virtue of legal redemption, compromises, and renunciations.
a) Husband and wife to each other – except when a separation of property was agreed upon in the marriage
settlements, or when there has been a judicial separation of property
b) Guardian – as to the property of his ward
c) Agents – as to the property whose administration or sale has been entrusted to them, unless consent of the
principal is given
d) Executors or administrators – as to the state under their administration
e) Public officers and employees – as to the property of the State or any subdivision thereof, or of the
government-owned or controlled corporations, the administration of which is entrusted to them
f) Judges and government experts who take part in the sale of the property and rights under litigation

The prohibition is based on the fiduciary relationship (based on trust), to prevent fraud and undue and
improper influence.

With respect to (b) to (d), the sale shall only be voidable because in such cases only private interests are
affected.  The defect can be cured by ratification by the seller. With respect to (e) and (f), the sale shall be
null and void, public interests being involved therein.
g) Aliens who are disqualified to purchase private agricultural lands under Art. XII, Secs. 3 and 7 of the
Constitution
h) Unpaid seller having a right of lien or having estopped the goods in transitu
i) Officer holding the execution or his deputy
 
EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST
Where the thing is entirely lost at the time of perfection, the contract is inexistent and void because there is no object. 
There being no contract, there is no necessity to bring an action for annulment. Where the thing is only partially lost, the
vendee may elect between withdrawing from the contract and demanding the remaining part, paying its proportionate
price.
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.
Week 4: Installment Sales of Personal (Recto Law) and Real (Maceda Law – RA 6552) Property
Article 1484. Sale of personal property on the installment plan
 

In a contract of sale of personal property the price of which is payable in

instalments, the vendor may exercise any of the following remedies:
 
1)   Exact fulfilment of the obligation, should the vendee fail to pay;
2)  Cancel the sale, should the vendee’s failure to pay cover 2 or more
instalments;
3)  Foreclose the chattel mortgage on the thing sold, if one has been
constituted, should the vendee’s failure to pay cover 2 or more instalments.
In this case, he shall have no further action against the purchaser to recover
any unpaid balance of the price. Any agreement to the contrary shall be
void.

 
Requisites before Art. 1484 may be applied:
1. What is sold is a Personal Property
2. The sale must be on the Instalment plan
3. There must be a Contract
4. The contract must be one of Sale (absolute sale)
 
An instalment is any part or portion of the buying price, including the down payment
If the sale is for cash or on straight terms, Art. 1484 does not apply. 
To prevent abuse in the foreclosure of chattel mortgages by selling at a low price and then suing for the deficiency is the
precise purpose of the article.
The remedies enumerated are not cumulative. They are ALTERNATIVE, and if one is exercised, the others cannot be
made use of. Indeed the election of one is a waiver of the right to resort to others. (Pacific Commercial Co. v. De la
Rama, 72 Phil. 380) But for this doctrine to apply, the remedy must already have been fully exercised. If after retaking
possession of the chattel, the seller desists from the foreclosure, he can still avail himself of another remedy.
Zayco v. Luneta Motor Co., L-30583, Oct. 23, 1982
If the unpaid vendor of a vehicle sold on the instalment plan forecloses the chattel mortgage executed on the property,
but is not able to fully collect the debt, there is no right to recover the deficiency, and a stipulation to the contrary is
void. If the vendor assigns its right to a financing company, the latter may be regarded as a mere collecting agency of the
vendor and cannot, therefore, recover any deficiency. And even if the financing company is a “distinct and separate
entity” from the seller, the same result obtains, for an assignee cannot exercise any right not given to the assignor itself.
 
Ridad v. Filipinas Investment and Finance Corporation, GR 39806, Jan. 28, 1983

If a foreclosure of the mortgage is resorted to, there can be recovery in case of deficiency. Other chattels given as
security cannot be foreclosed upon if they are not subject of the instalment sale.
If the seller selects remedy [foreclosure], but the mortgage is not actually foreclosed, he can still avail himself of the
other remedies, such as the fulfilment of the obligation to pay.
Where there has been no foreclosure of the chattel mortgage or a foreclosure sale, the prohibition against further
collection of the balance of the price does not apply.
The law says that any of the aforementioned remedies “may” be exercised by the seller. Therefore, he is not obliged to
foreclose the chattel mortgage even if there be one. He may still sue for fulfilment or for cancellation (if he does not
want to foreclose).
Borbon II v. Servicewide Specialists, Inc., 72 SCAD 111 (1996)
The remedies under Art. 1484 of the Civil Code are not commutative but alternative and exclusive. When the assignee
forecloses the mortgage, there can be no further recovery of the deficiency, and the seller-mortgagee is deemed to have
renounced any right thereto.
 
There is an ordinary alternative obligation, a mere choice categorically and unequivocally made and then communicated
by the person entitled to exercise the option. The creditor may not thereafter exercise any other option, unless the
chosen alternative proves to be ineffectual or unavailing due to no fault on his part.
 
In alternative remedies, the choice generally becomes conclusive only upon the exercise of the remedy. For instance, in
one of the remedies expressed in Art. 1484 of the Civil Code, it is only when there has been foreclosure of the chattel
mortgage that the vendee-mortgagor escape from a deficiency liability.
It is clear that when the remedy of cancellation is availed of, there must be mutual restitution of whatever received by
either party.
In case the thing or property to be returned has been deteriorated, the aggrieved party may resort to either:
Special performance plus damages; or
Rescission plus damages
The buyer must return the equivalent of what he has received in its damaged condition plus the amount of damages.
On the part of the vendor, he should return all the instalments that has been received by him except when in the
contract there is a proviso that instalments already paid shall be forfeited. Such stipulation is valid, provided that it is not
unconscionable under the circumstances. Of course what is unconscionable is a question of fact.
 
Instances when Art. 1484 cannot be applied

Article 1484 does not apply to a real estate mortgage

Article 1484 does not apply to the sale of personal property on straight terms.

A sale on straight terms is one which the balance , after the payment of the initial sum should be paid in its totality at
the time specified.
 
Romulo de la Cruz and Delia de la Cruz, et. al. v. ASIAN Consumer of Industrial Finance Corp. and the Court of Appeals,
GR 94828, Sept 20, 1992
It is clear that while ASIAN eventually succeeded in taking possession of the mortgaged vehicle, it did not pursue the
foreclosure of the mortgage as shown by the fact that no auction sale of the vehicle was ever conducted. Thus, under
the law, the delivery of possession of the mortgaged property to the mortgagee, the herein appellee, can only operate
to extinguish appellant’s liability if the appellee had actually caused the foreclosure sale of the mortgaged property
when it recovered possession thereof. It is the fact of foreclosure and actual sale of the mortgaged chattel that bar
recovery by the vendor of any balance of the purchaser’s outstanding obligation not satisfied by the sale.
 
 
Article 1485. Leases of Personal Property with Option to Buy
The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when
the lessor has deprived the lessee of the possession or enjoyment of the thing.
This may really be considered a sale of personal property instalments. Therefore, the purpose of Art. 1485 is to prevent
an indirect violation of Art. 1484.
Even if the word “lease” is employed, when a sale on installment is evidently intended, it must be construed as a sale.
(Abello v. Gonzaga, 56 Phil. 132)
 
Article 1486. Non-Return of Installments Paid
 
In the cases referred to in the two preceding articles, a stipulation that the installments or rents paid shall not be
returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances.
 
As a general rule, it is required that a case of rescission or cancellation of the sale requires mutual restitution, that is, all
partial payments of price or “rents” must be returned.
However, by way of exception, it is valid t stipulate that there should be NO returning of the price hat has been partially
paid or the “rents” given, provided the stipulation is not unconscionable.
 
SALE OF REAL PROPERTY IN INSTALLMENT
REPUBLIC ACT 6552
(The Maceda Law)
 
AN ACT TO PROVIDE PROTECTION TO BUYERS OF REAL ESTATE ON INSTALLMENT PAYMENTS
 
Known as the “Realty Installment Buyer Protection Act.” (Section 1)
Purpose: A public policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions. (Section 2)
Coverage: All transactions or contracts involving the sale or financing of real estate on installment payments, including
condominium apartments where the buyer has paid at least 2 years of installments (Section 3)
Excludes: Industrial lots, commercial buildings and sales to tenants under RA 344 as amended by RA 6389 (Section 3)
 
The buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: (Section 3)
To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is
fixed at the rate of 1 month grace period for every 1 year of installment payments made

--> This right shall be exercised by the buyer only once in every 5 years of the life of the contract and its extensions, if
any
If the contract is cancelled, the seller shall refund to the buyer the cash surrender value (CSV) on the property equivalent
to 50% of the total payments made and, after 5 years of installments, an additional 5% every year but not to exceed 90%
of the total payments made
--> The actual cancellation of the contract shall take place after 30 days from the receipt of the buyer of the notice of
cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the CSV to the buyer
--> Downpayments, deposits or options on the contract shall be included in the computation of the total number of
installments made
 
In the case where less than 2 years of installments were paid, the seller shall give the buyer a grace period of 60 days
from the date the installment became due. (Section 4)
If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract
after 30 days from the receipt of the buyer of the notice of cancellation or the demand for rescission of the contract by a
notarial act. (Section 4) 
Under Secs. 3 and 4, the buyer shall have the right to SELL his rights or ASSIGN the same to another person or to
REINSTATE the contract by updating the account during the grace period and before the actual cancellation of the
contract. The deed of sale or assignment shall be done by notarial act. (Section 5)
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 full payment of the purchase price annotated in the certificate of title covering
the property. (Section 6)
 
Purpose of the Maceda Law
To help especially the low-income lot buyers delineating the rights and remedies of lot buyers and protect them from
one-sided and pernicious contract stipulations
To buyers of real estate on installment payments against onerous and oppressive conditions. More specifically, the Act
provided for the rights of the buyer in case of default in the payment of succeeding installments, where he has already
paid at least 2 years of installments.
 
Most important features of the Maceda law and Recto law
 
 

The Maceda Law The Recto Law

 RA 655 Art. 1484, Civil Code

The Maceda Law is applicable to sales of immovable

property on installments.
 
The Recto Law refers to the sale of
In Rillo v. CA, 247 SCRA 461, the most important features, movables payable in installments and
have been laid down, namely: limiting the right of seller, in case if
       After having paid installment for at least 2 years, the default by the buyer to one of the
buyer is entitled to a mandatory grace period of 1 month remedies, namely: ForCE
for every year of installment payments made, to pay the  
unpaid installments without interest. If the contract is
cancelled, the seller shall refund to the buyer the CSV        Forclose the chattel mortgage. On the
equivalent to 50% of the total payments made, and after things sold, in case of 2 or more
5 years of installments, an additional 5% for every year installments, with no further action
but not to exceed 90% of the total payment made; and against the purchaser

       In case the installments paid were less than 2 years,        Cancel the sale if 2 or more
the seller shall give the buyer a grace period of 60 days. If installments have not been paid; and
that buyer fails to pay the installments due at the
       Exact (or specific) fulfilment.
expiration of the grace period, the seller may cancel the
contract after 30 days from receipt by the buyer of the
notice of cancellation or demand for rescission by
notarial act.

Week 5 and 6: Obligations of a Vendor

OBLIGATIONS OF THE VENDOR

1. Transfer ownership
2. Deliver the thing, with its accessions and accessories, if any
3. Warrant against eviction and against hidden defects
4. To take care of the thing, pending delivery, with proper diligence
5. To pay the expenses of the deed of sale, unless there is stipulation to the contrary
 
Delivery
Ownership, as a consequence of certain contracts such as sale, shall be transferred to the vendee
upon actual or constructive delivery
Intention to Transfer Ownership
In all forms of delivery, the act of delivery shall be coupled with the intention of delivering the thing.
The act without the intention is insufficient.
Requisites of Delivery

1. Identity
2. Integrity
3. Intentional
When vendor is not bound to deliver:

1. Vendee has not paid the price

2. No period for payment has been fixed
3. Even if a period for payment has been fixed, if the vendee has lost the right to make use of the
same
Kinds of Delivery

1. Actual or real- placing the thing under the control and possession of the buyer
2. Legal or constructive- delivery is represented by other signs or acts indicative thereof
 
 
Kinds of Constructive or Legal Delivery
 By Legal Formalities - sale is made through public instrument. Gives rise only to a prima facie
presumption of delivery.
Symbolic Delivery (traditio simbolica) - delivery of keys or depository where the movable is
kept or stored.
Traditio Longa Manu - delivery of a movable by mere consent or agreement. Pointing at the
thing
Traditio Brevi Manu - buyer simply continues in possession of the thing but under ownership.
Applies to movables only. Happens when buyer already has possession of the thing sold
before the sale.
Traditio Constitutum Posessorium - seller continues to be in possession of the property sold
but not as an owner but in some other capacity.

3. Quasi-tradition- delivery of rights, credits or incorporeal property, made by (i) placing titles of
ownership in the hands of the buyer or (ii) allowing the buyer to make use of rights
4. Tradition by operations of law
Sale or Return
Property is sold, but the buyer has the option to return it to the seller instead of paying the price. It
depends on the discretion of the buyer; it is a sale with a resolutory condition.
It is a kind of sale with condition subsequent. Buyer, being the owner, bears the risk of loss. The
buyer must comply with express or implied conditions otherwise, the sale becomes absolute.
Sale on Approval or Trial
Title remains with seller notwithstanding delivery of the goods. It is in nature of an option to purchase.
Sale is dependent on the quality of the goods; it is a sale with suspensive condition. Buyer become
owner when:

1. Buyer signifies his approval or acceptance to seller

2. Does any other act adopting the transaction retains the goods without giving notice of rejection
after the time fixed has expired; it no time has been fixed, after the expiration of a reasonable time

Sale on Trial
Sale or Return
Subject to a resolutory condition Subject to a suspensive condition
Depends on the character or quality of
Depends on the will of the buyer
the goods
Ownership remains in the seller until
Ownership  passes to buyer on
buyer signifies his approval (meeting of
delivery
the minds)
Risk of loss or injury rest with the Risk of loss and injury remains with
buyer seller
Goods Delivered Through Carrier
General Rule: Delivery to carrier is deemed to be delivery to the buyer.
Exception: Where the right of possession or ownership of specific goods sold is reserved
Seller’s Duty After Delivery to Carrier

1. To enter on behalf of buyer into such contract reasonable under the circumstances
2. To give notice to buyer regarding necessity of insuring the goods.
Instances Where Seller Is Still The Owner Despite Delivery

1. Sale on trial, approval or satisfaction

2. Contrary intention appears by the terms of the contract
3. Implied reservation of ownership
 Goods are shipped, but by the bill of landing goods are delivered to seller or his agent or their
order
 Bill of landing is kept by the seller or his agent
 When the buyer does not honor the bill of exchange by returning the bill of landing to seller.
Sale by one having a Voidable Title
If the seller has only a voidable title, buyer acquires a good title to the goods provided he buys them:
1. Before the title of the seller has been avoided
2. In goods faith for value
3. Without notice of the seller’s defect of title
Sale of Goods by a Non-owner
General Rule: Buyer acquires no title even if in good faith or for value. Nemo dat quid non habet
(“You cannot give what you do not have”).
Exceptions:

1. Owner is estopped or precluded by his conduct

2. Sale is made by the registered owner or apparent owner
3. Sales sanctioned by judicial or statutory authority
4. Purchase in a merchant’s store, fairs or markets (art. 559)
5. When a person who is not the owner sells and delivers a thing, subsequently acquires title
thereto.
6. When the seller has a voidable title which has not been avoided at the time of sale.

Place of Delivery
Where there is an agreement: Place specified
Where there is no agreement: Place of delivery determined by usage of trade
Where there is no agreement and no prevalent usage: seller’s place of business
In any other case: seller’s residence
Payment of the Purchase Price
General Rule: Seller is not bound to deliver unless the purchase price has been paid.
Exception: The Seller is bound to deliver even if the price has not been paid, is a period of payments
has been fixed.
Goods Delivered Less Than Quantity Agreed

1. Buyer may reject; or

2. Buyer may accept and pay at the contract rate
Quantity More Than Agreed Upon

1. Buyer may reject all; or

2. Buyer may accept the goods agreed upon and reject the rest; or
3. Buyer may accept all and must pay for them at the contract rate
Goods Mixed With Goods Of Different Description
Buyer may accept the goods which are in accordance with the contract and reject the rest.
Indivisible Goods
If the subject is indivisible, in case of delivery of a large quantity of goods or a mixed goods, the buyer
may reject the whole of the goods.
Right of rejecting the whole of the goods delivered is given only if the subject matter is indivisible.
Rights of Vendee to the Fruits
Vendee has the right to the fruits of the thing sold from the time obligation to deliver arises. Generally,
at time of perfection, however parties may modify it by agreement.
 
UNPAID SELLER
Unpaid seller is one who has not been paid the whole amount of the price or one who received a
negotiable instrument and it has been dishonored, buyer is insolvent, or otherwise.
Rights of the Unpaid Seller:

1. Right to lien of goods or the rights to retain them for the price while he is in possession of them
2. Right of stoppage in transit
3. Right of resale
4. Right to rescind the sale
RIGHT TO LIEN
Right to retain possession of goods until payment or tender of the whole price, or unless he agrees to
sell on credit
When available:
1.) Goods sold without  stipulation as to credit
2.) Goods are sold on credit, but credit term has expired
3.) Buyer becomes insolvent
Lien on Partial Delivery:
When unpaid seller made partial delivery of the goods, he may exercise his lien on the remainder,
unless such part delivery shows an intent to waive the lien or right of retention.
When lien is lost:
1.) Delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without
reserving the ownership in the goods or the right of possession thereof;
2.) Buyer or his agent lawfully obtains possession of the goods;
3.) By waiver thereof
RIGHT OF STOPPAGE IN TRANSITU
An extension of the lien for the price; entitles unpaid seller to resume possession of the goods while
they are in transit before the goods come in possession of the vendee
When available:
1.) Buyer must be insolvent; 2.) Seller must be unpaid
3.) Goods are in transit
4.) Seller must actually take possession of the goods sold or give notice of his claim to the carrier or
other person in possession.
5.) Seller must surrender the document of title, if any, issues by the carrier or bailee;
6.) Seller must bear the expenses of delivery after the exercise of the right
When goods are considered in transit:
1.) After delivery to carrier or other bailee and before the buyer or his agent takes delivery of them;
2.) Goods are rejected by buyer, and carrier or bailee continues to be in possession of them, even if 
seller refused to received them back.
How to exercise:
1.) By obtaining actual possession of the goods.
2.) By giving notice of his claim to the carrier or bailee.
Such notice may be given in to the person in actual possession or to his principal. But if given to the
principal, it must be given at such time and under such circumstances to be effectual so the principal
can prevent delivery.
Effects of exercise:
1.) Goods are no longer in transit
2.) Carrier shall be liable as depositary or other bailee.
3.) Carrier must redeliver the goods to, or according to the instructions of the seller
When goods are no longer in transit:
1.) After delivery to the buyer or his agent in that behalf;
2.) Buyer obtains delivery of the goods before arrival at the appointed destination
3.) Carrier or bailee acknowledges to hold the goods on behalf of the buyer
4.) Carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent.
RIGHT OF RESALE
When available:
1.) Seller has the right to lien or stoppage in transitu.
 2.) Under the following cases:

1. Goods are perishable by nature

2. Right to         resell    is expressly reserved
3. Buyer delays in payment for an unreasonable time
Effects of resale
1.)  Seller is not liable to the buyer for any profit
2.) If sells for less than the price, seller has right to sue for the balance from buyer
3.) New buyer acquires good title as against the original buyer
RIGHT TO RESCIND THE SALE
Return of the title over the undelivered goods to the seller, and right to recover damages for breach of
contract
When available:
1.) Seller has the right to lien or stoppage in transitu
2.) Under either of the 2 situations:

1. Right to rescind is expressly reserved

2. When buyer delays in the payment of the price for an unreasonable time.
Effects of rescission
1.) Seller resumes ownership of the goods
2.) Seller shall not be liable to the buyer upon the contract
3.) Buyer may be held liable to the seller for damages for any loss occasioned by the breach of
contract
How seller may rescind:

1. By notice to the buyer or by some overt act showing an intention to rescind.

2. Communication to buyer of rescission is not always necessary but giving/failure to give notice
is relevant in determining reasonableness of time given to the buyer to make good his obligation
under contract.
Effect if Buyer Sold the Goods
Generally, the unpaid seller's right of lien or stopage in transitu remains even if the buyer has sold or
otherwise disposed of the goods.
Exceptions:
1.)  Seller has given his consent
2.) When purchaser or buyer is a purchaser for value in good faith of a negotiable document of title.

1. SALE OF REAL ESTATE Unit Price Contract

Payment will be made only on the basis of contractual items actually performed. The amount agreed
upon is merely an estimate. Price is depending upon the quantities performed multiplied by the unit
prices previously agreed upon.
Sale of Real Estate by the Unit
The vendor must deliver the entire property agreed upon. The immovable property must be of the
quality specified in the contract.
If the entire area could not be delivered, then the object of the contract is not delivered. Hence the
vendee is entitled to rescind it. But he may, however, enforce the contract with the corresponding
decrease in price.
When Vendee is Entitled to Rescind Sale of Real Property
1.) If the lack of area is at least 1/10th than that stated or stipulated.
2.) If the deficiency in the quality specified in the contract exceeds 1/10th of the price agreed upon
3.) If the vendee would not have bought the immovable had he known of its smaller area or inferior
quality
Where immovable of a greater area or number
 Vendee may accept the area included in the contract and reject the rest. The vendee may not
withdraw from the contract.
Lump Sum Sale (A Cuerpo Cierto)
States the full purchase price based on the estimate or where both area and boundaries are stated.
Boundaries
Mentioning the boundaries of the land is indispensable in every conveyance of real estate. The
vendor is bound to deliver all that is included within the said boundaries. The area of which, even if
lesser or greater than what is stipulated, is immaterial.
Prescription of Action
The action for either recission of the or reduction of the price must be brought 6 months from the day
of delivery.

1. DOUBLE SALE
Requisites of Double Sale:

1. Two or more valid contract of sale;

2. Two or more buyers ;
3. They must pertain exactly to the same object; and
4. They must be bought from the same seller.
Rules of Preference
1.) Double Sale of Movables
-           who first takes possession in good faith
2.) Double Sale of Real Property

1. First registrant in good faith

2. First possessor in good faith
3. Person with oldest title in good faith
The requirement of the law then is two-fold: acquisition in good faith and registration in good faith.
Good faith must concur with the registration. If it would be shown that a buyer was in bad faith, the
alleged registration they have made amounted to no registration at all.

1. CONDITIONS
An uncertain event or contingency on the happening. Conditions may be:
1.) Waived; or
2.)  Considered as warranties
Effect of non-fulfillment of Condition
1.) If the obligation of either party is subjected to any condition and such condition is not fulfilled, such
party may;

1. Refuse to proceed with the contract

2. Proceed the contract, waiving the performance of the condition
2.) If condition is in nature a promise that it should happen, the non- performance of such condition
may be treated by the other party as a breach of warranty.

1. WARRANTIES
It is a promise that a fact is true. In a sale, it is a statement of fact about the quality or character of the
goods sold to induce the sale relied upon by the buyer. Breach or violation of it gives rise to a suit for
damages.
Warranty vs Condition
Warranty Condition
Goes into the performance of
Affects the existence
an obligation and may, in itself, be an
of the obligation
obligation
Stipulation or operation of law Must be stipulated
Non-fulfillment constitutes breach Non-happening does
of contract not breach
 the contract
Always relate to
May attach to the seller’s duty to deliver or
the subject matter or
some other circumstances
the  seller’s obligations
 
Kinds of Warranties
1.)    Express Warranty
2.)   Implied Warranty
Express of Opinion
A mere expression of opinion by the seller does not import a warranty unless:
1.)  Seller is an expert; and
2.) Opinion was relied upon by  the buyer
Not every false representation voids the contract, only those matters substantially affecting the
buyer’s interest
 
Express Warranty
It is an affirmation of fact or any promise by the seller about the subject matter where the natural
tendency of it is to induce the buyer to purchase the thing and the buyer purchases the thing relying
on such affirmation or promise.
An express warranty can be made by and also be binding on the seller even in the sale of a second-
hand article.
Implied Warranty
It is a natural, not an essential element of a contract, and is deemed incorporated in the contract of
sale. It is inherent.
Its reason is to protect naïve and unsuspecting buyers from scrupulous sellers from running away
from their wrongful doings.
It may be modified or suppressed by agreement of the parties. Unless waived, the warranties stay.
Implied Warranties in sale:

1. Warranty as to seller’s title

2. Warrant against hidden defects
3. Warranty as to fitness or merchantability
When Implied Warranty not Applicable
1.) “As is and where is” sale
2.)  Sale of secondhand articles
3.) Sale by virtue of authority in fact or law
Warranty Against Eviction
Eviction - Vendee is deprived of the whole or part of the thing purchased. (art. 1548)
Warranty - 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. If evicted, vendor is
liable thereof.
Elements of Warranty Against Eviction
1.) Vendee has been deprived in whole or in part of the thing purchased
2.)  Deprived by virtue of final judgement
3.) Judgement is based on right prior to the sale or act imputable by the vendor
4.) Vendor was summoned in the suit for eviction at the instance of the vendee
5.) There is no waiver on the part of the vendee
NOTE: Rescission is not a remedy against total eviction. Rescission contemplates that the one
demanding it is able to return whatever he has received under the contract. Since the buyer can no
longer return the thing sold to the seller, rescission cannot be carried out.
 Prescription
Where one acquires ownership and other real right through the lapse of time in the manner and
conditions prescribed by law.
Completed before sale- vendee can enforce warranty against eviction
Completed after sale- vendor is not liable for eviction. (art. 1550)
Effect of Waiving Warranty in Bad Faith
Vendor in bad faith- cannot be exempted from warranty.  Because he has knowledge beforehand of a
presence of a fact giving rise to eviction. (art. 1553)
Vendee in bad faith- not entitled to warranty against eviction nor right to recover damages. He
proceeded to the sale with the assumption of the risk of eviction. (art. 1554)
Kinds of Waiver
Consciente
 voluntarily made by the vendee without the knowledge and assumption of the risks of eviction.
 Vendor shall only pay the value of the thing sold at the time of eviction
Eviction in Part
Buyer may either enforce vendor’s liability for eviction or he may demand rescission of the contract
provided in article 1556, if the buyer lose, by eviction, a part of the thing sold of such importance that
he would not have bought it without said part.
Intencionada
 Made by vendee with knowledge of risk of eviction and assumption of its consequences
 Vendor not liable unless acted in bad faith
Rights and liabilities
In case eviction occurs, the vendee shall have the right to demand of the vendor the following:

1. Return of value of thing

2. Income or fruits of thing
3. Cost of the suit
4. Expenses of the contract
5. Damages and interest, and ornamental expenses, if sale is made in bad faith. (art. 1555)
Warranty Against Hidden Defects of, or Encumbrances upon, the Thing Sold
Requisites for Warranty against Hidden Defects

1. Defect must be important or serious;

2. Must be hidden
3. Must exist at the time of sale
4. Vendee must give notice of defect to vendor within reasonable time
5. Action for rescission or reduction in price must be brought within 6 months from delivery or 40
days in case of animals
*No waiver of warranty on the part of vendee
When defect important
 Renders the thing sold unfit for its intended use;
 Diminishes its fitness for such use
NOTE: The use contemplated must be that which is stipulated, and in absence of stipulation, that
which is adopted to the nature of the thing, and to the business of the buyer.
Implied Warranty of Fitness
Generally, there is no implied warranty of fitness for any particular purpose except under the
following:

1. Buyer expressly or impliedly manifest to the seller the particular purpose of the goods acquired
2. Buyer relies upon the seller’s skill or judgement
3. There is an implied warranty that the goods are reasonably fit for such special purpose.
Implied Warrant of Merchantability
It’s a warranty that goods are reasonably fit for the general purpose for which the same are sold.
 Ignorance of Vendor of Hidden Defects
Ignorance does not relieve the vendor from liability. Good faith cannot be availed of as a defense by
the vendor.

1. a) Doctrine of Caveat Venditor

Vendor is still liable even is he is not aware due to this doctrine. It is based on the principle that a
sound price warrants a sound article.
Alternative Remedies of the Buyer
Vendee has the option to either:
Accion redhibitoria (withdraw from the contract)
Accion quanti minoris (reduction in price)
Effects of Thing loss due to hidden defects
a.) Vendor aware of hidden defect- he shall bear the lost due to bad faith.
Vendee may recover:

1. Price paid
2. Expenses of the contract
3. Damages
b.) Vendor is not aware- since he acted in good faith, he shall be obliged only to return:

1. Price
2. Interest
3. Expenses of the contract paid by vendee

Lost due to fault of Vendee

If the thing sold had any hidden defects at the time of sale, and it is lost through the fault of the
vendee, vendor shall be liable for the price paid less value of the thing had when it was lost. (art.
1569)

1. RULES IN CASE OF SALE OF ANIMALS

Redhibitory vice or defect
A defect which the seller is bound to warrant in animals, the following special rules shall apply:

1. Defect must be hidden

2. Must be of such nature that expert knowledge is not sufficient to discover it
Veterinarian is liable if he fails to discover or disclose the hidden defect through ignorance or bad
faith. (art. 1576)
Seller liable if animal dies within 3 days after its purchase due to a disease that existed at the time of
sale.
Limitation of the action: Rehibitory action must be brought 40 days from the date of their delivery to
the vendee. (art. 1577)
No warranty against hidden defects

1. Animals sold at public fairs or public auctions.

2. Livestock sold as condemned
Void Sale of Animals

1. Animals sold are suffering from contagious disease; or

2. Found unfit for the use or service stated in the contract.
Animal died with Vices
If loss is caused for fortuitous event or by fault of vendee and animal has vices, the buyer may either:

1. withdraw from the contract; or

2. Demand a reduction in price.
EASEMENT OR SERVITUDE
 Easement or servitude is an encumbrance imposed upon an immovable for the benefit of another
immovable owned by a different person.
Kinds of easement or servitude

1. Apparent easement- expressly made

2. Non-apparent easement- no external indication of its existence
Requisites for Vendor’s Liability for Immovable sold with Easement
1.) Must be non-apparent
2.) Not indicated in the agreement
3.) Must be of such nature that the vendee would not have acquired the immovable had he been
aware thereof.
Remedies & Right of Vendee
1.) Within 1 year from execution of the deed of sale:

1. Rescission; or
2.) After one (1) year from of execution of deed of sale:

1. Damages, within a period of one (1) year from discovery of easement or servitude
When Vendee’s rights can’t be exercised
1.)  When servitude is apparent
2.) If non-apparent servitude is registered
3.) If vendee has knowledge of the encumbrance, registered or not

WEEK 7-8
Obligations of the Vendee
OBLIGATIONS OF THE VENDEE
 
Article 1582:
Principal obligations of the vendee:

1. Accept delivery
2. Pay the price of the thing
3. Bear the expenses for execution and registration of sale and putting the goods in a deliverable state if
such is the stipulation
If stipulated:
Vendee is bound to accept delivery and pay the price at time and place stated.
Otherwise:
Vendee is bound to pay at the time and place of delivery.
 
SALE ON CREDIT
Vendor is entitled to its delivery though the price be not first paid.
No stipulation:
It shall be made wherever the thing might be at the moment the contract was perfected. If only the time
for delivery has been fixed, vendee is required to pay even before the thing is delivered to him.
 
Since SALE is a reciprocal obligation, from the moment either party performs his obligation, the other must
comply with his part otherwise he will be guilty of delay.
 
Article 1583
Delivery of goods by installment 
General rule:
 Buyer is not bound to receive delivery of the goods in installments. Buyer is bound to receive delivery of all the
goods at the same time. Buyer has no right to pay the price in installments.
Exception: if stipulated.
The contract provides for the delivery of goods by installment and separate price has been agreed upon for
each installment: depends in each case whether the breach is divisible or not.
 
Breach affects whole contract: injured party may sue for damages for breach of entire contract if the breach
is so material as to affect the contract as a whole.
Breach divisible: merely give rise to a claim for compensation for the particular breach but not a right to treat
the whole contract as broken.
 
Single price was agreed for all installments: injured party may choose between fulfillment and rescission
with payment of damages in either case. Remedy for rescission not available for casual (a question of fact)
breaches of contract.
 
Article 1584
Applicable to goods delivered to buyer which has not previously examined.
General rule:
Buyer is entitled to a fair opportunity to inspect or examine the article tendered to determine whether it
conforms to the contract. Ownership of the goods shall be transferred only upon actual delivery subject to a
reasonable opportunity of examining them to determine if they are in conformity with the contract. Since the
seller is bound to provide the buyer a reasonable opportunity of examining the goods only on request , buyer
does not have an absolute right of examination. Opportunity to examine should be availed of within a
reasonable time in order that the seller may not suffer undue delay or prejudice. If seller refused to allow
opportunity for inspection, buyer may rescind the contract and recover the price or any part if it that he has
paid.
 
Related rule:
The right of examination or inspection is condition precedent to the transfer of ownership.
Exception:

1. There is a stipulation to the contrary.

Seller required to send the goods to buyer by a carrier: delivery of the goods to a carrier for the purpose of
transmission to the buyer is deemed to be delivery to the buyer, hence title passes to buyer. The buyer, unless
COD, has the right to examine the goods before paying. The right to examine the goods is
a condition precedent to paying the price after ownership has passed.
  

2. If agreed upon or permitted by usage.

Even in COD sale, buyer is allowed to examine the goods before payment of the price. 
Rejection of goods: when proved to be unsuitable or fail to conform to the contract. The buyer not bound to
return them to the seller and is sufficient if he notifies the seller that he refuses to accept them. Option to reject
and notice of rejection must be exercised within a reasonable time unless a definite period is fixed.
 
Note: If the right of rejection not exercised within a reasonable time, receipt of goods constitutes acceptance.
 
Article 1585
What constitutes acceptance 
Acceptance - assent to delivery as transferring possession and ownership in the goods.
Implied acceptance:

1. Buyer does any act inconsistent with seller’s ownership (attempts to sell, uses it, makes alteration)
2. Buyer after lapse of reasonable time, retains the goods without intimating his rejection. Acceptance of
the buyer may precede actual delivery.
 
Article 1586
 Acceptance of the goods shall not discharge the seller from liability for breach of warranty
General rule:
Acceptance does not carry with it the additional agreement that the property in the goods shall be taken in full
satisfaction of all obligations. Therefore, seller not discharged from liability for breach of promise or warranty.
 
Exception:
If there is a stipulation to the contrary; reasonable time lapsed.
In order to hold the seller for breach of promise or warranty, give notice to seller within a reasonable time. Time
is counted from the moment the buyer ought to have known the breach.
 
Article 1587
If buyer’s refusal to accept is justified:

1. He is in the position of a bailee who is in possession of the goods thrust upon him without his assent.
He has the obligation to take reasonable care of the goods, but nothing more can be demanded of him.
2. Goods are at seller’s risk.
3. Buyer is not deemed and is not liable as a depositary, unless he volunteers as such. Buyer has no
obligation to return the goods to the seller. Seller, after notice that goods will not be accepted, have the burden
of taking delivery of said goods. Seller, after notice, failed to take delivery of goods, buyer may resell
the goods. (1533 will apply)
 
Article 1588
Buyer refused to accept without just cause.
 
General rule:
Delivery of the goods to a carrier is deemed delivery to the buyer. Applies even the buyer refuses to accept the
goods without just cause.
 
 
Article 1589
Interest for the period between delivery and payment by the vendee

1. Interest stipulated: stipulation may be oral, rate is based on stipulation, absence=6%.

2. Fruits or income received by the vendee from the thing sold: principle of bilaterality. If naideliever na
tapos may fruits, interest shall apply form time of delivery until payment.
3. Vendee guilty of default: interest is due from the time of judicial or extrajudicial demand by vendor.
Note: Under 1&2 no demand is necessary. Partial payment applies.
 
Article 1590
When vendee can suspend payment

1. If he is disturbed (need to be legal) in the possession or ownership of the thing bought.

2. If he has well-grounded fear that his possession or ownership would be disturbed by a vindicatory
action or foreclosure of mortgage. Here, the vendee has no cause of action for rescission before final
judgment.
But the remedy of buyer is rescission where the disturbance is caused by existence of non-apparent
servitude (THIRD PERSON)
 
When vendee cannot suspend payment even if there is disturbance in his possession:

1. Vendor gives security for return of price

2. It has been stipulated that notwithstanding any such contingency the vendee must pay. STIPULATION
3. Vendor has cause disturbance to cease, natigil ang disturbance dahil sa vendor
4. If disturbance mere act of trespass. Not sufficient ground for suspension
5. Vendee fully paid the price
 
 Article 1591
When vendor may rescind sale of immovable property 
When vendor has good reasons to fear the loss of the property and its price. 

1. There has been a delivery but the vendee has not yet paid the price.
2. If the subject matter of the sale is going to perish, to think of demanding payment from the vendee
is something useless, the only remedy is rescission. Applicable to both cash sales and sales in installments.
 
Article 1582
When automatic rescission of sale of immovable property is stipulated. 
General rule:
Vendor may sue for rescission of the contract should the vendee fail to pay agreed price.
Exception:
In the sale of real property, it is subject to the stipulations by the parties. Failure to pay at the time agreed upon
will cause rescission.
Exception to the exception:
Vendee may still pay before the demand for rescission has been made by vendor, either judicially or by
notarial act, notwithstanding stipulation that failure to pay on the stipulated date ipso facto resolves the sale.
Court may extend period for payment, however once a demand for rescission by suit or by notarial act is made,
the court may not grant the vendee a new period.
When 1592 not applicable:

1. Sales on installments of real property where they have their own terms.

2. Mere promise to sell where title remains with the vendor until full payment of price.
 
Vendee in above cases may no longer pay the price after expiration of time agreed upon although no demand
has yet been made upon him by suit or notarial act.
 
Article 1593
When automatic rescission of sale of movable property stipulated
In the case of personal property which has not yet been delivered, the vendor can rescind the contract if
the vendee without just cause:

1. Does not accept delivery

2. Does not pay the price unless a credit period for its payment has been stipulated. Mere failure of the
vendee to comply with terms of contract does not rescind sale. It is necessary that vendor should take
some affirmative action indicating his intention to rescind.

BREACH OF A CONTRACT OF SALE GOODS

 
Article 1594. Actions for breach of the contract of sale of goods shall be governed particularly by the
provisions of this Chapter, and as to matters not specifically provided for herein, by other applicable provisions
of this Title. (n)
Article 1595. Where, under a contract of sale, 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 of sale, the seller
may maintain an action against him for the price of the goods.
Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or of transfer of
title and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the
price although the ownership in the goods has not passed. But it shall be a defense to such an action that the
seller at any time before the judgment in such action has manifested an inability to perform the contract of sale
on his part or an intention not to perform it.
Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price,
and if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the
goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods are
thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods as the buyer's
and may maintain an action for the price. (n)
 Article 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may
maintain an action against him for damages for nonacceptance.
The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events
from the buyer's breach of contract.
Where there is an available market for the goods in question, the measure of damages is, in the absence of
special circumstances showing proximate damage of a different amount, the difference between the contract
price and the market or current price at the time or times when the goods ought to have been accepted, or, if
no time was fixed for acceptance, then at the time of the refusal to accept.
If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his
obligations under the contract of sale, the buyer repudiates the contract or notifies the seller to proceed no
further therewith, the buyer shall be liable to the seller for labor performed or expenses made before receiving
notice of the buyer's repudiation or countermand. The profit the seller would have made if the contract or the
sale had been fully performed shall be considered in awarding the damages. (n)
Article 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the
contract of sale, or has manifested his inability to perform his obligations thereunder, or has committed a
breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the
buyer. (n)
Article 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on
the application of the buyer, direct that the contract shall be performed specifically, without giving the seller the
option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon
such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just. (n)
Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election:
(1) Accept or keep the goods and set up against the seller, the breach of warranty by way of
recoupment in diminution or extinction of the price;
(2) Accept or keep the goods and maintain an action against the seller for damages for the breach of
warranty;
(3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of
warranty;
(4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been
received, return them or offer to return them to the seller and recover the price or any part thereof which
has been paid.
When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy
can thereafter be granted, without prejudice to the provisions of the second paragraph of article 1191.
Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach
of warranty when he accepted the goods without protest, or if he fails to notify the seller within a
reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the
seller in substantially as good condition as they were in at the time the ownership was transferred to the
buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or
injury shall not prevent the buyer from returning or offering to return the goods to the seller and
rescinding the sale.
Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the
price upon returning or offering to return the goods. If the price or any part thereof has already been
paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of
the goods, or immediately after an offer to return the goods in exchange for repayment of the price.
Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an
offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee
for the seller, but subject to a lien to secure the payment of any portion of the price which has been
paid, and with the remedies for the enforcement of such lien allowed to an unpaid seller by article 1526.
(5) In the case of breach of warranty of quality, such loss, in the absence of special circumstances
showing proximate damage of a greater amount, is the difference between the value of the goods at the
time of delivery to the buyer and the value they would have had if they had answered to the warranty.
 
SUMMATIVE DISCUSSION OF THE ARTICLES:
 
Actions available to the seller

1. Action for payment of price

a) Ownership has passed to buyer and he wrongfully neglects or refuses to pay the price;
b) Price is payable on a certain day and buyer did not pay, even if there is no transfer of title; or
c) If the goods can’t be readily be resold for a reasonable price and buyer wrongfully refuses to accept
them before ownership has passed.
2. Action for damages

3. Action for rescission

a) When buyer repudiated the contract of sale;
b) When buyer manifested his inability to perform his obligation; and
c) When buyer has committed a breach in the contract.
 
Actions available to the Buyer

1. Bring an action for specific performance, if the seller has broken the contract to deliver specific or
ascertained goods.
2. In case of breach of warranty by seller: isa lang ang pwedeng piliin
a) Accept the goods and ask to reduce or extinguish the price
b) Accept goods and maintain an action for damages
c) Refuse to accept the goods and maintain an action for damages
d) Rescind the contract by the return of goods and recover of price
 
When rescission by Buyer not allowed:

1. If buyer accepted the goods knowing of the breach of warranty without protest;
2. If he fails to notify the seller within a reasonable time
3. Fails to return or offer to return the goods to the seller in substantially as good condition as they were in
the time of delivery

Rights and Obligation in Rescission

1. Buyer
2. Obliged to return the goods, and cease to be liable for the price;
3. If paid the price or any part thereof, he may recover it;
4. Right to hold the goods as bailee if the seller refuse the return of goods;
5. Right to have a lien of the goods for any portion of price paid, as if he were an unpaid seller.
6. Seller: When seller may rescind before delivery:
7. When the buyer repudiated the contract of sale;
8. When buyer manifested his inability to perform his obligation
9. When buyer committed a breach of the contract.

WEEK 9 : Extinguishment of Sale, Part 1

EXTINGUISHMENT OF SALE
Causes of extinguishment of sale

1. Same causes as all other obligations;

a. Payment or performance of obligation;
b. Loss of thing due;
c. Condonation or remission of debt;
d. Confusion or merger of the rights of creditor and debtor;
e. Compensation
f. Novation
g. Annulment
h. Rescission
i. Fulfillment of a resolutory condition
j. Prescription
2. Conventional redemption
3. Legal Redemption
 
 Conventional Redemption (Right to redeem or Pacto de retro sale)
 It is the right which the vendor reserves to himself, to reacquire the property sold provided he returns to
the vendee the price of the sale, expenses of the contract, any other legitimate payments made therefore, the
necessary and useful expenses made on the thing sold and fulfils other stipulation.
 What Constitutes Conventional Redemption?
-When the seller reserved the right to repurchase what he sold with the obligation to return the following:

1. purchase price;
2. expenses of the contract;
3. legitimate payments made by reason of sale;
4. necessary and useful expenses made on the thing sold; and,
5. other stipulations which may have been agreed upon.
Note: reservation of the right of repurchase stays the buyer-seller relationship with respect to such reservation
until its period expires or when it is exercised.
 
The Essence of a Pacto de retro sale
 The title and ownership of the property sold transfers immediately to the vendee a retro. However it is
still subject to the resolutory condition of repurchase of the subject property by a vendor a retro within the
period agreed upon by them, or, in the absence thereof, as provided by law or else it would vests upon the
vendee a retro absolute title and ownership over the property sold by operation of law.
 
Equitable Mortgage
 It is a mortgage which, although lacking in some formality or other requisites demanded by a statute,
nevertheless reveals the intention of the parties to charge real property as security for a debt, and contains
nothing impossible or contrary to law (Matanguihan v. CA).

Presumption of equitable mortgage; requisites:

 The parties entered into a contract denominated as a contract of sale; and
 The intention of the parties is to secure an existing debt by way of a mortgage
 
When is a Sale Presumed to be Equitable Mortgage?
-The contract of sale with right to repurchase (sale a retro& shall be presumed to be an equitable mortgage, in
any of the following cases:

1. When the price of under a sale a retro is unusually inadequate;

2. When the seller remains in possession as lessee or otherwise;
3. When the period of redemption is extended or renewed under a separate instrument;
4. When the buyer retains part of the purchase price;
5. When the seller binds himself or continues to pay the taxes on the thing sold;
6. In any other case where it may be fairly inferred that the real intention of the parties is that the
transaction shall secure the payment of a debt or the performance of any other obligation.
Note: the existence of any one of the conditions above is sufficient to give rise to the presumption that the
contract is an equitable mortgage.
The provisions on equitable mortgage of Art. 1602 shall also apply to a contract purporting to be an absolute
sale.
 
Circumstances to Treat a Contract of Sale as an Equitable Mortgage

a. The terms used in the deed or power-of-attorney indicate that the conveyance was intended to be a
loan secured by a mortgage;
b. The price paid, in relation to the value of the property, is grossly inadequate;
c. The seller, at the time of the alleged sale was in urgent need of money;
d. The supposed seller invested the money he obtained from the alleged buyer in making improvements
on the property sold;
e. The supposed seller remained in possession of the land sold;
f. The seller paid the land tax which is a usual burden attached to ownership;
g. The buyer accepted partial payments from the seller, and such acceptance of partial payment is
absolutely incompatible with the idea of irrevocability of the title of ownership of the purchaser at the expiration
of the term stipulated in the original contract for the exercise of the right of redemption;
h. The seller remained bound for the repayment of the money received strongly tends to show that a
mortgage only was intended;
i. The transaction had its origin in a borrowing of money also tends to show that the subsequent
transaction although in the form of a sale with the right of repurchase was in fact intended as a mortgage; and
j. There was a previous debt between the parties and this was not extinguished by the sale, but remained
subsisting but if the previous debt was extinguished by the sale, and the seller has the privilege of
repurchasing within a given time, the transaction is a conditional sale.
 
Note: The issue of ambiguity whether the contract is a sale or an equitable mortgage is generally inclined to be
construed as the latter because it involves a lesser transmission of rights and interest over the property. The
intention of the parties to an agreement is shown not necessarily by the terminology but by all the surrounding
circumstances and all pertinent facts having a tendency to fix and determine the real nature of their design and
understanding (Molina v. CA) Hence, to reiterate, parol evidence is competent and admissible to clear the
ambiguities in a contract of sale. 0n the other hand, best evidence rule finds no application to equitable
mortgage situations since there is no conclusive test to determine whether a deed of absolute sale on its face
is really a loan secured by a mortgage (Austria v. Gonzales, Jr.)
 
 
What is reformation?
 An equitable remedy by which a court will modify a written agreement to reflect the actual intent of the
parties, usually to correct fraud or mutual mistake in the writing, such as an incomplete property description in
a deed.
Note: The remedy of reformation is to correct the instrument so as to make it express the true intent of the
parties.
 
When Can The Right of Redemption Be Exercised?
1.) It must be exercised within 4 years from the date of contract if there is no period agreed upon.
2.) It must be exercised within the period stipulated (but must not exceed 10 years) if there is period
agreed upon.
 
Note: if the agreement exceeds the 10-year rule, it shall be reduced to 10 years applying Art. 1606. As long as
there is a stipulation as to the period, even though unclear or void, the 10-year rule shall apply, not the 4-year
rule.
 
Redemption of Real Properties
In case of real properties, the consolidation of the ownership in the buyer by virtue of the failure of the seller to
comply with his obligation to return the price and other legally mandated expenses shall not be recorded in the
Registry of Property without a judicial order, after the seller has been duly heard (Art. 1607). It means that no
automatic redemption shall occur and the buyer a retro is required to file an action for consolidation of
ownership first wherein the seller a retro is given an opportunity to be heard.
 
SUBROGATION
 Substitution of one party for another whose debt the party pays, entitling the paying party to rights,
remedies, or securities that would otherwise belong to the debtor.
 
EXAMPLES OF RIGHTS TRANSFERRED TO THE VENDEE:

1. Right to mortgage the property

2. Right to receive fruits
 
Redemption of Co-Owned Properties
 In sale a retro, the buyer of a part of an undivided immovable who acquires the whole thereof in the
case of Article 498, compel the seller to redeem the whole property, if the latter wishes to make use of the right
of redemption (Art. 1611).
 If several persons, jointly and in the same contract, should sell an undivided immovable with a right of
repurchase, none of them may exercise this right for more than his respective share. The same rule shall apply
if the person who sold an immovable alone has left several heirs, in which case each of the latter may only
redeem the part which he may have acquired (Art. 1612).
 In the case of the preceding situation, the buyer may demand of all the vendors or coheirs, 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 (Art. 1613).
 On the other hand, 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 (Art. 1614).
 In addition, the creditors of the seller cannot make use of the right of redemption against the buyer, until
after they have exhausted the property of the seller (Art. 1610).
 Should one of the co-owners or co-heirs succeed alone in redeeming the whole property, such co-
owner or co-heir 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 coheir to demand from the
redemptioner his respective share in the property redeemed, which share is subject to a lien in favor of the
redemptioner for the amount paid by him corresponding to the value of the share (De Guzman v. Court
Appeals).
 
Obligation of vendor in case of redemption

1. Price of the sale;

2. Expenses of the contract;
3. Any other legitimate payments made by reason of the sale; and
4. The necessary and useful expenses made on the thing sold.
 
Rules Regarding Fruits
 If there were fruits at the time of the sale: No reimbursement or pro-rating of those existing at the time
of redemption shall be made, if no indemnity was paid by the buyer when the sale as executed.
 If there were NO fruits at the time of the sale and so existed at the time of redemption: Pro-rating shall
be made between seller-redemptioner and buyer. The buyer receives the part corresponding to the time he
possessed the land in the last year, counted rom the anniversary of the date of the sale.

WEEK 10: PART 2

LEGAL REDEMPTION
 It is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the
place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby
ownership is transferred by onerous title. It must be exercised within thirty (30) days from the notice in writing
by the vendor. This does not apply to barter, donation, transmission of things by hereditary title, mortgage, and
lease.
What are the instances of legal redemption?
Under the Civil Code

1. Sale of co-owner of his share to a stranger

2. When a credit or other incorporeal right in litigation is sold
3. Sale of an heir of his hereditary rights to a stranger
4. Sale of adjacent rural lands not exceeding one hectare
5. Sale of adjacent small urban lands bought merely for speculation
Under special laws

1. An equity of redemption in cases of judicial foreclosures

2. A right of redemption in cases of extra-judicial foreclosures
3. Redemption of homesteads
4. Redemption of tax sales
5. Redemption by an agricultural tenant of land sold by the landowner
 
What are the rules for legal redemption by co-owner?
Art. 1620: A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-
owners or of any of them, are sold to a third person. If the price of the alienation is grossly excessive, the
redemptioner shall pay only a reasonable one.
Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to
the share they may respectively have in the thing owned in common.
 Requisites:

1. There is co-ownership
2. There is alienation of all or any of the shares
3. The sale was made to a stranger
4. The legal redemption was exercised before partition
What are the rules for legal redemption by an adjacent owner?
Art. 1621: The owners of adjoining lands shall also have the right of redemption when a piece of rural land, the
area of which does not exceed one hectare, is alienated, unless the grantee does not own any rural land.
This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and other
apparent servitudes for the benefit of other estates.
If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of the
adjoining land of smaller area shall be preferred; and should both lands have the same area, the one who first
requested the redemption.
Requisites:

1. Both lands are rural

2. The lands are adjacent to each other
3. There is an alienation
4. The land is less than 1 hectare
Rights of adjacent owners:

1. Right of pre-emption which the preferential right to buy the urban land before the same is sold to a third
person
2. In the event the urban land has been sold, the adjacent owners have the right of redemption. 
 
Legal Redemption under the Civil Code:
Among Co-Heirs
Should any of the heirs sell his hereditary rights to a stranger before the partition of the decedent’s estate, any
or all of the other co-heirs may be subrogated to the rights of the purchaser by reimbursing him for the price of
the sale, provided they do so within the period of one month from the time they were notified in writing of the
sale by the selling co-heir. (Article 1088, Civil Code).
The situation contemplated above is a sale by an heir of his hereditary right to a stranger to the co-ownership.
Among Co-Owners
A co-owner of a thing may exercise the right of redemption in case the shares of other co-owners or any of
them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay
only a reasonable price therefor. (Article 1620, Civil Code).
Should two or more co-owners desire to exercise the legal right of redemption, they may only do so in
proportion to the share they may respectively have in the thing owned in common. (Article 1620, Civil Code).
 
De Facto Partition among Co-Heirs and Co-Owners: If in fact they (co-heirs who became co-owners upon
succession& have partitioned it (the property& among themselves and each have occupied and treated definite
portions thereof as their own, co-ownership has ceased even though the property is covered under one title,
and the sale by one of the heirs of his definite portion cannot trigger the right of redemption in favor of the other
heirs.

Distinguishing Between Rights of Redemption of Co-Heirs and Co- Owners

Co-Heirs Co-Owners
1. Redemption by a co-owner of the property
owned in common, even when he uses his 1. An heir may validly redeem for himself
own fund, within the period prescribed by law alone the hereditary rights sold by another
inures to the benefit of all the other co- co-heir.
owners.
2. When the sale consists of an interest in
2. If the sale is the hereditary right itself, fully
some particular property or properties of the
or in part, in the abstract sense, without
inheritance, the right of redemption that
specifying any particular object, the right
arises in favor of the other co-heirs is that
recognized is that in Article 1088.
recognized in Article 1620.
 
SALIENT DISTINCTIONS BETWEEN CONVENTIONAL AND LEGAL RIGHTS OF REDEMPTION
 Conventional  Legal
1. A legal right of redemption does not have
1. Strictly speaking, a right a retro can only
to be expressly reserved (it is a right granted
be constituted by express reservation in a
by law&, and covers sales and other onerous
contract of sale at time of perfection.
of title.
2. A legal right of redemption is given to a
2. Right a retro is in favor of the seller.
third- party to the sale.
3. The exercise of the right 3. The exercise of the legal right of
a retro extinguishes the underlying contract of redemption, although it extinguishes the
sale as though there was never any contract original sale, actually constitutes a new sale
at all. in substitution of the original sale.
 

WEEK 11: Assignment of Credits and Other Incorporeal Rights

ASSIGNMENT OF CREDIT
 An agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such
as sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and
accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent
as the assignor could enforce it against the debtor.
CONCEPT OF ASSIGNMENT OF CREDIT
 This is an agreement whereby credits, rights or actions pertaining to an assignor are transferred by him
to an assignee either onerously or gratuitously who acquires the power to enforce the same against the
debtors.
 A contract by which the owner of a credit transfers to another his rights and actions against a third
person in consideration of a price certain in money or its equivalent.
 
CONTRACT OF SALE vs ASSIGNMENT OF CREDIT

Contract of Sale Assignment of Credit

The objection is credit, incorporeal rights or

The object is property.
rights of action.

It must appear in a public instrument to

produce effect as against third person. In
It need not appear in a public instrument to
case the assignment involves real property,
affect third person.
the instrument is recorded in the Registry of
Property.

Transfer of ownership need not be upon

Ownership is transferred upon delivery of the
delivery of the thing. The parties may agree
documents evidencing the credit of
that ownership be transferred only after full
incorporeal rights.
payment (Art. 1478).

If personal property is involved, it must be

through a public instrument. If real property
It need not be through a public instrument.
involved, public instrument recorded in the
Registry of Property.

 
EFFECTS OF ASSIGNMENT
 Transfers the right to collect the full value of the credit, even if he paid a price less than such value.
 Transfers all the accessory rights- similar with the natural obligations of a vendor, to deliver the fruits,
accessories, and accessions along with the object of the contact of sale even without any stipulation to that
effect.
 Debtor can set up against the assignee all the defenses he could have set up against the assignor.
 
TRANSFER OF OWNERSHIP
 By tradition and not by perfection.
 By execution of public instrument because intangibles cannot be physically transferred.
 Without necessity of delivering the document evidencing the credit.
 This rule does not apply to negotiable documents and document of title which are governed by special
laws.
 
EFFECT OF PAYMENT OF DEBTOR AFTER ASSIGNMENT OF CEREDIT
 Before Notice of the Assignment- Payment to the original creditor is valid and the debtor shall be
released from his obligation.
 After Notice- Payment to the original creditor is not valid as against the assignee and he may be made
to pay against by the assignee.
 
LEGAL EFFECTS OF LACK OF KNOWLEDGE OR CONSENT OF DEBTOR
 ASSIGNMENT OF RIGHTS MADE W/O KNOWLEDGE OF DEBTOR- Debtor may set up against
assignee the compensation which would pertain to him against assignor of all credits prior to assignment and
of later ones until he had knowledge of the assignment.
 DEBTOR HAS KNOWLEDGE BUT NO CONSENT- May still set up compensation of debts previous to
assignment involves real property.
 DEBTOR HAS CONSENTED TO ASSIGNMENT- Cannot set up compensation unless assignor was
notified by debtor that he reserves his right to the compensation.
 
WARRANTIES OF THE ASSIGNOR OF CREDIT
 Existence of the credit at the time of assignment;
 Legality of the credit unless he sold it as doubtful; and
 If expressly stipulated or unless insolvency is prior to the sale and of common knowledge,
the solvency of the debtor.

Note: There is no warranty against hidden defect because intangibles has no physical existence, thus, it is not
applicable.

DURATION OF WARRANTY AS TO DEBTOR’S SOLVENCY

 Period stipulated;
 If there is no stipulation;
o 1 year from the time of assignment if the period had already expired;
o 1 year from maturity if the period had not yet expired.
 
BREACH OF WARRANTY: LIABILITIES OF THE ASSIGNOR OF CREDIT FOR VIOLATION OF HIS
WARRANTIES

1. Assignor in good faith

a. Price received;
b. Expenses of the contract; and
c. Any other legitimate payments by reason of the assignment.
2. Assignor in Bad faith
a. Payment of the price;
b. All the expenses; and
c. Damages
 
WARRANTY OF HEIRSHIP
 Sale of hereditary rights and not specific properties on the inheritance
 Sale is done before the partition of the estate
 Sale is allowed because ownership is already vested upon the heirs upon the death of their
predecessor
Note: Sale of future inheritance is void.
 
ASSIGNMENT OF CREDIT OR INCORPOREAL RIGHT IN LITIGATION
Requisites:
 There must be a sale or assignment of credit
 There must be a pending litigation
 The debtor must pay the assignee:
o Price paid by him;
o Judicial costs incurred by him; and
o Interest on the price from the date of payment
 The right must be exercised by the debtor w/in 30 days from the date the assignee demands (Judicially
or extra-judicially) payment from him

WEEK 12: General Provisions of the Law on Sales; Barter; The Bulk Sales Law
GENERAL PROVISIONS OF THE LAW ON SALES
Article 1636 is the “Definition of Terms” portion of the law on sales. The various terms used from
Articles 1458 to Article 1635 are being defined or explained in this article. These definitions do not
apply if the context or subject matter otherwise requires.
 
 Goods do not include things or choses in action or negotiable instruments.
o A chose in action is any claim or right which may be pleaded in a suit at
law, such as a claim of reparation for a tort or quasi-delict, or a right
acquired under a contract.
o Stock certificates have been held to be goods within the meaning of the
U.S. Uniform Sales Act. (Babb & Martin, op. cit.,p. 86.)
o Real property is not the proper subject of a transaction involving a sale of
goods within the definition of the term. However, growing crops or fruits
which are agreed to be severed under the contract of sale are treated as
goods and not as interest in realty.
o The U.S. Uniform Commercial Code excludes money from the term
“goods” but only where money is the medium of payment. Said another
way, money in which the price is to be paid for the goods involved, is not
to be considered part of the goods which are the subject matter of the
transaction. Said Code (Sec. 2-105 thereof.) specifically provides that
money, when treated as a commodity, is a good and the contract formed
out of the transaction is one for the sale of goods. (1 Williston, 4th ed., p.
152.)
o Any transaction between the parties, even if in the form of an unconditional
contract to sell or even if in the form of present sale, is excluded from a
sale of goods if the parties to the transaction intended that the transaction
operate only as a security transaction; but the provision on sales will
govern the general sales aspects of such transaction. (Ibid.,p. 176.)
 Ascertained goods means goods that are identified and agreed upon as
forming the subject matter of the bargain.
o They are specific if they are identified and agreed upon at the time the
contract of sale is made.
o If identification takes place afterwards, the goods are specified but not
specific.
o Existing goods (owned or possessed by the seller) may or may not be
specific.
o Future goods (to be manufactured or acquired by the seller after the
making of the contract to sell) cannot be specific. (Ibid., pp. 101-102.)
 
Registration of sales of immovables
 The act of registration shall be the operative act to convey or affect the
land insofar as third persons are concerned, and not any other deed,
mortgage, lease or other voluntary instrument, except a will purporting to
convey or affect registered land. (Sec. 51, PD 1529)
 Every conveyance, if registered, shall be constructive notice to all persons
from the time of such registration. (Sec. 52, PD 1529)
 The registration shall be made in the office of the Register of Deeds for the
province or city where the land lies. (Sec. 51, PD 1529)
 
 
BARTER OR EXCHANGE
 By the contract of barter or exchange, one of the parties binds himself to
give one thing in consideration of the other’s promise to give another thing.
(Art. 1638.) It is similar to sale except that instead of paying a price in
money, another thing is given in exchange. (see Art. 1468.)
 
Perfection and consummation of the contract.
 It is perfected from the moment there is a meeting of minds.
 It is consummated from the time of mutual delivery.
 
Effect where giver not lawful owner of thing delivered.
 Under this provision, the aggrieved party cannot be compelled to deliver
the thing he has promised. Moreover, he is entitled to claim damages. The
rule is analogous to Articles 1590 and 1591.
 
Effect of eviction.
 Each contracting party warrants to the other that he has right to transfer
ownership of the thing exchanged. (see Arts. 1547,1548.) In case of
eviction, the injured party is given the option either to recover the property
he has given in exchange with damages or only claim an indemnity for
damages. The right to recover is, however, subject to the rights of innocent
third persons. (see Art. 1385.)
 
Applicability of provisions on sales.
 Barter is a mutual sale. Each party really is both a vendor and a vendee.
For this reason, the provisions on sales are also applicable to barter.
 
Rules on determining whether an exchange involving both cash and thing is barter or sale
 Examine the manifest intention of the parties.
 In the absence of such intention, look at the value of the thing and the
amount of cash involved.
o If the value of the thing given up exceeds the amount of cash given up, the
contract is a barter.
o If the value of the thing given up is less than the amount of cash given up,
the contract is a sale.
o If the value of the thing given up is equal to the amount of cash given up,
the contract is also a sale.
 
THE BULK SALES LAW
 
Purposes
 It is meant to protect supply creditors or businessmen against preferential
or fraudulent transfers done by merchants.
 It is primarily intended to prevent a situation where merchants would
defraud their creditors by hurriedly selling their businesses and vanishing
into thin air, with the creditors left holding the bag, while the transferee
comes under the protection of the doctrine of “buyer in good faith and for
value.”
 
Transactions Covered by The Law (Definition of Bulk Sales)
 
Any sale, mortgage, transfer, or assignment of:
 1. A stock of goods, wares, merchandise, provisions, or materials not in the
ordinary course of trade and the regular prosecution of the business of the
seller, mortgagor, transferor, or assignor (Extraordinary sale of goods)
2. All, or substantially all, of the fixtures and equipment used in and about the
business of the seller, mortgagor, transferor, or assignor (Extraordinary
sale of fixtures and equipment)
3. All, or substantially all, of the business or trade theretofore conducted by
the seller, mortgagor, transferor, or assignor (Sale of business enterprise)
 
Transactions Not Covered by The Law
 
Even if the transaction falls within the definition of “bulk sale,” the Law would not be made to apply in
the following cases:

1. If the seller, transferor, mortgagor, or assignor produces and delivers a

written waiver of the provisions of the Law from his creditors as shown in
the verified statements
2. Transactions effected by executors, administrators, receivers, assignees in
insolvency or public officers, acting under legal processes
 
Businesses Covered by The Law
 Since the Law is penal in nature, it should be construed strictly against the
State and liberally in favor of the accused. (People v. Wong)
 When it comes to the first type of bulk sales, the Law covers only those
goods, wares, merchandise, provisions, or materials, which are sold
everyday, and are constantly going out of the store and being replaced by
other goods. (In other words, the Law covers extraordinary sales of goods,
wares, merchandise, provisions, or materials bought and sold only in
mercantile business.)
 When it comes to the other two types of bulk sales, the language of the
Law does not limit in anyway coverage to a particular type of business.
(This means that the Law covers extraordinary sales of fixtures/equipment
used in mercantile or even in non-mercantile business. Likewise, the Law
covers the sale of business enterprises, which nature may or may not
partake of merchandising.)
 
Obligations of Seller/Encumbrancer When Transaction is a Bulk Sale
 
When a transaction, whether for cash or on credit, is within the coverage of the Law, it shall be the
duty of the seller, mortgager, transferor, assignor, as the case may be, to perform the following acts:
 

1. To deliver to the buyer/mortgagee/transferee/assignee a sworn statement

of listing of creditors

Before the seller/mortgagor/transferor/assignor receives any part of the

purchase price thereof or any promissory note or other evidence therefore,
he shall deliver to the buyer/mortgagee/transferee/assignee a written
statement of: (a) the names & addresses of all his creditors and (b) the
amount of indebtedness due or owing to each creditor.

2. Pro-rata application of proceeds

The seller/mortgagor/transferor/assignor shall apply the purchase or

mortgage proceeds to the pro-rata payment of the bona fide claims of his
creditors as shown in the verified statement.

3. Written advance disclosure to creditors

At least 10 days before the sale/mortgage/transfer/assignment, the

seller/mortgagor/transferor/assignor shall make an inventory of the goods,
 wares, merchandise, provisions, or materials and preserve the same,
showing the quantity and cost price for each article.

At least 10 days before transferring possession of the goods, wares,

merchandise, provisions, materials, the
seller/mortgagor/transferor/assignor shall notify each creditor of the price,
terms, and conditions of the sale/transfer/mortgage/assignment personally
or through registered mail.

4. Bulk transfers for nominal value

It shall be unlawful for any person/firm/corporation as owner of any stock

of goods/wares/merchandise/provisions/materials, in bulk, to transfer title
to the same without consideration or for a nominal consideration only.
 
 
Consequences of Violation of The Law
 
Failure of the seller/mortgagor/transferor/assignor to comply with a specific obligation shall be
deemed a violation of the Law. What is its consequence on the transaction itself, on the
seller/mortgager/assignor/transferor, and on the buyer/mortgagee/transferee/assignee?
 

On Seller, On the Buyer,

On the
Mortgager, Mortgagee,
  Transaction
Assignor, Transferee,
Itself
Transferor Assignee

1.    If he failed to
deliver to the If the transaction
The sale, were rendered
buyer, mortgagee, mortgage, transfer Subject to criminal fraudulent and void,
transferee, or , or assignment is
assignee, a sworn liability no legal
FRAUDULENT consequences
statement of AND VOID.
listing of creditors would flow from it.
Hence, he would
not be entitled to
The sale, the goods, wares,
2.     If he did not pro- mortgage, merchandise,
rata apply the Subject to criminal provisions, or
transfer, or
proceeds to the materials for which
assignment is liability
listed creditors he has paid good
FRAUDULENT
AND VOID. money. He may file
3.     If he did not a suit to recover
make a written what he has
The sale, obtained from a
advance mortgage, transfer, Does not make him
disclosure of the or assignment is bulk sale. He may
criminally liable even be liable for
transactions to his still VALID.
creditors damages for having
conspired with the
4.     If he effected a VOID, not under seller, mortgager,
bulk sales without the Bulk Sales Subject to criminal transferor, or
a consideration or Law, but according assignor to defraud
liability creditors.
for nominal value to the Civil Law.

Provisions Common to Pledge and Mortgage (Art. 2085-2092)

COMMON PROVISIONS ON PLEDGE AND MORTGAGE
  
Essential Requisites common to both Pledge and Mortgage:

1. They are constituted to secure fulfillment of the principal obligation.

2. The pledgor or mortgagor is the absolute owner of the thing pledge or mortgage.
3. The person constituting the pledge or mortgage have free disposal of their property and in the absence
thereof, that may be legally authorized for the purpose (Art. 2085); and
4. The when the principal obligation becomes due, the things in which the pledge or mortgage consists
may be alienated for the payment of the creditor. (Art. 2087)
Note:
 Third persons who are not parties to the principal obligation may secure the latter by pledging or
mortgaging their own property (Art. 2085).
 Any kind of obligation whether pure or conditional, including natural, voidable and unenforceable
obligations may be secured by a contract of pledge and mortgage. (Art. 2091, 2052).
 
Meaning of PACTUM COMMISSORIUM
It is a stipulation authorizing the creditor to appropriate the things given by way of pledge and mortgage or to
dispose of them. It is declared null and void by law. (Art 2088). Reason : The amount of the loan is ordinarily
much less than the value of the security.
 
Note: The appropriation must be automatic without need of further act on the part of the debtor. Hence, the
prohibition does not apply to:

a. Subsequent voluntary act of the debtor of making cession of the property or;
b. A promise to assign or sell said property in payment of the debt.
 
Rules on the indivisibility of Pledge and Mortgage:
 A pledge or mortgage is indivisible, even though the debt may be divided among the successors in
interest of the debtor or of the creditor;
 Therefore, the debtor’s heirs who has paid of the debt cannot ask for the proportionate extinguishments
of the pledge or mortgage as long as the debt is not completely satisfied;
 Neither can the creditor’s heirs who received his share of the debt return the pledge or cancel the
mortgage, to the prejudice of the other heirs who have not been paid;
 The above rules, however, do not apply where there being in several things given in mortgage or
pledge, each of them guarantees only a determinate portion of the credit. In this case, the debtor shall have a
right to the extinguishments of the pledge or mortgage as the portion of the debt for each thing is especially
answerable is satisfied.
 
Examples:

1. A borrowed from B P 10,000 and to guarantee payment, A pledge his diamond ring worth P 4,000 and
a pair of earnings worth P 6,000. If A pays P 4,000, he cannot ask for the return of the ring because both the
ring and the earnings are given to secure payment of the entire obligation of P 10,000. The same is true if A
dies leaving W and X as heirs and W pays P4,000 to B. If the creditors are B and C, and A pays B P4, 000, B
cannot return the ring to the prejudice of C who has not received his share. However, if it is agreed that the ring
was given to secure the payment of P4,000 and the earnings, the balance of P6,000 and A (or his heir W) pays
P 4,000, A (or W) can demand the return of the ring.
2. A and V are jointly liable to C in the sum of P9,000 secured by A’s ring worth P 5,000 and B’s watch
worth P4,000. If A pays P5,000 he cannot demand the return of the ring even if their liability is only joint or
proportionate because pledge is indivisible.
 
Legal effect of a promise to constitute a pledge or mortgage
It gives rise only to a personal right binding upon the parties but it creates no real right in the property. (See
Art. 2092).
Pledge (Art. 2093-2123); Mortgage (Art. 2124-2131)
PLEDGE
 
Meaning of Pledge
 It is a contract by virtue of which the debtor delivers to the creditor or to the third person a movable or
instrument evidencing incorporeal rights for the purpose of securing the fulfillment of a principal obligations is
fulfilled the thing delivered shall be returned with all the fruits and accessions.
 
Characteristics/Nature of pledge as a contract

1. Real
2. Accessory
3. Unilateral
4. Subsidiary contracts because the obligation incurred does not arise until the fulfillment of the principal
obligation that is secured.
5. In addition to the common requisites of pledge and mortgage (Art 2085), it is necessary in order to
constitute the contract of pledge, that the thing pledged be placed in the possession of the creditor, or of a third
person by common agreement. (Art 2093).
 
Cause or Consideration in pledge
Insofar as the pledgor is concerned, it is the principal obligation. But if he is the debtor (Art 2085), the cause is
the compensation stipulated for the pledge or the mere liberality of the pledgor.
 
Kinds of pledge

1. Voluntary or conventional – one which is created by agreement of the parties; or

2. Legal – one which is created by operation of law (Art 2121)
 
Additional requirements in order that pledge shall take effect against third parties:

1. The description of the thing pledge; and

2. The date of pledge (Art 2076)
 
Rights of the Pledgee

1. To retain the thing in his possession or in that of a third person to whom it has delivered, until the debt
is paid (Art 2099).
2. To be reimbursed for the expenses incurred in its preservation (Art 2099).
3. To compensate (set – off) the fruits, income, dividends or interests earned or produced by the thing
pledged and received with those which are due to him (Art 2102).
4. To bring the actions which pertain to the owner of the thing pledged in order to recover if from or defend
it against a third person (Art 2103).
5. To sell the thing pledged at the public auction, if without his fault, there is danger of destruction,
impairment or diminution in the value of the thing (Art 2108).
6. To claim a substitute or demand immediate payment, if he is deceived on the substance or quality of
the thing pledged (Art 2109)
7. To sell the thing pledged at public auction if the obligation secured is not paid (Art 2112).
8. To bid at the public sale (Art 2114).
9. To collect the amount that become due on a credit pledged before such credit is redeemed.
10. To choose which one of the several thing pledged shall be sold (Art 2119) .
 
Obligations of the pledgee

1. To take care of the thing pledge with the diligence of a good father of the family (Art 2099).
2. To answer for its loss or deterioration in the proper case;
3. Not to deposit the thing pledge with a third person unless authorized (Art )
4. To be responsible for the acts of his agents or employees with respect to the thing pledged (Art 2100);
5. Not to use the thing pledged unless authorized or its preservation so requires (Art 2104);
6. To advise the pledgor, without delay, of any danger to the thing pledged (Art 2107).
7. To promptly advise the pledgor or owner in case of sale at public auction of the result thereof (Art
2116); and
8. To return the thing pledged when the principal obligation is paid.
 
Conditions required in an extrajudicial foreclosure sale of the thing pledged

1. The debt is due and unpaid

2. The sale must be at a public auction
3. There must be notice to the pledgor and owner, stating the amount due; and
4. The sale must be made with the intervention of a notary public.
Note:  The pledgee may appropriate the thing pledged if after the first and second auctions, the thing is not
sold. If the creditor appropriated the thing, it shall be considered as full payment for his entire claim.  He
is thus obliged to give an acquittance for the same (Art. 2115). The sale must be made at the public
auction with notification to the debtor and the owner of the thing pledged in a proper case, stating the
amount for which the public sale is to be held.
 
Rules on the proceeds after sale of the thing pledged

1. Price of sale more than the amount due – The debtor is not entitled to the excess, unless otherwise
agreed; and
2. Price of sale less than the amount due – The creditor is not entitled to recover any deficiency,
notwithstanding any stipulation to the contrary. (Art. 2115) Reason: To compel the creditor to hold an honest
public sale.
Notes:
 The creditor, however, may sue on the principal obligation instead of electing to sell the thing pledged.
 In pledge by operation of law, after payment of the debt and expense, the remainder of the price shall
be delivered to the obligor (Arts 2121, 2122)
 Under the Chattel Mortgage Law, the mortgagor can also recover the excess (Act. No. 1506, Sec 14).
 
Instances of Legal Pledges or Pledges by Operation of Law

1. Possessor in good faith – for necessary and useful expenses incurred over the thing (Art 546);
2. Usufructuary – for taxes and extraordinary expenses (Art 612) ;
3. Bailee – For damages suffered by reason of the flaws in the thing loaned. (Arts 1944, 1951);
4. Agent – for expenses advance and damages caused by the agency (Art 1914);
5. Depositary – for the payment of what may be due him by reason of the deposit (Art 1994); and
6. Hotel Keeper – for credits for lodging and supplies furnished (Art 2004); and
7. Independent contractor – he who has executed work upon a movable has a right to retain it by way of
pledge until he is paid. (Art 1731, see also Art 1701).
In case of pledge by operation of law, the proceeds shall be applied to the debt and expenses, the remainder
of the price of the sale shall be delivered to the obligor. (Art. 2121).The thing under pledge by operation of law
may be sold only after demand of the amount for which the thing is retained. The public auction shall take
place within one month after such demand.  If, without just grounds, the creditor does not cause the public sale
to be held within such period, the debtor may require the return of thing.  (Art. 2122)
 
Rights of the Pledgor

1. To continue to be the owner of the thing pledged, until its sale, unless it is expropriated(Art 2103) ;
2. To demand the deposit of the thing pledged should the creditor use it without authority, or misuse it in
any other was (Art 2104);
3. To substitute the thing pledged if it is endangered without fault of the pledgee without prejudice to the
pledgee’s right to have the thing sold at public sale (Art 2108).
4. To bid and have preference at the foreclosure sale if he should offer the same terms as the bidder (Art
2113) His offer is not valid however if he is the only bidder.  All bids shall offer to pay the purchase price in
cash.  If a bid other than for cash is accepted, the pledgee is deemed to have received the purchase price in
cash, as far as the pledgor or owner is concerned. (Art. 2114). The sale of the thing pledged extinguishes the
principal obligation, whether or not the proceeds are equal to the amount of the principal obligation, interest
and expenses in proper case; and
5. To demand the return of the thing pledged upon the extinction of the principal obligation. (Art 2085 (1))
Note:  A statement in writing by the pledgee that he renounces or abandons the pledge is sufficient to
extinguish the pledge.  For this purpose, neither the acceptance by the pledgor or owner, nor the return of the
thing pledged is necessary.  The pledgee becomes a depositary or bailee.
 
Obligations of the pledgor

1. To notify the pledgee of any flaw or defect of the thing pledged known to him; otherwise he answers for
damages suffered by the pledgee (Art 2101);
2. To reimburse the pledgee for expenses made for its preservation (Art 2099); and
3. To fulfill his principal obligation (Art 2085)
 
Principles in Pledge
1. As a general rule, the pledge extends to the interest and earnings of the thing pledged, unless there is
a stipulation to the contrary. (Art. 2102)
2. Unless the pledge is expropriated, the debtor continues to be the owner thereof. Nevertheless, the
creditor may bring actions which pertains to the owner of the thing pledged in order to recover it from or defend
it against third person. (Art. 2104)
3. The creditor cannot use the thing pledged without the consent of the owner, and if he should do so, or
should misuse t he thing in any other way, the owner may ask the Court that it be JUDICIALLY OR
EXTRAJUDICIALLY DESPOSITED. However, when the preservation of the thing pledged requires its use, it
must be used by the creditor but only for that purpose. (Art. 2104)
4. The remedy of the pledgor should the thing pledged be in danger of being lost or impaired through the
negligence or willful act of the pledgee is to require the thing to be deposited with a third person. (Art. 2106)
5. The creditor who is deceived on the substance or quality of the thing pledged may either (1) claim
another thing instead; or demand immediate payment of the principal obligation (Art. 2109).

 
Remedies should there be reasonable grounds to fear the destruction or impairment of the thing
pledged, without fault of the pledgee
 The pledgee is bound to advise the pledgor, without delay or danger to the thing pledged.
 The pledgor, on the other hand, may demand the return of the thing, upon offering another in pledge
provided the latter is of the same kinf as the former and not of inferior quality and without prejudice to the
RIGHT OF THE PLEDGEE to cause the sale of the thing pledged at public sale. The proceeds of the auction
sale shall be security for the principal obligation in  the same manner as the thing originally pledged.  (Arts.
2107; 2108).  Between the right of the pledgor to demand the return of the thing pledged and the right of the
pledgee to cause it to be sold at public auction, the latter prevails.
 
Causes for the extinguishments of the pledge

1. Return of the thing pledged by the pledgee to the pledgor or owner, any stipulation to the contrary being
void (Art 2110);
2. Renunciation or abandonment executed in writing by the pledgee even without return of the thing (Art
111)
3. Destruction or loss of the thing pledged;
4. Extinction of the principal obligation (by payment or sale of the thing pledged); and
5. Other causes of extinguishments or ordinary obligations (Art 1231)
 
REAL MORTGAGE
 
Mortgage otherwise known as Real Estate mortgage or Real Mortgage is a contract whereby the debtor
secures to the creditor the fulfillment of the principal obligation, especially subjecting to such security
immovable property or real rights over immovable property in case the principal obligation is not complied with
at the time stipulated.
 
Characteristics of Mortgage as a Contract

1. Real
2. Accessory
3. Unilateral; and
4. Subsidiary contract
 
Differences between Mortgage and Pledge
 Pledge is constituted on movables (Art 2094), while mortgage on immovables (Art 2124);
 In pledge, the property is delivered to the pledgee, or by common consent to third person (Art 2093),
while in mortgage, delivery is not necessary; and
 Pledge is not valid against third persons unless a description of the thing pledged and the date of the
pledge appear on a public instrument (Art 2096), while mortgage is not valid against third persons if not
registered even if embodied in a public instrument. (Art 2125).
Note: Both are extinguished by the fulfillment of the principal obligation and by the destruction of the property
pledged or mortgaged.
 
Cause or consideration in mortgage
Its consideration is that the principal contract from which it receives its life, although the obligation secured is
incurred by a third person, that is, the principal debtor is other than the mortgagor.
  
Kinds of Mortgage

1. Voluntary – one which is agreed to between the parties or constituted by the will of the owner of the
property on which it is created (Art 138, Spanish Mortgage Law)
2. Legal – one required by law to be executed on favor of certain persons (Art 2125, par 2; see also Arts
2082, 2083)
3. Equitable – one which, although it lacks the proper formalities of a mortgage, show the intention of the
parties to make the property as a security for a debt.
 
Properties which may be object of Mortgage

1. immovables; and
2. Inalienable real rights in accordance with laws, imposed upon immovables (Art 2124)
 
Immovables
 Land, buildings, roads and construction of all kinds adhered to the soil.
 Trees, plants and growing fruits, while they are attached to the land or form an integral part of an
immovable.
 Everything attached to an immovable in fixed manner, in such a way that it cannot be separated there
from without breaking the material or deterioration of the object.
 Statues, reliefs, painting or other objects for use or ornamentation, placed in buildings or on lands by
the owner of the immovable in such a manner that it reveals the intention to attach them permanently to the
tenements.
 Machinery, receptacles, instruments or implements intended by the owner of the tenement for an
industry or works which may be carried on in a building or on a piece of land, and which tend directly to meet
the needs of the said industry or works.
 Animal houses, pigeon houses, beehives, fishponds or breeding places of similar nature, in case their
owner has placed them or preserves them with the intention to have them permanently attached to the land,
and forming a permanent part of it; the animals in these places are included.
 Fertilizer actually used on a piece of land.
 Mines, quarries, slag dumps, while the manner thereof forms part of the bed, and waters either running
or stagnant.
 Docks and structures which, though floating, are intended by their nature and object to remain at a fixed
place on a river, lake or coast.
 Contracts for public works, and servitudes and other real rights over immovable property. (Art. 415,
Civil Code)
 
Effects of Mortgage

1. It creates a real right, i.e., it directly and immediately subjects the property upon which it is imposed,
whoever the possessor may be, to the fulfillment of the obligation for whose security it was constituted (Art
2126);
2. The mortgage (creditor) may, therefore demand payment from any possessor of the mortgaged
property (Art 2129);
3. He may alienate or assign the mortgage credit (his right as mortgagee) to a third person (Art 2128);
4. The mortgage does not extinguish the title of the mortgagor (debtor) who does not, therefore, lose his
right to dispose. Indeed, the law considers void any stipulation forbidding the owner from alienating the
property mortgaged. (Art 2130)
 
Scope of Mortgage
It extends to and includes the following:

1. Natural accessions;
2. Improvements (even if subsequently made);
3. Growing fruits;
4. Rents or income (belonging to the mortgagor) not yet received when the obligation becomes due;
5. Proceeds of insurance received or owing from insurance of the property;
6. Amounts received or owing in virtue of the expropriation of the properly for public sale (Art 2127) 
Notes:
 The above are deemed included in the mortgage unless expressly excluded;
 But the mortgage does not extend to improvements made by a third person subsequent to the
mortgage and after the property has passed to him.
  
Foreclosure
Foreclosure is a remedy available to the mortgagee by which he subjects the mortgaged property to the
satisfaction of the obligation to secure which the mortgage was given through the sale of the property at
public auction and the application of the proceeds to the payment of his claims.
 
Kinds of Foreclosure

1. Judicial Foreclosure – A mortgage may be foreclosed judicially by bringing an action for that purpose in
the Regional Trial Court of the province or city the real property is located or any part thereof lies; and
2. Extra – judicial foreclosure – A mortgage may be foreclosed extra-judicially where there is inserted in
the contract a clause giving the mortgagee the prior upon default of the debtor to foreclose the mortgage by an
extra-judicial sale of the mortgaged property (Sec 1, Art No. 3155 as amended by Act no 4148).
 
Redemption
Redemption may be defined as a transaction by which the mortgagor reacquires or buys back the property,
which may have been passed under the mortgage or divests the property of the lien, which the mortgage may
have created.
 
Kinds of Redemption

1. Equity of Redemption – the right of the mortgagor to redeem the mortgaged property after his default in
the performance of the conditions of the mortgage but before the sale of the mortgaged property. In judicial
foreclosure, the mortgagor may exercise his equity of redemption before and not after the sale is confirmed by
the court; and
2. Right of Redemption – the right of the mortgagor to redeem the mortgaged property with a certain
period after is was sold for the satisfaction of the mortgaged debt. In all cases of extra – judicial sale, the
mortgagor may redeem the property  at any time within the term of one year from and after the date of the
registration of the sale. In judicial foreclosure, the general rule is that the mortgagor cannot exercise his right of
redemption after the sale is confirmed by an order of the Court.
 
Rules on Foreclosure
 
Validity and Effect of Foreclosure
 The  right  to  foreclose  the  mortgage  and  to  have  the property  seized  and  sold  with  a  view  to 
applying  the proceeds to the payment of the principal obligation.
 A mortgage contract may contain an acceleration clause — on occasion  of  the mortgagor’s default, 
the whole  sum remaining unpaid automatically becomes due and payable
 Essence    of    mortgage    contract—property    has    been identified and  separated  from  a  mass 
of  the property of the  mortgagor  to  secure  the  payment  of  a principal obligation.
 Once  the  proceeds  have  been  applied  to  the  payment  of the  principal  obligation,  the  debtor 
cannot anymore  be asked to pay unless there is deficiency.
 
Grounds for Foreclosure

1. Failure to pay the principal obligation on maturity date.

2. Violation of any condition, stipulation or warranty of the mortgage contract by the debtor/debtor
 
Judicial Foreclosure – A mortgage may be foreclosed judicially by bringing an action for that purpose in the
Regional Trial Court of the province or city the real property is located or any part thereof lies as outlined under
Sections 4 and 70 of the Revised Rules of Court.  If there is deficiency in the public sale, the mortgagee can
petition the court for a deficiency judgment and collect the unpaid balance from the debtor.
 
A third person who owns the land mortgaged but merely secured the principal obligation shall not be liable for
the deficiency of the debtor.  The latter shall be personally liable thereof.
 
CHATTEL MORTGAGE (Act No. 1508, as amended).
a contract by virtue of which personal property is recorded in the Chattel Mortgage Register as a security for
the performance of an obligation (Art 2140).
 
Characteristics of Chattel Mortgage as a Contract
1. accessory
2. unilateral
3. formal contract
4. if the chattel mortgage (or real mortgage) is not recorded, the mortgagee acquires the right to demand
registration of the contract. (Art 2125)
 
Laws principally governing chattel mortgages

1. Chattel Mortgage Law (Act No. 1508)

2. Civil Code
3. Revised Administrative Code; and
4. Revised Penal Code
 
Similarities between pledge and chattel mortgage

1. both are executed to secure performance of a principal obligation;

2. both are constituted only on personal property;
3. both are indivisible
4. both constitute a lien on the property
5. In both cases, the creditor cannot appropriate the property to himself in payment of the debt;
6. In both cases, when the debtor defaults, the property must be sold for the payment of the creditor; and
7. Both are extinguishments by the fulfillment of the principal obligation and by the destruction of the
property pledged or mortgaged.
 
Differences between pledge and chattel mortgage

1. In chattel mortgage, the delivery of the personal property to the mortgagee is not necessary, while in
pledge, such delivery is necessary;
2. In chattel mortgage, the registration of the same in the Chattel Mortgage Register is necessary for its
validity, while in pledge, registration in the Registry of Property is not necessary.
3. The procedure for the sale of the thing given as a security is different. In chattel mortgage, the
procedure is found in Section 14 of Act No. 1508, as amended, while in pledge, it is found in Article 2112 of the
Civil Code.
4. In chattel mortgage, the excess over the amount due after foreclosure goes to the debtor (Art No. 1508,
Section 14), while in pledge, if the property is sold, the debtor is not entitled to the excess unless it is otherwise
agreed (Art 2115) or except in the case of a legal pledge (Art 2121) and;
5. In chattel mortgage, the creditor is entitled to recover any deficiency except if the chattel mortgage is a
security for the purchase of personal property in installments, while in pledge, the creditor is not entitled, any
stipulation to the contrary notwithstanding (Art 2115).
 
Object of Chattel Mortgage Contract
 
Only movable or personal properties such as:

1. Shares of stock (the mortgage to be registered both in Chattel Mortgage Registries of the province
where the mortgagor resides, and the province where the corporation has its principal business);
2. Interest in business;
3. Growing crops;
4. Large cattle;
5. Vehicles (the mortgage to be registered also with the Land Transportation Office); and
6. Vessels (the mortgage to be registered with the Office of the Philippine Coast Guard of the Port of
Documentation of such vessels. (Pres. Decree No. 1521, Sec. 3 9a)).
7. House built on rented land but as between the parties only under the doctrine of estoppel; and
8. House to be demolished and portable nipa huts for what are really mortgaged in this case are the
materials thereof and they are, therefore, personal property.
Note: Growing crops and large cattle are considered personal property under the Chattel Mortgage Law (Art
1508 Sec 7). They cannot however, be the object of a contract of pledge because they are considered
immovable under the Civil Code, which principally governs pledge.
 
Extent or scope of Chattel Mortgage
It covers only property described in the contract, and excludes like or substituted property thereafter
acquired by the mortgagor, notwithstanding anything in the contract to the contrary (Art No. 1508 Sec
7). Exception: In this case of stock or merchandise contained in drugstores, grocery stores, etc. which
are constantly sold and substituted with new stock.
 
 Affidavit of Good Faith
an oath in a contra t of chattel mortgage wherein the parties “severally swear that the mortgage is made for the
purpose of securing the obligation specified in the conditions thereof and for no other purpose and that the
same is just and valid obligation and one not entered into for the purpose of fraud. (Section 5)
 
Note: The absence of the affidavit vitiates a mortgage only as against third persons without notice, like
creditors and subsequent encumbrances.
 
Who may exercise right of redemption when condition of the chattel mortgage is broken

1. The mortgagor;
2. A person holding a subsequent mortgage;
3. A subsequent attaching creditor
 The redemption is made by paying or delivering to the mortgage the amount due on such mortgage and the
costs and expenses incurred by such breach of condition before the sale thereof. (Section 13).
 
Kinds of Foreclosure of Chattel Mortgage

1. Judicial Foreclosure – the mortgagee institutes an action in court;

2. Extra-judicial Foreclosure – The sale is made by the mortgagee himself when authorized by the Chattel
mortgage contract or by special law.
 
Application of proceeds of the foreclosure

1. Costs and expenses of keeping and sale;

2. Payment of the obligation secured by the mortgage;
3. Claims of persons holding subsequent mortgages in their order; and
4. The balance, if any. Shall be paid to the mortgagor, or in person holding under him.

Antichresis, Commodatum, Mutuum, Depositum (Art. 1935-2009; 2132-2139)

ANTICHRESIS
A contract whereby the creditor acquires the right to receive the fruits of an immovable of his debtor, with the
obligation to apply them to the payment of the interest, if owing and thereafter to the principal of his credit.
 
Characteristics of Antichresis as a Contract
 An accessory contract because it secures the performance of a principal obligation.
 A formal contract because the amount of the principal and of the interest must both be in writing,
otherwise the contract of antichresis is void.
 
Notes:
 Delivery of the property to the creditor is required only in order that the creditor may receive the fruits
and not for the validity of the contract.
 It is not essential that the loan should earn interest in order that it can be guaranteed with a contract of
antichresis. Antichresis is susceptible of guaranteeing all kinds of obligations, pure or conditional. (Javier vs.
Valliser, (CA) N. 2648-R, April 29, 1950; Sta. Rosa vs. Noble, 35 O.G. 27241).
 The fruits of the immovable which is the object of the antichresis must be appraised at their actual
market value at the time of the application. (see Article 2138)
 The property delivered stands as a security for the payment of the obligation of the debtor in
antichresis. Hence, the debtor cannot demand its return until the debt is totally paid.
 A stipulation authorizing the antichretic creditor to appropriate the property upon the non-payment of
the debt within the period agreed upon is void. (see Article 2038).
 
Obligations of Antichretic Creditor

1.  The creditor is obliged, unless there is a stipulation to the contrary, to pay the taxes and charges upon
the estate. If he does not pay the taxes, he is, by law (Article 1170), required to pay indemnity for damages to
the debtor. (Pando vs. Gimenez, 54 Phil. 459 [1930]).
2. Another obligation of the creditor is to apply the fruits, after receiving them to the interest, if owing, and
thereafter to the principal (Article 2132) in accordance with the provisions of Article 2133 or 2138. Hence, the
 duty of the creditor to render an account of said fruits to the debtor and the corresponding right of the latter that
the said fruits be applied to the debt. (Barretto vs. Barretto, 37 Phil. 234 [1917]; Diaz and Rubillos vs. De
3. Mendezona, 48 Phil. 666 [1926]; Macapilac vs. Gutierrez Recipe 43 Phil. 770 [1922]).
 
Remedies of Creditor in Case of Default

1. To bring an action for specific performance

2. To petition for the sale of the real property as in a foreclosure of mortgages under Rule 68 of the Rules
of Court. The parties, however, may agree on an extrajudicial foreclosure in the same manner as they are
allowed in contracts of mortgage and pledge
 
CREDIT TRANSACTIONS
Include all transactions involving the purchase of loan of goods, services or money in the present with a
promise to pay or deliver in the future. Without a promise to pay or deliver in the future, there can be no
security transaction.
 
Parties to a Bailment

1. Bailor (Comodatario) – the giver, the party who delivers the possession or custody of the thing bailed.
2. Bailee (Comodante) – the recipient; the party who receives the possession or custody of the thing thus
delivered.
 
Kinds of Bailment Contract

1. Those for the sole benefit of the bailor.

a. gratuitous deposit
b. mandatum
2. Those for the sole benefit of the bailee
a. commodatun
b. gratuitous mutuum
3. Those for the benefit of both parties
a. deposit for the compensation; involuntary deposit
b. pledge
c. bailments for hire
 
Loan in General
Characteristics of Loan as a Contract 

1. Real Contract because the delivery of the thing loaned is necessary for the perfection of the contract
(Article 1934; see also Article 1316); and
2. Unilateral Contract because once the subject matter has been delivered, it creates obligations on the
part of only one of the parties, i.e. the borrower
Kinds of Loan

1. Commodatum – where the bailor (lender) delivers to the bailee (borrower) a non-consumable thing so
that the latter may use it for a certain time and return the identical thing; and
2. Mutuum – where the bailor (lender) delivers to the bailee (borrower) money or other consumable thing
upon the condition that the latter shall pay same amount of the same kind of quality.
 
COMMODATUM
Characteristics 

1. Gratuitous, otherwise it is a lease (Article 1935)

2. Purpose is the temporary use of the thing loaned (Article 1935)
3. Bailee’s right to use is limited to the thing loaned and not to its fruits (Article 1935) unless there is
stipulation to the contrary (Article 1940)
4. Subject matter is generally non-consumable things but may cover consumables if the purpose of the
contract is for exhibition.
5. Bailor need not to be the owner; it is sufficient that he has possessory interest over subject matter
(Article 1938).
6. Commodatum is purely personal in character hence death of either bailor or bailee extinguishes the
contract (Article 1939)
7. General Rule: Bailee can neither lend nor lease the object of the contract to a third person.
Exception: Member of bailee’s household
 Exception to the exception:

1.
1.
a. contrary stipulation
b. nature of thing forbids such use
 
Obligations of the Bailee 

1. Bailee is liable for ordinary expenses for the use and preservation of the thing loaned.
2. General Rule: Bailee is not liable for loss or damage due to a fortuitous event (because the bailor
retains ownership)Exceptions:
a. Bailee devote thing to a different purpose
b. Bailee keeps thing longer than the period stipulated or after the accomplishment of the use for
which commodatum was constituted.
c. Thing loaned was delivered with appraisal of its value (unless there is express stipulation to the
contrary)
d. Bailee lends thing to a third person not a member of his household
e. Bailee, if being able to save either the thing borrowed or his own thing chose to save the latter
3. Bailees are solidarily liable when the thing is loaned to two or more bailees in the same contract.
 
Notes:

1. General Rule: Bailee is not liable for ordinary wear and tear due to use of the thing loaned.
2. Exceptions:
3. If he is guilty of fault or negligence
4. If he devotes thing to any purpose different from that for which it has been loaned.
5. Bailee cannot retain the thing loaned as security for claims he has against the bailor, even though by
reason of extraordinary expenses.
 
Obligations of the Bailor

1. To allow the bailee the use of the thing loaned for the duration of period stipulated or until the
accomplishment of the purpose for which commodatum was constituted.Exceptions:
a. urgent need during which time the commodatum is suspended.
b. precarium
 if duration of the contract has not been stipulated
 if use or purpose of the thing has not been stipulated
 if use of thing is merely tolerated by the bailor
2. To refund extraordinary expenses for the preservation of the thing loaned provided bailor is notified
before the expenses were incurred. Exception: urgent need hence no notice is necessary.
3. To refund 50% of the extraordinary expenses arising from actual use of the thing loaned (i.e. caused by
fortuitous event)Exception: contrary stipulation
4. To pay damages to bailee for known hidden flaws in the thing loaned.
Note: Bailor has the right to demand return of the thing if bailee commits any act of ingratitude.
 
SIMPLE LOAN OR MUTUUM
A contract whereby one of the parties delivers to another party money or other consumable thing with the
understanding that the same amount of the same kind and quality shall be paid.
 
Characteristics

1. Borrower acquires ownership of the thing and can therefore dispose of the thing borrowed. There is no
criminal liability for failure to pay one’s debt.
2. If the thing loaned is money, payment must be made in the currency which is legal tender in the
Philippines and in case of extraordinary deflation or inflation, the basis of payment shall be the value of the
currency at the time of the creation of the obligation.
3. If fungible thing was loaned, the borrower is obliged to pay the lender another thing of the same kind,
quality and quantity.
 
General Rule on Interest
In order that interest may be charged, it must be expressly stipulated in writing (Article 1956).
 
 Exceptions:
 Debtor in delay is liable to pay legal interest as indemnity for damages even in the absence of
stipulation for the payment of interest (Article 2209)
 Interest due shall earn interest (compounding interest) from the time it is judicially demanded although
the obligation may be silent upon this point (Article 2212) or when there is express stipulation (Article 1959).
 
DEPOSIT
A deposit is constituted from the moment a person receives a thing belonging to another, with the obligation of
safety keeping it and of returning the same.
 
Characteristics

1. Real Contract because it is perfected by the delivery of the subject matter.

2. If gratuitous, it is unilateral because only the depository has an obligation. If onerous, it is bilateral.
3. Principal purpose of the contract of deposit is the safekeeping of the thing delivered.
4. Contract of deposit is generally gratuitous.
Exceptions:

 contrary stipulation
 depository is in the business of storing goods
 property saved from destruction during calamity without owner’s knowledge; just compensation
should be given the depository.
 
Kinds of Deposit

1.  Judicial
2. Extrajudicial
a. Voluntary
b. Necessary
 
Voluntary Deposit
 Defined as one wherein the delivery is made by the will of the depositor.
 Although generally the owner, the depositor need not be the owner of the thing deposited.
 May be oral or in writing.
 
Obligations of the Depositary

1. Depositary is obliged to keep the thing safely and to return it when required, even though a specified
term may have been stipulated in the contract.
2. Depositary is liable if the loss occurs through his fault or negligence. Loss of thing while in the
depositary’s possession raises a presumption of fault. Required degree of care is greater if the deposit is for
compensation than when it is gratuitous.
3. Depositary is not allowed to deposit the thing with a third person.Exception: contrary stipulation
4. Depositary is liable for the loss of the thing deposited if:
a. he transfers the deposit with a third person without authority although there is no negligence on
his part and the third person;
b. he deposits the thing with a third person who is manifestly careless or unfit although authorized,
even in the absence of negligence; or
c. the thing is lost through the negligence of his employees whether the latter are manifestly
careless or not.Note: Depositary is not responsible for loss of thing without negligence of the third person with
whom he was allowed to deposit the thing if such third person is not manifestly careless or unfit
5. Depositary is obliged to first notify the depositor and wait for the latter’s decision if he will change the
way or manner of the deposit.Exception: delay will cause danger
6. If thing deposited should earn interest, the depositary is under obligation (1) to collect the interest as it
becomes due and (2) to take such steps as may be necessary to preserve its value and the rights
corresponding to it. The depositary is bound to collect not only the interest but also the capital itself when due.
7. Depositary has the obligation not to commingle things deposited if so stipulated, even if they are of the
same kind and quality (Article 1976).
8. Depositary is under obligation not to make use of the thing deposited (because deposit is for
safekeeping of the subject matter and not for its use); otherwise he shall be liable for damages.Exceptions:
a. express permission of the depositor
b. preservation of the thing deposited required its use (article 1977)
  
Notes:
 If the thing deposited is non-consumable and the depositary has permission to use the thing, the
contract becomes one of commodatum.
 If the thing deposited is money or other consumable thing, the contract is converted into a simple loan
or mutuum.
o Exception: Where safekeeping is still the principal purpose of the contract, the same shall be
considered an irregular deposit.
 Depositary is liable for loss through a fortuitous event even without his fault.
o if it is so stipulated;
o is he uses the thing without the depositor’s permission;
o if he delays its return;
o if he allows others to use it, even though he himself may have been authorized to use the same
(article 1979)
 Depositary has the obligation to:
o return the thing deposited when delivered closed and sealed, in the same condition;
o pay for damages should the seal or lock be broken through his fault which is presumed unless
proven otherwise; and
o keep the secret of the deposit when the seal or lock is broken, with or without his fault.Note:
Depositary is authorized to open the thing deposited which is closed and sealed when there is:

o presumed authority (keys having been delivered to depositary), or
o in case of necessity.
 Depositary has the obligation to return not only the thing but also all its products, accessions and
accessories which are a consequence of ownership.
 
Persons to whom Return of Thing Deposited Must be Made

1. The depositary is obliged to return the thing deposited, when required, to the depositor, to his heirs and
successors, or to the person who may have been designated in the contract (Article 1972).
2. If the depositor was incapacitated at the time of making the deposit, the property must be returned to
his guardian or administrator or the person who made the deposit or to the depositor himself should he acquire
capacity (Article 1970).
3. Even if the depositor had capacity at the time of making the deposit but he subsequently loses his
capacity during the deposit, the thing must be returned to his legal representative (Article 1988).
 
Place of Return of Thing Deposited

1. at the place agreed upon by the parties, and

2. in the absence of stipulation, at the place where the thing deposited might be even if it should not be
the same place where the original deposit was made provided the transfer was accomplished without malice
on the part of the depositary.
 Note: Depositor shoulders the expenses for transportation
 
Time of Return of Thing Deposited
 General Rule: Upon demand or at will, whether or not a period has been stipulated.
 Exceptions:
 thing is judicially attached while in the depositary’s possession
 depositary was notified of the opposition of a third person to the return or the removal of the thing
deposited (Article 1986)
 
Right of Depositary to Return Thing Deposited 

1. if deposit is gratuitous; and

2. justifiable reasons exist for its return
Note: Otherwise, depositary may avail of consignation therefore there is no right to return before
expiration of the term designated if deposit is for valuable consideration (Article 1989).
 
Alteration of Depositary’s Heir 
1. If in good faith, heir may either return the price he received or assign his right of action against the
buyer in case the price has not been paid.
2. If in bad faith, heir is liable for damages and may be sued for estafa.
 
Obligations of Depositor

1.  He is obliged to pay expenses for the preservation of the thing deposited, if deposit is gratuitous.
2. He is obliged to pay for losses incurred due to the character of the thing deposited.
 Exceptions:
 unless depositor was not aware thereof
 depositor was not expected to know the dangerous character of the thing
 unless he notified the depositary of the same; or
 depositary was aware of it without depositor’s advice (Article 1993)
Note: Depositary has the right to retain the thing deposited in pledge until full payment of what may be due him
by reason of the deposit (Article 1994).
 
Necessary Deposit 

1. Necessary deposit in compliance with a legal obligation

 The judicial deposit of a thing, the possession of which is being disputed in a litigation by two or
more persons (Article 538);
 The deposit with a bank or public institution of public bonds or instruments if credit payable to
order or bearer given in usufruct when the usufructuary does not give proper security for their conservation
(Article 586);
 The deposit of a thing pledged when the creditor uses the same without the authority of the
owner or misuses it in any other way (Article 2104);
 Those required in suits as provided in the Rules of Court; and
 Those constituted to guarantee contracts with the government. In this last case, the deposit
arises from an obligation of public or administrative character. 
2. Necessary deposit made on the occasion of a calamity.
3. Deposit by travelers in hotels and inns
 They have been previously informed about the effects brought by the guests; and
 The latter have taken the precautions prescribed regarding their safekeeping.
Notes:

1. Hotelkeeper is liable regardless of the amount in the following cases:

 The loss or injury is caused by his servants or employees as well as by strangers provided that
notice has been given and proper precautions taken. (Article 1998); and
 The loss is cause by the act of a thief or robber done without the use of arms and irresistible
force (Article 2001) for in this cause, the hotelkeeper is apparently negligent.
2. Hotelkeeper is not liable in the following cases:
 The loss or injury is caused by force majeure like flood, fire (Article 2000), theft or robbery by a
stranger (not by hotelkeeper’s servant or employee) with the use of arms or irresistible force (Article 2001),
etc., unless he is guilty of fault or negligence in failing to provide against the loss or injury from said cause (see
Article 1170, 1174);
 The loss is due to the acts of the guests, his family, servants or visitors (Article 2002).
 The loss arises from the character of the things brought into the hotel (Article 2002).
3. Stipulations on exemption or diminution of liability is void(Article 2003).
4. Hotelkeeper has a right to retain the things of guests as security for unpaid lodging expenses and
supplies.

Patents (SEC. 20-120, RA 8293, as amended by RA 10372)

PATENT
A grant issued by the government to an inventor, designer or maker, the right to exclude others from making,
using or selling his invention, design or utility model within the country for a specific term, in exchange of his
patentable disclosure.
 
Patent vs. Trade Secret
 A trade secret is a plan or process, tool or mechanism or compound known only to its owner and employees
sworn to secrecy. (Air Phil Corp. vs. Pennswell, Inc) Its protection is not limited like a patent. It continues as
long as it is kept as a secret.
However, once it is revealed to the public, it is no longer protected and cannot be the subject of a patent since
it will no longer have the element of novelty.
However still, if the disclosure is made fraudulently, an injunction may be issued against it to prevent the
disclosure of the secret by the one who has obtained the information by such means.
 

Kinds of Patents and its Requisites

1. Invention Patent: Novelty, Inventive Step, Industrial Applicability;

2. Design Patent: Novelty and Ornamentality;
3. Utility Model: Novelty and Industrial Applicability.
 
INVENTION PATENT
Patentable Inventions - Any technical solution of a problem in any field of human activity which is new, involves
an inventive step and is industrially applicable shall be patentable. It may be, or may relate to, a product, or
process, or an improvement of any of the foregoing.
 
Non-patentable Inventions
The following shall be excluded from patent protection:

1. Discoveries, scientific theories and mathematical methods;

2. Schemes, rules and methods of performing mental acts, playing games or doing business, and
programs for computers;
3. Methods for treatment of the human or animal body by surgery or therapy and diagnostic methods
practiced on the human or animal body. This provision shall not apply to products and composition for use in
any of these methods;
4. Plant varieties or animal breeds or essentially biological process for the production of plants or animals.
This provision shall not apply to micro-organisms and non-biological and microbiological processes.
5. This does not preclude Congress to consider the enactment of a law providing sui generis protection of
plant varieties and animal breeds and a system of community intellectual rights protection:
6. Aesthetic creations; and
7. Anything which is contrary to public order or morality.
 
ELEMENTS OF A PATENT
1. Novelty: An invention shall not be considered new if it forms part of a prior art.
Prior Art: Everything which has been made available to the public anywhere in the world, before the filing date
or the priority date of the application claiming the invention; and
The whole contents of an application for a patent, utility model, or industrial design registration, published, filed
or effective in the Philippines, with a filing or priority date that is earlier than the filing or priority date of the
application: Provided, That the application which has validly claimed the filing date of an earlier application,
shall be prior art with effect as of the filing date of such earlier application: Provided further, That the applicant
or the inventor identified in both applications are not one and the same.
Non-prejudicial disclosure: The disclosure of information contained in the application during the twelve (12)
months preceding the filing date or the priority date of the application shall not prejudice the applicant on the
ground of lack of novelty if such disclosure was made by:

1.  The inventor;
2. A patent office and the information was contained (a) in another application filed by the inventor
and should not have been disclosed by the office, or (b) in an application filed without the knowledge or
consent of the inventor by a third party which obtained the information directly or indirectly from the inventor; or
3. A third party which obtained the information directly or indirectly from the inventor
 
2. Inventive Step: An invention involves an inventive step if, having regard to prior art, it is not obvious to a
person skilled in the art at the time of the filing date or priority date of the application claiming the invention.
 
3. Industrial Applicability: An invention that can be produced and used in any industry shall be industrially
applicable.
 
 RIGHT TO A PATENT
The right to a patent belongs to the inventor, his heirs, or assigns. When two (2) or more persons have jointly
made an invention, the right to a patent shall belong to them jointly.
First to File Rule: If two (2) or more persons have made the invention separately and independently of each
other, the right to the patent shall belong to the person who filed an application for such invention, or where two
or more applications are filed for the same invention, to the applicant who has the earliest filing date or, the
earliest priority date.
Right of Priority: An application for patent filed by any person who has previously applied for the same
invention in another country which by treaty, convention, or law affords similar privileges to Filipino citizens,
shall be considered as filed as of the date of filing the foreign application: Provided, That: (a) the local
application expressly claims priority; (b) it is filed within twelve (12) months from the date the earliest foreign
application was filed; and (c) a certified copy of the foreign application together with an English translation is
filed within six (6) months from the date of filing in the Philippines.
 
COMMISSIONED INVENTIONS
The person who commissions the work shall own the patent, unless otherwise provided in the contract.
Note that this rule is different with regards a copyright, where the copyright belongs to the author/artist and the
work to the one who commissioned the work.
In case the employee made the invention in the course of his employment contract, the patent shall belong to:

1. The employee, if the inventive activity is not a part of his regular duties even if the employee uses the
time, facilities and materials of the employer.
2. The employer, if the invention is the result of the performance of his regularly-assigned duties, unless
there is an agreement, express or implied, to the contrary.
 
UNITY OF INVENTION
The application shall relate to one invention only or to a group of inventions forming a single general inventive
concept.
If several independent inventions which do not form a single general inventive concept are claimed in one
application, the Director may require that the application be restricted to a single invention. A later application
filed for an invention divided out shall be considered as having been filed on the same day as the first
application: Provided, That the later application is filed within four (4) months after the requirement to divide
becomes final or within such additional time, not exceeding four (4) months, as may be granted: Provided
further, that each divisional application shall not go beyond the disclosure in the initial application.
The fact that a patent has been granted on an application that did not comply with the requirement of unity of
invention shall not be a ground to cancel the patent.
 
PUBLICATION OF PATENT APPLICATIONS
The patent application shall be published in the IPO Gazette together with a search document established by
or on behalf of the Office citing any documents that reflect prior art, after the expiration of eighteen (18) months
from the filing date or priority date.
After publication of a patent application, any interested party may inspect the application documents filed with
the Office.
The Director General subject to the approval of the Secretary of Trade and Industry, may prohibit or restrict the
publication of an application, if in his opinion, to do so would be prejudicial to the national security and interests
of the Republic of the Philippines.
 
STATUS BEFORE PUBLICATION
A patent application, which has not yet been published, and all related documents, shall not be made available
for inspection without the consent of the applicant.
 
RIGHTS CONFERRED BY PUBLICATION
The applicant shall have all the rights of a patentee against any person who, without his authorization,
exercised any of the rights conferred, in relation to the invention claimed in the published patent application, as
if a patent had been granted for that invention: Provided, That the said person had:

1. Actual knowledge that the invention that he was using was the subject matter of a published
application; or
2. Received written notice that the invention that he was using was the subject matter of a published
application being identified in the said notice by its serial number: Provided, That the action may not be filed
until after the grant of a patent on the published application and within four (4) years from the commission of
the acts complained of.
 
THIRD PARTY OBSERVATION
Following the publication of the patent application, any person may present observations in writing concerning
the patentability of the invention. Such observations shall be communicated to the applicant who may comment
on them. The Office shall acknowledge and put such observations and comment in the file of the application to
which it relates.
 
TERM OF PATENT
The term of a patent shall be twenty (20) years from the filing date of the application.
 
CANCELLATION OF PATENT
Any interested person may, upon payment of the required fee, petition to cancel the patent or any claim
thereof, or parts of the claim, on any of the following grounds:

1. That what is claimed as the invention is not new or Patentable;

2. That the patent does not disclose the invention in a manner sufficiently clear and complete for it to be
carried out by any person skilled in the art; or
3. That the patent is contrary to public order or morality.
4. Where the grounds for cancellation relate to some of the claims or parts of the claim, cancellation may
be effected to such extent only.
 
REMEDY OF INVENTOR
If a person, who was deprived of the patent without his consent or through fraud is declared by final court order
or decision to be the true and actual inventor, the court shall order for his substitution as patentee, or at the
option of the true inventor, cancel the patent, and award actual and other damages in his favor if warranted by
the circumstances.
 
PATENT RIGHTS
A patent shall confer on its owner the following exclusive rights:

1. Where the subject matter of a patent is a product, to restrain, prohibit and prevent any unauthorized
person or entity from making, using, offering for sale, selling or importing that product;
2. Where the subject matter of a patent is a process, to restrain, prevent or prohibit any unauthorized
person or entity from using the process, and from manufacturing, dealing in, using, selling or offering for sale,
or importing any product obtained directly or indirectly from such process.
3. The right to assign, or transfer by succession the patent, and to conclude licensing contracts for the
same.
 
LIMITATION OF PATENT RIGHTS
The owner of a patent has no right to prevent third parties from performing, without his authorization, acts
mentioned above in the following circumstances:

1. Using a patented product which has been put on the market in the Philippines by the owner of the
product, or with his express consent, insofar as such use is performed after that product has been so put on
the said market;
2. Where the act is done privately and on a non-commercial scale or for a non-commercial purpose:
Provided, that it does not significantly prejudice the economic interests of the owner of the patent;
3. Where the act consists of making or using exclusively for the purpose of experiments that relate to the
subject matter of the patented invention;
4. Where the act consists of the preparation for individual cases, in a pharmacy or by a medical
professional, of a medicine in accordance with a medical prescription or acts concerning the medicine so
prepared;
5. Where the invention is used in any ship, vessel, aircraft, or land vehicle of any other country entering
the territory of the Philippines temporarily or accidentally: Provided, that such invention is used exclusively for
the needs of the ship, vessel, aircraft, or land vehicle and not used for the manufacturing of anything to be sold
within the Philippines.
 
 PRIOR USER
Notwithstanding the exclusivity of rights mentioned above, any prior user, who, in good faith was using the
invention or has undertaken serious preparations to use the invention in his enterprise or business, before the
filing date or priority date of the application on which a patent is granted, shall have the right to continue the
use thereof as envisaged in such preparations within the territory where the patent produces its effect.
The right of the prior user may only be transferred or assigned together with his enterprise or business, or with
that part of his enterprise or business in which the use or preparations for use have been made. (Section 73)
 
USE OF INVENTION BY GOVERNMENT
A Government agency or third person authorized by the Government may exploit the invention even without
agreement of the patent owner where:

1. The public interest, in particular, national security, nutrition, health or the development of other sectors,
as determined by the appropriate agency of the government, so requires; or
2. A judicial or administrative body has determined that the manner of exploitation, by the owner of the
patent or his licensee is anti-competitive.
 
DOCTRINE OF EQUIVALENTS
For the purpose of determining the extent of protection conferred by the patent, due account shall be taken of
elements which are equivalent to the elements expressed in the claims, so that a claim shall be considered to
cover not only all the elements as expressed therein, but also equivalents.
The doctrine of equivalents provides that an infringement also takes place when a device appropriates a prior
invention by incorporating its innovative concept and, although with some modification and change, performs
substantially the same function in substantially the same way to achieve substantially the same result. Identity
of result does not amount to infringement of patent unless the invention being questioned operates in
substantially the same way or by substantially the same means as the patented one, even though it performs
the same function and achieves the same result. In other words, the principle or mode of operation must be the
same or substantially the same.
The doctrine of equivalents thus requires satisfaction of the function-means-and-result test, the patentee
having the burden to show that all three components of such equivalency test are met.
 
INFRINGEMENT
The making, using, offering for sale, selling, or importing a patented product or a product obtained directly or
indirectly from a patented process, or the use of a patented process without the authorization of the patentee
constitutes patent infringement.
 
REMEDIES OF PATENTEE

1. Civil action to recover damages plus attorney’s fees and other expenses of litigation or reasonable
royalty.
2. Injunction for the protection of rights.
3. The court may, in its discretion, order that the infringing goods, materials and implements
predominantly used in the infringement be disposed of outside the channels of commerce or destroyed, without
compensation.
4. Criminal Action for Repetition of Infringement: if infringement is repeated by the infringer or by anyone
in connivance with him after finality of the judgment of the court against the infringer, the offenders shall,
without prejudice to the institution of a civil action for damages, be criminally liable therefor and, upon
conviction, shall suffer imprisonment for the period of not less than six (6) months but not more than three (3)
years and/or a fine of not less than One hundred thousand pesos (P100,000) but not more than Three hundred
thousand pesos (P300,000), at the discretion of the court. The criminal action herein provided shall prescribe in
three (3) years from date of the commission of the crime.
 
NOTICE TO INFRINGER
Damages cannot be recovered for acts of infringement committed before the infringer had known, or had
reasonable grounds to know of the patent. It is presumed that the infringer had known of the patent if on the
patented product, or on the container or package in which the article is supplied to the public, or on the
advertising material relating to the patented product or process, are placed the words "Philippine Patent" with
the number of the patent.

Trademarks (SEC. 121-170, RA 8293, as amended by RA 10372)

TRADEMARK
 Mark means any visible sign capable of distinguishing the goods (trademark) or services (service mark) of an
enterprise and shall include a stamped or marked container of goods
Collective mark means any visible sign designated as such in the application for registration and capable of
distinguishing the origin or any other common characteristic, including the quality of goods or services of
different enterprises which use the sign under the control of the registered owner of the collective mark
Trade name means the name or designation identifying or distinguishing an enterprise
 
HOW RIGHTS ARE ACQUIRED 
The rights in a mark shall be acquired through registration.
 
MARKS WHICH CANNOT BE REGISTERED

1. Consists of immoral, deceptive or scandalous matter, or matter which may disparage or falsely suggest
a connection with persons, living or dead, institutions, beliefs, or national symbols, or bring them into contempt
or disrepute;
2. Consists of the flag or coat of arms or other insignia of the Philippines or any of its political subdivisions,
or of any foreign nation, or any simulation thereof;
3. Consists of a name, portrait or signature identifying a particular living individual except by his written
consent, or the name, signature, or portrait of a deceased President of the Philippines, during the life of his
widow, if any, except by written consent of the widow;
4. Is identical with a registered mark belonging to a different proprietor or a mark with an earlier filing or
priority date, in respect of:
a. The same goods or services, or
b. Closely related goods or services, or
c. If it nearly resembles such a mark as to be likely to deceive or cause confusion;
5. Is identical with, or confusingly similar to, or constitutes a translation of a mark which is considered by
the competent authority of the Philippines to be well-known internationally and in the Philippines, whether or
not it is registered here, as being already the mark of a person other than the applicant for registration, and
used for identical or similar goods or services: Provided, That in determining whether a mark is well-known,
account shall be taken of the knowledge of the relevant sector of the public, rather than of the public at large,
including knowledge in the Philippines which has been obtained as a result of the promotion of the mark;
6. Is identical with, or confusingly similar to, or constitutes a translation of a mark considered well-known
in accordance with the preceding paragraph, which is registered in the Philippines with respect to goods or
services which are not similar to those with respect to which registration is applied for: Provided, That use of
the mark in relation to those goods or services would indicate a connection between those goods or services,
and the owner of the registered mark: Provided further, That the interests of the owner of the registered mark
are likely to be damaged by such use;
7. Is likely to mislead the public, particularly as to the nature, quality, characteristics or geographical origin
of the goods or services;
8. Consists exclusively of signs that are generic for the goods or services that they seek to identify;
9. Consists exclusively of signs or of indications that have become customary or usual to designate the
goods or services in everyday language or in bona fide and established trade practice;
10. Consists exclusively of signs or of indications that may serve in trade to designate the kind, quality,
quantity, intended purpose, value, geographical origin, time or production of the goods or rendering of the
services, or other characteristics of the goods or services;
11. Consists of shapes that may be necessitated by technical factors or by the nature of the goods
themselves or factors that affect their intrinsic value;
12. Consists of color alone, unless defined by a given form; or
13. Is contrary to public order or morality.
As regards signs or devices mentioned in 10 to 12, nothing shall prevent the registration of any such sign or
device which has become distinctive in relation to the goods for which registration is requested as a result of
the use that have been made of it in commerce in the Philippines. The nature of the goods to which the mark is
applied will not constitute an obstacle to registration.
 
COLORABLE IMITATION
A “close or ingenious imitation as to be calculated to deceive ordinary persons, or such a resemblance to the
original as to deceive an ordinary purchaser, giving such attention as a purchaser usually gives, and to cause
him to purchase the one supposing it to be the other. (Etepha, AG vs. Director of Patents)
 
REGISTRABLE TERMS
Generic terms are those which constitute "the common descriptive name of an article or substance," or
comprise the "genus of which the particular product is a species," or are "commonly used as the name or
description of a kind of goods," or "imply reference to every member of a genus and the exclusion of
individuating characters," or "refer to the basic nature of the wares or services provided rather than to the more
idiosyncratic characteristics of a particular product," and are not legally protectable.
On the other hand, a term is descriptive and therefore invalid as a trademark if, as understood in its normal and
natural sense, it "forthwith conveys the characteristics, functions, qualities or ingredients of a product to one
who has never seen it and does not know what it is," or "if it forthwith conveys an immediate idea of the
ingredients, qualities or characteristics of the goods," or if it clearly denotes what goods or services are
provided in such a way that the consumer does not have to exercise powers of perception or imagination.
Suggestive terms are those which, in the phraseology of one court, require "imagination, thought and
perception to reach a conclusion as to the nature of the goods." Such terms, "which subtly connote something
about the product," are eligible for protection in the absence of secondary meaning. While suggestive marks
are capable of shedding "some light" upon certain characteristics of the goods or services in dispute, they
nevertheless involve "an element of incongruity," "figurativeness," or " imaginative effort on the part of the
observer."
 
DOCTRINE OF SECONDARY MEANING
Under the doctrine of secondary meaning, a word or phrase originally incapable of exclusive appropriation with
reference to an article in the market, because geographical or otherwise descriptive might nevertheless have
been used so long and so exclusively by one producer with reference to this article that, in that trade and to
that group of the purchasing public, the word or phrase has come to mean that the article was his produce.
(Ana Ang vs. Toribio Teodoro, 74 Phil. 56)
 
CERTIFICATES OF REGISTRATION
A certificate of registration of a mark shall be prima facie evidence of the validity of the registration, the
registrant’s ownership of the mark, and of the registrant’s exclusive right to use the same in connection with the
goods or services and those that are related thereto specified in the certificate.
 
DURATION OF PROTECTION AND RIGHTS
The rights to a trademark shall be 10 years from registration.
Renewal: the rights to a trademark in a certificate of registration may be renewed for periods of 10 years at its
expiration upon payment of the prescribed fee and upon filing a request at any time within 6 months before
expiration or within 6 months after such exploration upon payment of an additional fee.
Declaration of Actual Use: the registrant shall file a declaration of actual use and evidence of actual use, or
shall show valid reasons based on the existence of obstacles to such use within one (1) year from the fifth
anniversary of the date of the registration of the mark. Otherwise, the mark shall be removed from the Register
by the Office.
 
RIGHTS CONFERRED
The owner of a registered mark shall have the exclusive right to prevent all third parties not having the owner’s
consent from using in the course of trade identical or similar signs or containers for goods or services which
are identical or similar to those in respect of which the trademark is registered where such use would result in a
likelihood of confusion. In case of the use, of an identical sign for identical goods or services, a likelihood of
confusion shall be presumed.
Rights of an owner of a well-known mark: The exclusive right of the owner of a well-known mark which is
registered in the Philippines, shall extend to goods and services which are not similar to those in respect of
which the mark is registered: Provided, That use of that mark in relation to those goods or services would
indicate a connection between those goods or services and the owner of the registered mark: Provided,
further, That the interests of the owner of the registered mark are likely to be damaged by such use.
Not included in the rights: Registration of the mark shall not confer on the registered owner the right to
preclude third parties from using bona fide their names, addresses, pseudonyms, a geographical name, or
exact indications concerning the kind, quality, quantity, destination, value, place of origin, or time of production
or of supply, of their goods or services: Provided, That such use is confined to the purposes of mere
identification or information and cannot mislead the public as to the source of the goods or services.
 
ASSIGNMENT AND TRANSFER
An application for registration of a mark, or its registration, may be assigned or transferred with or without the
transfer of the business using the mark.
The assignment of the application for registration of a mark, or of its registration, shall be in writing and require
the signatures of the contracting parties. Transfers by mergers or other forms of succession may be made by
any document supporting such transfer.
Assignments and transfers of registration of marks shall be recorded at the Office on payment of the
prescribed fee; assignment and transfers of applications for registration shall, on payment of the same fee, be
provisionally recorded, and the mark, when registered, shall be in the name of the assignee or transferee.
  
Assignments and transfers shall have no effect against third parties until they are recorded at the Office.
 
CANCELLATION OF REGISTRATION
A petition to cancel a registration of a mark under this act may be filed with the Bureau of Legal Affairs by any
person who believes that he is or will be damaged by the registration of a mark.
 
PERIOD
GENERAL RULE: Within five (5) years from the date of the registration of the mark under this Act.
EXCEPTIONS:

1. At any time, if the registered owner of the mark without legitimate reason fails to use the mark within the
Philippines, or to cause it to be used in the Philippines by virtue of a license during an uninterrupted period of
three (3) years or longer.
2. At any time, if the registered mark becomes the generic name for the goods or services, or a portion
thereof, for which it is registered, or has been abandoned, or its registration was obtained fraudulently or
contrary to the provisions of this Act, or if the registered mark is being used by, or with the permission of, the
registrant so as to misrepresent the source of the goods or services on or in connection with which the mark is
used.
3. In any action to enforce the rights to a registered mark – Notwithstanding the foregoing provisions, the
court or the administrative agency vested with jurisdiction to hear and adjudicate any action to enforce the
rights to a registered mark shall likewise exercise jurisdiction to determine whether the registration of said mark
may be cancelled in accordance with this Act. (Section 151.2)
 
TRADEMARK INFRINGEMENT
Any person who shall, without the consent of the owner of the registered mark:

1. Use in commerce any reproduction, counterfeit, copy, or colorable imitation of a registered mark or the
same container or a dominant feature thereof in connection with the sale, offering for sale, distribution,
advertising of any goods or services including other preparatory steps necessary to carry out the sale of any
goods or services on or in connection with which such use is likely to cause confusion, or to cause mistake, or
to deceive; or

2. Reproduce, counterfeit, copy or colorably imitate a registered mark or a dominant feature thereof and
apply such reproduction, counterfeit, copy or colorable imitation to labels, signs, prints, packages, wrappers,
receptacles or advertisements intended to be used in commerce upon or in connection with the sale, offering
for sale, distribution, or advertising of goods or services on or in connection with which such use is likely to
cause confusion, or to cause mistake, or to deceive, shall be liable in a civil action for infringement by the
registrant for the remedies hereinafter set forth: Provided, That the infringement takes place at the moment any
of the acts stated in Subsection 155.1 or this subsection are committed regardless of whether there is actual
sale of goods or services using the infringing material.
 
REMEDIES FOR TRADEMARK OWNER

1. Recover damages which shall be based on the reasonable profit which the complaining party would
have made, had the defendant not infringed his rights, or the profit which the defendant actually made out of
the infringement, or in the event such measure of damages cannot be readily ascertained with reasonable
certainty, then the court may award as damages a reasonable percentage based upon the amount of gross
sales of the defendant or the value of the services in connection with which the mark or trade name was used
in the infringement of the rights of the complaining party.
2. In cases where actual intent to mislead the public or to defraud the complainant is shown, in the
discretion of the court, the damages may be doubled.
3. Seek injunction.
4. Seek the destruction of infringing materials without compensation of any sort or disposed outside of
commerce in such a manner as to avoid any harm caused to the right holder.
 
PROVISIONAL REMEDIES

1. Criminal Search & Seizure, Civil Search & Seizure

2. The court may impound during the pendency of the action, sales invoices and other documents
evidencing sales.
3. Preliminary Injunction.
 
 PRIOR USER IN GOOD FAITH
A registered mark shall have no effect against any person who, in good faith, before the filing date or the
priority date, was using the mark for the purposes of his business or enterprise: Provided, that his right may
only be transferred or assigned together with his enterprise or business or with that part of his enterprise or
business in which the mark is used.
 
BORDER CONTROL
No article of imported merchandise which shall copy or simulate the name of any domestic product, or
manufacturer, or dealer, or which shall copy or simulate a mark registered in accordance with the provisions of
this Act, or shall bear a mark or trade name calculated to induce the public to believe that the article is
manufactured in the Philippines, or that it is manufactured in any foreign country or locality other than the
country or locality where it is in fact manufactured, shall be admitted to entry at any customhouse of the
Philippines.

Copyright (SEC. 171-224, RA 8293, as amended by RA 10372)

COPYRIGHT
"Author" is the natural person who has created the work;
A "collective work" is a work which has been created by two (2) or more natural persons at the initiative and
under the direction of another with the understanding that it will be disclosed by the latter under his own name
and that contributing natural persons will not be identified.
"Communication to the public" or "communicate to the public" means any communication to the public,
including broadcasting, rebroadcasting, retransmitting by cable, broadcasting and retransmitting by satellite,
and includes the making of a work available to the public by wire or wireless means in such a way that
members of the public may access these works from a place and time individually chosen by them.
"Public lending" is the transfer of possession of the original or a copy of a work or sound recording for a limited
period, for non-profit purposes, by an institution the services of which are available to the public, such as public
library or archive.
“Published works" means works, which, with the consent of the authors, are made available to the public by
wire or wireless means in such a way that members of the public may access these works from a place and
time individually chosen by them: Provided, that availability of such copies has been such, as to satisfy the
reasonable requirements of the public, having regard to the nature of the work.
 
ORIGINAL WORKS
Literary and artistic works, hereinafter referred to as "works", are original intellectual creations in the literary
and artistic domain protected from the moment of their creation and shall include in particular:

1. Books, pamphlets, articles and other writings;

2. Periodicals and newspapers;
3. Lectures, sermons, addresses, dissertations prepared for oral delivery, whether or not reduced in
writing or other material form;
4. Letters;
5. Dramatic or dramatico-musical compositions; choreographic works or entertainment in dumb shows;
6. Musical compositions, with or without words;
7. Works of drawing, painting, architecture, sculpture, engraving, lithography or other works of art; models
or designs for works of art;
8. Original ornamental designs or models for articles of manufacture, whether or not registrable as an
industrial design, and other works of applied art;
9. Illustrations, maps, plans, sketches, charts and three-dimensional works relative to geography,
topography, architecture or science;
10. Drawings or plastic works of a scientific or technical character;
11. Photographic works including works produced by a process analogous to photography; lantern slides;
12. Audiovisual works and cinematographic works and works produced by a process analogous to
cinematography or any process for making audio-visual recordings;
13. Pictorial illustrations and advertisements;
14. Computer programs; and
15. Other literary, scholarly, scientific and artistic works.
 
COMMENCEMENT OF COPYRIGHT PROTECTION
From the moment of creation, irrespective of the mode or form expression, as well as the content, quality or
purpose.
 
DERIVATIVE WORKS
 The following are derivative works which shall also be protected by copyright:

1. Dramatizations, translations, adaptations, abridgments, arrangements, and other alterations of literary

or artistic works; and
2. Collections of literary, scholarly or artistic works, and compilations of data and other materials which are
original by reason of the selection or coordination or arrangement of their contents.
The above shall be protected as “new works”: Provided however, that such new work shall not affect the force
of any subsisting copyright upon the original works employed or any part thereof, or be construed to imply any
right to such use of the original works, or to secure or extend copyright in such original works.
 
RIGHT OF PUBLISHER
In addition to the right to publish granted by the author, his heirs or assigns, the publisher shall have a copy
right consisting merely of the right of reproduction of the typographical arrangement of the published edition of
the work.
“Reproduction" is the making of one (1) or more copies of a work or a sound recording in any manner or form.
 
WORKS NOT PROTECTED
No protection shall be extended to:

1. Any idea
2. Procedure
3. System method or operation,
4. Concept
5. Principle
6. Discovery or
7. Mere data as such, even if they are expressed, explained, illustrated or embodied in a work
8. News of the day and other miscellaneous facts having the character of mere items of press information;
or
9. Any official text of a legislative, administrative or legal nature, as well as any official translation thereof
 
WORKS OF THE GOVERNMENT
A “work of the Government of the Philippines" is a work created by an officer or employee of the Philippine
Government or any of its subdivisions and instrumentalities, including government-owned or controlled
corporations as part of his regularly prescribed official duties.
No copyright shall subsist in any work of the Government of the Philippines. However, prior approval of the
government agency or office wherein the work is created shall be necessary for exploitation of such work for
profit. Such agency or office may, among other things, impose as a condition the payment of royalties. No prior
approval or conditions shall be required for the use of any purpose of statutes, rules and regulations, and
speeches, lectures, sermons, addresses, and dissertations, pronounced, read or rendered in courts of justice,
before administrative agencies, in deliberative assemblies and in meetings of public character.
The Author of speeches, lectures, sermons, addresses, and dissertations mentioned in the preceding
paragraphs shall have the exclusive right of making a collection of his works.
However, the Government is not precluded from receiving and holding copyrights transferred to it by
assignment, bequest or otherwise; nor shall publication or republication by the government in a public
document of any work in which copy right is subsisting be taken to cause any abridgment or annulment of the
copyright or to authorize any use or appropriation of such work without the consent of the copyright owners.
 
ECONOMIC RIGHTS
Consist of the exclusive right to carry out, authorize or prevent the following acts:

1. Reproduction of the work or substantial portion of the work;

2. Dramatization, translation, adaptation, abridgment, arrangement or other transformation of the work;
3. The first public distribution of the original and each copy of the work by sale or other forms of transfer of
ownership;
4. Rental of the original or a copy of an audiovisual or cinematographic work, a work embodied in a sound
recording, a computer program, a compilation of data and other materials or a musical work in graphic form,
irrespective of the ownership of the original or the copy which is the subject of the rental; (n)
5. Public display of the original or a copy of the work;
6. Public performance of the work; and
7. Other communication to the public of the work
 
OWNERSHIP OF COPYRIGHT
The following rules apply for ownership of copyright:
Work Owner
Original Author
The co-authors shall be the original owners of
the copyright and in the absence of
agreement, their rights shall be governed by
the rules on co-ownership.

Works of Joint authorship If, however, a work of joint authorship

consists of parts that can be used separately
and the author of each part can be identified,
the author of each part shall be the original
owner of the copyright in the part that he has
created.
The employee, if the creation of the object of
copyright is not a part of his regular duties
even if the employee uses the time, facilities
and materials of the employer.
Works during employment  
The employer, if the work is the result of the
performance of his regularly-assigned duties,
unless there is an agreement, express or
implied, to the contrary.
The person who so commissioned the work
shall have ownership of work, but the
Commissioned work copyright thereto shall remain with the
creator, unless there is a written stipulation to
the contrary.
The producer, the author of the scenario, the
composer of the music, the film director, and
the author of the work so adapted. However,
subject to contrary or other stipulations
among the creators, the producers shall
Audio-visual work exercise the copyright to an extent required
for the exhibition of the work in any manner,
except for the right to collect performing
license fees for the performance of musical
compositions, with or without words, which
are incorporated into the work.
Letters Writer
Publishers shall be deemed to represent the
authors of articles and other writings
published without the names of the authors or
under pseudonyms, unless the contrary
Anonymous and Pseudonymous Works
appears, or the pseudonyms or adopted
name leaves no doubts as to the author’s
identity, or if the author of the anonymous
works discloses his identity.
 
TRANSFER AND ASSIGNMENT OF COPYRIGHT
The copyright may be assigned in whole or in part inter-vivos only if there is a written indication of such
intention.
The submission of a literary, photographic or artistic work to a newspaper, magazine or periodical for
publication shall constitute only a license to make a single publication unless a greater right is expressly
granted.
Rights of Assignee: Within the scope of the assignment or license, the assignee or licensee is entitled to all the
rights and remedies which the assignor or licensor had with respect to the copyright.
Right of owner to accounting: The copyright owner has the right to regular statement of accounts from the
assignee or the licensee with regard to assigned or licensed work.
Co-owned work: If two (2) or more persons jointly own a copyright or any part thereof, neither of the owners
shall be entitled to grant licenses without the prior written consent of the other owner or owners.
Copyright and the Material Object: The copyright is distinct from the property in the material object subject to it.
Consequently the transfer assignment or licensing of the copyright shall not itself constitute a transfer of the
 material object. Nor shall a transfer or assignment of the sole copy or of one or several copies of the work
imply transfer assignment or licensing of the copyright.
Filing of Assignment of License: An assignment or exclusive license may be filed in duplicate with the National
Library upon payment of the prescribed fee for registration in books and records kept for the purpose. Upon
recording, a copy of the instrument shall be, returned to the sender with a notation of the fact of record. Notice
of the record shall be published in the IPO Gazette.
Designation of Society: The owners of copyright and related rights or their heirs may designate a society of
artists, writer, composers, and other right-holders to collectively manage their economic or moral rights on their
behalf. For the said societies to enforce the rights on their members, they shall be first secure the necessary
accreditation from the Intellectual Property Office.
 
LIMITATIONS ON COPYRIGHT
The following acts shall not constitute infringement of copyright:

1. The reproduction or distribution of published articles or materials in a specialized format exclusively for
the use of the blind, visually and reading-impaired persons: Provided, that such copies and distribution shall be
made on a non-profit basis and shall indicate the copyright owner and the date of the original publication.
2. The recitation or performance of a work, once it has been lawfully made accessible to the public, if
done privately and free of charge or if made strictly for a charitable or religious institution or society;
3. The making of quotations from a published work if they are compatible with fair use and only to the
extent justified for the purpose, including quotations from newspaper articles and
4. periodicals in the form of press summaries: Provided, That the source and the name of the author, if
appearing on the work, are mentioned;
5. The reproduction or communication to the public by mass media of articles on current political, social,
economic, scientific or religious topic, lectures, addresses and other works of the same nature, which are
delivered in public if such use is for information purposes and has not been expressly reserved: Provided, That
the source is clearly indicated;
6. The reproduction and communication to the public of literary, scientific or artistic works as part of
reports of current events by means of photography, cinematography or broadcasting to the extent necessary
for the purpose;
7. The inclusion of a work in a publication, broadcast, or other communication to the public, sound
recording or film, if such inclusion is made by way of illustration for teaching purposes and is compatible with
fair use: Provided, That the source and of the name of the author, if appearing in the work, are mentioned;
8. The recording made in schools, universities, or educational institutions of a work included in a
broadcast for the use of such schools, universities or educational institutions: Provided, That such recording
must be deleted within a reasonable period after they were first broadcast: Provided, further, That such
recording may not be made from audiovisual works which are part of the general cinema repertoire of feature
films except for brief excerpts of the work;
9. The making of ephemeral recordings by a broadcasting organization by means of its own facilities and
for use in its own broadcast;
10. The use made of a work by or under the direction or control of the Government, by the National Library
or by educational, scientific or professional institutions where such use is in the public interest and is
compatible with fair use;
11. The public performance or the communication to the public of a work, in a place where no admission
fee is charged in respect of such public performance or communication, by a club or institution for charitable or
educational purpose only, whose aim is not profit making, subject to such other limitations as may be provided
in the Regulations;
12. Public display of the original or a copy of the work not made by means of a film, slide, television image
or otherwise on screen or by means of any other device or process: Provided, That either the work has been
published, or, that original or the copy displayed has been sold, given away or otherwise transferred to another
person by the author or his successor in title; and
13. Any use made of a work for the purpose of any judicial proceedings or for the giving of professional
advice by a legal practitioner.
The above shall be interpreted in such a way as to allow the work to be used in a manner which does not
conflict with the normal exploitation of the work and does not unreasonably prejudice the right holder's
legitimate interest.
 
FAIR USE OF A COPYRIGHT WORK
The fair use of a copyrighted work for criticism, comment, news reporting, teaching including limited number of
copies for the classroom use, scholarship, researched, and similar purposes is not an infringement of
copyright.
Decompilation, which is the production of the code and translation of the form of a computer program to
achieve the interoperability of an independently created computer program with other programs may also
constitute fair use under the criteria established below, to the extent that such decompilation is done for the
purpose of obtaining the information necessary to achieve such interoperability.
In determining whether the use made of a work in any particular case is fair use, the factors to be considered
shall include:
1. The purpose and character of the use, including whether such use is of a commercial nature or is for
non-profit education purposes;
2. The nature of the copyrighted work;
3. The amount and substantiality of the portion used in relation to the copyrighted work as a whole; and
4. The effect of the use upon the potential market for or value of the copyrighted work.
The fact that a work is unpublished shall not by itself bar a finding of fair use if such finding is made upon
consideration of all the above factors.
Work of Architecture: Copyright in a work of architecture shall include the right to control the erection of any
building which reproduces the whole or a substantial part of the work either in its original form or in any form
recognizably derived from the original; Provided, That the copyright in any such work shall not include the right
to control the reconstruction or rehabilitation in the same style as the original of a building to which the
copyright relates.
Reproduction of Published Work: the private reproduction of a published work in a single copy, where the
reproduction is made by a natural person exclusively for research and private study, shall be permitted, without
the authorization of the owner of copyright in the work.
The permission granted shall not extend to the reproduction of:

1. A work of architecture in form of building or other construction;

2. An entire book, or a substantial past thereof, or of a musical work in which graphics form by
reprographic means;
3. A compilation of data and other materials;
4. A computer program except as provided below*; and
5. Any work in cases where reproduction would unreasonably conflict with a normal exploitation of the
work or would otherwise unreasonably prejudice the legitimate interests of the author.
 
Exception: the reproduction in one (1) back-up copy or adaptation of a computer program shall be permitted,
without the authorization of the author of, or other owner of copyright in, a computer program, by the lawful
owner of that computer program: Provided, That the copy or adaptation is necessary for:

1. The use of the computer program in conjunction with a computer for the purpose, and to the extent, for
which the computer program has been obtained; and
2. Archival purposes, and, for the replacement of the lawfully owned copy of the computer program in the
event that the lawfully obtained copy of the computer program is lost, destroyed or rendered unusable.
Reproduction by Libraries: any library or archive whose activities are not for profit may, without the
authorization of the author of copyright owner, make a single copy of the work by reprographic reproduction:

1. Where the work by reason of its fragile character or rarity cannot be lent to user in its original form;
2. Where the works are isolated articles contained in composite works or brief portions of other published
works and the reproduction is necessary to supply them; when this is considered expedient, to person
requesting their loan for purposes of research or study instead of lending the volumes or booklets which
contain them; and
3. Where the making of such limited copies is in order to preserve and, if necessary, in the event that is
lost, destroyed or rendered unusable, replace a copy, or to replace, in the permanent collection of another
similar library or achieve, a copy which has been lost, destroyed or rendered unusable and copies are not
available with the publisher.
It shall not be permissible to produce a volume of a work published in several volumes or to produce missing
tomes or pages of magazines or similar works, unless the volume, tome or part is out of stock; Provided, that
every library which, by law, is entitled to receive copies of a printed work, shall be entitled, when special
reasons so require, to reproduce a copy of a published work which is considered necessary for the collection of
the library but which is out of stock.
Importation for Personal Purposes: the importation of a copy of a work by an individual for his personal
purposes shall be permitted without the authorization of the author of, or other owner of copyright in, the work
under the following circumstances:

1. When copies of the work are not available in the Philippines and:
a. Not more than one (1) copy at one time is imported for strictly individual use only; or
b. The importation is by authority of and for the use of the Philippine Government; or
c. The importation, consisting of not more than three (3) such copies or likenesses in any one
invoice, is not for sale but for the use only of any religious, charitable, or educational society or institution duly
incorporated or registered, or is for the encouragement of the fine arts, or for any state school, college,
university, or free public library in the Philippines.
2. When such copies form parts of libraries and personal baggage belonging to persons or families
arriving from foreign countries and are not intended for sale: Provided, that such copies do not exceed three
(3).
Copies imported as allowed above may not lawfully be used in any way to violate the rights of owner the
copyright or annul or limit the protection secured under the Intellectual Property Law, and such unlawful use
 shall be deemed an infringement and shall be punishable as such without prejudice to the proprietor’s right of
action.
Subject to the approval of the Secretary of Finance, the Commissioner of Customs is empowered to make
rules and regulations for preventing the importation or exportation of infringing articles under the Intellectual
Property Law and under relevant treaties and convention to which the Philippines may be a part and seizing
and condemning and disposing of the same in case they are discovered after they have been imported or
before they exported.
 
MORAL RIGHTS
The author of a work shall, independently of the economic rights or the grant of an assignment or license with
respect to such right, have the right:

1. To require that the authorship of the works be attributed to him, in particular, the right that his name, as
far as practicable, be indicated in a prominent way on the copies, and in connection with the public use of his
work;
2. To make any alterations of his work prior to, or to withhold it from publication;
3. To object to any distortion, mutilation or other modification of, or other derogatory action in relation to,
his work which would be prejudicial to his honor or reputation; and
4. To restrain the use of his name with respect to any work not of his own creation or in a distorted version
of his work.
Breach of Contract: An author cannot be compelled to perform his contract to create a work or for the
publication of his work already in existence. However, he may be held liable for damages for breach of such
contract.
Waiver of Moral Rights: An author may waive his rights mentioned above by a written instrument, but no such
waiver shall be valid where its effects is to permit another:

1. To use the name of the author, or the title of his work, or otherwise to make use of his reputation with
respect to any version or adaptation of his work which, because of alterations therein, would substantially tend
to injure the literary or artistic reputation of another author; or
2. To use the name of the author with respect to a work he did not create.
Contribution to a collective work: When an author contributes to a collective work, his right to have his
contribution attributed to him is deemed waived unless he expressly reserves it.
Term of Moral Rights: The moral rights of the author shall last during the lifetime of the author and for fifty (50)
years after his death and shall not be assignable or subject to license except the right of attribution (no. 1)
which shall be in perpetuity.
The person or persons to be charged with the posthumous enforcement of these rights shall be named in
writing to be filed with the National Library. In default of such person or persons, such enforcement shall
devolve upon either the author's heirs, and in default of the heirs, the Director of the National Library.
Rights to Proceeds in Subsequent Transfers: In every sale or lease of an original work of painting or sculpture
or of the original manuscript of a writer or composer, subsequent to the first disposition thereof by the author,
the author or his heirs shall have an inalienable right to participate in the gross proceeds of the sale or lease to
the extent of five percent (5%). This right shall exist during the lifetime of the author and for fifty (50) years after
his death.
The above shall not apply to prints, etchings, engravings, works of applied art, or works of similar kind wherein
the author primarily derives gain from the proceeds of reproductions.
 
RIGHTS OF PERFORMERS
"Performers" are actors, singers, musicians, dancers, and other persons who act, sing, declaim, play in,
interpret, or otherwise perform literary and artistic work.

1. Exclusive rights:
a. as regards their performances, the right of authorizing:
i. The broadcasting and other communication to the public of their performance; and
ii. The fixation of their unfixed performance.
b. The right of authorizing the direct or indirect reproduction of their performances fixed in sound
recording or audio-visual works or fixations in any manner of form;
c. The right of authorizing the first public distribution of the original and copies of their performance
fixed in sound recording or audio-visual works or fixations through sale or rental of other forms of transfer of
ownership;
d. The right of authorizing the commercial rental to the public of the original and copies of their
performances fixed in sound recordings or audio-visual works or fixations, even after distribution of them by or
pursuant to the authorization by the performer; and
e. The right of authorizing the making available to the public of their performances fixed in sound
recordings or audio-visual works or fixations by wire or wireless means, in such a way that member of the
public access them from a place and time individually chosen by them. 
2. Moral Rights of Performers: Independently of a performer’s rights above, the performer shall, as
regards his live aural performance or performances fixed in sound recordings or audio-visual works or
fixations, have the rights to claim to be to be identified as the performer of his performances, except where the
omission is dictated by the manner of the use of performance, and to object to any distortion, mutilation or
other modification of is performances that would be prejudicial to his reputation.Duration: fifty (50) years after
performer’s death, by his heirs, and in default of heirs, the government, where protection is claimed.
3. Limitation on Right:
a. once the performer has authorized the broadcasting or fixation of his performance, no. 1 above
has no further application.
b. The limitations on copyright discussed above applies mutatis mutandis to performers.
4. Additional Remunerations on subsequent performances: Unless otherwise provided in the contract, in
every communication to the public or broadcast of a performance subsequent to the first communication or
broadcast thereof by the broadcasting organization, the performer shall be entitled to an additional
remuneration equivalent to at least five percent (5%) of the original compensation he or she received for the
first communication or broadcast.
 
RIGHTS OF PRODUCERS
"Producer of a sound recording" means the person, or the legal entity, who or which takes the initiative and has
the responsibility for the first fixation of the sounds of a performance or other sounds, or the representation of
sounds.

1. Exclusive rights: producers of sound recordings shall enjoy the following exclusive rights:
a. The right to authorize the direct or indirect reproduction of their sound recordings, in any manner
or form; the placing of these reproductions in the market and the right of rental or lending;
b. The right to authorize the first public distribution of the original and copies of their sound
recordings through sale or rental or other forms of transferring ownership; and
c. The right to authorize the commercial rental to the public of the original and copies of their
sound recordings, even after distribution by them by or pursuant to authorization by the producer.
d. The right to authorize the making available to the public of their sound recordings in such a way
that member of the public may access the sound recording from a place and at a time individually chosen or
selected by them, as well as other transmissions of a sound recording with like effect. 
2. Communication to the Public: If a sound recording published for commercial purposes, or a
reproduction of such sound recording, is used directly for broadcasting or for other communication to the
public, or is publicly performed with the intention of making and enhancing profit, a single equitable
remuneration for the performer or performers, and the producer of the sound recording shall be paid by the
user to both the performers and the producer, who, in the absence of any agreement shall share equally.
3. Limitation: the limitations on copyright apply to the rights of a producer
RIGHTS OF BROADCASTING ORGANIZATIONS
“Broadcasting" means the transmission by wireless means for the public reception of sounds or of images or of
representations thereof; such transmission by satellite is also "broadcasting" where the means for decrypting
are provided to the public by the broadcasting organization or with its consent.
"Broadcasting organization" shall include a natural person or a juridical entity duly authorized to engage in
broadcasting.
Exclusive Rights: broadcasting organizations shall enjoy the exclusive right to carry out, authorize or prevent
any of the following acts:

1. The rebroadcasting of their broadcasts;

2. The recording in any manner, including the making of films or the use of video tape, of their broadcasts
for the purpose of communication to the public of television broadcasts of the same; and
3. The use of such records for fresh transmissions or for fresh recording.
 
COMMON LIMITATIONS TO PERFORMERS, PRODUCERS AND BROADCASTING ORGANIZATIONS
The above-discussed exclusive rights do not apply where the acts referred to in those Sections are related to:

1. The use by a natural person exclusively for his own personal purposes;
2. Using short excerpts for reporting current events;
3. Use solely for the purpose of teaching or for scientific research; and
4. Fair use of the broadcast subject to the conditions Fair Use Doctrine.
 
TERMS OF PROTECTION
 
During the life of the author and for fifty (50)
General years after his death. This will likewise apply
to posthumous work.
 The economic rights shall be protected during
Joint Authorship the life of the last surviving author and for fifty
(50) years after his death.
Fifty (50) years from the date on which the
work was first lawfully published: Provided,
that where, before the expiration of the said
period, the author's identity is revealed or is
no longer in doubt, the general terms of
Anonymous or Pseudonymous works
protection shall apply, as the case may be:
Provided, further, that such works if not
published before shall be protected for fifty
(50) years counted from the making of the
work.
The protection shall be for a period of twenty-
Works of applied art
five (25) years from the date of making.
The protection shall be for fifty (50) years
Photographic works from publication of the work and, if
unpublished, fifty (50) years from the making.
Audio-visual works including those produced
Fifty (50) years from date of publication and,
by process analogous to photography or any
if unpublished, from the date of making.
process for making audio-visual recordings
For performances not incorporated in
recordings, fifty (50) years from the end of the
year in which the performance took place;
Performers and producers of sound and
recordings For sound or image and sound recordings
and for performances incorporated therein,
fifty (50) years from the end of the year in
which the recording took place.
Twenty (20) years from the date the
broadcast took place. The extended term
In case of broadcasts
shall be applied only to old works with
subsisting protection under the prior law.
 
CALCULATION OF TERM
The term of protection subsequent to the death of the author shall run from the date of his death or of
publication, but such terms shall always be deemed to begin on the first day of January of the year following
the event which gave rise to them.
 
COPYRIGHT INFRINGEMENT
A person infringes a right protected when one:

1. Directly commits an infringement;

2. Benefits of the infringing activity of another person who commits an infringement if the person
benefiting has been giving notice of the infringing activity and has the right and ability to control the activities of
the other person;
3. With knowledge of infringing activity induces, cause or materially contributes to the infringing conduct of
another.