CIVIL LAW
SALES (Articles 1458-1635, Civil Code)
i.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
General principles
Nature and form of contract
Capacity to buy and sell
Obligations of the Vendor
Obligations of the Vendee
Effects of the Contract when the thing Sold has been lost
Breach of contract
a. Recto law: sale of movables on instalment
b. Maceda Law: sale of immovable on instalment (RA 6552)
Extinguishment of Sale
Assignment of Credits
AGENCY (Articles 1868-1932, Civil Code)
i.
ii.
iii.
iv.
v.
Definition
Nature, form and kinds of agency
Obligations of the agent
Obligations of the principal
Modes of extinguishment
CREDIT TRANSACTIONS (Articles 1933-2009, 2047-2141, Civil Code)
i.
ii.
iii.
iv.
Loan
Pledge, mortgage and antichresis, chattel mortgage
Deposit
Guaranty and Suretyship
SALES (Articles 1458-1635, Civil Code)
GENERAL PRINCIPLES
Sale
Sale is a contract where one party (seller or vendor) obligates himself to transfer the ownership of and to deliver a
determinate thing, while the other party (buyer or vendee) obligates himself to pay for said thing a price certain in
money or its equivalent (NCC, Art. 1458).
Elements of a Contract of Sale
1. Essential elements – for validity:
a. Consent – meeting of the minds to transfer ownership in exchange for the price;
b. Determinate subject matter – determinate thing which is the object of the contract; and
c. Consideration – price certain in money or its equivalent.
2. 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.
Examples:
a. Warranty against eviction; and
b. Warranty against hidden defects.
3. Accidental elements – dependent on parties’ stipulations;
Examples:
a. Conditions;
b. Interest;
c. Time & Place of payment; and
d. Penalty.
Stages of Contract of Sale
1. Negotiation – begins from the time the prospective contracting parties manifest their interest in the
contract and ends at the moment of agreement of the parties;
2. Perfection or birth – takes place when the parties agree upon the essential elements of the contract; and
3. Consummation – occurs when the parties fulfill or perform the terms agreed upon in the contract culminating in
the extinguishment thereof (Swedish Match vs. CA, G.R. No. 128120, October 20, 2004).
NATURE AND FORM OF CONTRACT
GR: A contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of
mouth, or may be inferred from the conduct of the parties (NCC, Art. 1483). Contracts shall be obligatory, in
whatever form they have been entered into, provided all the essential requisites for their validity are present.
XPNs:
a) If the law requires a document or other special form, the contracting parties may compel each other to
observe that form (NCC, Art. 1357).
b) Under Statute of Frauds, the following contracts must be in writing; otherwise, they shall be unenforceable:
1. Sale of personal property at a price not less than P500;
2. Sale of a real property or an interest therein;
3. Sale of property not to be performed within a year from the date thereof; or
4. When an applicable statute requires that the contract of sale be in a certain form [NCC, Art.
1403(2)].
c) Sale of large cattle which requires that the same be recorded with the city/municipal treasurer and that a
certificate of transfer be issued. Otherwise, the sale is not valid (NCC, Art. 1581).
Instances where the Statute of Frauds is not essential for the enforceability of a contract of sale
1. When there is a note or memorandum in writing and subscribed to by the party or his agent (contains
essential terms of the contract);
2. When there has been partial performance/execution (seller delivers with the intent to transfer title/receives
price);
3. When there has been failure to object to presentation of evidence aliunde as to the existence of a contract
without being in writing and which is covered by the Statute of Frauds;
4. When sales are effected through electronic commerce (Villanueva, 2014).
A contract of sale may be absolute or conditional.
Absolute Sale
A sale is absolute when no condition is imposed and ownership passes to the vendee upon delivery of the
thing subject of the sale (NCC, Art. 1497).
A contract of sale is absolute when the title to the property passes to the vendee upon delivery of the thing
sold (Rabuya, 2017).
Instance when a deed of sale considered absolute in nature
A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that title to the
property sold is reserved in the seller until the full payment of the price, nor one giving the vendor the right
to unilaterally resolve the contract the moment the buyer fails to pay within a fixed period.
Conditional Sale
It is conditional where the sale contemplates a contingency, and in general, where the contract is subject to
certain conditions, usually in the case of the vendee, the full payment of the agreed purchase price and in the
case of the vendor, the fulfillment of certain warranties (De Leon, 2013).
Effect of the non-performance of the condition or if the condition did not take place
Where the obligation of either party to a contract of sale is subject to any condition which is not performed,
such party may:
1. Refuse to proceed with the contract; or
2. Waive performance of the condition.
Instance when a conditional sale considered an absolute sale
A deed of sale is absolute in nature although denominated a “conditional sale” absent such stipulations
reserving title to the vendor until full payment of the purchase price, nor any stipulation giving them the right
to unilaterally rescind the contract in case of non-payment.
Rules in determining if the contract is one of sale or a piece of work
1. Sale – if ordered or manufactured in the ordinary course of business (NCC, Art. 1467).
– It involves the sale of a thing or right; and
– The obligation of seller is a real obligation or an obligation to give
2. Piece of work – if manufactured especially for the customer and upon his special order, and not for the
general market (NCC, Art. 1467).
– It involves lease of service; and
– The obligation of seller is personal or obligation to do
Contract to sell
A bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject
property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively
to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase
price (Coronel v. CA, G.R. No. 103577, October 7, 1996).
NOTE: Here, payment of the price is a positive suspensive condition. Failure of which is not a breach but an
event that prevents the obligation of the vendor to convey title from becoming effective (Rabuya, 2017).
Contract of Sale
Ownership is transferred to the buyer upon delivery of the object to him.
NOTE: Vendor has lost and cannot recover ownership until and unless the contract is resolved or rescinded.
Contract to sell
Ownership is transferred upon full payment of the purchase price.
NOTE: Prior to full payment, ownership is retained by the seller.
CAPACITY OF PARTIES
Persons who may enter into a contract of sale
GR: All persons, whether natural or juridical, who can bind themselves, have legal capacity to buy and sell [NCC,
Art. 1489(1)].
XPNs:
1. Minors, insane and demented persons and deaf-mutes who do not know how to write;
2. Persons under a state of drunkenness or during hypnotic spell;
3. Husband and wife - sale by and between spouses.
Rationale for the prohibition:
a. To prevent a spouse from defrauding his creditors by transferring his properties to the other
spouse;
b. To avoid a situation where the dominant spouse would unduly take advantage of the weaker
spouse;
c. To avoid an indirect violation of the prohibition against donations between spouses under Article
133 of the Civil Code (Medina v. Collector of Internal Revenue, G.R. No. L-15113, January 28, 1961).
4. Sale between guardians and wards – the contract is void and not merely voidable. The prohibition exists
only when the guardianship exists.
5. Sale between agents and principals
GR: Art. 1491 (2) of NCC
XPN: The prohibition does not apply if the principal consents to the sale of the property in the hands
of the agent or administrator.
Also, after the termination of the affairs of the agency, the prohibition no longer applies. The
transaction may be ratified by way of a new contract which will become valid only from its execution
and will not retroact to the date of the first contract.
6. Sale between executors and administrators of estate of the deceased [NCC, Art. 1491 (3)]. But hereditary
rights are not included in the prohibition.
7. Sale involving property of the government [NCC, Art. 1491(4)]. The nullity of such prohibited contracts is
definite and permanent and cannot be cured by ratification. The public interest and public policy remain
paramount and do not permit of compromise or ratification.
8. Sale of property in litigation [NCC, Art. 1491(5)] Nullity is permanent. Prohibition applies only to a sale or
assignment to the lawyer by a client of the property which is the object of litigation (Rabuya, 2017).
Absolute incapacity
Persons who are absolutely incapacitated to enter into a contract of sale
1. Unemancipated minors (NCC, Art. 1327); and
2. Insane or demented persons, and deaf-mutes who do not know how to write (NCC, Art. 1327).
Relative incapacity
Persons who are relatively incapacitated to enter into a contract of sale
1. Spouses (NCC, Art. 1490);
2. Agents, Guardians, Executors and Administrators;
3. Public Officers and Employees;
4. Court Officers and Employees, and
5. Others specially disqualified by law (NCC, Art. 1491).
Status of the following contracts of sale
1. Sale entered into by minors
GR: It is voidable, subject to annulment or ratification.
XPN: Where necessaries are sold and delivered to a minor or other person without capacity to act, he
must pay a reasonable price [NCC, Art. 1489(2)].
2. Sale by & between spouses (NCC, Art. 1490)
a. Status of prohibited sales between spouses:
GR: Null and void
XPN: In case of sale between spouses:
1. When a separation of property was agreed upon in the marriage settlements; or
2. When there has been a judicial separation of property agreed upon between them
b. Contract of sale with 3rd parties:
GR: Under the law on sales, it would seem that a spouse may, without the consent of the other
spouse, enter into sales transactions in the regular or normal pursuit of their profession, vocation or
trade (in relation to Art. 73, Family Code).
XPN: Even when the property regime prevailing was the conjugal partnership of gains, the Supreme
Court held the sale by the husband of a conjugal property without the consent of the wife is void, not
merely voidable under Art. 124 of the Family Code since the resulting contract lacks one of the
essential elements of full consent (Guiang v. CA, G.R. No. 125172, June 26, 1998).
c. Between common law spouses - also null and void.
Sale between common law spouses is null and void to prevent the exercise of undue influence by one spouse
over the other. The prohibition also applies to a couple living as husband and wife without the benefit of
marriage (Calimlim-Canullas v. Fortun, et. al., G.R. No. L-57499, June 22, 1984).
REASON: The condition of those who incurred guilt would turn out to be better than those in legal union.
Special disqualifications
Persons specially disqualified by law to enter into contracts of sale
1. ALIENs who are disqualified to purchase private agricultural lands (Art. XII Secs. 3&7, 1987 Constitution).
2. Unpaid seller having a right of lien or having stopped the goods in transit is prohibited from buying the
goods either directly or indirectly in the resale of the same at public/private sale which he may make [NCC,
Art. 1533(5); Art. 1476(4)].
3. The Officer holding the execution or deputy cannot become a purchaser or be interested directly or
indirectly on any purchase at an execution (Sec. 21 Rule 39, Rules of Court).
4. In Sale by auction, seller cannot bid unless notice has been given that such sale is subject to a right to bid in
behalf of the seller (NCC, Art. 1476).
Kinds of object of sale
1. Existing Goods - Owned or possessed by seller at the time of perfection.
2. Future Goods - Goods to be manufactured, raised, acquired by seller after perfection of the contract or
whose acquisition by seller depends upon a contingency (NCC, Art. 1462).
3. Sale of Undivided Interest or Share
a. Sole owner may sell an undivided interest (NCC, Art. 1463).
e.g. A fraction or percentage of such property.
b. Sale of an undivided share in a specific mass of fungible goods makes the buyer a co-owner of the
entire mass in proportion to the amount he bought (Art. 1464).
NOTE: A co-owner cannot sell more than his share (Yturralde v. CA, G.R. No. L-31586, February 28,
1972).
4. Sale of Things in Litigation
a. Sale of things under litigation is rescissible if entered into by the defendant, without the approval
of the litigants or the court (NCC, Art. 1381).
NOTE: If the property involved belongs to a ward and the guardian enters into a contract involving
such property without court approval, the contract is void, not merely rescissible.
b. No rescission is allowed where the thing is legally in the possession of a 3rd person who did not act
in bad faith.
5. Things subject to Resolutory Condition
e.g. Things acquired under legal or conventional right of redemption, or subject to reserva truncal
(NCC, Art. 1465).
6. Indeterminate Quantity of Subject Matter
NOTE: The fact that the quantity is not determinate shall not be an obstacle to the existence of the
contract provided it is possible to determine the same without need of a new contract (NCC, Art. 1349).
Sale by a person who does not own the things sold
Ownership is not required at the time of perfection in order for the sale to be valid. Ownership is material only at
the time of delivery but only for the purpose of transferring ownership and does not affect the validity of the
contract of sale.
This rule is in accord with a well-known principle of law that one cannot transmit or dispose of that which he does
not have — nemo dat quod non-habet.
NOTE: Future inheritance cannot be the subject of sale.
Legal effect of sale by a non-owner
GR: The buyer acquires no better title to the goods than the seller had; caveat emptor (buyer beware).
XPNs:
1. Estoppel or when the owner of the goods is by his conduct precluded from denying the seller’s authority to
sell;
2. When the contrary is provided for in recording laws;
3. When the sale is made under statutory power of sale or under the order of a court of competent
jurisdiction;
4. When the sale is made in a merchant’s store in accordance with the Code of Commerce and special laws;
5. When a person who is not the owner sells and delivers a thing, and subsequently acquired title thereto;
6. When the seller has a voidable title which has not been avoided at the time of the sale;
7. Sale by co-owner of the whole property or a definite portion thereof;
8. Special rights of unpaid seller
OBLIGATIONS OF THE BUYER
Obligations of the Buyer
1. Payment of the price
GR: Seller is not bound to deliver unless the purchase price is paid
XPN: A period of payment has been fixed
2. Accept delivery of thing sold
NOTE: A grace period granted the buyer in case of failure to pay is a right not an obligation. Nonpayment would still generally require judicial or extrajudicial demand before default can arise.
3. Bear expenses for the execution and registration of the sale and putting the goods in a deliverable state, if
such is the stipulation.
Other Obligations of the Buyer
1. To take care of the goods without the obligation to return, where the goods are delivered to the buyer and
he rightfully refuses to accept (NCC, Art. 1587);
NOTE: The goods in the buyer’s possession are at the seller’s risk.
2. To be liable as a depositary if he voluntarily constituted himself as such (NCC, Art. 1587);
3. To pay interest for the period between delivery of the thing and the payment of the price in the following
cases (NCC, Art. 1589):
a. should it have been stipulated;
b. should the thing sold and delivered produces fruits or income; or
c. should he be in default, from the time of judicial or extra-judicial demand for the payment of the
price.
OBLIGATIONS OF THE SELLER
Obligations of the seller
1. Deliver the thing sold (NCC, Arts. 1458&1459);
2. Deliver fruits & accessions/accessories accruing from perfection of sale;
3. Transfer the ownership;
4. Warranties;
5. Take care of the thing, pending delivery, with proper diligence;
6. Pay for the expenses of the deed of sale unless there is a stipulation to the contrary.
Obligation of the seller in terms of the nature of the subject matter of the sale
When the subject matter of the sale is a DETERMINATE or SPECIFIC THING, the seller must deliver the thing to the
buyer when compelled by the latter.
When the subject matter is an INDETERMINATE OR GENERIC THING, the seller may be asked that the obligation be
complied with at his expense (NCC, Art. 1165).
Seller’s obligation in case of delay or promise to deliver the thing to two or more persons who do not
have the same interest
The seller shall be responsible for any fortuitous event that may occur until he has delivered the thing (Art.
1165 in relation to Art. 1174 of the NCC).
PRICE
The sum stipulated as the equivalent of the thing sold and also every incident taken into consideration for the
fixing of the price put to the debit of the buyer and agreed to by him (Villanueva, 2004).
NOTE: A definite agreement on the manner of payment of the price is an essential element in the formation of
a binding and enforceable contract of sale (Co v. CA, G.R. No. 123908, February 9, 1998).
Requisites of price
It must be:
1. Real, not fictitious;
2. Paid in money or its equivalent;
3. For valuable consideration;
4. Certain or ascertainable at the time of the perfection of the contract; and
5. In some cases, must not be grossly inferior to the value of the thing sold.
NOTE: There is NO effect on the contract of sale in case of breach in the agreed manner of payment. Payment of
the price has nothing to do with the perfection of the contract (Sps. Bernardo Buenaventura and Consolacion
Joaqui v. CA, GR No. 126376, November 20, 2003).
When price is certain
1. If there is a stipulation;
2. If it be with reference to another thing certain;
3. If the determination of the price is left to the judgment of specified person(s) (NCC,Art. 1469); or
4. By reference to certain fact(s) as referred to in Art. 1472.
NOTE: If the price is based on estimates, it is uncertain.
Simulated Price
The price is simulated when neither party had the intention that the amount will be paid (Yu Bun Guan v. Ong,
G.R. No. 144735, October 18, 2001).
Effect if price is simulated
GR: The sale is void.
XPN: If it can be shown to be a donation or another contract (NCC, Art. 1471).
Admission by the vendee that he did not pay any centavo for the property makes the sale void (Labagala v.
Santiago, G.R. No. 132305, December 4, 2001).
Effect when the price is unilaterally fixed by one of the contracting parties without consent of the
other party
There is no meeting of the minds. The sale is inefficacious (Pineda, 2010).
Effect when the price is fixed by the third person designated
GR: Price fixed by a third person designated by the parties is binding upon them.
XPNs:
1. When the third person acts in bad faith or by mistake; and
2. When the third person disregards the specific instructions or the procedure marked out by the parties.
Gross inadequacy of price
The price is grossly inadequate if a reasonable man will not agree to dispose of his property at that amount.
Effect of Gross Inadequacy of Price (NCC, Art. 1470)
GR: It does not affect the validity of the sale.
XPN: (CoRDS)
1. If Consent is vitiated (may be annulled or presumed to be equitable mortgage);
2. If the parties intended a Donation or some other act/ contract;
3. If the price is so low as to be “Shocking to the conscience”; and
4. If in the event of Resale, a better price can be obtained.
When no price is agreed upon by the parties
Effect of failure to determine the price
1. Where contract is executory – ineffective.
2. Where the thing has been delivered to and appropriated by the buyer – the buyer must pay a reasonable
price therefore.
OPTION CONTRACT
A contract by which the owner of the property agrees with another person that he shall have the right to buy his
property at a fixed price within a certain time. It is binding upon the promissor if the promise is supported by a
consideration distinct from the price. An option contract is likewise a separate and distinct contract from a
contract of sale.
Nature of an option contract
It is a preparatory contract in which one party grants to another, for a fixed period and at a determined price,
the privilege to buy or sell, or to decide whether or not to enter into a principal contract.
NOTE: If the option is perfected, it does not result in the perfection or consummation of the sale (Diaz, 2006).
Period within which to exercise the option
1. Within the term stipulated; and
2. If there is no stipulation, the court may fix the term.
Exercise of an option
In an option to buy, the party who has an option may validly and effectively exercise his right by merely
notifying the owner of the former’s decision to buy and expressing his readiness to pay the stipulated price
(De Leon, 2011).
A notice of acceptance must be communicated to offeror even without actual payment as long as payment is
delivered in the consummation stage provided it still within the period provided.
Effect of the presence and absence of a separate consideration in an option contract
1. With separate consideration:
a. Contract is valid;
b. Offeror cannot withdraw offer until after expiration of the option; and
c. Is subject to rescission and damages but not specific performance.
2. Without separate consideration:
a. The option contract is not deemed perfected; and
b. Offer may be withdrawn at any time prior to acceptance.
NOTE: Even though the option was not supported by a consideration, the moment it was accepted, contract of
sale is perfected (NCC, Art. 1324).
An option imposes no binding obligation on the person holding the option aside from the consideration for
the offer. Until accepted, it is not treated as a sale (Tayag v. Lacson, G.R. No. 134971, March 25, 2004).
Obligations of the offeror
1. Not to offer to any third party the sale of the object of the option during the option period;
2. Not to withdraw the offer or option during the option period;
3. To hold the subject matter for sale to the offeree in the event that the latter exercises his option during the
option period.
Effect of acceptance and withdrawal of the offer
If the offer had already been accepted and such acceptance has been communicated before the withdrawal is
communicated, the acceptance creates a perfected contract, even if no consideration was as yet paid for the
option. In which case, if the offeror does not perform his obligations under the perfected contract, he shall be
liable for all consequences arising from the breach thereof based on any of the available remedies such as
specific performance, or rescission with damages in both cases.
Right of first refusal
It is a contractual grant, not of the sale of a property, but of the first priority to buy the property in the event
the owner sells the same.
NOTE: Where a time is stated in an offer for its acceptance, the offer is terminated at the expiration of the
time given for its acceptance (Pineda, 2010).
Basis of the right of first refusal
It is based on the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the
optionee fails to exercise its right of first priority under the same terms and within the period contemplated
could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the
optionee (Paranaque Kings Enterprises, Inc. vs. CA GR No. 111538, February 26, 1997).
Effect of sale of a property in violation of the right of first refusal
The resulting contract is RESCISSIBLE by the person in whose favor the right of first refusal was given and
even though no particular price is stated in the covenant granting the right of first refusal, the same price by
which the third-party buyer bought the property shall be deemed to be the price by which the right of first
refusal shall therefore be exercisable (Equitorial Realty Development, Inc. v. Mayfair Theater, Inc., G.R. No.
106063, November 21, 1996).
OPTION MONEY vs EARNEST MONEY
Option money
It is the distinct consideration in case of an option contract. It does not form part of the purchase price hence,
it cannot be recovered if the buyer did not continue with the sale (NCC, Art. 1479).
NOTE: Option contract’s distinguishing characteristic is that it imposes no binding obligation on the person
holding the option, aside from the consideration for the offer (Limson v. CA, G.R. No. 135929, April 20, 2001).
Consideration of payment as option money
Payment is considered option money when it is given as a separate and distinct consideration from the
purchase price.
Earnest money or “arras”
This is the money given to the seller by the prospective buyer to show that the latter is truly interested in
buying the property, and its aim is to bind the bargain (Pineda, 2010).
It is actually a partial payment of the purchase price and is considered as proof of the perfection of the
contract (De Leon, 2011)
NOTE: Option money may become earnest money if the parties agree (De Leon, 2011).
Significance of giving an earnest money
It is considered as:
1. Part of the purchase price – earnest money is deducted from the total price; and
2. Proof of perfection of the contract (NCC, Art. 1482).
Effect of rescission on earnest money received
When the seller seeks to rescind the sale, he is obliged to return the thing which was the object of the contract
along with fruits and interest (NCC, Art. 1385).
Remedy when seller refuses to complete the sale transaction despite down payment of the buyer
The action for specific performance will lie. There is a perfected contract of sale because there was a binding
agreement of sale, not just an option contract. The sale was perfected upon acceptance by the seller of the down
payment from the buyer.
Seller’s refusal to proceed with the sale despite down payment of buyer on the ground that the
transaction is disadvantageous to him (seller)
Seller cannot justify his refusal to proceed with the sale by the fact that the deal is financially disadvantageous
to him. Having made a bad bargain is not a legal ground for pulling out of a binding contract of sale, in the
absence of some actionable wrong by the other party (Vales v. Villa, G.R. No. 10028, December 16, 1916).
PERFECTION OF CONTRACT OF SALE
GR: It is deemed perfected at the moment there is meeting of minds upon the thing which is the object of the
contract and upon the price [NCC, Art. 1475(1)].
NOTE: The acceptance of the offer must be absolute. It must be plain, unequivocal, unconditional and without
variance of any sort from the proposal. Upon the perfection of the contract, the parties may reciprocally
demand performance (Rabuya, 2017).
XPN: When the sale is subject to a suspensive condition by virtue of law or stipulation.
CONSUMMATION STAGE IN A CONTRACT OF SALE
Consummation stage in a contract of sale takes place by the delivery of the thing together with the payment of
the price.
NOTE: The ownership of the thing is acquired by the buyer in any of the ways specified by law or in any
manner agreed upon by the parties.
When is ownership deemed transferred?
The thing shall be understood as delivered when it is placed in the control and possession of the vendee.
NOTE: The most that a sale does is to create the obligation to transfer ownership. It is only the title while the
mode of transferring ownership is delivery.
Effect of Delivery
GR: Title /ownership is transferred
XPN: When the contrary is stipulated as in the case of:
1. Pactum reservatii in domini – Agreement that ownership will remain with seller until full payment of price
(contract to sell);
2. Sale on acceptance/approval;
3. Sale on return; or
4. There is implied reservation of ownership
NOTE: Seller bears expenses of delivery.
Kinds of Delivery
1. ACTUAL or REAL – Thing sold is placed under the control and possession of buyer/agent;
2. CONSTRUCTIVE or LEGAL – Does not confer physical possession of the thing, but by construction of law, is
equivalent to acts of real delivery.
Requisites:
a. The seller must have control over the thing;
b. The buyer must be put under control;
c. There must be intention to deliver the thing for purposes of ownership.
i. Tradicion Symbolica – delivery of certain symbols representing the thing;
ii. Tradicion Instrumental – delivery of the instrument of conveyance;
iii. Traditio Longa Manu – Delivery of thing by mere agreement; when seller points to the property
without need of actually delivering;
NOTE: The thing to be transferred must be within sight at that time (Rabuya, 2017).
iv. Tradicion Brevi Manu – the buyer, being already in possession of the thing sold due to some other
cause, merely remains in possession after the sale is effected, but now in concept of owner. e.g. From
lessee to becoming an owner;
v. Constitutum Possessorium– the seller remains in possession of the property in a different capacity.
e.g. From owner to lessee
3. QUASI-TRADITION – delivery of rights, credits or incorporeal property, made by:
a. Placing titles of ownership in the hands of the buyer; and
b. Allowing buyer to make use of rights.
4. TRADITION BY OPERATION OF LAW – Execution of a public instrument is equivalent to delivery. But to be
effective, it is necessary that the seller have such control over the thing sold that, at the moment of sale, its
material delivery could have been made.
GR: There is presumption of delivery.
XPN:
a. Contrary stipulation;
b. When at the time of execution, subject matter was not subject to the control of seller;
c. Seller has no capacity to deliver at time of execution; and
d. Such capacity should subsist for a reasonable time after execution of instrument.
Delivery of incorporeal property
1. When sale is made through a public instrument (NCC, Art. 1498);
2. By placing the titles of ownership in the possession of the buyer;
3. When buyer uses and enjoys the rights pertaining to the incorporeal property with the consent of the seller
(NCC, Art. 1501).
Sale made through a public instrument
Article 1498 of the Civil Code provides that when the sale is made through a public instrument, the execution
thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred. In the absence of stipulation to the contrary, the
ownership of the property sold passes to the vendee upon the actual or constructive delivery thereof
(Boy v. CA, et. al, G.R. No. 125088, April 14, 2004).
Kinds of delivery to carrier
1. FAS (Free along Side) – when goods are delivered alongside the ship, there is already delivery to the buyer.
The seller pays all charges and is subject to risk until the goods are placed alongside the vessel (Villanueva,
2009).
2. FOB (Free on Board) – when goods are delivered at the point of shipment, delivery to carrier by placing
the goods on vessel is delivery to buyer. The seller shall bear all expenses until the goods are delivered,
depending on whether the goods are to be delivered “f.o.b.” at the point of shipment or at the point of
destination (Villanueva,2009).
3. CIF (Cost, Insurance, Freight)
a. When buyer pays for services of carrier, delivery to carrier is delivery to buyer, carrier acts as an
agent of the buyer;
b. When buyer pays seller the price – from the moment the vessel is at the port of destination, there
is already delivery to buyer.
4. COD (Collect on Delivery) – the carrier acts for the seller in collecting the purchase price, which the buyer
must pay to obtain possession of the goods.
Seller’s duties after delivery to the carrier
1. To enter on behalf of the buyer into such contract reasonable under the circumstances; and
2. To give notice to the buyer regarding necessity of insuring the goods.
Effect of delivery through a carrier
GR: If the seller is authorized, delivery to carrier is considered delivery to the buyer. The premise being that
the carrier acts as an agent of the buyer (Villanueva, 2009).
NOTE: Here, the carrier is deemed the bailee of the buyer and the seller is deemed the agent of the buyer in
employing the carrier (Rabuya, 2017).
XPN:
1. A contrary intention appears; and
2. Implied reservation of ownership [NCC, Art. 1503 (1) (2) (3)].
NOTE: Here, the carrier is deemed the bailee of the buyer and the seller is deemed the agent of the buyer in
employing the carrier (Rabuya, 2017).
When the object should be delivered
1. Stipulated time; or
2. If there is none, at a reasonable hour.
Place of delivery (Art. 1521 in relation to Art. 1582 of NCC)
The place of delivery shall be:
1. That agreed upon;
2. Place determined by usage of trade;
3. Seller’s place of business;
4. Seller’s residence;
5. In case of specific goods, where they can be found.
Effects of a sale of goods on installment
1. Goods must be delivered in full except when stipulated; and
2. When not examined by the buyer – it is not accepted until examined or at least had reasonable time to
examine
Seller not bound to deliver the thing sold
1. If the buyer has not paid the price;
2. No period for payment has been fixed in the contract;
3. A period for payment has been fixed in the contract but the buyer has lost the right to make use of the time.
Suspension of payment by the buyer (NCC, Art.1590)
GR:
1. If he is disturbed in the possession or ownership of the thing bought; or
2. If he has well-grounded fear that his possession or ownership would be disturbed by a vindicatory action
or foreclosure of mortgage.
XPNs:
1. Seller gives security for the return of the price in a proper case;
2. A stipulation that notwithstanding any such contingency, the buyer must make payment;
3. Disturbance or danger is caused by the seller;
4. If the disturbance is a mere act of trespass; or
5. Upon full payment of the price.
Necessity of payment of the purchase price to transfer ownership
GR: Ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery.
XPN: Unless the contract contains a stipulation that ownership of the thing sold shall not pass to the
purchaser until he has fully paid the price.
Effect if the buyer refuses to accept despite delivery of the object of the sale
Delivery is completed. Since delivery of the subject matter of the sale is an obligation on the part of the seller,
the acceptance thereof by the buyer is not a condition for the completeness of the delivery (Villanueva, 2009).
NOTE: Thus, even with such refusal of acceptance, delivery (actual/constructive), will produce its legal effects
(e.g. transferring the risk of loss of the subject matter to the buyer who has become the owner thereof)
(Villanueva, 2004).
Under Art. 1588 of the Civil Code, when the buyer’s refusal to accept the goods is without just cause, the title
thereto passes to him from the moment they are placed at his disposal (Villanueva, 2004).
WHEN DELIVERY DOES NOT TRANSFER TITLE
1. Sale on TRIAL, APPROVAL, OR SATISFACTION (NCC, Art. 1502);
2. When there is an EXPRESS RESERVATION;
a. If it was stipulated that ownership shall not pass to the purchaser until he has fully paid the price (NCC, Art.
1478).
3. When there is an IMPLIED RESERVATION;
a. When goods are shipped, but the bill of lading states that goods are deliverable to the seller or his
agent, or to the order of the seller or his agent (NCC, Art. 1503).
b. When the bill of lading is retained by the seller or his agent (NCC, Art. 1503).
c. When the seller of the goods draws on the buyer for the price and transmits the bill of exchange
and the bill of lading to the buyer, and the latter does not honor the bill of exchange by returning the
bill of lading to the sell (NCC, Art. 1503).
4. When sale is NOT VALID;
5. When the seller is NOT THE OWNER of the goods subject to the exceptions in Art. 1505 of NCC
6. GR: When goods are HELD BY A THIRD PARTY
XPN: Third person acknowledges to the buyer that he holds the goods in behalf of the buyer (NCC, Art.
1521).
7. ON SALE or RETURN – The ownership passes to buyer upon delivery, but he may revest ownership in the
seller by returning or tendering the goods within the time fixed in the contract or within reasonable time
(NCC, Art. 1502).
DOUBLE SALE
There is double sale when the same object of the sale is sold to different vendees (NCC, Art. 1544).
Requisites of Double Sales (NCC, Art. 1544)
1. 2 or more sales transactions must constitute valid sales transactions;
2. 2 or more sales transactions must pertain to exactly the same subject matter;
3. 2 or more buyers at odds over the rightful ownership of the subject matter must each represent conflicting
interests; and
4. 2 or more buyers at odds over the rightful ownership of the subject matter must have bought from the very
same seller (Rabuya, 2017 citing Cheng v Genato, 1998).
Rules on preference (NCC, Art. 1544)
1. MOVABLE – Owner who is first to possess in good faith;
2. IMMOVABLE –
a. First to register in good faith
b. No registration – first to possess in good faith
c. No registration & no possession in good faith – person who presents oldest title in good faith.
NOTE: Article 1544 of the Civil Code has no application to lands not registered with the Torrens system. If the sale
is not registered, it is binding only as between the seller and the buyer; it does not affect innocent third persons
(De Leon, 2011). Article 1544 of the Civil Code does not apply to contract to sell.
Purchaser in good faith
1. Buys the property without notice that some other person has a right to, or interest in such property; and
2. Pays a full and fair price for the same at the time of such purchase, or before he has notice of the claim or
interest of some other person in the property (Agricultural and Home Extension Development Group v. CA, G.R.
No. 92319, September 3, 1992).
NOTE: Partial payment is not enough. Full payment is a requirement for purposes of acquiring right
over the rules of double sale.
NOTE: This principle applies in a situation where not all the requisites are present which would warrant the
application of Art. 1544 of NCC. The only requisite of this rule is priority in time. In other words, the only one
who can invoke this is the first vendee. Undisputedly, he is a purchaser in good faith because at the time he
brought the real property, there was still no sale to a second vendee (Rabuya, 2017).
Rule on double sale regarding immovable
GR: Apply Art.1544 of NCC or the rule on preference
XPN: Sale of registered lands – apply Torrens System
Principle of prius tempore, potior jure - first in time, stronger in right
Knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights except when the second
buyer first registers in good faith the second sale. Conversely, knowledge gained by the second buyer of the
first sale defeats his rights even if he is first to register, since such knowledge taints his registration with bad
faith to merit the protection of Art. 1544 (2nd par.) of NCC, the second realty buyer must act in good faith in
registering his deed of sale (Diaz, 2006).
NOTE: Where one sale is absolute and the other is a pacto de retro transaction where the period to redeem has
not yet expired, Art. 1544 of NCC will not apply (Pineda, 2010).
Principle of caveat emptor – buyer beware
It literally means, ‘Let the buyer beware’. The rule requires the purchaser to be aware of the supposed title of
the vendor and one who buys without checking the vendor’s title takes all the risks and losses consequent to
such failure (Agcaoili, 2015).
Application of caveat emptor in particular sale transactions
1. Sales of animals (NCC, Art. 1574);
2. Double sales (NCC, Art. 1544);
3. In sheriff’s sales; and
4. Tax sales.
NOTE: In the above sales, there is no warranty of title or quality on the part of the seller. The purchaser who
buys without checking the title of the vendor is assuming all risks of eviction.
In sheriff’s sales, the sheriff does not guarantee the title to real property and it is not incumbent upon him to
place the buyer in possession of such property (Pineda, 2010).
Caveat emptor NOT applicable in sales of registered land
The purchaser of a registered land under the Torrens system is merely charged with notice of the burdens
and claims on the property which are inscribed on the face of certificate of title (Pineda, 2010).
Application of caveat emptor in judicial sales
Caveat emptor is applicable in judicial sales. The purchaser in a judicial sale acquires no higher or better title
or right than that of the judgment debtor. If it happens that the judgment debtor has no right, interest, or lien
on and to the property sold, the purchaser acquires none (Pineda, 2010).
Effect of subsequent foreclosure to a prior purchaser in good faith
The purchaser in good faith has better title to the property sold even if subsequently foreclosed by a
mortgagor. Under the Torrens System, a buyer of registered lands is not required by law to inquire further
than what the Torrens certificate indicates on its face. If a person proceeds to buy it relying on the title, that
person is considered a buyer in good faith.
EFFECTS OF THE CONTRACT WHEN THE THING SOLD HAS BEEN LOST
RISK OF LOSS
A thing is considered as lost
GR: It is understood that the thing is lost when it:
1. Perishes;
2. Goes out of commerce; or
3. Disappears in such a way that its existence is unknown or cannot be recovered [NCC, Art. 1189(2)].
XPN: In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation (NCC, Art. 1263).
Effect when the loss occurred before perfection
GR: The thing perishes with the owner – Res perit domino (NCC, Art. 1504).
XPNs:
1. Art. 1504(1) of the NCC;
2. Art. 1504(2) of the NCC; and
3. Art. 1523(3) of the NCC.
NOTE: The seller still owns the thing because there is no delivery or transfer of ownership yet. Hence, the
seller bears the risk of loss (Villanueva, 2004).
Effect when the loss occurred at the time of perfection of the contract of sale
GR: Contract is considered void or inexistent because the object did not exist at the time of the transaction.
(Pineda, 2010)
XPN: In case of partial loss, the buyer may choose between withdrawing from the contract and demanding
the remaining part. If he chooses the latter, he shall pay the remaining part’s corresponding price in
proportion to the total sum agreed upon (NCC, Art. 1493).
Options of the buyer with regard to the sale in the total or partial loss or deterioration of a mass of specific
goods without the knowledge of the seller
1. He may treat the sale as avoided or cancelled; or
2. He may continue with the sale with respect to the available or remaining goods (NCC, Art. 1494).
Effect if the buyer chooses to continue with the sale of the remaining goods
The remaining goods shall pass in ownership to the buyer but subject to proportionate reduction of the price.
But this is applicable only if the goods are divisible or capable of being divided (Pineda, 2010). If indivisible,
the only option available is the avoidance of the sale.
Effect when the loss occurred after perfection but before delivery
GR: Who bears the risk of loss is governed by the stipulations in the contract.
In the absence of stipulation: there are two conflicting views:
First view: Res perit creditori or buyer bears the risk of loss (Paras, Vitug, Padilla and De Leon).
Article 1504 of the Civil Code, which embodies res perit domino, only covers goods. The obligation to pay on
the part of the buyer is not extinguished (Villanueva, 2004).
NOTE: Pursuant to Article 1537 of the Civil Code, the vendee must also bear the resulting disadvantages
before the delivery but after the contract has been perfected. This theory is an exception to the rule of resperit
domino. On the other hand, pursuant to Article 1262 of the Civil Code, if the thing is lost or destroyed without
the fault of the seller, the obligation to deliver is extinguished but the obligation to pay subsist (Pineda, 2010).
Second view: Res perit domino or seller bears the risk of loss (Tolentino, Jurado, Baviera, and Villanueva).
In reciprocal obligations, the extinguishment of the obligation due to loss of the thing affects both debtor and
creditor; the entire juridical relation is extinguished. Under this view, the rule on loss under Article 1189 of
the Civil Code would be different from the rule on deterioration – the loss would be for the account of the
seller, while deterioration would be for the account of the buyer (Tolentino, 2002).
This view would make Articles 1480 and 1538 of the Civil Code consistent with the provisions of Article 1504
of the Civil Code (Villanueva, 2009).
Ownership is transferred only after delivery, further, the contract is reciprocal. If the vendee cannot have the
thing, it is illogical and unjust to make him pay the price (Pineda, 2010).
Effect when loss occurred after delivery
GR: Res perit domino applies – the buyer is now the owner, hence, the buyer bears the risk of loss (NCC, Art.
1504).
XPNs:
1. Where the delivery has been made either to the buyer or to the bailee for the buyer, but ownership in the
goods has been retained by the seller merely to secure performance by the buyer of his obligations under the
contract; and
2. Where actual delivery has been delayed through the fault of either the buyer or seller, the goods are at the
risk of the party at fault [NCC, Art. 1504 (1) (2)].
BREACH OF CONTRACT
INSTALLMENT SALES LAW or “RECTO LAW” Act No. 4122
Installment Sales Law
Commonly known as the “RECTO LAW”. It is embodied in Art. 1484 of the NCC, which provides for the
remedies of a seller in the contracts of sale of personal property by installments.
NOTE: Art. 1484 of the NCC incorporates the provisions of Act No. 4122 passed by the Philippine Legislature
on Dec. 9, 1939, known as the "Installment Sales Law" or the "Recto Law," which then amended Art. 1454 of
the Civil Code of 1889.
Application of Recto Law
This law covers contracts of sale of personal property by installment (Act No. 4122). It is also 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 (PCI Leasing and Finance Inc. v. Giraffe- X Creative Imaging,
Inc., G.R. No. 142618, July 12, 2007).
NOTE: Recto Law applies only to sale payable in installments and not to a sale where there is an initial
payment and the balance is payable in the future, because such is a straight sale, not a sale by installments.
Requisites of Recto Law
1. Valid contract of sale;
2. Subject matter is personal property;
3. Payable in installments; and
4. In the case of the second and third remedies, that there has been a failure to pay two or more installments
(NCC, Art. 1484).
Rationale of Recto Law
To remedy the abuses committed in connection with the foreclosure of chattel mortgages and to prevent
mortgagees from seizing the mortgaged property, buying it at a foreclosure sale for a low price and then
bringing suit against the mortgagor for a deficiency judgment. (Villanueva, 2009)
REALTY INSTALLMENT BUYER ACT or “MACEDA LAW” R.A. No. 6552
Realty Installment Buyer Act
Commonly known as the “MACEDA LAW.” It is embodied in R.A. 6552 which provides for certain protection
to particular buyers of real estate payable on installments. The law declares as "public policy to protect
buyers of real estate on installment payments against onerous and oppressive conditions.
NOTE: The purpose of the law is to protect buyers in installment against oppressive conditions.
Transactions/sale covered by the Maceda Law
The law involves the sale of immovables on installment (Maceda Law, RA 6552).
1. Coverage: Residential Real Estate (Villanueva, 2009).
2. Excluded:
a. Industrial lots;
b. Commercial buildings (and commercial lots by implication);
c. Sale to tenants under agrarian laws; and
d. Sale of lands payable in straight terms (Sec. 3, RA 6552).
What are the so-called “Maceda” and “Recto” laws in connection with sales on installments? Give the
most important features on each law.
The Maceda Law is applicable to sales of immovable property on installments. The most important features
are:
a. After having paid installments for at least two years, the buyer is entitled to a mandatory grace period of
one month 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 cash surrender value equivalent to fifty
percent (50%) of the total payments made, and after five years of installments, an additional five percent
(5%) every year but not to exceed ninety percent (90%) of the total payments made.
NOTE: This requires a notarial act of rescission and the refund to the buyer of the full payment of the cash
surrender value of the payments on the property. Failure to comply with the mandatory twin requirement
shall result into the contract remaining to be valid and subsisting (Rabuya, 2017).
b. In case the installments paid were less than 2 years, the seller shall give the buyer a grace period of not less
than 60 days. 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 receipt by the buyer of the notice of cancellation or demand for
rescission by notarial act (Rillo v. CA, G.R. No. 125347, June 19, 1997).
NOTE: According to the Supreme Court, the vendor could go to the court and demand judicial rescission in
lieu of a notarial act of rescission. An action for annulment of contract which is a kindred concept of rescission
by notarial act will also suffice (Rabuya, 2017).
Other rights granted to a buyer under the Maceda Law
1. Sell or assign rights to another;
2. Reinstate contract by updating within 30 days before and cancellation;
3. Deed of Sale to be done by notarial act;
4. Pay full installment in advance the balance of price anytime w/o interest; and
5. Have full payment annotated in certificate of title.
NOTE: Applies to contracts even before the law was enacted. Stipulation to the contrary is void.
REMEDIES OF AN UNPAID SELLER
Unpaid Seller
One is considered as unpaid seller when:
1. The whole of the price has not been paid or tendered; or
2. A bill of exchange or other negotiable instrument has been received as conditional payment, and the
condition on which it was received has been broken by reason of the dishonor of the instrument, the
insolvency of the buyer, or otherwise (NCC, Art. 1525).
NOTE: The mere delivery of a negotiable instrument does not ipso facto extinguish the obligation of
the buyer to pay because the instrument which has been delivered may be dishonored. In which case,
the seller is still an unpaid seller (US v. Bedoya, 14 Phil. 398).
Moreover, bills of exchange or mercantile documents shall produce the effect of payment only when
they have been cashed or when through the fault of the creditor, they have been impaired.
It includes an agent of the seller to whom the bill of lading has been indorsed, or consignor or agent who has
himself paid, or is directly responsible for the price, or any other person who is in the position of a seller
(Pineda, 2010).
REMEDIES OF AN UNPAID SELLER
I. ORDINARY
1. Action for Price (NCC, Art. 1595)
Exercised when:
a. Ownership has passed to buyer;
b. Price is payable on a day certain; or
c. Goods cannot readily be resold for reasonable price and Art. 1596 of NCC is inapplicable.
2. Action for Damages – In case of wrongful neglect or refusal by the buyer to accept or pay for the thing sold.
NOTE: 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.
II. Special (NCC, Art. 1596)
1. Possessory Lien (NCC, Art. 1527) – seller not bound to deliver the object of the contract of sale if buyer has
not paid him the price. This remedy presupposes that the sale is on credit. It is exercisable only in following
circumstances:
a. goods sold without stipulation as to credit;
b. goods sold on credit but term of credit has expired; or
c. buyer becomes insolvent.
NOTE: When part of goods delivered, may still exercise right on goods undelivered.
Moreover, when title to the property has passed to the buyer, but possession remains in the hands of
the seller, the latter is necessarily holding the goods for the buyer. For his protection, the seller is
entitled to possess the same until he has been fully paid, or a tender of the price has been made.
Loss of Lien:
a. When he delivers the goods to the carrier or other bailee for purpose of transmission to the buyer
which reserving the ownership in the goods or the right to the possession thereof;
b. When the buyer or his agent lawfully obtains possession of the goods; or
c. By waiver thereof (Rabuya, 2017).
2. Stoppage in Transitu (NCC, Art. 1530)
Requisites:
a. Insolvent buyer;
b. The sale of goods must be on Credit;
c. Seller must Surrender the negotiable document of title, if any;
d. Seller must bear the Expenses of delivery of the goods after the exercise of the right;
e. Seller must either actually take possession of the goods sold or give Notice of his claim to the
carrier or other person in possession;
f. Goods must be in Transit; and
g. Unpaid seller.
NOTE: Buyer’s insolvency need not be judicially declared. A person is insolvent who either has
ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become
due, whether insolvency proceedings have been commenced or not. [NCC, Art. 1636(2)].
3. Special Right to Resell the Goods (NCC, Art. 1533)
Exercised when:
a. Goods are perishable,
b. Stipulated the right of resale in case of default, or
c. Buyer in default for unreasonable time.
4. Special Right to Rescind (NCC, Art. 1597)
Requisites:
a. Goods have not been delivered to the buyer;
b. Buyer has repudiated the contract of sale; or
c. Has manifested his inability to perform his obligations thereunder; or
d. Has committed a breach thereof, which must be substantial.
NOTE: Here, the seller may thereafter totally rescind the contract of sale by giving notice of his
election to do so to the buyer.
Instances when possessory lien is lost
1. Seller delivers without reserving ownership in goods or right to possess them;
2. Buyer or agent lawfully obtains possession of goods; or
3. Waiver (NCC, Art. 1529).
NOTE: Seller loses lien when he parts with good (but still, stoppage in transitu can be exercised).
Right of stoppage in transitu
The seller may resume possession of the goods at any time while they are in transit, and he will then become
entitled to the same rights in regard to the goods as he would have had if he had never parted with the
possession (NCC, Art. 1530).
Thereafter, the seller may exercise the following rights:
a. Right of lien; NCC, Art. 1527
b. Right to resell; NCC, Art. 1533; and
c. Right to rescind the transfer of title (NCC, Art. 1534).
Goods considered to be in transit
1. After delivery to a carrier or other bailee and before the buyer or his agent takes delivery of them; and
2. If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even
if the seller has refused to receive them back [NCC, Art. 1531(1)].
Goods deemed to be no longer in transit
1. After delivery to the buyer or his agent;
2. If the buyer/agent obtains possession of the goods at a point before the destination originally fixed;
3. If the carrier or the bailee acknowledges that he holds the goods in behalf of the buyer/ his agent;
4. If the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent (Villanueva, 2009).
Enforcement of right to stoppage in transitu
The seller may:
1. Take actual possession of the goods; and
2. Give notice of his claim to the carrier or other bailee who is in possession of the goods (NCC, Art. 1532).
Effect of the exercise of this right
1. The goods are no longer in transit;
2. Contract of carriage end. The carrier now becomes a mere bailee, and will be liable as such; and
3. Seller would have the same rights to the goods as if he had never had never parted possession with it (NCC,
Arts. 1530 & 1531).
Seller’s knowledge of the buyer’s insolvency
The seller cannot exercise the right to stoppage in transit because he is under estoppel. He assumed the risk.
Rationale behind the right of stoppage in transitu
To prevent injustice of allowing the buyer to acquire ownership and possession of the goods when owing to
his insolvency, he cannot pay the price (Pineda, 2010).
Effect of exercising the special right of resale
The unpaid seller shall not be liable to the original buyer upon the sale or for any profit made by such resale,
but may recover from the buyer damages for any loss occasioned by the breach of the sale (NCC, Art. 1533).
NOTE: The seller cannot, however, directly or indirectly buy the goods.
Cases in which it is allowed:
1. Where the goods are of perishable in nature;
2. Where the seller has expressly reserves the right of resale in case the buyer should make default; or
3. Where the buyer has been in default in payment of the price for unreasonable time [NCC, Art. 1533(1)].
Notice to the defaulting buyer
GR: Notice to the defaulting buyer NOT required in the resale of goods
XPN: Where the right to resell is not based on the perishable nature of the goods or upon an express
provision of the sale.
NOTE: Notice of time and place of resale is not essential to the validity of such resale (NCC, Art. 1533).
Effect of exercising the special right to rescind
The unpaid seller shall not be liable to the buyer upon the sale, but may recover from the buyer damages for
any loss occasioned by the breach of the sale (NCC, Art. 1534).
Cases in which it is allowed:
1. Where the seller has expressly reserved the right to rescind in case the buyer should make default; or
2. Where the buyer has been in default in the payment of the price for unreasonable length of time [NCC, Art.
1534(1)].
Buyer deemed as insolvent
One is deemed insolvent when he either ceased to pay his debts in the ordinary course of business or cannot
pay his debts as they become due, whether insolvency proceedings have been commenced or not (Villanueva,
2009).
REMEDIES OF THE BUYER
I. Immovables in general
1. Disturbed in possession or with reasonable grounds to fear disturbance – Suspend payment.
2. In case of subdivision or condominium projects – If real estate developer fails to comply with obligation
according to approved plan:
a. Rescind; or
b. Suspend payment until seller complies.
II. Movables
1. Failure of seller to deliver – Action for specific performance without giving the seller the option of retaining
the goods on payments of damages.
2. Breach of seller’s warranty – The buyer may, at his election, avail of the following remedies:
a. Accept goods & set up breach of warranty by way of recoupment in diminution or extinction of the price;
b. Accept goods & maintain action against seller for damages;
c. Refuse to accept goods & maintain action against seller for damages;
d. Rescind contract of sale & refuse to receive goods/return them when already received and recover the
price or any part which has been paid.
3. Disturbed in possession or with reasonable grounds to fear disturbance – Suspend payment.
NOTE: When the buyer has claimed and been granted a remedy in any of these ways, no other remedy can
thereafter be granted, without prejudice to the buyer’s right to rescind, even if previously he has chosen
specific performance when fulfillment has become impossible [Villanueva, 2011; in relation to NCC, Art.
1191(2)].
PERFORMANCE OF THE CONTRACT
Rule when the seller delivers goods lesser than what he has contracted to sell
1. The buyer may reject the goods delivered and he shall have no liability;
2. The buyer may accept the goods delivered, but he will pay the contract rate, if he has
knowledge that the seller is not going to deliver all the goods contracted for; and
3. If, however, the buyer has used or disposed of the goods delivered before he knows that the seller is not
going to perform his contract in full, the buyer shall not be liable for more than the fair value to him of the
goods so received (NCC, Art. 1522).
Rule when the seller delivers goods greater than what he has contracted to sell
1. The buyer may accept only the goods which were included in the contract and reject the excess; or
2. The buyer may accept the entire goods delivered and he shall pay for them at the contract rate (NCC, Art.
1522).
Rule when the seller delivers goods which are mixed with other goods of different description not
included in the contract
1. The buyer may accept the goods which are in accordance with the contract and reject the rest (NCC, Art.
1522); or
2. The buyer may also accept them all if he so desires, but he must pay for them all.
Rule if the subject matter is indivisible
The buyer may reject the whole of the goods (NCC, Art. 1522).
Duty of the seller with regard to accessions and accessories
The seller has the duty to preserve the thing and its accessions and accessories from the time of the
perfection of the contract of sale (NCC, Art. 1537).
But all the fruits shall pertain to the vendee from the day on which the contract was perfected.
NOTE: In case of loss or deterioration, the seller is liable for damages or the buyer may seek rescission with
damages. However, if loss or deterioration is due to a fortuitous event, the seller is not liable (NCC, Art. 1538).
Rule when the sale of immovable is by unit of measure or number
GR: The seller must deliver all that may have been stated in the contract.
XPN: If impossible to deliver all, the buyer may choose between:
a. Proportional reduction of the price; or
b. Rescission of the contract provided the deficiency is not less than 1/10 of the area stated in the
contract (NCC, Art. 1539).
Prescription period for the action of rescission of contract
6 months from the day of delivery (NCC, Art. 1543).
How payment is made by the buyer
Price is paid at the time and place stipulated in the contract. It is made to the person in whose favor the
obligation has been constituted or his successor in interest, or any person authorized to receive (Villanueva,
2009).
WARRANTIES
Warranty
A statement or representation made by the seller of goods, as part of the contract of sale, having reference to
the character, quality, or title, of the goods, and by which he promises or undertakes to insure that certain
facts are or shall be as he then represents (De Leon, 2011).
Effect of a breach of warranty
Buyer may:
1. Refuse to proceed with the contract; or
2. Proceed with the contract and waive the condition.
NOTE: If the condition is in the nature of a promise that it should happen or be performed, the nonperformance may be treated as a breach of warranty.
Kinds of warranties
1. Express; or
2. Implied
NOTE: Prescriptive period of actions based on express warranty:
1. That specified in the contract and in the absence thereof; or
2. 4 years (Rabuya, 2017)
Express warranties
Any affirmation of fact or any promise by the seller relating to the thing if the natural tendency of such
affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchases the thing
relying thereon (Art. 1546).
Requisites:
1. It must be an Affirmation of fact relating to the subject matter of sale;
2. Natural tendency is to Induce buyer to purchase subject matter; and
3. Buyer purchases the subject matter Relying thereon
Liability of the seller for breach of express warranties
The seller is liable for damages (Villanueva, 2009).
Implied warranties
Warranties deemed included in all contracts of sale by operation of law (NCC, Art. 1547).
1. Warranty that seller has right to sell – refers to consummation stage. Not applicable to sheriff, auctioneer,
mortgagee, pledgee (NCC, Art. 1547); and
2. Warranty against eviction (Art. 1548).
Requisites:
a. Final Judgment;
b. Buyer is Evicted in whole or in part from the subject matter of sale;
c. Basis of eviction is a right Prior to sale or act imputable to seller;
d. Seller has been Summoned in the suit for eviction at the instance of buyer; or made 3rd party defendant
through 3rd party complaint brought by buyer; and
e. No waiver on the part of the buyer.
NOTE: For eviction – disturbance in law is required and not just trespass in fact.
3. GR: Warranty against non-apparent burden or servitude (NCC, Art. 1560).
Requisites:
a. Immovable sold is encumbered with non-apparent burden or servitude not mentioned in the agreement;
and
b. Nature of non-apparent servitude or burden is such that it must be presumed that the buyer would not
have acquired it had he been aware thereof.
XPN: Warranty not applicable when non-apparent burden or servitude is recorded in the Registry of Property
– unless there is expressed warranty that the thing is free from all burdens and encumbrances
4. Warranty against Hidden Defects (NCC, Art. 1561)
Requisites:
a. Defect is important or Serious;
i. The thing sold is unfit for the use which it is intended; and
ii. Diminishes its fitness for such use or to such an extent that the buyer would not have acquired it
had he been aware thereof.
b. Defect is Hidden;
c. Defect Exists at the time of the sale;
d. Buyer gives Notice of the defect to the seller within reasonable time;
e. Action for rescission or reduction of the price is brought within the proper period;
i. 6 months – from delivery of the thing sold (NCC, Art. 1571); and
ii. Within 40 days – from the delivery in case of animals (NCC, Art. 1577).
f. There must be No waiver of warranty on the part of the buyer.
NOTE: Hidden faults or defects pertain only to those that make the object of sale unfit for the use for which it
was intended at the time of the sale.
Non-applicability of implied warranty
1. “As is and where is” sale;
2. Sale of second hand articles;
3. Sale by virtue of authority in fact or law; and
4. Sale at public auction for tax delinquency.
Where the cause of action is to hold the seller of a vehicle for breach of implied warranty
Under Article 1599 of the Civil Code, once an express warranty is breached, the buyer can accept or keep the
goods and maintain an action against the seller for damages. In the absence of an existing express warranty a
complaint for damages may be anchored on the enforcement of an implied warranty against hidden defects.
However, this right must be exercised within six (6) months from the delivery of the thing sold, else his cause
of action had become time-barred (De Guzman v. Toyota Cubao, G.R. No. 141480, November 29, 2006).
Effects of waiver of an implied warranty
1. Seller in bad faith and there is waiver against eviction –void.
2. When buyer without knowledge of a particular risk, made general renunciation of warranty – is not a
waiver but merely limits liability of seller in case of eviction.
3. When buyer with knowledge of risk of eviction assumed its consequences and made a waiver – seller not
liable (applicable only to waiver of warranty against eviction).
WARRANTY AGAINST EVICTION
In a contract of sale, unless a contrary intention appears, there is an implied warranty on the part of the seller
that he has the right to sell the thing at the time when the ownership is to pass, and that the buyer shall from
that time have and enjoy the legal and peaceful possession of the thing [NCC, Art. 1547(1)].
Coverage of a warranty against eviction
It covers eviction by a final judgment based on a right prior to the sale or an act imputable to the vendor, the
vendee is deprived of the whole or of a part of the thing purchased.
The vendor shall answer for the eviction even though nothing has been said in the contract on the subject.
NOTE: The contracting parties, however, may increase, diminish, or suppress this legal obligation of the
vendor (Art. 1548).
Effect of a breach of warranty against eviction
The buyer shall have the right to demand the R-I-C-E with damages from seller:
1. The Return of the value which the thing sold had at the time of the eviction, be it greater or lesser than the
price of the sale;
2. The Income or fruits, if he has been ordered to deliver them to the party who won the suit against him;
3. The Costs of suit which caused the eviction, and, in a proper case, those of suit brought against the vendor
for the warranty;
4. The Expenses of contract if buyer has paid them; and
5. The damages, interests and ornamental expenses if sale was made in bad faith (NCC, Art. 1555).
NOTE: Vendor is liable for any hidden defect even if he is not aware (Caveat Venditor).
Purchaser must be aware of the title of the vendor (Caveat Emptor).
Rights of buyer in case of partial eviction
1. Restitution (with obligation to return the thing w/o other encumbrances than those which it had when he
acquired it); and
2. Enforcement of warranty against eviction (Paras, 2013 and NCC, Art. 1556).
Inapplicability of rescission
GR: Rescission is not a remedy in case of eviction because rescission contemplates that the one demanding it
is able to return whatever he has received under the contract. Since the vendee can no longer restore the
subject matter of the sale to the vendor, rescission cannot be carried out (NCC, Art. 1385).
XPN: The buyer may demand rescission in case of partial eviction, because there still remains a portion of the
thing sold (De Leon, 2009).
WARRANTY AGAINST HIDDEN DEFECT
Hidden defect (NCC, Art.1561)
One which is unknown or could not have been known to the buyer (Diaz, 2006.)
NOTE: Seller does not warrant patent defect.
Reason: caveat emptor (buyer beware).
Application
The seller shall be responsible for warranty against “hidden defect” only when:
1. The nature of the hidden defect is such that it should render the subject matter unfit for the use for which it
is intended; or
2. Should diminish its fitness for such use to such an extent that, had the buyer been aware thereof, he would
not have acquired it or would have given a lower price for it.
Redhibitory defect
It is a defect in the article sold against which defect the seller is bound to warrant. The vice must constitute an
imperfection, a defect in its nature, of certain importance; and a minor defect does not give rise to redhibition
(De Leon, 2005).
Redhibitory defect on animals (NCC, Art. 1576)
If the hidden defect of animals, even in case a professional inspection has been made, should be of such a
nature that expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory.
Void sale of animal (NCC, Art. 1575)
The sale is void if animal is:
1. Suffering from contagious diseases; or
2. Unfit for the use or service for which they were purchased as indicated in the contract.
Responsibility of a vendor for hidden defects
If the hidden defects which the thing sold may have:
1. Render it unfit for the use for which it is intended; or
2. Diminish its fitness for such use to such an extent that had the vendee been aware thereof, he would not
have acquired it or would have given a lower price for it (NCC, Art. 1561).
Extent of warranty by the seller against hidden defects
The seller is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was
not aware thereof.
When the seller is not answerable for the defects of the thing sold
1. For patent defects or those which are visible;
2. Even for those which are not visible if the buyer is an expert who, by reason of his trade or profession,
should have known them (NCC, Art. 1561);
3. If the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the
thing sold (NCC, Art. 1566).
Effect of a breach of warranty against hidden defects
It would depend on whether the seller had knowledge of such defect and whether there has been a waiver of
the warranty.
1. If the thing should be lost in consequence of the hidden faults, and seller was aware of them – he shall:
a. bear the loss;
b. return the price; and
c. refund the expenses of the contract with damages.
2. If the thing is lost and seller was not aware of the hidden faults – he shall:
a. return the price and interest; and
b. reimburse the expenses of the contract which the buyer might have paid, but not for damages
(Villanueva, 2004).
Prescriptive period: six (6) months from date of the delivery of the thing sold (NCC, Art. 1571).
Remedies of the buyer in case of sale of things with hidden defects (NCC, Art. 1567)
The vendee may elect between:
1. Withdrawing from the contract, or
2. Demanding a proportionate reduction of the price, with damages in either case.
Waiver of warranty against eviction
There is waiver of warranty against eviction when the lessee has inspected the premises and decides to
consummate the contract based on such inspection. Under Arts. 1561 and 1653 of the Civil Code, the lessor is
responsible for warranty against hidden defects, but he is not answerable for patent defects or those, which
are visible, and which can be seen upon inspection (Jon and Marissa De Ysasi v. Arturo and Estela Arceo, G.R.
No. 136586, November 22, 2001).
EXTINGUISHMENT OF SALE
Causes for extinguishment of sale
A contract of sale is extinguished by:
1. Same causes as how an obligation is extinguished, namely:
a. Payment or performance;
b. Loss of the thing due;
c. Condonation or remission of the debt;
d. Confusion or merger of the rights of creditor and debtor;
e. Compensation;
f. Novation;
g. Annulment;
h. Rescission;
i. Fulfillment of resolutory condition; or
j. Prescription
2. Conventional Redemption
3. Legal redemption
Redemption
It is a mode of extinguishment wherein the seller has the right to redeem or repurchase the thing sold upon
return of the price paid.
Kinds of redemption
1. Legal; and
2. Conventional
Incorporation of right to redeem in every contract of sale
The right of the vendor to redeem/repurchase must appear in the same instrument. However, parties may
stipulate on the right of repurchase in a separate document but in this case, it is valid only between the parties and
not against third persons. (Pineda, 2010).
CONVENTIONAL REDEMPTION
Seller reserves the right to repurchase thing sold coupled with obligation to return the purchase price of the
sale, expenses incurred under the contract, other legitimate payments and, necessary & useful expenses made
on the thing sold (Art. 1601 in relation to Art. 1616 of the Civil Code).
Other person can exercise the right to repurchase
The right to repurchase may be exercised by any person to whom the right of repurchase may be transferred,
or in case of legal redemption, by the person so entitled by law (Villanueva, 2009).
NOTE: Right to repurchase must be reserved at the time of perfection of sale (Pineda, 2010).
Reservation of right to repurchase
The right to repurchase is reserved by a stipulation to that effect in the contract of sale. Because it is not a
right granted to the vendor by the vendee, but is a right reserved by the vendor.
Reservation CANNOT be made in an instrument different from that of the contract of sale. Once the
instrument of absolute sale is executed, and any right thereafter granted the vendor in a separate instrument
cannot be a right of repurchase but some other right like the option to buy in the instant case (Villanueva,
2009).
Effect on the reserved right to repurchase if the principal contract of sale is void
Since the underlying contract of sale was inoperative and consequently void, then the right of repurchase
reserved would also be void (Villanueva, 2009).
EQUITABLE MORTGAGE
One which lacks the proper formalities, form or words or other requisites prescribed by law for a mortgage,
but shows the intention of the parties to make the property subject of the contract as security for a debt and
contains nothing impossible or contrary to law (Cachola v. CA, G.R. No. 97822, May 7, 1992; NCC, Art. 1602).
Essential requisites of equitable mortgage
1. Parties entered into a contract of sale;
2. Their intention was to secure an existing debt by way of a mortgage.
Presumption of an equitable mortgage
A sale with conventional redemption is deemed to be an equitable mortgage in any of the following cases
(NCC, Art. 1602)
1. Price of the sale with right to repurchase is unusually Inadequate;
2. Seller Remains in possession as lessee or otherwise;
3. Upon or after the expiration of the right to repurchase Another instrument extending the period of
redemption or granting a new period is executed;
4. Purchaser Retains for himself a part of the purchase price;
5. Seller binds himself to pay the Taxes on the thing sold;
6. In any other case where the real intention of the parties is that the transaction shall Secure the payment of
a debt or the performance of any other obligation; or
7. Art. 1602 shall also apply to a contract purporting to be an Absolute sale (Art. 1604).
NOTE: In case of doubt in determining whether it is equitable mortgage or sale a retro (with right of repurchase); it
shall be construed as equitable mortgage. The remedy is reformation.
Pactum Commissorium
A stipulation for automatic vesting of title over the security in the creditor in case of debtor’s default
(Villanueva, 2009).
The creditor cannot appropriate the things given by way of pledge or mortgage or dispose of them, otherwise
that would result in pactum commissorium. The proper remedy is foreclosure of the mortgage. If there is no
foreclosure, the debtors retain the ownership (Vasquez v. CA, G.R. No. 144882, February 4, 2005).
Elements of pactum commissorium
1. There should be a pledge or mortgage wherein property is pledged or mortgaged by way of security for the
payment of the principal obligation; and
2. There should be a stipulation for an automatic appropriation by the creditor of the thing pledged or
mortgaged in the event of nonpayment of the principal obligation within the stipulated period (Sps. Pen v. Sps.
Julian, G.R. No. 160408, January 11, 2016) (Bersamin, J.).
NOTE: Article 2088 of the Civil Code prohibits the creditor from appropriating the things given by way of
pledge or mortgage, or from disposing of them; any stipulation to the contrary is null and void.
PERIOD OF REDEMPTION
1. No period agreed upon – 4 years from date of contract;
2. When there is agreement – should not exceed 10 years; but if it exceeded, valid only for the first 10 years
(NCC, Art. 1606);
3. When period to redeem has expired & there has been a previous suit on the nature of the contract – seller
still has 30 days from final
judgment on the basis that contract was a sale with pacto de retro; and
Rationale: No redemption due to erroneous belief that it is equitable mortgage which can be extinguished by
paying the loan.
4. When period has expired & seller allowed the period of redemption to expire – seller is at fault for not
having exercised his rights so should not be granted a new period.
NOTE: Tender of payment is sufficient but it is not in itself a payment that relieves the seller from his liability to
pay the redemption price.
EXERCISE OF THE RIGHT TO REDEEM
Obligations the vendor a retro if he desires to redeem (NCC, Art. 1616)
The vendor a retro must pay or reimburse the vendee a retro the following:
1. Price of the sale;
2. Expenses of the contract;
3. Other legitimate expenses; and
4. Necessary and useful expenses (Pineda, 2010).
Written notice mandatory for the right of redemption to commence
Written notice is mandatory for the right of redemption to commence and the notice must be in writing
stating the execution of the sale and its particulars. It may be made in a private or public document (Pineda,
2010).
Prescribed form for an offer to redeem
There is no prescribed form for an offer to redeem to be properly effected. Hence, it can either be through a
formal tender with consignation of the redemption price within the prescribed period. What is paramount is
the availment of the fixed and definite period within which to exercise the right of legal redemption.
NOTE: Art. 1623 of the Civil Code does not prescribe any distinctive method for notifying the redemptioner.
Tender of payment NOT necessary for redemption to take effect
Tender of payment is not necessary and offer to redeem is enough only when the amount of repurchase is
uncertain and depends upon an accounting of the vendee who has not yet made such accounting (Tolentino,
1999).
Effect of failure to redeem
There must be judicial order before ownership of real property is consolidated to the buyer a retro.
Vendor a retro CANNOT be compelled to redeem
There is no obligation on the part of the vendor a retro to repurchase. He may or may not exercise the right to
repurchase (Pineda, 2010).
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 the thing by purchase or by dation en pago or by other transaction whereby ownership is
transmitted by onerous title (NCC, Art. 1619).
Instances of legal redemption
1. Sale of a co-owner of his share to a stranger (NCC, Art. 1620) ;
2. When a credit or other incorporeal right in litigation is sold (NCC, Art. 1634);
3. Sale of an heir of his hereditary rights to a stranger (NCC, Art. 1088);
4. Sale of adjacent rural lands not exceeding 1 hectare (NCC, Art. 1621);
5. Sale of adjacent small urban lands bought merely for speculation (NCC, Art. 1622).
Other instances when the right of legal redemption is also granted
1. Redemption of homesteads;
2. Redemption in tax sales;
3. Redemption by judgment debtor;
4. Redemption in extrajudicial foreclosure; or
5. Redemption in judicial foreclosure of mortgage.
Basis of legal redemption
It is created partly for reason of public policy and partly for the benefit and convenience of the redemptioner
to afford him a way out of what might be a disagreeable or inconvenient association into which he has been in
trust. It is intended to minimize co-ownership (Pineda, 2010).
Running of period of legal redemption
The right of legal redemption shall not be exercised except within 30 days from the notice in writing by the
prospective seller, or seller, as the case may be. The deed of sale shall not be recorded in the Registry of
Property unless accompanied by an affidavit of the seller that he has given written notice thereof to all
possible redemptioners (NCC, Art. 1623).
Written notice indispensable
The right of legal pre-emption or redemption shall not be exercised except within 30 days from the notice in
writing by the prospective vendor, or by the vendor, as the case may be (NCC, Art. 1623).
NOTE: Knowledge is insufficient – the mere fact that the redemptioner – the person who has the right to
redeem – is already aware of the existence of the sale will not excuse the written notice. Mere knowledge
does not satisfy the requirement; there must still be written notice despite such knowledge (Barcellano v.
Banas, et al., G.R. No. 165287, September 14, 2011).
The right of redemption of co-owners excludes that of adjoining owners (NCC, Art. 1623).
This means that co-owners are preferred if the property is to be redeemed by a co-owner and an adjoining owner.
Pre-emption
Redemption presupposes that the property was already sold or transferred to another. In pre-emption, the
right is present before the sale; there is a right to purchase ahead of or before it can be sold or transferred to
other persons.
e.g. Whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be
used for any practical purpose within a reasonable time, having been bought merely for speculation, is about
to be re-sold, the owner of any adjoining land has a right of pre-emption at a reasonable price (NCC, Art.
1620).
ASSIGNMENT OF CREDITS
Assignment is the process of transferring gratuitously or onerously the right of the assignor to the assignee,
who would then be allowed to proceed against the debtor (Paras, 2008).
The assignment involves no transfer of ownership but merely effects the transfer of rights which the assignor
has at the time to the assignee.
It is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal cause, such as
sale, dacion en pago, exchange or donation, and without the consent of the debtor, transfers his credit and
accessory rights to another, known as the assignee, who acquires the power to enforce it to the same extent
as the assignor could enforce it against the debtor (South City Homes, Inc. v. BA Finance Corp, G. R. No. 135462,
December 7, 2001).
NOTE: In assignments, a consideration is not always a requisite, unlike in sale. Thus, an assignee may
maintain an action based on his title and it is immaterial whether or not he paid any consideration therefor.
Furthermore, in an assignment, title is transferred but possession need not be delivered.
The contract for the assignment or transfer of credit and other incorporeal rights is perfected from the
moment the parties agree upon the credit or right assigned and upon the price even if neither has been
delivered (NCC, Art. 1475).
However, the assignee will acquire ownership only upon delivery (De Leon, 2011).
Effects of Assignment
1. Transfers the right to collect the full value of the credit, even if he paid a price less than such value;
2. Transfers all accessory rights;
3. Debtor can set up against the assignee all the defenses he could have set up against the assignor.
Effectivity against Third Persons
If personal property is involved — a public instrument is needed to make the assignment effective against
third persons.
If real property is involved –– registration in the Registry of Property would be needed.
NOTE: The assignee merely steps into the shoes of the assignor, the former acquiring the credit subject to
defenses (e.g. fraud, prescription, etc.) available to the debtor against the assignor. The assignee is deemed
subrogated to the rights as well as to the obligations of the seller. He cannot acquire greater rights than those
pertaining to the assignor (De Leon, 2011).