1
LAW ON SALES
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XV. BULK SALES LAW (Act No. 3952)
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XVI. RETAIL TRADE LIBERALIZATION ACT (RTLA)
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, SY 2017-2018
I. NATURE OF “SALE”
1
A. Definition and Essence of Sale (Art. 1458)
1
B. Sale Distinguished from Similar Contracts
3
II. PARTIES TO A CONTRACT OF SALES
4
III. SUBJECT MATTER OF SALE
5
IV. PRICE AND OTHER CONSIDERATION (Arts.
1469-1474)
6
V. FORMATION OF THE CONTRACT OF SALE
8
A. Policitacion Stage (Art. 1479)
8
B. Perfection Stage of Sale (Arts. 1475, 1319, 1325
and 1326)
10
C. Formal Requirements for Contracts of Sale
(Arts. 1357, 1358(1), 1406 and 1483)
11
D. Simulated Sales
13
VI. CONSUMMATION (Arts. 1493-1506)
PERFORMANCE OF CONTRACT OF SALE (Arts.
1536-1544, 1582-1590)
13
A. Obligations of Seller
13
B. Special Rules on Completeness of Delivery 16
C. Double Sales (Arts. 1544 and 1165)
17
C. Obligations of Buyer
21
VII. DOCUMENTS OF TITLE (Arts. 1507-1520)
22
VIII. SALE BY NON-OWNER OR ONE HAVING
VOIDABLE TITLE: “The LIFE OF A CONTRACT OF
SALE”
22
IX. LOSS, DETERIORATION, FRUITS AND OTHER
BENEFITS
23
X. REMEDIES FOR BREACH OF CONTRACT OR
SALE (Arts. 1594-1599)
24
A. Remedies of the Seller
24
B. Remedies of the Buyer
27
XI. REMEDY OF RESCISSION IN SALES OF
IMMOVABLES: CONTRACT OF SALE VERSUS
CONTRACT TO SELL
28
A. Nature of Remedy of Resolution (Arts. 1191,
1479, 1592)
28
B. Distinctions Between Contract of Sale and
Contract to Sell
29
XII. CONDITIONS AND WARRANTIES
31
XIII. EXTINGUISHMENT OF THE CONTRACT OF
SALE
33
A. In General (Arts. 1231 and 1600)
33
B. Conventional Redemption (Sale a Retro)
33
C. Legal Redemption
36
XIV. ASSIGNMENT (Arts. 1624-1635)
39
1
The O
presents the manner by which Law on Sales will be taken-up
in class. The x’s and footnotes 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 the
cases to be discussed. Unless otherwise indicated, numbered articles pertain
to the Civil Code.
NATURE OF SALE
I
A
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(Art.
1458)
Sale is a contract whereby one party [seller]
obligates himself to transfer the ownership2 and to
deliver the possession, of a determinate thing, and the
other party [buyer] obligates himself to pay therefor a
price certain in money or its equivalent. xDantis v.
Maghinang, Jr., 695 SCRA 599 (2013).3
1. Elements of Sale: (a) Consent: meeting of minds
on, (b) Subject Matter, and (c) Consideration: price
certain in money or its equivalent. x Dantis v.
Maghinang, Jr., 695 SCRA 599 (2013).4
Absence of any essential elements negates the
existence of a perfected contract of sale. xDizon v.
Court of Appeals, 302 SCRA 288 (1999),5 even when
earnest money or downpayment has been paid.
xManila Metal Container Corp. v. PNB, 511 SCRA 444
(2006).6
2. Stages of the Contract of Sale: (a) Policitacion or
Negotiation Stage, starts from the time the
prospective contracting parties indicate interest in
the contract to the time the contract is perfected;
(b) Perfection, takes place upon the concurrence of
the essential elements of the sale; and (c)
Consummation, commences when the parties
perform their respective undertakings under the
contract of sale, culminating in the extinguishment
of the contract of sale. xGSIS v. Lopez, 592 SCRA 456
(2009).7
2
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. Court of Appeals (“CA”), 457 SCRA
224 (2005).
3
Alfredo v. Borras, 404 SCRA 145 (2003); Cruz v. Fernando, 477 SCRA 173
(2005); 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).
4
Jovan Land 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 Coop., 676 SCRA 367 (2012); First Optima
Realty Corp. v. Securitron Security Services, 748 SCRA 534 (2015).
5
Roberts v. Papio, 515 SCRA 346 (2007); XYST Corp. v. DMC Urban
Properties Dev., 594 SCRA 598 (2009); Hyatt Elevators and Escalators Corp.
v. Cathedral Heights Building Complex Assn., 636 SCRA 401 (2010).
6
Del Prado v. Caballero, 614 SCRA 102 (2010); Montecalvo v. Heirs of
Eugenia T. Primero, 624 SCRA 575 (2010); David v. Misamis Occidental II
Electric Coop., 676 SCRA 367 (2012); Dantis v. Maghinang, Jr., 695 SCRA
599 (2013).
7
Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); Jovan Land v. CA, 268
SCRA 160 (1997); San Miguel Properties v. Huang, 336 SCRA 737 (2000);
Bugatti v. CA, 343 SCRA 335 (2000); Moreno, Jr. v. PMO, 507 SCRA 63
(2006); Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Navarra
v. Planters Dev. Bank, 527 SCRA 562 (2007); Province of Cebu v. Heirs of
Rufina Morales, 546 SCRA 315 (2008); XYST Corp. v. DMC Urban Properties
Dev., 594 SCRA 598 (2009); First Optima Realty Corp. v. Securitron Security
Services, 748 SCRA 534 (2015).
2 of 41
3. Sale Creates Real Obligations “T
1165)
G
”
“No
Contract Situation” versus “Void
Contract”: Absence of complete meeting of
minds negates existence of a perfected sale,
xFirme v. Bukal Enterprises, 414 SCRA 190 (2003);
the contract is void and absolutely wanting in
civil effects, and does not create or modify the
juridical relation to which it refers, xCabotaje v.
Pudunan, 436 SCRA 423 (2004).
(Art.
4. Essential Characteristics of Sale:
a. Nominate and Principal – 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. Court of
Appeals, 337 SCRA 67 (2000).8
When the contract of sale is not perfected, as
when there is no meeting of minds on the price,
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);12
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).
b. Consensual (Art. 1475) – Sale being a
consensual contract, is perfected, valid and
binding upon meeting of the minds on the
subject matter and the consideration;9 being a
consensual, and not real, in character, sale’s
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).
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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 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).13
—
● Its binding effect is based on the principle that
the obligations arising therefrom have the
force of law between the parties. xVeterans
Federation of the Phils. v. CA, 345 SCRA 348
(2000).
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
parties
may
reciprocally demand
performance, xHeirs of Venancio Bejenting v.
Bañez, 502 SCRA 531 (2006);10 subject only to
the provisions of law governing the form of
contracts. xCruz v. Fernando, 477 SCRA 173
(2005).
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. xAlmocera v. Ong, 546 SCRA 164
(2008).14
● It remains valid even though the parties have
not affixed their signatures to its written form,
xGabelo v. CA, 316 SCRA 386 (1999);11 nor
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).
●
When rescission of a contract of sale is
sought under Article 1191 of the Civil Code, it
need not be judicially invoked because the
owner to resolve is implied in reciprocal
obligations.
The
resolution
immediately
produces legal effects if the nonperforming
party does not question the resolution. Court
intervention only becomes necessary when the
party who allegedly failed to comply with his or
her obligation disputes the resolution of the
contract. √Lam v. Kodak Philippines, 778 SCRA
96 (2016).
Failure of developer to obtain a license to sell
does not render its 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).
Perfection
Distinguished
from
Demandability: Not all contracts of sale become
automatically and immediately effective. In sale
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).
8
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).
9
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., 594 SCRA 598 (2009);
Del Prado v. Caballero, 614 SCRA 102 (2010); Heirs of Fausto C. Ignacio v.
Home Bankers Savings, 689 SCRA 173 (2013); Dantis v. Maghinang, Jr., 695
SCRA 599 (2013); Lam v. Kodak Phil., 778 SCRA 96 (2016).
10
Province of Cebu v. Heirs of Rufina Morales, 546 SCRA 315 (2008).
11
Baladad v. Rublico, 595 SCRA 125 (2009).
d. Onerous and Commutative (Arts. 1355 and
1470) – The resolution of issues pertaining to
periods and conditions in a contract of sale must
be based on its onerous and commutative
nature. √Gaite v. Fonacier, 2 SCRA 830 (1961).
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).
12
Manila Metal Container Corp. v. PNB, 511 SCRA 444 (2006); Roberts v.
Papio, 515 SCRA 346 (2007).
13
Ong v. CA, 310 SCRA 1 (1999); Mortel v. KASSCO, 348 SCRA 391 (2000);
Agro Conglomerates 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).
14
Vda. De Quirino v. Palarca, 29 SCRA 1 (1969); Cabrera v. Ysaac, 740
SCRA 612 (2014).
3 of 41
e. Sale Is Title and Not Mode – 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 (delivery as a consequence of sale) that
actually transfers ownership. xSan Lorenzo Dev.
Corp. v. Court of Appeals, 449 SCRA 99 (2005),15
citing V
ed., at p. 5.
, P
L
S
, 1995
Ownership by seller of the thing sold is not an
element of perfection; what the law requires is
seller has the right to transfer ownership at the
time of delivery. xQuijada v. CA, 299 SCRA 695
(1998).16 B
S : 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
Contracts
from
Similar
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:17 the transfer of ownership in exchange
for a price paid or promised is the very essence of a
contract of sale. xSantos v. Court of Appeals, 337 SCRA
67 (2000).
In determining the real character of sale, courts
look at the intent of the parties, their true 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. Court
of Appeals, 275 SCRA 237 (1997).
1. Donation (Arts. 725 and 1471) – Unlike donation,
sale is a disposition for valuable consideration with
no diminution of seller’s estate but merely
substitution of values—property sold replaced by
the equivalent monetary consideration—and
therefore cannot have the legal effect of depriving
compulsory heirs of their legitimes. xManongsong
v. Estimo, 404 SCRA 683 (2003).
Art. 1544 double sales rules not relevant to
donations. xHemedes v. CA, 316 SCRA 347 (1999).
2. Barter (Arts. 1468, 1638 to 1641)
3. Contract for a Piece-of-Work (Arts. 1467, 1713
to 1715) – “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
V
, L
S
, pp. 7-9 (1995). In both,
the provisions on warranty of title against hidden
defects applies. xDiño v. CA, 359 SCRA 91 (2001).
When one 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 it is manufactured or procured for
the general market in the ordinary course of
business, it is a contract of sale. √CIR v.
Engineering Equipment, 64 SCRA 590 (1975).18
To Tolentino, the distinction depends on the
parties’ intention: if they intended that at some
future date an object has to be delivered without
considering the work or labor of the party bound to
deliver, the contract is one of sale; but if one party
accepts the undertaking on the basis of some plan,
taking into account the particular work to be done
by himself or through others, 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. v. Lingad, 38 SCRA 524
(1971).
C
:
(a) Contractual relation 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. 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 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. xYuson v.
Vitan, 496 SCRA 540 (2007).
Elements of dacion en pago: (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
Eco-Formwork System Phil., 413 SCRA 182 (2003).19
C
:
● In its modern concept, what takes place in
15
Acap v. CA, 251 SCRA 30 (1995).
16
Equatorial Realty Dev. v. Mayfair Theater, 370 SCRA 56 (2001);
Alcantara-Daus v. De Leon, 404 SCRA 74 (2003); Heirs of Jesus M.
Mascuñana v. CA, 461 SCRA 186 (2005).
17
Romero v. CA, 250 SCRA 223 (1995); Lao v. CA, 275 SCRA 237 (1997);
Orden v. Aurea, 562 SCRA 660 (2008); Ver Reyes v. Salvador, Sr., 564 SCRA
456 (2008)..
dacion en pago is an objective novation of the
18
CIR v. Arnoldus Carpentry Shop, 159 SCRA 199 (1988); Del Monte Phil. v.
Aragones, 461 SCRA 139 (2005).
19
Aquintey v. Tibong 511 SCRA 414 (2006); Rockville Excel International
Exim Corp. v. Culla, 602 SCRA 124 (2009).
4 of 41
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).20
● In a true dacion en pago, assignment of the
property extinguishes the monetary debt.
xEstanislao v. East West Banking Corp., 544
SCRA 369 (2008).21
B
S
: Dation 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. xTan Shuy
v. Maulawin, 665 SCRA 604 (2012).
● There must be actual delivery of the property to
the creditor by way of extinguishment of the
pre-existing debt, xPhil. Lawin Bus Co. v. CA, 374
SCRA 332 (2002).22
B
S
O
: xSSS v. AG& P Company of Manila, 553
SCRA 677 (2008).
● There is no dation where there is no transfer of
ownership in creditor’s favor, as when
possession of the thing is merely given to the
creditor by way of security. xFort Bonifacio Dev.
Corp. v. Yllas Lending Corp., 567 SCRA 454
(2008).23
Dacion en pago is governed by the Law of Sales,
and is therefore subject to the same rules on
express and implied warranties pertaining to
contracts of sale. 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 meant to be installment payments to an
underlying sale contract, despite the nomenclature
given by the parties, it is a sale by installments and
governed by Recto Law. xFilinvest Credit Corp. v.
CA, 178 SCRA 188 (1989).
II
PARTIES TO A CONTRACT OF SALES
1. G
R
: 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 sale; consent is among the essential
requisites of a contract of sale, absent of which
there can be no valid contract.[?] xLabagala v.
Santiago, 371 SCRA 360 (2001).
20
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).24
3. Sales By and Between Spouses:
a. Sales 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, not merely voidable, since
the resulting contract lacks one of the essential
elements of “full consent”. xGuiang v. CA, 291
SCRA 372 (1998).25
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. Sales 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. √Matabuena v.
Cervantes, 38 SCRA 284 (1971).
Sale by husband of conjugal land to his
concubine is 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.”
xCalimlim-Canullas v. Fortun, 129 SCRA 675
(1984).26
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);
nevertheless, when the property is re-sold to a
third-party buyer in good faith and for value,
reconveyance is no longer available. xCruz v. CA,
281 SCRA 491 (1997).
4. W
B
R
1491 and 1492)
D
(Arts.
a. “Necessaries” (Arts. 1489 and 290)
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).27
b. Protection of the Senile and Elderly (Art. 24),
Illiterates (Art. 1332)
a. Guardians, Administrators and Agents
Vda. de Jayme v. CA, 390 SCRA 380 (2002); Dao Heng Bank v. Laigo, 571
SCRA 434 (2008); Technogas Phil. Mfg. Corp. v. PNB, 551 SCRA 183 (2008);
Ocampo v. LBP, 591 SCRA 562 (2009); D.B.T. Mar-Bay Construction v.
Panes, 594 SCRA 578 (2009).
21
Ong v. Roban Lending Corp., 557 SCRA 516 (2008).
22
Filinvest Credit Corp. v. Philippine Acetylene Co., 111 SCRA 421 (1982);
Vda. de Jayme v. CA, 390 SCRA 380 (2002); Ong v. Roban Lending Corp.,
557 SCRA 516 (2008); Pen v. Julian, 778 SCRA 56 (2016).
23
PNB v. Pineda, 197 SCRA 1 (1991).
Hereditary rights are not included in the
prohibition insofar as administrator or executor
24
Domingo v. CA, 367 SCRA 368 (2001); Vda. De Ape v. CA, 456 SCRA 193
(2005).
25
Cirelos v. Hernandez, 490 SCRA 625 (2006); Bautista v. Silva, 502 SCRA
334 (2006).
26
Ching v. Goynako, Jr., 506 SCRA 735 (2006).
27
Uy Sui Pin v. Cantollas, 70 Phil. 55 (1940); Medina v. Collector, 1 SCRA
302 (1961).
5 of 41
of the estate of the deceased. xNaval v. Enriquez,
3 Phil. 669 (1904).
of a thing is ceded for a consideration. √Polytechnic
University v. Court of Appeals, 368 SCRA 691 (2001).
No more need to comply with the
requirement in xRodriquez v. Mactal, 60 Phil. 13
(1934) to show 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).
An agreement whereby 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, is
essentially a sale, and the rule on delivery effected
through a public instrument applies. xCaoibes, Jr. v.
Caoibes-Pantoja, 496 SCRA 273 (2006).
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).
1. Subject Matter Must Be “Existing, Future or
Contingent” (Arts. 1347, 1348, and 1462)
a. Emptio Rei Speratae (Arts. 1347 and 1461) –
Pending crops which have potential existence
may be valid object of sale, xSibal v. Valdez, 50
Phil. 512 (1927); and transaction cannot be
considered to be sale of the land or any part
thereof, xPichel v. Alonzo, 111 SCRA 341 (1981).
b. Attorneys
(1) Prohibition Against Attorneys Applies:
● Even though litigation is not adversarial in
nature, Rubias v. Batiller, 51 SCRA 120 (1973);
or a certiorari proceeding that has no merit,
xValencia v. Cabanting, 196 SCRA 302 (1991).
● Sale pursued while litigation is pending.
xDirector of Lands v. Ababa, 88 SCRA 513
(1979).
Sale of copra for future delivery does not make
non-delivering seller liable for estafa since sale is
valid and obligation was civil and not criminal.
xEsguerra v. People, 108 Phil. 1078 (1960).
b. Emptio Spei (Art. 1461)
c. Subject to a Resolutory Condition (Art. 1465)
● 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.
xMunicipal Council of Iloilo v. Evangelista,
55 Phil. 290 (1930).28
2. Must Be “Licit” (Arts. 1347, 1459 and 1575)
Although under Art. 1347, a sale involving future
inheritance is void and does not create an
obligation, xTañedo v. CA, 252 SCRA 80 (1996); such
does not cover a 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. Court of
Appeals, 251 SCRA 30 (1995).
(2) Prohibition Does Not Apply To:
● A lawyer who acquired property prior to the
time he intervened as counsel in the suit
involving such property. xDel Rosario v.
Millado, 26 SCRA 700 (1969).
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).31
● 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).
● 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).29
3. Must
Be
“Determinate”
“Determinable” (Art. 1460)
At
Least
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, not on what
is technically described in Deed or Torrens title.
√Atilano v. Atilano, 28 SCRA 231 (1969).32
c. Judges
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).30
a. Non-Specific Things (Generic) May Be the
Object of Sale (Arts. 1246 and 1409[6])
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).
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).
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).
III SUBJECT MATTER OF SALE
The transfer of title or an agreement to transfer
title 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).
Where lot sold is described to adjoin
“previously paid lot on three sides thereof”, it can
be determined without need of a new contract,
even when the exact area of adjoining lot is
subject to the result of a survey. xSan Andres v.
Rodriguez, 332 SCRA 769 (2000).
Civil Code provisions defining sales is a “catch-all
provision” which effectively brings within the Law on
Sales a whole gamut of transfers whereby ownership
28
Gregorio Araneta, Inc. v. Tuason de Paterno, 49 O.G. 45 (1952).
Recto v. Harden, 100 Phil. 427 (1956); Vda. de Laig v. CA, 86 SCRA 641
(1978).
30
Britanico v. Espinosa, 486 SCRA 523 (2006).
or
29
31
32
Typingco v. Lim, 604 SCRA 396 (2009).
Londres v. CA, 394 SCRA 133 (2002).
6 of 41
As the quoted portion of the Kasunduan
gave 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
determinable. xCarabeo v. Dingco, 647 SCRA
200 (2011).
b. “Quantity of Goods”
Perfection? (Art. 1349)
Not
Essential
for
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 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 v. CA, 227 SCRA 719 (1993).
c. Undivided Interest (Art. 1463), Undivided Share
in a Mass of Fungible Goods (Art. 1464) – May
Result In Co-ownership
5. Seller’s Obligation to Transfer Title to Buyer
(Art. 1459, 1462, and 1505)
a. Seller Need Not Be the Owner at the Time of
Perfection
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).
33
B
S : 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. xNoel v. Court of Appeals,
240 SCRA 78 (1995).34
T
S : Although it appears that seller is
not owner of the goods at perfection is one of
the void contracts enumerated in Art. 1409, and
Art. 1402 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 seller was not the owner
at time of sale, nevertheless such contract may
be deemed to be inoperative and falls, by
analogy, under Art. 1409(5): “Those which
contemplate an impossible service.” xNool v.
Court of Appeals, 276 SCRA 149 (1997).
N
S : Seller and buyer must agree as to
the certain thing that will be subject of the sale,
as well as the price in which the thing will be
sold. The thing to be sold is the object of the
contract, while the price is the cause or
consideration. The object of a valid sale must be
owned by the seller, or seller must be authorized
by the owner to sell the object; otherwise, sale is
null and void. xCabrera v. Ysaac, 740 SCRA 612
(2014).
33
Heirs of Arturo Reyes v. Socco-Beltran, 572 SCRA 211 (2008).
34
Azcona v. Reyes, 59 Phil. 446 (1934); Coronel v. Ona, 33 Phil. 456 (1916);
Francisco v. Chemical Bulk Carriers, 657 SCRA 355 (2011).
b. Subsequent Acquisition of Title by Non-Owner
Seller – Title Passes to Buyer by Operation of
Law (Art. 1434)
c. Acquisition by the Buyer May Even Depend on
Contingency (Art. 1462)
6 Illegality of Subject Matter (Arts. 1409, 1458,
1461, 1462, and 1575)
a. Special Laws: narcotics (R.A. 6425); wild bird or
mammal (Act 2590); rare wild plants (Act 3983);
poisonous plants/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. Court of
Appeals, 129 SCRA 319 (1984).
● Friar land without consent of Secretary of
Agriculture required under Act No. 1120.
xAlonso v. Cebu Country Club, 375 SCRA 390
(2002); xLiao 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. xFisheries Dev. Authority v.
CA, 534 SCRA 490 (2007).
● Alien who purchases land in the name of his
Filipina lover, has no standing to recover the
property or the purchase price paid, since the
transaction is void ab initio for being in
violation of the constitutional prohibition.
xFrenzel v. Catito, 406 SCRA 55 (2003).
IV PRICE AND OTHER
CONSIDERATION (A
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.
xInchausti & Co. v. Cromwell, 20 Phil. 345 (1911).
Under the doctrine of “obligatory force”, seller
cannot unilaterally increase the price previously
agreed upon with the buyer, even when due to
increased construction costs. xGSIS v. Court of
Appeals, 228 SCRA 183 (1993).
Buyer who opted to purchase the land on
installment basis with imposed interest at 24% p.a.,
cannot unilaterally disavow the obligation created by
the stipulation in the contract: “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. … 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 Is “Simulated”
7 of 41
(1)
√Mapalo v. Mapalo, 17 SCRA 114 (1966),
versus: When two old 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. Court of Appeals, 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
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. Court
of Appeals, 317 SCRA 696 (1999).35
b. When Price Is “False” (Arts. 1353 and 1354)
buyer to the seller. xVda. de Catindig. v. Heirs of
Catalina Roque, 74 SCRA 83 (1976).38
2. Price Must Be in “Money or Its Equivalent”
(Arts. 1458 and 1468)
Price must be “valuable consideration” under 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).
Consideration for a valid contract of sale need
not be “money or its equivalent,”√Republic v. Phil.
Resources Dev., 102 Phil. 960 (1958); and can take
different forms, such as the prestation or promise of
a thing or service by another, such as when the
consideration is:
● 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. Court of
Appeals, 368 SCRA 691 (2001)
● Assumption of mortgage on property sold.
xDoles v. Angeles, 492 SCRA 607 (2006).39
3. Price Must Be “Certain” or “Ascertainable” at
Perfection (Art. 1469)
a. Price Is “Ascertainable” When:
(1)
Set by Third Person
Perfection (Art. 1469)
Appointed
at
(2) Set by the Courts (Art. 1469)
(3) By Reference to a Definite Day, Particular
Exchange or Market (Art. 1472)
When the parties intended to be bound by
the sale, 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).
(4) 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
based on known factors or stipulated
formula. xMitsui v. Manila, 39 Phil. 624 (1919).
When price indicated in deed of absolute sale
is undervalued 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 agreed upon. xHeirs of
Spouses Balite v. Lim, 446 SCRA 54 (2004).
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. Villanueva v. Court of Appeals, 267 SCRA
89 (1997).40
c. Effect of 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 seller may exercise his
legal remedies. xBalatbat v. Court of Appeals,
261 SCRA 128 (1996).36
“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).37
Price Simulated, Not Just Unpaid: It is a
badge of simulated price, which render the sale
void, when price is expressly stipulated to have
been paid, but in fact never been paid by the
35
Yu Bun Guan v. Ong, , 367 SCRA 559 (2001); Gonzales v. Trinidad, 67
Phil. 682 (1939)
36
Peñalosa v. Santos, 363 SCRA 545 (2001); Soliva v. Intestate Estate of
Marcelo M. Villalba, 417 SCRA 277 (2003); Province of Cebu v. Heirs of
Rufina Morales, 546 SCRA 315 (2008).
37
Villaflor v. CA, 280 SCRA 297 (1997).
However, 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. PMO,
507 SCRA 63 (2006).
Price or 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 Can Never Set By One or Both Parties
After Alleged Perfection, Unless Such Price Is
Separately Accepted by the Other Party. (Arts.
1473, 1182)
38
Ocejo v. Flores, 40 Phil. 921 (1920); Ladanga v. CA, 131 SCRA 361
(1984); Rongavilla v. CA, 294 SCRA 289 (1998); Labagala v. Santiago, 371
SCRA 360 (2001); Cruz v. Bancom Finance Corp., 379 SCRA 490 (2002);
Montecillo v. Reynes, 385 SCRA 244 (2002); Republic v. Southside
Homeowners Asso., 502 SCRA 587 (2006); Quimpo, Sr. v Abad Vda de
Beltran, 545 SCRA 174 (2008); Solidstate Multi-Products Corp. v.
Catienza-Villaverde, 559 SCRA 197 (2008); Clemente v. CA, 772 SCRA 339
(2015).
39
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).
40
Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).
8 of 41
c. Effects When Price Is Neither Certain or
Ascertainable: Sale Is “Inefficacious”
B
: If Buyer Appropriates the Object, He Must Pay
a Reasonable Price (Art. 1474)
No “Appropriation” When It Comes to Land?
– Where a church organization has been allowed
possession and introduced 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. NHA v. Grace
Baptist Church, 424 SCRA 147 (2004).
of a resale, a better price can be obtained.
xCu Bie v. CA, 15 SCRA 307 (1965).43
U
: There is right of redemption, in which case the
proper remedy is to redeem xDe Leon v.
Salvador, 36 SCRA 567 (1970).44
H
: 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. Court of Appeals, 351
SCRA 294 (2001).
(3)
Even when there was no meeting on the
minds of the price, yet to deny petitioner’s claim
would unjustly enrich respondent who had
benefited from the repairs of their four elevators.
√Hyatt Elevators and Escalators v. Cathedral
Heights Building, 636 SCRA 401 (2010).
4. “Manner of Payment” of Price I
(Art. 1179)
There can be no legal conclusion of
inadequacy of price in the absence of any
evidence of the fair market value of a land at the
time of sale. xAcabal v. Acabal, 454 SCRA 897
(2005).45
E
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).
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 which the sale is void and an action for
specific performance must fail. √Navarra v.
Planters Dev. Bank, 527 SCRA 562 (2007).41
When judicial sale is voided without fault of
purchaser, latter is entitled return of price with
simple interest, together with all sums paid out
in improvements introduced on the property,
taxes, and other expenses. xSeven Brothers
Shipping Corp. v. CA, 246 SCRA 33 (1995).
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 is that
the subsequent payments shall be made in the
same amount as the first payment. [?] xDBP v.
Court of Appeals, 344 SCRA 492 (2000).
5. Inadequacy of Price (Arts. 1355 and 1470)
a. Simple Inadequacy of Price Does Not Affect
Ordinary Sales – 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 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).42
b. “Gross Inadequacy of Price” May:
(1)
Raise the Presumption of Equitable
Mortgage in an Ordinary Sale (Art. 1602)
(2)
Render Voidable a 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
41
Velasco v. CA, 51 SCRA 439 (1973); Co v. CA, 286 SCRA 76 (1998); San
Miguel Properties v. Huang, 336 SCRA 737 (2000); Montecillo v. Reynes, 385
SCRA 244 (2002); Edrada v. Ramos, 468 SCRA 597 (2005); Cruz v.
Fernando, 477 SCRA 173 (2005); Marnelego v. Banco Filipino Savings Bank,
480 SCRA 399 (2006); Boston Bank of the Phil. v. Manalo, 482 SCRA 108
(2006); Platinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006); Manila Metal
Container Corp. v. PNB, 511 SCRA 444 (2006); Dantis v. Maghinang, Jr., 695
SCRA 599 (2013).
42
Ereñeta v. Bezore, 54 SCRA 13 (1973); Bacungan v. CA, 574 SCRA 642
(2008).
Render Rescissible a Sale by Fiduciary,
where Beneficiary suffers lesion of more
than 1/4 of value of thing sold, unless
approved
by
the
courts
(Arts.
1381and1386)
V
FORMATION OF THE 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. xGabelo v. CA, 316 SCRA
386 (1999).
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).46
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).
43
Tayengco v. CA, 15 SCRA 306 (1965); Republic v. NLRC, 244 SCRA 564
(1995).
44
Vda. de Gordon v. CA, 109 SCRA 388 (1981).
45
Avila v. Barabat, 485 SCRA 8 (2006).
46
Navarra v. Planters Dev. Bank, 527 SCRA 562 (2007); San Miguel
Properties Phil. v. Huang, 391 Phil. 636 (2000); First Optima Realty Corp. v.
Securitron Security Services, 748 SCRA 534 (2015)
9 of 41
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. v.
BRYC-V Dev’t Corp., 594 SCRA 724 (2009).
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. The “Double Acceptance Rule” – An option to
rise to the level of a contract, there must be
formal acceptance of the option offer. √Vazquez
v. CA, 199 SCRA 102 (1991).
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. O
d. Exercise of Option Contract – In an option to
buy, oitonee-offeree may validly and effectively
exercise his right by merely advising the
optioner-offeror of his decision to buy and
expressing his readiness to pay the stipulated
price as soon as the seller is able to execute the
proper deed of sale; thus, notice of the
optionee-offeree’s decision to exercise his option
to buy need not be couple with actual payment
of the price. √Nietes v. CA, 46 SCRA 654 (1972).
C
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 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. Court of Appeals, 302
SCRA 718 (1999).47
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 of the
lease (tacita reconduccion). xDizon v. CA, 302
SCRA 288 (1999). B
S : There may be “virtual”
exercise of option with the option period.
√Carceller v. Court of Appeals, 302 SCRA 718
(1999).
An option imposes no binding obligation on the
person holding the option aside from the
consideration for the offer. Until accepted
(exercised), it is not treated as a sale. √Tayag v.
Lacson, 426 SCRA 282 (2004).48
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).49
Proper exercise of an option gives rise to the
reciprocal obligations of sale xHeirs of Luis
Bacus v. CA, 371 SCRA 295 (2001),53 which must
be enforced with ten (10) years as provided
under Art. 1144. xDizon v. CA, 302 SCRA 288
(1999).
2. R
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).
Although no consideration is expressly
mentioned in an option, it may be proved, and
once proven, option is binding. xMontinola v.
Cojuangco, 78 Phil. 481 (1947).
Right of first refusal contained in a Contract of
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. v. Mayfair
Theater, 264 SCRA 483 (1996);54 √Parañaque
Kings Enterprises v. Court of Appeals, 268 SCRA
727 (1997).
b. Option With No Separate Consideration: Void
as Option, Valid as a Certain Offer – “He who
draws first wins.” √Sanchez v. Rigos, 45 SCRA
368 (1972).51
S
: Nothing Arises From an Option
Without Separate Consideration.
xYao Ka Sin Trading v. Court of
Appeals, 209 SCRA 763 (1991).52
B : Not against a purchaser for value and in
good faith. √Rosencor Dev. Corp. v. Inquing, 354
SCRA 119 (2001).
If the option is without any consideration, the
offeror
may
withdraw
his
offer
by
communicating such withdrawal to the offeree
A right of first refusal in a lease in favor of the
lessee cannot be availed of by the sublessee.
xSadhwani v. Court of Appeals, 281 SCRA 75 (1997).
47
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 Phil. v. Golden Horizon Realty Corp., 615 SCRA
478 (2010).
48
Adelfa Properties v. CA, 240 SCRA 565 (1995); Kilosbayan v. Morato, 246
SCRA 540 (1995); San Miguel Properties Phil. v. Huang, 336 SCRA 737
(2000); Limson v. CA, 357 SCRA 209 (2001).
49
JMA House v. Sta. Monica Industrial and Dev. Corp., 500 SCRA 526
(2006).
50
De la Cavada v. Diaz, 37 Phil. 982 (1918); San Miguel Properties Phil. v.
Huang, 336 SCRA 737 (2000)
51
Affirmed in Vasquez v. CA, 199 SCRA 102 (1991).
52
Montilla v. CA, 161 SCRA 855 (1988); Natino v. IAC, 197 SCRA 323
(1991); Diamante v. CA, 206 SCRA 52 (1992).
R
A right of first refusal cannot be the subject of
specific performance, but breach on the part of the
promissor would allow a recovery of damages.
xGuerrero v. Yñigo, 96 Phil. 37 (1954).
“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),50 such
when the option is attached to real estate
mortgage xSoriano v. Bautista, 6 SCRA 946
(1962).
B
F
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
53
Limson v. CA, 357 SCRA 209 (2001).
Rosencor Dev. Corp. v. Inquing, 354 SCRA 119 (2001); Conculada v. CA,
367 SCRA 164 (2001); Polytechnic University v. CA, 368 SCRA 691 (2001);
Riviera Filipina, Inv. v. CA, 380 SCRA 245 (2002); Lucrative Realty and Dev.
Corp. v. Bernabe, Jr., 392 SCRA 679 (2002); Villegas v. CA, 499 SCRA 276
(2006); Polytechnic University of the Phil. v. Golden Horizon Realty Corp., 615
SCRA 478 (2010).
54
10 of 41
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. . . 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 simply means that should
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 lessor and lessee on the basis of
such preference is a compliance 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, Inc. v. CA, 380 SCRA 245 (2002).
refers to the exact object and consideration embodied
in said offer. xVillanueva v. PNB, 510 SCRA 275 (2006).59
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).60
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. Here, petitioner’s
acceptance of the offer was qualified, which
amounts to a rejection of the original offer.
√Manila Metal Container Corp. v. PNB, 511 SCRA
444 (2006).61
55
Right of first refusal clause does not apply to this
situation where the owner to eject the tenant on
the ground that the former needs the premises for
residential purposes. xEstanislao v. Gudito, 693
SCRA 330 (2013).
3. M
“T
C
P
S
B
S
”
Placing the word “Noted” and signing below
such word at the bottom of the written offer is not
an absolute acceptance that would give rise to a
valid sale. xDBP v. Ong, 460 SCRA 170 (2005).
Subject to Suspensive Condition: There is no
perfected sale of a lot where award thereof was
made subject to approval by the higher authorities
and there eventually was no acceptance
manifested by the supposed awardee. xPeople's
Homesite. v. CA, 133 SCRA 777 (1984).
(Art. 1479):
Mutual promises to buy and sell a certain thing
for a certain price gives 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.56 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).57
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. Vendor’s change in a phrase of the offer
to purchase which do 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).62
3. Sale by Auction (Arts. 1476, 1403(2)(d), 1326)
Owner’s terms and conditions for the sale of
property under auction are binding on all bidders,
whether or not they knew of them. xLeoquinco v.
Postal Savings Bank, 47 Phil. 772 (1925).
Cause of action under a mutual promise to buy
and sell is 10 years. xVillamor v. Court of Appeals,
202 SCRA 607 (1991).
B
P
S
S
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).
(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).58
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).
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
55
Polytechnic University v. CA, 368 SCRA 691 (2001); Villegas v. CA, 499
SCRA 276 (2006); Polytechnic University of the Phil. v. Golden Horizon Realty
Corp., 615 SCRA 478 (2010).
56
El Banco Nacional Filipino v. Ah Sing, 69 Phil. 611 (1940); Manuel v.
Rodriguez, 109 Phil. 1 (1960).
57
Borromeo v. Franco, 5 Phil. 49 (1905); Villamor v. CA, 202 SCRA 607
(1991); Coronel v. CA, 263 SCRA 15 (1996).
58
Valdez v. CA, 439 SCRA 55 (2004); Blas v. Angeles-Hutalla, 439 SCRA
273 (2004); Ainza v. Padua, 462 SCRA 614 (2005); Cruz v. Fernando, 477
SCRA 173 (2005).
In a potential sale transaction, prior payment of
earnest money even before the owner can agree to
sell his property is irregular, and cannot be used to
bind the owner to the obligations of a seller under
an otherwise perfected contract of sale. Property
owner/prospective seller may not be legally obliged
59
Moreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).
Moreno, Jr. v. Private Management Office, 507 SCRA 63 (2006).
Beaumont v. Prieto, 41 Phil. 670 (1916); Zayco v. Serra, 44 Phil. 326
(1923); Limketkai Sons Milling, v. CA, 255 SCRA 626 (1996); XYST Corp. v.
DMC Urban Properties Dev., 594 SCRA 598 (2009); Tuazon v. Del
Rosario-Suarez, 637 SCRA 728 (2010).
62
Limketkai Sons Milling v. CA, 250 SCRA 523 (1995), but reversed in 255
SCRA 626,
60
61
11 of 41
to enter into a sale with a prospective buyer
through the latter's employment of questionable
practices which prevent the owner from freely
giving his consent to the transaction. √First
Optima Realty Corp. v. Securitron Security
Services, 748 SCRA 534 (2015).63
● That marital consent executed prior to the Deed
of Absolute Sale does not indicate that it is a
phoney. xPan Pacific Industrial Sales Co. v.
Court of Appeals, 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
upheld.
xBravo-Guerrero v. Bravo, 465 SCRA 244 (2005).
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.
Court of Appeals, 401 SCRA 54 (2003).64
67
● Notarization by one who was not a notary public
does not affect the validity thereof; deed merely
remained private documents. xR.F. Navarro &
Co. v. Vailoces, 361 SCRA 139 (2001).
When there is no provision for forfeiture of
earnest money in the 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. Court of Appeals, 299 SCRA 141 (1998).
● 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 binding legal effect.
xSalonga v. Concepcion, 470 SCRA 291 (2005).68
Where parties merely exchanged offers and
counter-offers, there being no perfection of a
contract of sale yet, money given as deposit cannot
be considered earnest money since such term
applies only to a perfected sale. xStarbright Sales
Enterprises v. Philippine Realty Corp., 663 SCRA 326
(2012).
● 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 (2001).69
● Any substantial difference between the terms of
the Contract to Sell and the concomitant Deed
of Absolute Sale (such as difference in subject
matter, 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).
5. Differences Between Earnest Money and
Option Money: √Oesmer v. Paraiso Dev. Corp.,
514 SCRA 228 (2007).
6. Sale Deemed Perfected at the Place Where
Offer Was Made (Art. 1319)
C. F
S
1483)
R
C
(Arts. 1357, 1358(1), 1406 and
1. Form Not Important for Validity of Sale, Which
Is Consensual in Character
Sale of land under private instrument is
enforceable. xGallar v. Husain, 20 SCRA 186 (1967).65
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 ensure its efficacy. xEstate of
Pedro C. Gonzales v. Heirs of Marcos Perez, 605
SCRA 47 (2009).66
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. v. Court of
Appeals, 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. xBravo-Guerrero v. Bravo, 465 SCRA
244 (2005).
63
Limjoco v. CA, 37 SCRA 663 (1971); Villonco v. Bormaheco, 65 SCRA 352
(1975); Spouses Doromal, Sr. v. CA, 66 SCRA 575 (1975); PNB v. CA, 262
SCRA 464 (1996); San Miguel Properties v. Huang, 336 SCRA 737 (2000);
Platinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006); Manila Metal
Container Corp. v. PNB, 511 SCRA 444 (2006); GSIS v. Lopez, 592 SCRA
456 (2009); XYST Corp. DMC Urban Properties Dev., 594 SCRA 598 (2009).
64
San Miguel Properties v. Huang, 336 SCRA 737 (2000).
65
F. Irureta Goyena v. Tambunting, 1 Phil. 490 (1902).
66
Martinez v. CA, 358 SCRA 38 (2001); Heirs of Biona v. CA, 362 SCRA 29
(2001); Estate of Pedro C. Gonzales v. Heirs of Marcos Perez, 605 SCRA 47
(2009).
2. H
F
I I
C
S
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 and the rights
and obligations of the parties thereunder.
√Dalion v. CA, 182 SCRA 872 (1990).70
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).71
b. For
S
Enforceability Between the Parties:
F
(Arts. 1403 and 1405)
The term “Statute of Frauds” is descriptive of
the statutes which require certain enumerated
contracts and transactions, such as agreements
67
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).
68
Nazareno v. CA, 343 SCRA 637 (2000); Santos v. Heirs of Jose P.
Mariano, 344 SCRA 284 (2000)
69
Domingo v. CA, 367 SCRA 368 (2001).
70
Limketkai Sons Milling v. CA, 250 SCRA 523 (1995); Fule v. CA, 286
SCRA 698 (1998); Agasen v. CA, 325 SCRA 504 (2000); Universal Robina
Sugar Milling v. Heirs of Angel Teves, 389 SCRA 316 (2002); Estreller v.
Ysmael, 581 SCRA 247 (2009).
71
Limketkai Sons Milling v. CA, 255 SCRA 6 (1996); 261 SCRA 464 (1996);
Talusan v. Tayag, 356 SCRA 263 (2001); Santos v. Manalili, 476 SCRA 679
(2005).
12 of 41
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).
(4) Partial Execution (Art. 1405). √Ortega v.
Leonardo, 103 Phil. 870 (1958).
√Claudel v. Court of Appeals, 199 SCRA 113 (1991).
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. xAlfredo v. Borras, 404 SCRA
145 (2003).79
Presupposes
Valid
Contract
of
Sale:
Application of the Statute of Frauds presupposes
the existence of a perfected contract; otherwise,
there is no basis to apply the Statute. xFirme v.
Bukal Enterprises and Dev. Corp., 414 SCRA 190
(2003) 72
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).
(1) Coverage:
(i)
(ii)
Sale of Real Property – Cannot be proven
by means of witnesses, but must
necessarily be evidenced by a written
instrument, duly subscribed by party
charged, or by secondary evidence of the
contents of such document. xGorospe v.
Ilayat, 29 Phil. 21 (1914).73
Probative Value of Commercial Documents:
Business forms, e.g., order slip, delivery invoice,
issued in the ordinary course of business are not
always fully accomplished to contain all the
necessary information describing in detail the
whole business transaction; despite their being
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 C. Cruz Trading
Corp. v. CA, 347 SCRA 13 (2000).80
Agency to Sell or to Buy – As contrasted
from sale, agency to sell does not belong to
any of the categories of contracts covered
by Arts. 1357 and 1358 and not one
enumerated under the Statutes of Frauds
in Art. 1403. xLim v. CA, 254 SCRA 170 (1996).
74
(iii)
Rights of First Refusal – Are not covered
since 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).
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 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).
(iv) Right to Repurchase – Deed and 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’l Airport Authority v. CA,
263 SCRA 736 (1996).
(v)
(2)
E
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 by
parol evidence. xCuyugan v. Santos, 34
Phil. 100 (1916).75
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 v. Court of Appeals, 244 SCRA
320 (1995).81
Requisite of “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);76 even when scattered
into various correspondences which can be
brought together, xCity of Cebu v. Heirs of
Candido Rubi, 306 SCRA 408 (1999).77
: Electronic
E-C
A
Documents
(R A 8792)
under
C
: 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. Court of Appeals, 146 SCRA 158 (1986).82
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,83 even when:
the
(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).78
● Agent is the owner’s son. xDelos Reyes v. Court
of Appeals, 313 SCRA 632 (1999).
72
Rosencor Dev’t Corp. v. Inquing, 354 SCRA 119 (2001).
Alba Vda. De Ray v. CA, 314 SCRA 36 (1999).
Torcuator v. Bernabe, 459 SCRA 439 (2005).
75
Rosales v. Suba, 408 SCRA 664 (2003); Ayson, Jr. v. Paragas, 557 SCRA
50 (2008).
76
Paredes v. Espino, 22 SCRA 1000 (1968); Torcuator v. Bernabe, 459
SCRA 439 (2005).
77
Berg v. Magdalena Estate, 92 Phil. 110 (1952); Limketkai Sons Milling v.
CA, 250 SCRA 523 (1995); First Philippine Int’l Bank v. CA, 252 SCRA 259
(1996).
78
Talosig v. Vda. De Nieba, 43 SCRA 472 (1972); Limketkai Sons Milling v.
CA, 250 SCRA 523 (1995); Lacanilao v. CA, 262 SCRA 486 (1996).
73
74
79
Vda. de Jomoc v. CA, 200 SCRA 74 (1991); Soliva v. Estate of Marcelo M.
Villalba, 417 SCRA 277 (2003); Ainza v. Padua, 462 SCRA 614 (2005); De la
Cena v. Briones, 508 SCRA 62 (2006); Yaneza v. CA, 572 SCRA 413 (2008);
Duarte v. Duran, 657 SCRA 607 (2011).
80
Lagon v. Hooven Comalco Industries, 349 SCRA 363 (2001).
81
Xentrex Automotive v. CA, 291 SCRA 66 (1998).
82
Limson v. CA, 357 SCRA 209 (2001).
83
Alcantara v. Nido, 618 SCRA 333 (2010); Camper Realty Corp. v.
Pajo-Reyes, 632 SCRA 400 (2010).
13 of 41
● There is partial payment of price received by
agent. xDizon v. CA, 396 SCRA 154 (2003).84
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).89
● Seller is a corporation. xCity-Lite Realty Corp. v.
Court of Appeals, 325 SCRA 385 (2000).
85
When the 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).
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
motives neither determine nor take the place of the
consideration. xHeirs of Spouses Balite v. Lim, 446
SCRA 54 (2004).
Art. 1874 should be interpreted to mean that
the sale is unenforceable to the principal, who
may otherwise ratify it. Pahud v. Court of
Appeals, 597 SCRA13 (2009).86
d. Sale of Large Cattle
Revised Adm. Code)
(Art. 1581; Sec. 529,
D. Simulated Sales
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).
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).87
1
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).
Badges of Simulation:
● Non-payment of the stipulated consideration,
●
●
●
●
absence of any attempt by the buyers to assert
their alleged rights over the subject property.
xVillaflor v. CA, 280 SCRA 297 (1997).88
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 agreement did not provide for absolute
transfer ownership of the land to buyer, that did
not amount to simulation, since delivery of TCT 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
contracting parties 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).
4. Effects When Sale Declared Void:
● 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. 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. Court of Appeals, 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 (A
1493-1506) PERFORMANCE OF
CONTRACT OF SALE (A
1536-1544, 1582-1590)
A. O
1. Preserve with Due Diligence the Subject
Matter (Art. 1163)
2. Deliver with Fruits and Accessories (Arts. 1164,
1166, 1495, 1537)
3 D
S
M
(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, even when
there is delivery, no valid title over the subject
84
Firme v. Bukal Enterprises and Dev. Corp., 414 SCRA 190 (2003).
85
Pineda v. CA, 376 SCRA 222 (2002).
86
Escueta v. Lim, 512 SCRA 411 (2007).
87
Rosario v. CA, 310 SCRA 464 (1999); Loyola v. CA, 326 SCRA 285
(2000); Yu Bun Guan v. Ong, 367 SCRA 559 (2001); Payongayong v. CA, 430
SCRA 210 (2004).
88
Solidstate Multi-Products Corp. v. Catienza-Villaverde, 559 SCRA 197
(2008).
S
89
Uy v. CA, 314 SCRA 69, 81 (1999).
14 of 41
matter can be conveyed to the buyer. xTraders
Royal Bank v. CA, 269 SCRA 15 (1997).90
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).92
(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).91
● Failure of 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. Court of Appeals,
261 SCRA 128 (1996).
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 delivery there is no proof that seller had
ownership and 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).
(3) Tradition Per Se Transfers Ownership to
the Buyer (Arts. 1477, 1478, and 1496) – In
the absence of a stipulation to the contrary,
tradition produces its natural legal effects,
most important of which being conveyance
of ownership, without prejudice to right of
seller to claim payment of price. xFroilan v.
Pan Oriental Shipping, 12 SCRA 276 (1964).93
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).
In a contract of sale, title to the property
sold passes to buyer upon delivery of thing
sold; seller loses ownership by delivery and
cannot recover it until and unless contract is
resolved or rescinded by court process. David
v. Misamis Occidental II Electric Cooperative,
676 SCRA 367 (2012).
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).
c. A
P
D
(Art. 1497) –
Article 1477 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).
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).
b. G
A
(1)
D
C
T
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).
, W
Meaning of “Delivery” (Art. 1477) – 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. v. Mayfair Theater, 370
SCRA 56 (2001).
d. C
P
B
S : 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
● Absence of an express stipulation to the
92
Ocampo v. CA, 233 SCRA 551 (1994).
Kuenzle & Streiff v. Watson & Co., 13 Phil. 26 (1909); Ocejo, Perez & Co.
v. Int'l Banking Corp., 37 Phil. 631 (1918).
94
Tating v. Marcella, 519 SCRA 79 (2007); De Leon v. Ong, 611 SCRA 381
(2010); Villamar v. Mangaoil, 669 SCRA 2012 (2012); Santiago v. Villamor,
686 SCRA 313 (2012).
93
Rufloe v. Burgos, 577 SCRA 264, 272-273 (2009).
Tangalin v. CA, 371 SCRA 49 (2001); Heirs of Arturo Reyes v.
Socco-Beltran, 572 SCRA 211 (2008); Francisco v. Chemical Bulk Carriers,
657 SCRA 355 (20
91
: E
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. Int’l Corporate
Bank, 364 SCRA 385 (2001).
(2) 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). C
:
90
D
(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).94
“Delivery” in sales 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 Art. 1543 of the Civil Code.
xCebu Winland Dev. Corp. v. Ong Siao Hua, 588
SCRA 120 (2009).
contrary, payment of price of the goods is
not a condition precedent to the transfer
I
15 of 41
negated by the failure of buyer to take actual
possession of the land or the continued
enjoyment of possession by the vendor. √Santos
v. Santos, 366 SCRA 395 (2001).95
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
instrument. xVillamar v. Mangaoil,
669 SCRA 426 (2012).100
As a general rule, 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 sale, 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. xAsset Privatization Trust v.
T.J. Enterprises, 587 SCRA 481 (2009).
– and –
(b) Such Control Should Remain within
a
Reasonable
Period
after
Execution
of
the
instrument,
√Danguilan v. IAC, 168 SCRA 22
(1988).
E
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.” Heirs of Arturo
Reyes v. Socco-Beltran, 572 SCRA 211 (2008).96
Registration of Title Is Separate Mode from
Execution of Public Instrument – Recording of
the sale with the proper Registry of Deeds and
transfer of the TCT in the name of the buyer are
necessary only to bind third parties. As
between the seller and the buyer, transfer of
ownership takes effect upon the execution of a
public instrument conveying the real estate.
√Chua v. CA, 401 SCRA 54 (2003).
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).
B
S : Under Art. 1495, seller is obliged to
transfer title over the property and deliver the
same to the vendee. √Vive Eagle Land, v. CA,
444 SCRA 445 (2004).
(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 (1991).
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. Court of Appeals, 401
SCRA 54 (2003).
Where it is stipulated that deliveries must be
made to the buyer or his duly authorized
representative named in the contracts, seller is
under obligation to deliver in accordance with
such instructions. xLagon v. Hooven Comalco
Industries, 349 SCRA 363 (2001).
Neither issuance of an invoice, which is not a
document of title xP.T. Cerna Corp. v. CA, 221
SCRA 19 (1993),97 nor of the registration certificate
of vehicle xUnion Motor Corp. v. CA, 361 SCRA 506
(2001),98 would constitute constructive delivery of
the vehicle.
Execution of 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).
(ii) As to Immovables (Art. 1498) – In case of
immovables, when sale is made through a
public instrument, execution thereof shall be
equivalent to delivery of the thing object of
the sale, if from the deed the contrary does
not appear or cannot clearly be inferred.
xMunicipality of Victorias v. Court of Appeals,
149 SCRA 31 (1987);99 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 v. CA, 225 SCRA 678 (1993);
P
T
:
(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).
(a) Thing Sold Subject to Control of
Seller, √Addison v. Felix, 38 Phil.
95
Equatorial Realty Dev. v. Mayfair Theater, 370 SCRA 56 (2001); Engreso v.
De La Cruz, 401 SCRA 217 (2003); Ten Forty Realty and Dev. Corp. v. Cruz,
410 SCRA 484 (2003); Copuyoc v. De Solas, 504 SCRA 176 (2006); Cebu
Winland Dev. Corp. v. Ong Siao Hua, 588 SCRA 120 (2009); Beatingo v.
Gasis, 642 SCRA 539 (2011).
96
Fortune Tobacco Corp. v. NLRC, 200 SCRA 766 (1991).
97
Norkis Distributors v. CA, 193 SCRA 694 (1991).
98
Abuan v. Garcia, 14 SCRA 759 (1965); Santos v. Santos, 366 SCRA 395
(2001).
99
Florendo v. Foz, 20 Phil. 388 (1911); Sanchez v. Ramos, 40 Phil. 614
(1919); Quimson v. Rosete, 87 Phil. 159 (1950); Phil. Suburban Dev. v.
Auditor, 63 SCRA 397 (1975); Kings Properties Corp. v. Galido, 606 SCRA
137 (2009); Monasterio-Pe v. Tong, 646 SCRA 161 (2011).
: When Buyer Assumes Risks of
Ownership
and
Possession.
√Power
Commercial
and
Industrial Corp. v. CA, 274 SCRA
597 (1997).101
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: 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 property as
100
101
Asset Privatization Trust v. TY.J. Enterprises, 587 SCRA 481 (2009).
Villamar v. Mangaoil, 669 SCRA 426 (2012).
16 of 41
lessees; upon sale to them, they remained in
possession, not in the concept of lessees
anymore but as owners now through symbolic
delivery known as traditio brevi manu. xHeirs of
Pedro Escanlar v. CA, 281 SCRA 176 (1997).
4. Obligation to Take-Out Insurance Coverage (Art.
1523)
5. Time and Place of Delivery (Art. 1521)
6. 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, v. CA,
444 SCRA 445 (2004); and (b) duty to withhold
taxes due on the sale is imposed on seller.
xEquitable Realty Dev’t v. Mayfair Theater, 332
SCRA 139 (2000).
Although buyer has more interest in having the
capital gains tax paid immediately as 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 seller’s
liability since it is a tax on the seller’s gain on sale of
the real estate. Payment of the capital gains tax,
however, is not a pre-requisite to the transfer of
ownership to the buyer since the delivery 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
Delivery
on
Completeness
of
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).
(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. U.S. Pacific
Coast”, “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.
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, 217 SCRA 322 (1993).
c. “Sale by Description and/or Sample”
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)
(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).
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).
(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).102
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).
a. Rules on Delivery to Carrier (Art. 1523)
2. In Case of Immovables
102
(Art.
Chua Ngo v. Universal Trading Co., 87 Phil. 331 (1950).
17 of 41
a. “Sale Per Unit of Measure” (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).103
Where parties agreed at a rate of a certain
price per unit of measure and not one for a lump
sum, it is Art. 1539 and not Art. 1542 which is the
applicable law—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).
E
: 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).104
E
E
: 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. “Sale for a Lump Sum” (“A cuerpo cierto or por
precio alzado”) (Art. 1542) – In a sale of land in a
mass, the specified boundaries 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 land delivered to
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).
C.
D
S
(Arts. 1544105 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);
103
Goyena v. Tambunting, 1 Phil. 490 (1902); Santa Ana v. Hernandez, 18
SCRA 973 (1966).
104
Asiain v. Jalandoni, 45 Phil 296 (1923); Balantakbo v. CA, 249 SCRA 323
(1995); Rudolf Lietz, Inc. v. CA, 478 SCRA 451 (2005); Esguerra v. Trinidad,
518 SCRA 186 (2007); Del Prado v. Caballero, 614 SCRA 102 (2010).
105
Pudadera v. Magallanes, 633 SCRA 332 (2010).
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: (i) 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 (ii) 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 not
annotated therein. √Naawan Community Rural
Bank v. CA, 395 SCRA 43 (2003).106
B
S
: √Naval v. Court of Appeals, 483 SCRA
102 (2006).
√Gopiao v. Metropolitan Bank, 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 second buyer, in good faith, registers the
sale ahead of first buyer, and (b) should there be
no inscription by either of the buyers, when second
buyer, in good faith, acquires possession ahead of
the first buyer. Unless, second buyer satisfies these
requirements, title or ownership will not transfer to
him as against 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
tests of possession and oldest title. √Carilo v. CA,
503 SCRA 66 (2006).
a. M
R
A
1544: Primus Tempore,
Portior Jure” √Carbonell v. Court of Appeals,
69 SCRA 99 (1976).107
In double sales, first buyer always has priority
rights over subsequent buyers of the same
property. First buyer’s good faith remains all
throughout despite his subsequent acquisition
of knowledge of the subsequent sale. xKings
Properties Corp. v. Galido, 606 SCRA 137 (2009).
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
106
Abrigo v. De Vera, 432 SCRA 544 (2005); Ver Reyes v. Salvador, Sr., 564
SCRA 456 (2008).
107
Tanglao v. Parungao, 535 SCRA 123 (2007); Calma v. Santos, 590 SCRA
359 (2009).
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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. xRosaroso v.
Soria, 699 SCRA 232 (2013).108
3. Requisites for Double Sale Rule to Apply :
√Cheng v. Genato, 300 SCRA 722 (1998).109
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, 533 SCRA 350 (2007);110 or
● Where one or both of the contracts is a
contract to sell. √San Lorenzo Dev. Corp. v.
CA, 449 SCRA 99 (2005).111
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 – Art. 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 – Art. 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);113 or by several
successive vendors. xMactan-Cebu International
Airport Authority v. Tirol, 588 SCRA 635 (2009).114
B
S
(2015).
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).
Rules on double sales applies even if one of
the sales is an auction sale. Gopiao v.
Metrobank, 731 SCRA 131 (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 v. CA, 448
SCRA 347 (2005),115 citing V
, P
L
S
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).
(1) Doctrine on Conditional Sales/Contracts to
Sell and Adverse Claims: √Adalin v. CA, 280
SCRA 536 (1997).112
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).116
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
108
Pudadera v. Magllanes, 633 SCRA 332 (2010); Calma v. Santos, 590
SCRA 359 (2009).
109
Mactan-Cebu International Airport Authority v. Tirol, 588 SCRA 635
(2009); Cano Vda. De Viray v. Usi, 686 SCRA 211 (2012); Roque v. Aguado,
720 SCRA 780 (2014); Skunac Corp. v. Sylianteng, 723 SCRA 625 (2014).
110
Espiritu v. Valerio, 9 SCRA 761 (1963); Remalante v. Tibe, 158 SCRA 138
(1988); Delfin v. Valdez, 502 SCRA 24 (2006).
111
Torrecampo v. Alindogan, Sr., 517 SCRA 84 (2007).
112
Mendoza v. Kalaw, 42 Phil. 236 (1921); Ruiz v. CA, 362 SCRA 40 (2001)
and Valdevieso v. Damalerio, 451 SCRA 664 (2005); Rural Bank of Sta.
Barbara [Pangasinan] v. Manila Mission of the Church of Jesus Christ of Latter
Day Saints, 596 SCRA 415 (2009).
: √Badilla v. Bragat, 757 SCRA 131
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
113
Ong v. Olasiman, 485 SCRA 464 (2006).
Roque v. Aguado, 720 SCRA 780 (2014); Skunac Corp. v. Sylianteng, 723
SCRA 625 (2014); Badilla v. Bragat, 757 SCRA 131 (2015).
115
Gallardo v. Gallardo, 46 O.G. No. 11 p. 5568; Sigaya v. Mayuga, 467
SCRA 341, 357 (2005).
116
Ulep v. CA, 472 SCRA 241 (2005).
114
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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 SCRA 38 (2001);117 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 – In double sales, first buyer
always has priority rights over subsequent
buyers of the same property. Good faith of the
first buyer remains all throughout despite his
subsequent acquisition of knowledge of the
subsequent sale. xKings Properties Corp. v.
Galido, 606 SCRA 137 (2009).
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).118
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
117
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).
118
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, 533 SCRA 350 (2007); Tanglao v.
Parungao, 535 SCRA 123 (2007).
title already existing and vested. √Consolidated
Rural Bank) v. CA, 448 SCRA 347 (2005).
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).119
The registration of a sale after the annotation
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).
5. “First to Possess in Good Faith” as Second
Priority
Absence inscription, the law gives preference to
buyer who in good faith is first in possession, under
the following jurisprudential parameters: (a)
possession mentioned in Art. 1544 includes not only
material but also symbolic possession;120 (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
possessors rests the burden of proof. xTen Forty
Realty v. Cruz, 410 SCRA 484 (2003).121
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
claim or interest of some other person in the
property. xLocsin v. Hizon, 735 SCRA 547 (2014).
122
119
Liao v. CA, 323 SCRA 430 (2000); Talusan v. Tayag, 356 SCRA 263
(2001); Dauz v. Exchavez, 533 SCRA 637 (2007).
120
Roman Catholic Church v. Pante, 669 SCRA 234 (2012).
121
Sanchez v. Ramos, 40 Phil. 614 (1919); Quimson v. Rosete, 87 Phil. 159
(1950); Navera v. CA, 184 SCRA 584 (1990); The Roman Catholic Church v.
Pante, 669 SCRA 234 (2012).
122
Agricultural and Home Extension Dev. v. CA., 213 SCRA 536 (1992);
Veloso v. CA, 260 SCRA 593 (1996); Balatbat v. CA, 261 SCRA 128 (1996);
Mathay v. CA, 295 SCRA 556 (1998); Diaz-Duarte v. Ong, 298 SCRA 388
(1998); Liao v. CA, 323 SCRA 430 (2000); Tanongon v. Samson, 382 SCRA
130 (2002); Universal Robina Sugar Milling Corp. v. Heirs of Angel Teves, 389
SCRA 316 (2002); Aguirre v. CA, 421 SCRA 310 (2004); Galvez v. CA, 485
SCRA 346 (2006); Chua v. Soriano, 521 SCRA 68 (2007); Raymundo v.
Bandong, 526 SCRA 514 (2007); Tanglao v. Parungao, 535 SCRA 123 (2007);
Kings Properties Corp. v. Galido, 606 SCRA 137 (2009); De Leon v. Ong, 611
SCRA 381 (2010); 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.,
20 of 41
A purchaser in good faith is one who buys
with the well-founded belief that the person
from he receives the property had title to it
and had the capacity to convey it. In this case,
the buyers bought. xHeirs of Soliva v. Soliva,
757 SCRA 26 (2015); xBliss Dev. Corp. /HGC v.
Diaz, 765 SCRA 453 (2015).
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).125
Under Art. 1544, mere registration is not
enough to acquire a new title; good faith must
concur. Clearly, when buyer has not yet fully paid
purchase price, and as long as seller remains
unpaid, buyer cannot feign good faith. xPortic v.
Cristobal, 546 SCRA 577 (2005).123
B
S : 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.
xEstate of Lino Olaquer v. Ongjoco, 563 SCRA
373 (2008).
Not being purchasers in good faith, buyers
having registered the sale, will not, as against
the petitioners, carry the day for any of them
under Article 1544 of the Civil Code prescribing
rules on preference in case of double sales of
immovable properties. xOrduña v. Fuentebella,
622 SCRA 146 (2010).
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).124
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. xTio v. Abayata, 556 SCRA
175 (2008).
A bank 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
operations; and it cannot simply rely upon
reviewing the title to the property offered for
mortgage. xTio v. Abayata, 556 SCRA 175 (2008).
126
(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. Court of
Appeals, 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 acted in
good faith,127 such as —
● 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 occupying the same. xSantiago v. CA, 247
SCRA 336 (1995).128
● 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 purchaser usually takes. xMartinez v.
CA, 358 SCRA 38 (2001).129
● 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, 238 SCRA 397 (1994).130
● Property was titled and transferred with undue
haste, “plus the fact that the subject property is
B
S : 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.
xHeirs 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
676 SCRA 156 (2012); Santiago v. Villamor, 686 SCRA 313 (2012); Angeles v.
Domingo, 692 SCRA 277 (2013); Nobleza v. Nuega, 752 SCRA 602 (2015).
123
Uy v. Fule, 727 SCRA 456 (2014); Peralta v. Heirs of Bernardina Abalon,
727 SCRA 477 (2014); Locsin v. Hizon, 735 SCRA 547 (2014).
124
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); Rufloe v. Burgos, 577 SCRA 264
(2009)Pudadera v. Magallanes, 633 SCRA 332 (2010), Nobleza v. Nuega, 752
SCRA 602 (2015).
125
Adriano v. Pangilinan, 373 SCRA 544 (2002); Lloyd’s Enterprises and
Credit Corp. v. Dolleton, 555 SCRA 142 (2008); Eagle Realty Corp v. Republic,
557 SCRA 77 (2008); Eagle Realty Corp v. Republic, 557 SCRA 77 (2008).
126
Agag v. Alpha Financing Corp., 407 SCRA 602 (2003); Bank of
Commerce v. San Pablo, Jr., 522 SCRA 713 (2007); Lloyd’s Enterprises and
Credit Corp. v. Dolleton, 555 SCRA 142 (2008);Ty v. Queen’s Row
Subdivision, 607 SCRA 324 (2009).
127
Filinvest Dev. Corp. v. Golden Haven Memorial Part, 634 SCRA 372
(2010); Yared v. Tiongco, 660 SCRA545 (2011).
128
R.R. Paredes v. Calilung, 517 SCRA 369 (2007); Chua v. Soriano, 521
SCRA 68 (2007).
129
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).
130
Eagle Realty Corp v. Republic, 557 SCRA 77 (2008).
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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. xLuzon Dev. Bank v.
Enriquez, 639 SCRA 332 (2011).
a vast tract of land in a prime location, should
have, at the very least, triggered petitioner’s
curiosity.” xEagle Realty Corp v. Republic, 557
SCRA 77, 94 (2008).
(5) Land in Adverse Possession – Where land sold
is in the possession of a person other than
vendor, purchaser must go beyond the
certificate of title and make inquiries
concerning the actual possessor. Without such
inquiry, the buyer cannot be said to be in good
faith and cannot have any right over the
property. xTio v. Abayata, 556 SCRA 175 (2008).131
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.
xTy v. Queen’s Row Subdivision, 607 SCRA 324
(2009)
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).132
(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
SCRA 137 (2009).133
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).
C
: 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).134 A buyer cannot be in bad faith when it
was shown that at the time of purchase the
notice of lis pendens was already being
ordered cancelled and the cancellation of the
notice terminated the effects of such notice.
xPudadera v. Magallanes, 633 SCRA 332 (2010).
(7) Annotation of Lien in Settlement of Estate – An
annotation on CTC 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. xTan 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 to bind
on third parties. Nonetheless, despite such
non-registration, 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
131
Games and Garments Developers v. Allied Banking Corp., 762 SCRA 447
(2015).
132
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
SCRA 123 (2007); Tio v. Abayata, 556 SCRA 175 (2008); Orduña v.
Fuentebella, 622 SCRA 146 (2010); Deanon v. Mag-abo, 622 SCRA 180
(2010); The Heirs of Romana Saves v. The Heirs of Escolastico Saves, 632
SCRA 236 (2010); Rosaroso v. Soria, 699 SCRA 232 (2013).
133
Tan v. Benolirao, 604 SCRA 36 (2009).
134
Pudadera v. Magallanes, 633 SCRA 332 (2010).
7. When Subject of Sale Is Unregistered Land:
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).
Article 1544 rules in double sale, whereby the
buyer who is able to first register the purchase in
good faith, is in full accord with Sec. 51 of P.D. 1529
which provides that no deed, mortgage, lease, or
other voluntary instrument 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 seller and buyer, but it does not affect
innocent third persons. √Abrigo v. De Vera, 432
SCRA 544 (2004).135
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 buyer any right
over the land if seller was not anymore owner
thereof, having previously sold it to somebody else
even if the earlier sale was unrecorded. The rules on
double sale have no application to land no
registered under the Torrens system.√Acabal v.
Acabal, 454 SCRA 555 (2005).136
C. Obligations of Buyer
1. Buyer Must 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
135
Sabitsana, Jr. v. Muertegui, 703 SCRA 145 (2013)
Hanopol v. Pilapil, 7 SCRA 452 (1963); Radiowealth Finance Co. v.
Palileo, 197 SCRA 245 (1991); Spouses Honorio Santiago v. CA, 247 SCRA
336 (1995); Bayoca v. Nogales, 340 SCRA 154 (2000); Fidel v. CA, 559 SCRA
186 (2008); Daclag v. Macahilig, 560 SCRA 137 (2008); Amodia Vda. De
Melencion v. CA, 534 SCRA 62, 82 (2007); Fidel v. CA, 559 SCRA 186 (2008).
136
22 of 41
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 have agreed otherwise, 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. Buyer is Obliged to Accept Delivery of the
Subject Matter (Arts. 1582-1585)
a. Buyer’s
Right to Inspect
Before Acceptance (Arts. 1481
and 1584[1]); E
: When
Carrier Delivers under COD
Terms
a. How Transferred or Assigned (Art. 1514)
b. Effects of Transfer (Art. 1514).
5. Warranties of Seller Through a Documents of
Title (Art. 1516)
6. Rules of Levy/Garnishment of Goods
1514, 1519, 1520)
VIII SALE BY NON-OWNER OR ONE
HAVING VOIDABLE TITLE: T
LIFE OF A CONTRACT OF SALE
1. R
DOCUMENTS OF TITLE
1507-1520)
2. E
:
When Non-Owner’s Act of
“Selling” Transfers Title to Buyer
A
: 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).138
E
: When the intention of the purchase was
clearly the property itself and not just the
spiritual share. √Mindanao v. Yap, 13 SCRA 190
(1965).
a. How Negotiated (Arts. 1508-1509)
b. Who Can Negotiate (Art. 1512)
4. Non-Negotiable Documents of Title
:
a. Sales by Co-Owners (Art. 493) – Sale of a
co-owner of entire property as his own, is
effective only as a sale of his spiritual share, and
will not affect the shares of the other co-owners
who never gave their consent. xPaulmitan v.
Court of Appeals, 215 SCRA 866 (1992).137
Warehouse receipt represents the goods, but
the intrusting thereof 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. HSBC, 56 Phil. 598 (1932).
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. HSBC, 56 Phil. 598 (1932).
-O
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. xDBP v. Court of Appeals,
249 SCRA 331 (1995).
2. Purpose of Documents of Title
c. Effects
of
Negotiation
(Art.
1513)
–
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. PNB, 42 Phil.
413 (1921).
B N
c. Remedy of Buyer in Either of the Two
Situations: Rescission of the Contract of
Sale with Damages, But Not An Action for
Declaration of Nullity Thereof.
1. Definition (Art. 1636)
3. Negotiable Documents of Title
E
b. Where Seller Is Not Owner at Delivery:
Buyer Acquires No Better Title to the Goods
Than the Seller Had. (Art. 1505)
(A
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).
S
a. Where Seller Is Not Owner at Perfection:
Contract Is Valid, For Ownership by Seller at
Perfection Is Not One of the Requisites for
Subject Matter
b. 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).
VII
(Arts.
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 sale proceeds to
the other co-owner, latter may by law and equity
lay exclusive claim to the remaining parcel of
land, xImperial v. CA, 259 SCRA 65 (1996); in
which case, proper action is not for nullification
137
Estoque v. Pajimula, 24 SCRA 59 (1968); Aguirre v. CA, 421 SCRA 310
(2004); Acabal v. Acabal, 454 SCRA 555 (2005); Barcenas v. Tomas, 454
SCRA 593 (2005); Panganiban v. Oamil, 542 SCRA 166 (2008); Vda. de
Figuracion v. Figuracion-Gerilla, 690 SCRA 495 (2013); Heirs of Dela Rosa v.
Batongbacal, 731 SCRA 263 (2014); Heirs of Gregotion Lopez v. DBP, 741
SCRA 153 (2014); Torres, Jr. v. Lapinid, 742 SCRA 646 (2014).
138
Almendra v. IAC, 204 SCRA 142 (1991); Fernandez v. Fernandez, 363
SCRA 811 (2001); Aguirre v. CA, 421 SCRA 310 (2004); Santos v. Lumbao,
519 SCRA 408 (2007); Republic v. Heirs of Francisca Dignos-Sorono, 549
SCRA 58 (2008); Torres, Jr. v. Lapinid, 742 SCRA 646 (2014).
23 of 41
of sale, or for the recovery of possession of the
property owned in common, but for division or
partition of the entire property. xTomas Claudio
Memorial College v. CA, 316 SCRA 502 (1999).139
d. Sales in Merchants Stores, Fairs or Markets
(Arts. 85 and 86, Code of Commerce)
A
merchant
store
requires a fixed
establishment where the merchant not only
stores his merchandise, but where he conducts
the ordinary court of business. √City of Manila
v. Bugsuk, 101 Phil. 859 (1957).140
C
: Sale of a portion of the property is
considered an alteration of the thing owned in
common. Under the Civil Code, such disposition
requires the unanimous consent of the other
co-owners. Prior to partition, a sale of a definite
portion of common property requires the
consent of all co-owners because it operates to
partition the land with respect to the co-owner
selling his or her share. At best, the agreement
between the parties is a contract to sell, not a
contract of sale. xCabrera v. Ysaac, 740 SCRA 612
(2014).
b. Estoppel on the True Owner
(Art. 1434)
√Bucton v. Gabar, 55 SCRA 499 (1974).
Owner who has been unlawfully deprived of
his goods may recover it even from a purchaser
in good faith. Thus, purchaser of property 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,
657 SCRA 355 (2011).
c. Recording Laws; Torrens System (P.D. 1529).
Where innocent third persons, relying on the
correctness of the TCT, acquire rights over the
property, the courts cannot disregard such
rights and order the cancellation of the TCT,
since the effect 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. xHeirs of Spouses Benito
Gavino. v. CA, 291 SCRA 495 (1998).
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 v. Court of Appeals, 341
SCRA 572 (2000).
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. Court of
Appeals, 366 SCRA 324 (2001).
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. xSy v. Capistrano, Jr., 560
SCRA 103 (2008).
c. Exercise by the Courts of Statutory Power to
Make Sale Effective
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. v.
Court of Appeals, 231 SCRA 281 (1994)
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. xFrancisco v. Chemical Bulk Carriers,
657 SCRA 355 (2011).
3. S
S
H
V
1506, as an exception to Art. 559)
Heirs of Romana Ingjug-Tiro v. Casals, 363 SCRA 435 (2001); Aguirre v.
CA, 421 SCRA 310 (2004).
(Art.
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). [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 it from
pawnshop where owner’s agent had pledged it
without authority to do so; Art. 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).141
[Possessor is a merchant and only has a pledge
in his favor]
IX LOSS,
DETERIORATION,
AND OTHER BENEFITS
FRUITS
1. No Application When Subject Matter
“Determinable” (Generic) (Art. 1263)
Is
2. Effect of Loss/Deterioration of Thing Sold:
a. Before Perfection. √Roman v. Grimalt, 6 Phil.
96 (1906).
b. At the 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. xAPT v.
T.J. Enterprises, 587 SCRA 481 (2009).
c. After Perfection But Before Delivery
1164, 1189, and 1262).
140
139
T
(Arts.
Sun Bros. & Co. v. Velasco, 54 O.G. 5143 (1958).
Valera v. Matute, 9 Phil. 479 (1908); Arenas v. Raymundo, 19 Phi. 47
(1911).
141
24 of 41
(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 sale of motor vehicle, where there was
neither physical nor constructive delivery, 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)
(3) Loss by Fortuitous Event (Arts. 1480, 1163,
1164, 1165, 1504, 1538, and 1189; READ
Comments of P
, T
, P
,
and B
)
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 v.
Colarina, 477 SCRA 245 (2005).
a. When Is There “Installment Sale”?: At least two
(2) stipulated payments in the future, whether or
not there is a downpayment. xLevy v. Gervacio,
69 Phil. 52 (1939).
b. Contracts to Sell Movables Not Covered.
xVisayan Sawmill v. CA, 219 SCRA 378 (1993).
c. Unpaid Seller’s Remedies Not Cumulative, But
Alternative and Exclusive. √Delta Motor Sales
Corp. v. Niu Kim Duan, 213 SCRA 259 (1992).143
Seeking a writ of replevin consistent with any
of the three remedies. xUniversal Motors Corp. v.
Dy Hian Tat, 28 SCRA 161 (1969).
(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).142
X
REMEDIES FOR BREACH OF
CONTRACT OR SALE (A
e. Remedy of Rescission – Surrender of mortgaged
property is not necessarily equivalent to
rescission. xVda. de Quiambao v. Manila Motors
Co., 3 SCRA 444 (1961).
1594-1599)
A. R
d. Remedy of Specific Performance – That seller
obtained a writ of execution against the
mortgaged property pursuant to an action for
specific performance, does not amount to a
foreclosure of the chattel mortgage covered by
the Recto Law. √Tajanglangit v. Southern
Motors, 101 Phil. 606 (1957).144
S
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).
1. In Case of Movables (Arts. 1593, 1595 to 1597)
Under Art. 1597, where buyer of scrap iron fails to
put up the LC in favor of the seller as the condition
of
the
sale,
seller
may
terminate
the
contract—non-compliance with condition meant
that seller’s obligation to sell never arose. xVisayan
Sawmill Co. v. CA, 219 SCRA 378 (1993).
2. Unpaid Seller of Goods (Arts. 1524-1535)
a. Who Is an “Unpaid Seller”? (Art. 1525)
b. Rights of the Unpaid Seller:
● Possessory Lien (Arts. 1526-1529, 1503(1),
1535)
● Right of Stoppage in
1530-1532, 1535, 1636[2])
Transitu
(Arts.
● Special Right of Resale (Art. 1533)
● Special 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).
The unpaid seller in possession of goods may
sell them at buyer’s risk. xKatigbak v. Court of
Appeals, 4 SCRA 243 (1962).
3. RECTO
I
LAW: S
M
(Arts. 1484, 1485, 1486)
Recto Law prevents mortgagee from seizing
mortgaged property, buying it at foreclosure sale
for a low price and then bringing the suit against
the mortgagor for a deficiency judgment. The
142
Song Fo & Co. v. Oria, 33 Phil. 3 (1915); Lawyer's Cooperative v. Narciso,
55 O.G. 3313.
f.
Remedy of Foreclosure – When the seller
assigns his credit to another person, assignee is
likewise bound by the same law. √Zayas v.
Luneta Motors, 117 SCRA 726 (1982).145
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).
B
S : A judicious perusal of the records
would reveal that mortgagor-buyer never
bought the subject vehicle from financing
company but from a third party, and merely
sought financing from mortgagee for its full
purchase price. Consequently Art. 184 does not
apply against financing company. √Equitable
Savings Bank v. Palces, 787 SCRA 260 (2016).
(1) “Barring” Effects of Foreclosure: All amounts
due from the sale, including damages and
attorneys fees, barred from recovery.
√Macondray & Co. v. Eustaquio, 64 Phil.
446 (1937).
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
143
De la Cruz v. Asian Consumer, 214 SCRA 103 (1992); Borbon II v.
Servicewide Specialists, 258 SCRA 634 (1996).
144
Southern Motors v. Moscoso, 2 SCRA 168 (1961); Industrial Finance
Corp. v. Ramirez, 77 SCRA 152 (1977); Rosario v. PCI Leasing and Finance,
474 SCRA 500 (2005).
145
Borbon II v. Servicewide Specialists, 258 SCRA 634 (1996).
25 of 41
spite the restrictive provisions of Art. 1484(3).
√Northern Motors v. Sapinoso, 33 SCRA 356
(1970). 146
Foreclosure on 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);147 and vice
versa when the real estate mortgage is first
foreclosed.
√Borbon
II
v.
Servicewide
Specialists, 258 SCRA 634 (1996).
(2)
Rule on “Perverse Buyer”:
√Filipinas
Investment.
v.
Ridad, 30 SCRA
564 (1969).
g. Purported Lease with Option to Buy
Judicial notice has been taken 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. Court of Appeals, 307
SCRA 731 (1999).148
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 v. Giraffe-X
Creative Imaging, 527 SCRA 405 (2007).
4 I C
I
:
a. Anticipatory Breach (Art. 1591).
Saldaña, 55 SCRA 324 (1974).
√Legarda v.
b.Sales of Subdivision Lots and Condominium
Units (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. xCasa Filipinas Realty Corp. v.
Office of the President, 241 SCRA 165 (1995).
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.
xGotesco Properties v. Fajardo, 692 SCRA 319
(2013).
Retroactive application of P.D. No. 957 to
transactions entered into prior to its enactment
in 1976 is already settled. xEugenio v. Exec. Sec.
Drilon, 252 SCRA 106 (1996); xRotario v. Alcantara,
736 SCRA 584 (2014).
146
Manila Motor Co. v. Fernandez, 99 Phil. 782 (1956); Magna Financial
Services Group, v. Colarina, 477 SCRA 245 (2005).
147
Pascual v. Universal Motors Corp., 61 SCRA 121 (1974).
148
Vda. de Jose v. Barrueco, 67 Phil. 191 (1939); U.S. Commercial v. Halili,
93 Phil. 271 (1953); H.E. Heacock v. Bantal Manufacturing, 66 Phil. 245
(1938); Manila Gas Corp. v. Calupita, 66 Phil. 747 (1938); Filinvest Credit
Corp. v. CA, 178 SCRA 188 (1989).
(1) “Buyer” under P.D. 957 includes one who
acquires for a valuable consideration a
condominium unit by way of assignment by
project
owner
in
payment
of
its
indebtedness for contractor’s fee. xAMA
Computer College v. Factora, 378 SCRA 121
(2002).
(2) Section 20 of P.D. 957 directs every
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 fails in its obligation
under Section 20, the Sec. 23 provides:
● Buyer has the option to demand
reimbursement of the total amount paid,
or to wait for further development of the
subdivision; if buyer opts for the latter, 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).
● Option granted by law is with buyer and
not the developer/seller. xRelucio v.
Brillante-Garfin, 187 SCRA 405 (1990).
● In exercising the option, buyer required
only
to
give
due
notice
to
owner/developer of buyer’s intention to
suspend payment. xZamora Realty v. OP,
506 SCRA 591 (2006);
● It is not required that a notice be given
first by buyer to 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. OP, 241 SCRA 165 (1995);
● Even with a mortgage over the lot, seller
still bound to redeem said mortgage
without any cost to buyer apart from the
balance of the purchase price and
registration fees—subdivision developers
have are obliged 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. xCantemprate v.
CRS Realty Dev. Corp., 587 SCRA 492
(2009).
● Buyers would be justified in suspending
payments, when developer-seller fails to
give a copy of the Contract to Sell despite
repeated
demands,
xGold
Loop
Properties v. CA, 350 SCRA 371 (2001); or
when they failed to provide for the
amenities
mandated
under
their
development plan, xFedman Dev. Corp. v.
Agcaoili, 656 SCRA 354 (2011).
● When Reservation Agreement provides
that buyer is entitled to a Contract to Sell
only upon payment of at least 30% of
price, non-happening yet of that
condition does not render seller in
default as to warrant buyer the right to
rescind sale and demand refund. xG.G.
Sportwear Mfg. Corp. v. World Class
Properties, 614 SCRA 75 (2010).
● Buyer’s cause of action against the
developer for failure to develop ripens
26 of 41
(3)
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. xG.G. Sportwear Mfg. Corp. v.
World Class Properties, 614 SCRA 75
(2010).
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.” xBortikey v. AFP - RSBS,
477 SCRA 511 (2005).
One of the protections afforded by P.D. 957
to buyers is the right to have the Contract to
Sell registered with the Register of Deeds to
bind third parties, T
:
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. xActive Realty &
Dev. Corp. Daroya, 382 SCRA 152 (2002).150
● Nothing in P.D. 957 provides for the
nullification of a contract to sell if seller,
at the time perfection, did not possess a
certificate of registration or a license to
sell, sale being a consensual contract.
xCo Chien v. Sta. Lucia Realty, 513 SCRA
570 (2007).149
● Buyer’s dissatisfaction under a Contract
of Sale as to the completion date of the
project does not constitute substantial
breach to allow rescission and ask for
refund. xG.G. Sportwear Mfg. Corp. v.
World Class Properties, 614 SCRA 75
(2010).
● Despite non-registration of Contracts to
Sell, foreclosing mortgagee-bank cannot
be considered an innocent purchaser for
value of the subdivision lots which it
accepted as payment for mortgagor’s
obligation—bank was well aware that the
assigned properties were subdivision lots
and therefore within the purview of P.D.
957. xLuzon Dev. Bank v. Enriquez, 639
SCRA 332 (2011).
(4) Sec. 25 of P.D. 957 imposes on the
subdivision owner or developer the
obligation to cause the transfer of the
corresponding certificate of title to the
buyer upon full payment. xGotesco
Properties v. Fajardo, 692 SCRA 319 (2013).
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.
xCantemprate v. CRS Realty Dev. Corp., 587
SCRA 492 (2009).
(5) Developer’s
lack
of
Certificate
of
Registration or License to Sell merely
subjects it to administrative sanctions, but
do not render the sales entered into on the
project null and void. xG.G. Sportswear Mfg.
Corp. v. World Class Properties, 614 SCRA 75
(2010).
5. MACEDA LAW: S
R
I
(R.A. 6552).
R
“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
149
Cantemplate v. CRS Realty Dev. Corp., 587 SCRA 492 (2009); Moldex
Realty v. Saberon, 695 SCRA 34331 (2013).
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. xPagtulunan
v. Dela Cruz Vda. De Manzano, 533 SCRA 242
(2008).151
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).152 B
S : xPeople’s Industrial
and Commercial Corp. v. Court of Appeals, 281
SCRA 206 (1997).
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. Court of Appeals, 290 SCRA 463
(1998).
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).153
Since Maceda Law governs sales 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. Court of Appeals, 619 SCRA 280
(2010).
Maceda Law does not cover a loan extended
by the employer to enable its employee to
finance the purchase of a house and lot. The law
150
OIympia Housing v. Panasiatic Travel, 395 SCRA 298 (2003); Jestra Dev.
and Management Corp. v. Pacifico, 513 SCRA 413 (2007).
151
Leaño v. CA, 369 SCRA 36 (2001); Cordero v. F.S. Management & Dev.
Corp., 506 SCRA 451 (2006); Manuel Uy & Sons v. Valbueco, 705 SCRA 537
(2013).
152
Eugenio v. E.S. Franklin M. Drilon, 252 SCRA 106 (1996); PNB v. Office of
the President, 252 SCRA 620 (1996).
153
Boston Bank of the Phil. v. Manalo, 482 SCRA 108 (2006).
27 of 41
protects only a buyer acquiring the property by
installment, not a borrower whose rights are
governed by the terms of the loan from the
employer xSpouses Sebastian v. BPI Family
Bank, 739 SCRA 9 (2014).
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, seller should extend the buyer a
grace period of at least 60 days from the
due date of the installments.
● Second, at end of grace period, seller shall
furnish buyer with a notarial notice of
cancellation or demand for rescission,
effective 30 days from buyer’s receipt
thereof; a mere notice or letter, would not
suffice. √McLaughlin v. CA, 144 SCRA 693
(1986).154
● 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).155
● Until and unless seller complies with these
mandatory requirements, contract to sell
remains
valid
and
subsisting.
xCommunities Cagayan v. Nanol, 685
SCRA 453 (2012).
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).
Decision rendered in an ejectment case
operates as the required notice of cancellation
under the Maceda Law; but as buyer was not
given the cash surrender value, there was still no
actual cancellation of the contract. xLeaño v. CA,
369 SCRA 36 (2001).
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 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
154
Luzon Brokerage v. Maritime Bldg., 43 SCRA 93 (1972) & 86 SCRA 305
(1978); Fabrigas v. San Francisco del Monte, 475 SCRA 247 (2005).
155
Active Realty & Dev. Corp. v. Daroya, 382 SCRA 152 (2002); Olympia
Housing v. Panasiatic Travel Corp., 395 SCRA 298 (2003); Jestra Dev. and
Management Corp. v. Pacifico, 513 SCRA 413 (2007).
two years of installments. xManuel Uy & Sons v.
Valbueco, Inc., 705 SCRA 537 (2013).
6 R
I
1592)
S
I
N
-R
(Arts. 1191 and
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).156
Article 1191 providing for rescission cannot be
applied to sales of real property on installments
since they are governed by the Maceda Law.
Bonrostro v. Luna, 702 SCRA 1 (2013).
Automatic rescission clauses are not valid nor
can they be given legal effect under Articles 1191
and 1592. xIringan v. Court of Appeals, 366 SCRA 41
(2001).157
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).
Art. 1592 allows the buyer of an immovable to
pay as long as no demand for rescission has been
made; 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).
Seller cannot recover ownership 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 sale would be prevented from
blockingits consummation in light of the precept
that mere failure to fulfill the contract does not
operate ipso facto as rescission. xPlatinum Plans
Phil. v. Cucueco, 488 SCRA 156 (2006).
For Art. 1592 to apply, the following requisites
must be present: (1) a contract of sale of an
immovable property and (2) a stipulation in the
contract that failure to pay the price at the time
agreed upon will cause the rescission of the
contract. Buyer can still pay even after the time
agreed upon, if the agreement between the parties
has these requisites. This right of buyer to pay
ceases when seller demands rescission judicially or
extrajudicially (which must be notarized). xCabrera
v. Ysaac, 740 SCRA 612 (2014).
B. R
B
1. In the Case of Movables (Arts. 1598-1599)
2. In the Case of Immovables (Arts. 1191; Secs. 23
and 24, P.D. 957)
3. Suspension of Payment (Art. 1590) – Pendency
of suit over the subject matter of sale justifies 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
156
Caridad Estates v. Santero, 71 Phil. 114 (1940); Albea v. Inquimboy, 86
Phil. 477 (1950); Manuel v. Rodriguez, 109 Phil. 1 (1960); Joseph & Sons
Enterprises v. CA, 143 SCRA 663 (1986) Gimenez v. CA, 195 SCRA 205
(1991); Jacinto v. Kaparaz, 209 SCRA 246 (1992); Odyssey Park v. CA, 280
SCRA 253 (1997); Rillo v. CA, 274 SCRA 461 (1997); Platinum Plans Phil. v.
Cucueco, 488 SCRA 156 (2006); Tan v. Benolirao, 604 SCRA 36 (2009);
Garcia v. CA, 619 SCRA 280 (2010).
157
Escueta v. Pando, 76 Phil. 256 (1946).
28 of 41
a security for the return of the price.
Properties v. CA, 240 SCRA 565 (1995).
xAdelfa
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. v. Court of Appeals, 482 SCRA 164 (2006).
XI REMEDY OF RESCISSION IN SALES
OF IMMOVABLES: CONTRACT OF
SALE VERSUS CONTRACT TO SELL
A
1.
N
R
1191, 1479, 1592)
(Arts.
R
Distinguishing from Other Remedy of
Rescission. xUniversal Food Corp. v. Court of
Appeals, 33 SCRA 22 (1970).158 B
xSuria v. IAC, 151 SCRA 661 [1987]).
S
C
for a rescission of the deed of absolute sale. xGil v.
CA, 411 SCRA 18 (2003).
:
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.
Court of Appeals, 310 SCRA 1 (1999).159
Outside of sales that have been entered into in
fraud of creditors, the general rule for ordinary
contracts of sale is that the seller’s 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).
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. Court of Appeals, 361
SCRA 56 (2001).160
2. Remedy of Rescission (Resolution) Is Inherent
in the Reciprocity of Sale – Rescission under Art.
1191 is predicated on a breach of faith by the other
party who violates the reciprocity between
them—breach contemplated is obligor’s failure to
comply with an existing obligation. When obligee
seeks rescission, in the absence of any just cause for
courts to determine the period of compliance, they
shall decree the rescission. xVelarde v. CA, 361 SCRA
56 (2001).161
Non-payment of price is a resolutory condition
for which the remedy is either rescission or specific
performance under Art. 1191. This is true for
reciprocal obligations where the obligation is a
resolutory condition of the other. On the other
hand, buyer is entitled to retain the purchase price
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).162
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
158
Congregation of the Religious of the Virgin Mary v. Orola, 553 SCRA 578
(2008); Heirs of Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Congregation
of the Religious of the Virgin Mary v. Orola, 553 SCRA 578 (2008).
159
Iringan v. CA, 366 SCRA 41 (2001).
160
Ocampo v. CA, 233 SCRA 551 (1994); Co v. CA, 312 SCRA 528 (1999);
Orden v. Aurea, 562 SCRA 660 (2008).
161
Almira v. CA, 399 SCRA 351 (2003).
162
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).
Action for Rescission Not Similar to Action for
Reconveyance: In sale of real property, 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 that: (a) judicial resolution gives rise to
mutual restitution which is not necessarily the
situation in an action for reconveyance; (b) unlike in
an action for reconveyance predicated on an
extrajudicial rescission (rescission by notarial act), in
an action for rescission, the court 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 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);163 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).164
4. Mutual Restitution and Forfeiture (Art. 1385) –
When sale is rescinded, the general rule under Art.
1398 is for parties to restore to each other the things
which have been the subject matter of the contract,
their fruits, and price with interest. xInes v. CA, 247
SCRA 312 (1995).165
H
: 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. Court of Appeals, 279 SCRA 590
(1997).166
Pursuant to Art. 1188, in a contract to sell, even if
buyers did not mistakenly make partial payments,
inasmuch as the suspensive condition was not
fulfilled, it is only fair and just that buyers be
allowed to recover what they had paid in
expectancy that the condition would happen;
otherwise, there would be unjust enrichment on
part of seller. xBuot v. CA, 357 SCRA 846 (2001).
163
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).
164
Luzon Brokerage Co., v. Maritime Building Co., 43 SCRA 95 (1972); 86
SCRA 305 (1978); Pangilinan v. CA, 279 SCRA 590 (1997); Calilap-Asmeron
v. DBP, 661 SCRA 54 (2011).
165
Velarde v. CA, 361 SCRA 56 (2001); Orden v. Aurea, 562 SCRA 660
(2008).
166
Manila Racing Club v. Manila Jockey Club, 69 Phil. 55 (1939).
29 of 41
B. Distinctions Between Contract of Sale
and Contract to Sell
1. C
(Art. 1458)
S
versus C
S
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. √Adelfa Properties v.
Court of Appeals, 240 SCRA 575 (1995).167
a. Does Contract to Sell Fall under the Definition
of “Sale” in 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).168 B
: √PNB v. Court of Appeals, 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).
169
A Contract to Sell is akin to a conditional sale,
in which the efficacy or obligatory force of the
seller’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. xOrden v.
Aurea, 562 SCRA 660 (2008).170
A Contract to Sell 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. It undergoes also the three stages of a
contract:
negotiation,
perfection
and
167
Lim v. CA, 182 SCRA 564 (1990); Buot v. CA, 357 SCRA 846 (2001);
Abesamis v. CA, 361 SCRA 328 (2001); Tuazon v. Garilao, 362 SCRA 654
(2001); Leaño v. CA, 369 SCRA 36 (2001); Universal Robina Sugar Milling
Corp. v. Heirs of Angel Teves, 389 SCRA 316 (2002); Almira v. CA, 399 SCRA
351 (2003); Chua v. CA, 401 SCRA 54 (2002); Flancia v. CA, 457 SCRA 224
(2005); Vidad, Sr. v. Tayamen, 531 SCRA 147 (2007); Hulst v. PR Builders,
532 SCRA 74 (2007); Castillo v. Reyes, 539 SCRA 193 (2007); Heirs of
Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Sta. Lucia Realty & Dev., v.
Uyecio, 562 SCRA 226 (2008); Orden v. Aurea, 562 SCRA 660 (2008); Ver
Reyes v. Salvador, Sr., 564 SCRA 456 (2008); Tan v. Benolirao, 604 SCRA36
(2009); Bank of P.I. v. SMP, Inc., 609 SCRA 134 (2009); De Leon v. Ong, 611
SCRA 381 (2010); Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575
(2010).
168
Platinum Plans Phil. v. Cucueco, 488 SCRA 156 (2006); Valenzuela v.
Kalayaan Dev. and Industrial Corp., 590 SCRA 380 (2009);Tan v. Benolirao,
604 SCRA 36 (2009);
169
Demafelis v. CA, 538 SCRA 305 (2007).
170
De Leon v. De Leon, 593 SCRA 768 (2009).
consummation. xRobern Dev. Corp. v. People’s
Landless Assn., 693 SCRA 24 (2013).
A contract of sale is defined under Article
1458 of the Civil Code. 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.
xAkang v. Municipality of Isulan, Sultan Kudarat
Province, 699 SCRA 745 (2013).
b. What Is the Difference in Legal Effect Between
a “Contract to Sell” and a Conditional
Contract of Sale? – While conditionality 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
owenrship or title to the property to the buyer.
xVentura v. Heirs of Spouses Endaya, 706 SCRA
631 (2013).
In contracts of sale, 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 seller until full
payment of the price. xMontecalvo v. Heirs of
Eugenia Primero, 624 SCRA 575 (2010).
In a contract to sell, the prospective seller
explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective
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. xRepublic v.
Marawi-Marantao General Hospital, 686 SCRA
546 (2012).
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.
xVentura v. Heirs of Spouses Endaya, 706 SCRA
631 (2013).171
171
Luzon Dev. Bank v. Enriquez, 639 SCRA 332 (2011); Associated Marine
Officers and Seamen’s Union PTGWO-ITF v. Decena, 683 SCRA 308
(2012);Tumibay v. Lopez, 697 SCRA 21 (2013).
30 of 41
c. Importance of “Locating” the Condition Placed
on the Obligation 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).172
Whereas, in a contract to sell, the payment of the
purchase price is a positive suspensive condition,
and seller’s obligation to convey the title does
not become effective in case of failure to pay.
xBuot v. CA, 357 SCRA 846 (2001).173
d. Essential Stipulations to Constitute 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,176 and (b) giving the vendor the
right to unilaterally rescind the contract in case
of non-payment.177 √Valdez v. CA, 439 SCRA 55
(2004); De Leon v. Ong, 611 SCRA 381 (2010);178
B
: √Dignos v. CA, 158 SCRA 375 (1988).
C
:
● It was enough to characterize the Deed of
Condition Sale as a “contract to sell” alone
by the reservation of ownership. xHeirs of
Antonio F. Bernabe v. CA, 559 SCRA 53
(2008).
When buyer’s obligation to pay the the
purchase price was made subject to the
condition that seller first delivers clean title over
the parcel bough within 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
non-happening 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).
● 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).
● 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 parties did not intend
immediate transfer of ownership, but only a
transfer after full payment of purchase price,
179
especially
where
seller
retained
possession of the certificate of tile and all
other documents relative to the sale until
there was full payment of the price. xChua v.
Court of Appeals, 401 SCRA 54 (2003).
● An agreement in which ownership is
Rationale for 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).174
reserved in the seller and is not to pass to
the buyer until full payment of the purchase
price is known as a contract to sell. The
absence of full payment suspends the
seller’s 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. xPortic v. Cristobal, 456 SCRA 577
(2005).180
Remedy of Rescission Does Not Apply to
Contracts to Sell: 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. xTan v. Benolirao,
604 SCRA 36 (2009).175
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. xBonrostro v. Luna, 702 SCRA 1 (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. xGotesco
Properties v. Fajardo, 692 SCRA 319 (2013).
172
Valenzuela v. Kalayaan Dev’t and Industrial Corp., 590 SCRA 380 (2009);
Traders Royal Bank v. Cuison Lumber Co., 588 SCRA 690 (2009).
173
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, 678 SCRA
539 (2012).
174
Montecalvo v. Heirs of Eugenia T. Primero, 624 SCRA 575 (2010);
Tumibay v. Lopez, 697 SCRA 21 (2013).
175
Traders Royal Bank v. Cuison Lumber Co., 588 SCRA 690 (2009); Nabus
v. Pacson, 605 SCRA 334 (2009); Diego v. Diego, 691 SCRA 361 (2013).
● 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 seller promises to execute a
deed of absolute sale upon the completion
by buyer of the payment of the price, which
shows that seller reserved title to the
property until full payment of the purchase
price, the contract is only a contract to sell.
xNabus v. Pacson, 605 SCRA 334 (2009).181
e. Substantial Breach (Arts. 1191 and 1234) –
Concept of substantial breach is irrelevant in
176
Topacio v. CA, 211 SCRA 219 (1992); Laforteza v. Machuca, 333 SCRA
643 (2000); Almira v. CA, 399 SCRA351 (2003); Manuel Uy & Sons v.
Valbueco, Inc., 705 SCRA 537 (2013); Reyes v. Tuparan, 650 SCRA 238
(2011).
177
Roque v. Lapuz, 96 SCRA 741 (1980); Angeles v. Calanz, 135 SCRA 323
(1985); Alfonso v. CA, 186 SCRA 400 (1990)
178
San Andres v. Rodriguez, 332 SCRA 769 (2000); Vda. De Mistica v.
Naguiat, 418 SCRA 73 (2003); Blas v. Angeles-Hutalla, 439 SCRA 273 (2004);
Villadar, Jr. V. Zabala, 545 SCRA 325 (2008); Heirs of Antonio F. Bernabe v.
CA, 559 SCRA 53 (2008); Ver Reyes v. Salvador, Sr., 564 SCRA 456 (2008).
179
Bowe v. CA, 220 SCRA 158 (1993); Rayos v. CA, 434 SCRA 365 (2004);
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).
180
Antonio F. Bernabe v. CA, 559 SCRA 53 (2008); Bank of P.I. v. SMP, Inc.,
609 SCRA 134 (2009).
181
Heirs of Antonio F. Bernabe v. CA, 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, 678 SCRA 539 (2012); Diego v. Diego, 691
SCRA 361 (2013).
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contracts to sell. xLuzon Brokerage Co. v.
Maritime Building Co., 43 SCRA 93 (1972).182
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. Court of Appeals, 369 SCRA 36 (2001).183
2. Minimum Requirement for Cancellation of
Contracts 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).184
√ B
S : 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. v. CA, 364
SCRA 768 (2001).185
The notice of termination of a Contract to Sell
may take any of the following forms:
● 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.
xOrden v. Aurea, 562 SCRA 660 (2008).
● If mere nonpayment is enough to cancel a contract
to sell, the letter given to petitioner’s lawyer is also
an acceptable form of rescinding the contract. The
law does not require notarization for a letter to
rescind a contract to sell immovable. Notarization
is only required if a contract of sale is being
rescinded. Cabrera v. xYsaac, 740 SCRA 612 (2014).
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, he should nevertheless be 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, on the basis of equity he shall be granted
additional period of 60 days from receipt of
judgment to make all installments payments in
arrears plus interests, although demand for
182
Siska Dev. Corp. v. Office of the President, 231 SCRA 674 (1994); Sta.
Lucia Realty & Dev. v. Uyecio, 562 SCRA 226 (2008).
183
Manuel v. Rodriguez, 109 Phil. 1 (1960); Laforteza v. Machuca, 333 SCRA
643 (2000); Villamaria, Jr. v. CA, 487 SCRA 571 (2006); Valenzuela v.
Kalayaan Dev. and Industrial Corp. 590 SCRA 380 (2009).
184
Jison v. CA, 164 SCRA 339 (1988); Lim v. CA, 182 SCRA 564 (1990); Lim
v. CA, 182 SCRA 564 (1990); Cheng v. Genato, 300 SCRA 722 (1998); Toledo
v. CA, 765 SCRA 104 (2015).
185
Torralba v. Delos Angeles, 96 SCRA 69 (1980).
rescission had already been made. xJ.M. Tuazon Co.
v. Javier, 31 SCRA 829 (1970).
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).186
In a “Sale with Assumption of Mortgage,”
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).187 But such condition is deemed fulfilled
when the seller takes any action to prevent its
happening. xDe Leon v. Ong, 611 SCRA 381 (2010).
There has arisen a confusion in the concepts of
“validity” and “efficacy” of a contract. Under Art.
1318, absence any of the essential requisites of a
contract (i.e., consent of the parties, object certain
which is the subject matter, and cause of the
obligation), then no contract arises. 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. 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. Court of
Appeals, 281 SCRA 176 (1997).
“As Is, Where Is” in sale pertains solely to the
physical condition of the thing sold, not to its legal
situation. xAssets 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.
xDe Leon v. Ong, 611 SCRA 381 (2010).
2. Conditions versus Warranties. √Power
Commercial and
Industrial Corp.
v. Court of
Appeals, 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. xAng 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
186
Romero v. CA, 250 SCRA 223 (1995); Adalin v. CA, 280 SCRA 536
(1997); Republic v. Florendo, 549 SCRA 527 (2008).
187
Biñan Steel Corp. v. CA, 391 SCRA 90 (2002).
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sold. The decisive test is whether the vendor
assumes to assert a fact of which the vendee is
ignorant. xGoodyear Philippines v. Sy, 474 SCRA 427
(2005).
Seller’s Talk: “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).
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).188
Breach of an express warranty makes seller liable
for damages. The following requisites essential to
establish an express warranty: (1) it must be an
affirmation of fact or any promise by the seller
relating to the subject matter of the sale; (2) natural
tendency of such affirmation or promise is to
induce the buyer to purchase the thing; and (3)
buyer purchases the thing relying on such
affirmation or promise thereon. xCarrascoso, Jr. v.
CA, 477 SCRA 666 (2005).
4. Implied Warranties (Art. 1547)
Corp. v. CA, 276 SCRA 674 (1997). B
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) – Stipulation in a lease with option to
purchase (treated as a sale of movable on
installments) that 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,” is an express waiver of warranty
against hidden defect in favor of seller-lessor
who is absolved from any liability arising from
any defect or deficiency of the machinery sold.
xFilinvest Credit Corp. v. CA, 178 SCRA 188 (1989).
A hidden defect is unknown or could not have
been known to the buyer. Requisites to recover
on account of hidden defects are: 1. Defect must:
(a) be hidden; (b) exist at perfection of contract;
(c) ordinarily have been excluded from the
contract; and (d) be important to render the
thing unfit or considerably decreases fitness;
and 2. Action must be instituted within the
statute of limitations. √Nutrimix Feeds Corp. v.
Court of Appeals, 441 SCRA 357 (2004).190
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. Seller Has Right to Sell
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 (or made a third-party
defendant (Art. 1559). xEscaler v. Court of
Appeals, 138 SCRA 1 (1985).189
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.
xLuzon 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.
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. Court of Appeals, 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
188
Oro Land Realty Dev. Corp. v. Claunan, 516 SCRA 681 (2007)
Canizares Tiana v. Torrejos, 21 Phil. 127 (1911); J.M. Tuazon v. CA, 94
SCRA 413 (1979).
: Art.
189
190
Investments & Dev’t, Inc. v. CA, 162 SCRA 636 [1988]).
33 of 41
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. xPNB 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
specified in the contract, and in the absence of
such period, the general rule on rescission of
contract, which is 4 years, while for actions based
on breach of implied warranty, the prescriptive
period is 6 months from the date of the delivery of
the thing sold. xAng v. Court of Appeals, 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 THE
CONTRACT OF SALE
A. I
G
B.
R
C
)
(Arts. 1231 and 1600)
R
(S
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).191
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).192
In sales s pacto de retro, the price agreed upon
should not generally be considered as the just value
191
Claravall v. CA, 190 SCRA 439 (1990); Torres v. CA, 216 SCRA 287
(1992); Roberts v. Papio, 515 SCRA 346 (2007).
192
Ramos v. Icasiano, 51 Phil (1927).
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).
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).193
4.
Who Can Exercise Right of Redemption?
(Arts. 1611 to 1614)
5. How Is 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). B : When tender not possible, consignation
should be made xCatangcatang v. Legayada, 84
SCRA 51 (1978).
A formal offer to redeem accompanied by a
tender of redemption price is not essential where
the right 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).194
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 on the rights of a builder in good
faith is inapplicable in contracts of sale with right of
repurchase—where 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. xNarvaez v.
Alciso, 594 SCRA 60 (2009).
193
Reyes v. Hamada, 14 SCRA 215 (1965); Solid Homes v. CA, 275 SCRA
267 (1997); Misterio v. Cebu State College of Science and Technology, 461
SCRA 122 (2005); Cadungog v. Yap, 469 SCRA 561 (2005); Ramos v. Dizon,
498 SCRA 17 (2006); Lumayag v. Heirs of Jacinto Nemeño, 526 SCRA 51
(2007).
194
Villegas v. CA, 499 SCRA 276 (2006).
34 of 41
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 (Art. 1607):
C
Art. 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 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, failure of buyer to
consolidate his title under Art. 1607 does not impair
such title and ownership because the method
prescribed thereunder is merely for purpose of
registering and consolidating titles to the property.
In fact, failure 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. E
M
(Arts. 1602-1604)
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 much-needed loan
from unscrupulous money lenders. xMatanguihan
v. CA, 275 SCRA 380 (1997).195
Parol evidence is competent and admissible in
support of the allegations that an instrument
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).196
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.197 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
195
Salonga v. Concepcion, 470 SCRA 291 (2005).
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).
197
Heirs of Jose Reyes, Jr. v. Reyes, 626 SCRA 758 (2010).
196
with average intelligence invariably finding
themselves in no position whatsoever to bargain
fairly with their creditors. xSpouses Miseña v.
Rongavilla, 303 SCRA 749 (1999).198
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 parties’ intention to charge
real property as security for a debt, and contains
nothing impossible or contrary to law. For 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.
xRaymundo v. Bandong, 526 SCRA 514 (2007).199
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 Arts. 1602 and
1604 of the Civil Code. xBacungan v. CA, 574 SCRA
642 (2008).
Sales with rights of repurchase are not favored.
Courts 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, 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 according to its terms, it is not an
unconscionable one. xBautista v. Unangst, 557
SCRA 256 (2008).200
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. xBanga v. Bello, 471 SCRA 653
(2005).201
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. 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. xHeirs of
Dela Rosa v. Batongbacal, 731 SCRA 263 (2014).202
198
Lao v. CA, 275 SCRA 237 (1997).
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 Int’l Exim Corp. v. Culla, 602 SCRA 124 (2009); Kings
Properties Corp. v. Galido, 606 SCRA 137 (2009); Muñoz, Jr. v. Ramirez, 629
SCRA 38 (2010); Martires v. Chua, 694 SCRA 38 (2013); Heirs of Soliva v.
199
Soliva, 757 SCRA 26 (2015).
200
Padilla v. Linsangan, 19 Phil. 65 (1911); Aquino v. Deala, 63 Phil. 582
(1936); Ramos v. CA 180 SCRA 635 (1989).
201
Austria v. Gonzales, Jr., 420 SCRA 414 (2004); Raymundo v. Bandong,
526 SCRA 514 (2007).
202
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 V
, C
L. P
L
S
, (1998 ed.), p. 271;
35 of 41
a. Badges of Equitable Mortgage under Art. 1602
203
– A sale a retro actually intended to secure the
payment of an obligation is presumed an
equitable mortgage. xRomulo v. Layug, Jr., 501
SCRA262 (2006);204 such presumption of
equitable mortgage applies also to a contract
purporting to be an absolute sale. xTuazon v. CA,
341 SCRA 707 (2000).205
The presence of only one Art. 1602
circumstance is sufficient for a contract of sale a
retro to be presumed an equitable mortgage.
xHilado v. Medalla 377 SCRA 257 (2002).206
When doubt exists as to the true nature of
the transaction purporting to be a sale, courts
must construe it as an equitable mortgage, as
the latter involves a lesser transmission of rights
and interest over the property. Solitarios v.
Jaque, 740 SCRA 226 (2014).
The presumption in Art. 1602 jibes with the
rule that the law favors the least transmission of
property rights. xEnriquez, Sr. v. Heirs of Spouses
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).
A contract purporting to be an absolute sale
is presumed to be an equitable mortgage: (a)
when the price of the sale is unusually
inadequate;207 (b) when the vendor remains in
possession as lessee or otherwise;208 (c) when
after the expiration of the right of repurchase, it
is extended by the buyer. xHilado v. Heirs of
Rafael Medalla, 37 SCRA 257 (2002);209 (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.
xBautista v. Unangst, 557 SCRA 256 (2008); or
under threat of being sued criminally. xAyson, Jr.
V. Paragas, 557 SCRA 50 (2008).
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. xGo v. Bacaron, 472 SCRA 229
(2005).210
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
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); Heirs of Soliva v. Soliva, 757 SCRA 26 (2015).
203
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).
204
Ayson, Jr. V. Paragas, 557 SCRA 50 (2008); Bautista v. Unangst, 557
SCRA 256 (2008).
205
Zamora v.CA, 260 SCRA 10 (1996).
206
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); Heirs of
Soliva v. Soliva, 757 SCRA 26 (2015).
207
Romulo v. Layug, Jr., 501 SCRA262 (2006).
208
Romulo v. Layug, Jr., 501 SCRA262 (2006); Ayson, Jr. V. Paragas, 557
SCRA 50 (2008); Bautista v. Unangst, 557 SCRA 256 (2008); Rockville Excell
International Exim Corp. v. Culla, 602 SCRA 124 (2009).
209
Cruz v. CA, 412 SCRA 614 (2003).
210
Lumayag v. Heirs of Jacinto Nemeño, 526 SCRA 51 (2007).
afford the seller a retro every facility to redeem
the property. xIgnacio v. CA, 246 SCRA 242 (1995).
211
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. xOlivares v.
Sarmiento, 554 SCRA 384 (2008).212
“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. Court of Appeals, 231 SCRA
309 (1994); it must be grossly inadequate or
shocking to the conscience. xTio v. Abayata, 556
SCRA 175 (2008).
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, 459 SCRA 122
(2005).213
Mere tolerated possession is not enough to
prove that the transaction was an equitable
mortgage. xRedondo v. Jimenez, 536 SCRA 639
(2007).214
Mere allegations without proof to support
inadequacy of price, or when continued
possession by seller is supported by a valid
arrangement consistent with the sale, would not
support the allegation of equitable mortgage.
xCirelos v. Hernandez, 490 SCRA 624 (2006).215
Under Art. 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).
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.
xBacungan v. Court of Appeals, 574 SCRA 642
(2008).
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).
b. Remedies Allowed in an Equitable Mortgage
Situation (Arts. 1454, 1602, 1605) – In the case of
211
De Ocampo v. Lim, 38 Phil. 579 (1918); Feliciano v. Limjuco, 41 Phil.147
(1920); Belonio v. Movella, 105 Phil. 756 (1959).
212
Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
213
Oronce v. CA, 298 SCRA 133 (1998).
214
Kings Properties Corp. v. Galido, 606 SCRA 137 (2009).
215
Austria v. Gonzales, Jr., 420 SCRA 414 (2004).
36 of 41
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 equitable mortgage, consolidation of
ownership in 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).
foreclosure proceedings, judicial or otherwise,
cover a pactum commissorium situation. Thus,
whatever conveyance was made by Planters
Development Bank to Home Guaranty Corp. in
view of this illicit stipulation is ineffectual; it did
not vest ownership in Home Guaranty Corp. All
that this transfer engendered is a constructive
trust in which the properties comprising the
Asset Pool are held in trust by Home Guaranty
Corp., as trustee, for the trustor, La Savoie
✓Home Guaranty Corp. v. La Savoie Dev.
Corp., 748 SCRA 312 (2015).
d.
Sellers in a sale judicially declared as pacto de
retro may not exercise right to repurchase within
30-day period 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 none of the
circumstances under Art. 1602 were shown to
exist. If they truly believed the sale to be an
equitable mortgage, as a sign of good faith, they
should have consigned with the amount
representing their alleged loan, on or before the
expiration of the right to repurchase. √Abilla v.
Gobonseng, 374 SCRA 51 (2002).220
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 Art. 2088 of the Civil
Code, xLumayag v. Heirs of Jacinto Nemeño, 526
SCRA 315 (2007);216 and has been repeatedly
declared as contrary to morals and public policy,
xSolitarios v. Jaque, 740 SCRA 226 (2014).
In a pactum commissorium there should bee:
(1) a property mortgaged by way of security for
the payment of the principal obligation, and (2) a
stipulation for automatic appropriation by the
creditor of the thing mortgaged in case of
non-payment of the principal obligation within
the stipulated period. That 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. xOng v. Roban Lending Corp.,
557 SCRA 516 (2008).217
It does not apply when the security for a debt
is also money in the form of time deposit.
xConsing v. Court of Appeals, 177 SCRA 14 (1989).
Provision in MOA/Dacion en Pago with a
Right to Repurchase that if borrower fails to
comply with the new terms of restructuring the
loan, the agreement shall automatically operate
as a dacion en pago without need of executing
any new document does not constitute pactum
commissorium. √Solid Homes v. Court of
Appeals, 275 SCRA 267 (1997).
C. L
216
Guerrero v. Yñigo, 96 Phil. 37 (1954); Montevirgin v. CA, 112 SCRA 641
(1982); Vda. de Zulueta v. Octaviano, 121 SCRA 314 (1983); Ong v. Roban
Lending Corp., 557 SCRA 516 (2008); Heirs of Jose Reyes, Jr. V. Reyes, 626
SCRA 758 (2010); Martires v. Chua, 694 SCRA 38 (2013).
217
Philnico Industrial Corp. v. PMO, 733 SCRA 703 (2014).
218
Legaspi v. Ong, 459 SCRA 122 (2005); Home Guaranty Corp. v. La
Savoie Dev. Corp., 748 SCRA 312 (2015).
R
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).221
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 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 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).
B
S : Stipulation in promissory note that
upon failure of makers to pay interests,
owner-ship of property would automatically be
transferred to payee, and the covering deed of
sale would be registered, is in substance a
pactum commissorium in violation of Art. 2088,
and 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).218
Stipulation in the Contract of Guaranty for the
“prompt assignment and conveyance to [Home
Guaranty Corp.] of all the corresponding
properties in the Asset Pool” that are held as
security in favor of the guarantor, and
dispensing with the need of conducting
Final Chance to Redeem in “Mistaken
Equitable Mortgage” (Art. 1606): 30-day period
under Art. 1606 does not apply if courts find the
sale to be absolute. xPangilinan v. Ramos, 181
SCRA 359 (1990).219
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 Art. 1088. xCua v. Vargas, 506 SCRA
374 (2006).
b. Among Co-Owners (Art. 1620)
When seller a retro dies, right to redeem
cannot be exercised by a co-heir alone, since the
219
220
221
Tapas v. CA, 69 SCRA 393 (1976).
Vda. de Macoy v. CA, 206 SCRA 244 (1992).
Basa v. Aguilar, 117 SCRA 128 (1982).
37 of 41
right belonged in common to all the heirs. xDe
Guzman v. CA, 148 SCRA 75 (1987).
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).
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).
Redemption by co-owner redounds to the
benefit of all co-owners, xMariano v. CA, 222
SCRA 736 (1993); and 30-day redemption period,
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
written notice served by seller to the party
entitled to exercise such redemption right,
xGuillen v. Court of Appeals, 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. xCalma v. Santos, 590 SCRA 359 (2009).
on which the same was paid; and (f)
reimburse-ment must be done within 30 days
from the date of the assignee’s demand. xSitus
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. xMarinao v. Court of Appeals, 222 SCRA
736 (1993).223
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. xGuillen
v. CA, 589 SCRA 399 (2009).
Interpretation of Art. 1623 where there is a need
for notice in writing, should always tilt in favor of
redemptioner and against 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
redemptioner who can compel buyer to sell to him
but he cannot be compelled to buy. xHermoso v.
Court of Appeals, 300 SCRA 516 (1998).
c. Distinguishing Between Right of Redemption
of Co-Heirs and Co-Owners –
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);224 and it
must be a written notice of a perfected sale.
xSpouses Doromal v. Court of Appeals, 66 SCRA 575
(1975).
Art. 1620 includes the doctrine that
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).222
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. Court of Appeals, 256 SCRA 593
(1996).
d. Among Adjoining Owners (Arts. 1621 and 1622)
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).
Requisite to show property previously bought
on “speculation” dropped. xLegaspi v. Court of
Appeals, 69 SCRA 360 (1976).
When there is no issue that adjoining lands
involved are both rural lands, right to redeem
can be exercised and the only exemption
provided is when the buyer cannot show that he
did not own any other rural land. xPrimary
Structures Corp. v. Valencia, 409 SCRA 371 (2003).
e. Sale of Credit in Litigation (Art. 1634) – 30 Days
from Notice of Demand to Pay.
For debtor to be entitled to extinguish his
credit by reimbursing the assignee under Art.
1634, 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) credit or other incorporeal right
must be sold to an assignee pending litigation;
(d) assignee must have demanded payment
from the debtor; (e) debtor must reimburse the
assignee for the price paid, judicial costs
incurred and interest on the price form the day
222
De Guzman v. CA, 148 SCRA 75 (1987); Adille v. CA, 157 SCRA 455
(1988).
Notice may validly be served upon parents even
when they have not been judicially appointed as
guardians since 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.
Notice required under Art. 1623 is deemed to
have been complied with when other co-owner has
signed Deed of Extrajudicial Partition which
embodies the disposition of part of the property
owned in common. xFernandez v. Tarun, 391 SCRA
653 (2002).
The clause in the deed of sale that seller has
complied with the provisions of Art. 1623, cannot be
taken to “being the written affirmation under oath,
as well as the evidence, that the required written
notice to petitioner under Art. 1623 has been meet,
for the person entitled to the right is not a party to
223
Hernaez v. Hernaez, 32 Phil. 214 (1915); Castillo v. Samonte, 106 Phil.
1024 (1960).
224
Garcia v. Calaliman, 17 SCRA 201 (1989); Mariano v. CA, 222 SCRA 736
(1993).
38 of 41
the deed of sale. xPrimary Structures Corp. v.
Valencia, 409 SCRA 371 (2003).
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.
Court of Appeals, 318 SCRA 215 (1999).
√Francisco v. Boiser, 332 SCRA 305 (2000),
summarized the case-law on Art. 1623, and with
definitiveness declared:
● For 30-day redemption period to begin to run,
notice must be given by seller; notice given by the
buyer or even by the Register of Deeds is not
sufficient. This expressly affirms the original
rulings in xButte v. Manuel Uy and Sons, 4 SCRA
526 (1962), and xSalatandol v. Retes, 162 SCRA 568
(1988); and 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 Art. 1623.
● When notice is given by the proper party (seller),
no particular form of written notice is prescribed
under Art. 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); xConejero v. CA, 16 SCRA 775
(1966); xBadillo v. Ferrer, 152 SCRA 407 (1987.
● Affirmed ruling in xAlonzo v. IAC, 150 SCRA 259
(1987), that filing of suit for ejectment or
collection of rentals against a co-owner actually
dispenses
with the written notice, and
commences running of period to exercise the
right of redemption, since filing of the suit
amounted to actual knowledge of the sale.
d. Redemption in Extrajudicial Foreclosure (Sec.
6, Act 3135)
Redemption of extra-judicially foreclosed
properties is exercised within 1-year from date of
auction sale as provided r in Act 3135. xLee Chuy
Realty Corp. v. CA, 250 SCRA 596 (1995).
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.
No right to redeem from a judicial foreclosure
sale, except those granted by banks or banking
institutions. xGSIS v. CFI, 175 SCRA 19 (1989).
One-year redemption period in foreclosure is
not interrupted by filing 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. CA,
359 SCRA 480 (2001).226
When 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).
L
R
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. Court of Appeals, 440 SCRA 190
(2004).
R
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. Court of Appeals, 194 SCRA 508 (1991).
Under free/homestead patent provisions of
the Public Land Act a period of 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 Register of Deeds. xLee
Chuy Realty v. CA, 250 SCRA 596 (1995).225
b.
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. Court
of Appeals, 217 SCRA 554 (1993).227
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 judgment
debtor before 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).
Foreclosure of
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).
a. Rare Exceptions – When sale to the buyer was
effected through the co-owner acting as broker,
and never indicated that he would exercise his
right to redeem. xDistrito v. CA, 197 SCRA 606
(1991).
4. O
Redemption in Judicial
Mortgage (Sec. 47, R.A. 8791)
g.
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).
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
Under Sec. 28, Rule 39 of the 1997 Rules of
Civil Procedure, the period of redemption shall
226
225
Mata v. CA, 318 SCRA 416 (1999).
227
Vaca v. CA, 234 SCRA 146 (1994).
Heirs of Felicidad Canque v. CA, 275 SCRA 741 (1997).
39 of 41
consideration. xQuiño v. Court of Appeals, 291
SCRA 249 (1998).228
XIV ASSIGNMENT
(A
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, the purpose of which is only
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.
Delos Angeles, 40 SCRA 489 (1971).231
1624-1635)
“Assignment” is the process of transferring the
right of assignor to assignee who would then have the
right to proceed against the debtor. Assignment may
be done gratuitously or onerously, in latter case,
assignment has effect similar to that of a sale. xLicaros
v. Gatmaitan, 362 SCRA 548 (2001).229
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. Court of Appeals, 272 SCRA 291 (1997).
1. Perfection by Mere Consent (Art. 1624)
2. But Must Be in Public Instrument to Affect
Third Parties (Art. 1625)
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.
(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 Art. 1625 and making it enforceable
even as against third persons. xLedonio v. Capitol
Dev. Corp., 526 SCRA 379 (2007).
4. 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).
E
: (a) If this is expressly warranted;
(b) If insolvency is known by the
assignor prior to assignment;
3. Effects of Assignment
(c) If insolvency is prior to assignment
is common knowledge.
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).230
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 V. BA Finance Corp., 371 SCRA 603
(2001).
By virtue of the Deed of Assignment, assignee is
deemed subrogated to the rights and obligations of
assignor and is bound by exactly the same
conditions as those which bound the assignor.
Accordingly, assignee of a nonnegotiable chose in
action acquires no greater right than what was
possessed by his assignor and simply stands into
the shoes of the latter. xFort Bonifacio Dev. Corp. v.
Fong, 754 SCRA 544 (2015).
b. Issues Relating to Debtor (Art. 1626)
In an assignment of credit, the debtor’s consent
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 v. Court of
Appeals, 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
228
Springsun Management Systems Corp. v. Camerino, 449 SCRA 65
(2005).
229
Nyco Sales Corp. v. BA Finance Corp., 200 SCRA 637 (1991); Rodriguez
v. CA, 207 SCRA 553 (1992); Project Builders v. CA, 358 SCRA 626 (2001).
230
Lo v. KJS Eco-Formwork System Phil., 413 SCRA 182 (2003); Spouses
Chin Kong Wong Choi v. UCPB, 753 SCRA 153 (2015).
When dacion en pago takes the form of an
assignment of credit, it may extinguishe 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., 413 SCRA 182 (2003).
5. Right of Repurchase on Assignment of Credit
under Litigation (Arts. 1634 and1635)
6. 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. Nullity of an
old obligation may be cured by subrogation, such that
a new obligation will be perfectly valid; but such nullity
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).232
7. Assignment of Copyright (Sec. 180, Intellectual
Property Code)
8. Assignment as an Equitable Mortgage
When assignor executes a Deed of Assignment
covering her leasehold rights in order to secure
231
Sison & Sison v. Yap Tico, 37 Phil. 587 (1918); C&C Commercial Corp. v.
PNB, 175 SCRA 1 (1989); Project Builders v. CA, 358 SCRA 626 (2001);
Aquintey v. Tibong, 511 SCRA 414 (2006); Ledonio v. Capitol Dev’t Corp., 526
SCRA 379 (2007).
232
Ledonio v. Capitol Dev. Corp., 526 SCRA 379 (2007).
40 of 41
payment of promissory notes covering the loan she
obtained from the bank, such assignment is
equivalent
to
an
equitable
mortgage,
and
non-payment of the loan cannot authorize bank to
register the 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. Court of Appeals, 284 SCRA 14
(1998).
XV
BULK SALES LAW
3952)
(A
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 th relationship between
seller/assignor/encumbrancer and his creditor.
Hence, a judgment providing for subsidiary liability
is invalid—proper remedy is to collect on the credit
against the defendants, and if they cannot pay, to
attach on the property fraudulently mortgage since
it still pertain to the debtors-defendants. xPeople v.
Mapoy, 73 Phil. 678 (1942).
N
1. Scope. √Chin v. Uy, 40 O.G. 4 Supp. 52
2. Coverage of “Bulk Sale” – Sale, transfer, mortgage
or assignment of:
ACT (RTLA)
a. Goods, wares, merchandise, provisions or
material other than in the ordinary
course of business;
1
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 (BSL) 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. BSL 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).
BSL applies to merchants who are in the
business of selling goods, 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
proportionately to these debts.
be
XVI RETAIL TRADE LIBERALIZATION
applied
c. Ten (10) days before the sale, the seller must take
an inventory of his stock and advise all his
creditors of the same.
E
: 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)
Public Policy under RTLA: A Reversal of
Paradigm; Focus
from Protecting
Filipino Retailers to
Promoting the
Consumers’
Interests.
The control and regulation of trade in the
interest of the public welfare is 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. xEspina v. Zamora, 631 SCRA 17 (2010).
2. Scope and Definition of “Retail Trade”
a. Elements:
(1) Seller engaged in habitual selling;
(2) Selling direct to the general public; and
(3) Object of the sale is limited to merchandise,
commodities or goods for consumption.
b. Meaning of “Habitual Selling”
Engaging in 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 Nov. 2002.
c. Meaning of “For 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, 124 SCRA 893 (1983).233
233
Marsman & Co. v. First Coconut Central Co., 162 SCRA 206 (1988); B.F.
Goodrich Phil. v. Reyes, Sr., 121 SCRA 363 (1983).
41 of 41
d. Meaning of “General Public” (DOJ Opinion No.
253, series of 1954).
Even when consumer goods is limited only to
the company officers, same would still be retail
trade covered by the Law. √Goodyear Tire v.
Reyes, Sr., 123 SCRA 273 (1983).
Where
company
manufactures
glass
products only on specific orders, it does not sell
directly to consumers but manufacturers, it
cannot be said that it is a merchandiser. √DBP
v. Judge of RTC of Manila, 86 O.G. No. 6 1137, 05
Feb. 1990.
3. Categories of Retail Trade Enterprises
a. C
A – Exclusive to Filipino citizens and
100% Filipino entities
b. C
c. C
B
C
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).
D – Luxury Items
—oOo—
d. Exempted Areas
e. Rights Granted
Filipinos
to
Former
Natural-Born
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 a 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, P.D. 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