UP 2010 Civil Law (Sales)

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CIVIL LAW REVIEWER TABLE of CONTENTS

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SALES

Table of Contents

Chapter I. The Contract of Sale ..................269I. Definition (Art 1458, CC)...................269II. Elements ...........................................269III. Stages ...............................................274

IV. Kinds of Sale .....................................275V. Form..................................................276VI. Sale Distinguished From Other Contracts....................................................276

Chapter II. Obligations of the Seller andBuyer .............................................................278

I. Obligations of the Seller....................278II. Obligations of the Buyer....................284

Chapter III. Double Sales .............................286I. General Rule.....................................286II. Requisites .........................................286III. Rules Governing Sale of Movables,Immovables and Unregistered Lands ........286

Chapter IV. Risk of Loss..............................288I. General Rule.....................................288II. Exceptions.........................................288

Chapter V. Documents of Title....................289I. In General .........................................289II. Negotiable Documents of Title..........289III. Non-Negotiable Documents of Title ..289

Chapter VI. Remedies of the Seller and Buyer .......................................................................291

I. General Remedies ( Art. 1191, CC )...291II. Remedies of the Seller......................291III. Remedies of the Buyer......................295

Chapter VII. Extinguishment of Sale ..........298I. In General .........................................298II. Conventional Redemption.................298III. Equitable Mortgage ...........................299IV. Legal Redemption .............................300

Chapter VIII. Philippine Bulk Sales Law (Act3952) ..............................................................303

I. Purpose .............................................303

II. Coverage...........................................303III. Duty of Seller.....................................303IV. Effect of non-compliance...................304



CIVIL LAW REVIEWER Chapter I. The CONTRACT of SALE

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Chapter I. The Contract of Sale

I. DEFINITIONII. ELEMENTS

A. CONSENTB. SUBJECT MATTERC. PRICE

III. STAGESA. PREPARATION/NEGOTIATIONB. PERFECTION

C. CONSUMMATIONIV. KINDS

A. ABSOLUTEB. CONDITIONAL

V. FORMVI. SALE DISTINGUISHED FROM OTHER

CONTRACTSA. DONATIONB. BARTERC. CONTRACT FOR A PIECE OF WORKD. LEASE OF THINGSE. AGENCY TO BUY AND SELLF. DACION EN PAGOG. CONTRACT TO SELLH. BILATERAL PROMISE TO BUY AND SELL

I. Definition (Art 1458, CC)

Contract where one of the parties (Seller)obligates himself to:

Transfer ownership of and

to deliver a determinate thing;

and the other (Buyer) to pay a price certain inmoney or its equivalent.

II. Elements

The case of (Coronel v CA, 1996) enumeratesthe 3 elements of a valid contract of salenamely: Consent Subject matter Price

_______

A. CONSENTMeeting of minds upon the thing which is the

object of the contract and the price. (Art 1475,CC )

Requisites—1. Capacity2. Offer and acceptance3. No vitiation

SA

ES

SALES TEAM

Prof. Roberto N. DioFaculty Editor

Jaim Mari M. CrisostomoLead Writer

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riters

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Members




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CAPACITY

All persons who have capacity to enter intoobligations may enter into a contract of sale (Art

1489, CC)

Kinds of Incapacity—1. Absolute Incapacity (MInD-CI) (A r t . 1 32 7,

CC )

a. Minorsb. Insane or Dementedc. Deaf-mutes who do not know how to

writed. Civil Interdictione. Judicially-declared Incompetents(Art.

39 )

Prodigals Imbeciles Absence & presumption of death Persons not of unsound mind but by

reason of age, disease, weak mind,and other similar causes, cannottake care of themselves and

manage their property withoutoutside aid (Easy prey for deceitand exploitation)

2. Relative Incapacitya. Husband and Wife (Art 1490, CC)—

(Asked in 75, 76, 00, 02, 06)

General Rule: Cannot sell property toeach other

Exceptions:1. Separation of property in marriage

settlement, OR

2. Judicial separation of property.

b. Alienage (Art. 39, CC)—

Aliens disqualified to purchase or acquire property.

Exception: if acquisition is throughhereditary succession

c. Trusteeship (Art. 39)

3. Specific Incapacity (Art. 1491, CC) (AGE-PLJ)a. Agents—

Property whose administration or salewas entrusted to them

Exception: principal gives consent.

b. Guardian—Cannot purchase property of personunder his guardianship

Rationale: Guardianship is a trust of thehighest order, and the trustee can not beallowed to have any inducement oneglect his ward’s interest. ( P h i l T r u s t

Co v Roldan, 1956)

c. Executors and Administrators—Property of estate under their administration

d. Public Officers and Employees—Property of State/any of itssubdivisions/GOCC, the administrationof which was entrusted to them.

e. Lawyers—Property or rights in litigation in whichthey take part because of their profession

Rationale: Lawyer may have undueinfluence over client. Greed may get thebetter of the sentiments of loyalty and

disinterestedness. (Valen c ia v Cabanting, 1991)

Prohibition is definite and permanent,cannot be cured by ratification. (Rubias

v Bati l ler, 1973)

Exceptions: An assignment to a lawyer by his client of an interest in the propertydoes not violate Art 1491, where A judgment has been rendered and

has become final; and In case of contingency fee

arrangements. The interest of thelawyer maybe annotated as anadverse claim on the propertyawarded to his client ( Di r e c t o r o f

Lands v Ababa, 1979)

f. Justices, Judges, prosecuting attorneys,clerks—Property or rights in litigation or leviedupon on execution

Rationale: to prevent fraud and tosurround their profession with prestige

Prohibition applies only on sales or assignment during the pendency of lit igation involving the property.(Macariola v Asuncion, 1963)

Effects of Incapacity—1. Absolute Incapacity

If both parties are incapacitated:UNENFORCABLE (Art . 1403 (3))




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If only 1 party is incapacitated:VOIDABLE

-If necessaries are sold and delivered toan incapacitated person: must pay areasonable price therefore. (Art 1489,

CC )

“Necessaries” – those which areindispensable for sustenance, dwelling,clothing, medical attendance, educationand transportation. ( A rt 1 94 , F am i l y

Code)

2. Relative Incapacity Sale between spouses is VOID.

Rationale: (as provided in the case of Medina v CIR, 1961 ) To protect 3

rdpersons who may

have contracted with the spouse To avoid undue advantage of the

dominant spouse over the weaker spouse.

To avoid indirect prohibition againstdonations between spouses.

Such prohibition shall likewise apply tocommon law spouses. (Cal iml im-

C an u las v F or tu n , 19 84) BUT if already sold to a third person who reliedon the title of his immediate seller,reconveyance to the seller spouse is nolonger available (Cruz v CA , 1997)

3. Specific Incapacity Contracts expressly prohibited by law

are void and cannot be ratified. Neither can the right to set-up the defense of illegality be waived. (Art . 1409 (7), CC)

Sales entered into by guardians,administrators, and agents (specificincapacities) in violation of Art. 1491may be ratified by means of and in theform of a new contract when the causeof nullity has ceased to exist . Ratificationis valid only from date of execution of the new contract and does not retroact.

Those entered into by publicofficer/employees, justices and judges,and lawyers also in violation of Art. 1491are inexistent and void from thebeginning. (Rubias v Bati l ler, 1973).

OFFER AND ACCEPTANCE

In General— The contract of sale is perfected at the

moment there is meeting of the minds uponthe thing which is the object of the contractand upon the price.

From that moment, the parties mayreciprocally demand performance, subject to

the provisions of law governing the form of contracts. (Art. 1475, CC)

A private instrument signed by thedefendant reciting that he bought from theplaintiff a property at a specific address for aspecific price to be paid as soon as a bill of sale is signed is not a mere draft but aperfected agreement and hence, obligatory,even if there was no statement as to area or price per meter. ( Go y e n a v . T am b u n t i n g ,

1902)

Form and Offer— Offer must be certain as to the object and

price ( Art. 1319, CC)

Business advertisements of things for saleare not offers but mere invitations to makean offer Exception: If otherwise provided ( A r t .

1325, CC)

Advertisements for bidders are simplyinvitations to make proposals (Asked in 80) Advertiser not bound to accept the

highest or lowest bid Exception: Unless the contrary appears

(Art. 1326, CC)

Form of Acceptance— unconditional Qualified acceptance = counter-offer (Art.

1319, CC)

May be express or implied (Art. 1320, CC)

Acceptance must be in accordance with theterms and conditions of the offer. There isno meeting of the minds if the offer lapsedeven though the offeree later on was willing

to accept the terms and conditions of theoffer. (Beaumon t vs . Prieto, 1916)

MUST NOT BE VITIATED A contract where consent is given through

mistake, violence, intimidation, undueinfluence, or fraud is voidable. (Art. 1330,

1390 (2), CC)

There is fraud where through insidiouswords or machinations of one of contractingparties, the other is induced to enter into acontract which, without them, he would nothave agreed to. (Art. 1338, CC)

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B. SUBJECT MATTER

Requisites—1. Licit2. Existing, future or contingent3. Determinate or determinable




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MUST BE LICIT (ART. 1459)

The thing is licit when—1. Within the commerce of man (Art 1347, CC)

Example of properties that are not within thecommerce of man:a. Those belonging to the State or its

political subdivisions intended for publicuse or public service. (Art 420, CC).

b. Churchc. Narcotics or dangerous drugs except

upon prescription (RA 6425, t he

d a n g e r o u s d r u g s a c t o f 1 9 72 )

2. Rights are also licit when not intransmissible(Art 1347, CC)

Sale of future inheritance is void. (Art. 1347,

CC)—

1. The rights to succession are transmittedfrom the moment of the death of thedecedent (Art. 777, CC). Thus, one cannotsell or promise to sell what he expects toinherit from a living person. ( Ri v er o v .

Serrano, 1950) 2. -Heir may sell his hereditary rights (which

have accrued).

When the subject matter is illicit, the contract of sale is void ( Ar t. 1409 (7))

EXISTING, FUTURE, CONTINGENT

The goods which form the subject of acontract of sale may be either—1. existing goods owned or possessed by the

seller;

2. goods to be manufactured, raised, acquiredby the seller, also called “future goods”;

3. whose acquisition of the seller dependsupon a contingency which may or may nothappen. (Art 1462, CC)

4. Things having potential existence may bethe object of a contract of sale. (Art 1461,

CC )

Sale of MERE hope or expectancy

Sale of VAIN hope or expectancy

Valid BUT subject tocondition that the thingwill come into existence

Example: “Next catch” of a fisherman.

Void

Example: Sale of a

falsified raffle ticketwhich will never win.

Emptio Rei Speratei Emptio Spei

Valid Void

Parties make thecontract depend uponthe existence of a thing, If the thing does not

Parties intend thecontract to exist at allevents Buyer will have to pay

come into existence:contract is considered asnot made and there is noobligation to pay theprice

the price even if thething does not actuallycame into existence

In case of doubt the presumption is in favor of emptio rei speratae since it is more in keeping withthe commutative character of the contract.

DETERMINATE OR DETERMINABLE

A thing is determinate when it is particularlydesignated or physically segregated from allothers of the same class. (Art 1460, CC)

A thing is determinable when it is capableof being made determinate at the timethe contract was entered into without thenecessity of a new or further agreementbetween the parties. (Art 1460, CC)

Failure to state the exact location of the landdoes not make the subject matter indeterminate, so long as it can be located.(Camacho v C,A 2007)

The fact that the exact area of subject landin the contract of sale is subject to the resultof a survey does not render the subjectmatter indeterminate. ( H ei r s o f J u a n S a n

And res v. Rod riguez (2000))

Particular Kinds—1. Future Goods

Sale of future goods or those goods whichare to be manufactured, raised, or acquiredby seller after the perfection of the sale isvalid (A r t 1 46 2, C C ). “Future goods” arethose capable of future existence.

2. Sale of Undivided Interest or Share

a. Sole owner of a thing may sell anundivided interest therein. (A rt

1463,CC) Ex., a fraction (½ or half) or percentage (50%), or “my share in theproperty.”

b. The sale of an undivided share in aspecific mass of fungible goods makesthe buyer a co-owner of the entire massin proportion to the amount he bought.(Art 1464,CC)

c. Co-owner cannot sell more than hisshare ( Y t u r r a l d e v C A , 1 9 7 2 ) (Askedin 01, 02)

3. Sale of Things in Litigationa. Sale of things under litigation entered

into by defendant, without the approvalof the litigants or the court isrescissible. (Art 1381 (4))

b. NO RESCISSION where the thing islegally in the possession of 3

rdpersons

who did not act in bad faith (A r t 1 3 8 5

(2))




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4. Things Subject to Resolutory ConditionSale of things subject to a resolutorycondition, i.e. things acquired under legal or conventional right of redemption, or subjectto reserva troncal, may be the object of acontract of sale. (Asked in 99) (Art 1465,

CC )

5. Quantity of Subject Matter not determinateThe fact that the quantity is not determinateshall not be an obstacle to the existence of the contract provided it is possible todetermine the same, without the need of new contract. (Art. 1349, CC)

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C. PRICE

Requisites (Ce-MoRe)—1. Certain or ascertainable at the time of

perfection

2. In Money or its equivalent3. Real

CERTAIN OR ASCERTAINABLE AT THE TIMEOF PERFECTION

Price considered certain in the followingcases—1. Fixed by agreement of the parties

a. Fixing of price cannot be left todiscretion of one of the parties

b. BUT if such is accepted by the other,sale is perfected. (Art 1473, CC)

2. Determination is left to the judgment of aspecified persona. If unable or unwilling: Sale is

inefficacious UNLESS partiessubsequently agree about the price.

b. If in bad faith/by mistake: Courts may fixprice

c. If 3rd

person is prevented from fixingprice by fault of seller or buyer: Innocentparty may avail of remedies.

3. It b e so in r eference to another thing, or when the price fixed is that which the thinghave on a definite day, or in a particular exchange or market, OR when the amountfixed is above or below the price on suchday, exchange or market. (Art 1472, CC)

If price cannot be determined (Asked in 76)—1. Sale is inefficacious (Art. 1474, CC)

2. But if thing or part thereof has beendelivered and appropriated by the buyer, hemust pay a reasonable price therefore.a. What is reasonable price? A question

of fact dependent on circumstances.(Art 1474, CC)

b. In the case of P h i l ip p i n e F r ee P r e s s v

C A ( 20 05 ) , the court held that the pricewas reasonable based on factualdetermination predicated on offeredevidence (Compan y’s BalanceSheet showed the book value or fair market value of its shares)

IN MONEY OR ITS EQUIVALENT

Example of “equivalent”: Letters of credit If price is partly in money and partly in

another thing: Determine manifest intentionof the parties to see whether it was barter or sale. (Art 1468,CC)

If intention does not clearly appear, it shall

be considered a barter if the value of thething exceed the amount of money or itsequivalent.(Art 1468,CC)

REAL

Meaning of Real—When buyer has an intention to pay and theseller has an expectation to receive the price1. If simulated: Sale is VOID; BUT act may be

shown to have been a donation or someother act or contract. (Art 1471, CC)

2. In Labagala vs. Santiago (2001) , Petitioner

admittedly did not pay any centavo for theproperty. Hence, the sale is void.

If Price is false (real consideration is not thesame as that stated in the contract)—1. Sale is void2. UNLESS proved to be founded on another

true and lawful price (Art 1353, CC)

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Gross Inadequacy of Price—1. General Rule: Does not affect a contract of

sale. (A r t 1 47 0,C C)

The stipulation in a contract of salewhich states that the consideration is“P1 and other valuable considerations”does not make the contract void. Grossinadequacy of price does not affect thecontract of sale except that it mayindicate a defect in consent. ( B a g n as v .

C.A., 1989)




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2. Exceptions:a. It may indicate a defect in consent such

as fraud, mistake, or undue influenceb. It may indicate that the contract was in

reality a donation or some other act or contract

c. Inadequacy would make the contract of sale rescissible where a contract wasentered into by the guardian of a ward or a representative of an absentee, withoutthe court’s approval, and the owner suffers lesion by more than ¼ of thevalue of the thing sold. (Art 1381 (1) (2),

CC )

Manner of Payment—Disagreement on the manner of payment istantamount to a failure to agree on the price.(Toyota Shaw vs. CA, 1995)

III. Stages

A. Negotiation/Preparation

From the time the parties indicate interest in thecontract up to the time said contract is perfected

1. Offer a. General Rule: Offer may be withdrawn

at any time without even communicatingsuch withdrawal to the interested buyer.

b. Exception: When the offerer hasallowed the offeree a certain period toaccept, the offer may be withdrawn atany time before acceptance by

communicating such withdrawal. (Art

1324, CC)

c. Exception to the exception: Cannot bewithdrawn within the period if offer isfounded upon a consideration. (Art 1324

and 1479, CC)

2. Option Contract (Asked in 75, 77, 80, 93,02)a. Definition

An accepted unilateral promise tobuy or sell supported by aconsideration distinct from the price

(Art 1479, CC) An optional contract is a privilege

existing in one person, for which hehad paid a consideration, whichgives him the right to buy, for example, certain merchandise or certain specified property, if hechooses, at any time within the

agreed period, at a fixed price. (Dela Cavada vs. Diaz, 1918)

An option is not of itself a purchase,but merely secures the privilege tobuy.

A consideration for an optionalcontract is just as important as theconsideration for any other kind of contract. If there was noconsideration for the option, then itcannot be enforced any more thatany other contract where noconsideration exists. (Baviera)

b. Difference from Sale:

SALE OPTION CONTRACT

Bilateral Unilateral: gives a right to buyor to sell, but imposes noobligation on the part of theoption-holder, aside from theconsideration for the offer

Sale of property Sale of right to purchase

c. Right of first refusal (Asked in 93, 96,98, 02, 08) As to enforceability

Equatorial Realty Development vs. Mayfair, (1996): If the right tothe first offer is embodied in thecontract, it should be executedaccording to the termsstipulated. The right should beenforced according to the lawon contracts and not on thepanoramic and indefinite rule onhuman relations. This juridical

relation is not amorphous nor isit merely preparatory.

When the grantee fails to exercisethe right Paranaque Kings vs. CA,

(1997): Only after the granteefails to exercise its right of 1

st

priority under the same termsand conditions within the periodagreed upon, could the grantor validly offer to sell the propertyto a 3

rdperson under the same

terms as offered to the grantee.

As to the effects of the violationof the right Rosencor Devt. Corp. Vs.

Inquing (2001): A sale made inviolation of a right of first refusalis valid but rescissible, andmay be the subject of an actionfor specific performance.

However, before the sale to the3

rdperson may be rescinded, he




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must have been a c tu a ll y o r

c o n s tr u c ti v el y aw a re o f t h e

r i g h t o f 1 st

refusal at the timehe bought it.

The sanction for theenforcement of the right of firstrefusal against third persons isbased on A r t . 1 9 o f N C C , as noreal right was created on theproperty.

Difference from sale:

SALE RIGHT OF 1 REFUSAL

Bilateral Unilateral

Price and other terms of paymentare certain

Price and other terms are yet tobe agreed upon

the thing to be sold must be determinate

Distinction from Option Contract

OPTIONCONTRACT

RIGHT OF 1 REFUSAL

Separateconsideration isnecessary

No need for a separateconsideration

Grantee has theright to buy or sell

No right to buy or sell, only ar i g h t t o m a t c h t h e 1

st of f er t o

b u y should the grantor decideto sell

_______ B. Perfection(Asked in ’88 and ’91)

When Perfected—

1. Contract of sale is a consensual contract,hence perfected at the moment of themeeting of the minds of the parties as to theobject of the contract and the price. (Art

1475,CC)

2. It is the proof of all the essential elements of the contract of sale, and not the mere givingof earnest money, which establishes theexistence of a perfected sale. (Platinum

Plans Phi ls. vs. Cuc ueco, 2006)

Effect of Perfection—From the moment of the perfection of thecontract of sale, the parties may reciprocally

demand performance, subject to the provisionsof the Statute of Frauds. (Art 1475,CC)

Earnest Money—Definition- paid in advance of the purchaseprice agreed upon by the parties in a contract of sale, given by the buyer to the seller, to bind thelatter to the bargain. (Asked in 93, 02)

Option Money vs. Earnest Money (Limson vs.Ca, 2001)—

OPTION MONEY EARNEST MONEY

Separate and distinctconsideration from thepurchase price

Part of purchase price(Art 1482, CC)

Given when sale is notyet perfected

Given only when thereis already a sale

When given, the would-

be-buyer is not requiredto buy, but may evenforfeit it depending onthe terms of the option

When given, the buyer

is bound to pay thebalance

Grantee of option is stillundecided whether or not to buy or sell theproperty (Baviera)

Buyer manifests hisearnest desire to buythe property

_______

C. Consummation

Begins when the parties perform their respectiveundertakings under the sale. It culminates in the

extinguishment of the sale. (See obligations of seller and buyer, Chapter II)

IV. Kinds of Sale

(Asked in 97, 00)

A. Absolute SaleSale is not subject to any conditionwhatsoever; title passes to the buyer upondelivery of thing sold

B. Conditional Sale

Contract is subject to certain conditions(usually the payment of the purchase price);title will only pass once the conditions havebeen fulfilled

In some cases, the Court makes finer distinctions between a conditional sale and acontract to sell:a. Contract to sell- The fulfilment of the

suspensive condition, which is the fullpayment of the price, will notautomatically transfer ownership to thebuyer although the property may have

been previously delivered to him.b. Conditional Sale: The fulfilment of the

suspensive condition renders the saleabsolute and affects the seller’s titlethereto such that if there was previousdelivery of the property, the seller’sownership or t it le the property isautomatically transferred to the buyer.(Ursal vs. CA, 2005)




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V. Form

General rule: No form required as to validitysince sale is perfected by consent of the parties.

The sale may be (Art.1483,CC) :1. Written2. Oral3. Partly written and partly oral

4. Inferred from the conduct of the parties

Exceptions:1. Statute of Frauds (Art ,1403 (2),CC)

a. Contract or some memorandum thereof must be in writing and subscribed bythe party or his agent, otherwisecontract is unenforceable. Unlessratified by failure to object to oralevidence or acceptance of benefitsunder the contract

b. What are under the Statute of Frauds: Sale of goods, chattels, or things in

action at a price not less than P500 Sale not to be performed within 1year

Sale of real property or an interesttherein (Art 1358, CC)

c. Applies only to executory contracts, notto contracts either totally or partiallyperformed. (Iñigo v. Estate of Maloto ,1967)

2. Sale of realty by an agent Agent’s authority must be in writing,otherwise the sale is void (Art.1874, CC)

3. Sale of large cattleTo be valid, transfer of large cattle must beregistered with the municipal treasurer (Sec.529, Revised Adm inistrative Cod e)

Electronic Commerce Act (RA 8792)1. Electronic documents have the legal effect,

validity or enforceability of any other document or legal writing

2. As long as electronic document maintains itsintegrity and reliability and is capable of being displayed to the person to whom it isto be presented, containing the electronic

signature of the person sending it. (Sec 7, 8 of RA 8792)

VI. Sale Distinguished From Other Contracts

A. DONATION

SALE DONATION

Onerous Gratuitous

Perfected by mereconsent

Must comply with theformalities required by

law. (Art 745, CC)

When the price of the contract of sale issimulated, the sale may be void but the act maybe shown to have been in reality a donation or some other contract. (Art.1471.CC)

B. BARTER

SALE BARTER

Consideration is pricein money or itsequivalent

Consideration isanother thing

Barter is a contract where one of the partiesbinds himself to give one thing in considerationof the other’s promise to give another thing(Art.1638, CC)

If consideration consists partly in money andpartly in another thing, the intention of theparties determines whether the contract is one of sale or barter: If manifest intention is not clear: Barter

when the value of thing is more than theamount of money or its equivalent,otherwise, sale. (Art.1468)

C. CONTRACT FOR A PIECE OF WORK

SALE CONTRACT FOR APIECE OF WORK

Goods are manufacturedor procured in theordinary course of business

Goods are manufacturedfor customer upon hisspecial order

For the general market,whether on hand or not

Specifically for customer

The fact that the object were made by the seller only when customers placed their orders, does

not alter the nature of the contract of sale, for itonly accepted such orders as called for theemployment of such materials as it ordinarilymanufactured or was in a position habitually tomanufacture such. (C el es t in o C o & C o v s .

Col lector, 1956)

When each product or system executed isalways UNIQUE and could not mass-producethe product because of its very nature, such is a




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contract for a piece of work. ( C o m m i s s i o n e r v s .

E ng in ee ri ng E qu ip m en t an d Su p pl y C o.,

1975)

D. LEASE OF THINGS

SALE DACION EN PAGO

No pre-existing debt Pre-existing debt

Creates an obligation Extinguishes theobligation (mode of

payment)Price is more freelyagreed upon, fixed by theparties

Price is value of the thinggiven

There is a novation of the contract of loan into acontract of sale when the creditor agrees toaccept a thing in payment of the debt. Hence, if the thing given in payment turns out to belong toanother, the creditor’s remedy should begoverned by the law on sales, not loan.(Baviera)

E. CONTRACT TO SELL(Asked in 97, 01, 03)

Contract of Sale Contract to Sell

Ownership is transferredupon delivery

Ownership is onlytransferred upon fullpayment of price

Non-payment is aresolutory condition

Full payment is a positivesuspensive condition,hence non paymentwould not give rise to theobligation to transfer ownership

Conditional Contract of Sale

Contract to sell

Sale is already perfected No perfected sale yet A subsequent buyer ispresumed to be a buyer in bad faith

A subsequent buyer ispresumed to be a buyer in good faith

NOTE: Contract to Sell is an executory contract,while a Contract of Sale is a consummatedcontract.

F. BILATERAL PROMISE TO BUY ANDSELL

(Asked in 80, 91)

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. ( A r t

479, CC)

Like a sale, the thing must be determinate andthe price certain.

SALE BILATERAL PROMISE TO BUYAND SELL

ConsiderationBuyer: thingSeller: price

Consideration is the promisemade by the other (Baviera)

Title passes tothe buyer

No transfer of title



CIVIL LAW REVIEWER Chapter II. OBLIGATIONS of the SELLER and BUYER

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Chapter II. Obligations of the Seller andBuyer

I. OBLIGATIONS OF THE SELLERA. TO TRANSFER OWNERSHIPB. TO WARRANT AGAINST EVICTION AND

HIDDEN DEFECTSC. TO PRESERVE THE THINGD. TO PAY FOR THE EXPENSES FOR THE

EXECUTION AND REGISTRATION OFTHE DEED OF SALEII. OBLIGATIONS OF THE BUYER

A. TO ACCEPT DELIVERYB. TO PAY THE PRICE OF THE THING SOLD

I. Obligations of the Seller

Obligations of the Seller (TWPP)—1. Transfer ownership2. Warrant against eviction and hidden defects3. Preserve the thing4. Pay for the expensed for the execution and

registration of the deed of sale

A. To transfer ownership(Asked in 84, 98, 99, 03)

Obligation to transfer ownership and to deliver isreally implied in every contract of sale (Arts.

1458-1459)

Transfer of ownership requires delivery (Art.1495)

General Concepts—

1. Delivery comprises 2 obligations in Art.1495:a. Actual duty to deliver b. Transfer of ownership – can only be

accomplished via delivery

2. What to Deliver a. Thing sold (Art. 1495)b. Fruits (Art. 1164 & 1537)c. Accessions and accessories (Art. 1166

& 1537) Improvements by seller at his

expense grants him a usufructuary

right. No indemnification But he may remove it to the extent

that there is no damage (Art. 1538)

3. Where to Deliver a. A hierarchy is followed (STOR):

Stipulation Usage of trade Seller’s place of business (office)

Seller’s r esidence

b. In case of specific goods, which theparties knew to be at some other placewhen the contract was perfected, thatplace is the place of delivery

c. If goods are at the time of salepossessed by a third person, then thereis no delivery until he acknowledges tothe buyer that he holds the goods for buyer.

4. When to Deliver Absent a stipulation as to time, delivery mustbe made within a reasonable time; demandor tender of delivery shall be made at areasonable hour.

Ways of Effecting Delivery—1. Actual Delivery

a. When deemed made: when the thingsold is placed in the control and

possession of the vendee (Art. 1497) b. Not always essential to passing of title

(Art. 1475)

c. Parties may agree when and on whatconditions the ownership in the subjectof the contract shall pass to the buyer (example: Art 1478 where ownership willonly pass after full payment of the price)

2. Constructive Deliverya. Execution of public instrument (Art

1498, par. 1) General rule: produces the same

legal effects of actual delivery. Exceptions:

The intention of the parties isotherwise.

At the time of execution, thesubject matter was not subjectto the control of the seller whichmust subsist for a reasonablelength of time after execution.(P as ag u i v V il la bl an c a, 68

SCRA 18)

“Control” over thing sold must besuch that seller is capable of physically transferring it to buyer

b. Symbolic Delivery Delivery of keys of the place or

depositary where the movable isstored or kept. (Art 1498, CC)

Unless otherwise agreed, whensymbolic delivery has been made,the seller is not obliged to removetenants to place the buyer in actual




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possession of the property as hehas already complied with hisobligation to transfer ownership of and deliver the thing sold. (Power

C o m m e r c ia l a n d I n d u s tr i al C o r p .

v . CA , 1997; Sab io v . Th e

In t er n at io n al C o rp o r at e B an k ,

Inc., 2001)

c. Tradition Longa Manu (Long Hand) Delivery of thing by mere

agreement. Example: Seller points to the

property without actually transferringphysical possession thereof.

When an employer assigned all itsrights and title to all surplus propertysalvaged by the contractor, traditionlonga manu takes place. Delivery isupon the moment a thing issalvaged. ( B o a r d o f L i q u i d a t o r s v .

Floro, 1960)

d. Tradition Brevi Manu (Short Hand)MOVABLE is delivered when the buyer had the thing already in his possessionbefore the sale took place, not as owner but as lessee, borrower, or depositary.

e. Tradition Constitutum PossessoriumSeller continues to be in possession of the property sold, by virtue of a leasecontract agreement with the vendee.

f. Delivery to a Common Carrier General Rule: Delivery to the

courier or carrier tantamount todelivery to buyer.

Exceptions

Seller reserved title by the formof the bill of lading, with intent toremain the owner, not merely for the purpose of securingpayment, OR

Contrary intent appears in thecontract (i.e. seller is required todeliver goods to buyer at thepoint of destination)

F.O.B.: “Free on Board”When seller bears the expensesof transportation up to theF.O.B. point.

C.I.F.: “Cost, Insurance,Freight”Price quoted includes the costsof the goods, insurance, andfreight charges on the goods upto the point of destination.

F.A.S.: “Free Alongside”Seller bears the expenses of transportation until he deliversthe goods alongside a vessel ata named port.

Completeness of Delivery—1. When may the seller refuse to deliver:

a. No payment yet or no period for payment has been fixed in the contract(Art.1524);

b. The buyer loses the right to make useof the term, as when: He becomes insolvent UNLESS he

gives a guaranty or security for thedebt;

He does not does not furnish theseller the guaranties or securities hepromised;

He impairs the guaranties or securities or they disappear fortuitously UNLESS he immediately

gives new ones equally satisfactory; He violates any undertaking, in

consideration of which the seller agreed to the period;

He attempts to abscond. (Art.1536)

2. Rules on Sales of Goodsa. When Quantity less than expected

Buyer may reject all Buyer accepts with knowledge of

seller’s inability to deliver the rest –buyer pays at contract price

Buyer has used or disposed prior to

knowing seller’s inability to deliver the rest – buyer pays fair value

b. Quantity more than expected If divisible, buyer may reject excess If indivisible, buyer may reject all

c. Quality different or different goods If divisible, buyer may accept the

goods compliant with contract andreject those that are not

If indivisible, buyer may reject all(Art. 1522)

d. Sale of specific mass of goodsIn the sale of fungibles where themeasure or weight has not beenagreed upon nor is there a fixed ratebased upon a measurement, thesubject matter of the sale is adeterminate object – the specificmass; seller is merely required todeliver such mass even if actualquantity falls short of parties’estimate (Art. 1480)




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e. Delivery by installments By default, buyer is not bound to

accept delivery of goods byinstalments

In a contract of delivery byinstallment to be paid for viainstallment as well, delay or breachmay not necessarily mean breach of the entire contract; depending onthe circumstances, breach may beseverable and the aggrieved partyis entitled to damages and notrescission. (Art. 1583)

3. Rules on Sales of Immovablesa. Sale at a fixed rate per unit of measure

Seller bound to deliver entire land If the area is less than that stated,

buyer may rescind or demand aproportionate reduction in price

If a part of the land is not of thequality stated in the contract, buyer may rescind or demand a

proportionate reduction in price Buyer may only avail of rescission if

the area deficiency is 10% or moreof total area or if the inferior value of the part of the land exceeds 10% of the price agreed upon. (Art. 1539)

If the area turns out to be greater than that stated, buyer may acceptarea included and reject the excessor accept all and pay aproportionate increase in price (Art.

1540)

b. Sale for lump sum Follows the same rule as the sale of

a specific mass which is explainedabove

There is no change in price even if area or number turns out to begreater or lesser than that stated(Art. 1542)

Exception: when the excess or deficiency is no longer reasonable;in A s i a n v J a l an d o n i , 1 9 23 , 644 sqm was found to be unreasonable.

Exception to the exception: whenbuyer expressly assumes risk onactual area of the land. ( Ga r c i a v

Veloso, 1941)

If the price per unit or measure isnot provided for in the contract, thenthe rules of lump sum sale shouldprevail. (S ta . A n a v H er n an d ez ,

1966)

Effect of Delivery—1. Delivery, generally, results in transfer of

ownership from seller to buyer.2. As such, it also transfers the risk of loss of

the thing sold to the buyer.3. Acceptance is not a condition for the

completeness of delivery; even with suchrefusal of acceptance, delivery will bedeemed completed and produce its legaleffects.

4. By default, expenses of and incidental toputting the goods into a deliverable statemust be borne by seller. (Art. 1521)

When delivery does not transfer title—1. Sale on approval, trial, or satisfaction

General Rule: Title remains with the seller

E x c e p t i o n s :a. Buyer signifies his approval or

acceptance to the seller or does anyother act adopting the transaction

b. Retains the goods without giving noticeof rejection after the time fixed hasexpired, if no time has been fixed, after the expiration of a reasonable time (Art

1502, CC)

D i f f er e n c e b e t w e e n s a l e o n a p p r o v a l a n d

sale on return

Sale on Approval Sale on Return

Ownership does not passupon delivery

Ownership passes upondelivery, but buyer may revestownership in the seller byreturning or tendering thegoods within the time fixed inthe contract

Depends on the character or quality of goods

Depends on the will of thebuyer

Subject to a suspensivecondition

Subject to a resolutorycondition

Risk of loss remains withthe seller

Risk of loss remains with thebuyer

2. Express ReservationIf it was stipulated that ownership in thething shall not pass to the purchaser until hehas fully paid the price. (Art 1478, CC)

3. Implied ReservationThe following are instances when there is animplied reservation of ownershipa. Goods are shipped, but by the bill of

lading goods are deliverable to the seller or his agent, or to the order of the seller or his agent




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b. Bill of lading is retained by the seller or his agent.

c. When the seller of the goods draws onthe buyer for the price and transmits thebill of exchange and bill of lading to thebuyer, and the latter does not honor thebill of exchange by returning the bill of lading to the seller.

4. When sale not valideg. When the thing sold is a public property

5. When Seller is not the owner (Asked in 77, 78, 86, 87)

General Rule: Ownership is not acquired bythe buyer. One cannot give what one doesnot have. (Art 1505, CC)

E x c e p t i o n s : (RE-ROM)a. Seller has a Right to transfer ownership

Seller need not be the owner of thething at the time of perfection of the

contract It is sufficient that seller hasa right to transfer ownership thereof at the time it is delivered (Art. 1459)

One who sells something he doesnot own yet is bound by the salewhen he acquires the thing later (Bucto n vs Gabar, 55 SCRA 469)

b. Estoppel: Owner is by his conductprecluded from denying the seller’sauthority to sell. (Art. 1434)

c. Registered land bought in good faith General rule: Buyer need not go

beyond the Torrens title

Exception: When he has actualknowledge of facts andcircumstances that would impel areasonably cautious man to makefurther inquiry

d. Order of courts Statutory SaleIn execution sale, the buyer merelysteps into the shoes of the judgmentdebtor (Rule 39, sec. 33, ROC)

e. When goods are purchased inMerchant’s store, Fair, or Market (Art

1505, CC)

The policy of the law has alwaysbeen that where the rights andinterest of the vendor clash with thatof an innocent buyer for value, thelatter must be protected. (Sun

B r ot h er s an d C o. V. Vel as c o,

(1958)

6. Sale by person having a voidable titlea. True owner may recover the thing when

provided the ff. requisites concur: Subject matter is movable Owner has either lost the thing or

has been unlawfully deprived. (A rt

559, CC)

b. Reimbursement is necessary beforeowner can recover when: Buyer acted in good faith Acquired at a public auction (Art

559, CC)

c. Recovery no longer possible when: Buyer in good faith Acquired it at a merchant’s store,

fair or market. (Art 1506, CC)

__________

B. To warrant against eviction & hiddendefects (Art. 1495; 1547)

Warranties— A statement or representation made by the seller

contemporaneously and as part of the contractof sale, having reference to the character,quality, or title of the goods, and by which hepromises or undertakes to ensure that certainfacts are or shall be as he then represents.

Effects of Warranties—1. Natural tendency is to induce buyer to

purchase the subject matter 2. Buyer purchases subject matter relying

thereon3. Seller liable for damages in case of breach

Effects of Waivers—Only applicable to waiver of warranty againsteviction (see the following section) – parties mayincrease or decrease warranty against evictionbut the effect depends on good/bad faith of theseller 1. Seller in bad faith and there is warranty

against eviction – null and void2. buyer without knowledge of a particular risk,

made general renunciation of warranty – notwaiver but merely limits liability of seller incase of eviction (pay value of subject matter at time of eviction)

3. buyer with knowledge of risk of evictionassumed its consequences and made awaiver – vendor not liable

4. waiver to a specific case of eviction – wipesout warranty as to that specific risk but notas to eviction caused by other reasons




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Condition v. Warranty—

Condition Warranty

Pertains to and affectsthe existence of theobligation

Goes into theperformance of anobligation and may, initself, be an obligation

Non-happening does notamount to breach of contract

Non-fulfillmentconstitutes breach of contract

Must be stipulated Stipulation or operationof law

May attach to either tothe seller’s duty todeliver thing or someother circumstance

Always relates to thesubject matter or theseller’s obligations as tothe subject matter

If seller has promised that the conditionshould happen or be performed, thebuyer may treat the nonperformance of the condition as a breach of warranty.(Art.1545)

Form—

1. Express Warranty (APIR)For there to be express warranty, thefollowing requisites must concur:a. An affirmation of fact or any promise

relating to the thing sold;b. The natural tendency of such affirmation

or promise is to induce the buyer to buy;c. The buyer buys the thing r elying

thereon. (Art. 1546)d. Made before the sale not upon delivery

or any other point

An express warranty can be made by and

also be binding on the seller even in the saleof a second hand article. ( Mo l es v . I A C ,

1989)

Express Warranty Dealer’s or Trader’sTalk

What is specificallyrepresented as true insaid document cannot beconsidered as meredealer's talk. ( Mo l e s v .

IAC, 1989)

Affirmation of thevalue of the thing or statement of theseller’s opinion onlyis not a warrantyunless:

- The seller madeit as an expert;

- It was relied uponby the buyer.(Art.1546)

Ordinarily, what doesnot appear on the faceof the writteninstrument (M o le s v .

IAC, 1989)

Express Warranty False Representation

Concealment of factsdoes not necessarilyamount to falserepresentation

When concealment of facts comes with anactive misstatement of fact or a partialstatement of fact suchthat withholding of thatunsaid portion makesthat which is statedabsolutely false

However, buyer whofails to inspect conditionof property despiteample opportunity to doso and no opposition onthe part of seller cannotlater on allege falserepresentation. (Phil

M f t g C o . v G o J u c c o ,

1926) This is becausebuyer’s duty to inspectremains despite falserepresentation by theseller. Buyer has theduty to exercise due

diligence.

2. Implied Warrantya. Implied Warranty of Titleb. Implied Warranty against Encumbrance

/ Non-Apparent Servitudesc. Implied Warranty against Hidden

Defects (Art. 1547)

Implied warranty as toMerchantable Quality and Fitnessof Goods

Implied warranty againstRedhibitory Defect in the Sale of Animals (Art. 1572)

Quality and Fitness of Goods inSale by Sample or Description

d. Other Warranties

Implied Warranty of Title—1. Implied warranty arises by operation of law

and need not be stipulated in the contract of sale.

2. Warranty of Seller’s Right to Sell: seller warrants his right to sell at the time theownership is to pass. Inapplicable to a sheriff, auctioneer,

mortgagee, pledgee, or other personprofessing to sell by virtue of authority infact or law. (Art. 1547)

3. Warranty against Eviction: seller warrantsthat buyer, from the time ownership passes,shall have and enjoy legal and peacefulpossession of the thing. Its requisites are:a. Buyer is deprived of the whole or a part

of the thing sold;




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b. Eviction is by final judgmentc. Final judgment based on a right prior to

the sale or an act imputable to thevendor

d. Seller is summoned and made co-defendant in the suit for eviction at theinstance of the buyer. (Power

C o m m e r c ia l a n d In d u s t r i al C o r p . v .

CA, 1997 )

Implied Warranty against Encumbrance /Non-Apparent Servitudes—Requisites for breach:1. Thing sold is an immovable2. Burden or servitude encumbering the thing

sold isa. Non-apparent to the naked eyeb. Not mentioned in the agreementc. Of such nature that it must be presumed

that the buyer would not have bought ithad he been aware thereof

d. Not recorded in the Registry of Propertyunless there is an express warranty that

the thing is free from all burdens andencumbrances (Art.1560)

Implied warranty against Hidden Defects—Requisites for breach:1. The defect renders the thing sold unfit for

the use for which it was intended ORdiminishes its fitness for such use to such anextent that had the buyer been awarethereof, he would not have bought it or would have paid a lower price;

2. The defect is not patent or visible;3. The buyer is not an expert who, by reason of

his trade or profession, should have knownthe defect

4. The seller is aware of the hidden fault or defect, OR even he is not aware thereof, if there is no stipulation to the contrary(Arts.1561 &1566)

Implied warranty as to Merchantable Qualityand Fitness of Goods—Merchantable Quality:1. Where the goods are brought by description

from a seller who deals in goods of thatdescription (Art.1562)

2. In a sale by sample, if the seller is a dealer in goods of that kind and the defect is notapparent on reasonable examination of thesample (Art.1566)

Fitness for a particular purpose: Where thebuyer expressly or impliedly makes known to theseller the particular purpose for which the goodsare acquired AND it appears that the buyer

relies on the seller’s skill or judgment(Art.1562(1))

Implied warranty against Redhibitory Defectin the Sale of Animals (Art. 1572)— Redhibitory defect- a hidden defect of

animals of such nature that expertknowledge is not sufficient to discover it,even in case a professional inspection hasbeen made

No warranty in case of (Art. 1574):a. Animals sold at fairs or public auctionsb. Livestock sold as condemned

The following sales are void (Art. 1575):a. S ale of animals suffering from

contagious diseasesb. Sale of animals unfit for the purpose for

which they are acquired as stated in thecontract

Veterinarian liable if he fails to discover or disclose the hidden defect throughignorance or bad faith (Art 1576)

Seller liable if animal dies within 3 days after

its purchase due to a disease that existed atthe time of sale. (Art 1578)

Other Warranties—1. Warranty in Sale of Consumer Goods

Consumer goods – goods primarily for personal, family, household or agriculturalpurposes, which shall include but not limitedto food, drugs, cosmetics, and devices(Sec.4(q), RA 7493

: C o ns u m e r A c t o f t h e

Phi l )

Kinds:

a. “Full warranty”- if the written warrantymeets the minimum standards

b. “Limited warranty- if the written warrantydoes not meet the minimum standards(Sec.6(c), RA7394)

Minimum standard for warranties that thewarrantor shall:a. Remedy such consumer product within

a reasonable time and without charge incase of a defect, malfunction or failure toconform to such written warranty;

b. Permit the consumer to elect whether toask for a refund or replacement withoutcharge of such product or part, as thecase may be, where after reasonablenumber of attempts to remedy the defector malfunction, the product continues tohave the defect or to malfunction

The warrantor will not be required to performthe above duties if he can show that thedefect, malfunction or failure to conform to a






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3. Effect of Refusal to accepta. If buyer refuses to accept goods, having

the right to do so, he is not bound toreturn them to the seller; it beingsufficient that he notifies the seller of hisrefusal to accept If he voluntarily constitutes himself a

depositary of the goods, he shall beliable as such. (Art.1587)

b. Unjust refusal to accept still results totransfer of ownership; title to the goodspasses to the buyer from the momentthey are placed at his disposal, except if ownership has been reserved by theseller (Art.1588)

Second Obligation: pay the price of the thingsold (Art. 1582 )—1. Payment of interest

Buyer is liable for interest when: (SFD)

a. Interest is stipulated;b. Thing sold produces f ruits or income;c. Buyer is in default - interest accrues

from the time of judicial or extrajudicialdemand for payment

2. Suspension of paymentsBuyer may suspend payment when:a. his ownership or possession of the thing

is disturbed or b. he has reasonable grounds to fear such

disturbance by a vindicatory action or aforeclosure of mortgage

Exceptions: buyer cannot suspendpayment when:

a. seller gives security for the return of theprice in a proper case

b. it has been stipulated that,notwithstanding any such contingency,the buyer shall be bound to pay (Art.

1590)

Suspension may continue until the seller hascaused the disturbance or danger to cease

A mere act of trespass shall notauthorize the suspension of thepayment. (Art.1590)

3. Sale of real property

In the sale of immovable property, buyer may pay even beyond the expiration of the period agreed upon, as long as nodemand for rescission of the contracthas been made upon him either

judicially or by a notarial act, despite astipulation providing for ipso jurerescission (Art.1592) (Asked in 88, 00)

After demand, court may not grant him a

new term (H e i r s o f E s c a n l a r , e t . a l . v .

CA, 1997 ) R.A. 6552 (Maceda Law) – applies to

sale or financing of real estate oninstallment (Rillo v . Co u rt o f

Appeals,1997 ) Buyer is awarded a grace period of

1 month per year of installmentspaid or 60 days, whichever ishigher, within which he may paywithout additional interesto may be used once every 5

years of the life of the contractor any of its extensions

If contract is to be cancelled, seller must first:o 30 day notice of cancellation,

ando refund cash surrender value to

buyer; amount is equivalent to50% of total payments madeincluding deposits, options anddown-payments plus 5% for

every year in excess of 5 yearsof the life of the contract or anyof its extensions



CIVIL LAW REVIEWER Chapter III. DOUBLE SALES

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Chapter III. Double Sales

(Asked in 77, 87, 89, 98, 01, 04)

I. General RuleII. RequisitesIII. Rules governing sale of movables,

immovables and unregistered landsIV. Purchaser in good faith

I. General Rule

Prior tempore, potior jure (“he who is first in timeis preferred in right”) applies.

II. Requisites

Requisites (Cheng v Genato, 1998 )1. 2 or more valid sales;2. Same subject matter;3. 2 or more buyers with conflicting interests at

odds over the rightful ownership of the thingsold;

4. Same seller

III. Rules Governing Sale of Movables,Immovables and Unregistered Lands

A. Sale of MovablesOwnership shall be transferred to the personwho may have first taken possession ingood faith.

B. Immovables1. Ownership belongs to the person who:

a. In good faith first recorded in theRegistry of Property; OR

b. If there is no inscription, ownershippasses to the person who in good faithwas first in possession; OR

c. In the absence thereof, to the personwho presents the oldest title,PROVIDED there is good faith. NOTE:good faith is required all the time.

NOTE:a. “Oldest Title” – any public document

showing acquisition of the land in goodfaith. To constitute “title,” thetransmission of ownership must appear in a public document [Art. 1358 (1)]

b. Examples: Deed of Sale, Deed of Donation, Deed of Trust

2. Registration includes any entry made in thePrimary Entry Book of the registry, including

both registration in its ordinary and strictsense and cancellation, annotation, andeven marginal notes. (C h en g v . G en a t o ,1998 )

NOTE: Pencilled entries on the title are notconsidered registration (AFPMBAI v.Court of Appeals, 1999).

C. Sale by Virtue of Execution andAttachment

Art. 1544 does NOT apply to the sale of unregistered land at an execution salebecause a buyer of unregistered land at aexecution sale only steps into the shoes of the judgment debtor, and merely acquiresthe latter's interest in the property sold as of the time the property was levied upon.(C a ru m b a v . C A , 1970)

D. Sale of Unregistered Land1. Instrument or deeds establishing,

transmitting, acknowledging, modifying or extinguishing rights with respect to lands notregistered under the Land Registration Actor the Spanish Mortgage Law, are requiredto be registered in the Registry of Propertyto prejudice 3

rdpersons, although such

registration is understood to be “w/oprejudice to a 3

rdparty with a better right”.

(PD 1528 Sec 113)

2. Art. 1544 applies to unregistered landsubject to a conventional sale (because of

Art. 1358) but NOT to unregistered landsubject to judicial sale.

E. Purchaser in good faith(Asked in 76, 86, 08)1. General Characteristics

a. One who buys the property of another,without notice that some other personhas a right to or interest in suchproperty, and who pays a full and fair price for the sale, at the time of thepurchase or before he has notice of theclaim/interest of some other person inthe property. ( A g r ic u l t u r al a n d H o m e

E x t en s i o n D ev e lo p m e n t G r o u p v C A ,

1992)

b. A buyer could not have failed to know or discover that the land sold to him was inadverse possession; hence he isdeemed to have acted in bad faith.(H ei rs o f R am o n D u ran v U y, 344

SCRA 238)



CIVIL LAW REVIEWER Chapter III. DOUBLE SALES

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2. PresumptionGen Rule: As a rule, he who asserts thestatus of a purchaser in good faith and for value, has the burden of proving suchassertion. This onus probandi cannot bedischarged by mere invocation of the legalpresumption of good faith, i.e., that everyoneis presumed to act in good faith (Mathay v

CA, 295 SCRA 556)

When buyer is presumed to be in badfaith:a. Annotation of adverse claim: Places

any subsequent buyer of the registeredland in bad faith. ( B a l a t b a t v C A , 2 6 1

SCRA 128)

b. Annotation of Lis Pendens: Buyer cannot be considered an innocentpurchaser for value where it ignored thelis pendens on the title.

Lis Pendens Annotation of AdverseClaim

maybe cancelled evenbefore the action isfinally terminated for causes which may notbe attributable to theclaimant

may be cancelled only inone instance, i.e., after theclaim is adjudged invalidor unmeritorious by theCourt

Both are intended to protect the interest of aclaimant by posing as notices and caution to thosesaid with the property that same is subject to aclaim.

NOTE: The two are not contradictory or repugnant to one another; nor does theexistence of one automatically nullify the

other, and if any of the registrations shouldbe considered unnecessary or superfluous,it would be the notice of lis pendens (A.Doronila Resources Development Inc v CA,1988)



CIVIL LAW REVIEWER Chapter IV. RISK of LOSS

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Chapter IV. Risk of Loss

I. GENERAL RULEII. EXCEPTION

I. General Rule

R es p e r it d o m i n o : Owner bears risk of loss

Ownership is not transferred until delivery

II. Exceptions

1. Contrary stipulation2. An obligation to deliver a generic thing is

not extinguished by loss. (Art 1263, CC)

3. Risk of loss of specific things is subject tothe ff:a. When loss occurs before perfection,

such loss is borne by seller b. When loss occurs at time of perfection,

loss must have occurred before thecontract was entered into, without theknowledge of both parties

TOTAL LOSS PARTI AL LOSS (Or losswhich results insubstantial change incharacter)

Contract isineffective.

Because there

can be no contractwithout an object

Buyer may withdraw fromthe contractORBuy the remainder at a

proportionate price

c. When loss occurs after perfection butbefore delivery Seller bears risk of loss Buyer does not bear risk of loss until

goods are delivered to him



CIVIL LAW REVIEWER Chapter V. DOCUMENTS of TITLE

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Chapter V. Documents of Title

I. IN GENERALII. NEGOTIABLE DOCUMENTS OF TITLEIII. NON-NEGOTIABLE DOCUMENTS OF TITLE

I. In General

Definition— A document used in the ordinary course of business in the sale or transfer of goods, asproof of the possession or control of the goods,or authorizing or purporting to authorize thepossessor of the document to transfer or receive, either by endorsement or by delivery,goods represented by such document. (Art.

1636)

Examples: bill of lading, quedan, warehousereceipts, trust receipts

Purpose—1. Evidence of possession or control of goods

described therein2. Medium of transferring title and possession

over the goods described therein withouthaving to effect actual delivery thereof (Villanueva)

3. The custody of a negotiable warehousereceipts issued to the order of the owner, or to bearer, is a representation of title uponwhich bona fide purchasers for value areentitled to rely, despite breaches of trust or violations of agreement on the part of the

apparent owner . (Siy Co ng B ien g v s.HSBC, 56 Phi l 598)

II. Negotiable Documents of Title

Definition—Document of title which states that the goodsreferred to therein will be delivered to the bearer,or to the order of any person named in suchdocument (Art. 1508, CC) .

TERMS OF THE

DOCUMENT

HOW NEGOTIATED

Goods are deliverable tobearer

Endorsed in blank by theperson to whose order thegoods were deliverable

By delivery of thedocument to another

Goods are deliverable tothe order of a specifiedperson

By indorsement of such person ( Art .

1509,CC)

Who may negotiate it? (Art.1512,CC)—

1. Owner 2. Person to whom the possession or custody

of the document has been entrusted by theowner a. If bailee undertakes to deliver the goods

to such personb. If document is in such form that it may

be negotiated by delivery

A person to whom a document has beennegotiated acquires—1. Rights of the vendor 2. Rights of the original consignee

A person who negotiates a document of titlewarrants—1. Genuineness of document2. Legal right to negotiate or transfer 3. No knowledge of fact which would impair the

validity or worth of the document4. Right to transfer the title to the goods and

merchantability or fitness for a particular

purpose, whenever such warranties wouldhave been implied had the contract beentransfer the goods without a document

He does not warrant that—1. Common carrier will fulfill its obligation to

deliver the gods2. Previous indorsers will fulfill their obligation

(Art. 1516-1517, CC)

Goods in the hands of the carrier covered bya negotiable document cannot be attached or levied upon, UNLESS—

1. Document is first surrendered to the carrier;or

2. Impounded by the court; or 3. Its negotiation is enjoined. (A r t . 1 51 9-

1520,CC)

III. Non-Negotiable Documents of Title

Goods described in a non-negotiabledocument of title are deliverable only to aspecified person

Carrier will not deliver the goods to any

holder of the document or to whom suchdocument may have been endorsed by theconsignee

Must present the deed of sale or donation inhis favor



CIVIL LAW REVIEWER Chapter V. DOCUMENTS of TITLE

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“Negotiation” [negotiable document of title] VS. “Transfer” [non-negotiabledocument of title]:

Negotiation (Art. 1508) Transfer

Delivery of a negotiabledocument of title toanother if by the termsthereof, the goods aredeliverable to bearer, or

when the document wasendorsed in blank bythe person to whoseorder the goods aredeliverable.

In a negotiabledocument of title, thebuyer may acquire abetter title.

The assignment of rightsof the consignee of anon-negotiable documentof title to another; or

Document of title wasordered sold or assigned,without indorsement.

Transferee does notacquire a better title thanhis transferor



CIVIL LAW REVIEWER Chapter VI. REMEDIES of the SELLER and BUYER

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Chapter VI. Remedies of the Seller andBuyer

I. GENERAL REMEDIESA. SPECIFIC PERFORMANCEB. RESCISSIONC. DAMAGES

II. REMEDIES OF THE SELLERA. IN THE SALE OF MOVABLES

1. EXTRAJUDICIAL REMEDIES2. JUDICIAL REMEDIESB. IN THE SALE OF IMMOVABLES

1. RESCISSION FOR ANTICIPATORYBREACH

2. SPECIFIC PERFORMANCE WITHDAMAGES

3. RESCISSION WITH DAMAGES4. MACEDA LAW

III. REMEDIES OF THE BUYERA. FOR BREACH OF OBLI GATION TO

PRESERVEB. FOR BREACH OF OBLI GATION TO

DELIVERC. FOR BREACH OF WARRANTY

I. General Remedies (Art. 1191, CC )

The following remedies arise from the bilateralnature of the contract of sale:1. Specific performance (Asked in 02)2. Rescission (Asked in 03, 08)

General rule is that rescission of acontract will not be permitted for a slightor casual breach, but only for suchsubstantial and fundamental breachas would defeat the very object of the

parties in making the agreement. (Song F o & C o . v s . H a w a i i an - P h i li p p i n e C o . ,

(1925))

3. Damages

Neither party incurs in delay if the other does notcomply or is not ready to comply in a proper manner with what is incumbent upon him (Art

1169, CC)

Prescriptive periods—1. 10 years if based on written contract2. 6 years if based on oral contract

II. Remedies of the Seller

A. In the Sale of Movables1. Extrajudicial or Self-Help Remedies

[NOTE: No need to resort to the courts; aslong as possession of the goods has not yetpassed to the buyer]

a. Possessory lien over the goods—

Right to retain possession of goods untilpayment or tender of the whole price, or unless he agrees to sell on credit (1526-1529, 1503, 1535)

When available: Goods are sold without stipulation

as to credit Goods are sold on credit, but term

of credit has expired Buyer becomes INSOLVENT

When lost: Seller delivers goods to carrier or

other bailee for transmission to thebuyer under a straight or non-negotiable bill of lading

Buyer/his agent lawfully obtainspossession of goods

Seller waives it Not lost in remainder of goods

when only partial delivery ismade (unless such is symbolicdelivery of the whole)

Not lost by mere fact that seller obtained a judgment for theprice

When revived: Goods are returned bythe buyer in a wrongful repudiation of the contract

b. Right of stoppage in transitu —

An extension of the lien for the price;entitles unpaid seller to resumepossession of the goods while they arein transit before the goods come inpossession of the vendee (1530-1532,1535, 1636[2])

Available when: Vendee becomesINSOLVENT

When are goods in transit? From time of delivery to the

carrier or other bailee by the seller,for the purpose of transmission tothe buyer, until the buyer or hisagent t a k es s u c h d e l iv e r y from thecarrier.

Even when goods have reachedtheir ultimate destination, if buyer rejects them and carrier retainspossession




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To terminate transit by deliveryto a middleman, delivery mustbe to keep, not to transport.

When are goods no longer in transit? Buyer obtained delivery of the

goods before such have reachedtheir ultimate destination

Goods have arrived at ultimatedestination, but carrier refuses todeliver

Carrier enters into a new contractwith the buyer upon arrival of thegoods at their ultimate destination

How exercised? By obtaining actual possession of

the goods By giving notice of his claim to the

carrier/other bailee who haspossession of the goods Carrier must redeliver goods to

seller, or according to his

instructions Carrier not obliged to redeliver

until the negotiable document of title, if any, has beensurrendered for cancellation

Seller’s right to stoppage in transitu notaffected even if buyer has sold or disposed of the goods; Unless the seller assented

c. Special right of resale—

Available to unpaid seller who has aright of lien or who has stopped thegoods in transitu (1533)

Purpose: For seller to liquidate hisdamages He must do so within a reasonable

time and in such manner as toobtain the best price possible.

Resale = fair sale if in accordancewith established business practices,with no attempt to take advantage of the original buyer.

Resale may be in a private or publicsale, but seller cannot buy indirectlyor directly.

For resale to be valid, buyer neednot be notified of an intention toresell or the time and place of theresale.

Effects: Seller is no longer liable to the

original buyer upon the contract of sale or for any profit made by theresale

Buyer at resale acquires good titleas against the original owner

In case resale is at a loss, seller entitled to recover the differencefrom the original buyer

Seller may recover damages fromoriginal buyer for breach of contract

d. Special right to rescind:

RETURN of the title over theundelivered goods to the seller, andright to recover DAMAGES for breach of contract (1534)

Available to unpaid seller who has aright of lien or who has stopped thegoods in transitu

When available:

Seller expressly reserved right torescind in case buyer defaults

Bu yer has been in default inpayment for an unreasonable time

Transfer of title shall not be held to havebeen rescinded by the unpaid seller untilhe manifests by notice to the buyer or some other overt act an intention torescind.

2. Judicial Remedies of an unpaid seller a. Action for the price or specific

performance (1595)—

Conditions: the goods has passed to the buyer Price is payable on a certain day,

irrespective of delivery of the goods Buyer can set up the defense that

seller could not or did not intend todeliver the goods

Seller was notified by the buyer of his repudiation of the contract after the seller has completed themanufacture of the goods/hadprocured the goods to be deliveredand the goods could not readily beresold for a reasonable price

b. Action for damages for non-acceptance, if buyer wrongfully neglectsor refuses to accept and pay for thegoods (1596)




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Measure of damages: Estimated lossdirectly and naturally resulting in theordinary course of events from thebuyer’s breach Where there is available market for

goods: Difference between thecontract price and the market priceat the time the goods ought to havebeen accepted or if no time wasfixed, at the time of refusal to accept

If the resale was made withdiligence, resale price is evidence of market value, taking into accountwhether or not the goods could bereadily sold

Where labor/expense wasnecessary for seller to fulfill hisobligation: Labor performed andexpenses made by seller beforereceiving notice of buyer’srepudiation or countermand

Profit that the seller would havemade if sale had been fully

performed

c. Rescission by giving the buyer notice of the election to rescind (1597)

Under this rule, rescission would bar anaction on the contract because it meanscancellation of the contractualobligations between the parties.(Baviera )

d. Special rule for sale of movables byinstalments – Recto Law (1484, 1485)

(Asked in ‘99)

Applies in cases of: Sale of movables in installment

Levy Hermanos vs. Gervacio,(1939): The rule is intended toapply to sales of movables, theprice of which is payable in 2 or more installments, but not tostraight-term sales where theprice is payable in full, after making a down paymentbecause the law aims to protectimprovident buyers who may betempted to buy beyond their means.

Lease of personal property withoption to buy When lessor has deprived the

lessee of the possession or enjoyment of the thing (Ex.When lessor files a complaintfor replevin against lessee)

Also applies when seller assignshis credit to someone else

Alternative Remedies of the unpaidseller under Recto Law Specific Performance Cancellation of sale: If vendee fails

to pay 2 or more installments When the seller cancels the sale

by repossessing the propertysold, he is barred from exactingpayment for its price.

Foreclosure of Chattel Mortgage: If vendee fails to pa y 2 or moreinstallments If seller chooses this remedy, he

shall have no further action torecover any unpaid balance,and any stipulation to thecontrary shall be void

Motors vs. Sapinoso, (1970):What Art 1484 (3) prohibits is“further action against the

purchaser to recover any unpaidbalance of the price;” andalthough this Court hasconstrued the word “action” tomean “any judicial or extrajudicial proceeding byvirtue of which the vendor maylawfully be enabled to exactrecovery of the supposedunsatisfied balance of thepurchase price from thepurchaser or his privy,” there isno occasion at this stage to

apply the restrictive provision of the said article because therehas not yet been a foreclosuresale resulting in a deficiency.The payment of the sum of P1,250 of Sapinoso was avoluntary act on his part and didnot result from a “further action”instituted by Northern Motors.

Bachrach Motor Co., Inc. v.Millan, (1935): Purpose of thelaw is to remedy the abusescommitted in foreclosure of chattel mortgages. It preventsmortgagees from seizing themortgaged property, buying it atforeclosure sale for a low priceand then bringing the suitagainst the mortgagor for adeficiency judgment. Thealmost invariable result of thisprocedure was that themortgagor found himself minus




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the property and still owingpractically the full amount of hisoriginal indebtedness.

Nonato vs. IAC (1985): Remedies are ALTERNATIVE, not cumulative, i.e.exercise of one bars exercise of theothers

NOTE: “Unpaid Seller” (1525):e. When the whole of the price has not

been paid or tendered;f. When a bill of exchange or other

negotiable instrument has been receivedas conditional payment, and thecondition on which it was received hasbeen broken by reason of the dishonor of the instrument, the insolvency of thebuyer, or otherwise.

_________

B. In the Sale of Immovables

1. Rescission for Anticipatory Breach(1591)a. Available when seller has reasonable

grounds to fear the loss of theimmovable property sold and its price

b. Example: Buyer destroys the buildingsold, there being no security therefor,and buyer becomes insolvent

c. Court has no discretion to compel theseller to wait for the expiration of theperiod to pay, or to grant the buyer moretime to pay

2. Specific Performance + Damages (1191)a. Seller may choose between specific

performance and rescission, withdamages in either case

b. Court has discretion, for a just cause, togive the buyer more time to pay even if the seller chooses rescission

3. Rescission + Damages (1191)a. If seller chose specific performance, and

such becomes impossible, he may stillavail of rescission

b. If absolute sale, seller must make ademand for rescission

Judicially, OR

By a notarial actc. Necessary even if automatic rescission

is stipulatedd. Effect of lack of demand: Buyer can still

paye. Effect of demand: Court may not grant

buyer a new term

4. Maceda Law: Sale of Residential Realtyon Installments(Asked in 77, 89, 99, 00)

RA 6552: An Act To Provide Protection for Buyers of Real Estate on InstallmentPayments

DOES not apply to:a. Industrial lotsb. Commercial buildingsc. Sale to tenants under Agricultural

Reform Code (RA 3844)

Imposes ADDITIONAL REQUIREMENTSFOR A VALID RESCISSION:a. If buyer has paid at least 2 years of

installments: GRN Grace period: 1 month per year of

installment payments made. BUTbuyer may only avail of it only oncein every 5 years

Refund of Cash Surrender Value

(CSV): 50% of total amount paid +5% for every year after the 1

st5

years of installments

BUT not greater than 90% of total amount paid

Notice of cancellation of demand for rescission by notarial act, effective30 days from the buyer’s receiptthereof and upon full payment of CSV

b. If buyer has paid less than 2 years: GN Grace period: at least 60 days

Notice of cancellation or demand for rescission by notarial act, effective30 days upon receipt thereof

c. Down payments, deposits, or options onthe contract shall be included in the totalnumber of installments made

d. Seller may go to court for judicialrescission in lieu of a notarial act of rescission

e. During the grace period, buyer shall

have the right: To sell or assign his rights, to beevidenced in a notarial instrument

To update his account To pay in advance any installment,

or the full unpaid balance of theprice, without any interest




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III. Remedies of the Buyer

General rule: Courts will refuse to decreespecific performance with respect tochattels, because damages are a sufficientremedy

Exception: Buyer is entitled to the specificthing which to him has special value andwhich he cannot readily obtain in the market

OR where damages would not furnish acomplete and adequate remedy (Baviera)

_________

A. Remedy for breach of obligation topreserve

If thing is lost—1. Without fault of seller: No breach; Obligation

is extinguished2. Through fault of seller (or through fortuitous

event, if seller is liable): Damages

A thing is lost when it—1. Perishes2. Goes out of commerce3. Disappears in such a way that its existence

is unknown or it cannot be recovered

If thing deteriorates—

Without fault of seller Through fault of seller

No breach Impairment shall beborne by buyer

Rescission + damagesOr Specific performance +damages

_________

B. Remedy for breach of obligation todeliver

Delivery of wrong quantity (1522)—

Goods are less than what

was contractedMore

Reject the goodsOR

Accept and pay At contract rate if buyer accepts knowing that seller won’t perform in full

At fair value: If goods wereused before knowing thatseller won’t be able toperform in full

Reject the excess (Or the whole, if indivisible)OR

Accept the whole andpay at contract rate

Art. 1464. Civil Code. In the sale of an undividedshare of a specific mass of fungible goods, if themass contains less than the number, weight, or measure bought, the buyer becomes the owner of thewhole mass and the seller is bound to make good the

deficiency from goods of the same kind and quality,UNLESS a contrary intent appears.

Real Estate (1539-1543)—1. If at the rate of a certain price per unit of

measure or number:

Less (in area or quality) thanwhat was agreed upon:

More

Proportional reduction of price

ORRescission, if: Lack in area is at least 1/10of what is stated, or inferior value of thing sold exceeds1/10 of price Buyer would not havebought the property has hebeen aware of the inferior quality or smaller area

Reject the excess

OR Accept the wholeand pay at contractrate

[NOTE: Also applies to judicial sales (1541)]

2. If for a lump sum:

Everything is withinboundaries, even if less or more than stated area

Not everything iswithin boundaries

No remedyRudolf Lietz, Inc. v. CA,(2005): Where both the areaand the boundaries of theimmovable are declared, thearea covered within theboundaries of the immovableprevails over the stated area.

Proportionalreduction in priceORRescission

Prescriptive period: 6 months, counted fromdate of delivery

_________

C. Remedy for breach of warranty

Express Warranty—1. Prescriptive period: Period specified in

express warranty OR 4 years, if no period isspecified (following the general rule onrescission of contracts)

2. Remedies:a. Accept goods + demand

diminution/extinction of priceb. Accept goods + damagesc. Refuse to accept goods + damagesd. Rescind (Refuse to accept or return or

offer to return) + recover price paid3. Rescission not available when buyer:

a. Knew of breach of warranty when heaccepted the goods without protest




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b. Fails to notify the seller about election torescind within a reasonable period of time

c. Fails to return or offer to return thegoods to the seller in substantially agood condition as they were whendelivered, unless deterioration was dueto breach of warranty

4. Measure of damages: Difference betweenvalue of goods at time of delivery and thevalue they would have had if they hadanswered to the warranty

5. Effects of rescission:a. Buyer no longer liable for price

Entitled to return of any part of pricepaid, concurrently with or immediately after an offer to returnthe goods

b. If seller refuses to accept offer to returngoods: buyer deemed bailee for seller and has right of lien to secure paymentof part of price paid

Implied warranty against eviction(1555,1556)—

TOTAL EVICTION PARTIAL EVICTION

Enforce liability for eviction- Demand from seller:VICED

Value of thing sold attime of eviction

Income or fruits, if he

has been ordered todeliver them to the

party who won theeviction suit

Costs of eviction suitand in a proper case,suit against seller for warranty

Expenses of thecontract, if buyer haspaid them

Damages and

interests, andornamentalexpenses, IF salewas made in badfaith

Enforce liability (demandVICED)ORRescind If he would not havebought the thing soldwithout the part lost BUThe must return the thingwithout other

encumbrances thanthose which it had whenhe acquired it

1. Rules:a. Buyer need not appeal from decision to

hold seller liable for evictionb. When adverse possession commenced

before sale, but prescription periodcompleted after transfer: seller is notliable

c. If property sold for nonpayment of taxesdue and not made known to the buyer before the sale: seller liable

d. Judgment debtor also responsible for eviction in judicial sales, unless it isotherwise decreed in the judgment

2. If there is waiver of warranty:a. Seller acted in bad faith: Waiver is void,

seller liable for evictionb. Buyer made waiver without knowledge

of risks of eviction: Seller liable only for the value of thing sold at time of eviction

c. Buyer made waiver with knowledge of risks: Seller not liable, buyer assumedthe consequences

Implied warranty against encumbrances(1560)—1. Rescission: Within 1 year from execution of

deed of sale OR2. Damages: Within 1 year from execution of

deed of sale or discovery of the burden or

servitude

Implied warranty against hidden defects(1567-1571)—1. If thing is not lost:

a. Withdraw from contract (accionredhibitoria) + damages

b. Demand a proportionate reduction of theprice (accion quanti minoris) + damages

2. If thing is lost:

Due to hidden

fault

Due to fortuitous event

or fault of buyer If seller aware of defect, buyer maydemand:- Return of price- Refund of expenses of contract- Damages

Demand:- Price paid minus value of thing when it was lost- Damages, if seller actedin bad fait

If seller not awareof defect:Buyer may demandprice and expenses

BUT NOT damages

Prescriptive period: 6 months from delivery

Implied warranty against redhibitory defectsof animals—1. Remedies

a. Withdraw from contract + damagesb. Demand a proportionate reduction of the

price + damages




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2. If sale is rescinded:a. Buyer must return animal in condition in

which it was sold and deliveredb. Buyer shall be liable for injury due to his

negligence.3. Prescriptive period: 40 days from delivery

Warranty in sale of consumer goods (RA7394, Sec.68)—If implied warranty accompanies expresswarranty, both will be of equal duration.

EXPRESS WARRANTY IMPLIED WARRANTY

1. Demand repair within30 days Extendible for causes beyond thecontrol of thewarrantor

2. Demand refund of price minus amountdirectly attributable tothe use of theconsumer prior to the

discovery of the non-conformity

1. Retain the goodsand recover damagesOR

2. Reject the goods,cancel contract andrecover from seller so much of thepurchase price ashas been paid +damages



CIVIL LAW REVIEWER Chapter VII. EXTINGUISHMENT of SALE

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Chapter VII. Extinguishment of Sale

I. IN GENERALII. CONVENTIONAL REDEMPTIONIII. EQUITABLE MORTGAGEIV. LEGAL REDEMPTION

I. In General

Generally, extinguished by the same causes asall other obligations ( A r t s .1 60 0 & 1 2 31 ) (P-PLAN-C

3-R

3)

1. Payment/performance2. Prescription3. Loss of thing due4. Annulmenta. Novation5. Condonation/remission6. Confusion/merger 7. Compensation8. Rescission

9. Resolutory condition fulfilled10. Redemption (Conventional or Legal)

II. Conventional Redemption

Definition—1. Vendor reserves the right to repurchase the

thing sold, with the obligation to comply withthe provisions of Article 1616 and other stipulations which may have been agreedupon. (Art 1601,CC)

2. Available when the seller reserves the right

to repurchase the thing sold in the sameinstrument of sale as one of the stipulationsof the contract (Villarica v CA, 1968)

Period ( Asked in 77 )—General Rule: Follow period stipulated incontract, but should not exceed 10 years.1. If no period stipulated, then it shall be four

years from the execution of the contract2. But vendor may still exercise the right to

repurchase within thirty days from the timefinal judgment was rendered in a civil actionon the basis that the contract was a true

sale with right to repurchase

By whom exercised—1. Vendor 2. His heirs, assigns or agents3. Creditor, if he has exhausted the property of

the vendor

4. Co-owners of an immovable, if they soldtheir interests to the same person, may onlyredeem their respective sharesa. Vendee cannot be compelled to agree to

a partial redemptionb. If the co-owners sold their interest to the

same person who previously bought theshare of a co-owner subject to a right of redemption, then the latter may becompelled to redeem the whole property

From whom to redeem—1. Vendee a retro2. His heirs, assigns or agents3. Subsequent purchaser of property, even if

the right to redeem was not mentioned in thesubsequent contract; except if registeredland, where the right to redeem must beannotated in the title

4. If several heirs, then the right of redemptioncan be exercised against each heir for hisshare of the property

How exercised—1. Returning the ff. to the buyer: (PEN)

a. Price of the sale;b. Expenses of the contract and other

legitimate payments made by reason of the sale;

c. Necessary and useful expenses madeon the thing sold

2. Complying with any other stipulation agreedupon, if any.

NOTE:1. BPI Family Savings Bank, Inc. v. Veloso,

(2004): The general rule in redemption isthat it is not sufficient that a person offeringto redeem manifests his desire to do so. Thestatement of intention must be accompaniedby an actual and simultaneous tender of payment for the full amount of therepurchase price.

2. Paez v. Magno, (1949):Tender of paymentis enough (i.e., consignation is notnecessary), if made on time, as a basis for action against the buyer to compel him toresell. But that tender does not in itself relieve the buyer from his obligation to paythe price when redemption is allowed by thecourt.

Effect of redemption—1. The seller shall receive the thing free from

all charges or mortgages constituted by thebuyer BUT he shall respect leases executedby the buyer in good faith and in accordancewith local custom.

2. If there are growing fruits at the time of sale




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and at the time of redemption: noreimbursement or prorating if the buyer didnot pay indemnity at the time of sale

3. If there were no growing fruits at the time of sale, but some exist at the time of redemption: fruits prorated (buyer entitled topart corresponding to time he possessed theland in the last year, counted from theanniversary of the date of sale)

Effect of non-redemption—Ownership is consolidated in the buyer BUTthe consolidation shall not be recorded inthe Registry of property w/o a judicial order,after the vendor has been duly heard.

Right to Redeem vs. Option to Purchase(Vil lanueva )—

Right to Redeem Option to Purchase

Not a separate contractbut part of a maincontract of sale, and

cannot exist unlessreserved at the time of the perfection of the maincontract of sale

Generally a principalcontract and may becreated independent of

another contract

Does not need itsseparate consideration tobe valid and effective

Must have aconsideration separateand distinct from thepurchase price to be validand effective (Arts. 1324and 1479)

The maximum period for the exercise of the rightto repurchase cannotexceed 10 years

The period of the optioncontract may be beyondthe 10-year period

Requires in addition atender of payment of theamount required by law,including consignmentthereof if tender of payment cannot be madeeffectively on the buyer

May be exercised bynotice of its exercise tothe offeror

III. Equitable Mortgage

(Asked in 79, 80, 82, 84, 86, 89, 91, 05)

Definition—

Molina v. CA, (2003): An equitable mortgage isdefined as one which, although lacking in someformality, or form or words, or other requisitesdemanded by a statute, nevertheless reveals theintention of the parties to charge real propertyas security for a debt, and contains nothingimpossible or contrary to law.

Tan v. Valdehueza, (2003): The Valdehuezashaving remained in possession of the land and

the realty taxes having been paid by them, thecontracts which purported to be pacto de retrotransactions are presumed to be equitablemortgages, whether registered or not, therebeing no third parties involved.

Legaspi v. Spouses Ong, (2005): A pactumcommissorium is a stipulation enabling themortgagee to acquire ownership of themortgaged properties without need of foreclosure proceedings which is a nullity beingcontrary to the provisions of Article 2088 of theCivil Code. The inclusion of such stipulation inthe deed shows the intention to mortgage rather than to sell.

A pactum commissorium is contrary to thenature of a true pacto de retro sale sinceownership of the property sold is immediatelytransferred to the vendee a retro upon executionof the sale, subject only to the repurchase of avendor a retro within the stipulated period.

Presumption that a contract is an equitablemortgage arises when (5P-R)—1. Price unusually inadequate;2. Possession retained by the seller as lessee

or otherwise;3. Period of redemption extended (or granted

anew) upon or after the expiration of theright to repurchase;

4. Part of the purchase price retained by theseller;

5. Payment of taxes on the thing sold borne bythe seller;

6. Any other case where it may be fairlyinferred that the Real intention of the partiesis for the transaction to secure a debt or other obligation.

For the presumption of an equitablemortgage to arise under Art. 1602, 2requisites must concur (Mo lin a v . CA ,

2003 )—1. That the parties entered into a contract

denominated as a contract of sale, and2. That their intention was to secure an existing

debt by way of a mortgage.

Sale with right torepurchase

Equitable mortgage

Right to repurchase thething sold granted tothe vendor in aseparate instrumentfrom the deed of sale

When any of thecases in Art. 1602arise




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In case of doubt, a contract purporting to be asale with right to repurchase shall be construedas an equitable mortgage (Art. 1603)

Rationale behind provision on equitablemortgage—1. Circumvention of usury law2. Circumvention of prohibition against pactum

commissorium – creditor cannot appropriatethe things given by way of pledge or mortgage since remedy here is foreclosure.

Remedies of apparent vendor—1. If the instrument does not reflect the true

agreement, the remedy is reformation2. If decreed to be an equitable mortgage, then

any money, fruits or other benefit to bereceived by the buyer as rent or otherwiseconsidered as interest.

3. If decreed as a true sale with right topurchase- seller may redeem w/in 30 daysfrom finality of judgment, even if the periodfor redemption has expired.

IV. Legal Redemption

Definition— Right to be subrogated:

a. upon the same terms and conditionsstipulated in the contract,

b. in the place of one who acquires a thingby purchase or dation in payment, or byany other transaction wherebyownership is transmitted by onerous title(Art 1619, CC)

Applies to transfers of ownership by oneroustitle where subrogation is possible. Hence, itcannot apply to barter or to transfer bygratuitous title or hereditary succession.

Applies to sales with pacto de retro(BAVIERA citing MANRESA)

Manner—1. a formal offer to redeem or 2. filing of an action in court together with the

consignation of the redemption price withinthe reglementary period

Period to Redeem—

To whom granted Period

a. Co-owner (Art 1620)

b. Adjoining owner of Rural Land (Article1621)

c. Adjoining owner of

urban land (Art. 1622)

30 days from notice- In writing- By the seller - Of the actual executionand delivery of the deedof sale

Doromal v. CA: Actualknowledge of the sale isimmaterial

Conejero v. CA: the lawdid not provide for aparticular mode of writtennotice, thus anycompliance with “writtennotice” should suffice,including the giving of acopy of the deed of sale

Debtor in case acredit or incorporeal right in

litigation is sold(Art.1634)

30 days from the date theassignee demandspayment from debtor

Applicant or his widowor legal heirs in case of sale of homestead(Sec.119, PublicLand Act)

5 yrs. from date of conveyance

Taxpayer in case of taxsale (Sec. 215,NIRC)

1 year from date of forfeiture

Judgment debtor,successor–in- interest,or creditor withsubsequent lien, in caseof execution sale

(Rule 39, Sec.27,ROC)

1 year from the date of registration of thecertificate of sale

Debtor-mortgagor,successors-in- interest,

judicial/judgmentcreditor, any personhaving a l ien on theproperty, in case of extrajudicial foreclosureof mortgage (Act No.3135. Sec. 6. )

1 year from the date of the sale

Debtor-mortgagor incase of judicialforeclosure of real

estate mortgage IF themortgagee is a bank or a banking institution.(TheGeneral BankingLaw of 2000)

90 days from finality of judgment




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Agricultural lessee w/oknowledge of sale of landholding(Agrarian LandReform Code,Sec.12)

2 years from theregistration of the sale

Instances of Legal Redemption—1. Redemption by Co-owners (A r t . 1621)

A co-owner of a thing may exercise the rightof redemption in case the shares of all theco-owners or any of them are sold to a thirdpersona. Third person” refers to all persons who

are not heirs of the vendor, by will or intestate succession

b. The right is available not only to originalco-owners, but to those who had later acquired the share of the co-owner

c. But the right of redemption may beexercised by a co-owner only when partof the community property is sold to a

stranger. When the portion is sold toanother co-owner, the right does notarise because a new participant is notadded to the co-ownership (Fernandez

v. Taun)

If the price of the alienation is grosslyexcessive, the redemptioner shall pay only areasonable one

Should two or more co-owners desire toexercise the right, they may also do so inproportion to the share they mayrespectively have in the thing owned in

common

Rationale: Public Policy, since co-ownership is a hindrance to thedevelopment and administration of theproperty (BAVIERA )

2. Redemption by Adjoining Land-ownersof rural land (Art. 1621 )

The ff. Requisites must concur:a. A piece of rural land is alienatedb. Area does not exceed one hectare

When not applicable:a. The grantee does not own any rural landb. Adjacent lands are separated by brooks,

drains, roads and other apparentservitudes for the benefit of other estates

Order of preference if two or more wish toexercise the right:a. Owner with smaller land areab. If same land area, then the one who first

requested the redemption

Ortega v. Orcine, (1971): What constitutes“rural” or “urban” is to be determined fromthe character of the community or vicinity inwhich it is found, and NOT from the natureof the land itself nor the purpose to which itis devoted

3. Redemption by adjoining land-owners of urban land (applies only to smallportions of urban land) (Art. 1621 )

4. Redemption of Credit

Available when it is sold while in litigation(From the time the complaint is answered)

NOT available when the assignment in favor of:a. Co-heir/co-owner of right assignedb. Creditor in payment of his creditc. Possessor of a tenement or piece of

land which is subject to the rightassigned

How exercised: reimburse the assignee for the:a. Price paidb. Judicial expenses incurredc. Interest on the price from date of

payment

Right of Pre-emption Right of Redemption

Owner of any adjoiningland has a right of pre-emption at a reasonableprice when:-Urban land is so small

and so situated that amajor portion of it cannotbe used for any practicalpurpose w/in areasonable time;-Was bought merely for speculation;-Was resold

If the resale has beenperfected, the owner of the adjoining land shallhave a right of redemption, also at a

reasonable price

Priority if 2 or moreadjoining owners want toredeem: owner whoseintended use of the landappears to be best

justified

Arises before sale Arises after sale

No rescission becauseno sale exists yet

There can be rescissionof the original sale

The action is directedagainst prospectiveseller

Action is directed againstbuyer




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5. Under the Public Land Act

Coverage:a. Every conveyance of land acquired

under a free patent or homesteadb. The ownership of the land must have

been transferred to another. If thetransaction is a mere promise to sell,there is no right yet to redeem

c. This refers to conveyances made after the prohibited 5 years from the issuanceof the patent or grant

Period:a. W ithin 5 years from the date of

conveyanceb. If pacto de retro sale, the period to

redeem cannot be less than 5 years

Who may redeem:a. Gen Rule: Applicant, widow, or heirsb. Exception: land is sold to another

member of the family of the applicant, or

his direct descendant or heir c. From whom: Subsequent purchasers

6. Redemption in Foreclosure andExecution Sales

Who may redeem In extra judicialforeclosure-Debtor -Successor in interest-Judicial or judgmentcreditor of said debtor -Junior encumbrancer

In execution sales-Judgment debtor -Successor in interest-Creditor having a lienon the property sold byattachment, judgment or mortgage on theproperty subsequent tothe judgment

Period to redeem Extra judicial foreclosure- within 1 year from thedate of the sale

Execution sale- within 12 months after

the saleIf land is mortgaged infavor of a bank- within 1 year after thesale (not available incase of a corporatemortgagor)

Amount of redemption -Amount of the purchase-Interest at 1% per month from the time of

the sale up to the time of redemption-Any assessment or taxes which thepurchaser may havepaid

7. Under the Agrarian Land Reform CodeLessees right of pre-emptiona. The agricultural lessee shall have the

preferential right to buy under the samereasonable terms and conditions, incase the lessor decides to hold thelandholding

b. Conditions: The landholding must be pre-

empted by the DAR When two or more lessees, each

shall have preferential right only tothe extent of the area cultivated byhim

c. Period: 180 days from notice in writing

Lessees right of redemptiona. Sec. 12 RA 3844: In case landholding issold to 3

rdperson without the knowledge

of the lessee, the latter shall have theright to redeem the same at areasonable price and consideration

b. Period: within 180 days from notice inwriting



CIVIL LAW REVIEWER Chapter VIII. PHILIPPINE BULK SALES LAW

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Chapter VIII. Philippine Bulk Sales Law(Act 3952)

I. PURPOSEII. COVERAGEIII. DUTY OF SELLERIV. EFFECT OF NON-COMPLIANCE

I. Purpose

Purpose (Vil lanueva )— To compel the seller in bulk to execute

and deliver a verified list of his creditorsto his buyer, and notice of intended saleto be sent in advance to said creditorsand to use the proceeds to cover payment of outstanding liabilities

To protect creditor of merchant stores

The Law is constitutional as a valid exercise of police power of the State. (L i w an ag v .

Menghraj, (1941))

II. Coverage

The Law covers all transactions, whether donein good faith or not, that fall within thedescription of what is “bulk sale” (Vil lanueva )

Transactions Covered— Applies to sales and transfers in bulk,including any sale, transfer, mortgage or assignment of:1. A stock of goods, wares, merchandise,

provisions or materials NOT in the ordinarycourse of trade and the regular prosecutionof the business of the seller, transferor,mortgagor, or assignor

2. All, or substantially all, of the business or trade theretofore conducted by the seller,transferor, mortgagor, or assignor

3. All, or substantially all, of the fixtures andequipment used in and about the businessof the seller, transferor, mortgagor, or assignor

When not applicable—1. Written waiver by vendor, transferor,

mortgagor or assignor, as shown by verifiedstatements

2. To executors, administrators, receivers,assignees in insolvency, or public officers,acting under judicial process.

III. Duty of Seller

1. Sworn statement of list of creditors

Contents:o Names + addresses of all

creditorso Amount of indebtedness due or

owing

When delivered: Before any part of

the purchase price is received, or any promissory note or evidence of indebtedness therefor

Delivered to:o Buyer, mortgagee or agento If corporation: president, vice-

president, treasurer or secretaryo If partnership firm: a member

thereof

2. Pro-rata application of the purchase or mortgage money to the payment of listed creditors

3. Inventor y of the goods, wares,merchandise, provisions or materials

When made: at least 10 days beforesale or mortgage

Contents:

Quantity

Cost price of each article (as far aspossible)

4. Notice to listed creditors

When made: at least 10 days beforetransfer of possession

How: personally or by registeredmail

Contents: Price, terms andcondit ions of sale, transfer,mortgage or assignment

5. Consideration for the sale, transfer,mortgage or assignment Must not be nominal



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IV. Effect of non-compliance

On Transaction Itself—If the purchase or mortgage money is notapplied pro-rata to the bona fide claims of listedcreditors: Sale, transfer or mortgage shall beFRAUDULENT and VOID.

On Seller, Mortgagor, Transferor or

Assignor—Violation Sanction

Failure to comply withthe obligation toprepare and deliver thesworn statement listinghis creditors and theapplication pro-rata of the proceeds to thecreditors. (Sec 4)

criminal liability

Section 7: Transfer by anyperson, firm or corporation“as owner of any stock of goods, wares,merchandise, provisionsor materials, in bulk” of title to the same withoutconsideration or for anominal considerationonly, subjects him tocriminal liability

On Buyer, Mortgagee, Transferee or Assignee—The Law imposes no direct obligation, thus abuyer in bulk sale cannot be deemed to besubject to the criminal liability under the Law

[NOTE: Criminal liability: 6 months to 5 yearsimprisonment, or fine of P5K or less, or both.]