CH.

1 CONTRACT OF SALE CONTRACT OF SALE One of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefore a price certain in money or its equivalent. A contract of sale may be absolute or conditional.

5. 6. 7. 8.

Reciprocal Onerous Commutative Title and not a mode

Contract of Sale Absolute

Contract to Sell Conditional

Real obligation Personal obligation obligation to give. obligation to do Title passes to the buyer upon delivery Non-payment of the price is a negative resolutory condition

Ownership is reserved in the seller and will pass to buyer only upon full payment of the price Full payment is a positive suspensive condition, the failure of which is not a breach but prevents the obligation of the vendor to convey title to arise. remedies available: 1. 2. resolution damages

remedies available: 1 2 3
I.

Specific performance rescission damages

ELEMENTS OF A CONTRACT OF SALE 1. Consent 2. Determinate subject matter 3. Price certain in money or its equivalent STAGES IN LIFE OF CONTRACT OF SALE 1. Negotiation 2. Perfection 3. Consummation

II.

III. OBLIGATIONS CREATED - 2 sets of real obligations to give IV. CHARACTERISTICS OF CONTRACT OF SALE: 1. Nominate 2. Principal 3. Consensual 4. Bilateral

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of execution differs from the other s; produc ts are V. DISTINGUISHED OTHER CONTRACTS FROM

Donation Gratuitous or onerous Formal contract Governed by law on donation

Sale Onerous Consensual contract Governed by law on sale

Barter Sale Consideration: giving of a Consi der ati on: giving of thing money as payment Governed by law on sales: species of the genus sales If consideration consists party in money and partly by thing look at manifest intention; If intention is not clear: If intenti o n is not clear: value of thing is more value of thing is equal than amount of money or less than amount of barter money sale Contract for piece of work Goods are to be manufactured specially for a customer and upon special order and not for the gener al market Sale Contr ac t for delivery of an article which the vendor in the ordinary course of business manufactur es or procures for general mark et (wheth er on hand or not) Essence is object

Essence is service Jurispr ude nc e: 1. Timing test under art 1467: whether the thing transferred would have never existed but for the order 2. Habituality test if manufacturer engages in activity with need to employ extraordinary skills and equipment (Celestino v CIR) 3. Nature of the object test each product s natur e

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Agency to Sell Agent not obliged to pay for price, merely obliged to deliver price received from buyer. Principal remains owner even if object deliver e d to agent Agent assumes no risk/liability as long as within the authority given May be revok ed unilater ally becaus e fiduciary and even if revoked w/o ground Agent not allowed to profit Personal Contract; Rescissi on is not available Datio n in Paym e n t Pre-exis ti ng credit Obligations are extinguis he d Debtors consider ati on: extinguis hm e nt of the debt Creditors consideration: acquisi ti on of the object offered in lieu of the original credit Less freedom in determining the price Payment is received by the debtor before the contr ac t is perfec ted

Sale Buyer pays for price of object

NOTE: GENERAL RULE - All persons who are authorized in this Code to obligate themselves may enter into a contract of sale I. MINORS, INSANE AND DEMENTED PERSONS, AND DEAF-MUTES 1. Contracts are voidable, subject annulment or ratification 2. Also includes: State of drunkenness Hypnotic spell Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefore

Buyer becomes owner of thing; in agency Seller warrants

to

Not unilater ally revoc abl e

Seller receives profit Real Contr ac t

II. SPOUSES - A spouse may, without the consent of the other spouse, enter into sales transactions in the regular pursuit of their profession, vocation, or trade Art. 1490. The husband and the wife cannot sell property to each other, except: (1) When a separation of property was agreed upon in the marriage settlements; or (2) When there has been a judicial separation or property under Article 191. NOTE: Prohibition likewise applies to common-law spouses III. OTHERS - TRUST RELATIONSHIPS 1. Art. 1491 Two groups of parties prohibited from acquiring by purchase certain properties: a . Guardian/Agent/Executors and Administrators i. Direct or indirect ii. May be ratified since only private wrong is involved b. Public Officers and employees/Officers of the Court i. Cannot be ratified since public wrong is involved ii. Requisites for the prohibition to apply to attorneys: 1. existence of attorney client relationship; 2. property is the subject matter in litigation;

Sale No pre-existing credit Obligati ons are created Consi der ati on of seller: price Consi der ati on of buyer: acquisition of the object

Greater freedom in deter mi ni n g the price Buyer still has to pay the price

Lease Sale Use of thing is for a Obligation to absolutely specifi ed period only with transfer ownership of an obligation to return thing Consi der ati on is rent Consi der ati on is price Lessor need not be need Seller needs to be owner owner of thing to transfer ownership NOTE: Lease with option to buy: really a contract of sale but designated as lease in name only; it is a sale by installments CH. 2 - PARTIES TO A CONTRACT OF SALE

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3. while in litigation (from filing of complaint to final judgment) NOTE: Exception to the prohibition against attorneys: contingent fee arrangement where the amount of legal fees is based on a value of property involved in litigation Art. 1492. The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations. III. Legal Status of Contract 1. Void (case law) guardian/ executor/public officers / officers of the court 2. Voidable (civil code) agent; VALID if with consent CH. 3 - SUBJECT MATTER OF SALE 1. REQUISITES: 1. Things a. Possible - existing, future, and contingent i. whether the subject matter is of a type and nature that exists or could be made to exist to allow the seller reasonable certainty of being able to comply with his obligations b. Licit i. not outside the commerce of man ii. if illicit, contract is void c. Determinate or determinable i. determinate: particularly designated or physically segregated from all others of the same class ii. determinable: 1. thing is capable of being made determinate 2.without the necessity Of a new. further contract 2. Rights must be transmissible, except: a. future inheritance b. service
TI FF ( U ncom pr essed) decom pr essor

Sale is subjec t to the conditi on; that the thing will exist; if it does not, there is no contr act Uncertainty is with regard to the quantity and quality of the thing and not the existenc e of the thing Object is a futur e thing

sale of the hope itself Sale is effec tiv e even if the thing does not come into existence, unless it is a vain hope The uncertainty is with regard to the existence of the thing

Object is a present thing which is the hope or expecta ncy

NOTE: Quantity of subject matter is not essential for perfection; must determine nature and quality of subject matter NOTE: Seller need not be the owner of the subject matter at the time of perfection: sufficient that he is the owner at the time of delivery. exception: foreclosure sale CH. 4 - PRICE I. REQUISITES: 1. Real a. when at the perfection of the contract of sale, there is every intention on the buyer to pay the price, and every expectation on the part of the seller to receive such price as the value of the subject matter he obligates himself to deliver 2. In money or its equivalent a. consideration for a valid contract of sale can be the price and other valuable consideration; at the very least, a true contract of sale must have price as part of its consideration 3. Certain or ascertainable a. certain: expressed and agreed in terms of specific pesos and/or centavos b. ascertainable: i. by third persons ii. by the courts in cases where the third person fixes the price in bad faith or by mistake iii. by reference to a definite day, particular exchange or market iv. by reference to another thing certain

Emptio rei speratae Sale of an expected thing

Emptio spei Sale of a mere hope or expec tanc y that the thing will come to existenc e;

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4.

v. but never by one party to the contract Jurisprudence: Manner of payment must be agreed upon (Marnelego v. Banco Filipino Savings and Mortgage Bank )

2. offer floated with a period

II. EFFECT OF GROSS INADEQUACY OF PRICE NOTE: Mere inadequacy of the price does not affect the validity of the sale, except (1) When there is fraud, mistake, or undue influence indicative of a defect in consent is present, (2)When it shows that the parties really intended a donation or some other act or contract. III. EFFECT WHERE PRICE IS SIMULATED 1. The act may be shown to have been in reality a donation, or some other act or contract 2. If not and neither party had any intention whatsoever that the amount will be paid (absolutely simulated): the sale is void 3. If there is a real price but what is stated in the contract is not the one intended to be paid (only relatively simulated): the contract of sale is valid but subject to reformation Art. 1474. Where the price cannot be determined in accordance with the preceding articles, or in any other manner, the contract is inefficacious. However, if the thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price therefore. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. CH. 5 - FORMATION OF A CONTRACT OF SALE I. 3 STAGES IN LIFE OF A CONTRACT OF SALE 1. Policitacion/Negotiation Stage - offer is floated, acceptance is floated but they do not meet; the time when parties indicate their interest but no concurrence of offer and acceptance. 2. Perfection concurrence of all requisites; meeting of the minds.
3. Consummation parties perform their
respective undertakings

3. offer floated w/ condition 4. offer floated without period/without condition

5. offer is floated and there is counter-offer 6. offer is floated 7. offer accepted absolutely

without acceptance, extinguished when period has ended and maybe withdrawn at will by offeror; right to withdraw must not be arbitrary otherwise, liable to damage under Art 19, 20, 21 of Civil Code extinguished by happening/nonhappening of condition continues to be valid depending upon circumstances of time, place and person original offer is destroyed, there is a new offer; can not go back to original offer no authority of offeror to modify offer proceed to perfected stage

III. OPTION CONTRACT - a contract granting an exclusive right in one person, for which he has paid a separate consideration, to buy a certain object within an agreed period 1. no presumption of consideration, needs to be proven 2. characteristics of Option Contract: a. not the contract of sale by itself, separate and distinc b. nominate c. principal; but can be attached to other principal contracts d. onerous e. commutative f. unilateral versus contract of sale which is bilateral San Miguel Philippines v Cojuangco consideration in an option contract may be anything of value, unlike in sale where it must be price certain in money 3. how exercised: notice of acceptance should be communicated to offeror without actual payment as long as there is delivery of payment in consummation stage

II. Policitacion 1. RULES: 1. offer is floated

prior to acceptance, may be withdrawn at will by offeror

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4. 4. SITUATIONS IN AN OPTION CONTRACT: a. with separate consideration i. option contract is valid ii. offeror can not withdraw offer until after expiry period iii. ubject to rescission, damages but not to specific performance because this is not an obligation to give b. without separate consideration i. OLD RULE - offer is still valid, but option contract is void and not subject to rescission, damages ii. NEW RULE: Right of first refusal recognized Right of First Refusal Accessory; can not stand on its own Does not need separate consider ati on There must be subject matter but price not important Conditi on al Subject to specific perfor m a nc e

Recognizes recovery of damage based on abuse of rights doctrine CH. 6 - PERFECTION OF SALE

GENERAL RULE: A contract of sale is perfected at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price; consensual contract Exception: When the sale is subject to a suspensive condition I. 1. REQUIREMENTS: When parties are face to face when there is absolute acceptance of an offer that is certain When thru correspondence or telegram when the offeror receives or had knowledge of the acceptance When the sale is subject to a suspensive condition from the moment the condition is fulfilled

2.

3.

Optio n Contra ct Principal contract; stands on its own Needs separ ate consideration Subject matter and price must be valid Not conditi o nal Not subject to specific perfor m a nc e

NOTES: Qualified acceptance: mere counter-offer which needs to be absolutely accepted to give rise to perfected contract of sale Business ads are mere invitations to make an offer except when it appears to be otherwise II. 1. 2. 3. RULES GOVERNING AUCTION SALES: Sales of separate lots by auction are separate contracts of sale Sale is perfected by the fall of the hammer Seller has the right to bid at the auction provided such right was reserved and notice was given to that effect EARNEST MONEY Money given as part of purchase price Acceptance is the proof that contract of sale exists Nothing in law prevents parties from treating earnest money differently Old concept: subject to forfeiture when BUYER backs out New concept: can not be forfeited part of purchase price; must be restored Qualification: if old concept is stipulated VALID Presumption of perfection of contract of sale and such earnest money as part of purchase price is disputable

IV. RIGHT OF FIRST REFUSAL: 1. creates a promise to enter into a contract of sale and it has no separate consideration, not subject to specific performance because there is no contractual relationship here and it is not an obligation to give (not a real contract) 2. New doctrine: may be subject to specific performance. Equatorial realty Devt Inc. v Mayfair Theater , the right of first refusal is only subject to specific
performance insofar as it is attached toa a valid written

III. 1. 2. 3. 4. 5. 6. 7.

principal contract (e.g. lease) RFR becomes one of the considerations in the contract.]

3.

Effect of new doctrine: turned the world of policitacion upside down because while valid option contract is not subject to specific performance, right of first refusal which does not even have a separate consideration may be subject to specific performance

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OPTION MONEY Money given as distinct consideration for an option contract Applies to a sale not perfected Not requir ed to buy

EARNEST MONEY Part of the purchas e price

2.

Given only when there is already a sale When given, buyer is bound to pay the balanc e

3. 4.

agent (contains essential terms of the contract) When there has been partial performance/execution (seller delivers with intent to transfer title/receives price) When there has been failure to object to presentation of evidence (oral) When sales are effected through electronic commerce

Art. 1483. Subject to the provisions of the Statute of Frauds and of any other applicable statute, a contract of sale may be made in writing, or by word of mouth, or partly in writing and partly by word of mouth, or may be inferred from the conduct of the parties. (n) FORM OF SALES I. Form not important in validity of sale a. Sale being consensual, may be oral or written, perfected by mere consent as to price and subject matter b. If particular form is required under the statute of frauds: i. valid and binding between parties rd but not binding to 3 persons c. Reason: purposes of convenience only and not for validity and enforceability; cause of action is granted to sue and compel other party to execute the document

CH. 7 - CONSUMMATION STAGE/PERFORMANCE STAGE NOTE: Stage where parties both comply with their obligation. Nature of diligence required: diligence of a good father of the family unless other requirement is stipulated Consequence: Seller will be guilty of breach if thing is lost through his fault I. Delivery of the Thing - Transfer ownership (tradicion) covers a twin obligations of the seller which are: 1. to transfer the ownership; and 2. to deliver a determinate thing PNB vs. Ling, 69 Phil. 611 Delivery of the thing together with the payment of the price, marks the consummation of the contract of sale Norkis Distributor, Inc. vs. CA 195 SCRA 694 The act of delivery must be coupled with the intention of delivering the thing and putting the buyer under control Addison vs. Felix, 38 Phil. 404 The execution of a public instrument is equivalent to delivery. But to be effective, it is necessary that the vendor have such control over the thing sold that, at the moment of sale, its material delivery could have been made II. Different kinds of delivery: 1. Actual or real- when thing sold is placed in the control and possession of the buyer 2. Legal or Constructive- can take several forms and may be any manner signifying an agreement that the possession is transferred from the vendor to the vendee.

II.

When form is important for validity; exception by specific provision of la w; a. Power to sell a piece of land granted to an agent otherwise VOID b. Sale of large cattle; must also be registered with Municipal treasurer otherwise VOID c. Sale of land by non-Christian if not approved by Governor VOID III. When form is important for enforceability (STATUTE OF FRAUDS Article 1403 (2)) a. A sale agreement which by its terms is not to be performed within a year from the making
thereof;

b. An agreement for the sale of goods, chattels or things in action, at a price not less than P500.00; and c. A sale of real property or of an interest therein. IV. EXCEPTIONS TO COVERAGE OF STATUTE IN SALES CONTRACTS: 1. When there is a note or memorandum in writing and subscribed to by party or his

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III.

Different forms of Constructive Delivery Constructive delivery has same legal effect as actual or physical delivery

4.

Such capacity should subsist for a reasonable time after execution of instrument (reasonable time depends on circumstances of persons, places and things) Delivery of Fruits and Accessions/ Accessories - Right to fruits and accessions/accessories accrue from time sale is perfected but no real right over it until it is delivered Delivery Through Carrier - General Rule : Where the seller is authorized or required to send the goods to the buyer, delivery to the carrier is delivery to the buyer. Exceptions: a contrary intention appears or implied reservation of ownership under pars. 1,2,3 of Art. 1503 1. FAS FREE ALONG SIDE - When goods delivered alongside the ship, there is already delivery to the buyer (twin effects deemed fulfilled) 2. FOB - FREE ON BOARD - Shipment when goods are delivered at ship at point of shipment; delivery to carrier by placing goods on vessel is delivery to buyer Destination when goods reach the port even if not disembarked yet from the vessel, there is delivery to the buyer 3. CIF COST, INSURANCE, FREIGHT When buyer pays for services of carrier delivery to carrier is delivery to buyer; carrier is agent of the buyer When buyer pays seller the price from moment the vessel is at port of destination, there is already delivery to buyer.

Ten Forty Realty vs. Cruz, 10 Sept. 2003 Gives rise only to a prima facie presumption of delivery which is destroyed when actual delivery is not effected because of a legal impediment 1. Traditio Longa Manu Delivery of thing by mere agreement; when SELLER points to the property without need of actually delivering 2. Traditio Brevi Manu Before contract of sale, the would be buyer was already in possession of the would be subject matter of sale (ex: as lessee) 3. Symbolic delivery As to movables ex: delivery of the keys to a car 4. Constitutum possessarium When at the time of the perfection of the contract of sale, seller had possession of the subject matter in the concept of owner and pursuant to the contract, seller continues to hold physical possession no longer in the concept of an owner but as a lessee or any other form of possession other than in the concept of owner. 5. Quasi-tradition Delivery of rights, credits or incorporeal property, made by: a. Placing titles of ownership in the hands of the buyer b. Allowing buyer to make use of rights 6. Tradition by operation of law

V.

VI.

See Arts. 1522, 1539, 1540, 1541, 1542, 1543. VII. COMPLETENESS OF DELIVERY 1. MOVABLES a. delivery of thing plus accessories and accessions in the condition in which they were upon the perfection of the contract including the fruits b. When the seller delivers to the buyer a quantity of goods LESS than he contracted to sell, buyer has the option to reject or accept it. a. When accepts with knowledge that seller is not going to perform

IV.

WHEN EXECUTIONOF PUBLIC INSTRUMENT DOES NOT PRODUCE THE EFFECTS OF DELIVERY 1. When there is stipulation to contrary, execution does not produce effect of delivery 2. When at the time of execution of instrument, subject matter was not subject to control of the seller 3. Subject matter should be within control of seller; he should have capacity to deliver at the time of execution of public instrument when he wants to effect actual delivery
Q ui ckTi m eanda

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contract in full, he must pay at will not be adjusted price stipulated accordingly b. When accepts and consumes before knowledge that buyer VIII. TIME AND PLACE OF DELIVERY will not perform contract in full, 1. Follow stipulation in contact, or liable only for fair value of goods 2. Follow usage in trade, or delivered 3. Sellers place of busines s or his residenc e c. When seller delivers to the buyer a 4. Specific goods place where the thing is quantity of goods LARGER than he 5. At reasonable hour contracted to sell the buyer has the following options: i. accept per contract and reject IX. EFFECTS OF DELIVERY - General Rule : the rest The ownership of the thing sold shall be ii. accept the whole pay price transferred to the buyer upon the actual or stipulated constructive delivery thereof. iii. eject whole if subject matter is Except when the contrary is stipulated such indivisible in the cases of: d. When the seller delivers to the 1. contract to sell buyer the goods he contracted to 2. sale on acceptance/approval sell, MIXED with goods of a 3. sale or return different description not included in the contract, buyer has 2 options: NOTE: Who Bears Expenses of Delivery? Seller i. accept good w/c are in accordance with contract and X. SALE BY DESCRIPTION/SAMPLE reject the rest 1. Sample goods must correspond with ii. reject goods entirely if sample shown 2. Description goods must correspond indivisible with description or sample 3. Effect if there is no compliance : 2. IMMOVABLES RESCISSION may be availed of by a. Sold per unit or number the buyer i. If the sale should be made with statement of its area, rate at XI. OBLIGATIONS OF BUYER certain price, deliver all that may 1. Pay the price have been stated in the contract a. Buyer is obligated to pay price if impossible, remedies of buyer: according to terms agreed upon ii. If Less in area: regarding time, place and amount rescission b. If payment of interest is stipulated proportional reduction of must pay; if amount of interest not price LACK IN AREA mentioned apply legal rate SHLD NOT BE LESS c. When buyer defaults constitutes THAN 1/10 OF AREA breach: subject to specific AGREED UPON perfor m a nc e/r es cis si on and iii. If Greater in area: damages; interest to be paid also accept per stipulation and from defaul t reject the rest area pay 2. Accept delivery of thing sold acceptt whole. at contract rate a. Where to accept: at time and place Not applicable to judicial stipulated in the contract; if none sales specified at the time and place of iv. Sold for lump sum delivery goods; there is acceptance When price per unit not when: indicated i. He intimates to seller that - If area delivered is either he has accepted greater or lesser price
-

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When delivered and does any act inconsistent with ownership of seller iii. Retains without intimating to seller that he has rejected
ii.

2.

3.

Sale of Goods on installment a. Goods must be delivered in full, except when stipulated b. When not examined by buyer not accepted until examined or at least had reasonable time to examine 4. Acceptance of goods in general, absent contrary express stipulation, does not discharge seller from liability in case of breach of warranties (unless no notice or failure to give it within reasonable time) When buyer has a right to refuse goods, no need to return; shall be considered as depositary; unless there is stipulation to the contrary

3.

4.

Two or more sales transactions must pertain to the same object or subject matter; Two or more buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests; and Two or more buyers must each have bought from the very same seller.

Consolidated Rural Bank (Cagayan Valley_ vs. CA [Jan. 17, 2005] If not all the elements are present for Art. 1544 to aply, the priniciple of prior tempore, potior jure or simply he who is first in time is preferred in right should apply. Undisputably, he is a purchaser in good faith because at the time he bought the real property, there was still no sale to as a second vendee. II. RULES ACCORDING TO 1544: 1. MOVABLE a. Owner is first to posses in good faith 2. IMMOVABLE a. First to register in good faith b. No inscription, first to possess in good faith c. No inscription and no possession in good faith Person who presents oldest title in good faith d. Good Faith - one who buys property without notice that another person has a right or interest in such property; one who has paid price before notice that another has claim or interest III. LIS PENDENS notice that subject matter is in litigation IV. ADVERSE CLAIM notice that somebody is claiming better right V. VI. POSSESSION Both actual or constructive REGISTRATION: any entry made in the books of the registry, including both registration in its ordinary and strict sense, and cancellation, annotation, and even marginal notes. It is the entry made in the registry which records solemnly and permanently the right of ownership and other real rights. 1. registered under Torrens system 1544 applies

5.

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property. Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property. Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof, to the person who presents the oldest title, provided there is good faith. (1473) DOUBLE SALE General Rule : FIRST IN TIME, PRIORITY IN RIGHT When does it apply: when not all requisites embodied in 1544 concur. I. REQUISITES FOR DOUBLE SALES TO EXIST: (VOCS) 1. Two or more sales transactions must constitute valid sales;

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2. not registered under the Torrens system 1544 still applies Jurisprudence nd if 2 sale is a judicial sale (by way of levy on execution), buyer merely steps into the shoes of the judgment debtor. Outside of such situation must apply to conflicting sales over the same unregistered parcel of land If sale 1 occurs when land is not yet registered and sale 2 is done when land is already registered apply FIRST IN TIME, PRIORITY IN RIGHT Gabriel v. Mabanta, et al. [2003] Good faith must concur with registration. To be entitled to priority, the second purchaser must not only establish prior recording of his deed, but must have acted in good faith. CONDITION 1. Effect of Non-Fulfillment of Condition The other party may a. refuse to proceed with the contract b. proceed with the contract, waiving the performance of the condition If the condition is in the nature of a promise that it should happen, the non-performance of such condition may be treated by the other party as breach of warranty. 2. Effect if buyer has already sold the goods General Rule: The unpaid sellers right to lien or stoppage in transitu remains even if buyer has sold the goods Exception: o When the seller has given consent thereto, or o When the buyer is a purchaser in good faith for value of a negotiable document of title. NEGOTIABLE DOCUMENTS OF TITLE See Article 1636
1. Not creation of law but by merchants to allow them to deal w ith merchandise w ithout having to physically carry them around

i. evidence of existence and possession of goods described therein ii. medium by which seller is able to transfer possession of goods 3. A document of title which states that the goods referred to therein will be delivered to the bearer, or to the order of any person named in such document 4. Negotiable by delivery or indorsement TYPES 1. NEGOTIABLE a. deliver to bearer (negotiation by mere delivery) b. deliver to specific person or his order (negotiation by endorsement + delivery) i. even if face of instrument says NONNEGOTIABLE, it is still NEGOTIABLE; limiting words does not destroy negotiability ii. If order instrument and no endorsement was made equivalent to assignment 2. NON-NEGOTIABLE

EFFECTS OF UNAUTHORIZED NEGOTIATION The validity of the negotiation of a negotiable document is not impaired by the fact that negotiation was done in breach of duty or that the owner of the document was deprived of the same by loss, theft, accident, fraud, mistake if the person to whom the document is delivered is in good faith and without notice of the said irregularities. Important Considerations 1. Negotiation gives better right than assignment 2. Assignee takes document with defects of the assignor 3. Obligation of bailee bailee is immediately bound to the document Warranties on Negotiation 1. the document is genuine 2. he has legal right to negotiate or transfer it 3. he has knowledge of no fact which would impair the validity or worth of the document 4. he has right to transfer title to goods and goods are merchantable/fit

2. Pertains to specific type of movables only : GOODS a. Documents of title serve two (2) functions:

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Rules of Levy/Garnishment of Goods Covered by Documents of Title 2. NON NEGOTIABLE: a. Notification is operative act to transfer title/possession of goods in favor assignee b. Before notification can still be garnished 3. NEGOTIABLE: a. Can not be levied or garnished when documents are already with purchaser in good faith, unless: b. Document is first surrendered c. Document is pounded by court d. Negotiation is enjoined
ASSIGNMENT acquires title to goods against transferor acquires right to notify bailee so that he acquires obligation of bailee to hold goods for him

NEGOTIATION transferor/holder acquires title to goods bailee has direct obligation to holder as if directly dealt w ith him

b. What is void is the transfer of title/ ownership did not pass c. Effect: buyer acquired no better right than transferor d. Legal effect: CAVEAT EMPTOR BUYER BEWARE e. Sale of co-owner of whole property or definite portion GENERAL RULE: i. co-owner sells whole property prior to partition sale of property itself is void but valid as to his spiritual share ii. co-owner sells definite portion to partition sale is void as to other coowner but valid as to his spiritual share if the buyer would have still bought such spiritual share had he known that the definite portion sold would not be acquired by him.

SALE BY NON-OWNER OR BY ONE HAVING VOIDABLE TITLE See Articles 1475, 1477, 1505, 1506 I. SALE BY NON-OWNER 1. PERFECTION STAGE a. Sale by owner VALID b. Sale by non-owner VALID; c. Reason why both sales are valid: ownership is necessary only at time when transfer title to goods; at perfection stage, no obligation on part of seller to transfer ownership d. Law on estoppel further bolsters it: title passes by operation of law to grantee when person who is not owner of the goods sold delivers it and later on acquires title thereto e. Since v alid, action to annul is improper; there is already a perfected contract
.

II. EXCEPTIONS TO THE RULE ON THE EFFECT OF SALE OF A DEFINITE PORTION OBY A COOWNER 1. Subject matter is indivisible in nature or by intent; 2. Sale of a particular portion of a property is with consent of other co-owners; 3. Co-owner sells 1 of 2 commonly-owned lands and does not turn over of the proceeds, other co-owner, by law and equity, has exclusive claim over remaining land. III. RULES ON LEGAL EFFECTS OF SALE BY A NON-OWNER GENERAL RULE: Sale by non-owner, buyer acquires no better title than seller had. EXCEPTIONS: 1. Owner by his conduct is precluded from denying sellers authority (ESTOPPEL) 2. Contrary is provided for in recording laws (PD 1529) 3. Sale is made under statutory power of sale or under order of a court of competent jurisdiction 4. Sale is made in a merchants store in accordance with code of commerce and special laws

2.

CONSUMMATION STAGE a. Contract of sale is valid because it has passed perfected stage, despite seller not being the owner or seller having no authority to sell

IV. SALE BY SELLER WITH VOIDABLE TITLE 1. PERFECTION STAGE a. Valid sale buyer acquires title of goods

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o 2. CONSUMMATION STAGE a. Valid sale if title has not yet been avoided, buyer buys goods under following condition: o in good faith o for value o without notice of sellers defect of title

Seller cannot anymore comply with obligation so buyer cannot anymore be compelled

3.

V.

TITLE AS TO MOVABLE PROPERTIES GENERAL RULE: Possession is equivalent to title Requisites: Possession of movable and Good Faith

AFTER PERFECTION BUT BEFORE DELIVERY o Loss confused state o Paras: BUYER o Tolentino: SELLER o Deterioration and fruits - Buyer bears loss;

VII.

EXCEPTIONS: Owner lost movable owner can recover w/o reimbursing price 2. Owner is unlawfully deprived owner can recover w/o reimbursing price
1.

4. AFTER DELIVERY o Res perit domino o Delivery extinguishes ownership visa-vis the seller and creates a new one in favor of the buyer REMEDIES OF PARTIES FOR BREACH OF CONTRACT OF SALE See Articles 1594-1596. 1484-1486, 1592 SUBJECT MATTER: MOVABLES (IN GENERAL) Remedies of Unpaid Seller GENERAL RULE: Any man may not take law in his own hands, must seek remedy through courts EXCEPTION: DOCTRINE OF SELF HELP SPECIAL REMEDIES Requisites: 1. Subject matter goods 2. Seller is unpaid not completely paid or received negotiable instrument under a condition and condition has been breached by reason of dishonor 3. Physical possession is with seller The following are the special remedies of unpaid seller 1. possessory lien 2. stoppage in transitu 3. special right of re-sale 4. special right to rescind NOTE: Hierarchical Application - only when unpaid seller has exercised possessory lien or stoppage in transitu can the seller proceed with his other special rights of resale or to rescind. I. Possessory Lien 1. Seller not bound to deliver if buyer has not paid him the price

VIII,

EXCEPTIONS TO THE EXCEPTIONS: movable is bought at public sale owner can only recover after reimbursing price acquired in good faith and for value from auction

LOSS, DETERIORATION, FRUITS and OTHER BENEFITS See Articles 1493 and 1494 Legal consequences from point of perfection are the same in both legal systems: upon perfection of an unconditional contract of sale involving specific or determinate subject matter, the risk of loss deterioration and the benefits of fruits and improvements, were fro the account of the buyer. WHO BEARS RISK OF LOSS/ DETERIORATION/ FRUITS: 1. BEFORE PERFECTION a. Res perit domino b. Owner is seller so seller bears risk of loss 2. AT PERFECTION o Res perit domino o Contract is merely inefficacious because loss of the subject matter does not affect the validity of the sale

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Page 141 of 297

2. Right to retain; cannot be availed when seller does not have custody 3. Exercisable only in following circumstances: a. goods sold without stipulation as to credit b. goods sold on credit but term of credit has expired c. buyer becomes insolvent d. When part of goods delivered, may still exercise right on goods undelivered Instances when possessory lien lost: 1. seller delivers goods to carrier for transmission to buyer without reserving ownership in goods or right to possess them 2. buyer or his agent lawfully obtains possession of goods 3. waiver 4. loses lien when he parts with goods (still has stoppage in transitu) 5. notice by seller to buyer not essential II. Stoppage In Transitu Goods are in transit Requisites when goods are in transit 1. From the time goods are delivered to carrier for purpose of transmission to buyer 2. Goods rejected by buyer and carrier continues to possess them When goods no longer in transit 1. Reached point of destination 2. Before reaching destination, buyer obtains delivery of the goods 3. Goods are supposed to have been delivered to buyer but carrier refused 4. Shown by seller that buyer is insolvent (failure to pay when debts become due ) How is right exercised 1. Obtain actual possession of goods 2. Give notice of claim to carrier / bailee in possession thereof 3. Notice by seller to buyer is not required;
notice to carrier is essential

why special? there are things which seller cannot do in ordinary sale: 1. 2. ownership is with buyer but seller can sell goods title accorded to buyer is destroyed even without court intervention

IV. Special Right to Rescind 1. Expressly stipulated 2. Buyer is in default for unreasonable time 3. Notice needed to be given by seller to buyer why special? ownership of goods already with buyer but seller may still rescind; ownership is destroyed even without court intervention but in ordinary sale, need to go to court to destroy transfer of ownership Remedies of Buyer When Seller fails to deliver, buyer may seek SPECIFIC PERFORMANCE WITHOUT GIVING SELLER OPTION TO RETAIN GOODS ON PAYMENT OF DAMAGES SALE OF MOVABLES ON INSTALLMENT Remedies of Unpaid Seller (1484) 1. Exact fulfillment should the buyer fail to pay. 2. Cancel the sale if buyer fails to pay 2 or more installments. 3. Foreclose on chattel mortgage if buyer fails to pay 2 or more installments Incidents: 1. If buyer chooses foreclosure, no further action against buyer to recover any unpaid balance of the price 2. When is the law applicable? Sale on movables by installment o Sale on installment: payment by several partial payments in small amount 4. Rationale of the law : Buyer is lulled into thinking that he could afford because of small amounts per installment and at the same time remedy abuse of commercial houses 5. Nature of remedies: alternative and not cumulative 6. Coverage : sale and financing transaction and contracts of lease with option to purchase

III. Special Right to Resell the Goods 1. goods are perishable 2. stipulated the right of resale in case buyer defaults in payment 3. buyer in default for unreasonable time 4. notice by seller to buyer not essential

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7.

Action : Judicial and Extrajudicial

o Specific Performance If already chose specific performance, can no longer choose other remedies Except: after choosing, it has become impossible, rescission may be pursued b. Rescission - When chosen, there is correlative obligation to restitute - But stipulation that installments paid are forfeited are valid if not unconscionable - Deemed chosen when: o Notice of rescission is sent o Takes possession of subject matter of sale o Files action for rescission Barring effect on recovery of balance i. Foreclosure i. Barring effect on recovery of balance ii. Extent of barring effect: purchase price iii. Exception: mortgagor refuses to deliver property to effect foreclosure, recover also expenses incurred in attorneys fees, etc. (Perverse BuyerMortgagor)

RESCIND SUSPEND PAYMENT UNTIL SELLER COMPLIES

3.

IMMOVABLES (IN GENERAL) Remedies of Seller Anticipatory breach 1. Seller has reasonable grounds to fear loss of immovable sold and its price, sue for RESCISSION
2. Nonpayment of price, sue for RESCISSION
QuickT ime and a T IFF (Uncompressed) decompressor are needed to see this picture.

Remedies of Buyer 1. In case of subdivision or condo projects, suspend payment. 2. If real estate developer fails to comply with obligation according to approved plan:

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notice and upon surrender value IMMOVABLES (BY INSTALLMENT) Article 1592 Applies only to contract of sale I. Maceda Law 1. applies to COS and CTS and Financing 2. Coverage: REAL ESTATE defined space vs. CONDO not defined space (w/ common areas) 3. Excluded: a. Industrial b. Commercial c. Sale to tenants under agrarian laws Rights Granted to Buyers: o Buyer paid at least 2 years installment 1. Pay without interest the balance within grace period of 1 month for every year of installment payment 2. Grace to be exercised once every 5 years 3. When no payment - cancelled; buyer entitled to 50% of what he has paid + if after 5 years of installments, 5% for every year but not to exceed 90% of total payments made 4. Cancellation to be effected 30 days from o

payment

of

cash

Buyer paid less than 2 years installment st 1. 1 Grace period is 60 days from date installment became due nd 2. 2 grace period of 30 days from notice of cancellation/demand for rescission buyer can still pay within the 30 day period with interest No payment after 30 day period, can cancel. Purpose of law - Protect buyers in installments against oppressive conditions Notice needed - waiver thereof if oppressive Applies to contracts even before law was enacted Stipulation to contrary is void Other rights: o Sell rights to another o Reinstate contract by updating during grace period and before actual cancellation o Deed of Sale to be done by notarial act

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To pay in advance any installment or the full balance of price anytime without interest Have full payment annotated in certificate of title

4. when breached, seller is liable for damages Implied Warranties Deemed included in all contracts of sale whether parties are actually aware or not, whether they were intended or not; by operation of law 1. warranty that seller has a right to sell o refers to consummation stage since in consummation stage, it is where ownership is transferred by tradition o not applicable to sheriff, auctioneer, mortgagee, pledge 2. warranty against eviction a. implied, unless contrary provision appears in contract b. when ownership is transferred, buyer shall enjoy the legal and peaceful possession of the thing c. Requisites of breach of warranty against eviction: buyer is evicted in whole or in part from the subject matter of sale there is a final judgement basis of eviction is a right prior to sale or an act imputable to vendor seller has been summoned in the suit for eviction at the instance of rd buyer; or made 3 party defendant rd through 3 party complaint brought by buyer Vendors liability shall consists of (Total Eviction)(VICED) 1. Value of the thing at the time of eviction; 2. Income or fruits if he has been ordered to deliver the to the party who won the suit 3. Cost of the suit 4. Expenses of the contract; and 5. Damages and interests if the sale was in bad faith Partial Eviction 1. to enforce vendors liability for eviction (VICED); or 2. to demand rescission of contract. a. no appeal needed nor a need for buyer to resist eviction for right to accrue; it is enough that the aforementioned requisites are complied with b. warranty cannot be enforced until aforementioned requisites concur

REMEDY OF RESCISSION IN CONTRACTS COVERING IMMOVABLES See Articles 1191, 1592 o o Nature: Judicial Extra judicial Rescission a. allowed if stipulated; burden to sue shifts to party who does not like rescission b. court still has final say as to propriety of rescission c. Forfeiture of amounts valid being in nature of penal clause Contract of Sale Rescission is Applicable Contract to Sell Rescission not Applicable Nonpayment of purchase price would automatically cancel even without further action for rescission Except: If subject matter is residential lots, law on rescission applies when there is substantial breach. Maceda law applies. CONDITION and WARRANTIES See Articles 1545-1547 I. Condition 1. When a contract contains a condition, the non happening of which would not constitute a breach but extinguishes the obligation 2. However, if party to the sales contract has promised that the condition should happen or be performed, the non-performance of which may be treated by parties as breach II. Warranties A statement or representation made by the seller contemporaneously and as a part of the contract of sale, having reference tot eh character, quality, or title of the goods, and by which he promises or
undertakes to insure that certain facts are or shall be as he then represents
.

o o

Express Warranties ( requisites ): 1. it must be an affirmation of fact or any promise by seller relating to the subject matter of sale 2. natural tendency of affirmation or promise is to induce buyer to purchase subject matter 3. buyer purchases the subject matter relying thereon

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c. applies to judicial sale; judgment debtor responsible for eviction unless otherwise decreed in judgment d. vendor not liable for eviction if adverse possession had been commenced before sale but prescriptive period is completed after transfer e. Rights of buyer when deprived of only part of the subject matter but would not have bought such part if not in relation for the whole: 1. Rescission 2. Mutual restitution 3. warranty against encumbrances (nonapparent) o Requisites: a. immovable sold is encumbered with nonapparent burden or servitude not mentioned in the agreement b. nature of nonapparent servitude or burden is such that it must be presumed that the buyer would not have acquired it had he been aware thereof c. when breach of warranty exist: buyer may ask for rescission of indemnity d. warranty not applicable when non apparent burden or servitude is recorded in the Registry of Property unless there is express warranty that the thing is free from all burdens and encumbrances 4. warranty against hidden defects o SELLER does not warrant patent defect; caveat emptor o Except when hidden 1. subject matter may be movable or immovable 2. nature of hidden defect is such that it should render the subject matter unfit for the use of which it
w as intended or should diminish its fitness
.

seller is aware seller should return price and refund expenses of contract with damages d. seller is not aware - seller should return price and interest and refund expenses ( no damages ) e. buyer may elect between withdrawing from contract or demanding proportionate reduction of price with damages in either case f. applicable to judicial sale except that judgment debtor not liable for damages g. action to prescribe 6 months from delivery of subject matter c. 5. defects on animals a. even in the case of professional inspection but hidden defect is of such nature that expert knowledge is not sufficient to discover it - defect shall be considered as REDHIBITORY b. if vet fails to discover through ignorance or bad faith he is liable for damages c. sale of animals on teams (2 or more) when only one is defective, only one is redhibited and not the others exception: when it appears buyer would not have purchased the team without the defective one apply to sale of other things d. animals at fair or public auction no warranty against hidden defects e. sale of animals with contagious disease is void f. sale of unfit animals void if use / service for which they are acquired has been stated in the contract and they are found to be unfit therefor o prescription of action:40 days from date of delivery to buyer o if sale is rescinded, animals to be returned in same condition when they were acquired; buyer shall answer for injury / loss due to his fault buyer may elect between withdrawing from sale and demanding proportionate reduction of price with damages in either case Specific Implied Warranties in the Sale of Goods Warranty as to fitness and quality; requisites: 1. Buyer makes known to seller the particular purpose for which goods are acquired and it appears that the buyer relied on the sellers skill or judgment

3. had the buyer been aware, he would not have acquired it or would have given a lower price a. when defect is visible or even if not visible but buyer is an expert by reason of his trade or profession, seller is not liable b. obligation of seller for breach depends on whether he has knowledge of such defect or not

Page | 18

2. Goods are bought by description from seller who deals in goods of that description 3. in case of sale of specified article under its patent or trade name, no warranty unless there is a stipulation to the contrary 4. measure of damage: difference between value of goods at time of delivery and value they would have had if they had answered to the warranty Sale of Goods by sample If seller is a dealer in goods of that kind, there is an implied warranty that the goods shall be free from defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample
Effects of Waiver o Waiver in Warranty against eviction -

1.

2. 3. 4.

Accept goods and set up breach of warranty by way of recoupment in diminution or extinction of the price. Accept goods and maintain action against seller for damages Refuse to accept goods and maintain action against seller for damages Rescind contract of sale and refuse to receive goods/return them when already received.

When rescission by buyer not allowed: 1. if the buyer accepted the goods knowing the breach of warranty WITHOUT protest 2. if he fails to notify the seller within a reasonable time of his election to rescind 3. if he fails to return or offer to return the goods in substantially as good condition as they were in at the time of the transfer of ownership to him EXTINGUISHMENT See Arts. 1600 -1623 I. Grounds (same grounds whereby obligations in general are extinguished) 1. payment or performance 2. loss of the subject matter 3. condonation or remission 4. confusion or merger of rights of creditor and debtor 5. compensation 6. novation 7. annulment 8. rescission 9. fulfillment of a resolutory condition 10. prescription Conventional redemption 1. only extinguishes obligations pertaining to contract of sale, not extinguish contract itself; only applies to contract of sale 2. The right which the vendor reserves to himself to reacquire the property sold provided he returns to the vendee: a. the price of the sale, b. expenses of contract, c. other legitimate payments, d. he necessary and useful expenses made on the thing sold e. and fulfills other stipulations which may have been agreed upon 3. The right is exercised only be seller in whom right is recognized in the contract or by any person to whom right was transferred; must be in the same contract

Parties may increase or diminish implied warranty against eviction; but effect depends on good faith or bad faith on the part of the seller. 1. Seller in bad faith and there is waiver against eviction null and void 2. buyer without knowledge of a particular risk, made general renunciation of warranty not waiver but merely limits liability of seller in case of eviction (pay value of subject matter at time of eviction) 3. buyer with knowledge of risk of eviction assumed its consequences and made a waiver vendor not liable (applicable only to waiver of warranty against eviction) 4. waiver to a specific case of eviction - wipes out warranty as to that specific risk but not as to eviction caused by other reasons. Waiver against Hidden Defects
1.

II.

If there has been a stipulation exempting

seller from hidden defects 2. If seller not aware of hidden defects loss of the thing due to such defect will not make seller liable 3. If seller aware waiver is in bad faith, thus seller still liable Buyers Option in Case of Breach of Warranty

Page | 19

III.

Legal redemption 1. Only applies to contracts of sale. 2. The right to be subrogated upon the same terms and conditions stipulated in the contract, in the place of one who acquires the thing by (1) purchase OR (2) by dation in payment OR (3) by other transaction whereby ownership is transmitted by onerous title. 3. Types of Legal Redemption: a. among co-heirs i. any of the heirs sell his hereditary rights to stranger before partition ii. any of the co-heirs may be subrogated to the rights of the purchaser by redeeming said hereditary right: reimburse buyer of the price of the sale iii. co-heirs has 1 month from receipt of notice in writing b. among co-owners i. any or all of co-owners sells their rd shares to 3 person ii. any co-owner may exercise right of redemption by paying reasonable price of property to the buyer iii. if 2 or more co-owners desire to exercise right of redemption, they may only do so in proportion to the share they respectively have in thing owned in common c. among adjoining owners i. rural land a. where piece of rural land has an area not exceeding 1 hectare, adjoining owner has right to redeem unless grantee does not own a rural land b. if two or more adjacent lot owners desire to exercise right to redeem, owner of adjoining lot with smaller
area shall be preferred

d.

merely for speculation, owner of adjoining land can redeem b. 2 or more owners of adjoining lot desire to exercise right to redeem, owner whose intended use is best justified shall be preferred. sale of credit in litigation i. when a credit or other incorporeal right in litigation is sold, debtor shall have a right to extinguish it by reimbursing the assignee for the price the latter paid therefor plus judicial costs, interest ii. debtor may exercise right within 30 days from the date assignee demands payment from him

4.

Other Instances When Right of Legal Redemption is Granted a. Redemption of homesteads b. Public Land Act c. Land acquired under free patent homestead subject to repurchase by wife, legal heirs within 5 years from date of conveyance granted by law, need not be stipulated Redemption in tax sales a. in case of tax delinquency/failure to pay tax assessments, property is foreclosed b. delinquent payer has 1 year from date of sale to redeem by paying to the revenue District Officer the amount of tax delinquencies, and interest or purchase price. Redemption by judgment debtor - 1 year from date of registration of certificate of sale to redeem by paying purchaser at public auction with interest Redemption in extrajudicial foreclosure - 1 year from date of sale and registration Redemption in judicial foreclosure of mortgage - no right to redeem is granted to debtor mortgagor except when mortgagee is bank of a banking institution 90 days after finality of judgment When Period of Redemption Begins to Run Right of legal pre-emption of redemption

5.

6.

ii.

if two or more adjacent lit. owners desire to exercise right to redeem and both have same lot area, one who first requested shall be granted urban land a. when piece of land is small and cannot be used for any practical purpose and bought

7. 8.

9.

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shall be exercised within 30 days from notice by the seller 10. How exercised - tender of payment is not necessary; offer to redeem is enough. a. There is no prescribed form for an offer to redeem to be properly effected. Hence, it can either be through a formal tender with consignation of the redemption price within the prescribed period. What is paramount is the availment of the fixed and definite period within which to exercise the right of legal redemption. b. deeds of sale are not to be recorded in Register of Deeds unless accompanied by affidavit of seller that he has given notice to all possible redemptioners

c.

d. e. f.

upon or after expiration of right to repurchase, another instrument e xtending the period of redemption or granting new period is executed buyer retains for himself a part of the purchase price seller binds himself to pay taxes on thing sold real intention of parties is to secure the payment of a debt or performance of other obligation

NOTE: In case of doubt in determining whether it is an equitable mortgage or a sale a retro, the sale shall be construed as an equitable mortgage. 2. What to Look for in Determining Nature of Contract a. language of the contract b. conduct of parties to reveal real intent Remedy available to vendor: ask for reformation of contract Rationale behind provision on Equitable Mortgage: a. Circumvention of usury law b. Circumvention of prohibition against pactum commissorium creditor cannot appropriate the things given by way of pledge or mortgage; remedy here is foreclosure. The real intention of parties is that the pretended purchase price is money loaned and to secure payment of the loan, sale with pacto de retro is drawn up Period of Redemption a. No period agreed upon 4 years from date of contract b. Period agreed upon should not exceed 10 years; if it exceeded, valid only for the first 10 years. c. When period to redeem has expired and there has been a previous suit on the nature of the contract seller still has 30 days from final judgment on the basis that contract was a sale with pacto de retro: d. Rationale : no redemption due to erroneous belief that it is equitable mortgage which can be extinguished by paying the loan.

NOTE: Written notice under Art. 1623 is mandatory for the right of redemption to commence (PSC vs. Sps. Valencia, 19 Aug. 2003). Thus, the General Rule is that actual knowledge notwithstanding, written notice is still required Except when actual knowledge is acquired by co-heirs living in same land with purchaser, or co-owner was middleman in sale rd to 3 party. Etcuban vs. CA, et. al. 148 SCRA 507 Art. 1623 does not prescribe any distinctive method for notifying the redemptioner IV. Option to Purchase - Right to repurchase the thing sold granted to the vendor in a separate instrument from the deed of sale Equitable Mortgage

3.

4.

V.

5.

Cachola vs. CA, 208 SCRA 496 One which lacks the proper formalities, form of words, or other requisites prescribed by law for a mortgage, but shows the
intention of the parties tor make the property subject )
of the contract as security f ora debt and contains

nothing impossible contrary to law. 1. A contract with right to repurchase is deemed to be an equitable mortgage if the following requisites concur (IPERTI): a. price of sale with right to repurchase is unusually i nadequate b. seller remains in possession as lessee or otherwise

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e. This refers to cases involving a transaction where one of the parties contests or denies that the true agreement is one of sale with the right to repurchase; not to cases where the transaction is conclusively a pacto de retro sale. f. Example : Where a buyer a retro honestly believed that he entered merely into an equitable mortgage, not a pacto de retro transaction, and because of such belief he had not redeemed within the proper period. NOTE: When period has expired and seller allowed the period of redemption to expire seller is at fault for not having exercised his rights so should not be granted a new period Paez vs. Magno Tender of payment is SUFFICIENT to compel redemption, but is not in itself a payment that relieves the vendor from his liability to pay the redemption price

2.

3.

4.

may compel the vendor to redeem the whole thing When an undivided thing is sold by coowners / co-heirs, vendors a retro may only exercise his right over his respective share; vendee a retro may demand that they must come to an agreement first and may not be compelled to consent to a partial redemption When rights of co-owners over an undivided thing is sold as regards to their own share vendee retro cannot compel one to redeem the whole property Should one of the co-heirs/co-owners succeed in redeeming the property such vendor a retro shall be considered as trustee with respect to the share of the other co-owners/co-heirs.

IX.

VI.

Effect when There is No Redemption Made 1. jurisprudence before the NCC: buyer a retro automatically acquires full ownership 2. under present art 1607: there must be judicial order before ownership of real property is consolidated in the buyer a retro How is Redemption Effected 1. Seller a retro must first pay the following: a. the price of the thing sold b. expenses of the contract and other legitimate payments made by reason of the sale c. necessary and useful expenses made on the thing sold d. Valid tender of payment is sufficient
e.

Fruits 1. what controls is the stipulation between parties as regards the fruits; if none: a. at time of execution of the sale a retro there are visible or growing fruits there shall be no pro-rating at time of redemption if no indemnity was paid by the vendee a retro b. at time of execution sale a retro there be no fruits but there are fruits at time of redemption pro-rated between vendor a retro and vendee a retro giving the vendee a retro a part corresponding to the time he possessed the land. PRE-EMPTION REDEMPTION Arises after sale There can be rescission of the original sale Action is directed against buyer

VII.

1. Arises before sale 2. No rescission because no sale exists yet 3. The action is directed against prospective seller

Mere sending of notice w ithout valid

tender is insufficient .

f.

Failure to pay useful and unnecessary expenses entitles vendee to retain land unless actual reimbursement is made

ASSIGNMENT See Arts . 1624 1634 I. ASSIGNMENT: The owner of a credit transfers to another his rights and actions in consideration of a price certain in money or its equivalent

VIII.

In Case of Multi-Parties 1. When an undivided thing is sold because co- owners cannot agree that it be allotted to one of them vendee a retro

Page | 22

1.

2. 3.

transfers the right to collect the full value of the credit, even if he paid a price less than such value transfers all the accessory rights (e.g. guaranty, mortgage, pledge, preference) debtor can set up against the assignee all the defenses he could have set up against the assignor VI.

a.

2.

Payment to the original creditor is valid and debtor shall be released from his obligation After Notice a. Payment to the original creditor is not valid as against the assignee b. He may be made to pay again by the assignee

II.

What Makes Assignment Different From Species Sale? Technical term but basically a sale Sale of credits and other incorporeal things

1. 2.

III.

Effects of Assignment 1. lack of knowledge or consent of debtor not essential for validity but has legal effects 2. assignment of rights made w/o knowledge of debtor debtor may set up against assignee the compensation w/c would pertain to him against assignor of all credits prior to assignment and of later ones until he had knowledge of the assignment 3. debtor has consented to assignment cannot set up 4. compensation unless assignor was notified by debtor that he reserved his right to the compensation 5. debtor has knowledge but no consent may still set up compensation of debts previous to assignment but not the subsequent ones. Transfer of Ownership 1. by tradition and not by perfection 2. by execution of public instrument because intangibles cannot be physically transferred 3. Without necessity of delivering the document evidencing the credit. 4.
T his rule does not apply to negotiable

Warranties of the assignor of credit 1. NO warranty against hidden defect N/A because intangibles has no physical existence 2. He warrants the existence and legality of credit - there is warranty except when expressly sold as a doubtful account a. NO warranty as to the solvency of debtor unless it is expressly stipulated OR unless the insolvency was already existing and of public knowledge at the time of the assignment b. warranty shall last for 1 year only c. one who assigns inheritance right w/o enumerating rights shall be answerable for his character as an heir d. one who sells whole of certain rights for a lump sum, shall be answerable for legitimacy of the whole in general but not for each of the various parts Breach of Warranty: Liabilities of the assignor of credit for violation of his warranties 1. Assignor in good faith a. Liability is limited to price received, expenses of the contract and other legitimate payments made by reason of the assessment 2. Assignor in bad faith a. Liable ALSO for (expenses of contract and other legitimate payme nts plus useful and necessary expenses) damages Assignment of Credit or Incorporeal Right in Litigation - Requisites: 1. There must be a sale or assignment of credit 2. There must be a pending litigation 3. The debtor must pay the assignee: a. price paid by him AND

VII.

IV.

documents and documents of title which are governed by special laws. V. Effect of payment of debtor after assignment of credit 1. Before Notice of the Assignment

VIII.

Page | 23

b. judicial costs incurred by him AND c. interest on the price from the date of payment 4. The right must be exercised by the debtor within 30 days from the date the assignee demands (judicially or extrejudicially) payment from him NOTE: Presumption: buyers purpose is speculation and; law would rather benefit the debtor of such credits rather than the one who merely speculates for profit. NOTE: When credit or incorporeal right in litigation is assigned or sold, debtor has a right to extinguish it by reimbursing the assignee for the price the buyer paid plus interest IX. Right to redeem by debtor not available in the following instances (not considered speculative 1. assignment of credit / incorporeal right to co-heir or co-owner; the law does not favor co-ownership assignment to creditor in payment for his credit a. presumption is that the assignment is above suspicion; assignment is in the form of dacion en pago, thus perfectly legal assignment to possessor of tenement or piece of land which is subjec t to the right in litigation assigned a. purpose is to presumably preserve the tenement BULK SALES LAW I. Purpose: stores. Protect creditor of merchant

IV.

When sale or transfer NOT covered by Bulk Sales Law: 1. If the transfer is in the ordinary course of trade and the regular prosecution of the business of the vendor 2. If it is made by one who produces and delivers a written waiver of the provisions of the Bulk Sales Law from its creditors 3. If it is made by an executor, administrator, receiver, assignee in insolvency, or public officer, acting under judicial process (Section 8); and 4. If it refers to properties exempt from attachment or execution (ROC, Rule 39, Sec. 12) Protection accorded to creditors by Bulk Sales Law: 1. It requires the vendor, mortgagor, transferor, or assignor to deliver to the vendee, mortgagee, or to his or its agent or representative a sworn written statement of names and addresses of all creditors to whom said vendor, etc. may have been indebted together with the amount due or to be due (Section 3) 2. It requires the vendor, mortgagor, transferor, or assignor, at least 10 days before the sale, transfer, mortgage, assignment to make a full detailed inventory showing the quantity and the cost of the price, terms and conditions of the sale, etc. (Sec. 5) Duty of seller to perform the following when transaction is within the coverage of law 1. make sworn statement of listing of creditors 2. delivery of sworn statement to buyer 3. apply the proceeds pro-rata to claims of creditors shown in verified statement 4. written advance disclosure to creditors Effects of False Statements in the Schedule of Creditors 1. Without knowledge of buyer a. If the statement is fair upon its face and the buyer has no knowledge of its incorrectness and nothing to put him on inquiry about it, he will be protected in its purchase b. The remedy of the creditor is not against the goods but to prosecute the seller criminally

V.

2.

3.

VI.

II.

When sale or transfer in bulk? - Any sale, transfer, mortgage, or assignment

1. of goods other than in ordinary course
of business

VII.

2. 3.

of all or substantially all of business of all or substantially all of fixtures and equipments

III.

Should cover only merchants because creditors cannot get adequate security because goods are sold ordinarily in course of business

Page | 24

2.

3.

4.

With knowledge or imputed knowledge of buyer a. The vendee accepts it at his peril b. The sale is valid only as between the vendor and the vendee but void against the creditors With names of certain creditors without notice are omitted from the list a. The sale is VOID as to such creditors, whether the omission was fraudulent or not. With respect to an innocent purchaser for value from the original purchaser a. An IPV from the original purchaser is protected b. However if the circumstances are such as to bind the subsequent purchaser with constructive notice that the sale to the vendor (original purchaser) was fraudulent, the property will be liable in his hands to creditors of the original vendor

2.

the debt, such as execution, attachment, garnishment, or by a proceeding in equity An ordinary action against the purchas er to obtai n money judgment will NOT lie, unless the purchaser has sold or otherwise disposed of, or dealt with the property , so as to become personally liable to the creditors for value of it.

X. Effects of Non-Compliance Failure to Prepare and deliver sworn listing of creditors Apply proceeds prorata to listed creditors Make advance written disclosure of transactions to creditors Register sworn statement with DTI Include or omit names of creditors and correct amount due in the statement Sale for no consideration Anti-Dummy Law I. Penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved only for Filipinos. Management, operation as officers, employees or laborers. Includes Control or non-control positions On Transaction Fraudulent and void Fraudulent and void Not void On Seller Criminal Liability Criminal Liability No Criminal Liability

VIII.

Effects of violation of Law on Transfer 1. As between parties a. The Bulk Sales Law does NOT in any way affect the validity of the transfer as between the intermediate parties thereto b. A sale not in compliance with the Bulk Sales Law is valid against all persons other than creditors 2. As against creditors a. A purchaser in violation of the law acquires no right in the property purchased as against the creditors of the seller b. His status is that of a trustee or receiver for the benefit of the creditors of the seller; as such, he is responsible for the disposition of the property Remedies available to creditors 1. The proper remedy is one against the

Not void Void

No Criminal Liability Criminal Liability

Void

Criminal Liability

II. III.

IX.

Goods to subject to them to the payment of

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