ATENEO DE MANILA LAW SCHOOL
LAW ON SALES OUTLINE
FIRST SEMESTER, SY 2015-2016
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DEAN CESAR L. VILLANUEVA
AND ATTY. TERESA VILLANUEVA-TIANSAY
I. THE NATURE OF SALE
A. DEFINITION (Art. 1458)
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Sale is a contract whereby one party [the seller] obligates himself to transfer the ownership and to
deliver the possession, of a determinate thing, and the other party [the buyer] obligates himself to pay
therefor a price certain in money or its equivalent. xCruz v. Fernando, 477 SCRA 173 (2005); xDantis v.
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Maghinang, Jr., 695 SCRA 599 (2013).
1. Elements of Sale
Elements of sale: (a) consent or meeting of the minds; (b) determinate subject matter; and (c) price
certain in money or its equivalent. xNavarra v. Planters Dev. Bank, 527 SCRA 562 (2007).4
Absence of any essential elements negates the existence of a perfected contract of sale. xDizon v.
5
CA, 302 SCRA 288 (1999), even when earnest money (downpayment) has been paid. xManila Metal
Container Corp. v. PNB, 511 SCRA 444 (2006). xDel Prado v. Caballero, 614 SCRA 102 (2010);
xMontecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); xDavid v. Misamis Occidental II
Electric Cooperative, Inc., 676 SCRA 367 (2012); xDantis v. Maghinang, Jr., 695 SCRA 599 (2013).
Sale being a consensual contract, its essential elements must be proven. xVillanueva v. CA, 267
SCRA 89 (1997). But once all elements are proven, its validity is not affected by a previously
executed fictitious deed of sale. xPeñalosa v. Santos, 363 SCRA 545 (2001); and the burden is on the
other party to prove otherwise. xHeirs of Ernesto Biona v. CA, 362 SCRA 29 (2001).
An Extrajudicial Settlement of Estate with Absolute Sale partakes of the nature of a contract [of
sale], hence, for its validity, each must comply with the requisites prescribed in Article 1318 of the Civil
Code, namely (a) consent of the contracting parties; (b) object certain, which is the subject matter of
the contract; and (c) cause of the obligation which is established. It would be immaterial that the
buyer’s signature does not appear on the Extrajudicial Settlement of Estate with Absolute Sale—a
contract of sale is perfected the moment there is a meeting of the minds upon the thing which is the
object of the contract and upon the price. Baladad v. Rublico, 595 SCRA 125 (2009).
2. Stages of Contract of Sale
Policitacion covers the period from the time the prospective contracting parties indicate interest in
the contract to the time the contract is perfected. Perfection takes place upon the concurrence of the
essential elements, which are the meeting of the minds of the parties as to the object of the contract
and upon the price. Consummation begins when the parties perform their respective undertakings,
culminating in the extinguishment thereof. xSan Miguel Properties Philippines, Inc. v. Huang, 336
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SCRA 737 (2000).
The stages of a contract of sale are: (1) negotiation, starting from the time the prospective
contracting parties indicate interest in the contract to the time the contract is perfected; (2) perfection,
which takes place upon the concurrence of the essential elements of the sale; and (3) consummation,
which commences when the parties perform their respective undertakings under the contract of sale,
culminating in the extinguishment of the contract. In the present case, the parties never got past the
negotiation stage. Nothing shows that the parties had agreed on any final arrangement containing the
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The Outline presents the manner by which the Law on Sales will be taken-up in class. The x's and those footnoted in
the Outline represent cases or topics which need no extended discussions, either because the essence of the rulings are
already summarized in the Outline or they contain similar rulings or doctrines as other cases to be discussed. Unless
otherwise indicated, the numbered articles refer to articles of the Civil Code.
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Ownership is the independent and general power of a person over a thing for purposes recognized by law and within the limits
established thereby, which includes the right to enjoy and dispose of a thing, without other limitations than those established by law.
. . . Aside from the jus utendi and the jus abutendi inherent in the right to enjoy the thing, the right to dispose, or the jus disponendi,
is the power of the owner to alienate, encumber, transform and even destroy the thing owned. Flancia v. CA, 457 SCRA 224 (2005).
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Alfredo v. Borras, 404 SCRA 145 (2003); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts v. Papio, 515
SCRA 346 (2007); Hyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010);
Dantis v. Maghinang, Jr., 695 SCRA 599 (2013).
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Jovan Land, Inc. v. CA, 268 SCRA 160 (1997); Quijada v. CA, 299 SCRA 695 (1998); Co v. CA, 312 SCRA 528 (1999); San
Andres v. Rodriguez, 332 SCRA 769 (2000); Roble v. Arbasa, 362 SCRA 69 (2001); Polytechnic University v. CA, 368 SCRA 691
(2001); Katipunan v. Katipunan, 375 SCRA 199 (2002); Londres v. CA, 394 SCRA 133 (2002); Manongsong v. Estimo, 404 SCRA
683 (2003); Jimenez, Jr. v. Jordana, 444 SCRA 250 (2004); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga,
449 SCRA 458 (2005); Roberts v. Papio, 515 SCRA 346 (2007); Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); Republic v.
Florendo, 549 SCRA 527 (2008); GSIS v. Lopez, 592 SCRA 456 (2009); Baladad v. Rublico, 595 SCRA 125 (2009); Del Prado v.
Caballero, 614 SCRA 102 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); Hyatt Elevators and
Escalators Corp. v. Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010); David v. Misamis Occidental II Electric
Cooperative, Inc., 676 SCRA 367 (2012); Dantis v. Maghinang, Jr., 695 SCRA 599 (2013).
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essential elements of a contract of sale, namely, (1) consent or the meeting of the minds of the parties;
(2) object or subject matter of the contract; and (3) price or consideration of the sale. xGSIS v. Lopez,
592 SCRA 456 (2009).
Equally important are the three stages of a contract of sale: (1) preparation or negotiation, (2)
perfection, and (3) consummation. 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. The
perfection or birth of the contract takes place when the parties agree upon the essential elements of
the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform
the terms agreed upon in the contract, culminating in the extinguishment thereof. xXYST Corp. v. DMC
Urban Properties Dev., Inc., 594 SCRA 598 (2009).
3. Sale Creates Real Obligations “To Give” (Art. 1165)
4. Essential Characteristics of Sale:
a. Nominate and Principal
A contract of sale is what the law defines it to be, taking into consideration its essential elements,
and not what the contracting parties call it. xSantos v. CA, 337 SCRA 67 (2000).7
b. Consensual (Art. 1475)
A contract of sale is not a real, but a consensual contract, and becomes valid and binding upon the
meeting of the minds of the parties as to the object and the price,8 and consequently:
• Upon its perfection, the parties may reciprocally demand performance. xHeirs of Venancio Bejenting v.
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Bañez, 502 SCRA 531 (2006); subject only to the provisions of the law governing the form of contracts.
xCruz v. Fernando, 477 SCRA 173 (2005).
• It remains valid even if parties have not affixed their signatures to its written form, xGabelo v. CA, 316
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SCRA 386 (1999), or that the perfected sale is not translated into written form, Duarte v. Duran, 657
SCRA 607 (2011); or the manner of payment is breached. xPilipinas Shell Petroleum Corp v. Gobonseng,
496 SCRA 305 (2006).
• Failure of subdivision developer to obtain a license to sell does not render the sales void especially that
the parties have admitted that there was already a meeting of the minds as to the subject of the sale and
price. xCantemprate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009)
• When the contract of sale is not perfected, it cannot, as an independent source of obligation, serve as a
binding juridical relation between the parties. xHeirs of Fausto C. Ignacio v. Home Bankers Savings, 689
SCRA 173 (2013)
Binding effect of sale is based on the principle that the obligations arising therefrom have the force
of law between the parties. xVeterans Federation of the Philippines v. CA, 345 SCRA 348 (2000).
Perfection Distinguished from Demandability – Not all contracts of sale become automatically
and immediately effective. In sales with assumption of mortgage, there is a condition precedent to the
seller’s consent and without the approval of the mortgagee, the sale is not perfected. xBiñan Steel
Corp. v. CA, 391 SCRA 90 (2002).
“No Contract Situation” versus “Void Contract” – Absence of consent (i.e., complete meeting
of minds) negates the existence of a perfected sale. xFirme v. Bukal Enterprises and Dev. Corp., 414
SCRA 190 (2003). The contract then is null and void ab initio, absolutely wanting in civil effects;
hence, it does not create, modify, or extinguish the juridical relation to which it refers. xCabotaje v.
Pudunan, 436 SCRA 423 (2004).
When there is no meeting of the minds on price, the sale “is not perfected” and is not “a binding
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juridical relation between the parties. xManila Metal Container Corp. v. PNB, 511 SCRA 444 (2006),
and should be accurately denominated as “inexistent”, as it did not pass the stage of generation to the
point of perfection. xNHA v. Grace Baptist Church, 424 SCRA 147 (2004).
c. Bilateral and Reciprocal (Arts. 1169 and 1191)
A contract of sale gives rise to “reciprocal obligations”, which arise from the same cause with each
party being a debtor and creditor of the other, such that the obligation of one is dependent upon the
7
Bowe v. CA, 220 SCRA 158 (1993); Romero v. CA, 250 SCRA 223 (1995); Lao v. CA, 275 SCRA 237 (1997); Cavite Dev’t Bank
v. Lim, 324 SCRA 346 (2000).
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Romero v. CA, 250 SCRA 223 (1995); Balatbat v. CA, 261 SCRA 128 (1996); Coronel v. CA, 263 SCRA 15 (1996); City of Cebu
v. Heirs of Candido Rubi, 306 SCRA 408 (1999); Agasen v. CA, 325 SCRA 504 (2000); Laforteza v. Machuca, 333 SCRA 643
(2000); Londres v. CA, 394 SCRA 133 (2002); Alcantara-Daus v. de Leon, 404 SCRA 74 (2003); Buenaventura v. CA, 416 SCRA
263 (2003); San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005); Yason v. Arciaga, 449 SCRA 458 (2005); Ainza v. Padua, 462
SCRA 614 (2005); Roberts v. Papio, 515 SCRA 346 (2007); MCC Industrial Sales Corp. v. Ssangyong Corp., 536 SCRA 408
(2007); Castillo v. Reyes. 539 SCRA 193 (2007); XYST Corp. v. DMC Urban Properties Dev., Inc., 594 SCRA 598 (2009); Del
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obligation of the other; and they are to be performed simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other. xCortes v. CA, 494 SCRA 570 (2006).12
A perfected contract of sale is bilateral because it carries the correlative duty of the seller to deliver
the property and the obligation of the buyer to pay the agreed price. xCongregation of the Religious of
the Virgin Mary v. Orola, 553 SCRA 578 (2008).
The power to rescind without need of prior demand is implied in reciprocal ones when one of the
obligors does not comply with his obligation. Almocera v. Ong, 546 SCRA 164 (2008).13
d. Onerous and Commutative (√Gaite v. Fonacier, 2 SCRA 830 [1961]; BUT SEE: Arts. 1355 and
1470)
In a contract of sale, there is no requirement that the price be equal to the exact value of the
subject matter of sale; all that is required is that the parties believed that they will receive good value in
exchange for what they will give. √Buenaventura v. CA, 416 SCRA 263 (2003).
e. Sale Is Title and Not Mode
Sale is not a mode, but merely a title. A mode is the legal means by which dominion or ownership
is created, transferred or destroyed, but title is only the legal basis by which to affect dominion or
ownership. Sale by itself does not transfer or affect ownership; the most that sale does is to create the
obligation to transfer ownership. It is tradition or delivery, as a consequence of sale, that actually
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transfers ownership. xSan Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005), citing VILLANUEVA,
PHILIPPINE LAW ON SALES, 1995 ed., at p. 5.
Ownership by the seller of the thing sold is not an element of perfection; what the law requires is
that seller has the right to transfer ownership at the time of delivery. xQuijada v. CA, 299 SCRA 695
(1998).15 BUT SEE: xTitong v. CA, 287 SCRA 102 (1998), which defined a “sale” as “a contract
transferring dominion and other real rights in the thing sold.”
B. SALE DISTINGUISHED FROM SIMILAR CONTRACTS
A contract is what the law defines it to be, taking into consideration its essential elements, and the
title given to it by the parties is not as much significant as its substance:16 the transfer of ownership in
exchange for a price paid or promised is the very essence of a contract of sale. xSantos v. CA, 337
SCRA 67 (2000).
In determining the real character of sale, courts look at the intent of the parties, their true aim and
purpose in entering into the contract, as well as “by their conduct, words, actions and deeds prior to,
during and immediately after executing the agreement,” and not at the nomenclature used to describe it.
xLao v. CA, 275 SCRA 237 (1997).
1. Donation (Arts. 725 and 1471)
Unlike a donation, sale is a disposition for valuable consideration with no diminution of the estate
but merely substitution of values, with the property sold replaced by the equivalent monetary
consideration; unlike donation, a valid sale cannot have the legal effect of depriving the compulsory
heirs of their legitimes. xManongsong v. Estimo, 404 SCRA 683 (2003).
The rules on double sales under Art. 1544 find no relevance to donations. xHemedes v. CA, 316
SCRA 347 (1999).
2. Barter (Arts. 1468, 1638 to 1641)
3. Contract for Piece-of-Work (Arts. 1467, 1713 to 1715)
Crux: “Ineluctably, whether the contract be one of sale or one for a piece of work, a transfer of
ownership is involved and a party necessarily walks away with an object.” xCommissioner of Internal
Revenue v. CA, 271 SCRA 605 (1997), citing VILLANUEVA, LAW ON SALES, pp. 7-9 (1995). In both, the
provisions on warranty of title against hidden defects applies. xDiño v. CA, 359 SCRA 91 (2001).
When a person stipulates for the future sale of articles which he is habitually making, and which at
the time are not made or finished, it is essentially a contract of sale and not a contract for labor
xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911); even when he executes production thereof only
after an order is placed by customers. √Celestino & Co. v. Collector, 99 Phil. 841 (1956).
If the thing is specially done only upon the specific order of another, this is a contract for a piece of
work; if the thing is manufactured or procured for the general market in the ordinary course of
business, it is a contract of sale. √CIR v. Eng’ing Equipment & Supply Co., 64 SCRA 590 (1975).17
To Tolentino, the distinction depends on the intention of parties: if parties intended that at some
future date an object has to be delivered, without considering the work or labor of the party bound to
12
Ong v. CA, 310 SCRA 1 (1999); Mortel v. KASSCO, 348 SCRA 391 (2000); Agro Conglomerates, Inc. v. CA, 348 SCRA 450
(2000); Velarde v. CA, 361 SCRA 56 (2001); Carrascoso, Jr. v. CA, 477 SCRA 666 (2005); Heirs of Antonio F. Bernabe v. CA, 559
SCRA 53 (2008); Antonino v. Register of Deeds of Makati, 674 SCRA 227 (2012).
13
Vda. De Quirino v. Palarca, 29 SCRA 1 (1969)
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Acap v. CA, 251 SCRA 30 (1995).
15
Equatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA 56 (2001); Alcantara-Daus v. de Leon, 404 SCRA 74 (2003);
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deliver, the contract is one of sale; but if one of the parties accepts the undertaking on the basis of
some plan, taking into account the work he will employ personally or through another, the contract is
for a piece of work. xEngineering & Machinery Corp. v. CA, 252 SCRA 156 (1996).
4. Agency to Sell (Art. 1466)
Assumption by “agent” of the risk pertaining to the cost or price of the subject matter makes the
relationship that of buyer-seller, for the agent does not assume risk with respect to the price or the
property subject of the relationship. xKer & Co., Ltd. v. Lingad, 38 SCRA 524 (1971). Consequently:
(a) contractual relationship is not inherently revocable. √Quiroga v. Parsons, 38 Phil. 501 (1918);
(b) purported agent does not have to account for the profit margin earned from acquiring the
property for the purported principal. √Puyat v. Arco Amusement Co., 72 Phil. 402 (1941).
One factor that most clearly distinguishes agency from other legal concepts, including sale, is
control; one person – the agent – agrees to act under the control or direction of another – the principal.
xVictorias Milling Co., Inc. v. CA, 333 SCRA 663 (2000).
Commercial broker, commission merchant or indentor is a middleman acting in his own name, and
acts as agent for both seller and buyer to effect a sale between them. Although he is neither seller nor
buyer to the contract effected he may voluntarily assume warranties of seller. xSchmid and Oberly,
Inc. v. RJL Martinez, 166 SCRA 493 (1988).
5. Dacion En Pago (Arts. 1245 and 1934)
Governed by the law on sales, dation in payment is a transaction that takes place when property is
alienated to the creditor in full satisfaction of a debt in money – it involves the delivery and
transmission of ownership of a thing as an accepted equivalent of the performance of the obligation.
Yuson v. Vitan, 496 SCRA 540 (2007).
In its modern concept, what actually takes place in dacion en pago is an objective novation of the
obligation where the thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered as the purchase price.
xAquintey v. Tibong 511 SCRA 414 (2006).18
Elements of dation in payment: (a) performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the
third person; (b) some difference between the prestation due and that which is given in substitution
(aliud pro alio); and (c) agreement between the creditor and debtor that the obligation is immediately
extinguished by reason of the performance of a presentation different from that due. √Lo v. KJS EcoFormwork System Phil., Inc., 413 SCRA 182 (2003).19
There is no dation in payment where there is no transfer of ownership in the creditor’s favor, as
when the possession of the thing is merely given to the creditor by way of security, Fort Bonifacio Dev.
Corp. v. Yllas Lending Corp., 567 SCRA 454 (2008); as when the possession is only by way of
security, xPNB v. Pineda, 197 SCRA 1 (1991); there must be actual delivery of the property to the
creditor by way of extinguishment of the pre-existing debt, Philippine Lawin Bus Co. v. CA, 374 SCRA
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332 (2002). BUT SEE OBITER: √SSS v. AG& P Company of Manila, Inc. 553 SCRA 677 (2008).
In a true dacion en pago, the assignment of the property extinguishes the monetary debt, Ong v.
Roban Lending Corp., 557 SCRA 516 (2008); xEstanislao v. East West Banking Corp., 544 SCRA 369
(2008).
Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either
as agreed upon by the parties or as may be proved, unless the parties by agreement—express or
implied, or by their silence—consider the thing as equivalent to the obligation, in which case the
obligation is totally extinguished, Tan Shuy v. Maulawin, 665 SCRA 604 (2012).
A creditor, especially a bank, which enters into dacion en pago, should know and must accept the
legal consequence thereof, that the pre-existing obligation is totally extinguished.
A property subject to a real estate mortgage, which has not been foreclosed, may validly be the
subject of dacion en pago, for a mortgage does not take away the property rights of the mortgagor;
however, the creditor who becomes the buyer of the property is subject to the real estate mortgage
lien. xTypingco v. Lim, 604 SCRA 396 (2009).
A dacion en pago is governed by the law of sales, and contracts of sale come with warranties,
either express (if explicitly stipulated by the parties) or implied. The implied warranty in case of eviction
is waivable and cannot be invoked if the buyer knew of the risks or danger of eviction and assumed its
consequences. Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
6. Lease (Arts. 1484 and 1485)
When rentals in a “lease” are clearly meant to be installment payments to a sale contract, despite
the nomenclature given by the parties, it is a sale by installments and governed by the Recto Law.
xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).
18
Vda. de Jayme v. Court of Appeals, 390 SCRA 380 (2002); Dao Heng Bank, Inc. (now BDO) v. Laigo, 571 SCRA 434 (2008);
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II. PARTIES TO A CONTRACT OF SALES
1. General Rule: Every person having legal capacity to obligate himself, may validly enter into a contract
of sale, whether as seller or as buyer. (Art. 1489)
2. Minors, Insane and Demented Persons, Deaf-Mutes (Arts. 1327, 1397 and 1399)
A minor cannot be deemed to have given her consent to a contract of sale; consent is among the
essential requisites of a contract, including one of sale, absent of which there can be no valid contract.
[?] xLabagala v. Santiago, 371 SCRA 360 (2001).
a. NECESSARIES (Arts. 1489 and 290)
b. Protection of the Senile and Elderly (Art. 24) and Illiterates (Art. 1332)
Under Art. 1332, when one of the parties is unable to read, or if the contract is in a language not
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show that
the terms thereof have been fully explained to the former; otherwise, sale is void. [?] xVda. De Ape v.
CA, 456 SCRA 193 (2005).
While a person is not incompetent to contract merely because of advanced years or by reason of
physical infirmities, when such age or infirmities have impaired the mental faculties so as to prevent
the person from properly, intelligently or firmly protecting his property rights, then he is undeniably
incapacitated, and the sale he entered into is void. [?]. √Paragas v. Heirs of Dominador Balacano,
468 SCRA 717 (2005).21
3. Sales By and Between Spouses:
a. Contracts with Third Parties (Arts. 73, 96, and 124, Family Code)
Under Art. 124 of Family Code, sale by husband of a conjugal property without the wife’s consent is
void and not merely voidable, since the resulting contract lacks one of the essential elements of “full
consent”. xGuiang v. CA, 291 SCRA 372 (1998).22
A wife affixing her signature to a Deed of Sale as a witness is deemed to have given her consent.
xPelayo v. Perez, 459 SCRA 475 (2005).
As an exception, husband may dispose of conjugal property without wife’s consent if such sale is
necessary to answer for conjugal liabilities mentioned in Articles 161 and 162. xAbalos v. Macatangay,
Jr., 439 SCRA 64 (2004).
b. Between Spouses (Arts. 133, 1490, 1492; Sec. 87, Family Code)
Sales between spouses who are not governed by a complete separation of property regime are
void, not just voidable. xMedina v. Collector, 1 SCRA 302 (1960).
Since the spouses cannot validly sell property to one another under Art. 1490, then policy
consideration and the dictates of morality require that the prohibition should apply also to common-law
relationships. cf. Matabuena v. Cervantes, 38 SCRA 284 (1971).
Sale by husband of conjugal land to his concubine is null and void for being contrary to morals and
public policy and “subversive of the stability of the family, a basic social institution which public policy
cherishes and protects.” √Calimlim-Canullas v. Fortun, 129 SCRA 675 (1984).23
Nevertheless, when property resold to a third-party buyer in good faith and for value, reconveyance
is no longer available. xCruz v. CA, 281 SCRA 491 (1997).
The in pari delicto doctrine would not apply to the spouses-parties under Art. 1490, since only the
heirs and the creditors can question the sale’s nullity. xModina v. CA, 317 SCRA 696 (1999).
4. Others Relatively Disqualified (Arts. 1491 and 1492)
Contracts entered into in violation of Arts. 1491 and 1492 are not merely voidable, but are null and
void. √Rubias v. Batiller, 51 SCRA 120 (1973).24
a. Guardians, Agents and Administrators
Hereditary rights are not included in the prohibition insofar as administrator or executor of the
estate of the deceased. xNaval v. Enriquez, 3 Phil. 669 (1904).
No more need to comply with xRodriquez v. Mactal, 60 Phil. 13 (1934) which required showing that
a third party bought as conduit/nominee of the buyer disqualified under Art. 1491; rather, the
presumption now is that such disqualified party obtained the property in violation of said article.
√Philippine Trust Co. v. Roldan, 99 Phil. 392 (1956).
Prohibition against agents does not apply if the principal consents to the sale of the property in the
hands of the agent. xDistajo v. CA, 339 SCRA 52 (2000).
b. Attorneys
(1) Prohibition against attorneys purchasing the properties of their clients in litigation applies:
6
•
Only while litigation is pending. xDirector of Lands v. Ababa, 88 SCRA 513 (1979);
•
Even though litigation is not adversarial in nature Rubias v. Batiller, 51 SCRA 120 (1973); or when it is
a certiorari proceeding that may has no merit xValencia v. Cabanting, 196 SCRA 302 (1991).
• Only to a lawyer of record, and does not cover assignment of the property given in judgment made by a
client to an attorney, who has not taken part in the case. Municipal Council of Iloilo v. Evangelista, 55
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Phil. 290 (1930);
• Not applicable to a lawyer who acquired property prior to the time he intervened as counsel in the suit
involving such property. Del Rosario v. Millado, 26 SCRA 700 (1969).
(2) Prohibition does not apply to:
(a) Sale of the land acquired by a client to satisfy a judgment to his attorney as long as the
property was not the subject of the litigation. xDaroy v. Abecia, 298 SCRA 172 (1998);
(b) Contingency fee arrangement granting the lawyer proprietary rights to the property in
litigation since the payment of said fee is not made during the pendency of litigation but only
after judgment has been rendered. [?] √Fabillo v. IAC, 195 SCRA 28 (1991).26
c. Judges
A judge should restrain himself from participating in the sale of properties—it is incumbent upon
him to advise the parties to discontinue the transaction if it is contrary to law. Britanico v. Espinosa,
486 SCRA 523 (2006).
A judge who buys property in litigation before his court after the judgment becomes final does not
violate Art. 1491, but he can be administratively disciplined for violation of the Code of Judicial Ethics.
xMacariola v. Asuncion, 114 SCRA 77 (1982).
Even when the main cause is a collection of a sum of money, the properties levied are still subject
to the prohibition. xGan Tingco v. Pabinguit, 35 Phil. 81 (1916).
III. SUBJECT MATTER OF SALE
“Transfer of title or an agreement to transfer it for a price paid or promised to be paid is the essence
of sale.” xCommissioner of Internal Revenue v. CA and AdeMU, 271 SCRA 605 (1997).
The Civil Code provisions defining sales is a “catch-all” provision which effectively brings within it
grasp a whole gamut of transfers whereby ownership of a thing is ceded for a consideration.
√Polytechnic University v. CA, 368 SCRA 691 (2001).
Where under an agreement, a party renounces and transfers whatever rights, interests, or claims
she has over a parcel of land in favor of another party in consideration of the latter’s payment of therein
loan, the agreement is essentially a sale, and the rule on delivery effected through a public instrument
apply. xCaoibes, Jr. v. Caoibes-Pantoja, 496 SCRA 273 (2006).
1. Subject Must at Perfection Be Existing, Future or Contingent (Arts. 1347, 1348, and 1462)
a. Emptio Rei Speratae (Arts. 1461 and 1347)
Pending crops which have potential existence may be valid object of sale. xSibal v. Valdez, 50 Phil.
512 (1927); and such transaction cannot be considered to effectively be sale of the land or any part
thereof. xPichel v. Alonzo, 111 SCRA 341 (1981).
b. Emptio Spei (Art. 1461)
c. Subject to Resolutory Condition (Art. 1465)
2. Must Be Licit (Arts. 1347, 1459 and 1575)
Under Art. 1347, a sale involving future inheritance is void and cannot be the source of any right
nor create any obligation. xTañedo v. CA, 252 SCRA 80 (1996).
Article 1347 does not cover waiver of hereditary rights which is not equivalent to sale, since waiver
is a mode of extinction of ownership in favor of the other persons who are co-heirs. xAcap v. CA, 251
SCRA 30 (1995).
Mortgagor can legally sell the mortgaged property--mortgage is merely an encumbrance that does
not affect his principal attribute as owner thereof. Law even considers void a stipulation forbidding
owner from alienating mortgaged immovable. xPineda v. CA, 409 SCRA 438 (2003).
3. Must Be Determinate or At Least “Determinable” (Art. 1460)
When deed of sale erroneously describes the lot adjacent to the land seen and eventually delivered
to the buyer, such vetted land is the one upon which the minds have met, and not that erroneously
described in the deed. Prudent people buy land on the basis of what they see, and not on what is
technically described in the Torrens title. √Atilano v. Atilano, 28 SCRA 231 (1969).27
a. Non-Specific Things (Generic) May Be the Object of Sale (Arts. 1246 and 1409[6])
7
Subject matter is determinable when from the formula or description adopted at perfection there is
a way by which the courts can delineate it independent of the will of the parties. √Melliza v. City of
Iloilo, 23 SCRA 477 (1968).
Where the lot sold is said to adjoin the “previously paid lot” on three sides thereof, the subject lot is
capable of being determined without the need of any new contract, even when the exact area of the
adjoining residential lot is subject to the result of a survey. xSan Andres v. Rodriguez, 332 SCRA 769
(2000).
As the above-quoted portion of the kasunduan shows [giving reference to the area, the locality
located, and vicinity with reference of old trees], there is no doubt that the object of the sale is
determinate. xCarabeo v. Dingco, 647 SCRA 200 (2011).
Determinable subject matter of sale are not subject to risk of loss until they are physically
segregated or particularly designated. √Yu Tek & Co. v. Gonzales, 29 Phil. 384 (1915).
b. Undivided Interest (Art. 1463) or Undivided Share in a Mass of Fungible Goods (Art. 1464) –
May result it co-ownership.
4. Quantity of Goods as Subject Matter Not Essential for Perfection [?] (Art. 1349)
Sale of grains is perfected even when the exact quantity or quality is not known, so long as the
source of the subject is certain. √NGA v. IAC, 171 SCRA 131 (1989).
Where seller quoted the items offered for sale, by item number, part number, description and unit
price, and buyer had sent in reply a purchase order without indicating the quantity being order, there
was already a perfected contract of sale, even when required letter of credit had not been opened by
the buyer. √Johannes Schuback & Sons Phil. Trading Corp. v. CA, 227 SCRA 719 (1993).
5. Seller’s Obligation to Transfer Title to Buyer (Art. 1459, 1462, and 1505)
a. Seller’s Ownership Need Not Exist at Perfection:
Sale of copra for future delivery does not make seller liable for estafa for failing to deliver because
the contract is still valid and the obligation was civil and not criminal. xEsguerra v. People, 108 Phil.
1078 (1960).
A perfected sale cannot be challenged on the ground of the seller’s non-ownership of the thing sold
at the time of the perfection; it is at delivery that the law requires the seller to have the ownership of
the thing sold. xAlcantara-Daus v. de Leon, 404 SCRA 74 (2003).28
It is essential that seller is owner of the property he is selling. The principal obligation of a seller is
“to transfer the ownership of” the property sold (Art. 1458). This law stems from the principle that
nobody can dispose of that which does not belong to him. NEMO DAT QUOD NON HABET. Noel v.
CA, 240 SCRA 78 (1995).
That the sellers are no longer owners of the goods at perfection does not appear to be one of the
void contracts enumerated in Art. 1409 of Civil Code; and Art. 1402 thereof recognizes a sale where
the goods are to be “acquired . . . by the seller after the perfection of the contract of sale,” clearly
implying that a sale is possible even if the seller was not the owner at the time of sale, provided he
acquires title to the property later on; nevertheless such contract may be deemed to be inoperative
and may thus fall, by analogy, under Art. 1409(5): “Those which contemplate an impossible service.”
Nool v. CA, 276 SCRA 149 (1997).
b. Subsequent Acquisition of Title by Non-Owner Seller (Art. 1434) – Title passes to the seller
by operation of law.
c. Acquisition by the Buyer May Even Depend on Contingency (Art. 1462)
X6 .
Illegality of Subject Matter (Arts. 1409, 1458, 1461, 1462, and 1575)
a. Special Laws: narcotics (R.A. 6425); wild bird or mammal (Act 2590, Sec. 7); rare wild plants (Act
3983); poisonous plants or fruits (R.A. 1288); dynamited fish (R.A 428); gunpowder and explosives
(Act 2255); firearms and ammunitions (P.D. 9); sale of realty by non-Christians (Sec. 145, Revised
Adm. Code, R.A. 4252)
b. Following Sales of Land Void:
•
By Non-Christian if not approved by Provincial Governor per Sec. 145 of Revised Administrative Code.
xTac-an v. CA, 129 SCRA 319 (1984).
•
Friar land without consent of Secretary of Agriculture required under Act No. 1120. xAlonso v. Cebu
Country Club, Inc., 375 SCRA 390 (2002); Liao v. CA, 323 SCRA 430 (2000).
•
Made in violation of land reform laws declaring tenant-tillers as the full owners of the lands they tilled.
xSiacor v. Gigantana, 380 SCRA 306 (2002).
•
Reclaimed lands are of the public domain and cannot, without congressional fiat, be sold, public or
private. Fisheries Dev. Authority v. CA, 534 SCRA 490 (2007).
•
Alien who purchases land in the name of his Filipina lover, has no standing to seek legal remedies to
8
IV. PRICE AND OTHER CONSIDERATION (Arts. 1469-1474)
“Price” signifies 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. Inchausti &
Co. v. Cromwell, 20 Phil. 345 (1911).
Seller cannot unilaterally increase the price previously agreed upon with the buyer, even when due
to increased construction costs. GSIS v. CA, 228 SCRA 183 (1993).
Buyer who opted to purchase the land on installment basis with imposed interest, cannot unilaterally
disavow the obligation created by the stipulation in the contract which sets the interest at 24% p.a. “The
rationale behind having to pay a higher sum on the installment is to compensate the vendor for waiting a
number of years before receiving the total amount due. The amount of the stated contract price paid in full
today is worth much more than a series of small payments totaling the same amount. x x x To assert that
mere prompt payment of the monthly installments should obviate imposition of the stipulated interest is to
ignore an economic fact and negate one of the most important principles on which commerce operates.”
Bortikey v. AFP RSBS, 477 SCRA 511 (2005).
1. Price Must Be Real (Art. 1471)
a. When Price “Simulated”
(1) √Mapalo v. Mapalo, 17 SCRA 114 (1966), versus: When two aged ladies, not versed in
English, sign a Deed of Sale on representation by buyer that it was merely to evidence their
lending of money, the situation constitutes more than just fraud and vitiation of consent to give
rise to a voidable contract, since there was in fact no intention to enter into a sale, there was no
consent at all, and more importantly, there was no consideration or price agreed upon, which
makes the contract void ab initio. √Rongavilla v. CA, 294 SCRA 289 (1998).
(2) √Mate v. CA, 290 SCRA 463 (1998), versus: When Deed of Sale was executed to facilitate
transfer of property to buyer to enable him to construct a commercial building and to sell the
property to the children, such arrangement being merely a subterfuge on the part of buyer, the
agreement cannot also be taken as a consideration and sale is void. √Yu Bun Guan v. Ong,
367 SCRA 559 (2001).
(3) Effects When Price Simulated – The principle of in pari delicto nonoritur action, which denies
all recovery to the guilty parties inter se, where the price is simulated; the doctrine applies only
where the nullity arises from the illegality of the consideration or the purpose of the contract.
Modina v. CA, 317 SCRA 696 (1999).29
b. When Price is “False” (Arts. 1353 and 1354)
When the parties intended to be bound but the deed did not reflect the actual price agreed upon,
there is only a relative simulation of the contract which remains valid and enforceable, but subject to
reformation. xMacapgal v. Remorin, 458 SCRA 652 (2005).
When price indicated in deed of absolute sale is undervalued consideration pursuant to intention to
avoid payment of higher capital gains taxes, the price stated is false, but the sale is still valid and
binding on the real terms. xHeirs of Spouses Balite v. Lim, 446 SCRA 54 (2004).
c. Non-Payment of Price
Sale being consensual, failure of buyer to pay the price does not make the contract void for lack of
consideration or simulation, but results in buyer’s default, for which the seller may exercise his legal
remedies. xBalatbat v. CA, 261 SCRA 128 (1996).30
“In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the
transaction that, for a time, existed and discharges the obligations created thereunder. [?] The remedy
of an unpaid seller in a contract of sale is to seek either specific performance or rescission.” xHeirs of
Pedro Escanlar v. CA, 281 SCRA 176 (1997).31
Badge That Price Is Simulated, Not Just Unpaid: It is a badge of simulated price, which render
the sale void, when the price, which is stipulated thereon to have been paid, has in fact never been
paid by the purchaser to the seller. xVda. de Catindig. v. Heirs of Catalina Roque, 74 SCRA 83
(1976).32
2. Must Be in Money or Its Equivalent (Arts. 1458 and 1468)
Price must be “valuable consideration” as mandated by Civil Law, instead of “any price” mandated
in common law. √Ong v. Ong, 139 SCRA 133 (1985); √Bagnas v. CA, 176 SCRA 159 (1989);
√Republic v. Phil. Resources Dev., 102 Phil. 960 (1958).
29
Yu Bun Guan v. Ong, , 367 SCRA 559 (2001); Gonzales v. Trinidad, 67 Phil. 682 (1939)
Peñalosa v. Santos, 363 SCRA 545 (2001); Soliva v. The Intestate Estate of Marcelo M. Villalba, 417 SCRA 277 (2003);
Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
30
9
Consideration for sale can take different forms, such as the prestation or promise of a thing or
service by another, thus:
•
When deed provides that the consideration was the expected profits from the subdivision project. xTorres
v. CA, 320 SCRA 428 (1999).
•
Cancellation of liabilities on the property in favor of the seller. xPolytechnic University v. CA, 368 SCRA
691 (2001).
•
Assumption of mortgage constituted on the property sold. xDoles v. Angeles, 492 SCRA 607 (2006).
33
3. Must Be Certain or Ascertainable at Perfection (Art. 1469)
a. How Price Determined to Be Ascertainable
(i) Set by Third Person Appointed at Perfection (Art. 1469)
(ii) Set by the Courts (Art. 1469)
(iii) By Reference to a Definite Day, Particular Exchange or Market (Art. 1472)
(iv) By Reference to Another Thing Certain, such as to invoices then in existence and clearly
identified by the agreement xMcCullough v. Aenlle, 3 Phil. 285 (1904); or known factors or
stipulated formula. xMitsui v. Manila, 39 Phil. 624 (1919).
Price is ascertainable if the terms of the contract furnishes the courts a basis or measure for
determining the amount agreed upon, without having to refer back to either or both parties.
xVillanueva v. CA, 267 SCRA 89 (1997).34
Where the sale involves an asset under a privatization scheme which attaches a peculiar meaning
or signification to the term “indicative price” as merely constituting a ball-park figure, then the price is
not certain. xMoreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).
Consideration is generally agreed upon as whole even if it consists of several parts, and even if it is
contained in one or more instruments; otherwise there would be no price certain, and the contract of
sale not perfected. xArimas v. Arimas, 55 O.G. 8682.
b. Price Never Set By One or Both Parties (Arts. 1473, 1182), unless the price is separately
accepted by the other party.
c. Effects of Un-Ascertainability Price: Sale Is Inefficacious.
BUT: If Buyer Appropriates the Object, He Must Pay Reasonable Price (Art. 1474)
There can be no concept of “appropriation” when it comes to land? – Where a church
organization has been allowed possession and introduce improvements on the land as part of its
application to purchase with the NHA, and thereafter it refused the formal resolution of the NHA Board
setting the price and insisted on paying the lower price allegedly given by the NHA Field Office, there
can be no binding contract of sale upon which an action for specific performance can prosper, not
even on fixing the price equal to the fair market value of the property. xNHA v. Grace Baptist Church,
424 SCRA 147 (2004).
Even when there was no meeting on the minds of the price, this Court rules that to deny
petitioner’s claim would unjustly enrich respondent who had benefited from the repairs of their
four elevators. xHyatt Elevators and Escalators Corp. v. Cathedral Heights Building Complex
Assn., 636 SCRA 401 (2010).
4. Manner of Payment of Price ESSENTIAL (Art. 1179)
A definite agreement on the manner of payment of price is an essential element in the formation of
a binding and enforceable contract sale; without it the sale is void and an action for specific
performance must fail. √Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007).35
When the manner of payment of the price is discussed after “acceptance,” then such “acceptance”
did not produce a binding and enforceable contract of sale. xNavarro v. Sugar Producer's Corp., 1
SCRA 1180 (1961).
Where there is no other basis for the payment of the subsequent amortizations in a Deed of
Conditional Sale, the reasonable conclusion one can reach is that the subsequent payments shall be
made in the same amount as the first payment. [?] xDBP v. CA, 344 SCRA 492 (2000).
5. Inadequacy of Price Does Not Affect Ordinary Sale (Arts. 1355 and 1470)
Mere inadequacy of the price does not affect the validity of the sale when both parties are in a
position to form an independent judgment concerning the transaction, unless fraud, mistake, or undue
33
The deed of sale with assumption of mortgage is a registrable instrument and must be registered with the Register of Deeds in
order to bind third parties. Rodriguez v. CA, 495 SCRA 490 (2006).
34
Boston Bank of the Philippines v. Manalo, 482 SCRA 108 (2006).
10
influence indicative of a defect in consent is present. The contract may be annulled for vitiated consent
and not due to the inadequacy of price. xBautista v. CA, 436 SCRA 141 (2004).36
Absent any evidence of the fair market value of a land as of the time of sale, it cannot be concluded
that the price was inadequate. xAcabal v. Acabal, 454 SCRA 897 (2005).37
a. Gross Inadequacy of Price May Avoid Judicial Sale:
(i) Only when it is shocking to the conscience of man. xPascua v. Simeon, 161 SCRA 1 (1988);
and
(ii) There is showing that, in the event of a resale, a better price can be obtained. xCu Bie v. CA,
15 SCRA 307 (1965).38
UNLESS: There is right of redemption, in which case the proper remedy is to redeem. xDe Leon v.
Salvador, 36 SCRA 567 (1970).39
BUT: By way of extraordinary circumstances perceived, when in a judicial sale the right of
redemption has been lost, where the inadequacy of the price is purely shocking to the
conscience, such that the mind revolts at it and such that a reasonable man would neither
directly or indirectly be likely to consent to it, the same will be se aside. xCometa v. CA, 351
SCRA 294 (2001).
Gross inadequacy of price by itself will not result in a void contract; it does not even affect the
validity of a contract of sale; unless it signifies a defect in the consent (i.e., there has been fraud,
mistake or undue influence) or that the parties actually intended a donation or some other contract.
Bacungan v. CA, 574 SCRA 642 (2008).
There is “gross inadequacy in price” if it is such that a reasonable man will not agree to dispose of
his property. xDorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).
When judicial sale is voided without fault of purchaser, the latter is entitled return of price with
simple interest, together with all sums paid out by him in improvements introduced on the property,
taxes, and other expenses. xSeven Brothers Shipping Corp. v. CA, 246 SCRA 33 (1995).
b. more than 1/4 of value of thing makes sale rescissible unless approved by court (Art. 1381
in rel to Art. 1386)
c. Gross inadequacy of price may raise the presumption of equitable mortgage (Art. 1602)
V. FORMATION OF CONTRACT OF SALE
A. POLICITACION STAGE (Art. 1479)
Policitation stage covers the doctrine of “freedom to contract” which signifies the right to choose with
whom to contract. A property owner is free to offer his property for sale to any interested person, and is
not duty bound to sell the same to the occupant thereof, absent any prior agreement vesting the
occupants the right of first priority to buy. Gabelo v. CA, 316 SCRA 386 (1999).
A negotiation is formally initiated by an offer, which, however, must be certain. At any time prior to
the perfection of the contract, either negotiating party may stop the negotiation. At this stage, the offer
may be withdrawn; the withdrawal is effective immediately after its manifestation. To convert the offer into
a contract, the acceptance must be absolute and must not qualify the terms of the offer; it must be plain,
unequivocal, unconditional and without variance of any sort from the proposal. √Manila Metal Container
Corp. v. PNB, 511 SCRA 444 (2006).40
An unaccepted unilateral promise (offer to buy or to sell) prior to acceptance, does not give rise to
any obligation or right. xRaroque v. Marquez, 37 O.G. 1911.
Where the offer is given with a stated time for its acceptance, the offer is terminated at the expiration
of that time. xVillegas v. CA, 499 SCRA 276 (2006).
The Letter of Intent to Buy and Sell is just that—a manifestation of offeror’s intention to sell the
property and offeree’s intention to acquire the same—which is neither a contract to sell nor a conditional
contract of sale. xMuslim and Christian Urban Poor Assn, Inc. v. BRYC-V Dev’t Corp., 594 SCRA 724
(2009).
When the offeree negotiates for a much lower price, it constitutes a counter-offer and is therefor
not an acceptance of the offer of offeror. xTuazon v. Del Rosario-Suarez, 637 SCRA 728 (2010).
1. OPTION CONTRACT
An option is a preparatory contract in which one party grants to the other, for a fixed period and
under specified conditions, the power to decide, whether or not to enter into a principal contract. It
binds the party who has given the option, not to enter into the principal contract with any other person
11
during the period designated, and, within that period, to enter into such contract with the one to whom
the option was granted, if the latter should decide to use the option. It is a separate agreement distinct
from the contract of sale which the parties may enter into upon the consummation of the option.
√Carceller v. CA, 302 SCRA 718 (1999).41
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, 426 SCRA
282 (2004).42
Tenants, not being the registered owners, cannot grant an option on the land, much less any
“exclusive right” to buy the property under the Latin saying “nem dat quod non habet.” xTayag v.
Lacson, 426 SCRA 282 (2004).
a. Meaning of “Separate Consideration” (Arts. 1479 and 1324)
A unilateral promise to sell, in order to be binding upon the promissor, must be for a price certain
and supported by a consideration separate from such price. xSalame v. CA, 239 SCRA 356 (1995).43
The “separate consideration” in an option may be anything of value, unlike in sale where it must be
the price certain in money or its equivalent. √Villamor v. CA, 202 SCRA 607 (1991),44 such when the
option is attached to a real estate mortgage xSoriano v. Bautista, 6 SCRA 946 (1962).
Although no consideration is expressly mentioned in an option contract, it is presumed that it exists
and may be proved, and once proven, the option is binding. xMontinola v. Cojuangco, 78 Phil. 481
(1947).
b. No Separate Consideration: Void as Option, Valid as a Certain Offer
√Sanchez v. Rigos, 45 SCRA 368 (1972).45
BUT LATELY: xYao Ka Sin Trading v. CA, 209 SCRA 763 (1991); xMontilla v. CA, 161 SCRA
855 (1988); xNatino v. IAC, 197 SCRA 323 (1991); and xDiamante v. CA, 206
SCRA 52 (1992).
If the option is without any consideration, the offeror may withdraw his offer by communicating
such withdrawal to the offeree at any time before acceptance. If it is founded upon a
consideration, the offeror cannot withdraw his offer before the lapse of the period agreed upon.
Tuazon v. Del Rosario-Suarez, 637 SCRA 728 (2010).
c. There Must Be Acceptance of Option Offer. √Vazquez v. CA, 199 SCRA 102 (1991).
d. Proper Exercise of Option Contract. √Nietes v. CA, 46 SCRA 654 (1972).
An option attached to a lease when not exercised within the option period is extinguished and
cannot be deemed to have been included in the implied renewal (tacita reconduccion) of the lease.
xDizon v. CA, 302 SCRA 288 (1999).
Proper exercise of an option gives rise to the reciprocal obligations of sale xHeirs of Luis Bacus v.
CA, 371 SCRA 295 (2001),46 which must be enforced with ten (10) years as provided under Art. 1144.
xDizon v. CA, 302 SCRA 288 (1999).
There must be “virtual” exercise of option with the option period. √Carceller v. Court of Appeals,
302 SCRA 718 (1999).
2. RIGHT OF FIRST REFUSAL
A right of first refusal cannot be the subject of specific performance, but breach would allow a
recovery of damages. xGuerrero v. Yñigo, 96 Phil. 37 (1954).
Rights of first refusal only constitute “innovative juridical relations”, but do not rise to the level of
contractual commitment since with the absence of agreement on price certain, they are not subject to
contractual enforcement. √Ang Yu Asuncion v. CA, 238 SCRA 602 (1994).
Right of first refusal contained in a lease, when breached by promissor allows enforcement by the
promisee by way of rescission of the sale entered into with the third party, pursuant to Arts. 1381(3)
and 1385 of Civil Code. xGuzman, Bocaling & Co. v. Bonnevie, 206 SCRA 668 (1992); √Equatorial
Realty Dev., Inc. v. Mayfair Theater, Inc., 264 SCRA 483 (1996);47 √Paranaque Kings Enterprises,
Inc. v. CA, 268 SCRA 727, 741 (1997).
In a right of first refusal, while the object might be made determinate, the exercise of the right would
be dependent not only on the grantor’s eventual intention to enter into a binding juridical relation with
41
Laforteza v. Machuca, 333 SCRA 643 (2000); Buot v. CA, 357 SCRA 846 (2001); Abalos v. Macatangay, Jr., 439 SCRA 649
(2004); Vasquez v. Ayala Corp., 443 SCRA 231 (2004); Eulogio v. Apeles, 576 SCRA 561 (2009); Polytechnic University of the
Philippines v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).
42
Adelfa Properties, Inc. v. CA, 240 SCRA 565 (1995); Kilosbayan, Inc. v. Morato, 246 SCRA 540 (1995); San Miguel Properties
Philippines, Inc. v. Huang, 336 SCRA 737 (2000); Limson v. CA, 357 SCRA 209 (2001).
43
JMA House, Inc. v. Sta. Monica Industrial and Dev. Corp., 500 SCRA 526 (2006).
44
De la Cavada v. Diaz, 37 Phil. 982 (1918); San Miguel Properties Philippines, Inc. v. Huang, 336 SCRA 737 (2000)
45
Affirming Atkins, Kroll & Co., Inc. v. Cua, 102 Phil. 948 (1958); Overturning Southwestern Sugar Molasses Co. v. Atlantic Gulf
& Pacific Co., 97 Phil. 249 (1955).
12
another but also on terms, including the price, that are yet to be firmed up. . . the “offer” may be
withdrawn anytime by communicating the withdrawal to the other party. √Vasquez v. Ayala Corp.,
443 SCRA 231 (2004).
A right of first refusal clause simply means that should the lessor decide to sell the leased property
during the term of the lease, such sale should first be offered to the lessee; and the series of
negotiations that transpire between the lessor and the lessee on the basis of such preference is
deemed a compliance of such clause even when no final purchase agreement is perfected between
the parties. The lessor was then at liberty to offer the sale to a third party who paid a higher price, and
there is no violation of the right of the lessee. √Riviera Filipina, Inv. v. CA, 380 SCRA 245 (2002).48
When a lease contract contains a right of first refusal, the lessor has the legal duty to the lessee not
to sell the leased property to anyone at any price until after the lessor made an offer to sell the
property to the lessee and the lessee has failed to accept it. Only after the lessee has failed to
exercise his right of first priority could the lessor sell the property to other buyers under the same
terms and conditions offered to the lessee, or under terms and conditions more favorable to the lessor.
Polytechnic University of the Philippines v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).
A right of first refusal 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. As distinguished from an option contract, in a
right of first refusal, whole the object might be made determinate, the exercise of the right of first
refusal would be dependent not only on the owner’s eventual intention to enter into a binding juridical
relation with another but also on terms, including the price, that are yet to be firmed up. Polytechnic
University of the Philippines v. Golden Horizon Realty Corp., 615 SCRA 478 (2010).
The right of first refusal applies only to a case where the owner of the property intends to sell it to a
third party. If the owner of the leased premises do not intend to sell the property in question but seeks
to eject the tenant on the ground that the former needs the premises for residential purposes, the
tenant cannot invoke the land reform law. Estanislao v. Gudito, 693 SCRA 330 (2013).
A right of first refusal in a lease in favor of the lessee cannot be availed of by the sublessee.
xSadhwani v. CA, 281 SCRA 75 (1997).
3. MUTUAL PROMISES TO BUY AND SELL (Art. 1479): “TRUE CONTRACT TO SELL”
Mutual promises to buy and sell a certain thing for a certain price gives each of the contracting
parties a right to demand from the other the fulfillment of the obligation. xBorromeo v. Franco, 5 Phil.
49 (1905).
Even in this case the certainty of the price must also exist, otherwise, there is no valid and
enforceable contract to sell. xTan Tiah v. Yu Jose, 67 Phil. 739 (1939).
An accepted bilateral promise to buy and sell is in a sense similar to, but not exactly the same, as a
perfected contract of sale because there is already a meeting of minds upon the thing which is the
object of the contract and upon the price.49 But a contract of sale is consummated only upon delivery
and payment, whereas in a bilateral promise to buy and sell gives the contracting parties rights in
personam, such that each has the right to demand from the other the fulfillment of their respective
undertakings. √Macion v. Guiani, 225 SCRA 102 (1993).50
The cause of action under a mutual promise to buy and sell is 10 years. xVillamor v. CA, 202
SCRA 607 (1991).
B. PERFECTION STAGE (Arts. 1475, 1319, 1325 and 1326)
Sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price. From that moment, the parties may reciprocally demand performance
subject to the law governing the form of contracts. xMarnelego v. Banco Filipino Savings and Mortgage
Bank, 480 SCRA 399 (2006).51
Mutual consent being a state of mind, its existence may only be inferred from the confluence of two
acts of the parties: an offer certain as to the object of the contract and its consideration, and an
acceptance of the offer which is absolute in that it refers to the exact object and consideration embodied
in said offer. xVillanueva v. PNB, 510 SCRA 275 (2006).52
If a material element of a contemplated contract is left for future negotiations, the same is too
indefinite to be enforceable. For a contract to be enforceable, its terms must be certain and explicit, not
vague or indefinite. xBoston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).
So long as there is any uncertainty or indefiniteness, or future negotiations or consideration yet to be
had between the parties, there is no contract at all. xMoreno, Jr. v. Private Management Office, 507
SCRA 63 (2006).
The essence of consent is the conformity of the parties on the terms of the contract, that is, the
acceptance by one of the offer made by the other. However, the acceptance must be absolute; otherwise,
the same constitutes a counter-offer and has the effect of rejecting the offer. XYST Corp. v. DMC Urban
Properties Dev., Inc., 594 SCRA 598 (2009).
48
Polytechnic University v. CA, 368 SCRA 691 (2001); Villegas v. CA, 499 SCRA 276 (2006).
13
1. Absolute Acceptance of a Certain Offer (Art. 1475)
Under Article 1319, the acceptance of an offer must therefore be unqualified and absolute. In other
words, it must be identical in all respects with that of the offer so as to produce consent or meeting of
the minds. This was not the case herein considering that petitioner’s acceptance of the offer was
qualified, which amounts to a rejection of the original offer. Limketkai Sons Milling, Inc. v. CA, 255
SCRA 626 (1996).
A qualified acceptance or one that involves a new proposal constitutes a counter-offer and a
rejection of the original offer. The acceptance must be identical in all respects with that of the offer so
as to produce consent or meeting of minds. √Manila Metal Container Corp. v. PNB, 511 SCRA 444
(2006).53
Placing the word “Noted” and signing such note at the bottom of the written offer cannot be
considered an acceptance that would give rise to a valid contract of sale. xDBP v. Ong, 460 SCRA 170
(2005).
If sale subject to suspensive condition: No perfected sale of a lot where the award thereof was
expressly made subject to approval by the higher authorities and there eventually was no acceptance
manifested by the supposed awardee. xPeople's Homesite & Housing Corp. v. CA, 133 SCRA 777
(1984).
2. When “Deviation” Allowed:
It is true that an acceptance may contain a request for certain changes in the terms of the offer and
yet be a binding acceptance, so long as it is clear that the meaning of the acceptance is positively and
unequivocally to accept the offer, whether such request is granted or not, a contract is formed. The
vendor’s change in a phrase of the offer to purchase, which change does not essentially change the
terms of the offer, does not amount to a rejection of the offer and the tender or a counter-offer.
√Villonco v. Bormaheco, 65 SCRA 352 (1975).54
3. Sale by Auction (Arts. 1476, 1403(2)(d), 1326)
The terms and conditions provided by the owner of property to be sold at auction are binding upon
all bidders, whether they knew of such conditions or not. xLeoquinco v. Postal Savings Bank, 47 Phil.
772 (1925).
An auction sale is perfected by the fall of the hammer or in other customary manner and it does not
matter that another was allowed to match the bid of the highest bidder. xProvince of Cebu v. Heirs of
Rufina Morales, 546 SCRA 315 (2008).
4. Earnest Money (Art. 1482)
Earnest money given by the buyer shall be considered as part of the price and as proof of the
perfection of the contract. It constitutes an advance payment to be deducted from the total price.
xEscueta v. Lim, 512 SCRA 411 (2007).
Absent proof of the concurrence of all the essential elements of a contract of sale, the giving of
earnest money cannot establish the existence of a perfected contract of sale. √Manila Metal
Container Corp. v. PNB, 511 SCRA 444 (2006). 55
Article 1482 does not apply when earnest money given in a contract to sell xSerrano v. Caguiat,
517 SCRA 57 (2007), especially where by stipulation the buyer has the right to walk away from the
transaction, with no obligation to pay the balance, although he will forfeit the earnest money. xChua v.
CA, 401 SCRA 54 (2003).56
Whenever earnest money is given in a contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract. But when there is no contract of sale because the parties
never went pass the negotiation stage, or more accurately, have not reached the perfection stage with
the present of the three essential elements of the contract of sale, the concept of earnest money is
certainly inapplicable. The earnest money forms part of the consideration only if the sale is
consummated upon full payment of the purchase price. Hence, there must first be a perfected contract
of sale before we can speak of earnest money. xGSIS v. Lopez, 592 SCRA 456 (2009).57
When there is no provision for forfeiture of earnest money in the event the sale fails to materialize,
then with the rescission it becomes incumbent upon seller to return the earnest money as legal
consequence of mutual restitution. xGoldenrod, Inc. v. CA, 299 SCRA 141 (1998).
Varying Treatment of Earnest Money: Where the parties merely exchanged offers and
counter-offers, there being no perfection of a contract of sale yet, the money given as deposit
cannot be considered earnest money since such term applies only to a perfected sale. Starbright
Sales Enterprises, Inc. v. Philippines Realty Corp., 663 SCRA 326 (2012).
53
Beaumont v. Prieto, 41 Phil. 670 (1916); Zayco v. Serra, 44 Phil. 326 (1923); Tuazon v. Del Rosario-Suarez, 637 SCRA 728
(2010).
54
Reiterated in Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995), but reversed in 255 SCRA
14
5. Difference Between Earnest Money and Option Money. √Oesmer v. Paraiso Dev. Corp., 514
SCRA 228 (2007).
6. Sale Deemed Perfected Where Offer Was Made. (Art. 1319)
C. FORMAL REQUIREMENTS FOR CONTRACT SALES (Arts. 1357, 1358 (1), 1406 and 1483)
1. Form Not Important for Validity of Sale
Sale of land under private instrument is valid and enforceable. xGallar v. Husain, 20 SCRA 186
(1967).58
Articles 1357 and 1358, in relation to Art. 1403(2), do not require that the conveyance of land to be
in a public instrument in order to validate the act or contract, but only to insure its efficacy. The Estate
of Pedro C. Gonzales v. Heirs of Marcos Perez, 605 SCRA 47 (2009).59
The legal consequence of the sale not being in a public instrument is that both its due execution
and its authenticity must be proven, pursuant to Sec. 20, Rule 132 of the Rules of Court. xTigno v.
Aquino, 444 SCRA 61 (2003).
a. Other Rulings on Deeds of Sale:

Seller may validly agree to a deed of absolute sale before full payment of the purchase price. xPan Pacific
Industrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006).

Failure of the buyers failed to pay the full price stated in the Deed of Sale would not render the sale void.
Bravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

That marital consent executed prior to the Deed of Absolute Sale does not indicate that it is a phoney. Pan
Pacific Industrial Sales Co., Inc. v. CA, 482 SCRA 164 (2006).

A notarized Deed of Sale enjoys the presumption of regularity and due execution; to overthrow that
presumption, sufficient, clear and convincing evidence is required, otherwise the document should be
60
upheld. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).

Notarization of Deeds of Sale by one who was not a notary public does not affect the validity thereof; the
documents merely remained private documents. xR.F. Navarro & Co. Inc. v. Vailoces, 361 SCRA 139
(2001).

Notarization does not guarantee a Deed of Sales’ validity nor the veracity of its contents, for it is not the
function of the notary public to validate an instrument that was never intended by the parties to have any
61
binding legal effect. xSalonga v. Concepcion, 470 SCRA 291 (2005).

Buyer’s immediate taking of possession of subject property corroborates the truthfulness and authenticity
of the deed of sale. xAlcos v. IAC, 162 SCRA 823 (1988); conversely, the seller’s continued possession of
the property makes dubious the contract of sale between them. xSantos v. Santos, 366 SCRA 395
62
(2001).

Any substantial difference between the terms of the Contract to Sell and the concomitant Deed of Absolute
Sale (such as difference in subject matter, and difference in price and/or the terms thereof), does not make
the transaction between the seller and the buyer void, for it is truism that the execution of the Deed of
Absolute Sale effectively rendered the previous Contract to Sell ineffective and cancelled [through the
process of novation]. xLumbres v. Talbrad, Jr., 516 SCRA 575 (2007).
b. Value of Business Forms to Prove Sale
Business forms, e.g., order slip, delivery charge invoice and the like, which are issued in the
ordinary course of the business are not always fully accomplished to contain all the necessary
information describing in detail the whole business transaction . . . despite their being often
incomplete, they are commonly recognized in ordinary commercial transactions as valid between the
parties and serve as an acknowledgment that a business transaction has in fact transpired. xDonato
63
C. Cruz Trading Corp. v. CA, 347 SCRA 13 (2000).
2. WHEN FORM IMPORTANT IN SALE
a. To Bind Third Parties
Article 1358 which requires the embodiment of certain contracts in a public instrument is only for
convenience, and registration of the instrument only adversely affects third parties. Formal
requirements are, therefore, for the benefit of third parties; and non-compliance therewith does not
adversely affect the validity of the contract nor the contractual rights and obligations of the parties
thereunder. √Dalion v. CA, 182 SCRA 872 (1990).64
58
F. Irureta Goyena v. Tambunting, 1 Phil. 490 (1902).
Martinez v. CA, 358 SCRA 38 (2001); Heirs of Biona v. CA, 362 SCRA 29 (2001); The Estate of Pedro C. Gonzales v. The Heirs
of Marcos Perez, 605 SCRA 47 (2009).
60
Yason v. Arciaga, 449 SCRA 458 (2005); Union Bank v. Ong, 491 SCRA 581 (2006); Tapuroc v. Loquellano Vda. De Mende,
512 SCRA 97 (2007); Alfaro v. CA, 519 SCRA 270 (2007); Santos v. Lumbao, 519 SCRA 408 (2007); Pedrano v. Heirs of Benedicto
Pedrano, 539 SCRA 401 (2007); Olivares v. Sarmiento, 554 SCRA 384 (2008).
61
Nazareno v. CA, 343 SCRA 637 (2000); Santos v. Heirs of Jose P. Mariano, 344 SCRA 284 (2000)
59
15
While sale of land appearing in a private deed is binding between the parties, it cannot be
considered binding on third persons, if it is not embodied in a public instrument and recorded in the
Registry of Deeds. √Secuya v. Vda. De Selma, 326 SCRA 244 (2000).65
b. For Enforceability Between the Parties: STATUTE OF FRAUDS (Arts. 1403 and 1405)
The term “Statute of Frauds” is descriptive of the statutes which require certain enumerated
contracts and transactions, such as agreements for the sale of real property, to be in writing and
signed by the party to be charged, the purpose being to prevent fraud and perjury in the enforcement
of obligations depending for their evidence on the unassisted memory of witnesses. xShoemaker v. La
Tondeña, 68 Phil. 24 (1939).
Presupposes Valid Contract of Sale: The application of the Statute of Frauds presupposes the
existence of a perfected contract; otherwise, there is no basis for the application of the Statute. xFirme
v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).66
(1) Coverage:
(i) Sale of Real Property – A sale of realty cannot be proven by means of witnesses, but must necessarily
be evidenced by a written instrument, duly subscribed by the party charged, or by secondary evidence
67
of the contents of such document. xGorospe v. Ilayat, 29 Phil. 21 (1914).
(ii) Agency to Sell or to Buy – As contrasted from sale, an agency to sell does not belong to any of the
three categories of contracts covered by Arts. 1357 and 1358 and not one enumerated under the
68
Statutes of Frauds in Art. 1403. xLim v. CA, 254 SCRA 170 (1996).
(iii) Rights of First Refusal – A “right of first refusal” is not covered; besides, Art. 1403(2)(e) presupposes
the existence of a perfected, albeit unwritten, contract of sale; a right of first refusal, is not by any
means a perfected sale. xRosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001).
(iv) Right to Repurchase – The deed and the verbal agreement allowing the right of repurchase should
be considered as an integral whole; the deed of sale is itself the note or memorandum evidencing the
contract. xMactan Cebu Int’ll Airport Authority v. CA, 263 SCRA 736 (1996).
(v) Equitable Mortgage – Statute does not stand in the way of treating an absolute deed as a mortgage,
when such was the parties’ intention, although the agreement for redemption or defeasance is proved
69
by parol evidence. xCuyugan v. Santos, 34 Phil. 100 (1916).
(2) Memorandum
For the memorandum to take the sale out of the coverage of the Statute of Frauds, it must
contain “all the essential terms of the contract” of sale. √Yuviengco v. Dacuycuy, 104 SCRA 668
(1981);70 even when scattered into various correspondences which can be brought together xCity
of Cebu v. Heirs of Candido Rubi, 306 SCRA 408 (1999).71
EXCEPTION: Electronic Documents under the E-COMMERCE ACT (R.A. 8792)
(3) Waiver – (Art. 1405)
Cross-examination on the contract is deemed a waiver of the defense of the Statute. xAbrenica
v. Gonda, 34 Phil. 739 (1916).72
(4) Partial Execution (Art. 1405; √Ortega v. Leonardo, 103 Phil. 870 [1958]; √Claudel v. CA,
199 SCRA 113 [1991]).
Delivery of the deed to buyer’s agent, with no intention to part with the title until the purchase
price is paid, does not take the case out of the Statute of Frauds. xBaretto v. Manila Railroad Co.,
46 Phil. 964 (1924).
The Statute of Frauds does not apply to contracts either partially or totally performed. In
addition, a contract that violates the Statute of Frauds is ratified by the acceptance of benefits
under the contract, such as the acceptance of the purchase price and using the proceeds to pay
outstanding loans. √Alfredo v. Borras, 404 SCRA 145 (2003).73
Since a contract of sale is perfected by mere consent, then when the dealer of motor vehicles
accepts a deposit of P50,0000 and pulls out a unit from the assembler for that purpose, it was in
breach of contract when it sold the car subsequently to another buyer. Xentrex Automotive, Inc. v.
CA, 291 SCRA 66 (1998).
A sales invoice is a commercial document (i.e., those used by merchants or businessmen to
promote or facilitate trade or credit transactions) which is not a mere scrap of paper bereft of
probative value, but vital piece of evidence of commercial transactions, written memorials of the
65
Limketkai Sons Milling, Inc. v. CA, 255 SCRA 6 (1996); 261 SCRA 464 (1996); Talusan v. Tayag, 356 SCRA 263 (2001); Santos
v. Manalili, 476 SCRA 679 (2005).
66
Rosencor Dev’t Corp. v. Inquing, 354 SCRA 119 (2001).
67
Alba Vda. De Ray v. CA, 314 SCRA 36 (1999).
68
Torcuator v. Bernabe, 459 SCRA 439 (2005).
69
Rosales v. Suba, 408 SCRA 664 (2003); Ayson, Jr. v. Paragas, 557 SCRA 50 (2008).
70
Paredes v. Espino, 22 SCRA 1000 (1968); Torcuator v. Bernabe, 459 SCRA 439 (2005).
71
Berg v. Magdalena Estate, Inc., 92 Phil. 110 (1952); Limketkai Sons Milling, Inc. v. CA, 250 SCRA 523 (1995); First Philippine
Int’l Bank v. CA, 252 SCRA 259 (1996).
16
details of the consummation of contracts. xSeaoil Petroleum Corp. v. Autocorp Group, 569 SCRA
387 (2008); it constitutes evidence of the receipt of the goods; since the best evidence to prove
payment is the official receipt. xEl Oro Engravers Corp. v. CA, 546 SCRA 42 (2008).
In itself, the absence of receipts, or any proof of consideration, would not be conclusive of the
inexistence of a sale since consideration is always presumed. xTigno v. Aquino, 444 SCRA 61
(2003); but a receipt proves payment which takes the sale out of the Statute of Frauds. √Toyota
Shaw, Inc. v. CA, 244 SCRA 320 (1995).
CONTRA: A receipt which is merely an acknowledgment of the sum received, without any
indication therein of the total purchase price of the land or of the monthly installments to be paid,
cannot be the basis of valid sale. xLeabres v. CA, 146 SCRA 158 (1986).74
c. For Validity: Sale of Realty Through Agent, Authority Must Be in Writing (Art. 1874)
When sale of a piece of land or any interest therein is through an agent, the authority of the latter
shall be in writing; otherwise, the sale shall be void,75 even when:
•
Agent is the son of the owner. xDelos Reyes v. CA, 313 SCRA 632 (1999).
•
There is partial payment of the price received by the supposed agent. xDizon v. CA, 396 SCRA 154
76
(2003).
• In the case of a corporate owner of realty. xCity-Lite Realty Corp. v. CA, 325 SCRA 385 (2000).77
When Contract to Sell was signed by the co-owners themselves as witnesses, the written authority
for their agent mandated under Article 1874 of the Civil Code is no longer required. xOesmer v.
Paraiso Dev. Corp., 514 SCRA 228, 237 (2007).
Art. 1874 should be interpreted to mean that the sale is unenforceable to the principal, who may
78
otherwise ratify it. Pahud v. Court of Appeals, 597 SCRA13 (2009).
d. Sale of Large Cattle (Art. 1581; Sec. 529, Revised Adm. Code)
XD.
SIMULATED SALES
Characteristic of simulation is that the apparent contract is not really desired or intended to produce
legal effect or in any way alter the parties’ juridical situation, or that the parties have no intention to be
bound by the contract. The requisites are: (a) an outward declaration of will different from the will of the
parties; (b) false appearance must have been intended by mutual agreement; and (c) purpose is to
deceive third persons. xManila Banking Corp. v. Silverio, 466 SCRA 438 (2005).79
1. Badges and Non-badges of Simulation:
•
Non-payment of the stipulated consideration, absence of any attempt by the buyers to assert their alleged
80
rights over the subject property. xVillaflor v. CA, 280 SCRA 297 (1997).
•
Failure of alleged buyers to collect rentals from alleged seller. xSantiago v. CA, 278 SCRA 98 (1997); but
not when there appears a legitimate lessor-lessee relationship between the vendee and the vendor.
xUnion Bank v. Ong, 491 SCRA 581 (2006).
•
Although the agreement did not provide for the absolute transfer ownership of the land to buyer, that did
not amount to simulation, since delivery of certificate of ownership and execution of deed of absolute sale
were expressly stipulated as suspensive conditions, which gave rise to the corresponding obligation on
part of buyer to pay the last installments. xVillaflor v. CA, 280 SCRA 297 (1997).
•
When signature on a deed of sale is a forgery. Fidel v. CA, 559 SCRA 186 (2008); but bare assertions that
the signature appearing on the Deeds of Sale is not enough to allege simulation, since forgery is not
presumed; it must be proven by clear, positive and convincing evidence. xR.F. Navarro & Co. v. Vailoces,
361 SCRA 139 (2001).
• Simulation of contract and gross inadequacy of price are distinct legal concepts, with different effects – the
concept of a simulated sale is incompatible with inadequacy of price. When the parties to an alleged
contract do not really intend to be bound by it, the contract is simulated and void. Gross inadequacy of
price by itself will not result in a void contract, and it does not even affect the validity of a contract of sale,
unless it signifies a defect in the consent or that the parties actually intended a donation or some other
contract. xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).
2. When Motive Nullifies the Sale
In sale, consideration is, as a rule, different from the motive of parties, and when the primary
motive is illegal, such as when the sale was executed over a land to illegally frustrate a person's right
to inheritance and to avoid payment of estate tax, the sale is void because illegal motive
predetermined purpose of the contract. xOlegario v. CA, 238 SCRA 96 (1994).81
Where the parties to a contract of sale agreed to a consideration, but the amount reflected in the
final Deed of Sale was lower, their motivation being to pay lower taxes on the transaction, the contract
of sale remains valid and enforceable upon the terms of the real consideration. Although illegal, the
74
Limson v. CA, 357 SCRA 209 (2001).
Alcantara v. Nido, 618 SCRA 333 (2010); Camper Realty Corp. V. Pajo-Reyes, 632 SCRA 400 (2010).
76
Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).
77
Pineda v. CA, 376 SCRA 222 (2002).
75
17
motives neither determine nor take the place of the consideration. xHeirs of Spouses Balite v. Lim, 446
SCRA 54 (2004).
3. Remedies Allowed When Sale Simulated
When a contract of sale is void, the right to set up its nullity or non-existence is available to third
persons whose interests are directly affected thereby. Likewise, the remedy of accion pauliana is
available when the subject matter is a conveyance, otherwise valid, undertaken in fraud of creditors.
xManila Banking Corp. v. Silverio, 466 SCRA 438 (2005).
The rescissory action to set aside contracts in fraud of creditors is accion pauliana, a subsidiary
remedy accorded under Article 1383 which the party suffering damage can avail of only when he has
no other legal means to obtain reparation for the same. xUnion Bank v. Ong, 491 SCRA 581 (2006).
4. Effect When Sale Declared Void:
•
The action for the declaration of the contract’s nullity is imprescriptible—an action for reconveyance of
property on a void contract of sale does not prescribe. xFil-Estate Golf and Dev., Inc. v. Navarro, 526
SCRA 51 (2007); xCampos v. Pastrana, 608 SCRA 55 (2009).
•
Possessor is entitled to keep the fruits during the period for which the buyer held the property in good faith.
xDBP v. CA, 316 SCRA 650 (1999).
• Restoration of what has been given is in order. xDe los Reyes v. CA, 313 SCRA 632 (1999); xHeirs of
Ignacia Aguilar-Reyes v. Mijares, 410 SCRA 97 (2003).
VI. CONSUMMATION (Arts. 1493-1506) AND
PERFORMANCE OF CONTRACT OF SALE
(Arts. 1536-1544, 1582-1590)
A. OBLIGATIONS OF SELLER
1. Preserve Subject Matter (Art. 1163)
2. Deliver with Fruits and Accessories (Arts. 1164, 1166, 1495, 1537)
3. DELIVER THE SUBJECT MATTER (Art. 1477)
a. Legal Premises for Tradition Doctrines to Come Into Play
(i) Nemo potest nisi quod de jure potest – “No man can do anything except what he can do
lawfully.” – When the sale is void or fictitious, even when there is Raquel-Santos RaquelSantos no valid title over the subject matter can be conveyed to the buyer. xTraders Royal
82
Bank v. CA, 269 SCRA 15 (1997).
A contract to sell, or a conditional contract of sale where the suspensive condition has not
happened, even when found in a public document, cannot be treated as constituting
constructive delivery, especially when from the face of the instrument it is shown that the seller
“was not yet the owner of the property and was only expecting to inherit it.” xHeirs of Arturo
Reyes v. Socco-Beltran, 572 SCRA 211 (2008).
(ii) Nemo dat quod non habet – “No man can give that which he does not have.”Even when the
sale is valid, if the seller had no ownership over the subject matter at the time of delivery, no
valid title can pass in favor of the buyer. xTsai v. CA, 366 SCRA 324 (2001).83
Article 1459 on contracts of sale “specifically requires that the vendor must have ownership
of the property at the time it is delivered;” ownership need not be with the seller at the time of
perfection. xHeirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).
One can sell only what one owns or is authorized to sell, and the buyer can acquire no more
than what the seller can transfer legally. xDaclag v. Macahilig, 560 SCRA 137 (2008).
A tax declaration, by itself, is not considered conclusive evidence of ownership – it is merely
an indicium of a claim of ownership. Daclag v. Macahilig, 560 SCRA 137 (2008); nevertheless
when at the time of delivery there is no proof that the seller had ownership and in fact the
property’s tax declaration was in the name of another person, then there was no transfer of
ownership by delivery. xHeirs of Severina San Miguel v. CA, 364 SCRA 523 (2001).
b. General Doctrines on Tradition, Whether Actual or Constructive:
(i) Meaning of “Delivery” (Art. 1497):
Delivery contemplates “the absolute giving up of the control and custody of the property on the
part of the vendor, and the assumption of the same by the vendee. Non nudis pactis sed traditione
dominia rerum transferantur. There is delivery if and when the thing sold “is placed in the control
and possession of the vendee.” xEquatorial Realty Dev. Inc. v. Mayfair Theater, Inc., 370 SCRA
56 (2001).
18
In Sales “delivery” refers to the concurrent transfer of two things: (1) possession and (2)
ownership. If the vendee is placed in actual possession of the property, but by agreement of the
parties ownership of the same is retained by the vendor until the vendee has fully paid the price,
the mere transfer of the possession of the property subject of the sale is not the “delivery”
contemplated in the Law on Sales or as used in Article 1543 of the Civil Code. xCebu Winland Dev.
Corp. v. Ong Siao Hua, 588 SCRA 120 (2009).
(ii) Relationship to the Price:
It may be stipulated that ownership in the thing shall not pass to buyer until he has fully paid
price (Art. 1478).
In the absence of an express stipulation to the contrary, payment of purchase price of the goods
is not a condition precedent to the transfer of title to the buyer, but title passes by the delivery of the
goods. xPhil. Suburban Dev. Corp. v. Auditor General, 63 SCRA 397 (1975).84
Failure of the buyer to make good the price does not cause the ownership to revest to the seller
unless the bilateral contract of sale is first rescinded or resolved pursuant to Art. 1191. xBalatbat v.
CA, 261 SCRA 128 (1996).
(iii) Delivery Transfers Ownership; and Recover Can Be Made Through Rescission
In a contract of sale, the title to the property sold passes to the vendee upon the delivery of the
thing sold; the vendor loses ownership over the property and cannot recover it until and unless the
contract is resolved or rescinded. David v. Misamis Occidental II Electric Cooperative, Inc., 676
SCRA 367 (2012).
c. Actual or Physical Delivery (Art. 1477)
Article 1477 of Civil Code recognizes that the “ownership of the thing sold shall be transferred to
the vendee upon the actual or constructive delivery thereof.” Related to this is Article 1497 which
provides that “[t]he thing sold shall be understood as delivered when it is placed in the control and
possession of the vendee.” Santiago v. Villamor, 686 SCRA 313 (2012).
It is not necessary that seller himself physically delivers title to the buyer because the thing sold is
understood as delivered when it is placed in control and possession of buyer. Thus, when sellers
themselves introduced the tenant to the buyer as the new owners of the land, and from that time on
the buyer acted as landlord thereof, there was delivery that transferred title to the buyer. xAlfredo v.
Borras, 404 SCRA 145 (2003).
d. Constructive Delivery: EXECUTION OF A PUBLIC INSTRUMENT (Art. 1498)
Where deed of sale or any agreement analogous to a deed of sale, is made through a public
instrument, its execution is equivalent to the delivery of the property. xCaoibes, Jr. v. Caoibes-Pantoja,
496 SCRA 273 (2006).85
Under Art. 1498, the mere execution of the deed of conveyance in a public instrument is equivalent
to the delivery of the property, and that prior physical delivery or possession is not legally required,
since ownership and possession are two entirely different legal concepts. Notwithstanding the
presence of illegal occupants on the subject property, transfer of ownership by symbolic delivery under
Art. 1498 can still be effected through the execution of the deed of conveyance. xSabio v. International
Corporate Bank, 364 SCRA 385 (2001).
As a general rule, 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 order the execution of a public instrument to
effect tradition, the purchaser must be placed in control of the thing sold. A person who does not have
actual possession of the thing sold cannot transfer constructive possession by the execution and
delivery of a public instrument. Asset Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).
There is nothing in Article 1498 that provides that execution of a deed of sale is a conclusive
presumption of delivery of possession; presumptive delivery can be negated by the failure of the
vendee to take actual possession of the land or the continued enjoyment of possession by the vendor.
86
√Santos v. Santos, 366 SCRA 395 (2001).
A contract to sell, or a condition contract of sale where the suspensive condition has not happened,
even when found in a public document, cannot be treated as constituting constructive delivery,
especially when from the face of the instrument it is shown that the seller “was not yet the owner of the
property and was only expecting to inherit it.” (at p. 221) Heirs of Arturo Reyes v. Socco-Beltran, 572
SCRA 211 (2008).
(i) As to Movables (Arts. 1498-1499, 1513-1514)
The effects of delivery on ownership can be segregated from the delivery of possession. √Dy,
Jr. v. CA, 198 SCRA 826 (*).
84
Ocampo v. CA, 233 SCRA 551 (1994).
19
Where it is stipulated that deliveries must be made to the buyer or his duly authorized
representative named in the contracts, the seller is under obligation to deliver in accordance with
such instructions. xLagon v. Hooven Comalco Industries, Inc., 349 SCRA 363 (2001).
Execution by supposed buyers of a chattel mortgage over subject vehicle in favor of the
financing company does not mean that ownership had been transferred to them, for delivery must
be on the part of the seller. xUnion Motor Corp. v. CA, 361 SCRA 506 (2001).
Neither issuance of an invoice, which is not a document of title xP.T. Cerna Corp. v. CA, 221
SCRA 19 (1993),87 nor of the registration certificate of vehicle xUnion Motor Corp. v. CA, 361
SCRA 506 (2001),88 would constitute constructive delivery of the vehicle.
(ii) As to Immovables (Art. 1498)
Issuance of an acknowledgment receipt of partial payment, when it is not a public instrument
does not convey title. xSan Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005).
In case of immovables, when 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. xMunicipality of Victorias v. CA, 149
SCRA 31 (1987);89 and that prior physical delivery or possession is not legally required since
execution of the deed is deemed equivalent to delivery. xManuel R. Dulay Enterprises, Inc. v. CA,
225 SCRA 678 (1993), PROVIDED THAT:
(a) The thing sold is subject to the control of the seller √Addison v. Felix, 38 Phil. 404
(1918); for a person who does not have actual possession or control of the thing sold
cannot transfer constructive possession by the execution and delivery of a public
90
instrument. xVillamar v. Mangaoil, 669 SCRA 426 (2012).
- and (b) Such control should remain within a reasonable period after the execution of the
instrument √Danguilan v. IAC, 168 SCRA 22 (1988).
EXCEPT:
When buyer assumes the risks of ownership and possession. √Power Commercial
91
and Industrial Corp. v. CA, 274 SCRA 597 (1997).
(1) Registration of Title Is Separate Mode from Execution of Public Instrument – The
recording of the sale with the proper Registry of Deeds and the transfer of the certificate of title
in the name of the buyer are necessary only to bind third parties to the transfer of ownership.
As between the seller and the buyer, the transfer of ownership takes effect upon the execution
of a public instrument conveying the real estate. √Chua v. CA, 401 SCRA 54 (2003).
BUT SEE: Under Art. 1495, seller is obliged to transfer title over the property and deliver the
same to the vendee. √Vive Eagle Land, Inc. v. CA, 444 SCRA 445 (2004).
(2) Customary Steps in Selling Immovables – “Customarily, in the absence of a contrary
agreement, the submission by an individual seller to the buyer of the following papers would
complete a sale of real estate: (1) owner’s duplicate copy of the Torrens title; (2) signed deed
of absolute sale; (3) tax declaration; and (4) latest realty tax receipt. They buyer can retain the
amount for the capital gains tax and pay it upon authority of the seller, or the seller can pay the
tax, depending on the agreement of the parties.” √Chua v. CA, 401 SCRA 54 (2003).
The execution of the notarized deed of sale and the delivery of the owner’s duplicate copy
of the original certificate of title to the buyer is tantamount to constructive delivery of the object
of the sale. Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
(iii) As to Incorporeal Property (Arts. 1498 and 1501).
In the sale of shares of stock, delivery of a stock certificate is one of the essential requisites for
the transfer of ownership of the stocks purchased. Seller’s failure to delivery the stock certificates
representing the shares of stock amounted to a substantial breach which gave rise to a right to
rescind the sale. Raquel-Santos v. CA, 592 SCRA 169 (2009).
e. Constitutum Possessorium (Art. 1500) – A provision in the deed of sale granting to seller a right
to lease the subject matter of the sale is valid: the possession is deemed to be constituted in the
vendee by virtue of this mode of tradition.” xAmigo v. Teves, 96 Phil. 252 (1954).
f. Traditio Brevi Manu – Prior to the sale, petitioners were in possession of the subject property as
lessees. Upon sale to them of the rights, interests and participation as to the ½ portion pro indiviso,
they remained in possession, not in the concept of lessees anymore but as owners now through
87
88
Norkis Distributors v. CA, 193 SCRA 694 (1991).
Abuan v. Garcia, 14 SCRA 759 (1965); Santos v. Santos, 366 SCRA 395 (2001).
20
symbolic delivery known as traditio brevi manu. xHeirs of Pedro Escanlar v. CA, 281 SCRA 176
(1997).
4. Transfer Ownership to Vendee Upon Delivery (Arts. 1477, 1478, and 1496)
In the absence of such stipulation to the contrary, tradition produces its natural effects in law, most
important of which being conveyance of ownership, without prejudice to right of the seller to claim
payment of the price. xFroilan v. Pan Oriental Shipping Co., 12 SCRA 276 (1964).92
a. When Buyer Refuses to Accept (Art. 1588)
Since delivery of subject matter is an obligation on the part of the seller, the acceptance thereof by
the buyer is not a condition for the completeness of delivery. xLa Fuerza v. CA, 23 SCRA 1217
(1968).
b. In Case of Express or Implied Reservation (Arts. 1478 and 1503)
Execution of Deed of Conditional Sale with provision that final deed of sale to be executed upon full
payment does not transfer ownership of the subject matter. xFortune Tobacco Corp. v. NLRC, 200
SCRA 766 (1991).
5. Taking-Out Insurance Coverage (Art. 1523)
6. Time and Place of Delivery (Art. 1521)
7. Expenses of Execution and Registration (Art. 1487), and of Putting Goods in
Deliverable State (Art. 1521)
Unless otherwise stipulated: (a) under Art. 1487 the expenses for the registration of the sale should
be shouldered by the seller. xVive Eagle Land, Inc. v. CA, 444 SCRA 445 (2004); and (b) duty to
withhold taxes due on the sale is imposed on seller. xEquitable Realty Dev’t Inc. v. Mayfair Theater,
Inc., 332 SCRA 139 (2000).
Although it is the buyer has more interest in having the capital gains tax paid immediately since this
is a pre-requisite to the issuance of a new Torrens title in his name, nonetheless, as far as the
government is concerned the capital gains tax remains a liability of the seller since it is a tax on the
seller’s gain from the sale of the real estate. Payment of the capital gains tax, however, is not a prerequisite to the transfer of ownership to the buyer since the transfer of ownership takes effect upon the
signing and notarization of the deed of absolute sale. xChua v. CA, 401 SCRA 54 (2003).
A judgment that decrees seller’s obligations to execute and deliver the deed of absolute sale and
the certificate of title does not necessarily include within its terms the obligation to pay for the
expenses in notarizing a deed of sale and in obtaining new certificate of title. xJose Clavano, Inc. v.
HLRB, 378 SCRA 172 (2002).
B. SPECIAL RULES ON COMPLETENESS OF DELIVERY
1. In Case of Movables (Art. 1522 and 1537, 1480)
When the contract does not provide for the measuring or weighing of a sold specific mass, and the
price agreed upon was not based on such measurement, then “[t]he subject matter of the sale is,
therefore, a determinate object, the mass, and not the actual number of units or tons contained
therein, so that all that is required of seller was to deliver in good faith to his buyer all of those found in
the mass, notwithstanding that the quantity delivered is less than the amount estimated in the
contract.” xGaite v. Fonacier, 2 SCRA 831 (1961).
a. Rules on Delivery to Carrier (Art. 1523)
(i) FAS Sales – “The seller pays all charges and is subject to risk until the goods are placed
alongside the vessel”. xA. Soriano Y Cia. v. Collector, 97 Phil. 505 (1955).
(ii) FOB Sales – In mercantile contracts of American origin, “F.O.B.” stand for the words “Free on
Board,” i.e., that the seller shall bear all expenses until the goods are delivered according as to
whether the goods are to be delivered “F.O.B.” at the point of shipment or at the point of
destination determines the time when property passes. Behn Meyer & Co. v. Yangco, 38 Phil.
602, 606 (1918).93
(iii) CIF Sales √General Foods v. NACOCO, 100 Phil. 337 (1956).
“C.I.F.” found in British contracts stand for costs, insurance, and freight; they signify that the
price fixed covers not only the costs of the goods, but the expense of freight and insurance to be
paid by the seller. Behn Meyer & Co. v. Yangco, 38 Phil. 602, 606 (1918).
Under an arrangement “c.i.f. Pacific Coast” (destination), “the vendor is to pay not only the cost
of the goods, but also the freight and insurance expenses, and, as it was judicially interpreted, this
is taken to indicate that the delivery is to be made at the port of destination.” Pacific Vegetable Oil
Corp. v. Singzon, Supreme Court Advance Decisions, 29 April 1955.
21
b. Sale on Approval, Trial or Satisfaction (Art. 1502)
In a “sale or return,” the ownership passes to the buyer on delivery pursuant to a perfected contract
of sale; and the subsequent return of the goods reverts ownership back to the seller. In such case,
tradition as a mode of acquiring ownership must be in consequence of a contract. xVallarta v. CA, 150
SCRA 336 (1987).
In a “sale on approval” (also called “sale on acceptance, “sale on trial” or “sale on satisfaction”), the
delivery of the object does not transfer ownership to the buyer since the delivery was not for purposes
of transferring ownership, since the prestation to effect a meeting of the minds to give rise to a valid
contract is incumbent on the buyer. xVallarta v. CA, 150 SCRA 336 (1987).
For a sale to be a “sale or return” or a “sale on approval,” there must be a clear agreement to either
of such effect, otherwise, the provisions of Art. 1502 of Civil Code governing such sales cannot be
invoked by either party to the contract. xIndustrial Textile Manufacturing Co. v. LPJ Enterprises, Inc.,
217 SCRA 322 (1993).
c. Sale by Description and/or Sample (Art. 1481)
There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the
bulk, which is not present and there is no opportunity to inspect or examine the same; and the parties
treated the sample as the standard of quality and that they contracted with reference to the sample
with the understanding that the product to be delivered would correspondent with the sample.
xMendoza v. David, 441 SCRA 172 (004)
Even in sales by description and/or sample, buyer will not be released from his obligation to accept
and pay for the goods by deviations on the part of the seller from the exact terms of the contract, if
buyer had acquiesced to such deviations after due notice thereof. xEngel v. Mariano Velasco & Co.,
47 Phil. 115 (1924).
When the machine delivered is in accordance with the description stated in the sales contract, the
buyer cannot refuse to pay the balance of the purchase price and the cost of installation if it proves
that the machine cannot be used satisfactorily for the purposes for which he bought it when such
purpose was not made known to the seller. xPacific Commercial Co. v. Ermita Market & Cold Stores,
56 Phil. 617 (1932).
d. Buyer’s Right to Inspect Before Acceptance (Arts. 1481 and 1584[1]); except when carrier
delivers COD.
2. In Case of Immovables
a. Where Sold Per Unit or Number (Arts. 1539 and 1540)
In a unit price sale, the statement of the area of immovable is not conclusive and the price may be
reduced or increased depending on the area actually delivered. If the vendor delivers less than the
area agreed upon, the vendee may oblige the vendor to deliver all that is stated in the contract or
demand for the proportionate reduction of the purchase price if delivery is not possible. If the vendor
delivers more than the area stated in the contract, the vendee has the option to accept only the
amount agreed upon or to accept the whole area, provided he pays for the additional area at the
contract rate. √Rudolf Lietz, Inc. v. CA, 478 SCRA 451 (2005).94
Where the parties agreed on a sale at a rate of a certain price per unit of measure and not one for
a lump sum, it is Article 1539 and not Article 1542 which is the applicable law—the buyer is entitled to
the relief afforded to him under Article 1529, that is, either a proportional reduction of the price or the
rescission of the contract. xCebu Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA 120 (2009).
EXCEPT: A buyer of land, when sold in gross or with the description “more or less” or similar words
in designating quantity covers only a reasonable excess of deficiency. In the case at bar
an area of “644 square meters more” is not reasonable excess or deficiency, to be
deemed included in the deed of sale. √Roble v. Arbasa, 362 SCRA 69 (2001).95
EXCEPTION TO EXCEPTION: When buyer, who has been occupying the land for two years as lessee,
actually is deemed to take risk on the actual size of the property bought
at lump sum. xGarcia v. Velasco, 72 Phil. 248 (1941).
b. Where Sold for a Lump Sum [“A cuerpo cierto or por precio alzado”] (Art. 1542)
In a contract of sale of land in a mass, the specific boundaries stated in the contract must control
over any statement with respect to the area contained within its boundaries. Salinas v. Faustino, 566
SCRA 18 (2008).
In a lump sum sale, when the land delivered to the buyer is exactly as that described in the deed
and covered within the boundaries designated, the difference in actual area (34 versus 10 hectares)
will not authorize the buyer to rescind the contract because the seller has complied with delivering the
subject matter agreed upon. xTeran v. Villanueva, 56 Phil. 677 (1932); this is the rule when evidence
shows that the parties never gave importance to the area of the land in fixing the price (97 versus 60
hectares). xAzarraga v. Gay, 52 Phil. 599 (1928).
22
C. DOUBLE SALES (Arts. 154496 and 1165)
1. Primacy of Torrens System of Registration – The rules on double sales under Art. 1544 do not
overcome the rules provided under the Property Registration Decree (P.D. 1459), such as:
(a) When two different titles are issued over the same registered land, the buyer who claims under a
title that was first issued shall be preferred. xLiao v. CA, 323 SCRA 430 (2000);
(b) Invoking the rules on double sales and “priority in time” under Art. 1544 would be misplaced by a
first buyer who bought the land not within the Torrens system but under Act No. 3344, as against
the second buyer who bought the same property when it was already registered under the Torrens
system, because:
•
of the “well-known rule in this jurisdiction that persons dealing with registered land have the legal right
to rely on the fact of the Torrens Certificate of Title and to dispense with the need to inquire further,
except when the party concerned has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry;” and
• the Torrens system rule that formal registration proceedings undertaken on the property and the
subsequent issuance of a title over the land had under the Torrens system had the legal effect of
cleansing title on the property of all liens and claims which were not annotated therein.
√Naawan Community Rural Bank, Inc. v. CA, 395 SCRA 43 (2003).97
BUT SEE: √Naval v. CA, 483 SCRA 102 (2006).
√Gopiao v. Metrobank, 731 SCRA 131 (2014).
2. Tests Applicable under Article 1544:
Caveat emptor requires the buyer to be aware of the supposed title of the seller and he who buys
without checking the seller's title takes all the risks and losses consequent to such failure. xCaram, Jr.
v. Laureta, 103 SCRA 7 (1981).
The provision on double sale presumes title or ownership to pass to first buyer, exception being:
(a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should
there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires
possession of the property ahead of the first buyer. Unless, the second buyer satisfies these
requirements, title or ownership will not transfer to him to the prejudice of the first buyer.” xCoronel v.
CA, 263 SCRA 15 (1996).
In spite of the three levels of tests provided under Art. 1544, the Court seems to recognize only
registration in good faith by the second buyer and does not characterize the meaning of the last two
test of possession and oldest title. √Carilo v. CA, 503 SCRA 66 (2006).
a. MAIN RULE UNDER ART. 1544: PRIOR TEMPORE, PRIOR JURE. √Carbonell v. Court of Appeals, 69
SCRA 99 (1976).98
Ownership of an immovable property which is the subject of a double sale shall be transferred: (1)
to the person acquiring it who in good faith first recorded it in the Registry of Property; (2) in default
thereof, to the person who in good faith was first in possession; and (3) in default thereof, to the
person who presents the oldest titled, provided there is 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
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. The principle of primus tempore, potior jure (first in time, stronger in
right) gains greater significance in case of a double sale of immovable property. When the thing sold
twice is an immovable, the one who acquires it and first records in the Registry of Property, both made
in good faith, shall be deemed the owner. Verily, the act of registration must be coupled with good faith
– that is, the registrant must have no knowledge of the defect or lack of title of his vendor or must not
have been aware of facts which would have put him upon such inquiry and investigation as might be
necessary to acquaint him with the defects in the title of his vendor. Rosaroso v. Soria, 699 SCRA 232
99
(2013).
3. Requisites for Double Sale: √Cheng v. Genato, 300 SCRA 722 (1998).100
a. There Must Be Two Different Valid Sales: Article 1544 does not apply where:
• There is only one valid sale, while the other sale over the same property is void. xFudot v.
Cattleya Land, Inc., 533 SCRA 350 (2007);101 or
• Where one of the contract is a contract to sell. √San Lorenzo Dev. Corp. v. CA, 449 SCRA 99
(2005).102
96
97
98
Pudadera v. Magallanes, 633 SCRA 332 (2010).
Reiterated in Abrigo v. De Vera, 432 SCRA 544 (2005); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008).
Tanglao v. Parungao, 535 SCRA 123 (2007); Calma v. Santos, 590 SCRA 359 (2009).
23
When the seller sold the same properties to two buyers, first to the respondent and then to
Viloria on two separate occasions, the second sale was not void for the sole reason that petitioner
had previously sold the same properties to respondent. This case involves a double sale as the
disputed properties were sold validly on two separate occasions by the same seller to the two
different buyers in good faith. xDe Leon v. Ong, 611 SCRA 381, 388 (2010).
When the seller sold the same properties to two buyers, first to the respondent and then to
Viloria on two separate occasions, the second sale was not void for the sole reason that petitioner
had previously sold the same properties to respondent. This case involves a double sale as the
disputed properties were sold validly on two separate occasions by the same seller to the two
different buyers in good faith. De Leon v. Ong, 611 SCRA 381, 388 (2010).
(1) Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims: √Adalin v. CA, 280
103
SCRA 536 (1997).
The rules on double sales under Art. 1544 are not applicable to contract to sell, because of the
circumstances that must concur in order for the provisions to Art. 1544 on double sales to apply,
namely that there must be a valid sales transactions, and buyers must be at odds over the rightful
ownership of the subject matter who must have bought from the very same seller, are lacking in a
contract to sell for neither a transfer of ownership nor a sales transaction has been consummated,
and such contract is binding only upon the fulfillment or non-fulfillment of an event. Nevertheless,
the governing principle of Art. 1544 should apply, mainly the governing principle of primus
tempore, portior jure (first in time, stronger in right). √Cheng v. Genato, 300 SCRA 722 (1998).
b. Exact Same Subject Matter
Article 1544 applies where the same thing is sold to different buyers by the same seller. xOng v.
Oalsiman, 485 SCRA 464 (2006); and does not apply where there was a sale to one party of the land
itself while the other contract was a mere promise to sell the land or at most an actual assignment of
the rights to repurchase the same land. xDischoso v. Roxas, 5 SCRA 781 (1962).
c. Exact Same Seller for Both Sales
Article 1544 applies where the same thing is sold to different vendees by the same vendor. It does
not apply where the same thing is sold to different vendees by different vendors, or even to the same
buyer but by different sellers. xSalera v. Rodaje, 530 SCRA 432, 438 (2007);104 or by several
successive vendors. xMactan-Cebu International Airport Authority v. Tirol, 588 SCRA 635 (2009);
Roque v. Aguado, 720 SCRA 780 (2014); Skunac Corp. v. Sylianteng, 723 SCRA 625 (2014).
For Article 1544 to apply, it is necessary that the conveyance must have been made by a party who
has an existing right in the thing and the power to dispose of it. It cannot be invoked where the two
different contracts of sale are made by two different persons, one of them not being the owner of the
property sold. And even if the sale was made by the same person, if the second sale was made when
such person was no longer the owner of the property, because it had been acquired by the first
purchaser in full dominion, the second purchaser cannot acquire any right. √Consolidated Rural
Bank (Cagayan Valley), Inc. v. CA, 448 SCRA 347 (2005),105 citing VILLANUEVA, PHILIPPINE LAW ON
SALES 100 (1995).
4. Registration in Good Faith as First Priority
a. Meaning of “Registration”
The annotation of adverse claim can qualify as the registration mandated under the rules on double
sale. √Carbonnel v. CA, 69 SCRA 99 (1976).
Registration means any entry made in the books of the registry, including both registration in its
ordinary and strict sense, and cancellation, annotation, and even marginal notes. It is the entry
made in the registry which records solemnly and permanently the right of ownership and other real
rights. xCheng v. Genato, 300 SCRA 722 (1998).106
Declaration of purchase for taxation purposes does not comply with the required registration.
xBayoca v. Nogales, 340 SCRA 154 (2000).
Registration of the Extra-judicial Partition which merely mentions the sale is not the registration
covered under Art. 1544 and cannot prevail over the registration of the pacto de retro sale. xVda. de
Alcantara v. CA, 252 SCRA 457 (1996).
“There can be no constructive notice to the second buyer through registration under Act 3344 if the
property is registered under the Torrens system.” xAmodia Vda. De Melencion v. CA, 534 SCRA 62,
82 (2007), thereby overturning obiter in Santiago v. CA, 247 SCRA 336 (1995).
b. Registration Must Always Be in Good Faith – In cases of double sales of immovables, what finds
relevance and materiality is not whether or not the second buyer was a buyer in good faith or that
he was first to register, but whether or not said second buyer registers such second sale in good
faith, that is, without knowledge of any defect in the title of the property sold. xMartinez v. CA, 358
24
SCRA 38 (2001);107 this is so because the defense of indefeasibility of a Torrens title does not
extend to a transferee who takes the certificate of title in bad faith. xOcceña v. Esponilla, 431 SCRA
116 (2004).
c. Knowledge of First Buyer of the Second Sale Does Not Amount to Registration in Favor of
the Second Buyer
Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except
where the second buyer registers in good faith the second sale ahead of the first. Such knowledge of
the first buyer does not bar her from availing of her rights under the law, among them, to register first
her purchase as against the second buyer. But in converso, knowledge gained by the second buyer of
the first sale defeats his rights even if he is first to register the second sale, since such knowledge
taints his prior registration with bad faith. This is the priced exacted by Article 1544 for the second
buyer being able to displace the first buyer; that before the second buyer can obtain priority over the
first, he must show that he acted in good faith throughout (i.e., in ignorance of the first sale and of the
first buyer's right) –from the time of acquisition until the title is transferred to him by registration or
failing registration, by delivery of possession.” xUraca v. CA, 278 SCRA 702 (1997).108
In a situation where a party has actual knowledge of the claimant’s actual, open and notorious
possession of a disputed property at the time of registration, the actual notice and knowledge are
equivalent to registration, because to hold otherwise would be to tolerate fraud and the Torrens system
cannot be used to shield fraud – while certificates of title are indefeasible, unassailable and binding
against the whole world, they merely confirm or record title already existing and vested.
√Consolidated Rural Bank (Cagayan Valley), Inc. v. CA, 448 SCRA 347 (2005).
In double sales, the first buyer always has priority rights over subsequent buyers of the same
property. The good faith of the first buyer remains all throughout despite his subsequent acquisition of
knowledge of the subsequent sale. Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
d. Registration in Good Faith Always Pre-empts Possession in Good Faith – Between two
purchasers, the one who registered the sale in his favor has a preferred right over the other who
has not registered his title, even if the latter is in actual possession of the immovable property.
xTañedo v. CA, 252 SCRA 80 (1996).109
The registration of a sale after the annotation of the notice of lis pendens does not obliterate the
effects of delivery and possession in good faith. The rules on constructive notice upon registration
provided for under Section 52 of the Property Registration Decree (P.D. No. 1529) operate only from
the time of the registration of the notice of lis pendens which in this case was effected only after the
time the sale in favor of the second buyer had long been consummated by delivery of the subject
matter. √San Lorenzo Dev. Corp. v. CA, 449 SCRA 99 (2005).
110
5. Possession Refers Both to Material and Symbolic Possession
In the absence of inscription under double sales, the law gives preferential right to the buyer who in
good faith is first in possession, under the following jurisprudential parameters: (a) possession
mentioned in Article 1544 includes not only material but also symbolic possession; (b) possessors in
good faith are those who are not aware of any flaw in their title or mode of acquisition; (c) Buyers of
real property that is in the possession of persons other than the seller must be wary – they must
investigate the rights of the possessors; and (d) good faith is always presumed, upon those who allege
bad faith on the part of the possessors rests the burden of proof. xTen Forty Realty and Dev. Corp. v.
Cruz, 410 SCRA 484 (2003).111
After the sale of a realty by means of a public instrument, the vendor, who resells it to another, does
not transmit anything to the second vendee, and if the latter, by virtue of this second sale takes
material possession of the thing, he does it as mere detainer, and it would be unjust to protect this
detention against the rights of the thing lawfully acquired by the first vendee. The Roman Catholic
Church v. Pante, 669 SCRA 234 (2012).
6. Who is Purchaser in Good Faith?
a. Must Have Paid Price in Full – A purchaser in good faith is one who buys property without notice
that some other person has a right to, or interest in, such property and pays a full and fair price
for the same at the time of such purchase, or before he has notice of the claim or interest of
some other person in the property. Tanglao v. Parungao, 535 SCRA 123 (2007).112
107
Blanco v. Rivera, 488 SCRA 148 (2006); Gabriel v. Mabanta, 399 SCRA 573 (2003); De la Cena v. Briones, 508 SCRA 62
(2006); Tanglao v. Parungao, 535 SCRA 123 (2007); Bernardez v. CA, 533 SCRA 451 (2007); Orduña v. Fuentebella, 622 SCRA
146 (2010); Estate of Margarita D. Cabacungan v. Laigo, 655 SCRA 366 (2011).
108
Cruz v. Cabana, 129 SCRA 656 (1984); Gatmaitan v. CA, 200 SCRA 37 (1991); Vda. de Jomoc v. CA, 200 SCRA 74 (1991);
Bucad v. CA, 216 SCRA 423 (1992); Berico v. CA, 225 SCRA 469 (1993); Bautista v. CA, 322 SCRA 294 (2000); Bautista v. CA,
322 SCRA 294 (2000); Ulep v. CA, 472 SCRA 241 (2005); Escueta v. Lim, 512 SCRA 411 (2007); Lumbres v. Tablada, Jr., 516
SCRA 575 (2007); Fudot v. Cattleya Land, Inc., 533 SCRA 350 (2007); Tanglao v. Parungao, 535 SCRA 123 (2007).
109
Liao v. CA, 323 SCRA 430 (2000); Talusan v. Tayag, 356 SCRA 263 (2001); Dauz v. Exchavez, 533 SCRA 637 (2007).
110
The Roman Catholic Church v. Pante, 669 SCRA 234 (2012).
111
Sanchez v. Ramos, 40 Phil. 614 (1919); Quimson v. Rosete, 87 Phil. 159 (1950); Navera v. CA, 184 SCRA 584 (1990); The
25
Under Article 1544, mere registration is not enough to acquire a new title. Good faith must concur.
Clearly, when the buyer has not yet fully paid the purchase price, and as long as seller remains
113
unpaid, the buyer cannot feign good faith. xPortic v. Cristobal, 546 SCRA 577 (2005).
BUT SEE: In the determination of whether or not the buyer is in good faith, the point in time to be
considered is the moment when the parties actually entered into the contract of sale.
Estate of Lino Olaquer v. Ongjoco, 563 SCRA 373 (2008).
b. Burden of Proof – The burden of proving the status of a purchaser in good faith lies upon him who
asserts that status. It is not sufficient to invoke the ordinary presumption of good faith, that is, that
everyone is presumed to have acted in good faith, since the good faith that is here essential is
integral with the very status that must be established. xTanglao v. Parungao, 535 SCRA 123
(2007).114
As a general rule, the question of whether or not a person is a purchaser in good faith is a factual
matter that will not be delved into by this Court, since only questions of law may be raised in petitions
for review. Tio v. Abayata, 556 SCRA 175 (2008).
BUT SEE: It is anxiomatic that good faith is always presumed in the absence of any direct evidence
of bad faith. xSantiago v. CA, 247 SCRA 336 (1995).
c. Instances When No Good Faith:
One who buys from one who is not the registered owner is expected to examine not only the
certificate of title but all factual circumstances necessary for one to determine if there are any
flaws in the title of the transferor, or in the capacity to transfer the land. It is a well-settled rule that
a purchaser cannot close his eyes to facts which should put a reasonable man upon his guard,
and then claim that he acted in good faith under the belief that there was no defect in the title of
the vendor. Heirs of Nicolas S. Cabigas v. Limbaco, 654 SCRA 643 (2011).
(1) Being In Business on Realty – A mortgagee who eventually ended buying the property at the
public auction, cannot claim to be a buyer in good faith when his business in the constructing
and selling townhouses and extending credit to the public, including real estate loans; for he is
charged with greater diligence that ordinary buyers or encumbrances for value, because it would
be standard in his business, as a matter of due diligence required of banks and financing
companies, to ascertain whether the property being offered as security for the debt has already
been sold to another to prevent injury to prior innocent buyers. xExpresscredit Financing Corp.
v. Velasco, 473 SCRA 570 (2005).115
A banking institution is expected to exercise due diligence before entering into a mortgage
contract, and the ascertainment of the statute or condition of a proper offered to it as security for
a loan must be a standard and indispensable part of its operations; and it cannot simply rely
upon reviewing the title to the property offered for mortgage. Tio v. Abayata, 556 SCRA 175
(2008).116
(2) Close Relationship – The sale to one’s daughter and sons will give rise to the conclusion that
the buyers, not being really third parties, knew of the previous sales and cannot be considered in
good faith. The buyers “are deemed to have constructive knowledge by virtue of their
relationship” to their sellers. xPilapil v. CA, 250 SCRA 566 (1995).
(3) Gross Inadequacy of Price – Mere inadequacy of price is not ipso facto a badge of lack of
good faith—to be so, the price must be grossly inadequate or shocking to the conscience such
that the mind revolts against it and such that a reasonable man would neither directly or
indirectly be likely to consent to it. xTio v. Abayata, 556 SCRA 175 (2008).
(4) Obligation to Investigate or To Follow Leads – A purchaser who is aware of facts which
should put a reasonable man upon his guard cannot turn a blind eye and later claim that he
117
acted in good faith, such as —

A buyer of a registered land would be in bad faith when he purchases without asking to see the
owner’s copy of the title and/or without visiting the land where he would then have seen first buyer
118
occupying the same. xSantiago v. CA, 247 SCRA 336 (1995).

When there are occupants to the land being bought, since it is the common practice in the real estate
industry, an ocular inspection of the premises involved is a safeguard a cautious and prudent
119
purchaser usually takes. xMartinez v. CA, 358 SCRA 38 (2001).
Raymundo v. Bandong, 526 SCRA 514 (2007); De Leon v. Ong, 611 SCRA 381 (2010); Kings Properties Corp. v. Galido, 606
SCRA 137 (2009); The Heirs of Romana Saves v. The Heirs of Escolastico Saves, 632 SCRA 236 (2010); De Leon v. Ong, 611
SCRA 381 (2010); Yared v. Tiongco, 660 SCRA545 (2011); PCSO v. New Dagupan Metro Gas Corp., 676 SCRA 156 (2012);
Santiago v. Villamor, 686 SCRA 313 (2012); Angeles v. Domingo, 692 SCRA 277 (2013).
113
Uy v. Fule, 727 SCRA 456 (2014); Peralta v. Heirs of Bernardina Abalon, 727 SCRA 477 (2014); Locsin v. Hizon, 735 SCRA
547 (2014).
114
Tsai v. CA, 366 SCRA 324 (2001); Aguirre v. CA, 421 SCRA 310 (2004); Raymundo v. Bandong, 526 SCRA 514 (2007); Eagle
Realty Corp. V. Republic, 557 SCRA 77 (2008); Pudadera v. Magallanes, 633 SCRA 332 (2010).
115
Adriano v. Pangilinan, 373 SCRA 544 (2002); Lloyd’s Enterprises and Credit Corp. v. Dolleton, 555 SCRA 142 (2008); Eagle
26

Any person engaged in business would be wary of buying from a company that is closing shop,
because it may be dissipating its assets to defraud creditors. Such buyer is bound to inquire whether
the owners had unsettled obligations encumbrance that could burden the property. xSamson v. CA,
120
238 SCRA 397 (1994).

The property was titled and transferred with undue haste within a short period of time, “plus the fact
that the subject property is a vast tract of land in a prime location, should have, at the very least,
triggered petitioner’s curiosity.” Eagle Realty Corp v. Republic, 557 SCRA 77, 94 (2008).
(5) Land in Adverse Possession – Buyer who could not have failed to know or discover that the
land sold to him was in the adverse possession of another is a buyer in bad faith. xHeirs of
Ramon Durano, Sr. v. Uy, 344 SCRA 238 (2000).121
Knowledge of the unregistered sale by the attaching creditor is deemed equivalent to
registration. Unlike in the sale of real property, an attaching creditor is not expected to inspect the
property being attached, as it is the sheriff who does the actual act of attaching the property. Rural
Bank of Sta. Barbara [Pangasinan], Inc. v. The Manila Mission of the Church of Jesus Christ of
Latter Day Saints, Inc., 596 SCRA 415 (2009).
(6) Existence of Lis Pendens or Adverse Claim – Registration of an adverse claim places any
subsequent buyer of the registered land in bad faith. xKings Properties Corp. v. Galido, 606
122
SCRA 137 (2009).
Settled is the rule that one who deals with property with a notice of lis pendens, even when at
the time of sale the annotation was cancelled but there was a pending appeal, cannot invoke the
right of a purchaser in good faith. A purchaser cannot close his eyes to facts which should put a
reasonable man on guard and claim that he acted in the belief that there was no defect in the title of
the seller. xPo Lam v. CA, 316 SCRA 721 (1999).
EXCEPT: When knowledge of lis pendens was acquired at the time there was order to have it
cancelled. xPo Lam v. CA, 347 SCRA 86 (2000).123
A buyer cannot be considered to be in bad faith when it was shown that at the time of the
purchase the notice of lis pendens was already being ordered cancelled and the cancellation of the
notice terminated the effects of such notice. Pudadera v. Magallanes, 633 SCRA 332 (2010).
(7) Annotation of Lien in Settlement of Estate – An annotation placed on new certificates of title
issued pursuant to the distribution and partition of a decedent’s real properties is a warning to
third persons on the possible interest of excluded heirs or unpaid creditors in these properties—
where a buyer purchases the real property despite the annotation, he must be ready for the
possibility that the title be subject to the rights of excluded parties. Tan v. Benolirao, 604 SCRA
36 (2009).
(8) Banks Are Vested with Public Interest and Obligation to Exercise Extraordinary Diligence
– One of the protections afforded by P.D. 957 to buyers is the right to have her contract to sell
registered with the Register of Deeds in order to make it binding on third parties. Nonetheless,
despite the non-registration of the contract to sell, the mortgagee bank cannot be considered,
under the circumstances, an innocent purchaser for value of the lot when it accepted the latter
(together with other assigned properties) as payment for the mortgagor developer’s obligation—
the bank was well aware that the assigned properties were subdivision lots and therefore within
the purview of P.D. 957. Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
When financial institutions exercise extraordinary diligence in determining the validity of the
certificates of title to property being sold or mortgaged to them and still fail to find any defect or
encumbrance upon the subject properties after said inquiry, such financial institutions should be
protected like any other innocent purchaser for value if they paid a full and fair price at the time of
the purchase or before having notice of some other person’s claim on or interest in the property. Ty
v. Queen’s Row Subdivision, Inc., 607 SCRA 324 (2009).
7. When Subject of Sale Is Unregistered Land:
The rules in double sale under Article 1544, whereby the buyer who is able to first register the
purchase in good faith “is in full accord with Section 51 of PD 1529 which provides that no deed,
mortgage, lease, or other voluntary instrument – except a will purporting to convey or affect registered
land shall take effect as a conveyance or bind the land until its registration. Thus, if the sale is not
registered, it is binding only between the seller and the buyer but it does not affect innocent third
persons. √Abrigo v. De Vera, 432 SCRA 544 (2004); Sabitsana, Jr. v. Muertegui, 703 SCRA 145
(2013)
119
Mathay v. CA, 295 SCRA 556 (1998); Republic v. De Guzman, 326 SCRA 267 (2000); Heirs of Ramon Durano, Sr. v. Uy, 344
SCRA 238 (2000); Heirs of Celestial v. Heirs of Celestial, 408 SCRA 291 (2003); Erasusta, Jr. v. CA, 495 SCRA 319 (2006); De la
Cena v. Briones, 508 SCRA 62 (2006); Tanglao v. Parungao, 535 SCRA 123, 132 (2007).
120
Eagle Realty Corp v. Republic, 557 SCRA 77 (2008).
121
Modina v. CA, 317 SCRA 696, 706 (1999); Republic v. De Guzman, 326 SCRA 267 (2000); Martinez v. CA, 358 SCRA 38
(2001); Heirs of Trinidad de Leon Vda. De Roxas v. CA, 422 SCRA 101 (2004); Occeñna v. Esponilla, 431 SCRA 116 (2004); PNB
v. Heirs of Estanislao Militar, 494 SCRA 308 (2006); Raymundo v. Bandong, 526 SCRA 514 (2007); Tanglao v. Parungao, 535
27
When first sale is over unregistered land and the second sale is when it is registered, the rules on
double sale do not apply. √Dagupan Trading Co. v. Macam, 14 SCRA 179 (1965).
Article 1544 is inapplicable to unregistered land because “the purchaser of unregistered land at a
sheriff’s execution sale only steps into the shoes of the judgment debtor, and merely acquires the
latter’s interest in the property sold as of the time the property was levied upon,” as expressly provided
for in then Sec. 35, Rule 39 of the Revised Rules of Court on execution sale [now Sec. 33, Rule 39,
1997 Rules of Civil Procedure)]. √Carumba v. CA, 31 SCRA 558 (1970).
Under Act 3344, registration of instruments affecting unregistered lands is “without prejudice to a
third party with a better right,” which means that mere registration does not give the buyer any right
over the land if the seller was not anymore the owner of the land having previously sold the same to
somebody else even if the earlier sale was unrecorded. The rules on double sale under Art. 1544 has
no application to land no registered under the Torrens system.√Acabal v. Acabal, 454 SCRA 555
(2005).124
D. OBLIGATIONS OF BUYER
1. Pay the Price (Art. 1582)
When seller cannot show title to the subject matter, then he cannot compel the buyer to pay the
price. xHeirs of Severina San Miguel v. CA, 364 SCRA 523 (2001).
Mere sending of a letter by the buyer expressing the intention to pay without the accompanying
payment is not considered a valid tender of payment and consignation of the amount due are essential
in order to extinguish the obligation to pay and oblige the seller to convey title. xTorcuator v. Bernabe,
459 SCRA 439 (2005).
Unless the parties to a sale have agreed to the payment of the purchase price to any other party,
then its payment to be effective must be made to the seller in accordance with Article 1240 which
provides that “Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.” xMontecillo v. Reynes,
385 SCRA 244 (2002).
2. Accept Delivery (Arts. 1582-1585)
VII. DOCUMENTS OF TITLE (Arts. 1507-1520)
1. Definition (Art. 1636)
2. Purpose of Documents of Title
Through a document of title, seller is allowed by fiction of law to deal with the goods described
therein as though he had physically delivered them to the buyer; and buyer may take the document as
though he had actually taken possession and control over the goods described therein. xPhilippine
Trust Co. v. National Bank, 42 Phil. 413 (1921).
Warehouse receipt represents the goods, but the intrusting of the receipt is more than the mere
delivery of the goods; it is a representation that the one to whom the possession of the receipt has
been so entrusted has the title to the goods. xSiy Cong Bieng v. Hongkong & Shanghai Bank, 56 Phil.
598 (1932).
3. Negotiable Documents of Title
a. How Negotiated (Arts. 1508-1509)
b. Who Can Negotiate (Art. 1512)
c. Effects of Negotiation (Art. 1513)
The endorsement and delivery of a negotiable quedan operates as the transfer of possession and
ownership of the property referred to therein, and had the effect of divorcing the property covered
therein from the estate of the insolvent prior to the filing of the petition for insolvency. xPhilippine Trust
Co. v. National Bank, 42 Phil. 413 (1921).
d. Unauthorized Negotiation (Art. 1518)
As between the owner of a negotiable document of title who endorsed it in blank and entrusted it to
a friend, and the holder of such negotiable document of title to whom it was negotiated and who
received it in good faith and for value, the latter is preferred, under the principle that as between two
innocent persons, he who made the loss possible should bear the loss. xSiy Long Bieng v. Hongkong
and Shanghai Banking Corp., 56 Phil. 598 (1932).
28
4. Non-negotiable Documents of Title
a. How Transferred or Assigned (Art. 1514)
b. Effects of Transfer (Art. 1514).
5. Warranties of Seller of Documents of Title (Art. 1516)
6. Rules of Levy/Garnishment of Goods (Arts. 1514, 1519, 1520).
VIII. SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE:
“THE LIFE OF A CONTRACT OF SALE”
1. Effect of Sale Where Seller Not Owner at Time of Delivery (Art. 1505; √Paulmitan v. CA, 215
SCRA 866 [1992]).
In sale, it is essential that the seller is the owner of the property he is selling. The principal
obligation of a seller is “to transfer the ownership of” the property sold (Art. 1458). This law stems from
the principle that nobody can dispose of that which does not belong to him: NEMO DAT QUOD NON
HABET. Noel v. CA, 240 SCRA 78 (1995).125
Although a situation (where the sellers were no longer owners) does not appear to be one of the
void contracts enumerated in Art. 1409 of Civil Code, and under Art. 1402 Civil Code itself recognizes
a sale where the goods are to be “acquired x x x by the seller after the perfection of the contract of
sale” clearly implying that a sale is possible even if the seller was not the owner at the time of sale,
provided he acquires title to the property later on, but when delivery of ownership is no longer possible,
the sale should be considered void, and consequently, the right to repurchase provided therein would
also be void Nool v. CA, 276 SCRA 149 (1997).
If one buys the land of another, to which the seller is supposed to have a good title, and in
consequence of facts unknown alike to both parties, the seller has in fact no title at all, equity will
cancel the sale and cause the purchase money to be restored to the buyer, putting both parties in
status quo. DBP v. CA, 249 SCRA 331 (1995).
a. Sales by Co-Owners (Art. 493)
In a contract of sale of co-owned property, what the vendee obtains by virtue of such a sale are the
same rights as the vendor had as co-owner (i.e., his spiritual share), and the vendee merely steps into
the shoes of the vendor as co-owner. xPanganiban v. Oamil, 542 SCRA 166 (2008);126 except when
the intention of the purchase was clearly the property itself and not just the spiritual share. √Mindanao
v. Yap, 13 SCRA 190 (1965).
An agreement that purports a specific portion of an un-partitioned co-owned property is not void; it
shall effectively transfer the seller’s ideal share in the co-ownership. Heirs of the Late Spouses Aurelio
and Esperanza Balite v. Lim, 446 SCRA 54 (2004).127
In which case, the proper action is not for nullification of sale, or for the recovery of possession of
the property owned in common from the other co-owners, but for division or partition of the entire
property. xTomas Claudio Memorial College, Inc. v. CA, 316 SCRA 502 (1999).128
A co-owner who sells one of the two lands owned in common with another co-owner, and does not
turn-over one-half of the proceeds of the sale to the other co-owner, the latter may by law and equity
lay exclusive claim to the remaining parcel of land. xImperial v. CA, 259 SCRA 65 (1996).
2. Exceptions: When Ownership Transfers by Act of the Non-Owner
a. Estoppel on True Owner (Art. 1434) √Bucton v. Gabar, 55 SCRA 499 (1974).
The owner of the goods who has been unlawfully deprived of it may recover it even from a
purchaser in good faith. Thus, the purchaser of property which has been stolen from the owner has
been held to acquire no title to it even though he purchased for value and in good faith. Exception is
when the true owner is estopped. xFrancisco v. Chemical Bulk Carriers, Inc., 657 SCRA 355 (2011).
b. Recording Laws; Torrens System (Pres. Decree 1529).
The defense of indefeasibility of Torrens title where the disputed buildings and equipment are
located is unavailing, since such defense is available to sale of lands and not to sale of properties
situated therein. xTsai v. CA, 366 SCRA 324 (2001).
An innocent purchaser for value is one who purchases a titled land by virtue of a deed executed by
the registered owner himself not by a forged deed. xInsurance Services and Commercial Traders, Inc.
v. CA, 341 SCRA 572 (2000).
125
Azcona v. Reyes, 59 Phil. 446 (1934); Coronel v. Ona, 33 Phil. 456 (1916); Francisco v. Chemical Bulk Carriers, Inc., 657
SCRA 355 (2011).
29
A person who deals with registered land through someone who is not the registered owner is
expected to look beyond the certificate of title and examine all the factual circumstances thereof in
order to determine if the vendor has the capacity to transfer any interest in the land. Sy v. Capistrano,
Jr., 560 SCRA 103 (2008).
Where innocent third persons, relying on the correctness of the certificate of title thus issued,
acquire rights over the property, the court cannot disregard such rights and order the cancellation of
the certificate, since the effect of such outright cancellation will be to impair public confidence in the
certificate of title. Every person dealing with the registered land may safely rely on the correctness of
the certificate of title issued therefor and the law will in no way oblige him to go behind the certificate to
determine the condition of the property. xHeirs of Spouses Benito Gavino. v. CA, 291 SCRA 495
(1998).
An innocent purchaser for value is one who buys the property of another without notice that some
other person has a right to or interest in it, and who pays a full and fair price at the time of the
purchase or before receiving any notice of another person’s claim. The burden of proving the status of
a purchaser in good faith and for value lies upon one who asserts that status. This onus probandi
cannot be discharged by mere invocation of the ordinary presumption of good faith. Rufloe v. Burgos,
577 SCRA 264, 272-273 (2009).
c. Statutory Power Order of Courts
When a defeated party refuses to execute the absolute deed of sale in accordance with the
judgment, the court may direct the act to be done at the cost of the disobedient party by some other
person appointed by the court and the act when so done shall have the like effect as is done by the
party. xManila Remnant Co., Inc. v. CA, 231 SCRA 281 (1994)
d. Sale in Merchants Stores, Fairs or Markets (Arts. 85 and 86, Code of Commerce) √City of
129
Manila v. Bugsuk, 101 Phil. 859 (1957).
3. Sale by One Having Voidable Title (Art. 1506, as an exception to Art. 559)
Whenever there is an underlying sale which grants to the culprit-buyer a voidable title, even when
this is accompanied by the criminal act of estafa or swindling, Art. 1506 would grant to the buyer in
good faith a better title as against the original owner even though the latter may be classified to have
been “unlawfully deprived” of the subject matter under Art. 559. √Tagatac v. Jimenez, 53 O.G. 3792
(1957); √EDCA Publishing v. Santos, 184 SCRA 614 (1990).
When owner did not voluntarily deliver possession of the car, and in effect it was stolen from him,
then one who buys the car even in good faith from the thief will lose the car to the owner who is
deemed to have been unlawfully deprived. √Aznar v. Yapdiangco, 13 SCRA 486 (1965).
In all other cases of unlawful deprivation done through estafa, the original owner recovers even
from the buyer in good faith. √Cruz v. Pahati, 98 Phil. 788 (1956). [CLV: Decision showed that
second buyer, or current possessor could not claim good faith because of erasures in the
covering documents presented by his seller]
Owner of diamond ring may recover possession of the same from pawnshop where the owner’s
agent had pledged it without authority to do so; Article 559 applies and the defense that the pawnshop
acquired possession without notice of any defect of the pledgor-agent is unavailing. √Dizon v. Suntay,
47 SCRA 160 (1972).130 [In those cases possessor is a merchant and only has a pledge in his
favor].
IX. LOSS, DETERIORATION, FRUITS AND OTHER BENEFITS
1. No Application When Subject Matter is Determinable (Art. 1263)
2. Effect of Loss/Deterioration of Thing Sold:
a. Before Perfection (√Roman v. Grimalt, 6 Phil. 96 [1906]).
b. At Time of Perfection (Arts. 1493 and 1494).
The risk of loss or deterioration of the goods sold does not pass to the buyer until there is actual or
constructive delivery thereof. Assets Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).
c. After Perfection But Before Delivery (Arts. 1164, 1189, and 1262).
(1) General Rule: Before delivery, risk of loss is borne by seller under the rule of res perit domino.
xChrysler Phil. v. CA, 133 SCRA 567 (1984).
In the case of a motor vehicle, where there was neither physical nor constructive delivery of a
determinate thing, the thing sold remained at the seller’s risk. xUnion Motor Corp v. CA, 361 SCRA
506 (2001).
(2) Loss by Fault of a Party (Arts. 1480, 1504, 1538)
30
(3) Loss by Fortuitous Event (Arts. 1480, 1163, 1164, 1165, 1504, 1538, and 1189; READ
Comments of PARAS, TOLENTINO, PADILLA, and BAVIERA).
(4) Deterioration (Arts. 1480, 1163-65, and 1262; Arts. 1189 and 1538)
(5) Fruits or Improvements from time of perfection pertain to buyer (Arts. 1480, 1537-1538)
d. After Delivery (Art. 1504) √Lawyer's Coop v. Tabora, 13 SCRA 762 (1965).131
X. REMEDIES FOR BREACH OF CONTRACT OR SALE (Arts. 1594-1599)
A. ON PART OF SELLER
1. In Case of Movables (Arts. 1593, 1595 to 1597)
Under Article 1597, when the buyer of scrap iron fails to put up the letter of credit in favor of the
seller as the condition of the sale, the seller had a right to terminate the contract, and non-compliance
with the condition meant that the seller’s obligation to sell never did arise. xVisayan Sawmill Co. v. CA,
219 SCRA 378 (1993).
2. Unpaid Seller of Goods (Arts. 1524-1535)
a. Definition of “Unpaid Seller” (Art. 1525)
b. Rights of Unpaid Seller:
• Possessory lien (Arts. 1526-1529, 1503(1), 1535)
• Stoppage in transitu (Arts. 1530-1532, 1535, 1636[2])
• Right of Resale (Art. 1533)
• Right to Rescind (Art. 1534)
Even before the formal statutory adoption of the remedies of an unpaid seller, the Supreme Court
had already recognized the right of a seller, when the contract of sale is still executory in stage, to
resell the movables subject matter of the sale, when the buyer fails to pay the purchase price. xHanlon
v. Hausserman, 40 Phil. 796 (1920).
Seller in possession of the goods may sell them at buyer's risk. xKatigbak v. CA, 4 SCRA 243
(1962).
3. RECTO LAW: SALES OF MOVABLES ON INSTALLMENTS (Arts. 1484, 1485, 1486)
The Recto Law prevents mortgagee from seizing the mortgaged property, buying it at foreclosure
sale for a low price and then bringing the suit against the mortgagor for a deficiency judgment. The
almost invariable result was that the mortgagor found himself minus the property and still owing
practically the full amount of his original indebtedness. xMagna Financial Services Group, Inc. v.
Colarina, 477 SCRA 245 (2005).
a. “Installment Sale” requires at least stipulated two (2) payments in the future, whether or not there
is a downpayment. √Levy v. Gervacio, 69 Phil. 52 (1939).
b. Contracts to Sell Movables Not Covered. xVisayan Sawmill Company, Inc. v. CA, 219 SCRA 378
(1993).
c. Remedies Available to Unpaid Seller Not Cumulative But Alternative and Exclusive. √Delta
Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992).132
Seeking a writ of replevin consistent with any of the three remedies. xUniversal Motors Corp. v. Dy
Hian Tat, 28 SCRA 161 (1969).
d. Remedy of Specific Performance
The fact that the seller obtained a writ of execution against the property mortgaged, but pursuant to
an action for specific performance with a plea for a writ of replevin, does not amount to a foreclosure of
the chattel mortgage covered by the Recto Law. √Tajanglangit v. Southern Motors, 101 Phil. 606
(1957).133
e. Nature of Remedy of Rescission
Surrender of mortgaged property is not necessarily equivalent to rescission. xVda. de Quiambao v.
Manila Motors Co., Inc., 3 SCRA 444 (1961).
31
Mutual restitution prevents recovering on the balance of the purchase price. √Nonato v. IAC, 140
SCRA 255 (1985); but stipulation on non-return of payments is valid provided not unconscionable.
xDelta Motor Sales Corp. v. Niu Kim Duan, 213 SCRA 259 (1992).
f. Remedy of Foreclosure
Barring effect would cover a third-party mortgage, when it was the chattel mortgage that was first
foreclosed. √Ridad v. Filipinas Investment, 120 SCRA 246 (1983).
When the seller assigns his credit to another person, the latter is likewise bound by the same law.
√Zayas v. Luneta Motors, 117 SCRA 726 (1982).134
(i) “Barring” Effects of Foreclosure – Filing of the action of replevin in order to foreclose on the
chattel mortgage does not produce the barring effect under the Recto Law; for it is the fact of
foreclosure and actual sale of the mortgaged chattel that bar further recovery by the seller of any
balance on the buyer’s outstanding obligation not satisfied by the sale. The voluntary payment of
the installment by the buyer-mortgagor is valid and not recoverable in spite the restrictive
provisions of Art. 1484(3). √Northern Motors v. Sapinoso, 33 SCRA 356 (1970). 135
Foreclosure on the chattel mortgage prevents further action on the supporting real estate
mortgage, whether the chattel mortgage is first foreclosed √Cruz v. Filipinas Investment &
Finance Corp., 23 SCRA 791 (1968);136 and vice versa when the real estate mortgage is first
foreclosed. √Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996).
All amounts barred from recovery. √Macondray & Co. v. Eustaquio, 64 Phil. 446 (1937).
(ii) Rule on “Perverse Buyer”. √Filipinas Investment & Finance Corp. v. Ridad, 30 SCRA 564
(1969).
g. Purported Lease with Option to Buy
The Court took judicial notice of the practice of vendors of personal property of denominating a
contract of sale on installment as one of lease to prevent the ownership of the object of the sale from
passing to the vendee until and unless the price is fully paid. xElisco Tool Manufacturing Corp. v. CA,
307 SCRA 731 (1999).137
Where a lease agreement over equipment is without an express option to purchase, but
nevertheless when a final demand is given prior to suit, the demand letter indicates clearly it was
within the option of the lessee to fully pay the balance of the unpaid rentals and would be able to keep
the equipment, then the real contract between the parties was a sale of movable on installment
disguised as a lease agreement. √PCI Leasing and Finance, Inc. v. Giraffe-X Creative Imaging,
Inc., 527 SCRA 405 (2007).
4. IN CASE OF IMMOVABLES:
a . Anticipatory Breach (Art. 1591) √Legarda v. Saldaña, 55 SCRA 324 (1974).
b. Sales of Subdivision Lots and Condominium Units (Secs. 23 and 24, P.D. 957)
P.D.957 “was issued in the wake of numerous reports that many real estate subdivision owners,
developers, operators and/or sellers have reneged on their representations and obligations to provide
and maintain properly subdivision roads, drainage, sewerage, water systems, lighting systems and
other basic requirements or the health and safety of home and lot buyers. It was designed to stem the
tide of fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers free
from liens and encumbrances.” xCasa Filipinas Realty Corp. v. Office of the President, 241 SCRA 165
(1995).
Section 20 of P.D. 957 directs every owner and developer of real property to provide the necessary
facilities, improvements, infrastructure and other forms of development, failure to carry out which is
sufficient cause for the buyer to suspend payment, and any sums of money already paid shall not be
forfeited. xTamayo v. Huang, 480 SCRA 156 (2006).
In case the developer of a subdivision or condominium fails in its obligation under Section 20,
Section 23 gives the buyer:
•
the option to demand reimbursement of the total amount paid, or to wait for further development of the
subdivision, and when the buyer opts for the latter alternative, he may suspend payment of the installments
until such time that the owner or developer has fulfilled its obligations. xTamayo v. Huang, 480 SCRA 156
(2006);
•
buyer required only to give due notice to the owner or developer of the buyer’s intention to suspend
payment. xZamora Realty and Dev. Corp. v. Office of the President, 506 SCRA 591 (2006);
• Sec. 23 does not require that a notice be given first by the buyer to the seller before a demand for refund
can be made as the notice and demand can be made in the same letter or communication. xCasa Filipinas
Realty Corp v. Office of the President, 241 SCRA 165 (1995);
134
Borbon II v. Servicewide Specialists, Inc., 258 SCRA 634 (1996).
32
•
Option granted by law is with buyer and not the developer/seller. xRelucio v. Brillante-Garfin, 187 SCRA
405 (1990).
•
Even with a valid mortgage over the lot, the seller is still bound to redeem said mortgage without any cost
to the buyer apart from the balance of the purchase price and registration fees—subdivision developers
and owners have the obligation to deliver the corresponding clean certificates of title of the subdivision lots
where the purchase price of which have been paid in full by the buyers. Cantemprate v. CRS Realty Dev.
Corp., 587 SCRA 492 (2009).
It is apt to mention that it is the intent of P.D. 957 to protect the buyer against unscrupulous
developers, operators and/or sellers who reneged on their obligations. Thus, in order to achieve this
purpose, equity and justice dictate that the injured party should be afforded full recompensed and as
such, be allowed to recover the prevailing market value of the undelivered lot which had ben fully paid
for. Gotesco Properties, Inc. v. Fajardo, 692 SCRA 319 (2013).
“Buyer” under P.D. 957 would include one who acquires for a valuable consideration a
condominium unit by way of assignment by the condominium project owner in payment of its
indebtedness for contractor’s fee. xAMA Computer College, Inc. v. Factora, 378 SCRA 121 (2002).
Buyers of condominium units would be justified in suspending payments, when the developer-seller
fails to give them a copy of the Contract to Sell despite repeated demands. xGold Loop Properties, Inc.
v. CA, 350 SCRA 371 (2001); or when they failed to provide for the amenities mandated under their
development plan. Fedman Dev. Corp. v. Agcaoili, 656 SCRA 354 (2011). However, when the
Reservation Agreement provides that the buyer shall be entitled to a Contract to Sell only upon its
payment of at least 30% of the total contract price, the non-happening yet of that condition does not
render the seller in default as to warrant the buyer the right to rescind the sale and demand a refund.
G.G. Sportwear Mfg. Corp. v. World Class Properties, Inc., 614 SCRA 75 (2010).
Nothing in P.D. 957 provides for the nullification of a contract to sell in the event the seller, at the
time the contract was entered into, did not possess a certificate of registration or a license to sell, sale
being a consensual contract. Co Chien v. Sta. Lucia Realty, 513 SCRA 570 (2007).138
The dissatisfaction of the buyer under a Contract of Sale as to the completion date of the project
does not itself constitute substantial breach as to authorize the buyer to rescind the contract and ask
for refund of the amounts paid to the seller. G.G. Sportwear Mfg. Corp. v. World Class Properties,
Inc., 614 SCRA 75 (2010).
Under P.D. No. 957, a buyer cause of action against the developer for failure to develop ripens only
when the developer fails to complete the project on the lapse of the completion period stated on the
sale contract or the developer’s Licenses to Sell. Any premature demand prior to the indicated
completion date would be premature. G.G. Sportwear Mfg. Corp. v. World Class Properties, Inc., 614
SCRA 75 (2010).
The lack of Certificate of Registration or the License to Sell of the developer-seller merely subjects
the developer to administrative sanctions, but do not render the contracts to sell entered into on the
project null and void. G.G. Sportwear Mfg. Corp. v. World Class Properties, Inc., 614 SCRA 75 (2010).
Since the lots are involved in litigation and there is a notice of lis pendens at the back of the titles
involved, the subdivision developer have to be given a reasonable period of time to work on the
adverse claims and deliver clean titles to the buyer, and should the former fail to deliver clean titles at
the end of the period, it ought to reimburse the buyers not only for the purchase price of the
subdivision lots sold to them but also the incremental value arising from the appreciation of the lots.
Cantemprate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009).
One of the protections afforded by P.D. 957 to buyers is the right to have her contract to sell
registered with the Register of Deeds in order to make it binding on third parties. Nonetheless, despite
the non-registration of the contract to sell, the mortgagee bank cannot be considered, under the
circumstances, an innocent purchaser for value of the lot when it accepted the latter (together with
other assigned properties) as payment for the mortgagor developer’s obligation—the bank was well
aware that the assigned properties were subdivision lots and therefore within the purview of P.D. 957.
Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011).
5. MACEDA LAW: SALES OF RESIDENTIAL REALTY ON INSTALLMENTS (R.A. 6552).
“The contract for the purchase of a piece of land on installment basis is not only lawful; it is also of
widespread usage or custom in our economic system. . . . If [buyer] eventually found the interest
stipulation in the contract financially disadvantageous to him, he cannot now turn to this Court for
succor without impairing the constitutional right to the obligation of contracts. This Court will not relieve
petitioner of the necessary consequences of his free and voluntary, and otherwise lawful, act.” Bortikey
v. AFP Retirement and Separation Benefits System, 477 SCRA 511 (2005).
a. “Role” of Maceda Law – Maceda Law’s declared policy is to protect buyers of real estate on
installment basis against onerous and oppressive conditions, and seeks to address the acute
housing shortage problem in our country that has prompted thousands of middle and lower class
buyers of houses, lots and condominium units to enter into all sorts of contracts with private
housing developers involving installment schemes. Active Realty & Dev. Corp. Daroya, 382 SCRA
152 (2002).139
33
Maceda Law recognizes in conditional sales of all kinds of real estate seller’s right to cancel the
contract upon non-payment of an installment by the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force. Pagtulunan v. Dela Cruz Vda. De
Manzano, 533 SCRA 242 (2008).140
b. Transactions Covered
The formal requirements of rescission under the Maceda Law apply even to contracts entered into
prior to its effectivity. xSiska Dev. Corp. v. Office of the President, 231 SCRA 674 (1994).141 BUT SEE
xPeople’s Industrial and Commercial Corp. v. CA, 281 SCRA 206 (1997).
Maceda Law finds no application to a contract to sell where the suspensive condition has not been
fulfilled, because said Law presuppose the existence of a valid and effective contract to sell a
condominium. [?] xMortel v. KASSCO, Inc., 348 SCRA 391, 398 (2000).142
Maceda Law makes no distinctions between “option” and “sale” which under P.D. 957 also includes
“an exchange or attempt to sell, an option of sale or purchase, a solicitation of a sale or an offer to sell
directly,” and the all-embracing definition virtually includes all transactions concerning land and
housing acquisition, including reservation agreements. xRealty Exchange Venture Corp. v. Sendino,
233 SCRA 665 (1994).
Maceda Law has no application to protect the developer or one who succeeds the developer.
xLagandaon v. CA, 290 SCRA 463 (1998).
Since the Maceda Law governs salews of real estate on installments, Communities Cagayan, Inc.
v. Nanol, 685 SCRA 453 (2012), it has no application to the sale of large tracts of land (69,028 square
meters) which do not constitute residential real estate within the contemplation of the Maceda Law.
xGarcia v. CA, 619 SCRA 280 (2010).
c. How to Determine Years of Installments: √Jestra Dev. and Management Corp. v. Pacifico, 513
SCRA 413 (2007).
d. How Cancellation of Contract Can Be Effected – The cancellation of the contract under the
Maceda Law must follow the following steps:
• First, the seller should extend the buyer a grace period of at least sixty (60) days from the due
date of the installments.
• Second, at the end of the grace period, the seller shall furnish the buyer with a notarial notice of
cancellation or demand for rescission, effective thirty (30) days from the buyer’s receipt thereof;
a mere notice or letter, short of a notarial act, would not suffice. √McLaughlin v. CA, 144 SCRA
693 (1986).143
• Third, for contracts covering more than two years of payments, there must be return to the buyer
of the cash surrender value. xVilldara, Jr. v. Zabala, 545 SCRA 325 (2008).144
Under the Maceda Law, before a contract to sell of real estate on installments can be validly
and effectively cancelled, the seller has (a) to send a notarized notice of cancellation to the buyer
and (b) to refund the cash surrender value. Until and unless the seller complies with these twin
mandatory requirements, the contract to sell between the parties remains valid and subsisting.
Communities Cagayan, Inc. v. Nanol, 685 SCRA 453 (2012).
The additional formality of a demand on [the seller’s] part for rescission by notarial act would
appear, in the premises, to be merely circuitous and consequently superfluous” since the seller therein
filed an action for annulment of contract, which is a kindred concept of rescission by notarial act.
xLayug v. IAC, 167 SCRA 627 (1988).
A decision rendered in an ejectment case operated as the required notice of cancellation under the
Maceda Law; but as the buyer was not given the cash surrender value of the payments she made,
there was still no actual cancellation of the contract. xLeaño v. CA, 369 SCRA 36 (2001).
A formal letter demand upon buyer to vacate the premises is not the same as the notice of
cancellation or demand for rescission by a notarial act required by R.A. No. 6552. Evidently, the case
of unlawful detainer filed by petitioner does not exempt him from complying with the said requirement.
xPagtulunan v. Dela Cruz Vda. De Manzano, 533 SCRA 242 (2008).
Where the buyers under a contract to sell offers to pay the last installment a year and a half after
the stipulated date, that was beyond the sixty-day grace period under Section 4 of the Maceda Law.
The buyers cannot use the second sentence of Section 4 of the Maceda Law against the sellers’
alleged failure to give an effective notice of cancellation or demand for rescission because the sellers
merely sent the notice to the address supplied by the buyers in the Contract to Sell. √Garcia v. CA, 619
SCRA 280 (2010).
Under the Maceda Law, the right of the buyer to refund accrues only when he has paid at least two
years of installments. Manuel Uy & Sons, Inc. v. Valbueco, Inc., 705 SCRA 537 (2013).
140
Leaño v. CA, 369 SCRA 36 (2001); Cordero v. F.S. Management & Dev. Corp., 506 SCRA 451 (2006).
Eugenio v. Executive Secretary Franklin M. Drilon, 252 SCRA 106 (1996); PNB v. Office of the President, 252 SCRA 620
(1996).
141
34
6. RESCISSION ON SALES OF NON-RESIDENTIAL IMMOVABLES ON INSTALLMENTS
(Arts. 1191 and 1592)
Articles 1191 and 1592 on rescission cannot apply to a contract to sell since “there can be no
rescission of an obligation that is still non-existent, the suspensive condition not having happened.”
xValarao v. CA, 304 SCRA 155 (1999).145
Article 1592 allows the buyer of an immovable to pay as long as no demand for rescission has
been made; and the consignation of the balance of the purchase price before the trial court operates
as full payment. xProvince of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
Automatic rescission clauses are not valid nor can be given legal effect under Articles 1191 and
1592 . xIringan v. CA, 366 SCRA 41 (2001).146 Indeed, rescission requires under the law a positive act
of choice on the party of the non-defaulting party. xOlympia Housing v. Panasiatic Travel Corp., 395
SCRA 298 (2003).
Vendor cannot recover ownership of the thing sold until and unless the contract itself is resolved
and set aside; a party who fails to invoke judicially or by notarial act the resolution of a contract of sale
would be prevented from blocking the consummation of the same in light of the precept that mere
failure to fulfill the contract does not operate ipso facto as rescission. Platinum Plans Phil., Inc. v.
Cucueco, 488 SCRA 156 (2006).
B. ON PART OF BUYER
1. In case of Movables (Arts. 1598-1599)
2. In case of Immovables (Arts. 1191; Secs. 23 and 24, P.D. 957)
3. Suspension of Payment (Art. 1590)
The pendency of suit over the subject matter of the sale justifies the buyer in suspending payment
of the balance of the purchase price by reason of aforesaid vindicatory action filed against it. The
assurance made by the seller that the buyer did not have to worry about the case because it was pure
and simple harassment is not the kind of guaranty contemplated under Article 1590 wherein the buyer
is bound to make payment if the seller should give a security for the return of the price. xAdelfa
Properties, Inc. v. CA, 240 SCRA 565 (1995).
XI. REMEDY OF RESCISSION IN SALES CONTRACTS COVERING
IMMOVABLES: CONTRACT OF SALE versus CONTRACT TO SELL
A. NATURE OF REMEDY OF RESCISSION (RESOLUTION) (Arts. 1191, 1479, 1592)
1. Distinguishing from Other Remedy of Rescission (Universal Food Corp. v. CA, 33 SCRA 22
[1970]147. But see contra Suria v. IAC, 151 SCRA 661 [1987]).
While Art. 1191 uses the term “rescission,” the original term which was used in the old Civil Code
was “resolution.” Resolution is a principal action which is based on breach of a party, while rescission
under Art. 1383 is a subsidiary action limited to cases of rescission for lesion under Art. 1381. xOng v.
CA, 310 SCRA 1 (1999).148
2. Basis of Remedy of Rescission (Resolution)
Rescission under Art. 1191 is predicated on a breach of faith by the other party who violates the
reciprocity between them, and the breach contemplated is the obligor’s failure to comply with an
existing obligation. When the obligee may seek rescission and, in the absence of any just cause for
the court to determine the period of compliance, the court shall decree the rescission. xVelarde v. CA,
361 SCRA 56 (2001).149
To rescind is to declare a contract void at its inception and to put an end to it as though it never
was. It is not merely to terminate it and release the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties to their relative positions as if no contract has
been made. xVelarde v. CA, 361 SCRA 56 (2001).150
When a party asks for the resolution or cancellation of a contract it is implied that he recognizes it
existence – a non-existent contract cannot be cancelled. xPan Pacific Industrial Sales Co., Inc. v. CA,
482 SCRA 164 (2006).
Non-payment of the purchase price is a resolutory condition for which the remedy is either
rescission or specific performance under Article 1191. This is true for reciprocal obligations where the
145
Caridad Estates, Inc. v. Santero, 71 Phil. 114 (1940); Albea v. Inquimboy, 86 Phil. 477 (1950); Manuel v. Rodriguez, 109 Phil. 1
(1960); Joseph & Sons Enterprises, Inc. v. CA, 143 SCRA 663 (1986) Gimenez v. CA, 195 SCRA 205 (1991); Jacinto v. Kaparaz,
209 SCRA 246 (1992); Odyssey Park, Inc. v. CA, 280 SCRA 253 (1997); Rillo v. CA, 274 SCRA 461 (1997); Platinum Plans Phil.,
Inc. v. Cucueco, 488 SCRA 156 (2006); Tan v. Benolirao, 604 SCRA 36 (2009); Garcia v. CA, 619 SCRA 280 (2010).
146
Escueta v. Pando, 76 Phil. 256 (1946).
35
obligation is a resolutory condition of the other. On the other hand, the buyer is entitled to retain the
purchase price or a part thereof if the seller fails to perform any essential obligation of the contract.
Such right is premised on the general principles of reciprocal obligation. xGil v. CA, 411 SCRA 18
(2003).151
Consignation by the buyer of the purchase price of the property, there having been no previous
receipt of a notarial demand for rescission, is sufficient to defeat the right of the seller to demand for a
rescission of the deed of absolute sale. xGil v. CA, 411 SCRA 18 (2003).
Creditors do not have such material interest as to allow them to sue for rescission of a sale – theirs
is only a personal right to receive payment for the loan, not a real right over the property subject of the
deed of sale. xAdorable v. CA, 319 SCRA 200 (1999).
Action for Rescission Not Similar to An Action for Reconveyance – In the sale of real property,
the seller is not precluded from going to the court to demand judicial rescission in lieu of a notarial act
of rescission. But such action is different from an action for reconveyance of possession on the thesis
of a prior rescission of the contract covering the property. The effects that flow from an affirmative
judgment in either case would be materially dissimilar in various respects: judicial resolution of a
contract gives rise to mutual restitution which is not necessarily the situation that arise in an action for
reconveyance. In an action for rescission, unlike in an action for reconveyance predicated on an
extrajudicial rescission (rescission by notarial act), the court, instead of decreeing rescission, may
authorize for a just cause the fixing of a period. xOlympia Housing v. Panasiatic Travel Corp., 395
SCRA 298 (2003).
3. Power to Rescind Generally Judicial in Nature
A seller cannot unilaterally and extrajudicially rescind a contract of sale where there is no express
stipulation authorizing it. Unilateral rescission will not be judicially favored or allowed if the breach is
not substantial and fundamental to the fulfillment of the obligation. xBenito v. Saquitan-Ruiz, 394
SCRA 250 (2002).152
Nonetheless, the law does not prohibit the parties from entering into agreement that violation of the
terms of the contract would cause cancellation thereof, even without court intervention. xFroilan v. Pan
Oriental Shipping Co., 12 SCRA 276 (1964).153
4. Mutual Restitution and Forfeiture (Art. 1385)
When sale is annulled, parties are governed by Art. 1398 whereunder they shall restore to each
other the things which have been the subject matter of the contract, with their fruits, and price with
interest. xInes v. CA, 247 SCRA 312 (1995).154
The seller’s right in a contract to sell with reserved title to extrajudicially cancel the sale upon failure
of the buyer to pay the stipulated installments and retain the sums and installments already received
has long been recognized by the well-established doctrine of 39 years standing. xPangilinan v. CA,
279 SCRA 590 (1997).155
Pursuant to Art. 1188, in a contract to sell, even if the buyers did not mistakenly make partial
payments, inasmuch as the suspensive condition was not fulfilled, it is only fair and just that the buyers
be allowed to recover what they had paid in expectancy that the condition would happen; otherwise,
there would be unjust enrichment on the part of the seller. xBuot v. CA, 357 SCRA 846 (2001).
B. DISTINCTIONS BETWEEN CONTRACT OF SALE AND CONTRACT TO SELL
1. CONTRACT OF SALE versus CONTRACT TO SELL (Art. 1458) √Adelfa Properties, Inc. v. CA, 240 SCRA
575 (1995).156
In a contract of sale, title to the property passes to buyer upon the delivery of the thing sold; in a
contract to sell, ownership is, by agreement, reserved in the seller and is not to pass to buyer until full
payment of purchase price. Otherwise stated, in a contract of sale, seller loses ownership over the
property and cannot recover it until and unless the contract is resolved or rescinded, whereas in a
contract to sell, title is retained by the seller until full payment of the price. In the latter contract,
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. xCastillo v. Reyes,
539 SCRA 193 (2007).157
151
Central Philippine University v. CA, 246 SCRA 511 (1995); Romeo v. CA, 250 SCRA 223 (1995); Cheng v. Genato, 300 SCRA
722 (1998); Uy v. CA, 314 SCRA 63 (1999).
152
Ocejo, Perez & Co. v. International Banking Corp. 37 Phil. 631 (1918); Republic v. Hospital de San Juan de Dios, 84 Phil. 820
(1949); De la Rama Steamship Co. v. Tan, G.R. No. 8784, May 21, 1956; 99 Phil. 1034 (unrep.) (1956); Heirs of Jesus M.
Mascuñana v. CA, 461 SCRA 186 (2005).
153
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 95 (1972); Luzon Brokerage v. Maritime Bldg., 86 SCRA 305
(1978); Pangilinan v. Court of Appeals, 279 SCRA 590 (1997); Calilap-Asmeron v. DBP, 661 SCRA 54 (2011).
154
Velarde v. CA, 361 SCRA 56 (2001); Orden v. Aurea, 562 SCRA 660 (2008).
155
The Manila Racing Club v. The Manila Jockey Club, 69 Phil. 55 (1939).
156
Sta. Lucia Realty & Dev., Inc. V. Uyecio, 562 SCRA 226 (2008); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008).
36
a. Is a Contract to Sell a “Sale” under Article 1458?
A “contract to sell” as “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, 263 SCRA 15, 27 (1996).158 BUT
SEE: √PNB v. CA, 262 SCRA 464 (1996).
To be sure, a contract of sale may either be absolute or conditional. One form of conditional sales is
what is now popularly termed as a “Contract to Sell,” where ownership or title is retained until the
fulfillment of a positive suspensive condition normally the payment of the purchase price in the manner
agreed upon. For a contract, like a contract to sell, involves a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to render some service.
xGomez v. CA, 340 SCRA 720, 728 (2000).159
A contract to sell is akin to a conditional sale, in which the efficacy or obligatory force of the
vendor’s obligation to transfer title is subordinated to the happening of a future and uncertain event, so
that if the suspensive condition does not take place, the parties would stand as if the conditional
obligation never existed. Orden v. Aurea, 562 SCRA 660 (2008).160
A contract to sale is perfect at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price. Thus, for a contract to sale to be valid, all of the following
essential elements must concur: “a) consent or meeting of the minds; b) determinate subject matter;
and c) price certain in money or its equivalent. The contract to sell undergoes also the three stages of
a contract: negotiation, perfection and consummation. Robern Dev. Corp. v. People’s Landless Assn.,
693 SCRA 24 (2013).
While the quality of contingency inheres in a contract to sell, the same should not be confused with
a conditional contract of sale. In a contract to sell, the fulfillment of the suspensive condition will not
automatically transfer ownership to the buyer although the property may have been previously
delivered to him. The prospective seller still has to convey title to the prospective buyer by entering
into a contract of absolute sale. On the other hand, in a conditional contract of sale, the fulfillment of
the suspensive condition renders the sale absolute and the previous delivery of the property has the
effect of automatically transferring the seller’s owenrshi9p or title to the property to the buyer. Ventura
v. Heirs of Spouses Endaya, 706 SCRA 631 (2013).
In a contract of sale, the seller loses ownership over the property and cannot recover it until and
unless the contract is resolved or rescinded; in a contract to sell, title is retained by the seller until full
payment of the price. Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010).
A contract of sale is defined under Article 1458 of the Civil Code: By the contract of sale, one of the
contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing,
and the other to pay therefore a price certain in money or its equivalent. A contract to sell, on the other
hand, is defined by Article 1479 of the Civil Code: [A] bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to 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. In a
contract of sale, the title to the property passes to the buyer upon the delivery of the thing sold,
whereas in a contract to sell, the ownership is, by agreement, retained by the seller and is not to pass
to the vendee until full payment of the purchase price. Akang v. Municipality of Isulan, Sultan Kudarat
Province, 699 SCRA 745 (2013).
b. The Essence of Contract to Sell
A contract to sell is defined as 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 latter upon his
fulfillment of the conditions agreed upon, i.e., the full payment of the purchase price and/or
compliance with the other obligations stated in the contract to sell. Given its contingent nature, the
failure of the prospective buyer to make full payment and/or abide by his commitments stated in
the contract to sell prevents the obligation of the prospective seller to execute the corresponding
deed of sale to effect the transfer of ownership to the buyer form arising. Ventura v. Heirs of
Spouses Endaya, 706 SCRA 631 (2013).161
A contract to sell is defined as a bilateral contract whereby the prospective seller, while
expressly reserving the ownership of the property despite delivery thereof to the prospective
buyer, binds himself to sell the property exclusively to the prospective buyer upon fulfillment of the
condition agreed, i.e., full payment of the purchase price. In a contract to sell, the prospective
seller explicitly reserves the transfer of title to the prospective buyer, meaning, the prospective
Inc., 609 SCRA 134 (2009); De Leon v. Ong, 611 SCRA 381 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575
(2010).
158
Platinum Plans Phil., Inc. v. Cucueco, 488 SCRA 156 (2006); Valenzuela v. Kalayaan Dev. and Industrial Corp., 590 SCRA 380
37
seller does not as yet agree or consent to transfer ownership of the property subject of the
contract to sell until the happening of an event, which for present purposes we shall take as the
full payment of the purchase price. Republic v. Marawi-Marantao General Hospital, Inc., 686
SCRA 546 (2012).
In a contract to sell, payment of the price is a positive suspensive condition, failure of which is
not a breach of contract warranting rescission under Article 1191 of the Civil Code but rather just
an event that prevents the supposes seller from being bound to convey title to the supposed
buyer. Bonrostro v. Luna, 702 SCRA 1 (2013).
The remedy of rescission is not available in contracts to sell. Diego v. Diego, 691 SCRA 361
(2013).
In a contract to sell, the seller’s obligation to deliver the corresponding certificates of title is
simultaneous and reciprocal to the buyer’s full payment of the purchase price. Gotesco
Properties, Inc. v. Fajardo, 692 SCRA 319 (2013).
Rationale of Contracts to Sell: A contract to sell is commonly entered into so as to protect the
seller against a buyer who intends to buy the property in installments by withholding ownership over
the property until the buyer effects full payment therefor. It cannot be inferred in a situation where both
parties understood the price to be paid in cash. xCity of Cebu v. Heirs of Candido Rubi, 306 SCRA
408 (1999).162
c. Importance of “Locating” the Condition to Pay Price in Full
In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the
transaction that, for a time existed, and discharges the obligations created thereunder. xBlas v.
Angeles-Hutalla, 439 SCRA 273 (2004).163 Whereas, in a contract to sell, the payment of the purchase
price is a positive suspensive condition. The vendor’s obligation to convey the title does not become
effective in case of failure to pay. xBuot v. CA, 357 SCRA 846 (2001).164
When the obligation of buyer to pay the full amount of the purchase price was made subject to the
condition that the seller first delivery the clean title over the parcel bough within twenty (20) months
from the signing of the contract, such condition is imposed merely on the performance of the
obligation, as distinguished from a condition imposed on the perfection of the contract. The nonhappening of the condition merely granted the buyer the right to rescind the contract or even to waive
it and enforce performance on the part of the seller, all in consonance with Art. 1545 of Civil Code
which provides that “Where the obligation of either party to a contract of sale is subject to any
condition which is not performed, such party may refuse to proceed with the contract or he may waive
performance of the condition.” √Babasa v. CA, 290 SCRA 532 (1998).
The remedy of rescission under Article 1191 of the Civil Code cannot apply to mere contracts to
sell—in a contract to sell, the payment of the purchase price is a positive suspensive condition, and
failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that
prevents the obligation of the vendor to convey title from acquiring an obligatory force. Tan v.
Benolirao, 604 SCRA 36 (2009).165
d. Necessary Stipulations in a Contract to Sell:
A contract is one of sale, absent any stipulation therein (a) reserving title over the property to the
vendee until full payment of the purchase price,166 and (b) giving the vendor the right to unilaterally
rescind the contract in case of non-payment.167 √Valdez v. CA, 439 SCRA 55 (2004); De Leon v.
Ong, 611 SCRA 381 (2010);168 BUT SEE: √Dignos v. CA, 158 SCRA 375 (1988).
It was enough for the Court to characterize the Deed of Condition Sale as a “contract to sell” alone
by the reservation of ownership. Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008).
The reservation of title may not be found in express provision of the contract, but may also be
determined from proven acts of the parties. xSalazar v. CA, 258 SCRA 325 (1996).
The absence of a formal deed of conveyance [or a stipulation to execute the deed of sale only full
payment of the purchase price] is a strong indication that the parties did not intend immediate transfer
of ownership, but only a transfer after full payment of the purchase price,169 and the seller retained
possession of the certificate of tile and all other documents relative to the sale until there was full
payment of the purchase price. xChua v. CA, 401 SCRA 54 (2003).
An agreement in which ownership is reserved in the vendor and is not to pass to the vendee until
full payment of the purchase price is known as a contract to sell. The absence of full payment
162
Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010); Tumibay v. Lopez, 697 SCRA 21 (2013).
Valenzuela v. Kalayaan Dev’t and Industrial Corp., 590 SCRA 380 (2009); Traders Royal Bank v. Cuison Lumber Co., Inc., 588
SCRA 690 (2009).
164
Heirs of Spouses Sandejas v. Lina, 351 SCRA 183 (2001); Zamora Realty and Dev. Corp v. Office of the President, 506 SCRA
591 (2006); Nabus v. Pacson, 605 SCRA 334 (2009); Union Bank v. Maunlad Homes, Inc., 678 SCRA 539 (2012).
165
Traders Royal Bank v. Cuison Lumber Co., Inc., 588 SCRA 690 (2009); Nabus v. Pacson, 605 SCRA 334 (2009).
166
Topacio v. CA, 211 SCRA 219 (1992); Laforteza v. Machuca, 333 SCRA 643 (2000); Almira v. CA, 399 SCRA351 (2003);
Manuel Uy & Sons, Inc. V. Valbueco, Inc., 705 SCRA 537 (2013); Reyes v. Tuparan, 650 SCRA 238 (2011).
167
Roque v. Lapuz, 96 SCRA 741 (1980); Angeles v. Calanz, 135 SCRA 323 (1985);Alfonso v. CA, 186 SCRA 400 (1990)
163
38
suspends the vendors’ obligation to convey title, even if the sale has already been registered.
Registration does not vest, but merely serves as evidence of, title to a particular property. Our land
registration laws do not give title holders any better ownership than what they actually had prior to
registration. xPortic v. Cristobal, 456 SCRA 577 (2005).170
It is not the title of the contract, but its express terms or stipulations that determine the kind of
contract entered into by the parties. . . Where the vendor promises to execute a deed of absolute sale
upon the completion by the vendee of the payment of the price, the contract is only a contract to sell.
The aforecited stipulation shows that the vendors reserved title to the subject property until full
payment of the purchase price. Nabus v. Pacson, 605 SCRA 334 (2009).
The need to execute a deed of absolute sale upon completion of payment of the price generally
indicates that it is a contract to sell, as it implies the reservation of title in the vendor until the vendee
171
has completed the payment of the price. Diego v. Diego, 691 SCRA 361 (2013).
e. Issue of Substantial Breach (Arts. 1191 and 1234)
The concept of substantial breach is irrelevant to a contract of sale. xLuzon Brokerage Co., Inc. v.
Maritime Building Co., Inc., 43 SCRA 93 (1972).172
In a contract to sell real property on installments, the full payment of the purchase price is a positive
condition, the failure of which is not considered a breach, casual or serious, but simply an event that
prevented the obligation of the vendor to convey title from acquiring any obligatory force. The transfer
of ownership and title would occur after full payment of the price. xLeaño v. CA, 369 SCRA 36
(2001).173
2. Minimum Requirement for Cancellation of Contract to Sell
The act of a party in treating a contract as cancelled should be made known to the other party
because this act is subject to scrutiny and review of the courts in case the alleged defaulter bring the
matter for judicial determination. √University of the Philippines v. De los Angeles, 35 SCRA 103
(1970); √Palay Inc. v. Clave, 124 SCRA 638 (1983).174
The act of the seller in notifying the buyer of his intention to sell the properties to other interested
persons if the latter failed to pay the balance of the purchase price is sufficient notice for the
cancellation or resolution of their contract to sell. Orden v. Aurea, 562 SCRA 660 (2008).
A contract to sell imposes reciprocal obligations and so cannot be terminated unilaterally by either
party. Judicial rescission is required under Article 1191. However, this rule is not absolute. We have
held that in proper cases, a party may take it upon itself to consider the contract rescinded and act
accordingly albeit subject to judicial confirmation, which may or may not be given. √Lim v. CA, 182
SCRA 564 (1990). BUT SEE: In a contract to sell, upon failure of buyer to comply with its obligation,
there was no need to judicially rescind the contract to sell. Failure by one of the parties to abide by the
conditions in a contract to sell resulted in the rescission of the contract. √AFP Mutual Benefit Assn.,
Inc. v. CA, 364 SCRA 768 (2001).175
A grace period is a right, not an obligation of the debtor, and when unconditionally conferred, the
grace period is effective without further need of demand either calling for the payment of the obligation
or for honoring the right. xBricktown Dev. Corp. v. Amor Tierra Dev.., 239 SCRA 126 (1995).
The act of the seller in notifying the buyer of his intention to sell the properties to other interest
persons if the latter failed to pay the balance of the purchase price is sufficient notice for the
cancellation or resolution of their contract to sell. Orden v. Aurea, 562 SCRA 660 (2008).
3. Equity Resolutions on Contracts to Sell
Although buyer clearly defaulted in his installment payments in a contract to sell covering two
parcels of land, the Supreme Court nevertheless awarded ownership over one of the two (2) lots jointly
purchased by the buyer, on the basis that the total amount of installments paid, although not enough to
cover the purchase price of the two lots were enough to cover fully the purchase price of one lot, ruling
there was substantial performance insofar as one of the lots concerned as to prevent rescission
thereto. xLegarda Hermanos v. Saldaña, 55 SCRA 3246 (1974).
Where buyer had religiously been paying monthly installments for 8 years, but even after default he
was willing and had offered to pay all the arrears, the Court granted additional period of 60 days from
receipt of judgment for buyer to make all installments payments in arrears plus interests, although
demand for rescission had already been made. xJ.M. Tuazon Co., Inc. v. Javier, 31 SCRA 829 (1970).
170
Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Bank of P.I. v. SMP, Inc., 609 SCRA 134 (2009).
Heirs of Antonio F. Bernabe v. Court of Appeals, 559 SCRA 53 (2008); Solidstate Multi-Products Corp. v. Catienza-Villaverde,
559 SCRA 197 (2008)Tan v. Benolirao, 604 SCRA 36 (2009); Nabus v. Pacson, 605 SCRA 334 (2009)Union Bank v. Maunlad
Homes, Inc., 678 SCRA 539 (2012).
172
Siska Dev. Corp. v. Office of the President, 231 SCRA 674 (1994); Sta. Lucia Realty & Dev., Inc. v. Uyecio, 562 SCRA 226
171
39
XII. CONDITIONS AND WARRANTIES
1. Conditions (Art. 1545)
Failure to comply with condition imposed upon perfection of the contract results in failure of a
contract, while the failure to comply with a condition imposed on the performance of an obligation only
gives the other party the option either to refuse to proceed with sale or waive the condition. √Laforteza
v. Machuca, 333 SCRA 643 (2000).176
In a “Sale with Assumption of Mortgage,” the assumption of mortgage is a condition to the seller’s
consent so that without approval by the mortgagee, no sale is perfected. In such case, the seller
remains the owner and mortgagor of the property and retains the right to redeem the foreclosed
property. xRamos v. CA, 279 SCRA 118 (1997).177 But such condition is deemed fulfilled when the
seller takes any action to prevent its happening. De Leon v. Ong, 611 SCRA 381 (2010).
There has arisen here a confusion in the concepts of validity and the efficacy of a contract. Under
Art. 1318 of Civil Code, the essential requisites of a contract are: consent of the contracting parties;
object certain which is the subject matter of the contract and cause of the obligation which is
established. Absent one of the above, no contract can arise. Conversely, where all are present, the
result is a valid contract. However, some parties introduce various kinds of restrictions or modalities,
the lack of which will not, however, affect the validity of the contract. Thus, a provision “this Contract of
Sale of rights, interests and participations shall become effective only upon the approval by the
Honorable Court,” in the event of non-approval by the courts, affect only the effectivity and not the
validity of the contract of sale. √Heirs of Pedro Escanlar v. CA, 281 SCRA 176 (1997).
The phrase “as is, where is” in sale pertains solely to the physical condition of the thing sold, not to
its legal situation. Assets Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).
The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is
the object of the sale. Assets Privatization Trust v. T.J. Enterprises, 587 SCRA 481 (2009).
The condition in the contract of sale of buyer’s assumption of the mortgage constituted on the
subject matter is deemed fulfilled when the seller prevented its fulfillment by paying his outstanding
obligation to the bank and taking back the certificates of title without even notifying the buyer. De Leon
v. Ong, 611 SCRA 381 (2010).
2. Conditions versus Warranties. √Power Commercial and Industrial Corp. v. CA, 274 SCRA 597
(1997).
3. Express Warranties (Art. 1546)
A warranty is a statement or representation made by the seller of goods, contemporaneously and
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
them Ang v. CA, 567 SCRA 53 (2008).
A warranty is an affirmation of fact or any promise made by a vendor in relation to the thing sold.
The decisive test is whether the vendor assumes to assert a fact of which the vendee is ignorant.
xGoodyear Philippines, Inc. v. Sy, 474 SCRA 427 (2005).
The principle of caveat emptor only requires the purchaser to exercise care and attention ordinarily
exercised by prudent men in like business affairs, and only applies to defects which are open and
patent to the service of one exercising such care. It can only be applied where it is shown or conceded
that the parties to the contract stand on equal footing and have equal knowledge or equal means of
knowledge and there is no relation of trust or confidence between them. It does not apply to a
representation that amounts to a warranty by the seller and the situation requires the buyer to rely
upon such promise or affirmation. √Guinhawa v. People, 468 SCRA 278 (2005).178
“The law allows considerable latitude to seller’s statements, or dealer’s talk; and experience
teaches that it is exceedingly risky to accept it at its face value. Assertions concerning the property
which is the subject of a contract of sale, or in regard to its qualities and characteristics, are the usual
and ordinary means used by sellers to obtain a high price and are always understood as affording to
buyers no ground for omitting to make inquiries. A man who relies upon such an affirmation made by a
person whose interest might so readily prompt him to exaggerate the value of his property does so as
his peril, and must take the consequences of his own imprudence.” xSongco v. Sellner, 37 Phil. 254
(1917).
Breach of an express warranty makes the seller liable for damages. The following requisites must
be established in order that there be an express warranty in sale: (1) the express warranty must be an
affirmation of fact or any promise by the seller relating to the subject matter of the sale; (2) the natural
tendency of such affirmation or promise is to induce the buyer to purchase the thing; and (3) the buyer
purchases the thing relying on such affirmation or promise thereon. xCarrascoso, Jr. v. CA, 477 SCRA
666 (2005).
4. Implied Warranties (Art. 1547)
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b. Warranty Against Eviction (Arts. 1548-1560)
Seller must be summoned in the suit for eviction at the instance of the buyer (Art. 1558), and be
made a co-defendant (Art. 1559); or made a third-party defendant. Escaler v. CA, 138 SCRA 1
(1985).179
A dacion en pago is governed by the law of sales, and contracts of sale come with warranties,
either express (if explicitly stipulated by the parties) or implied (under Article 1547 et seq. of the Civil
Code). The implied warranty in case of eviction is waivable and cannot be invoked if the buyer knew of
the risks or danger of eviction and assumed its consequences. Luzon Dev. Bank v. Enriquez, 639
SCRA 332 (2011).
No Warranty Against Eviction When Execution Sale – In voluntary sales, vendor can be
expected to defend his title because of his warranty to the vendees but no such obligation is owed by
the owner whose land is sold at execution sale. xSantiago Land Dev. Corp. v. CA, 276 SCRA 674
(1997). BUT SEE: Art. 1552.
The seller, in declaring that he owned and had clean title to the vehicle, gave an implied warranty of
title, and in pledging that he “will defend the same from all claims or any claim whatsoever [and] will
save the vendee from any suit by the government of the Republic of the Philippines,” he gave a
warranty against eviction, and the prescriptive period to file a breach thereof is six months after the
delivery of the vehicle. √Ang v. CA, 567 SCRA 53 (2008).
c. Warranty Against Non-Apparent Servitudes (Arts. 1560)
d. Warranty Against Hidden Defects (Arts. 1561, 1566-1580)
The stipulation in a lease with option to purchase (treated as a sale of movable on installments) that
the buyer-lessee “absolutely releases the lessor from any liability whatsoever as to any and all matters
in relation to warranty in accordance with the provisions hereinafter stipulated,” was held as an
express waiver of warranty against hidden defect in favor of the seller-lessor which “absolved the
[seller-lessor] from any liability arising from any defect or deficiency of the machinery they bought.”
xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).
A hidden defect is one which is unknown or could not have been known to the buyer. Under the
law, the requisites to recover on account of hidden defects are as follows: (a) The defect must be
hidden; (b) The defect must exist at the time the sale was made; (c) The defect must ordinarily have
been excluded from the contract; (d) The defect, must be important (render the thing unfit or
considerably decreases fitness); (e) The action must be instituted within the statute of limitations.
180
√Nutrimix Feeds Corp. v. CA, 441 SCRA 357 (2004).
Seller’s agent can by agreement be liable for the warranty against hidden defects. xSchmid and
Oberly, Inc. v. RJL Martinez, 166 SCRA 493 (1988).
e. Warranty as to Fitness or Quality of Goods (Arts. 1562, 1565, 1599)
In order to enforce the implied warranty that the goods are reasonably fit and suitable to be used for
the purpose which both parties contemplated, the following must be established: (a) that the buyer
sustained injury because of the product; (b) that the injury occurred because the product was defective
or unreasonably unsafe; and finally (c) the defect existed when the product left the hands of the
petitioner. √Nutrimix Feeds Corp. v. CA, 441 SCRA 357 (2004).
A manufacturer or seller of a product cannot be held liable for any damage allegedly caused by the
product in the absence of any proof that the product in question is defective, which was present upon
the delivery or manufacture of the product; or when the product left the seller’s or manufacturer’s
control; or when the product was sold to the purchaser; or the product must have reached the user or
consumer without substantial change in the condition it was sold. √Nutrimix Feeds Corp. v. CA, 441
SCRA 357 (2004).
f. Sale of Goods by Sample (Art. 1565)
There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the
bulk, which is not present and there is no opportunity to inspect or examine the same. To constitute a
sale by sample, it must appear that the parties treated the sample as the standard of quality and that
they contracted with reference to the sample with the understanding that the product to be delivered
would correspondent with the sample. In a contract of sale by sample, there is an implied warranty that
the goods shall be free from any defect which is not apparent on reasonable examination of the
sample and which would render the goods unmerchantable. xMendoza v. David, 441 SCRA 172
(2004).
g. Additional Warranties for Consumer Products (Arts. 68, Consumer Act, R.A. 7394).
5. Effects and Prescription of Warranties (Art. 1599)
A breach in the warranties of the seller entitles the buyer to a proportionate reduction of the
purchase price. PNB v. Mega Prime Realty and Holding Corp., 567 SCRA 633 (2008).
The prescriptive period for instituting actions based on a breach of express warranty is that
41
which is four years, while for actions based on breach of implied warranty, the prescriptive period is six
months from the date of the delivery of the thing sold. Ang v. CA, 567 SCRA 53 (2008).
6. Effects of Waivers
The phrase “as is, where is” basis pertains solely to the physical condition of the thing sold, not to
its legal situation. In the case at bar, the US tax liabilities constitute a potential lien which applies to the
subject’s matter’s legal situation, not to its physical aspect. Thus, the buyer has no obligation to
shoulder the same. xNDC v. Madrigal Wan Hui Lines Corp., 412 SCRA 375 (2003).
7. Buyer’s Options in Case of Breach of Warranty (Art. 1599)
The remedy against violation of warranty against hidden defects is either to withdraw from the
contract (accion redhibitoria) or to demand a proportionate reduction of the price (accion quanti
minoris), with damages in either case. √Nutrimix Feeds Corp. v. CA, 441 SCRA 357 (2004).
XIII. EXTINGUISHMENT OF SALE
A. IN GENERAL (Arts. 1231 and 1600)
B. CONVENTIONAL REDEMPTION
1. Definition (Art. 1601)
Right to repurchase must be constituted as part of a valid sale at perfection. xVillarica v. CA, 26
SCRA 189 (1968).181
An agreement to repurchase becomes a promise to sell when made after the sale because when
the sale is made without such agreement the purchases acquires the things sold absolutely; and, if he
afterwards grants the vendor the right to repurchase, it is a new contract entered into by the purchases
as absolute owner. √Roberts v. Papio, 515 SCRA 346 (2007).182
In sales denominated as pacto de retro, the price agreed upon should not generally be considered
as the just value of the thing sold, absent other corroborative evidence—there is no requirement in
sales that the price be equal to the exact value of the thing subject matter of the sale. xDorado Vda.
De Delfin v. Dellota, 542 SCRA 397 (2008).
Sales with rights of repurchase, as defined by the Civil Code, are not favored. We will not construe
instruments to be sales with a right to repurchase, with the stringent and onerous effects which follow,
unless the terms of the document and the surrounding circumstances require it. Whenever, under the
terms of the writing, any other construction can fairly and reasonably be made, such construction will
be adopted and the contract will be construed as a mere loan unless the court can see that, if enforced
183
according to its terms, it is not an unconscionable one. Bautista v. Unangst, 557 SCRA 256 (2008).
2. Redemption Period
The period to repurchase is not suspended merely because there is a divergence of opinion
between the parties as to the precise meaning of the phrase providing for the condition upon which the
right to repurchase is triggered. The existence of seller a retro’s right to repurchase the proper is not
dependent upon the prior final interpretation by the court of the said phrase. √Misterio v. Cebu State
College of Science and Technology, 461 SCRA 122 (2005).
3. Situation Prior to Redemption (Art. 1606)
In a sale a retro, buyer has a right to the immediate possession of the property sold, unless
otherwise agreed upon, since title and ownership of the property sold are immediately vested in the
buyer a retro, subject only to the resolutory condition of repurchase by the seller a retro within the
stipulated period. xVda. de Rigonan v. Derecho, 463 SCRA 627 (2005).184
4. Who Can Redeem (Arts. 1611 to 1614)
5. How Redemption Effected (Art. 1616)
In order to exercise the right to redeem, only tender of payment is sufficient xLegaspi v. CA, 142
SCRA 82 1986); consignation is not required after tender is refused xMariano v. CA, 222 SCRA 736
(1993).
But when tender not possible, consignation should be made xCatangcatang v. Legayada, 84 SCRA
51 (1978).
Well-settled is the rule that a formal offer to redeem must be accompanied by a valid tender of the
redemption price and the filing of a judicial action, plus the consignation of the redemption price within
181
182
Claravall v. CA, 190 SCRA 439 (1990); Torres v. CA, 216 SCRA 287 (1992); Roberts v. Papio, 515 SCRA 346 (2007).
Ramos v. Icasiano, 51 Phil (1927).
42
the period of redemption, is equivalent to a formal offer to redeem. xVillegas v. CA, 499 SCRA 276
(2006).
A formal offer to redeem, accompanied by a bona fide tender of redemption price, is not essential
where the right to redeem is exercised through a judicial action within the redemption period and
simultaneously depositing the redemption price. xLee Chuy Realty Corp. v. CA, 250 SCRA 596 (1995).
6. Redemption Price (Art. 1616)
A stipulation in a sale a retro requiring as part of the redemption price interest for the cost of
money, is not in contravention with Art. 1616, since the provision is not restrictive nor exclusive, and
does not bar additional amounts that the parties may agree upon, since the article itself provides “and
other stipulations which may have been agreed upon.” xSolid Homes v. CA, 275 SCRA 267 (1997).
Article 448 of Civil Code on the rights of a builder in good faith is inapplicable in cases involving
contracts of sale with right of repurchase—where the true owner himself is the builder of the works on
his own land, the issue of good faith or bad faith is entirely irrelevant. The right to repurchase may be
exercised only by the vendor in whom the right is recognized by contract or by any person to whom the
right may have been transferred. In a sale with right of repurchase, the applicable provisions are
Articles 1606 and 1616 of the Civil Code, and not Article 448. Narvaez v. Alciso, 594 SCRA 60 (2009).
7. Fruits (Art. 1617)
Article 1617 on the disposition of fruits of property redeemed applies only when the parties failed to
provide a sharing arrangement thereof; otherwise, the parties contractual stipulations prevail. xAlmeda
v. Daluro, 79 SCRA 327 (1977).
8. Effect When No Redemption Made: Consolidation (Art. 1607)
Article 1607 abolished automatic consolidation of ownership in the vendee a retro upon expiration
of the redemption period by requiring the vendee to institute an action for consolidation where the
vendor a retro may be duly heard. If the vendee succeeds in proving that the transaction was indeed a
pacto de retro, the vendor is still given a period of thirty days from the finality of the judgment within
which to repurchase the property. xSolid Homes v. CA, 275 SCRA 267 (1997).
Once the vendor fails to redeem the property within the stipulated period, irrevocable title shall be
vested in the vendee by operation of law. xVda. de Rigonan v. Derecho, 463 SCRA 627 (2005).
Under a sale a retro, the failure of the buyer to consolidate his title under Art. 1607 does not impair
such title and ownership because the method prescribed thereunder is merely for the purpose of
registering and consolidating titles to the property. In fact, the failure on the part of a seller a retro to
exercise the redemption right within the period agreed upon or provided for by law, vests upon the
buyer a retro absolute title and ownership over the property sold by operation of law. Consequently,
after the effect of consolidation, the mortgage or re-sale by the seller a retro of the same property
would not transfer title and ownership to the mortgagee or buyer, as the case may be, under the Latin
maxim NEMO DAT QUOD NON HABET. xCadungog v. Yap, 469 SCRA 561 (2005).
9. EQUITABLE MORTGAGE (Arts. 1602-1604)
An equitable mortgage is defined as one although lacking in some formality, or form or words, 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. For the
presumption of an equitable mortgage to arise, two requisites must concur: (1) that the parties entered
into a contract denominated as a sale; and (2) the intention was to secure an existing debt by way of
mortgage. Consequently, the non-payment of the debt when due gives the mortgagee the right to
foreclose the mortgage, sell the property and apply the proceeds of the sale for the satisfaction of the
loan obligation. 18 While there is no single test to determine whether the deed of absolute sale on its
face is really a simple loan accommodation secured by a mortgage, Art. 1602 of the Civil Code,
however, enumerates several instances when a contract is presumed to be an equitable mortgage.
Heirs of Dela Rosa v. Batongbacal, 731 SCRA 263 (2014).
This kind of arrangement, where the ownership of the land is supposedly transferred to the buyer
who provides for the funds to redeem the property from the bank but nonetheless allows the seller to
later on buy back the properties, is in the nature of an equitable mortgage governed by Articles 1602
and 1604 of the Civil Code. Bacungan v. CA, 574 SCRA 642 (2008).
If the terms of the pacto de retro sale were unfavorable to the vendor, courts have no business
extricating her from that bad bargain—courts are not guardians of persons who are legally competent.
Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).
The law on equitable mortgage favors the least transmission of rights and interest over a property
in controversy, since the law seeks to prevent circumvention of the law on usury and the prohibition
against pactum commissorium provisions. Additionally, it is aimed to end unjust or oppressive
transactions or violations in connection with a sale or property. The wisdom of these provisions cannot
be doubted, considering many cases of unlettered persons or even those with average intelligence
invariably finding themselves in no position whatsoever to bargain fairly with their creditors. xSpouses
185
43
Besides, it is a fact that in time of grave financial distress which render persons hard-pressed to
meet even their basic needs or answer an emergency, such persons would have no choice but to sign
a deed of absolute sale of property or a sale thereof with pacto de retro if only to obtain a muchneeded loan from unscrupulous money lenders. xMatanguihan v. CA, 275 SCRA 380 (1997).186
An equitable mortgage is defined as one which although lacking in some formality or form or words,
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. xRaymundo v.
Bandong, 526 SCRA 514 (2007).187
The provisions of the Civil Code governing equitable mortgage disguised as sale contracts are
primarily designed to curtail the evils brought about by contracts of sale with right to repurchase,
particularly the circumvention of the usury law and pactum commissorium. Heirs of Jose Reyes, Jr. v.
Reyes, 626 SCRA 758 (2010).
The essential requisites of an equitable mortgage are: (a) The parties entered into a contract
denominated as a contract of sale; and (b) Their intention was to secure an existing debt by way of a
mortgage. xMolina v. CA, 398 SCRA 97 (2003).188
The decisive factor in evaluating whether an agreement is an equitable mortgage is the intention of
the parties, as shown not necessarily by the terminology used in the contract but by all the surrounding
circumstances, such as the relative situation of the parties at that time, the attitude, acts, conduct,
declarations of the parties, the negotiations between them leading to the deed, and generally, all
pertinent facts having a tendency to fix and determine the real nature of their design and
understanding. Necessitous men are not always free, in that to answer a pressing emergency, they will
submit to any term that the crafty may impose on them. Banga v. Bello, 471 SCRA 653 (2005).189
That is why parol evidence is competent and admissible in support of the allegations that an
instrument in writing, purporting on its face to transfer the absolute title to property, or to transfer the
title with a right to repurchase under specified conditions reserved to the seller, was in truth and in fact
given merely as security for the repayment of a loan. xMariano v. CA, 220 SCRA 716 (1993).190
a. Badges of Equitable Mortgage (Art. 1602191)
A contract of sale actually intended to secure the payment of an obligation is presumed an
192
equitable mortgage. xRomulo v. Layug, Jr., 501 SCRA262 (2006).
The presence of only one circumstance defined in Art. 1602 is sufficient for a contract of sale a
193
retro to be presumed an equitable mortgage. xHilado v. Medalla 377 SCRA 257 (2002).
The presumption in Article 1602 jibes with the rule that the law favors the least transmission of
property rights. xEnriquez, Sr. v. Heirs of Spouses Nieves and Alfredo Baldonado, 498 SCRA 365
(2006); but it is not conclusive, for it may be rebutted by competent and satisfactory proof to the
contrary. xSantiago v. Dizon, 543 SCRA 402 (2008).
The provisions of Article 1602 on the presumption of equitable mortgage applies also to a contract
194
purporting to be an absolute sale. xTuazon v. CA, 341 SCRA 707 (2000).
A contract purporting to be an absolute sale is presumed to be an equitable mortgage: (a) when the
195
price of the sale is unusually inadequate; (b) when the vendor remains in possession as lessee or
196
otherwise;
(c) when after the expiration of the right of repurchase, it is extended by the buyer.
197
xHilado v. Heirs of Rafael Medalla, 37 SCRA 257 (2002); (d) when the purported seller continues to
collect rentals from the lessees of the property sold. Ramos v. Dizon, 498 SCRA 17 (2006); (e) when
the purported seller was in desperate financial situation when he executed the purported sale. Bautista
186
Salonga v. Concepcion, 470 SCRA 291 (2005).
Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); Alvaro v. Ternida, 479 SCRA 288 (2006);
Cirelos v. Hernandez, 490 SCRA 624 (2006); Lumayag v. Heirs of Jacinto Nemeño, 526 SCRA 51 (2007); Olivares v. Sarmiento,
554 SCRA 384 (2008); Tio v. Abayata, 556 SCRA 175 (2008); Deheza-Inamarga v. Alano, 574 SCRA 651 (2008); Rockville Excel
International Exim Corp. v. Culla, 602 SCRA 124 (2009); Kings Properties Corp. v. Galido, 606 SCRA 137 (2009); Martires v. Chua,
694 SCRA 38 (2013).
188
Matanguihan v. CA, 275 SCRA 380 (1997); Martinez v. CA, 358 SCRA 38 (2001); Hilado v. Heirs of Rafael Medlla, 37 SCRA
257 (2002); Ceballos v. Intestate Estate of the Late Emigdio Mercado, 430 SCRA 323 (2004); San Pedro v. Lee, 430 SCRA 338
(2005); Go v. Bacaron, 472 SCRA 229 (2005), citing VILLANUEVA, CESAR L. PHILIPPINE LAW ON SALES, (1998 ed.), p. 271; Romulo v.
Layug, Jr., 501 SCRA262 (2006); Roberts v. Papio, 515 SCRA 346 (2007); Raymundo v. Bandong, 526 SCRA 514 (2007); Dorado
Vda. De Delfin v. Dellota, 542 SCRA 397 (2008); Muñoz, Jr. V. Ramirez, 629 SCRA 38 (2010).
189
Austria v. Gonzales, Jr., 420 SCRA 414 (2004); Raymundo v. Bandong, 526 SCRA 514 (2007).
190
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Cuyugan v. Santos, 34 Phil. 100 (1916); Matanguihan v. CA, 275 SCRA 380
(1997); Hilado v. Heirs of Rafael Medlla, 37 SCRA 257 (2002); Madrigal v. CA, 456 SCRA 659 (2005); Legaspi v. Ong, 459 SCRA
122 (2005); Banga v. Bello, 471 SCRA 653 (2005); Diño v. Jardines, 481 SCRA 226 (2006); Ayson, Jr. V. Paragas, 557 SCRA 50
(2008).
191
Lim v. Calaguas, 45 O.G. No. 8, p. 3394 (1948); Balatero v. IAC, 154 SCRA 530 (1987); Mariano v. CA, 220 SCRA 716 (1993);
Lobres v. CA, 351 SCRA 716 (2001).
192
Ayson, Jr. V. Paragas, 557 SCRA 50 (2008); Bautista v. Unangst, 557 SCRA 256 (2008).
193
Claravall v. CA, 190 SCRA 439, 448 (1990); Uy v. CA, 230 SCRA 664 (1994); Lobres v. CA, 351 SCRA 716 (2001); Alvaro v.
Ternida, 479 SCRA 288 (2006); Diño v. Jardines, 481 SCRA 226 (2006); Raymundo v. Bandong, 526 SCRA 514 (2007); Aleligay v.
Laserna, 537 SCRA 699 (2007); Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008); Bautista v. Unangst, 557 SCRA 256
(2008); Rockville Excell International Exim Corp. V. Culla, 602 SCRA 124 (2009); Heirs of Jose Reyes, Jr. v. Reyes, 626 SCRA 758
(2010).
187
44
v. Unangst, 557 SCRA 256 (2008); or under threat of being sued criminally. Ayson, Jr. V. Paragas,
557 SCRA 50 (2008).
“Inadequacy of purchase price” is considered so far short of the real value of the property as to
startle a correct mind. xSantiago v. Dizon, 543 SCRA 402 (2008); or that the mind revolts at it as such
that a reasonable man would neither directly or indirectly be likely to consent to it. xVda de Alvarez v.
CA, 231 SCRA 309 (1994); it must be grossly inadequate or shocking to the conscience. Tio v.
Abayata, 556 SCRA 175 (2008).
To presume a contract is an equitable mortgaged based on gross inadequacy of price, it must be
clearly shown from the evidence presented that the consideration was in fact grossly inadequate at the
time the sale was executed. Mere inadequacy of price is not sufficient to create the presumption.
198
xOlivares v. Sarmiento, 554 SCRA 384 (2008).
Mere tolerated possession is not enough to prove that the transaction was an equitable mortgage.
xRedondo v. Jimenez, 536 SCRA 639 (2007).
Payment of real estate taxes is a usual burden attached to ownership, and when such payment is
coupled with continuous possession of the property, it constitutes evidence of great weight that a
person under whose name the realty taxes were declared has a valid and right claim over the land.
199
xGo v. Bacaron, 472 SCRA 229 (2005).
However mere allegations without proof to support inadequacy of price, or when continued
possession by the seller is supported by a valid arrangement consistent with the sale, would not
200
support the allegation of equitable mortgage. xCirelos v. Hernandez, 490 SCRA 624 (2006).
Although under the agreement the seller shall remain in possession of the property for only one
year, such stipulation does not detract from the fact that possession of the property, an indicium of
ownership, was retained by the alleged vendor to qualify the arrangement as an equitable mortgage,
especially when it was shown that the vendor retained part of the purchase price. xLegaspi v. Ong,
201
459 SCRA 122 (2005).
Under Article 1602, delay in transferring title is not one of the instances enumerated by law—
instances in which an equitable mortgage can be presumed. Nor does the fact that the original
transaction on the land was to support a loan, which when it was not paid on due date was negotiated
into a sale, without evidence that the subsequent deed of sale does not express the true intentions of
the parties, give rise to a presumption of equitable mortgage. xCeballos v. Intestate Estate of the Late
Emigdio Mercado, 430 SCRA 323 (2004).
The fact that the price in a pacto de retro sale is not the true value of the property does not justify
the conclusion that the contract is one of equitable mortgage; in fact a pacto de retro sale, the practice
is to fix a relatively reduced price to afford the seller a retro every facility to redeem the property.
202
xIgnacio v. CA, 246 SCRA 242 (1995).
Article 1602 being remedial in nature, may be applied retroactively in cases prior to the effectivity of
the Civil Code. xOlea v. CA, 247 SCRA 274 (1995).
This kind of arrangement, where the ownership of the land is supposedly transferred to the buyer
who provides for the funds to redeem the property from the bank but nonetheless allows the seller to
later on buy back the properties, is in the nature of an equitable mortgage governed by Articles 1602
and 1604 of the Civil Code. (at p. 648) Bacungan v. Court of Appeals, 574 SCRA 642 (2008).
b. Remedies Allowed for Equitable Mortgage (Arts. 1454, 1602, 1605)
In the case of an equitable mortgage, although Art. 1605 which allows for the remedy of
reformation, nothing therein precludes an aggrieved party from pursuing other remedies to effectively
protect his interest and recover his property, such as an action for declaration of nullity of the deed of
sale and specific performance. xTolentino v. CA, 386 SCRA 36 (2002).
In an equitable mortgage situation, the consolidation of ownership in the person of the mortgagee in
equity upon failure of the mortgagor in equity to pay the obligation, would amount to a pactum
commissorium. The only proper remedy is to cause the foreclosure of the mortgage in equity.
xBriones-Vasquez v. CA, 450 SCRA 644 (2005); or to determine if the principal obligation secured by
the equitable mortgage has been paid or settled. xBanga v. Bello, 471 SCRA 653 (2005).
c. Pactum Commissorium (Art. 2088)
A stipulation which is a pactum commisorium enables the mortgagee to acquire ownership of the
mortgaged properties without need of any foreclosure proceedings—it is a nullity being contrary to the
provisions of Article 2088 of the Civil Code. xLumayag v. Heirs of Jacinto Nemeño, 526 SCRA 315
(2007).203
The elements of pactum commissorium, which enable the mortgagee to acquire ownership of the
mortgaged property without the need of any foreclosure proceedings, are: (1) there should be a
property mortgaged by way of security for the payment of the principal obligation, and (2) there should
198
199
200
Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
Lumayag v. Heirs of Jacinto Nemeño, 526 SCRA 51 (2007).
Austria v. Gonzales, Jr., 420 SCRA 414 (2004).
45
be a stipulation for automatic appropriation by the creditor of the thing mortgaged in case of nonpayment of the principal obligation within the stipulated period. Ong v. Roban Lending Corp., 557
SCRA 516 (2008); Philnico Industrial Corp. v. Privatization and Management Office, 733 SCRA 703
(2014)
It does not apply when the security for a debt is also money in the form of time deposit. xConsing v.
CA, 177 SCRA 14 (1989).
The provision in a MOA/Dacion en Pago with a Right to Repurchase that in the event the borrower
fails to comply with the new terms of restructuring the loan, the agreement shall automatically operate
to be an instrument of dacion en pago without need of executing any new document does not
constitute pactum commissorium. √Solid Homes, Inc. v. CA, 275 SCRA 267 (1997); the questioned
contracts were freely and voluntarily executed by petitioners and respondent is of no moment, pactum
commissorium being void for being prohibited by law. Ong v. Roban Lending Corp., 557 SCRA 516
(2008).
BUT SEE: The stipulation in the promissory note providing that upon failure of the makers to pay
interests, ownership of the property would automatically be transferred to the payee, and the covering
deed of sale would be registered is in substance a pactum commissorium in violation of Art. 2088, and
consequently, the resultant sale is void and the registration and obtaining of new title in the name of
the buyer would have be declared void also. √A. Francisco Realty v. CA, 298 SCRA 349 (1998).204
e. Final Chance to Redeem in “Mistaken Equitable Mortgage” (Art. 1606)
The 30 day period under Art. 1606 does not apply if the courts should find the sale to be absolute.
Pangilinan v. Ramos, 181 SCRA 359 (1990).205
Sellers in a sale judicially declared as pacto de retro may not exercise the right to repurchase within
the 30-day period provided under Art. 1606, although they have taken the position that the same was
an equitable mortgage, if it is shown that there was no honest belief thereof since: (a) none of the
circumstances under Art. 1602 were shown to exist to warrant a conclusion that the transaction was an
equitable mortgage; and (b) that if they truly believed the sale to be an equitable mortgage, as a sign
of good faith, they should have consigned with the trial court the amount representing their alleged
loan, on or before the expiration of the right to repurchase. √Abilla v. Gobonseng, 374 SCRA 51
(2002).206
An equitable mortgage is a voidable contract. It may be annulled within four (4) years from the time
the cause of action accrues. Ayson, Jr. v. Paragas, 557 SCRA 50 (2008). [CLV: Thereafter, it may be
enforced against the provision on pactum commissorium?]
C. LEGAL REDEMPTION
1. Definition (Art. 1619)
Legal redemption is in the nature of a privilege created by law partly for reasons of public policy and
partly for the benefit and convenience of the redemptioner, to afford him a way out of what might be a
disagreeable or [an] inconvenient association into which he has been thrust. It is intended to minimize
co-ownership. xFernandez v. Tarun, 391 SCRA 653 (2002).207
2. Legal Redemption Rights under the Civil Code
a. Among Co-Heirs (Art. 1088)
Redemption right pertain to disposition of right to inherit, and not when there is a sale of a particular
property of the estate. xPlan v. IAC, 135 SCRA 270 (1985).
When the heirs have partitioned the estate among themselves and each have occupied and treated
definite portions thereof as their own, co-ownership has ceased even though the property is still 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. xVda. De Ape v. CA, 456 SCRA 193 (2005).
The heirs who actually participated in the execution of the extrajudicial settlement, which included
the sale to a third person of their pro indiviso shares in the property, are bound by the same; while the
co-heirs who did not participate are given the right to redeem their shares pursuant to Article 1088.
xCua v. Vargas, 506 SCRA 374 (2006).
b. Among Co-Owners (Art. 1620)
The right of redemption may be exercised by a co-owner only when part of the community property
is sold to a stranger, now when sold to another co-owner because a new participant is not added to
the co-ownership. xFernandez v. Tarun, 391 SCRA 653 (2002).
When the seller a retro dies, the right to redeem cannot be exercised by a co-heir alone, since the
right to redeem belonged in common to all the heirs. xDe Guzman v. CA, 148 SCRA 75 (1987).
For the right of redemption to be exercised, co-ownership must exist at the time of the conveyance
is made by a co-owner and the redemption is demanded by the other co-owner or co-owners. xAvila
v. Barabat, 485 SCRA 8 (2006).
46
Redemption by co-owner redounds to the benefit of all other co-owners. xMariano v. CA, 222
SCRA 736 (1993); and the 30-day period for the commencement of the right to exercise the legal
redemption right, even when such right has been recognized to exist in a final and executory court
decision, does not begin from the entry of judgment, but from the written notice served by the seller to
the party entitled to exercise such redemption right. Guillen v. CA, 589 SCRA 399 (2009).
The requisites for the exercise of legal redemption are as follows: (1) there must be co-ownership;
(2) one of the co-owners sold his right to a stranger; (3) the sale was made before the partition of the
co-owned property; (4) the right of redemption must be exercised by one or more co-owners within a
period of thirty days to be counted from the time he or they were notified in writing by the co-owner
vendor; and (5) the vendee must be reimbursed the price of the sale. Calma v. Santos, 590 SCRA 359
(2009).
c. Distinguishing Between Right of Redemption of Co-heirs and Co-owners –
Article 1620 includes the doctrine that a redemption by a co-owner of the property owned in
common, even when he uses his own fund, within the period prescribed by law inures to the benefit of
all the other co-owners. xAnnie Tan v. CA, 172 SCRA 660 (1989).208
d. Among Adjoining Owners (Arts. 1621 and 1622)
Requisite to show property previously bought on “speculation” dropped. xLegaspi v. CA, 69 SCRA
360 (1976).
Right of redemption covers only “resale” and does not cover exchanges or barter of properties xDe
Santos v. City of Manila, 45 SCRA 409 (1972); and cannot arise unless both adjacent lands are rural
lands. xPrimary Structures Corp. v. Valencia, 409 SCRA 371 (2003).
When there is no issue that when the adjoining lands involved are both rural lands, then the right of
redemption can be exercised and the only exemption provided is when the buyer can show that he did
not own any other rural land. But the burden of proof to provide for the exception lies with the buyer.
xPrimary Structures Corp. v. Valencia, 409 SCRA 371, 374 (2003).
e. Sale of Credit in Litigation (Art. 1634) – 30 days from notice of demand to pay.
For the debtor to be entitled to extinguish his credit by reimbursing the assignee under Art. 1634 of
the Civil Code, the following requisites must concur: (a) there must be a credit or other incorporeal
right; (b) the credit or other incorporeal right must be in litigation; (c) the credit or other incorporeal right
must be sold to an assignee pending litigation; (d) the assignee must have demanded payment from
the debtor; (e) the debtor must reimburse the assignee for the price paid by the latter, the judicial costs
incurred by the latter and the interest on the price form the day on which the same was paid; and (f)
the reimbursement must be done within 30 days from the date of the assignee’s demand. Situs Dev.
Corp. v. Asiatrust Bank, 677 SCRA 495 (2012).
3. When Period of Legal Redemption Begins (Art. 1623)
Both the letter and the spirit of the law argue against any attempt to widen the scope of the notice
specified in the Civil Code to include any other kind of notice, such as verbal or by registration.
Marinao v. CA, 222 SCRA 736 (1993).209
The 30-day period for the commencement of the right to exercise the legal redemption right, even
when such right has been recognized to exist in a final and executory court decision, does not begin
from the entry of judgment, but from the written notice served by the seller to the party entitled to
exercise such redemption right. Guillen v. CA, 589 SCRA 399 (2009).
The interpretation of Art. 1623 where there is a need for notice in writing, should always tilt in favor
of the redemptioner and against the buyer, since the purpose is to reduce the number of participants
until the community is terminated, being a hindrance to the development and better administration of
the property. “It is a one-way street,” in favor of the redemptioner since he can compel the buyer to sell
to him but he cannot be compelled by the vendee to buy. xHermoso v. CA, 300 SCRA 516 (1998).
The 30-day period does not begin to run in the absence of written notification coming from the
seller. xCua v. Vargas, 506 SCRA 374 (2006);210 and it must be a written notice of a perfected sale.
xSpouses Doromal v. CA, 66 SCRA 575 (1975).
The written notice of sale is mandatory, notwithstanding actual knowledge of a co-owner, in order to
remove all uncertainties about the sale, its terms and conditions, as well as its efficacy and status.
xVerdad v. CA, 256 SCRA 593 (1996)..
Notice to minors may validly be served upon parents even when the latter have not been judicially
appointed as guardians since the same is beneficial to the children. xBadillo v. Ferrer, 152 SCRA 407
(1987).
Neither the registration of the sale xCabrera v. Villanueva, 160 SCRA 627 (1988), nor the
annotation of an adverse claim xVda. De Ape v. CA, 456 SCRA 193 (2005), nor notice being given by
the city treasurer xVerdad v. CA, 256 SCRA 593 (1996), comply with the written notice required under
Art. 1623 to begin the tolling of the 30-day period of redemption.
47
The notice required under Article 1623 is deemed to have been complied with when the other coowner has signed the Deed of Extrajudicial Partition and Exchange of Shares which embodies the
disposition of part of the property owned in common. xFernandez v. Tarun, 391 SCRA 653 (2002).
The existence of a clause in the deed of sale to the effect that the vendor has complied with the
provisions of Article 1623, cannot be taken to “being the written affirmation under oath, as well as the
evidence, that the required written notice to petitioner under Article 1623 has been meet, for the
person entitled to the right is not a party to the deed of sale. xPrimary Structures Corp. v. Valencia,
409 SCRA 371 (2003).
√Francisco v. Boiser, 332 SCRA 305 (2000), summarized the case-law on Art. 1623, and with
definitiveness declared:
•
For the 30-day redemption period to begin to run, notice must be given by the seller; and that notice given
by the buyer or even by the Register of Deeds is not sufficient. This expressly affirms the original ruling in
Butte v. Manuel Uy and Sons, Inc., 4 SCRA 526 (1962), as affirmed in xSalatandol v. Retes, 162 SCRA
568 (1988). This expressly overruled the ruling in xEtcuban v. CA, 148 SCRA 507 (1987), which allowed
the giving of notice by the buyer to be effective under Article 1623;
•
When notice is given by the proper party (i.e., the seller), no particular form of written notice is prescribed
under Article 1623, so that the furnishing of the copies of the deeds of sale to the co-owner would be
sufficient, as held previously in xDistrito v. CA, 197 SCRA 606 (1991); Conejero v. CA, 16 SCRA 775
(1966); xBadillo v. Ferrer, 152 SCRA 407 (1987), but only on the form of giving notice but not on the ruling
of who is the proper party to give notice;
• Affirmed ruling in xAlonzo v. IAC, 150 SCRA 259 (1987), that the filing of the suit for ejectment or collection
of rentals against a co-owner actually dispenses with the need for a written notice, and must be construed
as commencing the running of the period to exercise the right of redemption, since the filing of the suit
amounted to actual knowledge of the sale from which the 30-day period of redemption commences to run.
a. Rare Exceptions:
When the sale to the buyer was effected through the co-owner who acted as the broker, and never
indicated that he would exercise his right to redeem. xDistrito v. CA, 197 SCRA 606 (1991).
When the buyers took possession of the property immediately after the execution of the deed of
sale in their favor and lived in the midst of the other co-owners who never questioned the same.
xPilapil v. CA, 250 SCRA 560 (1995).
4. OTHER LEGAL REDEMPTION RIGHTS
a. Redemption in Patents (Sec. 119, C.A. 141)
Right to repurchase is granted by law and need not be provided for in the deed of sale. xBerin v.
CA, 194 SCRA 508 (1991).
Under the free patent or homestead provisions of the Public Land Act a period of five (5) years from
the date of conveyance is provided, to be reckoned from the date of the sale and not from the date of
registration in the office of the Register of Deeds. xLee Chuy Realty Corp. v. CA, 250 SCRA 596
(1995).211
b. Redemption in Tax Sales (Sec. 215, NIRC of 1997)
c. Redemption by Judgment Debtor (Secs. 27-28, Rule 39, Rules of Civil Procedure)
Written notice must be given to the judgment debtor before the sale of the property on execution, to
give him the opportunity to prevent the sale by paying the judgment debt sought to be enforced and
the costs which have been incurred. xTorres v. Cabling, 275 SCRA 329 (1997).
Where there is a third-party claim, sheriff should demand from the judgment creditor who becomes
the highest bidder, payment in cash of his bid instead of merely crediting the amount to the partial
satisfaction of the judgment debt. xTorres v. Cabling, 275 SCRA 329 (1997).
Under Sec. 28, Rule 39 of the 1997 Rules of Civil Procedure, the period of redemption shall be “at
any time within one (1) year from the date of registration of the certificate of sale,” so that the period is
now to be understood as composed of 365 days, unlike the 360 days under the old provisions of the
Rules of Court. xYsmael v. CA, 318 SCRA 215 (1999).
d. Redemption in Extrajudicial Foreclosure (Sec. 6, Act 3135)
The redemption of extra-judicially foreclosed properties is exercised within one (1) year from the
date of the auction sale as provided for in Act 3135. xLee Chuy Realty Corp. v. CA, 250 SCRA 596
(1995).
The execution of a dacion en pago by sellers effectively waives the redemption period normally
given a mortgagor. xFirst Global Realty and Dev. Corp. v. San Agustin, 377 SCRA 341 (2002).
e. Redemption in judicial foreclosure of mortgage (Sec. 47, R.A. 8791)
A stipulation to render the right to redeem defeasible by an option to buy on the part of the creditor.
√Soriano v. Bautista, 6 SCRA 946 (1962).
48
The one-year redemption period in the case of foreclosure is not interrupted by the filing of an
action assailing the validity of the mortgage, so that at the expiration thereof, the mortgagee who
acquires the property at the foreclosure sale can proceed to have title consolidated in his name and a
writ of possession issued in his favor. xUnion Bank v. CAs, 359 SCRA 480 (2001).212
After bank has foreclosed the property as highest bidder in the auction sale, the accepted offer of
spouses-borrowers to “repurchase” the property was actually a new option contract, and the condition
that the spouses-borrowers will pay monthly interest during the one-year option period is considered to
be the separate consideration to hold the option contract valid. xDijamco v. CA, 440 SCRA 190 (2004).
f. Redemption in Foreclosure by Rural Banks (R.A. No. 720)
If the land is mortgaged to a rural bank, mortgagor may redeem within two (2) years from the date
of foreclosure or from the registration of the sheriff's certificate of sale at such foreclosure if the
property is not covered or is covered, respectively, by Torrens title. If the mortgagor fails to exercise
such right, he or his heirs may still repurchase within five (5) years from expiration of the two (2) year
redemption period pursuant to Sec. 119 of the Public Land Act (C.A. 141). xRural Bank of Davao City
v. CA, 217 SCRA 554 (1993).213
g. Legal Right to Redeem under Agrarian Reform Code
Under Section 12 of R.A. 3844, as amended, in the event that the landholding is sold to a third
person without the knowledge of the agricultural lessee, the latter is granted by law the right to redeem
it within 180 days from notice in writing and at a reasonable price and consideration. xQuiño v. CA,
291 SCRA 249 (1998).214
XIV. ASSIGNMENT (Arts. 1624-1635)
1. Definition and Nature of Assignment
“Assignment” is the process of transferring the right of assignor to assignee who would then have
the right to proceed against the debtor. The assignment may be done gratuitously or onerously [?], in
the latter case, the assignment has an effect similar to that of a sale. xLicaros v. Gatmaitan, 362 SCRA
548 (2001).215
In its most general and comprehensive sense, an assignment is “a transfer or making over to
another of the whole of any property, real or personal, in possession or in action, or of any estate or
right therein. It includes transfers of all kinds of property, and is peculiarly applicable to intangible
personal property and, accordingly, it is ordinarily employed to describe the transfer of non-negotiable
choses in action and of rights in or connected with property as distinguished from the particular item or
property.” xPNB v. CA, 272 SCRA 291 (1997).
2. Perfection by Mere Consent (Art. 1624)
3. But Must Be in Public Instrument to Affect Third Parties (Art. 1625)
4. Effects of Assignment
a. Assignment of Credit
An assignment of credit 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. xAquintey v. Tibong, 511 SCRA 414 (2006).216
As a consequence, the third party steps into the shoes of the original creditor as subrogee of the
latter. Although constituting a novation, such assignment does not extinguish the obligation under the
credit assigned, even when the assignment is effected without his consent. xSouth City Homes, Inc. V.
BA Finance Corp., 371 SCRA 603 (2001).
b. Issues re Debtor (Art. 1626)
In an assignment of credit, the consent of the debtor is not essential for its perfection, his
knowledge thereof or lack of it affecting only the efficaciousness or inefficaciousness of any payment
he might make. xProject Builders, Inc. v. CA, 358 SCRA 626 (2001).
Consent of debtor is not necessary in order that assignment may fully produce legal effects, and the
duty to pay does not depend on the consent of the debtor. Otherwise, all creditors would be prevented
from assigning their credits because of the possibility of the debtors’ refusal to given consent. What the
law requires in an assignment of credit is mere notice to debtor, and the purpose of the notice is only
212
Vaca v. CA, 234 SCRA 146 (1994).
49
to inform the debtor that from the date of the assignment, payment should be made to the assignee
and not to the original creditor. xNIDC v. De los Angeles, 40 SCRA 489 (1971).217
c. Accessories and Accessions (Art. 1627)
Assignment of a credit includes all the accessory rights, such as guaranty, mortgage, pledge or
preference. xUnited Planters Sugar Milling Co., Inc. (UPSUMCO) v. CA, 527 SCRA 336 (2007).
d. Tradition in Assignment
Notarization converts a private document Assignment of Credit into a public document, thus
complying with the mandate of Article 1625 of the Civil Code and making it enforceable even as
against third persons. xLedonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
5. Warranties of Assignor (Art. 1628)
Assignor warrants only the existence or legality of the credit but not the solvency of the debtor.
√Nyco Sales Corp. v. BA Finance, 200 SCRA 637 (1991).
EXCEPTIONS: (a) If this is expressly warranted.
(b) If insolvency is known by the assignor prior to assignment.
(c) If insolvency is prior to assignment is common knowledge.
When dacion en pago takes the form of an assignment of credit, it produces the effects of a dation
in payment, which may extinguishes the obligation; however, by virtue of the warranty in Art. 1628,
which makes the vendor liable for the existence and legality of the credit at the time of sale, when it is
shown that the assigned credit no longer existed at the time of dation, then it behooves the assignor to
make good its warranty and pay the obligation. xLo v. KJS Eco-Formwork System Phil., Inc., 413
SCRA 182 (2003).
6. Right of Repurchase on Assignment of Credit under Litigation (Arts. 1634 and1635)
7. Subrogation versus Assignment of Credit (Art.1301)
Subrogation extinguishes the obligation and gives rise to a new one; assignment refers to the same
right which passes from one person to another. The nullity of an old obligation may be cured by
subrogation, such that a new obligation will be perfectly valid; but the nullity of an obligation is not
remedied by the assignment of the creditor’s right to another. In an assignment of credit, the consent
of the debtor is not necessary in order that the assignment may fully produce legal effects; whereas,
conventional subrogation requires an agreement among the three parties concerned – original
creditor, debtor, and new creditor. It is a new contractual relation based on the mutual agreement
among all the necessary parties. √Licaros v. Gatmaitan, 362 SCRA 548 (2001).218
8. Assignment of Copyright (Sec. 180, Intellectual Property Code)
9. Assignment as an Equitable Mortgage
When an assignor executes a Deed of Assignment covering her leasehold rights in order to secure
the payment of promissory notes covering the loan she obtained from the bank, such assignment is
equivalent to an equitable mortgage, and the non-payment of the loan cannot authorize the assignee
to register the assigned leasehold rights in its name as it would be a violation of Art. 2088 against
pactum commissorium. The proper remedy of the assignee is to proceed to foreclose on the leasehold
right assigned as security for the loan. xDBP v. CA, 284 SCRA 14 (1998).
XV.
BULK SALES LAW
(ACT NO. 3952)
1. Scope (√Chin v. Uy, 40 O.G. 4 Supp. 52)
2. Coverage of “Bulk Sale” – Sale, transfer, mortgage or assignment of:
(a) Goods, wares, merchandise, provisions or material other than in the ordinary course of
business;
(b) All, or substantially all of all or substantially all of the fixtures and equipment used in and
about the business;
(c) All, or substantially all of the business or trade theretofore conducted by the vendor,
mortgagor, transferor, or assignor.
The Bulk Sales Law must be construed strictly. The disposal by the owner of a foundry shop of all
his iron bars and others does not fall under the law, because the contents of a foundry shop are not
wares and merchandise. The Law only covers sales in bulk of fixtures and equipment used in the
mercantile business, which involves the buying and selling of merchandise. xPeople v. Wong, [CA] 50
O.G. 4867 (1954).
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The Law applies to merchants who are in the business of selling goods and wares and similar
merchandise, and cannot cover the sale of assets by a manufacturer since the nature of his business
does not partake of merchandise. √DBP v. Judge of the RTC of Manila, 86 O.G. No. 6 1137 (05 Feb.
1990).
3. Compliance Requirements Under the Law
a. The merchant must give the buyer a certified schedule of his debts: names of creditors, amounts
owing to each and the nature of the debt.
b. Purchase price paid must be applied proportionately to these debts.
c. Ten (10) days before the sale, the seller must take an inventory of his stock and advise all his
creditors of the same.
EXCEPTION: When the seller obtains a written waiver from all creditors.
4. Effects of Non-Compliance
a. If purchase money or mortgage proceeds are not applied pro-rata to payment of the bona fide
claims of the creditors, the sale is deemed fraudulent and void. (Sec. 4)
b. Non-giving of the list of creditors or intentional omission of the names of some of the creditors, and
placing of wrong data required by law, would subject the seller or mortgagor to penal sanctions.
(Sec. 4)
c. Bulk transfer without consideration or for nominal consideration punishable. (Sec. 7)
d. Failure to comply with other provisions of the law the non-application of the consideration
proportionately to the creditors, the preparation of the inventory, and the notification to creditors, are
also made punishable. (Sec. 11)
A bulk sale done without complying with the Law, makes the transaction fraudulent and void, but
does not change the basic relationship between the seller, assignor/encumbrancer and his creditor.
The judgment portion providing for subsidiary liability is invalid—the proper remedy is to collect on the
credit against the defendant, and if they cannot pay, to attach on the property fraudulently mortgage
since the same still pertain to the debtors-defendants. xPeople v. Mapoy, 73 Phil. 678 (1942).
XVI.
RETAIL TRADE LIBERALIZATION ACT
OF 2000 AND
RELATED PROVISIONS OF THE ANTI-DUMMY LAW
1. Public Policy under RTLA 2000: A reversal of paradigm; focus from the protecting the retailers
to promoting the interests of consumers.
The control and regulation of trade in the interest of the public welfare is of course an exercise of
the police power of the State. To the extent that the Retail Trade Liberalization Act (R.A. 8762),
lessens the restraint on the foreigners’ right to property or to engage in an ordinarily lawful business, it
cannot be said that the law amounts to a denial of the Filipinos’ right to property and to due process of
law. Espina v. Zamora, 631 SCRA 17 (2010).
2. Scope and Definition of “Retail Trade”
a. Importance of Retail Trade (√King v. Hernaez, 4 SCRA 792 [1960])
b. Elements: (1) Seller habitually engaged in selling;
(2) Selling direct to the general public; and
(3) Object of the sale is limited to merchandise, commodities or goods for
consumption.
c. Meaning of “Habitually Selling”
Engaging in the sale of merchandise as an incident to the primary purpose of a corporation [e.g.,
operation of a pharmacy by a hospital; sale of cellphones by a telecommunication company] does not
constitute “retail trade” within the purview of RTNL, as this is taken from the provision thereof
excluding form the term “retail business” the operation of a restaurant by a hotel-owner or -keeper
since the same does not constitute the act of habitually selling direct to the general public
merchandise, commodities or goods for consumption. √SEC Opinion No. 11, series of 2002, 13
November 2002.
d. Meaning of “Consumption” (DOJ Opinion No. 325, series of 1945; IRR of Law).
The Law limits its application to the sale of items sold for domestic or household, or properly called
consumer goods; whereas, when the same items are sold to commercial users, they would constitute
non-consumer goods and not covered by the Law. √Balmaceda v. Union Carbide Philippines, Inc.
124 SCRA 893 (1983).219
e. Meaning of “General Public” (DOJ Opinion No. 253, series of 1954).
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Even when consumer goods is limited only to the officers of the company, the same would still
constitute retail trade covered by the Law. √Goodyear Tire v. Reyes, Sr., 123 SCRA 273 (1983).
Where the glass company manufactures glass products only on specific orders, it does not sell
directly to consumers but manufacturers its products only for the particular clients, it cannot be said
that it is a merchandiser. √DBP v. Judge of RTC of Manila, 86 O.G. No. 6 1137 (05 February 1990).
3. Categories of Retail Trade Enterprises
a. Category A – Exclusive to Filipino citizens and 100% Filipino entities
b. Categories B and C
c. Category D – Luxury Items
d. Exempted Areas
e. Rights Granted to Former Natural-Born Filipinos
4. Foreign Investment or Engagement in Retail Trade in the Philippines
a. Requirements for Foreign Investors
b. Grandfather Rule on 100% Filipino Ownership of Corporate Entity: SEC Opinions, dated 20
March 1972 and 22 April 1983; DTI Opinion to Tanada, Teehankee & Carreon Law Office, dated 3
August 1959.
c. Public Offerings of Shares of Stock
5. Foreign Retailers in the Philippines
a. Pre-qualification requirements
b. Rules on Branches/Stores
c. Promotion of Locally-Manufactured Products
d. Prohibited Activities of Foreign Retailers
e. Binding Effect of License to Engage in Retail on Private Parties
When a license to engage in cocktail lounge and restaurant is issued to a Filipino married to s
foreigner, it is conclusive evidence of the latter's ownership of the retail business as far as private
parties are concerned. xDando v. Fraser, 227 SCRA 126 (1993).
6. Penalty Provision
7. Applicability of the Anti-Dummy Act (Comm. Act. 108, as amended by P.D. 715)
a. Law penalizes Filipinos who permit aliens to use them as nominees/dummies to enjoy privileges
reserved for Filipinos. Criminal sanctions are imposed on the president, manager, board member
or persons in charge of the violating entity and causing the latter to forfeit its privileges, rights and
franchises.
b. Section 2-A of the Law prohibits aliens from intervening in the management, operation,
administration or control of nationalized business, whether as officers, employees or laborers, with
or without remuneration. Aliens may not take part in technical aspects, provided no Filipino can do
such technical work, and with express authority from the Philippine President.
c. Later, Pres. Decree 715 amended the Law by adding of a proviso expressly allowing the election of
aliens as members of the boards of directors of corporations or associations engaged in partially
nationalized activities in proportion to their allowable participation or share in the capital of such
entities.
The amendment was meant to settle the uncertainty created in the obiter opinion in Luzon
Stevedoring Corp. v. Anti-Dummy Board, 46 SCRA 474 (1972), which rejected the argument that
the Anti-Dummy Law covered only employment in wholly nationalized businesses and not in those
that are only partly nationalized.
The Filipino common-law wife of a Chinese national is not barred from engaging in the retail
business provided she uses capital exclusively derived from her paraphernal properties; allowing
her common-law Chinese husband to take part in management of the retail business would be a
violation of the law. xTalan v. People, 169 SCRA 586 (1989).
—oOo—
UPDATED: 02 AUGUST 2015