SALES

SALES
NATURE AND FORM OF THE CONTRACT
Sources of the Law on Sales
Sales are governed by the provisions of the Civil Code:
1. Book IV, Title VI, Articles 1458-1637 (Sales)
2. Title I, Arts. 1156-1422 (Obligations and Contracts)
3. Jurisprudence
Concept of Contract of Sale
The contract of sales is an agreement whereby one of the parties (called the seller or
vendor) obligates himself to deliver something to the other (called the buyer or purchaser or
vendee) who, on his part, hinds himself to pay therefore a sum of money or its equivalent
(known as the price).
The transfer of title to property or the agreement to transfer title for a price paid or
promised, not mere physical transfer of the property, is the essence of sale.

Nature of obligations created in a sale

1. on the part of the seller:
a. transfer ownership; and
b. deliver possession of the subject matter
2. on the part of the buyer
a. to pay the price
These obligations are real obligations or obligations to give, as contrasted from
personal obligations to do and not to do, and can be the proper subject of actions for
specific performance. Personal obligations cannot be enforced through actions for specific
performance because of the public policy against involuntary servitude, although the
same can have the same executed by another at the cost of the obligor, and the obligors
refusal to comply can be the basis for claims for damages.
Primary purpose of Sale
To transfer ownership the buyer wants ownership and not mere delivery

NOTES: Delivery and payment in a contract of sale are so interrelated and intertwined with
each other that without delivery of the goods there is no corresponding obligation to pay. The
two complement each other. It is clear that the two elements cannot be dissociated, for the
contract of purchase and sale is essentially a bilateral contract, as it gives rise to reciprocal
obligations. (Pio Barretto Sons, Inc. vs. Compania Maritima, 62 SCRA 167).
Neither is the delivery of the thing bought nor the payment of the price necessary for the
perfection of the contract of sale. Being consensual, it is perfected by mere consent.

SALES

DEFINITION AND ESSENTIAL REQUISITES OF A CONTRACT OF SALE

CONTRACT OF SALE
By the contract of sale, one of the contracting parties obligates himself to transfer the ownership of and
to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
(Art. 1458, NCC)
Note: 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. 1470)

KINDS OF SALES
A: As to:
1. Nature of the subject matter:
a. Sale of real property;
b. Sale of personal property
2. Value of the things exchanged:
a. Commutative sale;
b. Aleatory sale
3. Whether the object is tangible or intangible:
a. Sale of property (tangible or corporeal);
Note: A tangible object is also called chose in possession

b.

Sale of a right (assignment of a right, or a credit or other intangibles such as copyright,

trademark, or good will);

Note: An intangible object is a chose in action.

4.

5.
6.
7.
8.

9.

Validity or defect of the transaction:

a. Valid
b. Rescissible
c. Voidable
d. Unenforceable
e. Void
Legality of the object:
a. Licit object
b. Illicit object
Presence or absence of conditions:
a. Absolute
b. Conditional
Wholesale or retail:
a. Wholesale
b. Retail
Proximate inducement for the sale:
a. Sale by description
b. Sale by sample
c. Sale by description and sample
When the price is tendered:
a. Cash sale
b. Sale on installment plan

ABSOLUTE SALE When no condition is imposed and ownership passes to the vendee upon delivery of
the thing subject of the sale.
CONDITIONAL SALE When the sale contemplates a contingency, and in general, where the contract
is subject to certain conditions, usually in the case of the vendee, the full payment of the agreed
purchase price and in the case of the vendor, the fulfillment of certain warranties. (De Leon, p. 15)

SALES
Q: When is a deed of sale considered absolute in nature?
A: A deed of sale is considered absolute in nature where there is neither a stipulation in the deed that
title to the property sold is reserved in the seller until the full payment of the price, nor one giving the
vendor the right to unilaterally resolve the contract the moment the buyer fails to pay within a fixed
period.
Q: Distinguish a conditional sale from an absolute sale
A:
CONDITIONAL SALE
One where the seller is granted the right to
unilaterally rescind the contract predicated
on the fulfillment or non-fulfillment, as the
case may be, of the prescribed condition.

ABSOLUTE SALE
One where the title to the property is not reserved to
the seller or if the seller is not granted the right to
rescind the contract based on the fulfillment or nonfulfillment, as the case may be, of the prescribed
condition.

Q: What is the effect of the non-performance of the condition or if the condition did not take
place?
A: Where the obligation of either party to a contract of sale is subject to any condition which is not
performed, such party may refuse to proceed with the contract or he may waive performance of the
condition. Unlike in a non-fulfillment of a warranty which would constitute a breach of the contract, the
non-happening of the condition, although it may extinguish the obligation upon which it is based,
generally does not amount to a breach of a contract of sale.
Q: When is a conditional sale considered an absolute sale?
A: A deed of sale is absolute in nature although denominated a conditional sale absent such
stipulations reserving title to the vendor until full payment of the purchase price, nor any stipulation
giving them the right to unilaterally rescind the contract in case of non-payment.
Q: A contract of sale of a lot stipulates that the "payment of the full consideration based on
a survey shall be due and payable in 5 years from the execution of a formal deed of sale". Is
this a conditional contract of sale?
A: No, it is not. The stipulation is not a condition which affects the efficacy of the contract of sale. It
merely provides the manner by which the full consideration is to be computed and the time within which
the same is to be paid. But it does not affect in any manner the effectivity of the contract (Heirs of San
Andres v. Rodriguez, G.R. No. 135634, May 31, 2000).
ELEMENTS OF A CONTRACT OF SALE
(ANE)
1. Accidental elements dependent on parties stipulations;
Examples:
a. Conditions
b. Interest
c. time & place of payment
d. penalty
2. Natural elements those that are inherent even in absence of contrary provision.
a. Warranty against eviction
b. Warranty against hidden defects
3. Essential elements for validity:
a. Consent or meeting of the minds
INSTANCES WHERE SALE IS AGAINST THE WILL OF THE OWNER:
a. Expropriation (Art. 1488)
b. Ordinary execution sale (Rule 39, Sec. 15, Rules of Court)
c. Judicial foreclosure sale (Rule 68, Rules of Court)
d. Extra-judicial foreclosure sale (Act 3135, as amended)
The sale of conjugal property requires the consent of both the husband and the wife. The
absence of the consent of one renders the sale null and void while the vitiation thereof

SALES
makes it merely voidable. (See Art. 124 of the Family Code in relation to Art. 1390 of the
NCC)
b.
c.

Determinate subject matter

Consideration

STAGES OF THE CONTRACT OF SALE

1.

Preparation/Conception/Policitation/Generation Stage from the moment of negotiation or

bargaining up perfection.
Policitation An unaccepted unilateral promise to buy or sell.
Note: Still no binding contract at this stage.

2.

Perfection the moment there is a meeting of the minds

Perfection Distinguished from Demandability Not all contracts of sale become
automatically and immediately effective. In sales with assumption of mortgage, there is a
condition precedent to the sellers consent and without the approval of the mortgagee, the sale
is not perfected. (Bian Steel Corp. v. Court of Appeals, 391 SCRA 90 (2002))
INEXISTENT CONTRACT AS DISTINGUISHED FROM A VOID CONTRACT
No Contract Situation versus Void Contract Absence of consent (i.e., complete
meeting of minds) negates the existence of a perfected sale. (Firme v. Bukal Enterprises and
Dev. Corp., 414 SCRA 190 (2003). The contract then is null and void ab initio, absolutely wanting
in civil effects; hence, it does not create, modify, or extinguish the juridical relation to which it
refers. (Cabotaje v. Pudunan, 436 SCRA 423 (2004))
When there is no meeting of the minds on price, the contract is not perfected and does not
serve as a binding juridical relation between the parties. (Manila Metal Container Corp. v. PNB,
511 SCRA 444 (2006), and should be more accurately denominated as inexistent, as it did not
pass the stage of generation to the point of perfection. (NHA v. Grace Baptist Church, 424 SCRA
147 (2004))

3.

Consummation or Death of the contract from fulfilment or performance by parties of the terms
up to extinguishment thereof.

Q: What is the effect and/or consequence of the absence of consent of the owner in a
contract of sale of said property?
A: GR: The contract of sale is void. One of the essential requirements of a valid contract of sale is the
consent of the owner of the property. The buyer acquires no better title to the goods than the seller had.
He cannot give what he does not have quod non habet. A stream cannot rise higher than its source.
Note: The principle of Nemo dat quod non habet pertains to the effect of delivery of the subject matter pursuant
to a valid contract of sale, which is at the consummation stage of the contract. It does not pertain to the validity of
the contract of sale upon perfection (Villanueva, Law on Sales, 2004 edition, pg. 104).

XPNS:
a) When the owner of the goods is, by his conduct, precluded from denying the sellers authority to
sell. (Art. 1505)
b)
1) Factors acts, recording laws, or any other provision of law enabling the apparent owner of the
goods to dispose them as if he were the true owner;

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2) Sales made under the order of a court of competent jurisdiction;
3) Sales made pursuant to a special law;
4) Purchases made in a merchants store or fairs or markets. (Art. 1505)
Example: A, the seller sold a car owned by B, to C, the buyer. The contract of sale is valid since
ownership at the time of perfection is not required. A was able to deliver the car in the absence of the
knowledge of B. Later, C sold the car to D. B now comes to Court to ask for annulment of the sale made
by C to D on the principle of nemo dat quod non habet. Since, A, the first seller was not able to transfer
ownership to C because he was not the owner at the time of delivery, then C cannot also transfer
ownership to D (Tsai v. CA).
Q: Jose, as co-owner, sold the entire land in favor of his minor daughter, Ida. Alleging that
Jose had fraudulently registered it in his name alone, his sisters, sued him for recovery of
2/3 share of the property. Ida did not pay for the land. Is the sale valid?
A: No. Jose did not have the right to transfer ownership of the entire property to petitioner since 2/3
thereof belonged to his sisters. Also, Ida could not have given her consent to the contract, being a minor
at the time. Consent of the contracting parties is among the essential requisites of a contract, including
one of sale, absent which there can be no valid contract. Moreover, Ida admittedly did not pay any
centavo for the property, which makes the sale void. Article 1471 of the Civil Code provides: 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 (Labagala v. Santiago, G.R. No. 132305, Dec. 4, 2001).
FORMALITY OF A SALE
GR: None. 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. 1483) Contracts shall
be obligatory, in whatever form they have been entered into, provided all the essential requisites for
their validity are present.
XPNS:
a) If the law requires a document or other special form, the contracting parties may compel each other
to observe that form. (Art. 1357)
b) Under Statute of Frauds, the following contracts must be in writing; otherwise, they shall be
unenforceable:
1. Sale of personal property at a price not less than P500;
2. Sale of a real property or an interest therein;
3. Sale of property not to be performed within a year from the date thereof;
4. When an applicable statute requires that the contract of sale be in a certain form. (Art. 1403,
par.2)
Q: Are there instances where the Statute of Frauds is not essential for the enforceability of a
contract of sale?
A: Yes.
1. When there is a note or memorandum in writing and subscribed to by the party or his agent
(contains essential terms of the contract);
2. When there has been partial performance/execution (seller delivers with the intent to transfer
title/receives price);
3. When there has been failure to object to presentation of evidence aliunde as to the existence of
a contract without being in writing and which is covered by the Statute of Frauds;
4. When sales are effected through electronic commerce. (Villanueva, p. 192)
Note: Rules on forms, and of validity and enforceability of contracts of sale, are strictly kept within the contractual
relationship of the seller and buyer pursuant to the characteristic of relativity of every contract, and do not
necessarily apply to third parties whose rights may be affected by the terms of a sale.

OBLIGATIONS OF THE BUYER AND THE SELLER

OBLIGATIONS OF THE BUYER
1.

Payment of the price

GR: Seller is not bound to deliver unless the purchase price is paid

SALES
XPN: A period of payment has been fixed
2.

Accept delivery of thing sold

Note: A grace period granted the buyer in case of failure to pay is a right not an obligation. Non-payment would still
generally require judicial or extrajudicial demand before default can arise.

OTHER OBLIGATIONS OF THE BUYER

1.

To take care of the goods without the obligation to return, where the goods are delivered to the
buyer and he rightfully refuses to accept;
Note: The goods in the buyers possession are at the sellers risk.

2.
3.

To be liable as a depositary if he voluntarily constituted himself as such;

To pay interest for the period between delivery of the thing and the payment of the price in the
following cases:
a. should it have been stipulated;
b. should the thing sold and delivered produces fruits or income; or
c. should he be in default, from the time of judicial or extra-judicial demand for the
payment of the price.

OBLIGATIONS OF THE SELLER

(DDTWTP)
1. Deliver the thing sold;
2. Deliver fruits & accessions/accessories accruing from perfection of sale;
3. Transfer the ownership;
4. Warranties;
5. Take care of the thing, pending delivery, with proper diligence;
6. Pay for the expenses of the deed of sale unless there is a stipulation to the contrary
Q: What is the obligation of the seller in terms of the nature of the subject matter of the
sale?
A: When the subject matter of the sale is a determinate thing, the seller must deliver the thing to the
buyer when compelled by the latter. When the subject matter is an indeterminate or generic thing, the
seller may be asked that the obligation be complied with at his expense (Art. 1165, NCC)
Q: What is the sellers obligation in case of delay or promise to deliver the thing to two or
more persons who do not have the same interest?
A: The seller shall be responsible for any fortuitous event that may occur until he has delivered the thing
(Art. 1165, NCC)
CHARACTERISTICS OF A CONTRACT OF SALE
CHARACTERISTICS OF A CONTRACT OF SALE
1.

Consensual a sale is perfected by mere consent, manifested by the meeting of the minds as to the
offer and acceptance thereof on the subject matter, price and terms of payment.
Modalities that affect consensuality are:
a. suspensive term or condition
b. sales with assumption of mortgage, where the assumption of mortgage is a condition
precedent to the sellers consent and therefore, without approval of the mortgagee, the sale is
not perfected

2.

Bilateral-Reciprocal
Bilateral both the contracting parties are bound to fulfill correlative obligations towards each other
the seller to deliver and transfer ownership of the thing sold and the buyer, to pay the price (or
equivalent) therefor.
Reciprocal arise from the same cause, and 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; they are to be performed

SALES
simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of
the other .
The legal effect and consequences of sale being a bilateral contract composed of reciprocal
obligations are:
a. 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;
b. Neither party incurs 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
c. From the moment one of the party fulfils his oblation, the default by the other begins, without
the need of prior demand.
Since both parties in a sale are bound by their respective obligations which are reciprocal in nature,
a party cannot simply choose not to proceed with the sale by offering also the other party not to be
bound by his own obligation; that each party has a remedy of specific performance; and that
rescission or resolution cannot be enforced by the defaulting party upon the other party who is
ready and willing to proceed with the fulfillment of his obligation. (Almira v. CA)
3.

GR: Commutative the thing sold is considered the equivalent of the price paid and the price paid is
the equivalent of the thing sold.
XPN: Aleatory the consideration is not equivalent of what has been received like the purchase of a
lotto ticket. If the ticket wins, the prize is much more than the price of the ticket.
Note: There is no requirement that the price to be paid be equal to the exact value of the subject
matter; all that is required is for the seller to believe that what was received was of
commutative/equivalent value to what he gave. (Buenaventura v. CA)

4.
5.
6.

Principal its existence does not depend upon the existence and validity of another contract.
Onerous the thing sold is conveyed in consideration of the purchase price, and vice versa.
Nominate it has a specific name given by law. (as distinguished from the 4 kinds of innominate
contracts)

*7. Merely a title, not a mode Sale is merely a title (meaning, juridical justification) that creates the
obligation on the seller to transfer ownership and deliver possession; it is not a mode (meaning, the
actual process of acquisition or transfer of ownership over a thing) that transfers ownership. Ownership
of the thing sold is acquired only upon its delivery to the buyer.
Mode is the legal means by which dominion or ownership is created, transferred or destroyed (e.g.
succession, donation, discovery, intellectual creation, etc.); title only constitutes the legal basis by which
to affect dominion or ownership; the most that sale does is to create the obligation to transfer
ownership; it is tradition or delivery, as a consequence of sale, that actually transfer ownership.
SALE IS A TITLE AND NOT A MODE
Q: Does sale by itself transfer ownership?
A: No. The most that sale does is to create the obligation to transfer ownership. It is only a title and not
a mode of transferring ownership.
Q: What then transfers ownership?
A: It is tradition or delivery, which is a consequence of the sale that transfers ownership.
Q: Differentiate mode and title.
A: Mode is the legal means by which dominion or ownership is created, transferred, or destroyed; title
only constitutes the legal basis by which to affect dominion or ownership. (Villanueva, p. 15, 2009 ed.)
CONTRACT OF SALE AS DISTINGUISHED FROM OTHER CONTRACTS
Q: Distinguish Sale from the following:
1. Donation.
SALE

DONATION

SALES
Onerous
Consensual
Law on Sales

Gratuitous/onerous
Formal contract
Law on Donation

NOTE: (Art. 1471, CC). When the price of the contract of sale is simulated, the sale may be void but the
act may be shown to have been in reality a donation or some other contract.
2. Barter
SALE

BARTER

Consideration is giving of money as payment

Consideration is giving of a thing

If consideration consists partly in money & partly by thinglook at manifest intention

If intention is not clear, and the value of thing
is equal or less than amount of money = Sale

If intention is not clear, and the value of thing is

more than amount of money = Barter

Both are governed by law on sales

Statute of Frauds applies if value of the object
of the sale is P500 or more

Statute of Frauds is inapplicable

Barter is a contract where one of the parties binds himself to give one thing in consideration of the
others promise to give another thing. (Art.1638, CC)
Q: What if the consideration is partly in money and partly in thing/s?
A: The nature of the contract is to be determined by the intention of the parties.
XPN: If the intention is not clear, it shall be considered as a sale if the value of the money given is more
than the value of the thing. Otherwise, it is barter.

3. Agency to Sell
SALE

AGENCY TO SELL

Buyer pays for price of object

Agent not obliged to pay for price; simply accounts for

the proceeds of the sale.

Buyer becomes owner of thing

Principal remains the owner even if the object

delivered to agent

Seller warrants

Agent assumes no personal liability as long as within

authority given

Not unilaterally revocable

May be revoked unilaterally even w/o ground

Seller receives profit

Agent not allowed to profit

Real contract

Personal contract

Can there be a contract creating both a sale and an agency relationship?

Yes.
Ex: An automobile dealer receives title to the cars he orders from the manufacturer and
that transaction is a sale. But he is an agent to the extent that he is authorized to pass
on the ultimate purchaser the limited warranty of the manufacturer.
4. Dacion en Pago

SALES
DACION EN PAGO

SALE
No pre-existing credit

Contract where property is alienated to extinguish pre-existing

credit/debt

Buyer-seller relationship

Novates creditor-debtor relationship into seller-buyer

Obligations are created

Obligations are extinguished

More freedom in fixing the price

Less freedom in fixing the price

Buyer still has to pay

Payment is received by the debtor before the contract is

perfected

5. Lease
SALE

LEASE
Use of thing is for specified period only with
obligation to return
Consideration is the rental

Obligation to absolutely transfer ownership of thing

Consideration is the price
Seller needs to be owner of thing to transfer
ownership.

Lessor need not be owner

Note: Lease with option to buy really a contract of sale but

designated as lease in name.

6. Contract for piece-of-work

SALE

CONTRACT FOR PIECE-OF-WORK

Manufacturing in the ordinary course of

business

Manufacturing upon special order of a customer

For the general market

Not for the general market, but specially for the

customer

Contract is one for sale

Contract is one for work, labor or materials

Real Obligation allows an action for specific

performance

Personal Obligation does not allow such action

Statute of Fraud applies

Statute of Fraud does not apply

2 tests for distinction:

1.
2.

Habituality Test - manufacturer engages in the same activity in the ordinary course of business
and does not employ extraordinary skills and equipment to cover sales contract
Special Order Test - the products are not ordinary products of the manufacturer and they would
require the use of extraordinary skills or equipment, if to be performed by a manufacturer, to
cover contracts for a piece of work

CONTRACT TO SELL
Contract to Sell is a bilateral contract whereby the prospective seller, while expressly reserving the
ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell
the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that
is, full payment of the purchase price (Coronel v. Court of Appeals, G.R. No. 103577, October 7, 1996).
Q: Distinguish a contract of sale from a contract to sale

SALES
CONTRACT OF SALE
CONTRACT TO SELL
As regards transfer of ownership
Ownership is
Ownership is
transferred to the
transferred upon full
buyer upon delivery of
payment of the
the object to him.
purchase price.
Note: Vendor has lost
and cannot recover
ownership until and
unless the contract is
resolved or rescinded

Note: Prior to full

payment, ownership is
retained by the seller.

As to numbers of contracts involved

There are two
contracts:
1. The contract to sell
There is only one
contract executed
between the seller
and the buyer.

Note: Preparatory sale

2. The deed of
absolute sale
Note:
The
principal
contract
is
executed
after full payment of the
purchase price.

Payment as a condition
Full payment of the
Non-payment of the
price is a positive
price is a resolutory
suspensive condition.
condition. Vendor
loses ownership over
Note: Failure to fully pay
the property and
the price is not a breach
cannot recover it until
but an event that
prevents the obligation
and unless the
of the vendor to convey
contract is resolved or
title from becoming
rescinded.
effective.

1.
2.
3.

Remedies available
Specifi
chPerformanc
e
1.
Resolution
Rescis
2.
Damages
sion
Dama
ges

Q: What is the difference between a contract to sell and a conditional contract of sale?
CONTRACT TO
SELL
The
prospective
seller does not as
yet
agree
or
consent to transfer
ownership of the
property subject of
the contract to sell
until the happening
of an event, which
may be the full
payment of the

CONDITIONAL
CONTRACT OF
SALE
The first element of
consent is present,
although
it
is
conditioned
upon
the happening of a
contingent
event
which may or may
not occur.

SALES
purchase
price.
What the seller
agrees or obliges
himself to do is to
fulfill his promise to
sell
the
subject
property when the
entire amount of
the purchase price
is delivered to him.
Upon the fulfillment
of the suspensive
condition which is
the full payment of
the purchase price,
ownership will not
automatically
transfer
to
the
buyer although the
property may have
been
previously
delivered
to
him. The
prospective seller
still has to convey
title
to
the
prospective buyer
by entering into a
contract
of
absolute sale.
There
being
no
previous sale of the
property, a third
person buying such
property
despite
the fulfillment of
the
suspensive
condition such as
the full payment of
the purchase price,
cannot be deemed
a buyer in bad
faith. There is no
double sale in such
case. Title to the
property
will
transfer
to
the
buyer
after
registration
because there is no
defect
in
the
owner-sellers
title per se, but the
latter, of course,
may be sued for
damages by the
intending buyer.

If the suspensive
condition
is
fulfilled,
the
contract of sale is
thereby perfected,
such that if there
had already been
previous delivery of
the
property
subject of the sale
to
the
buyer,
ownership thereto
automatically
transfers to the
buyer by operation
of law without any
further act having
to be performed by
the seller.

Upon the fulfillment

of the suspensive
condition, the sale
becomes absolute
and
this
will
definitely affect the
sellers
title
thereto. The
second buyer of
the property who
may
have
had
actual
or
constructive
knowledge of such
defect
in
the
sellers title, or at
least was charged
with the obligation
to discover such
defect, cannot be a
registrant in good
faith. Such second
buyer
cannot
defeat
the
first
buyers
title. In
case a title is
issued
to
the
second buyer, the
first buyer may
seek reconveyance
of
the
property
subject of the sale.
(Reyes v. Tuparan, G.R. No. 188064, June 1, 2011; Coronel v. Court of Appeals, G.R. No. 103577, October
7, 1996).

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Q: Having agreed to sell property which they inherited from their father, which was then still
in their fathers name, the Coronels executed a document entitled "Receipt of Down
Payment" in favor of Alcaraz for the purchase of their house and lot, with the condition that
Ramona will make a down payment upon execution of the document. The Coronels would
then cause the transfer of the property in the name of Ramona and will execute a deed of
absolute sale in favor of Ramona. Ramona paid the downpayment as agreed. Is there a
perfected contract of sale or a mere contract to sell?
A: The agreement could not have been a contract to sell because the sellers herein made no express
reservation of ownership or title to the subject parcel of land. The Coronels had already agreed to sell
the house and lot they inherited from their father, completely willing to transfer full ownership of the
subject house and lot to the buyer if the documents were then in order. However, the TCT was then still
in the name of their father, that is why they caused the issuance of a new TCT in their names upon
receipt of the down payment. As soon as the new TCT is issued in their names, they were committed to
immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the
remainder of the purchase price arise. This suspensive condition was fulfilled. Thus, the conditional
contract of sale became obligatory, the only act required for the consummation thereof being the
delivery of the property by means of the execution of the deed of absolute sale in a public instrument,
which they unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment."
(Coronel, et al. v. CA, G.R. No. 103577, Oct. 7, 1996)
Q: Instead of executing a deed of Absolute Sale in favor of Ramona, the Coronels sold the
property to Catalina and unilaterally and extrajudicially rescinded the contract with Ramona.
Ramona then filed a complaint for specific performance. Will Ramonas action prosper?
A: Yes. Under Article 1187, the rights and obligations of the parties with respect to the perfected
contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the
suspensive condition. Hence, petitioner-sellers' act of unilaterally and extrajudicially rescinding the
contract of sale cannot be justified, there being no express stipulation authorizing the sellers to
extrajudicially rescind the contract of sale. (Coronel, et al. v. CA, G.R. No. 103577, Oct. 7, 1996)
Q: Project Movers Realty and Development Corporation (PMRDC) was indebted to Keppel
Bank for P200M. To pay the debt, PMRDC conveyed to the bank 25 properties. Adao occupies
one of the properties conveyed. The bank demanded Adao to vacate the property but he
refused. Hence, an ejectment case was filed against Adao. In his defense, Adao assailed that
he had a Contract to Sell entered between PMRDC and Adao. To prove full payment of the
property, he presented an affidavit. The lower court ordered that Keppel banks should
respect the contract to sell because when the bank acquired the properties by way of dacion
en pago, it merely stepped into the shoes of PMRDC. Is Keppel bank bound by the contract
to sell between PMRDC and Adao?
A: No. Adaos lone affidavit is self-serving, and cannot be considered as substantial evidence. As a
general rule, one who pleads payment has the burden of proving it. Even where the petitioner alleged
non-payment, the general rule is that the burden rests on the respondent to prove payment, rather than
on the petitioner to prove non-payment (Kepel Bank Phils. Inc., v. Adao, G.R. No. 158227, Oct. 19, 2005).
Q: Ursal and Spouses Monesets entered into a Contract to Sell of a house and lot. A
downpayment was to be paid by Ursal and subsequently the balance of the price is to be
paid every month until it is fully paid. After 6 months, the monthly installments were
stopped because the spouses did not give Ursal the transfer of certificate title.
Subsequently, the Spouses Monesets sold the property to Dr. Canora. The same property
was also mortgaged by the spouses to a rural bank. When the spouses failed to pay the rural
bank, the bank moved to foreclose the mortgage. Does Ursal have vested ownership over
the property?
A: No. In such contract, the prospective seller expressly reserves the transfer of title to the prospective
buyer, until the happening of an event, which in this case is the full payment of the purchase price. In
this case, the parties not only titled their contract as Contract to Sell Lot and House but specified in
their agreement that the vendor shall only execute a deed of absolute sale on the date of the final
payment by the vendee. Since the contract in this case is a contract to sell, the ownership of the
property remained with the Monesets even after petitioner has paid the down payment and took
possession of the property. In other words, petitioner did not acquire ownership over the subject

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property as she did not pay in full the equal price of the contract to sell (Ursal v. Court of Appeals, et. al,
G.R. No. 142411, Oct. 14, 2005).
Q: Caguiat offered to buy Spouses Herreras lot and subsequently gave the spouses a partial
payment. In turn, the spouses gave Caguiat the corresponding receipt stating that
respondent promised to pay the balance of the purchase price on or before a fixed date.
Caguiats counsel wrote the spouses informing them of his readiness to pay the balance of
the price and requesting them to prepare the final deed of sale. However, the spouses
counsel sent a letter to Caguiat stating that the wife is leaving for abroad and that they are
cancelling the transaction. The spouses allowed Caguiat to recover the partial payment he
paid them. Is the transaction a contract of sale?
A: No. In this case, the "Receipt for Partial Payment" shows that the true agreement between the parties
is a contract to sell. First, ownership over the property was retained by petitioners and was not to pass
to respondent until full payment of the purchase price. In effect, petitioners have the right to rescind
unilaterally the contract the moment respondent fails to pay within the fixed period. Second, the
agreement between the parties was not embodied in a deed of sale. The absence of a formal deed of
conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but
only a transfer after full payment of the purchase price. Third, petitioners retained possession of the
certificate of title of the lot. This is an additional indication that the agreement did not transfer to
respondent, either by actual or constructive delivery, ownership of the property (Spouses Herrera v.
Caguiat, G.R. No. 139173, Feb. 28, 2007)
Q: What are the instances when a contract to sell may be resorted to?
A:
1. Where subject matter is indeterminate
2. Sale of future goods except future inheritance
3. Stipulation that deed of sale & corresponding certificate of sale would be issued only after full
payment

II.
PARTIES TO A CONTRACT OF SALE
1.
2.

Seller one who sells and transfers the thing and ownership to the buyer
Buyer one who buys the thing upon payment of the consideration agreed upon
CAPACITY OF THE PARTIES

GR: Any person (natural or juridical) who has capacity to contract or enter into obligations, may enter
into a contract of sale, whether as party-seller or as party-buyer. (Art. 1489, CC)
XPN: In cases where the law determines a party to be suffering from absolute or relative INCAPACITY
XPNs:
1. Minors, insane and demented persons and deaf-mutes who do not know how to write
2. Persons under a state of drunkenness or during hypnotic spell
3. Husband and wife - sale by and between spouses
Note:
a)
b)
c)

Rationale for the prohibition:

To prevent a spouse from defrauding his creditors by transferring his properties to the other spouse
To avoid a situation where the dominant spouse would unduly take advantage of the weaker spouse
To avoid an indirect violation of the prohibition against donations between spouses under Article 133 of
the Civil Code (Medina v. Collector of Internal Revenue, 1 SCRA 302)

XPN to XPN:
1.Where necessaries are sold and delivered to a minor or other person without capacity to act, he must
pay a reasonable price therefor.

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2.In case of sale between spouses:
a. when separation of property was agreed upon in the marriage settlements; or
b. when there has been a judicial separation of property agreed upon between them

KINDS OF INCAPACITY
1. Absolute Incapacity exists in cases when a person cannot legally bind himself (capacity to act)
a.Minors
b.Insane or Demented
c. Deaf-mutes who do not know how to write
d.Civil Interdiction
e.Judicially-declared incompetents under Art.39, CC.
XPN: Where necessaries are sold and delivered to the minor or other incapacitated persons (without
parent or guardian) and he pays a reasonable price, the sale is valid.
Note: The contract is valid but the minor has the right to recover any excess above the reasonable
price.
If there is no delivery at the time the case reaches litigation, the sale is not void but voidable for
vice in consent.
Necessaries: things which are needed for sustenance, dwelling, clothing, medical attendance,
education and transportation according to financial capacity of the family of the incapacitated
person (Education includes schooling or training for some profession, trade or vocation, even
beyond the age of majority. Transportation includes in going to and from school, or to and from
place of work.)
Notes:

A capacitated person cannot file an action for annulment using as basis the incapacity of
the incapacitated party.

When the effect 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
benefitted by the thing or price received by him. (Art. 1399, CC)
Sale by Minors:

Doctrine of Estoppel
Sale by insane and other incapacitated persons:

2.

If entered into during lucid intervals, the sale is valid.

If entered into in a state of drunkenness or during a hypnotic spell, the sale is voidable.

Relative Incapacity relative in reference to other persons or a certain class of property

a. Spouses (Art. 1490, NCC) extends to common law spouses, otherwise, the condition of
those who incurred guilt would turn out to be better than those in legal union (CalilimCanulas vs. Fortun, 129 SCRA 675)
GR: Spouses cannot sell property to each other
Rationale:
1. to prevent a spouse defrauding his creditors by transferring his properties to the
other spouse;
2. to avoid a situation where the dominant spouse would unduly take advantage of
the weaker spouse, thereby effectively defrauding the latter; and
3. to avoid an indirect violation of the prohibition against donations between
spouses under Art. 87 of the Family Code.
XPN:
1.
2.

Separation of property in marriage settlement

Judicial Separation of property under Art. 191

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b.
c.

3.

Aliens
Trustee

Special Disqualifications/ Specific Incapacity (As to who cannot buy specific properties)

AGE-COP
RELATIVELY
INCAPACITATED TO
BUY

PROPERTIES INVOLVED

Agents

Property entrusted to them

for administration or sale
XPN: When principal gave
his consent

Guardian

STATUS OF
SALE

Can be ratified after the

inhibition has ceased

Property of the ward during

period of guardianship

Voidable
Executors and
administrators

Property of the estate under

administration

Court officers and

employees

Property and rights in

litigation or levied upon on
execution before the court
under their jurisdiction

Pubic officers and

employees

Property of the State

entrusted to them for
administration

Reason: the only wrong

that subsists is the
private wrong to the
ward, principal or estate;
and can be condoned by
the private parties
themselves
Note: Contracts entered
by guardian in behalf of
ward are rescissible if
ward suffers lesion by
more than of the value
of property. Sale by
guardian of property
belonging to a ward
without Court approval is
void regardless of the
lesion, hence, cannot be
ratified.

Cannot be ratified
Void

Others specially
disqualified by law

RATIFICATION

Reason: It is not only a

private wrong, but also a
public wrong. (Villanueva,
Law on Sales, p. 58)

Note: Prohibitions are applicable to sales in legal redemption, compromises and renunciations.
EFFECT OF SALE IN VIOLATION OF THE PROHIBITION: 1) With respect to guardians, agents,
executors/administrators, the sale shall only be voidable because in such cases only private interests are affected
defect can be cured by ratification; 2) with respect to Public officers/employees, justices, judges, lawyers, clerks of
courts, and those specially disqualified by law, the sale shall be null and void since public interest being involve
therein (De Leon, Comments and Cases on Sales and Lease, 7 th edition, pg 168)

EFFECTS OF INCAPACITY

SALES
Kind of Incapacity
Absolute

Relative
Special Disqualification

Party Affected
Both Parties
One Party
Sale and delivery of necessaries
to minors or other incapacitated
persons
Between Spouses

Effect
Unenforceable(Art. 1403(3))
Voidable
Valid
Void except

ABSOLUTE INCAPACITY
Q: Who are those absolutely incapacitated to enter into a contract of sale?
A:
1. Unemancipated minors (Art. 1327, NCC);
2. Insane or demented persons, and deaf-mutes who do not know how to write (Art. 1327, NCC)
Q: May a capacitated person file an action for annulment using as basis the incapacity of the
incapacitated party?
A: No. He is disqualified from alleging the incapacity of the person whom he contracts (Art. 1397, NCC);
Q: In a defective contract, where such defect consists in the incapacity of a party, does the
incapacitated party have an obligation to make restitution?
A: GR: The incapacitated person is not obliged to make any restitution.
XPN: insofar as he has been benefited by the thing or price received by him. (Art. 1399, NCC)

RELATIVE INCAPACITY
Q: Who are those relatively incapacitated to enter into a contract of sale?
A:
1. Spouses (Art. 1490, NCC)
2. Agents, Guardians, Executors and Administrators, Public Officers and Employees, Court Officers and
Employees, and others specially disqualified by law. (Art. 1491, NCC)
Q : What is the status of the following contracts of sale?
A:
1. That entered into by minors:
a. Merely voidable, subject to annulment or ratification
b. Action for annulment cannot be instituted by the person who is capacitated since he is
disqualified from alleging the incapacity of the person with whom he contracts (with partial
restitution in so far as the minor is benefited) where necessaries are sold and delivered to a
minor or other person without capacity to act, he must pay a reasonable price (Art. 1489)
2. Sale by & between spouses (Art. 1490):
a. Status of prohibited sales between spouses:
GR: Null and void
XPN: In case of sale between spouses:
i.
ii.
b.

When a separation of property was agreed upon in the marriage settlements; or

When there has been a judicial separation of property agreed upon between them
Contract of sale with 3rd parties:

SALES
GR: Under the law on sales, it would seem that a spouse may, without the consent of the other
spouse, enter into sales transactions in the regular or normal pursuit of their profession, vocation or
trade. (in relation with Art. 73, Family Code)
XPN: Even when the property regime prevailing was the conjugal partnership of gains, the Supreme
Court held the sale by the husband of a conjugal property without the consent of the wife is void, not
merely voidable under Art. 124 of the Family Code since the resulting contract lack one of the
essential elements of full consent. (Guiang v. CA, G.R. No. 125172, June 26, 1998)
3.

Between Common Law Spouses - also null and void.

In Calimlim-Canullas v. Fortun, the Court decided that sale between common law spouses is null and
void because Art. 1490 prohibits sales between spouses to prevent the exercise of undue influence
by one spouse over the other, as well as to protect the institution of marriage. The prohibition
applies to a couple living as husband and wife without the benefit of marriage, otherwise, the
condition of those incurred guilt would turn out to be better than those in legal union.
(Calimlim-Canullas v. Fortun, et. al., G.R. No. L-57499, June 22, 1984)
But when the registered property has been conveyed subsequently to a third-party buyer in good
faith and for value, then reconveyance is no longer available to common-law spouse-seller, since
under the Torrens system every buyer has a right to rely upon the title of his immediate seller (Cruz
v. CA, G.R. No. 120122, Nov. 6, 1997)

Q: Who has the right to assail the validity of the transaction between spouses?
A: The
1.
2.
3.

following are the only persons who can question the sale between spouses:
The heirs of either of the spouses who have been prejudiced;
Prior creditors; and
The State when it comes to the payment of the proper taxes due on the transactions

SALES

Q: Who are the persons with relative incapacity to be the vendee in a contract of sale?
A:
Q: Atty. Leon G. Maquera acquired his clients property as payment for his legal services,
then sold it and as a consequence obtained an unreasonable high fee for handling his
clients case. Did he validly acquire his clients property?
A: No. Article 1491 (5) of the New Civil Code prohibits lawyers acquisition by assignment of the
clients property which is the subject of the litigation handled by the lawyer. Also, under Article 1492,
the prohibition extends to sales in legal redemption. (In Re: Suspension from the Practice of Law in the
territory of Guam of Atty. Leon G. Maquera, B.M. No. 793, July 30, 2004)
Q: The stipulation between the lawyer and counsel is as follows, the attorneys fees of the
Atty. X will be of whatever the client might recover from his share in the property
subject of the litigation. Is the stipulation valid?
A: Yes. The stipulation made is one of a contingent fee which is allowed by the CPE and the CPR. It
does not violate the prohibition of acquisition of property subject of the litigation by the lawyer
provided for in the Civil Code since the prohibition applies only to a sale or assignment to the lawyer
by his client during the pendency of the litigation. The transfer actually takes effect after the finality of
the judgment and not during the pendency of the case. As such it is valid stipulation between the
lawyer and client.
SPECIAL DISQUALIFICATIONS
Q: Who are those persons specially disqualified by law to enter into contracts of sale?
A: ALIEN-UnOS
1. ALIENs who are disqualified to purchase private agricultural lands (Art. XII Secs. 3 & 7)
2. Unpaid seller having a right of lien or having stopped the goods in transitu, is prohibited from
buying the goods either directly or indirectly in the resale of the same at public/private sale
which he may make (Art. 1533 [5]; Art. 1476 [4])
3. The Officer holding the execution or deputy cannot become a purchaser or be interested
directly or indirectly on any purchase at an execution. (Sec. 21 Rule 39, Rules of Court)
4. In Sale by auction, seller cannot bid unless notice has been given that such sale is subject to a
right to bid in behalf of the seller (Art. 1476).
SALE BY A PERON HAVING A VOIDABLE TITLE
Q: What is the effect of a sale made by the seller with voidable title over the object?
A:
1. Perfection stage: valid buyer acquires title of goods
2. Consummation stage: valid If the title has not yet been avoided at the time of sale and the buyer
must buy the goods under the following conditions:
a.In good faith
b.For value
c. Without notice of sellers defect of title
EMPTIO REI SPERATAE
Sale of thing having potential existence
Uncertainty is w/ regard to quantity & quality
Contract deals w/ future thing
Sale is valid only if the expected thing will exist.

EMPTIO SPEI
Sale of mere hope or expectancy
Uncertainty is w/ regard to existence of thing
Contract deals w/ present thing hope or
expectancy
Sale is valid even though expected thing does
not come into existence as long as the hope
itself validly existed. (eg. lotto)

SALES
Note: The presumption is Emptio Rei Speratae

Q: What is the effect if a buyer in good faith purchased from a public sale
property belonging to another who has lost or has been deprived thereof?

a personal

A: The owner of the personal property cannot demand its return without reimbursing the price paid by
the buyer in good faith. (Art. 559)

III.
SUBJECT MATTER
Requisites of a proper object of sale
1.

Things
a. Determinate or determinable
b. Lawful (licit), otherwise contract is void
c. Should not be impossible (within the commerce of men)
Note: From the viewpoint of risk or loss, not until the object has really been made determinate can we say that
the object has been lost, because genus never perishes.

2.

Rights
GR: Must be transmissible.
Example: right of redemption, right of usufruct, sale of credit, right to inheritance already
assigned, etc.
XPN:
a. Future inheritance cannot be the subject of sale
b. Service cannot be the object of sale. They are not determinate things and no transfer of
ownership is available but it can be the object of certain contracts such as contract for a
piece of work. (Pineda, p. 19, 2010 ed)

Licit
1. Within the commerce of man
2. When right is not intransmissible
Existing, Future, Contingent
Determinate or Determinable
Determinate
When it is particularly designated or physically segregated from all others of the same class. (Art.
1460, NCC)
Determinable
When the thing is capable of being made determinate without the necessity of a new or further
agreement between the parties. (Art. 1460, NCC)
A thing is determinate when it is particularly designated or physically 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.

SALES
Q: Rodriguez first purchased a portion of a Lot A consisting of 345 square meters located in
the middle of Lot B, which has a total area of 854 square meters, from Juan. He then
purchased another portion of said lot. As shown in the receipt, the late Juan received
P500.00 from Rodriguez as "advance payment for the residential lot adjoining his
previously paid lot on three sides excepting on the frontage. Juans heirs now contests the
validity of the subsequent sale, alleging that the object is not determinate or
determinable. Decide.
A: Their contention is without merit. There is no dispute that Rodriguez purchased a portion of Lot A
consisting of 345 square meters. This portion is located in the middle of B, which has a total area of
854 square meters, and is clearly what was referred to in the receipt as the "previously paid lot." Since
the lot subsequently sold to Rodriguez is said to adjoin the "previously paid lot" on three sides thereof,
the subject lot is capable of being determined without the need of any new contract. The fact that the
exact area of these adjoining residential lots is subject to the result of a survey does not detract from
the fact that they are determinate or determinable. Concomitantly, the object of the sale is certain and
determinate. (Heirs of San Andres v. Rodriguez, G.R. No. 135634, May 31, 2000)
Note: Where land is sold for a lump sum and not so much per unit of measure or number, the boundaries of the
land stated in the contract determine the effects and scope of the sale, not the area thereof. The vendors are
obligated to deliver all the land included within the boundaries, regardless of whether the real area should be
greater or smaller than that recited in the deed. This is particularly true where the area is described as "humigit
kumulang," that is, more or less. (Semira v. CA, G.R. No. 76031, Mar. 2, 1994)

Q: Lino entered into a contract to sell with Ramon, undertaking to convey to the latter one
of the five lots he owns, without specifying which lot it was, for the price of P1 million.
Later, the parties could not agree which of five lots he owned Lino undertook to sell to
Ramon. What is the standing of the contract? (2011 Bar Question)
A: It is a void contract since the particular lot sold cannot be determined.
Q: Can rights be the objects of sale?
A: Yes, if they are transmissible. (Art. 1347)
PARTICULAR KINDS
Objects of sale
1.
2.
3.

4.

Existing Goods owned/ possessed by seller at the time of perfection

Future Goods goods to be manufactured, raised, acquired by seller after perfection of the
contract or whose acquisition by seller depends upon a contingency (Art. 1462)
Sale of Undivided Interest or Share
a.
Sole owner may sell an undivided interest. (Art. 1463) Ex. A fraction or percentage of
such property
b.
Sale of an undivided share in a specific mass of fungible goods makes the buyer a coowner of the entire mass in proportion to the amount he bought. (Art. 1464)
c.
A co-owner cannot sell more than his share (Yturralde v. CA)
Sale of Things in Litigation
a.
Sale of things under litigation is rescissible if entered into by the defendant , without
the approval of the litigants or the court (Art. 1381)
Note: If the property involved belongs to a ward and the guardian enters into a contract involving such
property without court approval, the contract is void, not merely rescissible.

b.
5.
6.

No rescission is allowed where the thing is legally in the possession of a 3 rd person who
did not acted in bad faith.
Things subject to Resolutory Condition. Ex. Things acquired under legal or conventional right of
redemption, or subject to reserva troncal. (Art. 1465)
Indeterminate Quantity of Subject Matter

SALES
a.

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 need of a new contract
(Art. 1349)
OBLIGATION OF THE SELLER
TO TRANSFER OWNERSHIP

SALE BY A PERSON NOT THE OWNER AT THE TIME OF DELIVERY

GR:
Ownership is not acquired by the buyer. One cannot give what he does not have
NEMO DAT QUOD NON HABET (Art.1505, CC)
Exceptions:
1. Seller has the right to transfer ownership
a. Seller need not be the owner of the thing at the time of perfection of the
contract. It is sufficient that the seller has the right to transfer ownership
thereof at the time of delivery (Art. 1459)
b. One who sells something he does not own yet is bound by the sale when he
acquires the thing later
2. Estoppel: owner is, by his conduct, precluded from denying the sellers authority to
sell. (Art1434)
3. Registered land bought in good faith
a. GR: Buyer need not go beyond the Torrens title
b. XPN: When he has actual knowledge of facts and circumstances that would
impel a reasonably catious man to make further inquiry
4. Order of the Courts; Statutory Sale
a. In execution sale, the buyer merely steps into the shoes of the judgment
debtor (rule 39, Sec 33, ROC)
5. When goods are purchased in a merchants store, Fair, or Market (Art. 1505, CC)
a. The policy of the law has always been that where the rights and interest of
the vendor clash with that of an innocent buyer for value, the latter must be
protected. (Sun Brothers ans Co. Vs. Velasco, 1958)
SALE BY A PERSON HAVING A VOIDABLE TITLE
1. True owner may recover the thing the following requisites concur:
a. Subject matter is movable
b. Owner has either lost the thing or has been unlawfully deprived. (art 559,
CC)
2. Reimbursement is necessary before owner can recover when:
a. Buyer acquired in good faith
b. Acquired at a public auction (Art 559, CC)
3. Recovery is longer possible when:
a. Buyer is in good faith
b. Acquired it at a merchants store, fair or market (Art. 1506, CC)
Q: Should the seller be the owner at the time of perfection of the contract?
A: GR: No. Seller must have the right to transfer ownership at the time of delivery or consummation
stage. He need not be the owner at the time of perfection of the contract.
XPN: Foreclosure sale wherein the mortgagor should be the absolute owner.
Q: When is ownership transferred by the seller to the buyer?
A: GR: The ownership of the thing sold is acquired by the vendee from the moment it is delivered to
him in any ways specified in articles 1497 to 1501. This is the case when the sale is absolute.
XPN: Any other manner signifying an agreement that the possession is transferred from vendor to
vendee. The sale in this exception is a conditional one.

SALES
Q: EJ was subjected to a buy-bust operation where police officers posed to buy 500 pesos
worth of S. She was then charged with a violation of the Dangerous Drugs Act for
trafficking drugs. EJ uses as defense her lack of possession of the object of the sale. Would
her contention free her from liability?
A: No. Though she was not in possession of the object of sale, Article 1459 merely requires that the
vendor must have the right to transfer ownership of the object sold at the time of delivery. In the case
at bar, though Beth is not the owner, she had the right to dispose of the prohibited drug. Ownership
was thereafter acquired upon her delivery to the men in the alley after her payment of the price.
(People v. Ganguso, G.R. No. 115430, Nov. 23, 1995)
Q: Spouses De Leon alleged that they are the owners of a parcel of land which was
inherited by the husband from his father. They engaged the services of Atty. Juan to take
care of the documents of the properties of his parents. The lawyer let them sign
voluminous documents. After the death of Atty. Juan, some documents surfaced and
revealed that their properties had been conveyed by sale or quitclaim to the husband's
brothers and sisters and to Atty. Juan and his sisters, when in truth and in fact, no such
conveyances were ever intended by them. His signature in the deed was forged. The land
in question was subsequently sold to Alcantara by Rodolfo De Leon, one of the brothers.
The spouses demanded annulment of the document and reconveyance but it was refused.
Likewise, Alcantara averred that she bought the land in question in good faith and for
value. Was there a right to transfer ownership of the land?
A: None. It is during the delivery that the law requires the seller to have the right to transfer ownership
of the thing sold. In general, a perfected contract of sale cannot be challenged on the ground of the
sellers non-ownership of the thing sold at the time of the perfection of the contract. Undisputed is the
fact that at the time of the sale, Rodolfo de Leon was not the owner of the land he delivered to
petitioner. Thus, the consummation of the contract and the consequent transfer of ownership would
depend on whether he subsequently acquired ownership of the land. A comparison of the genuine
signatures of Hermoso de Leon with his purported signature on the Deed of Extrajudicial Partition with
Quitclaim will readily reveal that the latter is a forgery. (Alcantara-Daus v. Spouses De Leon, G.R. No.
149750, June 16, 2003)
SALE BY A PERSON WHO DOES NOT OWN THE THING SOLD
Q: Is the sale of a good made by a person who does not own it valid?
A: In the case of sale of property, ownership is not required at the time of perfection in order for the
sale to be valid. Ownership is material only at the time of delivery but only for the purpose of
transferring ownership and does not affect the validity of the contract of sale. This is because validity
is determined not at the time of performance but at the time of perfection. If the seller is still not the
owner of the thing subject of the sale at the time of delivery, then the contract of sale does not
become void. It is still valid. The remedy of the buyer is rescission under Art. 1191 and damages.
Note: What the law requires is that the seller has the right to transfer ownership at the time the thing sold is
delivered. Perfection per se does not transfer ownership which occurs upon the constructive delivery of the thing
sold. A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at
the time of its perfection (Quijada v. CA, 299 SCRA 69)
Note: Future inheritance cannot be the subject of sale.

Q: What is the legal effect of sale by a non-owner?

A: GR: The buyer acquires no better title to the goods than the seller had; caveat emptor (buyer
beware).
XPNs:
1. Estoppel when the owner of the goods is by his conduct precluded from denying the sellers
authority to sell
2. When the contrary is provided for in recording laws
3. When the sale is made under statutory power of sale or under the order of a court of
competent jurisdiction

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4.
5.
6.
7.
8.

When the sale is made in a merchants store in accordance with the Code of Commerce and
special laws
When a person who is not the owner sells and delivers a thing, and subsequently acquired title
thereto
When the seller has a voidable title which has not been avoided at the time of the sale
Sale by co-owner of the whole property or a definite portion thereof
Special rights of unpaid seller

Q: What are the instances when the Civil Code recognizes sale of things not actually or
already owned by the seller at the time of sale?
A:
1. Sale of a thing having potential existence (Art.1461, NCC)
2. Sale of future goods (Art. 1462, NCC)
3. Contract for the delivery at a certain price of an article, which the seller in the ordinary course of
business manufactures/ procures for the general market, whether the same is on hand at the time
or not (Art. 1467, NCC)

IV.
PRICE
Price - signifies the sum stipulated as the equivalent of the thing sold and also every incident taken
into consideration for the fixing of the price put to the debit of the buyer and agreed to by him.
(Villanueva, p. 52)
Note: A definite agreement on the manner of payment of the price is an essential element in the formation of a
binding and enforceable contract of sale. (Co v. CA, G.R. No. 123908, Feb. 9, 1998)

Requisites
Must be:
1. Real- When buyer has an intention to pay and the seller has an expectation to receive the price
a. If simulated: Sale is void, but act may be shown to have been a donation or some other
act or contract. (Art 1471, CC)
b. An admission of non-payment of any centavo in exchange of a property in a contract of
sale renders the sale VOID. (Labagala vs. Santiago, 2001)
c. If price is false when the real consideration is not the price stated in the contract:
i. Sale is void
ii. Unless proved to be founded on another true and lawful price (Art. 1353, CC)
2. In money or its equivalent
3. Certain or ascertainable at the time of the perfection of the contract
Price is certain:
1.
2.
3.
4.

If there is a stipulation
If it be with reference to another thing certain
If the determination of the price is left to the judgment of specified person(s)
By reference to certain fact(s) as referred to in Art. 1472 (Art. 1469)

Note: If the price is based on estimates, it is uncertain.

The price of securities, grains, liquids and things considered certain:

1.
2.

When the price fixed is that which the thing would have on a definite day, or in a particular
exchange or market
When the amount is fixed above or below the price of such day, or in such exchange or market,
provided said amount be certain (Art. 1472, NCC)

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HOW PRICE IS DETERMINED
1. Fixed by agreement of the parties
GR: Fixing of the price cannot be left to the discretion of one of the parties
XPN: If such is accepted by the other, sale is perfected. (Art. 1473)
2. Determination is left to the judgment of a specified person
a. If unable or unwilling: Sale is inefficacious Unless parties subsequently agree
on the price
b. If made in bad faith or by mistake: Courts may fix the price
c. If 3rd person is prevented from fixing the price by fault of seller or buyer:
Innocent buyer may avail of remedies
3. The price is made in reference to another thing, or when the price fixed is the price
of the commodity on a definite day, or in a particular exchange or market, or when
the amount fixed is above or below the price on such day, exchange or market. (Art
1472, CC)
INADEQUACY OF PRICE
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.
Voluntary Basis
Mere inadequacy of the price does not affect the validity of the sale when both parties are in
a position to form an independent judgment concerning the transaction, unless fraud,
mistake, or undue influence indicative of a defect in consent is present. The contract may
be annulled for vitiated consent and not due to the inadequacy of price. (Bautista v. Court
of Appeals, 436 SCRA 141 (2004))
Where the price is too shockingly and unconscionably low that a man in his senses and not
under delusion would not accept it, the sale may be set aside and declared an equitable
mortgage to secure a loan.
Exception to the exception:
Where the price paid is much higher than the assessed value of the property and the sale is
effected by a father to his daughter in which filial love must be taken into account, the price
is not to be construed as so inadequate to shock the courts conscience. (Jocson v. CA;
Alsua-Bett v. CA)
Note: In determining whether the price is adequate or not, the price obtaining at the date
of the execution of the contract, not those obtaining a number of years later, should be
considered.
Involuntary Basis
General rule: A judicial or execution sale is one made by a court with respect to the
property of a debtor for the satisfaction of his indebtedness. Mere inadequacy of price is not
a sufficient ground for the cancellation of an execution of sale if there is no showing that in
the event of a resale, a better price can be obtained.
When Gross Inadequacy of Price may Avoid a Judicial Sale:
1.

When it is shocking to the conscience of man (Pascua vs. Simeon, 1988)

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2.

There is showing that, in the event of resale, a better price can be obtained. (Cu Bie vs.
Court of Appeals, 1965)

XPN: If there is a right of redemption, in which case the proper remedy is to redeem (De leon
vs. Salvador, 1970)
XPN to XPN: By way of extraordinary circumstances perceived, when in a judicial sale the
right of redemption has been lost, where the inadequacy of the price is purely shocking to the
conscience, such that the mind revolts at it and such that a reasonable man would neither
directly or indirectly be likely to consent to it, the same will be set aside. ( Cometa v. Court of
Appeals, 351 SCRA 294 (2001))
Exception to the exception: The validity of the sale is not necessarily affected where the law
gives to the owner the right to redeem, as when the sale is made at a public auction, upon the
theory that the lesser the price, the easier it is for the owner to affect the redemption.
Q: Can the fixing of the price be left to the discretion of one of the contracting parties?
A: GR: No. The price cannot be fixed unilaterally by one of the contracting parties.
XPN: If the other party agreed or consented. (Art. 1473, NCC)
Q: What is the effect when the price in unilaterally fixed by one of the contracting parties
without consent of the other party?
A: There is no meeting of the minds. The sale is inefficacious (Pineda, p. 54, 2010 ed.)
Effect of gross inadequacy of price
GR: It does not affect the validity of the sale if it is fixed in good faith and without fraud
XPN: CoRDS
1. If Consent is vitiated (may be annulled or presumed to be equitable mortgage)
2. If the parties intended a Donation or some other act/ contract
3. If the price is so low as to be Shocking to the conscience
4. If in the event of Resale, a better price can be obtained
There is gross inadequacy in price if a reasonable man will not agree to dispose of his
property. Dorado Vda. De Delfin v. Dellota, 542 SCRA 397 (2008).
b. Lesion of more than 1/4 of value of thing makes sale rescissible unless approved by
court . (Art. 1386).
c. Gross inadequacy of price may raise the presumption of equitable mortgage. (Art. 1602)
Q: What is the effect if the price is simulated?
A: GR: Contract of sale is void.
XPN: The act may be shown to have been in reality a donation or some other act or contract.
If the price is simulated or false such as when the vendor really intended to transfer the
thing gratuitously, then the sale is void and no title over the subject matter of the sale can
be conveyed, but the contract shall be valid as a donation.
Price is false when there is a real price upon which the minds of the parties had met, but
not declared, and what is stated in the covering deed is not the one intended to be paid. If
the price indicated in the covering instrument is false, the contract of sale is valid, but the
underlying deed is subject to reformation to indicate the real price upon which the minds

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of the parties have met. But the parties may be held bound by the false price indicated in
the instrument under estoppel principle, especially when the interest of the Government or
third parties would be adversely affected by the reformation of the instrument.
If the contract is not shown to be a donation or any other act or contract transferring
ownership because the parties do not intend to be bound at all, the ownership of the thing
is not transferred. The contract is void and inexistent. The action or defense for the
declaration of the inexistence of a contract does not prescribe.
Requisites of Simulation:
1. an outward declaration of a will different from the will of the parties;
2. the false appearance must have been intended by mutual agreement; and
3. purpose is to deceive third persons
Q: Is annulment of sale the remedy in a simulated sale?
A: No. It is a well-entrenched rule that where the deed of sale states that the purchase price has been
paid but in fact has never been paid, the deed of sale is null and void ab initio for lack of consideration.
Moreover, Article 1471 of the Civil Code, provides that if the price is simulated, the sale is void,
which applies to the instant case, since the price purportedly paid as indicated in the contract of sale
was simulated for no payment was actually made. Since it was well established that the Deed of Sale
is simulated and, therefore void, petitioners claim that respondent's cause of action is one for
annulment of contract, which already prescribed, is unavailing, because only voidable contracts may
be annulled. On the other hand, respondent's defense for the declaration of the inexistence of the
contract does not prescribe. (Catindig v. Vda. de Meneses, Roxas v. Court of Appeals, G.R.No. 165851
& G.R. No. 165851 , Feb. 2, 2011)

Time to determine the adequacy or inadequacy of price

In determining the adequacy or inadequacy of the price, the price obtaining at the time of the
execution of the contract shall be considered, and not the price obtaining thereafter (Pineda, p. 47,
2010 ed.)
How inadequacy of price is proved
Allegation of inadequacy of price must be proved by sufficient evidence. Without being substantiated
with evidence, it is a mere speculation. (Pineda, p. 47, 2010 ed.)
Effect on the contract of sale in case of a breach in the agreed manner of payment
None. It is not the act of payment of price that determines the validity of a contract of sale. Payment of
the price has nothing to do with the perfection of the contract, as it goes into the performance of the
contract. Failure to pay the consideration is different from lack of consideration. Failure to pay such
results in a right to demand the fulfillment or cancellation of the obligation under an existing valid
contract. On the other hand, lack of consideration prevents the existence of a valid contract. (Sps.
Bernardo Buenaventura and Consolacion Joaqui v. CA, GR No. 126376, Nov. 20, 2003)
WHEN NO PRICE IS AGREED UPON BY THE PARTIES
Effect of failure to determine the price
1.
2.

Where contract is executory ineffective

Where the thing has been delivered to and appropriated by the buyer the buyer must pay a
reasonable price therefore

Note: The fixing of the price cannot be left to the discretion of one of the parties. However, if the price fixed by one
of the parties is accepted by the other, the sale is perfected.

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Effect when a thing or a part thereof is delivered to the buyer although the contract is
inefficacious and the latter appropriated the same
The buyer must pay the reasonable price for the thing received (Art. 1474, NCC)
Reasonable price Generally the market value at the time and place fixed by the contract or by law
for the delivery of the goods.
What is a reasonable price is a question of fact dependent on the circumstances of each particular
case. (Art 1474, CC)
Note: The reasonableness of a price may be determined on the basis of a companys
balance sheet showing the book value or fair market value of its shares. (Philippine Free
Press vs. CA, 2005)
Market value that reasonable sum which property would command on a fair sale by a man
willing but not obliged to sell to a man willing but not obliged to buy
How reasonable price is determined
Reasonableness of price is a question of fact. Its determination is dependent upon the circumstances
of each particular case. The market value is a good standard in determining the reasonable price.
(Pineda, p. 55)
Market value
It is that reasonable sum which a property would command in a fair sale by a man willing but not
obliged to sell to another who is willing but not obliged to buy.
Q: In an action for specific performance with damages, X alleged that there was an
agreement to purchase the lot of Y. As regards the manner of payment, however, Ys
receipts contradicted the testimony of X. The receipts failed to state the total purchase
price or prove that full payment was made. For this reason, it was contended that there
was no meeting of their minds and there was no perfected contract of sale. Decide.
A: The question to be determined should not be whether there was an agreed price, but what that
agreed price was. The sellers could not render invalid a perfected contract of sale by merely
contradicting the buyers obligation regarding the price, and subsequently raising the lack of
agreement as to the price. (David v. Tiongson, G.R. No. 108169, Aug. 25, 1999)
Q: Distinguish the failure to pay the consideration from lack of consideration.
A:
FAILURE TO PAY CONSIDERATION
LACK OF CONSIDERATION
As to validity of contract of sale
Contract is valid because it is the existence of the price and
not the act of payment of price that determines the validity of
Lack of consideration prevents the
a contract of sale.
existence of a valid contract.
Note: Payment of the price has nothing to do with the perfection of
the contract, but merely goes into the performance of the contract.

As to resultant right
Failure to pay the consideration results in a right to demand
the fulfillment or cancellation of the obligation under an
existing valid contract.

The contract of sale is null and

void and produces no effect
whatsoever

OPTION MONEY VIS-A-VIS EARNEST MONEY

Option Money

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The distinct consideration in case of an option contract. It does not form part of the purchase price
hence, it cannot be recovered if the buyer did not continue with the sale.
Payment considered option money
Payment is considered option money when it is given as a separate and distinct consideration from the
purchase price. Consideration in an option contract may be anything or undertaking of value.
Note: An option is not itself a purchase, but merely secures the privilege to buy. It is not a sale of property but a
sale of right to purchase. He does not sell his land; he does not then agree to sell it; but he does sell something, i.e.,
the right or privilege to buy at the election or option of the other party. Its distinguishing characteristic is that it
imposes no binding obligation on the person holding the option, aside from the consideration for the offer (Limson
v. CA, G.R. No. 135929, 2001).

Earnest money or arras

This is the money given to the seller by the prospective buyer to show that the latter is truly interested
in buying the property, and its aim is to bind the bargain. (Pineda, p. 75)
Effect of giving an earnest money
It is statutory rule that 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. It constitutes an advance payment and
must, therefore be deducted from the total price. (Adelfa Properties, Inc. v. CA, 240 SCRA 265)
Note: Option money may become earnest money if the parties so agree.

Effect of rescission on earnest money received

When the seller seeks to rescind the sale, he is obliged to return the thing which was the object of the
contract along with fruits and interest. (Art. 1385, NCC)
Distinguish option money from earnest money.
OPTION MONEY
Money given as distinct consideration for
an option contract
Applies to a sale not yet perfected
Prospective buyer is not required to buy.
If buyer does not decide to buy, it cannot
be recovered.

EARNEST MONEY
Forms part of the purchase price
Given only when there is already a sale
When given, the buyer is bound to pay the balance.
If sale did not materialize, it must be returned.
(Villanueva, p. 87, Pineda, p.77)

Q: Bert offers to buy Simeon's property under the following terms and conditions: P1
million purchase price, 10% option money, the balance payable in cash upon the clearance
of the property of all illegal occupants. The option money is promptly paid and Simeon
clears the property of all illegal occupants in no time at all. However, when Bert tenders
payment of the balance and asks for the deed of absolute sale, Simeon suddenly has a
change of heart, claiming that the deal is disadvantageous to him as he has found out that
the property can fetch three times the agreed purchase price. Bert seeks specific
performance but Simeon contends that he has merely given Bert an option to buy and
nothing more and offers to return the option money which Bert refuses to accept.
1. Will Bert's action for specific performance prosper? Explain.
2. May Simeon justify his refusal to proceed with the sale by the fact that the deal is
financially disadvantageous to him? Explain. (2002 Bar Question)
A:
1. Bert's action for specific performance will prosper because there was a binding agreement of sale,
not just an option contract. The sale was perfected upon acceptance by Simeon of 10% of the
agreed price. This amount is in reality an earnest money because the agreement states that the
balance was to be paid after fulfilling the condition. Under Art. 1482, it "shall be considered as part

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of the price and as proof of the perfection of the contract." (Topacio v. CA, G.R. No. 102606, July 3,
1992; Villongco Realty v. Bormaheco, G.R. No. L-26872, July 25, 1975).
2. Simeon cannot justify his refusal to proceed with the sale by the fact that the deal is financially
disadvantageous to him. Having made a bad bargain is not a legal ground for pulling out of a
binding contract of sale, in the absence of some actionable wrong by the other party (Vales v. Villa,
G.R. No. 10028, Dec. 16, 1916), and no such wrong has been committed by Bert.
Q: Spouses Pangan owned a lot and a two-door apartment. The wife, Consuelo Pangan
agreed to sell the properties to spouses Perreras. Consuelo received P20,000 from the
respondents as earnest money with a receipt that also contained the terms of
agreement. Later on, the parties agreed to increase the price from P540,000 to P580,000.
Spouses Perreras issued two checks in compliance to the new agreement amounting to
P200,000 and P250,000. Consuelo, however, refused to accept the checks. She justified her
refusal by saying that her children, co-owners of the subject properties, did not agree to
sell the properties. Consuelo offered to return the P20,000 earnest money to the spouses
buyers but the latter rejected it. Hence, Consuelo filed a complaint for consignation.
Spouses Perreras insisted on enforcing the agreement, hence they filed an action for
specific performance. In Consuelos answer, she claimed that the contract became
ineffective for lack of the requisite consent from the co-owners, her children. Decide.
A: The presence of Consuelos consent and, corollarily, the existence of a perfected contract between
the parties are further evidenced by the payment and receipt of P20,000.00, an earnest money by the
contracting parties common usage. The law on sales, specifically Article 1482 of the Civil Code,
provides that whenever earnest money is given in a contract of sale, it shall be considered as part of
the price and proof of the perfection of the contract. Although the presumption is not conclusive, as
the parties may treat the earnest money differently, there is nothing alleged in the present case that
would give rise to a contrary presumption. In cases where the Court reached a conclusion contrary to
the presumption declared in Article 1482, we found that the money initially paid was given to
guarantee that the buyer would not back out from the sale, considering that the parties to the sale
have yet to arrive at a definite agreement as to its terms that is, a situation where the contract has
not yet been perfected. These situations do not obtain in the present case, as neither of the parties
claimed that the P20,000.00 was given merely as guarantee by the respondents, as vendees, that
they would not back out from the sale (Heirs of Pangan v. Spouses Perreras, G.R. No. 157374, Aug.
27, 2009).

V. STAGES
FORMATION OF CONTRACT OF SALE
3 stages involved in the formation of a contract of sale
1.
2.
3.

Negotiation/Preparatory offer/Policitation
Perfection
Consummation

Policitation is defined as an unaccepted unilateral promise to buy or sell. This produces no judicial
effect and creates no legal bond. This is a mere offer, and has not yet been converted into a contract.
It covers the period from the time the prospective contracting parties indicate interest in the contract
to the time the contract is perfected. (Villanueva, p. 6).
Q: What are usually included in a policitation?
A: Legal matters arising prior to the perfection of the sale, dealing with concepts of invitation to make
offer, offer, acceptance, right of first refusal option contract, supply agreement, mutual promises to
buy and sell or contracts to sell, and even agency to sell or agency to buy. (Villanueva, p. 135, 2009
ed.)

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Offer is certain
An offer is certain only where there is an offer to sell or an offer to buy a subject matter and for a
price having all the essential requisites mandated by law.
Acceptance of Offer
The acceptance must be absolute and must not qualify the terms of the offerit must be plain,
unequivocal, unconditional and without variance of any sort from the proposal.
Rules in the conception stage about the offer

RULE
Offer is floated

Prior to acceptance, may be withdrawn at will by offeror but no authority

to modify it

With a period

Must be accepted within the period, otherwise, extinguished at the end of

period and may be withdrawn at will by offeror but must not be arbitrary,
otherwise, liable for damages

With a condition

Extinguished by happening/ non-happening of condition

without period/
condition

Continues to be valid depending upon circumstances of time, place and

person

With a counter-offer

Original offer is extinguished

Option Contract
An option contract is a contract by which the owner of the property agrees with another person that he
shall have the right to buy his property at a fixed price within a certain time. It is binding upon the
promisor if the promise is supported by a consideration distinct from the price. An option contract is
likewise a separate and distinct contract from a contract of sale.
Nature of an option contract
It is a preparatory contract in which one party grants to another, for a fixed period and at a
determined price, the privilege to buy or sell, or 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 whom the option was granted, if the latter should decide to use the option. It is a separate and
distinct contract.
Note: If the option is perfected, it does not result in the perfection or consummation of the sale. (Diaz, p.7)

Period within which to exercise the option

1.
2.

Within the term stipulated

If there is no stipulation, the court may fix the term

How option is exercised

A: A notice of acceptance must be communicated to offeror even without actual payment as long as
payment is delivered in the consummation stage.
Effect of a separate consideration in an option contract
1.

With separate consideration:

a. Contract is valid
b. Offeror cannot withdraw offer until after expiration of the option

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2.

c. Is subject to rescission and damages but not specific performance

Without separate consideration:
a. the option contract is not deemed perfected
b. offer may be withdrawn at any time prior to acceptance

Note: However, even though the option was not supported by a consideration, the moment it was accepted,
contract of sale is perfected (Art. 1324).

Obligations of the offeror

1) Not to offer to any third party the sale of the object of the option during the option period;
2) Not to withdraw the offer or option during the option period;
3) To hold the subject matter for sale to the offeree in the event that the latter exercises his option
during the option period.
Effect of acceptance and withdrawal of the offer
If the offer had already been accepted and such acceptance has been communicated before the
withdrawal is communicated, the acceptance creates a perfected contract, even if no consideration
was as yet paid for the option. In which case, if the offeror does not perform his obligations under the
perfected contract, he shall be liable for all consequences arising from the breach thereof based on
any of the available remedies such as specific performance, or rescission with damages in both cases.
Right of first refusal
A right of first refusal is a contractual grant, not of the sale of a property, but of the first priority to buy
the property in the event the owner sells the same.
Note: Where a time is stated in an offer for its acceptance, the offer is terminated at the expiration of the time
given for its acceptance (Pineda, p. 76, 2010 ed.)

When can the owner offer the sale of the property to a third person?
A: Only after the grantee fails to exercise its right under the same terms and within the period
contemplated can the owner validly offer to sell the property to a third person, again under the same
terms as offered to the grantee.
Q: NDC and Firestone entered into a contract of lease wherein it is stipulated that
Firestone has the right of first refusal to purchase the leased property "should lessor NDC
decide to sell the same. After the rumor that NDC will transfer the lot to PUP, Firestone
instituted an action for specific performance to compel NDC to sell the property in its favor.
PUP moved to intervene arguing that the Memorandum issued by then President Aquino
ordered the transfer of the whole NDC compound to the Government, which in turn would
convey it in favor of PUP. Can Firestone exercise its right of first refusal?
A: Yes. It is a settled principle in civil law that when a lease contract contains a right of first refusal, the
lessor is under a legal duty to the lessee not to sell to anybody at any price until after he has made an
offer to sell to the latter at a certain price and the lessee has failed to accept it. The lessee has a right
that the lessor's first offer shall be in his favor (PUP v. CA, G.R. No. 143513, Nov. 14, 2001).
Q: In a 20-year lease contract over a building, the lessee is expressly granted a right of
first refusal should the lessor decide to sell both the land and building. However, the lessor
sold the property to a third person who knew about the lease and in fact agreed to respect
it. Consequently, the lessee brings an action against both the lessor-seller and the buyer
(a) to rescind the sale and (b) to compel specific performance of his right of first refusal in
the sense that the lessor should be ordered to execute a deed of absolute sale in favor of
the lessee at the same price. The defendants contend that the plaintiff can neither seek
rescission of the sale nor compel specific performance of a "mere" right of first refusal.
Decide the case. (1998 Bar Question)
A: The action filed by the lessee, for both rescission of the offending sale and specific performance of
the right of first refusal which was violated, should prosper. If the right of first refusal was violated and

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the property wa sold to a buyer who was aware of the existence of such right, the resulting contract is
rescissible by the person in whose favour the right of first refusal was given and although no particular
price was stated in the covenant granting the right of first refusal, the same price by which the thirdparty buyer bought the property shall be deemed to be the price by which the righ of first refusal shall
therefore be exercisable (Equitorial Realty Development, Inc. v. Mayfair Theater, Inc., 264 SCRA 483)
Note: The offer of the person in whose favor the right of first refusal was given must conform with the same terms
and conditions as those given to the offeree.

Q: Andres leased his house to Iris for a period of 2 years, at the rate of P25, 000 monthly,
payable annually in advance. The contract stipulated that it may be renewed for another 2year period upon mutual agreement of the parties. The contract also granted Iris the right
of first refusal to purchase the property at any time during the lease, if Andres decides to
sell the property at the same price that the property is offered for sale to a third party.
Twenty-three months after execution of the lease contract, Andres sold the house to his
mother who is not a third party. Iris filed an action to rescind the sale and to compel
Andres to sell the property to her at the same price. Alternatively, she asked the court to
extend the lease for another two years on the same terms. Can Iris seek rescission of the
sale of the property to Andresmother? (2008 Bar Question)
A: Iris can seek rescission because pursuant to Equatorial Realty Co. v. Mayfair Theater rescission is a
relief allowed for the protection of one of the contracting parties and even third persons from all injury
and damage the contract of sale may cause or the protection of some incompatible and preferred
right.
Q: Will the alternative prayer for extension of the lease prosper? (2008 Bar Question)
A: No, the extension of the lease should be upon the mutual agreement of the parties.
Q: Differentiate an option contract from a right of first refusal
A: An option contract is a preparatory contract in which one party grants to another, for a fixed period
and at a determined price, the privilege to buy or sell, or to decide whether or not to enter into a
principal contract.
In a right of first refusal, while the object may be determinate, the exercise of the right would be
dependent not only on the grantors eventual intention to enter into a binding juridical relation with
another but also on terms, including the price, that are yet to be firmed up. (Diaz, p. 54)
OPTION CONTRACT
Principal contract; stands on its own
Needs separate consideration
Subject matter and price must be valid
Not conditional
There is no offer to sell, but only an opportunity
for the buyer to enter into a contract of sale
Not subject to specific performance

RIGHT OF FIRST REFUSAL

Accessory; cannot stand on its own
Does not need separate consideration
There must be subject matter but price not
important
Conditional
There is an offer to sell
Subject to specific performance

Q: Is it necessary that the right of first refusal be embodied in a written contract?

A: Yes, the grant of such right must be clear and express.
Note: It is applicable only to executory contracts and not to contracts which are totally or partially performed.
If a particular form is required under the Statute of Frauds: sale is valid & binding between the parties but not to 3 rd
persons.

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Q: Pozzolanic entered a long-term contract with the National Power Corporation (NPC) for
the purchase of all fly ash to be produced by the latters future power plants. In the
contract, NPC granted Pozzolanic a right of first refusal to purchase the fly ash that may be
generated in the future. When NPCs two new power plants started operation, it published
an invitation to interested buyers for the purchase of the fly ash. Pozzolanic sent letters to
NPC reminding its right of first refusal. NPC deferred its public bidding with the first power
plants fly ash but it nevertheless continued with the bidding of the second power plants
fly ash. Pozzolanic filed a complaint, but during the pendency of the case NPC decided to
likewise dispose the fly ash from the first power plant without allowing Pozzolanic to
exercise its right of first refusal. Can Pozzolanic exercise its right of first refusal?
A: No. The right of first refusal granted in favour of Pozazolanic is invalid for being contrary to public
policy as the same violates the requirement of competitive public bidding in the award of government
contracts. In this jurisdiction, public bidding is the established procedure in the grant of government
contracts. Thus, respondents right of first refusal cannot take precedence over the dictates of public
policy. The right of first refusal of respondent being invalid, it follows that it has no binding effect. It
does not create an obligation on the part of petitioner to acknowledge the same. (PSALM Corp., vs.
Pozzolanic, G.R. No. 183789, Aug. 24, 2011)
Q: May the right of first refusal be waived?
A: Yes. Like other rights, the right of first refusal may be waived or when a party entered into a
compromise agreement. (Diaz, p. 55)
Q: Can a sublessee avail of the right of first refusal of the lessee?
A: GR: No. The sublessee is a stranger to the lessor who is bound to respect the right of first refusal in
favor of the lessee only.
XPN: When the contract of lease granted the lessee the right to assign the lease, the assignee
would be entitled to exercise such right as he steps into the shoes of the original assignee
(Villanueva, p. 164, 2009 ed.).
PERFECTION
PERFECTED CONTRACT OF SALE
GR: It is deemed perfected at the moment there is meeting of minds upon the thing which is the
object of the contract and upon the price. (Art.1475, par.1)
Note: The acceptance of the offer must be absolute. It must be plain, unequivocal, unconditional and without
variance of any sort from the proposal.

XPN: When the sale is subject to a suspensive condition by virtue of law or stipulation.
EFFECT OF PERFECTION
From the moment of the perfection of the contract of sale, the parties may reciprocally demand
performance, subject to the provisions of the Statute of Frauds. [Art 1475, CC]
Form of acceptance
It may be express or implied. Acceptance may be evidenced by some act, or conduct, communicated
to the offeror, either in a formal or an informal manner, that clearly manifest the intention or
determination to accept the offer to buy or sell (Villanueva, p. 177, 2009 ed.).
Q: How is acceptance made?

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A: It is made at the time and place stipulated in the contract. If there is no stipulation, it shall be made
at the time and place of the delivery of the thing. (Art. 1582, NCC)
The buyer is deemed to have accepted the goods
1.
2.
3.

When he intimates to the seller that he has accepted them

When the goods have been delivered and he does any act inconsistent with the ownership of the
seller
When, after the lapse of reasonable time, he retains the goods without intimating to the seller that
he rejected them (Art. 1585, NCC)

Rule on refusal to accept the goods by the buyer

The buyer is not bound to return the goods to the seller and it is sufficient that he notifies the seller of
his refusal in the absence of a contrary stipulation. (Art. 1587, NCC)
Note: If the refusal is without just cause, the title passes to the buyer from the moment the goods are placed at his
disposal. (Art. 1588, NCC)

Inspection of goods
GR: If the goods have not yet been previously examined, the buyer is not deemed to have accepted
them unless and until he has had reasonable to examine them (Art. 1584, NCC)
XPNS:
1. The buyer had reasonable time to inspect the goods but he failed to do so
2. Stipulation to the contrary
3. C.O.D. sales
Effect and/or consequence of a qualified acceptance
It constitutes merely a counter-offer which must in turn be accepted to give rise to a valid and binding
contract (Villanueva, p. 171, 2009 ed.).
Contract of sale perfected through a letter or a telegram
It is perfected only when the offeror has received or has knowledge of the acceptance made by the
offeree. Even if the buyer has accepted, the seller may still withdraw if he does not know yet of the
buyers acceptance (Pineda, p. 59, 2010 ed.).
Effect of the parties failure to appear before the notary public who notarized the deed
None. The non-appearance of the parties before the notary public who notarized the deed does not
necessarily nullify nor render the parties' transaction void ab initio. Article 1358, NCC on the necessity
of a public document is only for convenience, not for validity or enforceability. Where a contract is not
in the form prescribed by law, the parties can merely compel each other to observe that form, once the
contract has been perfected.
Note: Contracts are obligatory in whatever form they may have been entered into, provided all essential requisites
are present. (Penalosa v. Santos, G.R. No. 133749, Aug. 23, 2001)

Q: DBP sought to consolidate its ownership with Paragon Paper Industries, Inc. Medrano,
President and General Manager of Paragon, was instructed to contact all minority
stockholders to convince them to sell their shares to DBP at the price of 65% of the par
value. He was able to contact all except for one who was in Singapore. Medrano testified
that all have agreed to sell their shares to DBP. Paragon made proposals to DBP and the
sale was approved by a DBP resolution subject to terms and conditions. However, the
required number of shares contained in the conditions was not delivered by Medrano. Is
the sale perfected?

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A: No. DBP imposed several conditions to its acceptance and it is clear that Medrano indeed tried in
good faith to comply with the conditions given by DBP but unfortunately failed to do so. Hence, there
was no birth of a perfected contract of sale between the parties (DBP v. Medrano and PMO, G.R. No.
167004. Feb. 7, 2011).
Q: Licup, through a letter, offered to buy parcels of land to The Holy See and Philippine
Realty Corporation (PRC). He enclosed a check for P100,000.00 to close the transaction
and accepted the responsibility of removing informal settlers. Msgr. Cirilos, representative
of the Holy See and PRC signed the conforme portion of the letter and accepted the check.
A stop-payment order was issued by Licup and the latter requested that the titles to the
land instead be given to SSE. Msgr. Cirilos wrote SSE requesting to remove the informal
settlers, otherwise, the P100,000.00 would be returned. SSE replied with an updated
proposal that they will comply provided that the purchase price is lowered. The proposal
was rejected. The parcel of land was sold to another third person. Is there a perfected
contract of sale between the two parties?
A: No. When Msgr. Cirilos affixed his signature on that letter, he expressed his conformity to the terms
of Licups offer appearing on it. There was meeting of the minds as to the object and consideration of
the contract. But when Licup ordered a stop-payment on his deposit and proposed in his April 26,
1988 letter to Msgr. Cirilos that the property be instead transferred to SSE, a subjective novation took
place. The proposed substitution of Licup by SSE opened the negotiation stage for a new contract of
sale as between SSE and the owners (Starbright Sales v. Phil. Realty Corp., et. al, G.R. No. 177936, Jan.
18, 2012).
Q: Petitioners are the co-owners of undivided shares of two parcels of land. Respondent
Paraiso Development Corporation purchased from them their respective shares except for
two shares. A Contract to Sell was then established, where the petitioner affixed their
signatures thereon. However, the petitioners decided to withdraw from the said agreement
and along with it the request for the rescission of the contract which they said they never
signed. They allege there is inability to understand the consequences of the contract. Was
the contract perfected between the parties?
A: It is well-settled that contracts are perfected by mere consent, upon the acceptance by the offeree
of the offer made by the offeror. From that moment, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law. To produce a contract, the acceptance must not
qualify the terms of the offer. However, the acceptance may be express or implied. For a contract to
arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be
withdrawn or revoked before it is made known to the offeror. In the case at bar, the Contract to Sell
was perfected when the petitioners consented to the sale to the respondent of their shares in the
subject parcels of land by affixing their signatures on the said contract. Such signatures show their
acceptance of what has been stipulated in the Contract to Sell and such acceptance was made known
to respondent corporation when the duplicate copy of the Contract to Sell was returned to the latter
bearing petitioners' signatures (Rizalino, substituted by his heirs, vs. Paraiso Development
Corporation, G.R. No. 157493, February 5, 2007).
Perfected Auction sale
A sale by auction is perfected when the auctioneer announces its perfection by the fall of the hammer,
or in other customary manner. (Art. 1476, par.2)
Q: Does the seller have the right to bid in an auction sale
A: Yes. The seller has the right to bid provided that such right was reserved and notice was given to
that effect (Pineda, p. 53)

CONSUMMATION

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Consummation Stage
It takes place by the delivery of the thing together with the payment of the price.
Note: The ownership of the thing is acquired by the buyer in any of the ways specified by law or in any manner
agreed upon by the parties.

Q: A and PDS Development Corp. executed a contract to sell a parcel of land. A died
without having completed the installment on the property. His heirs then took over the
contract to sell and assumed his obligations by paying the selling price of the lot from their
own funds, and completed the payment. To whom should the final Deed of Absolute Sale be
executed by PDS?
A: Having stepped into the shoes of the deceased with respect to the said contract, and being the
ones who continued to pay the installments from their own funds, As heirs became the lawful owners
of the said lot in whose favor the deed of absolute sale should have been executed by vendor PDS
(Dawson v. Register of Deeds of Quezon City, G.R. No. 120600 Sept. 22, 1998).

VII
TRANSFER OF OWNERSHIP
WHEN OWNERSHIP IS DEEMED TRANSFERRED
The thing shall be understood as delivered, when it is placed in the control and possession of the
vendee.
Note: The most that sale do is to create the obligation to transfer ownership. It is only the title while the mode of
transferring ownership is delivery.

DELIVERY COMPRISES 2 OBLIGATIONS:

1.
2.

Actual duty to deliver

Transfer of Ownership through delivery

DELIVERY
WHAT TO DELIVER
1.
2.
3.

The thing sold

Fruits
Accessions and accessories

WHERE TO DELIVER (PLACE)

1.
2.
3.
4.
5.

Effect of delivery
GR: Title /ownership is transferred
XPN: Contrary is stipulated as in the case of:

HIERARCHY
Place Stipulated
Usage of trade
Sellers place of business
Sellers residence
In case of specific goods,
where they can be found

WHEN TO DELIVER (TIME)

1.
2.

Time stipulated
Within a reasonable time
Note: Demand or tender of
delivery shall be made at a
reasonable hour

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1.

Pactum reservatii in domini agreement that ownership will remain with seller until full
payment of price (Contract to sell)
2. Sale on acceptance/approval
3. Sale on return
4. There is implied reservation of ownership
Note: Seller bears expenses of delivery.
Kinds of delivery
1.
2.

Actual thing sold is placed under the control and possession of buyer/agent;
Constructive does not confer physical possession of the thing, but by construction of law, is
equivalent to acts of real delivery.
Requisites:
a. The seller must have control over the thing
b. The buyer must be put under control
c. There must be intention to deliver the thing for purposes of ownership

i. Tradicion Symbolica delivery of certain symbols representing the thing

ii. Tradicion Instrumental delivery of the instrument of conveyance
iii. Traditio Longa Manu Delivery of thing by mere agreement; when seller points to the property without
need of actually delivering
iv. Tradicion Brevi Manu the buyer, being already in possession of the thing sold due to some other
cause, merely remains in possession after the sale is effected, but now in concept of owner. E.g.From
lessee to becoming an owner
v. Constitutum Possessorium the seller remains in possession of the property in a different capacity.
E.g. From owner to lessee
Kind of Constructive Delivery
Tradicion Symbolica
Tradicion Instrumental
Tradicion
hand)

Longa

Tradicion
Hand)

Brevi

Manu
Manu

Tradicion
Possessorium

3.
4.

(Long
(Short

Constitutum

Delivery of certain
representing the thing

symbols

Delivery of the instrument of

conveyance (public instrument)
Delivery of thing by mere
agreement
The buyer, being already in
possession of the thing sold due
to some other cause, merely
remains in possession after the
sale is effected, but now in
concept of owner
The seller remains in possession
of the property in a different
capacity

Example
Delivery of keys of the place or
depositary where the movable is stored
or kept. (Art 1498, CC)
Seller points to the property
without actually transferring
physical possession thereof.
Lessee to owner

Owner to lessee

Quasi-tradition delivery of rights, credits or incorporeal property, made by:

a. Placing titles of ownership in the hands of the buyer;
b. Allowing buyer to make use of rights
Tradition by operation of law Execution of a public instrument is equivalent to delivery. But to be
effective, it is necessary that the seller have such control over the thing sold that, at the moment
of sale, its material delivery could have been made.
GR: There is presumption of delivery
XPN:
a.

Contrary stipulation;

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b.
c.
d.

When at the time of execution, subject matter was not subject to the control of seller;
Seller has no capacity to deliver at time of execution;
Such capacity should subsist for a reasonable time after execution of instrument.

Effective delivery
Delivery should be coupled with intention of delivering the thing, and acceptance on the part of the
buyer to give legal effect of the act. Without such intention, there is no such tradition.
Incorporeal property How delivered
1.
2.
3.

When sale is made through a public instrument (Art. 1498, NCC)

By placing the titles of ownership in the possession of the buyer
When buyer uses and enjoys the rights pertaining to the incorporeal property with the consent of
the seller (Art. 1501, NCC).

Q: Lagrimas Boy borrowed P15,000 from spouses Ramos. Thereafter, Boy executed a Deed
of Absolute Sale with the Ramoses involving a house and lot. The price agreed upon was
P31,000. It was alleged that Boys debt is to be deducted, so the spouses needed only to
pay P16,000. Because the Ramoses were not yet in immediate need of the properties,
Lagrimas stayed therein. Later on, Lagrimas went to the wife, Erlinda, asking that they
execute a Kasunduan. In the Kasunduan, it states that the spouses still had a remaining
balance of P16,000 and that interest is to be deducted in favor of the spouses so that
would leave a balance of P8,500. The Kasunduan was notarized, however Erlinda changed
her mind upon signing. According to her, she realized that they already paid P31,000 to
Lagrimas when the Deed of Sale was executed. When the spouses Ramos already needed
to occupy the land, Lagrimas refused to vacate. She invoked the Kasunduan. Decide.
A: Under Article 1477 of the Civil Code, the ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof. In addition, Article 1498 of the Civil Code
provides that when the sale is made through a public instrument, as in this case, the execution thereof
shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the
contrary does not appear or cannot clearly be inferred. In this case, the Deed of Absolute Sale does
not contain any stipulation against the constructive delivery of the property to private respondents. In
the absence of stipulation to the contrary, the ownership of the property sold passes to the vendee
upon
the
actual
or
constructive
delivery
thereof.
The
Deed
of
Absolute
Sale,
therefore, supports private respondents right of material possession over the subject property (Boy v.
Court of Appeals, et. al, G.R. No. 125088, April 14, 2004).
Q: Asset Privatization (petitioner) entered into an absolute deed of sale over certain
machinery and refrigeration equipment with T.J. Enterprises (respondent) on an as-iswhere-is basis. Respondent paid the full amount of P84,000.00 as evidenced by a receipt.
After two days, respondent demanded the delivery of the machinery. The subject
properties were located in a compound under the possession of Creative Lines, Inc. Some
time after, respondent was able to pull out from the petitioners compound the subject by
means of a gate pass issued by the petitioner. However, during the hauling of the second
lot, only nine items were pulled out instead of sixteen because Creative Lines employees
prevented respondent from hauling the remaining machinery and equipment. Respondent
filed a complaint for specific performance and damages against petitioner and Creative
Lines. Petitioner argued that upon the execution of the deed of sale it had complied with
its obligation to deliver the object of the sale since there was no stipulation to the
contrary. It further argued that being a sale on an as-is-where-is basis, it was the duty of
respondent to take possession of the property. Is there a constructive delivery of the
subject properties?
A: None. 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. 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

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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. In this case, there was no constructive delivery of the machinery and equipment
upon the execution of the deed of absolute sale or upon the issuance of the gate pass since it was not
petitioner but Creative Lines which had actual possession of the property. 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. (Asset Privatization Trust v. T.J. Enterprises, G.R. No. 167195,
May 8, 2009)
Q: Given that actual possession, control and enjoyment is a main attribute of ownership, is
symbolic delivery by mere execution of the deed of conveyance sufficient to convey
ownership over property?
A: Yes, possession is also transferred along with ownership thereof by virtue of the deed of
conveyance. The mere execution of the deed of conveyance in a public document is equivalent to the
delivery of the property, prior physical delivery or possession is not legally required. The deed operates
as a formal or symbolic delivery of the property sold and authorizes the buyer or transferee to use the
document as proof of ownership. Nothing more is required (Sps. Sabio v. International Corporate Bank,
Inc. et. at. G.R. No. 132709, Sept. 4, 2001).
Q: Spouses Bernal purchased a jeepney from Union Motor to be paid in installments. They
then executed a promissory note and a deed of chattel mortgage in favor of Union Motor
which in turn assigned the same with Jardine Finance. To effectuate the sale as well as the
assignment of the promissory note and chattel mortgage, the spouses were required to
sign documents, one of which was a sales invoice. Although the Spouses have not yet
physically possessed the vehicle, Union Motors agent required them to sign the receipt as
a condition for the delivery of the vehicle. It was discovered that the said agent stole the
vehicle even prior to its delivery to the spouses. Was there a transfer of ownership of the
subject vehicle?
A: No. 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.
The registration certificate signed by the spouses does not conclusively prove that constructive
delivery was made nor that ownership has been transferred to the respondent spouses. Like the
receipt and the invoice, the signing of the said documents was qualified by the fact that it was a
requirement of Union Motor for the sale and financing contract to be approved. In all forms of delivery,
it is necessary that the act of delivery, whether constructive or actual, should be coupled with the
intention of delivering the thing. The act, without the intention, is insufficient. Inasmuch as there was
neither physical nor constructive delivery of a determinate thing, (in this case, the subject motor
vehicle) the thing sold remained at the sellers risk. The Union Motor should therefore bear the loss of
the subject motor vehicle after its agent allegedly stole the same (Union Motor Corp. v. CA, G.R. No.
117187, July 20, 2001).
Delivery through a carrier
GR: Yes, if the seller is authorized. Delivery to carrier is delivery to the buyer.
XPN:
1. A contrary intention appears
2. Implied reservation of ownership under Art. 1503, pars 1, 2, 3.
Kinds of delivery to carrier
1.
2.
3.

FAS (Free Along Side) when goods are delivered alongside the ship, there is already delivery to
the buyer
FOB (Free On Board) when goods are delivered at the point of shipment, delivery to carrier by
placing the goods on vessel is delivery to buyer
CIF (Cost, Insurance, Freight)

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a.

4.

When buyer pays for services of carrier, delivery to carrier is delivery to buyer, carrier as agent
of buyer;
b. When buyer pays seller the price from the moment the vessel is at the port of destination,
there is already delivery to buyer
COD (Collect On Delivery) the carrier acts for the seller in collecting the purchase price, which
the buyer must pay to obtain possession of the goods.

Sellers duties after delivery to the carrier

1.
2.

To enter on behalf of the buyer into such contract reasonable under the circumstances;
To give notice to the buyer regarding necessity of insuring the goods.

Delivery of object must be on:

1.
2.

Stipulated time
If there is none, at a reasonable hour.

Place of delivery
1.
2.
3.
4.
5.

That agreed upon

Place determined by usage of trade
Sellers place of business
Sellers residence
In case of specific goods, where they can be found

Effects of a sale of goods on installment

1.
2.

Goods must be delivered in full except when stipulated

When not examined by the buyer it is not accepted until examined or at least had reasonable
time to examine

Seller not bound to deliver the thing sold:

1.
2.
3.

If the buyer has not paid the price;

No period for payment has been fixed in the contract;
A period for payment has been fixed in the contract but the buyer has lost the right to make use of
the time.

Buyer may suspend payment of the price:

GR:
1.
2.
XPN:
1.
2.
3.
4.
5.

If he is disturbed in the possession or ownership of the thing bought

If he has well-grounded fear that his possession or ownership would be disturbed by a
vindicatory action or foreclosure of mortgage.
Seller gives security for the return of the price in a proper case;
A stipulation that notwithstanding any such contingency, the buyer must make payment;
Disturbance or danger is caused by the seller;
If the disturbance is a mere act of trespass;
Upon full payment of the price.

Q: Is payment of the purchase price essential to transfer ownership?

A: Unless the contract contains a stipulation that ownership of the thing sold shall not pass to the
purchaser until he has fully paid the price, ownership of the thing sold shall be transferred to the
vendee upon the actual or constructive delivery thereof (Diaz, p. 48).

Acceptance of Delivery by the Buyer:

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1.
2.

Express he intimates to seller that he has accepted

Implied
a. Buyer does not act inconsistent with ownership of seller after delivery
b. Retains without intimating to seller that he has rejected

Q: What is the effect if the buyer refuses to accept despite delivery of the object of the
sale?
A: Delivery is completed. Since delivery of the subject matter of the sale is an obligation on the part of
the seller, the acceptance thereof by the buyer is not a condition for the completeness of the delivery
(Villanueva, p. 117)
Note: Thus, even with such refusal of acceptance, delivery (actual/constructive), will produce its legal effects. (e.g.
transferring the risk of loss of the subject matter to the buyer who has become the owner thereof) (Villanueva, p.
117)
Under Art. 1588, when the buyers refusal to accept the goods is without just cause, the title thereto passes to him
from the moment they are placed at his disposal. (Villanueva, p. 117)

WHEN DELIVERY DOES NOT TRANSFER TITLE

When delivery does not transfer title:
1.
2.
3.

4.
5.

Sale on Trial, Approval, or Satisfaction

When there is an EXPRESS RESERVATION
a. If it was stipulated that ownership shall not pass to the purchaser until he has fully paid the
price (Art. 1478)
When there is an IMPLIED RESERVATION
a. When goods are shipped, but the bill of lading states that goods are deliverable to the seller or
his agent, or to the order of the seller or his agent
b. When the bill of lading is retained by the seller or his agent
c. when the seller of the goods draws on the buyer for the price and transmits the bill of
exchange and the bill of lading to the buyer , and the latter does not honor the bill of exchange
by returning the bill of lading to the seller
When sale is not VALID
When the seller is not the owner of the goods
XPNs:
a. Estoppel: when the owner is precluded from denying the sellers authority to sell
b. Registered land bought in good faith: Ratio: Buyer need not go beyond the Torrens title
c. Order of Courts in a Statutory Sale
d. When the goods are purchased in a Merchants store, Fair or Market (Art. 1505)

6.

When goods are held by a third party

XPN: Third person acknowledges to the buyer that he holds the goods in behalf of the buyer (Art.
1521, NCC)

7.

On sale or return The ownership passes to buyer upon delivery, but he may revest ownership in
the seller by returning or tendering the goods within the time fixed in the contract or within
reasonable time. (Art. 1502, NCC)

Sale on trial, approval or satisfaction

It is a contract in the nature of an option to purchase if the goods prove to be satisfactory, the approval
of the buyer being a condition precedent.
Q: In this kind of sale, when is ownership deemed transferred?
A:
1. When buyer signifies approval or acceptance to the seller or does any act adopting the transaction

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2.

If buyer did not signify approval or acceptance, but retains the goods without giving notice of
rejection after the expiration of the period fixed or of reasonable time (Art. 1502, NCC)

The title shall continue in the seller until the sale has become absolute either by the:
1. buyers approval of the goods, or by
2. his failing to comply with express or implied conditions of the contract as to giving notice of
dissatisfaction or as to returning the goods, or
3. by his doing any other act adopting the transaction such as mortgaging the property or selling
it to a third person.
SALE OR RETURN VS. SALE ON TRIAL
SALE OR RETURN
Subject to a resolutory condition
Depends entirely on the will of the buyer
Ownership of the goods passes to the buyer on
delivery and subsequent return of the goods
reverts ownership to the seller
Risk of loss or injury rests upon the buyer

SALE ON TRIAL
Subject to a suspensive condition
Depends on the character or quality of the goods
Ownership remains with the seller until the buyer
signifies his approval or acceptance to the seller
Risk remains with the seller

Q: What are the rules in case of sale on trial, approval or satisfaction?

A:
Title

Who bears the loss

GR: Borne by seller
XPN:
1. Buyer is at fault
2. Buyer agreed to bear the loss

Risk of Loss

GR: Buyer must give goods a trial

XPN: Buyer need not do so if it is evident that it
cannot perform the work.

As to trial

When period within which buyer must

signify his acceptance runs

It runs only when all the parts essential for the

operation of the object has been delivered

Validity of stipulation that a 3rd person

must satisfy approval or satisfaction

Valid, provided the 3rd person is in good faith

If the sale is made to a buyer who is an

expert on the object purchased

Generally, it cannot be considered a sale on

approval

DOUBLE SALE
Double sale
There is double sale when the same object of the sale is sold to different vendees.
Note: Requisites:
1. Same subject matter
2. Same immediate seller
3. Two or more different buyers at odds over the rightful ownership over the subject matter and must
represent conflicting interests
4. Two or more valid sales

Rule on double sale

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First in time, priority in right (Prior tempore, potior jure)

Note: Rule on Double Sale regarding immovables:
GR: Apply Art.1544
XPN: Sale of registered lands apply Torrens System
Q: What are the rules according to Article 1544 of the Civil Code?
RULES AS TO PREFERENCE OF OWNERSHIP IN CASE OF DOUBLE SALE (Art. 1544, CC)
1.
2.

Movable Owner who is first to possess in good faith

Immovable
a. First to register in good faith
b. No registration, first to possess in good faith
c. No registration & no possession in good faith Person who presents oldest title in good faith

Note: The requirement of the law is two-fold: acquisition in good faith and registration in good
faith.
Oldest Title
Registration any entry made in the books of the registry, including both registration in its
ordinary and strict sense, and cancellation, annotation, and even marginal notes; entry made in
the registry which records solemnly and permanently the right of ownership and other real rights
(Cheng vs. Genato, 300 SCRA 722, 1998)
Note: Pencilled entries on the title are not considered registration (AFPMBAI v. Court of Appeals,
1999).
Doctrine on Conditional Sales/Contracts to Sell and Adverse Claims:
The rules on double sales under Art. 1544 are not applicable to contract to sell, because of the
circumstances that must concur in order for the provisions to Art. 1544 on double sales to apply,
namely that there must be a valid sales transactions, and buyers must be at odds over the rightful
ownership of the subject matter who must have bought from the very same seller, are lacking in a
contract to sell for neither a transfer of ownership nor a sales transaction has been consummated, and
such contract is binding only upon the fulfillment or non-fulfillment of an event. Nevertheless, the
governing principle of Art. 1544 should apply, mainly the governing principle of primus
tempore,portior jure (first in time, stronger in right). Cheng v. Genato, 300 SCRA 722 (1998).
The rules in double sale under Article 1544, whereby the buyer who is able to first register the
purchase in good faith is in full accord with Section 51 of PD 1529 which provides that no deed,
mortgage, lease, or other voluntary instrument except a will purporting to convey or affect registered
land shall take effect as a conveyance or bind the land until its registration. Thus, if the sale is not
registered, it is binding only between the seller and the buyer but it does not affect innocent third
persons. Abrigo v. De Vera, 432 SCRA 544 (2004).
When first sale is over unregistered land and the second sale is when it is registered, the rules on
double sale do not apply. Dagupan Trading Co. v. Macam, 14 SCRA 179 (1965).
Article 1544 is inapplicable to unregistered land because the purchaser of unregistered land at a
sheriffs execution sale only steps into the shoes of the judgment debtor, and merely acquires the
latters interest in the property sold as of the time the property was levied upon, as expressly
provided for in then Sec. 35, Rule 39 of the Revised Rules of Court on execution sale [now Sec. 33, Rule
39, 1997 Rules of Civil Procedure)]. Carumba v. CA, 31 SCRA 558 (1970).
Under Act 3344, registration of instruments affecting unregistered lands is without prejudice to a third
party with a better right, which means that mere registration does not give the buyer any right over
the land if the seller was not anymore the owner of the land having previously sold the same to
somebody else even if the earlier sale was unrecorded. The rules on double sale under Art. 1544 has

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no application to land no registered under the Torrens system.Acabal v. Acabal, 454 SCRA 555
(2005)
Q: Does prior registration by the second buyer of a property subject of a double sale confer
ownership or preferred right in his favor over that of the first buyer?
A: Prior registration of the disputed property by the second buyer does not by itself confer ownership
or a better right over the property. Article 1544 requires that such registration must be coupled with
good faith.
Knowledge gained by the first buyer of the second sale cannot defeat the first buyer's rights except
where the second buyer registers in good faith the second sale ahead of the first, as provided by the
Civil Code.
Knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register
the second sale, since such knowledge taints his prior registration with bad faith (Art. 1544) (Uraca, et.
al v. CA, G.R. No. 115158, Sept. 5, 1997)
PROPERTY REGISTRATION DECREE
PURCHASER IN GOOD FAITH
A purchaser is good faith is one who buys 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. Tanglao v. Parungao, 535 SCRA 123 (2007)
Burden of Proof
The burden of proving the status of a purchaser in good faith lies upon him who asserts that status. It
is not sufficient to invoke the ordinary presumption of good faith, that is, that everyone is presumed to
have acted in good faith, since the good faith that is here essential is integral with the very status that
must be established. Tanglao v. Parungao, 535 SCRA 123 (2007)
Instances When No Good Faith (Bad Faith)
a.

Being In Business on Realty A mortgagee who eventually ended buying the property at the public
auction, cannot claim to be a buyer in good faith when his business in the constructing and selling
townhouses and extending credit to the public, including real estate loans; for he is charged with
greater diligence that ordinary buyers or encumbrances for value, because it would be standard in
his business, as a matter of due diligence required of banks and financing companies, to ascertain
whether the property being offered as security for the debt has already been sold to another to
prevent injury to prior innocent buyers. xExpresscredit Financing Corp. v. Velasco, 473 SCRA 570
(2005).

b.

Close Relationship The sale to ones daughter and sons will give rise to the
conclusion that the buyers, not being really third parties, knew of the previous sales and cannot be
considered in good faith. The buyers are deemed to have constructive knowledge by virtue of
their relationship to their sellers. xPilapil v. Court of Appeals, 250 SCRA 566 (1995).

c.

Obligation to Investigate or To Follow Leads A purchaser who is aware of

facts which should put a reasonable man upon his guard cannot turn a blind eye and later claim
that he acted in good faith, such as A buyer of a registered land would be in bad faith when he
purchases without asking to see the owners copy of the title and/or without visiting the land where
he would then have seen first buyer occupying the same. xSantiago v. CA, 247 SCRA 336 (1995).
-

When there are occupants to the land being bought, since it is the
common practice in the real estate industry, an ocular inspection of the premises involved is
a safeguard a cautious and prudent purchaser usually takes. xMartinez v. CA, 358 SCRA 38
(2001).

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-

Any person engaged in business would be wary of buying from a

company that is closing shop, because it may be dissipating its assets to defraud creditors.
Such buyer is bound to inquire whether the owners had unsettled obligations encumbrance
that could burden the property. xSamson v. Court of Appeals, 238 SCRA 397 (1994).

d.

Land in Adverse Possession Buyer who could not have failed to know or
discover that the land sold to him was in the adverse possession of another is a buyer in bad faith.
xHeirs of Ramon Durano, Sr. v. Uy, 344 SCRA 238 (2000).

e.

Existence of Lis Pendens Settled is the rule that one who deals with
property with a notice of lis pendens, even when at the time of sale the annotation was cancelled
but there was a pending appeal, cannot invoke the right of a purchaser in good faith. A purchaser
cannot close his eyes to facts which should put a reasonable man on guard and claim that he
acted in the belief that there was no defect in the title of the seller. xPo Lam v. CA, 316 SCRA 721
(1999).
EXCEPT: When knowledge of lis pendens was acquired at the time there was order to have it
cancelled. xPo Lam v. CA, 347 SCRA 86 (2000).

Rules in the application for land registration

1.
2.

The application for land registration shall be in writing and signed by the applicant or the person
duly authorized in his behalf. It shall be sworn in the place where it was signed.
If there is more than one applicant, the application shall be signed and sworn to by and in behalf of
each.

Application must contain:

1.
2.
3.
4.
5.

Description of the land

Citizenship and civil status of the applicant
If married, the name of the wife or husband
If the marriage has been legally dissolved, when and how the marriage relation terminated
Full names and addresses of all occupants of the land and those of the adjoining owners, if known,
and, if not known, it shall state the extent of the search made to find them.

For Non- residents:

He shall file with his application an instrument in due form appointing an agent or representative
residing in the Philippines, giving his full name and postal address, and shall therein agree that the
service of any legal process in the proceedings under or growing out of the application made upon his
agent or representative shall be of the same legal effect as if made upon the applicant within the
Philippines.
Q: In the registration of a voluntary instrument, is a duplicate of certificate of title
required?
A: GR: Yes. No voluntary instrument shall be registered by the Register of Deeds, unless the owner's
duplicate certificate is presented with such instrument.
XPN: In cases expressly provided for in the decree or upon order of the court, for cause shown.
Effect of the production of a duplicate certificate of title
It shall be conclusive authority from the registered owner to the Register of Deeds to enter a new
certificate or to make a memorandum of registration in accordance with such instrument, and the new
certificate or memorandum shall be binding upon the registered owner and upon all persons claiming
under him, in favor of every purchaser for value and in good faith.
Other payments to be made by the seller in the registration of property

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The seller should pay capital gains tax and documentary registration fees. The rate of capital gains tax
is 6% of capital gains based on purchase price, fair market value or zonal value, whichever is higher.
Q: Spouses Guimba are the registered owners of a parcel of land. The wife entrusted her
copy of the Owners Duplicate Certificate of Title to De La Cruz as collateral for a loan.
Later on, De La Cruz received a phone call from the wife, informing her that she had
changed her mind and will no longer obtain the loan, consequently asking for her TCT back.
However, the certificate had been deposited in a bank. When she inquired at the bank, they
told her that the certificate was not there. The wife received a telegram from Abad
reminding her of the maturity of her mortgage. The spouses were not aware of any actual
mortgage involving their property until the receipt of such telegram. Hence, the spouses
filed an adverse claim. Abad, in his answer, alleged that spouses Guimba made a
connivance with De La Cruz to defraud him. Is Abad an innocent holder for value?
A: The main purpose of land registration, covered by PD 1529, is to facilitate transactions relative to
real estate by giving the public the right to rely upon the face of the Torrens certificate of title.
Therefore, as a rule, the purchaser is not required to explore further than what the Certificate indicates
on its face. This rule however applies only to innocent purchasers for value and in good faith; it
excludes a purchaser who has knowledge of a defect in the title of the vendor, or of facts sufficient to
induce a reasonably prudent man to inquire into the status of the property. Under Section 32 of PD
1529, an innocent purchaser for value is deemed to include an innocent mortgagee for value. By
insisting on the application of PD 1529 in his favor, petitioner begs the question. He invokes Sections
52 and 53 of the law, which protects innocent mortgagees for value, but which the RTC has already
determined he was not. As already discussed, such factual determination by the trial court is
conclusive, because he did not question it in the proper forum. The logical consequence, therefore, is
the inapplicability of the said law to his factual situation. Preliminarily, we should stress that the
remedy of appeal by certiorari under Rule 45 of the Rules of Court contemplates only questions of law,
not of fact. Therefore, a party who files a Rule 45 petition waives the opportunity to inquire into the
findings of fact of the lower court. Coming to the present case, the paramount question regarding the
good faith of petitioner is obviously one of fact. (Abad v. Spouses Guimba, G.R. No. 157002, July 29,
2005)
Principle of prius tempore, potior jure
Knowledge by the first buyer of the second sale cannot defeat the first buyers rights except when the
second buyer first registers in good faith the second sale. Conversely, knowledge gained by the second
buyer of the first sale defeats his rights even if he is first to register, since such knowledge taints his
registration with bad faith to merit the protection of Art. 1544 (2 nd par.), the second realty buyer must
act in good faith in registering his deed of sale (Diaz, p. 125).
Note: Where one sale is absolute and the other is a pacto de retro transaction where the period to redeem has not
yet expired, Art. 1544 will not apply (Pineda, p. 223).

Caveat emptor
It literally means, Let the buyer beware. The rule requires the purchaser to be aware of the supposed
title of the vendor and one who buys without checking the vendors title takes all the risks and losses
consequent to such failure (Agcaoili, p. 184)
Applicable in:
1.
2.
3.
4.

Sales of animals (Art. 1574)

Double sales (Art. 1544)
In sheriffs sales (Art. 1570)
Tax sales (Art. 1547, last paragraph)

Note: In the above sales, there is no warranty of title or quality on the part of the seller. The purchaser who buys
without checking the title of the vendor is assuming all risks of eviction.

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In sheriffs sales, the sheriff does not guarantee the title to real property and it is not incumbent upon him to place
the buyer in possession of such property (Pineda sales, p. 275).

Q: Is caveat emptor applicable in sales of registered land?

A: No. The purchaser of a registered land under the Torrens system is merely charged with notice of
the burdens and claims on the property which are inscribed on the face of certificate of title. (Pineda
sales, p. 275)
Q: Does caveat emptor apply in judicial sales?
A: Yes. The purchaser in a judicial sale acquires no higher or better title or right than that of the
judgment debtor. If it happens that the judgment debtor has no right, interest, or lien on and to the
property sold, the purchaser acquires none (Pineda sales, p. 280).
Q: Juliet offered to sell her house and lot, together with all the furniture and appliances
therein, to Dehlma. Before agreeing to purchase the property, Dehlma went to the Register
of Deeds to verify Juliets title. She discovered that while the property was registered in
Juliets name under the Land Registration Act, as amended by the Property Registration
Decree, it was mortgaged to Elaine to secure a debt of P80, 000. Wanting to buy the
property, Dehlma told Juliet to redeem the property from Elaine, and gave her an advance
payment to be used for purposes of releasing the mortgage on the property. When the
mortgage was released, Juliet executed a Deed of Absolute Sale over the property which
was duly registered with the Registry of Deeds, and a new TCT was issued in Dehlmas
name. Dehlma immediately took possession over the house and lot and the movables
therein. Thereafter, Dehlma went to the Assessors Office to get a new tax declaration
under her name. She was surprised to find out that the property was already declared for
tax purposes in the name of XYZ Bank which had foreclosed the mortgage on the property
before it was sold to her. XYZ Bank was also the purchaser in the foreclosure sale of the
property. At that time, the property was still unregistered but XYZ Bank registered the
Sheriffs Deed of Conveyance in the day book of the Register of Deeds under Act 3344 and
obtained a tax declaration in its name. Was Dehlma a purchaser in good faith? (2008 Bar
Question)
A: Yes, Dehlma is a purchaser in good faith. She learned about the XYZ tax declaration and foreclosure
sale only after the sale to her was registered. She relied on the certificate of title of her predecessor-ininterest. Under the Torrens System, a buyer of registered lands is not required by law to inquire further
than what the Torrens certificate indicates on its face. If a person proceeds to but it relying on the title,
that person is considered a buyer in good faith.
The priority in time rule could not be invoked by XYZ Bank because the foreclosure sale of the land in
favour of the bank was recorded under Act 3344, the law governing transactions affecting unregistered
land, and thus, does not bind the land.
Q: Who as between Dehlma and XYZ Bank has a better right to the house and lot?
A: Between Dehlma and the bank, the former has a better right to the house and lot.
Q: Who owns the movables inside the house?
A: Unless there is a contrary stipulation in the absolute deed of sale, Dehlma owns the movables
covered by the Deed of Sale and her ownership is perfected by the execution and delivery of public
document of sale. The delivery of the absolute deed of sale is a symbolical delivery of the house and
lot, including the contents of the house. This is an obligation to deliver a specific thing, which includes
the delivery of the specific thing itself and all of its accessions and accessories even though they may
not have been mentioned (Art. 1166, CC).
RISK OF LOSS
Loss It is understood that the thing is lost when it:
1. perishes, or

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2.
3.

goes out of commerce, or

disappears in such a way that its existence is unknown or cannot be recovered. (Art. 1189, 2nd
par.)

XPN: In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind
does not extinguish the obligation (Art. 1263, NCC)
Loss at the time of perfection of the contract of sale
GR: When the object of the contract is entirely lost, the contract shall be without effect.
XPN: In case of partial loss, the buyer may choose between withdrawing from the contract and
demanding the remaining part. If he chooses the latter, he shall pay the remaining parts
corresponding price in proportion to the total sum agreed upon. (Art. 1493, NCC)
Options of the buyer in case of total or partial loss or deterioration of a mass of specific
goods without the knowledge of the seller:
1.
2.

He may treat the sale as avoided or cancelled

He may continue with the sale with respect to the available or remaining goods. (Art. 1494, NCC)

Effect suppose the buyer chooses to continue with the sale of the remaining goods
The remaining goods shall pass in ownership to the buyer but subject to proportionate reduction of the
price. But this is applicable only if the goods are divisible or capable of being divided (Pineda, p. 122,
2010 ed.). If indivisible, the only option available is the avoidance of the sale.
Q: Who bears the risk of loss or deterioration?
BEFORE
PERFECTI
ON

Res perit domino Seller is the

owner so seller bears risk of loss
Res perit domino

AT
PERFECTI
ON
AFTER
PERFECTI
ON BUT
BEFORE
DELIVERY

Contract shall be without any

effect the seller bears the loss
since the buyer is relieved of his
obligation under the contract
Seller;
Deterioration & fruits Buyer
bears loss (Tolentino)
Buyer becomes the owner so
buyer bears risk of loss

AFTER
DELIVERY

Delivery extinguish ownership

vis-a-vis the seller & creates a
new one in favor of the buyer

DOCUMENTS OF TITLE
Document of Title
A 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 endorsement or by delivery, goods represented by such
document (Art. 1636).
Ex:

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A document of title of goods includes any bill of lading, dock warrant, quedan, or warehouse receipt or
order (Villanueva, p. 301, 2009 ed.)
Most common forms of documents of title
bill of lading contract and a receipt for the transport of goods and their delivery to the person named
therein, to order or to bearer; usually involves 3 personsthe carrier, the shipper, and the consignee;
the shipper and the consignee may be one and the same person; also called shipping receipt,
forwarders receipt, or receipt for transportation
dock warrant an instrument by dock owners to an importer of goods warehoused on the dock as a
recognition of the importers title to said goods upon production of the bill of lading
warehouse receipt a contract or receipt for goods deposited with a warehouseman containing the
latters undertaking to hold and deliver the said goods to a specified person, to order, or to bearer
quedan warehouse receipt usually for sugar received by a warehouseman
Purpose of the Documents of Title
1.
2.
3.

Evidence of possession or control of goods described therein

Medium of transferring title and possession over the goods described therein without having to
effect actual delivery (Villanueva, 2009 ed.)
The custody of a negotiable warehouse receipts issued to the order of the owner, or to bearer, is a
representation of title upon which bona fide purchasers for value are entitled to rely , despite
breaches of trust or violations of agreement on the part of the apparent owner (Siy Cong Bieng v.
HSBC, 56 Phil 598)

Rationale behind a document of title

Merchants are able to transact with goods and merchandise without having to physically carry them
around, and that buyers should be assured that they may deal with the evidence thereof with the
same effect as though they could feel the merchandise themselves (Villanueva, p. 303, 2009 ed.)
Negotiable Document of Title
A document of title which states that the goods referred therein will be delivered to the bearer, or to
the order of any person named in such document (Art. 1509, NCC).
Persons who may negotiate a Negotiable Document of Title
1.
2.

Owner
Person to whom the possession or custody of the document has been entrusted by the owner
a. If bailee undertakes to deliver the goods to such person
b. If document is in such form that it may be negotiated by delivery.

Rights of a person to whom the document has been negotiated

1.
2.
3.

the title of the person negotiating the document, over the goods covered by the document;
the title of the person (depositor or owner) to whose order by the terms of the document the goods
were to be delivered, over such goods and
the direct obligation of the bailee (warehouseman or carrier) to hold possession of the goods for
him, as if the bailee had contracted directly with him

Non-negotiable documents of title

1.
2.
3.

They are delivered only to a specified person

Carrier will not deliver the goods to any holder of the document or to whom such document may
have been endorsed by the consignee
Must present the deed of sale or donation in his favor

Warranties of seller of documents of title:

1.

Genuineness of the Document

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2.
3.
4.

Legal right to negotiate or transfer

No knowledge of fact which would impair the validity or worth of the document
Right to transfer Title to the goods and merchantability or fitness for a particular purpose,
whenever such warranties would have been implied had the contract transfer the goods without a
document.

Rights of person to whom a negotiable document of title (not duly negotiated) has been
transferred or the transferee of a non-negotiable document of title
1.
2.
3.

the title to the goods as against the transferor;

the right to notify the bailee of the transfer thereof; and
the right, thereafter, to acquire the obligation of the bailee to hold the goods for him

Q: What does a person to whom a non-negotiable instrument has been transferred but not
negotiated, acquire as against the transferor?
A: He acquires:
1. Title to the goods, subject to the terms of any agreement with the transferor;
2. 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.
Q: How may the transferors creditor defeat the aforementioned rights of the transferee?
A: 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 transferors creditor by the levy of an attachment or execution upon the
goods. (Art. 1514, NCC)
Q: If the 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 and a negotiable
instrument was issued for them, can the said goods be attached, garnished or levied upon?
A: GR: No, the goods cannot be attached, garnished or levied upon while they are in the bailees
possession.
XPN:
1. When the document is first surrendered; or
2. When its negotiation is enjoined.
Note: The bailee shall in no case be compelled to deliver the actual possession of the goods until the
document is:
1. Surrendered to him; or
2. Impounded by the court.
(Art. 1519, NCC)

Q: What is the reason behind this prohibition?

A: This is to protect the bailee from liability as the document may have been negotiated by the holder
to subsequent transferees for value and in good faith. He may be liable for damages if he cannot
produce and deliver the goods later (Pineda, p. 181, 2010 ed).
Q: What are the rights of a creditor whose debtor is the owner of a negotiable document of
title?
A: He is entitled to such aid from courts of appropriate jurisdiction by:
1. injunction;
2. attaching such document;
3. as regards property which cannot be readily attached or levied upon by ordinary legal process satisfying the claim by means allowed by law or equity. (Art. 1520, NCC)

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VIII. Remedies
REMEDIES OF AN UNPAID SELLER
Unpaid Seller
The seller of goods is deemed to be an unpaid seller either:
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.
Note: The mere delivery of a negotiable instrument does not ipso facto extinguish the obligation of the
buyer to pay because the instrument which has been delivered may be dishonoured. In which case, the
seller is still an unpaid seller. (US v. Bedoya, 14 Phil. 398)
Note: It includes an agent of the seller to whom the bill of lading has been indorsed, or 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 (Pineda, p.
197, 2010 ed)

Q: When may the seller still be considered as unpaid even though the title to the goods has
passed to the buyer?
A: Whenever the seller was only paid partially, he remains an unpaid seller (Pineda, p. 197, 2010 ed.)
Remedies of an Unpaid Seller
I.

II.

Ordinary
1. Action for Price
Exercised when:
a. ownership has passed to buyer;
b. price is payable on a day certain
c. goods cannot readily be resold for reasonable price and Art. 1596 is inapplicable
2. Action for Damages In case of wrongful neglect or refusal by the buyer to accept or pay for
the thing sold
Special
1. Possessory Lien Seller not bound to deliver if buyer has not paid him the price. This remedy
presupposes that the sale is on credit. It is exercisable only in following circumstances:
a. goods sold without stipulation as to credit
b. goods sold on credit but term of credit has expired
c. buyer becomes insolvent
Note: When part of goods delivered, may still exercise right on goods undelivered
Unpaid seller as bailee for the buyer
The seller may exercise his right of lien notwithstanding that he is in possession of the goods as agent or
bailee for the buyer.
Lien generally not lost by part delivery
When part of the goods are delivered, the unpaid seller has a lien upon the remainder of the proportion of
the price which is due on account if the goods so retained. However, if the delivery of the part is intended
as symbolic delivery of the whole, and, therefore, a waiver of any right of retention as to the remainder,
the lien is lost.

2.

Stoppage in Transitu
Requisites: I-CSENT-U
a. Insolvent buyer
b. The sale of goods must be on credit
c. Seller must Surrender the negotiable document of title, if any
d. Seller must bear the Expenses of delivery of the goods after the exercise of the right.

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e.
f.
g.

Seller must either actually take possession of the goods sold or give Notice of his claim to
the carrier or other person in possession
Goods must be in Transit
Unpaid seller

3.

Special Right to Resell the Goods

Exercised when:
a. Goods are perishable,
b. Stipulated the right of resale in case of default, or
c. Buyer in default for unreasonable time

4.

Special Right to Rescind

Requisites:
a. Expressly stipulated OR buyer is in default for unreasonable time
b. Notice needed to be given by seller to buyer

Instances when possessory lien is lost

1.
2.
3.

Seller delivers without reserving ownership in goods or right to possess them

Buyer or agent lawfully obtains possession of goods
Waiver

Note: Seller loses lien when he parts with goods (but still, stoppage in transitu can be exercised)

Basis of right of an unpaid seller

inherent justice of depriving the seller of goods with which he has not finally parted where it is evident
that he has not been or will not be paid the price for them when it is due
Revival of lien after delivery
1. If the buyer refuses to receive the goods after they have been delivered to a carrier or other bailee
on his behalf, though the seller has parted with both the ownership and the possession, he may
reclaim the goods and revest himself wit it.
2. If the buyer returns the goods in wrongful repudiation of the sale, the lien is revived.
Right of stoppage in transitu
The seller 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. (Art. 1530, NCC)
Goods are in transit
1.
2.

After delivery to a carrier or other bailee and before the buyer or his agent takes delivery of them;
and
If the goods are rejected by the buyer, and the carrier or other bailee continues in possession of
them. (Art. 1531, par. 1)

Goods deemed to be no longer in transit

1.
2.
3.
4.

After delivery to the buyer or his agent

If the buyer/agent obtains possession of the goods at a point before the destination originally
fixed;
If the carrier or the bailee acknowledges that he holds the goods in behalf of the buyer/ his
agent;
If the carrier or bailee wrongfully refuses to deliver the goods to the buyer or his agent.
(Villanueva, p. 181)

Basis of right of stoppage in transitu: (1) injustice of allowing the buyer to acquire ownership and
possession of the goods when he has not paid and, owing to his insolvency, cannot pay the price which

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was to given in return for the goods; (2) principle allowing rescission and restitution where there is
actual or prospective failure of consideration
Nature of right of stoppage in transitu: not based on the agreement of the parties but is conferred by
law
How stoppage in transit is carried out
The seller may:
a. Take actual possession of the goods
b. Give notice of his claim to the carrier or other bailee who is in possession of the goods
Ways of exercising right of stoppage in transitu
1. by taking actual possession of the goods
2. by giving notice of his claim to the carrier or bailee
Such notice must be given at such time and under such circumstances that the principal, by the
exercise of reasonable diligence, may communicate it to the agent to prevent the delivery to the
buyer. There is no form of notice which is essential; it is only necessary that the goods are sufficiently
described for identification.
Q: What is the effect of the exercise of this right?
A: Thereafter the seller becomes entitled to the same rights to the goods as if he had never parted
with the possession of the goods (Pineda, p. 205, 2010 ed)
Q: What if the seller knew of the insolvency of the buyer beforehand?
A: Then he cannot exercise the right to stoppage in transit because he is under estoppel. He assumed
the risk.
Rationale behind the right of stoppage in transitu
To prevent injustice of allowing the buyer to acquire ownership and possession of the goods when
owing to his insolvency, he cannot pay the price. (Pineda, p. 206, 2010 ed)
Attornment by the bailee
attornment a constructive delivery involving the transfer of mediate possession while a third person
has immediate possession; especially a bailees acknowledgment that he or she will hold the goods on
behalf of someone other than the bailor
At the time when a carrier first receives goods consigned to the buyer, the carrier is agent for the
seller for the purpose of carrying out the transit between the seller and the buyer. In order to terminate
the sellers right to stop, the carrier must enter into a new relation, distinct from the original contract
of carriage, to hold the goods for the buyer as his agent not for the purpose of expediting them to the
place of original destination, pursuant to that contract, but in a new character for the purpose of
custody on the buyers account.
Effect of refusal of carrier to attorn or deliver the goods
A rightful refusal by the carrier, based for instance, on the refusal of the buyer or his agent to pay the
freight will not terminate the right to stop.
Effect of exercising the special right of resale
The unpaid seller shall not be liable to the original buyer upon the 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 sale.
(Art. 1533, NCC)
Unpaid sellers right of resale
An unpaid seller can exercise the right to resell only when he has either a right of lien or a right to stop
the goods in transitu and under any of the following circumstances:
1. where the goods are perishable in nature;
2. where the right to resell is expressly reserved in case the buyer should make a default; and

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3. where buyer delays in payment of the price for an unreasonable time
Effect of resale: The seller is not liable for any profit made by such resale; but if he sells for less than
the price, he has a right to sue for the balance. As against the original buyer, the new buyer acquires a
good title to the goods.
Notice of resale
The sellers right to resell the goods for the buyers account may depend upon the length of time the
buyer has been in default. Except in case of perishable goods, which may require an expeditious sale,
and where the right to resell is reserved, the failure to give notice shall be relevant upon the question
whether the buyer has been in default for an unreasonable time.
Manner of resale
The sale must be made in good faith according to the established business methods with no attempt to
take advantage of the vendee. The seller is only required to exercise reasonable care and judgment in
making a resale. He cannot, however, directly or indirectly, buy the goods.
Q: Is notice to the defaulting buyer required in the resale of goods?
A: GR: No.
XPN: Where the right to resell is not based on the perishable nature of the goods or upon an
express provision of the sale.
Note: Notice of time and place of resale is not essential to the validity of such resale. (Art. 1433, NCC)

Q: What is the effect of exercising the special right to rescind?

A: The unpaid seller shall not be liable to the buyer upon the sale, but may recover from the buyer
damages for any loss occasioned by the breach of the sale. (Art. 1534, NCC)
An unpaid seller has a right of rescission only if he has either a right of lien or a right to stop the goods
in transitu and under either of 2 situations:
1. where the right to rescind is expressly reserved in case the buyer should make a default; or
2. where the buyer delays in payment of the price for an unreasonable time
Effect of rescission: The seller resumes ownership in the goods. While the seller shall not be liable to
the buyer upon the contract of sale, the latter, however, may be liable to the seller for damages for
any loss occasioned by the breach of contract.
Manner of rescission
An election by the seller to rescind may be manifested by notice to the buyer or by some other overt
act showing an intention to rescind. Communication of such election to the buyer is not necessary. But
the giving or failure to give notice is relevant in determining the reasonableness of the time given the
buyer to make good his obligations under contract.

Effects of sale of goods subject to lien or stoppage in transitu

1. Where goods are not covered by negotiable document of title, the purchaser from the original buyer
can acquire only such right as the buyer then had.
2. Where goods are covered by negotiable document of title, the sellers lien cannot prevail against the
rights of a purchaser for value in good faith to whom the document has been indorsed. (Reason: to
protect the purchaser without notice after the seller had stopped the goods either by virtue of his right
of lien or stoppage in transitu)
When buyer deemed insolvent
One is deemed insolvent when he either 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. (Villanueva, p. 369, 2009 ed.)
Installment Sales Law

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Commonly known as the Recto Law. It is embodied in Art. 1484 of the NCC which provides for the
remedies of a seller in the contracts of sale of personal property by installments.
Note: Art. 1484 of the NCC incorporates the provisions of Act No. 4122 passed by the Philippine Legislature on Dec.
9, 1939, known as the "Installment Sales Law" or the "Recto Law," which then amended Art. 1454 of the Civil Code
of 1889.

Recto Law
This law covers contracts of sale of personal property by installments (Act No. 4122). It is also 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. (PCI Leasing and Finance Inc. v.
Giraffe- X Creative Imaging, Inc., G.R. No. 142618, July 12, 2007)
Applicability of Art. 1484 (Recto Law)
Art. 1484 does not apply to:
1. a sale of personal property on straight term or partly in cash and party in term. Where the balance,
after payment of the initial sum, should be paid in its totality at the time specified, the transaction is
not by installment.
2. a sale of immovable property
3. real estate mortgage
The creditor is given the right or option to seize the chattel and dispose of the same in accordance
with the Chattel Mortgage Law (Act 1508), while the mortgagee of real property may only be
foreclosed in conformity with Rule 68 of the Rules of Court (for judicial foreclosure) and Act. 3135, as
amended (for extrajudicial foreclosure).
4. action of replevin
An action by the mortgagee for recovery of possession of personal property with replevin as a
provisional remedy is not an action for collection much less for foreclosure of chattel mortgage. It is a
preliminary step to foreclosure which should be conducted in accordance with Sec. 14 of Act 1508.
Alternative remedies of the unpaid seller the Recto Law
1.

Specific Performance: Exact fulfillment should the buyer fail to pay

GR: If availed of, the unpaid seller cannot anymore choose other remedies;
XPN: if after choosing, it has become impossible, rescission may be pursued

2.

3.

Rescission: Cancel the sale if buyer fails to pay 2 or more installments. Deemed chosen when:
a. Notice of rescission is sent
b. Takes possession of subject matter of sale
c. Files action for rescission
Foreclosure: Foreclose on chattel mortgage if buyer fails to pay 2 or more instalments. 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.
GR: Actual foreclosure is necessary to bar recovery of balance
XPN: Mortgagor refuses to deliver property to effect foreclosure; expenses incurred in attorneys
fees, etc.

Note: The remedies are alternative not cumulative. Availment of one is a bar to the other remedies

Rationale of Recto Law

To remedy the abuses committed in connection with the foreclosure of chattel mortgages and to
prevent mortgagees from seizing the mortgaged property, buying it at a foreclosure sale for a low
price and then bringing suit against the mortgagor for a deficiency judgment (Villanueva, p. 278, 2009
ed.)

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Q: A, sold and delivered a car to B which was to be paid on a monthly basis. After a series
of payments, B subsequently defaulted. A then filed an action against B for specific
performance.However, the amount collected was not sufficient to cover the amount of the
car. The court then issued a writ of execution and the sheriff levied the subject car. B
contends that this is a violation of the Recto law because having elected specific
performance, A can no longer foreclose the subject car. Is this correct?
A: No. A evidently chose the remedy of specific performance. The sheriff levied upon the car by virtue
of an execution and not as an incident of a foreclosure proceeding. The rule is that in
installment sales, if the action instituted is for specific performance and the mortgaged property is
subsequently attached and sold, the sale thereof does not amount to a foreclosure of the mortgage.
Hence, the seller-creditor is entitled to a deficiency judgment (Industrial Finance Corporation v
Ramirez, G.R. No. L-43821 May 26, 1977)
Q: A mortgaged a diamond ring to M as a security for a loan which was to be paid 2 years
thereafter. Since A failed to pay M, she then foreclosed the mortgaged property. However,
it turned out that the proceeds of the sale were insufficient, thus, M filed an action for
specific performance. A contends that this is a violation of the Recto law since the
foreclosure of the chattel bars subsequent recovery. Is this correct?
A: No. A is not correct in invoking the Recto law since it is only applicable in case of sale of personal
property through installment. In the given case, the amount being claimed by A was to be paid 2 years
thereafter as a lump sum, not through installments. Moreover, the transaction is a loan not a sale.
Q: Does Recto Law cover a contract to sell movables?
A: No. Because when the suspensive condition upon which the contract is based fails to materialize, it
would extinguish the contract, and consequently there is no contract to rescind (Villanueva, p. 381,
2009 ed.).
PERFORMANCE OF CONTRACT
SALE OF MOVABLES
WHEN QUANTITY IS LESS THAN EXPECTED
1.
2.

The buyer may reject the goods delivered and he shall have no liability
The buyer may accept the goods delivered, but he will pay the contract price, if he has knowledge
that the seller is not going to deliver all the goods contracted for (Art. 1522, NCC)

WHEN QUANTITY IS MORE THAN EXPECTED

1.
2.

The buyer may accept only the goods which were included in the contract and reject the excess.
The buyer may accept the entire goods delivered and he shall pay for them at the contract rate.
(Art. 1522, NCC)

QUALITY DIFFERENT OR DIEFFERENT GOODS

DIVISIBLE
INDIVISIBLE
SALE OF SPECIFIC MASS OF GOODS
DELIVERY BY INSTALLMENTS
Goods which are mixed with other goods of different description not included in the
contract
The buyer may accept the goods which are in accordance with the contract and reject the rest. (Art.
1522, NCC)

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Subject matter is indivisible

The buyer may reject the whole of the goods. (Art. 1522, NCC)
Duty of the seller with regard to accessions and accessories
A: The seller has the duty to preserve the thing and its accessions and accessories from the time of
the perfection of the contract of sale. (Art. 1537, NCC)
Note: In case of loss or deterioration, the seller is liable for damages or the buyer may seek rescission with
damages. However, if loss or deterioration is due to a fortuitous event, the seller is not liable. (Art. 1538, NCC)
SALE OF IMMOVABLES

Rule when the sale of immovable is by unit of measure or number:

GR: The seller must deliver all that may have been stated in the contract.
XPN: If impossible to deliver all, the buyer may choose between:
1. proportional reduction of the price
2. rescission of the contract, provided the deficiency is at least 1/10 of the area stated in the
contract (Art. 1539, NCC)
Prescription period for the action of rescission of contract
6 months from the day of delivery. (Art. 1543, NCC)
Payment by the buyer
Price is paid at the time and place stipulated in the contract. It is made to the person in whose favor
the obligation has been constituted or his successor in interest, or any person authorized to receive.
(Villanueva, p. 297, 2009 ed.)
Interest is required to be paid
SFD
1. When it is Stipulated
2. When the object delivered produced Fruits or income
3. When the buyer is in Default from the time of demand (Villanueva, p. 297, 2009 ed.)
Realty Installment Buyer Act
A: Commonly known as the 957 Law. It is embodied in R.A. 6552 which provides for certain
protection to particular buyers of real estate payable on installments. The law declares as "public
policy to protect buyers of real estate on installment payments against onerous and oppressive
conditions.
Note: The purpose of the law is to protect buyers in installment against oppressive conditions.

Q: What are the transactions/sale covered by the Maceda Law?

A: The law involves the sale of immovables on installment (Maceda Law, R.A. 6552).
1. Coverage: Residential Real Estate (Villanueva, p. 431)
2. Exclude:
a. Industrial lots
b. Commercial buildings (and commercial lots by implication)
c. Sale to tenants under agrarian laws
Note: The list is not exclusive. (Villanueva, p. 416, NCC)

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Q: What are the so-called Maceda and Recto laws in connection with sales on
installments? Give the most important features on each law. (1999 Bar Question)
A: The Maceda Law (R.A. 6552) is applicable to sales of immovable property on installments. The most
important features are:
1.

After having paid installments for at least two years, the buyer is entitled to a mandatory grace
period of one month for every year of installment payments made, to pay the unpaid
installments without interest.
If the contract is cancelled, the seller shall refund to the buyer the cash surrender value
equivalent to fifty percent (50%) of the total payments made, and after five years of
installments, an additional five percent (5%) every year but not to exceed ninety percent (90%)
of the total payments made.

2.

In case the installments paid were less than 2 years, the seller shall give the buyer a grace
period of not less than 60 days. If the buyer fails to pay the installments due at the expiration of
the grace period, the seller may cancel the contract after 30 days from receipt by the buyer of
the notice of cancellation or demand for rescission by notarial act. (Rillo v. CA, G.R. No. 125347
June 19, 1997)

The Recto Law (Art.1484) refers to sale of movables payable in installments and limiting the right of
seller, in case of default by the buyer, to one of three remedies:
1. Exact fulfillment;
2. Cancel the sale of two or more installments have not been paid;
3. Foreclose the chattel mortgage on the things sold, also in case of default of two or more
installments, with no further action against the purchaser.
Other rights granted to a buyer under the Maceda Law
1.
2.
3.
4.
5.

Sell or assign rights to another

Reinstate contract by updating within 30 days before and cancellation
Deed of Sale to be done by notarial act
Pay full installment in advance the balance of price anytime w/o interest
Have full payment annotated in certificate of title

Note: Applies to contracts even before the law was enacted. Stipulation to the contrary is void

Q: Bernie bought on installment a residential subdivision lot from DEVLAND. After having
faithfully paid the installments for 48 months, Bernie discovered that DEVLAND had failed
to develop the subdivision in accordance with the approved plans and specifications within
the time frame in the plan. He thus wrote a letter to DEVLAND informing it that he was
stopping payment. Consequently, DEVLAND cancelled the sale and wrote Bernie, informing
him that his payments are forfeited in its favor.
1. Was the action of DEVLAND proper? Explain.
2. Discuss the rights of Bernie under the circumstances.
3. Supposing DEVLAND had fully developed the subdivision but Bernie failed to pay
further installments after 4 years due to business reverses. Discuss the rights and
obligations of the parties. (2005 Bar Question)
A:
1. Assuming that the land is a residential subdivision project under P.D. No. 957 (The Subdivision
and Condominium Buyers Protective Decree), DEVLAND's action is not proper because under
Section 23 of said Decree, no installment payment shall be forfeited to the owner or developer
when the buyer, after due notice, desists from further payment due to the failure of the ownerdeveloper to develop the subdivision according to the approved plans and within the time limit for
complying with the same.
2.

Under the same Section of the Decree, Bernie may, at his option, be reimbursed the total amount
paid including amortization interests but excluding delinquency interests at the legal rate. He may
also ask the Housing and Land Use Regulatory Board to apply penal sanctions against DEVLAND

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consisting of payment of administrative fine of not more than P20.000.00 and/or imprisonment for
not more than 20 years.
3.

Under R.A. No. 6552 (Maceda Law), DEVLAND has the right to cancel the contract but it has to
refund Bernie the cash surrender value of the payments on the property equivalent to 50% of the
total payments made.

WARRANTIES
Warranty
A statement or representation made by the seller of goods, as part of the contract of sale, having
reference to the character, quality, or title, of the goods, and by which he promises or undertakes to
insure that certain facts are or shall be as he then represents.
Note: May either be express or implied.

CONDITION VS. WARRANTY

CONDITION
Generally goes into the root of existence of
the obligation
Non-happeninng does not amount to a
breach of contract
Must be stipulated
May attach either to the sellers duty to
deliver
the
thing
or
some
other
circumstance

Warranty
Goes to the performance of an obligation
and may, in itself, be an obligation
Non-fulfillment constitutes a breach of
contract
Stipulation or by operation of law
Always relates to the subject matter or the
sellers obligations as to the subject matter

Effect of a breach of warranty

Buyer may:
1. Refuse to proceed with the contract; or
2. Proceed with the contract and waive the condition.
Note: If the condition is in the nature that it should happen, the non-performance may be treated as a breach of
warranty.

Kinds of warranties
Warranties could either be express or implied
Express warranties
Any affirmation of fact or any promise by the seller relating to the thing 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. (Art. 1546)
Requisites of express warranties
AIR
1.
2.
3.
4.

It must be an Affirmation of fact or any promise by the seller relating to the subject matter
of sale
Natural tendency is to Induce buyer to purchase subject matter
Buyer purchases the subject matter Relying on such affirmation or promise thereon
Made before the sale not upon delivery or any other point

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Liability of the seller for breach of express warranties
The seller is liable for damages (Villanueva, p. 249).
Implied warranties
1. Implied Warranty
2. Implied Warranty
3. Implied Warranty
4. Implied Warranty

of Title
Against Encumbrance/Non-Apparent Servitudes
against Hidden Defects
of Quality and Warranty of Merchantability

Warranties deemed included in all contracts of sale by operation of law (Art. 1547).
1.

Warranty that seller has right to sell

Refers to consummation stage. Not applicable to sheriff, auctioneer, mortgagee,
pledgee

2.

Warranty against eviction

Requisites: JPENS
a. Final Judgment
b. Buyer is Evicted in whole or in part from the subject matter of sale
c. Basis of eviction is a right Prior to sale or act imputable to seller
d. Seller has been Summoned in the suit for eviction at the instance of buyer; or made 3rd
party defendant through 3rd party complaint brought by buyer
e. No waiver on the part of the buyer
Note: For eviction disturbance in law is required and not just trespass in fact.

3.

Warranty against encumbrances/non- apparent servitudes (Art. 1560)

servitude (or easement) encumbrances imposed upon an immovable for the benefit
of another immovable belonging to a different owner

Requisites:
a. immovable sold is encumbered with non-apparent burden or servitude not mentioned in
the agreement
b. nature of non-apparent servitude or burden is such that it must be presumed that the
buyer would not have acquired it had he been aware thereof
XPN: warranty not applicable when non-apparent burden or servitude is recorded in the
Registry of Property unless there is expressed warranty that the thing is free from all burdens
and encumbrances
4.

i.
ii.

Warranty against Hidden Defects (Art. 1561)

Requisites: HENNAS
a. Defect is important or Serious
The thing sold is unfit for the use which it is intended
Diminishes its fitness for such use or to such an extent that the buyer would not have
acquired it had he been aware thereof
b. Defect is Hidden
c. Defect Exists at the time of the sale
d. Buyer gives Notice of the defect to the seller within reasonable time
e. Action for rescission or reduction of the price is brought within the proper period
i.
6 months from delivery of the thing sold
ii.
Within 40 days from the delivery in case of animals
f. There must be No waiver of warranty on the part of the buyer.
When implied warranty is not applicable

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ASAP
1.

2.
3.
4.

As is and where is sale means that the vendor makes no warranty as to the validity or
workable condition of the goods, and that the vendee takes them in conditions in which they
are found and from the place where they are located; does not extend to liens or
encumbrances unknown to the vendee and could not be disclosed by a physical examination of
the goods sold
Sale of second hand articles, unless the seller made a misrepresentation or acted in bad faith
Sale by virtue of authority in fact or law
Sale at public auction for tax delinquency

Q: Petitioner De Guzman purchased from Respondent Toyota Cubao a white Toyota Hi-Lux
2.4 SS double cab motor vehicle, 1996 model, for a price of P508,000. He paid a
downpayment of P152,400, leaving a balance of P355,600. Later on, he demanded that the
engine of the vehicle be replaced for it had a crack after travelling along Marcos Highway
while raining hard. Petitioner claims the replacement is based on an implied warranty. On
the other hand, respondent answered that the said damage was not covered by a warranty.
Decide.
A: In the absence of an existing express warranty on the part of the respondent, as in this case, the
allegations in petitioner's complaint for damages were clearly anchored on the enforcement of an
implied warranty against hidden defects, i.e., that the engine of the vehicle which respondent had sold
to him was not defective. By filing this case, petitioner wants to hold respondent responsible for breach
of implied warranty for having sold a vehicle with defective engine. Such being the case, petitioner
should have exercised this right within six months from the delivery of the thing sold. Since petitioner
filed the complaint on April 20, 1999, or more than nineteen months counted from November 29, 1997
(the date of the delivery of the motor vehicle), his cause of action had become time-barred (De
Guzman v. Toyota Cubao, G.R. No. 141480, November 29, 2006).
Effects of waiver of an implied warranty
1.
2.
3.

Seller in bad faith and there is waiver against eviction void

When buyer without knowledge of a particular risk, made general renunciation of warranty is
not a waiver but merely limits liability of seller in case of eviction
When buyer with knowledge of risk of eviction assumed its consequences and made a waiver
seller not liable (applicable only to waiver of warranty against eviction)
WARRANTY AGAINST EVICTION

Warranty against eviction

In a contract of sale, unless a contrary intention appears, there is an implied warranty on the part of
the seller that 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 (Art. 1547, 1st paragraph).
Coverage of a warranty against eviction
It covers eviction 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. (Art. 1548, NCC)
Two kinds of waiver of warranty against eviction (Art. 1554)
1. Consciente the waiver is voluntarily made by the vendee without knowledge and
assumption of the risks of eviction
Effect: liability of the vendor in case of eviction only extends to the payment of the value of the
thing sold

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2.

Intencionada voluntary renunciation by the vendee of the right to warranty against eviction
with knowledge of the risk of eviction and assumption of its consequences
Effect: The vendee is exempted from the obligation to answer for eviction, provided he did not
act in bad faith.

Accion redhibitoria
Actions instituted by the vendee against the vendor to avoid a sale on account of some vice or
defect in the thing which renders it unfit for the use intended
Accion quanti minoris
Action to procure return of a part of the purchase price paid by the vendee to the vendor
due to the defect
What is the prescriptive period for either?

6 months from date of delivery

Except redhibitory actions based on faults/defects of animals, which is 40 days from date
of delivery
Effect of a breach of warranty against eviction
The buyer shall have the right to demand the seller:
1. The return of the value which the thing sold had at the time of the eviction, be it greater or
lesser 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 suit which caused the eviction, and, in a proper case, those of suit brought against
the vendor for the waranty
4. The expenses of contract if buyer has paid them
5. The damages and interests and ornamental expenses if sale was made in bad faith.
Note: Vendor is liable for any hidden defect even if he is not aware. (Caveat Venditor)
Purchaser must be aware of the title of the vendor. (Caveat Emptor)

Rights of buyer in case of partial eviction

1.
2.

Restitution (with obligation to return the thing w/o other encumbrances than those which it had
when he acquired it)
Enforcement of warranty against eviction (Paras, p. 153 and Art. 1556)
WARRANTY AGAINST HIDDEN DEFECT

Hidden defect
A hidden defect is one which is unknown or could not have been known to the buyer. (Diaz, p. 145)
Note: Seller does not warrant patent defect; Caveat emptor (buyer beware)

Redhibitory defect
It is a defect in the article sold against which defect the seller is bound to warrant. The vice must
constitute an imperfection, a defect in its nature, of certain importance; and a minor defect does not
give rise to redhibition (De Leon, Comments and Cases on Sales and Lease, 2005 ed, p. 318).
Redhibitory defect on animals
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.
No warranty in case of [Art. 1574]:

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1.
2.

Animals sold at fairs or public auctions

Livestock sold as condemned

Void sale of animal

The sale is void if animal is:
1. Suffering from contagious diseases;
2. Unfit for the use or service for which they were purchased as indicated in the contract
Veterinarian liable if he fails to discover or disclose the hidden defect through ignorance or bad faith
[Art 1576]
Seller liable if animal dies within 3 days after its purchase due to a disease that existed at the time of
sale. [Art 1578]
Vendor responsible for hidden defects
If the hidden defects which the thing sold may have:
1. Render it unfit for the use for which it is intended, or
2. 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 (Art. 1561).
Extent the seller warrants against hidden defects
The seller is responsible to the vendee for any hidden faults or defects in the thing sold, even though
he was not aware thereof.
Seller not answerable for the defects of the thing sold
1.
2.
3.

For patent defects or those which are visible

Even for those which are not visible if the buyer is an expert who, by reason of his trade or
profession, should have known them (Art. 1561)
If the contrary has been stipulated, and the vendor was not aware of the hidden faults or defects in
the thing sold (Art. 1566)

Effect of a breach of warranty against hidden defects

It would depend on whether the seller had knowledge of such defect and whether there has been a
waiver of the warranty.
1. If the thing should be lost in consequence of the hidden faults, and seller was aware of them
he shall:
a.
bear the loss,
b.
return the price and
c.refund the expenses of the contract with damages
2. If the thing is lost and seller was not aware of the hidden faults he shall:
a. return the price and interest
b. reimburse the expenses of the contract which the buyer might have paid, but not for
damages. (Villanueva, Law on Sales,2004 ed, pp. 548-549)
Remedies of the buyer in case of sale of things with hidden defects (Art. 1567)
The vendee may elect between:
1. Withdrawing from the contract, or
2. Demanding a proportionate reduction of the price, with damages in either case.
Waiver of warranty against hidden defects when the lessee inspected the premises and
pushed through with the contract

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Under Arts. 1561 and 1653 of the Civil Code, the lessor is responsible for warranty against hidden
defects, but he is not answerable for patent defects or those, which are visible, and which can be seen
upon inspection (Jon and Marissa De Ysasi v. Arturo and Estela Arceo, G.R. No. 136586, Nov. 22, 2001).
Specific implied warranties in sale of goods (Art. 1562)
1.

Warranty of quality or fitness that the goods are fit for specific purpose intended by the buyer
In order to enforce the implied warranty that the goods are reasonably fit and suitable to be used
for the purpose which both parties contemplated, the following must be established:
(a) that the buyer sustained injury because of the product;
(b) that the injury occurred because the product was defective or unreasonably unsafe; and finally
(c) the defect existed when the product left the hands of the petitioner. Nutrimix Feeds Corp. v.
Court of Appeals, 441 SCRA 357 (2004).
GR: No implied warranty
XPN:
a. Buyer manifests to the seller the particular purpose for which the goods are required; and
b. Buyer relies upon the sellers skill or judgment

2.

Warranty of merchantability That goods are reasonably fit for the general purpose for which
they are sold.

Sale of Goods by Sample

There is a sale by sample when a small quantity is exhibited by the seller as a fair specimen of the
bulk, which is not present and there is no opportunity to inspect or examine the same. To constitute a
sale by sample, it must appear that the parties treated the sample as the standard of quality and that
they contracted with reference to the sample with the understanding that the product to be delivered
would correspondent with the sample. In a contract of sale by sample, there is an implied warranty
that the goods shall be free from any defect which is not apparent on reasonable examination of the
sample and which would render the goods unmerchantable. Mendoza v. David, 441 SCRA 172 (2004).
REMEDIES IN CASE OF BREACH OF WARRANTY
Remedies of the buyer in case of breach of warranty
1.
2.
3.
4.

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

Buyer's Options in Case of Breach of Warranty (Art. 1599).

The remedy against violation of warranty against hidden defects is either to withdraw from the
contract (accion redhibitoria) or to demand a proportionate reduction of the price (accion quanti
minoris), with damages in either case. Nutrimix Feeds Corp. v. Court of Appeals, 441 SCRA 357
(2004).
Remedies of the buyer in case of breach of warranty not absolute
The vendee's remedies against a vendor with respect to the warranties against hidden defects of or
encumbrances upon the thing sold are not limited to those prescribed in Article 1567 where the
vendee, in the case of Arts. 1561, 1562, 1564, 1565 and 1566, may elect either to withdraw from the
contract or demand a proportionate reduction of the price, with damages in either case.
The vendee may also ask for the annulment of the contract upon proof of error or fraud, in which case
the ordinary rule on obligations shall be applicable. Under the law on obligations, responsibility arising
from fraud is demandable in all obligations and any waiver of an action for future fraud is void.

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Responsibility arising from negligence is also demandable in any obligation, but such liability may be
regulated by the courts, according to the circumstances.
The vendor could likewise be liable for quasi-delict under Article 2176 of the Civil Code, and an action
based thereon may be brought by the vendee. While it may be true that the pre-existing contract
between the parties may, as a general rule, bar the applicability of the law on quasi-delict, the liability
may itself be deemed to arise from quasi-delict, i.e., the acts which breaks the contract may also be a
quasi-delict. (Coca-Cola Bottlers Philippines, Inc. v. CA, G.R. No. 110295, Oct. 18, 1993)
Instances when the buyer cannot rescind the sale in case there is a breach of warranty
1.
2.
3.
4.

If he knew of the breach of warranty

If he fails to return or offer to return goods to seller in substantially as good condition as they were
at time ownership was transferred
If he fails to notify the seller within a reasonable time of his election to rescind
If the goods are not in good condition anymore due to the buyers fault

Q: Goodyear Philippines sold a car to Anthony Sy. Later on, Sy sold the car to Jose Lee.
When Lee tried to register the car in his name, he failed to have it registered because it
turned out that the car was stolen before and was only subsequently recovered by
Goodyear. However, PNP did not lift the alert alarm over the said car. Due to this, the car
was impounded and Lee was sued by PNP. This problem was relayed by Lee to Sy. It led to
Sy filing a case against Goodyear for breach of warranty. It is Sys argument that it is
Goodyears duty to convey the vehicle to Sy free from all liens, encumbrances and legal
impediments. Was there a breach of warranty by Goodyear?
A: No. Upon the execution of the Deed of Sale, petitioner did transfer ownership of and deliver the
vehicle to Respondent Sy. The impoundment of the vehicle and the failure to register it were clearly
acts that were not deliberately caused by petitioner, but that resulted solely from the failure of the PNP
to lift the latters own alarm over the vehicle. Hence, the former did not breach its obligation as a
vendor to Respondent Sy; neither did it violate his right for which he could maintain an action for the
recovery of damages. (Goodyear Philippines, Inc. v. Sy and Lee, G.R. No. 154554, Nov. 9, 2005)
CONDITION VIS--VIS WARRANTY
Effect of non-fulfillment of a condition
If imposed on the perfection of contract prevents the juridical relation itself from coming into
existence
The other party may:
1. Refuse to proceed with the contract
2. Proceed w/ contract, waiving the performance of the condition
Difference between a condition and a warranty
CONDITION
Purports to the
existence of obligation
Must be stipulated to
form part of the
obligation
May attach itself to
obligation of seller to
deliver possession
and transfer

WARRANTY
Purports to the
performance of
obligation
Need not be
stipulated; may form
part of obligation by
provision of law
Relates to the subject
matter itself or to
obligation of the seller
as to the subject
matter of the sale

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BREACH OF CONTRACT
General Remedies [Art. 1191, CC]
The following remedies arise from the bilateral
nature of the contract of sale:
(1) Specific performance
(2) Rescission
General rule: Rescission of a contract will not be
permitted for a slight or casual breach, but only
for such substantial and fundamental breach as
would defeat the very object of the parties in
making the agreement. [Song Fo & Co. vs.
Hawaiian-Philippine Co., 1925]
(3) Damages
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 [Art
1169, CC]
Prescriptive periods
(1) 10 years if based on written contract
(2) 6 years if based on oral contract

REMEDIES OF THE SELLER

Note: see Recto and Maceda Law (Performance of Contract) pp. 240.

REMEDIES OF THE BUYER

Remedies of the buyer
I.

Immovables in general
Disturbed in possession or with reasonable grounds to fear disturbance Suspend payment
In case of subdivision or condominium projects If real estate developer fails to comply with
obligation according to approved plan:
a. Rescind
b. Suspend payment until seller complies
Movables
1. Failure of seller to deliver Action for specific performance without giving the seller the option
of retaining the goods on payments of damages
2. Breach of sellers warranty The buyer may, at his election, avail of the following remedies:
a.Accept goods & set up breach of warranty by way of recoupment in diminution or
extinction or the price.
b.Accept goods & maintain action against seller for damages
c. Refuse to Accept goods & maintain action against seller for damages
d.Rescind contract of sale & refuse to receive goods/return them when already received.
1.
2.

II.

3.

Disturbed in possession or with reasonable grounds to fear disturbance Suspend payment

Note: When the buyer has claimed and been granted a remedy in any of these ways, no other remedy can
thereafter be granted, without prejudice to the buyers right to rescind, even if previously he has chosen specific
performance when fulfillment has become impossible. (Villanueva, p. 389 in relation with Art. 1191, NCC)

EXTINGUISHMENT OF THE SALE

Causes for extinguishment of sale
A contract
1.
a.
b.
c.

of sale is extinguished by:

Same causes as all other obligations, namely:
Payment or performance
Loss of the thing due
Condonation or remission of the debt

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d.
e.
f.
g.
h.
i.
j.
2.
3.

Confusion or merger of the rights of creditor and debtor

Compensation
Novation
Annulment
Rescission
Fulfillment of resolutory condition
Prescription
Conventional Redemption
Legal redemption

Redemption
It is a mode of extinguishment wherein the seller has the right to redeem or repurchase the thing sold
upon return of the price paid.
Kinds of redemption
1.
2.

Legal
Conventional

Q: Should the right to redeem be incorporated in every contract of sale?

A: The right of the vendor to redeem/repurchase must appear in the same instrument. However,
parties may stipulate on the right of repurchase in a separate document but in this case, it is valid only
between the parties and not against third persons (Pineda, p. 333)
Difference between pre-emption and redemption
PRE-EMPTION
Arises before sale
Rescission inapplicable
Action is directed against prospective seller

REDEMPTION
Arises after sale
There can be rescission of original sale
Action is directed against buyer

CONVENTIONAL REDEMPTION
Conventional redemption
Seller reserved the right to repurchase thing sold coupled with obligation to return price of the sale,
expenses of contract & other legitimate payments and the necessary & useful expenses made on the
thing sold
Q: Can any other person exercise the right to repurchase?
A: Yes. By any person to whom the right of repurchase may be transfereed, or in case of legl
redemption, by the person so entitled by law. (Villanueva, p. 517, 2009 ed.)
Note: Right to repurchase must be reserved at the time of perfection of sale. (Pineda, p. 333)

Q: How is the right to repurchase reserved?

A: By a stipulation to that effect in the contract of sale. Because it is not a right granted to the vendor
by the vendee, but is a right reserved by the vendor.
Q: Can the reservation be made in a separate instrument apart from the contract of sale?
A: No. Once the instrument of absolute sale is executed, and any right thereafter granted the vendor
in a separate instrument cannot be a right of repurchase but some other right like the option to buy in
the instant case. (Villanueva, p. 517, 2009 ed.)
Q: What happens in case the contract of sale is void?

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A: Since the underlying contract of sale was inoperative and consequently void, then the right of
repurchase reserved would also be void. (Villanueva, p. 518, 2009 ed.)
EQUITABLE MORTGAGE
Equitable mortgage
One which lacks the proper formalities, form or words or other requisites prescribed by law for a
mortgage, but shows the intention of the parties to make the property subject of the contract as
security for a debt and contains nothing impossible or contrary to law
Essential requisites of equitable mortgage
1.
2.

Parties entered into a contract of sale

Their intention was to secure an existing debt by way of a mortgage.

Rule on the presumption of an equitable mortgage

A sale with conventional redemption is deemed to be an equitable mortgage in any of the following
cases: (Art. 1602) AIR-STAR
1. Price of the sale with right to repurchase is unusually Inadequate
2. Seller Remains in possession as lessee or otherwise
3. 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. Purchaser Retains for himself a part of the purchase price
5. Seller binds himself to pay the Taxes on the thing sold
6. In any other case where the real intention of the parties is that the transaction shall Secure the
payment of a debt or the performance of any other obligation.
7. Art. 1602 shall also apply to a contract purporting to be an Absolute sale. (Art. 1604)
Note: In case of doubt in determining whether it is equitable mortgage or sale a retro (with right of repurchase); it
shall be construed as equitable mortgage. The remedy is reformation.
An equitable mortgage is one which although lacking in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a
debt, and contains nothing impossible or contrary to law.

RATIONALE BEHIND PROVISION ON EQUITABLE MORTGAGE

(1) Circumvention of usury law
(2) Circumvention of prohibition against pactum
commissorium creditor cannot appropriate the
things given by way of pledge or mortgage since
remedy is foreclosure.
Q: Does inadequacy of price constitute proof sufficient to declare a contract as one of
equitable mortgage?
A: Mere inadequacy of the price is not sufficient. The price must be grossly inadequate, or purely
shocking to the conscience. (Diaz, p. 186)
Q: Spouses Ramos executed a Deed Of Sale under Pacto De Retro over their conjugal house
and lot in favor of Susana Sarao. The contract granted the Ramos spouses the option to
repurchase the property within six months plus an interest of 4.5 percent a month. It was
further agreed that should the spouses fail to pay the monthly interest or to exercise the
right to repurchase within the stipulated period, the conveyance would be deemed an
absolute sale. In the succeeding months, the wife Myrna Ramos tendered to Sarao
payment in the form of two managers checks, which the latter refused to accept for being
allegedly insufficient. Myrna filed a complaint for the redemption of the property. She
deposited with the RTC two checks that Sarao refused to accept. Is the contract a Pacto De
Retro sale or an equitable mortgage? Decide.

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A: 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. (Article 1602, New Civil Code) Furthermore, a contract purporting
to be a pacto de retro is construed as an equitable mortgage when the terms of the document and the
surrounding circumstances so require. The law discourages the use of a pacto de retro, because this
scheme is frequently used to circumvent a contract known as a pactum commissorium. Jurisprudence
has consistently declared that the presence of even just one of the circumstances set forth in the
foregoing Civil Code provision suffices to convert a contract to an equitable mortgage. Article 1602
specifically states that the equitable presumption applies to any of the cases therein enumerated. In
the present factual milieu, the vendor retained possession of the property allegedly sold. Petitioner and
her children continued to use it as their residence, even after Jonas Ramos had abandoned them. In
fact, it remained as her address for the service of court orders and copies of Respondent Saraos
pleadings (Ramos v. Sarao, G.R. No. 149756, Feb. 11, 2005).
Q: Respondent Dizon mortgaged to Monte de Piedad a parcel of land including the twostorey apartment built thereon to secure a loan. Respondent failed to settle the loan,
drawing Monte de Piedad to foreclose the mortgage, consolidate its ownership of the
property, and register it in its name. Monte de Piedad nevertheless gave respondent until
May 28, 1987 to purchase back the property. On the day of the expiration itself, one of the
petitioners on behalf of respondent paid for the property. Monte de Piedad thereupon
executed a deed of sale in favor of respondent who, the following day, executed a deed of
sale in favor of petitioners. Also, respondent and petitioners executed an agreement giving
respondent repurchase within three months from the date of this agreement. Failure to
repurchase shall result to respondent vacating the premises and turn over possession
thereof to petitioners. Three months passed without respondent repurchasing the
property. Petitioners registered the Deed of Sale executed by Monte de Piedad in favor of
respondent, as well as the Deed of Sale of the property executed by respondent in favor of
petitioners. Notwithstanding this, respondent failed to vacate the property. An ejectment
case was filed against respondent. Is the agreement a contract of sale or an equitable
mortgage?
A: It is a contract of sale. The presumption of equitable mortgage created in Article 1602 of the Civil
Code is not conclusive. It may be rebutted by competent and satisfactory proof of the contrary. In the
case at bar, ample evidence supports petitioners claim that the transaction between them and
respondent was one of sale with option to repurchase. While after the sale of the property respondent
remained therein, her stay was not in the concept of an owner. Contrary to respondents claim that
after the sale of the property in 1987, the tax declarations remained in her name and she continued to
pay realty taxes thereon, the record shows that the 1987 tax declarations were in the names of Monte
de Piedad and petitioners. (Spouses Cristobal, et. al v. Dizon, G.R. No. 172771, Jan. 31, 2008)
Q: Ceballos was able to borrow from Mercado certain sum of money and as security, she
executed a Deed of Real Estate Mortgage over the subject property. The said mortgage
was not registered. Ceballos defaulted. Thereafter, a Deed of Absolute Sale was executed
by Ceballos and her husband whereby the mortgaged property was sold to Mercado for the
price of P16, 500.00. Ceballos offered to redeem the property from Mercado for the price of
P30, 000.00 but the latter's wife refused since the same was already transferred in their
names by virtue of the Deed of Absolute Sale. As a consequence, Ceballos filed the case
contending that the Contract should be declared as an equitable mortgage.
Is the
contention of Ceballos correct?
A: No. The instances when a contract, regardless of its nomenclature, may be presumed to be an
equitable mortgage are enumerated in Art. 1602 of the Civil Code. Here, none of those circumstances
were present. The original transaction was a loan. Ceballos failed to pay the loan; consequently, the
parties entered into another agreement the assailed, duly notarized Deed of Absolute Sale, which
superseded the loan document. Ceballos had the burden of proving that she did not intend to sell the
property and that Mercado did not intend to buy it; and that the new agreement did not embody the

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true intention of the parties. (Ceballos v. Intestate Estate of the Late Emigdio Mercado, G.R. No.
155856, May 28, 2004)
Q: Eulalia was engaged in the business of buying and selling large cattle. In order to secure
the financial capital she advanced for her employees (biyaheros) she required them to
surrender TCT of their properties and to execute the corresponding Deeds of Sale in her
favor. Domeng Bandong was not required to post any security but when Eulalia discovered
that he incurred shortage in cattle procurement operation, he was required to execute a
deed of sale over a parcel of land in favor of Eulalia. She sold the property to her
grandniece Jocelyn who thereafter instituted an action for ejectment against the Spouses
Bandong.
To assert their right, Spouses Bandong filed an action for annulment of sale
against Eulalia and Jocelyn alleging that there was no sale intended but only equitable
mortgage for the purpose of securing the shortage incurred by Domeng in the amount of
P70, 000.00 while employed as biyahero by Eulalia. Was the deed of sale between
Domeng and Eulalia a contract of sale or an equitable mortgage?
A: It is an equitable mortgage. In executing the said deed of sale, Domeng and Eulalia never intended
the transfer of ownership of the subject property but to burden the same with an encumbrance to
secure the indebtedness incurred by Domeng on the occasion of his employment with Eulalia. The
agreement between Dominador and Eulalia was not avoided in its entirety so as to prevent it from
producing any legal effect at all. Instead, the said transaction is an equitable mortgage, thereby
merely altering the relationship of the parties from seller and buyer, to mortgagor and mortgagee,
while the subject property is not transferred but subjected to a lien in favor of the latter (Sps.
Raymundo, et al. v. Sps. Bandong, G.R. No. 171250, Jul. 4, 2007).
DISTINGUISHED FROM OPTION TO BUY
REDEMPTION
Forms part of the contract of sale
The right must be imbedded in a contract of
sale upon its perfection
Does not need a separate consideration to be
valid and effective
Redemption period cannot exceed 10 years
Notice is required for its exercise
accompanied with tender of
payment/consignment
Its exercise extinguishes a existing contract
of sale
(Villanueva, pp. 519-520, 2009 ed.)

OPTION TO BUY
Principal and preparatory contract
May exist prior to or after the perfection of the sale,
or be imbedded in another contract upon perfection
Separate consideration is needed for it to be valid
and effective
Period for an option right may exceed 10 years
Only notice is required
Its exercise results into the perfection of a contract
of sale

Q: On May 19, 1951, the spouses-sellers executed a public instrument of absolute sale in
favor of the buyer for a consideration which is sufficiently adequate. A few days thereafter,
the buyers executed in favor of the sellers an option to buy within one year, the property
subject of the absolute sale, which option was extended for a month. Prior to the
expiration of said one-year period, the buyer sold said property to a third person.
If the spouses-sellers would file an action for reformation of instrument where they seek
reformation of the absolute sale into one of equitable mortgage, will said action prosper?
A: No, it will not prosper. If a seller has been granted merely an option to buy (not a right to
repurchase) within a certain period, and the price paid by the buyer is adequate, the sale is absolute
and cannot be construed nor presumed to be one of equitable mortgage, even if the period within
which to exercise the option has been extended. (Villarica, et. al. v. CA, G.R. L-19196, Nov. 29, 1968)
Note: SC held that in this case, there was no sale a retro and that the right of repurchase is not a right granted the
seller by the buyer in a separate instrument. Such right is reserved by the vendor in the same instrument of the
sale as one of the stipulations in the contract.
Also, once the instrument of absolute sale is executed, the seller can no longer reserve the right of repurchase and
any right thereafter granted the seller by the buyer cannot be a right of repurchase but some other rights, like that
of an option to buy.

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PERIOD OF REDEMPTION
Period of redemption
1.
2.

No period agreed upon 4 years from date of contract

When there is agreement should not exceed 10 years; but if it exceeded, valid only for the first
10 years.
When period to redeem has expired & there has been a previous suit on the nature of the contract
seller still has 30 days from final judgment on the basis that contract was a sale with pacto de
retro:

3.

Rationale: no redemption due to erroneous belief that it is equitable mortgage which can be
extinguished by paying the loan.
4.

When period has expired & seller allowed the period of redemption to expire seller is at fault for
not having exercised his rights so should not be granted a new period
Note: Tender of payment is sufficient but it is not in itself a payment that relieves the seller from his liability to pay
the redemption price.

Period of redemption begins to run

1.

Right of legal pre-emption or redemption shall be exercised within 30 days from written notice by
the buyer deed of sale not to be recorded in Registry of Property unless accompanied by affidavit
that buyer has given notice to redemptioners
2. When there is actual knowledge, no need to give written notice; period of redemption begins to run
from actual knowledge
Extension of the time to redeem
Parties may extend the period to redeem as long as the total period shall not exceed ten years.
However, such extension can only be granted when the original period has not yet expired. Otherwise,
there exists only a promise to sell on the buyers part (Pineda, pp. 381-382, 2010 ed.).
EXERCISE OF THE RIGHT TO REDEEM
Obligations the vendor a retro if he desires to redeem
The vendor a retro must pay or reimburse the vendee a retro the following:
1.
Price of the sale
2.
Expenses of the contract
3.
Other legitimate expenses
4.
Necessary and useful expenses (Pineda, pp. 397-398, 2010 ed.)
Written notice mandatory
Yes, the notice must be in writing stating the execution of the sale and its particulars. It may be made
in a private or public document. (Pineda, p. 400)
Form for an offer to redeem
There is no prescribed form for an offer to redeem to be properly effected. Hence, it can either be
through a formal tender with consignation of the redemption price within the prescribed period. What
is paramount is the availment of the fixed and definite period within which to exercise the right of legal
redemption.
Note: Art. 1623 does not prescribe any distinctive method for notifying the redemptioner.

Tender of payment
Tender of payment is not necessary; offer to redeem is enough.

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Effect of failure to redeem
There must be judicial order before ownership of real property is consolidated to the buyer a retro.
Q: Can the vendor a retro be compelled to redeem?
A: No. There is no obligation on the part of the vendor a retro to repurchase. He may or may not
exercise the right to repurchase (Pineda, p. 402, 2010 ed).
Trust de son tort
It is a trust created by the purchase or redemption of property by one other than the person lawfully
entitled to do so and in fraud of the other.
Q: Do constructive trusts arise only out of fraud or duress?
A: No. A constructive trust, otherwise known as a trust ex maleficio, a trust ex delicto, a trust de son
tort, an involuntary trust, or an implied trust, is a trust by operation of law which arises contrary to
intention and in invitum, against one who, by fraud, actual or constructive, by duress or abuse of
confidence, by commission of wrong, or by any form of unconscionable conduct, artifice, concealment,
or questionable means, or who in any way against equity and good conscience, either has obtained or
holds the legal right to property which he ought not, in equity and good conscience, hold and enjoy. It
has been broadly ruled that a breach of confidence, although in business or social relations, rendering
an acquisition or retention of property by one person unconscionable against another, raises a
constructive trust. It is raised by equity in respect of property, which has been acquired by fraud, or
where, although acquired originally without fraud, it is against equity that it should be retained by the
person holding it. (Arlegui v. CA G.R. No. 126437, Mar. 6, 2002)
Note: "A constructive trust is substantially an appropriate remedy against unjust enrichment. It is raised by equity
in respect of property, which has been acquired by fraud, or where, although acquired originally without fraud, it is
against equity that it should be retained by the person holding it." (76 Am. Jur. 2d, Sec. 222, p. 447 cited in Arlegui
v. CA G.R. No. 126437, Mar. 6, 2002)

LEGAL REDEMPTION
Legal redemption
Also referred to as retracto legal, it is the right to be subrogated upon the same terms and conditions
stipulated in the contract, in the place of one who acquires the thing by purchase or by dation in
payment or by other transaction whereby ownership is transmitted by onerous title.
Legal redemption is in the nature of a privilege created by law partly for reasons of public policy and
partly for the benefit and convenience of the redemptioner, to afford him a way out of what might be a
disagreeable or [an] inconvenient association into which he has been thrust. It is intended to minimize
co-ownership. xFernandez v. Tarun, 391 SCRA 653 (2002)
Instances of legal redemption
1.
2.
3.
4.
5.

Sale of a co-owner of his share to a stranger (Art. 1620)

When a credit or other incorporeal right in litigation is sold (Art. 1634)
Sale of an heir of his hereditary rights to a stranger (Art. 1088)
Sale of adjacent rural lands not exceeding 1 hectare (Art. 1621)
Sale of adjacent small urban lands bought merely for speculation (Art. 1622)

Other instances when the right of legal redemption is also granted

1.
2.
3.
4.

Redemption
Redemption
Redemption
Redemption

of homestead patents (Sec. 119, C.A. 141)

in tax sales (Sec. 215, NIRC of 1997)
by judgment debtor (Secs. 27-28, Rule 39, Rules of Civil Procedure)
in extrajudicial foreclosure (Sec. 6, Act 3135)

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5.
6.
7.

Redemption in judicial foreclosure of mortgage (Sec. 47,

Redemption in Foreclosure by Rural Banks (R.A. No. 720)
Legal Right to Redeem under Agrarian Reform Code

R.A. 8791)

Basis of legal redemption

It is created partly for reason of public policy and partly for the benefit and convenience of the
redemptioner to afford him a way out of what might be a disagreeable or inconvenient association into
which he has been in trust. It is intended to minimize co-ownership. (Pineda, p. 407, 2010 ed.)
When legal redemption period begins to run
The right of legal redemption shall not be exercised except within 30 days from the notice in writing by
the prospective seller, or seller, 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 seller that he has given written notice
thereof to all possible redemptioners. (Art. 1623, NCC)
Rare Exceptions:
When the sale to the buyer was effected through the co-owner who acted as the broker, and never
indicated that he would exercise his right to redeem. xDistrito v. CA, 197 SCRA 606 (1991).
When the buyers took possession of the property immediately after the execution of the deed of sale in
their favor and lived in the midst of the other co-owners who never questioned the same. xPilapil v. CA,
250 SCRA 560 (1995).
THE SUBDIVISION AND CONDOMINIUM BUYERS PROTECTIVE DECREE (P.D. 957)
Q: Are sales or dispositions of subdivision lots or condominium units prior to the effectivity
of the decree exempt from compliance with the requirements stated therein?
A: No. It shall be incumbent upon the owner or developer of the subdivision or condominium project to
complete compliance with his or its obligations as provided in the decree within two years from the
date of effectivity of the Decree, unless otherwise extended by the Authority or unless an adequate
performance bond is filed.
Note: Failure of the owner or developer to comply with the obligations under this and the preceding provisions shall
constitute a violation punishable under Sections 38 and 39 of the Decree.

sale or sell defined under the Decree

Shall include:
1. Every disposition, or attempt to dispose, for a valuable consideration, of a subdivision lot,
including the building and other improvements thereof, if any, in a subdivision project or a
condominium unit in a condominium project;
2. contract to sell;
3. contract of purchase and sale;
4. exchange;
5. attempt to sell;
6. option of sale or purchase;
7. solicitation of a sale;
8. offer to sell, directly or by an agent, or by a circular, letter, advertisement or otherwise; and
9. a. privilege given to a member of a cooperative, corporation, partnership, or any association
and/or
b. the issuance of a certificate or receipt evidencing or giving the right of participation in, or
right to, any land in consideration of payment of the membership fee or dues. (Deemed sale)
buy and purchase defined under the Decree

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Shall include any contract to buy, purchase, or otherwise acquire for a valuable consideration a
subdivision lot, including the building and other improvements, if any, in a subdivision project or a
condominium unit in a condominium project.
Subdivision project
A tract or a parcel of land registered under Act No. 496 which is partitioned primarily for residential
purposes into individual lots with or without improvements thereon, and offered to the public for sale,
in cash or in installment terms.
Note: It shall include all residential, commercial, industrial and recreational areas as well as open spaces and other
community and public areas in the project.

Subdivision lot
Any of the lots, whether residential, commercial, industrial, or recreational, in a subdivision project.
Complex subdivision plan
A subdivision plan of a registered land wherein a street, passageway or open space is delineated on
the plan.
Condominium project
The entire parcel of real property divided or to be divided primarily for residential purposes into
condominium units, including all structures thereon.
Condominium unit
A part of the condominium project intended for any type of independent use or ownership, including
one or more rooms or spaces located in one or more floors (or part of parts of floors) in a building or
buildings and such accessories as may be appended thereto.
Terms:
1.

Owner.
Registered owner of the land subject of a subdivision or a condominium project.

2.

Developer.
Person who develops or improves the subdivision project or condominium project for and in behalf
of the owner thereof.

3.

Dealer.
Any person directly engaged as principal in the business of buying, selling or exchanging real
estate whether on a full-time or part-time basis.

4.

Broker.
Any person who, for commission or other compensation, undertakes to sell or negotiate the sale of
a real estate belonging to another.

5.

Salesman.

Person regularly employed by a broker to perform, for and in his behalf, any or all functions of a
real estate broker.
Q: What must a registered owner of a parcel of land do if he wishes to convert said
property into a subdivision or condominium project?

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A: He shall:
1. Submit his subdivision plan to the Authority which shall act upon and approve the same, upon
a finding that the plan complies with the Subdivision Standards' and Regulations enforceable at
the time the plan is submitted.
2. If the conversion desired involves a condominium project, the same procedure shall be
followed except that, in addition, the NHA shall act upon and approve the plan with respect to
the building or buildings included in the condominium project in accordance with the National
Building Code (R.A. No. 6541).
3. The subdivision plan, as so approved, shall then be submitted to the Director of Lands for
approval.
4. In case of complex subdivision plans, court approval shall no longer be required.
5. The condominium plan as likewise so approved, shall be submitted to the Register of Deeds of
the province or city in which the property lies and the same shall be acted upon subject to the
conditions and in accordance with the procedure prescribed in Section 4 of the Condominium
Act (R.A. No. 4726).
Q: The owner or the real estate dealer interested in the sale of lots or units, respectively,
in such subdivision project or condominium project shall register the project with the
Authority by filing a sworn registration statement. What shall be contained in the sworn
registration statement?
A:
(a) Name of the owner
(b) The location of the owner's principal business office, and if the owner is a non-resident Filipino, the
name and address of his agent or representative in the Philippines is authorized to receive notice
(c) The names and addresses of all the directors and officers of the business firm, if the owner be a
corporation, association, trust, or other entity, and of all the partners, if it be a partnership
(d) The general character of the business actually transacted or to be transacted by the owner
(e) A statement of the capitalization of the owner, including the authorized and outstanding amounts
of its capital stock and the proportion thereof which is paid-up.
Q: Part of the required documentary attachments to the application is a certificate of title
to the property which is free from all liens and encumbrances. Does this bar an owner of
mortgaged property from engaging in subdivision or condominium project while the
mortgage is in force?
A: No. In case any subdivision lot or condominium unit is mortgaged, it is sufficient if the instrument of
mortgage contains a stipulation that the mortgagee shall release the mortgage on any subdivision lot
or condominium unit as soon as the full purchase price for the same is paid by the buyer.
Q: When is a subdivision or condominium project deemed to be registered?
A: Upon completion of the publication requirement
Note: The fact of such registration shall be evidenced by a registration certificate to be issued to the applicantowner or dealer.

Q: After issuance of the registration certificate, may the owner or dealer already sell
subdivision lots or condominium units?
A: No. He must first obtain a license to sell the project within two weeks from the registration of such
project.
When license to sell is issued
After an examination of the registration statement filed by said owner or dealer and all the pertinent
documents attached thereto, the Authority is convinced that the owner or dealer is of good repute,

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that his business is financially stable, and that the proposed sale of the subdivision lots or
condominium units to the public would not be fraudulent.
Purpose of the requirement of posting of a performance bonds before a license to sell may
be issued
A: It is to guarantee the construction and maintenance of the roads, gutters, drainage, sewerage,
water system, lighting systems, and full development of the subdivision project or the condominium
project and the compliance by the owner or dealer with the applicable laws and rules and regulations.
Q: Is a license to sell and performance bond required in all subdivision and condominium
projects?
A: No. The following transactions are exempt from said requirements:
1. Sale of a subdivision lot resulting from the partition of land among co-owners and co-heirs.
2. Sale or transfer of a subdivision lot by the original purchaser thereof and any subsequent sale
of the same lot.
3. Sale of a subdivision lot or a condominium unit by or for the account of a mortgagee in the
ordinary course of business when necessary to liquidate a bona fide debt.
Q: When may a license to sell be suspended?
A:
1. Upon verified complaint by a buyer of a subdivision lot or a condominium unit in any interested
party, the Authority may, in its discretion, immediately suspend the owner's or dealer's license to
sell pending investigation and hearing of the case.
2. The NHA may motu proprio suspend the license to sell if, in its opinion, any information in the
registration statement filed by the owner or dealer is or has become misleading, incorrect,
inadequate or incomplete or the sale or offering for a sale of the subdivision or condominium
project may work or tend to work a fraud upon prospective buyers.
Q: When may a license to sell or registration of a subdivision or condominium project be
revoked?
A: The Authority may, motu proprio or upon verified complaint filed by a buyer of a subdivision lot or
condominium unit, revoke the registration of any subdivision project or condominium project and the
license to sell any subdivision lot or condominium unit in said project by issuing an order to this effect,
with his findings in respect thereto, if upon examination into the affairs of the owner or dealer during a
hearing, it shall appear there is satisfactory evidence that the said owner or dealer:
1. is insolvent; or
2. has violated any of the provisions of this Decree or any applicable rule or regulation of the
Authority, or any undertaking of his/its performance bond; or
3. has been or is engaged or is about to engage in fraudulent transactions; or
4. has made any misrepresentation in any prospectus, brochure, circular or other literature about
the subdivision project or condominium project that has been distributed to prospective
buyers; or
5. is of bad business repute; or
6. does not conduct his business in accordance with law or sound business principles.
Note: Where the owner or dealer is a partnership or corporation or an unincorporated association, it shall be
sufficient cause for cancellation of its registration certificate and its license to sell, if any member of such
partnership or any officer or director of such corporation or association has been guilty of any act or omission which
would be cause for refusing or revoking the registration of an individual dealer, broker or salesman.

Duration of the registration of dealers, brokers and salesmen

On the thirty-first day of December of each year.
However, in the case of salesmen, their registration shall also cease upon termination of their
employment with a dealer or broker.

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Note: Renewal of registration for the succeeding year shall be granted upon written application therefore made not
less than thirty nor more than sixty days before the first day of the ensuing year and upon payment of the
prescribed fee, without the necessity of filing further statements or information, unless specifically required by the
Authority.
All applications filed beyond said period shall be treated as original applications.

Refusal or revocation of registration as dealers, brokers or salesmen

Such registration may be refused or revoked by the NHA if, after reasonable notice and hearing, it shall
determine that such applicant or registrant has:
1. violated any provision of this Decree or any rule or regulation made hereunder; or
2. made a material false statement in his application for registration; or
3. been guilty of a fraudulent act in connection with any sale of a subdivision lot or condominium
unit; or
4. demonstrated his unworthiness to transact the business of dealer, broker, or salesman, as the
case may be.
Note: The suspension or revocation of the registration of a dealer or broker shall carry with it all the suspension or
revocation of the registration of all his salesmen.

Q: In making advertisements, does the owner or developer make warranties relative to

such?
A: Yes.
1. Advertisements that may be made through newspaper, radio, television, leaflets, circulars or
any other form about the subdivision or the condominium or its operations or activities must
reflect the real facts and must be presented in such manner that will not tend to mislead or
deceive the public.
2. The owner or developer shall answerable and liable for the facilities, improvements,
infrastructures or other forms of development represented or promised in brochures,
advertisements and other sales propaganda disseminated by the owner or developer or his
agents and the same shall form part of the sales warranties enforceable against said owner or
developer, jointly and severally.
Note: Failure to comply with these warranties shall also be punishable in accordance with the penalties provided for
in this Decree.

Q: Within what period must the owner or developer construct and provide the facilities,
improvements, infrastructures and other forms of development, including water supply
and lighting facilities, which are offered and indicated in the approved subdivision or
condominium plans, brochures, prospectus, printed matters, letters or in any form of
advertisement?
A: GR: Within one year from the date of the issuance of the license for the subdivision or condominium
project
XPN: Such other period of time as may be fixed by the Authority.
Q: Is registration needed after the execution of a contract to sell relevant to the sale or
conveyance of subdivision lots and condominium units?
A: Yes. All contracts to sell, deeds of sale and other similar instruments relative to the sale or
conveyance of the subdivision lots and condominium units, whether or not the purchase price is paid in
full, shall be registered by the seller in the Office of the Register of Deeds of the province or city where
the property is situated.
Q: Can mortgage be made by the owner or developer without permission?
A: No. There must be prior written approval of the Authority.

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Q: When is approval given by the Authority?
A: When it is shown that the proceeds of the mortgage loan shall be used for the development of the
condominium or subdivision project and effective measures have been provided to ensure such
utilization.
Q: What is the rule if the owner desires to make alterations in the approved subdivision
plan?
A: GR: No owner or developer shall change or alter the roads, open spaces, infrastructures, facilities
for public use and/or other form of subdivision development as contained in the approved subdivision
plan and/or represented in its advertisements
XPN: If he has obtained the permission of the Authority and the written conformity or consent of
the duly organized homeowners association, or in the absence of the latter, by the majority of the
lot buyers in the subdivision.
Q: May payment made by a buyer be forfeited in favor of the owner or developer in case
the buyer desists from further payment due to the failure of the owner or developer to
develop the subdivision or condominium project according to the approved plan within the
time limit provided for such? What is the buyers remedy in this case?
A: No, such forfeiture is not allowed. 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.
Q: Does a defaulting buyer have any right under the Decree?
A: Yes. 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.
Where the transaction or contract was entered into prior to the effectivity of Republic Act No. 6552 on
August 26, 1972, the defaulting buyer shall be entitled to the corresponding refund based on the
installments paid after the effectivity of the law in the absence of any provision in the contract to the
contrary.
Q: What is the owner or developers obligation in case the lot bought and fully-paid by the
buyer is mortgaged?
A: In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to
the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof
within six months from such issuance in order that the title over any fully paid lot or unit may be
secured and delivered to the buyer in accordance herewith.
Q: May the parties waive compliance with the decree?
A: No. Any condition, stipulation, or provision in contract of sale whereby any person waives
compliance with any provision of the Decree or of any rule or regulation issued thereunder shall be
void.
Q: When will there be non-forfeiture of installment payments paid by the buyer?
A: No installment payment 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. (Sec. 23, P.D. 957)
Q: What is the remedy of the buyer in case of non-compliance by the owner or developer of
the approved plans within the time limit?

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A: 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. (Sec. 23, P.D. 957)
Notice not required in the demand of refund
No. Section 23 of P.D. 957 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 (Villanueva, p. 408, 2009 ed.)
Q: What are the rights of the buyer in case he defaults in his installment payment due to
causes other than the failure of the owner or developer to develop the project?
A: Where the transaction or contract was entered into prior to the effectivity of Republic Act No. 6552,
the defaulting buyer shall be entitled to the corresponding refund based on the installments paid after
the effectivity of the law in the absence of any provision in the contract to the contrary (Sec. 24, P.D.
957)
Take-Over Development
The NHA may take over or cause the development and completion of the subdivision or condominium
project at the expenses of the owner or developer, jointly and severally, in cases where the owner or
developer has refused or failed to develop or complete the development of the project as provided for
in the Decree.
Note: The Authority may, after such take-over, demand, collect and receive from the buyers the installment
payments due on the lots, which shall be utilized for the development of the subdivision.

THE CONDOMINIUM ACT (RA 4726)

Condominium
It is an interest in real property consisting of separate interest in a unit in a residential, industrial or
commercial building and an undivided interest in common, directly or indirectly, in the land on which it
is located and in other common areas of the building.
Note: It may include, in addition, a separate interest in other portions of such real property.

Real right in condominium

The real right in condominium may be ownership or any other interest in real property recognized by
law, on property in the Civil Code and other pertinent laws.
Condominium unit
A: It is a part of the condominium project intended for any type of independent use or ownership,
including one or more rooms or spaces located in one or more floors (or part or parts of floors) in a
building or buildings and such accessories as may be appended thereto.
Condominium project
It is the entire parcel of real property divided or to be divided in condominiums, including all structures
thereon,
Common areas
The entire project excepting all units separately granted or held or reserved.
to divide real property

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To divide the ownership thereof or other interest therein by conveying one or more condominiums
therein but less than the whole thereof.
Rule as regards acquisition of ownership over common areas
Transfer or conveyance of a unit or apartment, office or store or other space therein shall include the
transfer or conveyance of the undivided interests in the common areas or, in a proper case, the
membership or shareholdings in the condominium corporation
Restrictions as regards ownership of condominium units provided under the Condominium
Act
1.

As regards individuals:
GR: None.
XPN: where the common areas in the condominium project are owned by the owners of separate
units as co-owners thereof, no condominium unit therein shall be conveyed or transferred to
persons other than:
1. Filipino citizens, or
2. Corporations at least sixty percent of the capital stock of which belong to Filipino citizens
XPN to the XPN: in cases of hereditary succession.

2.

As regards corporations:
Where the common areas in a condominium project are held by a corporation, no transfer or
conveyance of a unit shall be valid if the concomitant transfer of the appurtenant membership or
stockholding in the corporation will cause the alien interest in such corporation to exceed the limits
imposed by existing laws.

Note: Under Republic Act (R.A.) No. 4726, otherwise known as the Condominium Act, foreign nationals can own
Philippine real estate through the purchase of condominium units or townhouses constituted under the
Condominium principle with Condominium Certificates of Title. The law provides that no condominium unit can be
sold without at the same time selling the corresponding amount of rights, shares or other interests in the
condominium management body, the Condominium Corporation; and no one can buy shares in a Condominium
Corporation without at the same time buying a condominium unit. It expressly allows foreigners to acquire
condominium units and shares in condominium corporations up to not more than 40% of the total and outstanding
capital stock of a Filipino-owned or controlled corporation. Under this set up, the ownership of the land is legally
separated from the unit itself (Hulst v. PR Builders, Inc., G.R. No. 156364, September 25, 2008).

Incidents of a condominium grant

Unless otherwise expressly provided in the enabling or master deed or the declaration of restrictions,
the incidents of a condominium grant are as follows:
1. The boundary of the unit granted are the interior surfaces of the perimeter walls, floors,
ceilings, windows and doors thereof.
Note: The following are not part of the unit bearing walls, columns, floors, roofs, foundations and other
common structural elements of the building:
a.
b.
c.
d.

e.
2.

lobbies, stairways, hallways, and other areas of common use,

elevator equipment and shafts, central heating,
central refrigeration and central air-conditioning equipment,
reservoirs, tanks, pumps and other central services and facilities,
pipes, ducts, flues, chutes, conduits, wires and other utility installations, wherever located, except
the outlets thereof when located within the unit.

There shall pass with the unit, as an appurtenance thereof, an exclusive easement for the use
of the air space encompassed by the boundaries of the unit as it exists at any particular time
and as the unit may lawfully be altered or reconstructed from time to time.
Note: Such easement shall be automatically terminated in any air space upon destruction of the unit as to
render it untenantable.

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3.

Common areas are held in common by the holders of units, in equal shares, one for each unit,
unless otherwise provided.

4.

A non-exclusive easement for ingress, egress and support through the common areas is
appurtenant to each unit and the common areas are subject to such easements.

5.

Each condominium owner shall have the exclusive right to paint, repaint, tile, wax, paper or
otherwise refinish and decorate the inner surfaces of the walls, ceilings, floors, windows and
doors bounding his own unit.

6.

Each condominium owner shall have the exclusive right to mortgage, pledge or encumber his
condominium and to have the same appraised independently of the other condominiums but
any obligation incurred by such condominium owner is personal to him.

7.

GR: Each condominium owner has also the absolute right to sell or dispose of his
condominium.
XPN: If the master deed contains a requirement that the property be first offered to the
condominium owners within a reasonable period of time before the same is offered to outside
parties;

Common areas be divided through judicial partition

GR: Common areas shall remain undivided, and there shall be no judicial partition thereof.
XPN: Where several persons own condominiums in a condominium project, an action may be
brought by one or more such persons for partition thereof by sale of the entire project, as if the
owners of all of the condominiums in such project were co-owners of the entire project in the same
proportion as their interests in the common areas:
Note: However, a partition shall be made only upon a showing that:
1. three years after damage or destruction to the project which renders material part thereof unit for its use
prior thereto, the project has not been rebuilt or repaired substantially to its state prior to its damage or
destruction, or
2. damage or destruction to the project has rendered one-half or more of the units therein untenantable and
that condominium owners holding in aggregate more than thirty percent interest in the common areas are
opposed to repair or restoration of the project; or
3. the project has been in existence in excess of fifty years, that it is obsolete and uneconomic, and that
condominium owners holding in aggregate more than fifty percent interest in the common areas are
opposed to repair or restoration or remodeling or modernizing of the project; or
4. the project or a material part thereof has been condemned or expropriated and that the project is no
longer viable, or that the condominium owners holding in aggregate more than seventy percent interest in
the common areas are opposed to continuation of the condominium regime after expropriation or
condemnation of a material portion thereof; or
5. the conditions for such partition by sale set forth in the declaration of restrictions, duly registered in
accordance with the terms of the Act, have been met.

Requirements before a property be considered divided or to be divided into condominiums

A: An enabling or master deed must be recorded in the Register of Deeds of the province or city in
which the property lies and duly annotated in the corresponding certificate of the title of the land, if
the latter has been patented or registered under either the Land Registration or Cadastral Acts (Sec. 4,
R.A. 4726).
Enabling or master deed contains:
1. Description of the land on which the building or buildings and improvements are or are to be
located;
2. Description of the building or buildings, stating the number of stories and basements, the number of
units and their accessories, if any;

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3. Description of the common areas and facilities;
4. A statement of the exact nature of the interest acquired or to be acquired by the purchaser in the
separate units and in the common areas of the condominium project. Where title to or the appurtenant
interests in the common areas are or are to be held by a condominium corporation, a statement to this
effect shall be included;
5. Statement of the purposes for which the building or buildings and each of the units are intended or
restricted as to use;
6. A certificate of the registered owner of the property, if he is other than those executing the master
deed, as well as of all registered holders of any lien or encumbrance on the property, that they consent
to the registration of the deed;
7. The following plans shall be appended to the deed as integral parts thereof:
a. A survey plan of the land included in the project, unless a survey plan of the same property had
previously been filed in said office;
b. A diagrammatic floor plan of the building or buildings in the project, in sufficient detail to
identify each unit, its relative location and approximate dimensions;
8. Any reasonable restriction not contrary to law, morals or public policy regarding the right of any
condominium owner to alienate or dispose of his condominium.
Note: The enabling or master deed may be amended or revoked upon registration of an instrument executed by
the registered owner or owners of the property and consented to by all registered holders of any lien or
encumbrance on the land or building or portion thereof. The term registered owner shall include the registered
owners of condominiums in the project. Until registration of a revocation, the provisions of RA. No. 4726 shall
continue to apply to such property (Sec. 4, R.A. 4726).

Q: What is the rule regarding issuance of certificate of title where the enabling or master
deed provides that the land included within a condominium project are to be owned in
common by the condominium owners therein?
A: The Register of Deeds may, at the request of all the condominium owners and upon surrender of all
their "condominium owner's" copies, cancel the certificates of title of the property and issue a new one
in the name of said condominium owners as pro-indiviso co-owners thereof.
How construed - deeds, declarations or plans for a condominium project
1.
2.

Liberally, to facilitate the operation of the project

Provisions shall be presumed to be independent and severable.

Q: When should a declaration of restrictions be registered and what is the effect of such?
A: The owner of a project shall, prior to the conveyance of any condominium therein, register a
declaration of restrictions relating to such project.
Such restrictions shall constitute a lien upon each condominium in the project, and shall insure to and
bind all condominium owners in the project.
Note: Such liens, unless otherwise provided, may be enforced by any condominium owner in the project or by the
management body of such project.

Declaration of restrictions
The declaration of restrictions shall provide for the management of the project by anyone of the
following management bodies:
1. a condominium corporation,
2. an association of the condominium owners,
3. a board of governors elected by condominium owners, or
4. a management agent elected by the owners or by the board named in the declaration.

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5.
6.
7.
8.
9.

voting majorities,
quorums,
notices,
meeting date, and
other rules governing such body or bodies.

Q: What may a declaration of restrictions provide?

A: Such declaration of restrictions, among other things, may also provide:
1. As to any such management body;
a.For the powers thereof, including power to enforce the provisions of the declarations of
restrictions;
b.For maintenance of insurance policies, insuring condominium owners against loss by fire,
casualty, liability, workmen's compensation and other insurable risks, and for bonding of
the members of any management body;
c. Provisions for maintenance, utility, gardening and other services benefiting the common
areas, for the employment of personnel necessary for the operation of the building, and
legal, accounting and other professional and technical services;
d.For purchase of materials, supplies and the like needed by the common areas;
e.For payment of taxes and special assessments which would be a lien upon the entire
project or common areas, and for discharge of any lien or encumbrance levied against the
entire project or the common areas;
f. For reconstruction of any portion or portions of any damage to or destruction of the
project;
g.The manner for delegation of its powers;
h.For entry by its officers and agents into any unit when necessary in connection with the
maintenance or construction for which such body is responsible;
i. For a power of attorney to the management body to sell the entire project for the benefit of
all of the owners thereof when partition of the project may be authorized under Section 8
of the Condominium Act, which said power shall be binding upon all of the condominium
owners regardless of whether they assume the obligations of the restrictions or not.
2. The manner and procedure for amending such restrictions: Provided, That the vote of not less
than a majority in interest of the owners is obtained.
3. For independent audit of the accounts of the management body;
4. For reasonable assessments to meet authorized expenditures, each condominium unit to be
assessed separately for its share of such expenses in proportion (unless otherwise provided) to
its owners fractional interest in any common areas;
5. For the subordination of the liens securing such assessments to other liens either generally or
specifically described;
6. For conditions, other than those provided for in Sections 8 and 13 of the Act, upon which
partition of the project and dissolution of the condominium corporation may be made.
Note: Such right to partition or dissolution may be conditioned upon:
a. failure of the condominium owners to rebuild within a certain period;
b. specified inadequacy of insurance proceeds;
c. specified percentage of damage to the building;
d. a decision of an arbitrator; or
e. upon any other reasonable condition.

Duty of the Register of Deeds

The Register of Deeds shall enter and annotate the declaration of restrictions upon the certificate of
title covering the land included within the project, if the land is patented or registered under the Land
Registration or Cadastral Acts.
Restrictions imposed by the law upon corporations which is also the management body of
the condominium project
The restrictions are as follows:
1. The corporate purposes of such a corporation shall be limited to the:
a. holding of the common areas, either in ownership or any other interest in real property
recognized by law,

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b.
c.
2.

management of the project, and

to such other purposes as may be necessary, incidental or convenient to the
accomplishment of said purposes.
The articles of incorporation or by-laws of the corporation shall not contain any provision
contrary to or inconsistent with the:
a. provisions of the Act;
b. enabling or master deed; or
c. declaration of restrictions of the project.

Q: May the management body acquire and hold, for the benefit of the condominium
owners, tangible and intangible personal property and dispose of the same by sale or
otherwise?
A: Yes, unless otherwise provided for by the declaration of restrictions.
Note: The beneficial interest in such personal property shall be owned by the condominium owners in the same
proportion as their respective interests in the common areas.
A transfer of a condominium shall transfer to the transferee ownership of the transferor's beneficial interest in such
personal property.

Condominium corporation
A corporation specially formed for the purpose, in which the holders of separate interest shall
automatically be members or shareholders, to the exclusion of others, in proportion to the appurtenant
interest of their respective units in the common areas.
Note: As regards title to the common areas, including the land, or the appurtenant interests in such areas, these
may be held by a condominium corporation.

Term of a condominium corporation

Co-terminous with the duration of the condominium project, the provisions of the Corporation Law to
the contrary notwithstanding.
Membership in a condominium corporation
Membership in a condominium corporation, regardless of whether it is a stock or non-stock
corporation, shall not be transferable separately from the condominium unit of which it is an
appurtenance.
Note: When a member or stockholder ceases to own a unit in the project in which the condominium corporation
owns or holds the common areas, he shall automatically cease to be a member or stockholder of the condominium
corporation.

Q: May a condominium corporation sell, exchange, lease or otherwise dispose of the

common areas owned or held by it in the condominium project?
A: GR: During its existence, it cannot do so.
XPN: If authorized by the affirmative vote of all the stockholders or members.
Appraisal right under the Corporation Code available to stockholders or members of a
condominium corporation
GR: Not available. The law provides that the by-laws of a condominium corporation shall provide that
a stockholder or member shall not be entitled to demand payment of his shares or interest in those
cases where such right is granted under the Corporation Law xxx
XPN: If said stockholder or member consents to sell his separate interest in the project to the
corporation or to any purchaser of the corporation's choice who shall also buy from the corporation
the dissenting member or stockholder's interest.

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Note: In case of disagreement as to price, the procedure set forth in the appropriate provision of the
Corporation Law for valuation of shares shall be followed.
The corporation shall have two years within which to pay for the shares or furnish a purchaser of its choice from
the time of award.
All expenses incurred in the liquidation of the interest of the dissenting member or stockholder shall be borne
by him.

Effect of involuntary dissolution of a condominium corporation for any of the causes

provided by law
1.

The common areas owned or held by the corporation shall, by way of liquidation, be transferred
pro-indiviso and in proportion to their interest in the corporation to the members or stockholders
thereof, subject to the superior rights of the corporation creditors.
Note: Such transfer or conveyance shall be deemed to be a full liquidation of the interest of such members or
stockholders in the corporation.

2.

After such transfer or conveyance, the provisions of this Act governing undivided co-ownership of,
or undivided interest in, the common areas in condominium projects shall fully apply.

When voluntary dissolution of a condominium corporation allowed

A condominium corporation may be voluntarily dissolved only:
1. when the enabling or the master deed of the project in which the condominium corporation
owns or holds the common area is revoked; and
2. upon a showing that:
a. three years after damage or destruction to the project in which the corporation owns or
holds the common areas, which damage or destruction renders a material part thereof
unfit for its use prior thereto, the project has not been rebuilt or repaired substantially to
its state prior to its damage or destruction; or
b. damage or destruction to the project has rendered one-half or more of the units therein
untenantable and that more than thirty percent of the members of the corporation, if nonstock, or the shareholders representing more than thirty percent of the capital stock
entitled to vote, if a stock corporation, are opposed to the repair or reconstruction of the
project, or
c. the project has been in existence in excess of fifty years, that it is obsolete and
uneconomical, and that more than fifty percent of the members of the corporation, if nonstock, or the stockholders representing more than fifty percent of the capital stock entitled
to vote, if a stock corporation, are opposed to the repair or restoration or remodeling or
modernizing of the project; or
d. the project or a material part thereof has been condemned or expropriated and that the
project is no longer viable, or that the members holding in aggregate more than seventy
percent interest in the corporation, if non-stock, or the stockholders representing more
than seventy percent of the capital stock entitled to vote, if a stock corporation, are
opposed to the continuation of the condominium regime after expropriation or
condemnation of a material portion thereof; or
e. the conditions for such a dissolution set forth in the declaration of restrictions of the
project in which the corporation owns or holds the common areas, have been met.
Note: An action for voluntary dissolution is that under Rule 104 of the Rules of Court.

Q: May the members or stockholders of a condominium corporation dissolve such

corporation?
A: Yes, by the affirmative vote of all the stockholders or members thereof at a general or special
meeting duly called for the purpose: Provided, that all the requirements of Section 62 of the
Corporation Law are complied with.
Consequence of voluntary dissolution of a condominium corporation

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GR: The corporation shall be deemed to hold a power of attorney from all the members or
stockholders to sell and dispose of their separate interests in the project.
XPN: Unless otherwise provided for in the declaration of restrictions
Liquidation of a condominium corporation
Liquidation of the corporation shall be effected by a sale of the entire project as if the corporation
owned the whole thereof, subject to the rights of the corporate and of individual condominium
creditors.
Q: What should the Court do if, in an action for partition of a condominium project or for
the dissolution of condominium corporation on the ground that the project or a material
part thereof has been condemned or expropriated, the Court finds that the conditions
provided for in the Condominium Act or in the declaration of restrictions have not been
met?
A: The Court may decree a reorganization of the project, declaring which portion or portions of the
project shall continue as a condominium project, the owners thereof, and the respective rights of said
remaining owners and the just compensation, if any, that a condominium owner may be entitled to due
to deprivation of his property.
Note: Upon receipt of a copy of the decree, the Register of Deeds shall enter and annotate the same on the
pertinent certificate of title.

Q: If real property has been divided into condominiums, how will it be assessed for
taxation purposes?
A: Each condominium separately owned shall be separately assessed, for purposes of real property
taxation and other tax purposes to the owners thereof and the tax on each such condominium shall
constitute a lien solely thereon.
Q: Who should pay for an assessment upon any condominium made in accordance with a
duly registered declaration of restrictions?
A: It is an obligation of the owner thereof at the time the assessment is made.
Notice of assessment
The notice:
1. is to be registered with the Register of Deeds of the city or province where such condominium
project is located.
2. shall state the following:
a. amount of such assessment and such other charges thereon as may be authorized by the
declaration of restrictions,
b. a description of the condominium unit against which same has been assessed, and
c. the name of the registered owner thereof.
3. Such notice shall be signed by an authorized representative of the management body or as
otherwise provided in the declaration of restrictions.
Q: What is the effect if the management body causes a notice of assessment to be
registered with the register of deeds?
A: The amount of any such assessment plus any other charges thereon, such as interest, costs
(including attorney's fees) and penalties, as such may be provided for in the declaration of restrictions,
shall be and become a lien upon the condominium assessed.
Note: Effect of payment: Upon payment of said assessment and charges or other satisfaction thereof, the
management body shall cause to be registered a release of the lien.

Lien created in case of unpaid assessments, etc

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GR: Such lien shall be superior to all other liens registered subsequent to the registration of said notice
of assessment
XPNs:
1. real property tax liens are superior;
2. when declaration of restrictions provide for the subordination thereof to any other liens and
encumbrances.
Enforcement of the lien
Such liens may be enforced in the same manner provided for by law for the judicial or extra-judicial
foreclosure of mortgages of real property.
Q: Can the management body bid in the foreclosure sale based on the lien for unpaid
assessments?
A: GR: No, the management body shall have power to bid at foreclosure sale.
XPN: Unless otherwise provided for in the declaration of restrictions,
Note: The condominium owner shall have the same right of redemption as in cases of judicial or extra-judicial
foreclosure of mortgages.