SALES Finals Reviewer

SALES | Prof.
Jardeleza A2015 | Vina Villaroya | Pao Agbayani | Lore Agliam | Kiara Lagrisola | Shelan Teh
Chapter I: INTRODUCTION DEFINITION OF SALE Art. 1458: By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. NOTES: Contract of Sale a contract where one of the parties obligates himself to transfer the ownership of, and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. Essence: Transfer of ownership NATURE OF THE OBLIGATIONS Real obligations aka obligations to give o Can be the proper subject of actions for specific performance Two sets of obligations: o Seller has two obligations, to: Transfer the ownership, and Deliver the possession, of the subject matter *Note, however, that warranty is an added obligation of the seller o Buyer has an obligation to: Pay the price ESSENTIAL REQUISITES OF A CONTRACT OF SALE F: Respondent Overland Express Lines, Inc. entered into a contract of lease with option to buy with petitioners, who are co-owners of a parcel of land. During the one-year term of the lease, respondent failed to exercise the option to buy, but paid the stipulated amount to Alice Dizon (one of the coowners) a month after the term of the contract, still hoping to buy the land from the petitioners. H: There was no perfected contract of sale. The consent of all the co-owners was lacking, as it was only Alice Dizon who consented to the transaction. Respondent should have exerted efforts in order to ascertain the extent of Alice Dizons authority, since there was no proof that all the coowners consented to the act of Alice Dizon nor authorized her to act on their behalf. STAGES OF CONTRACT OF SALE 1. Negotiation The period from the time the prospective contracting parties indicate their interests in the contract to the time the contract is perfected Offer and acceptance Preparatory stage Perfection Takes place upon the concurrence of the essential elements of the sale which are the meeting of the minds of the parties as to the object of the contract and upon the price Agreement or meeting of offer and acceptance Consummation Begins when the parties perform their respective undertaking under the contract of sale, culminating in the extinguishment thereof Actual or constructive delivery, and payment of price
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Consent: meeting of the minds to transfer ownership in exchange for the price; must be manifested and given instantaneously (cannot be a secret or simply told to a 3rd party) Subject Matter: determinate or determinable Price: must be paid in money or its equivalent
CHARACTERISTICS OF CONTRACT OF SALE 1. Nominate and Principal NOMINATE it has been given a particular name by law o Its nature and consequences are governed by a set of rules in the Civil Code PRINCIPAL it can stand on its own, and does not depend on another contract for its validity or excistence (vs. accessory or preparatory contracts) o Parties enter into a contract of sale to achieve within its essence the objectives of the transaction, and simply not in preparation for another contract Consensual
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NOTES: When all three elements are present, there being a meeting of the minds, then a perfected contract of sale arises When an essential element is lacking = no perfected contract of sale When all three elements are present, but there is defect or illegality constituting any of such elements, the resulting contract is either voidable when the defect constitutes a vitiation of consent, or void as mandated under Art. 1409 Dizon v. CA (1999)
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SALES | Prof. Jardeleza A2015 | Vina Villaroya | Pao Agbayani | Lore Agliam | Kiara Lagrisola | Shelan Teh
Art. 1475: The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. NOTES: CONSENSUAL It is perfected by mere consent, at the moment there is a meeting of the minds upon the thing which is the object of the contract and upon the price (vs. solemn and real contracts); agreement of the parties to buy and to sell o Once there is a meeting of the minds as to the price, the sale is valid, despite the manner of its actual payment, or even when there has been breach thereof o If the real price is not stated in the contract, then the sale is valid but subject to reformation; if there is no meeting of the minds as to the price, because the price stipulated is simulated, then the contract is void o The actual delivery of the subject matter or payment of the price agreed upon are not necessary components to establish the existence of a valid sale, and their nonperformance do not also invalidate or render void a sale that has began to exist as a valid contract at perfection o Non-performance merely becomes the legal basis for the remedies of either specific performance or rescission, with damages in either case o Binding effect of a deed of sale: principle that the obligations arising therefrom have the force of law between the parties and they are expected to abide in good faith by their respective contractual commitments 3. Bilateral and Reciprocal In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
Art. 1191: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
Art. 1169: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.
NOTES: BILATERAL AND RECIPROCAL imposes obligations on both parties (vs. unilateral contracts) o Whereby the obligation or promise of each party is the cause or consideration for the obligation or promise of the other Reciprocal obligations = those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other o To be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other Legal effects and consequences of sale being a bilateral contract composed of reciprocal obligations: 1. The power to rescind is implied, and such power need not be stipulated in the contract in order for the innocent party to invoke the remedy; 2. Neither party incurs in delay if the other party does not comply, or is not ready to comply in a proper manner, with what is incumbent upon him; and 3. From the moment one of the parties fulfills his obligation, the default by the other begins, without the need of prior demand
General requisite: that it be mutually obligatory, i.e., there should be a concurrence of the promise of the vendor to sell a determinate thing and the promise of the vendee to receive and pay for the property so delivered and transferred Onerous Imposes a valuable consideration as a prestation, which ideally is a price certain in money or its equivalent (vs. gratuitous contracts) Commutative 1. Donation Art. 725: Donation is an act of liberality whereby a person disposes gratuitously of a thing or right in favor of another, who accepts it. Art. 1471: If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract.
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SALE Onerous contract Perfected by mere consent
DONATION Gratuitous contract Requires consent and must comply with the formalities mandated by law for its validity Requires that there be a diminution of the estate of one party (donor) and the enrichment of the other partys estate (donee)
Art. 1355: Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. Art. 1470: Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. NOTES: Reason: a thing of value is exchanged for equal value, i.e., ideally the value of the subject matter is equivalent to the price paid No requirement that the price be equal to the exact value of the subject matter; it is sufficient that the seller believes that what was received was of the commutative value of what he gave Inadequacy of price Does not affect ordinary sale o Not a sufficient ground for the cancellation of a voluntary contract of sale otherwise free from invalidating effects o May show vice in consent can be grounds for annulment, but such annulment is not for inadequacy of price, but for vitiation in consent SALE IS TITLE AND NOT MODE TITLE constitutes the legal basis by which to affect dominion or ownership MODE the legal means by which dominion or ownership is created, transferred, or destroyed It is delivery or tradition that is the mode to transfer ownership and possession to the buyer Sale is merely title that creates the obligation on the part of the seller to transfer ownership and deliver possession, but on its own, sale is not a mode that transfers ownership Even if a sale is perfected by mere consent, ownership of the thing sold is acquired only upon its delivery to the buyer SALE DISTINGUISHED FROM OTHER CONTRACTS
The property sold is replaced by the equivalent monetary consideration; there is no diminution of the sellers estate
NOTES: Even when the donor imposes upon the donee a burden, but which is less than the value of the thing given, there is still a donation When the value of the burden placed upon the donee is more than the value of the thing given, it becomes an onerous donation, as either a barter or sale, which are both governed by the Law on Sales; consequently, the perfection and enforceability of the contract happen upon consent 2. Barter Art. 1468: If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale.
Art. 1638: By the contract of barter or exchange one of the parties binds himself to give one thing in consideration of the other's promise to give another thing. Art. 1641: As to all matters not specifically provided for in this Title, barter shall be governed by the provisions of the preceding Title relating to sales.
SALE One of the parties binds himself to deliver a thing in consideration of the others undertaking to pay the price in money or its equivalent BARTER One of the parties binds himself to give one thing in consideration of the others promise to give another thing Art. 1714: If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. Art. 1715: The contract shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contract fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost.
NOTES: Rules to determine whether contract is sale or barter: 1. Manifest intention of the parties: Even if the acquisition of a thing is paid for by another object of greater value than the money component, it may still be a sale and not a barter, when such was the intention of the parties 2. When intention does not appear and consideration consists partly in money and partly in another thing: BARTER where the value of the thing given as part of the consideration exceeds the amount of money given or its equivalent SALE where the value of the thing given as part of the consideration equals or is less than the amount of money given Fule v. CA (1998) F: Fule owned a parcel of land, which he offered to be exchanged for a pair of diamond earrings owned by Dr. Cruz. After the barter was completed, Fule alleged that the earrings were counterfeit and demanded that the contract between him and Dr. Cruz be rescinded. H: A contract of sale is perfected by mere consent, upon the meeting of the minds of the parties regarding the object of the contract and its pricethis was present in this case. The ownership of the land and the earrings had been passed to Dr. Cruz and Fule, respectively, upon the constructive delivery thereof. There was no evidence supporting the allegation of Fule that Dr. Cruz is guilty of fraud, hence the contract shall remain in force and Fule may not recover the parcel of land from Dr. Cruz. 3. Contract for Piece of Work
SALE Essence = sale of an object Essence is the object, irrespective of the party giving or executing it
CONTRACT FOR A PIECE OF WORK Essence = sale of service Essence is the service, knowledge, or even reputation of the person who executes or manufactures the object Subject matter is the service to be rendered (obligation to do); does not allow an action for specific performance in case the contractor refuses to comply with his obligation; employer is given the remedy as stated in Art. 1715
Constitutes of real obligations; proper subject of an action for specific performance
Art. 1467: A contract for the delivery at a certain price of an article which the vendor in the ordinary course of his business manufactures or procures for the general market, whether the same is on hand at the time or not, is a contract of sale, but if the goods are to be manufactured specially for the customer and upon his special order, and not for the general market, it is a contract for a piece of work. Art. 1713: By the contract for a piece of work the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation. The contractor may either employ only his labor or skill, or also furnish the material.
NOTES: CONTRACT FOR A PIECE OF WORK the contractor binds himself to execute a piece of work for the employer, in consideration of a certain price or compensation; the contractor may either employ only his labor or skill, or also furnish the materials o Must look to the nature of the work = If the company accepts a job that requires the use of extraordinary skills or additional equipment, or involves services not generally performed by it o Massachusetts Rule whether the thing transferred is one not in existence and which never would have existed but for the order of the party desiring to acquire it, or a thing which would have existed and been the subject of sale to some other
person, even if the order had not been given o Contractor a person who, in pursuit of the independent business, undertakes to do a specific job or piece of work for other persons, using his own means and methods, without submitting himself to control as to the petty details TWO TESTS FOR DISTINCTION: o Manufacturing in the ordinary course of business = contract of sale o Manufacturing upon special orders of customers and not for the general market = contract for a piece of work underlying fiduciary relationship The buyer himself pays for the price of the object, which constitutes his main obligation The buyer, after delivery, becomes the owner of the subject matter The seller warrants Celestino v. Collector (1956) Oriental Sash Factory was considered a seller of sashes, windows, and doors as it habitually makes them for sale to the general public. The fact that windows and doors were manufactured only when customers placed their orders does not alter the nature of the establishment. If it accepts a job that requires the use of extraordinary or additional equipment, or involves services not generally performed by it, it thereby contracts for a piece of work, filling orders within the meaning of Art. 1467. Commissioner v. Engineering Equipment (1975) Engineering entered into a contract for a piece of work. The aircon units installed in a central type of AC system would not have existed but for the order of the party desiring to acquire it; and if it existed without the special order of the companys customer, these AC units were not intended for sale to the general public. 4. Agency to Buy or Sell NOTES: CONTRACT OF AGENCY a person binds himself to render some service or to do something in representation or on behalf of the principal, with the consent or authority of the latter Quiroga v. Parsons (1918) F: Plaintiff Quiroga granted to defendant Parsons the right to sell as an agent the Quiroga beds in Visayas. Parsons was obliged under the contract to pay for the beds within a specified period after delivery even when not yet sold, at a discount of 25% as commission for the sales. Quiroga sought the rescission of the agreement, claiming that Parsons violated some of the conditions in their contract, invoking the essential revocability of agency as his legal basis to rescind the agreement. H: Quiroga may not unilaterally rescind the contract, because the contract that existed between himself and Parsons was one of sale, and not of agency. The controlling condition present in the contract that defined it to be a contract of sale was that there was the obligation on the part of the plaintiff to supply the beds, and, on the part of the defendant, to pay the price therefor. Puyat v. Arco (1941) F: Arco Amusement company had engaged the services of Gonzalo Puyat and Sons to purchase from the Starr Piano Company based in the US specified sound reproducing The agent is not obliged to pay the price, and is merely obliged to deliver the price which he may receive from the buyer The agent does not become the owner of the thing subject of the agency, even if the object is delivered to him The agent who effects the sale assumes no personal liability as long as he acts within his authority and in the name of the principal; however, the agent can voluntarily bind himself to the warranties of the seller Because of the underlying fiduciary relationship between the agent and the principal, the agent is disqualified from receiving any personal profit from the transaction covered by the agency, and any profit received should pertain to the principal
Art. 1466: In construing a contract containing provisions characteristic of both the contract of sale and of the contract of agency to sell, the essential clauses of the whole instrument shall be considered. Art. 1868: By the contract of agency a person binds himself to render some service or to do something in representation or on behalf of another, with the consent or authority of the latter. SALE Essence = transfer of title or agreement to transfer it for the price paid or promised AGENCY Essence = delivery to the agent of the goods not as the agents property but of the principal who remains the owner and has the right to control the sales by the agent, fix the price and terms, demand and receive the proceeds of the sales less the agents commission Revocable even in the presence of an irrevocability clause, because it covers an
Not unilaterally revocable
equipment. When Arco found out that Puyat had quoted to Arco not the net price but the list price, and that Puyat had received a discount from Starr, it sought to recover the same, arguing that being only its agent, any benefit or profit received by Puyat from the transaction must inure to Arco, as the principal. H: Theirs was a contract of sale, and not of agency. Although Puyat was entitled to receive commission, the same did not necessarily make it an agent of Arco, as the provision is only an additional price which Arco bound itself to pay. Such stipulation was not incompatible with the contract of sale. Not every concealment is fraud; the fact that Puyat tweaked the prices of the equipment a bit is neither illegal nor fraudulent, such increase only refers to the profit that Puyat may recover from the business it is engaged in. 5. Dacion en Pago (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. Art. 1485: The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. NOTES: CONTRACT OF LEASE the lessor binds himself to give to another (the lessee) the enjoyment or use of a thing for a price certain, and for a period which may be definite or indefinite o A conditional sale may be made in the form of a lease with an option to buy as a device to circumvent the provisions of the Recto Law governing the sale of personal property on installments CONTRACT OF SALE/CONTRACT TO SELL CONTRACT TO SELL a situation wherein the seller promised to execute a deed of absolute sale upon completing payment of the price o Ownership is retained by the seller until payment of the price in full o Such payment is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title o Seller has the right to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided for Luzon Brokerage v. Maritime Building (1972) F: Myers and Maritime entered into a contract of conditional sale (contract to sell). Myers reserved the right to cancel the contract in case of Maritimes failure to pay installments. Maritime failed to pay, hence, Myers cancelled the contract. H: Contract to sell, not of sale. When payment was not made, contract of sale was not perfected. The distinction between contracts of sale and contract to sell with reserved title has been recognized by this Court in repeated decisions upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided for, as in this case. Dignos v. CA (1988) F: Dignos sold their land to Jabil payable in 2 installments, with assumption of indebtedness. Jabil paid and it was
Art. 1245: Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by the law of sales. NOTES: DACION EN PAGO one whereby property is alienated to the creditor in full satisfaction of a debt in money; presupposes a pre-existing debt and extinguishes the debt o Constitutes the delivery and transmission of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation o A special mode of payment whereby the debtor offers another thing to the debtor who accepts it as equivalent of payment of an outstanding debt Dao Heng Bank v. Sps. Laigo (2008) F: Spouses Laigo obtained a loan from Dao Heng Bank and as security, three real estate mortgages were executed. When the Laigos failed to pay on time, they verbally agreed to cede one of the mortgaged properties to Dao Heng Bank by way of dacion en pago. Dao Heng later issued a letter stating the outstanding obligation of the Laigos, and when the Laigos took no action, their remaining mortgaged properties were foreclosed. H: There is no showing that the dacion en pago has been accepted by both parties. Since there is no consent, there is no dacion en pago. The titles to the properties were delivered as a security for the loan, hence the foreclosure was valid as it was the proper remedy in this case. The power to decide whether or not to foreclose the mortgage is the sole prerogative of the mortgagee (Dao Heng). 6. Lease
Art. 1484: In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay;
acknowledged by the spouses in a deed. Later, Dignos spouses also sold the same land to Cabigas, a deed of absolute sale was executed. H: The property belongs to Jabil since when Dignos sold the land to Cabigas, they could not validly do so since they no longer were the owners. Difference between contract to sell and contract of sale: sell reserves ownership subject to fulfillment of condition, i.e. full payment, and ownership does not pass to the buyer despite delivery of the thing until said condition is fulfilled; sale does not reserve ownership over the thing sold and ownership is transferred immediately upon actual or constructive delivery of the thing. upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession; (6) Any others specially disqualified by law. Art. 1492: The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations. NOTES: GENERAL RULE = any person who has the capacity to act, or the power to do acts with legal effects, i.e., the power to obligate himself, may enter into a contract of sale, whether as a seller or as a buyer Natural persons = age of majority is 18 years, upon which age they have the capacity to act Juridical persons = a juridical personality separate and distinct from that of its members is expressly recognized by law, with full juridical capacity to obligate themselves and enter into valid contracts ABSOLUTE INCAPACITY Art. 1327: The following cannot give consent to a contract: (1) Unemancipated minors; (2) Insane or demented persons, and deaf-mutes who do not know how to write.
Chapter II: PARTIES TO A CONTRACT OF SALE CAPACITY OF PARTIES Art. 1489: All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles. Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in article 290. 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 of property under article 191. Art. 1491: The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (1) The guardian, the property of the person or persons who may be under his guardianship; (2) Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given; (3) Executors and administrators, the property of the estate under administration; (4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale; (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied
Art. 1397: The action for the annulment of contracts may be instituted by all who are thereby obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or employed fraud, or caused mistake base their action upon these flaws of the contract. Art. 1399: When the defect of the contract consists in the incapacity of one of the parties, the incapacitated person is not obliged to make any restitution except insofar as he has been benefited by the thing or price received by him. NOTES: Minors, insane and demented persons, and deafmutes who do not know how to write = have no legal capacity to contract o Contracts entered into by them are voidable, subject to annulment or ratification
Necessaries Art. 1489: All persons who are authorized in this Code to obligate themselves, may enter into a contract of sale, saving the modifications contained in the following articles. Where necessaries are those sold and delivered to a minor or other person without capacity to act, he must pay a reasonable price therefor. Necessaries are those referred to in article 290. celebration of marriage shall remain and continue to be in force. NOTES: A spouse may, without the consent of the other spouse, enter into sale transactions in the regular or normal pursuit of his or her profession, vocation, or trade The administration of the community property or the conjugal property shall belong to both spouses jointly; in case of disagreement, the husbands decision shall prevail, without prejudice to the wifes capacity to seek remedy from the courts within a 5-year period The disposition or encumbrance of community property or conjugal property shall be void without authority of the court or the written consent of the other spouse. o In such a case, the transaction shall be construed as a continuing offer on the part of the consenting spouse and the third person, and may be perfected as a binding contract upon the acceptance by the other spouse or authorization by the court before the offer is withdrawn by either or both offerors 2. Between Spouses
Art. 290: Support is everything that is indispensable for sustenance, dwelling, clothing and medical attendance, according to the social position of the family. Support also includes the education of the person entitled to be supported until he completes his education or training for some profession, trade or vocation, even beyond the age of majority. NOTES: NECESSARIES everything indispensable for sustenance, dwelling, clothing, medical attendance, education, and transportation, in keeping with the financial capacity of the family [and education] include[s] his schooling or training for some profession, trade, or vocation, even beyond the age of majority. Transportation shall include expenses in going to and from school, or to and from place of work. Two requisites for the sale of necessaries to minors be valid: o Perfection of the sale o Delivery of the subject necessaries
Art. 133: Every donation between the spouses during the marriage shall be void. This prohibition does not apply when the donation takes effect after the death of the donor. Neither does this prohibition apply to moderate gifts which the spouses may give each other on the occasion of any family rejoicing.
RELATIVE INCAPACITY: Married Persons 1. Contracts with Third Parties
Art. 73: The original of the affidavit required in the last preceding article, together with a copy of the marriage contract, shall be sent by the person solemnizing the marriage to the local civil registrar of the municipality where it was performed within the period of thirty days, after the performance of the marriage. The local civil registrar shall, however, before filing the papers, require the payment into the municipal treasury of the legal fees required in article 65. Art. 96: The existing laws which punish acts or omissions concerning the marriage license, solemnization of marriage, authority to solemnize marriages, and other acts or omissions relative to the
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 of property under article 191. Art. 1492: The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations. NOTES: RATIONALE FOR PROHIBITION: o To prevent a spouse from defrauding his creditors by transferring his properties to the other spouse o To avoid a situation where the dominant spouse would unduly take advantage of
the weaker spouse, thereby effectively defrauding the latter o To avoid an indirect violation of the prohibition against donations between spouses under Art. 133 PERSONS WHO MAY QUESTION THE VALIDITY OF THE SALE BETWEEN SPOUSES: o Heirs of either spouse o Prior creditors o The State, when it comes to the payment of proper taxes due on the transactions his name and used it as collateral for a bank loan. Cruz filed a complaint, alleging that her sale in favor of Suzara was null and void for lack of consideration and for being contrary to law and public policy. Suzara had sold the land to a third party. H: Even if common law spouses are prohibited from selling each other property, Cruz can no longer seek reconveyance of the property to her because it has already been acquired by a third party in good faith and for value from Suzara, who was the holder of the title over the land. SPECIAL DISQUALIFICATIONS Art. 1491: The following persons cannot acquire by purchase, even at a public or judicial auction, either in person or through the mediation of another: (1) The guardian, the property of the person or persons who may be under his guardianship; (2) Agents, the property whose administration or sale may have been intrusted to them, unless the consent of the principal has been given; (3) Executors and administrators, the property of the estate under administration; (4) Public officers and employees, the property of the State or of any subdivision thereof, or of any government-owned or controlled corporation, or institution, the administration of which has been intrusted to them; this provision shall apply to judges and government experts who, in any manner whatsoever, take part in the sale; (5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and other officers and employees connected with the administration of justice, the property and rights in litigation or levied upon an execution before the court within whose jurisdiction or territory they exercise their respective functions; this prohibition includes the act of acquiring by assignment and shall apply to lawyers, with respect to the property and rights which may be the object of any litigation in which they may take part by virtue of their profession; (6) Any others specially disqualified by law. Art. 1492: The prohibitions in the two preceding articles are applicable to sales in legal redemption, compromises and renunciations.
Medina v. Collector (1961) F: Deficiency sales taxes were sought to be collected against the sales of lumber products by the wife to the public, although when the husband previously sold the lumber products to the wife (at a lower price), he had already paid the sales taxes thereon. The spouses alleged that the sales between them were valid since they were governed by the complete separation of property regime pursuant to a prenuptial agreement executed between them. H: Aside from the fact that the records of the alleged prenuptial agreement were non-existent, the Court determined that at the time of their marriage, the spouses had no properties to have warranted them to execute a pre-nuptial agreement for complete separation of property. The sales between them were void and non-existent in violation of Art. 1490, and thus the sales by the wife to the public are not exempt from the sales tax. 3. Applicability to Common-Law Spouses
Art. 133: Every donation between the spouses during the marriage shall be void. This prohibition does not apply when the donation takes effect after the death of the donor. Neither does this prohibition apply to moderate gifts which the spouses may give each other on the occasion of any family rejoicing. NOTES: The Court has held that so long as marriage remains the cornerstone of our family law, reason and morality alike demand that the disabilities attached to marriage should likewise attach to common law relationships Reason for application: common law spouses cannot be in a better position than those who legally contract marriage Matabuena v. Cervantes (1971) F: The sister of the deceased common-law husband sought to annul the previous donation by the deceased during his lifetime to his then common law spouse, although the two subsequently married thereafter. H: The donation was void as the prohibition applies to common-law spouses as well. Cruz v. CA (1997) F: Cruz executed a deed of absolute sale over a parcel of land to her common-law spouse, Suzara, without any monetary consideration. Suzara registered the land under
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Guardians, Agents, and Administrators Contracts entered into by these people may be ratified by a new contract (the private wrong to the ward, principal, or estate can be condoned and the State shall not stand in the way); the contracts entered into by the others (lawyers, judges, etc.) cannot be cured even by subsequent contract (because what is involved
is a public wrong, i.e., a damage to public service, etc.) GUARDIANSHIP a trust of the highest order o The trustee cannot be allowed to have any inducement to neglect his wards interest AGENCY: exception the contract of sale will not be deemed void if the consent of the principal has been given o Broker not included in the prohibition = he is a mere middleman between the seller and the buyer and does not act in behalf of either of them prestige necessary to carry out their functions by freeing them from all suspicion which, although unfounded, tends to discredit the institution by putting into question the honor of these people Macariola v. Asuncion (1982) F: Judge Asuncion purchased a property from Dr. Galapon, who acquired the said property from the parties in a partition case previously handled by Judge Asuncion. H: The prohibition in the NCC on acquisition of properties by judges covers only acquisitions taking place during the pendency of the litigation involving those properties. The case handled by Judge Asuncion had long been final. He didnt buy the lot directly from the plaintiffs either. However, his acts invited suspicion of impropriety & distrust thus he was reminded to be discreet in his private/business affairs.
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Philippine Trust Co. v. Roldan (1956) F: When his father died, Mariano inherited 17 parcels of land from him. His stepmom Roldan, was appointed his guardian through guardianship proceedings. Roldan sold the land to her brother-in-law Ramos allegedly to invest the money in a house in Manila. The next day, Ramos executed in favor of Roldan a deed of conveyance covering the same 17 parcels. H: Roldan purchased her wards property through her brother-in-law. She planned to get them for herself, evident from the amount of time that lapsed between the two sales. Only ONE DAY had passed from the time the guardianship court judicially confirmed the sale. From both legal and equitable standpoints, the sales cannot be sustained. The sales from Mariano, by Roldan, to Ramos, and then from Ramos to Mariano, are void for violation of Art. 1459. 2. Lawyers Prohibition is intended to curtail any undue influence of the lawyer on his client on account of their confidential association Violation of the prohibition is tantamount to a breach of professional ethics
Chapter III: SUBJECT MATTER REQUISITES OF A VALID SUBJECT MATTER Art. 1459: The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. Art. 1460: A thing is determinate when it is particularly designated or physical segregated from all others of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the necessity of a new or further agreement between the parties. Art. 1461: Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. Art. 1462: The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods." There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. Art. 1463: The sole owner of a thing may sell an undivided interest therein. Art. 1464: In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer to buy a definite
Rubias v. Batiller (1973) F: Francisco Militante claimed ownership over land to which he filed an application for registration of title. The application was opposed by the Director of Lands. Pending litigation, Militante sold the land to Domingo Rubias, his son-in-law and a lawyer by profession. Rubias declared the land for taxation purposes under various tax declarations and land taxes. H: Aside from acquiring nothing from Francisco Militante, his application for registration was denied by the land registration court, as affirmed with finality by the CA. Assuming in arguendo that Militante had anything to sell, the deed of sale executed in 1956 by him in favor of plaintiff at a time when plaintiff was concededly his counsel of record in the land registration case involving the very land in dispute was void. The purchase by a lawyer of the property in litigation from his client is categorically prohibited by Article 1491, paragraph (5) of the Civil Code. 3. Judges Prohibition is intended to (1) remove any occasion for fraud, and (2) to surround them with the
number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. Art. 1465: Things subject to a resolutory condition may be the object of the contract of sale. NOTES: Requisites that ought to be present in the subject matter at the time of perfection of the contract: o It must be licit o It must be determinate or at least determinable o It must be existing, having potential existence, a future thing, or even contingent or subject to a resolutory condition, i.e., it must be a possible thing 1. Must be licit (3) Those whose cause or object did not exist at the time of the transaction; (4) Those whose object is outside the commerce of men; (5) Those which contemplate an impossible service; (6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained; (7) Those expressly prohibited or declared void by law.
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These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
NOTES: LICIT not outside the commerce of men o If subject matter is illicit = contract of sale is void o Illicit objects: e.g., narcotics, lands belonging to the patrimony of the State, wild animals, rare wild plants, gunpowder and explosives, firearms and ammunitions, etc. Martinez v. CA (1974) F: A parcel of land, ownership of which changed hands until it landed to spouses Martinez, was being contested by the municipality as a river and thus form part of public domain. The dispute was referred to the Committee of Rivers and Streams, which conducted an investigation. The report submitted stated that Parcel No. 2 was not a public river but a private fishpond owned by the spouses. The municipal officials of Lubao refused to recognize the Subcommittees decision. H: Parcel No. 2 is a river of the public domain as evidenced by its technical description which states that it is bounded on all sides by rivers. Said parcel is a branch of the main river that has been covered with water since time immemorial and thus part of the public domain. It is incapable of private appropriation or acquisition by prescription. The spouses title does not include the river. Simple possession of a certificate of title under the Torrens system does not necessarily make the possessor a true owner of all the property described therein. The incontestable and indefeasible character of a Torrens certificate of title does not operate when the land covered is not capable of registration. 2. Must be determinate or determinable
Art. 1347: All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. Art. 1459: The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. Art. 1575: The sale of animals suffering from contagious diseases shall be void. A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor. Art. 1409: The following contracts are inexistent and void from the beginning: (1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or public policy; (2) Those which are absolutely simulated or fictitious;
Art. 1460: A thing is determinate when it is particularly designated or physical segregated from all others of the same class. The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate without the
necessity of a new or further agreement between the parties. NOTES: Even if the subject matter of the sale was generic (determinable), the performance of the sellers obligation would require necessarily its physical segregation or particular designation, making the subject matter determinate at the point of performance DETERMINATE aka SPECIFIC, when it is particularly designated or physically segregated from all others of the same class o When the subject matter of a sale is determinate, the basis upon which to enforce sellers obligation to deliver, as well as the basis upon which to demonstrate breach, are certain and unequivocable o The defense of force majeure is applicable to legally relieve the seller from the consequences of failure to deliver the subject matter of the sale DETERMINABLE a generic object, i.e., it has neither been physically segregated nor particularly designated at the point of perfection from the rest of its kind o Requisites: (1) If at perfection of the sale, the subject matter is capable of being determinate, aka the capacity to segregate test; and (2) without the necessity of a new or further agreement between the parties, aka the no further agreement test Melliza v. City of Iloilo (1968) F: Melliza sold under a deed several tracts of land to the then Municipality of Iloilo, including lots 1214-C and 1214D. The instrument of sale did not mention lot 1214-B, although it was contiguous to the other two lots, but stipulated that the area being sold shall include the area needed for the construction of the city hall site, avenues and parks according to the Arellano plan. The Arellano plan had long been in existence before the execution of the deed. H: The requirement that a sale must have for its object a determinate thing is fulfilled as long as, at the time the contract is entered into, the object of the sale is capable of being made determinate without the necessity of a new or further agreement between the parties. The requirement was deemed fulfilled under the contract of sale because it specifically referred to such other portions of the lots required by the Arellano plan which had long been in existence and it specifically provided for the land areas needed for the city hall site. Therefore, at the time of the perfection of the contract, the exact area of the land needed, which was the subject matter of the sale, could be determined by simply referring to the Arellano plan, without the parties needing to draw-up a new contract, nor even to clarify matters or explain their intentions. Atilano v. Atilano (1969) F: Eulogio Atilano II brought parcel of land from his brother Eulogio Atilano I. Heirs of E. Atilano II claim that upon resurvey of the subject land, it was discovered that the land sold to them designated as Lot No. 535-E was in fact Lot No. 535-A which was the one presently occupied by heirs of Atilano I. So, Atilano II bought 535-E but is now occupying 535-A (1,808 square-meter) and Atilano II retained 535-A but is now occupying 535-E (2,612 square meters). Atilano II of course wants to get the other bigger parcel. H: When one sells or buys real property - a piece of land, for example - one sells or buys the property as he sees it, in its actual setting and by its physical metes and bounds, and not by the mere lot number assigned to it in the certificate of title. The real issue here is not adverse possession, but the real intention of the parties to that sale. The object of sale, as intended and understood by the parties, was that specific portion where the vendee was then already residing, where he reconstructed his house where his heirs continued to reside, namely, lot No. 535-A; and that its designation as lot No. 535-E in the deed of sale was a simple mistake in the drafting of the document. 3. Must be existing, future, or contingent
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Art. 1347: All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. Art. 1348: Impossible things or services cannot be the object of contracts. Art. 1462: The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods." There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. NOTES: POSSIBLE THING it has the capacity, not certainty, of coming into existence if subject to a suspensive condition; or it already exists but may or may not cease to exist if it is subject to a resolutory condition Things having a potential existence may be the object of a contract of sale Rationale for requisite = to ensure demandability and enforceability of the underlying obligation of the seller to deliver
Absence of this requisite = contract of sale is void Art. 1461: Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. NOTES: SALE EMPTIO SPEI A sale of hope or expectancy o Uncertainty is with regard to the existence of the thing o Contract deals with a present thinghope or expectancy o Sale produces its effect even though the thing itself does not come into existence Subject to resolutory condition Art. 1465: Things subject to a resolutory condition may be the object of the contract of sale. NOTES: Things subject to a resolutory condition may be the object of a contract of sale When the resolutory condition is fulfilled, the parties shall return to each other what they have received 4. Quantity of subject matter not essential for perfection
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Emption rei speratae Art. 1461: Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. Art. 1347: All things which are not outside the commerce of men, including future things, may be the object of a contract. All rights which are not intransmissible may also be the object of contracts. No contract may be entered into upon future inheritance except in cases expressly authorized by law. All services which are not contrary to law, morals, good customs, public order or public policy may likewise be the object of a contract. NOTES: SALE EMPTIO REI SPERATAE a sale subject to the condition that the thing will come into existence o Strictly a contract covering future things, and subject to a suspensive condition that the subject matter will come into existence o If the subject matter does not come into existence, the contract is deemed extinguished as soon as the time expires or if it has become indubitable that the event will not take place Pichel v. Alonzo (1981) F: Alonzo was awarded a parcel of land by the Government as homestead, of course with prohibition from encumbrance. Alonzo sold to Pichel through a deed of sale all the fruits of the coconut trees which may be harvested in the land for the period 15 September 1968 to 1 January 1976, in consideration of P4,200. Alonzo filed an action for the annulment of a Deed of Sale because the contract actually is, for all legal intents and purposes, a contract of lease of the land itself; an encumbrance prohibited under RA 477. H: The document in question expresses a valid contract of sale. It has the essential elements of a contract of sale as defined under Article 1485 of the New Civil Code. The subject matter of the contract of sale in question are the fruits of the coconut trees on the land during the years from September 15, 1968 up to January 1, 1976, which subject matter is a determinate thing. Under Article 1461 of the New Civil Code, things having a potential existence may be the object of the contract of sale. Pending crops which have potential existence may be the subject matter of the sale. Emptio spei
Art. 1349: The object of every contract must be determinate as to its kind. The fact that the quantity is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to determine the same, without the need of a new contract between the parties. NOTES: Law provides only that thing must be determinate as to its kind, and not necessarily as to its quantity PARTICULAR KINDS 1. Generic things
Art. 1246: When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration. Art. 1409 (6): The following contracts are inexistent and void from the beginning:
Art. 1464: In the case of fungible goods, there may be a sale of an undivided share of a specific mass, though the seller purports to sell and the buyer to buy a definite number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass, and though the number, weight or measure of the goods in the mass is undetermined. By such a sale the buyer becomes owner in common of such a share of the mass as the number, weight or measure bought bears to the number, weight or measure of the mass. If the mass contains less than the number, weight or measure bought, the buyer becomes the owner of the whole mass and the seller is bound to make good the deficiency from goods of the same kind and quality, unless a contrary intent appears. NOTES: GENERAL RULE: Proportional co-ownership over the mass If mass contains less than the number, weight, or measure bought = buyer becomes the owner of the whole mass and the seller must make good the deficiency which must be of the same kind and quality unless a contrary intent appears 4. Sale of things in litigation
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(6) Those where the intention of the parties relative to the principal object of the contract cannot be ascertained NOTES: When the obligation consists in the delivery of an indeterminate or generic thing, the creditor may not demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality Yu Tek v. Gonzales (1915) F: A written contract was executed between Basilio Gonzalez and Yu Tek & Co for Gonzalez to provide Yu Tek with 600 piculs of sugar of the first and the second grade according to the result of the polarization within three months for a consideration of P3000. Yu Tek paid Gonzalez P3000 but the latter was not able to deliver the sugar because of the almost total failure of his crop. The contract of sale being valid, the loss of the thing must be borne by the buyer. H: A contract of sale is not perfected until the parties have agreed upon the price and the thing sold. There is a perfected sale with regard to the thing being sold when it had already been physically segregated from all other articles. In the case at bar, what was designated was the generic name sugar. There was no appropriation of any particular lot of sugar. Thus, the contract between Gonzalez and Yu Tek was merely an executory agreement; a promise of sale and not a sale. As there was no perfected sale, it is clear that articles 1452, 1096 and 1182 are not applicable. 2. Future goods
Art. 1381 (4): The following contracts are rescissible: (4) Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority Art. 1358 (2): The following must appear in a public document: (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains NOTES: GENERAL RULE: Sales of things under litigation by the defendant without the knowledge and approval of the litigants or of the court are rescissible EXCEPTION: When the thing is in the possession of a third person who did not act in bad faith
Art. 1461: Things having a potential existence may be the object of the contract of sale. The efficacy of the sale of a mere hope or expectancy is deemed subject to the condition that the thing will come into existence. The sale of a vain hope or expectancy is void. NOTES: THING OF POTENTIAL EXISTENCE A thing, though not yet actually in existence, is reasonably certain to come into existence as the natural increment or usual incident of something already in existence, and then belonging to the vendor, and the title will vest in the buyer the moment the thing comes into existence It is not part of the requisite of a valid subject matter, at the time of the perfection of the contract, that the seller is the owner of the thing sold as long as he has the right to transfer ownership thereof at the time the subject matter is delivered 3. Sale of undivided interest or share
Art. 1463: The sole owner of a thing may sell an undivided interest therein.
Chapter IV: OBLIGATION OF THE SELLER TO TRANSFER OWNERSHIP SALE BY A PERSON NOT THE OWNER AT TIME OF DELIVERY Art. 1462: The goods which form the subject of a contract of sale may be either existing goods, owned or possessed by the seller, or goods to be manufactured, raised, or acquired by the seller after the perfection of the contract of sale, in this Title called "future goods." There may be a contract of sale of goods, whose acquisition by the seller depends upon a contingency which may or may not happen. Art. 1505: Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell. Nothing in this Title, however, shall affect: (1) The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of goods to dispose of them as if he were the true owner thereof; (2) The validity of any contract of sale under statutory power of sale or under the order of a court of competent jurisdiction; (3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and special laws. Art. 1434: When a person who is not the owner of a thing sells or alienates and delivers it, and later the seller or grantor acquires title thereto, such title passes by operation of law to the buyer or grantee. NOTES: If a person who is not the owner sells the thing, and he should subsequently acquire ownership thereof, his conveyance is deemed valid, and his title passes by operation of law to his buyer (estoppel by deed) Hernaez v. Hernaez (1915) F: Domingo Hernaezs parents died. He sold his interests to the undivided estate of both parents to his son, Vicente. Notwithstanding that fact, and in connivance with Vicente, he executed a document of sale all his interest to his fathers estate and 1/18 of his mothers to Alejandro Montelibano. He also executed a document of sale, on the same day, to Jose Montelibano Uy-Cana, selling 4/18 of his interest in his mothers estate. Jose Montelibano Uy-Cana then sold his interest to Alejandro. After that, Vicente sold his interest to his uncle Rosendo. H: Vicente is estopped from asserting his title as against either Montelibano or Uy-Cana, even though he had actually purchased all of his fathers interest. Where the true owner of property, for however short a time, holds out another, or, with knowledge of his own right, allows another to appear as the owner of or as having full power of disposition over the property, the same being in the latters actual possession, and innocent third parties are thus led into dealing with such apparent owner, they will be protected. Siy Cong Bien v. HSBC (1932) F: Ranft was given quedans as document of his title to bales of hemp he had purchased. However, without paying for the hemp yet, he offered the quedans as security for his preexisting debts to HSBC. He died without paying Siy for the hemp. Siy wanted to get the quedans from HSBC as these were not yet paid for. H: Siy is estopped from denying that the bank had a valid title to the quedans for the reason that Siy itself had voluntarily clothed Ranft with all the attributes of ownership. The bank, without knowing of the arrangement between the parties, relied upon the apparent ownership in good faith. Jalbuena v. Lizarraga (1915) F: Salvador Lizarraga, as judgment creditor, caused the sheriff to levy upon an old sugar-mill as the property of Ildefonso Doronila, the judgment debtor and husband of Jalbuena. At the time of the levy Doronila stated to the sheriff that the mill belonged to him. H: Jalbuena is estopped. Where the true owner of property, for however short a time, holds out another, or, with knowledge of his own right, allows another to appear, as the owner of or as having full power of disposition over the property, the same being in the latter's actual possession, and innocent third parties are thus led into dealing with some [such] apparent owner, they will be protected. 2. Recording Laws; Torrens System PD 1529
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Art. 1459: The thing must be licit and the vendor must have a right to transfer the ownership thereof at the time it is delivered. NOTES: GENERAL PRINCIPLE: No one can transfer a better title than what he has over the property sold o Only the owner of the goods or one authorized by the owner to sell can transfer title thereto to the buyer o Owner of a lost movable or of which he has been unlawfully deprived may recover it even from a purchaser in good faith EXCEPTIONS: When ownership transfers by nonowner 1. Estoppel
Laws relating to goods which would enable the registered owner to dispose of them as if he were the true owner; these laws do not exist in the Philippines Lands registered under the Land Registration Act = the innocent purchaser who takes the land from the registered owner acquires a better title than his vendor Statutory Sale Order of Courts A sale by the sheriff or by any other public officer authorized by law, of goods under execution or subject of foreclosure, is valid even if the owner did not authorize or consent to the sale Sale in Merchants Store, Market, or Fair An innocent purchaser acquires a better title than his vendor if he buys the goods from a merchants store, market, or fair PURPOSE: To protect innocent purchasers who buy at merchants stores, markets, or fairs, in order to facilitate commercial sales in movables and to give stability to business transactions Centeno decided to unload the rice from the truck, but Masiclat objected on the ground that he has bought it at P26.00 per sack from a person whom he did not know. H: Ownership of the rice has not been transferred to Masiclat. The evidence does not clearly show the identity of the person who tried to buy the rice, and neither does it show that the same person was the one who sold the same to Masiclat. But even supposing that said stranger sold the rice to Masiclat, the latter acquired no title thereto because Centeno had not lost ownership and legal possession thereof. Ownership is not considered transmitted until the property is actually delivered and the purchaser has taken possession and paid the price agreed upon. The sale was not consummated because although Centeno allowed the rice to be loaded in the truck, she did not intend to transfer its ownership until she was paid the stipulated price. This is evident from the fact that she continually watched her rice and demanded its unloading as soon as the stranger was missing. SALE BY A PERSON HAVING A VOIDABLE TITLE Art. 1506: Where the seller of goods has a voidable title thereto, but his title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, provided he buys them in good faith, for value, and without notice of the seller's defect of title. Art. 559: The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the same. If the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. NOTES: o Where the seller has a voidable title to the goods but his title has not been avoided at the time of the sale, he can transfer a valid title to an innocent purchaser for value o So long as the goods are still in the possession of the first buyer, they may still be recovered by the vendor in an action for annulment o Once title is transferred to an innocent purchaser for value before the contract is annulled, the purchaser acquires a valid title Tagatac v. Jimenez (1957) F: Tagatac was induced by fraud (pretending he had lots of money) to sell and deliver his car to Feist for which she was given a post-dated check. The check was dishonored and the car was subsequently sold from one person to another until it was displayed in a car exchange where it was discovered by the plaintiff. She brought an action to recover the car. H: According to Art. 559 CC, although possession of movable property acquired in good faith is equivalent to a title, one
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3. -
4. -
Sun Bros. v. Velasco (1958) F: Sun Bros delivered to Francisco Lopez an Admiral refrigerator. Lopez paid only the down payment of P500. Lopez sold the ref to Velasco. The following day, Velasco sold the ref to Co Kang Chiu, after displaying the ref at his store. Co Kang Chiu paid P985 in cash. The ref was delivered to Co Kang Chiu. Sun Bros filed a complaint for replevin. H: This is a case of an imperfect or void title ripening into a valid one, as a result of some intervening causes. The policy of the law from which we do not feel justified to deviate, has always been that where the rights & interests of a vendor comes into clash with that of an innocent buyer for value, the latter must be protected. Ruling this way would facilitate commercials on movable & give stability to business transactions. This rule is necessary in a country such as ours where free enterprise prevails, for buyers cant be reasonably expected to look behind the title of every article when he buys at a store. The doctrine of caveat emptor is now rarely applied, and if it is mentioned it is more of an exception than the general rule. Masiclat v. Centeno (1956) F: Centeno (defendant) was the owner of 15 sacks of rice, which were for sale at her store near the public market of Angeles. A stranger approached her and offered to purchase the rice. Centeno agreed to sell the 15 sacks for P26.00 each, which the stranger promised to pay as soon as he would receive the price of his adobe stones (which were being then unloaded from a truck parked at the opposite side of the street). Relying on this promise, Centeno ordered the rice loaded in the aforementioned truck, of which Masiclat (plaintiff) was the caretaker, on the expectation that as soon as the adobe stones would be paid, the stranger would pay her the price of the rice. While the rice was being loaded, Centeno was keeping an eye on it, waiting for the stranger to come and pay her. When the stones were completely unloaded, the stranger could nowhere be found. Thereupon,
who has lost any movable or has been unlawfully deprived thereof, may nevertheless recover it from the person in possession of it. There was a valid transmission of ownership from Tagatac to Feist by virtue of the sale and delivery of the car to the swindler. The fraud and deceit practiced on her earmarked the sale as a voidable contract. As long as no action was taken for annulment, the contract remained binding. As the car was again sold to another, the title acquired by the subsequent purchaser was an indefeasible one, even as against the original owner. De Garcia v. CA (1971) F: A diamond ring was stolen from Guevaras house. While she was talking to Garcia, an owner of a restaurant, she recognized the ring on the latters finger and asked how she acquired the same. Garcia averred that she bought it from her comadre. It was ascertained the ring was indeed Guevarras but despite written demands, Garcia refused to return the ring. H: The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same. If the possessor of a movable lost of which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. The title of the possessor is not that of ownership, but is merely a presumptive title sufficient to serve as a basis of acquisitive prescription. EDCA Publishing v. Santos (1990) F: An impostor (alias Jose Cruz) buys books from EDCA through telephone. EDCA delivers the books, is paid through personal check, and issues a sales invoice. Impostor sells books to Santos who buys in good faith. The check to EDCA bounces, EDCA discovers the fraud of the impostor, and seeks to recover ownership of the books from Santos. H: Ownership shall pass from the vendor to the vendee upon the actual or constructive delivery of the thing sold even if the purchase price has not yet been paid. There was a perfected contract of sale. De La Pena acquired ownership over the books which he could then validly transfer to the Leonor Santos. First sentence of Art 559 CC: the possession of movable property acquired in good faith is equivalent to a title. Santos acquired possession of the movables (the books) in good faith, thus she has title to them as owner. Aznar v. Yapdiangco (1965) F: To get purchase price for car, Marella said they had to go to his sisters house to borrow money. Marella also requested the registration papers and copy of deed from Irineo, Santos son, on the pretext that he would show it to his lawyer. Irineo handed the documents to Marella. They alighted while an unidentified companion of De Dios stayed behind in the car. Once inside the house, Irineo was asked to wait in the sala while De Dios went inside a room. De Dios did not come out of the room. The car was also not there outside anymore. He inquired from a woman he saw for L. De Dios and he was told that no such name lived or was even known there. H: Article 559 of the Civil Code applies in this case, for under it, the rule is to the effect that if the owner has lost a thing, or if he has been unlawfully deprived of it, he has a right to recover it, not only from the finder, thief or robber, but also from third persons who may have acquired it in good faith from such finder, thief or robber. It establishes two exceptions to the general rule of irrevindicability, to wit, when the owner (1) has lost the thing, or (2) has been unlawfully deprived thereof. In these cases, the possessor cannot retain the thing as against the owner, who may recover it without paying any indemnity, except when the possessor acquired it in a public sale.
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Chapter V: PRICE MEANING OF PRICE Art. 1469: In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be. Art. 1470: Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. Art. 1471: If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract. Art. 1472: The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed is that which the thing sold would have on a definite day, or in a particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain. Art. 1473: The fixing of the price can never be left to the discretion of one of the contracting parties. However, if the price fixed by one of the parties is accepted by the other, the sale is perfected. 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 therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. NOTES: Price is the sum stipulated as the (1) equivalent of the thing sold, and also (2) every incident taken into consideration for the fixing of the price put to the debit of the buyer and agreed to by him The seller cannot unilaterally increase the purchase price previously agreed upon with the buyer, even when the need to adjust the price of sale is due to increased construction costs still a price paid or there is another cause is true and lawful. In this instance, the contract is subject to reformation. A contract with a false consideration is different from a contract without consideration. A contract without consideration has no stipulated price at all. A consideration being an essential requisite of a contract of sale, a contract without consideration is void. Its inexistence is permanent, incurable, and not subject to prescription.
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REQUISITES FOR A VALID PRICE 1. Must be real
Art. 1471: If the price is simulated, the sale is void, but the act may be shown to have been in reality a donation, or some other act or contract. NOTES: The price is real when, at the perfection of the contract of sale, there is a legal intention to pay and to receive payment. a. When price simulated The price is simulated when there is no legal intention to pay and to receive payment. Effects when price simulated Void. Unless the contract of sale is shown to be in reality a donation or some other act or contract. False consideration
Mapalo v. Mapalo (1966) F: Illiterate farmer spouses intended to donate half of their lot but were deceived into signing a deed of sale over the entire lot for 500 pesos. No payment of the price whatsoever was tendered. H: Contract of sale is void for having no consideration. The contract had no consideration in that the price which appeared as paid in the deed has never in fact been paid by the buyer. A contract without consideration is to be distinguished from one with a false consideration where there is a real consideration but the same is not the one stated in the document. Ong v. Ong (1985) F: Seller executed a deed selling her part of the land to the buyer for 1 peso and other valuable considerations. Seller eventually wants to revoke the sale since 1 peso is not a valid consideration to sustain the sale. H: The consideration of: 1 peso and other valuable considerations is a valid consideration to support the contract of sale. The consideration is not just 1 peso, but also other valuable considerations. The presumption that all contracts have a consideration cannot be overcome by mere allegations and assertions that there is a lack of consideration. Bagnas v. CA (1989) F: Seller sold a land assessed to be worth 10.5k for 1 peso to the buyer. Buyer uses the contract of sale as a claim to have a better right on the land over the sellers heirs. H: The apparent gross inadequacy and enormous disproportion between the stipulated price of the sale (1 peso) and the value of the estate (at least 10.5k) demonstrates a false and fictitious consideration. The sale is void because there is no other true and lawful cause. Morales v. CA (1960) F: Seller sold the land to buyer1 for 1 peso using a second duplicate title because the original duplicate title was lost. It appears that the original duplicate wasnt really lost and seller used the original duplicate to sell the land to buyer2. Buyer2 claims preference over the double sale arguing that he is a purchaser in good faith and for value, and that the sale to buyer1 with a 1 peso consideration is dubious. H: Assuming that said consideration of P1.00 is suspicious, this circumstance, alone, does not necessarily justify that buyer1 was not a purchaser in good faith and for value. The sellers liberality may be a sufficient cause for a valid contract. Although fraud or bad faith may render the contract voidable, it is binding until annulled.
b.
c.
Art. 1353: The statement of a false cause in contracts shall render them void, if it should not be proved that they were founded upon another cause which is true and lawful. Art. 1354: Although the cause is not stated in the contract, it is presumed that it exists and is lawful, unless the debtor proves the contrary. Art. 1355: Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract, unless there has been fraud, mistake or undue influence. NOTES: There is a false consideration when the price stipulated in the contract is not the actual price paid or delivered. If the price is false, the contract of sale is still valid; provided that there is there is
d. Non-payment of price There is a valid contract of sale even if there is no actual payment of the price. A contract of sale is a consensual contract, and becomes binding and valid upon the meeting of the minds on the price. Payment of the price goes into the consummation of the contract of sale, not in the perfection. (Taken from Villanueva which I think is inconsistent with the Mapalo doctrine.) If the minds of the parties never meet as to the price, because the price stipulated is known by both parties as simulated, the contract is undoubtedly void. On the other hand, if the minds of the parties have met as to the price, the contract of sale is valid, irrespective o the manner of payment agreed upon. With respect to the price, a contract of sale is valid if the price is fixed but is later on remitted or condoned. The price in this case is not fictitious. The failure to pay the price does not cancel a sale for lack of consideration, because when the contract was perfected there was a price or consideration agreed on. Must be in money or its equivalent as part of its consideration even if it has other considerations. Republic v. Phil. Resources (1958) F: Buyer bought goods from the Bureau of Prisons but only a small portion of the price was paid. To pay for the balance, buyer had materials from his company delivered to the Bureau of Prisons. The government contests this type of payment arguing that price is always paid in terms of money and that payment in kind is no payment at all. H: The buyer may pay a price in price certain or its equivalent. Payment of the price need not be in money. Whether the goods delivered to the Bureau of Prisons is sufficient payment is for the court to decide. 3. Must be certain or ascertainable at time of perfection
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Art. 1469: In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be. NOTES: The price is considered certain when the price agreed upon is that which the thing sold would have on a definite day or in a particular exchange or market or could be determined with reference to another thing certain. Toyota Shaw v. CA (1995) F: Buyer intended to purchase a vehicle. The agreement with the seller only indicated the submission of necessary documents, a down payment, and the date and time of pickup of the vehicle. Buyer paid the down payment but when he came to pick up the vehicle, seller informed him that it was sold to another person. H: The agreement between the buyer and seller did not represent a perfected contract of sale because nothing was mentioned about the full purchase price and the manner the installments were to be paid. A definite agreement on the manner of payment of the price is an essential element in the formation of a binding contract of sale; a disagreement on the manner of payment is tantamount to a failure to agree on the price. 4. The manner of payment must be agreed upon
2.
Art. 1458: By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. Art. 1468: If the consideration of the contract consists partly in money, and partly in another thing, the transaction shall be characterized by the manifest intention of the parties. If such intention does not clearly appear, it shall be considered a barter if the value of the thing given as a part of the consideration exceeds the amount of the money or its equivalent; otherwise, it is a sale. NOTES: The price is considered certain if it is in money or its equivalent its equivalent meaning some representative of money like a check, draft, or letters of credit. Services and prestations are not the equivalent of money, thus they do not constitute a valid price. Dacion en pago property given to the creditor in satisfaction of a debt in money, is regarded as a sale with the price paid in advance and is governed by the law on sales. The consideration for a valid contract of sale can be the price and other additional considerations. For a contract of sale to be valid, it must have the price
The manner and terms of payment of the price is an integral part of the price because of the time value of money. For example, a seller may impose a comparatively lower price if payment is to be made for a shorter period of time. Conversely, the seller may impose a higher price if payment is to be made over a longer period of time. 1. When the third person does not fix the price the suspensive condition of fixing the price has not happened, hence there is no contract which the court can fix. Since the contract has no price or is without consideration, there is no enforceable contract between the buyer and seller Courts cannot create contracts between the parties. In this case, the law declares that the contract of sale is inefficacious.
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2.
Velasco v. CA (1973) F: Buyer intends to purchase land. The agreement with the seller requires that he pay a down payment and monthly installments. Buyer paid part of the down payment but when he was about to pay the other part of the down payment, seller refused to accept it and refused to execute the deed of sale. H: The agreement did not represent a perfected contract of sale. The fact that the buyer gave part of the down payment cannot be considered proof of the perfection of the contract as the manner of payment of the installments were not agreed on. HOW PRICE IS DETERMINED
Although third persons may fix the price, they may not determine the subject matter of the sale. The obligation to pay the price is a fungible obligation. Any money can be used to pay the price and it cannot be extinguished by fortuitous event. On the other hand, the obligation to deliver the subject matter can only be complied with when the thing is either physically segregated or particularly designated. 3. By the courts
Art. 1469, supra 1. By third person NOTES: If the third person fixes the price in bad faith or by mistake, the buyer and seller can seek court remedy to fix the price. 4. By reference to a definite day Art. 1469: In order that the price may be considered certain, it shall be sufficient that it be so with reference to another thing certain, or that the determination thereof be left to the judgment of a special person or persons. Should such person or persons be unable or unwilling to fix it, the contract shall be inefficacious, unless the parties subsequently agree upon the price. If the third person or persons acted in bad faith or by mistake, the courts may fix the price. Where such third person or persons are prevented from fixing the price or terms by fault of the seller or the buyer, the party not in fault may have such remedies against the party in fault as are allowed the seller or the buyer, as the case may be. NOTES: A designation of the price by a third person makes the price certain or ascertainable as to give rise to a valid contract of sale. There is a perfected and existing contract (e.g., contract to sell) even before a third person fixes the price. It can be validly stipulated that the price will be left to the judgment of third persons. In this case, the fixing of a price by a third person becomes a suspensive condition. If the third person fixes the price in bad faith or by mistake (there is a price but fixed in bad faith or by mistake), the buyer and seller can seek court remedy to fix the price. But if the third person is unable or unwilling to fix the price (no price at all), the buyer and seller do not have a cause of action to seek from the court the fixing of the price because:
Art. 1472: The price of securities, grain, liquids, and other things shall also be considered certain, when the price fixed is that which the thing sold would have on a definite day, or in a particular exchange or market, or when an amount is fixed above or below the price on such day, or in such exchange or market, provided said amount be certain. NOTES: The price can be determined with reference to value of the thing on a particular date in the future taking into consideration inflation rate, exchange rate, or other factors in the market so long as the amount is certain.
5. -
By reference to another thing certain
The price can be determined with reference to another thing certain such as: certain invoices in clearly identified by the contract, or stipulated formulas.
INADEQUACY OF PRICE Art. 1355: Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a contract,
unless there has been fraud, mistake or undue influence. Art. 1470: Gross inadequacy of price does not affect a contract of sale, except as it may indicate a defect in the consent, or that the parties really intended a donation or some other act or contract. NOTES: Gross inadequacy of price does not affect a contract of sale except: 1. The inadequacy may indicate a defect in consent. 2. Contract may be invalidated if there is fraud, mistake, or undue influence. There is no requirement that the price given is exactly the value of the subject matter delivered. Inadequacy of price may be a ground for setting aside a judicial sale because it is not it is not the result of negotiations and bargaining. The courts may protect the supposed seller from a bad bargain that is not his own doing. For judicial sale be set aside on this ground, the inadequacy must be shocking to the conscience of man. Also, it must be shown that in the event of a resale, a better price can be obtained. However, a judicial sale will not be set aside when there is a right of redemption, since the more inadequate the winning bid at public sale, the more easily it is for the owner to redeem the property. Inadequacy of price is a ground for rescission of conventional sale in case of the following rescissible contracts: 1. Those entered into by guardians whenever the ward they represent suffers lesion by more than of the value of the object of sale 2. Those agreed upon in representation of absentees, if the absentee suffers lesion by more than of the value of the object of sale When there is a right to repurchase, the inadequacy of price should not be material because (1) the judgment debtor may reacquire the property or (2) sell his right to repurchase and thus recover the loss he claims to have suffered by reason of the price obtained in the auction sale. Gross inadequacy of price in a conventional sale with a right to repurchase raises a presumption of equitable mortage (Art. 1602). The proper remedy of the seller is not to rescind the contract, but to have it reformed or declared a mortgage contract, and to pay off the indebtedness which is secured. The remedy of the buyer would be to foreclose on the equitable mortgage. thing or any part thereof has been delivered to and appropriated by the buyer he must pay a reasonable price therefor. What is a reasonable price is a question of fact dependent on the circumstances of each particular case. NOTES: The contract is inefficacious if the buyer or seller cannot agree on the price or if the third person designated to fix it is unwilling or unable to do so. EARNEST MONEY V. OPTION MONEY Art. 1482: Whenever earnest money is given in a contract of sale, it shall be considered as part of the price and as proof of the perfection of the contract. NOTES: Earnest money is part of the purchase price while option money is given as a distinct consideration for the option contract Earnest money is given only where there is already a sale, option money applies to a sale not yet perfected When earnest money is given, the buyer is bound to pay the balance while the in option money, he is not required to buy, but he may forfeit it depending on the terms of the option. Even when the contract is subject to a suspensive condition, the acceptance of earnest money shows that the sale is conditionally consummated or partly executed subject to the fulfillment of the condition.
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Limson v. CA (2001) F: Buyer offered to purchase a mortgaged land by giving 20k earnest money. Seller granted him a 10-day option to buy the land. After the lapse of the option, buyer found out that the seller sold the land to another person. H: There is no perfected contract of sale. The 20k earnest money was in reality option money which was consideration for the 10-day period to buy the land. There was no perfected contract of sale when the money was given. Seller did not agree to sell the land, but only agreed to give the buyer the privilege to buy it within a 10-day period. Since there was no unconditional acceptance within the period, seller was no longer bound to keep the privilege to the buyer. San Miguel Properties v. Huang (2000) F: Buyer offered to purchase land by giving 1M earnest deposit for a 30-day exclusive option to buy the land. Buyer and seller failed to agree on the terms and conditions of the sale as well as the manner of payment within the option period. Seller returned the 1M earnest deposit. Buyer demands enforcement of the sale claiming that the 1M is earnest money evidencing the perfection of the contract of sale.
WHEN NO PRICE AGREED 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
H: There is no perfected contract of sale because the buyer and seller failed to get past the negotiation stage of agreeing on terms and conditions of the sale. What the buyer had was only an option to buy the land. The 1M cannot be considered as earnest money because when it was given there was no perfected sale yet; hence it cannot form part of the purchase price. The 1M was consideration for the option and a guarantee that the buyer will not back out. It is not the giving of earnest money, but the proof of the concurrence of all the essential elements of the contract of sale which establishes the existence of a perfected sale. Chapter VI: FORMATION OF CONTRACT OF SALE PREPARATORY Art. 1479: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. 1. Offer have been entered into in the place where the offer was made. Art. 1325: Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. Art. 1326: Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. Zayco v. Serra (1923) F: Seller offered to sell property to the buyer for a total price of 1M. Seller also offered that it case the 1M could not be paid in cash, the balance has to be paid in 3 years. Buyer wrote a letter to seller accepting the offer and tendering 100,000 pesos as initial payment. Seller refused to proceed with the sale and cancelled the offer. H: There is no perfected contract of sale. The offer did not state the amount of payments made in installments. Buyers tendering of the 100,000 pesos as initial payment constituted a proposal of a payment scheme that wasnt included in the sellers original offer. Hence, this proposal of a payment scheme constituted a counter-offer which requires acceptance by the seller. In order for an acceptance to convert an offer to sell into a perfected contract, it must be plain and unconditional. It must not have any new proposition. Where the offer does not state the amount of payments to be made in installments, the offer is not certain. b. Forms of acceptance
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Art. 1475: The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. NOTES: The contract of sale is perfected at the moment when there is a meeting of the minds upon the object and price. This happens when the offer to sell of the seller is certain and the acceptance of the offer by the buyer is absolute. The offer of the seller must be certain as to the subject matter, the price, and manner of payment. The acceptance by the buyer must be absolute and unconditional. A qualified acceptance (i.e., acceptance with reservations) is a counter-offer and is not binding unless accepted by the other party. a. Forms of offer
Art. 1319, supra NOTES: An acceptance made by letter or telegram only binds the person making the offer if such person has knowledge of the acceptance. Therefore, even if an acceptance has been mailed to the person making the offer, the acceptance may still be withdrawn anytime before the person making the offer has knowledge of the acceptance. Even when the offer is certain the acceptance is absolute, there is no perfected contract of sale if it is subject to a suspensive condition. Perfection takes place from the moment the condition is complied with. Vices vitiating consent
Art. 1319: Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to
c.
Art. 1330: A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is voidable. Art. 1338: There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed to.
meeting of the minds between the buyer and seller. De la Cavada v. Diaz (1918) F: Buyer has an option to purchase seller's lot of about 100 hectares as soon as it is registered. After execution of the option contract, seller proceeded to register a part of the hacienda. Seller made a counter-offer to sell only a part of the hacienda. Buyer refused on the ground that under the contract he can buy the whole hacienda. According to seller, the contract included 100 hectares more or less and by offering a portion of the hacienda, he complied with the terms of the contract. H: The contract between the parties is not an option contract but an absolute promise to sell. The seller promised to convey the land in question to the buyer as soon as the same could be registered. The buyer stood ready to comply with his part of the contract. The seller, however, refused to comply with his promise. All of the conditions of the contract on the part of the seller had been concluded, except delivering the deeds of transfer. Carcellar v. CA (1999) F: Buyer has a lease contract with option to buy. Before expiration of the lease, seller notified buyer if he wanted to exercise the option to buy. Also before expiration of the lease, buyer asked for an extension claiming that he doesnt have enough funds yet to buy the property and that he already introduced improvements on the property. Seller denied the extension after the period of lease has expired. Thereafter, buyer signified his intent to exercise the option. Seller denies alleging that the period has already expired. H: Buyer should be allowed to exercise the option to buy, despite asking for an extension. Buyers letter asking for an extension of the lease so he could exercise the option signifies a notice to the seller that he indeed intends to exercise the option. This interpretation is consistent with the primary intention of the parties in entering into the contract in the first place. a. Meaning of Consideration An option contract must be supported by a separate consideration distinct from the price of the contract of sale. The consideration in an option contract may be anything of value, compared to the consideration of the contract of sale where it has be in money or its equivalent. The burden of proof to show that the option contract has a separate consideration is the party alleging its existence. The presumption of the existence of a consideration in every contract (Art. 1354) cannot be relied on because it is expressly stipulated that option contracts require a separate consideration (Art. 1479).
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Art. 1331: In order that mistake may invalidate consent, it should refer to the substance of the thing which is the object of the contract, or to those conditions which have principally moved one or both parties to enter into the contract. Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such identity or qualifications have been the principal cause of the contract. A simple mistake of account shall give rise to its correction. NOTES: Vice in consent renders the contract voidable, not void. Failure to disclose facts when there is a duty to reveal them constitutes fraud. Insidious machinations signify a deceitful scheme or plot with an evil design or with fraudulent purpose. 2. Option Contract
Art. 1479: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.
Art. 1324: When the offerer has allowed the offeree a certain period to accept, the offer may be withdrawn at any time before acceptance by communicating such withdrawal, except when the option is founded upon a consideration, as something paid or promised. NOTES: An option is a preparatory contract in which one party grants to the other, for a fixed period and under specified conditions, the power to decide, whether or not to enter into a principal contract. It binds the party who has given the option, not to enter into the principal contract with any other person during the period designated, and, within that period, to enter into such contract with the one to whom the option was granted, if the latter should decide to use the option. An option contract grants a right, not an obligation, to the buyer. The obligation it imposes is on the seller or offeror of the option not to withdraw the offer for a stipulated period. It is an onerous contract because it must be supported by a separate consideration for it to be valid. It is consensual in that it requires a
Villamor v. CA (1991) F: Buyer spouses bought half of a piece of land at 70 pesos per square meter. An option contract was made for the sale of the other half of the land stating that the only reason buyers bought the first half of the land was because seller will also sell them the other half of the land for the same price. When the buyers sought to exercise the option, seller
contested that the option is void for a lack of a separate consideration. H: Consideration is the why of contracts; the reason which moves the parties to enter into the contract. The option had a valid consideration which was the seller agreeing to sell the first half of the land at 70 pesos (which was greatly higher than the market price). Although the option is valid, it did not provide a definite time to exercise the option. Since actions upon a written contract must be brought within 10 years, and the option was sought to be exercised 17 years from the time of the execution of the contract, the right of action has prescribed. Soriano v. Bautista (1962) F: Seller mortgaged land for 1,800 with a stipulation that the mortgagee can purchase the land for 3,900 which option can be exercised in two years. Mortgagee/ buyer decides to purchase the land. Seller refuses and claims that as mortgagors they cannot be deprived of their right to redeem the land. H: While a mortgage contains the customary stipulation concerning redemption, the contract has an express provision granting the mortgagee an option to purchase. An option to buy attached to a real estate mortgage was deemed to be a valid stipulation. The mortgagors promise to sell is supported by the same consideration as that of the mortgage itself, which is distinct from that which would support the sale, an additional amount having been agreed upon to make up the entire price of 3,900 should the option be exercised. option contract or a continuing offer on the part of the seller that does not impose a binding obligation. There is a concurrence of the sellers intention to sell the other half of the property and acceptance by the buyer, with only the condition of full payment before title is transferred from seller to buyer. c. Without consideration void as option but valid as offer If the option contract is not supported by a separate consideration distinct from the price, it is void as an option but valid as an offer. Acceptance of the offer, before the offer is withdrawn, gives rise to a perfected contract of sale and binds the buyer and seller (Arts. 1479 par. 1, and 1324). This constitutes a mutual promise to buy and sell. Note that acceptance of the offer has to be communicated to the seller/ offeror.
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b.
An option to buy is not a contract of purchase and sale
Sanchez v. Rigos (1972) F: Seller executed an option contract, without a consideration, in favor of the buyer over a parcel of land. Seller refused to accept buyers several attempts to pay the consideration. Buyer consigned the amount in court and files an action against the seller. Buyer alleges that the option committed the seller to sell and buyer to buy. H: The contract between buyer and seller is an option contract without a supporting separate consideration. If the option is given without a consideration, it is a mere offer of a contract of sale, which is not binding until accepted. In other words, since there may be no valid contract without a cause or consideration, the promisor is not bound by his promise and may, accordingly, withdraw it. Pending notice of its withdrawal, his accepted promise partakes, however, of the nature of an offer to sell, which, if accepted, results in a perfected contract of sale. d. Proper exercise of option When an option contract does not contain a period when the option can be exercised, it cannot be presumed that it can be exercised indefinitely. Actions in a written contract must be brought within ten years, else the option will prescribe (Art. 1144).
Just like a contract of sale, an option contract is onerous because it must have a separate consideration to be valid. It is consensual since the meeting of the minds on the object and price gives rise to the option contract, even when the consideration has not yet been paid. As opposed to a contract of sale, an option contract is not covered by the Statute of Frauds. It can be proved by parole evidence.
Adelfa Properties v. CA (1995) F: Seller sold 1/2 of the land to the buyer. Buyer expressed interest in buying the other half of the property. An exclusive option to purchase was executed. Before the buyer could make full payment, it received a complaint for the annulment of the sale from the heirs of the seller. Buyer suspended payment pending the resolution of the conflicts in the sellers camp. Seller sold the land to another person claiming that the exclusive option to purchase was strictly an option and sellers suspension of payment constituted a counter-offer. H: The exclusive option to purchase was actually a contract to sell binding on both parties where the only condition left to transfer the title is full payment of the price. This is not an
Nietes v. CA (1972) F: Buyer and seller entered into a contract of lease with option to buy. Seller seeks to rescind the contract. Buyer refuses and deposited checks to cover balance of the purchase price. Buyer subsequently withdrew the checks after clearing. H: Buyer exercised the option validly within the period stipulated. The buyer may exercise the option by advising the seller of his decision to buy and expressing his readiness to pay the price, provided that the price is available and actually delivered to the seller upon execution and delivery of the deed of sale. Notice of the acceptance of the option contract by the buyer need not be simultaneous with actual payment of the price, so long as price is delivered to the seller upon performance of his part of the agreement.
e. There must be acceptance of option supported by consideration. The right of first refusal is an integral part of (not separate from) the contracts of lease. The consideration is built into the reciprocal obligations of the parties. Paraaque Kings v. CA (1994) F: Lesee-corporation has a right of first refusal obtained from its predecessor over parcels of land. Lessor offered to sell the land to lessee for 15M. Lessee counter-offered to buy for 5M. Lessor sold the properties to another person for 9M. Lessor argues that she complied with respecting lessees right of first refusal by offering the sale to it first before it proceeded to offer another person. H: There is a breach of lessees right of first refusal. If the lessees cannot buy at the price quoted by the lessor, the lessor cannot sell it to another person for a lower price and under more favorable conditions without offering the lowered price and said favorable conditions to the lessee. There should be identity of terms and conditions to be offered to the lessee and all other prospective buyers. The basis of the right of first refusal must be the current offer to sell of the seller or offer to purchase of any prospective buyer. Only after the buyer fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner validly offer to sell the property to a third person, again, under the same terms as offered to the buyer. Ang Yu v. CA (1994) F: Seller offered to sell the premises the buyers are leasing to the buyers, and gave them first priority over other buyers. Seller sold the properties to a corporation breaching the right of first refusal of the buyers. Lower court ordered a writ of execution conveying the deed of sale to buyers for the price offered to the corporation. H: A breach of the right of first refusal cannot justify a writ of execution or an action for specific performance absent the element of consensuality in contracts. Proper remedy in a breach of right of first refusal is an action for damages. Rosencor v. Inquing (2001) F: Lessees were given a right of first refusal by the lessor over the leased properties. Lessor died. Lessors heirs initially recognized the right of first refusal of the lessees but then eventually sold the leased properties to another person. Lessees ask for the rescission of the contract of sale between the lessors heirs and the new owner. H: Rescission is a remedy granted to secure reparations for damages caused to them by a contract, by means of the restoration of things to their condition at the moment prior to the celebration of said contract. The new owner did not know lessees right of first refusal; thus, it did not act in bad faith in buying the property. Being a buyer in good faith and for value, and being in lawful possession of the property, bars restoration of things to their condition at the moment prior to the perfection of the contract. 4. Mutual Promise to Buy and Sell
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Vasquez v. CA (1991) F: Seller sold land to buyer. Along with the deed of sale, seller made a separate document giving them the right to repurchase. Buyer contends that they cannot be compelled to resell the lot to sellers because the right to repurchase, which can be either an option to buy or a promise to resell on their part, was not supported by a consideration distinct from the price. H: An option contract not supported by a separate condition can only have legal effect if the option has been accepted and the acceptance is communicated to the seller. Annotation of the option to repurchase at the back of the title cannot be considered as an acceptance of the option. The annotation only served as a notice of the existence of the unilateral promise of the buyers to resell the land to the sellers. Seller's ineffectual acceptance of the option validated the buyer's refusal to resell which can be considered as a withdrawal of the option.
3. -
Right of First Refusal An option contract would require certainty on both the object and the consideration of the contract. In a right of first refusal, the object may be certain but the consideration is uncertain since it would depend on the sellers eventual intention to enter into a binding juridical relation with another person. The right belongs to a class of juridical relations not governed by contracts (since the cause is indefinite or uncertain), but by provisions of the Civil Code on human conduct. A breach on the right of first refusal cannot justify an issuance of a writ of execution or an action for specific performance. At most, it would justify recovery of damages under Art. 19 of the Civil Code.
Equitorial Realty v. Mayfair (1996) F: Lessee is granted a right of first refusal in the lease contract. Lessor informed lessee that a third person was willing to buy the property for 1.2M. Lessor offered to sell the property to the lessee for 6-7M. Lessee eventually expressed interest to buying the property but lessor abandoned the negotiations. Lessee found out that the lessor sold the property to a third person for 11.3M. Lessee asks for rescission of the sale and specific performance that the property be sold to it. Lessor argues that the option to purchase invoked by lessee is void for lack of consideration. H: What the lessee has is not an option contract but a right of first refusal. The requirement that an option contract must have a separate consideration is inapplicable. An option is a contract granting a privilege to buy or sell within an agreed time and at a determined price. It is a separate and distinct contract from that which the parties may enter into upon the consummation of the option. It must be
Art. 1479: A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. NOTES: A promise to sell a determinate thing coupled with a correlative promise to buy at a specified price is binding (Art. 1479). In a mutual promise to buy and sell the title does not pass to the buyer. The buyer and seller are merely given the right to demand fulfillment of the contract or damages for breach of contract. Compliance can be exacted from an unconditional mutual promise to buy and sell as long as the object is determinate and the price is fixed (Ang Yu vs CA, 1994). De la Cavada v. Diaz (1918), supra PERFECTION Art. 1475: The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts. Art. 1319: Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer. Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. Art. 1325: Unless it appears otherwise, business advertisements of things for sale are not definite offers, but mere invitations to make an offer. Art. 1326: Advertisements for bidders are simply invitations to make proposals, and the advertiser is not bound to accept the highest or lowest bidder, unless the contrary appears. NOTES: Until the contract is perfected, it cannot serve as a binding juridical relation. 1. When deviation allowed pesos down payment and sellers acquisition of a certain separate land. Buyer gave a counter-offer with the 100,000 peso check. Seller encashed the check and gave his reply indicating some amendments to the counter-offer After acquiring the certain separate land, seller refused to proceed with the sale arguing that his reply constituted a standing counter-offer which the buyer did not accept. H: There is a perfected contract of sale. The reply by the seller was equivalent to an absolute acceptance since the deviations or amendments contained in the response were not material at all. They are mere clarifications of what the parties previously agreed upon. The sellers change in a phrase of the offer to purchase, which change does not essentially change the terms of the offer, does not amount to a rejection of the offer and a tender of a counter-offer. 2. Sale by Auction
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Art. 1476: In the case of a sale by auction: (1) Where goods are put up for sale by auction in lots, each lot is the subject of a separate contract of sale. (2) A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer, or in other customary manner. Until such announcement is made, any bidder may retract his bid; and the auctioneer may withdraw the goods from the sale unless the auction has been announced to be without reserve. (3) A right to bid may be reserved expressly by or on behalf of the seller, unless otherwise provided by law or by stipulation. (4) Where notice has not been given that a sale by auction is subject to a right to bid on behalf of the seller, it shall not be lawful for the seller to bid himself or to employ or induce any person to bid at such sale on his behalf or for the auctioneer, to employ or induce any person to bid at such sale on behalf of the seller or knowingly to take any bid from the seller or any person employed by him. Any sale contravening this rule may be treated as fraudulent by the buyer. Art. 1403: The following contracts are unenforceable, unless they are ratified: (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum. Art. 1326, supra
Villonco v. Bormaheco (1975) F: Seller, representing his corporation, made an offer to sell land to the buyer subject to certain conditions 100,00
NOTES: A sale by auction is perfected only when the auctioneer announces its perfection by the fall of the hammer. Until such announcement is made, any bidder may retract his bid and the auctioneer may withdraw the goods from the sale, unless the auction has been announced to be The owner of the property sold at an auction may provide the terms under which the auction will proceed. The terms are binding upon all bidders whether they are aware of it or not 3. Perfection Acceptance made by letter or telegram does not bind the offerer except from the time it came to his knowledge. The contract, in such a case, is presumed to have been entered into in the place where the offer was made. NOTES: The place of perfection of the contract of sale is where there is a meeting of the offer and the acceptance upon the object and the consideration. In case of acceptance through a letter or telegram, it is presumed that the contract was entered into the place where the offer was made 5. Expenses of Execution and Registration
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Art. 1475, supra National Grains Authority v. IAC (1989) F: NFA buys rice from qualified farmers. Seller passed the qualifications set and was given a maximum quota of 2,649 cavans of rice to sell to the NFA. Seller sold 630 cavans of rice, but NFA held his payment in abeyance due to alleged irregularities in his qualifications. NFA argues that the rice was merely offered and since it has not signified its acceptance, it cannot be compelled to pay for it. H: There is a perfected contract of sale. There is perfection when there is consent upon the subject matter and the price, even if neither is delivered. The acceptance referred to which determines consent is the acceptance of the offer and not of the goods delivered. When NFA accepted the sellers offer to sell palay grains by noting a quota of 2,640 cavans, there was already a meeting of the minds between the parties. The fact that the exact number of cavans of palay to be delivered has not been determined does not affect the perfection of the contract. Peoples Homesite and Housing v. CA (1984) F: Buyers were conditionally granted a sale of a house by a housing entity, provided they either pay the price of the lot or make a 20% deposit. Buyers did neither. Buyers did not also make a manifestation that they were interested in the offer. The housing entity withdrew the grant and offered it to other persons, who complied with the above mentioned requirements. Buyers asked for a reconsideration of the offer made to them. H: There is no perfected contract of sale to bind the housing entity to deliver to them the house. The sale of the house was conditional. Buyers did not comply with the set conditions. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already required, shall depend upon the happening of the event which constitutes the condition. 4. Place of Perfection
Art. 1487: The expenses for the execution and registration of the sale shall be borne by the vendor, unless there is a stipulation to the contrary. Art. 1521: Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller.
FORMALITIES OF THE CONTRACT 1. Form not important
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. Art. 1356: Contracts shall be obligatory, in whatever form they may have been entered into, provided all the essential requisites for their validity are present. However, when the law requires that a contract be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in the following article cannot be exercised. (1278a) Art. 1357: If the law requires a document or other special form, as in the acts and contracts enumerated in the following article, the contracting parties may compel each other to observe that form, once the contract has been perfected. This right may be exercised simultaneously with the action upon the contract. (1279a) Art. 1358: The following must appear in a public document: (1) Acts and contracts which have for their object the creation, transmission, modification or extinguishment of real rights over immovable property; sales of real
Art. 1319: Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance constitutes a counter-offer.
property or of an interest therein a governed by Articles 1403, No. 2, and 1405; (2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of gains; (3) The power to administer property, or any other power which has for its object an act appearing or which should appear in a public document, or should prejudice a third person; (4) The cession of actions or rights proceeding from an act appearing in a public document. All other contracts where the amount involved exceeds five hundred pesos must appear in writing, even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No. 2 and 1405. NOTES: General rule: No form required for the validity of the contract of sale Dalion v. CA (1990) F: Buyer sought to recover ownership of the land bought by him through a private document. Seller denied the fact of sale and alleged that the document is fictitious and his signature in the document of sale was forged. H: A contract of sale is a consensual contract, which is perfected by mere consent. No particular form is required for its validity. The provision of Art. 1358 on the necessity of a public document is only for convenience, not for validity or enforceability. It is not a requirement for the validity of a contract of sale of a parcel of land that this be embodied in a public instrument. The seller was not able to present clear and convincing evidence to show that the buyer had committed forgery. Secuya v. Vda de Selma (2000) F: A parcel of land was subject of two sales. Buyer1, the present possessor of the land alleging to have acquired the property first, evidences his sale from a private document which was allegedly lost. Buyer2 evidences his sale from a public document H: A sale of a piece of land in a private instrument is binding between the parties. However, it cannot be considered binding on third persons, if it is not embodied in a public instrument and recorded in the Registry of Property. 2. Exceptions: When form important (2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent; evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence of its contents: (a) An agreement that by its terms is not to be performed within a year from the making thereof; (b) A special promise to answer for the debt, default, or miscarriage of another; (c) An agreement made in consideration of marriage, other than a mutual promise to marry; (d) An agreement for the sale of goods, chattels or things in action, at a price not less than five hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the evidences, or some of them, of such things in action or pay at the time some part of the purchase money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the purchasers and person on whose account the sale is made, it is a sufficient memorandum; (e) An agreement of the leasing for a longer period than one year, or for the sale of real property or of an interest therein; (f) A representation as to the credit of a third person. (3) Those where both parties are incapable of giving consent to a contract. Art. 1405: Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are ratified by the failure to object to the presentation of oral evidence to prove the same, or by the acceptance of benefit under them. NOTES: The Statute of Frauds bars the enforceability of certain transactions unless it observes a certain form (in writing and subscribed and sworn to by the party charged or his agent). The purpose of having the Statute of Frauds is to prevent perjury in the enforcement of obligations depending for their evidence upon the unassisted memory of the witness (Shoemaker vs. La Tondena, 1939). The following sales contracts have to observe the proper form to be enforceable: (1) Sale which is not to be performed within a year from its perfection
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A. Form important for enforceability a. Statute of Frauds Art. 1403: The following contracts are unenforceable, unless they are ratified: (1) Those entered into in the name of another person by one who has been given no authority or legal representation, or who has acted beyond his powers;
(2) Sale of goods, chattels, or things at a price more than 500 pesos (3) Sale of real property or an interest therein The Statute of Frauds applies only to executory contracts, not to contracts either totally or partially performed. The following instances take the contract of sale out of the barring effect of the Statute of Frauds: (1) When there is a note or memorandum in writing evidencing the sale, and it is subscribed by the party charged or his agent (2) When there has been partial consummation of the contract of sale (e.g., partial performance by the buyer such as possession of a portion of the land, relinquishment of claim to the land, building or improvements on the land, tender of payment) (3) When there has been a failure to object to the presentation of evidence as to the existence of a contract without being in writing and which is covered by the Statute of Frauds For a note or memorandum to be sufficient, it must contain all the essential terms of the contract of sale: object, price, manner of payment. seller to fix the deed of sale but the latter was unavailable. Seller died and the title to the property passed on to his heirs. Lower court rules that buyers claim of ownership is unenforceable under the Statute of Frauds since it is a sale of real property not in writing. H: Buyers suit is not barred by the Statute of Frauds because there is already a consummated contract. The Statute of Frauds bars only executor contracts. It matters not that neither the receipt for the consideration nor the sale itself was in writing. Because oral evidence of the alleged consummated sale of the land is not forbidden by the Statute of Frauds and may not be excluded in court.
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B. Form important for validity a. Sale of realty through an agent
Art. 1874: When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall be in writing; otherwise, the sale shall be void. NOTES: The authority or power to sell a piece of land or any interest therein must be in writing; otherwise the sale of the agent is void even if the sale itself is in writing. City Lite v. CA (2000) F: Seller corporation offered property for sale to the general public. To facilitate the offers, it utilized an agent. The agent made offers to the buyer corporation and terms and conditions of the sale were set. Seller corporation refused to proceed with the sale. Buyer corporation demanded compliance with the sale. H: Agent had no authority to sell land. The written memorandum issued by the seller corporation requesting the agents assistance in finding buyers for the property meant that the agent was only to assist them in looking for buyers and referring to them possible prospects. The final evaluation, appraisal and acceptance of the transaction could be made only by seller corporation. The agent was only a contact person with no authority to conclude a sale of the property and whose only job was to bring the parties together for a possible transaction. b. Sale of large cattle
Paredes v. Espino (1968) F: Buyer bought a lot in another province that was closed through letter and telegram. Upon meeting with the buyer, the seller refused to execute the deed of sale and claims that buyers claim is unenforceable under the Statute of Frauds. H: A written note or memorandum embodying the essentials of the contract and signed by the party charged or his agent suffices to make the verbal agreement enforceable, taking it out of the operation of the Statute of Frauds. The letter where the deal was closed constitutes an adequate memorandum. The letter included the location where the property is situated, the TCT number, the size, and the purchase price. Baretto v. Manila (1924) F: Buyer company wanted to buy a house to gain right of way. Seller, owner of the house, executed and delivered a deed of sale of the house to the company agent. Seller, on several attempts, failed to collect the purchase price. Buyer company returns the deed to him until arrangements for the payments can be made. Seller files an action to claim the purchase price from the buyer arguing that his claim is enforceable even if it is not in writing because there is already partial performance (delivery of the deed). H: Buyers claim is barred by the Statute of Frauds. Delivery of the deed with no intention to part with the title does not take the case out of the Statute of Frauds. There was no intention to part with the title as evidenced by non-payment of the purchase price and the fact that the deed was returned and retained by the seller. Inigo v. Estate of Maloto F: Pursuant to a verbal agreement, buyer bought a house and lot. Buyer did not press seller for the title of the property. Buyer took possession of the property and introduced improvements. Buyer sought the lawyer of the
Art. 1581: The form of sale of large cattle shall be governed by special laws.
Sec. 529: Registration necessary to validity of transfer. No transfer shall be valid unless the same is registered and a certificate of transfer obtained as herein provided, but the large cattle under two years of age may be registered and branded gratis for the purpose of effecting a valid transfer, if the registration and transfer are made at the same time.
NOTES: The sale of large cattle must be in writing, otherwise it is void. No sale of large cattle shall be valid unless the sale is registered with the municipal treasurer who shall issue a certificate of transfer. c. Electronic Commerce Act RA 8792 generated or communicated, in the light of all circumstances, including any relevant agreement; (c) It is necessary for the party sought to be bound, in or order to proceed further with the transaction to have executed or provided the electronic signature; and (d) The other party is authorized and enable to verify the electronic signature and to make the decision to proceed with the transaction authenticated by the same. Section 11. Authentication of Electronic Data Messages and Electronic Documents Until the Supreme Court by appropriate rules shall have so provided, electronic documents, electronic data messages and electronic signatures, shall be authenticated by demonstrating, substantiating and validating a claimed identity of a user, device, or another entity is an information or communication system, among other ways, as follows; (a) The electronic signatures shall be authenticated by proof than a letter , character, number or other symbol in electronic form representing the persons named in and attached to or logically associated with an electronic data message, electronic document, or that the appropriate methodology or security procedures, when applicable, were employed or adopted by such person, with the intention of authenticating or approving in an electronic data message or electronic document; (b) The electronic data message or electronic document shall be authenticated by proof that an appropriate security procedure, when applicable was adopted and employed for the purpose of verifying the originator of an electronic data message or electronic document, or detecting error or alteration in the communication, content or storage of an electronic document or electronic data message from a specific point, which, using algorithms or codes, identifying words or numbers, encryptions, answers back or acknowledgement procedures, or similar security devices. The supreme court may adopt such other authentication procedures, including the use of electronic notarization systems as necessary and advisable, as well as the certificate of authentication on printed or hard copies of the electronic documents or electronic data messages by electronic notaries, service providers and other duly recognized or appointed certification authorities. The person seeking to introduce an electronic data message or electronic document in any legal proceeding has the burden of proving its authenticity by evidence capable of supporting a finding that the electronic data message or electronic document is what the person claims it on be. In the absence of evidence to the contrary, the integrity of the information and communication system in which an electronic data message or electronic document is recorded or stored may be established in any legal proceeding a.) By evidence that at all material times the information and communication system or other similar device was operating in a manner that did not affect the integrity of the electronic data message or electronic document, and there are no other reasonable grounds to doubt the integrity of the information and communication system,
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Section 7. Legal Recognition of Electronic documents Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing, and(a) Where the law requires a document to be in writing, that requirement is met by an electronic document if the said electronic document maintains its integrity and reliability and can be authenticated so as to be usable for subsequent reference, in that i. The electronic document has remained complete and unaltered, apart from the addition of any endorsement and any authorized change, or any change which arises in the normal course of communication, storage and display; and ii. The electronic document is reliable in the light of the purpose for which it was generated and in the light of all relevant circumstances. (b) Paragraph (a) applies whether the requirement therein is in the from of an obligation or whether the law simply provides consequences for the document not being presented or retained in its original from. (c) Where the law requires that a document be presented or retained in its original form, that requirement is met by an electronic document ifi. There exists a reliable assurance as to the integrity of the document from the time when it was first generated in its final from; and ii. That document is capable of being displayed to the person to whom it is to be presented: Provided, That no provision of this Act shall apply to vary any and all requirements of existing laws on formalities required in the execution of documents for their validity. For evidentiary purposes, an electronic document shall be the functional equivalent of a written document under existing laws. This Act does not modify any statutory any statutory rule relating to admissibility of electronic data massages or electronic documents, except the rules relating to authentication and best evidence. Section 8. Legal Recognition of Electronic Signatures An electronic signature on the electronic document shall be equivalent to the signature of a person on a written document if the signature is an electronic signature and proved by showing that a prescribed procedure, not alterable by the parties interested in the electronic document, existed under which(a) A method is used to identify the party sought to be bound and to indicate said party's access to the electronic document necessary for his consent or approval through the electronic signature; (b) Said method is reliable and appropriate for the purpose for which the electronic document was
b.) By showing that the electronic data message or electronic document was recorded or stored by a party to the proceedings who is adverse in interest to the party using it; or c.) By showing that the electronic data message or electronic document was recorded or stored in the usual and ordinary course of business by a person who is not a party to the proceedings and who did not act under the control of the party using the record. NOTES: Electronic documents shall have the legal effect, validity or enforceability as any other document or legal writing, as long as: (1) the electronic document maintains its integrity and reliability, and (2) is capable of being displayed to the person to whom it is to be presented, containing the electronic signature of the person sending it. Such documents may be authenticated by proof that appropriate methodology and security procedures have been adopted to ensure its reliability and integrity. attached by his creditor, the latter has a better right over the thing than the buyer. Kuenzle v. Macke (1909) Facts: - Stanley & Krippendorf (S&K), being indebted to the plaintiff, sold to the latter by an instrument in writing their property. The said instrument was never recorded and was a private document. Also the said property remained from the time of sale forward in the exclusive possession and control of said S&K. - Defendant Desiderio, as sheriff, levied upon said property by virtue of an execution issued upon a judgment secured by the defendant, the firm Macke & Chandler (M&K), against S&K. The plaintiff notified the sheriff that it was the owner of the said property and forbade the sale under said execution. - The sheriff went ahead with the sale of said goods. M&K was the purchaser of said property and the same were delivered to it. The defendants allege that the property was not the property of the plaintiff at the time of said levy and sale, but was the property of S&K, who were in possession of the same at the time of such levy. Held / Doctrine: - The ownership of personal property cannot be transferred to the prejudice of third persons except by delivery of the property itself. - A sale without delivery gives the would-be purchaser no rights in said property except those of a creditor. - Where there is no express provision that the title shall not pass until payment of the price, and the thing sold has been delivered, title passes from the moment the thing sold is placed in the possession and control of the buyer. In spite of the reciprocal nature of a sale, it is not the prior payment of price that determines the effects of delivery of the subject matter. WHEN DELIVERY DOES NOT TRANSFER TITLE 1. Sale on return
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Chapter VII: TRANSFER OF OWNERSHIP MANNER OF TRANSFER Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. Article 1496. The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee. NOTES: In General: How Effected - The ownership of the thing sold shall be transferred to the buyer upon the actual or constructive delivery, or in any manner signifying an agreement that possession is transferred from the vendor to the vendee. - Contract of sale: Right to transfer or acquire ownership - Delivery: Method of acquiring ownership. - Sale without delivery: Buyer has no rights over the property except that of a creditor - Private sale without delivery, with creditor attaching the property: Creditor has better right over the buyer. - Judicial Sale: Perfected contract which is not consummated until delivery of the thing. - Sale without delivery: Gives the purchaser no rights in said property (except those of the creditor); Thus, where the sale was evidenced in a private instrument and the thing remained in the possession of the vendor when it was
- In this case, instead of paying the price, ownership passes on delivery, but he may revest ownership to the seller by returning or tendering the goods within the time fixed in the contract (or a reasonable time). - Sale or return: Title passes on delivery with the option to return the goods to the seller. - Non-exercise of the privilege of return makes the sale absolute. - Conditional sale: Payment of the price is a suspensive condition before legal title is passed. - Sale on credit with right to return: Buyer remains liable for the price though it becomes impossible without his fault to return the goods. - In a case, sale providing that the buyer would be permitted to return them unless they measured up to the description was a sale with option to return, and not a sale on approval, and title passed to the buyer on delivery to the carrier.
2. Sale on approval, trial or satisfaction P10,000.00 with interest of 5% per annum until the same was fully paid. - They agreed that in case of failure on the part of the vendee to pay any of the installments due and payable, the contract shall be annulled at the option of the vendor and all payments already made by vendee shall be forfeited and the vendor shall have right to re-enter the property and take possession thereof. - Maritime Building Co., Inc. failed to pay the monthly installments corresponding to the months of March, April and May, 1961. - Myers Building Co., Inc. wrote the Maritime Building Co., Inc. a letter advising it of the cancellation of the Deed of Conditional Sale entered into between them. Held / Doctrine: - Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of contract tainted with fraud or malice (dolo) or a conscious and intentional design to evade the normal fulfillment of existing obligations. Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to make payment and thereby erase the default or breach that it had deliberately incurred. - In contracts to sell, where ownership is retained by the seller and is not to pass until the full payment of the price, such payment, as the SC said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. 4. - Goods sent to the buyer on the hope that the latter would find them satisfactory and order that type of goods is a sale on approval. - In a case, trial period begun when the machinery was set up, not at the time it was delivered, if the machinery requires set up prior to its use. 3. Express Reservation Implied Reservation
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Article 1502. When goods are delivered to the buyer "on sale or return" to give the buyer an option to return the goods instead of paying the price, the ownership passes to the buyer on delivery, but he may revest the ownership in the seller by returning or tendering the goods within the time fixed in the contract, or, if no time has been fixed, within a reasonable time. When goods are delivered to the buyer on approval or on trial or on satisfaction, or other similar terms, the ownership therein passes to the buyer: (1) When he signifies his approval or acceptance to the seller or does any other act adopting the transaction; (2) If he does not signify his approval or acceptance to the seller, but retains the goods without giving notice of rejection, then if a time has been fixed for the return of the goods, on the expiration of such time, and, if no time has been fixed, on the expiration of a reasonable time. What is a reasonable time is a question of fact. NOTES: - When goods are delivered to the buyer subject to his approval or on trial, or on satisfaction, or other similar terms, ownership passes to the buyer only when he signifies his approval or acceptance to the seller or does any other act adopting the transaction or when he retains the goods without giving notice of rejection on the expiration of the time fixed for the return of the goods, or on the expiration of a reasonable time, if no period has been fixed.
Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer. Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the seller's property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods as against the buyer.
Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. Luzon Brokerage v. Maritime Blg. (1972) Facts: - The defendant Myers Building Co., Inc., owner of three parcels of land in the City of Manila, together with the improvements thereon, entered into a contract entitled "Deed of Conditional Sale" in favor of Maritime Building Co., Inc., whereby the former sold the same to the latter for P1,000,000.00, Philippine currency. > P50,000.00 of this price was paid upon the execution of the said contract > The parties agreed that the balance of P950,000.00 was to be paid in monthly installments at the rate of
Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading together to the buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains the bill of lading he acquires no added right thereby. If, however, the bill of lading provides that the goods are deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer by the consignee named therein, one who purchases in good faith, for value, the bill of lading, or goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not been honored, provided that such purchaser has received delivery of the bill of lading indorsed by the consignee named therein, or of the goods, without notice of the facts making the transfer wrongful. 5. 6. When sale not valid When sale is not valid, there is no transfer of ownership. When seller is not the owner (1) Estoppel or when the owner is precluded, by his own conduct, from denying the sellers authority to sell (apply Art. 1438 by analogy) > Art. 1438: One who has allowed another to assume apparent ownership of personal property for the purpose of making any transfer of it, cannot, if he received the sum for which a pledge has been constituted, set up his own title to defeat the pledge of the property, made by the other to a pledgee who received the same in good faith and for value. (2) PD 1529 (Recording Laws; Torrens Title) > Even when the sale is void, the general rule that the direct result of a previous void contract cannot be valid is inapplicable when it will directly contravene the Torrens system of registration. The Court cannot disregard such rights and order the cancellation of the certificate, since the effect of such outright cancellation will be to impair public confidence in the certificate of title. (3) Statutory power of sale or under the order of a court of competent jurisdiction (4) Sale in merchants store, or in fairs, or markets (Arts. 85 86, Code of Commerce) > To allow recovery would retard commerce. Executory Sales - Parties may stipulate that ownership in the thing shall not pass to the buyer until he has fully paid the price. - Seller may reserve the right of possession or ownership of the goods despite its delivery. - If buyer failed to comply with the conditions, seller may recover the possession or extrajudicially terminate the operation of the contract, refuse conveyance, and retain sums already received, where such rights are expressly provided for in the contract. - Creditor of the buyer cannot attach goods if the seller has reserved ownership until full payment of the purchase price. KINDS OF DELIVERY 1. Real delivery
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- The seller need not have the title to the goods at the time of perfection of the contract. However, he must have the title at the time of delivery. - Art. 1505: Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell. Nothing in this Title, however, shall affect: (1) The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of goods to dispose of them as if he were the true owner thereof; (2) The validity of any contract of sale under statutory power of sale or under the order of a court of competent jurisdiction; (3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and special laws. - Art. 559: The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who has lost any movable or has been unlawfully deprived thereof may recover it from the person in possession of the same. If the possessor of a movable lost or which the owner has been unlawfully deprived, has acquired it in good faith at a public sale, the owner cannot obtain its return without reimbursing the price paid therefor. - General Rule: In a sale by the non-owner, the buyer acquires no better title to the goods than the seller had (he merely steps into the shoes of the seller) - Exceptions (when the true owner cannot recover the thing):
Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. NOTES: - Delivery: When thing sold is placed in the control and possession of the buyer, absent stipulation that title passes only upon full payment of the purchase price. - Effects of delivery: Conveyance of ownership, without prejudice to the buyer to claim the purchase price. - Insolvency does not automatically give as cause of action for a replevin suit, nor the right to rescind the contract (following nonpayment of the purchase price). - In a case, where the goods were ready for delivery at the time and place agreed upon, the mere fact that the buyer, by
reason of the improper equipment of the vessel, was unable to take the goods aboard the vessel, cannot relieve the latter for responsibility under the contract. Bean v. Cadwallader (1908) Facts: - George Case entered into 2 contracts with Cadwallader Company, whereby Case would sell and deliver timber to Cadwallader. Under the contracts, the logs were to be delivered alongside Cadwalladers vessel at Basilan. Pursuant to both contracts, Case did deliver the timber to the port of Basilan but Cadwallader did not accept and pay for the same. - Cadwallader alleged that Case made misrepresentations regarding the harbor located in Basilan; that Case represented such harbor to be safe and easily practicable for a vessel to come alongside the land, whereas, in fact, it was unsafe and impossible for Cadwallader to enter the harbor with boats to load the logs. Held / Doctrine: - Actual manual delivery of an article sold is not essential to the passing of the title thereto, unless made so by the terms of the contract or by an understanding of the parties. The parties to the contract may agree when and on what conditions the property in the subject of the contract was passed to the prospective owner. - It is a rule well established that a mere contract for the sale of goods, where nothing remains to be done by the seller before making delivery, transfers the right of property, although the price has not been paid, nor the thing sold actually delivered to the purchaser. - In an action for goods sold and delivered, if the plaintiff proves delivery at the place agreed and that there remained nothing further for him to do, he need not show actual acceptance by the defendant. The mere fact that the defendant, by reason of the improper equipment of the vessel, was unable to take said logs aboard such vessel, cannot relieve the latter from responsibility under the contract. Ocejo v. International Bank (1918) Facts: - Chong executed and delivered to the defendant a promissory note payable one month from the said date. He also had deposited with the bank, as security for the said note, 5,000 piculs of sugar. The bank did not take possession of the sugar and Chong continued to retain the sugar in his possession and control. It was also noted that the alleged pledge was not recorded in a public document. The money represented by the promissory does not appear to have been delivered. - Plaintiffs, on the other hand, entered into a contract with Chong for the sale of a lot of sugar. In compliance with the agreement, 5,000 piculs of sugar were delivered to Chongs warehouse. The plaintiffs presented for collection its account but Chong refused to make payment. - On the day the sugar was delivered by plaintiffs, a bank representative discovered that the sugar deposited with them was only 1,800 piculs. The representative, together with a lawyer from the bank took possession of plaintiffs delivered sugar. - Ocejo tried to recover possession of the sugar but the Bank which then had possession refused to deliver the same to Ocejo. Held / Doctrine: - Tradition is a true mode of acquiring ownership which effects the passage of title and the birth of the right in rem. Therefore, the delivery of the thing signifies that title has passed from the seller to the buyer. - Delivery produces its natural effects in law, the principal and most important of which being the conveyance of ownership, without prejudice to the right of the seller to claim payment of the price. Normally therefore, as a consequence of a valid sale, the delivery of the subject matter ipso jure transfers its ownership to the buyer. - De la Rama vs. Sanchez: The fact that the price of the property has not yet been paid in full is not, nor can it be, an obstacle to the acquisition of the ownership thereof by the plaintiff, because as such a condition was not stipulated in the contract, the latter immediately produced its natural effects in law, the principal and most important of which being the conveyance of the ownership by means of the delivery of the thing old to the purchaser, without prejudice, of the course, to the right of the vendor to claim payment of any sum still due. - Gonzalez vs. Rojas: ownership of things is not transferred by contract merely but by delivery. Contracts only constitute titles or rights to the transfer or acquisition of ownership, while delivery or tradition is the method of accomplishing the same, the title and the method of acquiring it being different in our law. Cebu Winland Dev. Corp. v. Ong Siao Hua (2009) Facts: - Plaintiff is the owner and developer of a condominium project in Cebu city. Defendant is buyer of 2 condo units and 4 parking spaces. - During construction of the condominium, plaintiff offered to sell the condo units to defendants at a 3% discounted price provided 30% of the price is paid as down payment and the balance is paid in 24 monthly installments. - Defendant accepted the offer. Condo unit is represented to be 155 sq. meters with a price of 22,378/ sq. meter. There was no written document that evidenced the sale. - Possession of the units was turned over to defendant. Upon full payment, plaintiff sent defendant deeds of sale over the units for him to sign. Defendant found out from the deeds that the floor area is only 127 sq. meters and upon a commissioned survey over the units, it was found out to be 110 sq. meters. Defendant demanded a refund since he received a smaller unit that what he intended to buy. Complaint filed on 7 August 1998. - Plaintiff claims that defendants action has prescribed pursuant to Art. 1543 (6 months upon from date of delivery), alleging that delivery was made on 10 October 1996 (Complaint made on 7 August 1998). Defendant argues that the prescription period has not even begun because delivery was not yet made. Held / Doctrine: - Art. 1497 Real and actual delivery through transfer of control and possession - Art. 1498 Symbolic delivery effected through an execution of a public document
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- Art. 1498 does not say that the execution of the public document provides a conclusive presumption of the delivery of possession. It says that execution is equivalent to delivery which means that the presumption of delivery can be rebutted by clear and convincing evidence. Thus, the presumptive delivery by execution of a public instrument can be negated by the failure of the buyer to take actual possession of the land sold. (In this case, there is no delivery because only possession, and not ownership, was transferred. Since there is no delivery, the prescription period has not begun.) 2. Constructive delivery NOTES: Delivery by Public Instrument - When sale is made through a public instrument, execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed, the contrary does not appear or cannot be clearly inferred. - The public document can be used to prove ownership of the thing. - In a case, Notary Publics failure to deliver the deed to the buyer, pursuant to sellers instruction, cannot defeat the absolute and conditional character of the conveyance. - Execution of deed of sale of a homestead is the reckoning point for the redemption period under the Public Land Law and not on the date the price is fully paid, absent any stipulation that ownership will not vest to the buyer until full payment of the purchase price. - This manner of delivery is common to personal as well as real property. Not Equivalent to Delivery - General rule: He who purchases by means of a public instrument, is presumed to be a possessor in fact (admits proof to the contrary). - If the intent of the parties shows that delivery is not (or cannot be) intended, as shown: > When a certain date is fixed for the buyer to take possession of the object; > In sale by installment; if it is stipulated that the possession transfers upon the payment of the last installment; > If the right to use and enjoy the property is reserved to the seller until gathering the pending crops; > If the seller has no control over the thing sold, and hence its material delivery could not have been made. - A person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument. - Control over the thing must be transferred, and not merely ownership or right of possession. - If there is no impediment to prevent the thing sold from passing possession by the sole will of the seller, execution of a public instrument is sufficient. - If, however, the buyers cannot possess or enjoy the thing as it is opposed by another, there is no delivery. > If there is stipulation in the contract of sale that vendors would continue in possession for four months; > If possession shall not be delivered until the expiration of an existing lease over the property; > If the buyer shall not be entitled to take possession until payment of the first installment of the price. a. Symbolic Delivery
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Article 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. NOTES: Aviles v. Arcega (1922) Facts: - First Sale (sp Alcantara & Capulong -> Aviles) > The house (erected on a leasehold land of the Nagtahan estate) in dispute in this case was sold by the spouses Venancio Alcantara and Vicenta Capulong to the plaintiff Generosa Aviles, as evidenced by a document acknowledged before Jose Galang Serano (notary public) >> Stipulation: During four months, the vendors would continue in possession of the house, the expenses for repairs, land and other tax to be for their account, as well as the payment of the rent for the lot on which it is erected. >> The plaintiff Generosa Aviles never took possession of the said property. - Second Sale (sp Alcantara & Capulong -> sp de Leon & Arcega) > In a document and acknowledged on the following day before Ariston Rivera (notary public), the same property was sold by the same spouses Venancio Alcantara and Vicente Capulong to the spouses Fortunato de Leon and Segunda Arcega, who took possession of the property Held / Doctrine: - Article 1462 Civil Code: If the sale should be made by means of a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the subjectmatter of the contract unless the contrary appears or may be clearly inferred from such instrument. > When there is symbolic delivery: (1) when the sale is made in a public document and (2) nothing appears therein to the contrary either expressly or impliedly. > Delivery of the thing as is supposed to be made by the execution of the document, as provided in Article 1462, although in that case it must be considered to take place partly by operation of law. - No such symbolic delivery can exist when there is a stipulation to the contrary > At the time of the execution of the deed in favor of the plaintiff (first purchaser) there was no symbolic delivery because there was an express stipulation to the contrary. > It cannot be said that after the lapse of the four months following, during which the vendors were to
continue in possession of the house, according to the stipulation, any symbolic delivery subsisted. > Nothing can subsist that did not exist before. > It cannot be said that symbolic delivery spontaneously took place after the lapse of the four months stipulated, for there is no law providing that it should take place after the execution of the document where there is a stipulation to the contrary. >> The law does not say that such a symbolic delivery is suspended when at the execution of the document a stipulation to the contrary is made. >> What the law simply says is that no such symbolic tradition can take place, can exist when there is a stipulation to the contrary. - Neither can it be said that the house must be presumed to have been delivered to the first purchaser after the lapse of the four months aforesaid, for such a presumption is overthrown by the fact stipulated by the parties that this first purchaser never took possession of the house. Phil. Suburban v. Auditor General (1975) Facts: - The PHHC took possession of its purchased unoccupied property in Bulacan and used it as a resettlement area for squatters and flood victims from Manila and suburbs. It subsequently purchased the entire area where the original property bought was part of. - Petitioner and PHHC entered into a contract embodied in a public instrument entitled "Deed of Absolute Sale" but said document was not registered in the Office of the Register of Deeds until March 14, 1961. - April 12, 1961, the Provincial Treasurer of Bulacan requested the PHHC to withhold the amount of P30,099.79 (realty tax due on the subject property for the year 1961) from the purchase price to be paid by PHHC. Petitioner, through the PHHC, paid under protest the abovementioned amount to the Provincial Treasurer of Bulacan. - June 13, 1961, petitioner requested a refund of the amount so paid. Petitioner claimed that it ceased to be the owner of the land in question upon the execution of the Deed of Absolute Sale on December 29, 1960. The said request was denied. Held / Doctrine: - Under the civil law, delivery (tradition) as a mode of transmission of ownership maybe actual (real tradition) or constructive (constructive tradition). When the sale of real property is made in a public instrument, the execution thereof is equivalent to the delivery of the thing object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. There is symbolic delivery of the property subject of the sale by the execution of the public instrument, unless from the express terms of the instrument, or by clear inference therefrom, this was not the intention of the parties. Sarmiento v. Lesaca (1960) Facts: - Plaintiff bought from defendant two parcels of land for P5,000. A deed of sale was executed in a public document. After the sale, plaintiff tried to take actual and physical possession of the lands but was prevented from doing so by a certain Martin Deloso, who claims to be the owner thereof. Plaintiff wrote the defendant asking the latter to change the lands sold with another of the same kind and class or to return the purchase price together with the expenses she incurred in the execution of the sale. Defendant did not agree to either proposition, so plaintiff filed the present petition. Held / Doctrine: - The vendor intended to place the vendee in actual possession of the lands immediately as can be inferred from the stipulation that the vendee takes actual possession thereof with full rights to dispose, enjoy and make use thereof in such manner and form as would be most advantageous to herself in the contract. The possession referred to in the contract evidently refers to actual possession and not merely symbolical inferable from the mere execution of the document. - As provided in Article 1462, the thing sold shall be deemed delivered when the vendee is placed in the control and possession thereof, which situation does not here obtain because from the execution of the sale up to the present the vendee was never able to take possession of the lands due to the insistent refusal of Martin Deloso to surrender them claiming ownership thereof. And although it is postulated in the same article that the execution of a public document is equivalent to delivery, this legal fiction only holds true when there is no impediment that may prevent the passing of the property from the hands of the vendor into those of the vendee. - The Code imposes upon the vendor the obligation to deliver the thing sold. The thing is considered to be delivered when it is placed in the hands and possession of the vendee. (Civ. Code, art. 1462.) It is true that the same article declares that the execution of a public instrument is equivalent to the delivery of the thing which is the object of the contract, but in order that this symbolic delivery may produce the effect of tradition, it is necessary that the vendor shall have such control over the thing sold that, at the moment of the sale, its material delivery could have been made. It is not enough to confer upon the purchaser the ownership and right of possession. The thing sold must be placed in his control. When there is no impediment whatever to prevent the thing sold passing into the tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser cannot have the enjoyment and material tenancy of the thing and make use of it himself or through another in his name, because such tenancy and enjoyment are opposed by the interposition of another will, then fiction yields to reality the delivery has not been effected. Florendo v. Foz (1991) Facts: - Foz executed a contract, ratified before a notary, wherein he sold, ceded, and conveyed to Florendo his house and camarin, together with the lots on which they are erected, for P6,000. Of this price, Foz had already received P2,000, which is indicated in the contract and Florendo will pay the remaining P4,000 when Foz goes to Vigan during this or the next month. - When Foz went to Vigan, Florendo paid the remaining P4000, but payment was refused by Foz. Florendo instead deposited the P4000 with the Municipal Treasurer as
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payment. Foz contended that the true price was P10,000, and that he was made to believe that the price indicated in the contract was P10,000 and not P6000. He alleged that the contract was just read out to him. Held / Doctrine: - The instrument of contract is valid and effective. From the validity and force of the contract is derived the obligation on the part of the vendor to deliver the thing sold. - Art. 1466 Civil Code states that the vendor shall not be bound to deliver the thing sold, if the vendee should not have paid the price, or if a period for the payment has not been fixed in the contract. If in, the contract a period has been fixed for the payment, the vendor must deliver the thing sold. > This provision contains a rule and an exception: >> Rule: The thing shall not be delivered, unless the price be paid. >> Exception: The thing must be delivered, though the price be not first paid, if a time for such payment has been fixed in the contract. > In the contract in question, a period was fixed for the payment, thus making the contract fall under the exception. - It is the material delivery of the property sold which Foz must make in compliance with the contract, inasmuch as the formal delivery de jure was made, according to paragraph 2, Article 1462 of the Civil Code: When the sale should be made by means of a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if in said instrument the contrary does not appear or may be clearly inferred. - As the contrary does not appear nor is to be inferred from the contract, its execution was really a formal or symbolical delivery of the property sold and authorized Florendo to use the title of ownership as proof that he was thenceforth the owner of the property. Masallo v. Cesar (1918) Facts: - While defendant was in possession of the land, one Matea Crispino executed a deed of sale over the land to the plaintiff. Crispino was not in possession of the land when she sold it to plaintiff. After being sold the land, plaintiff and his laborers went to plow it. Defendant then approached them and insisted her right of ownership over the land. Defendant took a bolo and cut the rope traces by which plaintiffs carabao was attached to the plow. Plaintiff withdrew from the land and filed an action for ejectment against the defendant. Held / Doctrine: - Plaintiffs action can only succeed upon proof of prior possession in himself or someone to whose rights he has succeeded. Defendant was shown to have had prior peaceful possession of the land for an indefinite time. Although plaintiff bought the land with a deed of sale from Matea Crispino, mere execution and delivery of the deed did not constitute a delivery of possession because Matea Crispino admits that she did not have possession of the land when she executed the deed of sale to the plaintiff. Asset Privatization Trust v. T.J. Enterprises 587 SCRA 481 (2009) Facts: - Petitioner had acquired from the DBP assets consisting of machinery and refrigeration equipment which were then stored at Golden City compound, Pasay City. - The compound was then leased to and in the physical possession of Creative Lines, Inc. These assets were sold on an as-is-where-is basis. - November 7, 1990: Petitioner and respondent entered into an absolute deed of sale over certain machinery and refrigeration equipment identified as Lots Nos. 2, 3 and 5. > Respondent paid the full amount of P84,000.00 (evidenced by petitioners receipt). > After two (2) days, respondent demanded the delivery of the machinery it had purchased. - Sometime in March 1991: Petitioner issued a gate pass. > Respondent was able to pull out from the compound the properties designated as Lots Nos. 3 and 5. > However, during the hauling of Lot No. 2 consisting of sixteen (16) items, only nine (9) items were pulled out by respondent. > Creative Lines employees prevented respondent from hauling the remaining machinery and equipment. Held / Doctrine: - No constructive delivery - Delivery > The ownership of a thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. > The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee. > As a general rule, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. > And with regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept. - Execution of public instrument > In order for the execution of a public instrument to effect tradition, the purchaser must be placed in control of the thing sold. > However, the execution of a public instrument only gives rise to a prima facie presumption of delivery. >> Such presumption is destroyed when the delivery is not effected because of a legal impediment. >> It is necessary that the vendor shall have control over the thing sold that, at the moment of sale, its material delivery could have been made. >> Thus, a person who does not have actual possession of the thing sold cannot transfer constructive possession by the execution and delivery of a public instrument. - Presumption of constructive delivery is not applicable > The presumption of constructive delivery is not applicable as it has to yield to the reality that the purchaser was not placed in possession and control of the property. b. Tradition Longa Manu
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Article 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the
delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. > By mere consent or agreement if the thing sold cannot be transferred to the possession of the vendee at the time of the sale. - In a case, where quedans were issued to the buyer for goods sold located at the warehouse of the seller placed at the disposal of the buyer, to be delivered three or four months later, delivery was effected upon the execution of the quedans. Seller merely became a depositary of the good sold. - In a contract for the salvage of surplus property, the employer assigned all its rights and title to all surplus property salvaged by the contractor at the price of P90 per long ton, payment to be made monthly, on the basis of recovery reports of sunken surplus property salvaged during the preceding month, court held that it was a case of tradition longa manu and ownership passed as soon the property was salvaged. Board of Liquidator v. Floro 110 Phil 482 (1960) Facts: - Melecio Malabanan entered into an agreement with the Board for the salvage of surplus properties sunk in territorial waters off the provinces of Mindoro, La Union, and Batangas. Malabanan submitted a recovery report, which stated that he had recovered a total of 13,107 pieces of steel mattings - Four months prior, Malabanan had entered into an agreement with respondent Exequiel Floro where they agreed that Floro would advance to Malabanan certain sums of money as repayment of secured quantities of steel mattings which Malabanan would consign to Floro. Floro was, authorized to sell whatever steel mattings were in his possession under said contract, in amount sufficient to satisfy the advances. - Malabanan was not able to repay Floro's advances. Floro in turn, sold 11,047 pieces of steel mattings to Eulalio Legaspi. - Malabanan filed in the CFI Manila a petition for voluntary insolvency, in which the Board and Floro were listed as creditors. Also included therein were the 11,167 pieces of steel mattings. - The Board, claiming to be the owner of the listed steel matting, filed a petition to exclude them from the inventory. Floro opposed the Board's petition and claimed that the steel matting listed had become the property of Eulalio Legaspi by virtue of a deed of sale in his favor, executed by Floro pursuant to the latter's contract with Malabanan.
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Article 1513. A person to whom a negotiable document of title has been duly negotiated acquires thereby: (1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in good faith for value and also such title to the goods as the person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in good faith for value; and (2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directly with him. Article 1514. A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as against the transferor, the title to the goods, subject to the terms of any agreement with the transferor. If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document. Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor.
NOTES: - Roman Law: tradition longa manu takes place when the thing is placed in the sight of the purchaser so that he can take possession of it at pleasure. - Civil Code: Delivery of movable property may be made: > By the delivery of the keys of the place or depository where it is stored or kept;
Held / Doctrine: - There is nothing in the said contract which may be deemed a reservation of title, or from which it may clearly be inferred that delivery was not intended. - While there was no physical tradition, there was one by agreement (traditio longa manu) in conformity with Art. 1499 of the Civil Code: The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale.
c. Tradition Brevi Manu - Seller remains in possession of the property sold by virtue of a lease agreement with the buyer. - Buyer acquired ownership through constitutum possessorium, and, as a lessor, become the legal possessor. - Seller: Possesses the property in the name and representation of the buyer. - If the seller sells the property, second buyer cannot acquire the land as he bought it from a mere tenant. - If a saloon was sold in a private instrument, and the seller was appointed as manager of the business by the buyer, the buyer acquired ownership of the property by tradition constitutum possessorium. Bautista v. Sioson 39 Phil 615 (1919) Facts: - On Sept 4, 1912, the defendant Francisco Sioson and his wife Lorenza through a notarial instrument, sold to the plaintiff Rosalio Bautista a camarin or warehouse under the right of repurchase. It was stipulated that if w/in 2 years from the date of the contract the vendors or their successors in interest should not repurchase said properties, such sale should become absolute and the ownership in the properties sold should be consolidated. - On the same date, Bautista, through a notarial instrument, leased the properties sold to him to the vendors (Sioson). - On August 5, 1914, Sioson executed before a notary a document by w/c he sold under right of repurchase to the defendant Raymundo de la Cruz, the same camarin. And that if within the period of 6 months Sioson should not make the redemption stipulated, said sale should become absolute. - The two said alienations were both set forth in notarial instruments, and not recorded in the registry of property - Bautista claims that Sioson has not repurchased the camarin from him nor paid the price of the lease. At the time of the complaint, de la Cruz was in possession of the camarin Held / Doctrine: - Francisco Sioson, who sold to Cruz, occupied it as a mere tenant and not as owner, and, consequently, was unable to transmit to the purchaser any property right whatever nor lawful possession under title of owner. - Where the vendor on the same date on which the deed of sale is executed by means of a constitutum possessorium agreement converts himself into a tenant or lessee of the property that he sold, and continues in possession thereof as such tenant, the purchaser who acquired the property through delivery or symbolic tradition with all the consequent effects of a deed of conveyance is deemed to be in possession thereof by the express will of the contracting parties, and, therefore, it must be recognized that through such constitutum possessorium agreement, the purchaser who by that covenant became the lessor is in lawful possession of the leased property, and that the vendor by the same covenant, converted himself into the lessee and is in material possession of the leased property in the name and representation of the purchaser, its lawful owner. - It logically follows that the second purchaser who acquired the property from the lessee or tenant and who through the acts of the latter entered into the material possession of the property by virtue of the second sale could not have acquired any right of ownership therein, inasmuch as he received the property not from its lawful owner, but from a mere tenant or lessee who had no right whatever to dispose
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Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. NOTES: - Delivery of movable property takes place when the vendee had the thing already in his possession before the sale took place, not as owner but as lessee, borrower, or as a depositary. Abuan v. Garcia 14 SCRA 759 (1965) Facts: - The land in contention was originally acquired by Laureano Abuan and was passed after his death to his legal heirs, the plaintiffs. The latter sold the land to defendants, evidenced by a Deed of Absolute Sale. Later, plaintiffs filed an action to recover the land, claiming that the deed of absolute sale had been executed through fraud, without consideration. However, the parties managed to reach an amicable settlement and instead entered into an Agreement. Under the Agreement, defendants promised to pay the balance on or before April 30, 1955. Claiming that full payment had been effected only in May 1955, plaintiffs instituted the present action for legal redemption (March 1960). - Defendants moved to dismiss, on the ground that plaintiffs right of action was already barred, because the five-year redemption period had expired. Plaintiffs, on the other hand, argue that the five-year period should be counted from May 1955, when full payment was effected. Held / Doctrine: - It began to run on Aug. 7, 1953, when the Deed of Absolute Sale was executed. Plaintiffs right of action has therefore prescribed. - The law speaks of "five years from date of conveyance." Conveyance means transfer of ownership; it means the date when the title to the land is transferred from one person to another. The five-year period should, therefore, be reckoned with from the date that defendants acquired ownership of the land. - Under Art. 1498, when the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot be clearly inferred. - The deed of sale was executed on August 7, 1953, which was "superseded" by the Agreement of February 28, 1955, as to the terms and conditions of payment of the purchase price. The latter agreement did not operate to revest the ownership of the land in the plaintiffs. d. Tradition Constitutom Possessorium
Article 1500. There may also be tradition constitutum possessorium. NOTES:
of it; therefore, the second purchaser's possession is merely precarious and was taken after the first purchaser had exercised his right of possession, and the possession of the second purchaser cannot prevail over that previously obtained by the first purchaser. e. Delivery to a Common Carrier - If an F.O.B delivery to the carrier is authorized by the buyer, delivery to the carrier is tantamount to delivery to the buyer, even he will have possession of the goods until the seller has paid, as the bill of lading with the draft for the price was forwarded to the sellers agent. Court stated that the Uniform Sales Act contemplates that the seller may, at his option, reserve the jus dispodendi and the risk of loss follows the beneficial interest in accordance with the intent of the parties, and not the legal title held merely as security for the payment of the price. Terms F.O.B., C.I.F., F.A.S. - General rule: Delivery by the seller to the common carrier transfers title to the buyer. - Payment of freight: Determinative of intent of the parties as to the place of delivery. - Buyer pays freight: Buyer owns goods at the point of shipment. - Seller pays freight: Seller has to transport the goods to the ultimate destination before title passes to the buyer. - F.O.B.: Free on board. Seller bears transportation cost up to the F.O.B. point. - C.I.F.: Cost, Insurance and Freight. Price quoted includes the price of the goods, insurance and freight charges on the goods up to the place of destination. - F.A.S.: Free alongside. Seller bears the transportation expenses until he delivers the goods to a vessel at a named port. - These are merely used to fix the price and not the place of delivery to the buyer, as it is not uncommon to impose duties to the seller beyond the FOB point if the price for such service was paid. - Best indication of the intent of the parties as to the place of delivery of the goods: Manner and place of payment of price agreed upon by the parties. - Price payable upon proof of shipment: buyer accepts delivery at the point of shipment. - Price payable upon arrival at the point of destination: destination is the place of delivery to the buyer. FOB Sales (Free on board means that the seller bears expenses of transportation up to the f.o.b. point.) Behn Meyer v. Yangco 38 Phil 602 (1918) Facts: - A memorandum of agreement was executed between Behn, Meyer & Co. and Yangco. - The contract provided for the following: > 80 drums Caustic Soda 76% Carabao brand al precio de Dollar Gold Nine and 75/100 per 100-lbs. > c.i.f. Manila, pagadero against delivery of documents. > Time of delivery: Embarque: March 1916. >> The merchandise was shipped from New York on the Steamship Chinese Prince on April 12, 1916. - The payment would be effected upon delivery of the documents. - The steamship was detained by British authorities at Penang and part of the cargo, including 71 drums of caustic soda, was removed.
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Article 1523. Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to the buyer, delivery of the goods to a carrier, whether named by the buyer or not, for the purpose of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the cases provided for in article 1503, first, second and third paragraphs, or unless a contrary intent appears. Unless otherwise authorized by the buyer, the seller must make such contract with the carrier on behalf of the buyer as may be reasonable, having regard to the nature of the goods and the other circumstances of the case. If the seller omit so to do, and the goods are lost or damaged in course of transit, the buyer may decline to treat the delivery to the carrier as a delivery to himself, or may hold the seller responsible in damages. Unless otherwise agreed, where goods are sent by the seller to the buyer under circumstances in which the seller knows or ought to know that it is usual to insure, the seller must give such notice to the buyer as may enable him to insure them during their transit, and, if the seller fails to do so, the goods shall be deemed to be at his risk during such transit. NOTES: - Where the seller is authorized or required under the contract to transmit the goods to the buyer through a common carrier, delivery of the goods to the carrier is considered delivery to the buyer, and hence, title passed to the buyer at the point of shipment, unless by the form of the bill of lading, the seller reserved title, with intent to remain the owner for all purposes, and not merely for the sole purpose of securing payment, or unless the contrary intent appears in the contract of sale, as where the seller is required to deliver the goods to the buyer at the point of destination. - This rule is in accordance with that of the Uniform sales Act in order to determine the intent of the parties as to the time the title to the goods is to pass to the buyer. - Specific goods, deliverable: Title passes to the buyer at the time the contract was entered into. - Specific goods, seller does things to make the thing deliverable: Title passes to the buyer upon making the thing deliverable. - Goods sold by description, determinable at the time of the contract, and delivered to a common carrier to transmit to the buyer: Seller is presumed to have unconditionally set aside the goods for the buyer. Title passes to the buyer at the point of shipment, unless the contract requires the seller to deliver the goods to the buyer at a particular place, or where ownership was reserved by the seller, as shown by the form of the bill of lading.
- Defendant refused to accept delivery of the remaining nine drums of soda on the ground that the goods were in bad order. - Defendant also refused the optional offer of the plaintiff of waiting for the remainder of the shipment until its arrival or of accepting the substitution of 71 drums of caustic soda of similar grade from plaintiffs stock. Held / Doctrine: - Determination of the place of delivery always resolves itself into a question of fact. If the contract is silent as to the person or mode by which the goods are to be sent, delivery by the vendor to a common carrier, in the usual and ordinary course of business, transfers the property to the vendee. - The letters c.i.f. in British contracts stand for costs, insurance and freight. They signify that the price fixed covers not only the cost of the goods but the expense of freight and insurance to be paid by the seller. - The letters F.O.B. stand for the words Free on Board. It means that the seller shall bear all expenses until the goods are delivered where they are to be F.O.B. - Both terms make rules of presumption. The word Manila in conjunction with the letters c.i.f must mean that the contract price, covering costs, insurance, and freight signifies delivery was to be made in Manila. CIF Sales (Cost, insurance, freight signifies that the price quoted includes the costs of the goods, insurance, and freight charges on the goods up to the place of destination) General Food v. Nacoco 100 Phil 637 (1956) Facts: - NACOCO sold to GFC 1,000 long tons of copra, at USD163 per ton of 2,000 pounds. - NACOCO shipped 1,054.6278 short tons of copra to GFC on board the S. S. Mindoro. - The weighing of the cargo was done by the Luzon Brokerage Co. On the strength of the net weigh thus found, NACOCO prepared and remitted to GFC the corresponding bills of lading and other documents, and withdrew from the latters letter of credit 95% of the invoice value of the shipment, or a total of USD136,686.95. - Upon arrival in New York, the net cargo was reweighed by GFC and was found to weigh only 898.792 short tons. > Deducting from the value of the shortage the sum of USD8,092.02 received by GFC from the insurer for 58.25 long tons lost or destroyed even before the copra was loaded on board the vessel, GFC demanded from NACOCO the refund of the remaining amount. Held / Doctrine: - Under an ordinary C.I.F. agreement, delivery to the buyer is complete upon delivery of the goods to the carrier and tender of the shipping and other documents required by the contract and the insurance policy taken in the buyers behalf. - Parties may, by express stipulation or impliedly (by making the buyers obligation depend on arrival and inspection of the goods), modify a C.I.F. contract and throw the risk upon the seller until arrival in the port of destination. - Warner, Barnes & Co. vs. Warner Sugar R. Co.: The reasonable construction given by the Court to this contract FAS (Free alongside means that the seller bears the expenses of transportation until he delivers the goods alongside a vessel at a named post.) Effect of form of bill of lading Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer. Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the seller's property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods as against the buyer. was that though the seller was required to deliver the goods at a customary wharf in New York, and the price could not be finally determined until the goods were landed, yet the property in the goods and the risk of loss was intended to pass when the full shipping documents were presented, including an insurance policy. If the goods were totally lost, then by the express terms of the contract the buyers were to pay the full amount of invoice and if the goods were partially lost, then it is fairly inferable that, while payment was to be made according to landed weights, the seller should not be deprived of the right to show that these landed weights were diminished by loss or damage due to the risk of the voyage. Any other construction of the contract would require the seller to provide insurance for the buyer for a loss which falls not on the buyer, but on the seller. - While the risk of loss was apparently placed on GFC after delivery of the cargo to the carrier, it was nevertheless agreed that the payment of the price was to be according to the net landed weight. > NACOCO had the burden of proof to show that the shortage in weight upon arrival in New York was due to risks of the voyage and not the natural drying up of the copra while in transit, or to reasonable allowances for errors in the weighing of the gross cargo and the empty bags in Manila.
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Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading together to the buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains the bill of lading he acquires no added right thereby. If, however, the bill of lading provides that the goods are deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer by the consignee named therein, one who purchases in good faith, for value, the bill of lading, or goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not been honored, provided that such purchaser has received delivery of the bill of lading indorsed by the consignee named therein, or of the goods, without notice of the facts making the transfer wrongful. NOTES: - The seller may, by the form of the bill of lading: > Consign the goods to himself or to his agent and thus prevent title from passing to the buyer until the latter pays the price (Seller is presumed to have reserved ownership over the goods, despite delivery to the common carrier.) > Consign the goods to the order of the buyer or the latters agent, but by retaining the negotiable bill of lading, he thereby prevents the buyer from obtaining the goods from the carrier until the price is paid (Seller is presumed to have retained merely possession over the goods; title passed to the buyer at the point of shipment). - When the seller forwards the bill of lading together with the draft drawn on the buyer for the price, the presumed intention of the seller is not to part with ownership over the goods until the draft is honored by the buyer. - The form in which the bill of lading is taken as indicative of title to the goods is not conclusive and is thus rebuttable. - In a case, where the contract provided that notwithstanding the fact that the goods are shipped to the sellers order, the goods are at the risk of the buyer from and after delivery to the carrier, the consignment of the goods to the order of the seller shows that the title reserved by the seller was only for the purpose of security, and the beneficial interest in the goods passed to the buyer at the point of shipment. - In a case, although the goods were shipped and consigned to the buyer under a straight bill of lading, but the circumstances show that the parties were aware of the pending strike, and the sale was dependent on the ability of the mill to ship the goods, the terms cash on receipt of the merchandise at the destination point in the contract indicate their intention that the title was not to pass to the buyer until the latter received the goods at the destination point. - In a case, where the contract involved a sale of goods to be shipped from Hamburg, cif New York, and the terms of the contract state: Payment-net cash against shipping documents payable upon arrival of the steamer; No arrival, no sale; Insurance for the account of the seller, the court held that there was not a mere postponement of the time of payment of the price but an agreement that if the steamer did not arrive, no payments were to be made, thus showing that the risk of the voyage was on the seller, and that title was not transferred to the buyer upon delivery to the carrier, the terms cif referring only to the price. DOUBLE SALES Article 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. NOTES: - If the same thing should have been sold by the owner to different buyers, the question as to who of the latter acquired ownership depends on the nature of the thing sold. - Prior the Spanish Code: Preference is given to the purchaser who first took possession of the thing sold, even it involved an immovable. - Spanish Civil Code: Distinguished between movables and immovables to harmonize the Code with the Spanish Mortgage Law of 1889. - Movables: Delivery transfers ownership to an innocent buyer. - Immovables: Registration of the deed of sale in the registry of property is necessary to prejudice other buyers of the property. - Spanish Mortgage Law: Required registration of titles and instruments affecting real property to prejudice third persons. - Act No. 496 (1912): Registration of the title is the operative act to convey and affect the land. - Act No. 2387 (1918): Instruments affecting unregistered lands should be recorded without prejudice to a third party with a better right. - Rationale: Recording does not come after investigation to determine validity or efficacy of the instrument, and hence it may prejudice those who subsequently acquire interest therein. - Unregistered lands have no titles, and hence, owners claim ownership through payment of taxes, and continuous, adverse and public possession for 30 years or more. (understood as they acquired the lands through prescription) - PD 892 (1976): Abrogated Spanish Mortgage Law and stated that Owner of lands having Spanish titles are required to file application for registration under the Torrens System within six (6) months; Spanish titles will no
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longer be evidence of ownership, and they will be considered unregistered land; transactions affecting them shall be recorded under Act 3344, now Sec. 113, PD 1529. 1. General Rule Prior tempore, prior jure - Both sales are valid According to Art. 1544 of the Civil Code: - Movable > The owner is the one who is first to possess in good faith. - Immovable > First to register in good faith > No inscription, first to possess in good faith > No inscription and no possession in good faith (Person who presents oldest title in good faith) Cheng v. Genato 300 SCRA 722 (1998) Facts: - Genato is the owner of two parcels of land in Bulacan. He entered into a contract to sell with the Da Jose spouses, which was executed in a public instrument and annotated at the back of the two certificates of title. The spouses failed to pay the full purchase price indicated in the contract, so they asked for an extension of 30 days. Pending the effectivity of the said extension period, and without due notice to the spouses, Genato executed an Affidavit to Annul the Contract to Sell. - Subsequently, Cheng expressed interest over the parcels of land. Genato showed Cheng copies of his TCTs and the annotations at the back containing his contract to sell with the Da Jose spouses. Despite this, Cheng issued a check for P50,000 upon the guaranty that the previous contract with the Da Jose spouses will be annulled. - The spouses chanced upon Genato and it was only then that they discovered the affidavit to annul their contract. They were shocked and protested against the rescission of the contract. After reminding Genato that the 30-day extension period was still in effect, and that they were willing and able to pay the purchase price, Genato decided to continue the contract he had with them. This agreement was formalized in a conforme letter. - Cheng demanded that Genato execute a deed of sale in his favor, on the ground that the check he gave was partial payment to the agreed purchase price and considered as earnest money, which Genato accepted. Thus, the contract was already perfected. - The Da Jose spouses, on the other hand, assert that they have a superior right to the property as first buyers. They allege that the unilateral cancellation of the contract to sell was null and void. They also cite Chengs bad faith as a buyer being duly informed of the contract to sell between Genato and the spouses. Held / Doctrine: - Art. 1544 is inapplicable since the contract to sell contemplates neither a transfer of ownership nor a sales transaction. The provision connotes that following concur: 1) The two (or more) sales transactions in the issue must pertain to exactly the same subject matter, and must be valid sales transactions; 2) The two (or more) buyers at odds over the rightful ownership of the subject matter must each represent conflicting interests; and 3) The two (or more) buyers at odds over the rightful ownership of the subject matter must each have bought from the very same seller. - Nevertheless, the governing principle in Art. 1544 should apply in this case. Jurisprudence teaches us that the
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NOTES: - General Rule: FIRST IN TIME, PRIORITY IN RIGHT (PRIMUS TEMPORE, POTIOR JURE) - Application of the general rule: When not all requisites embodied in Art. 1544 concur. Carbonell v. CA 69 SCRA 99 (1976) Facts: - Respondent Poncio was the owner of the subject parcel of land, mortgaged in favor of the Republic Savings Bank. Both petitioners Carbonell and respondent Infante offered to buy the said lot from Poncio. - Petitioner Carbonell and respondent Poncio came into agreement that petitioner is to buy said lot on the condition that from the purchase price would come the money to be paid to the bank. - Petitioner and respondent, in the presence of a witness, made and executed a document in the Batanes dialect, a contract for half lot which petitioner bought from Poncio. - A formal deed of sale was prepared but Carbonell was told by Poncio that he could not proceed any more with the sale because he had already given the lot to respondent Infante. - Respondent Poncio executed the formal deed of sale in favor of respondent Infante who paid P1,500 to Republic Savings Bank for the mortgage indebtedness; and so, the mortgage on the lot was eventually discharged. - The deed of sale in favor of respondent Infante was registered but on the Transfer Certificate of Title that was issued to her, there was the annotation of the adverse claim of petitioner Carbonell. Held / Doctrine: - The Court cited Art.1544, New Civil Code: xxx (2) 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. (3) 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. > It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of the second paragraph of said Article 1544. > The second paragraph directs that ownership of immovable property should be recognized in favor of one who in good faith first recorded his right. > The third paragraph says that if there is inscription, as in the case at bar, prior registration in good faith is a precondition to superior title. 2. Requisites for Double Sale
Requisites for Double Sale - Exactly same subject matter - Exactly same immediate seller - Buyers represent conflicting interest
governing principle is PRIMUS TEMPORE, PORTIOR JURE (first in time, stronger in right). Not only was the contract between Genato and the spouses first in time; it was also registered long before Chengs intrusion as a second buyer. - Under Art. 1544, for the second buyer to displace the first buyer: 1) The second buyer must show that he acted in good faith from the time of acquisition until title is transferred to him; and 2) The second buyer must show continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership. 3. Who is purchaser in good faith > Buyer buys from one whose right is annotated in the certificate of title: He is not an innocent purchaser if it turns out that the seller is not the sole owner of the land.
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Must Be In Good Faith - Purchaser in 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 - lis pendens: notice that subject matter is in litigation - adverse claim: notice that somebody is claiming better right - Possessor in good faith: One who is not aware that there exists in his title or mode of acquisition any flaw which invalidates it. Mistake upon a doubtful or difficult question of law may be the basis of good faith. - Good faith is always presumed, and the burden of proving bad faith is on the person alleging it. - Possession acquired in good faith does not lose this character except in the case and from the moment facts exist which show that the possessor is not unaware that he possesses the thing improperly or wrongfully. - Leung Yee v. F.L. Strong Machinery: One who purchase real estate with knowledge of a defect or lack of title in his vendor cannot claim good faith as well as one who has knowledge of facts which should have put him upon such inquiry or investigation as might be necessary to acquaint him with the defects in the title of his vendor His mere refusal to believe that such defect exists, or his willful closing of his eyes to the possibility of existence of a defect in the vendors title, will not make him an innocent purchaser for value if afterwards develop that tile was in fact defective and it appears that he had such notice of the defect as would have led to its discovery had he acted with that measure of precaution which may reasonably be required of a prudent man in a like situation. - Good faith consists in an honest intention to abstain from taking any unconscientious advantage of another. - The good faith of the second buyer must continue until his contract ripens into ownership by tradition or recording. - Lands registered under the Torrens system: > Buyer buys from registered owner: Buyer may rely only on the certificate of title issued in the name of the buyer; he is not required to trace its origin to prior certificates of title. > Buyer buys not from registered owner: He is expected to examine all factual circumstances necessary to determine flaws in the title or the sellers capacity to sell the land.
Agricultural and Home Extension v. CA 213 SCRA 536 (1992) Facts: - Spouses Diaz sold to Gundran a 19-hectare parcel of land in Las Pias, Rizal, and the owners duplicate copy of the title was turned over to the latter. However, Gundran did not register the Deed of Absolute Sale because he was advised in the Office of the Register of Deeds of Pasig of the existence of notices of lis pendens on the title. - Gundran and petitioner Agricultural and Home Development Group, entered into a Joint Venture Agreement for the improvement and subdivision of the land. This agreement was likewise not annotated on the title. - Four years later, the spouses Diaz again entered into another contract of sale of the same property with respondent Cabautan. - By virtue of an order of the CFI of Rizal, a new copy of the certificate of title over the land was issued to the Diaz spouses, who had alleged the loss of their copy. On the same day, the notices of lis pendens annotated on the original certificate of title were cancelled and the Deed of Sale in favor of Cabautan was registered. A new TCT was thereupon issued in his name. Held / Doctrine: - Article 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. - PURCHASER IN GOOD FAITH one who buys the property of another without notice that some other person has a right to or interest in such property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim or interest of some other person in the property. - While it is true that notices of lis pendens in favor of other persons were earlier inscribed on the title, these did not have the effect of establishing a lien or encumbrance on the property affected. Their only purpose was to give notice to third persons and to the whole world that any interest they may acquire in the property pending litigation would be subject to the result of the suit. - Justice Paras: no one can sell what he does not own, but this is merely the general rule. Is Art. 1544 then an exception to the general rule? In a sense, yes, by reason of public convenience; in still another sense, it really reiterates the general rule that insofar as innocent third persons are concerned, the registered owner (in case of real property) is still the owner, with power of disposition.
Article 1499. The delivery of movable property may likewise be made by the mere consent or agreement of the contracting parties, if the thing sold cannot be transferred to the possession of the vendee at the time of the sale, or if the latter already had it in his possession for any other reason. Article 1500. There may also be tradition constitutum possessorium. Article 1501. With respect to incorporeal property, the provisions of the first paragraph of article 1498 shall govern. In any other case wherein said provisions are not applicable, the placing of the titles of ownership in the possession of the vendee or the use by the vendee of his rights, with the vendor's consent, shall be understood as a delivery. NOTES: Rule Governing Sale of Movables - NCC: Same as Spanish Civil Code - If the same thing should have been sold to different vendees, the ownership shall be transferred to a person who may have first taken possession thereof in good faith. - Delivery may be made in different forms provided in Arts. 1497 to 1501, NCC. - If there are two sales, both buyers are in good faith, but the other has obtained delivery through tradition constitutum possessorium, he shall be deemed the owner of the movable. Rivera v. Ong 37 Phil 355 (1917) Facts: - Plaintiff purchased steam boilers and chimneys from the house of Lichauco, which was offering for sale such materials. The goods remained at the store because plaintiff did not take possession immediately. Almost a month after, defendant bought machinery and junk from the store which he immediately took possession of. When plaintiff came to claim his goods, it was found out that many of the auxiliary parts of his order was with the defendant by virtue of defendants purchase of machinery a nd junk. Held / Doctrine: - Defendant was a purchaser in good faith and acquired possession of the subject matter first, hence having a better title than the plaintiff who has never had possession at all. - Where two different agents of the same owner successively negotiated sales to two different buyers, the buyer having acquired possession first must be declared the true owner. - Also, plaintiff failed to prove his own title to the subject matter. The defendant had, in his favor, the fact that he was a purchaser in good faith and had acquired lawful possession. There is a presumption arising from such possession that he was the owner. 6. Sale of Immovables
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4.
Priority of registration over possession
Possession - Both actual or constructive Registration - Any entry made in the books in 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. - If #1: registered under Torrens system > Art. 1544 applies - If #2: not registered under the Torrens system > Art. 1544 does not apply > Under Act No. 3344, registration of documents affecting unregistered land is without prejudice to a third party with a better right. The mere registration of a sale in ones favor does not give him any right over the land if the vendor was not anymore the owner of the land, having previously sold the same to somebody else, even if the earlier sale was unrecorded. - If sale for 1 occurs when land is not yet registered & sale 2 is done when land is already registered: apply FIRST IN TIME, PRIORITY IN RIGHT - Registration by the first buyer under Act 3344 can have the effect of constructive notice to the second buyer that can defeat his right as such buyer. 5. Sale of Movables
Article 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. Article 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee. Article 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred. With regard to movable property, its delivery may also be made by the delivery of the keys of the place or depository where it is stored or kept.
Article 1544. Par. 2. 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. NOTES:
Rule Governing Sale of Immovables (General Rule) - If the thing sold should be immovable property, the ownership shall belong to the person acquiring it, who, in good faith, first recorded it in the Registry of Property. - When an unregistered land is sold to two buyers, the latter filing an adverse claim in the Registry of Property, the latter acquires ownership of the property as the recording of adverse claim has given him preference over the property. Carbonell v. CA 69 SCRA 99 (1976) Facts: - Respondent Poncio was the owner of the subject parcel of land, mortgaged in favor of the Republic Savings Bank. Both petitioners Carbonell and respondent Infante offered to buy the said lot from Poncio. - Petitioner Carbonell and respondent Poncio came into agreement that petitioner is to buy said lot on the condition that from the purchase price would come the money to be paid to the bank. - Petitioner and respondent, in the presence of a witness, made and executed a document in the Batanes dialect, a contract for half lot which petitioner bought from Poncio. - A formal deed of sale was prepared but Carbonell was told by Poncio that he could not proceed any more with the sale because he had already given the lot to respondent Infante. - Respondent Poncio executed the formal deed of sale in favor of respondent Infante who paid P1,500 to Republic Savings Bank for the mortgage indebtedness; and so, the mortgage on the lot was eventually discharged. - The deed of sale in favor of respondent Infante was registered but on the Transfer Certificate of Title that was issued to her, there was the annotation of the adverse claim of petitioner Carbonell. Held / Doctrine: - The Court cited Art.1544, New Civil Code: (2) 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. (3) 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. > It is essential that the buyer of realty must act in good faith in registering his deed of sale to merit the protection of the second paragraph of said Article 1544. > The second paragraph directs that ownership of immovable property should be recognized in favor of one who in good faith first recorded his right. > The third paragraph says that if there is inscription, as in the case at bar, prior registration in good faith is a pre-condition to superior title. 7. Sale by virtue of execution and attachment 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. NOTES: Sales by Virtue of Execution and Attachment - General rule in Art. 1544, NCC is not applicable to execution sales because purchaser acquires the rights, titles or interests of the judgment debtor over the property at the time of levy, since he has the duty to determine the rights of the judgment debtor before bidding. - Spanish Law of Civil Procedure and Spanish Mortgage Law: attaching creditors are not third persons and hence attachment or execution cannot prejudice prior unrecorded sales made by the judgment creditor, and is preferred only over claims contracted subsequent to its recording. - This does not apply to lands registered under Act 496, since registration of instrument shall be the operative act to convey and affect the land, hence unrecorded sales cannot prejudice execution sales, if no third-party claim was presented before the execution sale took place. - A bona fide purchaser of a registered land at an execution sale acquires a good title as against a prior transferee of an unrecorded transfer. Carumba v. CA 31 SCRA 558 (1970) Facts: - Spouses Amado Canuto (petitioners brother-in-law) & Nemesia Ibasco, by virtue of a "Deed of Sale of Unregistered Land with Covenants of Warranty" sold a parcel of land to the spouses petitioner Amado Carumba and Benita Canuto, for the sum of P350.00. Said deed of sale was never registered in the Office of the Register of Deeds of Camarines Sur, and the Notary, Mr. Vicente Malaya, was not then an authorized notary public in the place. - Two years later, a complaint for a sum or money was filed by Santiago Balbuena against vendor spouses Amado Canuto & Nemesia Ibasco. The lower court rendered a decision in favor of Balbuena. - Ex-officio Sheriff, Imperial, issued a "Definite Deed of Sale of the subject property in favor of Balbuena. The subject property was then declared for taxation purposes in the name of Santiago Balbuena. Held / Doctrine: - While under Art. 1544 registration in good faith prevails over possession in the event of a double sale by the vendor of the same piece of land to different vendees, said article is of no application to the case at bar, even if Balbuena, the later vendee, was ignorant of the prior sale made by his judgment debtor in favor of petitioner Carumba because the purchaser of unregistered land at a sheriff's execution sale only steps into the shoes of the judgment debtor, and merely acquires the latter's interest in the property sold as of the time the property was levied upon. As Sec. 35 of Rule 39 of the Revised ROC, par. 2 provides:
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Article 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.
Upon the execution and delivery of said (final) deed the purchaser, redemptioner, or his assignee shall be substituted to and acquire all the right, title, interest, and claim of the judgment debtor to the property as of the time of the levy, except as against the judgment debtor in possession, in which case the substitution shall be effective as of the time of the deed. - When the levy was made by the Sheriff, the spouses Canuto no longer had dominical interest nor any real right over the land that could pass to the purchaser at the execution sale. Hence, the latter must yield the land to petitioner Carumba. 8. Meaning of Better Right A person having a better right would be one who had previously acquired ownership thereof through the modes of acquiring ownership under the Civil Code: tradition as a result of sale, donation, succession and prescription. recording of the deed and other instruments relating to unregistered lands shall be effected by any of annotation on the space provided therefor in the Registration Book, after the same shall have been entered in the Primary Entry Book. (b) If, on the face of the instrument, it appears that it is sufficient in law, the Register of Deeds shall forthwith record the instrument in the manner provided herein. In case the Register of Deeds refuses its administration to record, said official shall advise the party in interest in writing of the ground or grounds for his refusal, and the latter may appeal the matter to the Commissioner of Land Registration in accordance with the provisions of Section 117 of this Decree. It shall be understood that any recording made under this section shall be without prejudice to a third party with a better right. (c) After recording on the Record Book, the Register of Deeds shall endorse among other things, upon the original of the recorded instruments, the file number and the date as well as the hour and minute when the document was received for recording as shown in the Primary Entry Book. NOTES: - Art. 1544, NCC can apply to registered lands. - Instruments affecting unregistered lands are required to be registered in the Registry of Property to prejudice third persons, without prejudice to a third party with a better right. - Mere registration of sale in ones favor does not give him any right over the land, if the vendor is not owner of the land, or had already parted with his ownership before such sale, in favor of a third party who had previously taken possession of the land, even though the prior sale was unrecorded. - Better right: Acquired ownership through the modes provided in the Civil Code (tradition as a result of sale, donation, succession whether testate or intestate, or prescription). - Recorded conveyance may be used to determine subsequent conveyance or encumbrances, but previous conveyances must be investigated independent of the recorded conveyance. - Jovellanos v. Dimalanta: Prior possessor was declared to be preferred against a prior recorder of the adverse claim in the cadastral proceedings. - Lichauco v. Berenguer: A better unrecorded right which prevails over a recorded sale is one which was gained independently of the sale, as title by prescription. Dagupan v. Macam 14 SCRA 179 (1965) Facts: - Sammy Maron and his seven siblings owned a parcel of unregistered land. While their application for registration of said land under Act No. 496 was pending, they executed two deeds of sale conveying the property to appellee Macam who took possession and made substantial improvements therein. A month later, certificate of registration of the land was issued in the name of the Maron's, free from all liens and encumbrances.
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Hanopol v. Pilapil 7 SCRA 452 (1963) Facts: - Hanopol claims ownership of the land by virtue of a series of purchases effected in 1938 by means of private instruments, executed by the former owners. In a previous civil case, Hanopol filed a complaint against the same vendors who re-took possession through fraud, threat, and intimidation. The decision declared him the exclusive owner of the land in question. - On the other hand, Pilapil asserts title to the property on the strength of a duly notarized deed of sale executed in his favor by the same owners in 1945. This was registered in the Register of Deeds in Leyte under the provisions of Act No. 3344. Held / Doctrine: - The "better right" referred to in Act No. 3344 is much more than the mere prior deed of sale in favor of the first vendee. In the case of Lichauco v. Berrenguer, it was the prescriptive right that had supervened. Or, as also suggested in that case, other facts and circumstances exist which, in addition to his deed of sale, the first vendee can be said to have better right than the second purchaser. In the case at bar, there appears to be no clear evidence of Hanopol's possession of the land in controversy. 9. Unregistered land
PD 1529 (Property Registration Decree) Section 113. Recording of instruments relating to unregistered lands. No deed, conveyance, mortgage, lease, or other voluntary instrument affecting land not registered under the Torrens system shall be valid, except as between the parties thereto, unless such instrument shall have been recorded in the manner herein prescribed in the office of the Register of Deeds for the province or city where the land lies. (a) The Register of Deeds for each province or city shall keep a Primary Entry Book and a Registration Book. The Primary Entry Book shall contain, among other particulars, the entry number, the names of the parties, the nature of the document, the date, hour and minute it was presented and received. The
- By virtue of a civil case of final judgment in favor of the Municipal Court of Manila against Sammy Maron, levy was made upon whatever interest he had in the property in question, and thereafter said interest was sold at public auction to the judgment creditor. The corresponding notice of levy, certificate of sale and the Sheriff's certificate of final sale in favor of the Manila Trading and Supply Co. because nobody exercised the right of redemptions were duly registered. The latter sold all its rights and title to the property to appellant, Dagupan Trading. - Actions were filed arguing as to who had the better right over the property. Held / Doctrine: - Where for a considerable time prior to the levy on execution interest of the owner of the land levied upon had already been conveyed to another who took possession thereof and introduced improvements thereon, the said levy is void. The prior sale, although, unregistered, cannot be defeated by subsequent execution sale and registration of or issuance of Title over the land. - In this case, what should determine the issue are the provisions of the last paragraph of Section 35, Rule 39 of the Rules of Court, to the effect that upon the execution and delivery of the final certificate of sale in favor of the purchaser of land sold in an execution sale, such purchaser "shall be substituted to and acquire all the right, title, interest and claim of the judgment debtor to the property as of the time of the levy." - At the time of the levy, Sammy Maron had no more interest and claim over the said land in question because for a considerable time prior to the levy, his interest had already been conveyed to appellee Macam, fully and retrievably. So, subsequent levy made on the property to satisfy the judgment against Sammy Maron in favor of the Manila Trading Company was void and of no effect 10. When one sale is forgery Espiritu v. Valerio 9 SCRA 761 (1963) Facts: - Defendant filed an action to quiet title against plaintiffs alleging that he is the owner of the parcel of land in question having acquired it from the former owner, Pelagia Vegilia, as evidenced by a deed of sale. - Plaintiffs claim that they are the lawful owners of the land having acquired it by inheritance from their deceased husband and father, that the deceased acquired the land from one Mariano Vegilia who bought it from Pelagia Vegilia (same person who sold the land to defendant). Held / Doctrine: - Assuming both allegations of the parties are valid, plaintiff's contention that they have a better right would seem to be valid pursuant to Art. 1544 of the Civil Code and that it was not disputed that the deed of sale in favor of them was registered first. - But since the deeds of sale presented by plaintiff are found to be falsified, they have no legal right to claim the disputed property (refer to case as to how they are exactly falsified). 11. First in possession in good faith NOTES: - If neither vendee registered the sale in his favor or registration was done in bad faith, the vendee who was first in possession in good faith acquired ownership of the land. - Civil Law Rule: Tradition is required to transfer ownership to the buyer. - If the first sale is evidenced in a public instrument, it is tantamount to delivery unless the contrary appears. - If the land sold is already in the possession of the buyer, the delivery is by virtue of constitutum possessorium. - If there are two sales in good faith, the second buyer taking possession of the property, the second buyer acquired ownership of the land. - If there are two sales, the first buyer tolerating the possession of the seller, but the seller subsequently sold the property to the second buyer who was place in possession and first registered the property (the first buyer registered it an hour later), the first buyers right prevails as the registration was done in bad faith, and that the first sale was executed in a public instrument signifying its delivery. Quimson v. Rosete 87 Phil 159 (1950) Facts: - The disputed parcel of land (a farm) originally belonged to Dionisio Quimson (deceased). - Dionisio Quimson executed a deed of conveyance over the said property to his daughter Tomasa Quimson but continued in his possession and enjoyment of the land. - The said land was sold to spouses Magno Agustin and Paulina Manzano with an agreement to repurchase within six years. - The same land was sold to Francisco Rosete also with pacto de retro within five years thereafter having verified its repurchase of spouses Agustin and Manzano, with money furnished to him by Rosete, executing in the end the deed. - Since then and even after the death of Dionisio Quimson, it was Rosete who was in peaceful and quiet possession and enjoyment of the property. Held / Doctrine: - Pertinent Provisions: Articles 1462 and 1473 of the Civil Code > ART. 1462. The thing sold shall be deemed delivered, when it is placed in the control and possession of the vendee. When the sale is made by means of a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the said instrument the contrary does not appear or may not be clearly inferred. > ART. 1473. 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 first recorded it in the registry. - Should there be no inscription, the ownership shall belong to the person who in good faith was first in the possession; and, in the absence of this, to the person who represents the oldest title, provided there is good faith.
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- Buencamino vs. Viceo: Upon a sale of real estate the execution of a notarial document of sale is a sufficient delivery of the property sold. - Florendo vs. Foz: When the sale is made by means of a public instrument, the execution thereof is tantamount to conveyance of the subject matter, unless the contrary clearly follows or be deduced from such instrument itself, and in the absence of this condition such execution by the vendor is per se a formal or symbolical conveyance of the property sold, that is, the vendor in the instrument itself authorizes the purchaser to use the title of ownership as proof that latter is thenceforth the owner of the property. - Sanchez vs. Ramon: There appeared that one Fernandez sold a piece of land to Marcelino Gomez and Narcisa Sanchez under pacto de retro in a public instrument. The purchasers neither recorded the deed in the registry of property nor ever took material possession of the land. Later, Fernandez sold the same property by means of a private document to Ramos who immediately entered upon the possession of it. It was held that, according to article 1473 of the Civil Code, Gomez and Sanchez were the first in possession and consequently, that the sale in their favor was superior. - The execution of the public instrument is equivalent to the delivery of the realty sold (Art. 1462 Civil Code) and its possession by the vendee (Art. 438 Civil Code). > Under these conditions the sale is considered consummated and completely transfers to the vendee all of the thing. The vendee by virtue of this sale has acquired everything and nothing, absolutely nothing, is left to the vendor. > As the obligation of even delivering it, if he continues taking material possession of it, is simply on account of the vendee's tolerance and, in this sense, his possession is vendor's possession. > And if the latter should have to ask him for the delivery of this material possession it would not be by virtue of the sale, because this has been already consummated and has produced all its effects, but by virtue of the vendee's ownership, in the same were not the vendor. > This means that after the sale of the realty by means of a public instrument, the vendor, who resells it to another, does not transmit anything to the second sale, takes material possession of the thing, he does it as mere detainer, and it would be unjust to protect this detention against the rights to the thing lawfully acquired by the first vendee. - The Court is of the opinion that the possession mentioned in Article 1473 of the Civil Code (for determining who has better right when the same piece of land has been sold several times by the vendor) includes not the material but also the symbolic possession, which is acquired by the execution of a public instrument. Sanchez v. Ramos 40 Phil 614 (1919) Facts: - Ciriaco Fernandez sold land to the plaintiff-spouses Marcelino Gomez and Narcisa Sanchez under pacto de retro for the period of 1 year. This was executed in a public instrument by Marcelino Gomez and Narcisa Sanchez never took material possession of the land. The period for repurchase elapsed without the vendor making use of it. - Ciriaco Fernandez again sold the same land, by means of a private document, to Roque Ramos who immediately took material possession thereof. Held / Doctrine: - The Court cited Art. 1473: 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 personal property. Should it be real property, it shall belong to the purchaser who first recorded it in the registry of deeds. Should it not be recorded, the property shall belong to the person who first took possession of it in good faith, or, in default of possession, to the person who presents the oldest title, provided there is good faith. - Not one of the documents of sale in this case having been recorded, preference must be decided in favor of the vendee who first took possession. - Because the law does not mention to which of these kinds of possession Art. 1473 refers, it must be understood that it refers to all of these kinds. The law has deliberately intended to place the symbolic possession, which the execution of the public document implies after the material possession. But this argument would only be forceful if the title, mentioned by Art. 1473, includes public instruments, and this would only be true if public instruments are not included in the idea of possession spoken of in said article. - The courts interpretation of Article 1473 is more in consonance with the principles of justice. The execution of a public instrument is equivalent to the delivery of the realty sold (Art. 1462, Civil Code) and its possession by the vendee (Art. 438). Under these conditions the sale is considered consummated and completely transfers to the vendee all of the vendors rights of ownership including his real right over the thing. - The possession mentioned in article 1473 (for determining who has better right when the same piece of land has been sold several times by the same vendor) includes not only the material but also the symbolic possession, which is acquired by the execution of a public instrument. - STREET, J., dissenting: The possession referred to in article 1473 of the Civil Code is the actual, material and physical possession of the thing sold; and in applying that provision no account should ever be taken of the symbolic possession which is supposed to be acquired by the purchaser, under article 1463 of the Civil Code, when the sale is proved by a public document. 12. Oldest title Article 1544 Par. 3. 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. NOTES: Oldest Title - If neither of the vendees registered their deeds of sale nor acquired possession of the land sold, the one who can
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present the oldest title, provided there is good faith, has a better right. - Older title: any document showing acquisition of the land in good faith, like a deed of sale or a receipt for the price. - It does not include a public document as there is delivery by means of a public instrument, unless the contrary can be inferred. - This is because ownership is still with him Roman v. Grimalt 6 Phil 96 (1906) Facts: - Roman, owner of the schooner (sail boat) Santa Marina, and Grimalt, the purchaser, had been for several days negotiating for the purchase of the said schooner. They agreed upon the sale of the vessel for the sum of P1,500, payable in 3 installments, provided the title papers to the vessel were in proper form. Grimalt, however, was later informed that the title to the vessel was in the name of a certain Paulina Giron. Roman then promised to perfect his title to the vessel but failed to do so. - Consequently, due to a severe storm, the schooner sank in the harbor of Manila Bay and could not be recovered. Roman asserts that there was a perfected contract of sale and demands from Grimalt the purchase price of the schooner. Held / Doctrine: - If no contract of sale was actually executed by the parties the loss of the vessel must be borne by its owner and not by a party who only intended to purchase it and who was unable to do so on account of failure on the part of the owner to show proper title to the vessel and thus enable them to draw up the contract of sale. WHEN LOSS OCCURRED AT TIME OF PERFECTION Article 1493. If at the time the contract of sale is perfected, the thing which is the object of the contract has been entirely lost, the contract shall be without any effect. But if the thing should have been lost in part only, the vendee may choose between withdrawing from the contract and demanding the remaining part, paying its price in proportion to the total sum agreed upon. Article 1494. Where the parties purport a sale of specific goods, and the goods without the knowledge of the seller have perished in part or have wholly or in a material part so deteriorated in quality as to be substantially changed in character, the buyer may at his option treat the sale: (1) As avoided; or (2) As valid in all of the existing goods or in so much thereof as have not deteriorated, and as binding the buyer to pay the agreed price for the goods in which the ownership will pass, if the sale was divisible. NOTES: Loss Occurring at Time of Perfection of Contract - Applicable if the risk of loss has not yet passed to the buyer, and that parties did not know about the loss: > Perfected contract; specific thing entirely lost: Contract ineffective as there is no object. > Perfected contract; specific thing partially lost or materially deteriorated in quality (character changed): Buyer has the option to withdraw from the contract or buy the remainder at a proportionate price. Norkis v. CA 193 SCRA 694 (1991)
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Chapter VIII: RISK OF LOSS GENERAL RULE Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish the obligation. Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. NOTES: - If at the time of the sale of a specific thing is perfected, the thing had been entirely lost, the contract shall be ineffective. As there is no object, there can be no valid contract. - The loss, whether total or partial, must have occurred before the contract was entered into, without the knowledge of both parties. - If the loss is merely partial, the law gives the vendee the option of withdrawing from the contract or buying the remainder of the proportionate price. - If the thing has materially deteriorated in quality as to be substantially changed in character, the vendee is given the same option.
WHEN LOSS OCCURRED BEFORE PERFECTION NOTES: - When loss occurred before perfection, it is borne by the seller.
Facts: - Private respondent Alberto Nepales bought from the Norkis Bacolod branch a brand new Yamaha Wonderbike motorcycle. The price of P7,500.00 was payable by means of a Letter of Guaranty from the DBP, which Norkis agreed to accept. Credit was extended to Nepales for the price of the motorcycle payable by DBP upon release of his motorcycle loan. As security for the loan, Nepales would execute a chattel mortgage on the motorcycle in favor of DBP. - Petitioner issued a sales invoice which Nepales signed in conformity with the terms of the sale. In the meantime, however, the motorcycle remained in Norkis possession. - The motorcycle was delivered to a certain Julian Nepales, allegedly the agent of Alberto Nepales. The motorcycle met an accident at Binalbagan, Negros Occidental. An investigation conducted by the DBP revealed that the unit was being driven by a certain Zacarias Payba at the time of the accident. The unit was a total wreck and was returned to Norkis. - DBP released the proceeds of private respondents motorcycle loan to Norkis. Nepales paid the difference of P328 and demanded the delivery of the motorcycle. Held / Doctrine: - The issuance of a sales invoice does not prove transfer of ownership of the thing sold to the buyer. An invoice is nothing more than a detailed statement of the nature, quantity and cost of the thing sold and has been considered not a bill of sale. In all forms of delivery, it is necessary that the act of delivery whether constructive or actual, be coupled with the intention of delivering the thing. The act, without the intention, is insufficient. - Article 1496 of the Civil Code which provides that in the absence of an express assumption of risk by the buyer, the things sold remain at sellers risk until the ownership thereof is transferred to the buyer, is applicable to this case, for there was neither an actual nor constructive delivery of the thing sold, hence, the risk of loss should be borne by the seller, Norkis, which was still the owner and possessor of the motorcycle when it was wrecked. This is in accordance with the well-known doctrine of res perit domino. WHEN LOSS OCCURRED AFTER PERFECTION BUT BEFORE DELIVERY Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises. However, he shall acquire no real right over it until the same has been delivered to him. Article 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay. NOTES: Loss Occurring After Perfection But Before Delivery - Rule Under the Old Civil Code > General Rule: Obligation to deliver a specific thing is extinguished if the thing is lost or destroyed without the fault of the seller and before he has been in default. > Seller is in default or he has bound to deliver the same thing to two or more different persons: He carries the risk of loss until delivery is made. > Goods indeterminate, or price dependent on weight, number or measure: Loss shall not be imputed to the buyer until the goods have been weighed, counted or measured, unless the buyer is in default. > Sale of specific objects: Buyer carries the risk of loss despite delivery is absent. > Roman Law: As soon as the contract was perfected, the risk passed to the buyer. In order that the contract may be deemed perfected, the sale must be unconditional, and the object and the price exactly ascertained. A generic thing cannot be object of a contract of sale (hence the Spanish definition that the thing must be determinate). > Conditional sale/ indeterminate object/ price dependent on the number, weight, measure of goods: Buyer does not carry the risk of loss. > Sale of lump sum: Buyer has to pay the price despite the goods perished or deteriorated at the hands of the seller. > Yu Tek & Co v. Gonzales: Contract is perfected as to the thing when it is physically segregated from all other articles. - Rule Under the New Civil Code > Code Commission: Buyer does not bear the risk of loss until delivery of the goods. > Followed the common-law rule that the owner bears the risk of loss, in the absence of stipulation to the contrary > Retained the Roman Law Rule requiring delivery, either actual or constructive, to transfer ownership to the buyer. > Determinate thing included determinable things. > Buyer does not bear the risk of loss until delivery of fungible goods, unless he is in default. > The extinguishment of the obligation to delivery by virtue of fortuitous event also extinguishes the obligation to pay the price. > Art. 1189, NCC was applied to sales. General Rule: Res perit domino (The owner bears the loss) Loss by fault of a party Article 1480. Any injury to or benefit from the thing sold, after the contract has been perfected, from the moment of the perfection of the contract to the time of delivery, shall be governed by articles 1163 to 1165, and 1262. This rule shall apply to the sale of fungible things, made independently and for a single price, or without consideration of their weight, number, or measure. Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the vendee until they have been weighed, counted, or
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measured and delivered, unless the latter has incurred in delay. Article 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery; (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. Article 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in article 1189 shall be observed, the vendor being considered the debtor. Article 1636. In the preceding articles in this Title governing the sale of goods, unless the context or subject matter otherwise requires: (1) "Document of title to goods" includes any bill of lading, dock warrant, "quedan," or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by indorsement or by delivery, goods represented by such document. "Goods" includes all chattels personal but not things in action or money of legal tender in the Philippines. The term includes growing fruits or crops. "Order" relating to documents of title means an order by indorsement on the documents. "Quality of goods" includes their state or condition. "Specific goods" means goods identified and agreed upon at the time a contract of sale is made. An antecedent or pre-existing claim, whether for money or not, constitutes "value" where goods or documents of title are taken either in satisfaction thereof or as security therefor. (2) A person is insolvent within the meaning of this Title who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether insolvency proceedings have been commenced or not. Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (3) Goods are in a "deliverable state" within the meaning of this Title when they are in such a state that the buyer would, under the contract, be bound to take delivery of them. Loss by fortuitous events Art. 1480, supra Article 1163. Every person obliged to give something is also obliged to take care of it with the proper diligence of a good father of a family, unless the law or the stipulation of the parties requires another standard of care. Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel the debtor to make the delivery. If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible for any fortuitous event until he has effected the delivery. Article 1504. Unless otherwise agreed, the goods remain at the seller's risk until the ownership therein is transferred to the buyer, but when the ownership therein is transferred to the buyer the goods are at the buyer's risk whether actual delivery has been made or not, except that: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery; (2) Where actual delivery has been delayed through the fault of either the buyer or seller the goods are at the risk of the party in fault. Article 1538. In case of loss, deterioration or improvement of the thing before its delivery, the rules in article 1189 shall be observed, the vendor being considered the debtor.
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(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. Delay - Delay in delivery makes the delaying party liable for the loss or deterioration of the goods. - Uniform Sales Act: Risk of loss is placed on the party whose proximate cause of the loss. - This was not adopted in the NCC, making the delaying party liable for the loss even though the thing is lost without his fault. - Buyers unreasonable delay in inspecting the goods in FOB sale subject to inspection at the point of loading makes him liable for the subsequent loss of the goods. - Buyers failure to furnish shipping orders following sellers delivery of the lumber to the place of delivery made him liable for the price. - Buyers failure to pay the purchase price despite delive ry, but non-acceptance of the thing sold makes the seller liable for the loss of the goods if the goods were stored not for the buyer but for himself as an owner. Sun Bros. V. Perez 7 SCRA 977 (1963) Facts: - Defendant entered into a conditional sale agreement with the plaintiff over an air conditioner. Defendant paid the down payment and plaintiff installed the air con. - The conditional sale agreement includes: > Title to said property shall vest in buyer only upon full payment > The buyer shall keep said property in good condition and properly protected against the elements if said property or any part thereof be lost, damaged, or destroyed for any causes, he shall suffer such loss, or repair such damage, it being distinctly understood and agreed that said property remains at buyers risk after delivery. - The air con burned several days later. Defendant did not pay any of the subsequent monthly installments. Held / Doctrine: - It was expressly agreed in the contract that the buyer will be liable for loss of the subject matter of the sale in any event and for any cause. This includes fire and other fortuitous events. The risk of loss was expressly stipulated to be undertaken by the buyer, even if the title of the property remained with the seller. - Such stipulation is based on sound policy according to Am Jur: There are several basis for this rule. First is the absolute and unconditional nature of the buyer's promise to pay for the goods. The promise is nowise dependent upon the transfer of the absolute title. Second is the fact that the seller has fully performed his contract and has nothing further to do except receive payment, and the buyer received what he bargained for when he obtained the right of possession and use of the goods and the right to acquire title upon making full payment of the price. A third basis advanced for the rule is the policy of providing an incentive to care properly for the goods, they being exclusively under the control and dominion of the buyer." Lawyers Coop v. Tabora 13 SCRA 762 (1965) Facts: - Perfecto A. Tabora bought from the Lawyers Cooperative Publishing Company:
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Fruits or improvements Article 1537. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. All the fruits shall pertain to the vendee from the day on which the contract was perfected.
WHEN OWNERSHIP IS TRANSFERRED Art. 1504, supra NOTES: When Ownership is Transferred - NCC adopted the Uniform Sales act: The risk of loss of the goods shall be borne by the owner, unless the contrary is agreed upon. - Ownership does not pass to the buyer, unless there is actual or constructive delivery; hence, risk of loss shall be borne by the buyer only after the goods have been delivered to him or to his bailee. - Risk of loss is borne by the seller if the motorcycle, though registered in the name of the buyer for the purpose of obtaining a bank loan, is in possession of the seller. - Delivery at the point of shipment to a common carrier: Risk of loss of goods in transit borne by the buyer. - Delivery at the point of destination: Risk of loss of goods in transit borne by seller. - Sales subject to approval or trial: Seller carries risk of loss before approval. - Sale in return: Buyer carries risk of loss until goods are returned. Stipulation to the Contrary - Notwithstanding that title remained with the seller, it can be validly agreed that the risk of loss shall be borne by the seller. Security Title - Exception was aimed at conditional sales where the goods were delivered to the buyer and used by him, but title was retained by the seller, instead of accepting a mortgage on the goods sold. Beneficial interest is in the buyer and the risk should be on him. - In a case, the title of the bank which paid the price of the goods sold to the buyer under a letter of credit, is merely to secure performance of the buyers obligation to pay; hence the risk of loss should be borne by the buyer, as the beneficial owner.
> One complete set of American Jurisprudence consisting of 48 volumes with 1954 pocket parts > One set of American Jurisprudence, General Index, consisting of 4 volumes - The books were duly delivered and receipted for by Tabora in his law office. > Midnight of the same date, a big fire broke out in that locality which destroyed and burned all the buildings standing on one whole block including the law office and library of Tabora. - Tabora failed to pay the monthly installments agreed upon on the balance of the purchase price notwithstanding the long time that had elapsed, the company demanded payment of the installments due. Held / Doctrine: - Article 1504 of the Civil Code in part provides: (1) Where delivery of the goods has been made to the buyer or to a bailee for the buyer, in pursuance of the contract and the ownership in the goods has been retained by the seller merely to secure performance by the buyer of his obligations under the contract, the goods are at the buyer's risk from the time of such delivery. > While as a rule the loss of the object of the contract of sale is borne by the owner or in case of force majeure the one under obligation to deliver the object is exempt from liability, the application of that rule does not here obtain because the law on the contract entered into on the matter argues against it. > The seller agreed that the ownership of the books shall remain with it until the purchase price shall have been fully paid, but such stipulation cannot make the seller liable in case of loss not only because such was agreed merely to secure the performance by the buyer of his obligation but in the very contract it was expressly agreed that the loss or damage to the books after delivery to the buyer shall be borne by the buyer. - The obligor agreed to assume any risk concerning the goods from the time of their delivery, which is an exception to the rule provided for in Article 1262 of the Civil Code. > The appellant cannot claim that since the books were destroyed by fire without any fault on his part he should be relieved from the resultant obligation under the rule that an obligor should be held exempt from liability when the loss occurs through a fortuitous event. > The said rule only holds true when the obligation consists in the delivery of a determinate thing and there is no stipulation holding him liable even in case of fortuitous event. The obligation does not refer to a determinate thing, but is pecuniary in nature, and the obligor bound himself to assume the loss after the delivery of the goods to him. Song Fo v. Oria 33 Phil 3 (1915) Facts: - Song Fo & Co. sold a launch to Oria for P16,500, payable in quarterly installments of P1000, with 10% per annum interest. The launch was delivered to Oria in Manila, but was shipwrecked and became a total loss while en route to Oria's place of business in Samar. No part of the purchase price has ever been paid. Held / Doctrine: - There is nothing in the written contract which justifies an inference that there was any thought in the mind of either of the parties that the vendor of the launch would himself insure her against loss or damage during the long period allowed for the payment of the purchase price. - Oria, who had exclusive control of the operation of the vessel, sent her from Manila to Samar on the trip in the course of which she was shipwrecked, well knowing that she had not yet been insured: and that Song Fo had no power to interfere, or to keep her in port pending their application for insurance. - Thus, under the terms of the deed of sale, Song Fo would not have had the right to detain the vessel in a place of safety, against the wishes of Oria, had the insurance agents definitely declined their insurance proposals. - The security for the payment of the purchase price of the launch itself having disappeared as a result of an unforeseen event (vis major), and no other security having been substituted therefor, the plaintiffs were clearly entitled to recover judgment not only for the installments of the indebtedness due under the terms of the contract at the time when the instituted their action, but also for all installments which, but for the loss of the vessel had not matured at that time.
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Chapter IX: Documents of Title Negotiable Document of Title (To facilitate goods) - Operates as proof of the possession or control of the goods, or - Authorizing or purporting to authorize the possessor of the document to transfer or receive, either by indorsement or by delivery, goods represented by such document. - Governed by the Civil Code, and in some cases, by the Warehouse Receipt Law and Code of Commerce - The special indorsement of a bearer instrument has the effect of converting the bearer instrument into an order instrument. - If words such as nonnegotiable or the like are placed on the document, such document may nevertheless be negotiated by the holder. Negotiable Instrument - Operates as a substitute for money
- Governed by the Negotiable Instruments Law - A bearer instrument is always a bearer instrument even if a special indorsement is made.
DEFINITION
Article 1636. In the preceding articles in this Title governing the sale of goods, unless the context or subject matter otherwise requires: (1) "Document of title to goods" includes any bill of lading, dock warrant, "quedan," or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by indorsement or by delivery, goods represented by such document. "Goods" includes all chattels personal but not things in action or money of legal tender in the Philippines. The term includes growing fruits or crops. "Order" relating to documents of title means an order by indorsement on the documents. "Quality of goods" includes their state or condition. "Specific goods" means goods identified and agreed upon at the time a contract of sale is made. An antecedent or pre-existing claim, whether for money or not, constitutes "value" where goods or documents of title are taken either in satisfaction thereof or as security therefor. (2) A person is insolvent within the meaning of this Title who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether insolvency proceedings have been commenced or not. (3) Goods are in a "deliverable state" within the meaning of this Title when they are in such a state that the buyer would, under the contract, be bound to take delivery of them. PURPOSE OF DOCUMENTS OF TITLE Siy Cong Bieng v. HSBC 56 Phil 598 (1932) Facts: - Otto Ranft pledged certain negotiable warehouse receipts (quedans) to HSBC in order to secure the payment of his preexisting debts to the latter. - Otto Ranft bought bales of hemp (abaca) from plaintiff, and the two parties agreed on the price therefor. On the same day, the plaintiff sent the quedans and the invoice to Ranft with the understanding that the payment would be made against the same quedans. As in previous transactions of the same kind between the bank and the plaintiff, the quedans were paid one or two days after their delivery. - On the evening that the quedans were delivered to HSBC, Ranft died. Plaintiff immediately demanded the return of the quedans, or the payment of the value, but was told that the quedans had been sent to HSBC as soon as they were received by Ranft. Held / Doctrine: - It must be noted that: (1) the quedans were negotiable in form, (2) they were pledged by Ranft to HSBC to secure the payment of his preexisting debts to the said bank, and (3) such of the quedans as were issued in the name of the plaintiff were duly endorsed in blank by the plaintiff and by Ranft. - The bank had a perfect right to act as it did, and its action is in accordance with certain provisions of the Warehouse Receipts Act (Act No. 2137): By Sec. 40 The person who may negotiate the receipt is either the owner thereof, or a person to whom the possession or custody of the receipt has been intrusted by the owner if the receipt is in the form described. The warehouse receipt represents the goods, but the intrusting of the receipt, as stated, is more than the mere delivery of the goods; it is a representation that the one to whom the possession of the receipt has been so intrusted has the title to the goods. By Sec. 47 The negotiation of the receipt to a purchaser for value without notice is not impaired by the fact that it is a breach of duty, or that the owner of the receipt was induced by fraud, mistake, or duress to intrust the receipt to the person who negotiated it. By Sec. 41 One to whom the negotiable receipt has been duly negotiated acquires such title to the goods as the person negotiating the receipt to him, or the depositor or person to whose order the goods were deliverable by the terms of the receipt, either had or had ability to convey to a purchaser in good faith for value. - Basically, if the owner of the goods permits another to have the possession or custody of negotiable warehouse receipts running to the order of the latter, or to the bearer, it is a representation of title upon which bona fide purchasers for value are entitled to rely. - HSBC is not responsible for the loss suffered by the plaintiff; the negotiable quedans were duly negotiated to the bank and nothing on the record shows that HSBC is guilty of fraud in the said transaction NEGOTIABLE DOCUMENTS OF TITLE 1. How negotiated
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Article 1508. A negotiable document of title may be negotiated by delivery: (1) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to the bearer; or (2) Where by the terms of the document the carrier, warehouseman or other bailee issuing the same undertakes to deliver the goods to the order of a specified person, and such person or a subsequent indorsee of the document has indorsed it in blank or to the bearer. Where by the terms of a negotiable document of title the goods are deliverable to bearer or where a negotiable document of title has been indorsed in blank or to bearer, any holder may indorse the same to himself or to any specified person, and in such case the document shall thereafter be negotiated only by the indorsement of such indorsee.
Article 1509. A negotiable document of title may be negotiated by the indorsement of the person to whose order the goods are by the terms of the document deliverable. Such indorsement may be in blank, to bearer or to a specified person. If indorsed to a specified person, it may be again negotiated by the indorsement of such person in blank, to bearer or to another specified person. Subsequent negotiations may be made in like manner. NOTES: How Negotiated - A negotiated bill of lading may be negotiated by delivery of the document to another if by the terms thereof, the goods are deliverable to bearer, or when the bill of lading was endorsed in blank by the person to whose order the goods were deliverable. - If non-negotiable, it can be negotiated only by indorsement of such person. - US Custom: Common carriers stamp the words not negotiable to the bill of lading even though it is negotiable. > Rationale: In those states, the carrier incurs a penalty if it delivers the goods without surrender of the bill of lading, unless the bill of lading was marked not negotiable. - Philippines: The words should not change the legal effect of negotiability as the concern of the Uniform Sales Act is not the liability of the carrier but the rights of the various holders of the bill. 2. Who can negotiate NOTES: Article 1512. A negotiable document of title may be negotiated: (1) By the owner thereof; or (2) By any person to whom the possession or custody of the document has been entrusted by the owner, if, by the terms of the document the bailee issuing the document undertakes to deliver the goods to the order of the person to whom the possession or custody of the document has been entrusted, or if at the time of such entrusting the document is in such form that it may be negotiated by delivery. Rights Acquired by Negotiation - A document of title represents the right of the consignee in the goods so that a person to whom a negotiable document of title had been duly negotiated acquires not merely the rights of the vendor but also whatever rights the original consignee had over the goods. - Hence, the buyer of the document of title may acquire a better title than his vendor, an exception to the general rule in Art. 1505. - The indorsee also acquires the direct obligation of the carrier as if he were the shipper and can sue the carrier directly in his own name. - The validity of a negotiation of a document of title to an innocent purchaser for value is not affected by the fact that there was a breach of duty on the part of the person to whom such document was entrusted by the owner, or by the fact that the owner of the document was deprived of it by loss, theft, fraud, accident, mistake, duress or conversion. - If the negotiable document was indorsed in blank by the consignee and was stolen by one who sold and delivered the document to an innocent purchaser for value, latter acquires consignees title. 4. Effects of Negotiation document of title which was capable of negotiation by delivery, from a thief or finder thereof. - They recommended amending Art. 1518, CC (Then Sec. 38, Uniform, Sales Act), to include loss, theft, accident or conversion and Sec. 32 of the said Act. - NCC: Adopted Sec. 38 but retained the original Sec. 32, hence a conflict therein arises between Art. 1512 and Art. 1518, NCC. 3. Rights acquired by negotiation
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Article 1505. Subject to the provisions of this Title, where goods are sold by a person who is not the owner thereof, and who does not sell them under authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller's authority to sell. Nothing in this Title, however, shall affect: (1) The provisions of any factors' act, recording laws, or any other provision of law enabling the apparent owner of goods to dispose of them as if he were the true owner thereof; (2) The validity of any contract of sale under statutory power of sale or under the order of a court of competent jurisdiction; (3) Purchases made in a merchant's store, or in fairs, or markets, in accordance with the Code of Commerce and special laws.
NOTES: Who May Negotiate It - Only the owner of the document or one to whom possession or custody of document has been entrusted by the owner may negotiate it. - This was in accordance with common law denying the full effects of negotiability of bills of lading inasmuch as they do not represent money but merely evidence of performance of certain contractual duties. - Owner should not be divested of his rights merely upon loss of the documents. - US: Adopted the analogy of negotiable bills of exchange to its fullest extent, giving the purchaser for value without notice, a valid title, even if he bought the negotiable
Article 1513. A person to whom a negotiable document of title has been duly negotiated acquires thereby:
(1) Such title to the goods as the person negotiating the document to him had or had ability to convey to a purchaser in good faith for value and also such title to the goods as the person to whose order the goods were to be delivered by the terms of the document had or had ability to convey to a purchaser in good faith for value; and (2) The direct obligation of the bailee issuing the document to hold possession of the goods for him according to the terms of the document as fully as if such bailee had contracted directly with him. 5. Unauthorized Negotiation - Carrier will not deliver the goods to any holder of the document or to whom such document of title may have been endorsed by the consignee. - Carrier must be notified of the assignment of goods for him to validly transfer the goods to the consignee. - In claiming the goods, consignee must present to the carrier the deed of sale or donation in his favor as evidence. - Otherwise, the rights of the assignee may be defeated by a levy on the goods by a creditor of the assignor, or by a prior notification of a subsequent sale of the goods by the assignor to another. 2. Effects of Transfer
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Article 1518. The validity of the negotiation of a negotiable document of title is not impaired by the fact that the negotiation was a breach of duty on the part of the person making the negotiation, or by the fact that the owner of the document was deprived of the possession of the same by loss, theft, fraud, accident, mistake, duress, or conversion, if the person to whom the document was negotiated or a person to whom the document was subsequently negotiated paid value therefor in good faith without notice of the breach of duty, or loss, theft, fraud, accident, mistake, duress or conversion.
Art. 1514, supra NOTES: Rights Acquired by Transfer of Document of Title - Transfer: Transferee does not acquire a better title than his transferor. It is made by: > Assignment of the rights of the consignee of a nonnegotiable document of title to another; > Order document of title was sold or assigned without indorsement. - Before endorsement: Rights of the transferee may be defeated by the rights of a prior party who was illegally deprived of possession of such document. - Transferee can bring an action to compel the transferor to endorse the document, unless a contrary intention appears, but the negotiation will take effect only as of the time endorsement is actually made. - Rules governing sale of goods not covered by a document of title will apply.
NON-NEGOTIABLE DOCUMENTS OF TITLE 1. How transferred or assigned
Article 1514. A person to whom a document of title has been transferred, but not negotiated, acquires thereby, as against the transferor, the title to the goods, subject to the terms of any agreement with the transferor. If the document is non-negotiable, such person also acquires the right to notify the bailee who issued the document of the transfer thereof, and thereby to acquire the direct obligation of such bailee to hold possession of the goods for him according to the terms of the document. Prior to the notification to such bailee by the transferor or transferee of a non-negotiable document of title, the title of the transferee to the goods and the right to acquire the obligation of such bailee may be defeated by the levy of an attachment of execution upon the goods by a creditor of the transferor, or by a notification to such bailee by the transferor or a subsequent purchaser from the transferor of a subsequent sale of the goods by the transferor. NOTES: How Transferred - As a non-negotiable bill of lading is not a symbol of possession of the goods in the hands of the carrier, its delivery cannot operate as a symbolic delivery of the goods described as would pass title. - Neither would the execution of a public deed of sale or donation effect symbolic delivery. - Only actual delivery of the goods by the carrier will effect delivery.
WARRANTIES OF SELLER OF DOCUMENTS OF TITLE Article 1516. A person who for value negotiates or transfers a document of title by indorsement or delivery, including one who assigns for value a claim secured by a document of title unless a contrary intention appears, warrants: (1) That the document is genuine; (2) That he has a legal right to negotiate or transfer it; (3) That he has knowledge of no fact which would impair the validity or worth of the document; and (4) That he has a right to transfer the title to the goods and that the goods are merchantable or fit for a particular purpose, whenever such warranties would have been implied if the contract of the parties had been to transfer without a document of title the goods represented thereby. NOTES: Implied Warranties - Genuineness and validity of the document - Right to negotiate or transfer the document - Warranties of a vendor of goods - No implied warranty:
> The common carrier will fulfill its obligation to deliver the goods > The previous indorsers will fulfill their obligation > He will pay the note if the maker or drawee does not honor the instrument (since the obligation relates to specific goods possessed by the carrier, which cannot be substituted). RULES ON LEVY/GARNISHMENT OF GOODS Art. 1514, supra Article 1519. If goods are delivered to a bailee by the owner or by a person whose act in conveying the title to them to a purchaser in good faith for value would bind the owner and a negotiable document of title is issued for them they cannot thereafter, while in possession of such bailee, be attached by garnishment or otherwise or be levied under an execution unless the document be first surrendered to the bailee or its negotiation enjoined. The bailee shall in no case be compelled to deliver up the actual possession of the goods until the document is surrendered to him or impounded by the court. Article 1520. A creditor whose debtor is the owner of a negotiable document of title shall be entitled to such aid from courts of appropriate jurisdiction by injunction and otherwise in attaching such document or in satisfying the claim by means thereof as is allowed at law or in equity in regard to property which cannot readily be attached or levied upon by ordinary legal process. (1) When the whole of the price has not been paid or tendered; (2) When a bill of exchange or other negotiable instrument has been received as conditional payment, and the condition on which it was received has been broken by reason of the dishonor of the instrument, the insolvency of the buyer, or otherwise. In articles 1525 to 1535 the term "seller" includes an agent of the seller to whom the bill of lading has been indorsed, or a consignor or agent who has himself paid, or is directly responsible for the price, or any other person who is in the position of a seller. NOTES: In articles 1525 to 1535 the term "seller" includes an agent of the seller to whom the bill of lading has been indorsed, or a consignor or agent who has himself paid, or is directly responsible for the price, or any other person who is in the position of a seller. (n) REMEDIES OF UNPAID SELLER NOTES: These 4 remedies have a hierarchical application which means that the right to resell and to rescind can be availed of by the unpaid seller only when either of the 2 prior rights of possessory lien or stoppage in transit have been exercised by the unpaid seller. The designation special is attached to the rights to resell and to rescind, because they are rights accorded only to the unpaid seller as technically defined by the law, and are not the same nature as the right to rescind under Art. 1191 of the CC to reciprocal contracts. 1. Possessory Lien Possessory Lien Stoppage in transit Special Right of Resale Special Right to Rescind
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NOTES: Creditors Right Against the Goods - Goods in the hands of the carrier covered by a negotiable document of title cannot be attached or levied upon, unless the document be first surrendered to the carrier or impounded by the court or its negotiation be enjoined. - Mercantile theory of documents of title: Negotiable document of title represents the goods; carrier should not deliver the goods without surrendering the negotiable bill of lading to them or for the law to allow attachment or levy on the goods, regardless of an outstanding negotiable document of title. - An innocent purchaser of a negotiable document of title to whom it was negotiated by the consignee acquired ownership of the goods even if the negotiation took place after a levy of attachment or garnishment on the goods by a creditor of the vendor, or after a notice of stoppage in transitu was served on the carrier. Chapter X: REMEDIES OF AN UNPAID SELLER DEFINITION OF UNPAID SELLER Article 1525. The seller of goods is deemed to be an unpaid seller within the meaning of this Title:
Article 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods, as such, has: (1) A lien on the goods or right to retain them for the price while he is in possession of them; (2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them; (3) A right of resale as limited by this Title; (4) A right to rescind the sale as likewise limited by this Title. Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding delivery similar to and coextensive with his rights of lien and stoppage in transitu where the ownership has passed to the buyer.
the buyer may have made, unless the seller has assented thereto. If, however, a negotiable document of title has been issued for goods, no seller's lien or right of stoppage in transitu shall defeat the right of any purchaser for value in good faith to whom such document has been negotiated, whether such negotiation be prior or subsequent to the notification to the carrier, or other bailee who issued such document, of the seller's claim to a lien or right of stoppage in transitu. a. Partial delivery
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Article 1527. Subject to the provisions of this Title, the unpaid seller of goods who is in possession of them is entitled to retain possession of them until payment or tender of the price in the following cases, namely: (1) Where the goods have been sold without any stipulation as to credit; (2) Where the goods have been sold on credit, but the term of credit has expired; (3) Where the buyer becomes insolvent. The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or bailee for the buyer. Article 1503. When there is a contract of sale of specific goods, the seller may, by the terms of the contract, reserve the right of possession or ownership in the goods until certain conditions have been fulfilled. The right of possession or ownership may be thus reserved notwithstanding the delivery of the goods to the buyer or to a carrier or other bailee for the purpose of transmission to the buyer. Where goods are shipped, and by the bill of lading the goods are deliverable to the seller or his agent, or to the order of the seller or of his agent, the seller thereby reserves the ownership in the goods. But, if except for the form of the bill of lading, the ownership would have passed to the buyer on shipment of the goods, the seller's property in the goods shall be deemed to be only for the purpose of securing performance by the buyer of his obligations under the contract. Where goods are shipped, and by the bill of lading the goods are deliverable to order of the buyer or of his agent, but possession of the bill of lading is retained by the seller or his agent, the seller thereby reserves a right to the possession of the goods as against the buyer. Where the seller of goods draws on the buyer for the price and transmits the bill of exchange and bill of lading together to the buyer to secure acceptance or payment of the bill of exchange, the buyer is bound to return the bill of lading if he does not honor the bill of exchange, and if he wrongfully retains the bill of lading he acquires no added right thereby. If, however, the bill of lading provides that the goods are deliverable to the buyer or to the order of the buyer, or is indorsed in blank, or to the buyer by the consignee named therein, one who purchases in good faith, for value, the bill of lading, or goods from the buyer will obtain the ownership in the goods, although the bill of exchange has not been honored, provided that such purchaser has received delivery of the bill of lading indorsed by the consignee named therein, or of the goods, without notice of the facts making the transfer wrongful.
Article 1528. Where an unpaid seller has made part delivery of the goods, he may exercise his right of lien on the remainder, unless such part delivery has been made under such circumstances as to show an intent to waive the lien or right of retention.
b.
Loss of lien
Article 1529. The unpaid seller of goods loses his lien thereon: (1) When he delivers the goods to a carrier or other bailee for the purpose of transmission to the buyer without reserving the ownership in the goods or the right to the possession thereof; (2) When the buyer or his agent lawfully obtains possession of the goods; (3) By waiver thereof. The unpaid seller of goods, having a lien thereon, does not lose his lien by reason only that he has obtained judgment or decree for the price of the goods. NOTES: The unpaid seller loses his possessory lien when he parts with physical possession of the goods, as when he delivers the goods to the carrier. In that case, he still has the remedy of stoppage in transit, but only if the buyer has in the meantime become insolvent. c. 2. Revival of lien
Stoppage in transitu Arts. 1530-1534, 1535 (supra), 1632
Article 1530. Subject to the provisions of this Title, when the buyer of goods is or becomes insolvent, the unpaid seller who has parted with the possession of the goods has the right of stopping them in transitu, that is to say, he may resume possession of the goods at any time while they are in transit, and he will then become entitled to the same rights in regard to the goods as he would have had if he had never parted with the possession. Article 1531. Goods are in transit within the meaning of the preceding article:
Article 1535. Subject to the provisions of this Title, the unpaid seller's right of lien or stoppage in transitu is not affected by any sale, or other disposition of the goods which
(1) From the time when they are delivered to a carrier by land, water, or air, or other bailee for the purpose of transmission to the buyer, until the buyer, or his agent in that behalf, takes delivery of them from such carrier or other bailee; (2) If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of them, even if the seller has refused to receive them back. Goods are no longer in transit within the meaning of the preceding article: (1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination; (2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer; (3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the buyer. If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods. Article 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual possession of the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may prevent a delivery to the buyer. When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the goods to, or according to the directions of, the seller. The expenses of such delivery must be borne by the seller. If, however, a negotiable document of title representing the goods has been issued by the carrier or other bailee, he shall not be obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation. Article 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right of resale in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time, an unpaid seller having a right of lien or having stopped the goods in transitu may resell the goods. He shall not thereafter be liable to the original buyer upon the contract of sale or for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the breach of the contract of sale. Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer. It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original buyer. The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may make a resale either by public or private sale. He cannot, however, directly or indirectly buy the goods. Article 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract. The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted. Article 1632. Should the vendor have profited by some of the fruits or received anything from the inheritance sold, he shall pay the vendee thereof, if the contrary has not been stipulated. NOTES: Notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid seller of goods has, in case of the insolvency of the buyer, a right to stopping the goods in transit after he has parted with the possession of them (Art. 1529). a. b. NOTES: Requisites When considered in transit
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Goods are no longer in transit within the meaning of the preceding article: (1) If the buyer, or his agent in that behalf, obtains delivery of the goods before their arrival at the appointed destination; (2) If, after the arrival of the goods at the appointed destination, the carrier or other bailee acknowledges to the buyer or his agent that he holds the goods on his behalf and continues in possession of them as bailee for the buyer or his agent; and it is immaterial that further destination for the goods may have been indicated by the buyer; (3) If the carrier or other bailee wrongfully refuses to deliver the goods to the buyer or his agent in that behalf. If the goods are delivered to a ship, freight train, truck, or airplane chartered by the buyer, it is a question depending on the circumstances of the particular case, whether they are in the possession of the carrier as such or as agent of the buyer. If part delivery of the goods has been made to the buyer, or his agent in that behalf, the remainder of the goods may be stopped in transitu, unless such part delivery has been under such circumstances as to show an agreement with the buyer to give up possession of the whole of the goods. (n) c. Sale of goods in transit
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Article 1533. Where the goods are of perishable nature, or where the seller expressly reserves the right of resale in case the buyer should make defaut, or where the buyer has been in default in the payment of the price for an unreasonable time, an unpaid seller having a right of lien or having stopped the goods in transitu may resell the goods. He shall not thereafter be liable to the original buyer upon the contract of sale or for any profit made by such resale, but may recover from the buyer damages for any loss occasioned by the breach of the contract of sale. Where a resale is made, as authorized in this article, the buyer acquires a good title as against the original buyer. It is not essential to the validity of resale that notice of an intention to resell the goods be given by the seller to the original buyer. But where the right to resell is not based on the perishable nature of the goods or upon an express provision of the contract of sale, the giving or failure to give such notice shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the resale was made. It is not essential to the validity of a resale that notice of the time and place of such resale should be given by the seller to the original buyer. The seller is bound to exercise reasonable care and judgment in making a resale, and subject to this requirement may make a resale either by public or private sale. He cannot, however, directly or indirectly buy the goods. (n)
Article 1532. The unpaid seller may exercise his right of stoppage in transitu either by obtaining actual possession of the goods or by giving notice of his claim to the carrier or other bailee in whose possession the goods are. Such notice may be given either to the person in actual possession of the goods or to his principal. In the latter case the notice, to be effectual, must be given at such time and under such circumstances that the principal, by the exercise of reasonable diligence, may prevent a delivery to the buyer. When notice of stoppage in transitu is given by the seller to the carrier, or other bailee in possession of the goods, he must redeliver the goods to, or according to the directions of, the seller. The expenses of such delivery must be borne by the seller. If, however, a negotiable document of title representing the goods has been issued by the carrier or other bailee, he shall not be obliged to deliver or justified in delivering the goods to the seller unless such document is first surrendered for cancellation. (n)
NOTES: Katigbak v. CA held that if the buyer fails to take delivery and pay the purchase price of the subject matter of the contract, the seller, without need of first rescinding the contract judicially, is entitled to resell the same, and if he is obliged to sell it for less than the contract price, the buyer is liable for the difference.
b. 4.
Right to sue buyer for damages
Right to Rescind Art. 1534
3.
Right of Resale Art. 1533 a. Time to resell
Article 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods, where he expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in default
in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract. The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted. (n) judicially or extrajudicially demands from them the fulfillment of their obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declare; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins. (1100a)
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CHAPTER XI: PERFORMANCE OF CONTRACT DELIVERY OF THING SOLD 1. Place, time and manner of delivery Arts. 1521, 1169, 1524 Smith Bell v. Matti 44 Phil 874 (1922) Facts: Smith, Bell & Co. obligated itself to sell to Vicente Sotelo 2 steel tanks, 2 expellers and 2 electric motors with respective approximate delivery dates. There was delay in the delivery of the goods; and so, Sotelo refused to accept and pay the prices stipulated alleging that his company (Manila Oil Refining & By-Products Co.) suffered damages because of the delay as it intended to use the goods in manufacturing coconut oil. He also argued that the expellers and the motors were not in good condition. Held: Sotelo is bound to pay for the goods: (a) No definite date was fixed for the delivery. (2) Contracts were executed at the time of the world war when there existed rigid restrictions on the export from the United States. Delivery was subject to a condition - the fulfillment of which depended not only upon the effort of the plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition. In cases like this, which are not expressly provided for, but impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the condition has not been fulfilled in reality. NOTES: Lagoon v. Hooven Cimalco Industries, Inc. held that where it is stipulated that deliveries must be made to the buyer or his duly authorized representative named in the contracts, the seller is bound to deliver in such manner only, unless the buyer specifically designated someone to receive delivery. 2. When time is of essence
Article 1521. Whether it is for the buyer to take possession of the goods or of the seller to send them to the buyer is a question depending in each case on the contract, express or implied, between the parties. Apart from any such contract, express or implied, or usage of trade to the contrary, the place of delivery is the seller's place of business if he has one, and if not his residence; but in case of a contract of sale of specific goods, which to the knowledge of the parties when the contract or the sale was made were in some other place, then that place is the place of delivery. Where by a contract of sale the seller is bound to send the goods to the buyer, but no time for sending them is fixed, the seller is bound to send them within a reasonable time. Where the goods at the time of sale are in the possession of a third person, the seller has not fulfilled his obligation to deliver to the buyer unless and until such third person acknowledges to the buyer that he holds the goods on the buyer's behalf. Demand or tender of delivery may be treated as ineffectual unless made at a reasonable hour. What is a reasonable hour is a question of fact. Unless otherwise agreed, the expenses of and incidental to putting the goods into a deliverable state must be borne by the seller. (n) Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
Soler v. Chesley 43 Phil 52 (1922)
Facts: Soler purchased from WM. H. Anderson & Co. a coconut oil machinery to be shipped from the US to Manila. Soler sold to Chesley all his rights and interest in this contract of sale. Delivery was delayed, and the other part of the machinery arrived in Manila 7 months later than agreed upon. Held: Time was an essential element of the contract executed by Soler and Chesley because it was one of the determining elements of Chesleys consent. He expected that said machinery would arrive within a short time. Soler, not Anderson & Co., is the one who contracted the obligation, and therefore, he is the only one to be responsible for the obligation arising from the contract. He who contracts and assumes an obligation is presumed to know the circumstances under which said obligation can be complied with. Thus, no right to compel Chesley to comply with his obligation to pay Soler. Republic v. Litton 94 Phil 52 (1953) Facts: Defendant entered into a contract with plaintiff to supply and deliver 96,000 padlocks and large quantities of writing supplies on or before March 1, 1946. Defendant delivered only 34,200 padlocks on April 18, 1946 and failed to deliver the other materials to be used during the elections of April 23, 1946; delivery was made after the elections. Due to the failure of defendants to supply the necessary materials on time, plaintiff made open market purchases of the materials which were more expensive than the price of the materials in its contract with the defendant. Held: The contract (purchase order) expressly stated that delivery should not be later than March 1, 1946. Defendant then cannot use as a defense, the delay in the issuance of an export license by the proper authorities, or that the vessels carrying the materials were not allowed to berth at the piers, and other fortuitous events. 3. Effects of delivery Art. 1477, 1478
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Article 1198. The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt; (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond. (1129a)
5.
Sale of Movables Arts. 1522, 1537, 1480
Article 1522. Where the seller delivers to the buyer a quantity of goods less than he contracted to sell, the buyer may reject them, but if the buyer accepts or retains the goods so delivered, knowing that the seller is not going to perform the contract in full, he must pay for them at the contract rate. If, however, the buyer has used or disposed of the goods delivered before he knows that the seller is not going to perform his contract in full, the buyer shall not be liable for more than the fair value to him of the goods so received. Where the seller delivers to the buyer a quantity of goods larger than he contracted to sell, the buyer may accept the goods included in the contract and reject the rest. If the buyer accepts the whole of the goods so delivered he must pay for them at the contract rate. Where the seller delivers to the buyer the goods he contracted to sell mixed with goods of a different description not included in the contract, the buyer may accept the goods which are in accordance with the contract and reject the rest. In the preceding two paragraphs, if the subject matter is indivisible, the buyer may reject the whole of the goods. The provisions of this article are subject to any usage of trade, special agreement, or course of dealing between the parties. (n) Article 1537. The vendor is bound to deliver the thing sold and its accessions and accessories in the condition in which they were upon the perfection of the contract. Article 1480. Any injury to or benefit from the thing
Article 1477. The ownership of the thing sold shall be transferred to the vendee upon the actual or constructive delivery thereof. (n) Article 1478. The parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price. (n)
4.
When not bound to deliver Arts. 1524, 1536, 1198
Article 1524. The vendor shall not be bound to deliver the thing sold, if the vendee has not paid him the price, or if no period for the payment has been fixed in the contract. (1466) Article 1536. The vendor is not bound to deliver the thing sold in case the vendee should lose the right to make use of the terms as provided in article 1198. (1467a)
sold, after the contract has been perfected, from the moment of the perfection of the contract to the time of delivery, shall be governed by articles 1163 to 1165, and 1262. This rule shall apply to the sale of fungible things, made independently and for a single price, or without consideration of their weight, number, or measure. Should fungible things be sold for a price fixed according to weight, number, or measure, the risk shall not be imputed to the vendee until they have been weighed, counted, or measured and delivered, unless the latter has incurred in delay. (1452a) The same shall be done, even when the area is the same, if any part of the immovable is not of the quality specified in the contract. The rescission, in this case, shall only take place at the will of the vendee, when the inferior value of the thing sold exceeds one-tenth of the price agreed upon. Nevertheless, if the vendee would not have bought the immovable had he known of its smaller area of inferior quality, he may rescind the sale. (1469a) Article 1540. If, in the case of the preceding article, there is a greater area or number in the immovable than that stated in the contract, the vendee may accept the area included in the contract and reject the rest. If he accepts the whole area, he must pay for the same at the contract rate. (1470a)
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a.
Delivery by installment Art. 1583
Article 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments. Where there is a contract of sale of goods to be delivered by stated instalments, which are to be separately paid for, and the seller makes defective deliveries in respect of one or more instalments, or the buyer neglects or refuses without just cause to take delivery of or pay for one or more instalments, it depends in each case on the terms of the contract and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but not to a right to treat the whole contract as broken. (n)
b. 6.
Delivery of wrong quantity Art. 1522 (supra)
Azarraga v. Gay 52 Phil 599 (1928) Facts: Azarraga sold 2 parcels of lands to Gay for a lump sum of P47k, payable in installments but Gay failed to pay the total amount and alleges that the plaintiff through misrepresentation led the defendant to believe that the second parcel contained 98 hectares which was actually only 60 ha. and induced the vendee to bind herself to pay the price of P47k for the 2 parcels of land, which he represented contained an area of no less than 200 hectares, to which price the defendant would not have bound herself had she known that the real area of the second parcel; and, consequently, she is entitled to a reduction in the price of the two parcels in proportion to the area lacking, that is, that the price be reduced to P38k. Held: The two parcels are defined by means of the boundaries given in the instrument. Therefore, the case falls within the provision of Art. 1471 of the CC: In case of the sale of real estate for a lump sum and not at the rate of a specified price for each unit of measure, there shall be no increase or decrease of the price even if the area be found to be more or less than that stated in the contract. a. Where price is at certain rate per unit Art. 15391540 (supra) Cebu Windland Dev. Corp. v. Ong Siao Hua 588 SCRA 120 (2009) (supra) NOTES: In Rudolf Lietz Inc. v. CA, the statement of the area of the immovable is not conclusive and the price may be reduced or increased depending on the area actually delivered. b. Sale for a lump sum Art. 1542
Sale of Immovables Arts. 1539, 1540
Article 1539. The obligation to deliver the thing sold includes that of placing in the control of the vendee all that is mentioned in the contract, in conformity with the following rules: If the sale of real estate should be made with a statement of its area, at the rate of a certain price for a unit of measure or number, the vendor shall be obliged to deliver to the vendee, if the latter should demand it, all that may have been stated in the contract; but, should this be not possible, the vendee may choose between a proportional reduction of the price and the rescission of the contract, provided that, in the latter case, the lack in the area be not less than one-tenth of that stated.
Article 1542. In the sale of real estate, made for a lump sum and not at the rate of a certain sum for a unit of measure or number, there shall be no increase or decrease of the price, although there be a greater or less area or number than that stated in
the contract. The same rule shall be applied when two or more immovables as sold for a single price; but if, besides mentioning the boundaries, which is indispensable in every conveyance of real estate, its area or number should be designated in the contract, the vendor shall be bound to deliver all that is included within said boundaries, even when it exceeds the area or number specified in the contract; and, should he not be able to do so, he shall suffer a reduction in the price, in proportion to what is lacking in the area or number, unless the contract is rescinded because the vendee does not accede to the failure to deliver what has been stipulated. (1471) b. Manifestation of acceptance Art. 1585
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Article 1585. The buyer is deemed to have accepted the goods when he intimates to the seller that he has accepted them, or when the goods have been delivered to him, and he does any act in relation to them which is inconsistent with the ownership of the seller, or when, after the lapse of a reasonable time, he retains the goods without intimating to the seller that he has rejected them. (n)
c.
Breach of warranty Art. 1586
NOTES: In both Asiain v. Jalandoni and Roble v Arbasa, the Court held that although under Art. 1452, in the sale of real estate by lump sum, there be a greater or lesser area or number than that stated in the contract, the rule admits of exception because the sale of land under description more or less or similar words in designating quantity covers only a reasonable excess or deficiency. In Roble, the Court held that a deficiency or excess of 644sq. m is not reasonable. The exception to this rule is when expressly the buyer assumes the risk on the actual area of the land bought. 7. Inspections and Acceptance
Article 1586. In the absence of express or implied agreement of the parties, acceptance of the goods by the buyer shall not discharge the seller from liability in damages or other legal remedy for breach of any promise or warranty in the contract of sale. But, if, after acceptance of the goods, the buyer fails to give notice to the seller of the breach in any promise of warranty within a reasonable time after the buyer knows, or ought to know of such breach, the seller shall not be liable therefor. (n)
d.
Refusal to accept Art. 1587 1589
a. Right of inspection Art. 1584 Article 1584. Where goods are delivered to the buyer, which he has not previously examined, he is not deemed to have accepted them unless and until he has had a reasonable opportunity of examining them for the purpose of ascertaining whether they are in conformity with the contract if there is no stipulation to the contrary. Unless otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on request, to afford the buyer a reasonable opportunity of examining the goods for the purpose of ascertaining whether they are in conformity with the contract. Where goods are delivered to a carrier by the seller, in accordance with an order from or agreement with the buyer, upon the terms that the goods shall not be delivered by the carrier to the buyer until he has paid the price, whether such terms are indicated by marking the goods with the words "collect on delivery," or otherwise, the buyer is not entitled to examine the goods before the payment of the price, in the absence of agreement or usage of trade permitting such examination. (n)
Article 1587. Unless otherwise agreed, where goods are delivered to the buyer, and he refuses to accept them, having the right so to do, he is not bound to return them to the seller, but it is sufficient if he notifies the seller that he refuses to accept them. If he voluntarily constitutes himself a depositary thereof, he shall be liable as such. (n) Article 1588. If there is no stipulation as specified in the first paragraph of article 1523, when the buyer's refusal to accept the goods is without just cause, the title thereto passes to him from the moment they are placed at his disposal. (n) Article 1589. The vendee shall owe interest for the period between the delivery of the thing and the payment of the price, in the following three cases: (1) Should it have been so stipulated; (2) Should the thing sold and delivered produce fruits or income; (3) Should he be in default, from the time of judicial or extrajudicial demand for the payment of the price. (1501a)
La Fuerza v. CA 23 SCRA 1217 (1968) Facts: Respondent Associated Engineering is engaged in the manufacture and installation of flat belt conveyors and thru its manager, offered its services to manufacture and install a conveyor system in La Fuerzas wine manufacturing
business. A P5k down payment was delivered by La Fuerza in check to Assoc. Engg which then started to install the conveyor system. The balance of P8,250 is to be paid by the defendant upon the completion of the installation. Work was completed in May 1960 and 5 trial runs were made from June to July 1960 where it was discovered that the conveyor system did not function to La Fuerzas satisfaction. Thus, when the Associated Engg billed La Fuerza for the balance of the contract price, the latter refused to because the conveyor system installed did not serve the purpose for which the same was manufactured and installed at such a heavy expense. The flat belt conveyors installed in the factory of the defendant are still there. La Fuerza prayed for rescission the contract and refund of its 5k down payment. Held: Art. 1571 of the CC provides that an action to rescind 'shall be barred after 6 months from delivery of the thing sold'". In the case at bar, La Fuerza did not avail of the right to demand rescission until the filing of its answer in the CFI on April 17, 1961 (over 10 months after the installation of the conveyors in question had been completed on May 30, 1960). Art. 1497 provides that the thing sold shall be understood as delivered when it is placed in the control and possession of the vendee. Acceptance cannot be regarded as a condition to complete delivery. NOTES: Even with refusal of acceptance, delivery, whether actual or constructive, will produce its legal effects, as, for example, transferring the risk of loss thereof of the subject matter to the buyer who has become the owner thereof. PAYMENT OF PRICE NOTES: Generally in a sale, payment of the price is a resolutory condition and the remedy of the seller is to exact fulfillment or in case of a substantial breach, to rescinf the contract under Art. 1191 of the CC. 1. Liability for interest Arts. 1582 price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price. (1502a) Article 1560. If the immovable sold should be encumbered with any non-apparent burden or servitude, not mentioned in the agreement, of such a nature that it must be presumed that the vendee would not have acquired it had he been aware thereof, he may ask for the rescission of the contract, unless he should prefer the appropriate indemnity. Neither right can be exercised if the non-apparent burden or servitude is recorded in the Registry of Property, unless there is an express warranty that the thing is free from all burdens and encumbrances. Within one year, to be computed from the execution of the deed, the vendee may bring the action for rescission, or sue for damages. One year having elapsed, he may only bring an action for damages within an equal period, to be counted from the date on which he discovered the burden or servitude. (1483a) Article 1664. The lessor is not obliged to answer for a mere act of trespass which a third person may cause on the use of the thing leased; but the lessee shall have a direct action against the intruder. There is a mere act of trespass when the third person claims no right whatever. (1560a)
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Article 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract. If the time and place should not have been stipulated, the payment must be made at the time and place of the delivery of the thing sold. (1500a)
2.
Suspension of payments Arts. 1590, 1560, 1664
Article 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the
De la Cruz v. Legaspi 98 Phil 43 (1955) Facts: De la Cruz sued the Legaspi spouses to compel delivery of a parcel of land they had sold to him. The spouses refused to accept payment of the purchase price (P450) he had tendered and unduly retained possession of the land. The Legaspi spouses admitted the sale and the price, but they alleged that after the document of sale was signed and ratified before the Notary Public, de la Cruz refused to pay the sum of P450. They asserted that for lack of consideration, the document of sale should be annulled. Held: The consideration existed; there was merely a failure to pay the said consideration. In other words, when after the notarization of the contract, plaintiff failed to hand the money to defendants as he previously promised, there was default on his part at most, and defendants' right was to demand interest legal interest for the delay, or to demand rescission in court. Also, there was no agreement or allegation that payment on time was essential. Even if the contract of sale had expressly provided for "automatic rescission upon failure to pay the price," the trial judge could allow plaintiff to enforce the contract, as the judgment does, in effect because defendants had not made a previous demand on him, by suit or notarial act.
Bareng v. CA 107 Phil 641 (1960) Facts: Petitioner Bareng purchased from respondent Alegria a cinematographic equipment installed at the Pioneer Theater in Laoag, Ilocos Norte. The payment is on installment basis through promissory notes. Before the second promissory note fell due, the other respondent Ruiz informed Bareng that he was a co-owner of the equipment in question. He requested Bareng to suspend the payments to Alegria of the balance of the price because he was not agreeable to the sale. Alegria sought to collect the second promissory note, but Bareng refused to pay on account of Ruizs claims until the Alegria had settled his dispute with Ruiz. Alegria and Ruiz reached a compromise but Bareng refused to pay and prayed for the rescission of the sale for supposed violation by Alegria of certain express warranties as to the quality of the equipment, and asked for payment of damages for alleged violation of Alegrias warranty of title. Held: The right of a vendee to suspend payment of the price of the thing sold in the face of any danger that he might be disturbed in its possession of ownership is conferred by Art. 1590. Petitioner Bareng had the right to suspend payment of the balance from the time he was informed by Ruiz of the latters claims of co-ownership over the cinema equipment in question. HOWEVER, this right ended as soon as the vendor has caused the disturbance or danger to cease, i.e., when Alegria had caused the disturbance or danger to cease when he reached a compromise with Ruiz, whereby Ruiz expressed his conformity to the sale to Bareng, subject to the payment of his share in the price by Alegria. Thus, petitioner Bareng was in default on the unpaid balance of the price of the equipment, plus interests. 3. Sale of real property Arts. 1592, 1560 (supra) The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)
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Article 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court may not grant him a new term. (1504a)
Laforteza v. Machuca 333 SCRA 643 (1992) Facts: Plaintiff sold a house and lot to defendant for P630,000: 30k as earnest money, and 600k upon the issuance of a new title in the name of the propertys predecessor, and upon execution of extrajudicial settlement of the predecessors estate in favor of defendant. The agreement also stipulated that upon issuance of the new title, the buyer-lessee shall be notified in writing and shall have 30 days to pay the 600k which shall be paid to the seller upon the execution of the extra-judicial settlement. Defendant paid the earnest money. After 8 months from the agreement, plaintiff informed defendant of the issuance of a new title and that defendant had 3 days to pay the balance. Defendant asked for an extension, and was approved by only one of the plaintiffs. Plaintiff refused to accept the balance and informed him that the property was no longer for sale. Plaintiffs contend that the agreement is merely a lease agreement with option to purchase for 6 months. Since payment was made after the lapse of the option period, the payment did not give rise to the perfection of the contract of sale. Held: Technically, the failure of defendant to pay the balance was a breach of contract and thus a ground for its rescission. The extension is also ineffective since it was only approved by one of the plaintiffs. However, after the expiration of the 6-month period, plaintiffs were also not ready to comply with their obligation of delivering the new title of the house and lot. It was only after 8 months that plaintiffs informed defendant that they had secured the new title. Defendant could not be considered in delay because pursuant to the law on reciprocal obligations, neither party incurs in delay if the other party does not comply or is not ready to comply in a proper manner with what was incumbent upon him. Luzon Brokerage v. Maritime Bldg. 43 SCRA 93 (1972) (supra) b. Maceda Law: Sales of Residential Realty on Installment (RA 6552)
1.
Effect of non payment Art. 1191
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
Section 1. This Act shall be known as the "Realty Installment Buyer Act." Section 2. It is hereby declared a public policy to protect buyers of real estate on installment payments against onerous and oppressive conditions. Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made. Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act. Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property. Section 7. Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5 and 6, shall be null and void. end lump sum payment within the period stipulated, the sale shall be considered automatically rescinded without the necessity of judicial action and all payments made by the vendee shall be forfeited in favor of the vendors by way of rental for the use and occupancy of the property and as liquidated damages. All improvements introduced by the vendee to the property shall belong to the vendors without any right of reimbursement. Vendee failed to pay the installments due for 2 months. Arellano offered to pay said 2 monthly installment plus the installment due for that month but refused by petitioner spouses. Held: The rescission of the contract and the forfeiture of the payments already made could not be effected because the case falls under RA 6552 (Maceda Law), Section 3. Private respondent was entitled to a 1-month grace period for every year of installments paid, which means that she had a total grace period of 3 months from the date she tried to pay for the 3 monthly installments due to the petitioner spouses. Active Realty v. Daroya 382 SCRA 152 (2002) Facts: Respondent bought a 515 sq. m lot for P224,025 in petitioners subdivision. Respondent shall pay the contract price in 60 monthly instalments (which amounted to P346,367 = amt. higher than stated in the contract price). Respondent was in default of 3 monthly amortizations. Petitioner cancelled the contract. When respondent offered to pay for the balance, petitioner refused as it has allegedly sold the lot to another buyer. Held: The contract to sell is governed by RA 6552, Section 3. It provided for the rights of the buyer in case of default in the payment of succeeding instalments, where he has already paid at least 2 yrs. of instalments. Petitioner failed to comply with the mandatory twin requirements for a valid and effective cancellation under the law (i.e. failed to send a notarized notice of cancellation and refund the cash surrender value). Petitioner to refund to the respondent the actual value of the land (P875k) she lost to another buyer, plus int. rate of 12%/annum until fully paid or to deliver a substitute lot at the choice of the respondent.
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CHAPTER XII: WARRANTIES

Warranty is an affirmation of fact or any promise made by a seller in relation to the thing sold, and that the decisive test is whether the seller assumes to assert a fact of which the buyer is ignorant of (Goodyear Philippines, Inc, v, Sy). EXPRESS WARRANTIES 1. Distinguish from condition Arts. 1545
Valarao v. CA 394 SCRA 155 (1999) Facts: Petitioner spouses sold to private respondent Arellano under a Deed of Conditional Sale a parcel of land in Diliman, QC. The contract stipulated that should the vendee fail to pay 3 successive monthly installments or any 1 year-
Article 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may (a) refuse to proceed with the contract or (b) he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the non-performance of the condition as a breach of warranty.
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Where the ownership in the thing has not passed, the buyer may treat the fulfilment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing. (n)
Article 1340. The usual exaggerations in trade, when the other party had an opportunity to know the facts, are not in themselves fraudulent. (n) Article 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the other party has relied on the former's special knowledge. (n)
NOTES: Romero v. CA emphasized the distinction between a condition imposed on the perfection of the contract (where failure to comply results in the failure of the contract) and a condition imposed on the performance of an obligation (where failure to comply only gives the other party the option to either refuse to proceed with the sale or to waive the condition as mandated under Art. 1545; and that the choice is not with the obligor but with the injured party. Non-fulfilment of a warranty = constitute a breach of contract Non-happening of the condition = although may extinguish the obligation upon which it is based, generally does not amount to a breach of contract of sale In addition to the aforesaid legal effects of the nonhappening of the condition and the non-fulfilment of the warranty, the following differences also apply: 1. Condition generally goes into the root of the existence of the obligation; warranty goes into the performance of such obligation, and in fact may constitute an obligation in itself; 2. Condition must be stipulated by the parties in order to form part of an obligation; warranty may form part of the obligation or contract by provision of law, without the parties having expressly agreed thereto; and 3. Condition may attach itself either to the obligations of the seller or of the buyer; warranty, whether express or implied, relates to the subject matter itself or to the obligations of the seller as to the subject matter of the sale 2. Distinguish from opinion, dealers talk Art. 1546, 1340, 1341 Songco v. Sellner 37 Phil 254 (1917) Facts: Sellner bought Songcos sugar cane as it stood in the fields for P12k and executed 3 promissory notes of P4k each. Two of these notes were paid, and the present action was instituted to recover the third. According to Sellner, his refusal to pay the balance of the purchase price stems from a false representation made by Songco as to the quantity of uncut cane standing in the fields at the time of purchase. Songco estimated that this cane would produce 3,000 piculs of sugar. However, in reality it only produced 2,017 piculs. Held: Sellner is bound to pay the purchase price notwithstanding the disparity between Songcos estimate and the quantity actually obtained because the representation made by Songco was a matter of opinion and is not an actionable deceit. To render a contract void, the false representations must be as to matters of fact substantially affecting the buyer's interest, not as to matters of opinion, judgment, probability, or expectation. When the purchaser undertakes to make an investigation of his own, and the seller does nothing to prevent this investigation from being as full as he chooses to make it, the purchaser cannot afterwards allege that the seller made misrepresentations. 3. Distinguish from false representation Art. 1342
Article 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation has created substantial mistake and the same is mutual. (n)
Article 1546. Any affirmation of fact or any promise by the seller relating to the thing is an express warranty if the natural tendency of such affirmation or promise is to induce the buyer to purchase the same, and if the buyer purchases the thing relying thereon. No affirmation of the value of the thing, nor any statement purporting to be a statement of the seller's opinion only, shall be construed as a warranty, unless the seller made such affirmation or statement as an expert and it was relied upon by the buyer. (n)
Gochangco v. Dean 47 Phil 687 (1925) Facts: Plaintiffs purchased a land of the Pasay Estate by installments. Defendant R. L. Dean was the owner of 2 parcels of land situated in Masbate. The plaintiffs and defendant agreed to exchange their respective properties, but before the final execution of the contract of exchange, plaintiff Gochangco went to Masbate to examine the parcels of land offered for exchange by Dean. The contract of exchange was later executed, wherein defendant Dean stated that his property is sold with all the coconut trees (more than 6,000 trees were on the land, according to him), together with all improvements existing on the land. Plaintiffs alleged that Dean made false and fraudulent representations as to the existence of the 6,000 coconut trees, and sought to annul the contract of exchange and thereby recover the land they had exchanged with Dean.
Held: The defendant did not deliberately violate the truth in stating his belief that there were more than 6,000 coconut trees on said lands. Plaintiff Gochangco himself estimated that there were, indeed, more than 6,000 coconut trees when he went to Masbate to examine the parcels of land. Thus, the plaintiffs have not established their alleged right to the judgment prayed for in their complaint. PMC v. Go Jocco 48 Phil 621 (1926) Facts: Defendant sold plaintiff 1,500 tons of coconut oil. Plaintiff took samples of the oil from defendants tanks for examination. Upon finding that the oil quality was satisfactory, plaintiff paid the purchase price. Plaintiff sold the oil to a foreign company. When it loaded the oil to the vessel, it also included its own manufactured oil, and oil from another source. The company refused to accept the oil on the ground that it was contaminated with kapok and cotton-seed oil. Plaintiff claims damages against defendant for making false representations as to its oil. Defendant avers that plaintiff had no right of action having examined the oil at the time of its delivery and that its loss was due to its own fault. Held: There is no false representation on the part of the defendant. Plaintiff examined the oil before paying the price. He has no cause of action under Art. 336, Code of Commerce: Buyer who examines merchandise upon receiving it shall not have a right of action against the seller alleging a defect in the quantity or quality of the merchandise. Assuming that there has been mixing of other oils with the coconut oil in question, it cannot be presumed that the defendant intended to mislead the plaintiff. Also, assuming that contamination did exist, the comparatively small quantity of the contaminating oil alleged to have mixed with the coconut oil can only be regarded as an impurity and did not change the essential character of the merchandise. In commercial sales, the fact that the vendor does not volunteer detailed statements of all he knows, whether important or not, in regard to the goods sold by him, is not fraud per se. IMPLIED WARRANTIES Art. 1547 NOTES: Implied warranties are those which by law constitute part of every contract of sale, whether or not the parties were aware of them, and whether or not the parties intended them. Although only a seller is bound by the implied warranties of law, nevertheless, by express contractual stipulation, an agent of the seller may bind himself to such warranties. Article 1547. In a contract of sale, unless a contrary intention appears, there is: (1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that the buyer shall from that time have and enjoy the legal and peaceful possession of the thing; (2) An implied warranty that the thing shall be free from any hidden faults or defects, or any charge or encumbrance not declared or known to the buyer. This article shall not, however, be held to render liable a sheriff, auctioneer, mortgagee, pledgee, or other person professing to sell by virtue of authority in fact or law, for the sale of a thing in which a third person has a legal or equitable interest. (n)
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a. NOTES:
Seller has right to sell
Since warranty goes into the issue of performance of obligation, the warranty of the seller that he has a right to sell refers only to the transfer of ownership at the point of consummation, and not to any representation as to ownership and the capacity to transfer the same at the point of perfection. Although Art. 1456 uses the phrase unless a contrary intention appears, there can be no legal waiver of such warranty without changing the basic nature of the relationship, for the warranty on the part of the seller that he has the capacity to sell, i.e., to transfer ownership of the subject matter pursuant to the sale, is the essence of the sale; unless, it amounts to clear assumption of risk on the part of the buyer, as when the obligation of the seller is subject to condition. b. Warranty against eviction Arts. 1548 1559, 1560 (supra)
Article 1548. Eviction shall take place whenever by a final judgment based on a right prior to the sale or an act imputable to the vendor, the vendee is deprived of the whole or of a part of the thing purchased. The vendor shall answer for the eviction even though nothing has been said in the contract on the subject. The contracting parties, however, may increase, diminish, or suppress this legal obligation of the vendor. (1475a)
NOTES:
The sellers implied warranty against eviction only applies (i.e., there has been a breach of warranty) when the following conditions are present: 1. Purchaser has been deprived of, or evicted from, the whole or part of the thing sold; 2. Eviction is by a final judgment; 3. Basis thereof is by virtue of a right prior to the sale made by the seller; and 4. Seller has been summoned and made codefendant in the suit for eviction at the instance of the buyer Article 1549. The vendee need not appeal from the decision in order that the vendor may become liable for eviction. (n) Article 1550. When adverse possession had been commenced before the sale but the prescriptive period is completed after the transfer, the vendor shall not be liable for eviction. (n) Article 1551. If the property is sold for nonpayment of taxes due and not made known to the vendee before the sale, the vendor is liable for eviction. (n) Article 1552. The judgment debtor is also responsible for eviction in judicial sales, unless it is otherwise decreed in the judgment. (n) Article 1553. Any stipulation exempting the vendor from the obligation to answer for eviction shall be void, if he acted in bad faith. (1476) Article 1554. If the vendee has renounced the right to warranty in case of eviction, and eviction should take place, the vendor shall only pay the value which the thing sold had at the time of the eviction. Should the vendee have made the waiver with knowledge of the risks of eviction and assumed its consequences, the vendor shall not be liable. (1477) greater or less than the price of the sale; (2) The income or fruits, if he has been ordered to deliver them to the party who won the suit against him; (3) The costs of the suit which caused the eviction, and, in a proper case, those of the suit brought against the vendor for the warranty; (4) The expenses of the contract, if the vendee has paid them; (5) The damages and interests, and ornamental expenses, if the sale was made in bad faith. (1478) Article 1556. Should the vendee lose, by reason of the eviction, a part of the thing sold of such importance, in relation to the whole, that he would not have bought it without said part, he may demand the rescission of the contract; but with the obligation to return the thing without other encumbrances that those which it had when he acquired it. He may exercise this right of action, instead of enforcing the vendor's liability for eviction. The same rule shall be observed when two or more things have been jointly sold for a lump sum, or for a separate price for each of them, if it should clearly appear that the vendee would not have purchased one without the other. (1479a) Article 1557. The warranty cannot be enforced until a final judgment has been rendered, whereby the vendee loses the thing acquired or a part thereof. (1480) Article 1558. The vendor shall not be obliged to make good the proper warranty, unless he is summoned in the suit for eviction at the instance of the vendee. (1481a) Article 1559. The defendant vendee shall ask, within the time fixed in the Rules of Court for answering the complaint, that the vendor be made a co-defendant. (1482a)
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NOTES: In other words, a general waiver of the warranty does not create the effect of waiver but merely limits the liability of the seller to the value of the thing sold at the time of eviction. When the waiver is of a specific case of expected eviction, the waiver has the effect of wiping put the warranty as to that specific risk, but not as to eviction caused by other reasons not covered in the waiver. Article 1555. When the warranty has been agreed upon or nothing has been stipulated on this point, in case eviction occurs, the vendee shall have the right to demand of the vendor: (1) The return of the value which the thing sold had at the time of the eviction, be it
NOTES: There is no need for the buyer to resist to the fullest the action for eviction taken against him, since the warranty is a covenant on the part of the seller, and by having given the seller proper notice of the eviction, (i.e., by making him a party to the case) the buyer is deemed to have complied with what is incumbent upon him, and the seller, being a party to the case, must then take the lead to resist the claim of the third party on the subject matter of the sale. c. Warranty against non-apparent servitudes Art. 1560 (supra)
NOTES: Under Art. 1460, the warranty shall apply only when the following conditions are present: The immovable sold is encumbered with any nonapparent burden or servitude, not mentioned in the agreement; and The nature of such non-apparent burden or servitude is such that it must presume that the buyer would not have acquired it had he been aware thereof. d. NOTES: The warranty applies to both movable and immovable subject matters. In Investments & Devt., Inc. v. CA, the Court held that the implied warranty against hidden defects under Art. 1547 of the CC covers only those that make the object of the sale unfit for the use for which it was intended at the time of the sale, and that in the sale of agricultural land, the existing tenancy relationship pertaining thereto cannot be considered as hidden fault or defect since it did not go into the use of the land. Requisites to Recover on account of hidden defects are as follows (Nutrimix Feeds Corp. v. CA): Defect must be hidden; Defect must exist at the time the sale was made; Defect must ordinarily have been excluded from the contract; Defect must be important (render the thing unfit or considerably decreases fitness); Action must be instituted within the statute of limitations Article 1561. The vendor shall be responsible for warranty against the hidden defects which the thing sold may have, should they render it unfit for the use for which it is intended, or should they diminish its fitness for such use to such an extent that, had the vendee been aware thereof, he would not have acquired it or would have given a lower price for it; but said vendor shall not be answerable for patent defects or those which may be visible, or for those which are not visible if the vendee is an expert who, by reason of his trade or profession, should have known them. (1484a) Article 1562. In a sale of goods, there is an implied warranty or condition as to the quality or fitness of the goods, as follows: (1) Where the buyer, expressly or by implication, makes known to the seller the particular purpose for which the goods are acquired, and it appears that the buyer relies on the seller's skill or judgment (whether he be the grower or manufacturer or not), there is an implied warranty that Warranty against hidden encumbrance or defects Arts. 1561 1580 the goods shall be reasonably fit for such purpose; (2) Where the goods are brought by description from a seller who deals in goods of that description (whether he be the grower or manufacturer or not), there is an implied warranty that the goods shall be of merchantable quality. (n) Article 1563. In the case of contract of sale of a specified article under its patent or other trade name, there is no warranty as to its fitness for any particular purpose, unless there is a stipulation to the contrary. (n) Article 1564. An implied warranty or condition as to the quality or fitness for a particular purpose may be annexed by the usage of trade. (n) Article 1565. In the case of a contract of sale by sample, if the seller is a dealer in goods of that kind, there is an implied warranty that the goods shall be free from any defect rendering them unmerchantable which would not be apparent on reasonable examination of the sample. (n) Article 1566. The vendor is responsible to the vendee for any hidden faults or defects in the thing sold, even though he was not aware thereof. This provision shall not apply if the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in the thing sold. (1485) Article 1567. In the cases of articles 1561, 1562, 1564, 1565 and 1566, the vendee may elect between withdrawing from the contract and demanding a proportionate reduction of the price, with damages in either case. (1486a) Article 1568. If the thing sold should be lost in consequence of the hidden faults, and the vendor was aware of them, he shall bear the loss, and shall be obliged to return the price and refund the expenses of the contract, with damages. If he was not aware of them, he shall only return the price and interest thereon, and reimburse the expenses of the contract which the vendee might have paid. (1487a) Article 1569. If the thing sold had any hidden fault at the time of the sale, and should thereafter be lost by a fortuitous event or through the fault of the vendee, the latter may demand of the vendor the price which he paid, less the value which the thing had when it was lost. If the vendor acted in bad faith, he shall pay damages to the vendee. (1488a) Article 1570. The preceding articles of this Subsection shall be applicable to judicial sales, except that the judgment debtor shall not be liable
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for damages. (1489a) Article 1571. Actions arising from the provisions of the preceding ten articles shall be barred after six months, from the delivery of the thing sold. (1490) Article 1572. If two or more animals are sold together, whether for a lump sum or for a separate price for each of them, the redhibitory defect of one shall only give rise to its redhibition, and not that of the others; unless it should appear that the vendee would not have purchased the sound animal or animals without the defective one. The latter case shall be presumed when a team, yoke pair, or set is bought, even if a separate price has been fixed for each one of the animals composing the same. (1491) Article 1573. The provisions of the preceding article with respect to the sale of animals shall in like manner be applicable to the sale of other things. (1492) Article 1574. There is no warranty against hidden defects of animals sold at fairs or at public auctions, or of live stock sold as condemned. (1493a) Article 1575. The sale of animals suffering from contagious diseases shall be void. A contract of sale of animals shall also be void if the use or service for which they are acquired has been stated in the contract, and they are found to be unfit therefor. (1494a) Article 1576. If the hidden defect of animals, even in case a professional inspection has been made, should be of such a nature that expert knowledge is not sufficient to discover it, the defect shall be considered as redhibitory. But if the veterinarian, through ignorance or bad faith should fail to discover or disclose it, he shall be liable for damages. (1495) Article 1577. The redhibitory action, based on the faults or defects of animals, must be brought within forty days from the date of their delivery to the vendee. This action can only be exercised with respect to faults and defects which are determined by law or by local customs. (1496a) Article 1578. If the animal should die within three days after its purchase, the vendor shall be liable if the disease which cause the death existed at the time of the contract. (1497a) Article 1579. If the sale be rescinded, the animal shall be returned in the condition in which it was sold and delivered, the vendee being answerable for any injury due to his negligence, and not arising from the redhibitory fault or defect. (1498) Article 1580. In the sale of animals with redhibitory defects, the vendee shall also enjoy the right mentioned in article 1567; but he must make use thereof within the same period which has been fixed for the exercise of the redhibitory action. (1499)
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e.
Additional warranties for consumer products RA 7394 (Consumer Act), Art. 68
Article 68. Additional Provisions on Warranties . In addition to the Civil Code provisions on sale with warranties, the following provisions shall govern the sale of consumer products with warranty: a) Terms of express warranty. Any seller or manufacturer who gives an express warranty shall: 1) set forth the terms of warranty in clear and readily understandable language and clearly identify himself as the warrantor; 2) identify the party to whom the warranty is extended; 3) state the products or parts covered; 4) state what the warrantor will do in the event of a defect, malfunction of failure to conform to the written warranty and at whose expense; 5) state what the consumer must do to avail of the rights which accrue to the warranty; and 6) stipulate the period within which, after notice of defect, malfunction or failure to conform to the warranty, the warrantor will perform any obligation under the warranty. b) Express warranty operative from moment of sale. All written warranties or guarantees issued by a manufacturer, producer, or importer shall be operative from the moment of sale. 1) Sales Report. All sales made by distributors of products covered by this Article shall be reported to the manufacturer, producer, or importer of the product sold within thirty (30) days from date of purchase, unless otherwise agreed upon. The report shall contain, among others, the date of purchase, model of the
product bought, its serial number, name and address of the buyer. The report made in accordance with this provision shall be equivalent to a warranty registration with the manufacturer, producer, or importer. Such registration is sufficient to hold the manufacturer, producer, or importer liable, in appropriate cases, under its warranty. 2) Failure to make or send report. Failure of the distributor to make the report or send them the form required by the manufacturer, producer, or importer shall relieve the latter of its liability under the warranty: Provided, however, That the distributor who failed to comply with its obligation to send the sales reports shall be personally liable under the warranty. For this purpose, the manufacturer shall be obligated to make good the warranty at the expense of the distributor. 3) Retail. The retailer shall be subsidiarily liable under the warranty in case of failure of both the manufacturer and distributor to honor the warranty. In such case, the retailer shall shoulder the expenses and costs necessary to honor the warranty. Nothing therein shall prevent the retailer from proceeding against the distributor or manufacturer. 4) Enforcement of warranty or guarantee. The warranty rights can be enforced by presentment of a claim. To this end, the purchaser needs only to present to the immediate seller either the warranty card of the official receipt along with the product to be serviced or returned to the immediate seller. No other documentary requirement shall be demanded from the purchaser. If the immediate seller is the manufacturer's factory or showroom, the warranty shall immediately be honored. If the product was purchased from a distributor, the distributor shall likewise immediately honor the warranty. In the case of a retailer other than the distributor, the former shall take responsibility without cost to the buyer of presenting the warranty claim to the distributor in the consumer's behalf. 5) Record of purchases. Distributors and retailers covered by this Article shall keep a record of all purchases covered by a warranty or guarantee for such period of time corresponding to the lifetime of the product's respective warranties or guarantees. 6) Contrary stipulations null and void. All covenants, stipulations or agreements contrary to the provisions of this Article shall be without legal effect. c) Designation of warranties. A written warranty shall clearly and conspicuously designate such warranty as: 1) "Full warranty" if the written warranty meets the minimum requirements set forth in paragraph (d); or 2) "Limited warranty" if the written warranty does not meet such minimum requirements. d) Minimum standards for warranties. For the warrantor of a consumer product to meet the minimum standards for warranty, he shall: 1) remedy such consumer product within a reasonable time and without charge in case of a defect, malfunction or failure to conform to such written warranty; 2) permit the consumer to elect whether to ask for a refund or replacement without charge of such product or part, as the case may be, where after reasonable number of attempts to remedy the defect or malfunction, the product continues to have the defect or to malfunction. The warrantor will not be required to perform the above duties if he can show that the defect, malfunction or failure to conform to a written warranty was caused by damage due to unreasonable use thereof. e) Duration of warranty. The seller and the consumer may stipulate the period within which the express warranty shall be enforceable. If the implied warranty on merchantability accompanies an express warranty, both will be of equal duration. Any other implied warranty shall endure not less than sixty (60) days nor more than
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one (1) year following the sale of new consumer products. f) Breach of warranties. (1) In case of breach of express warranty, the consumer may elect to have the goods repaired or its purchase price refunded by the warrantor. In case the repair of the product in whole or in part is elected, the warranty work must be made to conform to the express warranty within thirty (30) days by either the warrantor or his representative. The thirty-day period, however, may be extended by conditions which are beyond the control of the warrantor or his representative. In case the refund of the purchase price is elected, the amount directly attributable to the use of the consumer prior to the discovery of the non-conformity shall be deducted. (2) In case of breach of implied warranty, the consumer may retain in the goods and recover damages, or reject the goods, cancel and contract and recover from the seller so much of the purchase price as has been paid, including damages. The buyer shall have a reasonable opportunity of comparing the bulk with the description or the sample. (n)
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NOTES: In a sale by sample, there is an implied warranty that the goods shall be free from any defect which is not apparent or reasonable upon examination of the sample and which would render the goods unmerchantable (Mendoza v David). However, in a sale of goods by description, Mendoza v David held that a sellers description of the goods which is made part of the basis of the transaction creates a warranty that the goods will conform to that description. Where the goods are bought by description, there is an implied warranty that the goods are of merchantable quality. EFFECTS OF WARRANTIES EFFECTS OF WAIVERS BUYERS OPTIONS IN CASE OF BREACH OF WARRANTY Art. 1599
f. g. NOTES:
Warranty in sale of animals Art. 1568 (supra) Implied Warranty of Quality Art. 1562(1) (supra), 1564 (supra)
Requisites for breach of the implied warranty to apply (Nutrimix Feeds Corp. v. CA): That the buyer sustained injury because of the product; That the injury occurred because the product was defective ot unreasonably unsafe; and The defect existed when the product left the hands of the seller. Nutrimix Feeds Corp. also held that a manufacturer or a seller of a product cannot be held liable for any damage allegedly caused by the product in the absence of any proof that the product in question is defective. h. Sale by sample or description Art. 1574 (supra), 1562(2) (supra), 1481
Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election: (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price; (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid. When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of article 1191. Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of warranty when he accepted the goods without protest, or if he fails to notify the seller within a reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the seller in substantially as good condition as
Article 1481. In the contract of sale of goods by description or by sample, the contract may be rescinded if the bulk of the goods delivered do not correspond with the description or the sample, and if the contract be by sample as well as description, it is not sufficient that the bulk of goods correspond with the sample if they do not also correspond with the description.
they were in at the time the ownership was transferred to the buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer from returning or offering to return the goods to the seller and rescinding the sale. Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price upon returning or offering to return the goods. If the price or any part thereof has already been paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of the goods, or immediately after an offer to return the goods in exchange for repayment of the price. Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien to secure the payment of any portion of the price which has been paid, and with the remedies for the enforcement of such lien allowed to an unpaid seller by article 1526. (5) In the case of breach of warranty of quality, such loss, in the absence of special circumstances showing proximate damage of a greater amount, is the difference between the value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. (n) circumstances of the parties, irrespective of any intention of the seller to create it. In Soledad declaring that he owned and had clean title to the vehicle at the time the Deed of Absolute Sale was forged, he gave an implied warranty of title. Since what Soledad, as seller, gave was an implied warranty, the prescriptive period to file a breach thereof is 6 months after the delivery of the vehicle, following Art. 1571. But even if the date of filing of the action is reckoned from the date petitioner instituted his first complaint for damages on November 9, 1993, and not on July 15, 1996 when he filed the complaint subject of the present petition, the action just the same had prescribed, it having been filed 16 months after July 28, 1992, the date of delivery of the vehicle.
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Chapter XIII: BREACH OF CONTRACTS REMEDIES OF THE SELLER Art. 1636: In the preceding articles in this Title governing the sale of goods, unless the context or subject matter otherwise requires: (1) Document of title to goods includes any bill of lading, dock warrant, quedan, or warehouse receipt or order for the delivery of goods, or any other document used in the ordinary course of business in the sale or transfer of goods, as proof of the possession or control of the goods, or authorizing or purporting to authorize the possessor of the document to transfer or receive, either by indorsement or by delivery, goods represented by such document. Goods includes all chattels personal but not things in action or money of legal tender in the Philippines. The term includes growing fruits or crops. Order relating to documents of title means an order by indorsement on the documents. Quality of goods includes their state or condition. Specific goods means goods identified and agreed upon at the time a contract of sale is made. An antecedent or pre-existing claim, whether for money or not, constitutes value where goods or documents of title are taken either in satisfaction thereof or as security therefor. (2) A person is insolvent within the meaning of this Title who either has ceased to pay his debts in the ordinary course of business or cannot pay his debts as they become due, whether insolvency proceedings have been commenced or not. (3) Goods are in a deliverable state within the meaning of this Title when they are in such a state that the buyer
Ang v. CA 567 SCRA 53 (2008) Facts: A car-swapping scheme was done between Soledad's Mitsubishi GSR + P55k and Ang's Mitsubishi Lancer (both by Deed of Absolute Sale). Ang later offered the Mitsubishi GSR ("vehicle") for sale through Far Eastern Motors. The vehicle was eventually sold to Paul Bugash for P225k by Deed of Absolute Sale. But before the deed could be registered in Bugash's name, the vehicle was seized by virtue of a writ of replevin issued by the RTC Cebu City on account of the alleged failure of Ronaldo Panes, the owner of the vehicle prior to Soledad, to pay the mortgage debt constituted thereon. To secure the release of the vehicle, Ang paid BA Finance but Soledad refused to reimburse the amount paid despite repeated demands. Ang filed 3 successive complaints for damages against Soledad. Held: Ang's claim had prescribed. Warranties by the seller may be express or implied. Art. 1546 of the CC defines express warranty. On the other hand, an implied warranty is that which the law derives by application or inference from the nature of the transaction or the relative situation or
would, under the contract, be bound to take delivery of them. Article 1594: Actions for breach of the contract of sale of goods shall be governed particularly by the provisions of this Chapter, and as to matters not specifically provided for herein, by other applicable provisions of this Title. Article 1595. Where, under a contract of sale, the ownership of the goods has passed to the buyer and he wrongfully neglects or refuses to pay for the goods according to the terms of the contract of sale, the seller may maintain an action against him for the price of the goods. Where, under a contract of sale, the price is payable on a certain day, irrespective of delivery or of transfer of title and the buyer wrongfully neglects or refuses to pay such price, the seller may maintain an action for the price although the ownership in the goods has not passed. But it shall be a defense to such an action that the seller at any time before the judgment in such action has manifested an inability to perform the contract of sale on his part or an intention not to perform it. Although the ownership in the goods has not passed, if they cannot readily be resold for a reasonable price, and if the provisions of article 1596, fourth paragraph, are not applicable, the seller may offer to deliver the goods to the buyer, and, if the buyer refuses to receive them, may notify the buyer that the goods are thereafter held by the seller as bailee for the buyer. Thereafter the seller may treat the goods as the buyer's and may maintain an action for the price. Article 1596. Where the buyer wrongfully neglects or refuses to accept and pay for the goods, the seller may maintain an action against him for damages for nonacceptance. The measure of damages is the estimated loss directly and naturally resulting in the ordinary course of events from the buyer's breach of contract. Where there is an available market for the goods in question, the measure of damages is, in the absence of special circumstances showing proximate damage of a different amount, the difference between the contract price and the market or current price at the time or times when the goods ought to have been accepted, or, if no time was fixed for acceptance, then at the time of the refusal to accept. If, while labor or expense of material amount is necessary on the part of the seller to enable him to fulfill his obligations under the contract of sale, the buyer repudiates the contract or notifies the seller to proceed no further therewith, the buyer shall be liable to the seller for labor performed or expenses made before receiving notice of the buyer's repudiation or countermand. The profit the seller would have made if the contract or the sale had been fully performed shall be considered in awarding the damages. Article 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer. Article 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just. Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election: (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price; (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid. When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of article 1191. Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of warranty when he accepted the goods without protest, or if he fails to notify the seller within a reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the seller in substantially as good condition as they were in at the time the ownership was transferred to the buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer from returning or offering to return the goods to the seller and rescinding the sale. Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price upon returning or offering to return the goods. If the price or any part thereof has already been paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of the goods, or immediately after an offer to return the goods in exchange for repayment of the price. Where the buyer is entitled to rescind the sale and elects to do so, if the seller refuses to accept an offer of the buyer to return the goods, the buyer shall thereafter be deemed to hold the goods as bailee for the seller, but subject to a lien to secure the payment of any portion of the price which has been paid, and with the remedies for the enforcement of such lien allowed to an unpaid seller by article 1526. (5) In the case of breach of warranty of quality, such loss, in the absence of special circumstances showing proximate damage of a greater amount, is the difference between the
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value of the goods at the time of delivery to the buyer and the value they would have had if they had answered to the warranty. Sale of Movables 1. Action for the price where he expressly reserved the right to do so in case the buyer should make default, or where the buyer has been in default in the payment of the price for an unreasonable time. The seller shall not thereafter be liable to the buyer upon the contract of sale, but may recover from the buyer damages for any loss occasioned by the breach of the contract. The transfer of title shall not be held to have been rescinded by an unpaid seller until he has manifested by notice to the buyer or by some other overt act an intention to rescind. It is not necessary that such overt act should be communicated to the buyer, but the giving or failure to give notice to the buyer of the intention to rescind shall be relevant in any issue involving the question whether the buyer had been in default for an unreasonable time before the right of rescission was asserted. Article 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated for its payment. NOTES: When the goods have not been delivered to the buyer, and the buyer repudiated the sale, the seller may totally rescind the contract by giving notice to the buyer. Different from rescission in Art. 1534 (remedies of unpaid seller). In 1534, the seller may still recover damages. Rescission means cancellation of all contractual relations and would bar any action on the contract. RECTO LAW: Sale of Movables on Installment Article 1484. In a contract of sale of personal property the price of which is payable in installments, the vendor may exercise any of the following remedies: (1) Exact fulfillment of the obligation, should the vendee fail to pay; (2) Cancel the sale, should the vendee's failure to pay cover two or more installments; (3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the vendee's failure to pay cover two or more installments. In this case, he shall have no further action against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary shall be void. Article 1485. The preceding article shall be applied to contracts purporting to be leases of personal property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment of the thing. Article 1486. In the case referred to in the two preceding articles, a stipulation that the installments or rents paid
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Art. 1595, supra NOTES: Seller has a choice between specific performance and rescission of contract. But specific performance is only available in 3 cases: 2. Where ownership of goods has passed to the buyer 3. Where the price is payable before the delivery of the goods 4. Where the seller was notified by the buyer of the latters repudiation of the contract after the seller has completed the manufacture of the goods or had procured the goods to be delivered, and the goods could not be readily resold for a reasonable price Reason for limited application: action for damages could be an adequate remedy in all other cases 2. Action for damages
Art. 1596, supra NOTES: Applies when the buyer wrongfully neglects or refuses to accept the goods Measure of damages: the estimated loss directly and naturally resulting in the ordinary cause of events from the buyers breach of contract when goods are already manufactured: if there is an available market, difference between contract price and the market or current proce at the time when the goods ought to have been accepted or at the time of refusal to accept when labor or expense is borne by the seller and the buyer notified the seller not to proceed: expenses incurred before receiving the repudiation and the profit seller would have made if contract was performed The law forbids the seller to increase the buyers damages by continuing work on the goods after notice of cancellation (not applicable when completing the work was to give greater value to the finished product). 3. Rescission
Art. 1597, supra Article 1534. An unpaid seller having the right of lien or having stopped the goods in transitu, may rescind the transfer of title and resume the ownership in the goods,
shall not be returned to the vendee or lessee shall be valid insofar as the same may not be unconscionable under the circumstances. NOTES: Rationale of Recto Law: to remedy the abuses committed with regard to the foreclosure of chattel mortgages and to prevent mortgagees from seizing the mortgaged property, buying it at foreclosure sale for a low price and then bringing suit against mortgagor for a deficiency judgment Requisites for it to apply: 1. object of sale is personal property 2. sale is on installment basis 3. failure of the buyer to pay at least 2 installments It is aimed at sales where the price is payable in several installments, as opposed to straight sales which have only one payment to be paid in the future. 1. Meaning of Installment Sale 3. Remedy of specific performance
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NOTES: Seller is deemed to have chosen specific performance when he files an action for recovery. Generally, the mere sending of demand letters should not be considered as having barred the resort to either the remedies of rescission or foreclosure. Tajanlangit v. Southern Motors (1967) F: Tajanlangit bought tractors from Southern Motors. He executed a promissory note for the payment of several installments that stipulates that default on his part would render the entire sum demandable at once plus interest. Buyer failed to pay. Seller sued for the payment and a judgment was rendered in favor of him. Seller also asked for an alias writ of execution to attach buyers rights and interests in certain real properties. Buyer invoked Recto Law to prohibit sheriff from attaching the land. H: There is no foreclosure of the chattel mortgage in this case (merely an attachment). Seller elected to sue on the promissory note exclusively to exact fulfillment of the obligation. In choosing this, he may force execution on other personal or real properties of the buyer and if the proceeds be insufficient, may attach the mortgaged good. 4. Nature of the remedy of rescission Generally, when a seller chooses rescission, he is under obligation to make restitution, except when there is a stipulation that the installments paid shall not be returned, so long as it may not be unconscionable. Seller is deemed to have chosen rescission when he has clearly indicated to end the contract (sends notice of rescission, takes possession of subject matter, or files an action for rescission).
Levy Hermanos v. Gervacio (1939) F: Gervacio bought a car from Hermanos Inc. After making an initial payment, he executed a promissory note for the balance. To secure payment, he also executed a chattel mortgage over the said car. Gervacio failed to make any other payment. Hermanos foreclosed the mortgage and wanted to collect the unpaid balance. H: Recto Law is not applicable to sales on straight term, wherein the balance after the payment of the initial sum should be paid in its totality at the time specified in the promissory note, which is the situation in this case. 2. Remedies available to the unpaid seller
NOTES: The unpaid seller has the option to avail any of these three remedies: 1. exact fulfillment 2. rescission 3. foreclose the chattel mortgage, if one was constituted The remedies under Art. 1484 have been recognized as alternative, not cumulative, in that the exercise of one would bar the exercise of the others. The remedies cannot also be pursued simultaneously. Delta Motor Sales v. Niu Kim Duan (1992) F: Niu Kim bought 3 air-conditioning units from Delta payable in installments. Buyer failed to pay, so seller filed an action for replevin to repossess the units. Seller succeeded in retrieving the properties. The amount already paid by the buyer were treated as rentals for the units pursuant to the stipulation in the deed of conditional sale. H: Such a stipulation is valid insofar as the same may not be unconscionable under the circumstances. However, seller may no longer exact payment of the balance of the price of the air-con units.
Nonato v. IAC (1985) F: Nonato purchased a Volkswagen car from Peoples Car Inc. on installment basis secured by a chattel mortgage over the same car. Peoples Car assigned its rights to Investors Finance. Buyer failed to pay two or more installments and so the car was repossessed by the assignee. Despite repossession, assignee still demanded that buyer pay the balance of the price. H: When the sellers assignee, a financing company, is able to take back possession of the motor vehicle with a condition that the vehicle could be redeemed by the buyers within 15 days, then such taking of possession is clearly with intent to rescind the contract. It is thus barred from exacting further payment. 5. Meaning of action refers to any judicial or extrajudicial proceeding by virtue of which the vendor may lawfully be enabled to exact recovery of the supposed unsatisfied balance of the purchase price from the purchaser or his privy.
The further action being barred in Art. 1484 is not limited to judicial proceedings, but should include extrajudicial proceedings. is filed an action for replevin for the purpose extrajudicial foreclosure, or if the mortgage creditor who has elected to foreclose but subsequently desists from proceeding with the auction sale, without gaining an advantage or benefit, and without causing any harm to the vendee-mortgagor, is not barred from suing on the unpaid account, there is no reason why a mortgage creditor should be barred from accepting, before a foreclosure sale, payments made by the buyer. Sale of Immovables 1. Anticipatory Breach
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Cruz v. Filipinas Investment and Finance (1968) F: Cruz purchased a bus from Far East Motor, payable in installments, secured by a chattel mortgage over the bus and an additional security of a mortgage of a parcel of land made by a third person. Far East assigned its rights to Filipinas Investment. Buyer failed to pay so Filipinas took steps to foreclose the chattel mortgage, the proceeds of which were not sufficient. Filipinas then sought to foreclose the real estate mortgage. H: Filipinas can no longer seek to recover the deficiency. Any deficiency resulting from the foreclosure can no longer be recovered from the vendee or from the guarantor or from the mortgage put up by the third person. 6. What constitutes foreclosure The point by which the seller is deemed to have chosen foreclosure is only at the time of actual sale of the subject property at public auction pursuant to the foreclosure proceedings.
Article 1591. Should the vendor have reasonable grounds to fear the loss of immovable property sold and its price, he may immediately sue for the rescission of the sale. Should such ground not exist, the provisions of article 1191 shall be observed. NOTES: If the seller has reasonable grounds to fear the loss of the immovable property sold and its price, he may immediately sue for the rescission of the sale. Should such ground not exist, Art. 1911 on rescission shall be observed. Legarda v. Saldana (1974) F: Saldana entered into a contract with Legarda, whereby Legarda agreed to sell 2 equal lots valued at P1,500 each, payable in installments. Saldana defaulted on some installments, but the aggregate amount he paid was P1,682. Legarda cancelled the sale. Saldana now demands delivery of the lots. H: It was found that, including interests, Saldana actually paid more than the value of the 2 lots. Even considering just the principal amount he paid, it is still more than the value of one lot. Saldana is thus entitled to the conveyance of one fully paid lot of his choice. Such is in accordance with law and equity. 2. PD 957
Third party mortgage Ridad v. Filipinas Investment (1983) F: Ridad bought a car from Supreme Sales (later assigned rights to Filipinas). To secure payment of installments, executed a chattel mortgage over the vehicles purchased plus another car which was not the subject matter of the sale. Buyer failed to pay, so seller foreclosed the mortgage over the 2 cars and also sought to foreclose the additional security. H: If it was held in Cruz that a seller is prohibited from having a recourse against additional security put up by a third party insofar as how the burden would ultimately fall on the buyer himself is concerned, there is no ground why such seller should not likewise be precluded from further extrajudicially foreclosing the additional security put up by the buyer himself. The barring effect of foreclosure It is the foreclosure and actual sale at public auction of the mortgaged chattel that shall bar further recovery by the seller of any balance on the buyers outstanding obligation. Prior to that point in time, the seller has every right to receive payments on the unpaid balance of the price. Northern Motors v. Sapinoso (1970) F: Sapinoso bought a car from Northern Motors in installments secured by a chattel mortgage on the same car. Buyer failed to pay. Seller pursued an extrajudicial foreclosure by first praying for a writ of replevin. Pending the action, buyer made 2 payments. H: Although the seller had already filed an action for foreclosure, if prior to the actual sale of the subject property at public auction, the seller had received further payments from the buyer, the seller is not obliged to refund said payments after foreclosure to the buyer. If the mortgage creditor, before the actual foreclosure sale, is not precluded from recovering the unpaid balance of the price although he
Section 23. Non-Forfeiture of Payments. No installment payment made by a buyer in a subdivision or condominium project for the lot or unit he contracted to buy shall be forfeited in favor of the owner or developer when the buyer, after due notice to the owner or developer, desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project according to the approved plans and within the time limit for complying with the same. Such buyer may, at his option, be reimbursed the total amount paid including amortization interests but excluding delinquency interests, with interest thereon at the legal rate. Section 24. Failure to pay installments. The rights of the buyer in the event of this failure to pay the installments due for reasons other than the failure of the owner or developer
to develop the project shall be governed by Republic Act No. 6552. NOTES: These sections provide that no installment payments made by the buyer in a subdivision or condominium project shall be forfeited in favor of the owner or developer when the buyer, after due notice desists from further payment due to the failure of the owner or developer to develop the subdivision or condominium project. The sections also grant the buyer the option to be reimbursed the total amount paid. Sec. 23 does not require that a notice be given first by the buyer to the seller before a demand for refund can be made as the notice and demand can be made in the same letter or communication. Designed to stem the tide of fraudulent manipulations perpetrated by unscrupulous subdivision and condominium sellers and operators. Casa Filipina v. OP (1995) F: Dennis and Rebecca Sevilla agreed to purchase from Casa Filipina Realty Corporation (CFRC) a parcel of land in CFRCs subdivision. The Sevilla spouses failed to pay the amortizations on time.They then wrote a letter to CFRC regarding the absence of any improvement in the subdivision, the claim of a bank against the lot and requested a refund of all installment payments made on account of the contract. H: Sevillas are entitled to a refund pursuant to Sec 23 of PD 957 because notice was already given regarding, among other things, the non-development of the subdivision, and demanded for refund. Section 23 does not require that a notice be given first before a demand for refund can be made. The notice and the demand can be made in the same letter or communication. Relucio v. Brillante Garfin (1990) F: Defendant entered into a contract to buy and sell 2 lots with the plaintiff. The contract also stated that the plaintiff will construct roads around the lots as necessary improvements. After religiously paying the installments, defendant was asked to pay for interest; she refused. Plaintiff then withheld execution of the deed of sale and alleges that he has the right to rescind the contract upon defendants refusal to pay. H: Defendant is required to pay interest since there is an interest charge stipulated in the contract. However, plaintiff cannot validly rescind the contract because of her failure to put up the required improvements. Sec. 23 of PD 957 vests upon the buyer to either demand reimbursement or wait for further development. Defendant, who opted to wait for further development of the site, cannot be ousted from the subdivision. 3. Maceda Law: RA 6552 - Sale of Immovables on Installment excluding industrial lots, commercial buildings and sales to tenants under Republic Act Numbered Thirty-eight hundred forty-four, as amended by Republic Act Numbered Sixtythree hundred eighty-nine, where the buyer has paid at least two years of installments, the buyer is entitled to the following rights in case he defaults in the payment of succeeding installments: (a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him which is hereby fixed at the rate of one month grace period for every one year of installment payments made: Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is canceled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made, and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in the computation of the total number of installment payments made. Section 4. In case where less than two years of installments were paid, the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act. Section 5. Under Section 3 and 4, the buyer shall have the right to sell his rights or assign the same to another person or to reinstate the contract by updating the account during the grace period and before actual cancellation of the contract. The deed of sale or assignment shall be done by notarial act. Section 6. The buyer shall have the right to pay in advance any installment or the full unpaid balance of the purchase price any time without interest and to have such full payment of the purchase price annotated in the certificate of title covering the property. NOTES: Created to protect buyers of real estate on installment payments against onerous and oppressive conditions. McLaughlin v. CA (1986) F: McLaughlin and Flores entered into a contract of conditional sale of real property, with the price payable in installments. Flores defaulted, so McLaughlin filed an action
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Section 3. In all transactions or contracts involving the sale or financing of real estate on installment payments, including residential condominium apartments but
for rescission. However, this was compromised as Flores agreed to pay the balance on a scheduled payment. It was also agreed that should he default again, his previous payments shall be forfeited. He still failed to pay so McLaughlin filed a motion for writ of execution of the rescission of the contract. H: McLaughlin cannot rescind the contract and forfeit all installments since he could cancel the contract only 30 days after the notice of cancellation. Since the tender of payment of the balance was made within the 30-day period, this prevented the cancellation of the contract. Doctrines of McLaughlin (accdg to Villanueva): 1. Although the law seems to require rescission and cancellation to be both by notarial act, it would hold notarial act as merely applicable to rescission, whereas cancellation need not be by notarial act. 2. Even after the expiration of the grace period provided by the law, the buyer still can prevent rescission or cancellation within the 30-day period when rescission or cancellation is to take effect. 3. 2 grace periods: a. the one provided for expressly by the law, which is a minimum of 60 days b. the period before rescission or cancellation actually takes effect Luzon Brokerage v. Maritime (1978) The court viewed the enactment of the Maceda Law as a confirmation of its jurisprudential rulings that recognizes the sellers right of cancellation of sale on installments of industrial and commercial properties with full retention of previous payments. REMEDIES OF THE BUYER 1. In case of movables When the buyer has claimed and been granted a remedy in anyone of these ways, no other remedy can thereafter be granted, without prejudice to the provisions of the second paragraph of article 1191. Where the goods have been delivered to the buyer, he cannot rescind the sale if he knew of the breach of warranty when he accepted the goods without protest, or if he fails to notify the seller within a reasonable time of the election to rescind, or if he fails to return or to offer to return the goods to the seller in substantially as good condition as they were in at the time the ownership was transferred to the buyer. But if deterioration or injury of the goods is due to the breach or warranty, such deterioration or injury shall not prevent the buyer from returning or offering to return the goods to the seller and rescinding the sale. Where the buyer is entitled to rescind the sale and elects to do so, he shall cease to be liable for the price upon returning or offering to return the goods. If the price or any part thereof has already been paid, the seller shall be liable to repay so much thereof as has been paid, concurrently with the return of the goods, or immediately after an offer to return the goods in exchange for repayment of the price.
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2.
In case of immovable
Art. 1191: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.
Article 1598. Where the seller has broken a contract to deliver specific or ascertained goods, a court may, on the application of the buyer, direct that the contract shall be performed specifically, without giving the seller the option of retaining the goods on payment of damages. The judgment or decree may be unconditional, or upon such terms and conditions as to damages, payment of the price and otherwise, as the court may deem just. Article 1599. Where there is a breach of warranty by the seller, the buyer may, at his election: (1) Accept or keep the goods and set up against the seller, the breach of warranty by way of recoupment in diminution or extinction of the price; (2) Accept or keep the goods and maintain an action against the seller for damages for the breach of warranty; (3) Refuse to accept the goods, and maintain an action against the seller for damages for the breach of warranty; (4) Rescind the contract of sale and refuse to receive the goods or if the goods have already been received, return them or offer to return them to the seller and recover the price or any part thereof which has been paid.
3.
Suspension of Payment
Article 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance or danger to cease, unless the latter gives security for the return of the price in a proper case, or it has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make the payment. A mere act of trespass shall not authorize the suspension of the payment of the price.
NOTES: Should the buyer be disturbed in the possession or ownership of the thing acquired, or should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure of mortgage, the buyer may suspend payment of the price until the seller has caused the disturbance or danger to cease. A mere act of trespass shall not authorize the suspension of payment. sold, with the obligation to comply with the provisions of article 1616 and other stipulations which may have been agreed upon. NOTES: Shall take place when the seller reserved for himself the right to repurchase the thing sold, with the obligation to: (a) return the price of the sale, (b) the expenses of the contract, (c) any other legitimate payments made by reason of the sale, (d) and the necessary and useful expenses made on the thing sold. Villarica v. CA (1968) F: Plaintiff sold to defendant a lot in Davao. Another instrument was executed where plaintiff was given an option to buy the same property within 1 year. Plaintiff later filed for the reformation of the contract, alleging that their real intention was an equitable mortgage. H: The right of repurchase is not a right granted to the vendor by the vendee in a subsequent instrument, but is right reserved by the vendor in the same instrument of sale as one of the stipulations of the contract. Bautista v. Unangst (1968) F: Defendant rented a car from plaintiff and defaulted on car rental payments. Defendant then executed a deed of absolute sale in favor of plaintiff over the subject property. The contract granted defendant the right to repurchase the same. Since she was not able to repurchase, plaintiff demands that she evacuate the premises. Defendant, however, alleges that plaintiff has no cause of action since her consent was obtained through force and intimidation. H: The sale should be construed as equitable mortgage since it is clearly the intention of the parties to use the property as security for the loan of defendant (car rental fees). EQUITABLE MORTGAGE Article 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1) When the price of a sale with right to repurchase is unusually inadequate; (2) When the vendor remains in possession as lessee or otherwise; (3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4) When the purchaser retains for himself a part of the purchase price; (5) When the vendor binds himself to pay the taxes on the thing sold; (6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise
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Chapter XIV: EXTINGUISHMENT OF THE SALE CAUSES Article 1600. Sales are extinguished by the same causes as all other obligations, by those stated in the preceding articles of this Title, and by conventional or legal redemption. Article 1231. Obligations are extinguished: (1) By payment or performance; (2) By the loss of the thing due; (3) By the condonation or remission of the debt; (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and prescription, are governed elsewhere in this Code. NOTES: Sales are extinguished by: a. performance b. loss of determinate object of the sale before delivery c. merger of the rights of the vendor and vendee d. prescription of the action to enforce contract e. cancellation of the sale by virtue of a stipulation in the contract f. novation g. fulfillment of the resolutory condition h. conventional redemption i. legal redemption The same grounds by which obligations in general are extinguished also apply to contracts of sale. However, sales are also extinguished by conventional or legal redemption. Redemption as a mode of extinguishment is unique to contracts of sale. CONVENTIONAL REDEMPTION Article 1601. Conventional redemption shall take place when the vendor reserves the right to repurchase the thing
shall be considered as interest which shall be subject to the usury laws. Article 1603. In case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage. Article 1604. The provisions of article 1602 shall also apply to a contract purporting to be an absolute sale. 4. Pactum Commissorium
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Article 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to the contrary is null and void.
1. -
Definition of Equitable Mortgage One which reveals the intention of the parties to charge real property as security for a debt, and contains nothing impossible or contrary to law. Requisites: 1. the parties entered in a contract denominated as a contract of sale 2. the intention was to secure existing debt by way of a mortgage When in doubt, courts are inclined to construe the transaction as an equitable mortgage.
NOTES: A creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them; any stipulation to the contrary is null and void. DISTINGUISH FROM OPTION TO BUY Art. 1602, supra RIGHT TO REDEEM Not a separate contract, but merely part of a main contract of sale Must be embedded in a contract of sale upon the latters perfection OPTION TO BUY Principal contract; may be created independent of another contract May exist prior to or after the perfection of the sale, or be embedded in another contract, like a lease, upon that contracts perfection Must have a consideration separate and distinct from the purchase price Period for an option right may exceed 10 years Exercise requires only a notice of such exercise given to the optioner Results into the perfection of a contract of sale
Tan v. Valdehueza (1976) F: Defendant executed 2 documents (one registered and the other unregistered) of pacto de retro sales. The vendor remained in possession of the land and paid for the land taxes. Vendee instituted a complaint for injunction to enjoin the vendors from entering the property. The TC held that the registered deed is equitable mortgage and the unregistered deed is a simple loan with security. H: Under the new law, registration as a necessary requisite for the validity of a mortgage is no longer required. The vendors having remained in possession of the land, the contracts which purported to be pacto de retro transactions are presumed to be equitable mortgages, whether registered or not. 2. Rationale of Equitable Mortgage Designed to curtail the evils brought about by contracts of sale with right of repurchase, such as the circumvention of usury laws and pactum commissorium. Badges of Equitable Mortgage The contract of sale shall be presumed to be an equitable mortgage in the any of the following cases: a. the price is unusually inadequate b. seller remains in possession as lessee or otherwise c. period of redemption is extended or renewed under a separate contract d. buyer retains part of the purchase price e. seller binds himself or continues to pay the taxes on the thing sold f. in any other case where it may be clearly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation
Does not need a separate consideration
Redemption period cannot exceed 10 years Exercise requires notice to be accompanied by a tender of payment Extinguishes an existing contract of sale
3. -
Adiarte v. Tumaneng (1951) F: Plaintiff sold a parcel of land to defendants with a right to repurchase within 10 years. 15 years later, vendor called and offered to repurchase the land. Vendee later agreed with the condition that he would remain in possession for the next 2 years. A contract was executed stipulating the new agreement. H: The promise by vendee is not a promise to sell by virtue of the right to repurchase but an entirely new agreement since the original contract is no longer existing. The agreement is not an extension of the redemption period, which is prohibited by law. It is, therefore, an option to buy. PERIOD OF REDEMPTION 1. When no period agreed upon
Article 1606. The right referred to in article 1601, in the absence of an express agreement, shall last four years from the date of the contract. Should there be an agreement, the period cannot exceed ten years. However, the vendor may still exercise the right to repurchase within thirty days from the time final judgment was rendered in a civil action on the basis that the contract was a true sale with right to repurchase. Defendant later agreed to turn over the land upon payment of the purchase and the value of improvements. H: Failure of the seller to pay the useful improvements entitles the buyer to retain possession of the land until actual reimbursement is done by the seller. The vendor is given no option to require the vendee to remove the useful improvements on the land. 1. By whom exercised
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2.
When period agreed upon
Article 1610. The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have exhausted the property of the vendor. Article 1611. In a sale with a right to repurchase, the vendee of a part of an undivided immovable who acquires the whole thereof in the case of article 498, may compel the vendor to redeem the whole property, if the latter wishes to make use of the right of redemption. Article 1612. If several persons, jointly and in the same contract, should sell an undivided immovable with a right of repurchase, none of them may exercise this right for more than his respective share. The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the latter may only redeem the part which he may have acquired. Article 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-heirs that they come to an agreement upon the repurchase of the whole thing sold; and should they fail to do so, the vendee cannot be compelled to consent to a partial redemption. NOTES: Vendor, his heirs, assigns or agent Creditors of the vendor only after they have exhausted the property of the vendor Co-owner if the immovable is owned in common and all co-owners sold their interests to the same person (vendee cant be compelled to accept partial redemption) 2. From whom to redeem
Anchuel v. IAC (1987) It was stipulated in the sale a retro that the seller cannot redeem the property within a period of 19 years. The Court held that such stipulation is void since violated Art. 1601. The period of redemption in this case would be 10 years. 3. When there is a period of non-redemption
Tayao v. Dulay (1965) It was stipulated in the sale a retro that the sellers right of redemption cannot be exercised within 10 years. Although the stipulation is void, the nullity of the same did not convert the contract into a mere indebtedness nor an equitable mortgage. Art. 1606 would apply in this case, providing a period of 10 years. EXERCISE OF THE RIGHT TO REDEEM Article 1616. The vendor cannot avail himself of the right of repurchase without returning to the vendee the price of the sale, and in addition: (1) The expenses of the contract, and any other legitimate payments made by reason of the sale; (2) The necessary and useful expenses made on the thing sold. NOTES: Vendor must manifest his desire to redeem accompanied by an actual or simultaneous tender of payment of the redemption price. When vendee refuses redemption, tender of payment is not necessary (consignation). When the vendee is absent, vendor may consign the amount to court The mere sending of letters by the seller expressing his desire to repurchase the property without accompanying tender of the redemption price does not comply with the requirement of law. Gargollo v. Duero (1961) F: Plaintiff sold to defendant a parcel of land under a pacto de retro contract with a right to redeem on or before 1962. Plaintiff verbally notified defendant of her intent to redeem the property, but the latter refused to accept payment.
Article 1615. If the vendee should leave several heirs, the action for redemption cannot be brought against each of them except for his own share, whether the thing be undivided, or it has been partitioned among them. But if the inheritance has been divided, and the thing sold has been awarded to one of the heirs, the action for redemption may be instituted against him for the whole. NOTES: Vendee a retro, his heirs or assigns In case of several heirs: can be exercised against each heir for his share of the property. When the
property is awarded to only one of them, it may be redeemed from him. If property was sold to a 3rd person: may redeem the property from the latter even though the right to redeem was not mentioned in the subsequent contract (if land is unregistered). If the property is registered, the right to redeem must be annotated in the title of the vendee a retro in order to prejudice the 3rd person. Effect of redemption Article 1617. If at the time of the execution of the sale there should be on the land, visible or growing fruits, there shall be no reimbursement for or prorating of those existing at the time of redemption, if no indemnity was paid by the purchaser when the sale was executed. Should there have been no fruits at the time of the sale and some exist at the time of redemption, they shall be prorated between the redemptioner and the vendee, giving the latter the part corresponding to the time he possessed the land in the last year, counted from the anniversary of the date of the sale. Article 1618. The vendor who recovers the thing sold shall receive it free from all charges or mortgages constituted by the vendee, but he shall respect the leases which the latter may have executed in good faith, and in accordance with the custom of the place where the land is situated. NOTES: Vendor a retro receives the property free from all charges or mortgages constituted by the vendee. Vendor shall respect any lease agreement entered into by the vendee in good faith. Vendor can eject such lessee only after the expiration of the period of lease or of the period of redemption, whichever is earlier. Vendor is entitled to the return of the thing together with damages. Damages: for use and occupation of the thing by the vendee after payment of redemption price; value of the crops harvested by the vendee after offer to redeem. Pending fruits shall be appropriated between redemptioner and the vendee. Exception: when there are pending fruits during the execution of the pacto de retro sale where no indemnity was paid. 4. Effect of non-redemption Personal property: ownership of the vendee becomes absolute and irrevocable, by operation of law Immovable property: judicial order is necessary for the consolidation of ownership to be recorded in the Register of Deeds (New Civil Code requirement) The proceeding for consolidation of title is an ordinary civil action where a complaint or petition must be filed, with the buyer being made a party to the complaint. If the buyer succeeds in proving that the transaction was indeed a pacto de retro, the vendor is still given a period of 30 days from the finality of the judgment within which to repurchase the property. The failure of the buyer, however, to consolidate ownership does not impair his title or ownership over the property. This method is merely for the purpose of registering the consolidated title.
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3.
LEGAL REDEMPTION Article 1619. Legal redemption is the right to be subrogated, upon the same terms and conditions stipulated in the contract, in the place of one who acquires a thing by purchase or dation in payment, or by any other transaction whereby ownership is transmitted by onerous title. NOTES: The right to be subrogated upon the same terms and conditions stipulated in the contract, in the place of the one who acquires a thing by purchase or dation in payment or by any other transaction whereby ownership is transmitted by onerous title. 1. Period to redeem
Article 1623. The right of legal pre-emption or redemption shall not be exercised except within thirty days from the notice in writing by the prospective vendor, or by the vendor, as the case may be. The deed of sale shall not be recorded in the Registry of Property, unless accompanied by an affidavit of the vendor that he has given written notice thereof to all possible redemptioners. The right of redemption of co-owners excludes that of adjoining owners. NOTES: Period starts to run from the date of execution of the contract. But when the sale is conditional, period shall be counted from the time such right could be exercised but shall not exceed 10 years from the execution of the contract. After the period has lapsed, if the vendor should institute a reformation of the contract on the ground that the real agreement was one of mortgage, and the court should decide against him,
Article 1607. In case of real property, the consolidation of ownership in the vendee by virtue of the failure of the vendor to comply with the provisions of article 1616 shall not be recorded in the Registry of Property without a judicial order, after the vendor has been duly heard. NOTES:
the latter still has 30 days from the time judgment becomes final to redeem the property. Conejero v. CA (1966) F: Paz and her brother are co-owners of a parcel of land. The brother sold his half interest to Raffinan. It was only after a year when Paz and her husband were informed of the sale, when the brother showed the deed of absolute sale. Paz filed a complaint to be declared entitled to redeem the interest of the brother. They tendered payment of the price by means of a loan. H: Paz is no longer entitled to redeem. The right of redemption shall not be exercised except within 30 days from notice in writing by the vendor. Such notice is indispensable and mere knowledge of the sale, acquired in some other manner by the redemptioner does not satisfy the statute. Showing of the deed of sale is equivalent to a written notice required by law. Butte v. Manuel Uy (1962) F: Ramirez was a co-owner of a house and lot. He died and 1/3 of his estate went to Ms. Butte. One of the co-owners sold her share to defendant and sent a notice to BPI, the administrator of Ramirezs estate. Butte sent a letter and a check to Uy offering to redeem the portion sold, but the latter refused. H: Redemption is valid. The notice of the sale must come from the vendor in order to start the count of the redemption period. The of receipt of vendors notice by the bank cannot be counted as determining the start of the 30 days because the administrator was not the proper redemptioner. Castillo v. Samonte (1960) F: Plaintiffs brother, without giving any notice, sold all his rights to the subject property to defendant. After learning about the sale, plaintiff offered to redeem the property, but defendant refused H: Plaintiff is entitled to redeem the hereditary right sold by his brother. Also, he exercised his right within the prescribed period 30 days from notice. When he offered to redeem, this established his right and he could bring an action in court at any time thereafter, provided it is not barred by the Statute of Limitations. The right must be done within the month-period; the action in court within the period in the Statute of Limitations. Doromal v. CA (1975) Although written notice is given to the co-owner, the 30-day period does not begin to run from the receipt of such written notice because the transaction covered in the notice did not pertain to a perfected contract of sale, and must be accompanied by the actual execution and delivery of the deed of sale. It is best that the period should not be deemed commenced unless the notice of the disposition is made after the formal deed of disposal has been duly executed. 2. a. Instances of legal redemption Co-owners or of any of them, are sold to a third person. If the price of the alienation is grossly excessive, the redemptioner shall pay only a reasonable one. Should two or more co-owners desire to exercise the right of redemption, they may only do so in proportion to the share they may respectively have in the thing owned in common. NOTES: A co-owner may exercise the right of redemption in case the shares of all the other co-owners or any of them are sold to a third person. Third person/stranger anyone who is not a coowner If 2 or more co-owners want to exercise the right of redemption, they may do so in proportion to the share they respectively own. Rationale: (1) public policy to reduce the number of co-owners until the community is done away with because co-ownership is a hindrance to the development and administration of the property; (2) to keep strangers out of a joint family ownership b. Co-heirs
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Article 1088. Should any of the heirs sell his hereditary rights to a stranger before the partition, any or all of the coheirs may be subrogated to the rights of the purchaser by reimbursing him for the price of the sale, provided they do so within the period of one month from the time they were notified in writing of the sale by the vendor. NOTES: There is no right of legal redemption available to the co-heirs when the sale covers a particular property of the estate, since the legal right of redemption applies only to the sale by an heir of his hereditary right. c. Adjoining landowners of rural land
Article 1621. The owners of adjoining lands shall also have the right of redemption when a piece of rural land, the area of which does not exceed one hectare, is alienated, unless the grantee does not own any rural land. This right is not applicable to adjacent lands which are separated by brooks, drains, ravines, roads and other apparent servitudes for the benefit of other estates. If two or more adjoining owners desire to exercise the right of redemption at the same time, the owner of the adjoining land of smaller area shall be preferred; and should both lands have the same area, the one who first requested the redemption. (1523a) NOTES: Rationale: to prevent the rural land consisting of 1 hectare or less from passing into the hands of a person other than the adjacent owners who can make use of the alienated property for the
Article 1620. A co-owner of a thing may exercise the right of redemption in case the shares of all the other co-owners
improvement and development of the lands; to consolidate small and scattered lands Rural pertaining to the country (as opposed to city or town) To be determined from the character of the locality and of the neighboring and surrounding properties. Adjoining landowners of urban land issuance of the patent or grant nor shall they become liable to the satisfaction of any debt contracted prior to the expiration of said period; but the improvements or crops on the land may be mortgaged or pledged to qualified persons, associations, or corporations. No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural Resources, which approval shall not be denied except on constitutional and legal grounds. NOTES: Who can exercise: o By the applicant (if alive) or by his widow or legal heirs o Not available when land is sold to another member of the family of applicant or his direct descendant or heir o Cannot be waived What transactions are covered: o Ownership to the land must have been transferred to another person o If transaction is a mere promise to sell, no right to redeem yet o When the land is sold under pacto de retro, right to redeem shall be counted from the date of the execution of the sale and not from the date of consolidation of title nor from the registration The right can be exercised against any subsequent purchaser even if the land is registered under the Torrens System because the fact that it was acquired through homestead or free patent can be seen from the description of the property in the certificate of title. f. Under Extrajudicial Foreclosure
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d.
Article 1622. Whenever a piece of urban land which is so small and so situated that a major portion thereof cannot be used for any practical purpose within a reasonable time, having been bought merely for speculation, is about to be re-sold, the owner of any adjoining land has a right of preemption at a reasonable price. If the re-sale has been perfected, the owner of the adjoining land shall have a right of redemption, also at a reasonable price. When two or more owners of adjoining lands wish to exercise the right of pre-emption or redemption, the owner whose intended use of the land in question appears best justified shall be preferred. NOTES: Urban from Latin word urbis meaning city Requisites: (1) urban land (2) so small (3) cannot be used for any practical purpose within a reasonable time (4) having been bought merely for speculation Owner of adjoining land has a right of pre-emption at a reasonable price (when requisites 1-3 are present). If all requisites are present, meaning the resale to a 3rd party is perfected, there is a right of legal redemption. When 2 or more adjoining owners wish to exercise such right, the owner whose intended use of the land in question appears best justified shall be preferred. Speculation purchasing or selling with the expectation of profiting by anticipated, but conjectural, fluctuations in price Ortega v. Orcine (1971) F: Plaintiff seeks to redeem the adjoining lot defendant sold to Esplana. H: It is not proper to rule on plaintiffs right to redeem since he never alleged, much less proved, the requisites under Art. 1622. e. Under Public Land Act
Sec. 6. In extrajudicial foreclosure of mortgage, the debtor, his successors-in-interest, any judicial or judgment creditor of said debtor, or any junior encumbrancer may redeem the property within 1 year from the deed of sale. NOTES: Where the land involved is a registered land, a 1year period shall be counted from the registration of the sale in the Register of Deeds. Redemption price shall be the amount of the purchase with interest at 1% per month from the time of the sale up to the time of redemption plus assessment taxes the purchaser may have paid. Written notice of redemption must be given to the officer who made the sale and a duplicate filed with the registry of deeds. Juridical persons whose property is being sold extrajudicially shall have the right to redeem the property until but not after registration of the sale with Register of Deeds, which shall not be more than 3 months from foreclosure. g. Under Agrarian Land Reform Code
Sec. 118. Except in favor of the Government or any of its branches, units or institutions, or legally constituted banking corporations, lands acquired under free patent or homestead provisions shall not be subject to encumbrance or alienation from the date of the approval of the application and for a term of five years from and after the date of
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Sec. 12. Lessee's right of Redemption. - In case the landholding is sold to a third person without the knowledge of the agricultural lessee, the latter shall have the right to redeem the same at a reasonable price and consideration: Provided, That where there are two or more agricultural lessees, each shall be entitled to said right of redemption only to the extent of the area actually cultivated by him. The right of the redemption under this Section may be exercised within one hundred eighty days from notice in writing which shall be served by the vendee on all lessees affected and the Department of Agrarian Reform upon the registration of the sale, and shall have priority over any other right of legal redemption. The redemption price shall be the reasonable price of the land at the time of the sale. Upon the filing of the corresponding petition or request with the department or corresponding case in court by the agricultural lessee or lessees, the said period of one hundred and eighty days shall cease to run. Any petition or request for redemption shall be resolved within sixty days from the filing thereof; otherwise, the said period shall start to run again. The Department of Agrarian Reform shall initiate, while the Land Bank shall finance, said redemption as in the case of pre-emption.
People v. Wong (1954) F: Accused was the owner of a foundry shop built on the land of Ocampo. He owed Ocampo rental for the lands, which compelled him to sell his shop. However, he was also indebted to Shurdut Mills Supply Co. TC found him guilty of violating Sec. 3 of the Bulk Sales Law. H: Accused did not violate the Bulk Sales Law. He was practically forced into signing the deed. Even he hadnt been forced, he still would not be criminally liable because the object of the sale was not covered by the provision. What was sold was the shop itself and not the stock of merchandise, goods, wares, provisions or materials in bulk contemplated in the provision. B. Coverage of Bulk Sales Sec. 2, supra NOTES: Stock of goods, wares, merchandise, provisions, or materials Exceptions: (1) bulk sale in the ordinary course of business (2) waiver in writing by creditor (3) made by executor or sheriff under a judicial proceeding (4) properties exempt from attachment and execution C. Compliance requirements under the law To deliver a sworn statement of listing of creditors o Names and addresses of all creditors to whom said seller or mortgagor may be indebted o Description of the amount of indebtedness due or owing, or to become due or owing by said seller or mortgagor to each of said creditors Pro-rata application of proceeds o Apply the purchase or mortgage proceeds to the pro-rata payment of bona fide claims of the creditors as shown in the verified statement. Written advance disclosure to creditors o Seller shall at least 10 days before the sale make a full detailed inventory thereof showing the quantity and the cost price. o Seller shall notify every creditor whose name and address is set forth in the verified statement at least 10 days before transferring possession thereof. Bulk transfers for nominal value o It is unlawful to transfer title without consideration or for a nominal consideration only.
Chapter XV: BULK SALES LAW Meant to protect supply creditors and businessmen against fraudulent transfers done by merchants Primary objective is to compel the seller in bulk to execute and deliver a verified list of his creditors to his buyer, and notice of intended sale to be sent in advance to said creditors, and to use the proceeds to cover payment of outstanding liabilities.
A. Scope Sec. 2. Sale and transfer in bulk. Any sale, transfer, mortgage or assignment of a stock of goods, wares, merchandise, provisions, or materials otherwise than in the ordinary course of trade and the regular prosecution of the business of the vendor, mortgagor, transferor, or assignor, or sale, transfer, mortgage or assignment of all, or substantially all, of the business or trade theretofore conducted by the vendor, mortgagor, transferor, or assignor, or of all, or substantially all, of the fixtures and equipment used in and about the business of the vendor, mortgagor, transferor, or assignor, shall be deemed to be a sale and transfer in bulk, in contemplation of this Act: Provided, however, That if such vendor, mortgagor, transferor or assignor, produces and delivers a written waiver of the provisions of this Act from his creditors as shown by verified statements, then, and in that case, the provisions of this section shall not apply.
D. Effects of non-compliance
Sec. 4. Fraudulent and void sale, transfer or mortgage. Whenever any person shall sell, mortgage, transfer, or assign any stock of goods, wares, merchandise, provisions or materials, in bulk, for cash or on credit, and shall receive any part of the purchase price, or any promissory note, or other evidence of indebtedness for said purchase price or advance upon mortgage, without having first delivered to the vendee or mortgagee or to his or its agent or representative, the sworn statement provided for in section three hereof, and without applying the purchase or mortgage money of the said property to the pro rata payment of the bona fide claim or claims of the creditors of the vendor or mortgagor, as shown upon such sworn statement, he shall be deemed to have violated this Act, and any such sale, transfer or mortgage shall be fraudulent and void. Sec. 7. It shall be unlawful for any person, firm or corporation, as owner of any stock of goods, wares, merchandise, provisions or materials, in bulk, to transfer title to the same without consideration or for a nominal consideration only. Sec. 11. Any person violating any provision of this Act shall, upon conviction thereof, be punished by imprisonment not less than six months, nor more than five years, or fined in sum not exceeding five thousand pesos, or both such imprisonment and fine, in the discretion of the court. People v. Mapoy (1942) F: Defendant charged with violation of Bulk Sales Law. He pleaded guilty and the lower court ordered defendant to settle the liability with a penalty of subsidiary imprisonment in case of insolvency. H: The proper remedy is for the collector to collect the debt, and in case of insolvency, for the mortgaged goods to be subject to attachment. RTLA specifically defines retail trade to cover any act, occupation or calling of habitually selling direct to the general public merchandise, commodities or goods for consumption.
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King v. Hernaez (1962) F: King, a naturalized Filipino citizen, became the owner of a grocery wholesale and retail business. He requested permission from the President of the Philippines to retain the services of his 3 Chinese employees pursuant to CA 108. This was denied on the ground that aliens may not be appointed to operate or administer a retail business under RA 1180 and the Anti-Dummy Act. King contends that his Chinese employees are not covered since they hold noncontrol positions. H: The prohibition covers the entire range of employment, regardless of whether they are control or non-control positions. Thus, employment of aliens for evening clerical positions is prohibited. The reason is obvious: to plug any loopholes that unscrupulous aliens may exploit for the purpose of circumventing the law. C. Elements (1) habitual act or business of selling (as opposed to incidental) (2) to the general public (must not only be a particular group of persons) (3) of merchandise, commodities or goods for consumption Whenever one of the elements is lacking, the business or activity is not deemed to be retail trade.
D. Application of Grandfather Rule on 100% Filipino ownership of corporate entity Grandfather Rule: A process of characterizing the citizenship of shares in one corporation held by another corporation by attributing the controlling interest of individual stockholders in the second layer of corporate ownership For purposes of investments, shares belonging to corporations or partnerships, with at least 60% of the capital owned by Filipino citizens, shall be considered as Philippine nationality. If it is below 60%, only the number of shares corresponding to such percentage shall be counted as of Philippine nationality.
Chapter XVI: RETAIL TRADE LIBERALIZATION ACT OF 2000 A. Constitutionality Ichong v. Hernandez (1957) F: RA 1180 was passed. The law provides for a prohibition against foreigners as well as corporations owned by foreigners from engaging in retail trade in the country. Petitioner alleges that it violates the Treaty of Amity between the Philippines and China. H: RA 1180 is a valid exercise of police power. This law was enacted to remedy a real and actual danger to national economy posed by alien dominance and control. Police power cannot be bargained away through the medium of a treaty or a contract. B. Scope and definition Retail trade = goods for personal, family or household use, consumption and utilization
E.
Anti-Dummy Act Penalizes Filipinos who permit aliens to use them as nominees or dummies to enjoy privileges reserved for Filipinos or Filipino corporations. Prohibits aliens from intervening in the management, operation, administration or control of nationalized business. Aliens may take part in technical aspects, provided no Filipino can do such technical work, and with express authority from the President of the Philippines.

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SALES | Prof.

SALE Onerous contract Perfected by mere consent

Constitutes of real obligations; proper subject of an action for specific performance

Not unilaterally revocable

RELATIVE INCAPACITY: Married Persons 1. Contracts with Third Parties

REQUISITES FOR A VALID PRICE 1. Must be real

By reference to another thing certain

An option to buy is not a contract of purchase and sale

FORMALITIES OF THE CONTRACT 1. Form not important

B. Form important for validity a. Sale of realty through an agent

Article 1500. There may also be tradition constitutum possessorium. NOTES:

Priority of registration over possession

NON-NEGOTIABLE DOCUMENTS OF TITLE 1. How transferred or assigned

Stoppage in transitu Arts. 1530-1534, 1535 (supra), 1632

Right to sue buyer for damages

Right to Rescind Art. 1534

Right of Resale Art. 1533 a. Time to resell

Soler v. Chesley 43 Phil 52 (1922)

Sale of Movables Arts. 1522, 1537, 1480

When not bound to deliver Arts. 1524, 1536, 1198

Delivery by installment Art. 1583

Delivery of wrong quantity Art. 1522 (supra)

Sale of Immovables Arts. 1539, 1540

Breach of warranty Art. 1586

Refusal to accept Art. 1587 1589

Suspension of payments Arts. 1590, 1560, 1664

Effect of non payment Art. 1191

CHAPTER XII: WARRANTIES

Seller has right to sell

Additional warranties for consumer products RA 7394 (Consumer Act), Art. 68

Does not need a separate consideration

When period agreed upon

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