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Sale may be annulled based on vice of consent
S ALES
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).
Elements:
1. Essential those without which, there can be no valid
sale. The elements of an ordinary contract (consent /
meeting of the minds; object / subject; and cause /
consideration).
2. Natural those which are inherent and are deemed to
exist even in the absence of a contrary provision, save
those in the contrary stipulation (warranties against
eviction and hidden defects).
3. Accidental those which are dependent on the parties
stipulation (e.g. conditions, interest, penalty, time or
place of payment).
Characteristics: [NPB-OC2T]
1. Nominate it has been given a particular name by law
2. Principal it can stand on its own, and does not
depend on another contract for its validity
3. Bilateral it imposes obligation on both parties
a. Obligation of seller to transfer ownership of and
deliver a determinate thing
b. Obligation of buyer to pay a price certain in money
or its equivalent
Consequence of being bilateral: the power to rescind is
implied in bilateral contracts (Art. 1191).
4. Onerous it imposes a valuable consideration
Consequence: all doubts in construing an onerous
contract shall be resolved in greater reciprocity of
interests (Art. 1378).
5. Commutative it is a contract wherein a thing of value
is exchanged for equal value, i.e. the value of the
subject matter is equivalent to the price paid
Test: So long as the party believes in all honesty that
he is receiving equal value for what he gave up for, then
it complies with the commutative character of the sale
and would not be deemed a donation or an aleatory
contract.
Note: Gross inadequacy of price does not affect a
contract of sale (Art. 1470 and Art. 1355).
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regarding inadequacy but not on inadequacy per se
(Art. 1355).
6. Consensual it is perfected by mere consent.
Consequence: The actual delivery of the subject
matter or payment of the price agreed upon are not
necessary components to establish the existence of a
valid contract of sale; and their non-performance do not
also invalidate or render void a sale that has began to
exist as a valid contract at perfection. Non-performance
merely becomes the legal basis for remedies of either
specific performance or rescission, with damages in
either case (Gabelo v. Court of Appeals, G.R. No.
111743, October 8, 1999).
7. Title; Not a Mode it is a title and not a mode of
transferring ownership.
Mode
It is the legal means by which dominion or ownership is
created, transferred or destroyed.
Title
It only constitutes the legal basis by which to affect
dominion or ownership. Therefore, sale by itself does not
transfer or affect ownership. The most that it does is to
create the obligation to transfer ownership. It is delivery
that transfers ownership (Villanueva, Cesar L., Law on
Sales, 2009 ed., p.15).
Two Major Types of Contract of Sale:
1. Absolute sale no conditions attached; transfer of
ownership is vested upon delivery.
2. Conditional sale subject to certain conditions; delivery
does not transfer ownership until the condition is fulfilled
(Art. 1458, par. 2).
Test: If the condition is imposed upon the sellers
obligation to transfer the ownership of and deliver the
thing, there is a conditional sale. Note that the essence of
sale is the acquisition of ownership.
However, if the condition is imposed upon the buyers
obligation to pay the price, the sale is still absolute.
Payment of the purchase price is part of the
consummation stage (not perfection stage) of the contract
of sale. Perfection of the contract of sale is not affected by
the fact that payment is subject to conditions, it being the
case that a contract of sale is perfected by mere consent.
D ISTI NGUISHED FROM OTHER
C ONTR ACTS
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Contract for Piece of

Sale
Work
Existence of thing
A. Sale and Agency to Sell (Art. 1466) The thing transferred is
Sale Agency to Sell one which would have The thing transferred is not
Transfer of ownership existed and would have in existence and would
been the subject of sale to never have existed but for
Agent receives the goods some other person, even if the order of the party
Buyer receives the goods as goods of the principal the order had not been desiring to acquire it
as owner who retains his ownership given
over them Object of the contract
Obligation as regards the price The primary objective of
Agent delivers the price, the contract is a sale of the
Buyer pays the price which he got from his manufactured item; it is a
The services dominate the
buyer, to his principal sale of goods even though
contract even though there
Right to return the thing the item is manufactured
is a sale of goods involved
by labor furnished by the
Agent can return the seller and upon previous
Buyer, as a general rule,
goods in case he is unable order of the customer
cannot return the object
to sell the same to a third
sold Applicability of Statute of Frauds
person
Governed by the Statute of Not within the Statute of
Warranty as to the object sold Frauds Frauds
Agent makes no warranty
for which he assumes Rules to determine if the contract is one of sale or a
Seller warrants the thing personal liability as long as piece of work:
sold he acts within his authority 1. Sale If ordered or manufactured in the ordinary course
and in the name of the of business.
seller 2. Piece of work If manufactured especially for the
Right over the thing customer and upon his special order, and not for the
general market (Art. 1467).
Agent in dealing with the
Buyer can deal with the
thing received, must act
thing sold as he pleases Schools of Thought:
according to the
being the owner 1. Massachusetts Rule: If specially done at the order of
instructions of the principal
another, this is a contract for a piece of work (Philippine
Revocability Application).
Essentially revocable, 2. New York Rule: If the thing already existsSALE; if not
Contract of sale is not because it covers an - WORK.
unilaterally revocable underlying fiduciary 3. English Rule: If material is more valuableSALE ; if
relationship between the skill is more valuable WORK.
principal and the agent
C. Sale and Barter (Art. 1638)
The transfer of title or agreement to transfer it for a price Sale Barter
paid is the essence of sale. If such transfer puts the Nature
transferee in the position of an owner and makes him A thing is given in
A thing is given in
liable for the agreed price, the transaction is a SALE. On exchange of money or its
exchange of another thing
the other hand, the essence of an agency to sell is the equivalent
delivery to an agent, not as his property, but as the Applicable Law
property of his principal, who remains the owner and has Law on Sales Law on Sales
the right to control sales, fix the price and terms, demand If the consideration is partly in money and partly in
and receive the proceeds less the agent's commission another thing
upon sales made (Kerr v. Lingad, G.R. No. L-20871 April 1. The transaction is characterized by the manifest
30, 1971). intention of the parties
2. If there is no manifest intention
B. Sale and Contract for Piece of Work (Art. 1467) a. BARTER if the value of the thing is more valuable

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Sale Barter delivered

than money Significance of price of object
b. SALE if the value of the thing is equal or less than The price of the object,
the amount of money. Usually, the selling price is distinguished from the
mentioned rent, is usually not
Rule on Money Exchange mentioned
If local currency is exchanged for foreign currency there is
purchase and sale. F. Sale and Contract to Sell With Reserved Title
Contract of Sale Contract to Sell
If the local currency is exchanged with other
Obligation Created
denominations of the local currency also, there is barter.
The perfection of the The perfection of the
The rule is the same if a foreign currency is exchanged in contract gives rise to contract only gives rise to a
the Philippines for another foreign currency (Pineda, Civil reciprocal demandable reciprocal suspensive
Code of the Philippines Annotated V, 2010 ed., p. 42). obligations: on the part of conditional obligation (i.e.
the seller, obligations to non-demandable
D. Sale and Dation in Payment transfer ownership and obligations until the
Sale Dation in Payment deliver possession of the condition happens) on the
Existence of Credit subject matter; on the part part of the seller to transfer
No pre-existing credit Pre-existing credit of the buyer, to pay a ownership, only upon
price certain in money or fulfillment of the obligation
Obligation
its equivalent. of the buyer to pay the
Obligations are
Obligations are created price in full.
extinguished
Consideration Transfer of ownership
On the part of the debtor: Title passes to the buyer Ownership is reserved in
On the part of the seller: the extinguishment of the upon delivery of the thing the seller and will pass only
the price debt sold to the buyer upon full
payment of the price.
On the part of the buyer: On the part of the creditor: Effect of non-payment of price
the acquisition of the the acquisition of the
Failure to pay is a Full payment is a positive
object object offered in lieu of the
negative resolutory suspensive condition, the
original credit
condition which puts an failure of which is not a
Determination of price
end to the transaction; breach but prevents the
Greater freedom in Less Freedom in obligation of the vendor to
determining the price determining the price Remedies: convey title from having
Payment of price a. Specific performance binding force
The payment is received b. Rescission (Art. 1191)
Buyer still has to pay the
by the debtor before the In case there has been
price
contract is perfected. delivery of the thing to the
prospective buyer and the
E. Sale and Lease buyer refuses to surrender
Sale Lease the thing to the seller, no
Transfer of Ownership further legal action need be
No transfer of ownership taken other than an action
because the rights of the to recover possession.
Ownership is transferred
lessee are limited to the
upon delivery
use and enjoyment of the Contract to Sell
thing leased 1. Exclusive right and privilege to purchase an object.
Extent of transfer 2. A bilateral contract where the prospective seller, while
Permanent Temporary expressly reserving the ownership of the subject
Who may convey the property property despite delivery thereof to the prospective
Seller must be the owner Lessor need not be the buyer, binds himself to sell the said property exclusively
at the time the property is owner to the prospective buyer upon fulfillment of the positive

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suspensive condition - full payment of the purchase becomes absolute which previous sale of property
price. Failure to do so is not a breach but a situation affects sellers title despite fulfillment of
preventing the obligation of the vendor to convey title suspensive condition)
from acquiring obligatory force. Thus, for its non- The third person becomes
fulfillment, there will be no contract to speak of (Zamora buyer in bad faith if he The third person is not a
Realty and Development Corporation v. Office of the possesses constructive or buyer in bad faith
President, G.R. No. 165724, November 2, 2006). actual knowledge of defect
3. Absent a proviso in the contract that the title to the in sellers title Prospective buyer cannot
property is reserved in the vendor until full payment of seek relief of
the purchase price or a stipulation giving the vendor the Subsequent buyer cannot reconveyance of property,
right to unilaterally rescind the contract the moment the defeat the first buyers title but only sue under Art 19
vendee fails to pay within the fixed period, the (unjustified disregard of
transaction is an absolute contract of sale not a contract right)
to sell (Dignos v. CA, G.R. No. L-59266. February 29,
1988).

The real character of the contract is NOT the title given, O BJECT OF S ALE
but the intention of the parties. Although a document is
denominated as Deed of Absolute Sale, and there is no A. RIGHTS
provision therein of reservation of ownership to the seller, Requisites:
it will be construed as a Contract to Sell if the true intent of 1. Transmissible or personal; and
the parties is to transfer the ownership of the properties 2. Licit.
only upon the buyers full payment of the purchase price
(Sps. Orden, et. al. v. Sps. Aurea, et. al., G.R. No. Exceptions:
172733, August 20, 2008). 1. Future inheritance (Art. 1088);
2. Service (Art. 1347).
Other Cases of Contract to Sell
1. Where subject matter is indeterminate;
2. Sale of future goods;
3. Stipulation that deed of sale and corresponding B. THINGS
certificate of sale would be issued only after full Requisites:
payment. 1. Actual or possible (Arts. 1461,1462 and 1465);
2. Licit (Art. 1459);
Conditional Sale and Contract to Sell; Distinguished 3. Determinate or at least determinable (Arts. 1458 &
Conditional Sale Contract to Sell 1460).
Reservation of title to the subject property
In both cases the seller may reserve the title to property Actual or Possible Thing
until fulfillment of the suspensive condition (e.g. It must be existing, future, or subject to resolutory
payment) condition.
Effect of fulfillment of suspensive condition
Ownership is not A thing is actual when it is existing.
automatically transferred
The sale is perfected; if A thing is possible when it has potential existence.
to the buyer (even if there
there has been previous
has been previous delivery
delivery of subject property Goods
to him) upon fulfillment of
to the buyer, ownership Include all but not things in action or money of legal
suspensive condition (i.e.
automatically transfers to tender in the Philippines.
full payment of purchase
the buyer by operation of
price). Seller still has to
law without any further act Kinds of Goods:
convey title to prospective
on the part of the seller 1. Existing goods those that are owned or possessed by
buyer by entering into a
contract of absolute sale. the seller may be the object of sale (Art. 1462).
Effect of sale of the subject property to 3rd persons
Upon fulfillment of There is no double sale Art. 1459 provides that the seller must have the right to
suspensive condition, sale (because there is no transfer the ownership at the time the thing is delivered.

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Hence, it is not required that the seller is the owner of Emptio Rei Speratae Emptio Spei
the thing at the moment of the perfection of the contract Definition
of sale. Sale of a mere hope or
Sale of a thing with expectancy that the thing
2. Future goods cover goods that are to be potential existence will come to existence;
manufactured, raised, or acquired by the seller after the Sale of the hope itself
perfection of the contract of sale (Art. 1462). Effectivity of the contract
Sale is subject to the Sale is effective even if the
Property or goods, which, at the time of the sale are not condition that the thing will thing does not come into
owned by the seller but which thereafter are to be exist; if it does not, there is existence, UNLESS it is a
acquired by him, cannot be the subject of an executed no contract vain hope
sale but may be the subject of a contract for the future Uncertainty
sale and delivery thereof, even though the acquisition of The uncertainty is with
the goods depends upon a contingency which may or The uncertainty is with
regard to the quantity and
may not happen. In such case, the vendor assumes the regard to the existence of
quality of the thing and not
risk of acquiring the title and making the conveyance, or the thing
the existence of the thing
responding in damages for the vendee's loss of his Object of sale
bargain (Martin v. Reyes, L-4402, July 28, 1952). The object is a present
The object is a future thing thing which is the hope or
Note: The sole owner of a thing may sell an undivided expectancy
interest therein (Art. 1463). The effect is that the buyer
becomes a co-owner in the thing sold. Note: In case of doubt, the presumption is in favor of
emptio rei speratae; it is more in keeping with the
An undivided share of a specific mass may be sold commutative character of the contract.
(Art. 1464). The effect is that the buyer becomes a co-
owner with the seller of the whole mass in the proportion General Rule: A person cannot sell or convey what he
in which the definite share bought bears to the mass. does not have or own.
If later on, it be discovered that the mass of fungible Exceptions:
goods contains less than what was sold, the buyer 1. Sale of a thing having potential existence (Art. 1461);
becomes the owner of the whole mass, and the seller 2. Sale of future goods (Art. 1462);
shall supply whatever is lacking from goods of the same 3. Contract for the delivery at a certain price of an article
kind and quality. which the vendor in the ordinary course of the business
manufactures or procures for the general market,
Things subject to a resolutory condition (e.g. pacto de whether the same is on hand at the time or not (Art.
retro sale) may be the object of the contract of sale (Art. 1467).
1465).
Licit
Emptio Rei Speratae A thing is licit when: [Co-In-In]
Sale of a thing with potential existence, subject to a 1. It is not outside the commerce of men;
suspensive condition that the thing will come into 2. It is not intransmissible; and
existence. If the subject matter does not come into 3. It does not contemplate a future inheritance, unless
existence, the contract is deemed extinguished as soon expressly authorized by law (Art. 1347).
as the time expires or if it has become indubitable that the
event will not take place (Art. 1461). The thing must be licit and the vendor must have a right to
transfer the ownership thereof at the time it is delivered
Emptio Spei (Art. 1459).
Sale of a mere hope or expectancy [e.g. sale of a
sweepstakes ticket for P100 where the buyer purchases Where goods are sold by a person who is not the owner
the ticket with the hope that upon the draw, the ticket thereof (who does not sell them under authority or with the
would win him a million pesos. The object of sale is not consent of the owner), the buyer acquires no better title to
the prize, but the ticket or the chance to win] (Art. 1461). the goods than the seller had (Art. 1505).
Emptio Rei Speratae and Emptio Spei; Distinguished

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When the subject matter is illicit, the resulting contract is Price is real when at the perfection of the contract, there is
void (Art. 1409(1)). every intention on the part of the buyer to pay the price,
and every intention on the part of the seller to receive
Kinds of illicit things: such price.
1. Illicit per se (of its nature);
2. Illicit per accidens (because of some provisions of law If the price is simulated
declaring it illegal). General Rule: The sale is VOID

Examples of void sale due to being illicit: Exception: If it can be shown to be a donation or another
1. Sale of animals suffering from contagious diseases contract (Art. 1471).
(Art. 1575);
2. Sale of animals if the use or service for which they are When a contract is void due to absence of consideration,
acquired has been stated in the contract, and they are no title over the subject matter can be conveyed. Nemo
found to be unfit therefor (Art. 1575); potest nisi quod de jure potest no man can do anything
3. Sale of future inheritance (Art. 1347); except what he can do lawfully (Traders Royal Bank v.
4. Sale of land in violation of the constitutional prohibition Court of Appeals, G.R . No . 93397, March 3 , 1997).
against the transfer of lands to aliens (Art. XII,
Constitution). Simulated Contract and Simulated Price,
Distinguished
Determinate or at least Determinable (Art. 1460) Simulated Contract Simulated Price
Determinate thing that which is: An absolutely simulated The contract is not
1. Particularly designated; or or fictitious contract is simulated, but the price
2. Physically segregated from all others of the same class. void. A relative (cause) is. Here, the
simulation, when it does sale is void, but the act
Determinable thing not prejudice a third may be shown to have
person and is not been in reality a
Requisites: intended for any donation, or some other
1. At the time the contract is entered into, the thing is purpose contrary to law, act or contract (Art.
capable of being made determinate; and morals, good customs, 1471).
2. There is no necessity for a new or further agreement public order or public
between the parties. policy binds the parties
to their real agreement
Note: Art. 1165 provides that if the obligation to deliver is (Art. 1346).
a determinate thing, the creditor has the right to compel
specific performance and to recover damages for breach General Rule: When the price in a purported contract of
of the obligation (Jurado, Obligations and Contracts, 2010 sale is completely simulated, then pari delicto non oritur
ed., p. 45). actio shall apply, which denies all recovery to the guilty
parties inter se. Such principle applies to cases where the
nullity arises from the illegality of the consideration or the
P RICE purpose of the contract.

The sum stipulated as the equivalent of the thing sold and Exception: When the principle is invoked with respect to
also every incident taken into consideration for the fixing inexistent contracts (Modina v. Court of Appeals, G.R. No.
of the price, put to the debit of the vendee and agreed to 109355. October 29, 1999).
by him (Inchausti & Co. vs. Cromwell, G.R. No. L-6584
October 16, 1911). False Price and Non-Payment of Price; Distinguished
False Price or Non-payment of Price
Requisites for Valid Price: [R-CAM2] Consideration
1. Real Definition
2. Certain or Ascertainable The price is false when
3. In Money or its Equivalent there is a real price not The failure of the buyer to
4. Manner of payment must be agreed upon declared, and what is stated pay the price.
or declared in the sale is not
REAL (not simulated) the one intended to be paid.

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Effect
The statement of a false The failure does not make
cause or consideration shall the sale null and void for
render a contract void if it lack of consideration but
should not be proved that it results in buyers default,
was founded upon another for which the seller may
cause which is true and exercise his legal
lawful (Art. 1353). remedies (Balatbat v.
Court of Appeals, G.R. No.
If the price indicated in the 109410. August 28, 1996).
covering instrument is false
(i.e. there is actually another Rationale: Contract of
price upon which the minds sale, being consensual, is
of the parties have met), the perfected by mere
contract of sale is valid, but consent. Delivery of the
the underlying deed is thing bought or payment of
subject to reformation to the price is not necessary
indicate the real price upon for the perfection of the
which the minds of the contract.
parties have met (Art. 1359)
There is a presumption that
the consideration exists and
that it is lawful even though
it is not stated in the
contract (Art. 1354).
CERTAIN OR ASCERTAINABLE
1. Certain expressed and agreed in terms of specific
pesos and centavos;
2. Ascertainable
a. Fixed by specified third person;
If the third person is unable or unwilling to fix the
price, the contract is inefficacious; UNLESS the
parties subsequently agree upon the price (Art.
1469).
If the third person is prevented from fixing the
price by fault of either the seller or the buyer, the
party not in fault may have such remedies against the
party in fault (Art. 1469).
Even before the fixing of the price by the
designated third person, a contract of sale is
deemed to be perfected and existing albeit
conditional.
b. Fixed by the courts where the third person fixes the
price in bad faith or by mistake (Art. 1469);
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c. Fixed by reference to a definite day, particular
exchange or market (Art. 1472).
Price of Securities, Grains, Liquid and Things is
considered certain when:
1. The price fixed is that which the thing would have on a
definite day, or in a particular exchange or market;
2. An amount is fixed above or below the price of such
day, or in exchange or market, provided said amount be
certain;
3. Fixed by reference to another thing certain (Art. 1469).
Although under Art. 1469, the parties give rise to a
contract of sale when they appoint a third party to fix the
price, such formula is not allowed for the determination of
the subject matter of the sale.
Rationale: The obligation to pay the price is essentially a
fungible obligation; the price is essentially generic, and
generally, cannot be extinguished by fortuitous event. On
the other hand, the obligation to deliver a subject matter
and the title thereto is not a generic obligation, but rather
a specific obligation, and therefore its designation cannot
be left to the will of a third party who may choose a
subject matter beyond the capacity of the seller to comply
with his obligations to deliver the same.
The fixing of the price can never be left to the discretion of
one of the contracting parties. However, if the price fixed
by one of the parties is accepted by the other, the sale is
perfected (Art. 1473).
The owner of a thing has the right to quote his own price,
reasonable or unreasonable. It is up to the prospective
buyer to accept or reject it.
IN MONEY OR ITS EQUIVALENT
Article 1468 recognizes that if the consideration consists
partly in money and partly in another thing, the transaction
can still be considered a contract of sale when it is the
manifest intention of the parties.
Meaning of or its equivalent
This means that there is certainty as to the price but what
is given as payment is an object (e.g. P50k worth of Maggi
noodles).
MANNER OF PAYMENT MUST BE AGREED UPON
Before a valid and binding contract of sale can exist, the
manner of payment of the purchase price must first be
established since the agreement on the manner of
payment goes into the price such that a disagreement on
the manner of payment is tantamount to a failure to agree
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on the price (Sps. Navarra v. Planters Development Bank,
G.R. No. 172674, July 12, 2007).
Gross Inadequacy of Price (Art. 1470 and Art. 1355):
1. Voluntary Sales
General Rule: Mere inadequacy of price does not affect
validity of the sale if fixed in good faith and without fraud
(Hulst v. PR Builders Inc., G.R. No. 156364, September
3, 2007).
Exceptions:
a. Where low price indicates a vice of consent, sale
may be annulled or the contract is presumed to be an
equitable mortgage;
b. Where the price is so low as to be shocking to the
conscience, sale may be set aside;
c. Where the price is simulated such as when the
parties intended a donation or some other act or
contract;
d. Where the parties did not intend to be bound at all,
the contract is void and inexistent.
2. Involuntary or Forced Sales
General Rule: Mere inadequacy of the price is not a
sufficient ground for the cancellation of the sale of real
property.
Exceptions:
a. Where the price is so low as to be shocking to the
moral conscience, judicial sale of personal property
will be set aside; or
b. If in the event of a resale, a better price can be
obtained.
Note: The validity of the sale is not necessarily affected
where the law gives to the owner the right to redeem,
upon the theory that the lesser the price, the easier it is for
the owner to effect redemption.
3. Rescissible Contracts of Sale
Inadequacy of price is a ground for rescission of
conventional sale in case of rescissible contracts
covered under Article 1381, namely:
a. Those entered into by guardians whenever the ward
whom they represent suffer lesion by more than of
the value of the object of the sale; and
b. Those agreed upon in representation of
absentees, if the latter should suffer lesion by more
than of the value of the object of the sale.
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When There is Sale Even When No Price is Agreed
Upon General Rule: When the price cannot be
determined in accordance with Articles 1469 to 1473, the
contract is inefficacious (inefficacious means the
inability to produce the effect wanted).
Exception: The thing or a part thereof has been delivered
to and appropriated by the buyer, in which case the buyer
has to pay a reasonable price therefor (Art. 1474).
Requisites for the applicability of the exception:
(MAD)
1. Meeting of the minds as to the subject matter;
2. Agreement that a price will be paid; and
3. Delivery by the seller and appropriation by the buyer of
the subject matter
Reasonable Price is generally the market price at the
time and place fixed by the contract or by law for the
delivery of the goods.
F ORM ATION OF C ONTR ACT OF
S ALE
Phases or Stages of Contract of Sale
1. Preparation, conception or generation;
2. Perfection of contract;
3. Consummation.
PREPARATION
The period of negotiation and bargaining, ending at the
moment of agreement of the parties.
Policitation
An unaccepted unilateral promise to buy or sell. This
produces no juridical effect and creates no legal bond.
This is a mere offer, and has not yet been converted into
a contract.
Option contract
It is a contract granting a privilege in one person, for which
he has paid a consideration, giving him the right to buy
certain property at any time within the agreed period at a
fixed price (Art. 1479; Enriquez de la Cavada v. Diaz, 37
Phil. 982, 1918).
It is a preparatory contract in which one party grants to the
other, for a fixed period and under specified conditions,
the power to decide, whether or not to enter into a
principal contract. It binds the party who has given the
option not to enter into the principal contract with any
other person during the period designated, and, within
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that period, to enter into such contract with the one to
whom the option was granted, if the latter should decide to
use the option. It is a separate agreement distinct from
the contract of sale which the parties may enter into upon
the consummation of the option (Carceller v. Court of
Appeals, G.R. No. 124791. February 10, 1999).
Elements of a Valid Option Contract:
1. Consent;
2. Subject Matter: an option right or accepted unilateral
offer to buy or an option right or accepted unilateral
offer to sell:
a. A determinate object;
b. For a price certain, including the manner of payment
thereof;
3. Prestation: A consideration SEPARATE AND DISTINCT
from the purchase price for the option given.
An option to buy is not a contract of purchase and sale
(Kilosbayan, Inc. v. Morato, G.R. No. 118910 November
16, 1995).
Consideration in an Option Contract
1. It may be anything of value, unlike in sale where it must
be the price certain in money or its equivalent (San
Miguel Properties Philippines, Inc. v. Huang, G.R. No.
137290. July 31, 2000);
2. It is SEPARATE AND DISTINCT from the purchase
price.
Without a consideration separate and distinct from the
purchase price, an option contract would be VOID as a
contract, but would still constitute a VALID OFFER, so
that if the option is exercised prior to its withdrawal, the
offer is accepted, and a valid and binding contract of sale
is entered into (Sanchez v. Rigos, G.R. No. L-25494, June
14, 1972).
This view has the advantage of avoiding a conflict
between Article 1324 and Article 1479, in line with the
cardinal rule of statutory construction that, in construing
different provisions of one and the same law or code, such
interpretation should be favored as will reconcile or
harmonize said provisions and avoid a conflict between
the same.
The Sanchez doctrine expressly overturned the ruling in
Southwestern Sugar Molasses Co. v. Atlantic Gulf &
Pacific Co. (G.R. No. L-7382 June 29, 1955) which held
that when an option is not supported by a separate
consideration, it is void and can be withdrawn
notwithstanding the acceptance made previously by the
offeree.
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HOWEVER, in Natino v. IAC (G.R. No. 73573 May 23,
1991), the Supreme Court made a contrary ruling. In the
said case, it was held that the commitment by a bank to
resell a property within a specified period, although
accepted by the party in whose favor it was made, was
considered an option not supported by a consideration,
and therefore void and not binding upon the bank. The
Court relied upon the Southwestern Sugar ruling without
even referring to Sanchez doctrine or at least stating that
its doctrine has been set aside.
Rules when a period is given to the offeree within
which to accept the offer, i.e. option (Ang Yu Asuncion
v. Court of Appeals, G.R. No. 109125 December 2, 1994):
1. If the period itself is not founded upon or supported by a
separate consideration, the offeror is still free and has
the right to withdraw the offer before its acceptance, or,
if an acceptance has been made, before the offerors
coming to know of such fact, by communicating that
withdrawal to the offeree (This is in accordance with
Sanchez doctrine);
2. The right to withdraw, however, must not be exercised
whimsically or arbitrarily; otherwise, it could give rise to
a damage claim under Article 19 of the Civil Code;
3. If the period has a separate consideration, a contract of
option is deemed perfected, and it would be a breach of
that contract to withdraw the offer during the agreed
period;
4. The option, however, is an independent contract by
itself, and it is to be distinguished from the projected
main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-
offeror withdraws the offer before its acceptance
(exercise of option) by the optionee-offeree, the latter
may NOT sue for SPECIFIC PERFORMANCE on the
proposed contract (object of the option) since it has
failed to reach its own stage of perfection. The optioner-
offeror, however, renders himself liable for damages for
breach of the option;
5. In these cases, care should be taken of the real nature
of the consideration given, for if in fact, it has been
intended to be part of the consideration for the main
contract with a right of withdrawal on the part of the
optionee, the main contract could be deemed perfected;
a similar instance would be an earnest money in
contract of sale that can evidence its perfection.
Proper Exercise of Option: Notice of the exercise of the
option need not be coupled with actual payment of the
price, so long as this is delivered to the owner of the
property upon performance of his part of the agreement.
Period within which to enforce the Valid Exercise of
an Option: Even when an option is exercised within the
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option period by the proper tender of the amount due,
nevertheless the action for specific performance to
enforce the option to purchase must be filed within 10
years after the accrual of the cause of action as provided
under Art. 1144 of the Civil Code (Dizon v. Court of
Appeals, G.R. No. 122544. January 28, 1999).
Right of First Refusal
It is a right of first priority, all things and conditions being
equal; identity of the terms and conditions offered to the
optionee and all other prospective buyers, with optionee
to enjoy the right of first priority.
A deed of sale executed in favor of a third party not
deemed a purchaser in good faith, in violation of the right
of first refusal granted to the optionee is valid but
rescissible under Articles 1380 to 1381(3) of the New
Civil Code (Guzman Bocaling & Co. v. Bonnevie, G.R. No.
86150, March 2, 1992; Riviera Filipina, Inc. v. CA et. al.
GR No. 117355, April 5, 2002).
In an option to buy, the basis of the right of first refusal
must be the current offer to sell of the seller or offer to
purchase of any prospective buyer. Only after the
optionee fails to exercise its right of first priority under the
same terms and within the period contemplated could the
owner validly offer to sell the property to a third person,
again, under the same terms as offered to the optionee
(Paranaque Kings Enterprises, Inc. v. CA. GR No.
111538, February 26, 1997).
Option Contract and Right of First Refusal;
Distinguished
Option Contract Right of First Refusal
Nature
Principal Contract
(An option contract is a
Accessory Contract
separate and distinct
(The right of first refusal is
contract from that which
an integral part of the
the parties may enter into
contract of lease.)
upon the consummation of
the option.)
Consideration
The consideration is built
Must be supported by a
into the reciprocal
separate consideration
obligations of the parties
Mutual Promises to Buy and Sell
Promise to sell a determinate thing coupled with a
correlative promise to buy at a specified price is binding
as an executory agreement (Art. 1479).
In an agreement to buy and sell, which is an executory
contract, title to the property does not pass to the
promisee and the contracting parties are merely given the
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right to demand fulfillment of the contract in the proper
cases, or damages for breach thereof where it is not
possible to carry out its terms (Coronel v. Court of
Appeals, G.R. No. 103577. October 7, 1996).
Effect of promise under Art. 1479
1. Accepted unilateral promise to sell or buy (Art. 1479,
par. 2)
Only one makes the promise, which is accepted by the
other. E.g., A promises to sell to B, B accepts the
promise, but does not in turn promise to buy.
If accepted, it is binding upon the promisor if the
promise is supported by a consideration (option money)
distinct from the price. This results in a perfected
contract.
Pending notice of its withdrawal, the accepted promise
partakes the nature of an offer to sell, which if accepted,
results in a perfected contract of sale, although the
option is given without consideration (Sanchez v. Rigos,
G.R. No. L-25494, June 14, 1972).
2. Bilateral promise to buy and sell (Art. 1479, par. 1)
One party accepts the others promise to buy, and the
latter the formers promise to sell, a determinate thing
for a price certain.
It is reciprocally demandable parties have the right to
demand fulfillment or damages but there is no transfer
of title of dominion yet.
It requires no consideration distinct from the selling
price
PERFECTION
It is the stage where the validity of the contract of sale is
determined; the moment when the parties come to agree
on the terms of the contract.
A contract of sale is perfected by mere consent (Art. 1475)
General Rule: Sale is perfected at the moment there is a
meeting of the minds upon a determinate thing (object),
and a certain price (consideration) (Art. 1475, (1)).
A contract of sale is also perfected even when the exact
quantity or quality of the subject matter is not known, so
long as the source of the subject is certain and fixed
(National Grains Authority v. Intermediate Appellate Court,
G.R. No. 74470, March 8, 1989).
Exception: When the sale is subject to a suspensive
condition because perfection takes place from the
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moment the condition is fulfilled (Gan, Sr. v. Reforma, 11
SCRA 57, 1967).
According to Villanueva, however, the more appropriate
doctrine should be that when a contract of sale is made
subject to suspensive condition, there is already a
contract upon the meeting of the minds, but because the
condition has not happened, the contract itself and its
underlying obligations are not yet demandable; and in
case of non-happening of the condition, then the contract
is extinguished (Villanueva, Law on Sales, 2004 ed., p.
193).
Consent
Meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract (Art.
1319).
Elements:
1. Subjects / Contracting parties;
2. Concurrence of offer and acceptance (Arts. 1319 -
1326);
3. Legal Capacity of the Contracting Parties (Arts. 1327
1329);
4. The consent must be intelligent, free and spontaneous
(Arts. 1330 1336).
Form of Offer
Offer must be certain, definite and intentional (Art. 1319).
Business advertisements of things for sale are not definite
offers, but mere invitations to make an offer (Art. 1325).
Advertisements for bidders are merely invitations to make
proposals; the advertiser is not bound to accept the
highest or lowest bidders (Art. 1326).
Form of Acceptance
The acceptance must be absolute. A qualified
acceptance constitutes a counter-offer (Art. 1319).
An acceptance may be express or implied (Art. 1320).
The person making the offer may fix the time, place, and
manner of acceptance, all of which must be complied with
(Art. 1321).
An offer made through an agent is accepted from the time
acceptance is communicated to him (Art. 1322).
When offer becomes ineffective
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An offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party before
acceptance is conveyed (Art. 1323).
Rules Governing Auction Sales (Art. 1476)
1. Sales of separate lots by auction are separate contracts
of sale;
2. Sale is perfected when the auctioneer announces its
perfection by the fall of the hammer or in other
customary manner;
Until such announcement is made:
a. Any bidder may retract his bid; and
b. The auctioneer may withdraw the goods from the sale
unless the auction has been announced to be without
reserve.
3. Seller has the right to bid in the auction, provided:
a. Such right was reserved;
b. Notice was given that the sale was subject to a right
to bid on behalf of the seller; and
c. Right is not prohibited by law or by stipulation.
Ratio: To avoid puffing or secret bidding.
The owner of the property sold at auction may provide
terms under which the auction will proceed and the same
are binding upon all bidders, whether they knew of such
conditions or not (Leoquinco v. Postal Savings Bank, G.R.
No. L-23630, August 25, 1925.).
When the auction sale had already been perfected, a
supplemental sale with higher consideration at the
instance of only one party could no longer be validly
executed (Dizon v. Dizon, G.R. No. 156539, September 5,
2007).
Earnest Money or Arras
Something of value to show that the buyer was really in
earnest, and given to the seller to bind the bargain. It is
considered as:
1. Part of the purchase price earnest money is deducted
from the total price;
2. Proof of perfection of the contract (Art. 1482).
Note: Option money may become earnest money if the
parties so agree.
Earnest Money and Option Money; Distinguished
Earnest Money Option Money
Transfer of ownership
Title passes to the buyer Ownership is reserved to
upon delivery of the thing the seller and is not to
sold pass until full payment
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Effect of non-payment the sale, a public instrument is not even essential

In case of non-payment, (Sorfano v. Latono, L-3408, December 23, 1950).
an action for specific In case of non-payment,
performance or for there can be action for Implied in Fact Contract of Sale
rescission can be filed by specific performance A contract implied in fact is one implied from facts and
the injured party circumstances showing a mutual intention to contract. It
Consideration arises where the intention of the parties is not expressed,
Money is given as a but an agreement in fact creating an obligation. It is a
Part of the purchase price distinct consideration for contract, the existence and terms of which are manifested
an option contract by conduct and not by direct or explicit words between
Obligation of the buyer upon payment of parties but is to be deduced from conduct of the parties,
consideration language used, or things done by them, or other
When given, the buyer is The would-be buyer is not pertinent circumstances attending the transaction. To
bound to pay the balance required to buy create contracts implied in fact, circumstances must
Perfection of sale warrant inference that one expected compensation and
Applies to a sale not yet the other to pay. (University of the Philippines vs. PHILAB,
There is already a sale G.R. No. 152411, September 29, 2004).
perfected

CONSUMMATION Legal recognition of electronic data messages and

Delivery of the thing together with the payment of the
price, marks the consummation of the contract of sale
(PNB vs. Ling, G.R. No. L-26937, October 5, 1927).
F ORM ALI TI ES OF
C ONTR ACT OF S ALE
General Rule: A contract of sale may be entered into in
any form provided all the essential requisites for its validity
are present (Art. 1483).
Exceptions: [PReY Form]
The following must be in writing to be enforceable:
1. Sale of personal property at a price not less than P500
2. Sale of 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.
Note: Statute of Frauds is applicable only to executory
contracts and not to contracts which are totally or partially
performed.
If sale of a piece of land or interest therein is made
through an agent: The agents authority must be in
writing; otherwise, the sale is void (Art. 1874).
If Notary Public is not authorized: If the deed of sale of
land is notarized by a notary public whose authority had
expired, the sale would still be valid, since for validity of
electronic documents: Electronic data messages or
electronic documents shall have the legal effect, validity or
enforceability as any other document or legal writing; and
1. Where the law requires a document to be in writing,
that requirement is met by an electronic document if the
said electronic document maintains its integrity and
reliability and can be authenticated so as to be usable
for subsequent reference, in that -
a. The electronic document has remained complete and
unaltered, apart from the addition of any endorsement
and any authorized change, or any change which
arises in the normal course of communication,
storage and display; and
b. The electronic document is reliable in the light of the
purpose for which it was generated and in the light of
all the relevant circumstances.
2. Where the law requires that a document be
presented or retained in its original form, that
requirement is met by an electronic document if -
a. There exists a reliable assurance as to the integrity of
the document from the time when it was first
generated in its final form; and
b. That document is capable of being displayed to the
person to whom it is to be presented: Provided, that
no provision of the Act shall apply to vary any and all
requirements of existing laws on formalities required
in the execution of documents for their validity
(Section 7, R.A. No. 8792, Electronic Commerce Act).
Legal recognition of electronic signatures: An
electronic signature on the electronic document shall be
equivalent to the signature of a person on a written
document if that signature is proved by showing that a
prescribed procedure, not alterable by the parties

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interested in the electronic document, existed under
which:
a. A method is used to identify the party sought to be
bound and to indicate said partys access to the
electronic document necessary for his consent or
approval through the electronic signature;
b. Said method is reliable and appropriate for the purpose
for which the electronic document was generated or
communicated, in the light of all the circumstances,
including any relevant agreement;
c. It is necessary for the party sought to be bound, in order
to proceed further with the transaction, to have
executed or provided the electronic signature; and
d. The other party is authorized and enabled to verify the
electronic signature and to make the decision to
proceed with the transaction authenticated by the same
(Section 8, Republic Act No. 8792, Electronic
Commerce Act).
C AP ACI TY TO B UY OR S ELL
General Rule: All persons, whether natural or juridical,
who can bind themselves, have legal capacity to buy and
sell (Art. 1489, par. 1).
Exceptions:
A. Absolute incapacity (minors, demented persons,
imbeciles, deaf and dumb, prodigals, civil interdictees)
Purchase by Minor
General Rule: The contract is voidable.
Exception: where necessaries are sold and delivered
to a minor or other person without capacity to act, the
incapacitated person must pay a reasonable price
therefor (Art. 1489, par. 2).
Necessaries cover everything indispensable for
sustenance, dwelling, clothing, medical attendance,
education, and transportation (Art. 194, Family Code).
Sale by minor: The sale of real property made by
minors who have already passed the ages of puberty
and adolescence and are near the adult age when they
pretend to have already reached their majority, while in
fact they have not, is valid, and they cannot be
permitted afterwards to excuse themselves from
compliance with the obligation assumed by them or to
seek their annulment. This doctrine is entirely in accord
with the provisions of the Rules of Court (Rule 131, Sec.
1) and the principle of estoppel (Mercado and Mercado
v. Espiritu, G.R. No. L-11872 December 1, 1917).
B. Relative incapacity the incapacity is relative when a
person cannot buy a certain property because of a
special prohibition. Incapacity exists only with reference
to certain persons or a certain class of property
1. Husband and Wife (Art. 1490)
General Rule: A sale by one spouse to another is
void.
Note: The prohibition applies to common-law
spouses.
Rationale:
a. To prevent commission of fraud or prejudice to third
persons;
b. To prevent one from unduly influencing the other;
c. To avoid indirect donations.
Exceptions:
a. Regime of separation of property governs them;
b. A judicial separation of property under Articles 134
and 135 of the Family Code has been decreed (Art.
1489, (2)).
Note: If the spouses had been legally separated,
there is no more prohibition for them to sell properties
to one another. Once there is legal separation, their
conjugal partnership or community property is
dissolved and they will be governed by the regime of
separation of property. (Pineda, Civil Code of the
Philippines Annotated V, 2010 ed., p. 108)
Persons permitted to question the sale between
husband and wife
a. Persons who bear such a relationship to the
spouses making the transfer or to the property itself
that such transfer interferes with their rights or
interest (Cook v. McMicking, G.R. No. L-8913
March 3, 1914); and
b. The Government (because it is always an
interested party in all matters involving taxable
transactions).
2. Incapacity by reason of relation to property
The following cannot acquire property by purchase,
even at a public auction, either in person or through
the mediation of another: (GAEP-JO)
a. Guardian, with respect to the property of his ward;
The sale is only voidable because only private
interests are affected. The defect can be cured by
ratification.

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b. Agents, with respect to the property whose
administration or sale may have been entrusted to
them, UNLESS the consent of the principal has
been given;
The sale is only voidable because only private
interests are affected. The defect can be cured by
ratification.
After the termination of the relationship, the agent
is not prohibited to purchase a property belonging
to the erstwhile principal (Valera vs. Velasco, G.R.
No. L-28050 March 13, 1928). Neither is he
prohibited from buying properties of the principal
which are not included among the properties of
which he was commissioned to sell (Moreno vs.
Villonea, 40 O.G. 2322).
c. Executor or administrator, with respect to the
property of the estate under administration;
The sale is only voidable because only private
interests are affected. The defect can be cured by
ratification.
Executors do not administer hereditary rights of any
heir; hence, there is no prohibition as to the
purchase by an executor of hereditary rights (Naval
v. Enriquez, G.R. No. 1318 April 12, 1904).
d. Public officers and employees, with respect to the
properties of the government, its political
subdivisions, or GOCCs, that are entrusted to
them;
The sale is void, public interests being involved
therein.
The prohibition includes judges and government
experts who, in any manner, take part in the sale.
Intended not only to remove any occasion for fraud
but also to surround them with the prestige
necessary to carry out their functions by freeing
them from all suspicion which although unfounded,
tends to discredit the institution by putting into
question the honor of said functionaries.
e. Judges, justices, prosecuting attorneys, clerks of
courts, etc., with respect to the property in custodia
legis;
The sale is void, public interests being involved
therein.
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A contract for a contingent fee is not covered by
Article 1491 because the transfer or assignment of
the property in litigation takes effect only after the
finality of a favorable judgment (Director of Lands v.
Ababa, L-26096, February 27 1979).
The fact that the property in question was first
mortgaged by the client to his lawyer and only
subsequently acquired by the latter in a foreclosure
sale long after the termination of the case will not
remove it from the scope of the prohibition for at
the time the mortgage was executed the
relationship of lawyer and client still existed. To rule
otherwise would be to countenance indirectly what
cannot be done directly (Fornilda v. RTC, G.R. No.
72306, October 5, 1988).
Violation of this prohibition also constitutes a
breach of professional ethics, for which the lawyer
may be reprimanded, suspended, or disbarred.
f. Any other person specially disqualified by law (Art.
1491).
Examples of Persons Especially Disqualified by Law:
1. Aliens disqualified to purchase or acquire real property
UNLESS by hereditary succession (intestate
succession).
Where a land is sold to an alien who later sold it to a
Filipino, the sale to the latter cannot be impugned. In
such case, there would be no more public policy to be
served in allowing the Filipino seller or his heirs to
recover the land as the same is already owned by a
qualified person (Vicente Godinez v. Fong Pak Luen,
G.R. No. L-36731, January 27, 1983).
While those disqualified under Arts. 1490 and 1491 may
not be lessees (Art. 1646); aliens may still be lessees
even if they cannot buy lands.
2. An unpaid seller having a right of lien or having stopped
the goods in transitu, who is prohibited from buying the
goods either directly or indirectly in the resale of the
same, at public or private sale which he may make;
3. The officer holding the execution, or his deputies.
Note: The prohibitions are applicable to sales in legal
redemption (Art. 1619, NCC); compromises (Art.2028,
NCC); and renunciations (Arts. 6 and 1270, NCC).
S ALE BY N ON -O WNER
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A. PERFECTION STAGE
a. Sale by owner Valid
b. Sale by non-owner Valid
Reasons why both sales are valid:
Ownership is necessary only at the time of delivery (Art.
1459).
When a person who is not the owner of a thing sells or
alienates and delivers it, and later the seller or grantor
acquires title thereto, such title passes by operation of law
to the buyer or grantee (Art. 1434)
B. CONSUMMATION STAGE
a. Sale by owner the contract is valid; the transfer of
title is also valid;
b. Sale by non-owner - the contract is valid because it
has passed perfection stage; the transfer of title is
VOID.
General Rule: In a sale by the non-owner, the buyer
acquires no better title to the goods than the seller had
(he merely steps into the shoes of the seller).
Rationale: Nemo dat quod non habet (nobody can
dispose of that which does not belong to him)
Exceptions: [ERJ-MerTACU]
1. Owner is estopped or precluded by his conduct (Art.
1505);
2. Sale made by the registered or apparent owner in
accordance with registration laws (Art. 1505);
3. Sales sanctioned by judicial or statutory authority (Art.
1505);
4. Purchases in a merchant's store, fairs or markets (Art.
1505; Arts. 85 86, Code of Commerce).
To allow recovery would retard commerce
5. When a person who is not the owner sells and delivers
a thing, and subsequently acquires title thereto (Art.
1434);
6. When the seller has a voidable title which has not been
avoided at the time of the sale (Art. 1506), provided that
the buyer acquires the goods
a. In good faith;
b. For value; and
c. Without notice of the sellers defect of title.
7. Sale by co-owner of whole property or a definite portion
thereof (Art. 493);
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If a co-owner sells the whole property as his, the sale
will affect only his spiritual share, but not those of the
other co-owners who did not consent to the sale. Only
the rights of the seller are transferred, thereby making
the buyer a co-owner of the property (Tomas Claudio
Memorial College, Inc. v. CA, G.R. No. 124262. October
12, 1999).
8. Special rights of unpaid seller (Arts. 1526-1533).
Difference between Article 1505 and Article 1506:
Article 1505 refers to sale with VOID TITLE, while Article
1506 refers to sale with VOIDABLE TITLE.
Sale by Seller with Voidable Title
When a buyer buys a property from a seller with voidable
title to property, he acquires a good title to the property if:
1. If he is in good faith;
2. He paid something of value for the property; and
3. He is not aware of the sellers defect or flaw on the title.
(Art. 1506).
Example: A purchased a genuine Rolex watch from B
who is a minor, C in turn purchased the watch from A.
Although the title of A is voidable due to minority of B,
C became the owner of the watch after it was delivered
to him there being no annulment of the purchase made.
The possible remedy of B is to go after A.
Title as to Movable Properties
General Rule: Possession of movable property acquired
in good faith is equivalent to title.
Exceptions:
1. Owner lost the movable owner may recover the
movable without reimbursement;
2. Owner is unlawfully deprived of the movable owner
may recover the movable without reimbursement (Art.
559).
Unlawful deprivation when there is no valid
transmission of ownership. Such is no longer limited to
the criminal acts of robbery or theft.
Exceptions to the Exceptions:
1. The person who possesses the movable property has
acquired the same in good faith at a public sale;
Public sale
One where there has been a public notice of sale in
which anyone is allowed to bid for the object he desires
to buy.
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2. The buyer bought the movable at a merchant store (by
cross-reference to Art. 1505).
Store
Any place where goods are kept for sale, whether by
wholesale or retail.
N EGO TI ABLE D OCUMENTS
OF T ITLE
Document of title
A document:
1. Used as proof of the possession or control of the goods;
or
2. 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 (Article 1636).
Document of title includes:
1. Bill of Lading a document that serves as evidence of
receipt of goods for shipment issued by a common
carrier;
2. Dock Warrant a warrant given by dock-owners to the
owner of merchandise imported and warehoused on the
dock upon the faith of the bills of lading, as a
recognition of his title to the goods;
3. Quedan a warehouse receipt that covers sugar;
4. Warehouse Receipt a document of title which is
issued by a warehouseman.
A. Negotiable Document of Title
A document of title in which it is stated that the goods
referred to therein will be delivered to the bearer, or to
the order of any person named in such document (Art.
1507)
How negotiated
1. By delivery: Where by the terms of the document,
the one issuing the same undertakes to deliver the
goods to the bearer (Art. 1508).
Where by the terms of the document, the one issuing
the same undertakes to deliver the goods to the order
of a specified person, and such person or a
subsequent endorsee has indorsed it in blank or to
the bearer.
2. By endorsement and delivery: The endorsement
may be in blank, to bearer or to a specified person
(Art. 1509).
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If indorsed to a specified person, it may be again
negotiated by the endorsement of such person in
blank, to bearer or to another specified person
Who can negotiate
1. The owner of the document;
2. Any person to whom the possession or custody of the
document has been entrusted by the owner if:
a. By the terms of the document, the goods are
deliverable to the order of the person to whom the
possession or custody of the document has been
entrusted; or
b. The document is in such form that it may be
negotiated by delivery (Art. 1512).
Effects of negotiation: A person to whom the document
is negotiated acquires:
1. Title to the goods as the person negotiating the
document to him had or had ability to convey to a
purchaser in good faith for value; and also such title to
the goods were to be delivered by the terms of the
document had or had ability to convey to a purchaser in
good faith for value; and
2. Direct obligation of the bailee issuing the document to
hold possession of the goods for him according to the
terms of the document as fully as if such bailee had
contracted directly with him (Art. 1513).
Unauthorized negotiation: As between the owner of a
negotiable document of title who indorsed it in blank and
entrusted it to a friend, and the holder of such negotiable
document of title to whom it was negotiated in good faith
and for value, the latter is preferred, under the principle
that as between two innocent persons, he who made the
loss possible should bear the loss.
The validity of the negotiation of a negotiable document of
title is not impaired by the fact that the negotiation was a
breach of duty on the part of the person making the
negotiation, or by the fact that the owner of the document
was deprived of the possession of the same by loss, theft,
fraud, accident, mistake, duress or conversion, if the
person to whom the document was negotiated or a person
to whom the document was subsequently negotiated paid
value therefor in good faith without notice of the breach of
duty or loss, theft, fraud, accident, mistake, duress or
conversion (Art. 1518).
Negotiable Instrument and Negotiable Document of
Title; Distinguished
Negotiable Document of
Negotiable Instrument
Title
Function
Operates as a substitute Operates as proof of the
for money possession or control of
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Negotiable Document of Note: Notification is an operative act to transfer title or

Negotiable Instrument
Title possession of goods in favor of transferee.
the goods
Warranties on Negotiation or Assignment
Authorizes or purports to A person who negotiates or transfers a document of title
authorize the possessor of warrants that: [GeNe-ITiM]
the document to transfer 1. The document is genuine;
or receive, either by 2. He has a legal right to negotiate or transfer it;
endorsement or by 3. He has knowledge of no fact which would impair the
delivery, goods validity or worth of the document;
represented by such 4. He has a right to transfer the title to the goods; and
document. 5. The goods are merchantable or fit for a particular
Governing Law purpose (Art. 1516).
Governed by the Civil
Governed by the Code, and in some cases, The endorsement of a document of title shall not make
Negotiable Instruments by the Warehouse Receipt the endorser liable for any failure on the part of the
Law Law and Code of bailee who issued the document or previous endorsers
Commerce thereof to fulfill their respective obligations (Art. 1517).
Special Endorsement of a Bearer Instrument
A bearer instrument is The special endorsement Rules on Levy / Garnishment of Goods
always a bearer of a bearer instrument has 1. Negotiable Document of Title
instrument even if a the effect of converting the
special endorsement is bearer instrument into an Goods cannot be attached by garnishment or levied,
made order instrument UNLESS:
Placing of the words non-negotiable on the a. The document is first surrendered;
instrument or document b. The negotiation of the document is enjoined; or
If words non-negotiable c. The document is impounded by the court.
or the like are placed on A creditor whose debtor is the owner of a negotiable
The instrument is no the document, such document of title is entitled to aid from courts by
longer negotiable document may injunction and otherwise in attaching the document in
nevertheless be satisfying the claim by means thereof as is allowed at
negotiated by the holder law or in equity in regard to property which cannot be
attached or levied upon (Art. 1520).
B. Non-Negotiable Document of Title
2. Non-Negotiable Document of Title
How transferred or assigned: A non-negotiable
document cannot be negotiated and the endorsement Prior to notification of the bailee of transfer of
of such a document gives the transferee no additional document of title, the title of the transferee to the
right (Art. 1511). goods may be defeated by levy of attachment of
execution.
May be transferred by the holder by delivery to a
purchaser or donee (Art. 1511).
O BLIG ATIONS OF THE V ENDOR
Effects of Transfer
A person to whom the document is assigned acquires: Obligations of the vendor (TDD-MTPAEN):
1. The title to the goods, subject to the terms of any 1. Transfer ownership (Arts. 1458 and 1495) cannot be
agreement with the transferor; and waived;
2. The right to notify the bailee who issued the 2. Deliver the thing sold (Arts. 1458 and 1495) cannot be
document of the transfer thereof and thereby acquire waived;
the direct obligation of such bailee to hold possession 3. Deliver the fruits and accessories (Arts. 1164, 1166,
of the goods for him according to the terms of the and 1537);
document (Art. 1514). 4. Make Warranties (Arts. 1545 - 1581) - can be waived or
modified; warranty is not an essential element of the
contract of sale;

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5. Take care of the thing, pending delivery, with proper
diligence (Art. 1163);
6. Pay for the expenses for the execution and registration
of the sale, unless there is stipulation to the contrary
(Art. 1487);
7. Accord the buyer the right to examine the goods (Art.
1584);
8. Enter into contract with the carrier on behalf of the
buyer as may be reasonable under the circumstances
(Art. 1523);
9. Notify the buyer regarding necessity to insure goods if it
is usual to insure them (Art. 1523).
TRANSFER OF OWNERSHIP (Arts. 1458 and 1495)
General Rule: Ownership of the thing sold is acquired
only upon its delivery, actual or constructive, to the buyer
(Daus v. Sps. De Leon, GR No. 149750, June 16, 2003),
even if purchase was made on credit.
Payment of the purchase price is not essential to the
transfer of ownership, as long as the property sold has
been delivered (Sampaguita Pictures, Inc. v. Jalwindor
Manufacturers, Inc., GR No. L-43059, October 11, 1979).
Nonpayment only creates a right to demand payment or to
rescind the contract, or to criminal prosecution in the case
of bouncing checks (EDCA Publishing and Distributing
Corp. v. Santos, G.R. No. 80298, April 26, 1990).
Exceptions (cases where there is reservation of
ownership despite delivery): [PCAR]
1. Pactum reservati dominii (contractual reservation of
title) Express reservation of ownership (Art. 1478)
2. Contract to sell
3. Sale on Acceptance/Trial/Approval/ Satisfaction (Art.
1502)
Ownership passes to the buyer only when:
a. He signifies his approval or acceptance to the seller
or does any act adopting the transaction; or
b. He does not signify his approval or acceptance but
retains the goods without giving notice of rejection,
then if a time has been fixed for the return of the
goods, on the expiration of such time, and, if no time
has been fixed, on the expiration of a reasonable
time.
In Sale or Return, ownership passes to the buyer on
delivery but he may revest the ownership in the seller
by returning the goods within the time fixed in the
contract, or if there is no time fixed, within a reasonable
time.
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4. Implied Reservation of Ownership under Article 1503:
a. Where goods are shipped and by the bill of lading the
goods are deliverable to the seller or his agent, or to
the order of seller or agent seller reserves
ownership in the goods;
b. Where goods are shipped and by the bill of lading the
goods are deliverable to the order of the buyer or his
agent but the possession of the bill of lading is
retained by the seller or his agent seller reserves a
right to the possession of the goods;
c. Where the seller of goods draws on the buyer for the
price and transmits the bill of lading and bill of
exchange to the buyer to secure acceptance or
payment of the bill of exchange, and the buyer does
not honor the bill of exchange Here, the seller is the
drawer and the buyer is the drawee. If the buyer, as
drawee, does not honor the bill of exchange, he shall
return the bill of lading. If he retains the same, he
acquires no added right thereby.
DELIVERY OF THE THING SOLD (Arts. 1458 and 1495)
A mode of acquiring ownership, as a consequence of
certain contracts such as sale, by virtue of which, actually
or constructively, the object is placed in the control and
possession of the vendee.
Seller is bound to deliver all goods UNLESS delivery by
installment has been agreed upon (Art. 1583).
Seller is bound to deliver the thing sold in its condition at
the time the contract was perfected (Art. 1537).
Requisites: (3 Is of Delivery)
1. Identity: The object must be delivered.
2. Integrity: A sellers duty is to deliver the thing sold in a
condition suitable for its enjoyment by the buyer for the
purposes contemplated (Consing v. CA, G.R. No.
78272 August 29, 1989).
3. Intentional: The act of delivery must be coupled with
the intention of delivering the thing and putting the
buyer under control (Norkis Distributor, Inc. v. CA, G.R.
No. 91029, February 7, 1991).
The critical factor in all different modes of effecting
delivery, which gives legal effect to the act, is the actual
intention of the seller to deliver, and its acceptance by
the buyer. Without that intention, there is no tradition
(Santos v. Santos, G.R. No. 133895. October 2, 2001).
Kinds of Delivery: (ALQ-TDD)
1. Actual or Real;
2. Legal or Constructive;
3. Quasi-Tradition;
4. Tradition by Operation of Law;
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5. Delivery through Document of Title;
6. Delivery through Carrier.
ACTUAL OR REAL
Placing the thing under the control and possession of the
buyer (Art. 1497).
LEGAL OR CONSTRUCTIVE
Delivery is represented by other signs or acts indicative
thereof.
Requisites:
1. The seller must have control over the thing;
2. The buyer must be put under control;
3. There must be the intention to deliver the thing for
purposes of ownership.
Types:
1. Delivery by execution of public instrument
(Art. 1498, par. 1) gives rise to prima facie
presumption of delivery, which is destroyed when actual
delivery is not effected due to legal impediment (Ten
Forty Realty v. Cruz, G.R. No. 151212, September 10,
2003).
Exceptions (cases where the execution does not
produce the effects of delivery):
a. There is a stipulation in the instrument to the contrary.
Instances where contrary stipulation is present
(Philippine Suburban Development Corp. v. Auditor
General, et al., G.R. No. L-19545, April 18, 1975):
i. A certain date is fixed for the purchaser to take
possession of the property subject of the
conveyance;
ii. In sale by installments, where it is stipulated that
until the last installment is made, the title to the
property should remain with the seller;
iii. When the seller reserves the right to use and
enjoy the property until the gathering of the
pending crops; or
iv. Where the seller has no control over the thing sold
at the moment of the sale, and, therefore, its
material delivery could not have been made.
b. When at the time of the execution of the public
instrument, the subject matter was not subject to the
control of the seller.
If, notwithstanding the execution of the instrument,
the purchaser cannot have the enjoyment and
material tenancy of the thing and make use of it
himself or through another in his name, because such
tenancy and enjoyment are opposed by the
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interposition of another will, then fiction yields to
reality the delivery has not been effected (Addison
v. Felix, 38 Phil. 404, 1918).
c. The control or ability to transfer physical possession
and enjoyment does not subsist for a reasonable
length of time after the execution of the instrument.
The absence of control for reasonable length of time
after execution would create undue burden on the
part of the buyer who would be compelled to literally
jump into the possession of the subject matter soon
after signing the instrument, for he would then obtain
no remedy from the seller.
Since tradition is an obligation on the part of the
seller, then the burden must continue to lie with the
seller to grant the buyer reasonable period to take
possession of the subject matter (Alejandra Bugarin
Vda. De Sarmiento v. Lesaca, G.R. No. L-15385,
June 30, 1960).
2. Traditio Symbolica
To effect delivery, parties use a token or symbol to
represent the thing delivered (e.g. key to a house)
3. Traditio Longa Manu (long hand)
Delivery of thing by mere agreement; seller points out to
the buyer the property without need of actually
delivering (as when the thing sold cannot be transferred
to the possession of the vendee at the time of sale) (Art.
1499).
4. Traditio Brevi Manu (short hand)
Opposite of constitutum possessorium; before contract
of sale, the would-be buyer was already in possession
of the would-be subject matter of sale (e.g. as lessee),
and pursuant to sale, he would now hold possession in
the concept of an owner (Art. 1499).
5. Traditio Constitutum Possessorium
At the time of perfection, the seller held possession of
the subject matter in the concept of owner, and
pursuant to the contract, the seller continues to hold
physical possession thereof as lessee or other form of
possession other than the concept of owner (e.g. sale
and lease back transaction) (Art. 1500).
QUASI-TRADITION
Delivery of rights, credits or incorporeal property, made
by:
1. Execution of public instrument;
2. Placing titles of ownership in the hands of buyer; or
3. Allowing buyer to make use of rights (Art. 1501).
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TRADITION BY OPERATION OF LAW
When a non-owner who sells and delivers a thing
subsequently acquires title thereto, the title passes by
operation of law to the buyer (Art. 1434).
DELIVERY THROUGH DOCUMENT OF TITLE (Arts.
1507 1520)
DELIVERY THROUGH CARRIER
General Rule: Where the seller is authorized or required
to send the goods to the buyer, delivery to the carrier is
delivery to the buyer (Art. 1523).
Note: This rule applies only if there is an agreement
between the seller and the buyer that the former will ship
the goods.
Exceptions:
1. When a contrary intention appears, i.e. the parties did
not intend the delivery of the goods through the carrier
2. Implied reservation of ownership under Art. 1503.
Kinds of Delivery to Carrier:
1. F.A.S. (Free Along Side)
The seller pays all charges and is subject to risk until
the goods are placed alongside the vessel.
2. F.O.B. (Free on Board)
Goods are to be delivered free of expense to the buyer
to the point where they are F.O.B. The point of F.O.B.
(either at the point of shipment or the point of
destination) determines when the ownership passes
(e.g. F.O.B. shipping point- the title passes to the buyer
when the goods arrive at the port or pier, or truck).
. 2. In the absence thereof, within a reasonable time (Art.
3. C.I.F. (Cost, Insurance, Freight)
Signifies that the price fixed covers the costs of the
goods, the expense of the freight and the insurance to
be paid by the seller.
4. C.O.D. (Collect On Delivery)
Carrier acts for the seller in collecting purchase price,
which buyer must pay to obtain possession of the
goods.
Note: The terms F.O.B. and C.O.D merely make rules of
presumption which yield to proof of contrary intention
(General Foods Corp. v. National Coconut Corp., G.R. No.
L-8717. November 20, 1956.).
When vendor not bound to deliver
The seller is NOT bound to deliver the thing sold:
1. If vendee has not paid him the price UNLESS a period
of payment has been fixed;
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2. If no period for payment has been fixed in the contract;
3. A period for payment has been fixed in the contract but
the vendee has lost the right to make use of the same
(Art. 1524).
Place of delivery
1. The place of delivery agreed upon;
2. In the absence of agreement, place is determined by
usage of trade;
3. In the absence of agreement and prevalent usage, the
sellers place;
4. In any other case, place of delivery is the sellers
residence;
5. In case of specific goods known by the parties at some
place at the time of the perfection of sale, such is the
place of delivery, in the absence of agreement or usage
of trade to the contrary (Art. 1521 and Art. 1251).
Wherever the proper place of delivery may be, either party
acquires a right of action by being ready and willing at
that place to perform his legal duty, if the other party is not
there present or even if present, is not prepared to
perform in a manner with what is incumbent upon him
(Art. 1169 [3]).
Where, however, the delivery was not effected at the
place specified in the contract but the buyer accepted the
goods nevertheless without complaint, the buyer would be
deemed to have waived the sellers failure to deliver
according to the terms of the contract, and would be liable
to pay the price agreed upon (Sullivan v. Gird, 22 Ariz.
332).
Time of delivery
1. Stipulated time
1521)
How does an as-is where-is type of sale affect the
vendors obligation to deliver?
The phrase as-is where-is basis pertains solely to the
physical condition of the thing sold, not to its legal
situation (NDC v. Madrigal Wan Hai Lines Corp., G.R. No.
148332, Sep. 30, 2003).
It is merely descriptive of the state of the thing sold. Thus,
the as-is where-is basis merely describes the actual state
and location of the property sold. The depiction does not
alter the sellers responsibility to deliver the property to the
buyer.
Sale on Acceptance, Trial, Approval, or Satisfaction
A contract in the nature of an option to purchase if the
goods prove to be satisfactory, the approval of the buyer
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being a condition precedent; the sale is dependent upon
the quality of goods (Art. 1502 (2)).
Rules:
1. Title remains in the seller, UNTIL sale becomes
absolute by:
a. Buyers approval of the goods; or
b. Buyers failure to comply with the express or implied
conditions of the contract as to giving notice of
dissatisfaction or as to returning the goods;
2. Risk of loss remains with seller EXCEPT when the
buyer is at fault or has agreed to bear the loss;
3. Buyer must give the goods a trial, EXCEPT where it is
evident that it cannot perform the work intended;
4. Period within which buyer must signify acceptance runs
only when all parts essential for the operation of the
object have been delivered;
5. If it is stipulated that a third person must signify
approval or satisfaction, the provision is valid, but the
third person must be in good faith. If refusal to accept is
not justified, seller may still sue;
6. Generally, the sale and delivery to a buyer who is an
expert on the object purchased is not a sale on
approval, trial, or satisfaction.
Sale or Return: Property is sold, but the buyer, who
becomes the owner of the property on delivery, has the
option to return the same to the seller instead of paying
the price; such sale depends upon the discretion of the
buyer (Art. 1502, par. 1).
Rules:
1. Title passes to the buyer upon delivery;
2. Buyer bears the risk of loss;
3. The option to purchase or return the goods rests
entirely on the buyer without reference to the quality of
the goods;
4. The buyer may revest the ownership in the seller by
returning or tendering the goods within the time fixed in
the contract or within a reasonable time in not time is
fixed;
5. The buyer must comply with the express or implied
conditions attached to the return privilege; otherwise,
the sale becomes absolute.
Sale or Return and Sale on Trial; Distinguished
Sale or Return Sale on Trial
Condition imposed
Subject to a resolutory Subject to a suspensive
condition condition
Option of buyer to purchase
Depends entirely on the will Depends on the character
of the buyer or quality of the goods
Transfer of ownership
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Sale or Return Sale on Trial
Ownership passes to the Ownership remains in the
buyer on delivery and seller until buyer signifies
subsequent return reverts his approval or acceptance
ownership in the seller to the seller
Risk of loss
Risk of loss or injury rests Risk of loss remains with
upon the buyer the seller
Sale by description
A sale where a seller sells a thing as being of a certain
kind, the buyer merely relying on the sellers
representations or descriptions (Art. 1481).
Warranty: that the thing sold corresponds to the
representations or descriptions.
Sale by sample
A sale where a small quantity of a commodity is exhibited
by the seller as a fair specimen of the bulk, which is not
present and as to which there is no opportunity to inspect
or examine (Art. 1481).
Mere exhibition of the sample does not necessarily make
it a sale by sample. The exhibition must have been the
sole basis or inducement of the sale.
Warranty: That the bulk of the commodity will correspond
in kind, quality, and character with the sample exhibited.
Rights of buyer in sale by sample
1. Return the thing and recover the money paid, OR
2. Retain the thing and sue for the breach of warranty
(Paras, Civil Code, Book V, 2000 ed).
Sale by sample and by description distinguished
In the former, the thing is shown to the buyer, whereas in
the latter, the thing is only described.
Two - fold warranty in sale by sample and description
1. That the goods purchased matched with the description;
2. That the goods matched in kind, quality and character
with the samples exhibited to the buyer
Completeness of Delivery
A. Movables (Art. 1522)
Where, in relation to what is contracted to sell, the
quantity of goods delivered is:
1. LESS
Buyer has 2 options:
a. Reject the goods
b. Accept them
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When the acceptance is with knowledge that the seller
is not going to perform the contract = buyer shall pay at
contract rate;
When knowledge is after the acceptance and
consummation or disposal of the goods = buyer is not
liable for more than the fair value to him of the goods
delivered
2. LARGER
Buyer has 3 options:
a. Accept per contract and reject the rest
b. Accept the whole and pay at contract rate
c. If indivisible, reject the whole or accept it entirely
3. MIXED WITH GOODS OF DIFFERENT DESCRIPTION
Buyer has 2 options:
a. Accept the goods which are in accordance with the
contract and reject the res
b. If indivisible, reject the goods entirely or accept them
entirely
B. Immovables
SOLD PER UNIT OR NUMBER (Art. 1539 - 1540)
With statement of area at the rate of a certain price for a
unit or measure or number
If the vendee should demand, the vendor shall deliver
ALL that may have been stated in the contract.
If what is delivered is:
1. LESS IN AREA OR OF INFERIOR OR DIFFERENT
QUALITY
Buyer may seek
a. Rescission, if:
i. Lack in area is at least 1/10 of area agreed
upon;
ii. The deficiency in quality specified in the
contract exceeds 1/10 of the price agreed
upon;
iii. The vendee would not have bought the
immovable had he known of its smaller area or
inferior quality;
iv. Proportional reduction of price.
2. GREATER IN AREA
a. Accept per stipulation and reject the res
b. Accept the whole and pay at contract rate
Note: Articles 1539 and 1540 shall apply to judicial
sales (Art. 1541).
SOLD FOR LUMP SUM (Art. 1542) - a cuerpo cierto /
por precio alzado
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When two or more real estates are sold for a single
price, the rule is the same as when the real estate is
sold for a lump sum. There shall be no increase or
decrease in the area actually delivered and the area
stated in the contract (Azarraga vs. Gay, G.R. No. L-
29449, December 29, 1928).
c. Where price per unit is not indicated GREATER /
LESSER
No rescission or adjustment of price, UNLESS there
is gross mistake
Prescription of Action: Action arising from articles 1539
and 1542 shall prescribe in six (6) months counted from
the day of delivery (Article 1543).
Actions must be brought within (6) months from date of
delivery
Note: The Civil Code presumes that the purchaser had in
mind a particular piece of land and that he ascertained its
area and quality before the contract of sale was perfected.
If he did not do so, or if having done so he made no
objection and consented to the transaction, he can blame
no one but himself (Teran v. Villanueva Viuda de Riosa,
56 Phil 677, No. 34697, March 26, 1932).
Where the area of the immovable is stated in the contract
based on an estimate, the actual area delivered may not
measure up exactly with the area stated in the contract.
According to Article 1542, in the sale of real estate made
for a lump sum, there shall be no increase or decrease of
the price, although there be a greater or lesser area or
number than that stated in the contract (Feliciano
Esguerra, et al. v. Virginia Trinidad, G.R. No. 169890,
March 12, 2007).
Double Sale
Requisites: (VOSC)
1. Two or more transactions must constitute valid sales;
2. They must pertain exactly to the same object or subject
matter;
3. They must be bought from the same or immediate
seller; AND
4. Two or more buyers who are at odds over the rightful
ownership of the subject matter must represent
conflicting interests (Art. 1544).
Issue on validity of both sales
In order to constitute double sale, both sales must be
valid. Double sales rules are applications to
consummation issues; hence, when the underlying
contract of sale is void, consummation, particularly
tradition, cannot produce its legal consequences.
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However, in Caram, Jr. v. Laureta (G.R. No. L-28740
February 24, 1981), the Supreme Court held that one of
the contracts of sale must be declared valid so that one
vendee may exercise all the rights of an owner, while the
other contract must be declared void to cut off all the
rights which may arise from said contract.
Art. 1544 does NOT apply when:
1. Not all the elements are present;
The principle of prior tempore, potior jure (he who
is first in time is preferred in right) should apply.
2. The two different contracts of sale are made by two
different persons, one of them not being the owner of
the property sold (Sps. Salera v. Sps. Rodaje, G.R. No.
135900, August 11, 2007);
3. The land sold is not registered under the Torrens
system;
4. The first sale occurs when land is not yet registered and
the second sale is done when the land is already
registered - the principle of prior tempore, potior jure (he
who is first in time is preferred in right) should apply.
Rules on Preference:
1. Personal Property first possessor in good faith
2. Real Property
a. First registrant in good faith: second buyer must
register the document in good faith; otherwise, he
does not have a better right (Fudot v. Cattleya Land
Inc., GR No. 175942, September 13, 2007).
b. First possessor in good faith
c. Person with oldest title in good faith (Martinez v.CA,
GR No. 123547, May 21, 2001)
Applicability of the Rule of Caveat Emptor (Buyer
Beware)
One who purchases real property which is in actual
possession of others should make some inquiry
concerning the rights of those in possession.
Purchaser in Good Faith
Definition: One who (a) buys the property without
notice that some other person has a right to, or interest in,
such property; and (b) 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 (Agricultural and Home Extension Development
Group vs. Court of Appeals, G.R. No. 92310, September
3, 1992).
Burden of Proof: He who asserts the status of a
purchaser in good faith and for value has the burden of
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proving such assertion (Mathay v. Court of Appeals, G.R.
No. 115788. September 17, 1998).
Lis Pendens (Suit Pending): A buyer cannot be
considered an innocent purchaser for value where he
ignored the notice of lis pendens on the title when he
bought the lot (Limketkai Sons Milling, Inc. v. Court of
Appeals, G.R. No. 118509 December 1, 1995).
First buyer is always in good faith: Knowledge gained
by the first buyer of the second sale cannot defeat the first
buyers rights except only as provided by the Civil Code
and that is where the second buyer first registers in good
faith the second sale ahead of the first (Carbonell v. Court
of Appeals, G.R. No. L-29972 January 26, 1976).
If the second buyer in a sale of land registers the sale
after he has acquired knowledge that there was a
previous sale of the same land to another, or that another
person claims the same land, the registration by the
second buyer and will not confer any right upon him. The
first vendee who took possession of the land in good faith
is preferred (Salvoro vs. Taega, G.R. No. L-32988
December 29, 1978).
Example: A sold his land to B for P500, 000. Before B
could fully pay the price, A sold the land to C and took
possession of the land. B learned that the sale between A
and C is not yet registered. Thus, B registered an adverse
claim over the lot with the registered of deeds.
Subsequently, the deed of sale in favor of C was
registered and a TCT was issued to her but with
annotation of the adverse claim. Who has a better right
over the land?
Answer: B, the first buyer. At the time of the first sale, B
was in good faith because the title was still in the name of
A. And B could not have been aware of any sale involving
the property. Bs good faith did not cease after he learned
of the subsequent sale between A and C. The recording
of the adverse claim was done to protect Bs rights.
Consequently, the subsequent registration by C of the
sale was done in bad faith. Although at the time of the
second sale C was a buyer in good faith, his status as
such ceased after the prior sale was made known to him.
(Carbonell vs CA, G.R. L-29972, January 26, 1976).
Examination of Certificate of Title
General Rule: A purchaser maybe considered a
purchaser in good faith if he has examined the latest
certificate of title.
Exception: When there exist important facts that would
create suspicion in an otherwise reasonable man to go
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beyond the present title and to investigate those that
preceded it (Amancio et al. v. CA et. al., G.R. No. 152627,
September 16, 2005; Mercado v. Allied Bank, GR No
171460, July 27, 2007).
When subject of sale is unregistered land: 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, G.R. No.
154409. June 21, 2004).
When first sale is over unregistered land and the second
sale is registered, the rules on double sale do not apply
(Dagupan Trading Co. vs Macam, G.R. No. L-18497 May
31, 1965).
Article 1544 is inapplicable to unregistered land
because the purchaser of unregistered land at the
sheriffs execution 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 section 35, rules
39 of the revised rules of court on execution sale (now
section 33, rule 39, 1997 Rules of Civil Procedure)
(Caramba vs CA, G.R. No. L-27587 February 18, 1970).
Under Act 3344, registration of instruments affecting
unregistered lands is without prejudiced 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 article 1544 has no application to land not
registered under the Torrens system (Acabal vs Acabal,
G.R. No. 148376. March 31, 2005)
Example: A sold his land to B with the right to repurchase
the same. A failed to buy back the property, thus B
declared the land in his name. Unknown to B, A obtained
a free patent over the land. The free patent was later on
cancelled by a TCT. Meanwhile, B sold the land to C. A
also sold the land to D who registered the sale and a TCT
was issued in her name. Who has a better right?
Answer: D. In this case, both C and D registered the sale
of the property. Since C did not know that the property
was covered by Torrens System, he registered the sale
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under Act 3344. While D registered the transaction under
the Torrens system because during the sale A presented
the TCT covering the property.
It has been held that registration must be done in the
proper registry in order to bind the land. Since the
property in dispute was already registered under the
Torrens System, Cs registration of the sale under Act
3344 was not effective for purposes of Art. 1544 of NCC.
The priority in time principle is not applicable in this case.
(Sps. Abrigo v. De Vera, G.R. 154409, June 21, 2004).
Registration: Any entry made in the books of registry,
including both registration in its ordinary and strict sense,
and cancellation, annotation, and even marginal notes
(Cheng v. Genato, G.R. No. 129760, December 29,
1998).
It is the entry made in the registry which records solemnly
and permanently the right of ownership and other real
rights.
Registration requires actual recording: If the property
was never really registered as when the registrar forgot to
do so although he has been handed the document, there
is no registration (Po Sun Tun v. Price, G.R. No. L-31346,
December 28, 1929).
Bad faith on the part of one buyer amounts to registration
in favor of the innocent buyer.
A buyer of an unregistered land acquires a better title than
a subsequent buyer, even if the latter registered the sale
in good faith after the registration of the land by the seller
because the second buyer merely steps into the shoes of
the seller who at the time of the sale to him is no longer
the owner of the property.
Banks: The rule that persons dealing with registered
lands can rely solely on the certificate does not apply to
banks because their business is one affected with public
interest keeping in trust the money belonging to their
depositors (Amancio v. CA, GR No. 152627, September
16, 2005).
Possession: Possession is either actual or constructive
(Sanchez v. Ramos, G.R. No. 13442, December 20,
1919).
Possession in Art. 1544 is either material or symbolic (Ten
Forty Realty v. Cruz G.R. No. 151212, September 10,
2003).
Good faith must concur with registration: To be
entitled to priority, the second purchaser must not only
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establish prior recording of his deed, but must have acted
in good faith (Gabriel v. Mabanta, G.R. No. 142403,
March 26, 2003).
Duly Registered Attachment
It is a settled rule that an attachment which is duly
registered takes precedence over a prior unregistered
sale.
The preference created by the levy is not diminished even
by subsequent registration of the prior sale. The reason is
that an attachment is a proceeding in rem. It is against the
particular property and is enforceable against the whole
world (Valdevieso v. Dalamerio, G.R. No. 133303, Feb 17,
2005).
DELIVERY OF FRUITS AND ACCESSORIES (Arts.
1164, 1166, and 1537)
Accessions
The fruits of a thing; or additions to, or improvements
upon, a thing.
Accessories
Anything attached to a principal thing for its completion,
ornament, or better use.
The seller is bound to deliver the accessions and
accessories in the condition in which they were upon the
perfection of the contract (Art. 1537)
The buyer has a right to the fruits of the thing from the
time the obligation to deliver it arises. HOWEVER, he
shall acquire no real right over it until the same has been
delivered to him (Art. 1164).
The fruits pertain to the buyer from the day on which the
contract was perfected (Art. 1537, par. 2).
The obligation to give a determinate thing includes the
delivery of all its accessions and accessories, even
though they may not have been mentioned (Art. 1166).
MAKE WARRANTIES
Condition
An uncertain event or contingency on the happening of
which the obligation or right of the contract depends. In
such case, the obligation of the contract does not attach
until the condition is performed.
Note: There may be a contract of sale of goods, whose
acquisition by the seller depends upon a contingency
which may or may not happen (Art. 1462, par.2).
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Effect of non-fulfillment of condition
1. The other party may:
a. Refuse to proceed with the contract; OR
b. Proceed with the contract, waiving the
performance of the condition.
2. If the condition is in the nature of a promise that it
should happen, the non-performance of such condition
may be treated by the other party as breach of warranty
(Art. 1545).
Note: A distinction must be made between a condition
imposed on the perfection of a contract and a condition
imposed merely on the performance of an obligation. The
failure to comply with the first condition prevents the
juridical relation itself from coming into existence. Failure
to comply with the second merely gives the option either
to refuse or proceed with the sale or to waive the
condition.
Warranty and Condition; Distinguished
Warranty Condition
As to obligation of parties
Goes into the performance
of such obligation and in Goes into the root of the
fact may constitute an existence of the obligation
obligation in itself
As to existence on contract
May form part of the
obligation or contract by Must be stipulated by the
provision of the law without parties in order to form part
the parties having agreed of an obligation
thereto
In relation to subject matter of contract
Whether express or implied
May attach itself either to
relates to the subject
the obligation of the seller
matter itself or to the
to deliver possession and
obligations of the seller as
transfer ownership over the
to the subject matter of the
subject matter of the sale
sale
Warranty
A statement or representation made by the seller
contemporaneously and as a 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
(Art. 1546).
Note: Although the definition pertains only to the seller,
the buyer may make warranties as well, as when he
warrants that he will pay or when he makes any
affirmation or promise to induce the seller to enter into the
contract of sale.
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Kinds:
1. Express any affirmation of fact or promise by the
seller relating to the thing, inducing the buyer to
purchase the same and if the buyer purchases the thing
relying thereon (Art. 1546).
Requisites: (AIR)
a. It must be an affirmation of fact or any promise by the
seller relating to the subject matter of the sale;
b. The natural tendency of such affirmation or promise is
to induce the buyer to purchase the thing; and
c. The buyer purchases the thing relying on such
affirmation or promise.
The breach of an express warranty makes the seller
liable for damages.
A mere expression of opinion, no matter how
positively asserted, does not import a warranty
UNLESS the seller is an expert and his opinion was
relied upon by the buyer (Art. 1341).
The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent (Art. 1340).
Misrepresentation made in good faith is not
fraudulent but may constitute error (Art. 1343).
2. Implied that which the law derives from the nature of
the transaction or the relative situation or circumstances
of the parties, irrespective of any intention of the seller
to create it (Art. 1547).
It is a natural, not an essential element of a contract,
deemed incorporated in the contract of sale. It may be
waived or modified by express stipulation.
a. Warranty that seller has a right to sell;
b. Warranty against eviction;
c. Warranty against non-apparent burden or servitudes;
d. Warranty against hidden defects;
e. Warranty against redhibitory defects on animals;
f. Warranties in sale of goods / Warranties of quality;
g. Warranties for consumer goods (Arts. 68, Consumer
Act of the Philippines, R.A. 7394).
There is no implied warranty as to the condition,
adaptation, fitness or suitability or the quality of an
article sold as a second-hand article. Such articles
might be sold under such circumstances as to raise an
implied warranty. A certification issued by a vendor that
a second-hand machine was in A-1 condition is an
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express warranty binding on the vendor (Moles v. IAC.
G.R. No. 73913, January 31, 1981).
Warranty that seller has a right to sell: Although Art.
1547 uses the phrase unless a contrary intention
appears, there can be no legal waiver of such warranty
without changing the basic nature of the relationship, for
the warranty on the part of the seller that he has the
capacity to sell, i.e. to transfer ownership of the thing, is
the essence of sale, unless it amounts to clear
assumption of risk on the part of the buyer (Art. 1547
[1]).
Not applicable to sheriff, auctioneer, mortgagee,
pledgee (the principle applicable to execution sales is
caveat emptor because the purchaser acquires no
better title than the judgment debtor has).
Warranty against Eviction
The seller guarantees that he has the right to sell the
thing sold and to transfer ownership to the buyer, who
shall not be disturbed in his legal and peaceful
possession thereof (Art. 1548).
Elements:
a. Vendee is deprived, in whole or in part, of the thing
purchased;
b. Deprivation is by virtue of a final judgment;
Final judgment means that the judgment is
appealable to the higher court as contradistinguished
from an interlocutory order which is not appealable. A
final and executory judgment on the other hand, is
one which is no longer appealable.
Note: the term final judgment in article 1548 refers to
final and executory judgment (Perez vs. Zulueta,
G.R. No. L-10374, September 30, 1959).
c. Judgment is based on a right prior to the sale or an
act imputable to the vendor;
d. Vendor was summoned in the suit for eviction at the
instance of the vendee - (i) to enable the seller to
prove his claim; (ii) to avoid multiplicity of suits; and
(iii) to satisfy due process;
e. No waiver of warranty by the vendee.
Vendor's liability shall consist of:
a. Total eviction: (VICED) (Art. 1555)
i. Value of the thing at the time of eviction;
ii. Income or fruits if he has been ordered to
deliver them to the party who won the suit;
iii. Costs of the suit;
iv. Expenses of the contract; AND
v. Damages and interests if the sale was in bad
faith.
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b. Partial eviction vendee may (Art. 1556):
i. Enforce vendors liability for eviction (VICED); OR
ii. Demand rescission of contract.
Vendee has no duty to appeal
Appeal is not needed, and the buyer need not resist
eviction for the right against the vendor to accrue. It is
enough that the requisites are complied with (Art. 1549).
Applicability to Judicial Sale
Judgment debtor is responsible for eviction unless
otherwise decreed in judgment (Art. 1552).
Deprivation for non-payment of taxes: If the property
is sold for non-payment of taxes due and not made
known to the vendee before the sale, vendor is liable for
eviction (Art. 1551).
Inapplicability of rescission: Rescission is not a
remedy in case of eviction because rescission
contemplates that the one demanding it is able to return
whatever he has received under the contract. Since the
vendee can no longer restore the subject-matter of the
sale to the vendor, rescission cannot be carried out.
Exception: The buyer may demand rescission in case of
partial eviction, when he would not have bought the whole
property without the lost part.
The suit for the breach can be directed only against the
immediate seller, unless the sellers of the seller had
promised to warrant in favor of later buyers or the
immediate seller has expressly assigned to the buyer his
own right to sue his own seller.
The disturbance referred to in the case of eviction is a
disturbance in law which requires that a person go to
courts of justice claiming the thing sold, or part thereof
and invoking reasons.
Mere trespass in fact does not give rise to the application
of the doctrine of eviction.
Waiver of liability
Vendors liability is waivable but any stipulation exempting
the vendor from the obligation to answer for eviction shall
be void if he acted in bad faith (Art. 1553).
Kinds of waiver:
1. Consciente voluntarily made by the vendee without
the knowledge and assumption of the risks of eviction.
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Vendor shall pay only the value which the thing sold
had at the time of eviction.
2. Intencionada made by the vendee with knowledge of
the risks of eviction and assumption of its
consequences, in which case vendor is not liable
provided he did not act in bad faith (Art. 1554).
Note: Every waiver is presumed to be consciente. To
consider it intencionada, it must be accompanied by some
circumstance which reveals the vendors knowledge of the
risks of eviction and his intention to submit to such
consequences.
Warranty against Non-Apparent Burden or Servitudes
Requisites:
1. Immovable sold is encumbered with nonapparent
burden or servitude not mentioned in the agreement;
and
2. Nature of nonapparent servitude or burden is such that
it must be presumed that the buyer would not have
acquired it had he been aware thereof.
Remedy of buyer in case of breach:
1. Rescission; or
2. Indemnity (Art. 1560).
When warranty not applicable: (ARAK)
1. Servitude is apparent;
2. Non apparent burden or servitude is recorded in the
Registry of Property EXCEPT when there is express
warranty that the thing is free from all burdens &
encumbrances;
3. The servitude is mentioned in the agreement;
4. Vendee had knowledge of servitude.
Prescriptive Period (Rescission): 1 year
After 1 year, only action for damages may be brought (to
be counted from the date on which the burden or
servitude was discovered).
Warranty Against Hidden Defects
Seller guarantees that the thing sold is free from any
hidden faults or defects or any charge or encumbrance
not declared or known to the buyer (Art. 1561).
This warranty in Sales is applicable in Lease (Yap Kim
Chuan v. Tiaoqui, GR No. 1006, September 18, 1915).
Hidden faults or defects pertain only to those that make
the object unfit for the use for which it was intended at the
time of the sale.
Elements: (SHEN-PW)
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1. Defect is serious or important such that:
a. The hidden defect should render the subject matter
UNFIT for the use for which it is intended;
b. The hidden defect should DIMINISH the things
FITNESS such that the buyer would not have
acquired it or would have given a lower price for it
had he been aware of it.
2. Defect is hidden
Hidden
Not known or could not have been known to the
vendee; hidden to the eyes and cannot be discovered
by ordinary careful inspection.
3. Exists at the time of the sale;
4. Vendee must give notice of the defect to the vendor
within a reasonable time;
5. Remedies must be brought within the period of 6 mos.
from delivery of the thing or 40 days from date of
delivery in case of animals (Arts. 1571 and 1577); and
6. No waiver of the warranty.
Vendor is not liable for
1. Patent defects; or
2. Those that are not visible but the buyer is an expert
who, by reason of his profession, should have known
them (Art. 1561).
Knowledge of vendor, not important (Applicability of
Doctrine of Caveat Venditor or Vendor Beware)
General Rule: Seller is liable even though he is not aware
of the hidden defect (Art. 1566, (1)).
Exception: there is a stipulation to the contrary and the
seller is not aware of it (Art. 1566 (2)).
Rationale: a sound price warrants a sound article
Obligation of seller in case of breach
A. If there was no waiver of warranty and the thing was
lost due to hidden defects (Art. 1568):
1. When seller is aware of the hidden defects: (L-PED)
a. Bear the loss
b. Return the price
c. Refund the expenses of the contract
d. Pay damages
2. When seller is not aware of the hidden defects: (L-
PIE)
a. Bear the loss
b. Return the price
c. Return the interest
d. Reimburse expenses of the contract
B. If there was a waiver of warranty (Art. 1566, par. 2):
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1. When seller is aware of the hidden defects: Waiver is
in bad faith; as a corollary, seller is still liable.
2. When seller is not aware of the hidden defects:
Seller is not liable.
C. If the defective thing is lost through fortuitous event
or fault of buyer (Art. 1569), buyer may demand of the
seller the price paid less the value of the thing at the
time of loss.
The difference between the price paid and the value of
the thing at the time of its loss represents the damage
suffered by the vendee and the amount which the
vendor enriched himself at the vendees expense.
The thing sold must be defective at the time of sale.
Example: A purchased a television from B at P250,000
which was paid in full. The television has hidden
defects, the repair of which will cost P50,000. The
television, however, was lost through fortuitous event.
At the time of the loss the television is worth P200,000.
B is liable to refund to A the sum of P50,000.
If it is the vendee who caused the loss of the thing, the
vendor is still liable by virtue of the existence of the
defects in the thing. He will be liable for P50,000 the
amount needed for the repairs of the thing had it not
been lost.
Remedy of Buyer
Buyer may choose between the following:
1. Accion Redhibitoria (Redhibitory Action)
Withdrawing from the contract
Avoidance of the sale due to vice in the thing sold which
renders its use impossible or so inconvenient and
imperfect that it must be supposed that the buyer would
not have purchased it had he known of the vice.
2. Accion Quanti Minoris
Proportionate reduction of price (Art. 1567).
Applicability to Judicial Sale
The warranty is applicable to judicial sales; HOWEVER,
the judgment debtor is not liable for damages for the
reason the he is merely compelled to sell his property (Art.
1570).
Prescriptive Period
6 months from the delivery of the thing sold (Art. 1571).
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Warranty against Redhibitory Defects on Animals
Instances where there is redhibitory defect: [EVA]
1. Expert knowledge is not sufficient to discover it (1576,
par. 1); or
2. The veterinarian failed to discover or disclose it through
ignorance or bad faith (1576, par. 2); or
3. The animal dies within three days after its purchase and
the disease which caused the death existed at the time
of the contract: (Art. 1578)
Animals Sold at Fairs or Public Auction
There is no warranty against hidden defect of animals sold
at fairs or at public auctions, or of livestock sold as
condemned (Art. 1574).
Sale of Team
General Rule: the defect of one will only give rise to its
redhibition
Exception: when the buyer would not buy them if one is
defective (or would not buy one without the other) (Art.
1572).
The exception is PRESUMED when what is bought is a
TEAM, YOKE, PAIR or SET (even if separate price has
been fixed for each one of the animals composing the
same).
Remedy
1. Accion Redhibitoria; or
2. Accion Quanti Minoris (Arts. 1580)
Void Sales
1. Sale of animals with CONTAGIOUS DISEASES.
2. Sale of UNFIT animals, i.e. the use or service for which
the animals are acquired has been stated and they are
found to be unfit therefor (Art. 1575).
Obligation of Buyer to Return
In case of rescission, the animal shall be returned in the
condition in which it was sold and delivered, the vendee
being answerable for any injury due to his negligence, and
not arising from the redhibitory fault or defect (Art. 1579).
Prescriptive Period
40 days from the date of delivery to buyer (Art. 1577).
Warranties in Sale of Goods / Warranties of Quality
Quality
State or condition (as to promote high standard in
business)
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1. Warranty of Fitness The seller guarantees that the
thing sold is reasonably fit for the known particular
purpose for which it was acquired by the buyer. It exists
in the following instances:
a. Where the buyer, expressly or by implication
manifests to the seller the particular purpose for
which the goods are acquired
b. Where the buyer relies upon the sellers skill or
judgment (Art. 1562 (2)).
2. Warranty of Merchantability The seller guarantees,
where the goods were bought by description, that they
are reasonably fit for the general purpose for which they
are sold.
It requires identity between what is described in the
contract and what is tendered, in the sense that the
latter is of such quality and value (Art. 1562 (3)).
Instances where implied warranties are inapplicable:
1. As-is and where-is sale vendor makes no warranty as
to the quality or workable condition of the goods; the
vendee takes them in the condition in which they are
found and from the place where they are located.
2. Sale of second-hand articles.
3. Sale by virtue of authority in fact or law.
Preservation of the Thing Pending Delivery Pending
delivery, the seller is bound to take care of the thing with
the diligence of a good father of a family (Art. 1163).
Expenses for the Execution and Registration of Sale
In the absence of agreement to the contrary, the seller
has the duty to pay for:
1. Execution of the sale.
2. Registration of the sale (Art. 1487).
Expenses incurred subsequent to the transfer of title are
to be borne by the buyer, unless caused by the fault of the
seller.
Buyers Right to Examine the Goods
General Rule: The buyer has a right to examine the
goods before accepting delivery to determine whether
they conform to the contract.
A denial of the buyer's right to examine is a ground for the
recovery by the buyer of money advanced or to rescind
the contract.
Exceptions:
1. There is a stipulation to the contrary; OR
2. In case of C.O.D. (collect on delivery) buyer is not
entitled to examine until payment is made; EXCEPT:
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a. There is an agreement permitting examination; or
b. The usage of trade permits the examination (Art.
1584).
Note: The mere delivery of the goods by the seller to the
carrier does not preclude the buyer from rejecting the
goods if they are not in fact as ordered, even though the
buyer authorized the shipment of the goods to the carrier
(Paras, Civil Code of the Philippines Annotated, Book V,
2000 ed).
Contract with the Carrier On Behalf of the Buyer
This is a duty of the seller after delivery to carrier.
The fact that the ownership in the goods may have
passed to the buyer does not mean that the seller has
already fulfilled his duty to the buyer.
The seller must make such contract with the carrier on
behalf of the buyer as may be reasonable under the
circumstances.
If the seller omits to do so, the buyer may:
1. Decline to treat the delivery to the carrier as a delivery
to himself in case the goods are lost or damaged in
course of transit; or
2. Hold the seller responsible in damages (Art. 1523).
Notice to Buyer Regarding Necessity to Insure Goods
This is a duty of the seller after delivery to carrier.
The seller must give notice to the buyer as may enable
him to ensure the goods during their transit if under the
circumstances it is usual to insure them.
If the seller fails to do so, the risk will be borne by him.
The seller who had failed to give notice is not liable for
loss of goods, if the buyer had all the information
necessary to insure (Art. 1523).
O BLIG ATIONS OF THE V ENDEE
Principal Obligations (Art. 1582):
Obligations of the Vendee
1. To accept delivery
2. To pay the price of the thing sold in legal tender
UNLESS another mode has been agreed upon
Grace Period to Vendee
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A grace period granted the vendee in case of failure to
pay the amount/s due is a right not an obligation. The
grace period must not be likened to an obligation, the
nonpayment of which, under Article 1169 of the Civil
Code, would still generally require judicial or extra-judicial
demand before default can be said to arise (Bricktown
Devt. Corp. v. Amor Tierra Devt. Corp., G.R. No. 112182,
December 12, 1994).
Other Obligations
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 (Art. 1587).
The buyer in such a case is in the position of a bailee
who has had goods thrust upon him without his assent.
He has the obligation to take reasonable care of the
goods but nothing more can be demanded of him.
The goods in the buyers possession are at the sellers
risk.
2. To be liable as a depositary if he voluntarily constituted
himself as such (Art. 1587).
3. To pay interest for the period between delivery of the
thing and the payment of the price in the following
cases (Art. 1589): [IFV]
a. Interest is stipulated;
May be oral
Interest which must be in writing refers only to loan
(Art. 1956)
b. Fruits or income are received by vendee from the
thing sold;
Even if a term has been fixed for the payment of price
c. Vendee is guilty of Default.
Under Art. 1169, the debtor incurs in delay from the
time of judicial or extra-judicial demand. However,
demand is not necessary to constitute delay in the
following cases: (LTD)
i. The law or obligation expressly so provides;
ii. Time is of the essence; or
iii. Demand would be useless as when the obligor has
rendered it beyond his power to perform.
Pertinent Rules
1. The vendor is not required to deliver the thing sold until
the price is paid nor the vendee to pay the price before
the thing is delivered in the absence of an agreement to
the contrary (Art. 1524);
2. If stipulated, the vendee is bound to accept delivery and
to pay the price at the time and place designated;
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3. If there is no stipulation as to the time and place of
payment and delivery, the vendee is bound to pay at the
time and place of delivery (Art. 1582, (2));
4. In the absence of stipulation as to the place of delivery,
it shall be made wherever the thing might be at the
moment the contract was perfected (Art. 1251);
5. If only the time of delivery has been fixed in the
contract, the vendee is required to pay even before the
thing is delivered to him; if only the time of payment has
been fixed, the vendee is entitled to delivery even
before the price is paid by him.
Acceptance
Acceptance and delivery are separate acts; acceptance is
the buyers obligation while delivery is the vendors
obligation.
Acceptance is not a condition to complete delivery.
Vendee has nothing to do with the vendors delivery. The
seller must comply with his obligation to deliver although
there is no acceptance yet by the buyer.
Unless otherwise agreed upon, acceptance by the buyer
does not discharge the seller from liability for damages or
other legal remedy like for breach of any promise or
warranty.
Rights of the buyer
1. Not bound to accept delivery of goods by installments
(Art. 1583);
2. Reasonable opportunity to examine the goods upon
delivery to ascertain whether they are in conformity with
the contract before accepting the same (Art.1584).
Exceptions:
1. There is a stipulation to the contrary; OR
2. In case of C.O.D. (collect on delivery) buyer is not
entitled to examine until payment is made; EXCEPT:
a. There is an agreement permitting examination; or
b. The usage of trade permits the examination
3. Acceptance of the goods shall not discharge the seller
from liability for breach of any promise or warranty BUT
the buyer must give the seller notice of the breach of
promise or warranty within a reasonable time after the
buyer knows or ought to know of such breach,
otherwise the seller shall not be liable therefor
(Art.1586).
4. Reject delivery of a wrong quantity of goods or of goods
of a different description not included in the contract
which are mixed with the goods sold (Art.1522).
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5. If he refuses to accept the goods, having the right to do
so, he is not bound to return them to the seller; it being
sufficient that he notifies the seller of his refusal to
accept.
If he voluntarily constitutes himself as depositary of the
goods, he shall be liable as such (Art.1587).
Effect of refusal to accept goods without just cause: title to
the goods passes to the buyer from the moment they are
placed at his disposal, except if ownership has been
reserved by the seller (Art.1588).
Acceptance and Actual Receipt; Distinguished
Acceptance and actual receipt do not imply each other.
Acceptance Actual Receipt
Implies approval of the Refers only to the physical
contract act of taking or receiving
the goods sold
Acceptance by the buyer may precede actual delivery;
there may be actual receipt without acceptance and there
may be acceptance without receipt
Ways of accepting goods
1. Express acceptance when the buyer, after delivery of
the goods, intimates to the seller, verbally or in writing,
that he has accepted them.
2. Implied acceptance
a. When buyer performs acts of ownership
b. Failure to return goods after reasonable lapse of
time (Art. 1585).
Note: The buyer must notify the seller within a reasonable
time after the buyer knows or ought to know of the breach;
otherwise, the seller will be released from such liability
(Art.1586, last par.).
Notice is still required even if the seller has knowledge of
the facts constituting the breach because whether or not
the defect constitute a breach must be taken from the
point of view of the buyer (Paras, Civil Code of the
Philippines Annotated, Book V, 2000 ed.).
Delivery and Acceptance; Distinguished
Delivery Acceptance
Nature
An act of the vendee. The
vendee has nothing to do
An act of the vendor with the act of delivery by
the vendor.
Obligation
One of the obligations of Acceptance is an
the vendor is the delivery obligation on the part of
[Type text]
of the thing sold. (Art. the vendee (Art. 1582)
1495)
Note: The seller must comply with his obligation to deliver
although there is no acceptance yet by the buyer
Payment
Non-payment does not prove simulation; at most, it gives
the seller the right to sue for collection. Payment of the
price is a resolutory condition and the remedy of the seller
is to exact fulfillment or, in case of substantial breach, to
rescind the contract under Art. 1191.
Rights of the buyer
1. Suspension of payment (Art. 1590):
Contemplates a situation where the contract is not yet
consummated
Applicable in the following cases:
a. Where the vendee is disturbed in possession or
ownership of the thing bought; or
b. Vendee has reasonable ground to fear that his
possession or ownership would be disturbed (by a
vindicatory action or a foreclosure of a mortgage)
In both instances, the vendee may retain only the price
that has not been paid to the vendor. He is not entitled
to recover what has already been paid.
Exceptions to Suspension of Payment (where
vendee has no right to suspend payment): [SSCTP]
a. Vendor gives security for the return of the price
b. Stipulation that vendee must make payment
notwithstanding such contingency
c. Cessation of disturbance or danger
d. Disturbance is a mere act of trespass
e. Vendee has paid the price in full
When the disturbance is caused by non-apparent
servitude, the remedy is rescission, not suspension of
payment.
Length of Suspension of Payment
The right to suspend payment granted by law to the
vendee exists only while the danger or disturbance
lasts. Once the vendor has caused the cessation of this
disturbance such as by compromising with the third
person who poses the danger or disturbance to the
vendees possession or ownership, the vendee must
already pay (Bareng vs. CA, G.R. No. L-12973 April 25,
1960).
Mere Act of Trespass
[Type text]
The mere act of trespass committed by a third person
on the property subject of the sale will not justify
suspension of payment.
2. In the sale of immovable property, to pay even after the
expiration of the period agreed upon, as long as no
demand for rescission of the contract has been made
upon him either judicially or by a notarial act, even
though it may have been stipulated that rescission shall
of right take place upon failure to pay the price at the
time agreed upon (Art.1592).
R EMEDIES FOR
B RE ACH OF C O NTR ACT
Remedies of the Seller
A. In case of Immovables
1. When there is Anticipatory Breach (Art. 1591):
Seller may sue for RESCISSION if the following
concur:
a. There is delivery of immovable property
b. Vendee has not yet paid the price
c. Vendor has reasonable ground to fear the:
i. LOSS of PROPERTY; AND
ii. LOSS of PRICE
When there is no such reasonable ground, Art. 1191
shall be observed (when the vendee does not comply
with what is incumbent upon him).
This is applicable to both cash sales and to sales in
installments as Art. 1591 does not distinguish between
one and the other.
In all cases of rescission, there must be substantial
breach as to defeat the very object of the parties and
not merely a slight or casual breach.
2. When there is failure on the part of buyer to pay
the price (Art. 1592):
AUTOMATIC RESCISSION of sale of immovable
property is stipulated.
Applicability of Art. 1592: It applies only to a
conditional sale of real property where title passes to
the vendee upon the delivery of the thing sold which
is usually effected through the execution of public
document. It does not apply to contract to sell or
promise to sell where the title remains with the vendor
until full payment of the price (Valarao vs. CA, G.R.
No. 130347. March 3, 1999).
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Meaning of even though: According to Paras and
Villanueva, the phrase even though signifies that
Article 1592 is applicable to all sales of immovables
even when there is no stipulation on automatic
rescission. According to De Leon, however, the
phrase even though emphasizes that when no
stipulation is found on automatic rescission, the
judicial or notarial requirement still applies. According
to him, therefore, the buyer may still pay the price
even after the expiration of the period and
notwithstanding a stipulation on automatic rescission,
as long as there is no demand by judicial or notarial
act.
Article 1191 is subordinated to the provisions of
Article 1592 when applied to sales of immovable
property.
In Articles 1191 and 1592, the rescission is a principal
action which seeks resolution or cancellation of the
contract, while in Article 1381, the action is a
subsidiary one limited to cases of rescission for
lesion.
Prescriptive period (rescission under Articles 1191
and 1592): 10 years from the time the right of action
accrues (Article 1144).
Seller is given an option to RESCIND upon JUDICIAL
OR NOTARIAL DEMAND.
However, when there is no judicial or notarial
demand, buyer may still pay. Offer to pay is sufficient
to defeat sellers prerogative.
Sellers right to rescind is not absolute.
Art. 1191, par. 3 provides that the court may grant
vendee a new term.
However, if there is already a demand, the court may
no longer fix a term.
NOT APPLICABLE TO Art. 1592:
a. Sale on installment of real estate (Caridad Estates
v. Santero, G.R. No. L-47231, December 19, 1940)
b. Contract to Sell (Felipe Roque v. Nicanor Lapuz
and CA, G.R. No. L-32811, March 31, 1980)
c. Cases covered by RA 6552
B. In case of Movables
1. Movables in General (Art. 1593)
AUTOMATIC RESCISSION in the interest of the
seller if the buyer, upon the expiration of the
period for delivery of thing:
[Type text]
a. Should not have appeared to receive it; OR
b. Having appeared, should not have tendered the
price at the time
Rationale behind Art 1593: Personal properties are
not capable of maintaining stable price in the market.
Hence, any delay is prejudicial to the vendor.
Applies only when thing sold has not been delivered
to the buyer.
Reason: the buyer cannot take the law in his hands
If there has already been delivery, other provisions
are applicable.
2. Sale of Goods
a. Action for the price / Specific performance (Art.
1595)
When the ownership of the goods has passed to
the buyer and he wrongfully neglects or refuses to
pay for the goods according to the terms of the
contract
When price is payable on certain day, irrespective
of delivery or transfer of title, and the buyer
wrongfully neglects or refuses to pay BUT it is a
defense to such action that seller has manifested
an inability or lack of interest to perform his
obligation before judgment.
If goods cannot readily be resold for a reasonable
price, although transfer of ownership has not
passed seller may offer to deliver the goods to
the buyer; if buyer refuses to receive, seller may
notify the buyer that he holds the goods as bailee
for the buyer. Thereafter, the seller may treat the
goods as buyers and may maintain an action for
the price.
b. Action for Damages
When buyer wrongfully neglects or refuses to
accept and pay for the goods (Art. 1596).
Where the ownership in the goods has not passed,
and the seller cannot maintain an action to recover
the price.
If the goods are not yet identified at the time of the
contract or subsequently, the sellers right is
necessarily confined to an action for damages.
[Type text]
Measure of Damages: estimated loss directly and
naturally resulting in the ordinary course of events
from the buyers breach.
Measure of Damages (when there is available
market): difference between the contract price and
the market or current price at the time the goods
ought to have been accepted, or at the time of
refusal to accept when there is no time fixed.
c. Technical Rescission (Art. 1597)
There is no delivery of goods yet
In the following instances, the seller may totally
rescind by giving notice of his election to do so to
the buyer:
i. Buyer has repudiated the contract of sale;
ii. Buyer has manifested his inability to perform
obligations; or
iii. Buyer committed a breach
Unpaid Seller
1. The seller who has not been paid or to whom the price
has not been tendered;
2. The seller of the goods, in case 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, insolvency of the buyer or otherwise
(Art. 1525).
The term seller as used in articles 1525 to 1535
includes the following, (a) agent of the seller; (b)
consignor or agent who has himself paid the price or is
responsible for the price; (c) any other person in the
position of the seller.
Remedies of unpaid seller (PaSaS SA ARMS):
1. Possessory lien
2. Stoppage of goods in transitu
3. Special right of resale
4. Special right of rescission
5. Action for the price
6. Action for damages
7. Recto Law
8. Maceda Law
9. Specific performance
POSSESSORY LIEN
When it may be exercised: (WEI)
1. The goods have been sold without any stipulation as to
credit
[Type text]
2. The goods have been sold on credit, but the term of
credit has expired
3. The buyer becomes insolvent (Art. 1527)
Note: Notwithstanding transfer of ownership, possessory
lien may still be exercised as long as the goods are in the
possession of the seller.
When unpaid seller loses his lien: (COW)
1. Delivery of the goods to a carrier or bailee;
For the purpose of transmission to the buyer without
reserving ownership or right of possession.
2. When the buyer lawfully obtains possession of the
goods;
3. By waiver of the lien (Art. 1529).
Loss of Lien
The lien of the seller depends upon either possession or
control of the property on which the lien is claimed, and if
the seller permits the property to go into actual possession
of the buyer, such lien is lost, although he delivers on the
faith of a chattel mortgage which turns out to be invalid, or
draft given in payment was dishonored. If however, the
seller has been induced to part with possession by fraud,
the lien of the seller is not lost but continues. (Tolentino,
Arturo M, Civil Code of the Philippines Annotated V, p. 82)
Revival of Lien
After the sellers lien has been lost by delivery of the
goods to the buyer, the return of the goods by the buyer to
the seller in wrongful repudiation of the sale ordinarily
restores the seller to the position of a lien holder for the
unpaid purchase price, provided the seller makes it clear
that in accepting the goods from the buyer, he is not
assenting to a rescission of the sale.
However, the return of the goods by the buyer to the seller
not in repudiation of the sale but for some special
purpose, such as to have repairs or alterations by the
seller, does not revive the lien of the seller (Tolentino,
Arturo M, Civil Code of the Philippines Annotated V, p.
83).
Note: Possessory lien is lost after the seller loses
possession but his lien as an unpaid seller remains. His
preference can only be defeated by the governments
claim to the specific tax on the goods themselves (Arts.
2247 and 2241). The bringing of an action to recover the
purchase price is not one of the ways of losing the
possessory lien. An unpaid seller does not lose his lien by
reason that he has obtained a money judgment or decree
for the price of goods (Art. 1529, last paragraph).
[Type text]
Possessory lien is different from lien on the price. In the
first, the seller is entitled to retain possession of the goods
as security for the purchase price. In the second, after
delivery, the seller loses his possessory lien but retains
his lien on the price of the goods (Pineda, Civil Code of
the Philippines Annotated V, 2011 ed., p. 199).
STOPPAGE OF GOODS IN TRANSITU
Requisites: (UI-TE)
1. Seller must be unpaid
2. Buyer must be insolvent
A person is considered insolvent if he has ceased to
pay his debts as they become due, whether or not
insolvency proceedings have been commenced or not
(Art. 1636, (2))
3. Goods must be in transit
4. Seller must either:
a. Actually take possession of the goods sold; OR
b. Give notice of his claim to the carrier or other
person in possession of the goods (Art. 1530).
Notice may be given either to the person in actual
possession of the goods or to his principal.
When notice is given to the carrier or other bailee in
possession of the goods, he must redeliver the goods
according to the directions of the seller
Note: Expenses must be borne by the seller
Exception: a negotiable document of title representing
the goods has been issued (in which case the carrier or
bailee is not obliged to redeliver the goods unless the
seller surrendered the document for cancellation)
When the goods are considered in transit:
1. After delivery to a carrier or other bailee and before the
buyer or his agent takes delivery of them; and
2. If the goods are rejected by the buyer, and the carrier or
other bailee continues in possession of them (even if
the seller refused to receive them back) (Art. 1531, par.
1).
Note: Taking of the goods in transit by an unauthorized
agent of the buyer does not extinguish the right of
stoppage in transitu (Paras, Civil Code of the Philippines
Annotated, Book V, 2000 ed.).
In case of misdelivery, the goods are still considered in
transit, hence, the seller may still exercise said right
[Type text]
pursuant to Art. 1523, which provides that an unpaid seller
may exercise his right of stoppage in transitu by giving
notice of his claim to the carrier or other bailee in whose
possession the goods are.
When the goods are no longer in transit: (APAR)
1. After delivery to the buyer or his agent in that behalf;
2. If the buyer or his agent obtains possession of the
goods at a point before the destination originally fixed;
3. If the carrier or the bailee acknowledges to hold the
goods in behalf of the buyer; and
4. If the carrier or bailee wrongfully refuses to deliver the
goods to the buyer (Art. 1531, [2]).
Effects of the exercise of the right:
1. The goods are no longer in transit;
2. The contract of carriage ends; the carrier now becomes
a mere bailee, and will be liable as such;
3. The carrier should no longer deliver to the buyer or the
latters agent; otherwise he will be liable for damages.
Ways of exercising the right:
1. By taking actual possession of the goods;
2. By giving notice of his claim to the carrier or bailee (Art.
1532).
Effect if the buyer has already sold the goods
General rule: The unpaid sellers right to lien or stoppage
in transitu remains even if buyer has sold the goods.
Exceptions:
1. When the seller has given consent thereto; OR
2. When a negotiable document of title has been issued
for goods (Art. 1535).
SPECIAL RIGHT OF RESALE
May be exercised only when the unpaid seller has either a
right of lien or has stopped the goods in transitu and
under any of the following conditions:
1. Goods are perishable in nature;
2. The right to resell is expressly reserved in case the
buyer should make a default;
3. The buyer delays in the payment of the price for an
unreasonable time (Art. 1533).
Note: Article 1533 only applies if the title to goods has
already passed to the buyer. Otherwise, the goods cannot
be resold.
Effect of Resale: The new buyer acquires a good title as
against the original buyer (Art. 1533 par.2).
[Type text]
If sold for more than the If sold for less than the
original price original price
The seller is not liable to Seller has right to sue for
the original buyer for any the balance (Art. 1533
profit earned in the resale par.1)
(Art. 1533 par.1).
The seller is not liable to the original buyer for any profit
earned in the resale and may recover damages
occasioned by the buyers breach of the contract of sale.
Action for the rescission of the sale is not necessary.
(Pineda, Pineda, Civil Code of the Philippines Annotated
V, 2010 ed., p. 211).
Resale may be public or private sale.
To avoid injustice and unfairness, the seller is prohibited
from becoming the buyer of the goods whether directly or
indirectly.
Notice of sale need not be sent to the original buyer.
RESCISSION
Special Right to Rescind
If the seller has either the right of lien or a right to stop the
goods in transitu and under either of 2 situations:
1. Where the right to rescind on default has been
expressly reserved;
2. Where the buyer has been in default for an
unreasonable time (Art. 1534).
Effect of Exercise of Right:
The seller shall not thereafter be liable to the buyer upon
the contract of sale, but may recover from the buyer
damages for any loss occasioned by the breach.
Note: There must be NOTICE or some other OVERT ACT
of intention to rescind. Overt act need not be
communicated BUT the giving of notice is relevant in case
of default for an unreasonable time.
ACTION FOR THE PRICE
When it may be exercised:
1. Where the ownership has passed to the buyer AND he
wrongfully neglects or refuses to pay for the price;
2. Where price is payable on a day certain AND he
wrongfully neglects or refuses to pay for the price,
irrespective of the delivery or transfer of title;
3. Where the goods cannot readily be resold for a
reasonable price AND the buyer wrongfully refuses to
accept them even before the ownership of the goods
has passed, if Art. 1596 is inapplicable (Art. 1595).
ACTION FOR DAMAGES
[Type text]
When it may be exercised:
1. In case of wrongful neglect or refusal by the buyer to
accept or pay for the thing sold (Art. 1596, par. 1);
2. In an executory contract, where the ownership in the
goods has not passed, and the seller cannot maintain
an action to recover the price (Art. 1595);
3. If the goods are not yet identified at the time of the
contract or subsequently.
ARTICLE 1484 OR RECTO LAW
Provides for remedies of vendor in sale of personal
property by installments.
Sale on Installment: When there is only one payment to
be paid in the future, there is no basis to apply the Recto
law, since under the language of then Article 1454-A, the
buyer needs to have defaulted in the payment of two or
more installments to allow the seller to rescind or
foreclose on the chattel mortgage (Levy Hermanos, Inc. v.
Gervacio, G.R. No. L-46306 October 27, 1939).
Purpose of Recto Law: To remedy the abuses
committed in connection with the foreclosure of chattel
mortgages and was meant to prevent mortgagees from
seizing the mortgaged property, buying it at foreclosure
sale for a low price and then bringing suit against the
mortgagor for a deficiency judgment.
Requisites:
1. Contract of sale
2. Personal property
3. Payable in installments
4. In the case of the second and third remedies, that there
has been a failure to pay two or more installments
Note: Rules and limits apply 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 (Art. 1485).
Art. 1484 does not apply to:
1. Sale of personal property payable on straight terms
(partly in cash and partly in one term)
2. Sale or mortgage of real estate
3. Action for replevin
Alternative and Exclusive Remedies:
The remedies under Art. 1484 have been recognized as
alternative, not cumulative, in that the exercise of one
would bar the exercise of the others (Delta Motors Sales
Corp. v. Niu Kim Duan, 213 SCRA259, 1992).
The remedies cannot also be pursued simultaneously
(Luneta Motor Co. v. Dimagiba, 3 SCRA 884, 1961).
[Type text]
1. Specific performance upon vendees failure to pay
In sales on installments, where 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 deficiency judgment
(Southern Motors Inc. v. Moscoso, G.R. No. L-14475,
May 30, 1961).
When deemed chosen
The seller is deemed to have chosen specific
performance when he files an action in court for
recovery.
Resort to Rescission after choosing specific
performance
General Rule: When the seller has chosen specific
performance, he can no longer seek for rescission or
foreclosure of the chattel mortgage constituted on the
thing sold.
Exception: Even if the seller had chosen specific
performance, if the same has become impossible, the
seller may still choose rescission (Art. 1191).
Action for Specific Performance does NOT Bar
Recovery of Deficiency
If the chosen action chosen and pursued (Art. 1484,
par. 1) and the mortgaged car was attached and sold,
the sale thereof does not amount to a foreclosure of the
chattel mortgage. The vendor is entitled to a deficiency
judgment (Industrial Finance Corp vs. Ramirez, G.R.
No. L-43821 May 26, 1977).
2. Rescission of the sale if vendee shall have failed to
pay two or more installments
When deemed chosen
When the seller has clearly indicated to end the contract
such as when (NPA)
a. He sends a notice of rescission, or
b. He takes possession of the subject matter of the sale,
or
c. He files an action for rescission.
Forfeiture of installment or rentals paid
General Rule: Rescission creates the obligation to
return the things which were the object of the contract,
together with the fruits, and the price with interests. It
can be carried out only when he who demands
rescission can return whatever he may be obliged to
restore (Art. 1385).
[Type text]
Exception: A stipulation that the installments or rents
paid shall not be returned to the vendee or lessee shall
be valid insofar as the same may not be
unconscionable under the circumstances (Art. 1486).
3. Foreclosure of the chattel mortgage on the thing
sold if vendee shall have failed to pay two or more
installments.
In this case, there shall be no deficiency judgment.
When deemed chosen: At the time of actual sale of
the subject property at public auction pursuant to the
foreclosure proceedings commenced (Manila Motor
Co., Inc. v. Fernandez, G.R. No. L-9396. August 16,
1956.).
Barring effect of Foreclosure: It is the foreclosure and
actual sale at public auction of the mortgaged chattel
that shall bar further recovery by the seller of any
balance on the purchasers outstanding obligation not
satisfied by the sale.
Any agreement allowing for further action to recover
unpaid balance is void.
Prior to foreclosure and actual sale at public
auction, the seller has every right to receive payments
on the unpaid balance of the price from the buyer
(Manila Motor Co. v. Millan, G.R. No. L-43263 October
31, 1935).
Payments made before actual foreclosure could be
retained by the vendor (Northern Motors, Inc. vs.
Sapinoso, G.R. No. L-28074 May 29, 1970.)
Barring effect on other securities given for payment
of price: After the foreclosure, the vendor cannot
proceed against any third party who may have
guaranteed the vendees performance of his obligation,
for if the guarantor should be compelled to pay the
balance, the guarantor will be entitled to recover what
he has paid from the debtor-vendee, so that ultimately,
it will be the vendee who will be made to bear the
payment of the balance of the price (Cruz v. Filipinas
Investment & Finance Corp., G.R. No. L-24772 May 27,
1968).
Sellers assignment of credit: When the seller assigns
his credit to another person, the latter is likewise bound
by the same law. Accordingly, when the assignee
forecloses on the mortgage, there can be no further
recovery of the deficiency and the seller-mortgagee is
deemed to have renounced any right thereto (Borbon II
[Type text]
v. Servicewide Specialists, Inc., G.R. No. 106418. July
11, 1996).
Art. 1484(3) does not bar one to whom the vendor has
assigned on a with-recourse basis his credit against the
vendee from recovering from the vendor the assigned
credit in full although the vendor may have no right of
recovery against the vendee for the deficiency (Filipinas
Invest. & Finance Corp. v. Vitug, Jr., G.R. No. L-25951,
June 30, 1969).
Extent of barring effect: Despite the limiting language
of Art. 1484, which uses the phrase any unpaid
balance, the Supreme Court, in Macondray & Co., Inc.
v. Eustaquio (G.R. No. L-43683, July 16, 1937), ruled
that the barring effect also applies to all other claims
(e.g. the interest on the principal, attorneys fees,
expenses of collection, and the costs).
Perverse Buyer-Mortgagor: When a defaulting buyer-
mortgagor refuses to surrender the chattel to the seller
to allow the latter to be able to proceed with foreclosure,
then the seller, even after foreclosure, should be
allowed to recover expenses and attorneys fees
incurred in trying to obtain possession of the chattel
(Filipinas Investment & Finance Corp, v. Ridad, G.R.
No. L-27645, November 28, 1969). In effect, the Ridad
ruling provides an exception to the complete barring
effect espoused in Eustaquio ruling.
R.A. No. 6552 OR MACEDA LAW
Governs the sale or financing of real estate on installment
payment
Note: Section 3 of the Maceda Law is comprehensive
enough to include both contracts of sale and contracts to
sell, provided that the terms of the payment of the price
require at least two installments.
Purpose of Maceda Law: It is an expression of public
policy to protect buyers of real estate on installments
against onerous and oppressive conditions (Sec. 2.)
Does not apply to:
1. Sale covering industrial lots;
2. Sale covering commercial buildings (and commercial
lots by implication);
3. Sale to tenants under agrarian reform laws;
4. Sale of lands payable in straight terms (Sec. 3)
Requisites:
1. Transactions or contracts involving the sale OR
financing of real estate on installment payments,
including residential condominium apartments; and
[Type text]
2. Buyer defaults in payment of succeeding installments.
Note: While under Sec. 3, down payment is included in
computing the total number of installment payments
made, the proper divisor is the monthly installment on the
down payment (Jestra Development and Management
Corp. v. Pacifico, G.R. No. 167452, January 30, 2007).
Maceda Law cannot be availed of by developer:
Maceda law has no application to protect the developer or
one who succeeds the developer (Lagandaon v. CA, G.R.
Nos. 102526-31, May 21, 1998).
Rights of the buyer:
1. If buyer has paid at LEAST TWO (2) years of
installments:
a. The buyer must pay, without additional interest, the
unpaid installments due within the total grace period
earned by him. There shall be one (1) month grace
period for every one (1) year of installment payments
made.
Note: This right shall be exercised by the buyer only
once in every 5 years of the life of the contract AND
its extensions.
b. Actual cancellation can only take place after 30 days
from receipt by the buyer of the notice of cancellation
or demand for rescission by a notarial act and upon
full payment of the cash surrender value to the buyer
(Olympia Housing v. Panasiatic, G.R. No. 140468,
January 16, 2003).
Note: The seller shall refund to the buyer the cash
surrender value of the payments on the property
equivalent to 50% of the total payments made. After
five (5) years of installments, there shall be an
additional 5% every year but not to exceed 90% of
the total payments made.
c. The buyer shall have the right to sell his rights or
assign the same to another person OR to reinstate
the contract by updating the account during the grace
period and before actual cancellation of the contract.
d. The buyer shall have the right to pay in advance any
installment or the full unpaid balance of the purchase
price any time without interest and to have such full
payment of the purchase price annotated in the
certificate of title covering the property.
2. If Buyer has paid LESS THAN TWO (2) years of
installments
a. The seller shall give the buyer a grace period of NOT
less than 60 days from the date the installment
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became due. If the buyer fails to pay the installments
due at the expiration of the grace period, the seller
may cancel the contract after 30 days from receipt by
the buyer of the notice of cancellation or the demand
for rescission of contract by a notarial act.
b. The buyer shall have the right to sell his rights or
assign the same to another person OR to reinstate
the contract by updating the account during the grace
period and before actual cancellation of the contract.
c. The buyer shall have the right to pay in advance any
installment or the full unpaid balance of the
purchase price any time without interest and to
have such full payment of the purchase price
annotated in the certificate of title covering the
property.
Note: Down payments, deposits or options on the
contract shall be included in the computation of the
total number of installment payments made.
SPECIFIC PERFORMANCE
Remedies of the Buyer
1. In case of Immovables
a. Suspension of Payment (Art. 1590) (refer to
discussion on page 292)
When the disturbance is caused by non-apparent
servitude, the remedy is rescission, not suspension of
payment.
b. In case of Subdivision or Condominium Projects (P.D.
957) .
Non-forfeiture of Payments
No installment payments made by the buyer in a
subdivision or condominium project for the lot or unit
he contracts to buy shall be forfeited in favor of the
owner or developer when the buyer, after due notice
to the owner or developer desists from further
payment due to the failure of the owner or developer
to develop the subdivision or condominium project
according to the approved plans and within the time
limit for complying with the same (P.D. 957, Section
23)
c. Right to Grace Period Stipulated
When a grace period is provided for in the contract of
sale, it should be construed as a right, not an
obligation of the debtor, and when unconditionally
conferred, the grace period is effective without further
need of demand either calling for the payment of the
obligation or for honoring the right (Bricktown
Development Corp. v. Amor Tierra Development
Corp., G.R. No. 112182, December 12, 1994).
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In the sale of immovable property, the buyer has the
right to pay even after the expiration of the period
agreed upon, as long as no demand for rescission of
the contract has been made upon him either judicially
or by a notarial act (Art. 1592).
2. In case of Movables
a. In case of Failure of Seller to Deliver
The buyer may seek ACTION FOR SPECIFIC
PERFORMANCE, without giving the seller the option
of retaining the goods on payment of damages. The
judgment may be unconditional, or upon such terms
and conditions as to damages, payment of the price
and otherwise, as the court may deem just (Art.
1598).
b. In case of Breach of Sellers Warranty
The buyer may, at his election, avail of the following
remedies:
i. Recoupment accept the goods and set up the
sellers breach to reduce or extinguish the price
ii. Accept the goods and maintain an action for
damages for breach of warranty
iii. Refuse to accept the goods and maintain an
action for damages for breach of warranty
iv. Rescission rescind the contract and refuse to
receive the goods; or if goods have already been
received, return them and recover what was paid
or any part of it concurrently with return or
immediately after it.
These are ALTERNATIVE remedies, without
prejudice to paragraph 2 of Art. 1191 (a party may still
seek rescission after choosing specific performance if
the latter is impossible)
When rescission by buyer not allowed:
i. If the buyer accepted the goods knowing of the
breach of warranty without protest;
ii. If he fails to notify the seller within a reasonable
time of his election to rescind;
iii. If he fails to return or offer to return the goods in
substantially as good condition as they were in at
the time of the transfer of ownership to him.
Rights and obligations of buyer in case of
rescission:
i. Buyer shall cease to be liable for the price, his
only obligation being to return the goods;
ii. If he has paid the price or any part thereof, he
may recover it from the seller;
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iii. He has the right to hold the goods as bailee for
the seller should the latter refuse the return of the
goods; and
iv. He has a right to have a lien on the goods for any
portion of the price already paid which lien he may
enforce as if he were an unpaid seller.
c. Suspension of Payments in Anticipation of Breach
(Art. 1590)
Applicable in the following cases:
i. Where the vendee is disturbed in possession or
ownership of the thing bought; or
ii. Vendee has reasonable ground to fear that his
possession or ownership would bedisturbed (by a
vindicatory action or a foreclosure of a mortgage)
d. In case of Sale of Goods by Sample or By
Description (Art. 1481)
Buyer may demand RESCISSION:
i. In a contract of sample or description, if the bulk of
the goods do not correspond to the sample or
description.
ii. In sale by description and sample, if the bulk of
the goods do not correspond with the sample and
description.
R ISK
OF L OSS AN D
D ETERIOR ATION AND I TS
E FFECTS
A. Before perfection
Res perit domino applies
Seller still owns the thing because there is no delivery
or transfer of ownership yet; hence, seller bears the risk
of loss
B. At Perfection
Res perit domino applies
1. Pursuant to Art. 1493:If the thing is entirely lost:
Contract is without effect
2. If the thing should have been lost in part only:
Buyer may choose between
a. Withdrawing from the contract; and
b. Demanding the remaining part, paying its
proportionate price
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Note: As there is no distinction, even if the loss is not
substantial, No. 2 applies (Pineda, Sales and Other
Special Contracts, 2002 ed., p.109).
The contract is considered void or inexistent because
the object did not exist at the time of the transaction.
Any action for the enforcement of such void contract
can be defeated by a motion to dismiss or by setting up
a counter-claim for the declaration of its nullity (Pineda,
Sales and Other Special Contracts, 2002 ed., p.108).
C. After Perfection but Before Delivery
1. LOSS
General Rule: Who bears the risk of loss is governed
by the stipulations in the contract.
In the absence of stipulation: there are two conflicting
views
FIRST VIEW: Res perit creditori or BUYER bears the
risk of loss (according to Paras, Vitug, Padilla, and De
Leon).
Justification:
Art. 1504, which embodies res perit domino, only
covers goods.
The obligation to pay on the part of the buyer is not
extinguished (as he is not the obligor) (Villanueva,
2009 ed., p.349).
Under the Roman Law, the reciprocal obligations of
the parties are considered distinct stipulations
Under the same law, the risk of the thing sold passes
to the buyer, even though he has not received the
thing. For the seller is not liable for anything which
happens without his fraud or negligence xxx
Pursuant to Art. 1537, the vendee must also bear the
resulting disadvantages before the delivery but after
the contract has been perfected
This theory is an exception to the rule of res perit
domino
Pursuant to Art. 1262, if the thing is lost or destroyed
without the fault of the debtor (or seller in case of
sale), the obligation to deliver is extinguished but the
obligation to pay, shall subsist (Pineda, 2002 ed.,
p70).
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SECOND VIEW: Res perit domino or SELLER bears
the risk of loss (according to Tolentino, Jurado,
Baviera, and Villanueva).
Justification: Tolentino opines that in reciprocal
obligations, the extinguishment of the obligation due
to loss of the thing affects both debtor and creditor;
the entire juridical relation is extinguished. Under this
view, the rule on loss under Art. 1189 would be
different from the rule on deterioration the loss
would be for the account of the seller, while the
deterioration would be for the account of the buyer
(this view is affirmed by Baviera).
According to Jurado, this view is more just and
equitable and more in conformity with the principle of
res perit domino.
According to Villanueva, this view would make
Articles 1480 and 1538 consistent with the provisions
of Article 1504 (Villanueva Law on Sales ,2009 ed.,
p.353).
According to Pineda:
a. Ownership is transferred only after delivery;
b. Art.1480, par.3, is an expression of the general rule
that the risk is not imputed to the vendee until after
delivery;
c. The contract is reciprocal. If the vendee cannot
have the thing, it is illogical and unjust to make him
pay the price (Pineda, Sales and Other Special
Contracts, 2002 ed., p.69).
2. DETERIORATION
Impairment is borne by the buyer if the thing
deteriorates without the fault of the seller (Art. 1189, (3))
If it deteriorates through the fault of the debtor, the
creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for damages
in either case (Art. 1189, (4)).
D. After Delivery
Res perit domino applies
The buyer is the owner; hence, the buyer bears risk of
loss.
E XTINGUI SHMENT OF S ALE
Causes of Extinguishment
1. Same causes as in all other obligations
2. Conventional Redemption
3. Legal Redemption
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Note: Conventional and legal redemption applies both to
consummated and merely perfected contracts since there
is no distinction made in the law (Asiatic Comm. Co. v.
Ang, 40 O.G. [11th S] No. 15, p.102.).
A. CAUSES OF EXTINGUISHMENT, IN GENERAL
1. Payment or performance of obligation
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or merger of rights
5. Compensation
6. Novation
7. Rescission
8. Annulment
9. Fulfillment of a resolutory condition
10. Prescription (Art. 1231)
B. CONVENTIONAL REDEMPTION
The right which the vendor reserves to himself to
reacquire the property sold provided he returns to the
vendee: (PEONU)
1. Price of the sale;
2. Expenses of the contract;
3. Any other legitimate payments made therefore;
4. Necessary expenses made on the thing sold; and
5. Useful expenses made on the thing sold (Arts. 1601
& 1616).
Nature of Conventional Redemption (CARP- RPM-
OR)
1. Purely contractual
2. Accidental
3. Real right
4. Potestative
5. Resolutory condition
6. Power or privilege
7. Reserved at the moment of the perfection of contract
8. Person entitled to exercise is necessarily the owner
9. Gives reciprocal obligation
Proper Reservation of Right to Repurchase
The right to redeem must be reserved by the seller by
stipulation to that effect in the contract of sale (Villarica
v. CA, G.R. No. L-19196 November 29, 1968).
For a sale to be one a retro, it is necessary that the right
be reserved in the same sale contract (Torres v. CA,
G.R. No. 134559. December 9, 1999.
Parol Evidence: The right of repurchase may be
proved by parol evidence (Mactan Cebu Inernational
Airport Authority v. CA, G.R. No. 121506, October 30,
1996).
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Distinguished from Option to Purchase of the period of redemption (Ong Chua v. Carr, G.R. No.
Right to Redeem Option to Purchase L-29512, January 17, 1929).
Nature
Generally, it is a principal Non-Payment of Price Does Not Affect Running of
Not a separate contract Redemption Period (Catangcatang v. Legayada, G.R.
contract and may be
but merely part of a main No. L-26295 July 14,1978).
created independent of
contract of sale
another contract
Consideration Possession of Subject Matter during Period of
To be valid, it must have a Redemption
Does not need its separate In a pacto de retro sale, the buyer has a right to the
consideration separate
consideration in order to immediate possession of the property sold, unless
and distinct from purchase
be valid and effective otherwise agreed upon. This is subject only to the
price
Maximum Period for Exercise of Right resolutory condition of repurchase by the seller a retro
Cannot exceed 10 years May be beyond 10 years within the stipulated period (Solid Homes, Inc. v. CA,
How Exercised G.R. No. 117501. July 8, 1997).
There must be a tender of
payment of the amount How Redemption Exercised:
required by law, including May be exercised by Tender of payment is sufficient to compel redemption,
consignment thereof if notice of its exercise to the but is not in itself a payment that relieves the vendor
tender of payment cannot offeror from his liability to pay the redemption price (Paez v.
be made effectively on the Magno, GR No. L-793, April 27, 1949).
buyer
It is enough for the vendor a retro to tender the
Period of Redemption: repurchase price at the time of redemption. The other
When No Period Agreed Upon: it shall last 4 years amounts provided under Art. 1616, NCC, may be paid
from the date of the contract (Art. 1606) afterwards (Tolentino, Civil Code of the Philippines).
Tender of payment is needed in order to show that the
When Period Agreed Upon: The period cannot exceed repurchase was made within the redemption period.
10 years (Art. 1606). If it exceeds 10 years, the Consignation is only required if the vendee a retro
agreement is valid only for the first 10 years. refuses to accept the redemption price or when a
judicial action has already been filed to enforce
When a period of redemption is agreed upon by the compliance with the contract of sale with right of
parties in a sale a retro, although the stipulation as to repurchase.
period may be unclear or void, it is the 10-year period
and not the 4-year period that shall apply (Tayao v. In Catangtang v. Legayada (Catangcatang v. Legayada,
Dulay, G.R. No. L-21160, April 30, 1965). G.R. No. L-26295, July 14,1978), consignation is
imperative when the tender of payment cannot be
When the period agreed upon is indefinite": (e.g. validly made because the buyer cannot be located, and
vendor a retro shall repurchase at any time he has failing to do so within the redemption period, the right of
money or vendor will redeem within the month of redemption shall lapse.
March of any year), the time of redemption is within 10
years from EXECUTION OF CONTRACT (Pineda, Civil In Case of Multi-Parties:
Code of the Philippines Annotated V, 2010 ed., p. 38). The buyer of a part of an undivided immovable who
acquires the whole thereof in the case of Art. 498 may
Note: The right to redeem becomes functus officio on compel the seller to redeem the whole property, if the
the date of its expiry, and its exercise after the period is latter wishes to make use of the right of redemption (Art.
not really one of redemption but a repurchase (De Leon 1611).
and De Leon, Jr., Comments and Cases on Sales and
Lease, 2011 ed., p. 403). Example:
A, B and C are co-owners of an undivided parcel of
Pendency of Action Tolls Redemption Period land. A sold his undivided portion to D with the right to
The pendency of an action brought in good faith and repurchase. As a result of a partition, D who is now one
relating to the validity of a sale a retro tolls the running of the co-owners, acquired the whole land after paying
the portions belonging to B and C. If A would like to

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repurchase the portion sold by him, D may compel him
to redeem the entire parcel of land so that the property
will not revert to a state of co-ownership.
If several persons, jointly and in the same contract,
should sell an undivided immovable with a right of
repurchase, none of them may exercise this right for
more than his respective share. The same rule shall
apply if the person who sold an immovable alone has
left several heirs (Art. 1612).
The buyer may demand of all the vendors or co-heirs
that they come to an agreement upon the purchase of
the whole thing sold; and should they fail to do so, the
buyer cannot be compelled to consent to a partial
redemption (Art. 1613).
Each one of the co-owners of an undivided immovable
who may have sold his share separately, may
independently exercise the right of repurchase as
regards his own share, and the buyer cannot compel
him to redeem the whole property (Art.1614).
Example: X, Y and Z are co-owners of a parcel of land.
If they should sell the property to B with the right to
repurchase in the contract, each one of them may
exercise that right only as regards his own share or for
one-third portion of the property.
The same rule applies if the C is the sole owner of the
land and he sold it with right to repurchase B and
should he die and leave X, Y and Z as his heirs. Each
one of them can only exercise the right of redemption
for the one-third portion he has inherited.
But B can demand that they come to an agreement
upon the repurchase of the whole property by all of
them or any one of them. If they do not do so, B cannot
be compelled to assent to a partial redemption (Art.
1611).
If X, Y and Z sold their respective shares to B with the
right of repurchase in separate instruments and at
different dates, each one of them may exercise his right
independently of the others and B cannot compel him to
redeem the whole property.
If the vendee should leave several heirs, the action for
redemption cannot be brought against each of them
except for his own share, whether the thing be
undivided or it has been partitioned among them. But if
the inheritance has been divided and the thing sold has
been awarded to one of heirs, the action for redemption
may be instituted against him for the whole (Art. 1615).
[Type text]
Example: S sold his parcel of land to B with right to
repurchase. Then B died leaving C, D and E as his
heirs. In this case the right of redemption of S is against
each of the heirs only for his respective share or for
one-third of the property. If the property has been
awarded to C by partition, then the action of redemption
may be instituted against him for the entire property.
When Redemption Not Made
By operation of law, the lapse of the period of
redemption without the seller a retro having exercised
his right would consolidate such title in the buyer.
In case of real property, the consolidation of ownership
in the buyer shall not be recorded in the Registry of
Property without a judicial order, after the seller has
been duly heard (Art. 1607).
Notwithstanding Article 1607, the recording of the
consolidation of ownership is not a condition sine qua
non to transfer the ownership.
Grant of 30-day Redemption Right in Case of
Litigation
When the period of redemption has expired, then ipso
jure the right to redeem has been extinguished.
HOWEVER, even when right to redeem has expired,
and there has been a previous suit on the nature of the
contract, the seller may still exercise the right to
repurchase within 30 days from the time final judgment
was rendered in a civil action on the basis that the
contract was a true sale with right to repurchase (Art.
1606, par. 3)
Applicability. This is not applicable to:
1. Absolute sale, pure and simple. This is applicable
only where the nature or character of the transaction,
as to whether it is a pacto de retro sale or equitable
mortgage, was put in issue before the court. It refers
to cases where one of the parties contests or denies
that the true agreement is one of sale with right of
repurchase (Tapas v. CA, G.R. No. L-22202,
February 27, 1976).
2. Neither does it apply when the sale is known and
admitted by the vendor as pacto de retro (Felicen, Sr.
v. Orias, G.R. No. L-22202, February 27, 1976).
Fruits
If at the time of the execution of the sale there should
be on the land, visible or growing fruits, there shall be
no reimbursement for or prorating of those existing at
the time of redemption, if no indemnity was paid by the
purchaser when the sale was executed (Art. 1617).
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Should there have been no fruits at the time of the sale
and some exist at the time of redemption, they shall be
pro-rated between the redemptioner and the buyer,
giving the latter the part corresponding to the time he
possessed the land in the last year, counted from the
anniversary of the date of the sale (Art. 1617).
Applicability. The article applies only when there is no
any sharing agreement with respect to the fruits existing
at the time of redemption, otherwise such agreement
will control. It refers only to natural and industrial fruits.
Civil fruits are deemed to accrue daily and belong to the
vendee in that proportion (Villanueva, Law on Sales,
2009 ed., p. 455).
Equitable Mortgage
One which lacks the proper formalities, form of words,
or other requisites prescribed by law for a mortgage, but
shows the intention of the parties to make the property
subject of the contract as security for a debt and
contains nothing impossible or contrary to law (Cachola
v. CA. G.R. No. 97822, May 7, 1992).
Requisites for Presumption of Equitable Mortgage:
1. Parties entered into a contract denominated as sale;
and
2. Their intention was to secure an existing debt by way
of mortgage (Romulo v. Spouses Layug, G.R. No.
151217, September 8, 2006).
When Presumed: [IPERTOD]
1. Unusually inadequate purchase price;
2. Possession by the vendor remains, as lessee or
otherwise;
3. Extension of redemption period after expiration;
4. Retention by the vendee of part of the purchase price;
5. Vendor binds himself to pay the taxes of the thing
sold;
6. Any other case where the parties really intended that
the transaction should secure the payment of a debt
or the performance of any obligation (Art. 1602); or
7. When there is doubt as to whether contract is
contract of sale with right of repurchase or an
equitable mortgage (Art. 1603).
Note: In the cases referred to in Arts. 1602 and 1604,
the apparent vendor may ask for the reformation of the
instrument.
Pacto De Retro and Mortgage; Distinguished
Pacto de retro Mortgage
Nature
Ownership is Ownership is not
immediately transferred, transferred but the
[Type text]
subject to the resolutory property is merely
condition of repurchase subject to a charge or
by the vendee lien as security
Interest
Failure of seller to Mortgagor does not lose
repurchase loses all his his interest if he fails to
interest in the property, pay his debt at maturity
title to which vests upon but subjects the
the buyer by operation property to foreclosure
of law and public sale
Foreclosure & Redemption
No obligation upon the Duty of the mortgagee
purchaser to foreclose to foreclose if he wishes
nor the vendor to to secure a perfect title
redeem after the thereto, and mortgagor
maturity of the debt has right to redeem after
maturity of the debt and
before foreclosure
Remedy of reformation
To correct the instrument so as to make it express the
true intent of the parties (Art. 1605).
Rationale behind Provisions on Equitable Mortgage
To curtail circumvention of the usury law and pactum
commissorium
Applicability to Deeds of Absolute Sale
The provisions of Article 1602 on equitable mortgage
shall also apply to a contract purporting to be an
absolute sale (Art. 1604).
Proof by Parol Evidence
Parol evidence is competent and admissible in support
of the allegations that an instrument in writing,
purporting on its face to transfer the absolute title to
property, or to transfer title with a right to repurchase
under specified conditions reserved to the seller, was in
truth given merely as security for the repayment of a
loan.
Effects When Sale Adjudged an Equitable Mortgage
The apparent seller may ask for the reformation of the
instrument. The aggrieved party may also pursue other
remedies to effectively protect his interest and recover
his property, such as an action for declaration of nullity
of sale and specific performance.
Pactum Commissorium
A stipulation for automatic vesting of title over the
security in the creditor in case of debtors default.
If the contract is an equitable mortgage, the action for
consolidation of ownership is not the proper remedy.
The creditor cannot appropriate the things given by way
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of pledge or mortgage or dispose of them, otherwise
that would result in pactum commissorium. The proper
remedy is foreclosure of the mortgage. If there is no
foreclosure, the debtor retains the ownership (Vasquez
v. CA, G.R. No. 144882, February 4, 2005).
availment of the fixed and definite period within which to
exercise the right of legal redemption.
Basis and Nature of Right of Legal Redemption
Source of right proceeds from law

Pactum commisorium applies only when the covering
transaction is a mortgage or other security contracts
and has no application to a true sale or transfer
transaction (Vda de Zulueta v. Octaviano, G.R. No. L-
55350, March 28, 1983).
C. LEGAL REDEMPTION
The right to be subrogated, upon the same terms and
conditions stipulated in the contract, in the place of one
who acquires a thing by:
1. Purchase;
2. Dation in payment; or
3. Any other transaction whereby ownership is
transferred by onerous title (Art. 1619).
It may be converted into one of conventional
redemption
Not predicated on proprietary right but on a bare
statutory privilege to be exercised only by the person
named in the statute
A mere privilege created partly for reason of public
policy and partly for the benefit and convenience of the
redemptioner
Intended to minimize co-ownership (De Leon,
Comments and Cases on Sales and Lease, 2011 ed.,
p.459)

It must be exercised within thirty (30) days from the Conventional Redemption and Legal Redemption;
notice in writing by the vendor (Art. 1623) Distinguished
Conventional Legal
It may be effected against movables and immovables. As to constitution
By express reservation in a Does not have to be
It is not available in cases of donation, succession, contract of sale at time of expressly reserved and
barter, mortgage or lease perfection covers sales and other
onerous transfers of title
It operates only one way and in favor of the As to who may exercise the right
redemptioner In favor of the seller Given to a third party to the
sale
Ratio: Under Art. 1619, legal redemption may take As to the effect of its exercise
place in purchase, dation in payment, and in any other Extinguishes the underlying Actually constitutes a new
transaction whereby ownership is transferred by contract of sale as though sale in substitute of the
onerous title. there was never any original sale
contract at all
Example: B, owner of a land adjoining the land of A. A
donated it to X. In this case, B cannot exercise legal Pre-emption and Redemption; Distinguished
redemption to acquire the property from X since the Pre-Emption Redemption
latter acquired the adjoining lot gratuitously through As to time of exercise of right
donation and not by onerous title. Arises before sale Arises after sale
Remedy of rescission
Art. 1623 does not prescribe any distinctive method for
No rescission because the There can be rescission of
notifying the redemptioner (Etcuban v. CA, G.R. No. L-
sale does not yet exist the original sale
45164, March 16, 1987).
Against whom the action is directed
Tender of payment is not necessary; offer to redeem is
enough. The action is directed
Action is directed against
against the prospective
the buyer
There is no prescribed form for an offer to redeem to be seller
properly effected. Hence, it can either be through a
formal tender with consignation of the redemption price Requirements for the exercise of the right of pre-
within the prescribed period. What is paramount is the emption or redemption:
1. The one exercising the right must be an adjacent
owner;

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2. The piece of land sold must be so small and so
situated that major portion thereof cannot be used for
any practical purpose within reasonable time;
3. Such urban land was bought by its owner merely for
speculation (Art. 1622).
Instances of legal redemption
1. Under the Civil Code:
a. Sale of a co-owner of his share to a stranger
(Art. 1620)
Requisites:
i. There must be co-ownership
ii. There must be alienation of all or any of the
shares of the co-owners
iii. The sale to a stranger
iv. The sale must be before partition
v. The right must be exercised within the period
provided in Art. 1623
vi. The vendee must be reimbursed for the price of
the sale
If the price is GROSSLY EXCESSIVE, the
redemptioner shall pay only a reasonable one.
The co-owners may only exercise redemption in
proportion to the share they may respectively have.
The right of redemption of co-owners EXCLUDES
that of adjoining owners (Art. 1623).
When the portion is sold to another co-owner, the
right of redemption does not arise.
If a property of a co-ownership is partly sold by a co-
owner, the others must be informed so that they can
exercise the right of redemption (Cabales v. CA, G.R.
No. 162421, Aug. 31, 2007).
A co-owner is entitled to a written notice from the
selling co-owner in order to remove all uncertainties
about the sale, terms and conditions, as well as its
efficacy and status (Verdad v. CA, G.R. No. 109972,
Apr. 29, 1996).
The term third person or stranger refers to all
persons who are not heirs in succession, and by heirs
are meant only those who are called either by will or
the law to succeed the deceased and who actually
succeeds. A third person is anyone who is not a co-
owner (Villanueva v. Florendo, G.R. No. L-33158
October 17, 1985).
Example: A, B and C are co-owners of an undivided
property valued at Php 50,000. A sells his interest to
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D for P20,000. B or C may exercise the right of
redemption by reimbursing D of the price of the sale.
If both B and C redeem the interest sold by A, each of
them shall pay P10,000 to D which is the proportion
of their respective shares in the co-ownership. If the
price of P20,000 is grossly excessive, the same may
be equitably reduced by the court.
Co-owners have no right of legal redemption against
each other (Felices vs. Colegado, G.R. No. L-23374,
September 30, 1970).
Art. 1620 does not apply when: (1) thing owned in
common had been partitioned, judicially or extra-
judicially; (2) shares of all co-owners are sold; (3)
thing owned in common had been offered for sale by
co-owners (De Leon, Comments and Cases on Sales
and Lease, 2011 ed., p.468).
b. When a credit or other incorporeal right in
litigation is sold
Requisites:
i. There must be a sale or assignment of a
credit
ii. There must be a pending litigation at the time of
the assignment
iii. The debtor must pay the assignee the price paid;
judicial costs; and interest on the price
iv. The right must be exercised by the debtor within
30 days from the date the assignee demands
(judicially or extrajudicially) payment from him
(Art. 1634).
c. Sale of an heir of his hereditary rights to a
stranger
Should any of the heirs sell his hereditary rights to
a stranger BEFORE PARTITION, any or all of the
co-heirs may be subrogated to the rights of the
purchaser by reimbursing him for the price of the
sale within 1 month from the time they were notified
in writing of the sale by selling co-heir (Art. 1088).
There is no right of legal redemption when the sale
covers a particular property of the estate since the
right of legal redemption applies only to the sale by
an heir of his hereditary right (Plan v. Intermediate
Appellate Court, 135 SCRA 270, 1985).
When the subject matter was a particular property
and not hereditary right, the redemption by co-
owner redounds to the benefit of all other co-
owners; while redemption by a co-heir is only for
his own account.
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d. Sale of adjacent rural lands not exceeding one

hectare URBAN does not necessarily refer to the nature of
This right is not applicable to adjacent lands which the land itself sought to be redeemed or to the
are separated by brooks, drains, ravines, roads and purpose to which it is devoted, but to the character of
other apparent servitudes for the benefit of other the community or vicinity in which it is found.
estates (Art. 1621).
Purpose: to discourage speculation on real estate
Requisites:
and consequent aggravation of the housing problems
i. Both the land of the one exercising the right of
in centers of population (Ortega v. Orcine, L-28317,
redemption and the land sought to be redeemed
March 31, 1971;).
must be rural
ii. The lands must be adjacent
2. Under special laws:
iii. There must be alienation
a. An Equity of Redemption in cases of judicial
iv. The piece of rural land alienated must not
foreclosures
exceed one hectare
The right must be exercised within 90 DAYS from
v. The vendee must be already own some rural
finality of judgment until confirmation of sale.
land
vi. The rural land sold must not be separated by
b. Right of Redemption in cases of extra-judicial
brooks, drains, ravines, roads and other
foreclosures
apparent servitudes from the adjoining land
The right must be exercised within 1 YEAR from the
date of registration of the certificate of sale.
In case two or more adjacent owners desire to
exercise the right of redemption, the law gives
The execution of dacion en pago by sellers effectively
preference to the owner of the adjoining land of
waives the redemption period normally given by
smaller area but if both lands have the same area, to
mortgagor (First Global Realty and Development
the one who first requested the redemption (Art. 1621
Corp v. San Agustin, G.R. No. 144499. February 19,
[2]).
2002).
c. Redemption of homesteads
Purpose: To encourage the maximum development
Conveyance of land acquired under free patent
and utilization of agricultural lands (Ortega v. Orcine,
homestead provisions shall be subject to repurchase
L-28317, March 31, 1971).
within 5 YEARS from the date of conveyance.
e. Sale of adjacent small urban lands bought merely
d. Redemption in tax sales
for speculation
The delinquent taxpayer may exercise the right
Requisites:
within 1 YEAR from the date of sale.
i. The piece of land is urban
ii. The one exercising the right must be an adjacent
e. Redemption by an agricultural tenant of land sold
owner
by the landowner
iii. The piece of land sold must be so small and so
The agricultural lessee has the right to redeem within
situated that a major portion thereof cannot be
180 DAYS from notice in writing.
used for any practical purpose within a reasonable
time
f. Redemption in Foreclosure by Rural Banks (RA
iv. It is about to be re-sold, or that its re-sale has been
720)
perfected (Art. 1622).
If the land is mortgaged to a rural bank, mortgagor
may redeem WITHIN 2 YEARS from the date of
When the land is about to be resold, the owner of any
foreclosure or from the registration of the sheriffs
adjoining land has a right of pre-emption.
certificate of sale at such foreclosure if the property is
not covered or is covered, respectively, by Torrens
If the resale has been perfected, the owner of
Title. If the mortgagor fails to exercise such right, he
adjoining land has a right of redemption.
or his heirs may still repurchase within 5 years from
expiration of the two year redemption period pursuant
When 2 OR MORE OWNERS of adjoining lands wish
to section 119 of the Public Land Act (Rural bank of
to exercise the right: the owner whose intended use
Davao City vs. CA, G.R. No. 83992, January 27,
of the land in question appears best justified shall be
1993).
preferred.

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g. Redemption under Agrarian Reform Code
Under Sec.12 of RA No. 3844, in the event that the
landholding is sold to a third person without the
knowledge of the agricultural lessee, the latter is
granted by law the right to redeem it WITHIN 180
DAYS from notice in writing and at a reasonable price
and consideration.
A SSIG NMENT OF C REDI T
It is a contract by which the owner (assignor/ creditor) of a
credit and other incorporeal rights transfers, either
onerously or gratuitously, to another (assignee) his rights
and actions against a third person (debtor) (De Leon,
Comments and Cases on Sales and Lease, 2011 ed., p.
495).
Nature
1. Consensual, bilateral, onerous, and commutative or
aleatory contract.
2. The assignment involves no transfer of ownership but
merely effects the transfer of rights which the assignor
has at the time to the assignee.
3. It may be done onerously or gratuitously
The contract is perfected from the moment the parties
agree upon the credit or right assigned and upon the price
even if neither has been delivered (Art. 1475). However,
the assignee will acquire ownership only upon delivery
(Arts. 1498, par.2 and 1501).
Contract of Sale and Assignment of Credit;
Distinguished
Contract of Sale Assignment of Credits
Object
Property Credit, incorporeal rights or
rights of action
Manner of Delivery of Object
Need not be through a Public instrument
public instrument
Subject Obligated
Whole world Definite third person
Ownership; When Transferred
Transfer of ownership need Ownership transferred
not be upon delivery of the upon delivery of the
thing. The parties may documents evidencing the
agree that ownership be credit or incorporeal rights
transferred only after full
payment (Art. 1478)
Consideration
It is always a requisite Not always a requisite.
(PNB vs. CA, 272 SCRA Action may be maintained
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291) by the assignee based on
his title even if there is no
consideration.
(Pineda, Civil Code of the Philippines Annotated V, 2010
ed., p. 408).
Effects of Assignment
1. Transfers the right to collect the full value of the credit,
even if he paid a price less than such value;
2. Transfers all the accessory rights (e.g. guaranty,
mortgage, pledge, preference) (Art. 1627).
Note: If the period for payment has been extended
without the consent of the guarantor, the assignee
cannot go after the former because, as to him his
guaranty is only up to the original period
Example: A obtained a loan (P100,000) from B. To
secure the payment of loan, C mortgaged his property
to B. B assigned his credit owing from A to D. A failed to
pay the loan. D can foreclose the mortgage because
being an accessory right, it is deemed included in the
assignment.
3. Debtor can set up against the assignee all the defenses
he could have set up against the assigno
4. Assignee cannot go after the assignor to enforce the
credit if through his own negligence he allowed the
credit to prescribe provided the assignee was given
enough time to enforce the said credit
Example: A lends money to B on March 30, 2009. A then
assigned the credit to C on April 30, 2009. C demanded
payment from B only on May 30, 2019. C cannot collect
from B since the loan has already prescribed; neither can
he collect from A (the assignor) - he cannot through his
own negligence, (and considering he was given enough
time to enforce the credit) go after the assignor if he
cannot anymore collect from the debtor.
Effectivity against Third Persons
1. If personal property is involved, a public instrument is
needed to make the assignment effective against third
persons;
2. If real property is involved, registration in the Registry of
Property would be needed (Art. 1625; Paras, Civil Code
of the Philippines Annotated, 2008 ed.).
Effect of Payment by the Debtor After Assignment of
Credit
1. Before Notice of the assignment: Payment to the
original creditor is valid and debtorshall be released
from his obligation (Art. 1626).
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2. After Notice: Payment to the original creditor is not
valid as against the assignee. He can be made to pay
again by the assignee
Formal notice not essential. As long as the debtor has
knowledge of the assignment, he is not released from the
responsibility should he pay the original creditor (Pineda,
Civil Code of the Philippines Annotated V 2002 ed.,
p.412).
The consent of the debtor is not necessary to make an
assignment of credit effective.
Ratio: His duty to pay does not depend upon his consent
to the assignment. Otherwise, all creditors would be
prevented from assigning their credits because of the
possibility of the debtors refusal to give consent
(Rodriguez v. CA, G.R. No. 84220 March 25, 1992).
Assignment does not result in extinguishing the debtors
liability, even when such is effected without his consent
(South City Homes, Inc. v. BA Finance Corp., G.R. No.
135462, December 7, 2001).
Warranties of the Assignor of Credit
1. The existence of the credit at the time of assignment
2. The legality of the credit unless he sold the as doubtful
3. The solvency of the debtor, if expressly stipulated, or if
the insolvency was prior to the sale and of common
knowledge (Art. 1628).
Liabilities of the Assignor of Credit for Violation of His
Warranties
1. Assignor in good faith Liability is limited only to the
price received and to the expenses of the contract, and
any other legitimate payments by reason of the
assignment (Art. 1628, par. 2).
2. Assignor in bad faith Liable not only for the payment
of the price and all the expenses but also for damages
(Art. 1628, par. 3).
Legal Redemption in Sale of Credit or Other
Incorporeal Right in Litigation (Art. 1634)
(see discussion on page 307)
SALE OF CREDIT OR OTHER INCORPOREAL RIGHTS
IN
General Rule: Debtor has the right of legal redemption in
sale of credit or incorporeal rights in litigation
Exceptions:
1. Sale to a co-heir or co-owner
Reason: the law does not favor co-ownership
2. Sale to a creditor in payment of his credit
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Presumption: The assignment is above suspicion
and is in the form of dacion en pago, thus perfectly
legal.
3. Sale to the possessor of property in question
Purpose: to presumably preserve the tenement
(Art. 1635)
B ARTER
Contract whereby one of the parties binds himself to give
one thing in consideration of the others promise to give
another thing (Art. 1638).
It is similar to a sale with the only difference that instead of
paying a price in money, another thing is given in lieu
thereof (Art. 1468).
A contract whereby one person transfers the ownership of
non-fungible things to another with the obligation on the
part of the latter to give things of the same kind, quantity,
and quality (Art. 1954).
The use of the term barter in describing a contract is not
controlling (Baluran v. Navarro, G.R. No. L-44428,
September 30, 1977).
Barter is a mutual sale. Each party really is both a vendor
and a vendee.
Perfection and Consummation
Perfected from the moment there is meeting of minds
upon the things promised by each party in consideration
of the other.
Consummated from the time of mutual delivery by the
contracting parties of the things promised.
Rules:
1. Where the giver of the thing bartered is not the lawful
owner thereof, the aggrieved party cannot be compelled
to deliver the thing which he has promised and is also
entitled to damages (Art. 1639).
2. Where a party is evicted of the thing exchanged, the
injured party is given the option, either to recover the
property he has given in exchange with damages or
only claim an indemnity for damages (Art. 1640).
3. As to matters not provided for by the provisions on
barter, the provisions on Sales will apply suppletorily
(Art. 1641).
Purpose B ULK S ALES L AW
(A CT N O . 3952)
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To prevent the defrauding of creditors by the secret sale 2. With knowledge or imputed knowledge of buyer
or disposal or mortgage in bulk of all or substantially all of
a merchants stock of goods. The vendee accepts it at his peril.

When Sale or Transfer in Bulk The sale is valid only as between the vendor and the
Any sale, transfer, mortgage, or assignment: vendee but void against the creditors
1. Of a stock of goods, wares, merchandise, provisions, or
3. With names of certain creditors without notice are
materials otherwise than in the ordinary course of trade
omitted from the list
and the regular prosecution of business (Extraordinary
sale of goods); or
The sale is void as to such creditors, whether the
2. Of all or substantially all, of the business or trade (Sale
omission was fraudulent or not.
of business enterprise); or
4. With respect to an innocent purchaser for value from
3. Of all or substantially all, of the fixtures and equipment
the original purchaser
used in the business of the vendor, mortgagor,
transferor or assignor (Extraordinary sale of fixtures and
An innocent purchaser for value from the original
equipment) (Sec. 2)
purchaser is protected
When Sale or Transfer in Bulk NOT Covered
If the circumstances are such as to bind the subsequent
1. Sale or transfer is in the ordinary course of trade and
purchaser with constructive notice that the sale to the
the regular prosecution of business of the vendor;
vendor (original purchaser) was fraudulent, the property
2. If it is made by one who produces and delivers a written
will be liable in his hands to creditors of the original
waiver of the provisions of the Bulk Sales Act from his
vendor.
creditors
3. If it is made by an executor, administrator, receiver,
assignee in insolvency, or public officer, acting under
judicial process (Sec. 8); and
4. If it refers to properties exempt from attachment or
Effect of Violation of Law on Transfer
execution (Rules of Court, Rule 39, Sec. 12)
1. As between the parties
The Bulk Sales Law does not in any way affect the
Protection Accorded to Creditors
validity of the transfer as between the intermediate
1. Requires the vendor, mortgagor, transferor or assignor
parties thereto
to deliver to the vendee, mortgagee, or to his or its
A sale not in compliance with the Bulk Sales Law is
agent or representative a sworn written statement of
valid against all persons other than the creditors.
names and addresses of all creditors to whom said
vendor, etc. may have been indebted together with the
2. As against creditors
amount due or to be due (Sec. 3).
A purchaser in violation of the law acquires no right in
2. Requires the vendor, mortgagor, transferor or assignor,
the property purchased as against the creditors of the
at least 10 days before the sale, transfer, mortgage,
seller.
assignment to make a full detailed inventory showing
the quantity and the cost of price of goods, and to notify
His status is that of a trustee or receiver for the benefit
every creditor of the price terms and conditions of the
of the creditors of the seller; as such, he is responsible
sale, etc. (Sec. 5).
for the disposition of the property.
Effects of False Statements in the Schedule of
Remedies Available to Creditors
Creditors
1. The proper remedy is one against the goods to subject
1. Without knowledge of buyer
them to the payment of the debt, such as execution,
attachment, garnishment, or by a proceeding in equity.
If the statement is fair upon its face and the buyer has
2. An ordinary action against the purchaser to obtain
no knowledge of its incorrectness and nothing to put
money judgment will not lie, UNLESS the purchaser has
him on inquiry about it, he will be protected in its
sold or otherwise disposed of, or dealt with the property,
purchase.
so as to become personally liable to creditors for value
The remedy of the creditor is not against the goods but
of it.
to prosecute the seller criminally.

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Acts Punished by Bulk Sales Law
1. Knowingly or willfully making or delivering a statement
required by the Act which does not include the names of
all the creditors of the vendor, etc. with the correct
amount due or to become due or which contains any
false or untrue statement (Sec. 6) and
2. Transferring title to any stock of goods, wares,
merchandise, provisions or materials sold in bulk
without consideration or for nominal consideration (Sec.
7).
R ETAI L T R ADE L I BER ALI Z ATION
A CT (R.A. 8762)
Approved: March 7, 2000
Purpose: To promote consumer welfare in attracting,
promoting and welcoming productive investments that will
bring down prices for the Filipino consumer, create more
jobs, promote tourism, assist small manufacturers,
stimulate economic growth and enable Philippine goods
and services to become globally competitive through the
liberalization of the retail trade sector (Sec. 2).
Retail Trade
Any act, occupation or calling of habitually selling direct to
the general public merchandise, commodities or goods for
consumption, but the restrictions of this law shall NOT
apply to the following:
1. Sales by manufacturer, processor, laborer, or worker, to
the general public the products manufactured,
processed produced by him if his capital does not
exceed P100,000;
2. Sales by a farmer or agriculturalist selling the products
of his farm;
3. Sales in restaurant operations by a hotel owner or inn-
keeper irrespective of the amount of capital; provided
that the restaurant is incidental to the hotel business;
and
4. Sales which are limited only to products manufactured,
processed or assembled by a manufacturer through a
single outlet, irrespective of capitalization (Sec. 3).
Elements of Retail Trade:
1. The seller habitually engaged in selling;
2. The sale is direct to the general public; and
3. The object of the sale is limited to merchandise,
commodities or goods for consumption.
High-End or Luxury Goods
Goods which are not necessary for life maintenance and
whose demand is generated in large part by the higher
income groups.
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Includes but not limited to: jewelry, branded or designer
clothing and footwear, wearing apparel, leisure and
sporting goods, electronics and other personal effects
(Sec. 3).
Note: A natural-born citizen of the Philippines who has
lost his citizenship but who resides in the Philippines shall
be granted the same rights as Filipino citizens (Sec. 4)
Foreign Equity Participation
Foreign-owned partnerships, associations and
corporations formed and organized under the laws of the
Philippines may, upon registration with the Securities and
Exchange Commission (SEC) and Department of Trade
and Industry (DTI), or in case of foreign-owned single
proprietorship with the DTI, engage or invest in retail trade
business, subject to the following categories (Sec.5):
1. Category A:
Paid-up capital of the equivalent in Philippine Peso of:
less than $2,500,000
Reserved exclusively for Filipino citizens and
corporations wholly owned by citizens
2. Category B:
Minimum paid-up capital of the equivalent in Philippine
Peso of $2,500,000, but less than $7,500,000.
May be wholly owned by foreigners except for the first
two years after the effectivity of this Act wherein foreign
participation shall be limited to not more than 60% of
total equity.
3. Category C:
Paid-up capital of the equivalent in Philippine Peso of:
$7,500,000 or more
May be wholly owned by foreigners
Note: In no case shall the investments for establishing
a store in Categories B and C be less than the
equivalent in Philippine Peso of: US $830,000
All retail Trade enterprises under categories B and C in
which foreign ownership exceeds 80% of equity shall
offer a minimum of 30% of their equity to the public
through any stock exchange in the Philippines within 8
years from the start of the operations.
4. Category D:
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Enterprises specializing in high-end or luxury products
with paid-up capital of the equivalent in Philippine Peso
of: $250,000 per store
May be wholly owned by foreigners
Note: Foreign investor shall be required to maintain in the
Philippines the FULL amount of the prescribed minimum
capital, UNLESS the foreign investor has notified the SEC
and the DTI of its intention to repatriate its capital and
cease operations in the Philippines
Failure to maintain the full amount of the prescribed
minimum capital prior to notification of the SEC and the
DTI shall subject the foreign investors to penalties or
restrictions on any future trading activities/business in the
Philippines
Foreign Investors Acquiring Shares of Stock of existing
retail stores whether or not publicly listed whose net worth
is in excess of the Peso equivalent of $2,500,000 may
purchase only up to the maximum of 60% of the equity
thereof within the first 2 years, and thereafter, they may
acquire the remaining percentage consistent with the
allowable foreign participation as herein provided
Qualification of Foreign Retailers
1. Minimum of $200,000,000 net worth in its parent
corporation for Categories B and C and $50,000,000
net worth in its parent corporation for Categories D
2. Five (5) retailing branches or franchises in operation
anywhere around the world UNLESS such retailer has
at least 1 store capitalized at a minimum of $25,000,000
3. Five (5)-year track record in retailing; and
4. Only nationals from, or juridical entities formed or
incorporated in Countries which are allowed to engage
in retail trade in the Philippines (Sec. 8).
Prohibited Acts: Qualified foreign retailers shall not be
allowed to engage in certain retailing activities outside
their accredited stores through the use of mobile or rolling
stores or carts, the use of sales representatives, door-to-
door selling, restaurants and sari-sari stores and such
other similar retailing (Sec. 10).
L E ASE
A consensual, bilateral, onerous, and commutative
contract by which one person binds himself to grant
temporarily the use of a thing or the rendering of some
service to another who undertakes to pay some rent,
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compensation or price (Paras, Civil Code of the
Philippines Annotated, 2008 ed., p.322).
Rent
The compensation either in money, provisions, chattels, or
labor, received by the lessor from the lessee.
Must not be fictitious or nominal; otherwise, there is a
possibility that the contract is one of commodatum (which
is essentially gratuitous).
Must be capable of determination (since the law says
price certain)
Because lease is consensual and not imposed by law,
only the lessor has the right to fix the rents. But the
increasing of the rent is not an absolute right on the part
of the lessor.
Kinds of Leases from the Viewpoint of Subject Matter
1. Lease of things
2. Lease of service
3. Lease of work (Art. 1642)
Characteristics or Requisites for Lease of Things
1. Consensual
2. Bilateral
3. Onerous (there must be rent or price certain)
4. Commutative
5. Nominate
6. Principal
7. Purpose is to allow enjoyment or use of a thing (person
enjoying is the lessee; the person allowing the
enjoyment by another is the lessor)
8. Subject matter must be within the commerce of man
9. Purpose to which the thing will be devoted should not
be immoral
10. Period is temporary (not perpetual; hence, the longest
period is 99 years)
11. Period is either definite or indefinite
If no term is fixed, Art. 1682 or Art. 1687 should be
applied.
If a term is fixed but the term is indefinite, as when the
tenant may use for as long as he desires, the court will
fix the term.
12. Lessor need not be the owner (e.g. a usufructuary may
lease the premises in favor of a stranger, such lease to
end at the time that the usufruct itself ends).
Form of Lease Contract
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Lease may be made orally, but if the lease of real property Lease Commodatum
is for more than 1 year, it must be in writing under the may be transmitted to the bailee ends the
Statue of Frauds. heirs commodatum
Distinguished from Other Contracts 4. Lease and Usufruct
1. Lease and Sale Lease Usufruct
Lease Sale Extent
Transfer of Ownership Limited to the use Includes all possible uses
No transfer of ownership specified in the contract and enjoyment of the thing
because the rights of the Nature of Right
Ownership is transferred
lessee are limited to the Real right only by
upon delivery
use and enjoyment of the exception, when it involves
thing leased land, and it is for more Always a real right
Extent of transfer than 1 year, or is
Transfer is temporary Transfer is permanent registered
Who may convey the property Creator of the Right
Seller must be the owner Can be created only be
Lessor need not be the The lessor may or may not
at the time the property is the owner, or by duly
owner be the owner (as when
delivered authorized agent acting in
Significance of price of object there is a sublease)
behalf of the owner
The price of the object, Origin
distinguished from the Usually, the selling price is May be created only by
rent, is usually not mentioned contract; and by way of
mentioned exception, by law (as in May be created by law, by
the case of implied new the will of private persons
2. Lease and Simple Loan, Distinguished lease; or when a builder expressed in acts inter
Lease Simple Loan (Mutuum) has built in good faith a vivos or in a last will and
Transfer of Ownership building on the land of testament, and by
Lessor does not lose another, when the land is prescription
Lender loses ownership
ownership considerably worth more in
Relationship Between the Parties value than the building)
Lessor and lessee Obligor and obligee Cause
Applicability of Statute of Frauds The owner is more or less
If what is leased is real Owner or lessor is more or
passive and he allows the
property for more than 1 Not governed by the less active, and he makes
usufructuary to enjoy the
year, the Statute of Frauds Statute of Frauds the lessee enjoy the thing
thing given in usufruct
must be complied with hace gozar
dejagozar
Object Repairs
Covers real and personal Covers personal property The usufructuary has the
property only The lessee generally has
duty to make the ordinary
no duty to pay for repairs
repairs
3. Lease and Commodatum Taxes
Lease Commodatum The usufructuary pays for
The lessee generally pays
Transfer of Ownership the annual charges and
no taxes
No transfer of ownership No transfer of ownership taxes on the fruits
Cause As to other things
Essentially gratuitous; if The lessee cannot A usufructuary may lease
there is a price or rent, the constitute a usufruct on the property itself to
Onerous the property leased another
contract ceases to be
commodatum
Nature 5. Lease and Deposit
Not essentially personal in Personal in character; thus Lease Deposit
character; hence, the right the death of either bailor or Nature

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Lease Deposit It is based on employment It is based on

Real right only by the lessor of services representation agent
exception, that is, when it does not represent his represents his principal
involves land, and it is for Real contract employer nor does he and enters into juridical
more than 1 year, or is execute juridical acts. acts.
registered Type of contract
Object Principal contract Preparatory contract
In extrajudicial deposit,
Covers real and personal
only a movable thing may 8. Lease of Chattels and Employment
property
be the object Lease of Chattels Employment
Purpose Relationship Between the Parties
Renting out of the thing for Lessor and lessee Employer and employee
safekeeping
a consideration Control or Management over the Chattel
Lessor loses control or The employer retains
6. Lease of Services and Contract for a Piece of Work management over the control or management
Contract for a Piece Of chattel leased over his chattel
Lease of Services
work Control or Supervision over the Lessee or Employee
(Locatio Operatum)
(Locatio Operas) Lessor has no control or The employer exercises
Object of contract supervision over the control and supervision
The important object is the lessee over the employee
The important object is the
work done (the result of
labor performed by the
the labor) Service as driver under boundary system
lessor
Under the boundary system, the relation between the
Payment for labor performed driver and the jeepney owner is that of employer and
The result is generally employee, not lessor and lessee.
The result is generally not important; generally, the
important, hence the price is not payable until
laborer is entitled to be the work is completed, and
paid even if there is said price cannot be
destruction of the work lawfully demanded if the
through fortuitous event work is destroyed before it
is finished and accepted Lease of Things and Lease of Services; Distinguished
As to Control Lease of Things Lease of Services
The person for whom the Object of contract
services are performed Only the result or end to Object of contract is a Object is some work or
controls the manner and be accomplishes thing service
means to be used Obligation of lessor
Who bears the risk Lessor has to deliver the Lessor has to perform
Even if the result intended thing leased some work or service
is not accomplished Remedy in case of breach
Upon the independent
without fault of lessor, In case of breach, there In case of breach, no
contractor
remuneration is still due can be an action for action for specific
for the service rendered specific performance performance
Employer-Employee Relationship
It exists Does not exist Rule for Lease of Consumable Goods
*Similarities General Rule: Consumable goods cannot be the subject
1. There is a price certain (compensation) matter of a contract of lease of things.
2. The relation of principal and agent does not exist
between the lessor and lessee. Reason: To use or enjoy them, they will have to be
consumed. This cannot be done in lease since ownership
7. Lease of Services and Agency over them is not transferred by the contract of lease.
Lease of Services Agency
Basis of contract Exceptions:
1. If they are merely exhibited

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2. If they are accessory to an industrial establishment (Art.
1645)
Persons Disqualified to be Lessees because Disqualified
to Buy
1. A husband and a wife cannot lease to each other their
separate properties EXCEPT:
a. If separation of property was agreed upon
b. If there has been judicial separation of property.
Reasons:
i. To prevent commission of fraud or prejudice to
third persons
ii. To prevent the stronger spouse from unduly
influencing the weaker spouse
iii. To avoid indirect donations
Note: The prohibition applies even if the spouses are
merely common law spouses, otherwise said spouses
would be placed in a better position than legitimate
spouses.
2. Persons referred to in Art. 1491 are disqualified
because of fiduciary relationships (Art. 1646).
Note: Foreigners are not disqualified to become
lessees of lands in the Philippines.
Proper Authority Required
If a lease is to be recorded, the following persons must
have proper authority (power of attorney to constitute the
lease):
1. The husband with respect to the paraphernal real estate
of the wife;
2. The father or guardian with respect to the property of
the minor or the ward;
3. The manager (administrator) with respect to the
property under his administration (Art. 1647).
Manager may be:
a. The administrator of conjugal property (Rodriguez v.
Borromeo, 43 Phil. 479, No. 17772, June 9, 1922
b. Administrator of co-ownership (Melencio v. Dy Tiao
Lay, G.R. No. L-32047, November 1, 1930); a
c. Administrator of state patrimonial property (Tipton v.
Andueza, G. R. No. 2070, January 2, 1906).
Recording of Lease of Real Property
Its purpose is to notify strangers to the transaction (Art.
1648).
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General Rule: Lease of real property is personal right
Exceptions: Lease partakes of the nature of real right if:
1. Lease of real property is more than 1 year
2. Lease of real property is registered regardless of
duration
Note: Lease of personal property cannot be registered. To
be binding against third persons, the parties must execute
a public instrument.
Assignment of Lease
General Rule: Lessee cannot assign the lease without
consent of lessor
Reason: In an assignment, the personality of the lessee
(assignor/debtor) disappears, There arises a new juridical
relation between the lessor and the assignee who is
converted into a new lessee. There is, in effect, a novation
by substituting the person of the debtor and novation
cannot take effect without the consent of the debtor.
The objective of the prohibition is to protect the lessor or
owner of the leased property (Dakudao v. Consolacion,
G.R. No. L-54753, June 24, 1983). An assignment of
lease without the consent of the lessor is a ground for the
rescission of the lease (Caco v. CA, 80 SCRA 699
[1987]).
Exception: If there is stipulation to the contrary (Art.
1649)
S UBLE ASE
A separate and distinct contract of lease wherein the
original lessee becomes a sublessor to a sublessee. (Art.
1650)
Rights of Lessee to Sublease
Unlike in assignment, a lessee may generally sublease
the property in the absence of express prohibition (Art.
1650).
Reason: Lessee remains a party to the lease even if he
has already created a sublease thereon
Note: Under R.A. No. 9653 (Rent Control Act of 2009),
assignment of lease or subleasing of the whole or any
portion of the residential unit, including the acceptance of
boarders or bedspacers, without the written consent of the
owner / lessor is prohibited.
Rights of Lessor if Sublease Prohibited But Entered
into by Lessee
1. Rescission and damages; or
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2. Damages only (Contract will be allowed to remain in

force) Necessity of Judgment against the Lessee
3. Ejectment There must be a judgment against the lessee evicting the
latter from the premises where he cannot pay the rentals
Accepting boarders not equivalent to subleasing and the sublessee is in possession. The mere failure of
The lessee, by accepting boarders and assigning rooms the lessee to pay the rentals does not make the sublessee
or bed spaces for the latter in the leased premises, does subsidiarily liable (Wheelers Club Intl v. Bonifacio, Jr.,
not surrender the control and possession of the premises G.R. No. 139540, Jun. 29, 2005).
or a part thereof (Malasarte vs. Court of Appeals, G.R. No.
85108, October 4, 1989). Limit on the Term of Sublease
A sublease cannot have a term longer than that of the
Sublease and Assignment of Lease; Distinguished lease to which it is dependent. It terminates upon the
Sublease Assignment of Lease termination of the lease, unless the lease is for a shorter
Number of juridical relations created term (Blas v. C.A,, 180 SCRA 60).
There are two leases and There is only one juridical
two distinct juridical relationship, that of the
relationships although lessor and the assignee, O BLIG ATIONS OF L ESSOR
immediately connected who is converted into a
and related to each other lessee Obligations of the Lessor: (DNMC)
As to personality of lessee 1. Delivery of the object (actual or constructive; cannot be
The personality of the The personality of the waived);
lessee does not disappear lessee disappears 2. Making of necessary repairs;
Transfer of rights and obligations 3. Maintenance in peaceful and adequate possession (Art.
The lessee does not 1654) The obligation arises only when legal trespass
The lessee transmits disturbs the lessees peaceful enjoyment thereof
transmit absolutely his
absolutely his rights to the (Bercero v. Capitol Development Corp., G.R. No.
rights and obligations to
assignee 154765, March 29, 2007);
the sublessee
Right of action against lessor 4. Cannot alter the form of the thing leased (Art 1661).
The sublessee, generally,
The assignee has a direct Note: The obligation to maintain the lessee in the
does not have any direct
action against the lessor peaceful and adequate enjoyment of the leased property
action against the lessor
Responsibility of Sublessee to Lessor seeks to protect the lessee not only from the acts of third
persons but also from the acts of the lessor (Bercero vs.
General Rule: The sublessee is directly liable to the Capitol Development Corp., G.R. No. 154765, March 29,
sublessor and not the lessor. 2007).

Reason: There is no juridical relationship between the
lessor and the sublessee.
Exception: The sublessee is responsible to the lessor for:
1. All acts which refer to the use and preservation of the
thing leased in the manner stipulated between the
lessor and the lessee (Art. 1651); and
2. Rent due to the lessor from the lessee which the latter
failed to pay (Art. 1652)
Accion Directa direct action which the lessor may bring
against a sublessee who misuses the subleased property.
Note: The sublessee shall not be responsible beyond the
amount of rent due from him, in accordance with the terms
of the sublease, at the time of the extra-judicial demand
by the lessor (Art. 1652).
Rules on Alteration of the Form of the Lease
Lessor can alter provided there is no impairment of the
use to which the thing is devoted under the terms of the
lease
Lessee can alter so long as the value of the property is
not substantially impaired (Art. 1661)
Rules in case of Useful Improvements and Ornamental
Expenses
Rights of Lessee:
1. In case of Useful Improvements (par. 1)
a. To remove the improvements should the lessor
refuse to reimburse although the principal may suffer
damage; OR

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b. To be reimbursed by one-half of the value of said
improvements at the time of termination of the lease
should the lessor choose to appropriate them.
Parties may stipulate that the lessor may appropriate
them without reimbursing the lessee should the latter
fail to comply with the terms of the lease contract.
Courts may equitably reduce a stipulated penalty in the
contracts (1) if the principal obligation has been partly or
irregularly complied with; and (2) even if there has been
no compliance if the penalty is iniquitous or
unconscionable in accordance with Art. 1229, NCC
(Florentino v. Supervalue, Inc., G.R. No. 172384,
September 12, 2007).
To be entitled to either two remedies, the following
must concur:
a. Lessee must be a considered a builder in good faith
(Florentino v. Supervalue, Inc., G.R. No. 172384,
September 12, 2007);
b. Improvements must be suitable to the use for which
the lease is intended; and
c. The form and substance of the property leased
should not be altered (Susana Realty, Inc. v.
Hernandez, [C.A.] 54 O.G. 2206).
2. In case of Ornamental Expenses (par.2)
Lessee has no right of reimbursement but he may
remove them provided:
a. No damage is caused to the principal thing;
b. Lessor does not choose to retain them by paying their
value at the time of the lease (Art. 1678).
Rules in case of Urgent Repairs
The lessor has the obligation to make necessary repairs
and the lessee is obliged to notify the lessor of the
urgency of such repair.
The lessee is obliged to tolerate the work although it may
be very annoying to him and although during the same
time he may be deprived of a part of the premises, if
repairs last for not more than 40 days.
If 40 days or more, lessee can ask for reduction of the
rent in proportion to the time including the 1st 40 days
and the part of the property of which he is deprived.
If less than 40 days, the lessee cannot ask for reduction
of the price in the absence of a provision in the contract
giving him such right or for rescission
Note: In either case, rescission may be availed of if the
main purpose of the lease is to provide a dwelling place
and the property becomes uninhabitable (Art. 1662).
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Effects If Lessor Fails to Make Urgent Repairs
The lessee may: [OSSA]
1. Order, in order to avoid imminent danger, repairs at the
lessors cost
2. Sue for damages
3. Suspend the payment of the rent
4. Ask for rescission, in case of substantial damage to him
(Art. 1663)
Trespass in Lease
1. Trespass in fact (perturbacion de mero hecho):
There is a mere physical disturbance on the property
leased such as an intrusion of an intruder without any
legal claim to justify his entry into the property (Art.
1664).
Example: Forcible entry
Lessor will not be held liable.
Reason: The duty to maintain the lessee in the
peaceful enjoyment of the lease is a warranty that the
lessee shall not be disturbed in his legal, and not
physical, possession (Bercero vs. Capitol Devt. Corp.,
G.R. No. 154765, Mar. 29, 2007).
Lessee is authorized by law to pursue a direct action
against the usurper or intruder.
2. Trespass in law (perturbacion de derecho):
A third person claims legal right to enjoy the premises
Example: Accion Reinvidicatoria
Lessor will be held liable
Note: In the Goldstein case, trespass in fact is
distinguished from legal transfer; if the trespass is not
accompanied or preceded by anything which reveals a
juridical intention on the part of the trespasser, in such
wise that the lessee can only distinguish the material
fact, stripped of all legal forms or reasons, it is only
trespass in fact (de mero hecho) (Goldstein v. Roces,
G.R. No. L-869, March 30, 1916).
While the Japanese Occupation was a fortuitous event,
the lessor is still not excused from his obligation to
warrant peaceful legal possession. Lease is a contract
that calls for prestations both reciprocal and repetitive;
the obligations of either party are not discharged at any
given moment, but must be fulfilled all throughout the
term of the contract (Villaruel v. Manila Motor Co., G.R.
No. 10394, December 13, 1958).
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O BLIG ATIONS OF L ESSEE
Obligations of the Lessee: (PURE-N-NR)
1. To pay rent (Art. 1657)
2. To use thing leased as a diligent father of a family,
devoting it to the use stipulated; or in the absence
thereof, to that inferred from the nature of the thing
leased according to the custom of the place (Art. 1663)
An illegal use such as for prostitution allows the lessor
to end the contract. (Paras, Civil Code, Book V, 2000)
The lessee is liable for any deterioration caused by
members of his household, guests and visitors. (Art.
1668).
3. To make urgent repairs even if annoying to him (Art.
1662(1) UNLESS the place becomes uninhabitable (Art.
1662 (3))
4. To pay expenses for the deed of lease (Art. 1657)
5. To notify the lessor of usurpation or untoward acts (Art.
1663)
Reasons:
a. So that the lessor may bring proper action against
the ursurper (Simpao v. Dizon, G.R. No. 452, April
30, 1902)
b. It is unjust to compel the lessor to stand idly and trust
the defense of his property to a mere lessee (Roxas
v. Mijares, G.R. No. 3823, November 23, 1907)
6. To notify the lessor of need for repairs
Reason: Because the lessee is in possession and the
lessor has no duty to make constant inspection.
Notification is not essential if the lessor actually knows
the need for the repairs (Johnson Picket Rope Co. v.
Grey, CA., 40 O.G. [Supp. 11] 239).
7. To return the property leased upon termination of the
lease in the same condition as he received it save what
has been lost or impaired by:
a. Lapse of time;
b. Ordinary wear and tear; or
c. Inevitable cause/fortuitous event (Art. 1665)
Note: If the lessee fails to comply with (5) and (6), he
would be liable for damages which the lessor would suffer
and which could have been avoided by lessee's diligence
(Art. 1663 (3)).
R EMEDIES
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Remedies of the Lessor:
1. Rescission and damages (Art. 1659, NCC)
2. Damages only, allowing the contract to remain in force
Specific Performance (Art. 1659, NCC)
Damages recoverable in ejectment cases are the
rents or the fair rental value of the premises and
liquidated damages if agreed upon by the parties.
The following cannot be successfully claimed:
a. Profits plaintiff could have earned were it not for the
possible entry or unlawful detainer;
b. Material injury to the premises;
c. Actual, moral, or exemplary damages (Baens v. CA,
GR No. L-57091, November 23, 1983).
3. May hold the sublessee bound for all acts which refer to
the use and preservation of the things leased (Art.
1651)
4. May hold the sublessee subsidiarily liable for any rent
due from the lessee (Art. 1652)
5. Ejectment (Art. 1673 (2,3,4))
Remedies of the Lessee:
1. Extinguishment of the lease in case of total destruction
of the thing leased caused by fortuitous event (Art.
1655)
2. Proportional reduction of the rent or rescission in case
of partial destruction of the thing leased caused by
fortuitous event (Art. 1655)
Note: Art. 1655, provides for an instance where the
lessee may rescind the contract of lease as a matter of
right notwithstanding the fact that lessor is not guilty of
breach or negligence.
3. Terminate the lease in case of dangerous condition of
the thing leased for habitation (Art. 1660)
Reason: Public safety cannot be stipulated against
4. Suspend payment of rent when lessor fails to make
repairs (Art. 1658)
When Lessee May Suspend Payment of Rent
(Art. 1658):
1. Lessor fails to undertake necessary repairs.
In case the lessee makes the repairs, he cannot
suspend the payment of rent as a matter of right. The
remedy is legal compensation. He still needs to pay the
rent but it will be compensated by the amount he spent
for the repairs.
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2. Lessor fails to maintain the lessee in peaceful and
adequate enjoyment of the property leased.
Note: Suspend for the intervening period, the lessee
does not have to pay the rent.
shall continue for an indefinite period provided that the
lessee is up-to-date in the payment of his monthly rentals
for the contract is one with a period subject to a resolutory
condition (Jespajo Realty v. CA, G.R. No. 113626,
September 27, 2002).

Effectivity of the Suspension If from the circumstances it can be inferred that a period
The right begins: was intended, the court may fix the duration thereof (De
1. In the case of repairs, from the time he made the Leon, Comments and Cases on Sales and Lease, 2005
demand for said repairs and the demand went ed.).
unheeded.
A lease of things during the lifetime of one of the parties,
2. In the case of eviction, from the time the final judgment
as the lessor or lessee may please, is one for life, ending
for eviction becomes effective.
upon the death of either party (Eleizegui v. Lawn Tennis
Club, G.R. No. 967, May 19, 1903).
Immediate Termination of Lease under Art. 1660
Applies:
A month to month lease is for a definite period. Where the
1. Only to dwelling place or any other building intended for
parties agreed that upon 30 days of notice, either party
human habitation
may terminate the agreement, the lease is for a definite
2. Even if at the time the contract was perfected, the
period (Rantael v. C.A., 97 SCRA 453).
lessee knew of the dangerous condition or waived the
right to rescind on account of such condition
When the action is to terminate the lease, notice or
demand to vacate is not necessary. Demand is only a
Note: This right of the lessee is a precaution for public
prerequisite to an action for unlawful detainer when the
safety which is above any stipulation (Report of the Code
action is for failure to pay rent due, or to comply with the
Commission, p.142). It cannot be waived.
conditions of the lease (Go Tiamco v. Yao Boom Sim, 8
A.C.R. 72; 43 Off. Gaz. 1665). Thus, the absence of
D UR ATIO N AND T ERMIN ATION OF demand does not change the fact that the lease contract
L E ASE has ended upon the termination of the period fixed for its
existence.
Duration of Lease
If there is no fixed period (indefinite)
The period may be definite or indefinite but in any case,
1. For Rural Lands (Art. 1682)
the period is only temporary, not perpetual.
It shall be for all the time necessary for the gathering of
If there is a determinate time or period fixed (definite)
fruits which the whole estate may yield in 1 year, or
Lease will be for the said period and ends on the day fixed
which it may yield once.
without the need of demand (Art. 1669).
2. For Urban Lands (Art. 1687)
The longest period that can be stipulated is only 99 years.
a. If rent is paid daily: lease is from day to day
It is an unsound economic policy to allow ownership and
b. If rent is paid weekly: lease is from week to week
enjoyment to be separated for a very long time.
c. If rent is paid monthly: lease is from month to month
d. If rent is paid yearly: lease is from year to year
If period is more than 99 years, the lease is considered as
having expired at the end of the said term. The excess is
Note: In all cases, whether for definite or indefinite period
considered to be an indefinite period should an implied
(except for the last paragraph mentioned in number 1
new lease arise (De Leon, Comments and Cases on
above), the lease is not terminated by reason of the death
Sales and Lease, 2005 ed,).
of either the lessor or lessee.
A lease contract providing that the lessee can stay in the
Basis: Relativity of Contracts
premises for as long as he wants and for as long as he
can pay the rentals and its increases is not permissible as
Rules on Extension of the Lease Period:
it is a purely potestative condition, leaving the effectivity
1. If a lease contract for a definite term allows lessee to
and enjoyment of leasehold rights to the sole and
extend the term, there is no necessity for lessee to
exclusive will of the lessee. HOWEVER, the SC upheld a
notify lessor of his desire to so extend the term,
lease contract, which provides that the lease contract
UNLESS the contrary is stipulated (Cosmopolitan Ballet

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and Dance School, et. al. v. Teodoro, CA, O.G. Jan.
1943, p.56).
2. May be extended as stipulation: lessee can extend
without lessors consent but lessee must notify lessor
(Koh v. Ongsiako, 36 Phil 186).
3. May be extended for 6 years agreed upon by both
parties as stipulation: This must be interpreted in favor
of the lessee. Hence, ordinarily the lessee at the end of
the original period may either:
a. Leave the premises; OR
b. Remain in possession (Cruz v. Alberto, 39 Phil. 991).
4. In co-ownership, assent of all is needed, otherwise it is
void or ineffective against non-consenting owners
5. Where according to the terms of the contract, the lease
can be extended only by the written consent of the
parties thereto, no right of extension can rise without
such written consent (Teodoro v. Mirasol, G.R. No. L-
8934, May 18, 1956).
6. If the option is given to the lessor, the lessee cannot
renew the lease against the former's refusal. The lease
is deemed terminated.
7. Where a lessee is given the option to continue or renew
the contract of lease and is silent upon the rentals, the
old terms are to be followed in the renewed lease
(Gustilo v. CA, G.R. No. L-61083, February 28, 1983).
8. The lessor may impose additional conditions after the
expiration of the original period.
9. Par. 2 of Art. 1687 provides that in the event that the
lessee has occupied the leased premises for over a
year, courts may fix a longer term of lease. The power
of the courts to establish a grace period is potestative or
discretionary, depending on the particular
circumstances of the case. (Malayan Realty, Inc. v. Uy
Han Yong, G.R. No. 163763, November 10, 2006).
10. A verbal agreement to extend the lease is admissible
to qualify the terms of a written contract (Florentino v.
Super Value Inc., G.R. No. 172384, Sep. 12, 2007).
Rule if Lessor Objects to the Lessees Continued
Possession:
Requisites:
1. Contract has expired
2. Lessee continues enjoying the thing
3. Lessor objected to this enjoyment (Art. 1671)
Note: If the three requisites are present, the lessee shall
be considered a possessor in bad faith.
Remedy of lessor: Bring an action of unlawful detainer to
recover possession of the premises and the rents or fair
rental value of the property.
Note: Profits which the plaintiff might have received were
it not for the forcible entry or detainer are not covered (De
[Type text]
Leon and De Leon, Jr., Comments and Cases on Sales
and Lease, 2011 ed., p. 670).
Implied New Lease (Tacita Reconduccion)
Lease which arises if at the end of the contract the lessee
should continue enjoying the thing leased for 15 days with
the acquiescence of the lessor, unless a notice to the
contrary had previously been given by either party.
Requisites:
1. The term of the original contract has expired;
2. The lessor or lessee has not previously given a notice
to vacate; and
3. The lessee continued enjoying the thing leased for at
least 15 days with the acquiescence of the lessor (Art.
1670).
Note: The notice required is the one given after the
expiration of the lease period for the purpose of aborting
an implied renewal of lease (Tagbilaran Integrated
Settlers Assoc v CA, G.R. No. 148562. November 25,
2004).
When there is no implied new lease:
1. When before or after the expiration of the term, there is
a notice to vacate given by either party.
2. When there is no definite fixed period in the original
lease contract as in the case of successive renewals of
the lease under Art. 1687.
3. There is a stipulation against renewal
4. Invalidity of original lease
5. Acceptance of rentals beyond original term
6. Acceptance of rentals less than amounts stipulated
7. Nonpayment of rentals
Effects:
1. The period of the new lease is not that stated in the
original contract but the time in Articles 1682 and 1687.
2. Accessory obligations contracted by a third person are
extinguished (Art. 1672)
3. Other terms of the original contract are revived.
Note: Terms that are revived are only those which are
germane to the enjoyment of possession (e.g. amount of
rent, date of payment, care of the property, etc.), but not
those with respect to special agreements which are by
nature foreign to the right of occupancy or enjoyment
inherent in a contract of lease such as an option to
purchase the leased premises (Dizon v. Magsaysay. GR
No. 23399, May 31, 1974).
Purchase of the Leased Property (Art. 1676)
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General Rule: Purchaser of thing leased can terminate
lease.
Exceptions:
1. Lease is recorded in Registry of Property;
2. There is stipulation in the contract of sale that purchaser
shall respect the lease;
3. Purchaser knows, whether actual or constructive, the
existence of the lease;
4. Sale is fictitious; there is a disputable presumption that
it is fictitious if the sale is not registered (Art. 1676);
5. Sale is made with right of repurchase (Art. 1677).
Grounds for Judicial Ejectment under Art. 1673:
(ELVU)
1. Expiration of the period agreed upon or the period
under Arts. 1682 and 1687;
Note: If and when the term expires and the lessee is
still in possession, the contract is NOT deemed
terminated. The lessor must notify the lessee that he
has no intention to extend the lease in order for the
implied new lease not to apply.
2. Lack of payment of the price stipulated;
3. Violation of any of the conditions agreed upon in the
contract; and
4. Unauthorized use or service by the lessee of the thing
leased.
Note: In all cases except number 1, for the case of
unlawful detainer to prosper, a demand to pay and
vacate should be given to the lessee.
A notice or demand to vacate does not have to expressly
use the word vacate as it suffices that the demand letter
puts the lessee or occupant on notice that if he does not
pay the rentals or comply with the terms of the lease
contract, it should move out of the leased premises (Irao
v. By the Bay, Inc., G.R. No. 177120, July 14, 2008).
The ejectment of tenants of agricultural lands is governed
by special laws (Art 1673 (2)).
Preliminary Mandatory Injunction to Restore
Possession: In ejectment cases where an appeal is
taken, the lessor is entitled to a writ of preliminary
injunction to restore him in his possession in case the
higher court is satisfied that the lessees appeal is
frivolous or dilatory (i.e. without merit) or the lessors
appeal is prima facie meritorious (Art. 1674).
Termination of the Lease
1. By the expiration of the period
[Type text]
2. By the resolution of the right of the lessor (e.g. when the
lessor is a usufructuary and the usufruct is terminated)
3. By the will of the purchaser or transferee of the thing
(Art. 1676[1])
4. By total loss of the thing (Art. 1655)
5. By rescission due to non-performance of the obligation
of one of the parties set forth in Arts. 1654 and 1657.
(Art. 1659)
6. In case the dwelling place or any other building is unfit
for human habitation and is dangerous to life or health
(Art. 1660)
Upon the termination of the lease, the lessee claims
reimbursement for the improvements introduced on the
property alleging that they were made in good faith. Is the
claim proper?
To be entitled to reimbursement for improvements
introduced on the property of another, he must be a
builder in good faith. A builder in good faith is one who is
unaware of any flaw on his title. A lessee cannot claim to
be a builder in good faith because he knows that his
occupation would continue only for the life of the lease
(Josefa v. Buenaventura, G.R. No. 163429, Mar. 3, 2006).
S UBDIVISION AND C ONDOMINIUM
B UYER ' S P RO TECTI VE D ECREE
Approved: July 12, 1986
Purpose: To afford its inhabitants the requirements of
decent human settlement and to provide them with ample
opportunities for improving their quality of life
Registration of Projects: The registered owner of a
parcel of land who wishes to convert the same into a
subdivision project shall submit his subdivision plan to the
HOUSING AND LAND USE REGULATORY BOARD,
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. The same procedure shall be followed
in the case of a plan for a condominium project except
that, in addition, said Authority 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) (Sec. 4).
The subdivision plan, as so approved, shall then be
submitted to the Director of Lands for approval in
accordance with the procedure prescribed in Section 44 of
the Land Registration Act (Act No. 496, as amended by
R.A. 440): Provided, that in case of complex subdivision
plans, court approval shall no longer be required. The
[Type text]
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. 4726).
The National Housing Authority (now Housing and Land
Use Regulatory Board) has the exclusive jurisdiction to
regulate the real estate trade and business (Sec. 3).
License to Sell: Such owner or dealer to whom has been
issued a registration certificate shall not, however, be
authorized to sell any subdivision lot or condominium unit
in the registered project unless he shall have first obtained
a license to sell the project within two weeks from the
registration of such project (Sec. 5).
Performance Bond: No license to sell subdivision lots or
condominium units shall be issued by the National
Housing Authority unless the owner or dealer shall have
filed an adequate performance bond approved by said
Authority 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 (Sec. 6).
Exempt Transactions: A license to sell and performance
bond shall not be required in any of the following
transactions:
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
(Sec. 7).
Suspension of License to Sell: 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
The Authority 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
[Type text]
condominium project may work or tend to work a fraud
upon prospective buyers.
The suspension order may be lifted if, after notice and
hearing, the Authority is convinced that the registration
statement is accurate or that any deficiency therein has
been corrected or supplemented or that the sale to the
public of the subdivision or condominium project will
neither be fraudulent not result in fraud. It shall also be
lifted upon dismissal of the complaint for lack of legal
basis (Sec. 8).
Grounds for Revocation of Registration Certificate
and License to Sell of Owners or Dealers
1. If 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 (Sec. 9).
Registration of Dealers, Brokers, and Salesmen: No
real estate dealer, broker or salesman shall engage in the
business of selling subdivision lots or condominium units
unless he has registered himself with the Authority in
accordance with the provisions of this section (Sec. 11).
Revocation of Registration as Dealers, Brokers or
Salesmen
1. Has violated any provision of this Decree or any rule or
regulation made hereunder; or
2. Has made a material false statement in his application
for registration; or
3. Has been guilty of a fraudulent act in connection with
any sale of a subdivision lot or condominium unit; or
4. Has demonstrated his unworthiness to transact the
business of dealer, broker, or salesman, as the case
may be.
5. In case of charges against a salesman, notice thereof
shall also be given the broker or dealer employing such
salesman (Sec. 12).
Pending hearing of the case, the Authority shall have the
power to order the suspension of the dealer's, broker's, of
salesman's registration; provided, that such order shall
state the cause for the suspension.
T HE C ONDOMINIUM A CT
(R.A. 4726)
[Type text]
Approved: June 18, 1966
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. A condominium may
include, in addition, a separate interest in other portions of
such real property. Title to the common areas, including
the land, or the appurtenant interests in such areas, may
be held by a corporation specially formed for the purpose
(hereinafter known as the "condominium corporation") 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 (Sec. 2).
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 or
parts of floors) in a building or buildings and such
accessories as may be appended thereto (Sec.3).
Project
The entire parcel of real property divided or to be divided
in condominiums, including all structures thereon (Sec.3).
Common areas
The entire project excepting all units separately granted or
held or reserved (Sec.3).
Any transfer or conveyance of a unit or an 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:
Conditions:
1. 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 Filipino
citizens, or corporations at least sixty percent of the
capital stock of which belong to Filipino citizens, except
in cases of hereditary succession.
2. Where the common areas in a condominium project are
held by a corporation, no transfer or conveyance of a
[Type text]
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(Sec. 5).
Incidents of Condominium Grant: Unless otherwise
expressly provided in the enabling or master deed or the
declaration of restrictions:
1. 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 (Sec. 6f).
2. Each condominium owner has also the ABSOLUTE
RIGHT TO SELL OR DISPOSE of his condominium
unless 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 (Sec. 6g).
Partition
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.
Conditions:
1. That three years after damage or destruction to the
project which renders 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
2. That 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. That 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. That 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
[Type text]
Note: If the Court finds that the conditions provided for in
this Act or in the declaration of restrictions have not been
met, 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 (Sec.
23).
5. That the conditions for such partition by sale set forth in
the declaration of restrictions, duly registered in
accordance with the terms of this Act, have been met.
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
and 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, unless otherwise
provided for in the declaration of restrictions upon
voluntary dissolution of a condominium corporation
(Sec. 15).
A condominium corporation shall not, during its
existence, sell, exchange, lease or otherwise dispose of
the common areas owned or held by it in the
condominium project unless authorized by the
affirmative vote of all the stockholders or members
(Sec. 16).
The management body, unless otherwise provided for
by the declaration of restrictions, may ACQUIRE AND
HOLD, for the benefit of the condominium owners,
tangible and intangible personal property and MAY
DISPOSE OF THE SAME BY SALE OR OTHERWISE;
and 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 (Sec. 22).
See discussion under Property.
R ENT C O NTROL A CT OF 2009
(R.A. 9653)
Approved: July 14, 2009
Purpose: To encourage the development of affordable
housing for the lower income brackets and other
[Type text]
beneficiaries and to protect them from unreasonable rent
increases (Sec. 2).
Coverage
1. All residential units in the National Capital Region and
other highly urbanized cities, the total monthly rent for
each of which ranges from one peso (P1.00) to ten
thousand pesos (P10,000.00).
2. All residential units in all other areas the total monthly
rent for each of which ranges from one peso (P1.00) to
five thousand pesos (5,000.00).
Except: Already existing contracts (Sec. 5).
Exception: Rent-to-Own Scheme at the option of the
lessor, he or she may engage the lessee in a written rent-
to-own agreement that will result in the transfer of
ownership of the particular dwelling in favor of the latter
(Sec. 11).
Limit on Increase in Rent: For a period of one (1) year
from effectivity, no increase shall be imposed on the rent
of any residential unit covered by this Act.
After such period until December 31, 2013, the rent shall
not be increased by more than 7% annually as long as the
unit is occupied by the same lessee.
When the residential unit becomes vacant, the lessor may
set the initial rent for the next lessee.
In case of boarding houses, dormitories, rooms and
bedspaces offered to students, no increase in rental more
than once per year shall be allowed (Sec. 4).
Definition of Terms (Sec. 3)
Rent
The amount paid for the use or occupancy of a residential
unit whether payment is made on a monthly or other basis
Residential unit
Shall refer to an apartment, house and/or land on which
anothers dwelling is located and used for residential
purposes and shall include not only buildings, part or units
thereof used solely as dwelling places, boarding houses,
dormitories, rooms and bed spaces offered for rent by
their owners, except motels, motel rooms, hotels, hotel
rooms but also those used for home industries, retail
stores or other business purposes if the owner thereof and
his or her family actually live therein and use it principally
for dwelling purposes.
Immediate members of family of the lessee or lessor
(for purposes of repossessing the leased premises)
[Type text]

Limited to his or her spouse, direct descendants or payment of the rent agreed upon, the lessee may either
ascendants, by consanguinity or affinity. deposit, by way of consignation, the amount in court or
with the city or municipal treasurer, as the case may be,
Lessee or barangay chairman, or in a bank in the name of and
The person renting a residential unit with notice to the lessor, within one month after the
refusal of the lessor to accept payment
Owner/lessor
Includes the owner or administrator or agent of the owner Lessee shall thereafter deposit the rent within ten (10)
of the residential unit days of every current month. Failure to deposit the rent
for three months shall constitute a ground for ejectment.
Sublessor
The lessor, upon authority of the court in case of
The person who leases or rents out a residential unit
consignation or upon joint affidavit by him and the
leased to him by an owner.
lessee to be submitted to the city or municipal treasurer
or barangay chairman and to the bank where deposit
Sublessee
was made, shall be allowed to withdraw the deposits;
The person who leases or rents out a residential unit from
a sublessor
3. Legitimate need of the owner / lessor to repossess his
share or her property for his or her own use or for the
Rent and Requirement of Bank Deposit
use of any immediate member of his family as a
Rent shall be paid in advance within the first five (5) days
residential unit
of every current month or the beginning of the lease
agreement unless the contract provides for a later date of
Conditions:
payment unless the contract of lease provides for a later
date of payment. a. The lease for a definite period has expired;
b. The lessor has given the lessee formal notice three
(3) months in advance of the lessors intention to
Lessor cannot demand more than one (1) month advance
repossess the property;
rent. Neither can he demand more than two (2) months
deposit which shall be kept in a bank under the lessors c. The owner/lessor is prohibited from leasing the
residential unit or allowing its use by a third party for a
account name during the entire duration of the lease
period of at least one (1) year from the time of
agreement
repossession
Any and all interest that shall accrue shall be returned to
4. Need of the lessor to make necessary repairs of the
the lessee at the expiration of the lease contract.
leased premises which is the subject of an existing
order of condemnation by appropriate authorities
In the event, however, that the lessee fails to settle rent,
concerned in order to make the said premises safe and
electric, telephone, water or such other utility bills or
habitable
destroys any house components or accessories, the
deposits and interests therein shall be forfeited in favor of
Conditions:
the latter in the amount commensurate to the pecuniary
a. After said repair, the lessee ejected shall have the
damage done by the former (Sec. 7).
first preference to lease the same premises;
b. The new rent shall be reasonably commensurate with
Assignment of Lease or Subleasing
the expenses incurred for the repair of the said
Assignment of lease or subleasing of the whole or any
residential unit;
portion of the residential unit, including the acceptance of
c. That if the residential unit is condemned or
boarders or bedspacers, without the written consent of the
completely demolished, the lease of the new building
owner / lessor is PROHIBITED (Sec. 8).
will no longer be subject to the aforementioned first
preference rule
Grounds for Judicial Ejectment: (A-AURE)
1. Assignment of lease or subleasing of residential units in
5. Expiration of the period of the lease contract (Sec. 9).
whole or in part, including the acceptance of boarders
or bedspacers, without the written consent of the
Prohibition against Ejectment by Reason of Sale or
owner/lessor;
Mortgage: No lessor or his successor in interest shall be
2. Arrears in payment of rent for a total of three (3)
entitled to eject the lessee upon the ground that the
months. In case of refusal by the lessor to accept
leased premises have been sold or mortgaged to a third

[Type text]
[Type text]
person regardless of whether the lease or mortgage is
registered or not (Sec. 10).
Application of the Civil Code and Rules of Court:
Except when the lease is for a definite period, the
provision of paragraph (1) of Article 1673 of the Civil Code
of the Philippines, insofar as they refer to residential units
covered by this Act, shall be suspended during the
effectivity of this Act, but other provisions of the Civil Code
and the Rules of Court on lease contracts, insofar as they
are not in conflict with the provisions of this Act shall apply
(Sec. 12).
H OUSEHOLD S ERVICE
Household Service
Services in the employers house which is usually
necessary or desirable for the maintenance and
enjoyment thereof and includes ministering to the
personal comfort and convenience of the members of the
employers household, including services of family drivers
(Art. 141, Labor Code).
It is that rendered by a domestic servant who works in the
house or with the family with whom the helper usually
leaves (Rosales v. Tan Que, [CA] 46 OG 4328).
It includes the work of family servants and driver (Baloloy
v. Uy. [CA] 52 OG 5561) but not that of laborers in a
commercial or industrial enterprise. The latter are
governed generally by special laws on labor (Zarrura, et.
al. v. Sy [CA] 52 OG 1513].
Household service shall always be reasonably
compensated. Any stipulation that household service is
without compensation shall be void. Such compensation
shall be in addition to the house helper's lodging, food,
and medical attendance (Art. 1689).
The head of the family shall furnish, free of charge, to the
house helper, suitable and sanitary quarters as well as
adequate food and medical attendance (Art. 1690).
The question of whether expenses of hospitalization are
included in medical attendance should not and cannot be
decided in abstract. The determination of the issue must
depend upon the circumstances surrounding each case.
The right to medical attendance is deemed subject to the
rule of necessity.
If the house helper is under the age of eighteen years, the
head of the family shall give an opportunity to the house
helper for at least elementary education. The cost of such
[Type text]
education shall be a part of the house helper's
compensation, unless there is a stipulation to the contrary
(Art. 1691).
No contract for household service shall last for more than
two years. However, such contract may be renewed from
year to year (Art. 1692).
The house helper's clothes shall be subject to stipulation.
However, any contract for household service shall be void
if thereby the house helper cannot afford to acquire
suitable clothing (Art. 1693).
The head of the family shall treat the house helper in a
just and humane manner. In no case shall physical
violence be used upon the house helper (Art. 1694).
Hours of Work: House helpers should not be required to
work more than 10 hours a day. If she is required to work
for more than 10 hours and he/she agreed, he/she is
entitled to additional compensation. If the house helper
does not agree then the latter cannot be compelled to
work for more than 10 hours.
Note: A yaya or nursemaid for small children, by the
nature of her work, may render more than 10 hours work,
but she is evidently entitled to a higher rate of
compensation (Paras, Civil Code of the Philippines
Annotated, 2008 ed., p.462).
Vacation days: House helpers are entitled to four days
vacation every month with pay.
Funeral Expenses: In case of death of the house helper,
the head of the family shall bear the funeral expenses if
the house helper has no relatives in the place where the
head of the family lives, with sufficient means therefor.
(Art. 1696)
Rule if Period of Contract of Household Service is
Fixed (Art. 1697)
Neither of the parties employer or house helper, may
terminate the said agreement before the expiration of term
If the house helper is unjustly dismissed, the employer
shall pay him his accrued wages plus indemnity
equivalent to the house helpers wages for fifteen days
work.
If the house helper leaves without justifiable reason, he
shall forfeit any wages or salaries due him and unpaid, not
exceeding fifteen days.
Even if the term is fixed, either party may terminate the
same, with or without just cause; otherwise, there would
[Type text]
be oppression for the employer, or involuntary servitude
for the helper (Paras, 2008 ed., p. 463).
Period of Household service is NOT Fixed: If the
duration of the household service is not determined either
by stipulation or by the nature of the service, the head of
the family or the house helper may give notice to put an
end to the service relation, according to the following
rules:
1. If the compensation is paid by the day, notice may be
given on any day that the service shall end at the close
of the following day;
2. If the compensation is paid by the week, notice may be
given, at the latest on the first business day of the week,
that the service shall be terminated at the end of the
seventh day from the beginning of the week;
3. If the compensation is paid by the month, notice may be
given, at the latest, on the fifth day of the month, that
the service shall cease at the end of the month (Art.
1698).
Note: In lieu of the notice, the monetary value may be
given (Baloloy v. Uy [CA] 52 OG 5561).
Upon the extinguishment of the service relation, the house
helper may demand from the head of the family a written
statement on the nature and duration of the service and
the efficiency and conduct of the house helper (Art. 1699).
C ONTR ACT OF L ABOR
Contract of Labor
An agreement by virtue of which a person called
employer engages or hires the services of another
person called employee or laborer for the latter to render
some services in favor of and under the direction of the
former in consideration of a renumeration or
compensation.
The one employed is referred as laborer when he works in
an industrial establishment.
Example: waiter in hotel, bank teller in a bank.
Nature of Employer-employee relationship: The
relationship between capital and labor while contractual in
character as it arises from the agreement of the parties, is
nevertheless impressed with public interest that labor
contracts must yield to the common good. A contract of
[Type text]
labor does not create any real right which should be
respected by third persons (Visayan Trans Co. Inc. vs.
Java, G.R. No. L-6111, October 22, 1953).
Capital and labor must observe mutual respect in their
relationship
In case of doubt, all labor legislations and labor contracts
shall be construed in favor of the safety and decent living
of the laborer (Art. 1702).
No contract which practically amounts to involuntary
servitude shall be valid (Art. 1703).
In collective bargaining, the labor union or members of the
board or committee shall be liable for non-fulfillment
thereof (Art. 1704).
Wages shall be paid in legal currency (Art. 1705).
Note:The employer is prohibited from paying the wages of
an employee by means of promissory notes, vouchers,
coupons, tokens, tickets, chits or any object other than the
legal tender, even when expressly requested by the latter
(Art. 102, Labor Code). This act constitutes a crime under
Art. 288 of the Revised Penal Code.
If voluntarily requested by the worker, payment of course
may be made in some other form (Paras, p481 [2008]).
Withholding of Wages
General Rule: Withholding of the wages is not allowed
(Art. 1706).
Exceptions:
1. Debt due;
2. Income taxes;
3. Deductions for SSS, Pag-Ibig and Philhealth
4. Deduction for union dues in case check-off has been
recognized by the employer or with written authority of
the employee;
5. Agency fees collected from non-union members who
received the benefits in the CBA negotiated of a labor
union;
6. Such other deductions allowed by law.
The laborers wages shall be a lien on the goods
manufactured or the work done (Art. 1707)
Note: The rule does not apply if a contractor, with men
under him, had undertaken the job (Bautista v. Aud. Gen.,
GR No. L-6799, June 29, 1955).
[Type text]
The laborers wages shall not be subject to execution or
attachment, except for debts incurred for food, shelter,
clothing and medical attendance. (Art. 1708)
Note: The rule applies even when the wages are still in
the possession of the employer whose properties may
have been attached (Pac. Customs Brokerage Co., Inc. v.
Inter-Island Dockmen and Labor Union, GR No. L-4610,
Aug. 24, 1951).
The salary of an employee holding a position equivalent to
that of a managerial or supervisory position is NOT
exempt from execution (Gaa vs CA, G.R. No. L-44169,
December 3, 1985).
Salaries of government employees are exempt from
garnishment before they are paid to them. The reason is,
the said money while in the hands of the disbursing officer
of the government, belongs to the government, although
the defendant in garnishment may be entitled to a specific
portion thereof (Director of Commerce vs. Concepcion,
G.R. No. L-9031 May 22, 1922).
The employer shall neither seize nor retain any tool or
other articles belonging to the laborer (Art. 1709).
Liability of Employers in case of Death of Laborers:
Owners of enterprises and other employers are obliged to
pay compensation for the death of or injuries to their
laborers, workmen, mechanics or other employees, even
though the event may have been purely accidental or
entirely due to a fortuitous cause if the death or personal
injury arose out of and in the course of employment.
The employer is also liable for compensation if the
employee contracts an illness or disease caused by such
employment or as a result of the nature of the
employment.
If the mishap was due to the employees own notorious
negligence or voluntary act or drunkenness, the employer
shall not be liable for compensation.
When the employees lack of due care contributed to his
death or injury, the compensation shall be equitably
reduced (Art. 1711).
Arising out of employment refers to the origin and cause
of accident and is descriptive of its character.
In the course of employment refers to the time, place
and circumstances under which the accident takes place.
Liability of employer, in case the death of employee is
due to the negligence of fellow-worker: If a worker has
[Type text]
caused the death or injuries of a fellow-worker due to the
formers negligence, he is liable together with the
employer for the consequences of such negligence.
The liability of negligent worker and the employer is
SOLIDARY.
The employer is not liable for the death or injuries caused
to a worker, if the sole cause is the intentional or malicious
act of the fellow-worker. The employer, however, will still
be liable solidarily with the recalcitrant or negligent worker,
if it can be established that he did not exercise the
diligence of a good father of a family in the selection or
supervision of the said worker (Art. 1712).
If what is committed by the worker constitutes a felony
and the employer is engaged in any kind of industry, the
latter is subsidiarily liable with the felon (Art. 103, Revised
Penal Code)
C ONTR ACT FOR A P IECE OF
W ORK
Contract for a Piece of Work
A contract whereby the contractor binds himself to
execute a piece of work for the employer, in consideration
of a certain price or compensation. The contractor may
either employ only his labor or skill, or also furnish the
material (Art. 1713).
Obligations of Contractor When He Furnishes the
Materials
1. To deliver the thing produced to the employee;
2. To transfer dominion over the thing; and
3. To warrant against eviction and hidden defects (Art.
1714).
If the employer wants to rescind the contract for a piece of
work after the work has been delivered, he has only a
period of six (6) months within which to file an action (La
Fuerza Inc vs CA, G.R. No. L-24069 June 28, 1968).
The contractor shall execute the work in such a manner
that it has the qualities agreed upon and has no defects
which destroy or lessen its value or fitness for its ordinary
or stipulated use (Art 1715).
Remedy of employer in case of defects:
1. Require the contractor to remove the defect or execute
another; or
2. Have the defects removed or another work executed, at
the expense of the contractor if he fails or refuses to do
so (Art 1715).
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An agreement waiving or limiting the contractors liability
for any defect in the work is void if the contractor acted
fraudulently (Art. 1716).
Risk of Loss If the Contractor Bound Himself to
Furnish the Material
Before delivery: the risk shall be borne by the contractor
if he agreed to furnish the labor and materials. Before
delivery, the contractor is the owner of the thing and under
the principle of Res Perit Domino, he shall bear the loss
(Art. 1717).
Exception: If the contractor has offered to deliver the
finished work, but the employer is guilty of delay in
acceptance (mora accipiendi), the risk of loss is borne by
the latter.
After Delivery: if the finished work was already delivered
and accepted without any reservation, the risk of loss falls
on the employer for he is deemed the owner of the thing.
Effect of Wrongful Refusal to Accept: Where a contract
to erect a building is completed and the owners wrongfully
refuse to accept delivery they must pay the contractor
therefor, although there has been no delivery by reason of
the loss of the building by fire (Tuason and San Pedro vs.
Zamora and Sons, G.R. No. 39 May 19, 1903).
Risk of Loss If the Contractor Has Undertaken to Put
Only His Work or Skill
Before Delivery: The contractor bears the loss.
Exceptions:
1. Mora accipiendi;
2. Destruction or loss due to poor quality of materials
furnished by the employer who was timely informed
about this fact (Art. 1718).
If the thing is lost due to fortuitous event, the contract is
extinguished (unlike in Art. 1717).
Effect of Acceptance of Work by Employer
General Rule: If the work has been accepted by the
employer, the contractor is relieved from liability for any
defect in the work
Exceptions:
1. The defect is hidden and the employer is not, by his
special knowledge, expected to recognize the same;
2. The employer expressly reserves his rights against the
contractor by reason of the defect (Art 1719).
Place of Payment of Price or Compensation (Art. 1720)
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The contractor shall be paid at the place stipulated by the
parties.
If no stipulation, payment shall be paid at the time and
place of the delivery of the work.
The same rule applies for each delivery when partial
delivery of work is allowed or agreed upon by the parties.
If the work cannot be completed on account of a defect in
the material furnished by the employer or because of
orders from the employer, without any fault on the part of
the contractor, the latter has the right to an equitable part
of the compensation proportionally to the work done and
reimbursement for proper expenses made (Art. 1722).
Liability of an Engineer or Architect for Damages: The
engineer or architect who drew up the plans or
specifications for a building is liable for damages, if:
1. The collapse took place within 15 years from the
completion;
2. It took place by reason of a defect in the plans and
specifications, or due to the defects in the ground; and
3. The action for damages is brought within 10 years
following its collapse (Art. 1723)
Liability of the Contractor
1. The edifice falls within 15 years;
2. The collapse took place because of defects in the
construction or the use of materials of inferior quality
furnished by him, or due to any violation of the terms of
the contract; and
3. The action for damages is brought within 10 years from
its collapse.
If the engineer or architect supervises the construction, he
shall be solidarily liable with the contractor.
Acceptance of the building, after completion does not
imply waiver of any of the causes of action by reason of
any defect mentioned in the Art. 1723(1) (Art. 1723).
Right of Owner to Withdraw From the Contract: The
owner may withdraw at will from the construction of the
work at whatever stage (before completion) and for any
reason, economic or otherwise, provided that he pays the
expenses and damages caused to the contractor. This
exceptional right is ABSOLUTE (Art. 1725; Santos vs.
Cruz, 4 CAR 2s 1192).
Effect of Death of Contractor: When a piece of work has
been entrusted to a person by reason of his personal
qualifications, the contract is rescinded upon his death
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The proprietor shall pay the heirs of the contractor in

proportion to the price agreed upon, the value of the part The principle of mechanics lien is now applicable to
of the work done and of the materials prepared, provided anyone who has performed works upon a movable at a
that the latter yield him some benefit. price certain.

The same shall apply if the contractor cannot finish the
work due to circumstances beyond his control (Art.1726).
Liability of Contractor for Work Done by His Workers:
The contractor is responsible for the work done by
persons employed by him (Art. 1727).
Mechanics lien is superior to chattel mortgages. The
mechanics lien attaches to the property itself, without any
reference to ownership and overrides all other rights in the
property (Yu Neam vs. Fieldmens Insurance Co. Inc., 71
O.G. 7214).

Liability of Contractor to Laborers and Others

Employed by him: The contractor shall be liable for all
the claims such as wages, prices of unpaid materials, of
laborers, material men and other workers employed by
him (Art. 1728).

General Rule: Laborers and workers have no juridical

relation with the owner of the thing subject of the contract
of work. They have to deal only with the CONTRACTOR
who hired them.

Exception: The OWNER is subsidiarily liable for the

obligations of the contractor to the employees, workers
and suppliers of materials. The extent of the liability of the
owner is up to the amount owing from the owner to the
contractor at the time claim is made.

Thus, laborers, material men who have not been paid by

the contractor of what is due to them have a cause of
action both against the contractor and owner for payment
of their claims. The owner is liable for the amount owing to
the contractor at the time of the claim

Payments made by the owner to the contractor before

they are due and renunciation by the contractor of any
amount due to him from the owner shall not prejudice the
laborers and suppliers claims for labor and materials (Art.
1729).

The contractor shall be liable to third persons who

suffered physical injuries or died during the construction
(Art. 1728).

He who has executed work upon a movable has a right to

retain it by way of pledge until he is paid (Art. 1731).

Mechanics Lien: A mechanic who has rendered repairs

or other services to an automobile he repaired until he is
fully paid. He has the right to retain the vehicle and to sell
it at public auction and apply the proceeds to the payment
of the services rendered and to return the excess to the
owner.

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